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, 2014

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 ☒ 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 ☒ 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	☒

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

Yes No ☒

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) 2,768,303(Shares Outstanding as of August 11, 2014)

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, 2014 and December 31, 2013	3
	CONSOLIDATED STATEMENTS OF INCOME
	Three and Six-Months Ended June 30, 2014 and 2013	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)
	Three and Six-Months Ended June 30, 2014 and 2013	5
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	Six-Months Ended June 30, 2014 and 2013
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six-Months Ended June 30, 2014 and 2013	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 4.	CONTROLS AND PROCEDURES	47
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	47
ITEM 1A.	RISK FACTORS	47
ITEM 2.	UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS	47
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	48
ITEM 4.	MINE SAFETY DISCLOSURES	48
ITEM 5.	OTHER INFORMATION	48
ITEM 6.	EXHIBITS	48
SIGNATURES		49
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)		2014		2013
Assets
Cash and due from banks	$	28,428	$	32,710
Federal Funds Sold		-		1,350
Cash and cash equivalents		28,428		34,060
Available-for-sale investment securities at fair value (amortized cost of $132,474 and $124,118)		131,702		121,659
Held-to-maturity investment securities (fair value of $63,361 and $63,402)		63,069		65,299
Total investment securities		194,771		186,958
Loans and leases		439,022		415,354
Allowance for credit losses		(4,887)		(4,623)
Net loans and leases		434,135		410,731
Restricted stock		2,820		2,903
Office property and equipment, net		7,973		8,218
Accrued interest receivable		2,248		2,297
Other real estate owned & other repossessed property		945		1,096
Bank owned life insurance (BOLI)		8,978		8,863
Core deposit intangible		91		111
Net deferred taxes		3,299		3,788
Other assets		1,474		2,448
Total assets	$	685,162	$	661,473
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	116,989	$	101,853
Interest-bearing deposits:
NOW		174,044		170,427
Money market		133,479		130,835
Savings		63,844		60,090
Time		79,494		95,542
Brokered deposits		7,719		-
Total deposits		575,569		558,747
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		10,000		10,000
Repurchase agreements		23,939		19,854
Junior subordinated debentures		9,279		9,279
Other borrowings		523		541
Total borrowings		43,741		39,674
Accrued interest payable		355		376
Other liabilities		3,800		4,093
Total liabilities		623,465		602,890
Stockholders’ Equity
Preferred stock, $10.00 par value;
1,000,000 shares authorized; $1,000 liquidation preference per share; 13,000 issued		13,000		12,995
Common stock, $1.00 par value;
10,000,000 shares authorized; 2,896,937 and 2,896,703 issued, respectively; 2,763,333 and 2,753,931 outstanding, respectively		2,917		2,910
Treasury stock, at cost; 133,604 and 142,772, respectively		(2,461)		(2,629)
Surplus		34,592		34,441
Retained earnings		14,906		13,239
Accumulated other comprehensive loss		(1,257)		(2,373)
Total stockholders’ equity		61,697		58,583
Total liabilities and stockholders’ equity	$	685,162	$	661,473

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)		2014		2013		2014		2013
Interest Income:
Interest and fees on loans and leases	$	4,857	$	4,875	$	9,662	$	9,699
Interest and dividends on investment securities:
Taxable		739		720		1,449		1,401
Exempt from federal taxes		275		275		551		532
Interest on cash and cash equivalents		6		17		17		29
Total interest and dividend income		5,877		5,887		11,679		11,661
Interest Expense:
Interest on NOW, money market and savings		132		188		287		382
Interest on time deposits		194		277		417		568
Interest in brokered deposits		5		-		5		-
Interest on FHLB advances		149		148		295		354
Interest on repurchase agreements		9		11		19		25
Interest on junior subordinated debentures		73		76		146		152
Interest on other borrowings		19		19		37		38
Total interest expense		581		719		1,206		1,519
Net interest income		5,296		5,168		10,473		10,142
Provision for credit losses		255		375		630		555
Net interest income after provision for credit losses		5,041		4,793		9,843		9,587
Non-interest Income:
Service charges		302		315		632		660
Wealth management		325		301		636		592
Increase in cash surrender value of BOLI		57		58		115		116
Gain on sale of investment securities, net		102		155		337		214
Gain on sale of SBA loans		-		16		-		163
Other fees		328		314		613		613
Total non-interest income		1,114		1,159		2,333		2,358
Non-interest Expense:
Salaries and employee benefits		2,472		2,251		4,975		4,615
Furniture and equipment		332		280		663		564
Occupancy		521		492		1,140		1,011
Professional and consulting		306		263		624		580
Advertising and marketing		196		167		351		327
Printing and supplies		48		47		87		88
FDIC insurance		120		158		232		263
PA shares tax		150		153		300		307
Telecommunications		63		57		120		115
Postage		22		20		42		41
Loss on sale or write down of OREO		1		18		7		28
Other expenses		443		366		827		721
Total non-interest expense		4,674		4,272		9,368		8,660
Income before income tax expense		1,481		1,680		2,808		3,285
Income tax expense		361		430		684		860
Net income	$	1,120	$	1,250	$	2,124	$	2,425
Preferred stock dividends and accretion of discount		33		36		70		73
Net income available to Common Shareholders	$	1,087	$	1,214	$	2,054	$	2,352
Earnings per common share:
Basic	$	0.39	$	0.44	$	0.74	$	0.86
Diluted	$	0.38	$	0.44	$	0.73	$	0.85
Cash dividends per common share	$	0.07	$	0.07	$	0.14	$	0.14
Weighted average common shares outstanding:
Basic		2,763,079		2,740,756		2,760,658		2,733,051
Diluted		2,809,851		2,773,637		2,806,164		2,767,847

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)		2014		2013		2014		2013
Net income	$	1,120	$	1,250	$	2,124	$	2,425
Other Comprehensive Income (Loss):
Unrealized holding gains (losses) arising during the period
Before tax amount		882		(1,993)		2,024		(2,161)
Tax effect		(300)		678		(688)		734
Net of tax		582		(1,315)		1,336		(1,427)
Accretion of discount on AFS to HTM reclassification(1)
Before tax amount		2		6		4		14
Tax effect(2)		(1)		(1)		(2)		(4)
Net of tax		1		5		2		10
Less reclassification for gains included in net income
Before tax amount		(102)		(155)		(337)		(214)
Tax effect(2)		35		52		115		73
Net of tax		(67)		(103)		(222)		(141)
Total other comprehensive income (loss)		516		(1,413)		1,116		(1,558)
Total comprehensive income (loss)	$	1,636	$	(163)	$	3,240	$	867
(1) Amounts are included in interest and dividends on investment securities in the consolidated statements of income.
(2) Amounts are included in income tax expense in the consolidated statements of income.

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, 2014	$	12,995	$	2,910	$	(2,629)	$	34,441	$	13,239	$	(2,373)	$	58,583
Net income for six months ended June 30, 2014		-		-		-		-		2,124		-		2,124
Other comprehensive income		-		-		-		-		-		1,116		1,116
SBLF issuance costs accretion		5		-		-		-		(5)		-		-
Restricted stock compensation expense		-		7		-		98		-		-		105
Exercise of stock options (500 shares)		-		-		-		4		-		-		4
Stock option compensation expense		-		-		-		30		-		-		30
Cash dividends - common ($0.14 per share)		-		-		-		-		(387)		-		(387)
Cash dividends SBLF preferred		-		-		-		-		(65)		-		(65)
Sale of treasury shares to 401(k) (6,091 shares)		-		-		112		13		-		-		125
Sale of treasury shares to deferred comp. plan (3,077 shares)		-		-		56		6		-		-		62
Balance at June 30, 2014	$	13,000	$	2,917	$	(2,461)	$	34,592	$	14,906	$	(1,257)	$	61,697

											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

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)		2014		2013
Cash Flows From Operating Activities:
Net income	$	2,124	$	2,425
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		916		1,110
Provision for credit losses		630		555
Stock based compensation		135		106
Net gain on sale of securities		(337)		(214)
Net loss on sale and write down of OREO and other repossessed property		7		28
Earnings from investment in BOLI		(115)		(116)
Deferred tax benefit		(87)		-
Proceeds from sales of SBA loans		-		2,740
SBA loans originated for sale		-		(2,577)
Gain on sale of SBA loans		-		(163)
Decrease in accrued interest receivable		49		7
Decrease in other assets		976		2,047
Decrease in accrued interest payable		(21)		(25)
Decrease in other liabilities		(293)		(304)
Net Cash Provided By Operating Activities		3,984		5,619
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Sales		26,884		22,549
Maturities, repayments and calls		15,690		11,994
Purchases		(51,146)		(33,663)
Activity in held-to-maturity securities:
Sales		1,228		-
Maturities, repayments and calls		1,119		3,459
Purchases		-		(4,714)
Net decrease in restricted stock		83		462
Net (increase) decrease in loans and leases		(24,076)		3,767
Net purchases of property and equipment, less proceeds from disposals		(212)		(117)
Proceeds from sale of OREO and other repossessed property		186		122
Net Cash (Used in) Provided by Investing Activities		(30,244)		3,859
Cash Flows From Financing Activities:
Net increase in deposits		16,822		31,484
Repayment of FHLBP advances		-		(10,000)
Net increase in repurchase agreements		4,085		6,219
Decrease in other borrowings		(18)		(15)
Dividends paid		(452)		(448)
Proceeds from the exercise of stock options		4		-
Sale of treasury stock		187		173
Net Cash Provided by Financing Activities		20,628		27,413
Net Change in Cash and Cash Equivalents		(5,632)		36,891
Cash and Cash Equivalents at Beginning of Period		34,060		17,149
Cash and Cash Equivalents at End of Period	$	28,428	$	54,040
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	1,227	$	1,544
Income taxes		392		1,503
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property		42		2,238

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, 2014 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, 2013. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2014for 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-  

Accounting Standards Update (ASU) No. 2014‑04, Receivables (Topic 310): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.

In January 2014, the FASB issued ASU 2014-04 "Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)." The amendments in this update clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. DNB does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contract with Customers (Topic 606). The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following five steps: 1) identify the contracts(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. DNB is still evaluating the effect of this amendment on DNB's consolidated financial statements.

8

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2: INVESTMENT SECURITIES

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

		June 30, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,611	$	230	$	-	$	7,841
Government Sponsored Entities (GSE) mortgage-backed securities		4,193		176		-		4,369
Corporate bonds		6,277		472		-		6,749
Collateralized mortgage obligations GSE		4,388		8		(38)		4,358
State and municipal tax-exempt		40,600		400		(956)		40,044
Total	$	63,069	$	1,286	$	(994)	$	63,361
Available For Sale
US Government agency obligations	$	17,261	$	-	$	(196)	$	17,065
GSE mortgage-backed securities		71,037		456		(196)		71,297
Collateralized mortgage obligations GSE		22,587		24		(765)		21,846
Corporate bonds		20,201		58		(147)		20,112
State and municipal tax-exempt		611		-		(3)		608
Certificates of deposit		750		7		-		757
Equity securities		27		2		(12)		17
Total	$	132,474	$	547	$	(1,319)	$	131,702

		December 31, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,494	$	75	$	-	$	7,569
Government Sponsored Entities (GSE) mortgage-backed securities		5,934		200		-		6,134
Corporate bonds		6,357		249		-		6,606
Collateralized mortgage obligations GSE		4,903		10		(89)		4,824
State and municipal tax-exempt		40,611		83		(2,425)		38,269
Total	$	65,299	$	617	$	(2,514)	$	63,402
Available For Sale
US Government agency obligations	$	30,522	$	4	$	(583)	$	29,943
GSE mortgage-backed securities		49,448		180		(698)		48,930
Collateralized mortgage obligations GSE		23,836		18		(968)		22,886
Corporate bonds		16,944		-		(394)		16,550
State and municipal tax-exempt		2,091		-		(19)		2,072
Certificates of deposit		1,250		10		-		1,260
Equity securities		27		2		(11)		18
Total	$	124,118	$	214	$	(2,673)	$	121,659

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 following tabledetails the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2014 and December 31, 2013.

9

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		June 30, 2014
						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
Collateralized mortgage obligations GSE	$	4,097	$	(38)	$	4,097	$	(38)	$	-	$	-
State and Municipal tax-exempt		23,576		(956)		2,772		(5)		20,804		(951)
Total	$	27,673	$	(994)	$	6,869	$	(43)	$	20,804	$	(951)
Available For Sale
US Government agency obligations	$	17,065	$	(196)	$	998	$	(2)	$	16,067	$	(194)
GSE mortgage-backed securities		12,142		(196)		4,642		(31)		7,500		(165)
Collateralized mortgage obligations GSE		17,079		(765)		2,528		(58)		14,551		(707)
Corporate bonds		9,125		(147)		3,961		(36)		5,164		(111)
State and Municipal tax-exempt		608		(3)		-		-		608		(3)
Equity securities		11		(12)		-		-		11		(12)
Total	$	56,030	$	(1,319)	$	12,129	$	(127)	$	43,901	$	(1,192)

		December 31, 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
Collateralized mortgage obligations GSE	$	2,530	$	(89)	$	2,530	$	(89)	$	-	$	-
State and municipal tax-exempt		29,142		(2,425)		17,434		(727)		11,708		(1,698)
Total	$	31,672	$	(2,514)	$	19,964	$	(816)	$	11,708	$	(1,698)
Available For Sale
US Government agency obligations	$	24,931	$	(583)	$	24,931	$	(583)	$	-	$	-
GSE mortgage-backed securities		38,255		(698)		38,255		(698)		-		-
Collateralized mortgage obligations GSE		21,416		(968)		20,336		(959)		1,080		(9)
Corporate bonds		16,549		(394)		10,968		(223)		5,581		(171)
State and municipal tax-exempt		1,072		(19)		300		(6)		772		(13)
Equity securities		12		(11)		-		-		12		(11)
Total	$	102,235	$	(2,673)	$	94,790	$	(2,469)	$	7,445	$	(204)

As of June 30, 2014, there were six mortgage-backed securities, five corporate bonds, ten U.S. agency obligations, seventeen collateralized mortgage obligations,thirty-three tax-exempt municipalities, 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 has reviewed all of these securities and believes that DNB will collect all principal and interest that is due on debt securities on a timely basis.  Management does not believe any individual unrealized loss as of June 30, 2014 represents an other-than-temporary impairment. 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 severity of impairment in determining of OTTI. As of June 30, 2014, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are seventeen impaired securities classified as collateralized mortgage obligations,  eleven of which were impaired for more than 12 months. All of these securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

10

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

State and municipal tax-exemptThere are thirty-three impaired securities in this category, which are comprised of intermediate to long-term municipal bonds,  thirty-one of which were impaired for more than 12 months. All of the issues carry an A or better underlying credit rating and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, geographic location, population and debt ratios. In certain cases, options for calls reduce the effective duration and in turn, future market value fluctuations. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. There have not been disruptions of any payments, associated with any of these municipal securities. These bonds are investment grade and the value decline is related to the changes in interest rates.  Of the thirty-three municipal securities, there are nineteen insured school districts,nine uninsured school districts, three uninsured townships, and two insured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

US Government agency obligations  There are ten impaired securities classified as agencies,  nine of which were impaired for more than 12 months. All of these securities were issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on all of these securities and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the securities approach their maturity dates. Management concluded that these securities werenot other-than-temporarily impaired at June 30, 2014.

GSE mortgage-backed securities  There are six impaired bonds classified as GSE mortgage-backed securities,  four of which were impaired for more than 12 months. All of these securities were issued and insured by FNMA, FHLMC, or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

Corporate Securities There were five impaired bonds classified as corporate bonds,  three of which were impaired for more than 12 months. The bonds are investment grade and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry an "A" or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, rating agency reports, capital strength and debt ratios. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

Equity securities.  DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania, all of which were impaired for more than 12 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. 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, 2014.

The amortized cost and fair value of investment securities as of June 30,  2014, 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	$	-	$	-	$	2,051	$	2,052
Due after one year through five years		1,003		984		24,182		23,951
Due after five years through ten years		32,023		32,620		63,327		63,612
Due after ten years		30,043		29,757		42,887		42,070
No stated maturity		-		-		27		17
Total investment securities	$	63,069	$	63,361	$	132,474	$	131,702

11

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The principal value of investments securites sold as of the dates indicated are shown below. The sales of HTM securities were permissible because DNB collected greater than 85% of the principal outstanding on the HTM securities that were sold during the six months ended June 30, 2014.

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2014		2013		2014		2013
Available for sale securities sold	$	11,653	$	6,257	$	26,884	$	22,549
Held to maturity securities sold		-		-		1,228		-
Total sold securities	$	11,653	$	6,257	$	28,112	$	22,549

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)		2014		2013		2014		2013
Gross realized gains-AFS	$	102	$	155	$	294	$	471
Gross realized gains-HTM		-		-		68
Gross realized losses-AFS		-		-		(25)		(257)
Net realized gain	$	102	$	155	$	337	$	214

At June 30, 2014 and December 31, 2013, investment securities with a carrying value of approximately $126.7 million and $116.2 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.

12

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3: LOANS

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, 2014		December 31, 2013
Residential mortgage	$	25,337	$	24,677
Commercial mortgage		250,014		234,599
Commercial:
Commercial term		87,912		89,279
Commercial construction		22,842		19,117
Lease financing		1		2
Consumer:
Home equity		46,857		41,418
Other		6,059		6,262
Total loans and leases	$	439,022	$	415,354
Less allowance for credit losses		(4,887)		(4,623)
Net loans and leases	$	434,135	$	410,731

Information concerning non-accrual loansare shown in the following tables:

					Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
(Dollars in thousands)	December 31, 2013 Balances		June 30, 2014 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,250	$	1,734	$	8	$	-	$	8	$	24	$	-	$	24
Commercial mortgage		266		192		4		-		4		9		-		9
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		2,554		2,293		86		-		86		180		-		180
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home Equity		434		346		7		2		5		14		3		11
Other		82		99		2		-		2		5		-		5
Total non-accrual loans	$	5,586	$	4,664	$	107	$	2	$	105	$	232	$	3	$	229
Loans 90 days past due and accruing		141		501
Total non-performing loans	$	5,727	$	5,165

			Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
(Dollars in thousands)	June 30, 2013 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,265	$	17	$	-	$	17	$	35	$	-	$	35
Commercial mortgage		3,286		48		-		48		114		-		114
Commercial:
Commercial term		-		3		-		3		4		-		4
Commercial construction		4,326		90		-		90		212		-		212
Lease financing		-		-		-		-		1		-		1
Consumer:
Home Equity		60		2		-		2		3		-		3
Other		102		5		3		2		9		3		6
Total non-accrual loans	$	10,039	$	165	$	3	$	162	$	378	$	3	$	375
Loans 90 days past due and accruing		106
Total non-performing loans	$	10,145

13

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4: 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 scheduled payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2014 and December 31, 2013. 

Age Analysis of Past Due Loans Receivables

June 30, 2014
														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	$	306	$	465	$	2,234	$	3,005	$	22,332	$	25,337	$	500
Commercial mortgage		1,322		202		35		1,559		248,455		250,014		-
Commercial:
Commercial term		-		-		-		-		87,912		87,912		-
Commercial construction		-		-		2,293		2,293		20,549		22,842		-
Lease financing		-		-		1		1		-		1		1
Consumer:
Home equity		6		-		263		269		46,588		46,857		-
Other		114		69		99		282		5,777		6,059		-
Total	$	1,748	$	736	$	4,925	$	7,409	$	431,613	$	439,022	$	501

December 31, 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	$	507	$	865	$	1,757	$	3,129	$	21,548	$	24,677	$	-
Commercial mortgage		358		192		74		624		233,975		234,599		-
Commercial:
Commercial term		50		-		-		50		89,229		89,279		-
Commercial construction		-		-		2,554		2,554		16,563		19,117		-
Lease financing		-		-		2		2		-		2		2
Consumer:
Home equity		-		50		376		426		40,992		41,418		67
Other		80		-		77		157		6,105		6,262		72
Total	$	995	$	1,107	$	4,840	$	6,942	$	408,412	$	415,354	$	141

14

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 three and six months ended June 30, 2014 and as of and for the year ended December 31, 2013.

Impaired Loans

		June 30, 2014						December 31, 2013
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,734	$	2,321	$	-	$	2,250	$	2,848	$	-
Commercial mortgage		2,499		2,579		-		2,502		2,574		-
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		1,094		1,877		-		499		3,355		-
Consumer:
Home equity		460		472		-		434		442		-
Other		27		31		-		78		78		-
Total	$	5,814	$	7,280	$	-	$	5,763	$	9,300	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		-		-		-		36		36		14
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		1,312		4,976		276		2,055		3,386		361
Consumer:
Home equity		-		-		-		-		-		-
Other		72		72		24		4		4		4
Total	$	1,384	$	5,048	$	300	$	2,095	$	3,426	$	379
Total:
Residential mortgage		1,734		2,321		-		2,250		2,848		-
Commercial mortgage		2,499		2,579		-		2,538		2,610		14
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		2,406		6,853		276		2,554		6,741		361
Consumer:
Home equity		460		472		-		434		442		-
Other		99		103		24		82		82		4
Total	$	7,198	$	12,328	$	300	$	7,858	$	12,726	$	379

15

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, 2014				June 30, 2013				June 30, 2014				June 30, 2013
		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	$	1,614	$	-	$	2,414	$	-	$	1,826	$	-	$	2,405	$	-
Commercial mortgage		2,508		-		2,250		-		2,506		-		2,436		-
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		1,094		-		1,091		-		896		-		727		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		22		-		124		3		40		-		132		3
Total	$	5,666	$	2	$	5,953	$	3	$	5,698	$	3	$	5,780	$	3
With allowance recorded:
Residential mortgage		377		-		159		-		251		-		106		-
Commercial mortgage		18		-		2,392		-		24		-		2,449		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		1,312		-		4,326		-		1,560		-		4,326		-
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		105		-		-		-		71		-		-		-
Total	$	1,811	$	-	$	6,977	$	-	$	1,906	$	-	$	6,948	$	-
Total:
Residential mortgage		1,991		-		2,573		-		2,077		-		2,511		-
Commercial mortgage		2,526		-		4,642		-		2,530		-		4,885		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		2,406		-		5,417		-		2,456		-		5,053		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		127		-		124		3		111		-		132		3
Total	$	7,477	$	2	$	12,930	$	3	$	7,604	$	3	$	12,728	$	3

16

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, 2014 and December 31, 2013.

Credit Quality Indicators

		June 30, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,321	$	-	$	2,016	$	-	$	25,337
Commercial mortgage		240,201		415		9,398		-		250,014
Commercial:
Commercial term		82,192		72		5,648		-		87,912
Commercial construction		18,767		-		3,375		700		22,842
Lease financing		1		-		-		-		1
Consumer:
Home equity		46,362		-		495		-		46,857
Other		5,961		-		98		-		6,059
Total	$	416,805	$	487	$	21,030	$	700	$	439,022

		December 31, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,142	$	-	$	2,535	$	-	$	24,677
Commercial mortgage		224,868		5,028		4,703		-		234,599
Commercial:
Commercial term		88,657		419		203		-		89,279
Commercial construction		16,450		-		1,967		700		19,117
Lease financing		2		-		-		-		2
Consumer:
Home equity		40,940		-		478		-		41,418
Other		6,180		-		82		-		6,262
Total	$	399,239	$	5,447	$	9,968	$	700	$	415,354

As of June 30, 2014, DNB had one commercial mortgage classified as a TDR totaling $2,269,000, compared to one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at December 31, 2013.  The rate on this loan was modified and the terms of the loans were changed to interest only while the project was being built out.  The loan was extended and there was no reduction of principal.  The balance of the loan prior to modification was $2,272,000 and the balance after the modification was $2,272,000.  During the three and six months ended June 30, 2014, there were no defaults on any terms of this loan. DNB had no TDRs as of June 30, 2013.

As of June 30, 2014, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to no such loans at December 31, 2013 and March 31, 2014.  The monthly payment on this loan was reduced for 36 months and the borrower will resume making contractual payments at the end of this period. The loan was extended and there was no reduction of principal.  This loan was classified a TDR in June of 2014. The balance of the loan prior to modification was $102,000 and the balance after the modification was $102,000.  During the three and six months ended June 30, 2014, there were no defaults on any terms of this loan.

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2014 and December 31, 2013, the activity for the three and six months ended June 30, 2014 and 2013 and as of and for the year ended December 31, 2013.

17

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014	$	347	$	2,146	$	652	$	806	$	-	$	167	$	125	$	507	$	4,750
Charge-offs		(100)		(8)		(11)		-		-		-		(11)		-		(130)
Recoveries		2		-		2		-		5		-		3		-		12
Provisions		66		(7)		(2)		213		(5)		9		(19)		-		255
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887

	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, 2014	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Charge-offs		(100)		(8)		(18)		(261)		-		-		(11)		-		(398)
Recoveries		5		-		2		10		6		-		9		-		32
Provisions		125		129		36		237		(6)		20		22		67		630
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	276	$	-	$	-	$	24	$	-	$	300
Ending balance: collectively evaluated for impairment	$	315	$	2,131	$	641	$	743	$	-	$	176	$	74	$	507	$	4,587
Loans receivables:
Ending balance	$	25,337	$	250,014	$	87,912	$	22,842	$	1	$	46,857	$	6,059			$	439,022
Ending balance: individually evaluated for impairment	$	1,734	$	2,499	$	-	$	2,406	$	-	$	460	$	99			$	7,198
Ending balance: collectively evaluated for impairment	$	23,603	$	247,515	$	87,912	$	20,436	$	1	$	46,397	$	5,960			$	431,824
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	79	$	60	$	-	$	11	$	-			$	160

	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

18

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
Reserve for unfunded loan commitments included in other liabilities	$	-	$	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:
Ending balance - December 31, 2013	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Ending balance: individually evaluated for impairment	$	-	$	14	$	-	$	361	$	-	$	-	$	4	$	-	$	379
Ending balance: collectively evaluated for impairment	$	285	$	1,996	$	621	$	672	$	-	$	156	$	74	$	440	$	4,244
Loans receivables:
Ending balance	$	24,677	$	234,599	$	89,279	$	19,117	$	2	$	41,418	$	6,262			$	415,354
Ending balance: individually evaluated for impairment	$	2,250	$	2,538	$	-	$	2,554	$	-	$	434	$	82			$	7,858
Ending balance: collectively evaluated for impairment	$	22,427	$	232,061	$	89,279	$	16,563	$	2	$	40,984	$	6,180			$	407,496
Reserve for unfunded loan commitments included in other liabilities	$	-	$	9	$	68	$	57	$	-	$	9	$	-			$	143

19

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5: 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, 66,853 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2014. There were no anti-dilutive stock warrants outstanding, 128,568 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2013. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended					Six Months Ended
		June 30, 2014					June 30, 2014
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,087	2,763	$	0.39	$	2,054	2,761	$	0.74
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)		-	45		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,087	2,810	$	0.38	$	2,054	2,806	$	0.73

		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

20

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS 

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

Accumulated Other Comprehensive Loss (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2014
Net unrealized loss on AFS securities	$	(772)	$	263	$	(509)
Discount on AFS to HTM reclassification		(28)		9		(19)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(1,904)	$	647	$	(1,257)
December 31, 2013
Net unrealized loss on AFS securities	$	(2,459)	$	836	$	(1,623)
Discount on AFS to HTM reclassification		(32)		11		(21)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(3,595)	$	1,222	$	(2,373)

NOTE 7: 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.  These 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.  These 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.

21

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8: 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 335,279 shares available for grant at June 30, 2014. All options with the exception of 44,600 options granted on December 12, 2011 are immediately exercisable. DNB expensed $13,000 and $30,000during the three and six months ended June 30, 2014, respectively compared to$17,000and $34,000during the same respective periods in 2013. DNB anticipates additional expense of $20,000 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, 2014	207,303	$	15.92
Issued	-		-
Exercised	500		6.93
Forfeited	-		-
Expired	-		-
Outstanding June 30, 2014	206,803	$	15.94

	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

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

	June 30, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	84,550	41,200	$	8.66	3.66 years	$	1,064,000
	14.00-19.99	55,401	55,401		17.51	1.48 years		207,000
	20.00-22.99	18,811	18,811		22.78	0.48 years		-
	23.00-24.27	48,041	48,041		24.27	0.80 years		-
	Total	206,803	163,453	$	15.94	2.12 years	$	1,271,000

	December 31, 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	4.15 years	$	1,029,000
	14.00-19.99	55,401	55,401		17.51	1.97 years		180,000
	20.00-22.99	18,811	18,811		22.78	0.97 years		-
	23.00-24.27	48,041	48,041		24.27	1.29 years		-
	Total	207,303	122,253	$	15.92	2.62 years	$	1,209,000

22

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014,  $52,000and $105,000 was amortized to expense, respectively. For the three and six month periods ended June 30, 2013, $32,000and $72,000was amortized to expense, respectively.   As of June 30, 2014, there was approximately $520,000 in additional compensation that will be recognized over the remaining service period of approximately 2.33 years. At June 30,  2014,  141,629 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, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2014	50,795	$	15.65

			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

NOTE 9:  INCOME TAXES

As of June 30, 2014, 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 2010 through 2013 were open for examination as of June 30, 2014.

23

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10:  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 establishing a new cost basis. 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, 2014 and December 31, 2013 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

24

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

		June 30, 2014
(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	$	-	$	17,065	$	-	$	17,065
GSE mortgage-backed securities		-		71,297		-		71,297
Collateralized mortgage obligations GSE		-		21,846		-		21,846
Corporate bonds		-		20,112		-		20,112
State and municipal tax-exempt		-		608		-		608
Certificates of deposit		-		757		-		757
Equity securities		17		-		-		17
Total assets measured at fair value on a recurring basis	$	17	$	131,685	$	-	$	131,702
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,804	$	2,804
OREO and other repossessed property		-		-		42		42
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,846	$	2,846

		December 31, 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	$	-	$	29,943	$	-	$	29,943
GSE mortgage-backed securities		-		48,930		-		48,930
Collateralized mortgage obligations GSE		-		22,886		-		22,886
Corporate bonds		-		16,550		-		16,550
State and municipal tax-exempt		-		2,072		-		2,072
Certficates of deposit		-		1,260		-		1,260
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	121,641	$	-	$	121,659
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,829	$	2,829
OREO and other repossessed property		-		-		124		124
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,953	$	2,953

25

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
		Estimate	Techniques	Unobservable Input	(Weighted Average)
June 30, 2014
Impaired loans- Commercial construction	$	2,130	Appraisal of	Appraisal adj.	0%	to	-47%	(-17%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans- Residential mortgage		626	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans- Consumer other		48	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,804
Other real estate owned	$	42		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range
		Estimate	Techniques	Unobservable Input	(Weighted Average)
December 31, 2013
Impaired loans- Commercial construction	$	2,193	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-9%)
Impaired loans- Commercial mortgage		60	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-7%	to	-21%	(-12%)
Impaired loans- Residential mortgage		576	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,829
Other real estate owned	$	124		Disposal costs (2)	-5%	to	-5%	(-5%)

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

(2) Appraisals are adjusted by management for qualitative factors and disposal costs.

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 $7.2 million at June 30, 2014. Of this, $1.4 million had a specific valuation allowance of $300,000, leaving a fair value of $1.1 million as of June 30, 2014.  In addition, DNB had $2.0 million in impaired loans that were partially charged down by $300,000, leaving $1.7 million at fair value as of June 30, 2014. The total fair value of impaired loans at June 30, 2014 was $2.8 million.

Impaired loans had a carrying amount of $7.9 million at December 31, 2013. Of this, $2.1 million had a specific valuation allowance of $379,000, leaving a fair value of $1.7 million at December 31, 2013.  In addition, DNB had $3.1 million in impaired loans that were partially charged down by $2.0 million, leaving $1.1 million at fair value as of December 31, 2013. The total fair value of impaired loans at December 31, 2013 was $2.8 million.

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 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 $945,000 of such assets at June 30, 2014, $940,000 of which was OREO and $5,000 was in other repossessed property. DNB had $1.1 million of such assets at December 31, 2013, which consisted of $1.0 million in OREO and $73,000 in other

26

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014 or 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, 2014.

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, 2014 and December 31, 2013 are as follows:

		June 30, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,428	$	28,428	$	28,428	$	-	$	-
AFS investment securities		131,702		131,702		17		131,685		-
HTM investment securities		63,069		63,361		-		63,361		-
Restricted stock		2,820		2,820		-		2,820		-
Loans and leases, net of allowance		434,135		427,449		-		-		427,449
Accrued interest receivable		2,248		2,248		-		2,248		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		116,989		116,989		-		116,989		-
Interest-bearing deposits:		371,367		371,367		-		371,367		-
Time		79,494		79,196		-		79,196		-
Brokered deposits		7,719		7,660		-		7,660		-
Repurchase agreements		23,939		23,939		-		23,939		-
FHLBP advances		10,000		10,801		-		10,801		-
Junior subordinated debentures and other borrowings		9,279		8,236		-		8,236		-
Accrued interest payable		355		355		-		355		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,060	$	34,060	$	34,060	$	-	$	-
AFS investment securities		121,659		121,659		18		121,641		-
HTM investment securities		65,299		63,402		-		63,402		-
Restricted stock		2,903		2,903		-		2,903		-
Loans and leases, net of allowance		410,731		402,569		-		-		402,569
Accrued interest receivable		2,297		2,297		-		2,297		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		101,853		101,853		-		101,853		-
Interest-bearing deposits:		361,352		361,352		-		361,352		-
Time		95,542		95,648		-		95,648		-
Repurchase agreements		19,854		19,854		-		19,854		-
FHLBP advances		10,000		11,057		-		11,057		-
Junior subordinated debentures and other borrowings		9,279		9,267		-		9,267		-
Accrued interest payable		376		376		-		376		-
Off-balance sheet instruments		-		-		-		-		-

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DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014, un-funded loan commitments totaled $103.5 million and stand-by letters of credit totaled $2.1 million. At December 31, 2013, un-funded loan commitments totaled $89.4 million and stand-by letters of credit totaled $1.5 million.

NOTE 11:  STOCKHOLDERS’ EQUITY

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 the outstanding cumulative perpetual preferred stock. 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% for the quarters ended June 30, 2014 and June 30, 2013.

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.

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

FORWARD-LOOKING STATEMENTS

DNB Financial Corporation. (the “Corporation” or "DNB"), 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 subsequently filed with the SEC.

DESCRIPTION OF DNB'S BUSINESS AND BUSINESS STRATEGY

DNB 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 & Trust division, the Bank provides investment management and trust administration services to individuals and non-profit organizations. The Bank and its subsidiary, DNB Investments & Insurance,  provide 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 investment and trust services; brokerage, annuitiy and insurance services; cash management services; banking and ATM services; as well as safekeeping and other depository services.

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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.DNB's second quarter and first half year-over-year earnings comparisons, in part, reflect the investments we have made in new hires to drive revenue in future quarters, technology to enhance the company’s capabilities, and branch upgrades to accommodate increased business and provide a welcoming environment for customers. We are further streamlining our retail banking business line, and initiatives we’ve taken have contributed to the reduction in our funding cost and gains in consumer lending. We recently launched a mortgage banking division, and we expect traction in this area to accelerate in future periods. Our growing consumer service capability is complementing our traditional commercial banking business, which remains a strong focus. DNB's net interest margin was 3.36% for the second quarter of 2014 compared with 3.35% for the second quarter of 2013, reflecting relative margin stability despite the continuing pressures of a low-interest rate environment.  DNB mitigated some of this pressure through interest expense management, the positive impact of carrying fewer non-performing assets, increased levels of demand deposits and careful management of borrowings. DNB's composite cost of funds for the three and six-month periods ended June 30, 2014 was 0.38% and 0.40%, compared to 0.49% and 0.52% for the same periods in 2013. Total loans and leases after allowance for credit losses grew 5.7% to $434.14 million at June 30, 2014 compared with $410.73 million at December 31, 2013. Loan totals in the first half of 2014 reflected growth in commercial real estate and consumer lending. Total deposits were $575.57 million at June 30, 2014, growing from $558.75 million at December 31, 2013, and $561.91 million at June 30, 2013. The Company continued to build lower-cost core deposits, which increased 5.4% to $488.36 million at June 30, 2014 compared with $463.21 million at December 31, 2013.In addition, wealth management continued to build total assets under care, which increased 16.7% to $158.7 million at June 30, 2014 compared with $135.9 million at June 30, 2013, reflecting consistent consecutive quarterly growth.  Increased assets under care contributed to 7.86% growth in second quarter 2014 fee income from wealth management services compared with the second quarter of 2013.

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, 2014:  

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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 has targetedcustomers who have been disenfranchised by these mergers. To attract these customers, DNB has introduced new products and services, such as Mobile Money and Mobile Deposit, Popmoney and instant issue debit cards.

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 assessment system, under which the amount of FDIC assessments paid by an individual insured depository institution, such as the

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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. 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.

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 affected the deposit insurance assessments the Bank is obligated to pay.  For example:

-The law permanently raised 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 failures of other insured depository institutions.

-The new law made 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 fell under the existing FDIC insurance limit of $250,000 per account ownership.

-The law increased the insurance fund’s minimum designated reserve ratio from 1.15 to 1.35, and removed the 1.50 cap on the reserve ratio. The law gave the FDIC discretion to suspend or limit the declaration or payment of dividends even when the reserve ratio exceeded the minimum designated reserve ratio.

The Dodd-Frank Act expanded 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 eliminated risk categories and the use of long-term debt issuer ratings in calculating risk-based assessments, and instead implemented 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 revised 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

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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 62 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 $36,500 in 2014.

Material Trends and Uncertainties. 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 16, 2014 Beige Book indicated aggregate business activity in the Third Federal Reserve District (the "Third District"), the region DNB Financial is located, grew at a modest pace during the July 16, 2014 Beige Book period, with few changes from the June 4, 2014 Beige Book period. Auto sales continued at a very strong pace of growth. Service sectors maintained a moderate pace of growth overall, as did demand for transportation services. Non-auto retail sales and staffing services continued to rise at a modest pace, although there are signs that momentum is building for stronger growth in the remainder of the year. Manufacturers also reported an ongoing modest rate of increase in activity. Real estate sectors all reported slight overall growth for the July 16, 2014 Beige Book period. Lending volumes continued to grow slowly over this period, and credit quality continued to improve. Some contacts suggest that credit risks are rising with heated competition for loans. Overall, contacts reported slight increases in wages, home prices, and general price levels, similar to the June 4, 2014  Beige Book period.

Third District homebuilders reported little change in sales from the June 4, 2014 Beige Book period when a general malaise had dampened hopes for a strong spring season; however, construction has picked up. Residential real estate brokers reported slight improvements in sales in June,although May sales were still negative in most major markets on a year-over-year basis.

Nonresidential real estate contacts reported that growth in construction activity changed little from the slight pace seen in the June 4, 2014 Beige Book period.The growth of leasing activity dropped back to a slight pace from the more modest growth observed in the June 4, 2014 Beige Book period. However, construction activity is expected to accelerate throughout the second half of this year and the first half of 2015 because several major projects have recently broken ground and more will do so in the third quarter. The market for industrial/warehouse space remains strong throughout much of the Third District.

The overall outlook of the Third District’s business contacts, many of which have business models similar to DNB’s small business clients, is that they expect moderate growth over the next six months. Moreover, they generally expressed greater confidence in the underlying economy than in recent periods from their own perspective and from that of their consumer and business customers. About one-third of all firms reported plans to increase employment and to make additional capital expenditures over the next six months. For smaller businesses, such plans are likely to be realized on a very incremental basis.

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 4.8% as of March 2014, compared to a Pennsylvania unemployment rate of 5.6% and a national unemployment rate of 6.8%. 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.

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As the U.S. and local economy moves through a period of reduced business activity and historically high unemployment rates, delinquencies may 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. For the three months ended June 30, 2014, net income available to common shareholders was $1.09 million or $0.38 per diluted common share compared with $1.21 million or $0.44 per diluted common share for the three months ended June 30, 2013. For the six months ended June 30, 2014, net income available to common shareholders was $2.05 million or $0.73 per diluted common share compared with $2.35 million or $0.85 per diluted common share for the six months 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 continues to consider 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 although enacted more than five years ago, much of its impact will be determined by the scope and substance of many regulations that stillneed 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. While some regulations have been adopted, 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 adopted 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 adverse effect on our cash flow and results of operations.  For example, a provision of the Dodd-Frank Act precludes 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.

The final rules 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

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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 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, 2013.  

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

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appropriate at June 30, 2014.  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 Note 11 (Federal Income Taxes) to DNB’s consolidated financial statements for the year ended December 31, 2013. 

The notes 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 $685.2million at June 30, 2014compared to $661.5  million at December 31, 2013.  The $23.7million increase in total assets was primarily attributable to a $23.7million increase in loans and leases before allowance for credit losses and a $7.8 million increase in investment securities,  offset by a $5.6 million decrease in cash and cash equivalents,  a  $974,000 decrease in other assets and a $264,000 increase in the allowance for credit losses.

Investment Securities.Investment securities including restricted stock at June 30, 2014were $197.6 million compared to $189.9 million at December 31, 2013. The $7.7 millionincrease in investment securities and restricted stock was primarily due to $44.9million in sales, principal pay-downs, calls and maturitiesoffset by a $1.7 million change in unrealized loss and the purchase of $51.2 million in investment securities.

Gross Loans and Leases.  DNB’s loans and leases increased  $23.7million to $439.0 million at June 30, 2014compared to $415.4million at December 31, 2013.Total commercial loans, consumer loans, and residential loans increased $17.8 million,  $5.2 million and $660,000, respectively.

Deposits.  Deposits were $575.6 million at June 30, 2014 compared to $558.7 million at December 31, 2013.  Deposits increased $16.8million or 3.01% during the six-month period ended June 30, 2014.  Core deposits, which are comprised of demand, NOW, money markets and savings accounts, increased by $25.1million and brokered deposits increased by $7.7 million while time deposits decreased by $16.0 million. 

Borrowings.Borrowings were $43.7 million at June 30, 2014 compared to $39.7 million at December 31, 2013.  The increase of $4.1million or 10.3% was primarily due to a $4.1 million increasein repurchase agreements.

Stockholders’ Equity.Stockholders' equity was $61.7 million at June 30, 2014 compared to $58.6 million at December 31, 2013. The increase in stockholders’ equity was primarily a result of year-to-date earnings of $2.1 million and $1.1 millionofaccumulated other comprehensive income. These additions to stockholders equity were partially offset by $387,000 of dividends paid on DNB’s common stock and $65,000 of dividends paid on SBLF preferred stock. (See Note 11 in thisform 10-Q regarding DNB's participation in 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, 2014 was $1.1 millionand $2.1 million compared to $1.3 million and $2.4 million for the same periods in 2013.  Diluted earnings per share for the three and six-month periods ended June 30, 2014 were $0.38 and $0.73 compared to $0.44and $0.85 for the same periods in 2013.  The $130,000 decrease in net income during the most recent three-month period was attributable to a $402,000 increase in non-interest expense, a $45,000 decrease in non-interest income,  and a $10,000 decrease in interest income, partially offset by $138,000 decrease in interest expense, a $120,000 decrease in provision for credit losses and a $69,000 decrease in tax expense. The $301,000 decrease during the six-month period was attributable to a $708,000 increase in non-interest expense, a $75,000 increase in the provision for credit losses, and a $25,000 decrease in non-

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interest income, offset by a $313,000 decrease in interest expense, a $176,000 decrease in income tax expense, and an $18,000 increase in interest income.

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 for the three and six-month periods ended June 30, 2014 was $5.3million and $10.5 million compared to $5.2 million and $10.1 million for the same periods in 2013. Interest income for the three and six-month periods ended June 30, 2014 was $5.9 million and $11.7 million compared to $5.9 million and $11.7 million for the same periods in 2013. Interest expense for the three and six-month periods ended June 30, 2014 was $581,000 and $1.2 million compared to $719,000 and $1.5 million for the same periods in 2013. The composite cost of funds for the three and six-month periods ended June 30, 2014 was 0.38% and 0.40%, compared to 0.49% and 0.52% for the same periods in 2013. The net interest margin for the three and six-month periods ended June 30, 2014 was 3.36% and 3.36% compared to 3.35% and 3.34% for the same periods in 2013.

Interest on loans and leases was $4.9 million and $9.7 million for the three and six-month periods ended June 30, 2014, compared to $4.9 million and $9.7 million for the same periods in 2013. The average balance of loans and leases was $431.8 million with an average yield of 4.49% for the secondquarter of 2014 compared to $395.6 million with an average yield of 4.92% for the same period in 2013. The average balance of loans and leases was $426.7 million with an average yield of 4.54% for the firstsix months of 2014compared to $395.2 million with an average yield of 4.93% for the same period in 2013.

Interest and dividends on investment securities was $1.0 million and $2.0 million for the three and six-month periods ended June 30, 2014, compared to $995,000 and $1.9 million for the same periods in 2013. The average balance of investment securities was $192.4 million with a tax equivalent average yield of 2.29% for the secondquarter of 2014 compared to $198.8 million with a tax equivalent average yield of 2.20% for the same period in 2013. The average balance of investment securities was $191.2 million with a tax equivalent average yield of 2.32% for the firstsix months of 2014 compared to $196.3 million with a tax equivalent average yield of 2.20% for the same period in 2013.

Interest on deposits was $331,000 and $709,000 for the three and six-month periods ended June 30, 2014, compared to $465,000 and $950,000 for the same periods in 2013. The average balance of deposits was $562.2 million with an average rate of 0.23% for the secondquarter of 2014 compared to $551.2 million with an average rate of 0.34% for the same period in 2013. The average balance of deposits was $558.5 million with an average rate of 0.25% for the firstsix months of 2014 compared to $540.1 million with an average rate of 0.35% for the same period in 2013.

Interest on borrowings was $250,000 and $497,000 for the three and six-month periods ended June 30, 2014, compared to $254,000 and $569,000 for the same periods in 2013. The average balance of borrowings was $39.2 million with an average rate of 2.55% for the secondquarter of 2014 compared to $42.1 million with an average rate of 2.42% for the same period in 2013. The average balance of borrowings was $39.4 million with an average rate of 2.54% for the firstsix months of 2014 compared to $45.9 million with an average rate of 2.50% for the same period in 2013.

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

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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 residential mortgage, commercial mortgage, commercial term,  commercial construction, home equityand 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.  A historical loss ratio is determined for each group over a five year period. The five year average loss ratio by type is then used to calculate the estimated loss based on the current balance of each group. This five 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;

•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 $255,000and a $630,000 provision made during the three and six months ended June 30, 2014, compared to $375,000 and $555,000 for the same periods in 2013. DNB’s percentage of allowance for credit losses to total loans and leases was

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1.11%  at June 30, 2014 compared to 1.11% and 1.72% at December 31, 2013 and June 30, 2013, respectively. Net charge-offs were $366,000,$4.7 million, and $703,000 during the six months ended June 30, 2014,year ended December 31, 2013, and six months ended June 30, 2013, respectively.The percentage of net charge-offs to total average loans and leases were 0.09%, 1.20%, and 0.18%for thosesame 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, 2014, 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 $562,000 during the sixmonth period ended June 30, 2014.  The ratio of the allowance for credit losses as a percentage of loans and leases was 1.11% at June 30, 2014 and 1.11%at December 31, 2013and 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 individually 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 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, 2014, DNB had $6.1 million of non-performing assets, which included $5.2 million of non-performing loans and $945,000 of OREO and other repossessed assets.  This compares to $6.8 million of non-performaing assets at December 31, 2013 which included $5.7 million of non-performing or impaired loans and $1.1 million of OREO and other repossessed assets.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. DNB establishes a specific valuation allowance on impaired loans that have a collateral shortfall and/or statement cashflow shortfalls, including estimated costs to sell in comparison to the carrying value of the loan. Of the $7.2 million of impaired loans at June 30, 2014,  $1.4 million had a valuation allowance of $300,000 and $5.8 million had no specific allowance.Of the $7.9 million of impaired loans at December 31, 2013, $2.1 million had a valuation allowance of $379,000 and $5.8 million had no specific allowance. 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, 2014,  DNB recognized $130,000 in total charge-offs, $119,000of 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 Other Real Estate Owned ("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

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sale. Management uses the qualitative factor “Changes in the value of underlying collateral for collateral-dependent loans” to calculate any required reserve 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.

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.

41

Analysis of Allowance for Credit Losses

(Dollars in thousands)

		Six Months Ended June 30, 2014		Year Ended December 31, 2013		Six Months Ended June 30, 2013
Beginning balance	$	4,623	$	6,838	$	6,838
Provisions		630		2,530		555
Loans charged off:
Residential mortgage		(100)		(183)		(184)
Commercial mortgage		(8)		(716)		(394)
Commercial:
Commercial term		(18)		(247)		(222)
Commercial construction		(261)		(3,648)		-
Lease financing		-		(26)		(26)
Consumer:
Home Equity		-		-		-
Other		(11)		(70)		(5)
Total charged off		(398)		(4,890)		(831)
Recoveries:
Residential mortgage		5		80		70
Commercial mortgage		-		-		-
Commercial:
Commercial term		2		5		5
Commercial construction		10		-		-
Lease financing		6		59		53
Consumer:
Home Equity		-		-		-
Other		9		1		-
Total recoveries		32		145		128
Ending balance	$	4,887	$	4,623	$	6,690
Reserve for unfunded loan commitments	$	160	$	143	$	142

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, 2014				December 31, 2013				June 30, 2013
			Percent of				Percent of				Percent of
			Loan Type				Loan Type				Loan Type
			to Total				to Total				to Total
		Amount	Loans			Amount	Loans			Amount	Loans
Residential mortgage	$	315	6	%	$	285	6	%	$	309	6	%
Commercial mortgage		2,131	57			2,010	56			3,110	58
Commercial:
Commercial term		641	20			621	21			484	21
Commercial construction		1,019	5			1,033	5			2,004	4
Lease financing		-	-			-	-			-	-
Consumer:
Home Equity		176	10			156	10			181	9
Other		98	2			78	2			80	2
Unallocated		507	-			440	-			522	-
Total	$	4,887	100	%	$	4,623	100	%	$	6,690	100	%
Reserve for unfunded loan commitments	$	160	-		$	143	-		$	142	—

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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 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, 2014 was $1.1 million and $2.3 million compared to $1.2 million and $2.4 million for the same periods in 2013.  The $45,000 decrease during the three months ended June 30, 2014 was mainly attributable to decreased gains on sales of investments of $53,000, decreased gains on sales of loans of $16,000, decreased service charges on deposits (primarily NSF fees) of $13,000.These decreases were offset by increases of $24,000 in wealth management fees primarily due to increased annuity and mutual fund fees and $14,000 in other fees.During the six months ended June 30, 2014, non-interest income decreased $25,000 over the same period in 2013. This decrease was primarily due to decreases in gains on sale of loans of $163,000 and service charges on deposits (primarily NSF fees) of $28,000, offset by increases of $123,000 in gains on sale of investments and $44,000 in wealth management fees, primarily due to increased assets under care resulting in additional recurring fee income.

NON-INTEREST EXPENSE

Non-interest expense for the three and six-month periods ended June 30, 2014 was $4.7 million and $9.4 million compared to $4.3 million and $8.7 million for the same periods in 2013.  During the three months ended June 30, 2014, total non-interest expense increased by $402,000.  The increase was primarily due to a $221,000 increase in salary and employee benefits related to the formation of a new Mortgage Banking division,  a $77,000 increase in other expenses, a $52,000 increase in furniture and equipment, a $43,000 increase in professional and consulting, a $29,000 increase in occupancy, and a $29,000 increase in advertising and marketing, offset by a $38,000 decrease in FDIC insurance and a $17,000 decrease in loss on sale of OREO. During the six months ended June 30, 2014, total non-interest expense increased $708,000. The increase was primarily attributable to a $360,000 increase in salary and employee benefits related to the formation of thenew Mortgage Banking division, a $129,000 increase in occupancy mainly attributable to snow removal costs and other expenses relating to the severe winter weather, a $106,000 increase in other expenses, a $99,000 increase in furniture and equipment, a $44,000 increase in professional and consulting, and a $24,000 increase in advertising and marketing, offset by a $31,000 decrease in FDIC insurance and a $21,000 decrease in loss on sale of OREO.

INCOME TAXES

Income tax expense for the three and six-month periods ended June 30, 2014 was $361,000 and $684,000compared to $430,000 and $860,000 for the same periods in 2013. The effective tax rate for the three and six-month periods ended June 30, 2014 was 24.4%and 24.4% compared to 25.6%  and 26.2% for the same periods in 2013.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 $6.1 million at June 30, 2014 compared to $6.8 million at December 31, 2013 and $13.5 million at June 30, 2013.The significant drop in non-performing assets at June 30, 2014 from June 30, 2013 was due to $4.7  million in charge-offsrelated to non-performing loans, $3.1 million of loans moved to OREO and subsequently sold, and a $2.2 million loan placed back on accrual status.Total non-performing assets decreased $269,000 and $713,000 during the three and six months ended June 30, 2014.

The non-performing loans to total loans ratio is1.18% at June 30, 2014,  down from 1.38% at December 31, 2013 and down from 2.60% at June 30, 2013. The non-performing assets to total assets ratio decreased to 0.89% at June 30, 2014,  down from1.03% at December 31, 2013, and 2.02% at June 30, 2013. The allowance to non-performing loans and leases ratio increasedto94.6% at June 30, 2014 from80.7% at December 31, 2013and65.9% 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

43

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 or deed-in-lieu of 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 carrying value 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, 2014,  DNB had $21.0million of substandard loans. Of the $21.0million, $16.9 million are performing and 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 performing substandardloans at December 31, 2013was $4.9 million. The majority of the loans are secured by commercial real estate, with lesser amounts being secured by residential real estate, inventory and receivables.

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, 2014		December 31, 2013		June 30, 2013
Non-accrual loans:
Residential mortgage	$	1,734	$	2,250	$	2,265
Commercial mortgage		192		266		3,286
Commercial:
Commercial term		-		-		-
Commercial construction		2,293		2,554		4,326
Lease financing		-		-		-
Consumer:
Home Equity		346		434		60
Other		99		82		102
Total non-accrual loans		4,664		5,586		10,039
Loans 90 days past due and still accruing		501		141		106
Total non-performing loans		5,165		5,727		10,145
Other real estate owned & other repossessed property		945		1,096		3,325
Total non-performing assets	$	6,110	$	6,823	$	13,470
Asset quality ratios:
Non-performing loans to total loans		1.18	%	1.38	%	2.60	%
Non-performing assets to total assets		0.89		1.03		2.02
Allowance for credit losses to:
Total loans and leases		1.11		1.11		1.72
Non-performing loans and leases		94.6		80.7		65.9

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)		2014		2013		2013
Interest income which would have been
recorded under original terms	$	232	$	580	$	378
Interest income recorded during the period		3		3		3
Net impact on interest income	$	229	$	577	$	375

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As of June 30, 2014, DNB had one commercial mortgage classified as a TDR totaling $2,269,000, compared to one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at December 31, 2013.  The rate on this loan was modified and the terms of the loans were changed to interest only while the project was being built out.  The loan was extended and there was no reduction of principal.  The balance of the loan prior to modification was $2,272,000 and the balance after the modification was $2,272,000.  During the six months ended June  30, 2014, there were no defaults on any terms of this loan.

As of June 30, 2014, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to no such loans at December 31, 2013.  The monthly payment on this loan was reduced for 36 months and the borrower will resume making contractual payments at the end of this period. The loan was extended and there was no reduction of principal.  The balance of the loan prior to modification was $102,000 and the balance after the modification was $102,000.  During the six months ended June 30, 2014, there were no defaults on any terms of this loan.

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)		2014		2013		2013
Total recorded investment	$	7,198	$	7,858	$	10,218
Impaired loans with a specific allowance		1,384		2,095		5,457
Impaired loans without a specific allowance		5,814		5,763		4,761
Average recorded investment		7,604		10,309		12,728
Specific allowance allocation		300		379		1,926
Total principal and interest collected		272		872		819
Interest income recorded		3		3		3

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 $99.3 million at June 30, 2014 compared to $107.7 million at December 31, 2013.  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 hadavailable credit of approximately $256.8 million at June 30, 2014.  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, 2014, our Maximum Borrowing Capacity with the FHLB was $223.8million. At June 30, 2014, 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, 2014, we also had available $33.0 million of unsecured federal funds lines of credit with other financial institutions as well as $22.3 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, 2014, DNB had $103.5 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, 2014 totaled $34.4 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.

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The Corporation and the Bank have each met the definition of “well capitalized” for regulatory purposes on June 30, 2014.  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, 2013 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.

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

										To Be Well
						For Capital				Capitalized Under
						Adequacy				Prompt Corrective
		Actual				Purposes				Action Provisions
(Dollars in thousands)		Amount	Ratio			Amount	Ratio			Amount	Ratio
DNB Financial Corporation
June 30, 2014
Total risk-based capital	$	76,905	15.9	%	$	38,634	8.0	%		N/A	N/A
Tier 1 risk-based capital		71,858	14.9			19,317	4.0			N/A	N/A
Tier 1 (leverage) capital		71,858	10.8			26,716	4.0			N/A	N/A
December 31, 2013
Total risk-based capital	$	74,505	16.4	%	$	36,338	8.0	%		N/A	N/A
Tier 1 risk-based capital		69,727	15.4			18,169	4.0			N/A	N/A
Tier 1 (leverage) capital		69,727	10.6			26,295	4.0			N/A	N/A
DNB First, N.A.
June 30, 2014
Total risk-based capital	$	76,900	15.9	%	$	38,601	8.0	%	$	48,252	10.0	%
Tier 1 risk-based capital		71,853	14.9			19,301	4.0			28,951	6.0
Tier 1 (leverage) capital		71,853	10.8			26,698	4.0			33,373	5.0
December 31, 2013
Total risk-based capital	$	74,527	16.4	%	$	36,306	8.0	%	$	45,381	10.0	%
Tier 1 risk-based capital		69,749	15.4			18,152	4.0			27,229	6.0
Tier 1 (leverage) capital		69,749	10.6			26,314	4.0			32,893	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, 2014 and December 31, 2013, 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

46

shown in the following table. 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, 2014 andDecember 31, 2013.

(Dollars in thousands)		June 30, 2014						December 31, 2013
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	80,653	$	80,162	$	69,614	$	71,853	$	73,065	$	62,246
Change				(491)		(11,039)				1,212		(9,607)
Change as % of assets				(0.1%)		(1.6%)				0.2%		(1.5%)
Change as % of PV equity				(0.6%)		(13.7%)				1.7%		(13.4%)

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, 2014, 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, 2014, 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, 2014.The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended June 30, 2014:

				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, 2014 – April 30, 2014	-	$	-	-	$	63,016
May 1, 2014 – May 31, 2014	-		-	-	$	63,016
June 1, 2014 – June 30, 2014	-		-	-	$	63,016
Total	-	$	-	-	$	63,016

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.

47

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	Change of Control Agreement among DNB Financial Corporation, DNB First, N.A. and Vincent Liuzzi, 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

48

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
August 11, 2014	BY:	/s/ William S. Latoff
		William S. Latoff, Chairman of the Board and Chief Executive Officer
August 11, 2014	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

49

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	Change of Control Agreement among DNB Financial Corporation, DNB First, N.A. and Vincent Liuzzi, 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

50

EX-10.1

CHANGE OF CONTROL AGREEMENT

FOR

VINCENT LIUZZI

THIS CHANGE OF CONTROL AGREEMENT (this "Agreement"), made as of  July 23, 2014, is by and among DNB FINANCIAL CORPORATION ("Holding Company"), DNB FIRST, NATIONAL ASSOCIATION, a national banking association with principal offices at 4 Brandywine Avenue, Downingtown, PA 19335 ("Bank") (Holding Company and Bank are sometimes referred to individually and collectively herein as the "Company") and VINCENT LIUZZI,  an individual ("Executive").

Background

A. Company and Executive enter into an agreement pursuant to which Company wishes to secure the future services of Executive by providing Executive the severance payments provided in this Agreement as additional incentive to induce Executive to devote Executive's time and attention to the interests and affairs of the Company (the “Agreement”).

B. Executive is willing to enter into this Agreement upon the terms and conditions herein set forth.

C. The Boards of Directors of the Holding Company and the Bank have each approved this Agreement and it is intended to be maintained as part of the official records of the Holding Company and the Bank.

NOW THEREFORE, in consideration of the mutual promises and agreements set forth herein, and intending to be legally bound hereby, the parties agree to amend the Agreement so that it shall provide in full as follows (as so amended and restated, hereafter the “Agreement”):

1. Employment. Except strictly to such extent (if any) as may be provided in another agreement between Holding Company or Bank and Executive, Executive shall remain an employee at will of the Company hereafter. This Agreement is not an employment agreement, but shall only be interpreted as governing the payment of severance which may be due to Executive upon termination of Executive's employment with Company under the specific circumstances described in this Agreement. No provision of this Agreement shall be interpreted to derogate from the power of the Company or its Board of Directors to terminate the employment of the Executive, subject nevertheless to the terms of this Agreement.

2. Compensation. The compensation to be paid by Company to Executive from time to time, including any fringe benefits or other employee benefits, shall not be governed by this Agreement. This Agreement shall not be deemed to affect the terms of any stock options, employee benefits or other agreements between the Company and Executive.

3. Severance Payments upon Termination of Employment After a "Change in Control". This Agreement does not govern any termination of Executive's employment with Company which occurs

prior to a "change in control" as defined in subsection (e) of this Section. No inference shall be drawn from any provision of this Section concerning the rights and obligations of the parties in connection with a termination of Executive's employment prior to such a "change in control".

(a) Termination by Company for Cause or Not for Cause. If Executive's employment is terminated by Company for "cause" (as defined in subsection (c) of this Section) at any time, or with or without "cause" prior to a "change in control", Executive shall have no right to any severance or other payments under this Agreement due to such termination. If Executive is terminated by Company or Holding Company after a "change in control" (as defined in subsection (e) of this Section) other than for "cause", Executive's right to severance payments under this Agreement shall be as set forth in subsection (f) of this Section. A termination by Company of Executive's employment with Bank only or Holding Company only shall be deemed a termination for purposes of this Agreement, and Executive's right to severance payments (if any) hereunder, shall be determined as if such termination were a termination from employment with Company entirely.

(b) Termination by Executive for Good Reason or Not for Good Reason. If Executive terminates Executive's employment with Holding Company and Bank prior to a change in control, or without "good reason" (as defined in subsection (d) of this Section) at any time, Executive shall have no right to any severance or other payments under this Agreement due to such termination. If Executive terminates Executive's employment with Holding Company and Bank for "good reason" after a "change in control" (as defined in subsection (e) of this Section), Executive's right to severance payments under this Agreement shall be as set forth in subsection (f) of this Section.

(c) Definition of "Cause". For the purpose of this Agreement, termination for "cause" shall mean termination for personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, conviction of a felony, suspension or removal from office or prohibition from participation in the conduct of Holding Company's or Bank's affairs pursuant to a notice or other action by any Regulatory Agency, or willful violation of any law, rule or regulation or final cease-and-desist order which in the reasonable judgment of the Board of Directors of the Company will probably cause substantial economic damages to the Company, willful or intentional breach or neglect by Executive of his duties, or material breach of any material provision of this Agreement. For purposes of this paragraph, no act, or failure to act on Executive's part shall be considered "willful" unless done, or omitted to be done, by him without good faith and without reasonable belief that this action or omission was in the best interest of Company; provided that any act or omission to act by Executive in reliance upon an approving opinion of counsel to the Company or counsel to the Executive shall not be deemed to be willful. The terms "incompetence" and "misconduct" shall be defined with reference to standards generally prevailing in the banking industry. In determining incompetence and misconduct, Company shall have the burden of proof with regard to the acts or omission of Executive and the standards prevailing in the banking industry.

(d) Definition of "Good Reason". For purposes of this Agreement, Executive shall have "good reason" for terminating his employment with Holding Company and Bank if Executive terminates such employment within two (2) years after the occurrence of any one or more of the following events (a "Triggering Event") without Executive's express written consent, but only if the Triggering Event occurs

within two (2) years after a "change in control" (as defined in subsection (e) of this Section) of Bank or Holding Company: (i) the assignment to Executive of any duties inconsistent with Executive's positions, duties, responsibilities, titles or offices with Bank or Holding Company as in effect immediately prior to a change in control of Bank or Holding Company, (ii) any removal of Executive from, or any failure to re-elect Executive to, any of such positions, except in connection with a termination or suspension of employment for cause, disability, death or retirement, (iii) a reduction by Holding Company or Bank in Executive's base annual salary, bonus and/or benefits as in effect immediately prior to a change in control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in the Executive's base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of the Company having the title of senior vice president or above, or (iv) any purported termination of Executive's employment with Bank or Holding Company when "cause" (as defined in this Agreement) for such termination does not exist, or (v) a relocation of Executive’s workplace outside of Chester County.

(e) Definition of "Change in Control". For purposes of this Agreement, a "change in control" of Company or Bank shall mean any one or more of the following:

(1) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")(or any successor provision) as it may be amended from time to time;

(2) any "persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first written above), other than Company or Bank or any "person" who on the date hereof is a director of officer of Company or Bank, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Company or Bank representing 25% or more of the combined voting power of Company's or Bank's then outstanding securities; or

(3) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Company or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.

(4) the signing of a letter of intent or a formal acquisition or merger agreement between the Holding Company or Bank, of the one part, and a third party which contemplates a transaction which would result in a "change of control" under paragraphs (1), (2) or (3) of this subsection (f), but, as to any Triggering Event, only if such letter of intent or agreement, or the transaction contemplated thereby, has not been canceled or terminated at the time the occurrence of the Triggering Event in question.

(f) Severance. If Executive is entitled to severance payments under subsection (a) or (b) of this Section, and if Executive shall have signed a release or releases as more fully described in Section 4 of this Agreement, Company shall pay as severance to Executive the following:

(I) Base Severance. A basic severance payment (“Base Severance”) in an amount equal to: (X) the sum (herein called “Total Annual Cash Compensation”) of two elements:  (I) the aggregate amount of (i) salary, (ii) the Company’s cash contribution toward the cost of medical, life, disability and health insurance benefits, and (iii) employer contributions (whether or not matching) under the Company’s qualified defined contribution retirement plans, that was payable to or for the benefit of Executive at any time during the most recent full fiscal year of the Company ended prior to the time the Executive becomes entitled to severance payments under this Section (the “Base Element”), plus (II) the aggregate cash bonuses that have been earned by the Executive for performance by the Executive during the most recent fiscal year of the Company ended prior to the time the Executive becomes entitled to severance payments under this Section, but any bonus shall only be included in the foregoing to the extent it has been finally approved and fixed as to amount at the time the Executive becomes entitled to severance payments under this Section (the “Bonus Element”); multiplied by (Y) 1.50. Such payment shall be made in a lump sum within one (1) calendar week following the date of termination, or, if later, at the earliest time permitted under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), subject to withholding by the Company as required by applicable law and regulations. Notwithstanding any provision of this Agreement or any other agreement of the parties, if the severance payment or payments under this Agreement, either along or together with other payments which the Executive has the right receive from the Company, would constitute a “parachute payment” (as defined in Section 280G of the Code or any successor provision), such lump sum severance payment shall be reduced to the largest amount as will result in no portion of the lump sum severance payment under this Agreement being subject to the excise tax imposed by Section 4999 of the Code. 

For purposes of calculating the Base Severance under this Agreement, the following shall apply:

(A)Subject to paragraph (C) below, “Total Annual Cash Compensation” shall not include compensation that may have accrued but did not become payable at any time or during any period of reference.

(B)Subject to paragraph (C) below, “Total Annual Cash Compensation” shall not include compensation that was paid in the form of Company stock or other noncash form.

(C)Notwithstanding paragraphs (A) and (B) above, “Total Annual Cash Compensation” shall include compensation that otherwise would have been payable in cash at any time or during any period of reference, but was not paid in cash because of an election by the Executive to defer all or part of it or to take it in the form of Company stock or other noncash form. 

(D)If the Executive shall not have been employed by the Company for a full fiscal year prior to the time Executive becomes entitled to severance payments under this Section, the amount of the Bonus Element shall be determined by dividing

the actual cash bonuses payable for the partial fiscal year by the actual number of calendar days of employment in the partial fiscal year, and multiplying the result by 365.

(E)For purposes of determining the Bonus Element, any signing bonus or other compensation that was payable as an incentive to Executive’s employment with the Company shall not be considered.

(F)If the Executive shall not have been employed with the Company for a full fiscal year of the Company prior to the time that the Executive becomes entitled to severance payments under this Section, the “Base Element” for purposes of this Agreement shall be determined by dividing the amount of the Base Element as it would have been determined under clause (X)(I) of this paragraph by the actual number of calendar days of employment in the partial fiscal year, and multiplying the result by 365.

(II) Medical/Health Benefits. For a period of one (1) year from the date of termination of the Executive's employment with the Company, the Company shall continue to pay for Executive's health insurance, HMO or other similar medical provider benefits (excluding any disability plans or benefits) on the same terms and conditions available to other employees from time to time. Thereafter, if the Executive chooses to continue such medical/health benefits as provided under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), Executive must do so at Executive's own expense. If, at any time after the termination of Executive's employment with the Company, Executive becomes covered for medical/health benefits on any terms with a new employer, the Company shall thereafter have no obligation to pay for any benefits or coverage and the Company's COBRA obligations shall terminate to the extent permitted by COBRA. Executive agrees to immediately notify Company, in writing, upon Executive's acceptance of new employment which provides medical/health benefits for which Executive is eligible.

(g) Any termination of Executive's employment by Company or by Executive shall be communicated by a dated, written notice, signed by the party giving the notice, which shall (A) indicate the specific termination provision in this Agreement relied upon; (B) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated; (C) specify the effective date of termination.

(h) All obligations under this Agreement are subject to termination by any bank regulatory agency having jurisdiction over Holding Company or Bank ("Regulatory Agency") in accordance with any applicable provisions of law or regulations granting such authority, but rights of the Executive to compensation earned as of the date of termination shall not be affected.

(i) Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The severance payments provided for in this

Agreement shall not be reduced by any compensation or other payments received by Executive after the date of termination of Executive's employment from any source.

4. Execution of Release Required. Executive agrees that, as a precondition to receiving the payments provided for in this Agreement, Executive shall have executed and delivered to Holding Company and Bank a release or releases, in form satisfactory to Holding Company and Bank, releasing all claims which Executive may then have against Holding Company or Bank, including without limitation any claims related to employment, termination of employment, discrimination, harrassment, compensation or benefits, but excluding any claims for payments due or to become due under this Agreement.

5. Payment Obligations Absolute. Provided that the preconditions for payment set forth in this Agreement are fully satisfied, Company's obligation to pay Executive the severance payments provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off counter claim, recoupment, defense or other right which Company may have against Executive. All amounts payable by Company hereunder shall be paid without notice or demand.

6. Continuing Obligations. Executive shall retain in confidence any confidential information known to him concerning Company and its business so long as such information is not publicly disclosed.

7. Amendments. No amendments to this Agreement shall be binding unless in writing, signed by both parties, which states expressly that it amends this Agreement.

8. Notices. Notices under this Agreement shall be deemed sufficient and effective if (i) in writing and (ii) either (A) when delivered in person or by facsimile, telecopier, telegraph or other electronic means capable of being embodied in written form or (B) forty-eight (48) hours after deposit thereof in the U.S. mails by certified or registered mail, return receipt requested, postage prepaid, addressed to each party at such party's address first set forth above and, in the case of Company, to the attention of the Chairman of the Board, or to such other notice address as the party to be notified may have designated by written notice to the sending party.

9. Prior Agreements. There are no other agreements between Company and Executive regarding Executive's employment. This Agreement is the entire agreement of the parties with respect to its subject matter and supersedes any and all prior or contemporaneous discussions, representations, understandings or agreements regarding its subject matter.

10. Assigns and Successors. The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company and Executive, provided, however, that Executive shall not assign or anticipate any of his rights hereunder, whether by operation of law or otherwise. For purposes of this Agreement, "Company" shall also refer to any successor to Holding Company or Bank, whether such succession occurs by merger, consolidation, purchase and assumption, sale of assets or otherwise.

11. Executive's Acknowledgment of Terms. Executive acknowledges that he has read this Agreement fully and carefully, understands its terms and that it has been entered into by Executive voluntarily. Executive acknowledges that any payments to be made hereunder will constitute additional compensation to Executive. Executive further acknowledges that Executive has had sufficient opportunity to consider this Agreement and discuss it with Executive's own advisors, including Executive's attorney and accountants. Executive has been informed that Executive has the right to consider this Agreement for a period of at least twenty one (21) days prior to entering into it. Executive acknowledges that Executive has taken sufficient time to consider this Agreement before signing it. Executive also acknowledges that Executive has the right to revoke this Agreement for a period of seven (7) days following this Agreement's execution by giving written notice of revocation to Company.

IN WITNESS WHEREOF, the parties hereto have caused the due execution of this Agreement as of the date first set forth above.

Attest: _________________________ Print Name: Gerald F. Sopp Title: Executive Vice President and CFO	Holding Company: DNB FINANCIAL CORPORATION By:________________________________ Print Name: William S. Latoff, Title:  Chairman and Chief Executive Officer
Attest: _________________________ Print Name: Gerald F. Sopp Title: Executive Vice President and CFO	Bank: DNB FIRST, NATIONAL ASSOCIATION By:________________________________ Print Name: William S. Latoff, Title:  Chairman and Chief Executive Officer
Witness: _________________________ Print Name:  Gerald F. Sopp	Executive: _________________________ Print Name: Vincent Liuzzi

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 11, 2014

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 11, 2014

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, 2014 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 11, 2014

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, 2014 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 11, 2014

XML

Allowance For Credit Losses (Impaired Loans By Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 5,814		$ 5,814		$ 5,763
Unpaid Principal Balance, With no related allowance recorded	7,280		7,280		9,300
Average Recorded Investment, With no related allowance recorded	5,666	5,953	5,698	5,780
Interest Income Recognized, With no related allowance recorded	2	3	3	3
Recorded Investment, With allowance recorded	1,384		1,384		2,095
Unpaid Principal Balance, With allowance recorded	5,048		5,048		3,426
Related Allowance	300		300		379
Average Recorded Investment, With allowance recorded	1,811	6,977	1,906	6,948
Recorded Investment, Total	7,198		7,198		7,858
Unpaid Principal Balance, Total	12,328		12,328		12,726
Average Recorded Investment, Total	7,477	12,930	7,604	12,728
Interest Income Recognized, Total	2	3	3	3
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,734		1,734		2,250
Unpaid Principal Balance, With no related allowance recorded	2,321		2,321		2,848
Average Recorded Investment, With no related allowance recorded	1,614	2,414	1,826	2,405
Average Recorded Investment, With allowance recorded	377	159	251	106
Recorded Investment, Total	1,734		1,734		2,250
Unpaid Principal Balance, Total	2,321		2,321		2,848
Average Recorded Investment, Total	1,991	2,573	2,077	2,511
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,499		2,499		2,502
Unpaid Principal Balance, With no related allowance recorded	2,579		2,579		2,574
Average Recorded Investment, With no related allowance recorded	2,508	2,250	2,506	2,436
Recorded Investment, With allowance recorded					36
Unpaid Principal Balance, With allowance recorded					36
Related Allowance					14
Average Recorded Investment, With allowance recorded	18	2,392	24	2,449
Recorded Investment, Total	2,499		2,499		2,538
Unpaid Principal Balance, Total	2,579		2,579		2,610
Average Recorded Investment, Total	2,526	4,642	2,530	4,885
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance, With no related allowance recorded					3
Average Recorded Investment, With allowance recorded		100		67
Unpaid Principal Balance, Total					3
Average Recorded Investment, Total		100		67
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,094		1,094		499
Unpaid Principal Balance, With no related allowance recorded	1,877		1,877		3,355
Average Recorded Investment, With no related allowance recorded	1,094	1,091	896	727
Recorded Investment, With allowance recorded	1,312		1,312		2,055
Unpaid Principal Balance, With allowance recorded	4,976		4,976		3,386
Related Allowance	276		276		361
Average Recorded Investment, With allowance recorded	1,312	4,326	1,560	4,326
Recorded Investment, Total	2,406		2,406		2,554
Unpaid Principal Balance, Total	6,853		6,853		6,741
Average Recorded Investment, Total	2,406	5,417	2,456	5,053
Leases Financing [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment, With no related allowance recorded		13		18
Average Recorded Investment, Total		13		18
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	460		460		434
Unpaid Principal Balance, With no related allowance recorded	472		472		442
Average Recorded Investment, With no related allowance recorded	428	61	430	62
Interest Income Recognized, With no related allowance recorded	2		3
Recorded Investment, Total	460		460		434
Unpaid Principal Balance, Total	472		472		442
Average Recorded Investment, Total	428	61	430	62
Interest Income Recognized, Total	2		3
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	27		27		78
Unpaid Principal Balance, With no related allowance recorded	31		31		78
Average Recorded Investment, With no related allowance recorded	22	124	40	132
Interest Income Recognized, With no related allowance recorded		3		3
Recorded Investment, With allowance recorded	72		72		4
Unpaid Principal Balance, With allowance recorded	72		72		4
Related Allowance	24		24		4
Average Recorded Investment, With allowance recorded	105		71
Recorded Investment, Total	99		99		82
Unpaid Principal Balance, Total	103		103		82
Average Recorded Investment, Total	127	124	111	132
Interest Income Recognized, Total		$ 3		$ 3

XML

Fair Value Of Financial Instruments (Estimate Of The Fair Value Of All Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities	$ 131,702	$ 121,659
Held to Maturity Securities	63,069	65,299
Time	79,494	95,542
Brokered deposits	7,719
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,428	34,060
Available-for-sale securities	131,702	121,659
Held to Maturity Securities	63,069	65,299
Restricted stock	2,820	2,903
Loans and leases, net of allowance	434,135	410,731
Accrued interest receivable	2,248	2,297
Non-interest-bearing deposits	116,989	101,853
Interest-bearing deposits:	371,367	361,352
Time	79,494	95,542
Brokered deposits	7,719
Repurchase agreements	23,939	19,854
FHLBP advances	10,000	10,000
Junior subordinated debentures and other borrowings	9,279	9,279
Accrued interest payable	355	376
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,428	34,060
Available-for-sale securities	131,702	121,659
Held to Maturity Securities	63,361	63,402
Restricted stock	2,820	2,903
Loans and leases, net of allowance	427,449	402,569
Accrued interest receivable	2,248	2,297
Non-interest-bearing deposits	116,989	101,853
Interest-bearing deposits:	371,367	361,352
Time	79,196	95,648
Brokered deposits	7,660
Repurchase agreements	23,939	19,854
FHLBP advances	10,801	11,057
Junior subordinated debentures and other borrowings	8,236	9,267
Accrued interest payable	355	376
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,428	34,060
Available-for-sale securities	17	18
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities	131,685	121,641
Held to Maturity Securities	63,361	63,402
Restricted stock	2,820	2,903
Accrued interest receivable	2,248	2,297
Non-interest-bearing deposits	116,989	101,853
Interest-bearing deposits:	371,367	361,352
Time	79,196	95,648
Brokered deposits	7,660
Repurchase agreements	23,939	19,854
FHLBP advances	10,801	11,057
Junior subordinated debentures and other borrowings	8,236	9,267
Accrued interest payable	355	376
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans and leases, net of allowance	$ 427,449	$ 402,569

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Stock-Based Compensation (Weighted Average Price And Weighted Average Remaining Contractual Life) (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Dec. 31, 2012
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Number Outstanding	206,803	207,303
Number Exercisable	163,453	122,253
Weighted Average Exercise Price	$ 15.94	$ 15.92
Remaining Contractual Life	2 years 1 month 13 days		2 years 7 months 13 days
Intrinsic Value	$ 1,271,000	$ 1,209,000
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	84,550	85,050
Number Exercisable	41,200
Weighted Average Exercise Price	$ 8.66	$ 8.65
Remaining Contractual Life	3 years 7 months 28 days		4 years 1 month 24 days
Intrinsic Value	1,064,000	1,029,000
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	55,401	55,401
Number Exercisable	55,401	55,401
Weighted Average Exercise Price	$ 17.51	$ 17.51
Remaining Contractual Life	1 year 5 months 23 days		1 year 11 months 19 days
Intrinsic Value	$ 207,000	$ 180,000
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	18,811	18,811
Number Exercisable	18,811	18,811
Weighted Average Exercise Price	$ 22.78	$ 22.78
Remaining Contractual Life	5 months 23 days		11 months 19 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	9 months 18 days		1 year 3 months 15 days

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Stockholders' Equity (Details) (USD $)	3 Months Ended		6 Months Ended	12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Dec. 31, 2010	Dec. 31, 2013
Class of Stock [Line Items]
Liquidation preference per share	$ 1,000		$ 1,000		$ 1,000
Securities purchase agreement, share repurchase amount			$ 11,879,000
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
Period where dividend rate remains unchanged if preferred stock remains outstanding, in years			4 years 6 months
Preferred stock dividend rate	1.00%	1.00%	3.874%
Expected dividend rate at a fixed rate for a specified period			9.00%
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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Stock-Based Compensation (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 12, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation			$ 135,000	$ 106,000
Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	793,368		793,368
Shares available for future grants	335,279		335,279
Non-exercisable options granted					44,600
Stock based compensation	13,000	17,000	30,000	34,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	20,000		20,000
Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	243,101		243,101
Award issuable period after date of grant			3 years
Share issuance, restricted sale period			1 year
Cliff-vesting period			3 years
Shares available for future grants	141,629		141,629
Stock based compensation	52,000	32,000	105,000	72,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 520,000		$ 520,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			2 years 3 months 29 days
Maximum [Member] | Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum option exercise period			10 years

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Investment Securities (Principal Value Of Investments Securities Sold) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Investment Securities [Abstract]
Available for sale securities sold	$ 11,653	$ 6,257	$ 26,884	$ 22,549
Held to maturity securities sold			1,228
Total sold securities	$ 11,653	$ 6,257	$ 28,112	$ 22,549

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Computation Of Basic And Diluted Earnings Per Share

		Three Months Ended					Six Months Ended
		June 30, 2014					June 30, 2014
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,087	2,763	$	0.39	$	2,054	2,761	$	0.74
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)		-	45		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,087	2,810	$	0.38	$	2,054	2,806	$	0.73

		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

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Income Taxes (Details)	6 Months Ended
	Jun. 30, 2014
Minimum [Member]
Income Tax Contingency [Line Items]
Open Tax Year	2010
Maximum [Member]
Income Tax Contingency [Line Items]
Open Tax Year	2013

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Earnings Per Share (Narrative) (Details)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	0	0
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	66,853	128,568
Outstanding Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	0	0

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Allowance For Credit Losses (Narrative) (Details) (USD $)		3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013 loan	Jun. 30, 2014 Commercial Mortgage [Member] loan	Jun. 30, 2014 Commercial Mortgage [Member] loan	Dec. 31, 2013 Commercial Mortgage [Member] loan	Jun. 30, 2014 Consumer: Home Equity [Member] loan	Jun. 30, 2014 Consumer: Home Equity [Member] loan	Mar. 31, 2014 Consumer: Home Equity [Member] loan	Dec. 31, 2013 Consumer: Home Equity [Member] loan
Financing Receivable, Modifications [Line Items]
Number of TDRs	0	1	1	1	1	1	0	0
TDR amount		$ 2,269,000	$ 2,269,000	$ 2,272,000	$ 102,000	$ 102,000
Monthly payment reduced period, in months						36 months
Reduction of principal			0			0
Pre-modification recorded investment			2,272,000			102,000
Post-modification recorded investment			$ 2,272,000			$ 102,000
Number of subsequent defaults		0	0		0	0

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Fair Value Of Financial Instruments (Fair Value Measurements On Differing Levels) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 131,702	$ 121,659
Total assets measured at fair value on a recurring basis	131,702	121,659
Impaired Loans, Fair Value Disclosure	2,804	2,829
OREO and other repossessed property	42	124
Total assets measured at fair value on a nonrecurring basis	2,846	2,953
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	17	18
Total assets measured at fair value on a recurring basis	17	18
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	131,685	121,641
Total assets measured at fair value on a recurring basis	131,685	121,641
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans, Fair Value Disclosure	2,804	2,829
OREO and other repossessed property	42	124
Total assets measured at fair value on a nonrecurring basis	2,846	2,953
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	17,065	29,943
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	17,065	29,943
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	71,297	48,930
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	71,297	48,930
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	21,846	22,886
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	21,846	22,886
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	20,112	16,550
Corporate Bonds [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	20,112	16,550
State And Municipal Tax-Exempt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	608	2,072
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	608	2,072
Certificates Of Deposit [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	757	1,260
Certificates Of Deposit [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	757	1,260
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	17	18
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 17	$ 18

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Stock-Based Compensation (Stock Option Activity) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock-Based Compensation [Abstract]
Outstanding	207,303	214,618
Weighted Average Exercise Price	$ 15.92	$ 15.98
Issued
Issued, Weighted Average Exercise Price
Exercised	500
Exercised, Weighted Average Exercise Price	$ 6.93
Forfeited		1,000
Forfeited, Weighted Average Exercise Price		$ 10.31
Expired
Expired, Weighted Average Exercise Price
Outstanding	206,803	213,618
Weighted Average Exercise Price	$ 15.94	$ 16.00

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Basis Of Presentation

6 Months Ended

Jun. 30, 2014

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, 2014 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, 2013. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2014 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-  

Accounting Standards Update (ASU) No. 2014‑04, Receivables (Topic 310): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.

In January 2014, the FASB issued ASU 2014-04 "Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)." The amendments in this update clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. DNB does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contract with Customers (Topic 606). The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following five steps: 1) identify the contracts(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. DNB is still evaluating the effect of this amendment on DNB's consolidated financial statements.

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Earnings Per Share (Computation Of Basic And Diluted Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share [Abstract]
Income available to common stockholders, Income	$ 1,087	$ 1,214	$ 2,054	$ 2,352
Income available to common stockholders after assumed conversions, Income	$ 1,087	$ 1,214	$ 2,054	$ 2,352
Income available to common stockholders, Shares	2,763,079	2,740,756	2,760,658	2,733,051
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Shares	47,000	33,000	45,000	35,000
Income available to common stockholders after assumed conversions, Shares	2,809,851	2,773,637	2,806,164	2,767,847
Income available to common stockholders, Amount	$ 0.39	$ 0.44	$ 0.74	$ 0.86
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Amount	$ (0.01)		$ (0.01)	$ (0.01)
Income available to common stockholders after assumed conversions, Amount	$ 0.38	$ 0.44	$ 0.73	$ 0.85

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Investment Securities (Narrative) (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Securities [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 126.7	$ 116.2
Percent of principal outstanding collected of held-to-maturity securities	85.00%
Mortgage Backed Securities [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	6
Number of securities, impaired for more than 12 months	4
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	33
Number of securities, impaired for more than 12 months	31
Number Of Impaired Municipal Securities, School Districts, Insured	19
Number Of Impaired Municipal Securities, School Districts, Uninsured	9
Number Of Impaired Municipal Securities, Townships, Uninsured	3
Number Of Impaired Municipal Securities, Townships, Insured	2
Corporate Bonds [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	5
Number of securities, impaired for more than 12 months	3
US Government Agency Obligations [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	10
Number of securities, impaired for more than 12 months	9
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	17
Number of securities, impaired for more than 12 months	11
Equity Securities [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	5
Number of securities, impaired for more than 12 months	5

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Fair Value Of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurements On Differing Levels

		June 30, 2014
(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	$	-	$	17,065	$	-	$	17,065
GSE mortgage-backed securities		-		71,297		-		71,297
Collateralized mortgage obligations GSE		-		21,846		-		21,846
Corporate bonds		-		20,112		-		20,112
State and municipal tax-exempt		-		608		-		608
Certificates of deposit		-		757		-		757
Equity securities		17		-		-		17
Total assets measured at fair value on a recurring basis	$	17	$	131,685	$	-	$	131,702
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,804	$	2,804
OREO and other repossessed property		-		-		42		42
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,846	$	2,846

		December 31, 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	$	-	$	29,943	$	-	$	29,943
GSE mortgage-backed securities		-		48,930		-		48,930
Collateralized mortgage obligations GSE		-		22,886		-		22,886
Corporate bonds		-		16,550		-		16,550
State and municipal tax-exempt		-		2,072		-		2,072
Certficates of deposit		-		1,260		-		1,260
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	121,641	$	-	$	121,659
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,829	$	2,829
OREO and other repossessed property		-		-		124		124
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,953	$	2,953

Quantitative Information About Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range
		Estimate	Techniques	Unobservable Input	(Weighted Average)
June 30, 2014
Impaired loans- Commercial construction	$	2,130	Appraisal of	Appraisal adj.	0%	to	-47%	(-17%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans- Residential mortgage		626	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans- Consumer other		48	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,804
Other real estate owned	$	42		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range
		Estimate	Techniques	Unobservable Input	(Weighted Average)
December 31, 2013
Impaired loans- Commercial construction	$	2,193	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-9%)
Impaired loans- Commercial mortgage		60	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-7%	to	-21%	(-12%)
Impaired loans- Residential mortgage		576	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,829
Other real estate owned	$	124		Disposal costs (2)	-5%	to	-5%	(-5%)

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

(2) Appraisals are adjusted by management for qualitative factors and disposal costs.

Estimate Of The Fair Value Of All Financial Instruments

		June 30, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,428	$	28,428	$	28,428	$	-	$	-
AFS investment securities		131,702		131,702		17		131,685		-
HTM investment securities		63,069		63,361		-		63,361		-
Restricted stock		2,820		2,820		-		2,820		-
Loans and leases, net of allowance		434,135		427,449		-		-		427,449
Accrued interest receivable		2,248		2,248		-		2,248		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		116,989		116,989		-		116,989		-
Interest-bearing deposits:		371,367		371,367		-		371,367		-
Time		79,494		79,196		-		79,196		-
Brokered deposits		7,719		7,660		-		7,660		-
Repurchase agreements		23,939		23,939		-		23,939		-
FHLBP advances		10,000		10,801		-		10,801		-
Junior subordinated debentures and other borrowings		9,279		8,236		-		8,236		-
Accrued interest payable		355		355		-		355		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,060	$	34,060	$	34,060	$	-	$	-
AFS investment securities		121,659		121,659		18		121,641		-
HTM investment securities		65,299		63,402		-		63,402		-
Restricted stock		2,903		2,903		-		2,903		-
Loans and leases, net of allowance		410,731		402,569		-		-		402,569
Accrued interest receivable		2,297		2,297		-		2,297		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		101,853		101,853		-		101,853		-
Interest-bearing deposits:		361,352		361,352		-		361,352		-
Time		95,542		95,648		-		95,648		-
Repurchase agreements		19,854		19,854		-		19,854		-
FHLBP advances		10,000		11,057		-		11,057		-
Junior subordinated debentures and other borrowings		9,279		9,267		-		9,267		-
Accrued interest payable		376		376		-		376		-
Off-balance sheet instruments		-		-		-		-		-

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Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized loss on AFS securities, Before-Tax Amount	$ (772)	$ (2,459)
Net unrealized loss on AFS securities, Tax Effect	263	836
Net unrealized loss on AFS securities, Net-of-Tax Amount	(509)	(1,623)
Discount on AFS to HTM reclassification, Before-Tax Amount	(28)	(32)
Discount on AFS to HTM reclassification, Tax Effect	9	11
Discount on AFS to HTM reclassification, Net-of-Tax Amount	(19)	(21)
Unrealized actuarial losses-pension, Before-Tax Amount	(1,104)	(1,104)
Unrealized actuarial losses-pension, Tax Effect	375	375
Unrealized actuarial losses-pension, Net-of-Tax Amount	(729)	(729)
Total of all items above, Before-Tax Amount	(1,904)	(3,595)
Total of all items above, Tax Effect	647	1,222
Total of all items above, Net-of-Tax Effect	$ (1,257)	$ (2,373)

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Investment Securities (Amortized Cost And Estimated Fair Values) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 63,069	$ 65,299
Held-to-maturity Securities, Unrealized Gains	1,286	617
Held-to-maturity Securities, Unrealized Losses	(994)	(2,514)
Held-to-maturity, Total investment securities, Estimated Fair Value	63,361	63,402
Available-for-sale Securities, Amortized Cost	132,474	124,118
Available-for-sale Securities, Unrealized Gains	547	214
Available-for-sale Securities, Unrealized Losses	(1,319)	(2,673)
Available for Sale, Total investment securities, Estimated Fair Value	131,702	121,659
US Government Agency Obligations [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	7,611	7,494
Held-to-maturity Securities, Unrealized Gains	230	75
Held-to-maturity, Total investment securities, Estimated Fair Value	7,841	7,569
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	4,193	5,934
Held-to-maturity Securities, Unrealized Gains	176	200
Held-to-maturity, Total investment securities, Estimated Fair Value	4,369	6,134
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	6,277	6,357
Held-to-maturity Securities, Unrealized Gains	472	249
Held-to-maturity, Total investment securities, Estimated Fair Value	6,749	6,606
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	4,388	4,903
Held-to-maturity Securities, Unrealized Gains	8	10
Held-to-maturity Securities, Unrealized Losses	(38)	(89)
Held-to-maturity, Total investment securities, Estimated Fair Value	4,358	4,824
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	40,600	40,611
Held-to-maturity Securities, Unrealized Gains	400	83
Held-to-maturity Securities, Unrealized Losses	(956)	(2,425)
Held-to-maturity, Total investment securities, Estimated Fair Value	40,044	38,269
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	17,261	30,522
Available-for-sale Securities, Unrealized Gains		4
Available-for-sale Securities, Unrealized Losses	(196)	(583)
Available for Sale, Total investment securities, Estimated Fair Value	17,065	29,943
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	71,037	49,448
Available-for-sale Securities, Unrealized Gains	456	180
Available-for-sale Securities, Unrealized Losses	(196)	(698)
Available for Sale, Total investment securities, Estimated Fair Value	71,297	48,930
Corporate Bonds [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	20,201	16,944
Available-for-sale Securities, Unrealized Gains	58
Available-for-sale Securities, Unrealized Losses	(147)	(394)
Available for Sale, Total investment securities, Estimated Fair Value	20,112	16,550
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	22,587	23,836
Available-for-sale Securities, Unrealized Gains	24	18
Available-for-sale Securities, Unrealized Losses	(765)	(968)
Available for Sale, Total investment securities, Estimated Fair Value	21,846	22,886
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	611	2,091
Available-for-sale Securities, Unrealized Losses	(3)	(19)
Available for Sale, Total investment securities, Estimated Fair Value	608	2,072
Certificates Of Deposit [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	750	1,250
Available-for-sale Securities, Unrealized Gains	7	10
Available for Sale, Total investment securities, Estimated Fair Value	757	1,260
Equity Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Amortized Cost	27	27
Available-for-sale Securities, Unrealized Gains	2	2
Available-for-sale Securities, Unrealized Losses	(12)	(11)
Available for Sale, Total investment securities, Estimated Fair Value	$ 17	$ 18

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Investment Securities (Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	$ 27,673	$ 31,672
Held-to-maturity Securities, Unrealized Losses	(994)	(2,514)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	6,869	19,964
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(43)	(816)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	20,804	11,708
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(951)	(1,698)
Available-for-sale Securities, Fair Value, Total	56,030	102,235
Available-for-sale Securities, Unrealized Loss, Total	(1,319)	(2,673)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	12,129	94,790
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(127)	(2,469)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	43,901	7,445
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(1,192)	(204)
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	17,065	24,931
Available-for-sale Securities, Unrealized Loss, Total	(196)	(583)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	998	24,931
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(2)	(583)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	16,067
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(194)
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	12,142	38,255
Available-for-sale Securities, Unrealized Loss, Total	(196)	(698)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	4,642	38,255
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(31)	(698)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	7,500
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(165)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	17,079	21,416
Available-for-sale Securities, Unrealized Loss, Total	(765)	(968)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	2,528	20,336
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(58)	(959)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	14,551	1,080
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(707)	(9)
Corporate Bonds [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	9,125	16,549
Available-for-sale Securities, Unrealized Loss, Total	(147)	(394)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	3,961	10,968
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(36)	(223)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	5,164	5,581
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(111)	(171)
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	608	1,072
Available-for-sale Securities, Unrealized Loss, Total	(3)	(19)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months		300
Available-for-sale Securities, Unrealized Loss Less Than 12 Months		(6)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	608	772
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(3)	(13)
Equity Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	11	12
Available-for-sale Securities, Unrealized Loss, Total	(12)	(11)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	11	12
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(12)	(11)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	4,097	2,530
Held-to-maturity Securities, Unrealized Losses	(38)	(89)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	4,097	2,530
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(38)	(89)
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	23,576	29,142
Held-to-maturity Securities, Unrealized Losses	(956)	(2,425)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	2,772	17,434
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(5)	(727)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	20,804	11,708
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	$ (951)	$ (1,698)

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash Flows From Operating Activities:
Net income	$ 2,124	$ 2,425
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	916	1,110
Provision for credit losses	630	555
Stock based compensation	135	106
Net gain on sale of securities	(337)	(214)
Net loss on sale and write down of OREO and other repossessed property	7	28
Earnings from investment in BOLI	(115)	(116)
Deferred tax benefit	(87)
Proceeds from sales of SBA loans		2,740
SBA loans originated for sale		(2,577)
Gain on sale of SBA loans		(163)
Decrease in accrued interest receivable	49	7
Decrease in other assets	976	2,047
Decrease in accrued interest payable	(21)	(25)
Decrease in other liabilities	(293)	(304)
Net Cash Provided By Operating Activities	3,984	5,619
Cash Flows From Investing Activities:
Activity in available-for-sale securities: Sales	26,884	22,549
Activity for available-for-sale securities: Maturities, repayments and calls	15,690	11,994
Activity in available-for-sale securities: Purchases	(51,146)	(33,663)
Activity in held-to-maturity securities: Sales	1,228
Activity in held-to-maturity securities: Maturities, repayments and calls	1,119	3,459
Activity in held-to-maturity securities: Purchases		(4,714)
Net decrease in restricted stock	83	462
Net (increase) decrease in loans and leases	(24,076)	3,767
Net purchases of property and equipment, less proceeds from disposals	(212)	(117)
Proceeds from sale of OREO and other repossessed property	186	122
Net Cash (Used in) Provided by Investing Activities	(30,244)	3,859
Cash Flows From Financing Activities:
Net increase in deposits	16,822	31,484
Repayment of FHLBP advances		(10,000)
Net increase in repurchase agreements	4,085	6,219
Decrease in other borrowings	(18)	(15)
Dividends paid	(452)	(448)
Proceeds from the exercise of stock options	4
Sale of treasury stock	187	173
Net Cash Provided by Financing Activities	20,628	27,413
Net Change in Cash and Cash Equivalents	(5,632)	36,891
Cash and Cash Equivalents at Beginning of Period	34,060	17,149
Cash and Cash Equivalents at End of Period	28,428	54,040
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	1,227	1,544
Cash paid during the period for: Income taxes	392	1,503
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property	$ 42	$ 2,238

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Investment Securities (Investments Classified By Contractual Maturity Date) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Investment Securities [Abstract]
Held to Maturity, Due after one year through five years, Amortized Cost	$ 1,003
Held to Maturity, Due after five years through ten years, Amortized Cost	32,023
Held to Maturity, Due after ten years, Amortized Cost	30,043
Held to Maturity, Total investment securities, Amortized Cost	63,069	65,299
Held to Maturity, Due after one year through five years, Estimated Fair Value	984
Held to Maturity, Due after five years through ten years, Estimated Fair Value	32,620
Held to Maturity, Due after ten years, Estimated Fair Value	29,757
Held-to-maturity, Total investment securities, Estimated Fair Value	63,361	63,402
Available for Sale, Due in one year or less, Amortized Cost	2,051
Available for Sale, Due after one year through five years, Amortized Cost	24,182
Available for Sale, Due after five years through ten years, Amortized Cost	63,327
Available for Sale, Due after ten years, Amortized Cost	42,887
Available for Sale, No state maturity, Amortized Cost	27
Available for Sale, Total investment securities, Amortized Cost	132,474	124,118
Available for Sale, Due in one year or less, Estimated Fair Value	2,052
Available for Sale, Due after one year through five years, Estimated Fair Value	23,951
Available for Sale, Due after five years through ten years, Estimated Fair Value	63,612
Available for Sale, Due after ten years, Estimated Fair Value	42,070
Available for Sale, No stated maturity, Estimated Fair Value	17
Available for Sale, Total investment securities, Estimated Fair Value	$ 131,702	$ 121,659

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Allowance For Credit Losses (Credit Quality Indicators) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 439,022	$ 415,354
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	416,805	399,239
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	487	5,447
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	21,030	9,968
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	700	700
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	25,337	24,677
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	23,321	22,142
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,016	2,535
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	250,014	234,599
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	240,201	224,868
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	415	5,028
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,398	4,703
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	87,912	89,279
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	82,192	88,657
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	72	419
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,648	203
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	22,842	19,117
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	18,767	16,450
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,375	1,967
Commercial Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	700	700
Leases Financing [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	1	2
Leases Financing [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	1	2
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	46,857	41,418
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	46,362	40,940
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	495	478
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	6,059	6,262
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,961	6,180
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 98	$ 82

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Fair Value Of Financial Instruments (Quantitative Information About Level 3 Fair Value Measurements) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 2,804		$ 2,829
Other Real Estate Owned, fair value	42		124
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	2,804		2,829
Other Real Estate Owned, fair value	42		124
Level 3 [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	2,130	[1]	2,193	[1]
Level 3 [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans			60	[1]
Level 3 [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	626	[1]	576	[1]
Level 3 [Member] | Consumer Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 48	[1]
Level 3 [Member] | Minimum [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(5.00%)	[2]
Level 3 [Member] | Minimum [Member] | Commercial Construction [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(47.00%)		0.00%
Level 3 [Member] | Minimum [Member] | Commercial Construction [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(11.00%)	[2]	(11.00%)	[2]
Level 3 [Member] | Minimum [Member] | Commercial Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			0.00%
Level 3 [Member] | Minimum [Member] | Commercial Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			(21.00%)	[2]
Level 3 [Member] | Minimum [Member] | Residential Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%		0.00%
Level 3 [Member] | Minimum [Member] | Residential Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(8.00%)	[2]
Level 3 [Member] | Minimum [Member] | Consumer Other [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%
Level 3 [Member] | Minimum [Member] | Consumer Other [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]
Level 3 [Member] | Maximum [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(5.00%)	[2]
Level 3 [Member] | Maximum [Member] | Commercial Construction [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%		0.00%
Level 3 [Member] | Maximum [Member] | Commercial Construction [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(8.00%)	[2]
Level 3 [Member] | Maximum [Member] | Commercial Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			0.00%
Level 3 [Member] | Maximum [Member] | Commercial Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			(7.00%)	[2]
Level 3 [Member] | Maximum [Member] | Residential Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%		0.00%
Level 3 [Member] | Maximum [Member] | Residential Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(8.00%)	[2]
Level 3 [Member] | Maximum [Member] | Consumer Other [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%
Level 3 [Member] | Maximum [Member] | Consumer Other [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(5.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Commercial Construction [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(17.00%)		0.00%
Level 3 [Member] | Weighted Average [Member] | Commercial Construction [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(10.00%)	[2]	(9.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Commercial Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			0.00%
Level 3 [Member] | Weighted Average [Member] | Commercial Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			(12.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Residential Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%		0.00%
Level 3 [Member] | Weighted Average [Member] | Residential Mortgage [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]	(8.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Consumer Other [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%
Level 3 [Member] | Weighted Average [Member] | Consumer Other [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	(8.00%)	[2]

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

[2] Appraisals are adjusted by management for qualitative factors and disposal costs.

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Consolidated Statements of Financial Condition (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Assets
Cash and due from banks	$ 28,428	$ 32,710
Federal Funds Sold		1,350
Cash and cash equivalents	28,428	34,060
Available-for-sale investment securities at fair value (amortized cost of $132,474 and $124,118)	131,702	121,659
Held-to-maturity investment securities (fair value of $63,361 and $63,402)	63,069	65,299
Total investments securities	194,771	186,958
Loans and leases	439,022	415,354
Allowance for credit losses	(4,887)	(4,623)
Net loans and leases	434,135	410,731
Restricted stock	2,820	2,903
Office property and equipment, net	7,973	8,218
Accrued interest receivable	2,248	2,297
Other real estate owned & other repossessed property	945	1,096
Bank owned life insurance (BOLI)	8,978	8,863
Core deposit intangible	91	111
Net deferred taxes	3,299	3,788
Other assets	1,474	2,448
Total assets	685,162	661,473
Liabilities
Non-interest-bearing deposits	116,989	101,853
Interest-bearing deposits:
NOW	174,044	170,427
Money market	133,479	130,835
Savings	63,844	60,090
Time	79,494	95,542
Brokered deposits	7,719
Total deposits	575,569	558,747
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	10,000	10,000
Repurchase agreements	23,939	19,854
Junior subordinated debentures	9,279	9,279
Other borrowings	523	541
Total borrowings	43,741	39,674
Accrued interest payable	355	376
Other liabilities	3,800	4,093
Total liabilities	623,465	602,890
Stockholders' Equity
Preferred stock, $10.00 par value; 1,000,000 shares authorized; $1,000 liquidation preference per share; 13,000 shares issued	13,000	12,995
Common stock, $1.00 par value; 10,000,000 shares authorized; 2,896,937 and 2,896,703 issued, respectively; 2,887,769 and 2,876,672 outstanding, respectively	2,917	2,910
Treasury stock, at cost; 133,604 and 142,772, respectively	(2,461)	(2,629)
Surplus	34,592	34,441
Retained earnings	14,906	13,239
Accumulated other comprehensive loss	(1,257)	(2,373)
Total stockholders' equity	61,697	58,583
Total liabilities and stockholders' equity	$ 685,162	$ 661,473

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Junior Subordinated Debentures (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 item
Debt Instrument [Line Items]
Number of issuances of junior subordinated debentures	2
DNB Capital Trust I [Member]
Debt Instrument [Line Items]
Issuance date	Jul. 20, 2001
Floating rate capital preferred securities	$ 5.0
LIBOR rate, borrowing period, in months	6 months
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
LIBOR rate, borrowing period, in months	3 months
Basis spread on variable rate	1.77%
Fixed interest rate	6.56%
Interest rate period, in years	5 years
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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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, 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 expense				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
Balance at Dec. 31, 2013	12,995	2,910	(2,629)	34,441	13,239	(2,373)	58,583
Net income					2,124		2,124
Other comprehensive income (loss)						1,116	1,116
SBLF issuance costs accretion	5				(5)
Restricted stock compensation expense		7		98			105
Exercise of stock options				4			4
Stock option compensation expense				30			30
Cash dividends - common					(387)		(387)
Cash dividends SBLF preferred					(65)		(65)
Sale of treasury shares to 401(k)			112	13			125
Sale of treasury shares to deferred comp. plan			56	6			62
Balance at Jun. 30, 2014	$ 13,000	$ 2,917	$ (2,461)	$ 34,592	$ 14,906	$ (1,257)	$ 61,697

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Loans (Total Loans And Leases Outstanding) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	$ 439,022		$ 415,354
Less allowance for credit losses	(4,887)	(4,750)	(4,623)	(6,690)	(7,123)	(6,838)
Net loans and leases	434,135		410,731
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	25,337		24,677
Less allowance for credit losses	(315)	(347)	(285)	(309)	(327)	(306)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	250,014		234,599
Less allowance for credit losses	(2,131)	(2,146)	(2,010)	(3,110)	(3,248)	(3,094)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	87,912		89,279
Less allowance for credit losses	(641)	(652)	(621)	(484)	(711)	(506)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	22,842		19,117
Less allowance for credit losses	(1,019)	(806)	(1,033)	(2,004)	(1,930)	(1,536)
Leases Financing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	1		2
Less allowance for credit losses					(2)	(3)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	46,857		41,418
Less allowance for credit losses	(176)	(167)	(156)	(181)	(180)	(178)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	6,059		6,262
Less allowance for credit losses	$ (98)	$ (125)	$ (78)	$ (80)	$ (83)	$ (86)

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2014

Investment Securities [Abstract]

Amortized Cost And Estimated Fair Values

		June 30, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,611	$	230	$	-	$	7,841
Government Sponsored Entities (GSE) mortgage-backed securities		4,193		176		-		4,369
Corporate bonds		6,277		472		-		6,749
Collateralized mortgage obligations GSE		4,388		8		(38)		4,358
State and municipal tax-exempt		40,600		400		(956)		40,044
Total	$	63,069	$	1,286	$	(994)	$	63,361
Available For Sale
US Government agency obligations	$	17,261	$	-	$	(196)	$	17,065
GSE mortgage-backed securities		71,037		456		(196)		71,297
Collateralized mortgage obligations GSE		22,587		24		(765)		21,846
Corporate bonds		20,201		58		(147)		20,112
State and municipal tax-exempt		611		-		(3)		608
Certificates of deposit		750		7		-		757
Equity securities		27		2		(12)		17
Total	$	132,474	$	547	$	(1,319)	$	131,702

		December 31, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,494	$	75	$	-	$	7,569
Government Sponsored Entities (GSE) mortgage-backed securities		5,934		200		-		6,134
Corporate bonds		6,357		249		-		6,606
Collateralized mortgage obligations GSE		4,903		10		(89)		4,824
State and municipal tax-exempt		40,611		83		(2,425)		38,269
Total	$	65,299	$	617	$	(2,514)	$	63,402
Available For Sale
US Government agency obligations	$	30,522	$	4	$	(583)	$	29,943
GSE mortgage-backed securities		49,448		180		(698)		48,930
Collateralized mortgage obligations GSE		23,836		18		(968)		22,886
Corporate bonds		16,944		-		(394)		16,550
State and municipal tax-exempt		2,091		-		(19)		2,072
Certificates of deposit		1,250		10		-		1,260
Equity securities		27		2		(11)		18
Total	$	124,118	$	214	$	(2,673)	$	121,659

Unrealized Losses And Fair Value

		June 30, 2014
						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
Collateralized mortgage obligations GSE	$	4,097	$	(38)	$	4,097	$	(38)	$	-	$	-
State and Municipal tax-exempt		23,576		(956)		2,772		(5)		20,804		(951)
Total	$	27,673	$	(994)	$	6,869	$	(43)	$	20,804	$	(951)
Available For Sale
US Government agency obligations	$	17,065	$	(196)	$	998	$	(2)	$	16,067	$	(194)
GSE mortgage-backed securities		12,142		(196)		4,642		(31)		7,500		(165)
Collateralized mortgage obligations GSE		17,079		(765)		2,528		(58)		14,551		(707)
Corporate bonds		9,125		(147)		3,961		(36)		5,164		(111)
State and Municipal tax-exempt		608		(3)		-		-		608		(3)
Equity securities		11		(12)		-		-		11		(12)
Total	$	56,030	$	(1,319)	$	12,129	$	(127)	$	43,901	$	(1,192)

		December 31, 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
Collateralized mortgage obligations GSE	$	2,530	$	(89)	$	2,530	$	(89)	$	-	$	-
State and municipal tax-exempt		29,142		(2,425)		17,434		(727)		11,708		(1,698)
Total	$	31,672	$	(2,514)	$	19,964	$	(816)	$	11,708	$	(1,698)
Available For Sale
US Government agency obligations	$	24,931	$	(583)	$	24,931	$	(583)	$	-	$	-
GSE mortgage-backed securities		38,255		(698)		38,255		(698)		-		-
Collateralized mortgage obligations GSE		21,416		(968)		20,336		(959)		1,080		(9)
Corporate bonds		16,549		(394)		10,968		(223)		5,581		(171)
State and municipal tax-exempt		1,072		(19)		300		(6)		772		(13)
Equity securities		12		(11)		-		-		12		(11)
Total	$	102,235	$	(2,673)	$	94,790	$	(2,469)	$	7,445	$	(204)

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	$	-	$	-	$	2,051	$	2,052
Due after one year through five years		1,003		984		24,182		23,951
Due after five years through ten years		32,023		32,620		63,327		63,612
Due after ten years		30,043		29,757		42,887		42,070
No stated maturity		-		-		27		17
Total investment securities	$	63,069	$	63,361	$	132,474	$	131,702

Principal Value Of Investments Securities Sold

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2014		2013		2014		2013
Available for sale securities sold	$	11,653	$	6,257	$	26,884	$	22,549
Held to maturity securities sold		-		-		1,228		-
Total sold securities	$	11,653	$	6,257	$	28,112	$	22,549

Gain (Loss) On Investment Sales

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2014		2013		2014		2013
Gross realized gains-AFS	$	102	$	155	$	294	$	471
Gross realized gains-HTM		-		-		68
Gross realized losses-AFS		-		-		(25)		(257)
Net realized gain	$	102	$	155	$	337	$	214

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Loans (Interest Income On Non-Accrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 4,664	$ 10,039	$ 4,664	$ 10,039	$ 5,586
Loans 90 day past due and accruing	501	106	501	106	141
Total non-performing loans	5,165	10,145	5,165	10,145	5,727
Interest income that would have been recorded under original terms	107	165	232	378
Interest income recorded during the period	2	3	3	3
Net impact on interest income	105	162	229	375
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,734	2,265	1,734	2,265	2,250
Loans 90 day past due and accruing	500		500
Interest income that would have been recorded under original terms	8	17	24	35
Net impact on interest income	8	17	24	35
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	192	3,286	192	3,286	266
Interest income that would have been recorded under original terms	4	48	9	114
Net impact on interest income	4	48	9	114
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Interest income that would have been recorded under original terms		3		4
Net impact on interest income		3		4
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	2,293	4,326	2,293	4,326	2,554
Interest income that would have been recorded under original terms	86	90	180	212
Net impact on interest income	86	90	180	212
Leases Financing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans 90 day past due and accruing	1		1		2
Interest income that would have been recorded under original terms				1
Net impact on interest income				1
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	346	60	346	60	434
Loans 90 day past due and accruing					67
Interest income that would have been recorded under original terms	7	2	14	3
Interest income recorded during the period	2		3
Net impact on interest income	5	2	11	3
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	99	102	99	102	82
Loans 90 day past due and accruing					72
Interest income that would have been recorded under original terms	2	5	5	9
Interest income recorded during the period		3		3
Net impact on interest income	$ 2	$ 2	$ 5	$ 6

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Allowance For Credit Losses (Tables)

6 Months Ended

Jun. 30, 2014

Allowance For Credit Losses [Abstract]

Age Analysis Of Past Due Loans Receivables

Age Analysis of Past Due Loans Receivables

June 30, 2014
														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	$	306	$	465	$	2,234	$	3,005	$	22,332	$	25,337	$	500
Commercial mortgage		1,322		202		35		1,559		248,455		250,014		-
Commercial:
Commercial term		-		-		-		-		87,912		87,912		-
Commercial construction		-		-		2,293		2,293		20,549		22,842		-
Lease financing		-		-		1		1		-		1		1
Consumer:
Home equity		6		-		263		269		46,588		46,857		-
Other		114		69		99		282		5,777		6,059		-
Total	$	1,748	$	736	$	4,925	$	7,409	$	431,613	$	439,022	$	501

December 31, 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	$	507	$	865	$	1,757	$	3,129	$	21,548	$	24,677	$	-
Commercial mortgage		358		192		74		624		233,975		234,599		-
Commercial:
Commercial term		50		-		-		50		89,229		89,279		-
Commercial construction		-		-		2,554		2,554		16,563		19,117		-
Lease financing		-		-		2		2		-		2		2
Consumer:
Home equity		-		50		376		426		40,992		41,418		67
Other		80		-		77		157		6,105		6,262		72
Total	$	995	$	1,107	$	4,840	$	6,942	$	408,412	$	415,354	$	141

Impaired Loans By Loan Portfolio

		June 30, 2014						December 31, 2013
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,734	$	2,321	$	-	$	2,250	$	2,848	$	-
Commercial mortgage		2,499		2,579		-		2,502		2,574		-
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		1,094		1,877		-		499		3,355		-
Consumer:
Home equity		460		472		-		434		442		-
Other		27		31		-		78		78		-
Total	$	5,814	$	7,280	$	-	$	5,763	$	9,300	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		-		-		-		36		36		14
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		1,312		4,976		276		2,055		3,386		361
Consumer:
Home equity		-		-		-		-		-		-
Other		72		72		24		4		4		4
Total	$	1,384	$	5,048	$	300	$	2,095	$	3,426	$	379
Total:
Residential mortgage		1,734		2,321		-		2,250		2,848		-
Commercial mortgage		2,499		2,579		-		2,538		2,610		14
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		2,406		6,853		276		2,554		6,741		361
Consumer:
Home equity		460		472		-		434		442		-
Other		99		103		24		82		82		4
Total	$	7,198	$	12,328	$	300	$	7,858	$	12,726	$	379

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
		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	$	1,614	$	-	$	2,414	$	-	$	1,826	$	-	$	2,405	$	-
Commercial mortgage		2,508		-		2,250		-		2,506		-		2,436		-
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		1,094		-		1,091		-		896		-		727		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		22		-		124		3		40		-		132		3
Total	$	5,666	$	2	$	5,953	$	3	$	5,698	$	3	$	5,780	$	3
With allowance recorded:
Residential mortgage		377		-		159		-		251		-		106		-
Commercial mortgage		18		-		2,392		-		24		-		2,449		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		1,312		-		4,326		-		1,560		-		4,326		-
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		105		-		-		-		71		-		-		-
Total	$	1,811	$	-	$	6,977	$	-	$	1,906	$	-	$	6,948	$	-
Total:
Residential mortgage		1,991		-		2,573		-		2,077		-		2,511		-
Commercial mortgage		2,526		-		4,642		-		2,530		-		4,885		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		2,406		-		5,417		-		2,456		-		5,053		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		127		-		124		3		111		-		132		3
Total	$	7,477	$	2	$	12,930	$	3	$	7,604	$	3	$	12,728	$	3

Credit Quality Indicators

		June 30, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,321	$	-	$	2,016	$	-	$	25,337
Commercial mortgage		240,201		415		9,398		-		250,014
Commercial:
Commercial term		82,192		72		5,648		-		87,912
Commercial construction		18,767		-		3,375		700		22,842
Lease financing		1		-		-		-		1
Consumer:
Home equity		46,362		-		495		-		46,857
Other		5,961		-		98		-		6,059
Total	$	416,805	$	487	$	21,030	$	700	$	439,022

		December 31, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,142	$	-	$	2,535	$	-	$	24,677
Commercial mortgage		224,868		5,028		4,703		-		234,599
Commercial:
Commercial term		88,657		419		203		-		89,279
Commercial construction		16,450		-		1,967		700		19,117
Lease financing		2		-		-		-		2
Consumer:
Home equity		40,940		-		478		-		41,418
Other		6,180		-		82		-		6,262
Total	$	399,239	$	5,447	$	9,968	$	700	$	415,354

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, 2014	$	347	$	2,146	$	652	$	806	$	-	$	167	$	125	$	507	$	4,750
Charge-offs		(100)		(8)		(11)		-		-		-		(11)		-		(130)
Recoveries		2		-		2		-		5		-		3		-		12
Provisions		66		(7)		(2)		213		(5)		9		(19)		-		255
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887

	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, 2014	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Charge-offs		(100)		(8)		(18)		(261)		-		-		(11)		-		(398)
Recoveries		5		-		2		10		6		-		9		-		32
Provisions		125		129		36		237		(6)		20		22		67		630
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	276	$	-	$	-	$	24	$	-	$	300
Ending balance: collectively evaluated for impairment	$	315	$	2,131	$	641	$	743	$	-	$	176	$	74	$	507	$	4,587
Loans receivables:
Ending balance	$	25,337	$	250,014	$	87,912	$	22,842	$	1	$	46,857	$	6,059			$	439,022
Ending balance: individually evaluated for impairment	$	1,734	$	2,499	$	-	$	2,406	$	-	$	460	$	99			$	7,198
Ending balance: collectively evaluated for impairment	$	23,603	$	247,515	$	87,912	$	20,436	$	1	$	46,397	$	5,960			$	431,824
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	79	$	60	$	-	$	11	$	-			$	160

	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
Reserve for unfunded loan commitments included in other liabilities	$	-	$	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:
Ending balance - December 31, 2013	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Ending balance: individually evaluated for impairment	$	-	$	14	$	-	$	361	$	-	$	-	$	4	$	-	$	379
Ending balance: collectively evaluated for impairment	$	285	$	1,996	$	621	$	672	$	-	$	156	$	74	$	440	$	4,244
Loans receivables:
Ending balance	$	24,677	$	234,599	$	89,279	$	19,117	$	2	$	41,418	$	6,262			$	415,354
Ending balance: individually evaluated for impairment	$	2,250	$	2,538	$	-	$	2,554	$	-	$	434	$	82			$	7,858
Ending balance: collectively evaluated for impairment	$	22,427	$	232,061	$	89,279	$	16,563	$	2	$	40,984	$	6,180			$	407,496
Reserve for unfunded loan commitments included in other liabilities	$	-	$	9	$	68	$	57	$	-	$	9	$	-			$	143

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Consolidated Statements of Stockholders' Equity [Abstract]
Exercise of stock options, shares	500
Cash Dividends-Common Stock per share	$ 0.14	$ 0.14
Sale of treasury shares to 401(k), Shares	6,091	7,096
Sale of treasury shares to deferred compensation plan, Shares	3,077	3,600

XML

Consolidated Statements of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 132,474	$ 124,118
Held-to-maturity Securities, Fair Value	$ 63,361	$ 63,402
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
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	2,896,937	2,896,703
Common Stock, Shares, Outstanding	2,763,333	2,753,931
Treasury Stock, Shares	133,604	142,772

XML

Income Taxes

6 Months Ended

Jun. 30, 2014

Income Taxes [Abstract]

Income Taxes

NOTE 9:  INCOME TAXES

As of June 30, 2014, 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 2010 through 2013 were open for examination as of June 30, 2014.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 11, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
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		2,768,303

XML

Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2014

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

NOTE 10:  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 establishing a new cost basis. 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, 2014 and December 31, 2013 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

		June 30, 2014
(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	$	-	$	17,065	$	-	$	17,065
GSE mortgage-backed securities		-		71,297		-		71,297
Collateralized mortgage obligations GSE		-		21,846		-		21,846
Corporate bonds		-		20,112		-		20,112
State and municipal tax-exempt		-		608		-		608
Certificates of deposit		-		757		-		757
Equity securities		17		-		-		17
Total assets measured at fair value on a recurring basis	$	17	$	131,685	$	-	$	131,702
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,804	$	2,804
OREO and other repossessed property		-		-		42		42
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,846	$	2,846

		December 31, 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	$	-	$	29,943	$	-	$	29,943
GSE mortgage-backed securities		-		48,930		-		48,930
Collateralized mortgage obligations GSE		-		22,886		-		22,886
Corporate bonds		-		16,550		-		16,550
State and municipal tax-exempt		-		2,072		-		2,072
Certficates of deposit		-		1,260		-		1,260
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	121,641	$	-	$	121,659
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,829	$	2,829
OREO and other repossessed property		-		-		124		124
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	2,953	$	2,953

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
		Estimate	Techniques	Unobservable Input	(Weighted Average)
June 30, 2014
Impaired loans- Commercial construction	$	2,130	Appraisal of	Appraisal adj.	0%	to	-47%	(-17%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans- Residential mortgage		626	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans- Consumer other		48	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,804
Other real estate owned	$	42		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

Quantitative Information about Level 3 Fair Value Measurement
(Dollars in thousands)		Fair Value	Valuation		Range
		Estimate	Techniques	Unobservable Input	(Weighted Average)
December 31, 2013
Impaired loans- Commercial construction	$	2,193	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-9%)
Impaired loans- Commercial mortgage		60	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-7%	to	-21%	(-12%)
Impaired loans- Residential mortgage		576	Appraisal of	Appraisal adj.	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	2,829
Other real estate owned	$	124		Disposal costs (2)	-5%	to	-5%	(-5%)

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

(2) Appraisals are adjusted by management for qualitative factors and disposal costs.

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 $7.2 million at June 30, 2014. Of this, $1.4 million had a specific valuation allowance of $300,000, leaving a fair value of $1.1 million as of June 30, 2014.  In addition, DNB had $2.0 million in impaired loans that were partially charged down by $300,000, leaving $1.7 million at fair value as of June 30, 2014. The total fair value of impaired loans at June 30, 2014 was $2.8 million.

Impaired loans had a carrying amount of $7.9 million at December 31, 2013. Of this, $2.1 million had a specific valuation allowance of $379,000, leaving a fair value of $1.7 million at December 31, 2013.  In addition, DNB had $3.1 million in impaired loans that were partially charged down by $2.0 million, leaving $1.1 million at fair value as of December 31, 2013. The total fair value of impaired loans at December 31, 2013 was $2.8 million.

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 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 $945,000 of such assets at June 30, 2014, $940,000 of which was OREO and $5,000 was in other repossessed property. DNB had $1.1 million of such assets at December 31, 2013, which consisted of $1.0 million in OREO and $73,000 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, 2014 or 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, 2014.

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, 2014 and December 31, 2013 are as follows:

		June 30, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,428	$	28,428	$	28,428	$	-	$	-
AFS investment securities		131,702		131,702		17		131,685		-
HTM investment securities		63,069		63,361		-		63,361		-
Restricted stock		2,820		2,820		-		2,820		-
Loans and leases, net of allowance		434,135		427,449		-		-		427,449
Accrued interest receivable		2,248		2,248		-		2,248		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		116,989		116,989		-		116,989		-
Interest-bearing deposits:		371,367		371,367		-		371,367		-
Time		79,494		79,196		-		79,196		-
Brokered deposits		7,719		7,660		-		7,660		-
Repurchase agreements		23,939		23,939		-		23,939		-
FHLBP advances		10,000		10,801		-		10,801		-
Junior subordinated debentures and other borrowings		9,279		8,236		-		8,236		-
Accrued interest payable		355		355		-		355		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2013
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,060	$	34,060	$	34,060	$	-	$	-
AFS investment securities		121,659		121,659		18		121,641		-
HTM investment securities		65,299		63,402		-		63,402		-
Restricted stock		2,903		2,903		-		2,903		-
Loans and leases, net of allowance		410,731		402,569		-		-		402,569
Accrued interest receivable		2,297		2,297		-		2,297		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		101,853		101,853		-		101,853		-
Interest-bearing deposits:		361,352		361,352		-		361,352		-
Time		95,542		95,648		-		95,648		-
Repurchase agreements		19,854		19,854		-		19,854		-
FHLBP advances		10,000		11,057		-		11,057		-
Junior subordinated debentures and other borrowings		9,279		9,267		-		9,267		-
Accrued interest payable		376		376		-		376		-
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, 2014, un-funded loan commitments totaled $103.5 million and stand-by letters of credit totaled $2.1 million. At December 31, 2013, un-funded loan commitments totaled $89.4 million and stand-by letters of credit totaled $1.5 million.

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest Income:
Interest and fees on loans and leases	$ 4,857	$ 4,875	$ 9,662	$ 9,699
Interest and dividends on investment securities: Taxable	739	720	1,449	1,401
Interest and dividends on investment securities: Exempt from federal taxes	275	275	551	532
Interest on cash and cash equivalents	6	17	17	29
Total interest and dividend income	5,877	5,887	11,679	11,661
Interest Expense:
Interest on NOW, money market and savings	132	188	287	382
Interest on time deposits	194	277	417	568
Interest in brokered deposits	5		5
Interest on FHLB advances	149	148	295	354
Interest on repurchase agreements	9	11	19	25
Interest on junior subordinated debentures	73	76	146	152
Interest on other borrowings	19	19	37	38
Total interest expense	581	719	1,206	1,519
Net interest income	5,296	5,168	10,473	10,142
Provision for credit losses	255	375	630	555
Net interest income after provision for credit losses	5,041	4,793	9,843	9,587
Non-interest Income:
Service charges	302	315	632	660
Wealth management	325	301	636	592
Increase in cash surrender value of BOLI	57	58	115	116
Gains on sale of investment securities, net	102	155	337	214
Gain on sale of SBA loans		16		163
Other fees	328	314	613	613
Total non-interest income	1,114	1,159	2,333	2,358
Non-interest Expense:
Salaries and employee benefits	2,472	2,251	4,975	4,615
Furniture and equipment	332	280	663	564
Occupancy	521	492	1,140	1,011
Professional and consulting	306	263	624	580
Advertising and marketing	196	167	351	327
Printing and supplies	48	47	87	88
FDIC insurance	120	158	232	263
PA shares tax	150	153	300	307
Telecommunications	63	57	120	115
Postage	22	20	42	41
Loss on sale or write down of OREO	1	18	7	28
Other expenses	443	366	827	721
Total non-interest expense	4,674	4,272	9,368	8,660
Income before income tax expense	1,481	1,680	2,808	3,285
Income tax expense	361	430	684	860
Net income	1,120	1,250	2,124	2,425
Preferred stock dividends and accretion of discount	33	36	70	73
Net income available to Common Shareholders	$ 1,087	$ 1,214	$ 2,054	$ 2,352
Earnings per common share:
Basic	$ 0.39	$ 0.44	$ 0.74	$ 0.86
Diluted	$ 0.38	$ 0.44	$ 0.73	$ 0.85
Cash dividends per common share	$ 0.07	$ 0.07	$ 0.14	$ 0.14
Weighted average common shares outstanding:
Basic	2,763,079	2,740,756	2,760,658	2,733,051
Diluted	2,809,851	2,773,637	2,806,164	2,767,847

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Allowance For Credit Losses

6 Months Ended

Jun. 30, 2014

Allowance For Credit Losses [Abstract]

Allowance For Credit Losses

NOTE 4: 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 scheduled payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2014 and December 31, 2013. 

Age Analysis of Past Due Loans Receivables

June 30, 2014
														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	$	306	$	465	$	2,234	$	3,005	$	22,332	$	25,337	$	500
Commercial mortgage		1,322		202		35		1,559		248,455		250,014		-
Commercial:
Commercial term		-		-		-		-		87,912		87,912		-
Commercial construction		-		-		2,293		2,293		20,549		22,842		-
Lease financing		-		-		1		1		-		1		1
Consumer:
Home equity		6		-		263		269		46,588		46,857		-
Other		114		69		99		282		5,777		6,059		-
Total	$	1,748	$	736	$	4,925	$	7,409	$	431,613	$	439,022	$	501

December 31, 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	$	507	$	865	$	1,757	$	3,129	$	21,548	$	24,677	$	-
Commercial mortgage		358		192		74		624		233,975		234,599		-
Commercial:
Commercial term		50		-		-		50		89,229		89,279		-
Commercial construction		-		-		2,554		2,554		16,563		19,117		-
Lease financing		-		-		2		2		-		2		2
Consumer:
Home equity		-		50		376		426		40,992		41,418		67
Other		80		-		77		157		6,105		6,262		72
Total	$	995	$	1,107	$	4,840	$	6,942	$	408,412	$	415,354	$	141

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three and six months ended June 30, 2014 and as of and for the year ended December 31, 2013.

Impaired Loans

		June 30, 2014						December 31, 2013
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,734	$	2,321	$	-	$	2,250	$	2,848	$	-
Commercial mortgage		2,499		2,579		-		2,502		2,574		-
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		1,094		1,877		-		499		3,355		-
Consumer:
Home equity		460		472		-		434		442		-
Other		27		31		-		78		78		-
Total	$	5,814	$	7,280	$	-	$	5,763	$	9,300	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		-		-		-		36		36		14
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		1,312		4,976		276		2,055		3,386		361
Consumer:
Home equity		-		-		-		-		-		-
Other		72		72		24		4		4		4
Total	$	1,384	$	5,048	$	300	$	2,095	$	3,426	$	379
Total:
Residential mortgage		1,734		2,321		-		2,250		2,848		-
Commercial mortgage		2,499		2,579		-		2,538		2,610		14
Commercial:
Commercial term		-		-		-		-		3		-
Commercial construction		2,406		6,853		276		2,554		6,741		361
Consumer:
Home equity		460		472		-		434		442		-
Other		99		103		24		82		82		4
Total	$	7,198	$	12,328	$	300	$	7,858	$	12,726	$	379

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
		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	$	1,614	$	-	$	2,414	$	-	$	1,826	$	-	$	2,405	$	-
Commercial mortgage		2,508		-		2,250		-		2,506		-		2,436		-
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		1,094		-		1,091		-		896		-		727		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		22		-		124		3		40		-		132		3
Total	$	5,666	$	2	$	5,953	$	3	$	5,698	$	3	$	5,780	$	3
With allowance recorded:
Residential mortgage		377		-		159		-		251		-		106		-
Commercial mortgage		18		-		2,392		-		24		-		2,449		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		1,312		-		4,326		-		1,560		-		4,326		-
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		105		-		-		-		71		-		-		-
Total	$	1,811	$	-	$	6,977	$	-	$	1,906	$	-	$	6,948	$	-
Total:
Residential mortgage		1,991		-		2,573		-		2,077		-		2,511		-
Commercial mortgage		2,526		-		4,642		-		2,530		-		4,885		-
Commercial:
Commercial term		-		-		100		-		-		-		67		-
Commercial construction		2,406		-		5,417		-		2,456		-		5,053		-
Lease financing		-		-		13		-		-		-		18		-
Consumer:
Home equity		428		2		61		-		430		3		62		-
Other		127		-		124		3		111		-		132		3
Total	$	7,477	$	2	$	12,930	$	3	$	7,604	$	3	$	12,728	$	3

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, 2014 and December 31, 2013.

Credit Quality Indicators

		June 30, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,321	$	-	$	2,016	$	-	$	25,337
Commercial mortgage		240,201		415		9,398		-		250,014
Commercial:
Commercial term		82,192		72		5,648		-		87,912
Commercial construction		18,767		-		3,375		700		22,842
Lease financing		1		-		-		-		1
Consumer:
Home equity		46,362		-		495		-		46,857
Other		5,961		-		98		-		6,059
Total	$	416,805	$	487	$	21,030	$	700	$	439,022

		December 31, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,142	$	-	$	2,535	$	-	$	24,677
Commercial mortgage		224,868		5,028		4,703		-		234,599
Commercial:
Commercial term		88,657		419		203		-		89,279
Commercial construction		16,450		-		1,967		700		19,117
Lease financing		2		-		-		-		2
Consumer:
Home equity		40,940		-		478		-		41,418
Other		6,180		-		82		-		6,262
Total	$	399,239	$	5,447	$	9,968	$	700	$	415,354

As of June 30, 2014, DNB had one commercial mortgage classified as a TDR totaling $2,269,000, compared to one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at December 31, 2013.  The rate on this loan was modified and the terms of the loans were changed to interest only while the project was being built out.  The loan was extended and there was no reduction of principal.  The balance of the loan prior to modification was $2,272,000 and the balance after the modification was $2,272,000.  During the three and six months ended June 30, 2014, there were no defaults on any terms of this loan. DNB had no TDRs as of June 30, 2013.

As of June 30, 2014, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to no such loans at December 31, 2013 and March 31, 2014.  The monthly payment on this loan was reduced for 36 months and the borrower will resume making contractual payments at the end of this period. The loan was extended and there was no reduction of principal.  This loan was classified a TDR in June of 2014. The balance of the loan prior to modification was $102,000 and the balance after the modification was $102,000.  During the three and six months ended June 30, 2014, there were no defaults on any terms of this loan.

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2014 and December 31, 2013, the activity for the three and six months ended June 30, 2014 and 2013 and as of and for the year ended December 31, 2013.

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, 2014	$	347	$	2,146	$	652	$	806	$	-	$	167	$	125	$	507	$	4,750
Charge-offs		(100)		(8)		(11)		-		-		-		(11)		-		(130)
Recoveries		2		-		2		-		5		-		3		-		12
Provisions		66		(7)		(2)		213		(5)		9		(19)		-		255
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887

	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, 2014	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Charge-offs		(100)		(8)		(18)		(261)		-		-		(11)		-		(398)
Recoveries		5		-		2		10		6		-		9		-		32
Provisions		125		129		36		237		(6)		20		22		67		630
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	276	$	-	$	-	$	24	$	-	$	300
Ending balance: collectively evaluated for impairment	$	315	$	2,131	$	641	$	743	$	-	$	176	$	74	$	507	$	4,587
Loans receivables:
Ending balance	$	25,337	$	250,014	$	87,912	$	22,842	$	1	$	46,857	$	6,059			$	439,022
Ending balance: individually evaluated for impairment	$	1,734	$	2,499	$	-	$	2,406	$	-	$	460	$	99			$	7,198
Ending balance: collectively evaluated for impairment	$	23,603	$	247,515	$	87,912	$	20,436	$	1	$	46,397	$	5,960			$	431,824
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	79	$	60	$	-	$	11	$	-			$	160

	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
Reserve for unfunded loan commitments included in other liabilities	$	-	$	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:
Ending balance - December 31, 2013	$	285	$	2,010	$	621	$	1,033	$	-	$	156	$	78	$	440	$	4,623
Ending balance: individually evaluated for impairment	$	-	$	14	$	-	$	361	$	-	$	-	$	4	$	-	$	379
Ending balance: collectively evaluated for impairment	$	285	$	1,996	$	621	$	672	$	-	$	156	$	74	$	440	$	4,244
Loans receivables:
Ending balance	$	24,677	$	234,599	$	89,279	$	19,117	$	2	$	41,418	$	6,262			$	415,354
Ending balance: individually evaluated for impairment	$	2,250	$	2,538	$	-	$	2,554	$	-	$	434	$	82			$	7,858
Ending balance: collectively evaluated for impairment	$	22,427	$	232,061	$	89,279	$	16,563	$	2	$	40,984	$	6,180			$	407,496
Reserve for unfunded loan commitments included in other liabilities	$	-	$	9	$	68	$	57	$	-	$	9	$	-			$	143

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Loans

6 Months Ended

Jun. 30, 2014

Loans [Abstract]

Loans

NOTE 3: LOANS

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, 2014		December 31, 2013
Residential mortgage	$	25,337	$	24,677
Commercial mortgage		250,014		234,599
Commercial:
Commercial term		87,912		89,279
Commercial construction		22,842		19,117
Lease financing		1		2
Consumer:
Home equity		46,857		41,418
Other		6,059		6,262
Total loans and leases	$	439,022	$	415,354
Less allowance for credit losses		(4,887)		(4,623)
Net loans and leases	$	434,135	$	410,731

Information concerning non-accrual loans are shown in the following tables:

					Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
(Dollars in thousands)	December 31, 2013 Balances		June 30, 2014 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,250	$	1,734	$	8	$	-	$	8	$	24	$	-	$	24
Commercial mortgage		266		192		4		-		4		9		-		9
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		2,554		2,293		86		-		86		180		-		180
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home Equity		434		346		7		2		5		14		3		11
Other		82		99		2		-		2		5		-		5
Total non-accrual loans	$	5,586	$	4,664	$	107	$	2	$	105	$	232	$	3	$	229
Loans 90 days past due and accruing		141		501
Total non-performing loans	$	5,727	$	5,165

			Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
(Dollars in thousands)	June 30, 2013 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,265	$	17	$	-	$	17	$	35	$	-	$	35
Commercial mortgage		3,286		48		-		48		114		-		114
Commercial:
Commercial term		-		3		-		3		4		-		4
Commercial construction		4,326		90		-		90		212		-		212
Lease financing		-		-		-		-		1		-		1
Consumer:
Home Equity		60		2		-		2		3		-		3
Other		102		5		3		2		9		3		6
Total non-accrual loans	$	10,039	$	165	$	3	$	162	$	378	$	3	$	375
Loans 90 days past due and accruing		106
Total non-performing loans	$	10,145

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Loans (Tables)

6 Months Ended

Jun. 30, 2014

Loans [Abstract]

Total Loans And Leases Outstanding

(Dollars in thousands)		June 30, 2014		December 31, 2013
Residential mortgage	$	25,337	$	24,677
Commercial mortgage		250,014		234,599
Commercial:
Commercial term		87,912		89,279
Commercial construction		22,842		19,117
Lease financing		1		2
Consumer:
Home equity		46,857		41,418
Other		6,059		6,262
Total loans and leases	$	439,022	$	415,354
Less allowance for credit losses		(4,887)		(4,623)
Net loans and leases	$	434,135	$	410,731

Interest Income On Non-Accrual Loans

					Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
(Dollars in thousands)	December 31, 2013 Balances		June 30, 2014 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,250	$	1,734	$	8	$	-	$	8	$	24	$	-	$	24
Commercial mortgage		266		192		4		-		4		9		-		9
Commercial:
Commercial term		-		-		-		-		-		-		-		-
Commercial construction		2,554		2,293		86		-		86		180		-		180
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home Equity		434		346		7		2		5		14		3		11
Other		82		99		2		-		2		5		-		5
Total non-accrual loans	$	5,586	$	4,664	$	107	$	2	$	105	$	232	$	3	$	229
Loans 90 days past due and accruing		141		501
Total non-performing loans	$	5,727	$	5,165

			Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
(Dollars in thousands)	June 30, 2013 Balances		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,265	$	17	$	-	$	17	$	35	$	-	$	35
Commercial mortgage		3,286		48		-		48		114		-		114
Commercial:
Commercial term		-		3		-		3		4		-		4
Commercial construction		4,326		90		-		90		212		-		212
Lease financing		-		-		-		-		1		-		1
Consumer:
Home Equity		60		2		-		2		3		-		3
Other		102		5		3		2		9		3		6
Total non-accrual loans	$	10,039	$	165	$	3	$	162	$	378	$	3	$	375
Loans 90 days past due and accruing		106
Total non-performing loans	$	10,145

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Stockholders' Equity

6 Months Ended

Jun. 30, 2014

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 11:  STOCKHOLDERS’ EQUITY

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 the outstanding cumulative perpetual preferred stock. 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% for the quarters ended June 30, 2014 and June 30, 2013.

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.

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Junior Subordinated Debentures

6 Months Ended

Jun. 30, 2014

Junior Subordinated Debentures [Abstract]

Junior Subordinated Debentures

NOTE 7: 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. These 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. These 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.

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Earnings Per Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

NOTE 5: 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, 66,853 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2014. There were no anti-dilutive stock warrants outstanding, 128,568 anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at June 30, 2013. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended					Six Months Ended
		June 30, 2014					June 30, 2014
(In thousands, except per-share data)		Income	Shares		Amount		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,087	2,763	$	0.39	$	2,054	2,761	$	0.74
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)		-	45		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,087	2,810	$	0.38	$	2,054	2,806	$	0.73

		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

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2014

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS 

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

Accumulated Other Comprehensive Loss (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2014
Net unrealized loss on AFS securities	$	(772)	$	263	$	(509)
Discount on AFS to HTM reclassification		(28)		9		(19)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(1,904)	$	647	$	(1,257)
December 31, 2013
Net unrealized loss on AFS securities	$	(2,459)	$	836	$	(1,623)
Discount on AFS to HTM reclassification		(32)		11		(21)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(3,595)	$	1,222	$	(2,373)

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 8: 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 335,279 shares available for grant at June 30, 2014. All options with the exception of 44,600 options granted on December 12, 2011 are immediately exercisable. DNB expensed $13,000 and $30,000during the three and six months ended June 30, 2014, respectively compared to $17,000and $34,000 during the same respective periods in 2013. DNB anticipates additional expense of $20,000 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, 2014	207,303	$	15.92
Issued	-		-
Exercised	500		6.93
Forfeited	-		-
Expired	-		-
Outstanding June 30, 2014	206,803	$	15.94

	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

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

	June 30, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	84,550	41,200	$	8.66	3.66 years	$	1,064,000
	14.00-19.99	55,401	55,401		17.51	1.48 years		207,000
	20.00-22.99	18,811	18,811		22.78	0.48 years		-
	23.00-24.27	48,041	48,041		24.27	0.80 years		-
	Total	206,803	163,453	$	15.94	2.12 years	$	1,271,000

	December 31, 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	4.15 years	$	1,029,000
	14.00-19.99	55,401	55,401		17.51	1.97 years		180,000
	20.00-22.99	18,811	18,811		22.78	0.97 years		-
	23.00-24.27	48,041	48,041		24.27	1.29 years		-
	Total	207,303	122,253	$	15.92	2.62 years	$	1,209,000

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, 2014, $52,000 and $105,000 was amortized to expense, respectively. For the three and six month periods ended June 30, 2013, $32,000 and $72,000 was amortized to expense, respectively.  As of June 30, 2014, there was approximately $520,000 in additional compensation that will be recognized over the remaining service period of approximately 2.33 years.  At June 30, 2014, 141,629 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, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2014	50,795	$	15.65

			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

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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, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Investment Securities [Abstract]
Gross realized gains-AFS	$ 102	$ 155	$ 294	$ 471
Gross realized gains-HTM			68
Gross realized losses-AFS			(25)	(257)
Net realized gain	$ 102	$ 155	$ 337	$ 214

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Fair Value Of Financial Instruments (Narrative) (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Total recorded investment	$ 7,198,000	$ 7,858,000
Recorded Investment, With no related allowance recorded	5,814,000	5,763,000
Recorded Investment, With allowance recorded	1,384,000	2,095,000
Impaired Financing Receivable, Related Allowance	300,000	379,000
Additional impaired financing receivable	2,000,000	3,100,000
Partial charge down	300,000	2,000,000
Total fair value of impaired loans	2,800,000	2,800,000
OREO	940,000	1,000,000
Other Repossessed Assets	5,000	73,000
Other Real Estate Owned, fair value	42,000	124,000
Transfers from level 1 to level 2	0
Transfers from level 2 to level 1	0
Un-funded Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	103,500,000	89,400,000
Stand-by Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	2,100,000	1,500,000
Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Recorded Investment, With allowance recorded	1,100,000	1,700,000
Additional impaired financing receivable	$ 1,700,000	$ 1,100,000

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Fair Value Of Financial Instruments (Policy)

6 Months Ended

Jun. 30, 2014

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 establishing a new cost basis. 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, 2014, un-funded loan commitments totaled $103.5 million and stand-by letters of credit totaled $2.1 million. At December 31, 2013, un-funded loan commitments totaled $89.4 million and stand-by letters of credit totaled $1.5 million

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2014

Accumulated Other Comprehensive Loss [Abstract]

Components Of Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss (Unaudited)		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
June 30, 2014
Net unrealized loss on AFS securities	$	(772)	$	263	$	(509)
Discount on AFS to HTM reclassification		(28)		9		(19)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(1,904)	$	647	$	(1,257)
December 31, 2013
Net unrealized loss on AFS securities	$	(2,459)	$	836	$	(1,623)
Discount on AFS to HTM reclassification		(32)		11		(21)
Unrealized actuarial losses-pension		(1,104)		375		(729)
Total of all items above	$	(3,595)	$	1,222	$	(2,373)

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Stock-Based Compensation (Stock Grant Activity) (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Stock-Based Compensation [Abstract]
Non-vested stock awards, Shares, beginning balance	50,795	48,270
Granted, Shares
Forfeited, Shares		400
Vested, Shares		14,200
Non-vested stock awards, Shares, ending balance	50,795	33,670
Non-vested stock awards, Weighted Average Stock Price	$ 15.65	$ 11.39
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	$ 15.65	$ 13.22

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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	3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended		6 Months Ended			3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jun. 30, 2014 Residential Mortgage [Member]	Jun. 30, 2013 Residential Mortgage [Member]	Jun. 30, 2014 Residential Mortgage [Member]	Jun. 30, 2013 Residential Mortgage [Member]	Dec. 31, 2013 Residential Mortgage [Member]	Jun. 30, 2014 Commercial Mortgage [Member]	Jun. 30, 2013 Commercial Mortgage [Member]	Jun. 30, 2014 Commercial Mortgage [Member]	Jun. 30, 2013 Commercial Mortgage [Member]	Dec. 31, 2013 Commercial Mortgage [Member]	Jun. 30, 2014 Commercial Term [Member]	Jun. 30, 2013 Commercial Term [Member]	Jun. 30, 2014 Commercial Term [Member]	Jun. 30, 2013 Commercial Term [Member]	Dec. 31, 2013 Commercial Term [Member]	Jun. 30, 2014 Commercial Construction [Member]	Jun. 30, 2013 Commercial Construction [Member]	Jun. 30, 2014 Commercial Construction [Member]	Jun. 30, 2013 Commercial Construction [Member]	Dec. 31, 2013 Commercial Construction [Member]	Jun. 30, 2014 Leases Financing [Member]	Jun. 30, 2013 Leases Financing [Member]	Jun. 30, 2014 Leases Financing [Member]	Jun. 30, 2013 Leases Financing [Member]	Dec. 31, 2013 Leases Financing [Member]	Jun. 30, 2014 Consumer: Home Equity [Member]	Jun. 30, 2013 Consumer: Home Equity [Member]	Jun. 30, 2014 Consumer: Home Equity [Member]	Jun. 30, 2013 Consumer: Home Equity [Member]	Dec. 31, 2013 Consumer: Home Equity [Member]	Jun. 30, 2014 Consumer: Other [Member]	Jun. 30, 2013 Consumer: Other [Member]	Jun. 30, 2014 Consumer: Other [Member]	Jun. 30, 2013 Consumer: Other [Member]	Dec. 31, 2013 Consumer: Other [Member]	Jun. 30, 2013 Unallocated [Member]	Jun. 30, 2014 Unallocated [Member]	Jun. 30, 2013 Unallocated [Member]	Mar. 31, 2014 Unallocated [Member]	Dec. 31, 2013 Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 4,750	$ 7,123	$ 4,623	$ 6,838	$ 6,838	$ 347	$ 327	$ 285	$ 306		$ 2,146	$ 3,248	$ 2,010	$ 3,094	$ 3,094	$ 652	$ 711	$ 621	$ 506	$ 506	$ 806	$ 1,930	$ 1,033	$ 1,536	$ 1,536		$ 2		$ 3		$ 167	$ 180	$ 156	$ 178	$ 178	$ 125	$ 83	$ 78	$ 86		$ 642	$ 440	$ 1,129	$ 507
Charge offs	(130)	(816)	(398)	(831)		(100)	(184)	(100)	(184)		(8)	(394)	(8)	(394)		(11)	(212)	(18)	(222)				(261)				(26)		(26)							(11)		(11)	(5)
Recoveries	12	8	32	128		2	5	5	70							2	1	2	5				10			5	2	6	53							3		9
Provisions	255	375	630	555		66	161	125	117		(7)	256	129	410		(2)	(16)	36	195		213	74	237	468		(5)	22	(6)	(30)		9	1	20	3		(19)	(3)	22	(1)		(120)	67	(607)
Ending balance	4,887	6,690	4,887	6,690	4,623	315	309	315	309		2,131	3,110	2,131	3,110	2,010	641	484	641	484	621	1,019	2,004	1,019	2,004	1,033						176	181	176	181	156	98	80	98	80		522	507	522	507
Ending balance: individually evaluated for impairment	300		300		379										14						276		276		361											24		24		4
Ending balance: collectively evaluated for impairment	4,587		4,587		4,244	315		315		285	2,131		2,131		1,996	641		641		621	743		743		672						176		176		156	74		74		74		507			440
Loans receivables, Ending Balance	439,022		439,022		415,354	25,337		25,337		24,677	250,014		250,014		234,599	87,912		87,912		89,279	22,842		22,842		19,117	1		1		2	46,857		46,857		41,418	6,059		6,059		6,262
Loans receivables, Ending Balance: individually evaluated for impairment	7,198		7,198		7,858	1,734		1,734		2,250	2,499		2,499		2,538						2,406		2,406		2,554						460		460		434	99		99		82
Loans receivable, Ending Balance: collectively evaluated for impairment	431,824		431,824		407,496	23,603		23,603		22,427	247,515		247,515		232,061	87,912		87,912		89,279	20,436		20,436		16,563	1		1		2	46,397		46,397		40,984	5,960		5,960		6,180
Reserve for unfunded loan commitments included in other liabilities			$ 160	$ 142	$ 143								$ 10	$ 11	$ 9			$ 79	$ 81	$ 68			$ 60	$ 41	$ 57								$ 11	$ 9	$ 9

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net income	$ 1,120		$ 1,250		$ 2,124		$ 2,425
Other Comprehensive Income (Loss):
Unrealized holding gains (losses) arising during the period, Before tax amount	882		(1,993)		2,024		(2,161)
Unrealized holding gains (losses) arising during the period, Tax effect	(300)		678		(688)		734
Unrealized holding gains (losses) arising during the period, Net of tax	582		(1,315)		1,336		(1,427)
Accretion of discount on AFS to HTM reclassification, Before tax amount	2	[1]	6	[1]	4	[1]	14	[1]
Accretion of discount on AFS to HTM reclassification, Tax effect	(1)	[1],[2]	(1)	[1],[2]	(2)	[1],[2]	(4)	[1],[2]
Accretion of discount on AFS to HTM reclassification, Net of tax	1	[1]	5	[1]	2	[1]	10	[1]
Less reclassification for gains included in net income, Before tax amount	(102)		(155)		(337)		(214)
Less reclassification for gains included in net income, Tax effect	35	[2]	52	[2]	115	[2]	73	[2]
Less reclassification for gains included in net income, Net of tax	(67)		(103)		(222)		(141)
Total other comprehensive income (loss)	516		(1,413)		1,116		(1,558)
Total comprehensive income (loss)	$ 1,636		$ (163)		$ 3,240		$ 867

[1] Amounts are included in interest and dividends on investment securities in the consolidated statements of income.

[2] Amounts are included in income tax expense in the consolidated statements of income.

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Investment Securities

6 Months Ended

Jun. 30, 2014

Investment Securities [Abstract]

Investment Securities

NOTE 2: INVESTMENT SECURITIES

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

		June 30, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,611	$	230	$	-	$	7,841
Government Sponsored Entities (GSE) mortgage-backed securities		4,193		176		-		4,369
Corporate bonds		6,277		472		-		6,749
Collateralized mortgage obligations GSE		4,388		8		(38)		4,358
State and municipal tax-exempt		40,600		400		(956)		40,044
Total	$	63,069	$	1,286	$	(994)	$	63,361
Available For Sale
US Government agency obligations	$	17,261	$	-	$	(196)	$	17,065
GSE mortgage-backed securities		71,037		456		(196)		71,297
Collateralized mortgage obligations GSE		22,587		24		(765)		21,846
Corporate bonds		20,201		58		(147)		20,112
State and municipal tax-exempt		611		-		(3)		608
Certificates of deposit		750		7		-		757
Equity securities		27		2		(12)		17
Total	$	132,474	$	547	$	(1,319)	$	131,702

		December 31, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,494	$	75	$	-	$	7,569
Government Sponsored Entities (GSE) mortgage-backed securities		5,934		200		-		6,134
Corporate bonds		6,357		249		-		6,606
Collateralized mortgage obligations GSE		4,903		10		(89)		4,824
State and municipal tax-exempt		40,611		83		(2,425)		38,269
Total	$	65,299	$	617	$	(2,514)	$	63,402
Available For Sale
US Government agency obligations	$	30,522	$	4	$	(583)	$	29,943
GSE mortgage-backed securities		49,448		180		(698)		48,930
Collateralized mortgage obligations GSE		23,836		18		(968)		22,886
Corporate bonds		16,944		-		(394)		16,550
State and municipal tax-exempt		2,091		-		(19)		2,072
Certificates of deposit		1,250		10		-		1,260
Equity securities		27		2		(11)		18
Total	$	124,118	$	214	$	(2,673)	$	121,659

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 following tabledetails the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2014 and December 31, 2013.

		June 30, 2014
						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
Collateralized mortgage obligations GSE	$	4,097	$	(38)	$	4,097	$	(38)	$	-	$	-
State and Municipal tax-exempt		23,576		(956)		2,772		(5)		20,804		(951)
Total	$	27,673	$	(994)	$	6,869	$	(43)	$	20,804	$	(951)
Available For Sale
US Government agency obligations	$	17,065	$	(196)	$	998	$	(2)	$	16,067	$	(194)
GSE mortgage-backed securities		12,142		(196)		4,642		(31)		7,500		(165)
Collateralized mortgage obligations GSE		17,079		(765)		2,528		(58)		14,551		(707)
Corporate bonds		9,125		(147)		3,961		(36)		5,164		(111)
State and Municipal tax-exempt		608		(3)		-		-		608		(3)
Equity securities		11		(12)		-		-		11		(12)
Total	$	56,030	$	(1,319)	$	12,129	$	(127)	$	43,901	$	(1,192)

		December 31, 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
Collateralized mortgage obligations GSE	$	2,530	$	(89)	$	2,530	$	(89)	$	-	$	-
State and municipal tax-exempt		29,142		(2,425)		17,434		(727)		11,708		(1,698)
Total	$	31,672	$	(2,514)	$	19,964	$	(816)	$	11,708	$	(1,698)
Available For Sale
US Government agency obligations	$	24,931	$	(583)	$	24,931	$	(583)	$	-	$	-
GSE mortgage-backed securities		38,255		(698)		38,255		(698)		-		-
Collateralized mortgage obligations GSE		21,416		(968)		20,336		(959)		1,080		(9)
Corporate bonds		16,549		(394)		10,968		(223)		5,581		(171)
State and municipal tax-exempt		1,072		(19)		300		(6)		772		(13)
Equity securities		12		(11)		-		-		12		(11)
Total	$	102,235	$	(2,673)	$	94,790	$	(2,469)	$	7,445	$	(204)

As of June 30, 2014, there were six mortgage-backed securities, five corporate bonds, ten U.S. agency obligations, seventeen collateralized mortgage obligations,thirty-three tax-exempt municipalities, 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 has reviewed all of these securities and believes that DNB will collect all principal and interest that is due on debt securities on a timely basis.  Management does not believe any individual unrealized loss as of June 30, 2014 represents an other-than-temporary impairment. 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 severity of impairment in determining of OTTI. As of June 30, 2014, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are seventeen impaired securities classified as collateralized mortgage obligations,  eleven of which were impaired for more than 12 months. All of these securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

State and municipal tax-exempt There are thirty-three impaired securities in this category, which are comprised of intermediate to long-term municipal bonds,  thirty-one of which were impaired for more than 12 months. All of the issues carry an A or better underlying credit rating and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, geographic location, population and debt ratios. In certain cases, options for calls reduce the effective duration and in turn, future market value fluctuations. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. There have not been disruptions of any payments, associated with any of these municipal securities. These bonds are investment grade and the value decline is related to the changes in interest rates. Of the thirty-three municipal securities, there are nineteen insured school districts, nine uninsured school districts, three uninsured townships, and two insured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

US Government agency obligations  There are ten impaired securities classified as agencies,  nine of which were impaired for more than 12 months. All of these securities were issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on all of these securities and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the securities approach their maturity dates. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

GSE mortgage-backed securities  There are six impaired bonds classified as GSE mortgage-backed securities,  four of which were impaired for more than 12 months. All of these securities were issued and insured by FNMA, FHLMC, or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

Corporate Securities There were five impaired bonds classified as corporate bonds,  three of which were impaired for more than 12 months. The bonds are investment grade and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry an "A" or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, rating agency reports, capital strength and debt ratios. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2014 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014.

Equity securities.  DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania, all of which were impaired for more than 12 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. 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, 2014.

The amortized cost and fair value of investment securities as of June 30, 2014, 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	$	-	$	-	$	2,051	$	2,052
Due after one year through five years		1,003		984		24,182		23,951
Due after five years through ten years		32,023		32,620		63,327		63,612
Due after ten years		30,043		29,757		42,887		42,070
No stated maturity		-		-		27		17
Total investment securities	$	63,069	$	63,361	$	132,474	$	131,702

The principal value of investments securites sold as of the dates indicated are shown below. The sales of HTM securities were permissible because DNB collected greater than 85% of the principal outstanding on the HTM securities that were sold during the six months ended June 30, 2014.

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2014		2013		2014		2013
Available for sale securities sold	$	11,653	$	6,257	$	26,884	$	22,549
Held to maturity securities sold		-		-		1,228		-
Total sold securities	$	11,653	$	6,257	$	28,112	$	22,549

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)		2014		2013		2014		2013
Gross realized gains-AFS	$	102	$	155	$	294	$	471
Gross realized gains-HTM		-		-		68
Gross realized losses-AFS		-		-		(25)		(257)
Net realized gain	$	102	$	155	$	337	$	214

At June 30, 2014 and December 31, 2013, investment securities with a carrying value of approximately $126.7 million and $116.2 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Stock-Based Compensation [Abstract]

Stock Option Activity

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2014	207,303	$	15.92
Issued	-		-
Exercised	500		6.93
Forfeited	-		-
Expired	-		-
Outstanding June 30, 2014	206,803	$	15.94

	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

Weighted Average Price And Weighted Average Remaining Contractual Life

	June 30, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	84,550	41,200	$	8.66	3.66 years	$	1,064,000
	14.00-19.99	55,401	55,401		17.51	1.48 years		207,000
	20.00-22.99	18,811	18,811		22.78	0.48 years		-
	23.00-24.27	48,041	48,041		24.27	0.80 years		-
	Total	206,803	163,453	$	15.94	2.12 years	$	1,271,000

	December 31, 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	4.15 years	$	1,029,000
	14.00-19.99	55,401	55,401		17.51	1.97 years		180,000
	20.00-22.99	18,811	18,811		22.78	0.97 years		-
	23.00-24.27	48,041	48,041		24.27	1.29 years		-
	Total	207,303	122,253	$	15.92	2.62 years	$	1,209,000

Stock Grant Activity

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—June 30, 2014	50,795	$	15.65

			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

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Allowance For Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	$ 1,748	$ 995
60 to 89 Days Past Due	736	1,107
Greater than 90 Days	4,925	4,840
Total Past Due	7,409	6,942
Current	431,613	408,412
Total Loans Receivables	439,022	415,354
Loans Receivable >90 Days and Accruing	501	141	106
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	306	507
60 to 89 Days Past Due	465	865
Greater than 90 Days	2,234	1,757
Total Past Due	3,005	3,129
Current	22,332	21,548
Total Loans Receivables	25,337	24,677
Loans Receivable >90 Days and Accruing	500
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	1,322	358
60 to 89 Days Past Due	202	192
Greater than 90 Days	35	74
Total Past Due	1,559	624
Current	248,455	233,975
Total Loans Receivables	250,014	234,599
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due		50
Total Past Due		50
Current	87,912	89,229
Total Loans Receivables	87,912	89,279
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	2,293	2,554
Total Past Due	2,293	2,554
Current	20,549	16,563
Total Loans Receivables	22,842	19,117
Leases Financing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	1	2
Total Past Due	1	2
Total Loans Receivables	1	2
Loans Receivable >90 Days and Accruing	1	2
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	6
60 to 89 Days Past Due		50
Greater than 90 Days	263	376
Total Past Due	269	426
Current	46,588	40,992
Total Loans Receivables	46,857	41,418
Loans Receivable >90 Days and Accruing		67
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	114	80
60 to 89 Days Past Due	69
Greater than 90 Days	99	77
Total Past Due	282	157
Current	5,777	6,105
Total Loans Receivables	6,059	6,262
Loans Receivable >90 Days and Accruing		$ 72

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Basis Of Presentation (Policy)

6 Months Ended

Jun. 30, 2014

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, 2014 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, 2013. 

Subsequent Events

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30, 2014 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

Recent Accounting Pronouncements-  

Accounting Standards Update (ASU) No. 2014‑04, Receivables (Topic 310): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.

In January 2014, the FASB issued ASU 2014-04 "Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40)." The amendments in this update clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. DNB does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contract with Customers (Topic 606). The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following five steps: 1) identify the contracts(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. DNB is still evaluating the effect of this amendment on DNB's consolidated financial statements.