10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended: June 30, 2013

or

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ________________ to _____________

Commission File Number: 1-34242

DNB Financial Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania23-2222567

Pennsylvania23-2222567

(State or other jurisdiction of                                                                (I.R.S. Employer Identification No.)

incorporation or organization)

4 Brandywine Avenue - Downingtown, PA 19335

(Address of principal executive offices and Zip Code)

(610) 269-1040

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days

Yes x No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes x No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		Accelerated filer	
Non-accelerated filer		Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock ($1.00 Par Value) (Class) 2,749,884 (Shares Outstanding as of August 9, 2013)

1

DNB FINANCIAL CORPORATION AND SUBSIDIARY

INDEX

	PART  I - FINANCIAL INFORMATION	PAGE NO
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	June 30, 2013 and December 31, 2012	3
	CONSOLIDATED STATEMENTS OF INCOME
	Three and Six Months Ended June 30, 2013 and 2012	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	Three and Six Months Ended June  30, 2013 and 2012	5
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	Six Months Ended June 31, 2013 and 2012
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six Months Ended June 30, 2013 and 2012	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,	45
ITEM 4.	CONTROLS AND PROCEDURES	46
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	46
ITEM 1A.	RISK FACTORS	46
ITEM 2.	UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS	46
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	47
ITEM 4.	MINE SAFETY DISCLOSURES	47
ITEM 5.	OTHER INFORMATION	47
ITEM 6.	EXHIBITS	47
SIGNATURES		48
EXHIBIT INDEX

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

		June 30,		December 31,
(Dollars in thousands, except share and per share data)		2013		2012
Assets
Cash and due from banks	$	54,040	$	17,149
AFS investment securities (amortized cost of $132,765 and $134,035)		131,643		135,288
HTM investment securities (fair value of $66,147 and $68,307)		67,274		66,024
Total investment securities		198,917		201,312
Loans and leases		389,790		396,498
Allowance for credit losses		(6,690)		(6,838)
Net loans and leases		383,100		389,660
Restricted stock		2,964		3,426
Office property and equipment, net		8,117		8,456
Accrued interest receivable		2,463		2,470
OREO & other repossessed property		3,325		1,237
Bank owned life insurance (BOLI)		8,741		8,625
Core deposit intangible		146		181
Net deferred taxes		4,363		3,561
Other assets		1,449		3,491
Total assets	$	667,625	$	639,568
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	91,200	$	85,055
Interest-bearing deposits:
NOW		177,027		161,844
Money market		137,142		122,953
Savings		62,918		58,256
Time		93,621		102,316
Total deposits		561,908		530,424
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		10,000		20,000
Repurchase agreements		23,233		17,014
Junior subordinated debentures		9,279		9,279
Other borrowings		556		571
Total borrowings		43,068		46,864
Accrued interest payable		396		421
Other liabilities		4,850		5,154
Total liabilities		610,222		582,863
Stockholders’ Equity
Preferred stock, $10.00 par value;
1,000,000 shares authorized; $1,000 liquidation preference per share; 13,000 issued and outstanding		12,986		12,978
Common stock, $1.00 par value;
10,000,000 shares authorized; 2,896,703 issued		2,905		2,899
Treasury stock, at cost; 152,107 and 162,803, respectively		(2,802)		(2,999)
Surplus		34,350		34,274
Retained earnings		12,205		10,236
Accumulated other comprehensive loss, net		(2,241)		(683)
Total stockholders’ equity		57,403		56,705
Total liabilities and stockholders’ equity	$	667,625	$	639,568

See accompanying notes to unaudited consolidated financial statements.

3

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands, except per share data)		2013		2012		2013		2012
Interest Income:
Interest and fees on loans and leases	$	4,875	$	5,555	$	9,699	$	11,060
Interest and dividends on investment securities:
Taxable		720		861		1,401		1,584
Exempt from federal taxes		275		122		532		243
Interest on cash and cash equivalents		17		10		29		20
Total interest and dividend income		5,887		6,548		11,661		12,907
Interest Expense:
Interest on NOW, money market and savings		188		232		382		455
Interest on time deposits		277		403		568		837
Interest on FHLB advances		148		211		354		422
Interest on repurchase agreements		11		19		25		41
Interest on junior subordinated debentures		76		82		152		163
Interest on other borrowings		19		20		38		40
Total interest expense		719		967		1,519		1,958
Net interest income		5,168		5,581		10,142		10,949
Provision for credit losses		375		475		555		900
Net interest income after provision for credit losses		4,793		5,106		9,587		10,049
Non-interest Income:
Service charges		315		329		660		669
Wealth management		301		234		592		467
Increase in cash surrender value of BOLI		58		59		116		118
Gain on sale of investment securities, net		155		79		214		79
Gain on sale of SBA loans		16		158		163		158
Other fees		314		299		613		589
Total non-interest income		1,159		1,158		2,358		2,080
Non-interest Expense:
Salaries and employee benefits		2,251		2,174		4,615		4,487
Furniture and equipment		280		316		564		635
Occupancy		492		463		1,011		939
Professional and consulting		263		306		580		618
Advertising and marketing		167		137		327		315
Printing and supplies		47		65		88		101
FDIC insurance		158		126		263		233
PA shares tax		153		141		307		283
Telecommunications		57		54		115		105
Postage		20		23		41		38
Loss on sale or write down of OREO		18		-		28		17
Other expenses		366		470		721		821
Total non-interest expense		4,272		4,275		8,660		8,592
Income before income tax expense		1,680		1,989		3,285		3,537
Income tax expense		430		589		860		1,035
Net income	$	1,250	$	1,400	$	2,425	$	2,502
Preferred stock dividends and accretion of discount		36		130		73		258
Net income available to Common Shareholders	$	1,214	$	1,270	$	2,352	$	2,244
Earnings per common share:
Basic	$	0.44	$	0.47	$	0.86	$	0.83
Diluted	$	0.44	$	0.46	$	0.85	$	0.82
Cash dividends per common share	$	0.07	$	0.05	$	0.14	$	0.10
Weighted average common shares outstanding:
Basic		2,740,756		2,707,662		2,733,051		2,704,816
Diluted		2,773,637		2,735,808		2,767,847		2,730,800

See accompanying notes to unaudited consolidated financial statements.

4

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2013		2012		2013		2012
Net income	$	1,250	$	1,400	$	2,425	$	2,502
Other Comprehensive (Loss) Income:
Unrealized holding (losses) gains arising during the period
Before tax amount		(1,993)		131		(2,161)		755
Tax effect		678		(45)		734		(256)
Net of tax		(1,315)		86		(1,427)		499
Accretion of discount on AFS to HTM reclassification
Before tax amount		6		9		14		18
Tax effect		(1)		(3)		(4)		(6)
Net of tax		5		6		10		12
Less reclassification for gains included in net income
Before tax amount		(155)		(79)		(214)		(79)
Tax effect		52		27		73		27
Net of tax		(103)		(52)		(141)		(52)
Other comprehensive (loss) income - securities		(1,413)		40		(1,558)		459
Total other comprehensive (loss) income		(1,413)		40		(1,558)		459
Total comprehensive (loss) income	$	(163)	$	1,440	$	867	$	2,961

See accompanying notes to unaudited consolidated financial statements.

5

DNB FINANCIAL CORPORATION AND Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

												Accumulated
												Other
		Preferred		Common		Treasury				Retained		Comprehensive
(Dollars in thousands)		Stock		Stock		Stock		Surplus		Earnings		Loss		Total
Balance at January 1, 2013	$	12,978	$	2,899	$	(2,999)	$	34,274	$	10,236	$	(683)	$	56,705
Net income for six months ended June 30, 2013		-		-		-		-		2,425		-		2,425
Other comprehensive loss		-		-		-		-		-		(1,558)		(1,558)
SBLF issuance costs  accretion		8		-		-		-		(8)		-		-
Restricted stock compensation expense		-		6		-		66		-		-		72
Stock option compensation expense		-		-		-		34		-		-		34
Cash dividends - common ($0.14 per share)		-		-		-		-		(383)		-		(383)
Cash dividends SBLF preferred		-		-		-		-		(65)		-		(65)
Sale of treasury shares to 401(k) (7,096 shares)		-		-		131		(16)		-		-		115
Sale of treasury shares to deferred comp. plan (3,600 shares)		-		-		66		(8)		-		-		58
Balance at June 30, 2013	$	12,986	$	2,905	$	(2,802)	$	34,350	$	12,205	$	(2,241)	$	57,403

												Accumulated
												Other
		Preferred		Common		Treasury				Retained		Comprehensive
(Dollars in thousands)		Stock		Stock		Stock		Surplus		Earnings		Loss		Total
Balance at January 1, 2012	$	12,962	$	2,891	$	(3,471)	$	34,279	$	5,871	$	(1,476)	$	51,056
Net income for six months ended June 30, 2012		-		-		-		-		2,502		-		2,502
Other comprehensive income		-		-		-		-		-		459		459
SBLF issuance costs accretion		8		-		-		-		(8)		-		-
Restricted stock compensation expense		-		4		-		32		-		-		36
Stock option compensation expense		-		-		-		35		-		-		35
Cash dividends - common ($0.10 per share)		-		-		-		-		(271)		-		(271)
Cash dividends SBLF preferred		-		-		-		-		(250)		-		(250)
Sale of treasury shares to 401(k) (9,045 shares)		-		-		172		(61)		-		-		111
Sale of treasury shares to deferred comp. plan (4,360 shares)		-		-		81		(27)		-		-		54
Balance at June 30, 2012	$	12,970	$	2,895	$	(3,218)	$	34,258	$	7,844	$	(1,017)	$	53,732

See accompanying notes to unaudited consolidated financial statements.

6

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
	June 30,
(Dollars in thousands)		2013		2012
Cash Flows From Operating Activities:
Net income	$	2,425	$	2,502
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		1,110		956
Provision for credit losses		555		900
Stock based compensation		106		71
Net gain on sale of securities		(214)		(79)
Net loss on sale and write down of OREO and other repossessed property		28		17
Earnings from investment in BOLI		(116)		(118)
Deferred tax expense		-		(24)
Proceeds from sales of SBA loans		2,740		3,013
SBA loans originated for sale		(2,577)		(2,855)
Gain on sale of SBA loans		(163)		(158)
Decrease (increase) in accrued interest receivable		7		(109)
Decrease in other assets		2,047		208
Decrease in accrued interest payable		(25)		(11)
(Decrease) increase in other liabilities		(304)		623
Net Cash Provided By Operating Activities		5,619		4,936
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Sales		22,549		9,822
Maturities, repayments and calls		11,994		21,474
Purchases		(33,663)		(51,253)
Activity in held-to-maturity securities:
Maturities, repayments and calls		3,459		3,208
Purchases		(4,714)		(22,839)
Net decrease in restricted stock		462		157
Net decrease (increase) in loans and leases		3,767		(4,381)
Net purchases of property and equipment, less proceeds from disposals		(117)		(1,150)
Proceeds from sale of OREO and other repossessed property		122		191
Net Cash Provided By (Used In) Investing Activities		3,859		(44,771)
Cash Flows From Financing Activities:
Net increase in deposits		31,484		29,033
Repayment of FHLBP advances		(10,000)		-
Net increase (decrease) in short term repurchase agreements		6,219		(5,184)
Decrease in other borrowings		(15)		(14)
Dividends paid		(448)		(656)
Sale of treasury stock, net		173		165
Net Cash Provided by Financing Activities		27,413		23,344
Net Change in Cash and Cash Equivalents		36,891		(16,491)
Cash and Cash Equivalents at Beginning of Period		17,149		32,877
Cash and Cash Equivalents at End of Period	$	54,040	$	16,386
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	1,544	$	1,969
Income taxes		1,503		551
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property		2,238		10
Business combinations:
Non-cash assets acquired:
Loans and leases		-		66
Property and equipment		-		686
Total non-cash assets acquired		-		752
Liabilities assumed:
Accrued interest payable		-		(5)
Deposits		-		15,861
Total liabilities assumed		-		15,856
Net non-cash liabilities assumed:		-		15,104
Core deposit intangible		-		130
Net cash and cash equivalents acquired	$	-	$	15,234

See accompanying notes to unaudited consolidated financial statements.

7

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three and six monthsended June 30, 2013 are not necessarily indicative of the results which may be expected for the entire year.  The consolidated financial statements should be read in conjunction with the Annual Report and report on Form 10-K for the year ended December 31, 2012. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2013 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements- In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. Companies should apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements.

NOTE 2: BRANCH PURCHASE

On April 2, 2012, the Bank entered into a Purchase and Assumption Agreement with Capital Bank, National Association, to acquire certain assets and assume certain liabilities of one full-service branch office of Capital Bank located in Boothwyn, Pennsylvania (the "Branch Acquisition").

The Bank consummated the Branch Acquisition on June 11, 2012.  The Bank purchased specified assets of the branch, including personal loans totaling $66,000, real estate, furniture and equipment totaling $670,000 and  assumed approximately $15.9 million of deposits.  The Branch Acquisition includes the payment to Capital Bank of $130,000 or a 0.82%  premium on the deposits, which has been recorded as a core deposit intangible.

8

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3: INVESTMENT SECURITIES

The amortized cost and fair values of investment securities, as of the dates indicated, are summarized as follows:

		June 30, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,379	$	257	$	-	$	7,636
Government Sponsored Entities (GSE) mortgage-backed securities		7,026		220		(5)		7,241
Corporate bonds		6,389		295		(3)		6,681
Collateralized mortgage obligations GSE		5,857		43		(64)		5,836
State and municipal tax-exempt		40,623		174		(2,044)		38,753
Total	$	67,274	$	989	$	(2,116)	$	66,147
Available For Sale
US Government agency obligations	$	40,894	$	28	$	(405)	$	40,517
GSE mortgage-backed securities		24,455		153		(371)		24,237
Collateralized mortgage obligations GSE		26,816		91		(625)		26,282
Corporate bonds		35,138		403		(359)		35,182
State and municipal tax-exempt		4,185		1		(23)		4,163
Certificates of deposit		1,250		4		(8)		1,246
Equity securities		27		1		(12)		16
Total	$	132,765	$	681	$	(1,803)	$	131,643

		December 31, 2012
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,266	$	563	$	-	$	7,829
Government Sponsored Entities (GSE) mortgage-backed securities		9,135		435		-		9,570
Corporate bonds		6,500		371		(11)		6,860
Collateralized mortgage obligations GSE		7,204		185		-		7,389
State and municipal tax-exempt		35,919		759		(19)		36,659
Total	$	66,024	$	2,313	$	(30)	$	68,307
Available For Sale
US Government agency obligations	$	35,424	$	133	$	(18)	$	35,539
GSE mortgage-backed securities		21,885		507		-		22,392
Collateralized mortgage obligations GSE		21,526		151		(27)		21,650
Corporate bonds		41,005		772		(330)		41,447
State and municipal tax-exempt		3,195		1		(11)		3,185
Asset-backed securities		9,723		90		-		9,813
Certificates of deposit		1,250		3		(5)		1,248
Equity securities		27		-		(13)		14
Total	$	134,035	$	1,657	$	(404)	$	135,288

9

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2013 and December 31, 2012.

		June 30, 2013
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
GSE mortgage-backed securities	$	314	$	(5)	$	314	$	(5)	$	-	$	-
Corporate bonds		512		(3)		512		(3)		-		-
Collateralized mortgage obligations GSE		680		(64)		680		(64)		-		-
State and Municipal tax-exempt		26,208		(2,044)		26,208		(2,044)		-		-
Total	$	27,714	$	(2,116)	$	27,714	$	(2,116)	$	-	$	-
Available For Sale
US Government agency obligations	$	25,201	$	(405)	$	25,201	$	(405)	$	-	$	-
GSE mortgage-backed securities		17,557		(371)		17,557		(371)		-		-
Collateralized mortgage obligations GSE		19,245		(625)		19,245		(625)		-		-
Corporate bonds		14,339		(359)		9,939		(259)		4,400		(100)
State and Municipal tax-exempt		2,079		(23)		1,304		(7)		775		(16)
Certificates of deposit		742		(8)		742		(8)		-		-
Equity securities		11		(12)		-		-		11		(12)
Total	$	79,174	$	(1,803)	$	73,988	$	(1,675)	$	5,186	$	(128)

		December 31, 2012
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	2,587	$	(11)	$	2,587	$	(11)	$	-	$	-
State and municipal tax-exempt		8,690		(19)		8,690		(19)		-		-
Total	$	11,277	$	(30)	$	11,277	$	(30)	$	-	$	-
Available For Sale
US Government agency obligations	$	10,238	$	(18)	$	10,238	$	(18)	$	-	$	-
Collateralized mortgage obligations GSE		4,703		(27)		4,703		(27)		-		-
Corporate bonds		15,989		(330)		12,604		(215)		3,385		(115)
State and municipal tax-exempt		1,095		(11)		1,095		(11)		-		-
Certificates of deposits		745		(5)		745		(5)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	32,784	$	(404)	$	29,385	$	(276)	$	3,399	$	(128)

As of June 30, 2013, there were eleven mortgage-backed securities, eleven corporate bonds, seventeen U.S. agency obligations, fourteen collateralized mortgage obligations, forty-two tax-exempt municipalities, three certificates of deposit, and five equity securities which were in an unrealized loss position. DNB does not intend to sell these securities and management of DNB does not expect to be required to sell any of these securities prior to a recovery of its cost basis. Management does not believe any individual unrealized loss as of June 30, 2013 represents an other-than-temporary impairment. There were two tax-exempt municipalities, three corporate bonds, and five equity securities that were impaired for more than 12 months, none of which had an unrealized loss greater than 10% of the book value.  There were fourteen tax-exempt municipal securities and one collateralized mortgage obligation that had an unrealized loss greater than 10% of the book value, but were impaired for less than 12 months. DNB reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (OTTI). The OTTI analysis focuses on duration and amount by which a security is below book. As of June 30, 2013, the following securities were reviewed:

10

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tax-exempt municipal securities There are 42 impaired securities classified as Municipal. Two have been impaired for more than twelve months, but do not have a loss greater than 10% of the book value, and 14 have a loss greater than 10% of the book value, but have been impaired for less than 12 months. All of the issuers that are listed have never deferred or defaulted on interest payments, so credit risk is acceptable. Twelve of the impaired municipals are school districts that have state qualified school aid, eight of which have additional private insurance. The remaining are three townships and one insured county, all of which have strong underlying ratings.

Corporate Securities The unrealized loss on three investments in the corporate bond portfolio was caused by a number of factors. Some of the bonds have had downgrades since they were purchased. Some of the corporates have been affected by the market's perception of the impact of sovereign debit holdings and spreads on the financial sector have widened since they were purchased. The book value of the three securities is $4.5 million and the unrealized loss is $100,000 or 2.2%.  All of the bonds have been impaired for more than twelve months and have a loss less than 10% of the book value. The contractual terms of those investments do not permit the issuer to settle these securities at a price less than the par value of the investments. Based on this analysis and an evaluation of DNB’s ability and intent to hold these securities for a reasonable period of time sufficient for each security to increase to DNB’s cost, DNB does not intend to sell these securities and it is not more likely than not that DNB will be required to sell the securities before recovery of their cost, DNB does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

Equity securities.  DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania. The unrealized losses on the five securities in the equity securities portfolio were all impaired for more than twelve months. The severity and duration of the impairment are driven by higher collateral losses, wider credit spreads, and changes in interest rates within the financial services sector. DNB evaluated the prospects of all issuers in relation to the severity and duration of the impairment. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated each of the underlying banks for credit impairment based on its financial condition and performance. As of June 30, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Based on our evaluation and expectation that these investments will recover within a reasonable period of time, we do not consider these investments to be other-than-temporarily impaired at June 30, 2013.

The amortized cost and fair value of investment securities as of June 30, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid without penalties.

		Held to Maturity				Available for Sale
		Amortized				Amortized
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	8,450	$	8,468
Due after one year through five years		-		-		37,794		37,935
Due after five years through ten years		24,564		24,829		34,237		33,788
Due after ten years		42,710		41,318		52,257		51,436
No stated maturity		-		-		27		16
Total investment securities	$	67,274	$	66,147	$	132,765	$	131,643

DNB sold $22.5 million and $9.8 million from the Available For Sale portfolio during the six month periods ending June 30, 2013 and 2012, respectively. Gains and losses resulting from investment sales, redemptions or calls were as follows:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2013		2012		2013		2012
Gross realized gains-AFS	$	155	$	85	$	471	$	85
Gross realized losses-AFS		-		(6)		(257)		(6)
Net realized gain	$	155	$	79	$	214	$	79

At June 30, 2013 and December 31, 2012, investment securities with a carrying value of approximately $129.1 million and $90.0 million, respectively, were pledged to secure public funds, repurchase agreements  and for other purposes as required by law.

11

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4: LOANS AND LEASES

The following table sets forth information concerning the composition of total loans and leases outstanding, as of the dates indicated.

(Dollars in thousands)		June 30, 2013		December 31, 2012
Residential mortgage	$	24,788	$	25,835
Commercial mortgage		227,467		234,202
Commercial:
Commercial term		80,591		81,888
Commercial construction		14,330		12,247
Lease financing		4		67
Consumer:
Home equity		36,200		35,322
Other		6,410		6,937
Total loans and leases	$	389,790	$	396,498
Less allowance for credit losses		(6,690)		(6,838)
Net loans and leases	$	383,100	$	389,660

Included in the loan portfolio are loans for which DNB has ceased the accrual of interest (i.e. non-accrual loans). Loans of approximately $10.0 million and $9.6 million as of June 30, 2013 and December 31, 2012, respectively, were on a non-accrual basis. DNB also had loans of approximately $106,000 and $869,000 that were 90 days or more delinquent, but still accruing, as of June 30, 2013 and December 31, 2012, respectively. If contractual interest income had been recorded on non-accrual loans, interest would have been increased as shown in the following table:

		Six Months Ended
		June 30,
(Dollars in thousands)		2013		2012
Interest income which would have been recorded under original terms	$	378	$	224
Interest income recorded during the period		(3)		(56)
Net impact on interest income	$	375	$	168

12

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2013 and December 31, 2012. 

Age Analysis of Past Due Loans Receivables

										June 30, 2013
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	316	$	131	$	2,371	$	2,818	$	21,970	$	24,788	$	106
Commercial mortgage		525		-		3,286		3,811		223,656		227,467		-
Commercial:
Commercial term		-		-		-		-		80,591		80,591		-
Commercial construction		-		-		4,326		4,326		10,004		14,330		-
Lease financing		4		-		-		4		-		4		-
Consumer:
Home equity		151		78		60		289		35,911		36,200		-
Other		96		17		23		136		6,274		6,410		-
Total	$	1,092	$	226	$	10,066	$	11,384	$	378,406	$	389,790	$	106

										December 31, 2012
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	692	$	319	$	2,256	$	3,267	$	22,568	$	25,835	$	60
Commercial mortgage		68		-		3,514		3,582		230,620		234,202		710
Commercial:
Commercial term		-		-		-		-		81,888		81,888		-
Commercial construction		-		-		2,031		2,031		10,216		12,247		-
Lease financing		-		-		28		28		39		67		-
Consumer:
Home equity		162		-		152		314		35,008		35,322		92
Other		95		-		54		149		6,788		6,937		7
Total	$	1,017	$	319	$	8,035	$	9,371	$	387,127	$	396,498	$	869

13

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the six months ended June 30, 2013 and as of and for the year ended December 31, 2012.

Impaired Loans

		June 30, 2013						December 31, 2012
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,444	$	3,042	$	-	$	2,386	$	2,883	$	-
Commercial mortgage		2,155		2,207		-		2,807		2,814		-
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		-		-		-		-		-		-
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	4,761	$	5,422	$	-	$	5,432	$	5,955	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		1,131		1,133		217		2,565		2,569		151
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	5,457	$	5,997	$	1,926	$	6,891	$	7,433	$	1,015
Total:
Residential mortgage		2,444		3,042		-		2,386		2,883		-
Commercial mortgage		3,286		3,340		217		5,372		5,383		151
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	10,218	$	11,419	$	1,926	$	12,323	$	13,388	$	1,015

14

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,414	$	-	$	2,212	$	-	$	2,405	$	-	$	2,146	$	-
Commercial mortgage		2,250		-		223		1		2,436		-		149		1
Commercial:
Commercial term		-		-		144		12		-		-		163		12
Commercial construction		1,091		-		3,333		-		727		-		2,326		-
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	5,953	$	3	$	6,126	$	17	$	5,780	$	3	$	4,997	$	17
With allowance recorded:
Residential mortgage		159		-		-		-		106		-		-		-
Commercial mortgage		2,392		-		83		-		2,449		-		760		-
Commercial:
Commercial term		100		-		-		-		67		-		-		-
Commercial construction		4,326		-		2,031		39		4,326		-		2,261		39
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-
Total	$	6,977	$	-	$	2,114	$	39	$	6,948	$	-	$	3,021	$	39
Total:
Residential mortgage		2,573		-		2,212		-		2,511		-		2,146		-
Commercial mortgage		4,642		-		306		1		4,885		-		909		1
Commercial:
Commercial term		100		-		144		12		67		-		163		12
Commercial construction		5,417		-		5,364		39		5,053		-		4,587		39
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	12,930	$	3	$	8,240	$	56	$	12,728	$	3	$	8,018	$	56

15

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within DNB’s internal risk rating system as of June 30, 2013 and December 31, 2012.

Credit Quality Indicators

		June 30, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,414	$	-	$	2,374	$	-	$	24,788
Commercial mortgage		208,035		9,743		9,689		-		227,467
Commercial:
Commercial term		80,315		73		203		-		80,591
Commercial construction		8,987		-		3,312		2,031		14,330
Lease financing		4		-		-		-		4
Consumer:
Home equity		35,949		-		251		-		36,200
Other		6,406		-		4		-		6,410
Total	$	362,110	$	9,816	$	15,833	$	2,031	$	389,790

		December 31, 2012
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,346	$	-	$	2,489	$	-	$	25,835
Commercial mortgage		211,001		10,847		12,354		-		234,202
Commercial:
Commercial term		81,394		73		421		-		81,888
Commercial construction		4,018		-		6,198		2,031		12,247
Lease financing		67		-		-		-		67
Consumer:
Home equity		35,069		-		253		-		35,322
Other		6,933		-		4		-		6,937
Total	$	361,828	$	10,920	$	21,719	$	2,031	$	396,498

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2013 and December 31, 2012, the activity for the three and six months ended June 30, 2013 and 2012 and as of and for the year ended December 31, 2012.

Allowance for Credit Losses and Recorded Investment in Loans Receivables

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2013	$	327	$	3,248	$	711	$	1,930	$	2	$	180	$	83	$	642	$	7,123
Charge-offs		(184)		(394)		(212)		-		(26)		-		-		-		(816)
Recoveries		5		-		1		-		2		-		-		-		8
Provisions		161		256		(16)		74		22		1		(3)		(120)		375
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690

16

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2013	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Charge-offs		(184)		(394)		(222)		-		(26)		-		(5)		-		(831)
Recoveries		70		-		5		-		53		-		-		-		128
Provisions		117		410		195		468		(30)		3		(1)		(607)		555
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690
Ending balance: individually evaluated for impairment	$	-	$	217	$	-	$	1,709	$	-	$	-	$	-	$	-	$	1,926
Ending balance: collectively evaluated for impairment	$	309	$	2,893	$	484	$	295	$	-	$	181	$	80	$	522	$	4,764
Loans receivables:
Ending balance	$	24,788	$	227,467	$	80,591	$	14,330	$	4	$	36,200	$	6,410			$	389,790
Ending balance: individually evaluated for impairment	$	2,444	$	3,286	$	-	$	4,326	$	-	$	60	$	102			$	10,218
Ending balance: collectively evaluated for impairment	$	22,344	$	224,181	$	80,591	$	10,004	$	4	$	36,140	$	6,308			$	379,572
Reserve for unfunded loan commitments	$	-	$	11	$	81	$	41	$	-	$	9	$	-			$	142

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2012	$	376	$	2,734	$	505	$	1,728	$	7	$	180	$	93	$	519	$	6,142
Charge-offs		-		-		(7)		(422)		(1)		-		(1)		-		(431)
Recoveries		5		-		-		-		10		-		13		-		28
Provisions		(3)		126		(13)		149		(11)		(4)		(13)		244		475
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2012	$	383	$	3,442	$	474	$	1,029	$	10	$	165	$	95	$	566	$	6,164
Charge-offs		(18)		-		(18)		(848)		(1)		-		(9)		-		(894)
Recoveries		10		-		3		-		10		-		21		-		44
Provisions		3		(582)		26		1,274		(14)		11		(15)		197		900
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

17

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2012	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Ending balance: individually evaluated for impairment	$	-	$	151	$	-	$	864	$	-	$	-	$	-	$	-	$	1,015
Ending balance: collectively evaluated for impairment	$	306	$	2,943	$	506	$	672	$	3	$	178	$	86	$	1,129	$	5,823
Loans receivables:
Ending balance	$	25,835	$	234,202	$	81,888	$	12,247	$	67	$	35,322	$	6,937			$	396,498
Ending balance: individually evaluated for impairment	$	2,386	$	5,372	$	-	$	4,326	$	28	$	64	$	147			$	12,323
Ending balance: collectively evaluated for impairment	$	23,449	$	228,830	$	81,888	$	7,921	$	39	$	35,258	$	6,790			$	384,175
Reserve for unfunded loan commitments	$	-	$	9	$	71	$	35	$	-	$	10	$	-	$		$	125

NOTE 6: EARNINGS PER SHARE 

Basic earnings per share (“EPS”) is computed based on the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the treasury stock method and reflects the potential dilution that could occur from the exercise of stock options, and warrants and the amortized portion of unvested stock awards. Stock options and unvested stock awards for which the exercise or the grant price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. Treasury shares are not deemed outstanding for calculations. There were no outstanding stock warrants in 2013 and 2012, 128,568 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2013. There were no anti-dilutive stock warrants outstanding, 148,459 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2012. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended					Six Months Ended
		June 30, 2013					June 30, 2013
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,214	2,741	$	0.44	$	2,352	2,733	$	0.86
Effect of potential dilutive common stock equivalents– stock options and  restricted shares		-	33		-		-	35		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,214	2,774	$	0.44	$	2,352	2,768	$	0.85

		Three Months Ended					Six Months Ended
		June 30, 2012					June 30, 2012
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,270	2,708	$	0.47	$	2,244	2,705	$	0.83
Effect of potential dilutive common stock equivalents– stock options, restricted shares and warrants		-	28		(0.01)		-	26		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,270	2,736	$	0.46	$	2,244	2,731	$	0.82

18

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7: ACCUMULATED OTHER COMPREHENSIVE INCOME 

The components of accumulated other comprehensive loss included in stockholders' equity are as follows:

Accumulated Other Comprehensive Income (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2013
Net unrealized loss on AFS securities	$	(1,122)	$	381	$	(741)
Discount on AFS to HTM reclassification		(40)		14		(26)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(3,395)	$	1,154	$	(2,241)
December 31, 2012
Net unrealized gain on AFS securities	$	1,253	$	(426)	$	827
Discount on AFS to HTM reclassification		(54)		18		(36)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(1,034)	$	351	$	(683)

NOTE 8: JUNIOR SUBORDINATED DEBENTURES

DNB has two issuances of junior subordinated debentures (the “debentures”) as follows. The majority of the proceeds of each issuance were invested in DNB’s subsidiary, DNB First, National Association, to increase the Bank’s capital levels. The junior subordinated debentures issued in each case qualify as a component of capital for regulatory purposes. DNB Capital Trust I and II are special purpose Delaware business trusts, which are not consolidated.

DNB Capital Trust I

DNB’s first issuance of junior subordinated debentures was on July 20, 2001. This issuance of debentures are floating rate and were issued to DNB Capital Trust I, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust I issued $5.0 million of floating rate (6 month Libor plus 3.75%, with a cap of 12%) capital preferred securities to a qualified institutional buyer. The proceeds of these securities were used by the Trust, along with DNB’s capital contribution, to purchase $5.2 million principal amount of DNB’s floating rate junior subordinated debentures. The preferred securities have been redeemable since July 25, 2006 and must be redeemed upon maturity of the debentures on July 25, 2031.

DNB Capital Trust II

DNB’s second issuance of junior subordinated debentures was on March 30, 2005. This issuance of debentures are floating rate and were issued to DNB Capital Trust II, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust II issued $4.0 million of floating rate (the rate was fixed at 6.56% for the first 5 years and is now adjusting at a rate of 3-month LIBOR plus 1.77%) capital preferred securities. The proceeds of these securities were used by the Trust, along with DNB’s capital contribution, to purchase $4.1 million principal amount of DNB’s floating rate junior subordinated debentures. The preferred securities have been redeemable since May 23, 2010. The preferred securities must be redeemed upon maturity of the debentures on May 23, 2035.

19

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9: STOCK-BASED COMPENSATION

Stock Option Plan

DNB has a Stock Option Plan for employees and directors. Under the plan, options (both qualified and non-qualified) to purchase a maximum of 793,368 (as adjusted for subsequent stock dividends) shares of DNB’s common stock could be issued to employees and directors. Under the plan, option exercise prices must equal the fair market value of the shares on the date of option grant and the option exercise period may not exceed ten years. Vesting of options under the plan is determined by the Plan Committee. There were 328,964 shares available for grant at June 30, 2013. All options with the exception of 44,600 options granted on April 23, 2010 and 44,600 options granted on December 12, 2011 are immediately exercisable. DNB expensed $34,000 during the six months ended June 30, 2013 and anticipates additional expense of $19,000 through April 23, 2014 for the options granted on April 23, 2010 and $66,000 through December 12, 2014 for the options granted on December 12, 2011, the dates the options can first be exercised. Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2013	214,618	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		10.31
Expired	-		-
Outstanding June 30, 2013	213,618	$	16.00

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2012	236,438	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		6.93
Expired	-		-
Outstanding June 30, 2012	235,438	$	16.01

The weighted-average price and weighted average remaining contractual life for the outstanding options are listed below for the dates indicated. 

	June 30, 2013
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	85,050	-	$	8.65	4.65 years	$	770,000
	14.00-19.99	61,715	61,715		17.62	2.22 years		-
	20.00-22.99	18,812	18,812		22.78	1.48 years		-
	23.00-24.27	48,041	48,041		24.27	1.80 years		-
	Total	213,618	128,568	$	16.00	3.03 years	$	770,000

20

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	June 30, 2012
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	87,200	-	$	8.66	5.65 years	$	422,000
	14.00-19.99	81,096	81,096		17.44	2.46 years		-
	20.00-22.99	19,101	19,101		22.78	2.48 years		-
	23.00-24.27	48,041	48,041		24.27	2.80 years		-
	Total	235,438	148,238	$	16.01	3.71 years	$	422,000

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 243,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three years after the date of the grant or a change in control of DNB if the recipients are then employed by DNB (“Vest Date”).  Upon issuance of the shares, resale of the shares is restricted for an additional one year, during which the shares may not be sold, pledged or otherwise disposed of. Prior to the Vest Date and in the event the recipient terminates association with DNB for reasons other than death, disability or change in control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant.

Share awards granted by the Plan were recorded at the date of award based on the market value of shares.  Awards are being amortized to expense over the three-year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized.  For the three and six month periods ended June 30, 2013, $32,000 and $72,000 were amortized to expense, respectively. For the three and six month periods ended June 30, 2012, $18,000 and $36,000 were amortized to expense, respectively. As of June 30, 2013, there was approximately $339,000 in additional compensation that will be recognized over the remaining service period of approximately 2.18 years. At June 30, 2013, 158,754 shares were reserved for future grants under the Plan.  

Stock grant activity is indicated below:

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2013	48,270	$	11.39
Granted	-		-
Forfeited	400		15.56
Vested	14,200		6.93
Non-vested stock awards—June 30, 2013	33,670	$	13.22

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2012	29,200	$	8.67
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2012	29,200	$	8.67

NOTE 10:  INCOME TAXES

As of June 30, 2013, the Corporation had no material unrecognized tax benefits or accrued interest and penalties. It is the Corporation’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.  Federal and state tax years 2009 through 2011 were open for examination as of June 30, 2013.

21

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11:  FAIR VALUE OF FINANCIAL INSTRUMENTS 

FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which DNB is required to value each asset within its scope using assumptions that market participations would utilize to value that asset. When DNB uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.

The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1—Quoted prices in active markets for identical securities.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Instruments whose significant value drivers are unobservable.

A description of the valuation methodologies used for assets measured at fair value is set forth below:

DNB’s available-for-sale investment securities, which generally include U.S. government agencies and mortgage backed securities, collateralized mortgage obligations, corporate bonds and equity securities are reported at fair value. These securities are valued by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other securities are evaluated using a broker-quote based application, including quotes from issuers.

Impaired loans are those loans that the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

OREO assets are adjusted to fair value less estimated selling costs upon transfer of the loans to OREO. Subsequently, OREO assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. There assets are included as Level 3 fair values.

The following table summarizes the assets at June 30, 2013 and December 31, 2012 that are recognized on DNB’s balance sheet using fair value measurement determined based on the differing levels of input:

22

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		June 30, 2013
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	40,517	$	-	$	40,517
GSE mortgage-backed securities		-		24,237		-		24,237
Collateralized mortgage obligations GSE		-		26,282		-		26,282
Corporate bonds		-		35,182		-		35,182
State and municipal tax-exempt		-		4,163		-		4,163
Certificates of deposit		-		1,246		-		1,246
Equity securities		16		-		-		16
Total assets measured at fair value on a recurring basis	$	16	$	131,627	$	-	$	131,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	3,531	$	3,531
OREO and other repossessed property		-		-		2,232		2,232
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	5,763	$	5,763

		December 31, 2012
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	35,539	$	-	$	35,539
GSE mortgage-backed securities		-		22,392		-		22,392
Collateralized mortgage obligations GSE		-		21,650		-		21,650
Corporate bonds		-		41,447		-		41,447
State and municipal tax-exempt		-		3,185		-		3,185
Asset-backed securities		-		9,813		-		9,813
Certficates of deposit		-		1,248		-		1,248
Equity securities		14		-		-		14
Total assets measured at fair value on a recurring basis	$	14	$	135,274	$	-	$	135,288
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	6,823	$	6,823
OREO and other repossessed property		-		-		213		213
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	7,036	$	7,036

23

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents additional information about assets measured at fair value on a nonrecurring basis and for which DNB has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range (Weighted
		Estimate	Techniques	Unobservable Input	Average)*
June 30, 2013
Impaired loans- Commercial construction	$	2,617	Appraisal of collateral (1)	Appraisal adj.	-10%	to	-40%	(-26%)
				Disposal costs (2)	-2%	to	-7%	(-5%)
Impaired loans- Commercial mortgage	$	914	Appraisal of collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)

* As of June 30, 2013 there is only 1 loan in the commercial mortgage loan type.

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors and disposal costs. The range and weighted average of disposal costs are presented as a percent of the appraisal.

Impaired loans.  Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $10.2 million at June 30, 2013. Of this, $5.5 million had a valuation allowance of $1.9 million and $4.8 million had no valuation allowance as of June 30, 2013. Impaired loans had a carrying amount of $12.3 million at December 31, 2012. Of this, $6.9 million had a valuation allowance of $1.0 million and $5.4 million had no valuation allowance as of December 31, 2012.  DNB provided $375,000 and $555,000 for the three and six months ended June 30, 2013, respectively. See the table in note 3 displaying the impact to income if the interest on non-accrual loans would have been recorded.

Other Real Estate Owned & other repossessed property.  Other real estate owned (“OREO”) consists of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as OREO and other repossessed property are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. DNB had $3.3 million of such assets at June 30, 2013, all of which was OREO and none was other repossessed property. DNB had $1.2 million of such assets at December 31, 2012, which consisted of $1.1 million in OREO and $126,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did not write down the carrying values during the six month period ending June 30, 2013.

DNB's policy is to recognize transfer between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1 and 2 for the three and six months ended June 30, 2013.

24

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Company’s consolidated balance sheet. The carrying amounts and fair values of financial instruments at June 30, 2013 and December 31, 2012 are as follows:

		June 30, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	54,040	$	54,040	$	54,040	$	-	$	-
AFS investment securities		131,643		131,643		16		131,627		-
HTM investment securities		67,274		66,147		-		66,147		-
Restricted stock		2,964		2,964		-		2,964		-
Loans and leases, net of allowance		383,100		379,731		-		379,731		-
Accrued interest receivable		2,463		2,463		-		2,463		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		91,200		91,200		-		91,200		-
Interest-bearing deposits:		377,087		377,087		-		377,087		-
Time		93,621		94,098		-		94,098		-
Repurchase agreements		23,233		23,233		-		23,233		-
FHLBP advances		10,000		11,425		-		11,425		-
Junior subordinated debentures and other borrowings		9,279		9,590		-		9,590		-
Accrued interest payable		396		396		-		396		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2012
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,149	$	17,149	$	17,149	$	-	$	-
AFS investment securities		135,288		135,288		14		135,274		-
HTM investment securities		66,024		68,307		-		68,307		-
Restricted stock		3,426		3,426		-		3,426		-
Loans and leases, net of allowance		389,660		391,533		-		-		391,533
Accrued interest receivable		2,470		2,470		-		2,470		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		85,055		85,055		-		85,055		-
Interest-bearing deposits:		343,053		343,053		-		343,053		-
Time		102,316		103,045		-		103,045		-
Repurchase agreements		17,014		17,014		-		17,014		-
FHLBP advances		20,000		21,592		-		21,592		-
Junior subordinated debentures and other borrowings		9,279		9,256		-		-		9,256
Accrued interest payable		421		421		-		421		-
Off-balance sheet instruments		-		-		-		-		-

The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. Following is a brief summary of the significant assumptions, methods, and estimates used in estimating fair value.

25

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Limitations  Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time DNB’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of DNB’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable  The carrying amounts for short-term investments (cash and cash equivalents) and accrued interest receivable and payable approximate fair value.

Investment Securities  The fair value of investment securities are determined by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other investments are evaluated using a broker‑ quote based application, including quotes from issuers. The carrying amount of non-readily marketable equity securities approximates liquidation value.

Restricted Stock  The carrying amount of restricted investment in Federal Home Loan Bank stock, Federal Reserve stock and ACBB stock approximates fair value, and considers the limited marketability of such securities.

Loans  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial mortgages, residential mortgages, consumer and non-accrual loans. The fair value of performing loans is calculated by discounting expected cash flows using an estimated market discount rate. Expected cash flows include both contractual cash flows and prepayments of loan balances. Prepayments on consumer loans were determined using the median of estimates of securities dealers for mortgage-backed investment pools.

The estimated discount rate considers credit and interest rate risk inherent in the loan portfolios and other factors such as liquidity premiums and incremental servicing costs to an investor. Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented would be indicative of the value negotiated in an actual sale.

The fair value for non-accrual loans not based on fair value of collateral is derived through a discounted cash flow analysis, which includes the opportunity costs of carrying a non-performing asset. An estimated discount rate was used for these non-accrual loans, based on the probability of loss and the expected time to recovery.

Deposits The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts, and interest checking accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank of Pittsburgh advances  The fair value of the FHLBP advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available for debt of similar remaining maturities and collateral terms.

Repurchase agreements  Fair value approximates the carrying value of such liabilities due to their short-term nature.

Junior subordinated debentures  The fair value for subordinated debentures is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms.

26

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Off-balance-sheet Instruments (Disclosed at Cost)  Off-balance-sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments. At June 30, 2013, un-funded loan commitments totaled $80.5 million and stand-by letters of credit totaled $1.8 million. At December 31, 2012, un-funded loan commitments totaled $67.8 million and stand-by letters of credit totaled $2.1 million.

NOTE 12:  STOCKHOLDERS’ EQUITY

On January 30, 2009, as part of the Capital Purchase Program ("CPP") of the Emergency Economic Stabilization Act of 2008 administered by the United States Department of the Treasury ("the Treasury"), DNB entered into a Letter Agreement and a Securities Purchase Agreement with the Treasury, pursuant to which the DNB issued and sold on January 30, 2009, and the Treasury purchased for cash on that date (i) 11,750 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series 2008A, par value $10.00 per share, having a liquidation preference of $1,000 per share ("the CPP shares"), and (ii) a ten-year warrant to purchase up to 186,311 shares of the DNB’s common stock, $1.00 par value, at an exercise price of $9.46 per share, for an aggregate purchase price of $11,750,000 in cash. This transaction closed on January 30, 2009. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The Bank provided dividends to the Corporation in connection with the $11,750,000 of Fixed Rate Cumulative Perpetual Preferred Stock sold on January 30, 2009 as part of the CPP.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued and sold to the Treasury 13,000 shares of its Non-Cumulative Perpetual Preferred Stock, Series 2011A (“Series 2011A Preferred Stock”), having a liquidation preference of $1,000 per share for aggregate proceeds of $13,000,000.   The Securities Purchase Agreement was entered into, and the Series 2011A Preferred Stock was issued, pursuant to the Treasury’s Small Business Lending Fund program (“SBLF”), a $30 billion fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. Of the $13.0 million in aggregate proceeds, $11,879,000 was used to repurchase all CPP shares ($11,750,000 was paid in principal and $128,900 in accrued, unpaid dividends related to the CPP shares) held by the Treasury as described above. The securities sold in this transaction were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by DNB not involving a public offering.

The Series 2011A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011.  The dividend rate, which is calculated on the aggregate Liquidation Amount, was initially set at 3.874% per annum, and  was based upon the level of “Qualified Small Business Lending”, or “QSBL” (as defined in the Securities Purchase Agreement) originated by the Company’s wholly owned national bank subsidiary DNB First, N.A. (the “Bank”).  The dividend rate for dividends beyond the initial period are  based upon the “Percentage Change in Qualified Lending” (as defined in the Securities Purchase Agreement) between each dividend period and the “Baseline” QSBL level.  Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods depending on the volume of Qualified Small Business Lending the Bank will originate in future periods, and will be fixed at a rate between 1% per annum to 7% per annum and remain unchanged up to four and one-half years following the funding date (the eleventh through the first half of the nineteenth dividend periods).  Because it is not feasible to predict the volume of Qualified Small Business Lending in future periods, it is not feasible to estimate specific future dividend rates under this formula.  If the Series 2011A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.  Prior to that time, in general, the dividend rate decreases as the level of the Bank’s Qualified Small Business Lending increases.  Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series 2011A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series 2011A Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem common stock and other securities.  In addition, if (i) the Company has not timely declared and paid dividends on the Series 2011A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series 2011A Preferred Stock with an aggregate liquidation preference of at least $13,000,000 are still outstanding, the Treasury (or any successor holder of Series 2011A Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors. DNB paid an annual rate on the $13.0 million of Series 2011A Preferred Stock of 1.00%, 1.00%, 1.00% 1.00%, and 3.90% for the quarters ended June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, respectively.

As more completely described in the Certificate of Designation, holders of the Series 2011A Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series 2011A Preferred Stock and on certain corporate transactions.  Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series 2011A Preferred Stock does not have voting rights.

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DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company may redeem the shares of Series 2011A Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

On September 21, 2011, DNB entered into a letter agreement (the “Warrant Letter Agreement") with the Treasury. Pursuant to the Warrant Letter Agreement, DNB Financial Corporation repurchased from the Treasury the warrant to purchase 186,311 shares of DNB Financial Corporation's common stock issued to Treasury in January 2009 under CPP. DNB Financial Corporation paid a purchase price of $458,000 for the warrant.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

DNB Financial Corp. (the “Corporation”), may from time to time make written or oral “forward-looking statements,” including statements contained in the Corporation’s filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to stockholders and in other communications by the Corporation, which are made in good faith by the Corporation pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

These forward-looking statements include statements with respect to the Corporation’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Corporation’s control).  The words “may,” “could,” “should,” “would,”"will," “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.  The following factors, among others, could cause the Corporation’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Corporation conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the recent downgrade, and any future downgrades, in the credit rating of the U.S. Government and federal agencies; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Corporation and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Corporation’s products and services; the success of the Corporation in gaining regulatory approval of its products and services, when required; the impact of changes in laws and regulations applicable to financial institutions (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms, including the rules of participation for the Small Business Lending Fund, the implementation of Basel III, which may be changed unilaterally and retroactively by legislative or regulatory actions; and the success of the Corporation at managing the risks involved in the foregoing.

The Corporation cautions that the foregoing list of important factors is not exclusive.  Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this report, even if subsequently made available by the Corporation on its website or otherwise.  The Corporation does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Corporation to reflect events or circumstances occurring after the date of this report.

For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the Securities and Exchange Commission, including this Form 10-Q, as well as any changes in risk factors or other risks that we may identify in our quarterly or other reports filed with the SEC.

DESCRIPTION OF DNB'S BUSINESS AND BUSINESS STRATEGY

DNB Financial Corporation ("DNB" or the "Corporation") is a bank holding company whose bank subsidiary, DNB First, National Association (the “Bank”) is a nationally chartered commercial bank with trust powers, and a member of the FDIC. DNB provides a broad range of banking services to individual and corporate customers through its thirteen community offices located throughout Chester and Delaware Counties, Pennsylvania. DNB is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. DNB funds all these activities with retail and business deposits and borrowings. Through its DNB First Investment Management division, the Bank provides investment management and trust

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administration services to individuals and non-profit organizations. The Bank and its subsidiary, DNB Investments & Insurance,  provides brokerage, retirement and insurance services.

DNB earns revenues and generates cash flows by lending funds to commercial and consumer customers in its marketplace. DNB generates its largest source of interest income through its lending function. A secondary source of interest income is DNB’s investment portfolio, which provides liquidity and cash flows for future lending needs.

In addition to interest earned on loans and investments, DNB earns revenues from fees it charges customers for non-lending services. These services include wealth management and trust services; brokerage and investment services; cash management services; banking and ATM services; as well as safekeeping and other depository services.

To ensure we remain well positioned to meet the growing needs of our customers and communities and to meet the challenges of the 21st century,  we've worked to build awareness of our full-service capabilities and ability to meet the needs of a wide range of customers. This served to not only retain our existing, customer base, but to position ourselves as an attractive financial institution on which younger individuals and families can build their dreams.  To that end, DNB continues to make appropriate investments in all areas of our business, including people, technology, facilities and marketing.

Comprehensive 5-Year Plan.  During the second quarter of 2013, management updated the 5-year strategic plan that was designed to reposition its balance sheet and improve core earnings. Through the plan, management will endeavor to expand its loan portfolio through new originations, increased loan participations, as well as strategic loan and lease receivable purchases. Management also plans to reduce the absolute level of borrowings with cash flows from existing loans and investments as well as from new deposit growth. A discussion on DNB’s Key Strategies follows below:

•Focus on penetrating existing markets to maximize profitability;

•Grow loans and diversify the mix;

•Improve asset quality;

•Focus on profitable customer segments;

•Grow and diversify non-interest income, primarily wealth management;

•Focus on reducing DNB’s cost of funds by changing DNB’s mix of deposits; and

•Focus on cost containment and improving operational efficiencies.

Strategic Plan Update.  During the quarter ended June 30, 2013, management focused on reducing DNB's composite cost of funds as well as strengthening DNB’s net interest margin. The composite cost of funds for the three months ended June 30, 2013 was 0.47% compared to 0.71% in 2012. Management continued to actively manage deposits during 2013 to reduce DNB’s cost of funds. Time deposits decreased $8.7 million to $93.6 million at June 30, 2013 compared to $102.3 million at December 31, 2012. Transaction and savings accounts increased $40.2 million during the six months ended June 30, 2013. Positive trends were observed for the six months ended June 30, 2013 as wealth management as fees increased 26.772% or $125,000 when compared to the same period in 2012. Non-interest expense for the six months ended June 30, 2013 showed a modest increase of 0.79% or $68,000, compared to the same period in 2012, reflecting increases in staffing and occupancy, primarily related to the Boothwyn branch acquisition in 2012. These increases were offset by lower furniture and equipment costs and professional and consulting costs.  

Management has made a concerted effort to improve the measurement and tracking of business lines and overall corporate performance levels. Improved information systems have increased DNB's ability to track key indicators and enhance corporate performance levels. Better measurement against goals and objectives and increased accountability will be integral in attaining desired loan, deposit and fee income production.

MATERIAL CHALLENGES, RISKS AND OPPORTUNITIES

The following is a summary of material challenges, risks and opportunities DNB has faced during the six-month period ended June 30, 2013:  

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Interest Rate Risk Management. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. DNB considers interest rate risk the predominant risk in terms of its potential impact on earnings.  Interest rate risk can occur for any one or more of the following reasons: (a) assets and liabilities may mature or re-price at different times; (b) short-term or long-term market rates may change by different amounts; or (c) the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change.

The principal objective of the Bank’s interest rate risk management is to evaluate the interest rate risk included in certain on and off-balance sheet accounts, determine the level of risk appropriate given the Bank’s business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with management’s approved guidelines. Through such management, DNB seeks to reduce the vulnerability of its operations to changes in interest rates. The Bank’s Asset Liability Committee (the “ALCO”) is responsible for reviewing the Bank’s asset/liability policies and interest rate risk position and making decisions involving asset liability considerations. The ALCO meets on a monthly basis and reports trends and the Bank’s interest rate risk position to the Board of Directors.  The extent of the movement of interest rates is an uncertainty that could have a negative impact on the earnings of the Bank.

The largest component of DNB’s total income is net interest income, and the majority of DNB’s financial instruments are comprised of interest rate-sensitive assets and liabilities with various terms and maturities.  The primary objective of management is to maximize net interest income while minimizing interest rate risk.  Interest rate risk is derived from timing differences in the re-pricing of assets and liabilities, loan prepayments, deposit withdrawals, and differences in lending and funding rates.  The ALCO actively seeks to monitor and control the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. One measure of interest rate risk is net interest income simulation analysis.  The ALCO utilizes simulation analysis, whereby the model estimates the variance in net interest income with a change in interest rates of plus or minus 200 and 300 basis points in addition to four yield curve twists over a twelve-month period.

Liquidity and Market Risk ManagementLiquidity is the ability to meet current and future financial obligations. The Bank further defines liquidity as the ability to respond to deposit outflows as well as maintain flexibility to take advantage of lending and investment opportunities. The Bank’s primary sources of funds are operating earnings, deposits, repurchase agreements, principal and interest payments on loans, proceeds from loan sales, principal and interest payments on mortgage backed securities, sales of investment securities, and advances from the FHLB. The Bank uses the funds generated to support its lending and investment activities as well as any other demands for liquidity such as deposit outflows. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments, loan and security sales and the exercise of call features are greatly influenced by general interest rates, economic conditions and competition.

The objective of DNB’s asset/liability management function is to maintain consistent growth in net interest income within DNB’s policy limits. This objective is accomplished through the management of liquidity and interest rate risk, as well as customer offerings of various loan and deposit products. DNB maintains adequate liquidity to meet daily funding requirements, anticipated deposit withdrawals, or asset opportunities in a timely manner. Liquidity is also necessary to meet obligations during unusual, extraordinary or adverse operating circumstances, while avoiding a significant loss or cost. DNB’s foundation for liquidity is a stable deposit base as well as a marketable investment portfolio that provides cash flow through regular maturities or that can be used for collateral to secure funding in an emergency. As part of its liquidity management, DNB maintains assets, which comprise its primary liquidity (Federal funds sold, investments and cash and due from banks, less pledged securities).

Credit Risk Management. DNB defines credit risk as the risk of default by a customer or counter-party.  The objective of DNB’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis as well as to limit the risk of loss resulting from an individual customer default.  Credit risk is managed through a combination of underwriting, documentation and collection standards.  DNB’s credit risk management strategy calls for regular credit examinations and quarterly management reviews of large credit exposures and credits that are experiencing credit quality deterioration.  DNB’s loan review procedures provide assessments of the quality of underwriting, documentation, risk grading and charge-off procedures, as well as an assessment of the allowance for credit loss reserve analysis process.

Competition.   In addition to the challenges related to the interest rate environment, community banks in Chester and Delaware Counties have been experiencing increased competition from large regional and international banks entering DNB’s marketplace through mergers and acquisitions. Competition for loans and deposits may negatively affect DNB’s net interest margin. To compensate for the increased competition, DNB, along with other area community banks, has aggressively sought and marketed customers who have been disenfranchised by these mergers. To attract these customers, DNB has introduced new deposit products, such as Mobile Banking, Choice Checking, Credit Cards as well as Executive and employee packages. In addition, DNB has introduced Remote Capture to our commercial customers to expedite their collection of funds.

Deposit Insurance Assessments.  The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law and are subject to deposit insurance premium assessments. The FDIC imposes a risk based deposit premium

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assessment system, under which the amount of FDIC assessments paid by an individual insured depository institution, such as the Bank, is based on the level of risk incurred in its activities. The FDIC places a depository institution in one of four risk categories determined by reference to its capital levels and supervisory ratings. In addition, in the case of those institutions in the lowest risk category, the FDIC further determines its assessment rates based on certain specified financial ratios. Pursuant to the Federal Deposit Insurance Act, the FDIC has authority and the responsibility to establish deposit insurance assessments at rates sufficient to maintain the designated reserve ratio of the Deposit Insurance Fund at a level between 1.15% and 1.5% of estimated insured deposits, and to take action to restore the designated reserve ratio to at least 1.15% of estimated insured deposits when it falls below that level. As of June 30, 2008, the designated reserve ratio fell below 1.15%, to 1.01%. On October 7, 2008, the FDIC established a restoration plan which it has updated periodically since then to respond to deteriorating economic conditions. Conditions in the banking industry have continued to deteriorate through 2008 and 2009. According to the FDIC’s Quarterly Banking Profile for the Fourth Quarter 2009, as of December 30, 2009 the designated reserve ratio had fallen to (0.39%), down from (0.16%) on September 30, 2009, and 0.36% as of December 31, 2008. The FDIC reports that the December 31, 2009 reserve ratio is the lowest on record for a combined bank and thrift insurance fund. In response to the declining reserve ratio, the FDIC took a series of extraordinary deposit insurance assessment actions during 2009.

Effective as of April 1, 2011, the FDIC adopted changes to its base and risk-based deposit insurance rates. Pursuant to the new rules, a bank’s annual assessment base rates were as follows, depending on the bank’s risk category:

Initial and Total Base Assessment Rates*

	Risk Category
	Risk Category I	Risk Category II	Risk Category III	Risk Category IV	Large and Highly Complex Institutions
Initial base assessment rate	5-9	14	23	35	5-35
Unsecured debt adjustment**	(4.5)-0	(5)-0	(5)-0	(5)-0	(5)-0
Brokered deposit adjustment	—	0-10	0-10	0-10	0-10
TOTAL BASE ASSESSMENT RATE	2.5-9	9-24	18-33	30-45	2.5-45

*Total base assessment rates do not include the depository institution debt adjustment.

**The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an insured depository institution's initial base assessment rate; thus for example, an insured depository institution with an initial base assessment rate of 5 basis points will have a maximum unsecured debt adjustment of 2.5 basis points and cannot have a total base assessment rate lower than 2.5 basis points.

On November 12, 2009, the FDIC adopted a final rule to require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The prepaid assessment was collected on December 30, 2009, along with the institution’s regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For purposes of calculating the prepaid assessment, each institution’s assessment rate was its total base assessment rate in effect on September 30, 2009. In calculating the prepayment attributable to 2011 and thereafter, it is calculated using the September 29, 2009 increase in 2011 base assessment rates. In addition, future deposit growth was reflected in the prepayment by assuming that an institution’s third quarter 2009 assessment base would be increased quarterly at a 5 percent annual growth rate through the end of 2012. The FDIC began to draw down institutions’ prepaid assessments on March 30, 2010, representing payment for the regular quarterly risk-based assessment for the fourth quarter of 2009. In announcing these initiatives, the FDIC stated that, while the prepaid assessment would not immediately affect bank earnings, each institution would record the entire amount of its prepaid assessment as a prepaid expense asset as of December 30, 2009, the date the payment was made and, as of December 31, 2009 and each quarter thereafter, record an expense or charge to earnings for its regular quarterly assessment and an offsetting credit to the prepaid assessment until the asset is exhausted. Once the asset is exhausted, institutions would resume paying and accounting for quarterly deposit insurance assessments as they currently do. The total amount of the Bank’s deposit insurance assessment prepayment was $3.1 million. In March of 2013, the FDIC indicated that it would return any unused prepaid FDIC insurance premium. On June 28, 2013, DNB received a payment from the FDIC in the amount of $1.3 million.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, that was enacted by Congress on July 15, 2010, and was signed into law by President Obama on July 21, 2010, enacted a number of changes to the federal deposit insurance regime that will affect the deposit insurance assessments the Bank will be obligated to pay in the future.  For example:

-The law permanently raises the federal deposit insurance limit to $250,000 per account ownership.  This change may have the effect of increasing losses to the FDIC insurance fund on future failures of other insured depository institutions.

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-The new law makes deposit insurance coverage unlimited in amount for non-interest bearing transaction accounts until December 31, 2012.  This change may also have the effect of increasing losses to the FDIC insurance fund on future failures of other insured depository institutions. Effective January 31, 2013, non-interest bearing transaction accounts will fall under the existing FDIC insurance limit of $250,000 per account ownership.

-The law increases the insurance fund’s minimum designated reserve ratio from 1.15 to 1.35, and removes the current 1.50 cap on the reserve ratio. The law gives the FDIC discretion to suspend or limit the declaration or payment of dividends even when the reserve ratio exceeds the minimum designated reserve ratio.

The Dodd-Frank Act expands the base for FDIC insurance assessments, requiring that assessments be based on the average consolidated total assets less tangible equity capital of a financial institution. On February 7, 2011, the FDIC approved a final rule to implement the foregoing provision of the Dodd-Frank Act and to make other changes to the deposit insurance assessment system applicable to insured depository institutions with over $10 billion in assets. Among other things, the final rule eliminates risk categories and the use of long-term debt issuer ratings in calculating risk-based assessments, and instead implements a scorecard method, combining CAMELS ratings and certain forward-looking financial measures to assess the risk an institution poses to the Deposit Insurance Fund. The final rule also revises the assessment rate schedule for large institutions and highly complex institutions to provide assessments ranging from 2.5 to 45 basis points.

Each of these changes may increase the rate of FDIC insurance assessments to maintain or replenish the FDIC’s deposit insurance fund.  This could, in turn, raise the Bank’s future deposit insurance assessment costs.  On the other hand, the law changes the deposit insurance assessment base so that it will generally be equal to consolidated assets less tangible equity.  This change of the assessment base from an emphasis on deposits to an emphasis on assets is generally considered likely to cause larger banking organizations to pay a disproportionately higher portion of future deposit insurance assessments, which may, correspondingly, lower the level of deposit insurance assessments that smaller community banks such as the Bank may otherwise have to pay in the future. On December 14, 2010, the FDIC issued a final rule setting the insurance fund’s designated reserve ratio at 2, which is in excess of the 1.35 minimum designated reserve ratio established by the Dodd-Frank Act. While it is likely that the law will increase the Bank’s future deposit insurance assessment costs, the specific amount by which the law’s combined changes will affect the Bank’s deposit insurance assessment costs is hard to predict, particularly because the law gives the FDIC enhanced discretion to set assessment rate levels.

In addition to deposit insurance assessments, banks are subject to assessments to pay the interest on Financing Corporation bonds. The Financing Corporation was created by Congress to issue bonds to finance the resolution of failed thrift institutions. The FDIC sets the Financing Corporation assessment rate every quarter. The current annual Financing Corporation assessment rate is 64 basis points on the deposit insurance assessment base, as defined above, which we anticipate will result in an aggregate estimated FICO assessment payment by the Bank of $36,000 in 2013.

Material Trends and Uncertainties. For the quarter ended June 30, 2013, DNB reported net income of $1.3 million versus $1.4 million for the same period in 2012. During the same respective periods, per share earnings on a fully diluted basis were $0.44and $0.46. The global and U.S. economies have experienced reduced business activity as a result of disruptions in the financial system during the past five years. The United States, Europe and many other countries across the globe are struggling with too much debt and weaker streams of revenues as a result of recessionary pressures and high unemployment. Overall economic growth continues to be slow and national and regional unemployment rates remain at elevated levels. While the participation rate has decreased, the risks associated with our business remain acute in periods of slow economic growth and high unemployment. Moreover, financial institutions continue to be affected by a sluggish real estate market and constrained financial markets. While we are continuing to take steps to decrease and limit our exposure to problem loans, we nonetheless retain direct exposure to the residential and commercial real estate markets, and we are affected by these events.

The July 17, 2013 Beige Book indicated that residential builders in the Third Federal Reserve District (the “Third District”), the District where DNB is located, reported moderate growth with most builders meeting their plan for the year with increases as high as 40 percent. Residential brokers reported moderate growth of existing homes while sales closed and sales pending grew by double digits year over year in several larger areas within the Third District. The estimated months' supply of existing inventory of homes has fallen to near six months in many areas.

The July 17, 2013 Beige Book indicates that nonresidential real estate continued to report little change in the modest pace of overall leasing activity and slight growth of construction. Although the overall climate for new construction is modestly improving, the Federal Reserve's contacts reported a renewed strong push for industrial structures along the I-81 and I-76 corridors throughout eastern Pennsylvania and into central New Jersey. Construction activity also remains greater for multifamily residential units, higher education facilities, and public utility infrastructure. Overall, the Federal Reserve's contacts remained optimistic for a continuation of slow, steady growth.

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Since the June 5, 2013  Beige Book, Third District manufacturers have reported that orders and shipments are rising again. The makers of paper products, rubber products, fabricated metals, industrial machinery, and instruments have reported gains. Firms supplying the home-building sector continued to report strong orders and ongoing hiring to keep pace. The makers of food products and electronic equipment reported lower activity (some was seasonal). Reports were mixed for makers of primary metals. Other contacts attributed growing demand to auto-related business and foreign demand. Across nearly all sectors, Third District manufacturers remained optimistic that business conditions will improve over the next six months. Business plans for the remainder of the year have been lowered slightly for some firms. However, firms appear more confident of ongoing, steady growth and are more willing to invest in capacity and hire new workers as needed to keep pace with demand. Overall, firms have significantly increased their expectations of future hiring and their plans for capital spending since the June 5, 2013 Beige Book.

The overall outlook of the Third District’s business contacts, many of which have business models similar to DNB’s small business clients, is for moderate growth which has continued since the June 15, 2013 Beige Book. Federal Reserve contacts expressed greater confidence in consumers and in the sustainability of current trends. Firms remain cautious about hiring and about carrying out their long-term capital expenditure plans. However, firms are more comfortable investing when necessary to replace or upgrade aging equipment and to meet growing demand.

Although DNB’s earnings have been impacted by the general economic conditions, the impact has not been as severe as it has been in many parts of the nation, largely due to a relatively healthier economic climate in the Third Federal Reserve District and specifically Chester County. DNB’s franchise spans both Chester and Delaware counties in southeastern Pennsylvania. The majority of loans have been made to businesses and individuals in Chester County and the majority of deposits are from businesses and individuals within the County. According to census data, Chester County’s population has grown at approximately 15%, compared to 13% for the nation and 3% for the Commonwealth of Pennsylvania. The median household income in Chester County is $72,288 and the County ranks 14th nationally in disposable income. The unemployment rate for Chester County stood at 5.8% as of March 2013, compared to a Pennsylvania unemployment rate of 7.9% and a national unemployment rate of 7.6%. Traditionally, the unemployment rate has been the lowest in the surrounding five-county area and it ranks among the lowest unemployment rates in the Commonwealth. Chester County has a civilian labor force of 266,100, with manufacturing jobs representing 23.1% of the workforce and retail shopping comprising 13.8% of the total employment. During the last few years, the County has been able to keep most of its major employers, however some of them have downsized in order to remain competitive. Chester County is home to several Fortune 500 companies. Thirteen Chester County employers have 1,000 employees or more. Of these 13 companies, two companies have more than 5,000 employees.

As the U.S. and local economy moves through a period of reduced business activity and historically high unemployment rates, delinquencies will rise as the value of homes decline and DNB’s borrowers experience financial difficulty due to corporate downsizing, reduced sales, or other negative events which may impact their ability to meet their contractual loan payments. As a result of continued negative trends in the economy and their impact on our borrowers’ ability to repay their loans, DNB made a $375,000 provision for credit losses during the quarter ended June 30, 2013.

These and other factors have impacted our operations. We continue to focus on the consistency and stability of core earnings and balance sheet strength which are critical success factors in today’s challenging economic environment.

Regulatory Initiatives Related to Our Industry.The federal government is considering a variety of reforms related to banking and the financial industry including, without limitation, the Dodd-Frank Act.  The Dodd-Frank Act is intended to promote financial stability in the U.S., reduce the risk of bailouts and protect against abusive financial services practices by improving accountability and transparency in the financial system and ending “too big to fail” institutions.  It is the broadest overhaul of the U.S. financial system since the Great Depression, and much of its impact will be determined by the scope and substance of many regulations that will need to be adopted by various regulatory agencies to implement its provisions.  For these reasons, the overall impact on DNB and its subsidiaries remains unknown at this time. 

The Dodd-Frank Act delegates to various federal agencies, including the Consumer Financial Protection Bureau, the task of implementing its many provisions through regulation. Hundreds of new federal regulations, studies and reports addressing all of the major areas of the new law, including the regulation of banks and their holding companies, will be required, ensuring that federal rules and policies in this area will be further developing for months and years to come. Based on the provisions of the Dodd-Frank Act and anticipated implementing regulations, it is highly likely that banks and thrifts as well as their holding companies will be subject to significantly increased regulation and compliance obligations.

The Dodd-Frank Act could require us to make material expenditures, in particular personnel training costs and additional compliance expenses, or otherwise adversely affect our business or financial results.  It could also require us to change certain of our business practices, adversely affect our ability to pursue business opportunities we might otherwise consider engaging in, cause business disruptions and/or have other impacts that are as-of-yet unknown to DNB and the Bank.  Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, fines or additional licensing expenses, any of which could have an

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adverse effect on our cash flow and results of operations.  For example, a provision of the Dodd-Frank Act is intended to preclude bank holding companies from treating future trust preferred securities issuances as Tier 1 capital for regulatory capital adequacy purposes.  This provision may narrow the number of possible capital raising opportunities DNB and other bank holding companies might have in the future.  Further, the new rules issued by the Consumer Financial Protection Bureau may materially affect the methods and costs of compliance by the Bank in connection with future consumer-related transactions.

New Capital Rules. On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Corporation and the Bank. The FDIC and the OCC have subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012, and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and will refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Corporation and the Bank under the final rules would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Corporation and the Bank. The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets. Based on our current capital composition and levels, we believe that we would be in compliance with the requirements as set forth in the final rules if they were presently in effect.

Other Material Challenges, Risks and Opportunities. As a financial institution, DNB's earnings are significantly affected by general business and economic conditions.  These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and local economies in which we operate.  As mentioned above in Material Trends and Uncertainties, the economic downturn, increased unemployment, and other events negatively impact household and/or corporate incomes and could decrease the demand for DNB's loan and non-loan products and services and increase the number of customers who fail to pay interest or principal on their loans.  Geopolitical

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conditions can also affect DNB's earnings.  Acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and our military conflicts, could impact business conditions in the United States.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principals. Generally accepted accounting principles are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. Actual results may differ from these estimates under different assumptions or conditions.

In management's opinion, the most critical accounting policies and estimates impacting DNB's consolidated financial statements are listed below.  These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates.  Changes in such estimates may have a significant impact on the financial statements.  For a complete discussion of DNB's significant accounting policies, see the footnotes to the Consolidated Financial Statements included in DNB's 10-K for the year ended December 31, 2012.  

Determination of the allowance for credit losses. Credit loss allowance policies involve significant judgments, estimates and assumptions by management which may have a material impact on the carrying value of net loans and leases and, potentially, on the net income recognized by DNB from period to period.  The allowance for credit losses is based on management’s ongoing evaluation of the loan and lease portfolio and reflects an amount considered by management to be its best estimate of the amount necessary to absorb known and inherent losses in the portfolio.  Management considers a variety of factors when establishing the allowance, such as the impact of current economic conditions, diversification of the portfolios, delinquency statistics, results of loan review and related classifications, and historic loss rates.  In addition, certain individual loans which management has identified as problematic are specifically provided for, based upon an evaluation of the borrower’s perceived ability to pay, the estimated adequacy of the underlying collateral and other relevant factors.  In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for credit losses.  They may require additions to the allowance based upon their judgments about information available to them at the time of examination.  Although provisions have been established and segmented by type of loan, based upon management’s assessment of their differing inherent loss characteristics, the entire allowance for credit losses is available to absorb further losses in any category.

Management uses significant estimates to determine the allowance for credit losses.  Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond DNB’s control, management’s estimate of the amount necessary to absorb credit losses and actual credit losses could differ.  DNB’s current judgment is that the allowance for credit losses remains appropriate at June 30, 2013.  For a description of DNB’s accounting policies in connection with its allowance for credit losses, see, “Allowance for Credit Losses”, in Management’s Discussion and Analysis.

Realization of deferred income tax items.Estimates of deferred tax assets and deferred tax liabilities make up the asset category titled “net deferred taxes”.  These estimates involve significant judgments and assumptions by management, which may have a material impact on the carrying value of net deferred tax assets for financial reporting purposes.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance would be established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available.  For a more detailed description of these items, refer to Footnote 10 (Federal Income Taxes) to DNB’s consolidated financial statements for the year ended December 31, 2012. 

The Footnotes to DNB's most recent Consolidated Financial Statements as set forth in DNB's Annual Report 10-K identify other significant accounting policies used in the development and presentation of its financial statements.  This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of DNB and its results of operations.

FINANCIAL CONDITION

DNB's total assets were $667.6 million at June 30, 2013 compared to $639.6 million at December 31, 2012.  The $28.0  million increase in total assets was primarily attributable to a $36.9 million increase in cash and cash equivalents due to the $31.5

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million increase in deposits.The increase was offset by a $6.7 million decrease in loans and leases before allowance for credit losses, and a $2.4 million decrease in investment securities.

Investment Securities.Investment securities including restricted stock at June 30, 2013 were $201.9 million compared to $204.7 million at December 31, 2012. The $2.8  milliondecrease in investment securities was primarily due to $38.0million in sales, principal pay-downs, calls and maturities and a $2.4 million change in unrealized loss, offset by the purchase of $38.4 million in investment securities.

Gross Loans and Leases.  DNB’s loans and leases decreased  $6.7million to $389.8 million at June 30, 2013 compared to $396.5million at December 31, 2012.  Total commercial loans, residential loans, and commercial leases decreased  $6.0 million, $1.0 million, and $63,000, respectively, whileconsumer loans increased $351,000.

Deposits.  Deposits were $561.9 million at June 30, 2013 compared to $530.4 million at December 31, 2012.  Deposits increased $31.5million or 5.94% during the six-month period ended June 30, 2013.  Core deposits, which are comprised of demand, NOW, money markets and savings accounts, increased by $40.2million while time deposits decreased by $8.7 million. 

Borrowings.Borrowings were $43.1 million at June 30, 2013 compared to $46.9 million at December 31, 2012.  The decrease of $3.8million or 8.10% was primarily due to a $10.0 million decrease in FHLB advances, offset by a $6.2 million increase in repurchase agreements.

Stockholders’ Equity.Stockholders' equity was $57.4 million at June 30, 2013 compared to $56.7 million at December 31, 2012. The increase in stockholders’ equity was primarily a result of year-to-date earnings of $2.4 million and a $197,000 adjustment to treasury stock for the sale of treasury shares to DNB's 401(k) and deferred compensation plans. These additions to stockholders equity were partially offset by $383,000 of dividends paid on DNB’s common stock and $65,000 of dividends paid on DNB's Non-Cumulative Perpetual Preferred Stock, Series 2011A. (See Note 12regarding DNB's participation in the Capital Purchase Program ("CPP") of the Emergency Economic Stabilization Act of 2008 and the Treasury’s Small Business Lending Fund program (“SBLF”), a $30 billion fund established under the Small Business Jobs Act of 2010.)

RESULTS OF OPERATIONS

SUMMARY

Net income for the three and six-month periods ended June 30, 2013 was $1.3 million and $2.4 million compared to $1.4 million and $2.5 million for the same periods in 2012.  Diluted earnings per share for the three and six-month periods ended June 30, 2013 were $0.44 and $0.85 compared to $0.46 and $0.82 for the same periods in 2012.  The $150,000 decrease during the most recent three-month period was attributable to a $413,000 decrease in net interest income before provision for credit losses, partially offset by a $159,000 decrease in income tax expense, and a $100,000 decrease in provision for credit losses. The $77,000 decrease during the six-month period was attributable to a $807,000 decrease in net interest income before provision for credit lossesand a $68,000 increase in non-interest expense, partially offset by a $345,000 decrease in provision for credit losses, a $278,000 increase in non-interest income, and a $175,000 decrease in income tax expense.

NET INTEREST INCOME

DNB's earnings performance is primarily dependent upon its level of net interest income, which is the excess of interest income over interest expense.  Interest income includes interest earned on loans, investments and federal funds sold and interest-earning cash, as well as loan fees and dividend income earned on investment securities.  Interest expense includes interest on deposits, Federal Home Loan Bank of Pittsburgh ("FHLBP") advances, repurchase agreements, Federal funds purchased and other borrowings.

Net interest income after provision for credit losses for the three and six-month periods ended June 30, 2013 was $4.8 million and $9.6 million, compared to $5.1 million and $10.0 million for the same periods in 2012.  Interest income for the three and six-month periods ended June 30, 2013 was $5.9 million and $11.7 million compared to $6.5 million and $12.9 million for the same periods in 2012.  Interest expense for the three and six-month periods ended June 30, 2013 was $719,000 and $1.5 million compared to $967,000 and $2.0 million for the same periods in 2012. The decrease in interest expense during both periods was primarily attributable to lower rates on interest-bearing liabilities.The composite cost of funds for the three and six-month periods ended June 30, 2013 was 0.49% and 0.52%, compared to 0.69% and 0.71% for the same periods in 2012.  The net interest margin for the three and six-month periods ended June 30, 2013 was 3.35% and 3.34%, compared to 3.78% and 3.77% for the same periods in 2012.

Interest on loans and leases was $4.9 million and $9.7 million for the three and six-month periods ended June 30, 2013, compared to $5.6 million and $11.1 million for the same periods in 2012. The average balance of loans and leases was $395.6 million with an average yield of 4.92% for the second quarter of 2013 compared to $399.6 million with an average yield of 5.55% for the same period in 2012.  The average balance of loans and leases was $395.2 million with an average yield of 4.93% for the current six months compared to $402.4 million with an average yield of 5.50% for the same period in 2012.

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Interest and dividends on investment securities was $995,000 and $1.9 million for the three and six-month periods ended June 30, 2013, compared to $983,000 and $1.8 million for the same periods in 2012.  The average balance of investment securities was $202.0 million with an average yield of 2.24% for the second quarter of 2013 compared to $173.9 million with an average yield of 2.40% for the same period in 2012.  The average balance of investment securities was $199.6 million with an average yield of 2.20% for the current six months compared to $163.2 million with an average yield of 2.39% for the same period in 2012.

Interest on deposits was $465,000 and $950,000 for the three and six-month periods ended June 30, 2013, compared to $635,000 and $1.3 million for the same periods in 2012.  The average balance of deposits was $551.2 million with an average rate of 0.34% for the second quarter of 2013 compared to $511.7 million with an average rate of 0.50% for the same period in 2012.   The average balance of deposits was $540.1 million with an average rate of 0.35% for the six months ended June 30, 2013 compared to $503.3 million with an average rate of 0.51% for the same period in 2012. The decrease in rate during both periods was primarily attributable to a lower interest rate environment.

Interest on borrowings was $254,000 and $569,000 for the three and six-month periods ended June 30, 2013, compared to $332,000 and $666,000 for the same periods in 2012. The average balance of borrowings was $42.1 million with an average rate of 2.42% for the second quarter of 2013 compared to $50.6 million with an average rate of 2.63% for the same period in 2012.  The average balance of borrowings was $45.9 million with an average rate of 2.50% for the six months ended June 30, 2013 compared to $51.5 million with an average rate of 2.59% for the same period in 2012.

PROVISION FOR CREDIT LOSSES

To provide for known and inherent losses in the loan and lease portfolios, DNB maintains an allowance for credit losses. Provisions for credit losses are charged against income to increase the allowance when necessary. Loan and lease losses are charged directly against the allowance and recoveries on previously charged-off loans and leases are added to the allowance. In establishing its allowance for credit losses, management considers the size and risk exposure of each segment of the loan and lease portfolio, past loss experience, present indicators of risk such as delinquency rates, levels of non-accruals, the potential for losses in future periods, and other relevant factors. Management’s evaluation of criticized and classified loans generally includes reviews of borrowers of $100,000 or greater. Consideration is also given to examinations performed by regulatory agencies, primarily the Office of the Comptroller of the Currency (“OCC”).

Management reviews and establishes the adequacy of the allowance for credit losses in accordance with U.S. generally accepted accounting principles, guidance provided by the Securities and Exchange Commission and as prescribed in OCC Bulletin 2006-47. Its methodology for assessing the appropriateness of the allowance consists of several key elements which include: specific allowances for identified impaired loans; and allowances by loan type for pooled homogenous loans. In considering national and local economic trends, we review a variety of information including Federal Reserve publications, general economic statistics, foreclosure rates and housing statistics published by third parties. We believe this improves the measure of inherent loss over a complete economic cycle and reduces the impact for qualitative adjustments. The unallocated portion of the allowance is intended to provide for probable losses not otherwise accounted for in management’s other elements of its overall estimate. An unallocated component is maintained to cover uncertainties such as changes in the national and local economy, concentrations of credit, expansion into new markets and other factors that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

In addition, DNB reviews historical loss experience for the commercial mortgage, commercial, residential mortgage,  lease financing and consumer installment loan pools to determine a historical loss factor. The historical loss factors are then applied to the current portfolio balances to determine the required reserve percentage for each loan pool based on risk rating. Historical losses are segregated into risk-similar groups and a loss ratio is determined for each group over a three year period. The three year average loss ratio by type is then used to calculate the estimated loss based on the current balance of each group. This three year time period is appropriate given DNB’s historical level of losses and, more importantly, represents the current economic environment.

This analysis is intended to assess the potential for loss within the loan portfolio and to substantiate the adequacy of the allowance. Should the analysis indicate that the allowance is not adequate, management will recommend a provision expense be made in an amount equal to the shortfall derived. In establishing and reviewing the allowance for adequacy, emphasis has been placed on utilizing the methodology prescribed in OCC Bulletin 2006-47. Management believes that the following factors create a comprehensive system of controls in which management can monitor the quality of the loan portfolio. Consideration has been given to the following factors and variables which may influence the risk of loss within the loan portfolio:

•Changes in the nature and volume of the portfolio and in the terms of loans;

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•Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

•The existence and effect of any concentrations of credit, and changes in the level of such concentrations;

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

•Changes in the experience, ability, and depth of lending management and other relevant staff;

•Changes in the quality of the institution’s loan review system;

•Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio; and

•Changes in the value of underlying collateral for collateral‑dependent loans.

Portfolio risk includes the levels and trends in delinquencies, impaired loans, changes in the loan rating matrix and trends in volume and terms of loans. Management is satisfied with the stability of the past due and non-performing loans and believes there has been no further decline in the quality of the loan portfolio due to any trend in delinquent or adversely classified loans. In determining the adequacy of the allowance, management considered the deterioration of asset quality in DNB’s commercial mortgage and residential first mortgage portfolios, which were factors contributing to the increase in the level of allowance during 2012 and 2011. In addition to ordering new appraisals and creating specific reserves on impaired loans, the allowance allocation rates were increased, reflective of delinquency trends which have been caused by continued weakness in the housing markets, falling home equity values, and rising unemployment. New appraisal values we have obtained for existing loans have generally been consistent with trends indicated by Case-Schiller and other indices.

Given the contraction in real estate values, DNB closely monitors the loan to value ratios of all classified assets and requires periodic current appraisals to monitor underlying collateral values. Management also reviews borrower, sponsorship and guarantor’s financial strength along with their ability and willingness to provide financial support of their obligations on an immediate and continuing basis.

There was a $375,000 provision made during the three months ended June 30, 2013, compared to $475,000 during the same period in 2012.  There was a $555,000 provision made during the six months ended June 30, 2013, compared to $900,000 during the same period in 2012. DNB’s percentage of allowance for credit losses to total loans and leases was 1.72%  at June 30, 2013 compared to 1.72% and 1.53% at December 31, 2012 and June 30, 2012, respectively. Net charge-offs were $703,000, $781,000 and $850,000 during the six months ended June 30, 2013, year ended December 31, 2012 and six months ended June 30, 2012, respectively. The percentage of net charge-offs to total average loans and leases were 0.18%, 0.21% and 0.21%  during the same respective periods. Management believes that the allowance for credit losses is adequate, but continues to monitor it along with other performance metrics including those ratios related to non-performing loans and leases. Management is not aware of any potential problem loans, which were accruing and current at June 30, 2013, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms and that would result in a significant loss to DNB.Non-performing loans decreased $289,000 during the six month period ended June 30, 2013.  The ratio of the allowance for loan losses as a percentage of loans and leases was 1.72% at June 30, 2013 and 1.72% December 31, 2012and reflects management’s estimate of the level of inherent losses in the portfolio, which has been impacted by a recessionary economy, continued high unemployment, a weakened housing market and deterioration in income-producing properties.

We typically establish a general valuation allowance on classified loans which are not impaired. In establishing the general valuation allowance, we segregate these loans by category. The categories used by DNB include “doubtful,” “substandard,” “special mention,” “watch list” and “pass.” For commercial mortgage, commercial and construction loans, the determination of the category for each loan is based on periodic reviews of each loan by our lending and credit officers as well as an independent, third-party consultant. The reviews include a consideration of such factors as recent payment history, current financial data, cash flow, financial projections, collateral evaluations, guarantor or sponsorship financial strength and current economic and business conditions. Categories for residential mortgage and consumer loans are determined through a similar review. Classification of a loan within a category is based on identified weaknesses that increase the credit risk of loss on the loan. Each category carries a loss factor for the allowance percentage to be assigned to the loans within that category. The allowance percentage, is determined based on inherent

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losses associated with each type of lending as determined through consideration of our loss history with each type of loan, trends in credit quality and collateral values, and an evaluation of current economic and business conditions.

We establish a general allowance on non-classified loans to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem loans. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages to each category. An evaluation of each category is made to determine the need to further segregate the loans within each category by type. For our residential mortgage and consumer loan portfolios, we identify similar characteristics throughout the portfolio including credit scores, loan-to-value ratios and collateral. For our commercial mortgage and construction loan portfolios, a further analysis is made in which we segregated the loans by type based on the purpose of the loan and the collateral properties securing the loan. Various risk factors for each type of loan are considered, including the impact of general economic and business conditions, collateral value trends, credit quality trends and historical loss experience.

As of June 30, 2013, DNB had $13.5 million of non-performing assets, which included $10.1 million of non-performing or impaired loans and $3.3 million of OREO. This compares to $11.7 million of non-performaing assets at December 31, 2012 which included $10.4 million of non-performing or impaired loans and $1.2 million of OREO.Loans are reviewed for impairment in accordance with FASB ASC 310-10-35. Impaired loans can either be secured or unsecured, not including large groups of smaller balance loans that are collectively evaluated. Impairment is measured by the difference between the loan amount and the present value of the future cash flow discounted at the loan’s effective interest rate. Management measures loans for impairment by using the fair value of collateral for collateral dependent loans. In general, management reduces the amount of the appraisal by the estimated cost of acquisition and disposition of the underlying collateral and compares that adjusted value with DNB’s carrying value. As part of the general allowance, DNB reserves at the rate of approximately 6% to 10% on non-performing or impaired loans. DNB establishes a specific valuation allowance on impaired loans that have a collateral shortfall, including estimated costs to sell in comparison to the carrying value of the loan. Of the $10.2 million of impaired loans at June 30, 2013, $5.5 million had a valuation allowance of $1.9 million and $4.8 million had no specific allowance above the general allowance as of June 30, 2013.  Of the $12.3 million of impaired loans at December 31, 2012, $6.9 million had a valuation allowance of $1.0 million and $5.4 million had no specific allowance above the general allowance as of December 31, 2012.  For those impaired loans that management determined that no specific valuation allowance was necessary, management has reviewed the present value of the future cash flows or the appraisal for each loan and determined that there is no shortfall in the collateral. During the quarter ended June 30, 2013,  DNB recognized $816,000 in total charge-offs, $803,000 of which related to impaired loans.  An impaired loan may not represent an expected loss.

We typically order new third-party appraisals or collateral valuations when a loan becomes impaired or is transferred to OREO. This is done within two weeks of a loan becoming impaired or a loan moving to OREO. It generally takes two to eight weeks to receive the appraisals, depending on the type of property being appraised. We recognize any provision or related charge-off within two weeks of receiving the appraisal after the appraisal has been reviewed by DNB. We generally order a new appraisal for all impaired real estate loans having a balance of $100,000 or higher, every twelve months, unless management determines more frequent appraisals are necessary. We use updated valuations when time constraints do not permit a full appraisal process, to reflect rapidly changing market conditions. Because appraisals and updated valuations utilize historical data in reaching valuation conclusions, the appraised or updated value may or may not reflect the actual sales price that we will receive at the time of sale. Management uses the qualitative factor “Changes in the value of underlying collateral for collateral-dependent loans” to calculate any required write-down to mitigate this risk.

Real estate appraisals typically include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property) and the cost approach. Not all appraisals utilize all three approaches to value. Depending on the nature of the collateral and market conditions, the appraiser may emphasize one approach over another in determining the fair value of collateral.

Appraisals may also contain different estimates of value based on the level of occupancy or future improvements. “As-is” valuations represent an estimate of value based on current market conditions with no changes to the collateral’s use or condition. “As-stabilized” or “as-completed” valuations assume that the collateral is improved to a stated standard or achieves its highest and best use in terms of occupancy. “As-stabilized” valuations may be subject to a present value adjustment for market conditions or the schedule for improvements.

In connection with the valuation process, we will typically develop an exit strategy for the collateral by assessing overall market conditions, the current condition and use of the asset and its highest and best use. For most income-producing real estate, investors value most highly a stable income stream from the asset; consequently, we conduct a comparative evaluation to determine whether conducting a sale on an “as-is” basis or on an “as-stabilized” basis is most likely to produce the highest net realizable value and compare these values with the costs incurred and the holding period necessary to achieve the “as stabilized” value.

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Our estimates of the net realizable value of collateral include a deduction for the expected costs to sell the collateral or such other deductions as deemed appropriate. For most real estate collateral, we apply a seven to ten percent deduction to the value of real estate collateral to determine its expected costs to sell the asset.

Analysis of Allowance for Credit Losses

(Dollars in thousands)

		Six Months Ended June 30, 2013		Year Ended December 31, 2012		Six Months Ended June 30, 2012
Beginning balance	$	6,838	$	6,164	$	6,164
Provisions		555		1,455		900
Loans charged off:
Residential mortgage		(184)		(99)		(18)
Commercial mortgage		(394)		-		-
Commercial:
Commercial term		(222)		(38)		(18)
Commercial construction		-		(848)		(848)
Lease financing		(26)		(1)		(1)
Consumer:
Home Equity		-		-		-
Other		(5)		(31)		(9)
Total charged off		(831)		(1,017)		(894)
Recoveries:
Residential mortgage		70		21		10
Commercial mortgage		-		-		-
Commercial:
Commercial term		5		115		3
Commercial construction		-		-		-
Lease financing		53		72		10
Consumer:
Home Equity		-		-		21
Other		-		28		-
Total recoveries		128		236		44
Ending balance	$	6,690	$	6,838	$	6,214
Reserve for unfunded loan commitments	$	142	$	125	$	99

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The following table sets forth the composition of DNB’s allowance for credit losses for the dates indicated.

Composition of Allowance for Credit Losses

(Dollars in thousands)

		June 30, 2013				December 31, 2012
			Percent of				Percent of
			Loan Type				Loan Type
			to Total				to Total
		Amount	Loans			Amount	Loans
Residential mortgage	$	309	6	%	$	306	6	%
Commercial mortgage		3,110	58			3,094	59
Commercial:
Commercial term		484	21			506	21
Commercial construction		2,004	4			1,536	3
Lease financing		-	-			3	-
Consumer:
Home Equity		181	9			178	9
Other		80	2			86	2
Unallocated		522	-			1,129	-
Total	$	6,690	100	%	$	6,838	100	%
Reserve for unfunded loan commitments	$	142	-		$	125	-

NON-INTEREST INCOME

Non-interest income includes service charges on deposit products; fees received in connection with the sale of non-depository products and services, including fiduciary and investment advisory services offered through DNB First Investment Management and Trust; securities brokerage products and services and insurance products and services offered through DNB Investments & Insurance; and other sources of income such as increases in the cash surrender value of Bank Owned Life Insurance (“BOLI”), net gains on sales of investment securities, SBA loans and other real estate owned (“OREO”) properties. In addition, DNB receives fees for cash management, remote capture, merchant services, debit cards, safe deposit box rentals and similar activities.

Non-interest income for the three and six-month periods ended June 30, 2013 was $1.2 million and $2.4 million, compared to $1.2 million and $2.1 million for the same periods in 2012.  The $1,000 increase during the three months ended June 30, 2013 was mainly attributable to increased gains on sales of  investments of $76,000, an increase of $67,000 in wealth management fees, and a $15,000 increase in other fees, offset by decreases of $142,000 of gains on the sale of SBA loans and $14,000 on service charges on deposits.  During the six months ended June 30, 2013, non-interest income increased $278,000 over the same period in 2012. This increase was primarily due to a increases in gains on sales of investments of $135,000, wealth management of $125,000, other fees of $24,000, and gains on the sale of loans of $5,000, offset by a $9,000 decrease in service charges on deposits.

NON-INTEREST EXPENSE

Non-interest expense for the three and six-month periods ended June 30, 2013 was $4.3 million and $8.7 million compared to $4.3 million and $8.6 million for the same periods in 2012.  During the three months ended June 30, 2013, total non-interest expense decreased by $3,000.  The decrease was primarily due to a $104,000 decrease in other expenses (due primarily to Boothwyn branch conversion costs in 2012), a $43,000 decrease in professional and consulting, a $36,000 decrease in furniture and equipment, and an $18,000 decrease in printing and supplies. These decreases were offset by a $77,000 increase in salary and employee benefits, a $32,000 increase in FDIC insurance, a $30,000 increase in advertising and marketing, a $29,000 increase in occupancy and an $18,000 increase in loss on sale or write down of OREO.  During the six months ended June 30, 2013, total non-interest expense increased $68,000. The increase was primarily attributable to an increase in salary and employee benefits of  $128,000, an increase in occupancy of $72,000, an increase in FDIC insurance of $30,000 andan increase in PA shares tax of $24,000. These increases  were offset by a decrease in other expenses of $100,000, a decrease in furniture and equipment of $71,000 and a decrease in professional and consulting of $38,000. The increase in salary and employee benefits and occupancy during both the three and six month periods ended June 30, 2013 are primarily due to the Boothwyn branch acquisition in 2012.

41

INCOME TAXES

Income tax expense for the three and six-month periods ended June 30, 2013 was $430,000and $860,000 compared to $589,000 and $1.0 million for the same periods in 2012. The effective tax rate for the three and six-month periods ended June 30, 2013 was 25.6%  and 26.2% compared to 29.6%  and 29.3% for the same period in 2012. Income tax expense for each period differs from the amount determined at the statutory rate of 34.0% due to tax-exempt income on loans and investment securities, DNB's ownership of BOLI policies, and tax credits recognized on a low-income housing limited partnership.

ASSET QUALITY

Non-performing assets totaled $13.5 million at June 30, 2013 compared to $11.7 million at December 31, 2012 and $12.8 million at June 30, 2012. Total non-performing assets decreased $4.0 millionand increased $1.8 million during the three and sixmonths ended June 30, 2013.The $4.0 milliondecrease during the most recent quarter was primarily due tocharge-offs of $803,000 and the reduction of four non-accrual loans totalling $2.4 million.The non-performing loans to total loans ratio is2.60% at June 30, 2013,  down from 2.63% at December 31, 2012 and up from 2.21% at June 30, 2012. The non-performing assets to total assets ratio increased to 2.02% at June 30, 2013, up from1.82% at December 31, 2012. This ratio was 2.02% at June 30, 2012. The allowance to non-performing loans and leases ratio decreased from 69.0% at June 30, 2012 to 65.9% at June 30, 2013. DNB continues to work diligently to improve asset quality by adhering to strict underwriting standards and improving lending policies and procedures. Non-performing assets have, and will continue to have, an impact on earnings; therefore management intends to continue working aggressively to reduce the level of such assets.

Non-performing assets are comprised of non-accrual loans and leases, loans and leases delinquent over ninety days and still accruing, as well as Other Real Estate Owned (“OREO”) and other repossessed assets. Non-accrual loans and leases are loans and leases for which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the policy of DNB to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more (unless the loan principal and interest are determined by management to be fully secured and in the process of collection), or earlier if considered prudent. Interest received on such loans is applied to the principal balance, or may, in some instances, be recognized as income on a cash basis. A non-accrual loan or lease may be restored to accrual status when management expects to collect all contractual principal and interest due and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. OREO consists of real estate acquired by foreclosure. Other repossessed assets are primarily assets from DNB’s commercial lease portfolio that were repossessed. OREO and other repossessed assets are carried at the lower of cost or estimated fair value, less estimated disposition costs. Any significant change in the level of non-performing assets is dependent, to a large extent, on the economic climate within DNB’s market area.

DNB’s Credit Policy Committee monitors the performance of the loan and lease portfolio to identify potential problem assets on a timely basis. Committee members meet to design, implement and review asset recovery strategies, which serve to maximize the recovery of each troubled asset. As of June 30, 2013, DNB had $8.0million of loans classified as substandard, which, although performing at that date, are believed to require increased supervision and review; and may, depending on the economic environment and other factors, become non-performing assets in future periods. The amount of such loans at December 31, 2012 was $14.2 million. The majority of the loans are secured by commercial real estate, with lesser amounts being secured by residential real estate, inventory and receivables.

42

The following table sets forth those assets that are: (i) placed on non-accrual status, (ii) contractually delinquent by 90 days or more and still accruing, and (iii) OREO as a result of foreclosure or voluntary transfer to DNB as well as other repossessed assets. In addition, the table sets forth DNB's asset quality and allowance coverage ratios at the dates indicated:

Non-Performing Assets

(Dollars in thousands)

		June 30, 2013		December 31, 2012		June 30, 2012
Non-accrual loans:
Residential mortgage	$	2,265	$	2,196	$	2,286
Commercial mortgage		3,286		2,804		322
Commercial:
Commercial term		-		-		87
Commercial construction		4,326		4,326		6,090
Lease financing		-		28		60
Consumer:
Home Equity		60		64		119
Other		102		147		40
Total non-accrual loans		10,039		9,565		9,004
Loans 90 days past due and still accruing		106		869		-
Total non-performing loans		10,145		10,434		9,004
Other real estate owned & other repossessed property		3,325		1,237		3,776
Total non-performing assets	$	13,470	$	11,671	$	12,780
Asset quality ratios:
Non-performing loans to total loans		2.60	%	2.63	%	2.21	%
Non-performing assets to total assets		2.02		1.82		2.02
Allowance for credit losses to:
Total loans and leases		1.72		1.72		1.53
Non-performing loans and leases		65.9		65.5		69.0

Included in the loan and lease portfolio are loans for which DNB has ceased the accrual of interest.  If contractual interest income had been recorded on non-accrual loans, interest would have been increased as shown in the following table:

		Six Months Ended		Year Ended		Six Months Ended
		June 30,		December 31,		June 30,
(Dollars in thousands)		2013		2012		2012
Interest income which would have been
recorded under original terms	$	378	$	488	$	224
Interest income recorded during the period		(3)		(372)		(56)
Net impact on interest income	$	375	$	116	$	168

43

Impaired loans are measured for impairment using the fair value of the collateral for collateral dependent loans. Information regarding impaired loans is presented as follows:

		At and For the		At and For the		At and For the
		Six Months Ended		Year Ended		Six Months Ended
		June 30,		December 31,		June 30,
(Dollars in thousands)		2013		2012		2012
Total recorded investment	$	10,218	$	12,323	$	9,146
Impaired loans with a specific allowance		5,457		6,891		2,114
Impaired loans without a specific allowance		4,761		5,432		7,032
Average recorded investment		12,728		8,737		8,018
Specific allowance allocation		1,926		1,015		851
Total cash collected		819		3,257		249
Interest income recorded		3		372		56

LIQUIDITY AND CAPITAL RESOURCES

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes.  DNB’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization, or that can be used as collateral to secure funding.  As part of its liquidity management, DNB maintains assets that comprise its primary liquidity, which totaled $126.8 million at June 30, 2013 compared to $132.8 million at December 31, 2012.  Primary liquidity includes investments, Federal funds sold and cash and due from banks, less pledged securities.  DNB also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.

In addition, DNB maintains borrowing arrangements with various correspondent banks, the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs.  Through these relationships, DNB has available credit of approximately $206.8 million.  As a member of the FHLB, we are eligible to borrow up to a specific credit limit which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of June 30, 2013, our Maximum Borrowing Capacity with the FHLB was $173.8 million. At June 30, 2013, DNB had borrowed $10.0 million and the FHLB had issued letters of credit, on DNB's behalf, totaling $20.0 million against its available credit lines. At June 30, 2013, we also had available $33.0 million of unsecured federal funds lines of credit with other financial institutions as well as $30.0 million of available short or long term funding through the Certificate of Deposit Account Registry Service (CDARS) program. Management believes that DNB has adequate resources to meet its short-term and long-term funding requirements.

On August 5, 2011, Standard & Poor's downgraded the credit rating of the U.S. Government and federal agencies, including the FHLB, from AAA to AA+ , with a negative outlook.  Any future downgrades, in the credit ratings of the U.S. Government and the FHLB could likely increase the borrowing costs of the FHLB and possibly have a negative impact on its operations and long-term performance.  It is possible this could have an adverse effect on the value of the Corporation's investment in FHLB stock. 

At June 30, 2013, DNB had $80.5 million in un-funded loan commitments.  Management anticipates these commitments will be funded by means of normal cash flows. Certificates of deposit greater than or equal to $100,000 scheduled to mature in one year or less from June 30, 2013 totaled $35.4 million.  Management believes that the majority of such deposits will be reinvested with DNB and that certificates that are not renewed will be funded by a reduction in cash and cash equivalents or by pay-downs and maturities of loans and investments.

The Corporation and the Bank have each met the definition of “well capitalized” for regulatory purposes on June 30, 2013.  The Bank’s capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations and for determining levels of deposit insurance assessments and may not constitute an accurate representation of the Corporation’s or the Bank’s overall financial condition or prospects. The Corporation’s capital exceeds the FRB’s minimum leverage ratio requirements for bank holding companies (see additional discussion included in Footnote 16 of DNB’s December 31, 2012 Form 10-K).

Under federal banking laws and regulations, DNB and the Bank are required to maintain minimum capital as determined by certain regulatory ratios. Capital adequacy for regulatory purposes, and the capital category assigned to an institution by its regulators, may be determinative of an institution’s overall financial condition.

44

The following table summarizes data and ratios pertaining to the Corporation and the Bank's capital structure.

										To Be Well
										Capitalized
										Under
										Prompt
						For Capital				Corrective
						Adequacy				Action
		Actual				Purposes				Provisions
(Dollars in thousands)		Amount	Ratio			Amount	Ratio			Amount	Ratio
DNB Financial Corporation
June 30, 2013
Total risk-based capital	$	73,988	16.5	%	$	35,931	8.0	%		N/A	N/A
Tier 1 risk-based capital		68,364	15.2			17,966	4.0			N/A	N/A
Tier 1 (leverage) capital		68,364	10.4			26,248	4.0			N/A	N/A
December 31, 2012
Total risk-based capital	$	71,775	15.9	%	$	36,153	8.0	%		N/A	N/A
Tier 1 risk-based capital		66,115	14.6			18,076	4.0			N/A	N/A
Tier 1 (leverage) capital		66,115	10.5			25,189	4.0			N/A	N/A
DNB First, N.A.
June 30, 2013
Total risk-based capital	$	73,958	16.5	%	$	35,898	8.0	%	$	44,873	10.0	%
Tier 1 risk-based capital		68,334	15.2			17,949	4.0			26,924	6.0
Tier 1 (leverage) capital		68,334	10.4			26,197	4.0			32,747	5.0
December 31, 2012
Total risk-based capital	$	71,737	15.9	%	$	36,119	8.0	%	$	45,149	10.0	%
Tier 1 risk-based capital		66,077	14.6			18,060	4.0			27,090	6.0
Tier 1 (leverage) capital		66,077	10.5			25,110	4.0			31,387	5.0

In addition, the Federal Reserve Bank (the "FRB") leverage ratio rules require bank holding companies to maintain a minimum level of "primary capital" to total assets of 5.5% and a minimum level of "total capital" to total assets of 6%.  For this purpose, (i) "primary capital" includes, among other items, common stock, certain perpetual debt instruments such as eligible Trust preferred securities, contingency and other capital reserves, and the allowance for loan losses, (ii) "total capital" includes, among other things, certain subordinated debt, and "total assets" is increased by the allowance for loan losses.  DNB's primary capital ratio and its total capital ratio are both well in excess of FRB requirements.

REGULATORY MATTERS

Dividends payable to the Corporation by the Bank are subject to certain regulatory limitations. Under normal circumstances, the payment of dividends in any year without regulatory permission is limited to the net profits (as defined for regulatory purposes) for that year, plus the retained net profits for the preceding two calendar years.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To measure the impacts of longer-term asset and liability mismatches beyond two years, DNB utilizes an Economic Value of Equity ("EVE") model.  The EVE model measures the potential price risk of equity to changes in interest rates and factors in the optionality included on the balance sheet.  EVE analysis is used to dynamically model the present value of asset and liability cash flows, with rates ranging up or down 200 basis points.  The EVE is likely to be different if rates change.  Results falling outside prescribed ranges may require action by management.  AtJune 30, 2013 and December 31, 2012, DNB's variance in the EVE as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points was within its negative 3% guideline, as shown in the table below. The change as a percentage of the present value of equity with a 200 basis point increase was within DNB's negative 25% guideline at June 30, 2013 and December 31, 2012.

45

(Dollars in thousands)		June 30, 2013						December 31, 2012
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	78,088	$	75,569	$	68,019	$	65,903	$	61,701	$	54,711
Change				(2,519)		(10,069)				(4,202)		(11,192)
Change as % of assets				(0.4%)		(1.5%)				(0.7%)		(1.7%)
Change as % of PV equity				(3.2%)		(12.9%)				(6.4%)		(17.0%)

ITEM 4- CONTROLS AND PROCEDURES

DNB’s Management, with the participation of our Chief Executive Officer and Chief Financial Officer,has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2013, the end of the period covered by this report, in accordance with the requirements of Exchange Act Rule 240.13a-15(b). Based on that evaluation, Management has concluded that DNB’s current disclosure controls and procedures are effective.

Management of DNB is responsible for establishing and maintaining adequate internal control over financial reporting for DNB, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  There was no change in DNB’s “internal control over financial reporting” (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, DNB’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Neither DNB nor any of its subsidiaries is a party to, nor is any of their property the subject of, any material legal proceedings other than ordinary routine litigation incident to their businesses.

ITEM 1A. RISK FACTORS

Not applicable

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities during the quarter ended June 30, 2013.The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended June 30, 2013:

				Total Number of		Maximum Number
				Shares Purchased		of Shares that May
	Total Number		Average	as Part of Publicly		Yet Be Purchased
	Of Shares		Price Paid	Announced Plans		Under the Plans or
Period	Purchased		Per Share	or Programs		Programs (a)
April 1, 2013– April 30, 2013	-	$	-	-	$	63,016
May 1, 2013– May 31, 2013	-		-	-	$	63,016
June 1, 2013– June 30, 2013	-		-	-	$	63,016
Total	-	$	-	-

On July 25, 2001, DNB authorized the buyback of up to 175,000 shares of its common stock over an indefinite period. On August 27, 2004, DNB increased the buyback from 175,000 to 325,000 shares of its common stock over an indefinite period.

46

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

a) The following exhibits are filed or furnished herewith:

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation, as amended effective December 8, 2008, filed March 31, 2009 as item 3(i) to Form 10-K for the fiscal year-ended December 31, 2008 (No. 1-34242) and incorporated herein by reference.
3.2	Bylaws of the Registrant as amended December 8, 2008, filed March 31, 2009 as item 3(ii) to Form 10-K for the fiscal year-ended December 31, 2008 (No. 1-34242) and incorporated herein by reference.
3.3	Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series 2008A of DNB Financial Corporation, filed as Exhibit 4.3 to Form 8-K (No. 1-34242) on January 26, 2009 and incorporated herein by reference.
10.1	Agreement of Lease dated February 10, 2005 between Headwaters Associates, a Pennsylvania general partnership, as Lessor, and DNB First, National Association as Lessee for a portion of premises at 2 North Church Street, West Chester, Pennsylvania, filed March 10, 2005 as Item 10(l) to Form 10-K for the fiscal year ended December 31, 2004 (No. 1-34242) and incorporated herein by reference, as amended by Addendum to Agreement of Lease dated as of November 15, 2005, filed March 23, 2006 as Item 10(l) to Form 10-K for the fiscal year ended December 31, 2005 (No. 1-34242) and incorporated herein by reference, and as further amended by Second Addendum to Agreement of Lease dated as of May 25, 2006, filed August 14, 2006 as Item 10(l) to Form 10-Q for the fiscal quarter ended June 30, 2006 (No. 1-34242) and incorporated herein by reference, and as further amended by Third Addendum to Agreement of Lease dated as of June 9, 2010, filed August 13, 2010 as Item 10(f) to Form 10-Q for the fiscal quarter ended June 30, 2010 (No. 1-34242) and incorporated herein by reference and as further amended by Fourth Addendum to Agreement of Lease dated as of June 30, 2013, filed herewith.
31.1	Rule 13a-14(a)/15d-14 (a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14 (a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

47

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

overmber
		DNB FINANCIAL CORPORATION
August9, 2013	BY:	/s/ William S. Latoff
		William S. Latoff, Chairman of the Board and Chief Executive Officer
August9, 2013	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

48

Exhibit Number	Exhibit Index Description
3.1	Amended and Restated Articles of Incorporation, as amended effective December 8, 2008, filed March 31, 2009 as item 3(i) to Form 10-K for the fiscal year-ended December 31, 2008 (No. 1-34242) and incorporated herein by reference.
3.2	Bylaws of the Registrant as amended December 8, 2008, filed March 31, 2009 as item 3(ii) to Form 10-K for the fiscal year-ended December 31, 2008 (No. 1-34242) and incorporated herein by reference.
3.3	Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series 2008A of DNB Financial Corporation, filed as Exhibit 4.3 to Form 8-K (No. 1-34242) on January 26, 2009 and incorporated herein by reference.
10.1	Agreement of Lease dated February 10, 2005 between Headwaters Associates, a Pennsylvania general partnership, as Lessor, and DNB First, National Association as Lessee for a portion of premises at 2 North Church Street, West Chester, Pennsylvania, filed March 10, 2005 as Item 10(l) to Form 10-K for the fiscal year ended December 31, 2004 (No. 1-34242) and incorporated herein by reference, as amended by Addendum to Agreement of Lease dated as of November 15, 2005, filed March 23, 2006 as Item 10(l) to Form 10-K for the fiscal year ended December 31, 2005 (No. 1-34242) and incorporated herein by reference, and as further amended by Second Addendum to Agreement of Lease dated as of May 25, 2006, filed August 14, 2006 as Item 10(l) to Form 10-Q for the fiscal quarter ended June 30, 2006 (No. 1-34242) and incorporated herein by reference, and as further amended by Third Addendum to Agreement of Lease dated as of June 9, 2010, filed August 13, 2010 as Item 10(f) to Form 10-Q for the fiscal quarter ended June 30, 2010 (No. 1-34242) and incorporated herein by reference and as further amended by Fourth Addendum to Agreement of Lease dated as of June 30, 2013, filed herewith.
31.1	Rule 13a-14(a)/15d-14 (a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14 (a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

49

EX-10.1

FOUTH ADDENDUM TO ACGREEMENT OF LEASE

THIS FOURTH ADDENDUM TO AGREEMENT OF LEASSE, dated as of June 30, 2013 (this "Addendum") is made by and between HEADWATERS ASSOCIATES, a Pennsylvania general partnership, with an address at 10 North Church Street, Suite 307, West Chester,  Chester County, Pennsylvania 19380 ("Lessor") and DNB FIRST, NATIONAL ASSOCIATION, a national banking association having a principal place of business at 4 Brandywine Avenue, Downingtown, Chester County, Pennsylvania 19335 ("Lessee").

Background

A.On February 10, 2005, Lessor and Lessee entered into an Agreement of Lease (the “Original Lease”), providing for a lease from Lessor to Lessee of certain premises consisting of 4,770 square feet (the “Original Leased Premises”) on the first floor space of the four story building at 2 North Church Street, West Chester, Pennsylvania (the “Building”).

B. Lessor and Lessee entered into an Addendum to Agreement of Lease dated as of November 15, 2005 (the “First Addendum”), pursuant to which the parties agreed to add certain third floor conference room space as “Additional Leased Premises” under the Lease and to provide for additional rent and other terms relating to the Additional Leased Premises.

C.Lessor and Lessee entered into a Second Addendum to Agreement of Lease dated as of May 25, 2006 (the “Second Addendum”), pursuant to which the parties agreed to adjust the rentals to conform to the actual square footage, on the terms and conditions contained therein.

D.Lessor and Lessee entered into a Third Addendum to Agreement of Lease dated as of June 9, 2010 (the “Third Addendum”), pursuant to which the parties agreed, among other things, for Lessor to lease and Lessee to let additional space on the fourth floor of the Building comprised of 3,930 square feet (the “Fourth Floor Leased Premises”), andrenew the lease of the Original Leased Premises (first floor – approximately 4,998 square feet) for ten (10) years.

E.The Original Lease, the First Addendum, the Second Addendum and the Third Addendum are referred to collectively as the “Lease.”  Capitalized terms not otherwise defined in this Addendum shall have the meaning ascribed to such terms in the Lease.

F.Lessor and Lesse desire to amend the Lease for, among other things, the following: (1) Lessor to lease and Lessor to let an additional 2,888 square feet of the third floor of the Building, and (2)  to extend the Term of the Lease.

Agreement

NOW THEREFORE, intending to be legally bound hereby, and in consideration of the mutual benefits contained herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.Demise For Additional Third Floor Space. 

(a)Lessor, for and in consideration of the payment of the rentals specified in this Addendum, and the performance of the terms, covenants and agreements contained in the Lease and this Addendum, hereby demises and leases unto Lessee and Lessee hereby lets from the Lessor, an additional 2,888 square feet of the third floor of the Building (the “Additional Third Floor Leased Premises”) consisting of 1,804 of front space (the “Front Space”) and 1,084 of back space (the “Back Space”).  As a result, the total amount of Leased Premises on the third floor of the Building will consist of 3,391 square feet (the “Third Floor Leased Premises”).

(b)Payment of the Base Rent for the Additional Third Floor Leased Premises shall commence on: (i) November 1, 2013 for the Front Space, and (ii) July 1, 2014 for the Back Space. 

(c)Lessee accepts the Additional Third Floor Premises in “AS IS” condition and agrees to fit out the Additional Third Floor Premises at Lessee’s own cost and expenses in accordance with the Lease and subject to any requirement or stipulation required by any relevant competent government authority.  The fit out shall be performed in a good and proper workmanlike manner and in all respects in a style and manner appropriate to a first class office building and to maintain the same throughout the Term in good repair and condition.  Any delays in the fit out by Lessee shall not affect the commencement of the Term and the payment of the Base Rent and other amounts payable by Lessee in accordance with the provisions of the Lease and this Addendum.    It is hereby expressly agreed that: (i) Lessee shall obtain, at its own costs, the appropriate approval(s) from all relevant competent government authorities before commencing the fit out; and (ii) Lessor shall not be responsible for, and Lessee hereby indemnifies Lessor, from any liability or consequence resulting from Lessee’s performance of the fit out and/ or non-compliance with any requirement stipulated or imposed by relevant competent government authorities.

2.Term.  The Term of the Lease shall be the period from July 1, 2013 through June 30, 2023 unless extended pursuant Paragraph 5 below or sooner terminated.

3.Rent. 

(a)Subject to the increases calculated in accordance with subparagraph (b) below, Lessee shall pay to Lessor the fixed annual rent set forth on Exhibit “A” attached to this Addendum as Base Rent under the Lease.  The Base Rent shall be paid by Lessee in accordance with the terms of the Lease. 

(b)Beginning on July 1, 2014 and every subsequent July 1^st during the Term of the Lease, the annual Base Rent shall be increased each year in an amount equal to the increase, if any, in the Consumer Price Index, all urban consumers, Philadelphia – Wilmington - Atlantic City - CMSA as published by the U.S. Dept. of Labor, Bureau of Labor Statistics here and after “CPI” for the twelve (12) month period ending the immediately preceding April.  For example, the annual Base Rent for the year beginning July 1, 2014 shall be increased over the annual Base Rent for the prior year by the percentage increase, if any, in the CPI between April 2012 and April 2013.  Provided, however, the annual Base Rent for the Fourth Floor Leased Premises shall be adjusted beginning on July 1, 2015.

4.Annual Operating Expenses for Additional Third Floor Leased Premises.  Lessee shall pay 55.5% of metered utilities for the third floor of the Building.  Lessee’s Pro Rata Share of the Annual Operating Expenses due under the Lease shall increase by 16.5% for the Additional Third Floor Leased Premises. 

5.Options to Renew

(a)Lessee shall have the option to renew the Lease for three (3) additional, successive terms of five (5) years each (each, a “Renewal Term”), with each Renewal Term commencing consecutively upon the expiration of the Term as it may have been previously extended.  All of the terms and conditions applicable to the Term of this Lease shall also apply during each Renewal Term, except that during each Renewal Term, the Base Rent shall be the fair market rental taking into account all of the terms and conditions of this Lease.

(b)The renewal option shall be exercisable by written notice to Lessor at least one hundred eighty (180) days prior to the end of the then current Term, so long as Lessee is not then in Default under the Lease on the notice date or at the commencement of the Renewal Term.  If, within fifteen (15) days after Lessee’s written notice of exercise of the option, Lessee and Lessor shall have not agreed in writing on the amount and rate of Base Rent for the ensuing Renewal Term, the parties shall, within thirty (30) days after Lessee’s written notice, submit the dispute to binding arbitration by two licensed Pennsylvania real estate appraisers each having a minimum of ten (10) years’ experience in appraising commercial real estate in Chester County, Pennsylvania, one to be appointed by each of the parties.  If the two appraisers cannot agree on the fair market rent, they shall promptly select a third Pennsylvania real estate appraiser having a minimum of ten (10) years’ experience in appraising commercial real estate in Chester County, Pennsylvania.  The appraisers shall submit to Lessor and Lessee, within one hundred twenty (120) days after Lessee’s written notice (not less than sixty (60) days) prior to the commencement of the Renewal Term, a written determination as to the fair market rent for a Base Rent taking into account all of the terms and conditions of theLease, which shall be final and binding on Lessor and Lessee.  The cost of such arbitration shall be shared equally between the parties. 

(c)The Base Rent determined for any Renewal Term shall be subject to increase pursuant to Paragraph 3(b) of this Addendum. 

6.Reaffirmation of Lease.  Except as modified by the terms of this Addendum, the terms and conditions of the Leaseare hereby reaffirmed by Lessor and Lessee and remain in full force and effect. 

7.Miscellaneous

(a)Examination or review of this Addendum by or on behalf of either Lessor or Lessee shall not be construed as approval or acceptance hereof and this Lease shall not be effective until executed by duly authorized signatories of both Lessor and Lessee.  This Addendum may not be amended or modified except by a writing signed by Lessor and Lessee.

(b)No consent or waiver, express or implied, by Lessor or Lessee to or of any breach or any agreement or duty to the other shall be construed as a consent or waiver of any other breach of the same or any other agreement or duty.

(c)The invalidity or unenforceability of any provision of this Addendum shall not affect or render invalid or unenforceable any other provision hereof.

(d)This Addendum and the Lease shall be construed under the laws and judicial interpretations of the Commonwealth of Pennsylvania, as they may be pre-empted by federal law.

(e)This Addendum shall not be recorded in whole or in memorandum form by Lessee without the prior written consent of Lessor.

(f)Lessor and Lessee represent and warrant to each other that they have not consulted or contacted any agent, broker, or finder in connection with this Addendum.  Lessor and Lessee agree to defend, indemnify and hold the other harmless from any and all claims for compensation or commission, or any portion thereof, in connection with this Lease by any broker, agent, or finder (other than Broker) claiming to have dealt with the indemnifying party.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Lessor and Lessee have caused the due execution of this Addendum on their respective behalf.

LESSOR:

HEADWATERS ASSOCIATES

By:________________________________

     William Dalusio, General Partner

LESSEE:

DNB FIRST, NATIONAL ASSOCIATION

By:_______________________________

Name:  William J. Hieb

      Title:  President

[SIGNATURE PAGE TO FOURTH ADDENDUM TO LEASE]

EXHIBIT “A”

BASE RENT1

A. First Floor

Year(s)	From	To	Rent Per Square Foot	Square Feet	Monthly Rent
1 – 10	July 1, 2013	June 30, 2023	$27.06	4,998	$11,272

B. Third Floor

Year(s)	From	To	Rent Per Square Foot	Square Feet	Monthly Rent
1	July 1, 2013	October 31, 2013	$20	3,391	$838 2
1	November 1, 2013	June 30, 2014	$20	3,391	$3,845 3
2 -10	July 1, 2014	June 30, 2023	$20	3,391	$5,652

C. Fourth Floor

Year(s)	From	To	Rent Per Square Foot	Square Feet	Monthly Rent
1	July 1, 2013	June 30, 2014	$15.50	3,930	$5,076.25
2-10	July 1, 2014	June 30, 2023	$16	3,930	$5,240

1.Subject to adjustment pursuant to Paragraph 3(b)

2.No Base Rent from Front Space and Back Space

3.No Base Rent for Back Space

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT

TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William S. Latoff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DNB Financial Corporation (the "Registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

/s/ William S. Latoff

William S. Latoff

Chairman and Chief Executive Officer

August 9, 2013

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT

TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Gerald F. Sopp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DNB Financial Corporation (the "Registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

/s/ Gerald F. Sopp

Gerald F. Sopp

Chief Financial Officer

August 9, 2013

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DNB Financial Corporation (the "Registrant") on Form 10-Q for the period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William S. Latoff, Chairman and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ William S. Latoff

William S. Latoff

Chairman and Chief Executive Officer

August 9, 2013

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DNB Financial Corporation (the "Registrant") on Form 10-Q for the period ended  June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald F. Sopp, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Gerald F. Sopp

Gerald F. Sopp

Chief Financial Officer

August 9, 2013

XML

Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 9: STOCK-BASED COMPENSATION

Stock Option Plan

DNB has a Stock Option Plan for employees and directors. Under the plan, options (both qualified and non-qualified) to purchase a maximum of 793,368 (as adjusted for subsequent stock dividends) shares of DNB’s common stock could be issued to employees and directors. Under the plan, option exercise prices must equal the fair market value of the shares on the date of option grant and the option exercise period may not exceed ten years. Vesting of options under the plan is determined by the Plan Committee. There were 328,964 shares available for grant at June 30, 2013. All options with the exception of 44,600 options granted on April 23, 2010 and 44,600 options granted on December 12, 2011 are immediately exercisable. DNB expensed $34,000 during the six months ended June 30, 2013 and anticipates additional expense of $19,000 through April 23, 2014 for the options granted on April 23, 2010 and $66,000 through December 12, 2014 for the options granted on December 12, 2011, the dates the options can first be exercised. Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2013	214,618	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		10.31
Expired	-		-
Outstanding June 30, 2013	213,618	$	16.00

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2012	236,438	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		6.93
Expired	-		-
Outstanding June 30, 2012	235,438	$	16.01

The weighted-average price and weighted average remaining contractual life for the outstanding options are listed below for the dates indicated. 

	June 30, 2013
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	85,050	-	$	8.65	4.65 years	$	770,000
	14.00-19.99	61,715	61,715		17.62	2.22 years		-
	20.00-22.99	18,812	18,812		22.78	1.48 years		-
	23.00-24.27	48,041	48,041		24.27	1.80 years		-
	Total	213,618	128,568	$	16.00	3.03 years	$	770,000

	June 30, 2012
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	87,200	-	$	8.66	5.65 years	$	422,000
	14.00-19.99	81,096	81,096		17.44	2.46 years		-
	20.00-22.99	19,101	19,101		22.78	2.48 years		-
	23.00-24.27	48,041	48,041		24.27	2.80 years		-
	Total	235,438	148,238	$	16.01	3.71 years	$	422,000

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 243,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three years after the date of the grant or a change in control of DNB if the recipients are then employed by DNB (“Vest Date”).  Upon issuance of the shares, resale of the shares is restricted for an additional one year, during which the shares may not be sold, pledged or otherwise disposed of. Prior to the Vest Date and in the event the recipient terminates association with DNB for reasons other than death, disability or change in control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant.

Share awards granted by the Plan were recorded at the date of award based on the market value of shares.  Awards are being amortized to expense over the three-year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized.  For the three and six month periods ended June 30, 2013, $32,000 and $72,000 were amortized to expense, respectively. For the three and six month periods ended June 30, 2012, $18,000 and $36,000 were amortized to expense, respectively. As of June 30, 2013, there was approximately $339,000 in additional compensation that will be recognized over the remaining service period of approximately 2.18 years. At June 30, 2013, 158,754 shares were reserved for future grants under the Plan.  

Stock grant activity is indicated below:

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2013	48,270	$	11.39
Granted	-		-
Forfeited	400		15.56
Vested	14,200		6.93
Non-vested stock awards—June 30, 2013	33,670	$	13.22

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2012	29,200	$	8.67
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2012	29,200	$	8.67

XML

Fair Value Of Financial Instruments (Estimate Of The Fair Value Of All Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents, fair value	$ 54,040	$ 17,149
AFS investment securities, fair value	131,643	135,288
HTM investment securities, fair value	66,147	68,307
Restricted stock, fair value	2,964	3,426
Loans and leases, net of allowance, fair value	379,731	391,533
Accrued interest receivable, fair value	2,463	2,470
Repurchase agreements, fair value	23,233	17,014
FHLBP advances, fair value	11,425	21,592
Junior subordinated debentures and other borrowings, fair value	9,590	9,256
Accrued interest payable, fair value	396	421
Cash and cash equivalents, carrying amount	54,040	17,149	16,386	32,877
Available-for-sale securities, carrying amount	131,643	135,288
Held to Maturity, Total investment securities, Amortized Cost	67,274	66,024
Restricted stock, carrying amount	2,964	3,426
Loans and leases, net of allowance, carrying amount	383,100	389,660
Accrued interest receivable, carrying amount	2,463	2,470
Non-interest-bearing deposits, carrying amount	91,200	85,055
Time, carrying amount	93,621	102,316
Repurchase agreements, carrying amount	23,233	17,014
FHLBP advances, carrying amount	10,000	20,000
Junior subordinated debentures and other borrowings, carrying amount	9,279	9,279
Accrued interest payable, carrying amount	396	421
Non-interest-bearing deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	91,200	85,055
Non-interest-bearing deposits, carrying amount	91,200	85,055
Interest-bearing Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	377,087	343,053
Interest-bearing deposits, carrying amount	377,087	343,053
Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	94,098	103,045
Time, carrying amount	93,621	102,316
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents, fair value	54,040	17,149
AFS investment securities, fair value	16	14
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
AFS investment securities, fair value	131,627	135,274
HTM investment securities, fair value	66,147	68,307
Restricted stock, fair value	2,964	3,426
Loans and leases, net of allowance, fair value	379,731
Accrued interest receivable, fair value	2,463	2,470
Repurchase agreements, fair value	23,233	17,014
FHLBP advances, fair value	11,425	21,592
Junior subordinated debentures and other borrowings, fair value	9,590
Accrued interest payable, fair value	396	421
Level 2 [Member] | Non-interest-bearing deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	91,200	85,055
Level 2 [Member] | Interest-bearing Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	377,087	343,053
Level 2 [Member] | Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value	94,098	103,045
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents, fair value
AFS investment securities, fair value
HTM investment securities, fair value
Restricted stock, fair value
Loans and leases, net of allowance, fair value		391,533
Accrued interest receivable, fair value
Deposits, fair value
Repurchase agreements, fair value
FHLBP advances, fair value
Junior subordinated debentures and other borrowings, fair value		9,256
Accrued interest payable, fair value
Off-balance sheet instruments, fair value
Level 3 [Member] | Non-interest-bearing deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value
Level 3 [Member] | Interest-bearing Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value
Level 3 [Member] | Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposits, fair value

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Interest Income:
Interest and fees on loans and leases	$ 4,875	$ 5,555	$ 9,699	$ 11,060
Interest and dividends on investment securities: Taxable	720	861	1,401	1,584
Interest and dividends on investment securities: Exempt from federal taxes	275	122	532	243
Interest on cash and cash equivalents	17	10	29	20
Total interest and dividend income	5,887	6,548	11,661	12,907
Interest Expense:
Interest on NOW, money market and savings	188	232	382	455
Interest on time deposits	277	403	568	837
Interest on FHLB advances	148	211	354	422
Interest on repurchase agreements	11	19	25	41
Interest on junior subordinated debentures	76	82	152	163
Interest on other borrowings	19	20	38	40
Total interest expense	719	967	1,519	1,958
Net interest income	5,168	5,581	10,142	10,949
Provision for credit losses	375	475	555	900
Net interest income after provision for credit losses	4,793	5,106	9,587	10,049
Non-interest Income:
Service charges	315	329	660	669
Wealth management	301	234	592	467
Increase in cash surrender value of BOLI	58	59	116	118
Gains on sale of investment securities, net	155	79	214	79
Gain on sale of SBA loans	16	158	163	158
Other fees	314	299	613	589
Total non-interest income	1,159	1,158	2,358	2,080
Non-interest Expense:
Salaries and employee benefits	2,251	2,174	4,615	4,487
Furniture and equipment	280	316	564	635
Occupancy	492	463	1,011	939
Professional and consulting	263	306	580	618
Advertising and marketing	167	137	327	315
Printing and supplies	47	65	88	101
FDIC insurance	158	126	263	233
PA shares tax	153	141	307	283
Telecommunications	57	54	115	105
Postage	20	23	41	38
Loss on sale or write down of OREO	18		28	17
Other expenses	366	470	721	821
Total non-interest expense	4,272	4,275	8,660	8,592
Income before income tax expense	1,680	1,989	3,285	3,537
Income tax expense	430	589	860	1,035
Net income	1,250	1,400	2,425	2,502
Preferred stock dividends and accretion of discount	36	130	73	258
Net income available to Common Shareholders	$ 1,214	$ 1,270	$ 2,352	$ 2,244
Earnings per common share:
Basic	$ 0.44	$ 0.47	$ 0.86	$ 0.83
Diluted	$ 0.44	$ 0.46	$ 0.85	$ 0.82
Cash dividends per common share	$ 0.07	$ 0.05	$ 0.14	$ 0.10
Weighted average common shares outstanding:
Basic	2,740,756	2,707,662	2,733,051	2,704,816
Diluted	2,773,637	2,735,808	2,767,847	2,730,800

XML

Branch Purchase

6 Months Ended

Jun. 30, 2013

Branch Purchase [Abstract]

Branch Purchase

NOTE 2: BRANCH PURCHASE

On April 2, 2012, the Bank entered into a Purchase and Assumption Agreement with Capital Bank, National Association, to acquire certain assets and assume certain liabilities of one full-service branch office of Capital Bank located in Boothwyn, Pennsylvania (the "Branch Acquisition").

The Bank consummated the Branch Acquisition on June 11, 2012.  The Bank purchased specified assets of the branch, including personal loans totaling $66,000, real estate, furniture and equipment totaling $670,000 and  assumed approximately $15.9 million of deposits.  The Branch Acquisition includes the payment to Capital Bank of $130,000 or a 0.82%  premium on the deposits, which has been recorded as a core deposit intangible.

XML

Loans And Leases (Tables)

6 Months Ended

Jun. 30, 2013

Loans And Leases [Abstract]

Total Loans And Leases Outstanding

(Dollars in thousands)		June 30, 2013		December 31, 2012
Residential mortgage	$	24,788	$	25,835
Commercial mortgage		227,467		234,202
Commercial:
Commercial term		80,591		81,888
Commercial construction		14,330		12,247
Lease financing		4		67
Consumer:
Home equity		36,200		35,322
Other		6,410		6,937
Total loans and leases	$	389,790	$	396,498
Less allowance for credit losses		(6,690)		(6,838)
Net loans and leases	$	383,100	$	389,660

Interest Income On Non-Accrual Loans

		Six Months Ended
		June 30,
(Dollars in thousands)		2013		2012
Interest income which would have been recorded under original terms	$	378	$	224
Interest income recorded during the period		(3)		(56)
Net impact on interest income	$	375	$	168

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Taxes [Abstract]

Income Taxes

NOTE 10:  INCOME TAXES

As of June 30, 2013, the Corporation had no material unrecognized tax benefits or accrued interest and penalties. It is the Corporation’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.  Federal and state tax years 2009 through 2011 were open for examination as of June 30, 2013.

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Stock-Based Compensation (Stock Grant Activity) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Stock-Based Compensation [Abstract]
Non-vested stock awards, Shares, beginning balance	48,270	29,200
Granted, Shares
Forfeited, Shares	400
Vested, Shares	14,200
Non-vested stock awards, Shares, ending balance	33,670	29,200
Non-vested stock awards, Weighted Average Stock Price	$ 11.39	$ 8.67
Granted, Weighted Average Stock Price
Forfeited, Weighted Average Stock Price	$ 15.56
Vested, Weighted Average Stock Price	$ 6.93
Non-vested stock awards, Weighted Average Stock Price	$ 13.22	$ 8.67

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Allowance For Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	$ 1,092	$ 1,017
60 to 89 Days Past Due	226	319
Greater than 90 Days	10,066	8,035
Total Past Due	11,384	9,371
Current	378,406	387,127
Total Loans Receivables	389,790	396,498
Loans Receivable >90 Days and Accruing	106	869
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	316	692
60 to 89 Days Past Due	131	319
Greater than 90 Days	2,371	2,256
Total Past Due	2,818	3,267
Current	21,970	22,568
Total Loans Receivables	24,788	25,835
Loans Receivable >90 Days and Accruing	106	60
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	525	68
Greater than 90 Days	3,286	3,514
Total Past Due	3,811	3,582
Current	223,656	230,620
Total Loans Receivables	227,467	234,202
Loans Receivable >90 Days and Accruing		710
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	80,591	81,888
Total Loans Receivables	80,591	81,888
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	4,326	2,031
Total Past Due	4,326	2,031
Current	10,004	10,216
Total Loans Receivables	14,330	12,247
Lease Financing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	4
Greater than 90 Days		28
Total Past Due	4	28
Current		39
Total Loans Receivables	4	67
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	151	162
60 to 89 Days Past Due	78
Greater than 90 Days	60	152
Total Past Due	289	314
Current	35,911	35,008
Total Loans Receivables	36,200	35,322
Loans Receivable >90 Days and Accruing		92
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	96	95
60 to 89 Days Past Due	17
Greater than 90 Days	23	54
Total Past Due	136	149
Current	6,274	6,788
Total Loans Receivables	6,410	6,937
Loans Receivable >90 Days and Accruing		$ 7

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Income [Abstract]

Components Of Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Income (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2013
Net unrealized loss on AFS securities	$	(1,122)	$	381	$	(741)
Discount on AFS to HTM reclassification		(40)		14		(26)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(3,395)	$	1,154	$	(2,241)
December 31, 2012
Net unrealized gain on AFS securities	$	1,253	$	(426)	$	827
Discount on AFS to HTM reclassification		(54)		18		(36)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(1,034)	$	351	$	(683)

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Computation Of Basic And Diluted Earnings Per Share

		Three Months Ended					Six Months Ended
		June 30, 2013					June 30, 2013
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,214	2,741	$	0.44	$	2,352	2,733	$	0.86
Effect of potential dilutive common stock equivalents– stock options and  restricted shares		-	33		-		-	35		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,214	2,774	$	0.44	$	2,352	2,768	$	0.85

		Three Months Ended					Six Months Ended
		June 30, 2012					June 30, 2012
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,270	2,708	$	0.47	$	2,244	2,705	$	0.83
Effect of potential dilutive common stock equivalents– stock options, restricted shares and warrants		-	28		(0.01)		-	26		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,270	2,736	$	0.46	$	2,244	2,731	$	0.82

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Stock-Based Compensation (Stock Option Activity) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Stock-Based Compensation [Abstract]
Outstanding	214,618	236,438
Weighted Average Exercise Price	$ 15.98	$ 15.98
Forfeited	1,000	1,000
Forfeited, Weighted Average Exercise Price	$ 10.31	$ 6.93
Outstanding	213,618	235,438
Weighted Average Exercise Price	$ 16.00	$ 16.01

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Investment Securities (Investments Classified By Contractual Maturity Date) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investment Securities [Abstract]
Held to Maturity, Due after five years through ten years, Amortized Cost	$ 24,564
Held to Maturity, Due after ten years, Amortized Cost	42,710
Held to Maturity, Total investment securities, Amortized Cost	67,274	66,024
Held to Maturity, Due after five years through ten years, Estimated Fair Value	24,829
Held to Maturity, Due after ten years, Estimated Fair Value	41,318
Held-to-maturity, Total investment securities, Estimated Fair Value	66,147	68,307
Available for Sale, Due in one year or less, Amortized Cost	8,450
Available for Sale, Due after one year through five years, Amortized Cost	37,794
Available for Sale, Due after five years through ten years, Amortized Cost	34,237
Available for Sale, Due after ten years, Amortized Cost	52,257
Available for Sale, No state maturity, Amortized Cost	27
Available for Sale, Total investment securities, Amortized Cost	132,765	134,035
Available for Sale, Due in one year or less, Estimated Fair Value	8,468
Available for Sale, Due after one year through five years, Estimated Fair Value	37,935
Available for Sale, Due after five years through ten years, Estimated Fair Value	33,788
Available for Sale, Due after ten years, Estimated Fair Value	51,436
Available for Sale, No stated maturity, Estimated Fair Value	16
Available for Sale, Total investment securities, Estimated Fair Value	$ 131,643	$ 135,288

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Allowance For Credit Losses (Credit Quality Indicators) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 389,790	$ 396,498
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	362,110	361,828
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,816	10,920
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	15,833	21,719
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,031	2,031
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	24,788	25,835
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	22,414	23,346
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,374	2,489
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	227,467	234,202
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	208,035	211,001
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,743	10,847
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,689	12,354
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	80,591	81,888
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	80,315	81,394
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	73	73
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	203	421
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	14,330	12,247
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	8,987	4,018
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,312	6,198
Commercial Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,031	2,031
Lease Financing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4	67
Lease Financing [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4	67
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	36,200	35,322
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	35,949	35,069
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	251	253
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	6,410	6,937
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	6,406	6,933
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 4	$ 4

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Income Taxes (Details)	6 Months Ended
	Jun. 30, 2013
Minimum [Member]
Open Tax Year	2009
Maximum [Member]
Open Tax Year	2011

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Investment Securities (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Schedule of Investments [Line Items]
Proceeds from Sale of Available-for-sale Securities	$ 22,549,000	$ 9,822,000
Available-for-sale Securities Pledged as Collateral	129,100,000		90,000,000
Mortgage Backed Securities [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	11
Certificates Of Deposit [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	3
State And Municipal Tax-Exempt [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	42
Securities In Unrealized Loss Position, Less Than 12 Months	14
Securities in unrealized loss position more than 12 months qualitative disclosure number of positions	2
Number of impaired securities	42
Corporate Bonds [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	11
Securities in unrealized loss position more than 12 months qualitative disclosure number of positions	3
Book value of corporate bonds	4,500,000
Unrealized losses on corporate bonds	$ 100,000
Ratio of Unrealized Loss to Book Value of Impaired Securities	2.20%
US Government Agency Obligations [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	17
Collateralized Mortgage Obligations GSE [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	14
Securities In Unrealized Loss Position, Less Than 12 Months	1
Equity Securities [Member]
Schedule of Investments [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	5
Securities in unrealized loss position more than 12 months qualitative disclosure number of positions	5
Maximum [Member] | Corporate Bonds [Member]
Schedule of Investments [Line Items]
Ratio of Unrealized Loss to Book Value of Impaired Securities	10.00%

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Accumulated Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Accumulated Other Comprehensive Income [Abstract]
Net unrealized gain/(loss) on AFS securities, Before-Tax Amount	$ (1,122)	$ 1,253
Net unrealized gain/(loss) on AFS securities, Tax Effect	381	(426)
Net unrealized gain on AFS securities, Net-of-Tax Amount	(741)	827
Discount on AFS to HTM reclassification, Before-Tax Amount	(40)	(54)
Discount on AFS to HTM reclassification, Tax Effect	14	18
Discount on AFS to HTM reclassification, Net-of-Tax Amount	(26)	(36)
Unrealized actuarial losses-pension, Before-Tax Amount	(2,233)	(2,233)
Unrealized actuarial losses-pension, Tax Effect	759	759
Unrealized actuarial losses-pension, Net-of-Tax Amount	(1,474)	(1,474)
Total of all items above, Before-Tax Amount	(3,395)	(1,034)
Total of all items above, Tax Effect	1,154	351
Total of all items above, Net-of-Tax Effect	$ (2,241)	$ (683)

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Allowance For Credit Losses (Tables)

6 Months Ended

Jun. 30, 2013

Allowance For Credit Losses [Abstract]

Age Analysis Of Past Due Loans Receivables

Age Analysis of Past Due Loans Receivables

										June 30, 2013
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	316	$	131	$	2,371	$	2,818	$	21,970	$	24,788	$	106
Commercial mortgage		525		-		3,286		3,811		223,656		227,467		-
Commercial:
Commercial term		-		-		-		-		80,591		80,591		-
Commercial construction		-		-		4,326		4,326		10,004		14,330		-
Lease financing		4		-		-		4		-		4		-
Consumer:
Home equity		151		78		60		289		35,911		36,200		-
Other		96		17		23		136		6,274		6,410		-
Total	$	1,092	$	226	$	10,066	$	11,384	$	378,406	$	389,790	$	106

										December 31, 2012
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	692	$	319	$	2,256	$	3,267	$	22,568	$	25,835	$	60
Commercial mortgage		68		-		3,514		3,582		230,620		234,202		710
Commercial:
Commercial term		-		-		-		-		81,888		81,888		-
Commercial construction		-		-		2,031		2,031		10,216		12,247		-
Lease financing		-		-		28		28		39		67		-
Consumer:
Home equity		162		-		152		314		35,008		35,322		92
Other		95		-		54		149		6,788		6,937		7
Total	$	1,017	$	319	$	8,035	$	9,371	$	387,127	$	396,498	$	869

Impaired Loans By Loan Portfolio

		June 30, 2013						December 31, 2012
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,444	$	3,042	$	-	$	2,386	$	2,883	$	-
Commercial mortgage		2,155		2,207		-		2,807		2,814		-
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		-		-		-		-		-		-
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	4,761	$	5,422	$	-	$	5,432	$	5,955	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		1,131		1,133		217		2,565		2,569		151
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	5,457	$	5,997	$	1,926	$	6,891	$	7,433	$	1,015
Total:
Residential mortgage		2,444		3,042		-		2,386		2,883		-
Commercial mortgage		3,286		3,340		217		5,372		5,383		151
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	10,218	$	11,419	$	1,926	$	12,323	$	13,388	$	1,015

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,414	$	-	$	2,212	$	-	$	2,405	$	-	$	2,146	$	-
Commercial mortgage		2,250		-		223		1		2,436		-		149		1
Commercial:
Commercial term		-		-		144		12		-		-		163		12
Commercial construction		1,091		-		3,333		-		727		-		2,326		-
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	5,953	$	3	$	6,126	$	17	$	5,780	$	3	$	4,997	$	17
With allowance recorded:
Residential mortgage		159		-		-		-		106		-		-		-
Commercial mortgage		2,392		-		83		-		2,449		-		760		-
Commercial:
Commercial term		100		-		-		-		67		-		-		-
Commercial construction		4,326		-		2,031		39		4,326		-		2,261		39
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-
Total	$	6,977	$	-	$	2,114	$	39	$	6,948	$	-	$	3,021	$	39
Total:
Residential mortgage		2,573		-		2,212		-		2,511		-		2,146		-
Commercial mortgage		4,642		-		306		1		4,885		-		909		1
Commercial:
Commercial term		100		-		144		12		67		-		163		12
Commercial construction		5,417		-		5,364		39		5,053		-		4,587		39
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	12,930	$	3	$	8,240	$	56	$	12,728	$	3	$	8,018	$	56

Credit Quality Indicators

		June 30, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,414	$	-	$	2,374	$	-	$	24,788
Commercial mortgage		208,035		9,743		9,689		-		227,467
Commercial:
Commercial term		80,315		73		203		-		80,591
Commercial construction		8,987		-		3,312		2,031		14,330
Lease financing		4		-		-		-		4
Consumer:
Home equity		35,949		-		251		-		36,200
Other		6,406		-		4		-		6,410
Total	$	362,110	$	9,816	$	15,833	$	2,031	$	389,790

		December 31, 2012
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,346	$	-	$	2,489	$	-	$	25,835
Commercial mortgage		211,001		10,847		12,354		-		234,202
Commercial:
Commercial term		81,394		73		421		-		81,888
Commercial construction		4,018		-		6,198		2,031		12,247
Lease financing		67		-		-		-		67
Consumer:
Home equity		35,069		-		253		-		35,322
Other		6,933		-		4		-		6,937
Total	$	361,828	$	10,920	$	21,719	$	2,031	$	396,498

Allowance For Credit Losses And Recorded Investments In Loans Receivables

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2013	$	327	$	3,248	$	711	$	1,930	$	2	$	180	$	83	$	642	$	7,123
Charge-offs		(184)		(394)		(212)		-		(26)		-		-		-		(816)
Recoveries		5		-		1		-		2		-		-		-		8
Provisions		161		256		(16)		74		22		1		(3)		(120)		375
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2013	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Charge-offs		(184)		(394)		(222)		-		(26)		-		(5)		-		(831)
Recoveries		70		-		5		-		53		-		-		-		128
Provisions		117		410		195		468		(30)		3		(1)		(607)		555
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690
Ending balance: individually evaluated for impairment	$	-	$	217	$	-	$	1,709	$	-	$	-	$	-	$	-	$	1,926
Ending balance: collectively evaluated for impairment	$	309	$	2,893	$	484	$	295	$	-	$	181	$	80	$	522	$	4,764
Loans receivables:
Ending balance	$	24,788	$	227,467	$	80,591	$	14,330	$	4	$	36,200	$	6,410			$	389,790
Ending balance: individually evaluated for impairment	$	2,444	$	3,286	$	-	$	4,326	$	-	$	60	$	102			$	10,218
Ending balance: collectively evaluated for impairment	$	22,344	$	224,181	$	80,591	$	10,004	$	4	$	36,140	$	6,308			$	379,572
Reserve for unfunded loan commitments	$	-	$	11	$	81	$	41	$	-	$	9	$	-			$	142

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2012	$	376	$	2,734	$	505	$	1,728	$	7	$	180	$	93	$	519	$	6,142
Charge-offs		-		-		(7)		(422)		(1)		-		(1)		-		(431)
Recoveries		5		-		-		-		10		-		13		-		28
Provisions		(3)		126		(13)		149		(11)		(4)		(13)		244		475
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2012	$	383	$	3,442	$	474	$	1,029	$	10	$	165	$	95	$	566	$	6,164
Charge-offs		(18)		-		(18)		(848)		(1)		-		(9)		-		(894)
Recoveries		10		-		3		-		10		-		21		-		44
Provisions		3		(582)		26		1,274		(14)		11		(15)		197		900
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2012	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Ending balance: individually evaluated for impairment	$	-	$	151	$	-	$	864	$	-	$	-	$	-	$	-	$	1,015
Ending balance: collectively evaluated for impairment	$	306	$	2,943	$	506	$	672	$	3	$	178	$	86	$	1,129	$	5,823
Loans receivables:
Ending balance	$	25,835	$	234,202	$	81,888	$	12,247	$	67	$	35,322	$	6,937			$	396,498
Ending balance: individually evaluated for impairment	$	2,386	$	5,372	$	-	$	4,326	$	28	$	64	$	147			$	12,323
Ending balance: collectively evaluated for impairment	$	23,449	$	228,830	$	81,888	$	7,921	$	39	$	35,258	$	6,790			$	384,175
Reserve for unfunded loan commitments	$	-	$	9	$	71	$	35	$	-	$	10	$	-	$		$	125

XML

Consolidated Statements of Stockholders' Equity (USD $) In Thousands	Preferred Stock [Member]	Common Stock [Member]	Treasury Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at Dec. 31, 2011	$ 12,962	$ 2,891	$ (3,471)	$ 34,279	$ 5,871	$ (1,476)	$ 51,056
Net income					2,502		2,502
Other comprehensive income (loss)						459	459
SBLF issuance costs accretion	8				(8)
Restricted stock compensation expense		4		32			36
Stock option compensation				35			35
Cash dividends-Common					(271)		(271)
Cash dividends-SBLF preferred					(250)		(250)
Sale of treasury shares to 401(k)			172	(61)			111
Sale of treasury shares to deferred comp plan			81	(27)			54
Balance at Jun. 30, 2012	12,970	2,895	(3,218)	34,258	7,844	(1,017)	53,732
Balance at Dec. 31, 2012	12,978	2,899	(2,999)	34,274	10,236	(683)	56,705
Net income					2,425		2,425
Other comprehensive income (loss)						(1,558)	(1,558)
SBLF issuance costs accretion	8				(8)
Restricted stock compensation expense		6		66			72
Stock option compensation				34			34
Cash dividends-Common					(383)		(383)
Cash dividends-SBLF preferred					(65)		(65)
Sale of treasury shares to 401(k)			131	(16)			115
Sale of treasury shares to deferred comp plan			66	(8)			58
Balance at Jun. 30, 2013	$ 12,986	$ 2,905	$ (2,802)	$ 34,350	$ 12,205	$ (2,241)	$ 57,403

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash Flows From Operating Activities:
Net income	$ 2,425	$ 2,502
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	1,110	956
Provision for credit losses	555	900
Stock based compensation	106	71
Net gain on sale of securities	(214)	(79)
Net loss on sale and write down of OREO and other repossessed property	28	17
Earnings from investment in BOLI	(116)	(118)
Deferred tax expense		(24)
Proceeds from sales of SBA loans	2,740	3,013
SBA loans originated for sale	(2,577)	(2,855)
Gain on sale of SBA loans	(163)	(158)
Decrease (increase) in accrued interest receivable	7	(109)
Decrease in other assets	2,047	208
Decrease in accrued interest payable	(25)	(11)
(Decrease) increase in other liabilities	(304)	623
Net Cash Provided By Operating Activities	5,619	4,936
Cash Flows From Investing Activities:
Activity in available-for-sale securities: Sales	22,549	9,822
Activity for available-for-sale securities: Maturities, repayments and calls	11,994	21,474
Activity in available-for-sale securities: Purchases	(33,663)	(51,253)
Activity in held-to-maturity securities: Maturities, repayments and calls	3,459	3,208
Activity in held-to-maturity securities: Purchases	(4,714)	(22,839)
Net decrease in restricted stock	462	157
Net decrease (increase) in loans and leases	3,767	(4,381)
Net purchases of property and equipment, less proceeds from disposals	(117)	(1,150)
Proceeds from sale of OREO and other repossessed property	122	191
Net Cash Provided By (Used In) Investing Activities	3,859	(44,771)
Cash Flows From Financing Activities:
Net increase in deposits	31,484	29,033
Repayment of FHLBP advances	(10,000)
Net increase (decrease) in short term repurchase agreements	6,219	(5,184)
Decrease in other borrowings	(15)	(14)
Dividends paid	(448)	(656)
Sale of treasury stock, net	173	165
Net Cash Provided by Financing Activities	27,413	23,344
Net Change in Cash and Cash Equivalents	36,891	(16,491)
Cash and Cash Equivalents at Beginning of Period	17,149	32,877
Cash and Cash Equivalents at End of Period	54,040	16,386
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	1,544	1,969
Cash paid during the period for: Income taxes	1,503	551
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property	2,238	10
Non-cash assets acquired: Loans And Leases		66
Non-cash assets acquired: Property And Equipment		686
Total non-cash assets acquired		752
Liabilities assumed: Accrued Interest Payable		(5)
Liabilities assumed: Deposits		15,861
Total liabilities assumed		15,856
Net non-cash liabilities assumed		15,104
Core deposits intangible		130
Net cash and cash equivalents acquired		$ 15,234

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Investment Securities

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Investment Securities

NOTE 3: INVESTMENT SECURITIES

The amortized cost and fair values of investment securities, as of the dates indicated, are summarized as follows:

		June 30, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,379	$	257	$	-	$	7,636
Government Sponsored Entities (GSE) mortgage-backed securities		7,026		220		(5)		7,241
Corporate bonds		6,389		295		(3)		6,681
Collateralized mortgage obligations GSE		5,857		43		(64)		5,836
State and municipal tax-exempt		40,623		174		(2,044)		38,753
Total	$	67,274	$	989	$	(2,116)	$	66,147
Available For Sale
US Government agency obligations	$	40,894	$	28	$	(405)	$	40,517
GSE mortgage-backed securities		24,455		153		(371)		24,237
Collateralized mortgage obligations GSE		26,816		91		(625)		26,282
Corporate bonds		35,138		403		(359)		35,182
State and municipal tax-exempt		4,185		1		(23)		4,163
Certificates of deposit		1,250		4		(8)		1,246
Equity securities		27		1		(12)		16
Total	$	132,765	$	681	$	(1,803)	$	131,643

		December 31, 2012
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,266	$	563	$	-	$	7,829
Government Sponsored Entities (GSE) mortgage-backed securities		9,135		435		-		9,570
Corporate bonds		6,500		371		(11)		6,860
Collateralized mortgage obligations GSE		7,204		185		-		7,389
State and municipal tax-exempt		35,919		759		(19)		36,659
Total	$	66,024	$	2,313	$	(30)	$	68,307
Available For Sale
US Government agency obligations	$	35,424	$	133	$	(18)	$	35,539
GSE mortgage-backed securities		21,885		507		-		22,392
Collateralized mortgage obligations GSE		21,526		151		(27)		21,650
Corporate bonds		41,005		772		(330)		41,447
State and municipal tax-exempt		3,195		1		(11)		3,185
Asset-backed securities		9,723		90		-		9,813
Certificates of deposit		1,250		3		(5)		1,248
Equity securities		27		-		(13)		14
Total	$	134,035	$	1,657	$	(404)	$	135,288

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2013 and December 31, 2012.

		June 30, 2013
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
GSE mortgage-backed securities	$	314	$	(5)	$	314	$	(5)	$	-	$	-
Corporate bonds		512		(3)		512		(3)		-		-
Collateralized mortgage obligations GSE		680		(64)		680		(64)		-		-
State and Municipal tax-exempt		26,208		(2,044)		26,208		(2,044)		-		-
Total	$	27,714	$	(2,116)	$	27,714	$	(2,116)	$	-	$	-
Available For Sale
US Government agency obligations	$	25,201	$	(405)	$	25,201	$	(405)	$	-	$	-
GSE mortgage-backed securities		17,557		(371)		17,557		(371)		-		-
Collateralized mortgage obligations GSE		19,245		(625)		19,245		(625)		-		-
Corporate bonds		14,339		(359)		9,939		(259)		4,400		(100)
State and Municipal tax-exempt		2,079		(23)		1,304		(7)		775		(16)
Certificates of deposit		742		(8)		742		(8)		-		-
Equity securities		11		(12)		-		-		11		(12)
Total	$	79,174	$	(1,803)	$	73,988	$	(1,675)	$	5,186	$	(128)

		December 31, 2012
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	2,587	$	(11)	$	2,587	$	(11)	$	-	$	-
State and municipal tax-exempt		8,690		(19)		8,690		(19)		-		-
Total	$	11,277	$	(30)	$	11,277	$	(30)	$	-	$	-
Available For Sale
US Government agency obligations	$	10,238	$	(18)	$	10,238	$	(18)	$	-	$	-
Collateralized mortgage obligations GSE		4,703		(27)		4,703		(27)		-		-
Corporate bonds		15,989		(330)		12,604		(215)		3,385		(115)
State and municipal tax-exempt		1,095		(11)		1,095		(11)		-		-
Certificates of deposits		745		(5)		745		(5)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	32,784	$	(404)	$	29,385	$	(276)	$	3,399	$	(128)

As of June 30, 2013, there were eleven mortgage-backed securities, eleven corporate bonds, seventeen U.S. agency obligations, fourteen collateralized mortgage obligations,forty-two tax-exempt municipalities, three certificates of deposit, and five equity securities which were in an unrealized loss position. DNB does not intend to sell these securities and management of DNB does not expect to be required to sell any of these securities prior to a recovery of its cost basis. Management does not believe any individual unrealized loss as of June 30, 2013 represents an other-than-temporary impairment. There were two tax-exempt municipalities, three corporate bonds, and five equity securities that were impaired for more than 12 months, none of which had an unrealized loss greater than 10% of the book value. There were fourteen tax-exempt municipal securities and one collateralized mortgage obligation that had an unrealized loss greater than 10% of the book value, but were impaired for less than 12 months. DNB reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (OTTI). The OTTI analysis focuses on duration and amount by which a security is below book. As of June 30, 2013, the following securities were reviewed:

Tax-exempt municipal securities There are 42 impaired securities classified as Municipal. Two have been impaired for more than twelve months, but do not have a loss greater than 10% of the book value, and 14 have a loss greater than 10% of the book value, but have been impaired for less than 12 months. All of the issuers that are listed have never deferred or defaulted on interest payments, so credit risk is acceptable. Twelve of the impaired municipals are school districts that have state qualified school aid, eight of which have additional private insurance. The remaining are three townships and one insured county, all of which have strong underlying ratings.

Corporate Securities The unrealized loss on three investments in the corporate bond portfolio was caused by a number of factors. Some of the bonds have had downgrades since they were purchased. Some of the corporates have been affected by the market's perception of the impact of sovereign debit holdings and spreads on the financial sector have widened since they were purchased. The book value of the three securities is $4.5 million and the unrealized loss is $100,000 or 2.2%. All of the bonds have been impaired for more than twelve months and have a loss less than 10% of the book value. The contractual terms of those investments do not permit the issuer to settle these securities at a price less than the par value of the investments. Based on this analysis and an evaluation of DNB’s ability and intent to hold these securities for a reasonable period of time sufficient for each security to increase to DNB’s cost, DNB does not intend to sell these securities and it is not more likely than not that DNB will be required to sell the securities before recovery of their cost, DNB does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

Equity securities.  DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania. The unrealized losses on the five securities in the equity securities portfolio were all impaired for more than twelve months. The severity and duration of the impairment are driven by higher collateral losses, wider credit spreads, and changes in interest rates within the financial services sector. DNB evaluated the prospects of all issuers in relation to the severity and duration of the impairment. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated each of the underlying banks for credit impairment based on its financial condition and performance. As of June 30, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Based on our evaluation and expectation that these investments will recover within a reasonable period of time, we do not consider these investments to be other-than-temporarily impaired at June 30, 2013.

The amortized cost and fair value of investment securities as of June 30, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid without penalties.

		Held to Maturity				Available for Sale
		Amortized				Amortized
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	8,450	$	8,468
Due after one year through five years		-		-		37,794		37,935
Due after five years through ten years		24,564		24,829		34,237		33,788
Due after ten years		42,710		41,318		52,257		51,436
No stated maturity		-		-		27		16
Total investment securities	$	67,274	$	66,147	$	132,765	$	131,643

DNB sold $22.5 million and $9.8 million from the Available For Sale portfolio during the six month periods ending June 30, 2013 and 2012, respectively. Gains and losses resulting from investment sales, redemptions or calls were as follows:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2013		2012		2013		2012
Gross realized gains-AFS	$	155	$	85	$	471	$	85
Gross realized losses-AFS		-		(6)		(257)		(6)
Net realized gain	$	155	$	79	$	214	$	79

At June 30, 2013 and December 31, 2012, investment securities with a carrying value of approximately $129.1 million and $90.0 million, respectively, were pledged to secure public funds, repurchase agreements  and for other purposes as required by law.

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Basis Of Presentation

6 Months Ended

Jun. 30, 2013

Basis Of Presentation [Abstract]

Basis Of Presentation

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results which may be expected for the entire year.  The consolidated financial statements should be read in conjunction with the Annual Report and report on Form 10-K for the year ended December 31, 2012. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2013 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements- In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. Companies should apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements.

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Allowance For Credit Losses (Allowance For Credit Losses And Recorded Investments In Loans Receivables) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 7,123	$ 6,142	$ 6,838	$ 6,164	$ 6,164
Charge offs	(816)	(431)	(831)	(894)
Recoveries	8	28	128	44
Provision for Loan Lease and Other Losses	375	475	555	900
Ending balance	6,690	6,214	6,690	6,214	6,838
Ending balance: individually evaluated for impairment	1,926		1,926		1,015
Ending balance: collectively evaluated for impairment	4,764		4,764		5,823
Loans receivables, Ending Balance	389,790		389,790		396,498
Loans receivables, Ending Balance: individually evaluated for impairment	10,218		10,218		12,323
Loans receivable, Ending Balance: collectively evaluated for impairment	379,572		379,572		384,175
Reserve for unfunded loan commitments			142		125
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	327	376	306	383	383
Charge offs	(184)		(184)	(18)
Recoveries	5	5	70	10
Provision for Loan Lease and Other Losses	161	(3)	117	3
Ending balance	309	378	309	378
Ending balance: collectively evaluated for impairment	309		309		306
Loans receivables, Ending Balance	24,788		24,788		25,835
Loans receivables, Ending Balance: individually evaluated for impairment	2,444		2,444		2,386
Loans receivable, Ending Balance: collectively evaluated for impairment	22,344		22,344		23,449
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	3,248	2,734	3,094	3,442	3,442
Charge offs	(394)		(394)
Provision for Loan Lease and Other Losses	256	126	410	(582)
Ending balance	3,110	2,860	3,110	2,860	3,094
Ending balance: individually evaluated for impairment	217		217		151
Ending balance: collectively evaluated for impairment	2,893		2,893		2,943
Loans receivables, Ending Balance	227,467		227,467		234,202
Loans receivables, Ending Balance: individually evaluated for impairment	3,286		3,286		5,372
Loans receivable, Ending Balance: collectively evaluated for impairment	224,181		224,181		228,830
Reserve for unfunded loan commitments			11		9
Commercial Term [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	711	505	506	474	474
Charge offs	(212)	(7)	(222)	(18)
Recoveries	1		5	3
Provision for Loan Lease and Other Losses	(16)	(13)	195	26
Ending balance	484	485	484	485	506
Ending balance: collectively evaluated for impairment	484		484		506
Loans receivables, Ending Balance	80,591		80,591		81,888
Loans receivable, Ending Balance: collectively evaluated for impairment	80,591		80,591		81,888
Reserve for unfunded loan commitments			81		71
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,930	1,728	1,536	1,029	1,029
Charge offs		(422)		(848)
Provision for Loan Lease and Other Losses	74	149	468	1,274
Ending balance	2,004	1,455	2,004	1,455	1,536
Ending balance: individually evaluated for impairment	1,709		1,709		864
Ending balance: collectively evaluated for impairment	295		295		672
Loans receivables, Ending Balance	14,330		14,330		12,247
Loans receivables, Ending Balance: individually evaluated for impairment	4,326		4,326		4,326
Loans receivable, Ending Balance: collectively evaluated for impairment	10,004		10,004		7,921
Reserve for unfunded loan commitments			41		35
Lease Financing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	2	7	3	10	10
Charge offs	(26)	(1)	(26)	(1)
Recoveries	2	10	53	10
Provision for Loan Lease and Other Losses	22	(11)	(30)	(14)
Ending balance		5		5
Ending balance: collectively evaluated for impairment					3
Loans receivables, Ending Balance	4		4		67
Loans receivables, Ending Balance: individually evaluated for impairment					28
Loans receivable, Ending Balance: collectively evaluated for impairment	4		4		39
Consumer: Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	180	180	178	165	165
Provision for Loan Lease and Other Losses	1	(4)	3	11
Ending balance	181	176	181	176	178
Ending balance: collectively evaluated for impairment	181		181		178
Loans receivables, Ending Balance	36,200		36,200		35,322
Loans receivables, Ending Balance: individually evaluated for impairment	60		60		64
Loans receivable, Ending Balance: collectively evaluated for impairment	36,140		36,140		35,258
Reserve for unfunded loan commitments			9		10
Consumer: Other [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	83	93	86	95	95
Charge offs		(1)	(5)	(9)
Recoveries		13		21
Provision for Loan Lease and Other Losses	(3)	(13)	(1)	(15)
Ending balance	80	92	80	92
Ending balance: collectively evaluated for impairment	80		80		86
Loans receivables, Ending Balance	6,410		6,410		6,937
Loans receivables, Ending Balance: individually evaluated for impairment	102		102		147
Loans receivable, Ending Balance: collectively evaluated for impairment	6,308		6,308		6,790
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	642	519	1,129	566	566
Provision for Loan Lease and Other Losses	(120)	244	(607)	197
Ending balance	522	763	522	763
Ending balance: collectively evaluated for impairment	$ 522		$ 522		$ 1,129

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Stock Option Activity

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2013	214,618	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		10.31
Expired	-		-
Outstanding June 30, 2013	213,618	$	16.00

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2012	236,438	$	15.98
Issued	-		-
Exercised	-		-
Forfeited	1,000		6.93
Expired	-		-
Outstanding June 30, 2012	235,438	$	16.01

Weighted Average Price And Weighted Average Remaining Contractual Life

	June 30, 2013
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	85,050	-	$	8.65	4.65 years	$	770,000
	14.00-19.99	61,715	61,715		17.62	2.22 years		-
	20.00-22.99	18,812	18,812		22.78	1.48 years		-
	23.00-24.27	48,041	48,041		24.27	1.80 years		-
	Total	213,618	128,568	$	16.00	3.03 years	$	770,000

	June 30, 2012
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	87,200	-	$	8.66	5.65 years	$	422,000
	14.00-19.99	81,096	81,096		17.44	2.46 years		-
	20.00-22.99	19,101	19,101		22.78	2.48 years		-
	23.00-24.27	48,041	48,041		24.27	2.80 years		-
	Total	235,438	148,238	$	16.01	3.71 years	$	422,000

Stock Grant Activity

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2013	48,270	$	11.39
Granted	-		-
Forfeited	400		15.56
Vested	14,200		6.93
Non-vested stock awards—June 30, 2013	33,670	$	13.22

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2012	29,200	$	8.67
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2012	29,200	$	8.67

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Investment Securities (Amortized Cost And Estimated Fair Values) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 67,274	$ 66,024
Held-to-maturity Securities, Unrealized Gains	989	2,313
Held-to-maturity Securities, Unrealized Losses	(2,116)	(30)
Held-to-maturity, Total investment securities, Estimated Fair Value	66,147	68,307
Available-for-sale Securities, Amortized Cost	132,765	134,035
Available-for-sale Securities, Unrealized Gains	681	1,657
Available-for-sale Securities, Unrealized Losses	(1,803)	(404)
Available-for-sale securities, carrying amount	131,643	135,288
US Government Agency Obligations [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	7,379	7,266
Held-to-maturity Securities, Unrealized Gains	257	563
Held-to-maturity, Total investment securities, Estimated Fair Value	7,636	7,829
Available-for-sale Securities, Amortized Cost	40,894	35,424
Available-for-sale Securities, Unrealized Gains	28	133
Available-for-sale Securities, Unrealized Losses	(405)	(18)
Available-for-sale securities, carrying amount	40,517	35,539
Government Sponsored Entities (GSE) mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	7,026	9,135
Held-to-maturity Securities, Unrealized Gains	220	435
Held-to-maturity Securities, Unrealized Losses	(5)
Held-to-maturity, Total investment securities, Estimated Fair Value	7,241	9,570
Available-for-sale Securities, Amortized Cost	24,455	21,885
Available-for-sale Securities, Unrealized Gains	153	507
Available-for-sale Securities, Unrealized Losses	(371)
Available-for-sale securities, carrying amount	24,237	22,392
Corporate Bonds [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	6,389	6,500
Held-to-maturity Securities, Unrealized Gains	295	371
Held-to-maturity Securities, Unrealized Losses	(3)	(11)
Held-to-maturity, Total investment securities, Estimated Fair Value	6,681	6,860
Available-for-sale Securities, Amortized Cost	35,138	41,005
Available-for-sale Securities, Unrealized Gains	403	772
Available-for-sale Securities, Unrealized Losses	(359)	(330)
Available-for-sale securities, carrying amount	35,182	41,447
Collateralized Mortgage Obligations GSE [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	5,857	7,204
Held-to-maturity Securities, Unrealized Gains	43	185
Held-to-maturity Securities, Unrealized Losses	(64)
Held-to-maturity, Total investment securities, Estimated Fair Value	5,836	7,389
Available-for-sale Securities, Amortized Cost	26,816	21,526
Available-for-sale Securities, Unrealized Gains	91	151
Available-for-sale Securities, Unrealized Losses	(625)	(27)
Available-for-sale securities, carrying amount	26,282	21,650
State And Municipal Tax-Exempt [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Amortized Cost	40,623	35,919
Held-to-maturity Securities, Unrealized Gains	174	759
Held-to-maturity Securities, Unrealized Losses	(2,044)	(19)
Held-to-maturity, Total investment securities, Estimated Fair Value	38,753	36,659
Available-for-sale Securities, Amortized Cost	4,185	3,195
Available-for-sale Securities, Unrealized Gains	1	1
Available-for-sale Securities, Unrealized Losses	(23)	(11)
Available-for-sale securities, carrying amount	4,163	3,185
Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost		9,723
Available-for-sale Securities, Unrealized Gains		90
Available-for-sale securities, carrying amount		9,813
Certificates Of Deposit [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost	1,250	1,250
Available-for-sale Securities, Unrealized Gains	4	3
Available-for-sale Securities, Unrealized Losses	(8)	(5)
Available-for-sale securities, carrying amount	1,246	1,248
Equity Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost	27	27
Available-for-sale Securities, Unrealized Gains	1
Available-for-sale Securities, Unrealized Losses	(12)	(13)
Available-for-sale securities, carrying amount	$ 16	$ 14

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Loans And Leases (Interest Income On Non-Accrual Loans) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Loans And Leases [Abstract]
Non-accrual loans	$ 10,000,000		$ 9,600,000
Loans 90 day past due and still accruing	106,000		869,000
Interest income which would have been recorded under original terms	378,000	224,000
Interest income recorded during the year	(3,000)	(56,000)
Net impact on interest income	$ 375,000	$ 168,000

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Fair Value Of Financial Instruments (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Carrying value of impaired loans	$ 10,218,000		$ 10,218,000		$ 12,323,000
Impaired Financing Receivable, Related Allowance	1,926,000		1,926,000		1,015,000
Recorded Investment, With no related allowance recorded	4,761,000		4,761,000		5,432,000
Recorded Investment, With allowance recorded	5,457,000		5,457,000		6,891,000
Provision for Loan Lease and Other Losses	375,000	475,000	555,000	900,000
OREO & other repossessed property	3,325,000		3,325,000		1,237,000
OREO					1,100,000
Other Repossessed Assets					126,000
Un-funded Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	80,500,000		80,500,000		67,800,000
Stand-by Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	$ 1,800,000		$ 1,800,000		$ 2,100,000

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Stock-Based Compensation (Narrative) (Details) (USD $)	6 Months Ended					6 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Option 4/23/2010 [Member]	Dec. 12, 2011 Option 4/23/2010 [Member]	Apr. 23, 2010 Option 4/23/2010 [Member]	Jun. 30, 2013 Option 12/12/2011 [Member]	Jun. 30, 2013 Incentive Equity And Deferred Compensation Plan [Member]	Jun. 30, 2012 Incentive Equity And Deferred Compensation Plan [Member]	Jun. 30, 2013 Incentive Equity And Deferred Compensation Plan [Member]	Jun. 30, 2012 Incentive Equity And Deferred Compensation Plan [Member]	Jun. 30, 2013 Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	793,368						243,101		243,101
Vesting period											10 years
Shares available for future grants	328,964						158,754		158,754
Non-exercisable options granted				44,600	44,600
Unvested stock amortization	$ 106,000	$ 71,000	$ 34,000				$ 32,000	$ 18,000	$ 72,000	$ 36,000
Date in which additional expenses are no longer incurred						Dec. 12, 2014
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized			$ 19,000			$ 66,000	$ 339,000		$ 339,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition									2 years 2 months 5 days

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Consolidated Statements of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 132,765	$ 134,035
Held-to-maturity Securities, Fair Value	$ 66,147	$ 68,307
Preferred Stock, Par or Stated Value Per Share	$ 10.00	$ 10.00
Preferred Stock, Shares Authorized	1,000,000	1,000,000
Preferred Stock, Liquidation Preference Per Share	$ 1,000	$ 1,000
Preferred Stock, Shares Issued	13,000	13,000
Preferred Stock, Shares Outstanding	13,000	13,000
Common Stock, Par or Stated Value Per Share	$ 1.00	$ 1.00
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	2,896,703	2,896,703
Treasury Stock, Shares	152,107	162,803

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Earnings Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

NOTE 6: EARNINGS PER SHARE 

Basic earnings per share (“EPS”) is computed based on the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the treasury stock method and reflects the potential dilution that could occur from the exercise of stock options, and warrants and the amortized portion of unvested stock awards. Stock options and unvested stock awards for which the exercise or the grant price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. Treasury shares are not deemed outstanding for calculations. There were no outstanding stock warrants in 2013 and 2012, 128,568 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2013. There were no anti-dilutive stock warrants outstanding, 148,459 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2012. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended					Six Months Ended
		June 30, 2013					June 30, 2013
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,214	2,741	$	0.44	$	2,352	2,733	$	0.86
Effect of potential dilutive common stock equivalents– stock options and  restricted shares		-	33		-		-	35		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,214	2,774	$	0.44	$	2,352	2,768	$	0.85

		Three Months Ended					Six Months Ended
		June 30, 2012					June 30, 2012
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,270	2,708	$	0.47	$	2,244	2,705	$	0.83
Effect of potential dilutive common stock equivalents– stock options, restricted shares and warrants		-	28		(0.01)		-	26		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,270	2,736	$	0.46	$	2,244	2,731	$	0.82

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net income	$ 1,250	$ 1,400	$ 2,425	$ 2,502
Other Comprehensive (Loss) Income:
Unrealized holding (losses) gains arising during the period, Before tax amount	(1,993)	131	(2,161)	755
Unrealized holding (losses) gains arising during the period, Tax effect	678	(45)	734	(256)
Unrealized holding (losses) gains arising during the period, Net of tax	(1,315)	86	(1,427)	499
Accretion of discount on AFS to HTM reclassification, Before tax amount	6	9	14	18
Accretion of discount on AFS to HTM reclassification, Tax effect	(1)	(3)	(4)	(6)
Accretion of discount on AFS to HTM reclassification, Net of tax	5	6	10	12
Less reclassification for gains included in net income, Before tax amount	(155)	(79)	(214)	(79)
Less reclassification for gains included in net income, Tax effect	52	27	73	27
Less reclassification for gains included in net income, Net of tax	(103)	(52)	(141)	(52)
Other comprehensive (loss) income - securities	(1,413)	40	(1,558)	459
Total other comprehensive (loss) income	(1,413)	40	(1,558)	459
Total comprehensive (loss) income	$ (163)	$ 1,440	$ 867	$ 2,961

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Consolidated Statements of Financial Condition (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 54,040	$ 17,149
AFS investment securities (amortized cost of $132,765 and $134,035)	131,643	135,288
HTM investment securities (fair value of $66,147 and $68,307)	67,274	66,024
Total investments securities	198,917	201,312
Loans and leases	389,790	396,498
Allowance for credit losses	(6,690)	(6,838)
Net loans and leases	383,100	389,660
Restricted stock	2,964	3,426
Office property and equipment, net	8,117	8,456
Accrued interest receivable	2,463	2,470
OREO & other repossessed property	3,325	1,237
Bank owned life insurance (BOLI)	8,741	8,625
Core deposit intangible	146	181
Net deferred taxes	4,363	3,561
Other assets	1,449	3,491
Total assets	667,625	639,568
Liabilities
Non-interest-bearing deposits	91,200	85,055
Interest-bearing deposits: NOW	177,027	161,844
Interest-bearing deposits: Money market	137,142	122,953
Interest-bearing deposits: Savings	62,918	58,256
Interest-bearing deposits: Time	93,621	102,316
Total deposits	561,908	530,424
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	10,000	20,000
Repurchase agreements	23,233	17,014
Junior subordinated debentures	9,279	9,279
Other borrowings	556	571
Total borrowings	43,068	46,864
Accrued interest payable	396	421
Other liabilities	4,850	5,154
Total liabilities	610,222	582,863
Stockholders' Equity
Preferred stock, $10.00 par value; 1,000,000 shares authorized; $1,000 liquidation preference per share; 13,000 shares issued	12,986	12,978
Common stock, $1.00 par value; 10,000,000 shares authorized; 2,896,703 issued	2,905	2,899
Treasury stock, at cost; 152,107 and 162,803 shares, respectively	(2,802)	(2,999)
Surplus	34,350	34,274
Retained earnings	12,205	10,236
Accumulated other comprehensive loss, net	(2,241)	(683)
Total stockholders' equity	57,403	56,705
Total liabilities and stockholders' equity	$ 667,625	$ 639,568

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Fair Value Of Financial Instruments (Fair Value Measurements On Differing Levels) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 131,643	$ 135,288
Total assets measured at fair value on a recurring basis	131,643	135,288
Impaired Loans, Fair Value Disclosure	3,531	6,823
OREO and other repossessed property	2,232	213
Total assets measured at fair value on a nonrecurring basis	5,763	7,036
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	16	14
Total assets measured at fair value on a recurring basis	16	14
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	131,627	135,274
Total assets measured at fair value on a recurring basis	131,627	135,274
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure
Impaired Loans, Fair Value Disclosure	3,531	6,823
OREO and other repossessed property	2,232	213
Total assets measured at fair value on a nonrecurring basis	5,763	7,036
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	40,517	35,539
US Government Agency Obligations [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	40,517	35,539
Government Sponsored Entities (GSE) mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	24,237	22,392
Government Sponsored Entities (GSE) mortgage-backed securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	24,237	22,392
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	26,282	21,650
Collateralized Mortgage Obligations GSE [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	26,282	21,650
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	35,182	41,447
Corporate Bonds [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	35,182	41,447
State And Municipal Tax-Exempt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	4,163	3,185
State And Municipal Tax-Exempt [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	4,163	3,185
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure		9,813
Asset-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure		9,813
Certificates Of Deposit [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	1,246	1,248
Certificates Of Deposit [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	1,246	1,248
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	16	14
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 16	$ 14

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Fair Value Of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurements On Differing Levels

		June 30, 2013
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	40,517	$	-	$	40,517
GSE mortgage-backed securities		-		24,237		-		24,237
Collateralized mortgage obligations GSE		-		26,282		-		26,282
Corporate bonds		-		35,182		-		35,182
State and municipal tax-exempt		-		4,163		-		4,163
Certificates of deposit		-		1,246		-		1,246
Equity securities		16		-		-		16
Total assets measured at fair value on a recurring basis	$	16	$	131,627	$	-	$	131,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	3,531	$	3,531
OREO and other repossessed property		-		-		2,232		2,232
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	5,763	$	5,763

		December 31, 2012
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	35,539	$	-	$	35,539
GSE mortgage-backed securities		-		22,392		-		22,392
Collateralized mortgage obligations GSE		-		21,650		-		21,650
Corporate bonds		-		41,447		-		41,447
State and municipal tax-exempt		-		3,185		-		3,185
Asset-backed securities		-		9,813		-		9,813
Certficates of deposit		-		1,248		-		1,248
Equity securities		14		-		-		14
Total assets measured at fair value on a recurring basis	$	14	$	135,274	$	-	$	135,288
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	6,823	$	6,823
OREO and other repossessed property		-		-		213		213
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	7,036	$	7,036

Quantitative Information About Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range (Weighted
		Estimate	Techniques	Unobservable Input	Average)*
June 30, 2013
Impaired loans- Commercial construction	$	2,617	Appraisal of collateral (1)	Appraisal adj.	-10%	to	-40%	(-26%)
				Disposal costs (2)	-2%	to	-7%	(-5%)
Impaired loans- Commercial mortgage	$	914	Appraisal of collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)

*  As of June 30, 2013 there is only 1 loan in the commercial mortgage loan type.

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors and disposal costs. The range and weighted average of disposal costs are presented as a percent of the appraisal.

Estimate Of The Fair Value Of All Financial Instruments

		June 30, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	54,040	$	54,040	$	54,040	$	-	$	-
AFS investment securities		131,643		131,643		16		131,627		-
HTM investment securities		67,274		66,147		-		66,147		-
Restricted stock		2,964		2,964		-		2,964		-
Loans and leases, net of allowance		383,100		379,731		-		379,731		-
Accrued interest receivable		2,463		2,463		-		2,463		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		91,200		91,200		-		91,200		-
Interest-bearing deposits:		377,087		377,087		-		377,087		-
Time		93,621		94,098		-		94,098		-
Repurchase agreements		23,233		23,233		-		23,233		-
FHLBP advances		10,000		11,425		-		11,425		-
Junior subordinated debentures and other borrowings		9,279		9,590		-		9,590		-
Accrued interest payable		396		396		-		396		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2012
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,149	$	17,149	$	17,149	$	-	$	-
AFS investment securities		135,288		135,288		14		135,274		-
HTM investment securities		66,024		68,307		-		68,307		-
Restricted stock		3,426		3,426		-		3,426		-
Loans and leases, net of allowance		389,660		391,533		-		-		391,533
Accrued interest receivable		2,470		2,470		-		2,470		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		85,055		85,055		-		85,055		-
Interest-bearing deposits:		343,053		343,053		-		343,053		-
Time		102,316		103,045		-		103,045		-
Repurchase agreements		17,014		17,014		-		17,014		-
FHLBP advances		20,000		21,592		-		21,592		-
Junior subordinated debentures and other borrowings		9,279		9,256		-		-		9,256
Accrued interest payable		421		421		-		421		-
Off-balance sheet instruments		-		-		-		-		-

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Amortized Cost And Estimated Fair Values

		June 30, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,379	$	257	$	-	$	7,636
Government Sponsored Entities (GSE) mortgage-backed securities		7,026		220		(5)		7,241
Corporate bonds		6,389		295		(3)		6,681
Collateralized mortgage obligations GSE		5,857		43		(64)		5,836
State and municipal tax-exempt		40,623		174		(2,044)		38,753
Total	$	67,274	$	989	$	(2,116)	$	66,147
Available For Sale
US Government agency obligations	$	40,894	$	28	$	(405)	$	40,517
GSE mortgage-backed securities		24,455		153		(371)		24,237
Collateralized mortgage obligations GSE		26,816		91		(625)		26,282
Corporate bonds		35,138		403		(359)		35,182
State and municipal tax-exempt		4,185		1		(23)		4,163
Certificates of deposit		1,250		4		(8)		1,246
Equity securities		27		1		(12)		16
Total	$	132,765	$	681	$	(1,803)	$	131,643

		December 31, 2012
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,266	$	563	$	-	$	7,829
Government Sponsored Entities (GSE) mortgage-backed securities		9,135		435		-		9,570
Corporate bonds		6,500		371		(11)		6,860
Collateralized mortgage obligations GSE		7,204		185		-		7,389
State and municipal tax-exempt		35,919		759		(19)		36,659
Total	$	66,024	$	2,313	$	(30)	$	68,307
Available For Sale
US Government agency obligations	$	35,424	$	133	$	(18)	$	35,539
GSE mortgage-backed securities		21,885		507		-		22,392
Collateralized mortgage obligations GSE		21,526		151		(27)		21,650
Corporate bonds		41,005		772		(330)		41,447
State and municipal tax-exempt		3,195		1		(11)		3,185
Asset-backed securities		9,723		90		-		9,813
Certificates of deposit		1,250		3		(5)		1,248
Equity securities		27		-		(13)		14
Total	$	134,035	$	1,657	$	(404)	$	135,288

Unrealized Losses And Fair Value

		June 30, 2013
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
GSE mortgage-backed securities	$	314	$	(5)	$	314	$	(5)	$	-	$	-
Corporate bonds		512		(3)		512		(3)		-		-
Collateralized mortgage obligations GSE		680		(64)		680		(64)		-		-
State and Municipal tax-exempt		26,208		(2,044)		26,208		(2,044)		-		-
Total	$	27,714	$	(2,116)	$	27,714	$	(2,116)	$	-	$	-
Available For Sale
US Government agency obligations	$	25,201	$	(405)	$	25,201	$	(405)	$	-	$	-
GSE mortgage-backed securities		17,557		(371)		17,557		(371)		-		-
Collateralized mortgage obligations GSE		19,245		(625)		19,245		(625)		-		-
Corporate bonds		14,339		(359)		9,939		(259)		4,400		(100)
State and Municipal tax-exempt		2,079		(23)		1,304		(7)		775		(16)
Certificates of deposit		742		(8)		742		(8)		-		-
Equity securities		11		(12)		-		-		11		(12)
Total	$	79,174	$	(1,803)	$	73,988	$	(1,675)	$	5,186	$	(128)

		December 31, 2012
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	2,587	$	(11)	$	2,587	$	(11)	$	-	$	-
State and municipal tax-exempt		8,690		(19)		8,690		(19)		-		-
Total	$	11,277	$	(30)	$	11,277	$	(30)	$	-	$	-
Available For Sale
US Government agency obligations	$	10,238	$	(18)	$	10,238	$	(18)	$	-	$	-
Collateralized mortgage obligations GSE		4,703		(27)		4,703		(27)		-		-
Corporate bonds		15,989		(330)		12,604		(215)		3,385		(115)
State and municipal tax-exempt		1,095		(11)		1,095		(11)		-		-
Certificates of deposits		745		(5)		745		(5)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	32,784	$	(404)	$	29,385	$	(276)	$	3,399	$	(128)

Investments Classified By Contractual Maturity Date

		Held to Maturity				Available for Sale
		Amortized				Amortized
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	8,450	$	8,468
Due after one year through five years		-		-		37,794		37,935
Due after five years through ten years		24,564		24,829		34,237		33,788
Due after ten years		42,710		41,318		52,257		51,436
No stated maturity		-		-		27		16
Total investment securities	$	67,274	$	66,147	$	132,765	$	131,643

Gain (Loss) On Investment Sales

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2013		2012		2013		2012
Gross realized gains-AFS	$	155	$	85	$	471	$	85
Gross realized losses-AFS		-		(6)		(257)		(6)
Net realized gain	$	155	$	79	$	214	$	79

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Junior Subordinated Debentures (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
DNB Capital Trust I [Member]
Debt Instrument [Line Items]
Issuance date	Jul. 20, 2001
Floating rate capital preferred securities	$ 5.0
Description of variable rate basis	floating rate (6 month Libor plus 3.75%, with a cap of 12%)
Basis spread on variable rate	3.75%
Maximum stated interest rate range	12.00%
Principal amount, floating rate junior subordinated debentures	5.2
Maturity date range, start	Jul. 25, 2006
Maturity date range, end	Jul. 25, 2031
DNB Capital Trust II [Member]
Debt Instrument [Line Items]
Issuance date	Mar. 30, 2005
Floating rate capital preferred securities	4.0
Description of variable rate basis	floating rate (the rate was fixed at 6.56% for the first 5 years and is now adjusting at a rate of 3-month LIBOR plus 1.77%)
Basis spread on variable rate	1.77%
Fixed interest rate	6.56%
Principal amount, floating rate junior subordinated debentures	$ 4.1
Maturity date range, start	May 23, 2010
Maturity date range, end	May 23, 2035

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Stockholders' Equity (Details) (USD $)	0 Months Ended	3 Months Ended					6 Months Ended	12 Months Ended
	Sep. 21, 2011	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Jun. 30, 2013	Dec. 31, 2010
Class of Stock [Line Items]
Liquidation preference per share		$ 1,000		$ 1,000			$ 1,000
Aggregate purchase price		$ 11,750,000					$ 11,750,000
Securities purchase agreement, share repurchase amount							11,879,000
Securities purchase agreement, share repurchase paid in principal amount							11,750,000
Securities purchase agreement, share repurchase accrued unpaid dividends amount							128,900
Number of stock repurchase from treasury		186,311					186,311
Repurchase of stock warrants	458,000
Shares of common stock		186,311					186,311
Par value per share		$ 1.00		$ 1.00			$ 1.00
Exercise price per share		$ 9.46					$ 9.46
Treasury's small business lending fund								30,000,000,000
Treasury's small business lending fund, maximum asset value, qualified banks								10,000,000,000
Preferred stock dividend rate		1.00%	1.00%	1.00%	1.00%	3.90%	3.874%
Expected dividend rate at a fixed rate for a specified period							9.00%
Par value per share		$ 10.00		$ 10.00			$ 10.00
Cumulative Preferred Stock [Member]
Class of Stock [Line Items]
Shares of perpetual preferred stock		11,750					11,750
Liquidation preference per share		$ 1,000					$ 1,000
Par value per share		$ 10.00					$ 10.00
Noncumulative Preferred Stock [Member]
Class of Stock [Line Items]
Shares of perpetual preferred stock		13,000					13,000
Liquidation preference per share		$ 1,000					$ 1,000
Aggregate purchase price		$ 13,000,000					$ 13,000,000
Minimum [Member]
Class of Stock [Line Items]
Expected dividend rate for the second through tenth dividend periods							1.00%
Expected dividend rate at a fixed rate for a specified period							1.00%
Maximum [Member]
Class of Stock [Line Items]
Expected dividend rate for the second through tenth dividend periods							5.00%
Expected dividend rate at a fixed rate for a specified period							7.00%

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Allowance For Credit Losses (Impaired Loans By Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 4,761		$ 4,761		$ 5,432
Unpaid Principal Balance, With no related allowance recorded	5,422		5,422		5,955
Average Recorded Investment, With no related allowance recorded	5,953	6,126	5,780	4,997
Interest Income Recognized, With no related allowance recorded	3	17	3	17
Recorded Investment, With allowance recorded	5,457		5,457		6,891
Unpaid Principal Balance, With allowance recorded	5,997		5,997		7,433
Related Allowance	1,926		1,926		1,015
Average Recorded Investment, With allowance recorded	6,977	2,114	6,948	3,021
Interest Income Recognized, With allowance recorded		39		39
Recorded Investment, Total	10,218		10,218		12,323
Unpaid Principal Balance, Total	11,419		11,419		13,388
Average Recorded Investment, Total	12,930	8,240	12,728	8,018
Interest Income Recognized, Total	3	56	3	56
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,444		2,444		2,386
Unpaid Principal Balance, With no related allowance recorded	3,042		3,042		2,883
Average Recorded Investment, With no related allowance recorded	2,414	2,212	2,405	2,146
Average Recorded Investment, With allowance recorded	159		106
Recorded Investment, Total	2,444		2,444		2,386
Unpaid Principal Balance, Total	3,042		3,042		2,883
Average Recorded Investment, Total	2,573	2,212	2,511	2,146
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,155		2,155		2,807
Unpaid Principal Balance, With no related allowance recorded	2,207		2,207		2,814
Average Recorded Investment, With no related allowance recorded	2,250	223	2,436	149
Interest Income Recognized, With no related allowance recorded		1		1
Recorded Investment, With allowance recorded	1,131		1,131		2,565
Unpaid Principal Balance, With allowance recorded	1,133		1,133		2,569
Related Allowance	217		217		151
Average Recorded Investment, With allowance recorded	2,392	83	2,449	760
Recorded Investment, Total	3,286		3,286		5,372
Unpaid Principal Balance, Total	3,340		3,340		5,383
Average Recorded Investment, Total	4,642	306	4,885	909
Interest Income Recognized, Total		1		1
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded	3		3		3
Average Recorded Investment, With no related allowance recorded		144		163
Interest Income Recognized, With no related allowance recorded		12		12
Average Recorded Investment, With allowance recorded	100		67
Unpaid Principal Balance, Total	3		3		3
Average Recorded Investment, Total	100	144	67	163
Interest Income Recognized, Total		12		12
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment, With no related allowance recorded	1,091	3,333	727	2,326
Recorded Investment, With allowance recorded	4,326		4,326		4,326
Unpaid Principal Balance, With allowance recorded	4,864		4,864		4,864
Related Allowance	1,709		1,709		864
Average Recorded Investment, With allowance recorded	4,326	2,031	4,326	2,261
Interest Income Recognized, With allowance recorded		39		39
Recorded Investment, Total	4,326		4,326		4,326
Unpaid Principal Balance, Total	4,864		4,864		4,864
Average Recorded Investment, Total	5,417	5,364	5,053	4,587
Interest Income Recognized, Total		39		39
Lease Financing [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded					28
Unpaid Principal Balance, With no related allowance recorded					36
Average Recorded Investment, With no related allowance recorded	13	60	18	60
Recorded Investment, Total					28
Unpaid Principal Balance, Total					36
Average Recorded Investment, Total	13	60	18	60
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	60		60		64
Unpaid Principal Balance, With no related allowance recorded	68		68		72
Average Recorded Investment, With no related allowance recorded	61	90	62	80
Interest Income Recognized, With no related allowance recorded		2		2
Recorded Investment, Total	60		60		64
Unpaid Principal Balance, Total	68		68		72
Average Recorded Investment, Total	61	90	62	80
Interest Income Recognized, Total		2		2
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	102		102		147
Unpaid Principal Balance, With no related allowance recorded	102		102		147
Average Recorded Investment, With no related allowance recorded	124	64	132	73
Interest Income Recognized, With no related allowance recorded	3	2	3	2
Recorded Investment, Total	102		102		147
Unpaid Principal Balance, Total	102		102		147
Average Recorded Investment, Total	124	64	132	73
Interest Income Recognized, Total	$ 3	$ 2	$ 3	$ 2

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Investment Securities (Gain (Loss) On Investment Sales) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Investment Securities [Abstract]
Gross Realized Gains- AFS	$ 155	$ 85	$ 471	$ 85
Gross realized losses-AFS		(6)	(257)	(6)
Net realized gain	$ 155	$ 79	$ 214	$ 79

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Loans And Leases (Total Loans And Leases Outstanding) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	$ 389,790		$ 396,498
Less allowance for credit losses	(6,690)	(7,123)	(6,838)	(6,214)	(6,142)	(6,164)
Net loans and leases	383,100		389,660
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	24,788		25,835
Less allowance for credit losses	(309)	(327)	(306)	(378)	(376)	(383)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	227,467		234,202
Less allowance for credit losses	(3,110)	(3,248)	(3,094)	(2,860)	(2,734)	(3,442)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	80,591		81,888
Less allowance for credit losses	(484)	(711)	(506)	(485)	(505)	(474)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	14,330		12,247
Less allowance for credit losses	(2,004)	(1,930)	(1,536)	(1,455)	(1,728)	(1,029)
Lease Financing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	4		67
Less allowance for credit losses		(2)	(3)	(5)	(7)	(10)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	36,200		35,322
Less allowance for credit losses	(181)	(180)	(178)	(176)	(180)	(165)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	6,410		6,937
Less allowance for credit losses	$ (80)	$ (83)	$ (86)	$ (92)	$ (93)	$ (95)

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Allowance For Credit Losses

6 Months Ended

Jun. 30, 2013

Allowance For Credit Losses [Abstract]

Allowance For Credit Losses

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2013 and December 31, 2012. 

Age Analysis of Past Due Loans Receivables

										June 30, 2013
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	316	$	131	$	2,371	$	2,818	$	21,970	$	24,788	$	106
Commercial mortgage		525		-		3,286		3,811		223,656		227,467		-
Commercial:
Commercial term		-		-		-		-		80,591		80,591		-
Commercial construction		-		-		4,326		4,326		10,004		14,330		-
Lease financing		4		-		-		4		-		4		-
Consumer:
Home equity		151		78		60		289		35,911		36,200		-
Other		96		17		23		136		6,274		6,410		-
Total	$	1,092	$	226	$	10,066	$	11,384	$	378,406	$	389,790	$	106

										December 31, 2012
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	692	$	319	$	2,256	$	3,267	$	22,568	$	25,835	$	60
Commercial mortgage		68		-		3,514		3,582		230,620		234,202		710
Commercial:
Commercial term		-		-		-		-		81,888		81,888		-
Commercial construction		-		-		2,031		2,031		10,216		12,247		-
Lease financing		-		-		28		28		39		67		-
Consumer:
Home equity		162		-		152		314		35,008		35,322		92
Other		95		-		54		149		6,788		6,937		7
Total	$	1,017	$	319	$	8,035	$	9,371	$	387,127	$	396,498	$	869

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the six months ended June 30, 2013 and as of and for the year ended December 31, 2012.

Impaired Loans

		June 30, 2013						December 31, 2012
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,444	$	3,042	$	-	$	2,386	$	2,883	$	-
Commercial mortgage		2,155		2,207		-		2,807		2,814		-
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		-		-		-		-		-		-
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	4,761	$	5,422	$	-	$	5,432	$	5,955	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		1,131		1,133		217		2,565		2,569		151
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	5,457	$	5,997	$	1,926	$	6,891	$	7,433	$	1,015
Total:
Residential mortgage		2,444		3,042		-		2,386		2,883		-
Commercial mortgage		3,286		3,340		217		5,372		5,383		151
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	10,218	$	11,419	$	1,926	$	12,323	$	13,388	$	1,015

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,414	$	-	$	2,212	$	-	$	2,405	$	-	$	2,146	$	-
Commercial mortgage		2,250		-		223		1		2,436		-		149		1
Commercial:
Commercial term		-		-		144		12		-		-		163		12
Commercial construction		1,091		-		3,333		-		727		-		2,326		-
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	5,953	$	3	$	6,126	$	17	$	5,780	$	3	$	4,997	$	17
With allowance recorded:
Residential mortgage		159		-		-		-		106		-		-		-
Commercial mortgage		2,392		-		83		-		2,449		-		760		-
Commercial:
Commercial term		100		-		-		-		67		-		-		-
Commercial construction		4,326		-		2,031		39		4,326		-		2,261		39
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-
Total	$	6,977	$	-	$	2,114	$	39	$	6,948	$	-	$	3,021	$	39
Total:
Residential mortgage		2,573		-		2,212		-		2,511		-		2,146		-
Commercial mortgage		4,642		-		306		1		4,885		-		909		1
Commercial:
Commercial term		100		-		144		12		67		-		163		12
Commercial construction		5,417		-		5,364		39		5,053		-		4,587		39
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	12,930	$	3	$	8,240	$	56	$	12,728	$	3	$	8,018	$	56

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within DNB’s internal risk rating system as of June 30, 2013 and December 31, 2012.

Credit Quality Indicators

		June 30, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,414	$	-	$	2,374	$	-	$	24,788
Commercial mortgage		208,035		9,743		9,689		-		227,467
Commercial:
Commercial term		80,315		73		203		-		80,591
Commercial construction		8,987		-		3,312		2,031		14,330
Lease financing		4		-		-		-		4
Consumer:
Home equity		35,949		-		251		-		36,200
Other		6,406		-		4		-		6,410
Total	$	362,110	$	9,816	$	15,833	$	2,031	$	389,790

		December 31, 2012
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,346	$	-	$	2,489	$	-	$	25,835
Commercial mortgage		211,001		10,847		12,354		-		234,202
Commercial:
Commercial term		81,394		73		421		-		81,888
Commercial construction		4,018		-		6,198		2,031		12,247
Lease financing		67		-		-		-		67
Consumer:
Home equity		35,069		-		253		-		35,322
Other		6,933		-		4		-		6,937
Total	$	361,828	$	10,920	$	21,719	$	2,031	$	396,498

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2013 and December 31, 2012, the activity for the three and six months ended June 30, 2013 and 2012 and as of and for the year ended December 31, 2012.

Allowance for Credit Losses and Recorded Investment in Loans Receivables

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2013	$	327	$	3,248	$	711	$	1,930	$	2	$	180	$	83	$	642	$	7,123
Charge-offs		(184)		(394)		(212)		-		(26)		-		-		-		(816)
Recoveries		5		-		1		-		2		-		-		-		8
Provisions		161		256		(16)		74		22		1		(3)		(120)		375
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2013	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Charge-offs		(184)		(394)		(222)		-		(26)		-		(5)		-		(831)
Recoveries		70		-		5		-		53		-		-		-		128
Provisions		117		410		195		468		(30)		3		(1)		(607)		555
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690
Ending balance: individually evaluated for impairment	$	-	$	217	$	-	$	1,709	$	-	$	-	$	-	$	-	$	1,926
Ending balance: collectively evaluated for impairment	$	309	$	2,893	$	484	$	295	$	-	$	181	$	80	$	522	$	4,764
Loans receivables:
Ending balance	$	24,788	$	227,467	$	80,591	$	14,330	$	4	$	36,200	$	6,410			$	389,790
Ending balance: individually evaluated for impairment	$	2,444	$	3,286	$	-	$	4,326	$	-	$	60	$	102			$	10,218
Ending balance: collectively evaluated for impairment	$	22,344	$	224,181	$	80,591	$	10,004	$	4	$	36,140	$	6,308			$	379,572
Reserve for unfunded loan commitments	$	-	$	11	$	81	$	41	$	-	$	9	$	-			$	142

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2012	$	376	$	2,734	$	505	$	1,728	$	7	$	180	$	93	$	519	$	6,142
Charge-offs		-		-		(7)		(422)		(1)		-		(1)		-		(431)
Recoveries		5		-		-		-		10		-		13		-		28
Provisions		(3)		126		(13)		149		(11)		(4)		(13)		244		475
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2012	$	383	$	3,442	$	474	$	1,029	$	10	$	165	$	95	$	566	$	6,164
Charge-offs		(18)		-		(18)		(848)		(1)		-		(9)		-		(894)
Recoveries		10		-		3		-		10		-		21		-		44
Provisions		3		(582)		26		1,274		(14)		11		(15)		197		900
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214

		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2012	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Ending balance: individually evaluated for impairment	$	-	$	151	$	-	$	864	$	-	$	-	$	-	$	-	$	1,015
Ending balance: collectively evaluated for impairment	$	306	$	2,943	$	506	$	672	$	3	$	178	$	86	$	1,129	$	5,823
Loans receivables:
Ending balance	$	25,835	$	234,202	$	81,888	$	12,247	$	67	$	35,322	$	6,937			$	396,498
Ending balance: individually evaluated for impairment	$	2,386	$	5,372	$	-	$	4,326	$	28	$	64	$	147			$	12,323
Ending balance: collectively evaluated for impairment	$	23,449	$	228,830	$	81,888	$	7,921	$	39	$	35,258	$	6,790			$	384,175
Reserve for unfunded loan commitments	$	-	$	9	$	71	$	35	$	-	$	10	$	-	$		$	125

XML

Branch Purchase (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Branch Purchase [Abstract]
Business Acquisition, Date of Acquisition Agreement	Apr. 02, 2012
Business Acquisition, Description of Acquired Entity	On April 2, 2012, the Bank entered into a Purchase and Assumption Agreement with Capital Bank, National Association, to acquire certain assets and assume certain liabilities of one full-service branch office of Capital Bank located in Boothwyn, Pennsylvania (the "Branch Acquisition").
Business Acquisition, Effective Date of Acquisition	Jun. 11, 2012
Personal loans purchased	$ 66,000
Real estate, furniture and equipment purchased	670,000
Deposits purchased	15,900,000
Payment to Capital Bank	$ 130,000
Business Acquisition Premium Paid On Deposits	0.82%

XML

Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income, Basic EPS	$ 1,214	$ 1,270	$ 2,352	$ 2,244
Income, Net income available to common stockholders	$ 1,214	$ 1,270	$ 2,352	$ 2,244
Shares, Basic EPS	2,740,756	2,707,662	2,733,051	2,704,816
Shares, Diluted EPS	33,000	28,000	35,000	26,000
Shares, Net income available to common stockholders	2,773,637	2,735,808	2,767,847	2,730,800
Amount, Basic EPS	$ 0.44	$ 0.47	$ 0.86	$ 0.83
Amount, Diluted EPS		$ (0.01)	$ (0.01)	$ (0.01)
Diluted	$ 0.44	$ 0.46	$ 0.85	$ 0.82
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			128,568	148,459

XML

Junior Subordinated Debentures

6 Months Ended

Jun. 30, 2013

Junior Subordinated Debentures [Abstract]

Junior Subordinated Debentures

NOTE 8: JUNIOR SUBORDINATED DEBENTURES

DNB has two issuances of junior subordinated debentures (the “debentures”) as follows. The majority of the proceeds of each issuance were invested in DNB’s subsidiary, DNB First, National Association, to increase the Bank’s capital levels. The junior subordinated debentures issued in each case qualify as a component of capital for regulatory purposes. DNB Capital Trust I and II are special purpose Delaware business trusts, which are not consolidated.

DNB Capital Trust I

DNB’s first issuance of junior subordinated debentures was on July 20, 2001. This issuance of debentures are floating rate and were issued to DNB Capital Trust I, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust I issued $5.0 million of floating rate (6 month Libor plus 3.75%, with a cap of 12%) capital preferred securities to a qualified institutional buyer. The proceeds of these securities were used by the Trust, along with DNB’s capital contribution, to purchase $5.2 million principal amount of DNB’s floating rate junior subordinated debentures. The preferred securities have been redeemable since July 25, 2006 and must be redeemed upon maturity of the debentures on July 25, 2031.

DNB Capital Trust II

DNB’s second issuance of junior subordinated debentures was on March 30, 2005. This issuance of debentures are floating rate and were issued to DNB Capital Trust II, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust II issued $4.0 million of floating rate (the rate was fixed at 6.56% for the first 5 years and is now adjusting at a rate of 3-month LIBOR plus 1.77%) capital preferred securities. The proceeds of these securities were used by the Trust, along with DNB’s capital contribution, to purchase $4.1 million principal amount of DNB’s floating rate junior subordinated debentures. The preferred securities have been redeemable since May 23, 2010. The preferred securities must be redeemed upon maturity of the debentures on May 23, 2035.

XML

Loan and Leases

6 Months Ended

Jun. 30, 2013

Loans And Leases [Abstract]

Loan And Leases

NOTE 4: LOANS AND LEASES

The following table sets forth information concerning the composition of total loans and leases outstanding, as of the dates indicated.

(Dollars in thousands)		June 30, 2013		December 31, 2012
Residential mortgage	$	24,788	$	25,835
Commercial mortgage		227,467		234,202
Commercial:
Commercial term		80,591		81,888
Commercial construction		14,330		12,247
Lease financing		4		67
Consumer:
Home equity		36,200		35,322
Other		6,410		6,937
Total loans and leases	$	389,790	$	396,498
Less allowance for credit losses		(6,690)		(6,838)
Net loans and leases	$	383,100	$	389,660

Included in the loan portfolio are loans for which DNB has ceased the accrual of interest (i.e. non-accrual loans). Loans of approximately $10.0 million and $9.6 million as of June 30, 2013 and December 31, 2012, respectively, were on a non-accrual basis. DNB also had loans of approximately $106,000 and $869,000 that were 90 days or more delinquent, but still accruing, as of June 30, 2013 and December 31, 2012, respectively. If contractual interest income had been recorded on non-accrual loans, interest would have been increased as shown in the following table:

		Six Months Ended
		June 30,
(Dollars in thousands)		2013		2012
Interest income which would have been recorded under original terms	$	378	$	224
Interest income recorded during the period		(3)		(56)
Net impact on interest income	$	375	$	168

XML

Consolidated Statements of Stockholders' Equity (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statements of Stockholders' Equity [Abstract]
Cash Dividends-Common Stock per share	$ 0.14	$ 0.1
Sale of treasury shares to 401(k), Shares	7,096	9,045
Sale of treasury shares to deferred compensation plan, Shares	3,600	4,360

XML

Fair Value Of Financial Instruments (Quantitative Information About Level 3 Fair Value Measurements) (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Commercial Construction [Member]		Jun. 30, 2013 Commercial Construction [Member] Appraisal Adjustments [Member]	Jun. 30, 2013 Commercial Construction [Member] Disposal Costs [Member]	Jun. 30, 2013 Commercial Mortgage [Member]		Jun. 30, 2013 Commercial Mortgage [Member] Disposal Costs [Member]	Jun. 30, 2013 Minimum [Member] Commercial Construction [Member] Appraisal Adjustments [Member]		Jun. 30, 2013 Minimum [Member] Commercial Construction [Member] Disposal Costs [Member]		Jun. 30, 2013 Minimum [Member] Commercial Mortgage [Member] Disposal Costs [Member]		Jun. 30, 2013 Maximum [Member] Commercial Construction [Member] Appraisal Adjustments [Member]		Jun. 30, 2013 Maximum [Member] Commercial Construction [Member] Disposal Costs [Member]		Jun. 30, 2013 Maximum [Member] Commercial Mortgage [Member] Disposal Costs [Member]		Jun. 30, 2013 Weighted Average [Member] Commercial Construction [Member] Appraisal Adjustments [Member]		Jun. 30, 2013 Weighted Average [Member] Commercial Construction [Member] Disposal Costs [Member]		Jun. 30, 2013 Weighted Average [Member] Commercial Mortgage [Member] Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans Fair Value Disclosure	$ 3,531	$ 6,823	$ 2,617	[1]			$ 914	[1]
Valuation Techniques			Appraisal of collateral (1)				Appraisal of collateral (1)
Unobservable Input					Appraisal adj.	Disposal costs (2)			Disposal costs (2)
Discount Rate										(40.00%)	[2]	(7.00%)	[2],[3]	(13.00%)	[2],[3]	(10.00%)	[2]	(2.00%)	[2],[3]	(13.00%)	[2],[3]	(26.00%)	[2]	(5.00%)	[2],[3]	(13.00%)	[2],[3]

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

[2] As of June 30, 2013 there is only 1 loan in the commercial mortgage loan type.

[3] Appraisals may be adjusted by management for qualitative factors and disposal costs. The range and weighted average of disposal costs are presented as a percent of the appraisal

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Stock-Based Compensation (Weighted Average Price And Weighted Average Remaining Contractual Life) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Number Outstanding	213,618	235,438
Number Exercisable	128,568	148,238
Weighted Average Exercise Price	$ 16.00	$ 16.01
Remaining Contractual Life	3 years 11 days	3 years 8 months 16 days
Intrinsic Value	$ 770	$ 422,000
Range of Exercise Prices 6.93-10.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 6.93	$ 6.93
Range of Exercise Prices, Upper Limit	$ 10.99	$ 10.99
Number Outstanding	85,050	87,200
Weighted Average Exercise Price	$ 8.65	$ 8.66
Remaining Contractual Life	4 years 7 months 24 days	5 years 7 months 24 days
Intrinsic Value	$ 770	$ 422,000
Range of Exercise Prices 14.00-19.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 14.00	$ 14.00
Range of Exercise Prices, Upper Limit	$ 19.99	$ 19.99
Number Outstanding	61,715	81,096
Number Exercisable	61,715	81,096
Weighted Average Exercise Price	$ 17.62	$ 17.44
Remaining Contractual Life	2 years 2 months 19 days	2 years 5 months 16 days
Range of Exercise Prices 20.00-22.99 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 20.00	$ 20.00
Range of Exercise Prices, Upper Limit	$ 22.99	$ 22.99
Number Outstanding	18,812	19,101
Number Exercisable	18,812	19,101
Weighted Average Exercise Price	$ 22.78	$ 22.78
Remaining Contractual Life	1 year 5 months 23 days	2 years 5 months 23 days
Range of Exercise Prices 23.00-24.27 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 23.00	$ 23.00
Range of Exercise Prices, Upper Limit	$ 24.27	$ 24.27
Number Outstanding	48,041	48,041
Number Exercisable	48,041	48,041
Weighted Average Exercise Price	$ 24.27	$ 24.27
Remaining Contractual Life	1 year 9 months 18 days	2 years 9 months 18 days

XML

Investment Securities (Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Held-to-maturity Securities, Fair Value, Total	$ 27,714	$ 11,277
Held-to-maturity Securities, Unrealized Losses	(2,116)	(30)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	27,714	11,277
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(2,116)	(30)
Available-for-sale Securities, Fair Value, Total	79,174	32,784
Available-for-sale Securities, Unrealized Loss, Total	(1,803)	(404)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	73,988	29,385
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(1,675)	(276)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	5,186	3,399
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(128)	(128)
US Government Agency Obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Fair Value, Total	25,201	10,238
Available-for-sale Securities, Unrealized Loss, Total	(405)	(18)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	25,201	10,238
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(405)	(18)
Government Sponsored Entities (GSE) mortgage-backed securities [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Fair Value, Total	314
Held-to-maturity Securities, Unrealized Losses	(5)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	314
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(5)
Available-for-sale Securities, Fair Value, Total	17,557
Available-for-sale Securities, Unrealized Loss, Total	(371)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	17,557
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(371)
Collateralized Mortgage Obligations GSE [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Fair Value, Total	680
Held-to-maturity Securities, Unrealized Losses	(64)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	680
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(64)
Available-for-sale Securities, Fair Value, Total	19,245	4,703
Available-for-sale Securities, Unrealized Loss, Total	(625)	(27)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	19,245	4,703
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(625)	(27)
Corporate Bonds [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Fair Value, Total	512	2,587
Held-to-maturity Securities, Unrealized Losses	(3)	(11)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	512	2,587
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(3)	(11)
Available-for-sale Securities, Fair Value, Total	14,339	15,989
Available-for-sale Securities, Unrealized Loss, Total	(359)	(330)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	9,939	12,604
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(259)	(215)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	4,400	3,385
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(100)	(115)
State And Municipal Tax-Exempt [Member]
Schedule of Investments [Line Items]
Held-to-maturity Securities, Fair Value, Total	26,208	8,690
Held-to-maturity Securities, Unrealized Losses	(2,044)	(19)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	26,208	8,690
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(2,044)	(19)
Available-for-sale Securities, Fair Value, Total	2,079	1,095
Available-for-sale Securities, Unrealized Loss, Total	(23)	(11)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	1,304	1,095
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(7)	(11)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	775
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(16)
Certificates Of Deposit [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Fair Value, Total	742	745
Available-for-sale Securities, Unrealized Loss, Total	(8)	(5)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	742	745
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(8)	(5)
Equity Securities [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Fair Value, Total	11	14
Available-for-sale Securities, Unrealized Loss, Total	(12)	(13)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	11	14
Available-for-sale Securities, Unrealized Loss More Than 12 Months	$ (12)	$ (13)

XML

Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

NOTE 11:  FAIR VALUE OF FINANCIAL INSTRUMENTS 

FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which DNB is required to value each asset within its scope using assumptions that market participations would utilize to value that asset. When DNB uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.

The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1—Quoted prices in active markets for identical securities.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Instruments whose significant value drivers are unobservable.

A description of the valuation methodologies used for assets measured at fair value is set forth below:

DNB’s available-for-sale investment securities, which generally include U.S. government agencies and mortgage backed securities, collateralized mortgage obligations, corporate bonds and equity securities are reported at fair value. These securities are valued by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other securities are evaluated using a broker-quote based application, including quotes from issuers.

Impaired loans are those loans that the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

OREO assets are adjusted to fair value less estimated selling costs upon transfer of the loans to OREO. Subsequently, OREO assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. There assets are included as Level 3 fair values.

The following table summarizes the assets at June 30, 2013 and December 31, 2012 that are recognized on DNB’s balance sheet using fair value measurement determined based on the differing levels of input:

		June 30, 2013
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	40,517	$	-	$	40,517
GSE mortgage-backed securities		-		24,237		-		24,237
Collateralized mortgage obligations GSE		-		26,282		-		26,282
Corporate bonds		-		35,182		-		35,182
State and municipal tax-exempt		-		4,163		-		4,163
Certificates of deposit		-		1,246		-		1,246
Equity securities		16		-		-		16
Total assets measured at fair value on a recurring basis	$	16	$	131,627	$	-	$	131,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	3,531	$	3,531
OREO and other repossessed property		-		-		2,232		2,232
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	5,763	$	5,763

		December 31, 2012
(Dollars in thousands)		Level 1		Level 2		Level 3		Fair Value
Assets Measured at Fair Value on a Recurring Basis
AFS Investment Securities:
US Government agency obligations	$	-	$	35,539	$	-	$	35,539
GSE mortgage-backed securities		-		22,392		-		22,392
Collateralized mortgage obligations GSE		-		21,650		-		21,650
Corporate bonds		-		41,447		-		41,447
State and municipal tax-exempt		-		3,185		-		3,185
Asset-backed securities		-		9,813		-		9,813
Certficates of deposit		-		1,248		-		1,248
Equity securities		14		-		-		14
Total assets measured at fair value on a recurring basis	$	14	$	135,274	$	-	$	135,288
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	6,823	$	6,823
OREO and other repossessed property		-		-		213		213
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	7,036	$	7,036

The following table presents additional information about assets measured at fair value on a nonrecurring basis and for which DNB has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range (Weighted
		Estimate	Techniques	Unobservable Input	Average)*
June 30, 2013
Impaired loans- Commercial construction	$	2,617	Appraisal of collateral (1)	Appraisal adj.	-10%	to	-40%	(-26%)
				Disposal costs (2)	-2%	to	-7%	(-5%)
Impaired loans- Commercial mortgage	$	914	Appraisal of collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)

*  As of June 30, 2013 there is only 1 loan in the commercial mortgage loan type.

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors and disposal costs. The range and weighted average of disposal costs are presented as a percent of the appraisal.

Impaired loans.  Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $10.2 million at June 30, 2013. Of this, $5.5 million had a valuation allowance of $1.9 million and $4.8 million had no valuation allowance as of June 30, 2013. Impaired loans had a carrying amount of $12.3 million at December 31, 2012. Of this, $6.9 million had a valuation allowance of $1.0 million and $5.4 million had no valuation allowance as of December 31, 2012.  DNB provided $375,000 and $555,000 for the three and six months ended June 30, 2013, respectively. See the table in note 3 displaying the impact to income if the interest on non-accrual loans would have been recorded.

Other Real Estate Owned & other repossessed property.  Other real estate owned (“OREO”) consists of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily repossessed assets formerly leased) are classified as OREO and other repossessed property are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. DNB had $3.3 million of such assets at June 30, 2013, all of which was OREO and none was other repossessed property. DNB had $1.2 million of such assets at December 31, 2012, which consisted of $1.1 million in OREO and $126,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did not write down the carrying values during the six month period ending June 30, 2013.

DNB's policy is to recognize transfer between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1 and 2 for the three and six months ended June 30, 2013.

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Company’s consolidated balance sheet. The carrying amounts and fair values of financial instruments at June 30, 2013 and December 31, 2012 are as follows:

		June 30, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	54,040	$	54,040	$	54,040	$	-	$	-
AFS investment securities		131,643		131,643		16		131,627		-
HTM investment securities		67,274		66,147		-		66,147		-
Restricted stock		2,964		2,964		-		2,964		-
Loans and leases, net of allowance		383,100		379,731		-		379,731		-
Accrued interest receivable		2,463		2,463		-		2,463		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		91,200		91,200		-		91,200		-
Interest-bearing deposits:		377,087		377,087		-		377,087		-
Time		93,621		94,098		-		94,098		-
Repurchase agreements		23,233		23,233		-		23,233		-
FHLBP advances		10,000		11,425		-		11,425		-
Junior subordinated debentures and other borrowings		9,279		9,590		-		9,590		-
Accrued interest payable		396		396		-		396		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2012
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,149	$	17,149	$	17,149	$	-	$	-
AFS investment securities		135,288		135,288		14		135,274		-
HTM investment securities		66,024		68,307		-		68,307		-
Restricted stock		3,426		3,426		-		3,426		-
Loans and leases, net of allowance		389,660		391,533		-		-		391,533
Accrued interest receivable		2,470		2,470		-		2,470		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		85,055		85,055		-		85,055		-
Interest-bearing deposits:		343,053		343,053		-		343,053		-
Time		102,316		103,045		-		103,045		-
Repurchase agreements		17,014		17,014		-		17,014		-
FHLBP advances		20,000		21,592		-		21,592		-
Junior subordinated debentures and other borrowings		9,279		9,256		-		-		9,256
Accrued interest payable		421		421		-		421		-
Off-balance sheet instruments		-		-		-		-		-

The specific estimation methods and assumptions used can have a substantial impact on the resulting fair values of financial instruments. Following is a brief summary of the significant assumptions, methods, and estimates used in estimating fair value.

Limitations  Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time DNB’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of DNB’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable  The carrying amounts for short-term investments (cash and cash equivalents) and accrued interest receivable and payable approximate fair value.

Investment Securities  The fair value of investment securities are determined by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other investments are evaluated using a broker‑ quote based application, including quotes from issuers. The carrying amount of non-readily marketable equity securities approximates liquidation value.

Restricted Stock  The carrying amount of restricted investment in Federal Home Loan Bank stock, Federal Reserve stock and ACBB stock approximates fair value, and considers the limited marketability of such securities.

Loans  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial mortgages, residential mortgages, consumer and non-accrual loans. The fair value of performing loans is calculated by discounting expected cash flows using an estimated market discount rate. Expected cash flows include both contractual cash flows and prepayments of loan balances. Prepayments on consumer loans were determined using the median of estimates of securities dealers for mortgage-backed investment pools.

The estimated discount rate considers credit and interest rate risk inherent in the loan portfolios and other factors such as liquidity premiums and incremental servicing costs to an investor. Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented would be indicative of the value negotiated in an actual sale.

The fair value for non-accrual loans not based on fair value of collateral is derived through a discounted cash flow analysis, which includes the opportunity costs of carrying a non-performing asset. An estimated discount rate was used for these non-accrual loans, based on the probability of loss and the expected time to recovery.

Deposits The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts, and interest checking accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank of Pittsburgh advances  The fair value of the FHLBP advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available for debt of similar remaining maturities and collateral terms.

Repurchase agreements  Fair value approximates the carrying value of such liabilities due to their short-term nature.

Junior subordinated debentures  The fair value for subordinated debentures is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms.

Off-balance-sheet Instruments (Disclosed at Cost)  Off-balance-sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments. At June 30, 2013, un-funded loan commitments totaled $80.5 million and stand-by letters of credit totaled $1.8 million. At December 31, 2012, un-funded loan commitments totaled $67.8 million and stand-by letters of credit totaled $2.1 million.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

NOTE 7: ACCUMULATED OTHER COMPREHENSIVE INCOME 

The components of accumulated other comprehensive loss included in stockholders' equity are as follows:

Accumulated Other Comprehensive Income (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2013
Net unrealized loss on AFS securities	$	(1,122)	$	381	$	(741)
Discount on AFS to HTM reclassification		(40)		14		(26)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(3,395)	$	1,154	$	(2,241)
December 31, 2012
Net unrealized gain on AFS securities	$	1,253	$	(426)	$	827
Discount on AFS to HTM reclassification		(54)		18		(36)
Unrealized actuarial losses-pension		(2,233)		759		(1,474)
Total of all items above	$	(1,034)	$	351	$	(683)

XML

Fair Value Of Financial Instruments (Policy)

6 Months Ended

Jun. 30, 2013

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurement

FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which DNB is required to value each asset within its scope using assumptions that market participations would utilize to value that asset. When DNB uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.

The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1—Quoted prices in active markets for identical securities.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Instruments whose significant value drivers are unobservable.

A description of the valuation methodologies used for assets measured at fair value is set forth below:

DNB’s available-for-sale investment securities, which generally include U.S. government agencies and mortgage backed securities, collateralized mortgage obligations, corporate bonds and equity securities are reported at fair value. These securities are valued by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other securities are evaluated using a broker-quote based application, including quotes from issuers.

Impaired loans are those loans that the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

OREO assets are adjusted to fair value less estimated selling costs upon transfer of the loans to OREO. Subsequently, OREO assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. There assets are included as Level 3 fair values.

Fair Value Of Financial Instruments

Limitations  Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time DNB’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of DNB’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable  The carrying amounts for short-term investments (cash and cash equivalents) and accrued interest receivable and payable approximate fair value.

Investment Securities  The fair value of investment securities are determined by an independent third party (“preparer”). The preparer’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their evaluated pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi‑dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other investments are evaluated using a broker‑ quote based application, including quotes from issuers. The carrying amount of non-readily marketable equity securities approximates liquidation value.

Restricted Stock  The carrying amount of restricted investment in Federal Home Loan Bank stock, Federal Reserve stock and ACBB stock approximates fair value, and considers the limited marketability of such securities.

Loans  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial mortgages, residential mortgages, consumer and non-accrual loans. The fair value of performing loans is calculated by discounting expected cash flows using an estimated market discount rate. Expected cash flows include both contractual cash flows and prepayments of loan balances. Prepayments on consumer loans were determined using the median of estimates of securities dealers for mortgage-backed investment pools.

The estimated discount rate considers credit and interest rate risk inherent in the loan portfolios and other factors such as liquidity premiums and incremental servicing costs to an investor. Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented would be indicative of the value negotiated in an actual sale.

The fair value for non-accrual loans not based on fair value of collateral is derived through a discounted cash flow analysis, which includes the opportunity costs of carrying a non-performing asset. An estimated discount rate was used for these non-accrual loans, based on the probability of loss and the expected time to recovery.

Deposits The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts, and interest checking accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank of Pittsburgh advances  The fair value of the FHLBP advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available for debt of similar remaining maturities and collateral terms.

Repurchase agreements  Fair value approximates the carrying value of such liabilities due to their short-term nature.

Junior subordinated debentures  The fair value for subordinated debentures is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms.

Off-balance-sheet Instruments (Disclosed at Cost)  Off-balance-sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments. At June 30, 2013, un-funded loan commitments totaled $80.5 million and stand-by letters of credit totaled $1.8 million. At December 31, 2012, un-funded loan commitments totaled $67.8 million and stand-by letters of credit totaled $2.1 million

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Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 12:  STOCKHOLDERS’ EQUITY

On January 30, 2009, as part of the Capital Purchase Program ("CPP") of the Emergency Economic Stabilization Act of 2008 administered by the United States Department of the Treasury ("the Treasury"), DNB entered into a Letter Agreement and a Securities Purchase Agreement with the Treasury, pursuant to which the DNB issued and sold on January 30, 2009, and the Treasury purchased for cash on that date (i) 11,750 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series 2008A, par value $10.00 per share, having a liquidation preference of $1,000 per share ("the CPP shares"), and (ii) a ten-year warrant to purchase up to 186,311 shares of the DNB’s common stock, $1.00 par value, at an exercise price of $9.46 per share, for an aggregate purchase price of $11,750,000 in cash. This transaction closed on January 30, 2009. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The Bank provided dividends to the Corporation in connection with the $11,750,000 of Fixed Rate Cumulative Perpetual Preferred Stock sold on January 30, 2009 as part of the CPP.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued and sold to the Treasury 13,000 shares of its Non-Cumulative Perpetual Preferred Stock, Series 2011A (“Series 2011A Preferred Stock”), having a liquidation preference of $1,000 per share for aggregate proceeds of $13,000,000.   The Securities Purchase Agreement was entered into, and the Series 2011A Preferred Stock was issued, pursuant to the Treasury’s Small Business Lending Fund program (“SBLF”), a $30 billion fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. Of the $13.0 million in aggregate proceeds, $11,879,000 was used to repurchase all CPP shares ($11,750,000 was paid in principal and $128,900 in accrued, unpaid dividends related to the CPP shares) held by the Treasury as described above. The securities sold in this transaction were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by DNB not involving a public offering.

The Series 2011A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011.  The dividend rate, which is calculated on the aggregate Liquidation Amount, was initially set at 3.874% per annum, and  was based upon the level of “Qualified Small Business Lending”, or “QSBL” (as defined in the Securities Purchase Agreement) originated by the Company’s wholly owned national bank subsidiary DNB First, N.A. (the “Bank”).  The dividend rate for dividends beyond the initial period are  based upon the “Percentage Change in Qualified Lending” (as defined in the Securities Purchase Agreement) between each dividend period and the “Baseline” QSBL level.  Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods depending on the volume of Qualified Small Business Lending the Bank will originate in future periods, and will be fixed at a rate between 1% per annum to 7% per annum and remain unchanged up to four and one-half years following the funding date (the eleventh through the first half of the nineteenth dividend periods).  Because it is not feasible to predict the volume of Qualified Small Business Lending in future periods, it is not feasible to estimate specific future dividend rates under this formula.  If the Series 2011A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%.  Prior to that time, in general, the dividend rate decreases as the level of the Bank’s Qualified Small Business Lending increases.  Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series 2011A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series 2011A Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem common stock and other securities.  In addition, if (i) the Company has not timely declared and paid dividends on the Series 2011A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series 2011A Preferred Stock with an aggregate liquidation preference of at least $13,000,000 are still outstanding, the Treasury (or any successor holder of Series 2011A Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors. DNB paid an annual rate on the $13.0 million of Series 2011A Preferred Stock of 1.00%,  1.00%,  1.00%1.00%, and 3.90% for the quarters ended June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012, respectively.

As more completely described in the Certificate of Designation, holders of the Series 2011A Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series 2011A Preferred Stock and on certain corporate transactions.  Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series 2011A Preferred Stock does not have voting rights.

The Company may redeem the shares of Series 2011A Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

On September 21, 2011, DNB entered into a letter agreement (the “Warrant Letter Agreement") with the Treasury. Pursuant to the Warrant Letter Agreement, DNB Financial Corporation repurchased from the Treasury the warrant to purchase 186,311 shares of DNB Financial Corporation's common stock issued to Treasury in January 2009 under CPP. DNB Financial Corporation paid a purchase price of $458,000 for the warrant.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 09, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Entity Registrant Name	DNB FINANCIAL CORP /PA/
Entity Central Index Key	0000713671
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,749,884
Entity Current Reporting Status	Yes

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Basis Of Presentation (Policy)

6 Months Ended

Jun. 30, 2013

Basis Of Presentation [Abstract]

Principles of Consolidation

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results which may be expected for the entire year.  The consolidated financial statements should be read in conjunction with the Annual Report and report on Form 10-K for the year ended December 31, 2012. 

Subsequent Events

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2013 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.