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: March 31, 2015

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)   2,802,082(Shares Outstanding as of May11, 2015)

1

DNB FINANCIAL CORPORATION AND SUBSIDIARY

INDEX

	PART  I - FINANCIAL INFORMATION	PAGE NO
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	March 31, 2015 and December 31, 2014	3
	CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended March 31,  2015 and 2014	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended March 31, 2015and 2014	5
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	Three Months Ended March 31, 2015and 2014
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2015and 2014	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	47
ITEM 4.	CONTROLS AND PROCEDURES	48
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	48
ITEM 1A.	RISK FACTORS	48
ITEM 2.	UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS	48
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	48
ITEM 4.	MINE SAFETY DISCLOSURES	48
ITEM 5.	OTHER INFORMATION	48
ITEM 6.	EXHIBITS	49
SIGNATURES		50
EXHIBIT INDEX

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

		March 31,		December 31,
(Dollars in thousands, except share and per share data)		2015		2014
Assets
Cash and due from banks	$	28,335	$	12,504
Federal Funds Sold		-		-
Cash and cash equivalents		28,335		12,504
Available-for-sale investment securities at fair value (amortized cost of $172,109 and $172,867)		172,478		172,202
Held-to-maturity investment securities (fair value of $61,500 and $60,099)		60,480		59,454
Total investment securities		232,958		231,656
Loans held for sale		-		617
Loans and leases		464,100		455,603
Allowance for credit losses		(5,190)		(4,906)
Net loans and leases		458,910		450,697
Restricted stock		2,720		2,587
Office property and equipment, net		7,490		7,668
Accrued interest receivable		2,572		2,253
Other real estate owned & other repossessed property		908		901
Bank owned life insurance (BOLI)		9,153		9,098
Core deposit intangible		78		82
Net deferred taxes		3,433		3,446
Other assets		1,883		1,821
Total assets	$	748,440	$	723,330
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	113,419	$	102,107
Interest-bearing deposits:
NOW		215,799		205,816
Money market		144,648		143,483
Savings		70,363		66,634
Time		72,784		76,805
Brokered deposits		10,248		10,238
Total deposits		627,261		605,083
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		20,000		20,000
Repurchase agreements		20,316		19,221
Junior subordinated debentures		9,279		9,279
Subordinated debt		9,750		-
Other borrowings		495		505
Total borrowings		59,840		49,005
Accrued interest payable		306		351
Other liabilities		4,860		4,983
Total liabilities		692,267		659,422
Stockholders’ Equity
Preferred stock, $10.00 par value;
1,000,000 shares authorized; $1,000 liquidation preference per share; 3,250 and 13,000 issued, respectively		3,250		13,000
Common stock, $1.00 par value;
10,000,000 shares authorized; 2,918,306 and 2,903,610 issued, respectively; 2,797,820 and 2,778,724 outstanding, respectively		2,950		2,931
Treasury stock, at cost; 120,486 and 124,886 shares, respectively		(2,220)		(2,301)
Surplus		34,944		34,745
Retained earnings		18,164		17,132
Accumulated other comprehensive loss		(915)		(1,599)
Total stockholders’ equity		56,173		63,908
Total liabilities and stockholders’ equity	$	748,440	$	723,330

See accompanying notes to unaudited consolidated financial statements.

3

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2015		2014
Interest Income:
Interest and fees on loans and leases	$	4,912	$	4,805
Interest and dividends on investment securities:
Taxable		735		710
Exempt from federal taxes		342		276
Interest on cash and cash equivalents		7		11
Total interest and dividend income		5,996		5,802
Interest Expense:
Interest on NOW, money market and savings		149		155
Interest on time deposits		109		223
Interest in brokered deposits		24		-
Interest on FHLB advances		194		146
Interest on repurchase agreements		9		10
Interest on junior subordinated debentures		74		73
Interest on subordinated debt		30		-
Interest on other borrowings		17		18
Total interest expense		606		625
Net interest income		5,390		5,177
Provision for credit losses		300		375
Net interest income after provision for credit losses		5,090		4,802
Non-interest Income:
Service charges		296		330
Wealth management		352		311
Mortgage banking		38		-
Increase in cash surrender value of BOLI		55		58
Gain on sale of investment securities, net		53		235
Gain on sale of SBA loans		231		-
Other fees		310		285
Total non-interest income		1,335		1,219
Non-interest Expense:
Salaries and employee benefits		2,644		2,503
Furniture and equipment		302		331
Occupancy		603		619
Professional and consulting		328		318
Advertising and marketing		169		155
Printing and supplies		48		39
FDIC insurance		123		112
PA shares tax		150		150
Telecommunications		61		57
Postage		23		20
Loss on sale or write down of OREO, net		-		6
Other expenses		373		384
Total non-interest expense		4,824		4,694
Income before income tax expense		1,601		1,327
Income tax expense		349		323
Net income	$	1,252	$	1,004
Preferred stock dividends and accretion of discount		26		37
Net income available to Common Shareholders	$	1,226	$	967
Earnings per common share:
Basic	$	0.44	$	0.35
Diluted	$	0.43	$	0.35
Cash dividends per common share	$	0.07	$	0.07
Weighted average common shares outstanding:
Basic		2,786,012		2,758,135
Diluted		2,832,869		2,802,362

See accompanying notes to unaudited consolidated financial statements

4

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income(Unaudited)

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Net income	$	1,252	$	1,004
Other Comprehensive Income:
Unrealized holding gains arising during the period
Before tax amount		1,087		1,142
Tax effect		(370)		(388)
Net of tax		717		754
Accretion of discount on AFS to HTM reclassification(1)
Before tax amount		3		2
Tax effect(2)		(1)		(1)
Net of tax		2		1
Less reclassification for gains included in net income
Before tax amount		(53)		(235)
Tax effect(2)		18		80
Net of tax		(35)		(155)
Total other comprehensive income		684		600
Total comprehensive income	$	1,936	$	1,604
(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 (benefit) 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, 2015	$	13,000	$	2,931	$	(2,301)	$	34,745	$	17,132	$	(1,599)	$	63,908
Net income for three months ended March 31, 2015		-		-		-		-		1,252		-		1,252
Other comprehensive income		-		-		-		-		-		684		684
Redemption of preferred stock (9,750 shares)		(9,750)		-		-		-		-		-		(9,750)
Restricted stock compensation expense		-		5		-		82		-		-		87
Exercise of stock options (93,834 shares)		-		14		-		149		-		-		163
Taxes on exercise of stock options		-		-		-		(46)		-		-		(46)
Cash dividends - common ($0.07 per share)		-		-		-		-		(194)		-		(194)
Cash dividends SBLF preferred		-		-		-		-		(26)		-		(26)
Sale of treasury shares to 401(k) (2,926 shares)		-		-		54		9		-		-		63
Sale of treasury shares to deferred comp. plan (1,474 shares)		-		-		27		5		-		-		32
Balance at March 31, 2015	$	3,250	$	2,950	$	(2,220)	$	34,944	$	18,164	$	(915)	$	56,173

											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 three months ended March 31, 2014		-		-		-		-		1,004		-		1,004
Other comprehensive income		-		-		-		-		-		600		600
SBLF issuance costs accretion		4		-		-		-		(4)		-		-
Restricted stock compensation expense		-		4		-		49		-		-		53
Stock option compensation expense		-		-		-		17		-		-		17
Cash dividends - common ($0.07 per share)		-		-		-		-		(193)		-		(193)
Cash dividends SBLF preferred		-		-		-		-		(33)		-		(33)
Sale of treasury shares to 401(k) (3,015 shares)		-		-		55		5		-		-		60
Sale of treasury shares to deferred comp. plan (1,491 shares)		-		-		27		3		-		-		30
Balance at March 31, 2014	$	12,999	$	2,914	$	(2,547)	$	34,515	$	14,013	$	(1,773)	$	60,121

See accompanying notes to unaudited consolidated financial statements.

6

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended
	March 31,
(Dollars in thousands)		2015		2014
Cash Flows From Operating Activities:
Net income	$	1,252	$	1,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		460		462
Provision for credit losses		300		375
Stock based compensation		87		70
Net gain on sale of securities		(53)		(235)
Net loss on sale and write down of OREO and other repossessed property		-		6
Earnings from investment in BOLI		(55)		(58)
Deferred tax benefit		(339)		-
Proceeds from sales of loans originated for sale		5,555		-
Loans originated for sale		(4,669)		-
Gain on sale of loans		(269)		-
Taxes on exercise of stock options		(46)		-
Increase in accrued interest receivable		(319)		(63)
(Increase) decrease in other assets		(61)		798
Decrease in accrued interest payable		(45)		(59)
Decrease in other liabilities		(123)		(411)
Net Cash Provided By Operating Activities		1,675		1,889
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Sales		3,926		15,228
Maturities, repayments and calls		11,386		10,931
Purchases		(14,778)		(32,010)
Activity in held-to-maturity securities:
Sales		-		1,228
Maturities, repayments and calls		509		678
Purchases		(1,500)		-
Net (increase) decrease in restricted stock		(133)		169
Net increase in loans and leases		(8,520)		(15,065)
Net purchases of property and equipment, less proceeds from disposals		(35)		(131)
Proceeds from sale of OREO and other repossessed property		-		133
Net Cash Used in Investing Activities		(9,145)		(18,839)
Cash Flows From Financing Activities:
Net increase in deposits		22,178		3,026
Net increase in repurchase agreements		1,095		15,701
Proceeds from issuance of subordinated debt		9,750		-
Repayment of other borrowings		(10)		(9)
Dividends paid		(220)		(226)
Proceeds from the exercise of stock options		163		-
Redemption of preferred stock		(9,750)		-
Sale of treasury stock		95		90
Net Cash Provided by Financing Activities		23,301		18,582
Net Change in Cash and Cash Equivalents		15,831		1,632
Cash and Cash Equivalents at Beginning of Period		12,504		34,060
Cash and Cash Equivalents at End of Period	$	28,335	$	35,692
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	651	$	684
Income taxes		858		22
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property		7		-

See accompanying notes to unaudited consolidated financial statements.

7

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 monthsended March 31, 2015 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, 2014. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2015for 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. The adoption of this FASB ASU has not had a material impact on DNB’sconsolidated 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.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2015, and is to be applied retrospectively. Early adoption is permitted. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the DNB's consolidated financial statements.

8

NOTE 2: INVESTMENT SECURITIES

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

		March 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,790	$	432	$	-	$	8,222
Government Sponsored Entities (GSE) mortgage-backed securities		3,374		146		-		3,520
Corporate bonds		5,390		345		-		5,735
Collateralized mortgage obligations GSE		3,344		34		(6)		3,372
State and municipal tax-exempt		40,582		449		(380)		40,651
Total	$	60,480	$	1,406	$	(386)	$	61,500
Available For Sale
US Government agency obligations	$	60,932	$	136	$	(47)	$	61,021
GSE mortgage-backed securities		60,390		544		(63)		60,871
Collateralized mortgage obligations GSE		19,346		54		(313)		19,087
Corporate bonds		20,501		24		(94)		20,431
State and municipal tax-exempt		10,913		137		-		11,050
Equity securities		27		2		(11)		18
Total	$	172,109	$	897	$	(528)	$	172,478

		December 31, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,730	$	343	$	-	$	8,073
Government Sponsored Entities (GSE) mortgage-backed securities		3,579		133		-		3,712
Corporate bonds		3,951		324		-		4,275
Collateralized mortgage obligations GSE		3,605		3		(29)		3,579
State and municipal tax-exempt		40,589		418		(547)		40,460
Total	$	59,454	$	1,221	$	(576)	$	60,099
Available For Sale
US Government agency obligations	$	61,547	$	4	$	(197)	$	61,354
GSE mortgage-backed securities		66,669		189		(135)		66,723
Collateralized mortgage obligations GSE		20,499		8		(496)		20,011
Corporate bonds		13,208		-		(106)		13,102
State and municipal tax-exempt		10,917		87		(10)		10,994
Equity securities		27		2		(11)		18
Total	$	172,867	$	290	$	(955)	$	172,202

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 March 31, 2015 and December 31, 2014.

9

		March 31, 2015
						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	$	1,412	$	(6)	$	-	$	-	$	1,412	$	(6)
State and Municipal tax-exempt		16,364		(380)		6,111		(42)		10,253		(338)
Total	$	17,776	$	(386)	$	6,111	$	(42)	$	11,665	$	(344)
Available For Sale
US Government agency obligations	$	5,007	$	(47)	$	5,007	$	(47)	$	-	$	-
GSE mortgage-backed securities		6,952		(63)		2,092		(7)		4,860		(56)
Collateralized mortgage obligations GSE		13,009		(313)		-		-		13,009		(313)
Corporate bonds		10,245		(94)		7,803		(36)		2,442		(58)
Equity securities		12		(11)		-		-		12		(11)
Total	$	35,225	$	(528)	$	14,902	$	(90)	$	20,323	$	(438)

		December 31, 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	$	3,043	$	(29)	$	3,043	$	(29)	$	-	$	-
State and municipal tax-exempt		19,054		(547)		2,138		(7)		16,916		(540)
Total	$	22,097	$	(576)	$	5,181	$	(36)	$	16,916	$	(540)
Available For Sale
US Government agency obligations	$	56,342	$	(197)	$	49,222	$	(97)	$	7,120	$	(100)
GSE mortgage-backed securities		22,157		(135)		14,996		(38)		7,161		(97)
Collateralized mortgage obligations GSE		18,133		(496)		3,669		(5)		14,464		(491)
Corporate bonds		13,102		(106)		9,531		(31)		3,571		(75)
State and municipal tax-exempt		2,967		(10)		2,360		(9)		607		(1)
Equity securities		12		(11)		-		-		12		(11)
Total	$	112,713	$	(955)	$	79,778	$	(180)	$	32,935	$	(775)

As of March31, 2015, there were four mortgage-backed securities, seven corporate bonds, two U.S. agency obligations, twelve collateralized mortgage obligations,  twenty-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 March 31, 2015 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis judging each investment for OTTI. The OTTI analysis focuses on condition of the issuers as well as duration and severity of impairment in determining OTTI. As of March 31, 2015, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are twelve impaired securities classified as collateralized mortgage obligations,  all 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 March 31, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

State and municipal tax-exemptThere are twenty-three impaired securities in this category, which are comprised of intermediate to long-term municipal bonds,  fourteen of which were impaired for more than 12 months. All of the issues carry an “A” or better underlying credit rating and/or have strong 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

10

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 twenty-threemunicipal securities, there are sixteen insured school districts,six uninsured school districts, and one uninsured township, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

US Government agency obligations  There are two impaired securities classified as agencies,  neither 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 March 31, 2015.

GSE mortgage-backed securities  There are four impaired bonds classified as GSE mortgage-backed securities,  three 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 principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

Corporate Securities There were seven impaired bonds classified as corporate bonds,  one of which was 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 March 31, 2105 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

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, management does not consider these investments to be other-than-temporarily impaired at March 31, 2015.

The amortized cost and fair value of investment securities as of March 31, 2015, 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	$	-	$	-	$	1,500	$	1,497
Due after one year through five years		10,649		11,079		69,968		69,989
Due after five years through ten years		24,014		24,408		63,211		63,729
Due after ten years		25,817		26,013		37,403		37,245
No stated maturity		-		-		27		18
Total investment securities	$	60,480	$	61,500	$	172,109	$	172,478

11

The gross principal value of investments securites sold as of the dates indicated are shown below. The HTM securities that were sold during the three months ended March 31, 2014 were permissible because DNB collected greater than 85% of the original recorded investment on the HTM securities prior to the sale.

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Available for sale securities sold	$	3,926	$	15,228
Held to maturity securities sold		-		1,228
Total sold securities	$	3,926	$	16,456

Gains and losses resulting from investment sales, redemptions or calls were as follows:

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Gross realized gains-AFS	$	53	$	192
Gross realized gains-HTM		-		68
Gross realized losses-AFS		-		(25)
Net realized gain	$	53	$	235

At March 31, 2015 and December 31, 2014, investment securities with a carrying value of approximately $168.9million and $174.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law

.

12

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)		March 31, 2015		December 31, 2014
Residential mortgage	$	26,538	$	25,993
Commercial mortgage		268,586		257,310
Commercial:
Commercial term		81,730		80,819
Commercial construction		30,415		35,534
Consumer:
Home equity		51,269		50,192
Other		5,562		5,755
Total loans and leases	$	464,100	$	455,603
Less allowance for credit losses		(5,190)		(4,906)
Net loans and leases	$	458,910	$	450,697

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

					Three Months Ended March 31, 2015
(Dollars in thousands)	December 31, 2014		March 31, 2015		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	$	2,458	$	2,446	$	16	$	-	$	16
Commercial mortgage		1,294		1,262		21		-		21
Commercial:
Commercial term		198		196		2		-		2
Commercial construction		2,043		2,043		84		-		84
Consumer:
Home equity		432		429		7		-		7
Other		94		194		5		-		5
Total non-accrual loans	$	6,519	$	6,570	$	135	$	-	$	135
Loans 90 days past due and accruing		334		239		5		5		-
Total non-performing loans	$	6,853	$	6,809	$	140	$	5	$	135

			Three Months Ended March 31, 2014
(Dollars in thousands)	March 31, 2014		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	$	2,245	$	16	$	-	$	16
Commercial mortgage		244		5		-		5
Commercial:
Commercial term		-		-		-		-
Commercial construction		2,293		94		-		94
Consumer:
Home equity		386		7		1		6
Other		154		3		-		3
Total non-accrual loans	$	5,322	$	125	$	1	$	124
Loans 90 days past due and accruing		100		3		3		-
Total non-performing loans	$	5,422	$	128	$	4	$	124

13

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 March 31, 2015 and December 31, 2014. 

Age Analysis of Past Due Loans Receivable

March 31, 2015
														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		Receivable		Accruing
Residential mortgage	$	1,408	$	-	$	2,635	$	4,043	$	22,495	$	26,538	$	189
Commercial mortgage		43		-		363		406		268,180		268,586		-
Commercial:
Commercial term		-		-		-		-		81,730		81,730		-
Commercial construction		-		-		2,043		2,043		28,372		30,415		-
Consumer:
Home equity		16		112		405		533		50,736		51,269		50
Other		-		-		194		194		5,368		5,562		-
Total	$	1,467	$	112	$	5,640	$	7,219	$	456,881	$	464,100	$	239

December 31, 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		Receivable		Accruing
Residential mortgage	$	1,005	$	302	$	2,648	$	3,955	$	22,038	$	25,993	$	191
Commercial mortgage		48		187		236		471		256,839		257,310		-
Commercial:
Commercial term		-		-		-		-		80,819		80,819		-
Commercial construction		-		-		2,043		2,043		33,491		35,534		-
Consumer:
Home equity		58		214		386		658		49,534		50,192		119
Other		71		70		119		260		5,495		5,755		24
Total	$	1,182	$	773	$	5,432	$	7,387	$	448,216	$	455,603	$	334

14

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2015and 2014 and as of December 31, 2014.

Impaired Loans

		March 31, 2015						December 31, 2014
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,182	$	2,958	$	-	$	2,457	$	3,270	$	-
Commercial mortgage		3,372		3,492		-		3,400		3,501		-
Commercial construction		1,094		1,877		-		1,706		4,822		-
Consumer:
Home equity		459		474		-		549		564		-
Other		194		194		-		94		102		-
Total	$	7,301	$	8,995	$	-	$	8,206	$	12,259	$	-
With allowance recorded:
Residential mortgage		408		445		1		-		-		-
Commercial mortgage		202		202		106		200		200		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		1,062		4,976		147		450		2,031		50
Consumer:
Home equity		88		88		31		-		-		-
Total	$	1,960	$	5,916	$	401	$	850	$	2,433	$	273
Total:
Residential mortgage		2,590		3,403		1		2,457		3,270		-
Commercial mortgage		3,574		3,694		106		3,600		3,701		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		2,156		6,853		147		2,156		6,853		50
Consumer:
Home equity		547		562		31		549		564		-
Other		194		194		-		94		102		-
Total	$	9,261	$	14,911	$	401	$	9,056	$	14,692	$	273

15

		Three Months Ended				Three Months Ended
		March 31, 2015				March 31, 2014
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,320	$	-	$	1,872	$	-
Commercial mortgage		3,386		26		2,509		-
Commercial construction		1,400		-		797		-
Consumer:
Home equity		504		1		415		1
Other		144		-		47		-
Total	$	7,754	$	27	$	5,640	$	1
With allowance recorded:
Residential mortgage		204		-		377		-
Commercial mortgage		201		-		36		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		756		-		1,684		-
Consumer:
Home equity		44		-		-		-
Other		-		-		71		-
Total	$	1,405	$	-	$	2,168	$	-
Total:
Residential mortgage		2,524		-		2,249		-
Commercial mortgage		3,587		26		2,545		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		2,156		-		2,481		-
Consumer:
Home equity		548		1		415		1
Other		144		-		118		-
Total	$	9,159	$	27	$	7,808	$	1

16

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 March 31, 2015 and December 31, 2014.

Credit Quality Indicators

		March 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,817	$	-	$	2,721	$	-	$	26,538
Commercial mortgage		256,698		2,593		9,295		-		268,586
Commercial:
Commercial term		76,192		72		5,466		-		81,730
Commercial construction		25,846		-		4,569		-		30,415
Consumer:
Home equity		50,690		-		579		-		51,269
Other		5,368		-		194		-		5,562
Total	$	438,611	$	2,665	$	22,824	$	-	$	464,100

		December 31, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,259	$	-	$	2,734	$	-	$	25,993
Commercial mortgage		245,307		2,610		9,393		-		257,310
Commercial:
Commercial term		75,303		72		5,444		-		80,819
Commercial construction		31,057		-		4,477		-		35,534
Consumer:
Home equity		49,611		-		581		-		50,192
Other		5,661		-		94		-		5,755
Total	$	430,198	$	2,682	$	22,723	$	-	$	455,603

As of March 31, 2015, DNB had one commercial mortgage classified as a TDR totaling $2,234,000, compared to one commercial mortgage classified as a TDR totaling $2,246,000 (the same loan) at December 31, 2014, and one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at March 31, 2014.  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 commenced normal principal and interest payments in June 2014.  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 months ended March  31, 2015, there were no defaults on any terms of this loan.

As of March 31, 2015, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared toone consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2014, andno such loans at 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 months ended March31, 2015, there were no defaults on any terms of this loan.

Loans classified as TDR, are considered impaired. The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2015 and December 31, 2014, the activity for the three months ended March 31, 2015 and 2014 and as of and for the year ended December 31, 2014.

17

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 - January 1, 2015	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Charge-offs		-		-		(11)		-		-		-		(6)		-		(17)
Recoveries		-		-		-		-		1		-		-		-		1
Provisions		-		98		7		41		(1)		35		2		118		300
Ending balance - March 31, 2015	$	269	$	2,398	$	705	$	922	$	-	$	224	$	66	$	606	$	5,190
Ending balance: individually evaluated for impairment	$	1	$	106	$	116	$	147	$	-	$	31	$	-	$	-	$	401
Ending balance: collectively evaluated for impairment	$	268	$	2,292	$	589	$	775	$	-	$	193	$	66	$	606	$	4,789
Loans receivables:
Ending balance	$	26,538	$	268,586	$	81,730	$	30,415	$	-	$	51,269	$	5,562			$	464,100
Ending balance: individually evaluated for impairment	$	2,590	$	3,574	$	200	$	2,156	$	-	$	547	$	194			$	9,261
Ending balance: collectively evaluated for impairment	$	23,948	$	265,012	$	81,530	$	28,259	$	-	$	50,722	$	5,368			$	454,839
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	87	$	53	$	-	$	12	$	-			$	156

18

	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		-		-		(7)		(261)		-		-		-		-		(268)
Recoveries		3		-		-		10		1		-		6		-		20
Provisions		59		156		38		24		(1)		11		41		47		375
Ending balance - March 31, 2014	$	347	$	2,166	$	652	$	806	$	-	$	167	$	125	$	487	$	4,750
Reserve for unfunded loan commitments included in other liabilities	$	-	$	11	$	70	$	50	$	-	$	11	$	-			$	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, 2014	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Ending balance: individually evaluated for impairment	$	-	$	104	$	119	$	50	$	-	$	-	$	-	$	-	$	273
Ending balance: collectively evaluated for impairment	$	269	$	2,196	$	590	$	831	$	-	$	189	$	70	$	488	$	4,633
Loans receivables:
Ending balance	$	25,993	$	257,310	$	80,819	$	35,534	$	-	$	50,192	$	5,755			$	455,603
Ending balance: individually evaluated for impairment	$	2,457	$	3,600	$	200	$	2,156	$	-	$	549	$	94			$	9,056
Ending balance: collectively evaluated for impairment	$	23,536	$	253,710	$	80,619	$	33,378	$	-	$	49,643	$	5,661			$	446,547
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	89	$	55	$	-	$	12	$	-			$	166

19

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, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at March 31, 2015. There were no anti-dilutive stock warrants outstanding, 66,853 anti-dilutive stock options outstanding, and 17,125 anti-dilutive stock awards outstanding at March 31, 2014. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		March 31, 2015
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,226	2,786	$	0.44
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,226	2,833	$	0.43

		Three Months Ended
		March 31, 2014
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	967	2,758	$	0.35
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	44		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	967	2,802	$	0.35

20

NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS 

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

Accumulated Other Comprehensive Loss		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
March 31, 2015
Net unrealized gain on AFS securities	$	369	$	(125)	$	244
Discount on AFS to HTM reclassification		(21)		7		(14)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(1,386)	$	471	$	(915)
December 31, 2014
Net unrealized loss on AFS securities	$	(665)	$	227	$	(438)
Discount on AFS to HTM reclassification		(24)		8		(16)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(2,423)	$	824	$	(1,599)

NOTE 7: SUBORDINATED DEBENTURES, NOTES, AND OTHER BORROWINGS

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.

Subordinated Note

On March 5, 2015, DNB Financial Corporation entered into a Subordinated Note Purchase Agreement (the “Agreement”) with an accredited investor under which the Company issued a $9.75 million subordinated note (the “Note”) to the investor. The Note has a maturity date of March 6, 2025, and will bear interest at a fixed rate of 4.25% per annum for the first 5 years and then float at the Wall Street Journal Prime rate  plus 1.00%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 3.0% and more than 5.75% per annum.

The Company may, at its option, beginning with the first interest payment date after March 6, 2019, and on any interest payment date thereafter, redeem the Note, in whole or in part, at par plus accrued and unpaid interest to the date of redemption. The Note is not subject to repayment at the option of the noteholder.

The Note is unsecured and ranks junior in right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors and qualifies as Tier 2 capital for regulatory purposes.

21

Repurchase Agreements Accounted for as Secured Borrowings

As of March 31, 2015, DNB had $20.3 million of repurchase agreements. In conjunction with these repurchase agreements,  $20.7 million of state and municipal securities were sold on an overnight basis as of March 31, 2015, which represents 102% of the repurchase agreement amount.

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 354,090 shares available for grant at March 31, 2015. All options are immediately exercisable. DNB had no expenses during the three months ended March 31, 2015 compared to $17,000during the three months ended March 31, 2014. DNBhas no anticipated additional expense. Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015	163,586	$	15.13
Issued	-		-
Exercised	93,834		19.60
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2015	69,752	$	9.13

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2014	207,303	$	15.92
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2014	207,303	$	15.92

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

	March 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	66,500	66,500	$	8.72	2.93 years	$	1,149,000
	14.00-19.99	3,252	3,252		17.51	0.73 years		28,000
	Total	69,752	69,752	$	9.13	2.83 years	$	1,177,000

	December 31, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	80,650	80,650	$	8.66	3.15 years	$	1,044,000
	14.00-19.99	34,895	34,895		17.51	0.97 years		143,000
	23.00-24.27	48,041	48,041		24.27	0.29 years		-
	Total	163,586	163,586	$	15.13	1.85 years	$	1,187,000

22

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 threeor four years (cliff vesting period) 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 a  three or four year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized.  For the three month periods ended March 31, 2015 and 2014,  $87,000and $53,000 was amortized to expense, respectively.  As of March 31, 2015, there was approximately $868,000 in additional compensation that will be recognized over the remaining service period of approximately 2.29 years. At March 31, 2015,  116,494 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, 2015	75,930	$	17.66
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2015	75,930	$	17.66

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2014	50,795	$	15.65

NOTE 9:  INCOME TAXES

As of March 31, 2015, 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 2011 through 2014 were open for examination as of March 31, 2015.

23

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 March 31, 2015 and December 31, 2014 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

24

		March 31, 2015
(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	$	-	$	61,021	$	-	$	61,021
GSE mortgage-backed securities		-		60,871		-		60,871
Collateralized mortgage obligations GSE		-		19,087		-		19,087
Corporate bonds		-		20,431		-		20,431
State and municipal tax-exempt		-		11,050		-		11,050
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,460	$	-	$	172,478
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,559	$	1,559
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	1,559	$	1,559

		December 31, 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	$	-	$	61,354	$	-	$	61,354
GSE mortgage-backed securities		-		66,723		-		66,723
Collateralized mortgage obligations GSE		-		20,011		-		20,011
Corporate bonds		-		13,102		-		13,102
State and municipal tax-exempt		-		10,994		-		10,994
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,184	$	-	$	172,202
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,916	$	2,916
OREO and other repossessed property		-		-		100		100
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	3,016	$	3,016

25

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:

March 31, 2015
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	407	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		83	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		915	Appraisal of	Appraisal adj. (2)	-15%	to	-47%	(-35%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans - Home equity		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,559

(1)

December 31, 2014
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	1,244	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		81	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		1,494	Appraisal of	Appraisal adj. (2)	0%	to	-47%	(-19%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loan total	$	2,916
Other real estate owned	$	100		Disposal costs (2)	-8%	to	-16%	(-12%)

⁽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 $9.3 million at March 31, 2015. Of this, $2.0 million had a specific valuation allowance of $401,000, leaving a fair value of $1.6 million as of March 31, 2015. DNB had no impaired loans that were partially charged down as of March 31, 2015. The total fair value of impaired loans at March 31, 2015 was $1.6 million.

Impaired loans had a carrying amount of $9.1 million at December 31, 2014. Of this, $850,000 had a specific valuation allowance of $273,000, leaving a fair value of $577,000 at December 31, 2014. In addition, DNB had $2.9 million in impaired loans that were partially charged down by $526,000, leaving $2.3 million at fair value as of December 31, 2014. The total fair value of impaired loans at December 31, 2014 was $2.9 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

26

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 $908,000 of such assets at March 31, 2015, $837,000 of which was OREO and $71,000 was in other repossessed property. DNB had $901,000 of such assets at December 31, 2014, which consisted of $837,000 in OREO and $64,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did not write down the carrying values during the three month period ending March 31, 2015 or the three month period ending March 31, 2014.  

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 nine months ended March 31, 2015.

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 March 31, 2015 and December 31, 2014 are as follows:

		March 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,335	$	28,335	$	28,335	$	-	$	-
AFS investment securities		172,478		172,478		18		172,460		-
HTM investment securities		60,480		61,500		-		61,500		-
Restricted stock		2,720		2,720		-		2,720		-
Loans and leases, net of allowance, including impaired		458,910		452,830		-		-		452,830
Accrued interest receivable		2,572		2,572		-		2,572		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		113,419		113,419		-		113,419		-
Interest-bearing deposits:		430,810		430,810		-		430,810		-
Time		72,784		72,562		-		72,562		-
Brokered deposits		10,248		10,258		-		10,258		-
Repurchase agreements		20,316		20,316		-		20,316		-
FHLBP advances		20,000		20,631		-		20,631		-
Junior subordinated debentures and other borrowings		9,279		7,349		-		7,349		-
Subordinated debt		9,750		9,750		-		9,750		-
Accrued interest payable		306		306		-		306		-
Off-balance sheet instruments		-		-		-		-		-

27

		December 31, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	12,504	$	12,504	$	12,504	$	-	$	-
AFS investment securities		172,202		172,202		18		172,184		-
HTM investment securities		59,454		60,099		-		60,099		-
Restricted stock		2,587		2,587		-		2,587		-
Loans held-for-sale		617		640		-		-		-
Loans and leases, net of allowance, including impaired		450,697		436,499		-		-		436,499
Accrued interest receivable		2,253		2,253		-		2,253		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		102,107		102,107		-		102,107		-
Interest-bearing deposits:		415,933		415,933		-		415,933		-
Time		76,805		76,519		-		76,519		-
Brokered deposits		10,238		10,204		-		10,204		-
Repurchase agreements		19,221		19,221		-		19,221		-
FHLBP advances		20,000		20,616		-		20,616		-
Junior subordinated debentures and other borrowings		9,279		7,546		-		7,546		-
Accrued interest payable		351		351		-		351		-
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.

Loans Held-for-Sale  The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices. If no such quotes prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan.

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.

28

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 and brokered deposits (all of which are 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. Of the $10.2 million in brokered deposits, $4.0 million matures in 2016 and $6.2 million matures in 2017.

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.

Subordinated NoteThe fair value of the subordinated note was estimated using either a discounted cash flow analysis based on current market interest rates for debt with similar maturities and credit quality or estimated using market quotes.

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 March 31, 2015, un-funded loan commitments totaled $100.6 million and stand-by letters of credit totaled $2.2 million. At December 31, 2014, un-funded loan commitments totaled $101.7 million and stand-by letters of credit totaled $2.2 million.

NOTE 11:  STOCKHOLDERS’ EQUITY

In July 2013, the Board of Directors of the FRB approved the Basel III intereim final rule (Basel III), which is intended to strengthen the quality and increase the required level of regulatory capital for a more stable and resilient banking system. The changes include (1) a new regulatory capital measure, Common Equity Tier 1 (CET1), which is limited to capital elements of the highest quality, (2) a new definition and increase of tier 1 capital which is now comprised of CET1 and Additional Tier 1, (3) changes in calculation of some risk-weighted assets and off-balance sheet exposure, and (4) a capital conservation buffer that will limit capital distributions, stock redemptions, and certain discretionary bonus payments if the institution does not maintain capital in excess of the minimum capital requirements. These new capital rules took effect for our bank on January 1, 2015 and reporting began with the March 31, 2015 call report.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Corporation 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

29

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 Corporation’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 Corporation 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 Corporation 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 Corporation’s Board of Directors. DNB paid an annual rate on the $13.0 million of Series 2011A Preferred Stock of 1.00% for the year ended December 31, 2014 and the annual rate remained at 1.00% as of March 31, 2015.

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 Corporation 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 Corporation’s primary federal banking regulator.

On March 6, 2015, DNB  redeemed  9,750 of the 13,000 shares of the Corporation’s Series 2011A Preferred Stock that had been issued to the United States Department of the Treasury in connection with the Corporation’s participation in the SBLF program. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends for a total redemption price of $9,767,604.17. Following the consummation of this partial redemption, the Corporation continues to have outstanding 3,250 shares of its Series 2011A Preferred Stock.

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,"

30

“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.

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 2014, 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;

31

•Improve asset quality;

•Focus on profitable customer segments;

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

•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 first quarter year-over-year earnings comparisons for 2014 and 2015, in part, reflect the investments DNB  made in new hires to drive revenue in future quarters, technology to enhance the DNB’s capabilities, and branch upgrades to accommodate increased business and provide a welcoming environment for customers. The first quarter of 2015 was a strong quarter in which we met many of our financial performance targets and delivered significant year-over-year net income growth driven by increased earning assets. Initiatives in place to expand banking relationships with clients played a key role in driving strong growth in core deposits. DNB's net interest margin was 3.14% for the first quarter of 2015 compared with 3.36% for the first quarter of 2014. On a consecutive quarter basis, DNB’s net interest margin remained relatively stable throughout 2014, but net interest margin in the first quarter of 2015 reflected continuing pressure on margins in a low-interest rate environment, and intense pricing competition for quality lending business. As in past quarters, DNB mitigated some of this pressure through interest expense management, growing lower-cost core deposits while trimming time deposits, and opportunistic use of wholesale borrowings at attractive rates. DNB's composite cost of funds for the three months ended March 31, 2015 was 0.37%, compared to 0.43% for the same period in 2014.

Total net loans and leases before allowance for credit losses were $464.1 million at March 31, 2015 compared to $430.2 million and $455.6 million at March 31, 2014 and December 31, 2014, respectively. After allowance for credit losses, net loans and leases were $458.9 million at March 31, 2015, compared to $425.4 million at March 31, 2014 and up from $450.7 million at year-end 2014. Asset quality measurements at March 31, 2015 continued to reflect a sound balance sheet and disciplined risk and credit management. At March 31, 2015, the ratio of total non-performing loans to total loans was 1.47%, the ratio of non-performing assets to total assets was 1.03%, and net charge-offs to average loans was 0.01%.

Total deposits were $627.3 million at March 31, 2015, an 11.66% increase compared with $561.8 million at March 31, 2014, and up 3.67% from $605.1 million at December 31, 2014. DNB added $65.8 million in lower-cost core deposits (demand deposits, NOW accounts, money market and savings accounts) between March 31, 2014 and March 31, 2015, and grew core deposits 5.06% from December 31, 2014.

Total non-interest income, including fees from wealth management, gains on the sale of investment securities and loans, income from merchant services and debit and credit card use, rose 9.5% to $1.34 million in the first quarter of 2015 compared with $1.22 million in the first quarter of 2014. The year-over-year results included 19.94% growth in fees from DNB Investment Management and Trust, new fee income from mortgage banking reflecting DNB’s expanding retail banking business, and a gain of $231,000 from the sale of Small Business Administration (SBA) loans, as part of the Corporation's SBA lending activities.

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 three month period ended March 31, 2015:  

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.

32

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 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.

33

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 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 60

34

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 $37,900 in2015.

Material Trends and Uncertainties.

For the quarter ended March 31, 2015, DNB reported net income of $1.23 million versus $967,000 for the same period in 2014. Per share earnings on a fully diluted basis were $0.43, up from $0.35 the prior year. Even though DNB’s quarterly earnings have increased, there are many aspects of the economy and the Federal Reserve’s monetary policy that factor into DNB’s ability to grow revenues and net income. One of the most significant factors is that the global and U.S. economies have experienced reduced business activity as a result of disruptions in the financial system during the past seven 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 at a time when national and regional unemployment rates have improved, however participation rates remain at historically low levels. The risks associated with our business remain acute in periods of slow wage and economic growth. 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 April 15, 2015 Beige Book indicated that residential builders in the Third Federal Reserve District (the “Third District”), the District where DNB is located, reported mixed results. Generally, builders reported that housing starts have slowed with the cold and snow. Also, builders reported that regular price increases of construction materials leaves little room within their own tight margins for addressing wage pressures from their subcontractors. Builders anticipate a better year in 2015. Brokers reported that existing home sales were greater in December and January on a year-over-year basis; sales growth was the greatest in central Pennsylvania, while sales were essentially unchanged along the Jersey shore. The Federal Reserve’s contacts continued to report slight overall increases in home prices, except in the city of Philadelphia where sales and prices are rising faster. Brokers are generally more optimistic for a return to growth in 2015.

The April 15, 2015 Beige Book indicates that construction and leasing continued at a modest pace. New construction continued to be dominated by industrial/warehouse projects, urban apartment dwellings, and public infrastructure, including sand reclamation projects along the Jersey shore. The Federal Reserve’s contacts reported that continuing incremental improvements in leasing activity in downtown and suburban Philadelphia is leading to some upward push on rents, especially for Class A or better office space. Center City residential and retail markets also continued to be active, as well as several select suburban office markets. The Federal Reserve’s contacts remained optimistic for the ongoing growth of both new construction and leasing activity in 2015.

The Third District’s financial firms continued to report modest increases in total loan volume since the March 4, 2015 Beige Book and credit quality continued to improve. Volumes decreased seasonally for credit card lines as consumers paid down for several weeks following their holiday spending. Strong growth was reported for other consumer credit lines, including auto loans, and for commercial real estate loans. Moderate growth was reported for commercial and industrial lending, while modest growth was reported for home mortgages. Only slight growth was reported for home equity lines of credit. Increasing numbers of the Federal Reserve’s contacts expressed concerns that competition has lowered lending standards, undercut margins, and is beginning to lower overall credit quality. Many indicated that they saw no signs of inflationary pressures. Banking contacts tended to be most positive about economic prospects in central Pennsylvania, the Lehigh Valley area, and the Philadelphia market. Nearly all of the Federal Reserve’s contacts have grown more optimistic about growth prospects for 2015.

Manufacturers in the Third District reported that current activity continued to grow during the April 15, 2015 Beige Book period but only at a slight pace. Nearly as many firms indicated declines in activity as increases. New orders and shipments also grew more slowly; the percentage of firms reporting decreases in new orders and shipments rose further compared with the last period. Gains in activity appeared to be stronger among makers of industrial machinery, electronic equipment, and paper products; activity appeared weaker among makers of primary and fabricated metal products. Overall, most firms reported that declining energy prices were having a positive impact on their own production costs and on potential demand via consumer channels; however, some firms reported weaker demand or a weaker outlook for demand from customers serving energy production sectors. Expectations of growth during the next six months remained positive but slipped from historically high levels to levels that are more typical of an expansionary period. The percentage of firms anticipating positive growth dropped to less than 50 percent for the first time in more than a year. Despite that shift, firms reported little change in expectations of future employment and capital expenditures, with about one-third anticipating increases and about one-tenth anticipating decreases. Only 10 percent or fewer of manufacturing contacts expected a decrease in employment, capital expenditures, or general activity.

Aggregate business activity in the Third District continued to grow at a modest pace during the April 15, 2015 Beige Book period. Most of the observed differences in growth stem from year-over-year comparisons with the early 2014 months that were battered by severe winter weather. This was especially true for tourism, new home construction, and existing home sales; all three sectors benefited from a somewhat milder winter this year. In contrast, manufacturers reported only slight growth after a somewhat faster pace during the previous period. Auto dealers, staffing firms, and other general service-sector firms continued to report a

35

moderate pace of growth, as did transportation services. Non-auto retailers continued to report modest growth, while tourism appeared to have regained a strong level of activity similar to last year as snow settled on ski resorts. Residential builders responded with mixed reports that offered some optimism for a better 2015. Overall, brokers noted some slight improvement in activity. The commercial real estate sectors continued to report modest growth for construction and for leasing of existing commercial properties.

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 $86,184 and the County ranks 14th nationally in disposable income. The unemployment rate for Chester County stood at 3.4% as of December 2014, compared to a Pennsylvania unemployment rate of 4.8% and a national unemployment rate of 5.4%. 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 266,900, 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. 

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 still need to be adopted by various regulatory agencies to implement its provisions.  For these reasons, the overall impact on DNB and its subsidiaries remains unknown at this time. 

The Dodd-Frank Act delegates to various federal agencies, including the Consumer Financial Protection Bureau, the task of implementing its many provisions through regulation. 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 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 effective as of January 1, 2015: (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

36

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 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 took effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are 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 have been required to utilize since 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 are in compliance with the requirements as set forth in the final rules 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 notes to the Consolidated Financial Statements included in DNB's 10-K for the year ended December 31, 2014.  

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

37

as the impact of current economic conditions, diversification of the portfolios, delinquency statistics, results of loan review and related classifications, and historic loss rates.  In addition, certain individual loans which management has identified as problematic are specifically provided for, based upon an evaluation of the borrower’s perceived ability to pay, the estimated adequacy of the underlying collateral and other relevant factors.  In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for credit losses.  They may require additions to the allowance based upon their judgments about information available to them at the time of examination.  Although provisions have been established and segmented by type of loan, based upon management’s assessment of their differing inherent loss characteristics, the entire allowance for credit losses is available to absorb further losses in any category.

Management uses significant estimates to determine the allowance for credit losses.  Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond DNB’s control, management’s estimate of the amount necessary to absorb credit losses and actual credit losses could differ.  DNB’s current judgment is that the allowance for credit losses remains appropriate at March 31, 2015.  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, 2014. 

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 $748.4million at March 31, 2015,compared to $723.3million at December 31, 2014.  The $25.1million increase in total assets was primarily attributable to a $15.8 million increase in cash and cash equivalents, an$8.5million increase in loans and leases before allowance for credit losses, a $1.3 million increase in investment securities,  a $381,000 increase in all other assets, offset by a $284,000 increase in the allowance for credit losses.

Investment Securities.Investment securities,including restricted stock,at March 31, 2015were $235.7 million, compared to $234.2 million at December 31, 2014. The $1.4 millionincrease in investment securities and restricted stock was primarily due to $16.3 million in purchases of investment securities and a $1.0 million change in fair value, offset by $15.8million in sales, principal pay-downs, calls and maturities.

Gross Loans and Leases.  DNB’s loans and leases increased  $8.5million to $464.1 million at March 31, 2015,compared to $455.6million at December 31, 2014.Total commercial loans, consumer loans, and residential loans increased $7.1million,  $884,000 and $545,000, respectively.

Deposits.  Deposits were $627.3 million at March 31, 2015,compared to $605.1 million at December 31, 2014.  Deposits increased $22.2million or 3.67% during the three-month period ended March 31, 2015.  Core deposits, which are comprised of demand, NOW, money markets and savings accounts, increased by $26.2million while time deposits decreased by $4.0 million. 

Borrowings.Borrowings were $59.8 million at March 31, 2015,compared to $49.0 million at December 31, 2014.  The increase of $10.8 millionor 22.11% was primarily due to a $9.8million increase in subordinated debt and a $1.1 million increasein repurchase agreements. (See Note 7 regarding issuance of $9.8 million subordinated debt.)

Stockholders’ Equity.Stockholders' equity was $56.2 million at March 31, 2015,compared to $63.9 million at December 31, 2014. The decrease in stockholders’ equity was primarily a result of the partial redemption of the SBLFSeries 2011A Preferred Stock by $9.8 million and $195,000 of dividends paid on DNB’s common stock and $25,000 of dividends paid on SBLF Series 2011A Preferred Stock. These subtractions to stockholders equity were partially offset by year-to-date earnings of $1.3 million and $684,000

38

ofother comprehensive income. (See Note 11 in this form 10-Q regarding DNB's participation in the Treasury’s SBLF, a $30 billion fund established under the Small Business Jobs Act of 2010.)

RESULTS OF OPERATIONS

SUMMARY

Net income for the three-month period ended March 31, 2015was $1.3 million compared to $1.0 million for the same period in 2014.  Diluted earnings per share for the three-month period ended March 31, 2015 were $0.43compared to $0.35 for the same period in 2014.  The $248,000increase in net income during the most recent three-month period was primarily attributable to a  $213,000 increase in net interest income, a $116,000 increase in non-interest income, and a $75,000 decrease in the provision for credit losses, offset by a $130,000 increase in non-interest expense, and a $26,000 increase in income tax expense

NET INTEREST INCOME

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

Net interest income for the three-month period ended March 31, 2015 was $5.3million, compared to $5.2 million for the same period in 2014. Interest income for the three-month period ended March 31, 2015 was $6.0 million compared to $5.8 million for the same period in 2014. Interest expense for the three-month period ended March 31, 2015 was $606,000, compared to $625,000 for the same period in 2014. The composite cost of funds for the three-month period ended March 31, 2015 was 0.37%, compared to 0.43%for the same period in 2014. The net interest margin for the three-month period ended March 31, 2015 was 3.14%, compared to 3.36% for the same period in 2014.  

Interest on loans and leases was $4.9 million for the three-month period ended March 31, 2015, compared to $4.8 million for the same period in 2014. The average balance of loans and leases was $460.6 million with an average yield of 4.31% for the firstquarter of 2015, compared to $421.5 million with an average yield of 4.60% for the same period in 2014.  

Interest and dividends on investment securities was $1.1 millionfor the three-month period ended March 31, 2015, compared to $986,000 for the same period in 2014. The average balance of investment securities was $232.6 million with a tax equivalent average yield of 2.04% for the firstquarter of 2015,compared to $192.7 million with a tax equivalent average yield of 2.33% for the same period in 2014.  

Interest on deposits was $282,000 for the three-month period ended March 31, 2015, compared to $378,000 for the same period in 2014. The average balance of deposits was $617.4 million with an average rate of 0.19% for the firstquarter of 2015 compared to $554.8 million with an average rate of 0.28% for the same period in 2014.  

Interest on borrowings was $324,000 for the three-month period ended March 31, 2015, compared to $247,000 for the same periods in 2014. The average balance of borrowings was $51.0 million with an average rate of 2.57% for the firstquarter of 2015 compared to $39.7 million with an average rate of 2.53% for the same period in 2014.  

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

39

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 $300,000 provision made during the three months ended March 31, 2015, compared to $375,000 for the same period in 2014. DNB’s percentage of allowance for credit losses to total loans and leases was 1.12%  at March 13, 2015compared to

40

1.08% and 1.10% at December 31, 2014 and March 31, 2014, respectively. Net charge-offs were $16,000,$847,000, and $248,000 during the three months ended March 31, 2015,year ended December 31, 2014,  and three months ended March 31, 2014,  respectively.The percentage of net charge-offs to total average loans and leases were 0.001%, 0.19%, and 0.06%for those same respective periods. Management believes that the allowance for credit losses is adequate, but continues to monitor it along with other performance metrics including those ratios related to non-performing loans and leases. Management is not aware of any potential problem loans, which were accruing and current at March 31, 2015, 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 loansdecreased  $44,000 during the threemonth period ended March 31, 2015.  The ratio of the allowance for credit losses as a percentage of loans and leases was 1.10% at March 31, 2015 and1.08%at December 31, 2014and 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 March 31, 2015, DNB had $7.7 million of non-performing assets, which included $6.8 million of non-performing loans and $908,000 of OREO and other repossessed assets.  This compares to $7.8 million of non-performing assets at December 31, 2014 which included $6.9 million of non-performing or impaired loans and $901,000 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 $9.3 million of impaired loans at March 31, 2015,  $2.0 million had a valuation allowance of $401,000 and $7.3 million had no specific allowance.Of the $9.1 million of impaired loans at December 31, 2014, $850,000 had a valuation allowance of $273,000 and  $8.2 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 March 31, 2015,  DNB recognized $17,000 in total charge-offs, $6,000of 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

41

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.

42

Analysis of Allowance for Credit Losses

(Dollars in thousands)

		Three Months Ended March 31, 2015		Year Ended December 31, 2014		Three Months Ended March 31, 2014
Beginning balance	$	4,906	$	4,623	$	4,623
Provisions		300		1,130		375
Loans charged off:
Residential mortgage		-		(326)		-
Commercial mortgage		-		(8)		-
Commercial:
Commercial term		(11)		(47)		(7)
Commercial construction		-		(511)		(261)
Lease financing		-		(1)		-
Consumer:
Home equity		-		-		-
Other		(6)		(82)		-
Total charged off		(17)		(975)		(268)
Recoveries:
Residential mortgage		-		5		3
Commercial mortgage		-		-		-
Commercial:
Commercial term		-		3		-
Commercial construction		-		103		10
Lease financing		1		8		1
Consumer:
Home Equity		-		-		-
Other		-		9		6
Total recoveries		1		128		20
Ending balance		5,190		4,906		4,750
Reserve for unfunded loan commitments	$	156	$	166	$	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)

		March 31, 2015				December 31, 2014				March 31, 2014
			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	$	269	6	%	$	269	6	%	$	347	6	%
Commercial mortgage		2,398	58			2,300	56			2,166	56
Commercial:
Commercial term		705	18			709	18			652	21
Commercial construction		922	6			881	8			806	5
Consumer:
Home equity		224	11			189	11			167	10
Other		66	1			70	1			125	2
Unallocated		606	-			488	-			487	-
Total	$	5,190	100	%	$	4,906	100	%	$	4,750	100	%
Reserve for unfunded loan commitments	$	156	-		$	166	-		$	142	-

43

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-month period ended March 31, 2015 was $1.3 million, compared to $1.2 million for the same period in 2014. The $116,000 increase during the three months ended March 31, 2015 was mainly attributable to increases of $231,000 ingains on sales of loans, $41,000 in wealth management, $38,000 in mortgage banking, and $25,000 in other fees. These increases were offset by decreases of $182,000 in gains on sale of investments and $34,000 in service charges on deposits (primarily NSF fees).

NON-INTEREST EXPENSE

Non-interest expense for the three-month period ended March 31, 2015 was $4.8 million, compared to $4.7 million for the same period in 2014.  During the three months ended March 31, 2015, total non-interest expense increased by $130,000.  The increase was primarily due to increases of $141,000 in salary and employee benefits, $14,000 in advertising and marketing, $11,000 in FDIC insurance, $10,000 in professional and consulting, and $9,000 in printing and supplies. The increases were partially offset by decreases of $29,000 in furniture and equipment, $16,000 in occupancy, and $11,000 in other non-interest expenses.

INCOME TAXES

Income tax expensefor the three-month period ended March 31, 2015 was $349,000,compared to $323,000 for the same period in 2014. The effective tax rate for the three-month period ended March 31, 2015 was 21.8% compared to 24.3%  for the same period in 2014.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 $7.7 million at March 31, 2015 compared to $7.8 million at December 31, 2014 and $6.4 million at March 31, 2014.The non-performing loans to total loans ratio was 1.47% at March 31, 2015,  1.50% at December 31, 2014 and 1.26% at March 31, 2014. The non-performing assets to total assets ratio was1.03% at March 31, 2015, 1.07% at December 31, 2014, and 1.26% at March 31, 2014. The allowance to non-performing loans and leases ratio was 76.2% at March 31, 2015,71.6% at December 31, 2014and87.6% at March 31, 2014. 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 OREO and other repossessed assets. Non-accrual loans and leases are loans and leases for which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the policy of DNB to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more (unless the loan principal and interest are determined by management to be fully secured and in the process of collection), or earlier if considered prudent. Interest received on such loans is applied to the principal balance, or may, in some instances, be recognized as income on a cash basis. A non-accrual loan or lease may be restored to accrual status when management expects to collect all contractual principal and interest due and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. OREO consists of real estate acquired by foreclosure 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 March 31, 2015,  DNB had $22.8million of substandard loans. Of the $22.8million, $16.0 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 substandard loans at

44

December 31, 2014was $16.0 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)

		March 31, 2015		December 31, 2014		March 31, 2014
Non-accrual loans:
Residential mortgage	$	2,446	$	2,458	$	2,245
Commercial mortgage		1,262		1,294		244
Commercial:
Commercial term		196		198		-
Commercial construction		2,043		2,043		2,293
Consumer:
Home equity		429		432		386
Other		194		94		154
Total non-accrual loans		6,570		6,519		5,322
Loans 90 days past due and still accruing		239		334		100
Total non-performing loans		6,809		6,853		5,422
Other real estate owned & other repossessed property		908		901		957
Total non-performing assets	$	7,717	$	7,754	$	6,379
Asset quality ratios:
Non-performing loans to total loans		1.47	%	1.50	%	1.26	%
Non-performing assets to total assets		1.03		1.07		0.94
Allowance for credit losses to:
Total loans and leases		1.12		1.08		1.10
Non-performing loans and leases		76.2		71.6		87.6

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:

		Three Months Ended		Year Ended		Three Months Ended
		March 31,		December 31,		March 31,
(Dollars in thousands)		2015		2014		2014
Interest income which would have been
recorded under original terms	$	135	$	499	$	125
Interest income recorded during the period		27		97		1
Net impact on interest income	$	108	$	402	$	124

As of March 31, 2015, DNB had one commercial mortgage classified as a TDR totaling $2,234,000, compared to one commercial mortgage classified as a TDR totaling $2,246,000 (the same loan) at December 31, 2014, and one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at March 31, 2014.  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 commenced normal principal and interest payments in June 2014.  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 months ended March 31, 2015, there were no defaults on any terms of this loan.

As of March 31, 2015, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2014, and no such loans at 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 months ended March 31, 2015, there were no defaults on any terms of this loan.

45

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
		Three Months Ended		Year Ended		Three Months Ended
		March 31,		December 31,		March 31,
(Dollars in thousands)		2015		2014		2014
Total recorded investment	$	9,261	$	9,056	$	7,754
Impaired loans with a specific allowance		1,960		850		2,238
Impaired loans without a specific allowance		7,301		8,206		5,516
Average recorded investment		9,159		8,064		7,808
Specific allowance allocation		401		273		401
Total principal and interest collected		92		478		89
Interest income recorded		27		97		1

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 $95.1 million at March 31, 2015 compared to $71.9 million at December 31, 2014.  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 had available credit of approximately $288.0 million at March 31, 2015.  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 March 31, 2015, our Maximum Borrowing Capacity with the FHLB was $250.0million. At March 31, 2015, DNB had borrowed $20.0 million and the FHLB had issued letters of credit, on DNB's behalf, totaling $30.0 million against its available credit lines. At March 31, 2015, we also had available $38.0 million of unsecured federal funds lines of credit with other financial institutions as well as $19.8 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 March 31, 2015, DNB had $100.6 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 March 31, 2015totaled $37.0 million.  Management believes that the majority of such deposits will be reinvested with DNB and that certificates that are not renewed will be funded by a reduction in cash and cash equivalents or by pay-downs and maturities of loans and investments.

The Corporation and the Bank have each met the definition of “well capitalized” for regulatory purposes on March 31, 2015.  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 Note16 of DNB’s December 31, 2014 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.

46

										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
March 31, 2015
Total risk-based capital	$	81,147	15.5	%	$	41,854	8.0	%		N/A	N/A
Tier 1 risk-based capital		66,051	12.6			31,390	6.0			N/A	N/A
Tier 1 (leverage) capital		66,051	9.0			29,437	4.0			N/A	N/A
December 31, 2014
Total risk-based capital	$	79,491	15.9	%	$	39,951	8.0	%		N/A	N/A
Tier 1 risk-based capital		74,419	14.9			19,975	4.0			N/A	N/A
Tier 1 (leverage) capital		74,419	10.6			28,215	4.0			N/A	N/A
DNB First, N.A.
March 31, 2015
Total risk-based capital	$	80,352	15.4	%	$	41,819	8.0	%	$	52,274	10.0	%
Tier 1 risk-based capital		75,006	14.4			31,364	6.0			41,819	8.0
Tier 1 (leverage) capital		75,006	10.2			29,415	4.0			36,768	5.0
December 31, 2014
Total risk-based capital	$	79,510	15.9	%	$	39,919	8.0	%	$	49,898	10.0	%
Tier 1 risk-based capital		74,438	14.9			19,959	4.0			29,939	6.0
Tier 1 (leverage) capital		74,438	10.6			28,198	4.0			35,247	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.  AtMarch 31, 2015 and December 31, 2014, DNB's variance in the EVE as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points was within its negative 3% guideline, as shown in the 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 March 31, 2015 and December 31, 2014.

(Dollars in thousands)		March 31, 2015						December 31, 2014
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	71,361	$	60,748	$	60,206	$	72,548	$	68,218	$	58,656
Change				(10,613)		(11,155)				(4,330)		(13,892)
Change as % of assets				(1.4%)		(1.5%)				(0.6%)		(1.9%)
Change as % of PV equity				(14.9%)		(15.6%)				(6.0%)		(19.1%)

47

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 March 31, 2015, 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 March 31, 2015, 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 March 31, 2015.The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended March 31, 2015:

				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)
January 1, 2015 – January 31, 2015	-	$	-	-	$	63,016
February 1, 2015 – February 28, 2015	-		-	-	$	63,016
March 1, 2015 – March 31, 2015	-		-	-	$	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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

48

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.
31.1	Rule 13a-14(a)/15d-14 (a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14 (a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

49

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
May11, 2015	BY:	/s/ William S. Latoff
		William S. Latoff, Chairman of the Board and Chief Executive Officer
May11, 2015	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

50

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.
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

51

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

May 11, 2015

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

May 11, 2015

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 March 31, 2015 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

May 11, 2015

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  March 31, 2015 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

May 11, 2015

XML

Allowance For Credit Losses (Impaired Loans By Loan Portfolio) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 7,301,000		$ 8,206,000
Unpaid Principal Balance, With no related allowance recorded	8,995,000		12,259,000
Average Recorded Investment, With no related allowance recorded	7,754,000	5,640,000
Interest Income Recognized, With no related allowance recorded	27,000	1,000
Recorded Investment, With allowance recorded	1,960,000		850,000
Unpaid Principal Balance, With allowance recorded	5,916,000		2,433,000
Related Allowance	401,000		273,000
Average Recorded Investment, With allowance recorded	1,405,000	2,168,000
Recorded Investment, Total	9,261,000		9,056,000
Unpaid Principal Balance, Total	14,911,000		14,692,000
Average Recorded Investment, Total	9,159,000	7,808,000
Interest Income Recognized, Total	27,000	1,000
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,182,000		2,457,000
Unpaid Principal Balance, With no related allowance recorded	2,958,000		3,270,000
Average Recorded Investment, With no related allowance recorded	2,320,000	1,872,000
Recorded Investment, With allowance recorded	408,000
Unpaid Principal Balance, With allowance recorded	445,000
Related Allowance	1,000
Average Recorded Investment, With allowance recorded	204,000	377,000
Recorded Investment, Total	2,590,000		2,457,000
Unpaid Principal Balance, Total	3,403,000		3,270,000
Average Recorded Investment, Total	2,524,000	2,249,000
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	3,372,000		3,400,000
Unpaid Principal Balance, With no related allowance recorded	3,492,000		3,501,000
Average Recorded Investment, With no related allowance recorded	3,386,000	2,509,000
Interest Income Recognized, With no related allowance recorded	26,000
Recorded Investment, With allowance recorded	202,000		200,000
Unpaid Principal Balance, With allowance recorded	202,000		200,000
Related Allowance	106,000		104,000
Average Recorded Investment, With allowance recorded	201,000	36,000
Recorded Investment, Total	3,574,000		3,600,000
Unpaid Principal Balance, Total	3,694,000		3,701,000
Average Recorded Investment, Total	3,587,000	2,545,000
Interest Income Recognized, Total	26,000
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With allowance recorded	200,000		200,000
Unpaid Principal Balance, With allowance recorded	205,000		202,000
Related Allowance	116,000		119,000
Average Recorded Investment, With allowance recorded	200,000
Recorded Investment, Total	200,000		200,000
Unpaid Principal Balance, Total	205,000		202,000
Average Recorded Investment, Total	200,000
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,094,000		1,706,000
Unpaid Principal Balance, With no related allowance recorded	1,877,000		4,822,000
Average Recorded Investment, With no related allowance recorded	1,400,000	797,000
Recorded Investment, With allowance recorded	1,062,000		450,000
Unpaid Principal Balance, With allowance recorded	4,976,000		2,031,000
Related Allowance	147,000		50,000
Average Recorded Investment, With allowance recorded	756,000	1,684,000
Recorded Investment, Total	2,156,000		2,156,000
Unpaid Principal Balance, Total	6,853,000		6,853,000
Average Recorded Investment, Total	2,156,000	2,481,000
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	459,000		549,000
Unpaid Principal Balance, With no related allowance recorded	474,000		564,000
Average Recorded Investment, With no related allowance recorded	504,000	415,000
Interest Income Recognized, With no related allowance recorded	1,000	1,000
Recorded Investment, With allowance recorded	88,000
Unpaid Principal Balance, With allowance recorded	88,000
Related Allowance	31,000
Average Recorded Investment, With allowance recorded	44,000
Recorded Investment, Total	547,000		549,000
Unpaid Principal Balance, Total	562,000		564,000
Average Recorded Investment, Total	548,000	415,000
Interest Income Recognized, Total	1,000	1,000
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	194,000		94,000
Unpaid Principal Balance, With no related allowance recorded	194,000		102,000
Average Recorded Investment, With no related allowance recorded	144,000	47,000
Average Recorded Investment, With allowance recorded		71,000
Recorded Investment, Total	194,000		94,000
Unpaid Principal Balance, Total	194,000		102,000
Average Recorded Investment, Total	$ 144,000	$ 118,000

XML

Fair Value Of Financial Instruments (Estimate Of The Fair Value Of All Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities	$ 172,478	$ 172,202
Held to Maturity Securities	60,480	59,454
Loans held-for-sale		617
Time	72,784	76,805
Brokered deposits	10,248	10,238
Subordinated debt	9,750
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,335	12,504
Available-for-sale securities	172,478	172,202
Held to Maturity Securities	60,480	59,454
Restricted stock	2,720	2,587
Loans held-for-sale		617
Loans and leases, net of allowance, including impaired	458,910	450,697
Accrued interest receivable	2,572	2,253
Non-interest-bearing deposits	113,419	102,107
Interest-bearing deposits:	430,810	415,933
Time	72,784	76,805
Brokered deposits	10,248	10,238
Repurchase agreements	20,316	19,221
FHLBP advances	20,000	20,000
Junior subordinated debentures and other borrowings	9,279	9,279
Subordinated debt	9,750
Accrued interest payable	306	351
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,335	12,504
Available-for-sale securities	172,478	172,202
Held to Maturity Securities	61,500	60,099
Restricted stock	2,720	2,587
Loans held-for-sale		640
Loans and leases, net of allowance, including impaired	452,830	436,499
Accrued interest receivable	2,572	2,253
Non-interest-bearing deposits	113,419	102,107
Interest-bearing deposits:	430,810	415,933
Time	72,562	76,519
Brokered deposits	10,258	10,204
Repurchase agreements	20,316	19,221
FHLBP advances	20,631	20,616
Junior subordinated debentures and other borrowings	7,349	7,546
Subordinated debt	9,750
Accrued interest payable	306	351
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	28,335	12,504
Available-for-sale securities	18	18
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities	172,460	172,184
Held to Maturity Securities	61,500	60,099
Restricted stock	2,720	2,587
Accrued interest receivable	2,572	2,253
Non-interest-bearing deposits	113,419	102,107
Interest-bearing deposits:	430,810	415,933
Time	72,562	76,519
Brokered deposits	10,258	10,204
Repurchase agreements	20,316	19,221
FHLBP advances	20,631	20,616
Junior subordinated debentures and other borrowings	7,349	7,546
Subordinated debt	9,750
Accrued interest payable	306	351
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans and leases, net of allowance, including impaired	$ 452,830	$ 436,499

XML

Stock-Based Compensation (Weighted Average Price And Weighted Average Remaining Contractual Life) (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Number Outstanding	69,752	163,586
Number Exercisable	69,752	163,586
Weighted Average Exercise Price	$ 9.13	$ 15.13
Remaining Contractual Life	2 years 9 months 29 days	1 year 10 months 6 days
Intrinsic Value	$ 1,177,000	$ 1,187,000
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	66,500	80,650
Number Exercisable	66,500	80,650
Weighted Average Exercise Price	$ 8.72	$ 8.66
Remaining Contractual Life	2 years 11 months 5 days	3 years 1 month 24 days
Intrinsic Value	1,149,000	1,044,000
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	3,252	34,895
Number Exercisable	3,252	34,895
Weighted Average Exercise Price	$ 17.51	$ 17.51
Remaining Contractual Life	8 months 23 days	11 months 19 days
Intrinsic Value	$ 28,000	$ 143,000
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
Range of Exercise Prices, Upper Limit		$ 24.27
Number Outstanding		48,041
Number Exercisable		48,041
Weighted Average Exercise Price		$ 24.27
Remaining Contractual Life		3 months 15 days

XML

Stockholders' Equity (Details) (USD $)	3 Months Ended	12 Months Ended			0 Months Ended
	Mar. 31, 2015	Dec. 31, 2014	Dec. 31, 2011	Dec. 31, 2010	Aug. 04, 2011	Mar. 06, 2015
Class of Stock [Line Items]
Liquidation preference per share	$ 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%
Preferred shares outstanding						3,250
Noncumulative Preferred Stock [Member]
Class of Stock [Line Items]
Shares of perpetual preferred stock					13,000
Liquidation preference per share					$ 1,000
Aggregate proceeds					13,000,000
Redeemable Preferred Stock [Member]
Class of Stock [Line Items]
Liquidation preference per share						$ 1,000
Aggregate liquidation preference						$ 9,767,604.17
Shares redeemed						9,750
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%

XML

Stock-Based Compensation (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation	$ 87,000	$ 70,000
Anticipated additional expense	0
Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	793,368
Shares available for future grants	354,090
Stock based compensation		17,000
Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	243,101
Share issuance, restricted sale period	1 year
Shares available for future grants	116,494
Stock based compensation	87,000	53,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 868,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	2 years 3 months 15 days
Maximum [Member] | Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum option exercise period	10 years
Maximum [Member] | Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award issuable period after date of grant	4 years
Cliff-vesting period	4 years
Minimum [Member] | Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award issuable period after date of grant	3 years
Cliff-vesting period	3 years

XML

Investment Securities (Principal Value Of Investments Securities Sold) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Investment Securities [Abstract]
Available for sale securities sold	$ 3,926	$ 15,228
Held to maturity securities sold		1,228
Total sold securities	$ 3,926	$ 16,456

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Computation Of Basic And Diluted Earnings Per Share

		Three Months Ended
		March 31, 2015
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,226	2,786	$	0.44
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,226	2,833	$	0.43

		Three Months Ended
		March 31, 2014
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	967	2,758	$	0.35
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	44		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	967	2,802	$	0.35

XML

Income Taxes (Details)	3 Months Ended
	Mar. 31, 2015
Minimum [Member]
Income Tax Contingency [Line Items]
Open Tax Year	2011
Maximum [Member]
Income Tax Contingency [Line Items]
Open Tax Year	2014

XML

Earnings Per Share (Narrative) (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
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	0	66,853
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	17,125

XML

Allowance For Credit Losses (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015 loan	Dec. 31, 2014 loan	Mar. 31, 2014 loan
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of TDRs	1	1	1
TDR amount	$ 2,234,000	$ 2,246,000	$ 2,272,000
Reduction of principal	0
Pre-modification recorded investment	2,272,000
Post-modification recorded investment	2,272,000
Number of subsequent defaults	0
Consumer: Home Equity [Member]
Financing Receivable, Modifications [Line Items]
Number of TDRs	1	1	0
TDR amount	102,000	102,000
Monthly payment reduced period, in months	36 months
Reduction of principal	0
Pre-modification recorded investment	102,000
Post-modification recorded investment	$ 102,000
Number of subsequent defaults	0

XML

Fair Value Of Financial Instruments (Fair Value Measurements On Differing Levels) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 172,478	$ 172,202
Loans held-for-sale		617
Total assets measured at fair value on a recurring basis	172,478	172,202
Impaired Loans, Fair Value Disclosure	1,559	2,916
OREO and other repossessed property		100
Total assets measured at fair value on a nonrecurring basis	1,559	3,016
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	18	18
Total assets measured at fair value on a recurring basis	18	18
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	172,460	172,184
Total assets measured at fair value on a recurring basis	172,460	172,184
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans, Fair Value Disclosure	1,559	2,916
OREO and other repossessed property		100
Total assets measured at fair value on a nonrecurring basis	1,559	3,016
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	61,021	61,354
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	61,021	61,354
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	60,871	66,723
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	60,871	66,723
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	19,087	20,011
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	19,087	20,011
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	20,431	13,102
Corporate Bonds [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	20,431	13,102
State And Municipal Tax-Exempt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	11,050	10,994
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	11,050	10,994
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	18	18
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 18	$ 18

XML

Stock-Based Compensation (Stock Option Activity) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Stock-Based Compensation [Abstract]
Outstanding	163,586	207,303
Weighted Average Exercise Price	$ 15.13	$ 15.92
Issued
Issued, Weighted Average Exercise Price
Exercised	93,834
Exercised, Weighted Average Exercise Price	$ 19.60
Forfeited
Forfeited, Weighted Average Exercise Price
Expired
Expired, Weighted Average Exercise Price
Outstanding	69,752	207,303
Weighted Average Exercise Price	$ 9.13	$ 15.92

XML

Basis Of Presentation

3 Months Ended

Mar. 31, 2015

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 months ended March 31, 2015 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, 2014. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2015 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. The adoption of this FASB ASU has not had a material impact on DNB’s 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.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2015, and is to be applied retrospectively. Early adoption is permitted. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the DNB's consolidated financial statements.

XML

Earnings Per Share (Computation Of Basic And Diluted Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Share [Abstract]
Income available to common stockholders, Income	$ 1,226	$ 967
Income available to common stockholders after assumed conversions, Income	$ 1,226	$ 967
Income available to common stockholders, Shares	2,786,012	2,758,135
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Shares	47,000	44,000
Income available to common stockholders after assumed conversions, Shares	2,832,869	2,802,362
Income available to common stockholders, Amount	$ 0.44	$ 0.35
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Amount	$ (0.01)
Income available to common stockholders after assumed conversions, Amount	$ 0.43	$ 0.35

XML

Investment Securities (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Securities [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 168.9	$ 174.9
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	4
Number of securities, impaired for more than 12 months	3
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	23
Number of securities, impaired for more than 12 months	14
Number Of Impaired Municipal Securities, School Districts, Insured	16
Number Of Impaired Municipal Securities, School Districts, Uninsured	6
Number Of Impaired Municipal Securities, Townships, Uninsured	1
Corporate Bonds [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	7
Number of securities, impaired for more than 12 months	1
US Government Agency Obligations [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	2
Number of securities, impaired for more than 12 months	0
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	12
Number of securities, impaired for more than 12 months	12
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

XML

Fair Value Of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2015

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurements On Differing Levels

		March 31, 2015
(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	$	-	$	61,021	$	-	$	61,021
GSE mortgage-backed securities		-		60,871		-		60,871
Collateralized mortgage obligations GSE		-		19,087		-		19,087
Corporate bonds		-		20,431		-		20,431
State and municipal tax-exempt		-		11,050		-		11,050
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,460	$	-	$	172,478
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,559	$	1,559
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	1,559	$	1,559

		December 31, 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	$	-	$	61,354	$	-	$	61,354
GSE mortgage-backed securities		-		66,723		-		66,723
Collateralized mortgage obligations GSE		-		20,011		-		20,011
Corporate bonds		-		13,102		-		13,102
State and municipal tax-exempt		-		10,994		-		10,994
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,184	$	-	$	172,202
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,916	$	2,916
OREO and other repossessed property		-		-		100		100
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	3,016	$	3,016

Quantitative Information About Level 3 Fair Value Measurements

March 31, 2015
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	407	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		83	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		915	Appraisal of	Appraisal adj. (2)	-15%	to	-47%	(-35%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans - Home equity		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,559

(1)

December 31, 2014
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	1,244	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		81	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		1,494	Appraisal of	Appraisal adj. (2)	0%	to	-47%	(-19%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loan total	$	2,916
Other real estate owned	$	100		Disposal costs (2)	-8%	to	-16%	(-12%)

⁽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

		March 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,335	$	28,335	$	28,335	$	-	$	-
AFS investment securities		172,478		172,478		18		172,460		-
HTM investment securities		60,480		61,500		-		61,500		-
Restricted stock		2,720		2,720		-		2,720		-
Loans and leases, net of allowance, including impaired		458,910		452,830		-		-		452,830
Accrued interest receivable		2,572		2,572		-		2,572		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		113,419		113,419		-		113,419		-
Interest-bearing deposits:		430,810		430,810		-		430,810		-
Time		72,784		72,562		-		72,562		-
Brokered deposits		10,248		10,258		-		10,258		-
Repurchase agreements		20,316		20,316		-		20,316		-
FHLBP advances		20,000		20,631		-		20,631		-
Junior subordinated debentures and other borrowings		9,279		7,349		-		7,349		-
Subordinated debt		9,750		9,750		-		9,750		-
Accrued interest payable		306		306		-		306		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	12,504	$	12,504	$	12,504	$	-	$	-
AFS investment securities		172,202		172,202		18		172,184		-
HTM investment securities		59,454		60,099		-		60,099		-
Restricted stock		2,587		2,587		-		2,587		-
Loans held-for-sale		617		640		-		-		-
Loans and leases, net of allowance, including impaired		450,697		436,499		-		-		436,499
Accrued interest receivable		2,253		2,253		-		2,253		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		102,107		102,107		-		102,107		-
Interest-bearing deposits:		415,933		415,933		-		415,933		-
Time		76,805		76,519		-		76,519		-
Brokered deposits		10,238		10,204		-		10,204		-
Repurchase agreements		19,221		19,221		-		19,221		-
FHLBP advances		20,000		20,616		-		20,616		-
Junior subordinated debentures and other borrowings		9,279		7,546		-		7,546		-
Accrued interest payable		351		351		-		351		-
Off-balance sheet instruments		-		-		-		-		-

XML

Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gain (loss) on AFS securities, Before-Tax Amount	$ 369	$ (665)
Net unrealized gain (loss) on AFS securities, Tax Effect	(125)	227
Net unrealized gain (loss) on AFS securities, Net-of-Tax Amount	244	(438)
Discount on AFS to HTM reclassification, Before-Tax Amount	(21)	(24)
Discount on AFS to HTM reclassification, Tax Effect	7	8
Discount on AFS to HTM reclassification, Net-of-Tax Amount	(14)	(16)
Unrealized actuarial losses-pension, Before-Tax Amount	(1,734)	(1,734)
Unrealized actuarial losses-pension, Tax Effect	589	589
Unrealized actuarial losses-pension, Net-of-Tax Amount	(1,145)	(1,145)
Total of all items above, Before-Tax Amount	(1,386)	(2,423)
Total of all items above, Tax Effect	471	824
Total of all items above, Net-of-Tax Effect	$ (915)	$ (1,599)

XML

Investment Securities (Amortized Cost And Estimated Fair Values) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 60,480	$ 59,454
Held-to-maturity Securities, Unrealized Gains	1,406	1,221
Held-to-maturity Securities, Unrealized Losses	(386)	(576)
Held-to-maturity, Estimated Fair Value	61,500	60,099
Available for Sale, Total investment securities, Amortized Cost	172,109	172,867
Available-for-sale Securities, Unrealized Gains	897	290
Available-for-sale Securities, Unrealized Losses	(528)	(955)
Available-for-sale securities	172,478	172,202
US Government Agency Obligations [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	7,790	7,730
Held-to-maturity Securities, Unrealized Gains	432	343
Held-to-maturity, Estimated Fair Value	8,222	8,073
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	3,374	3,579
Held-to-maturity Securities, Unrealized Gains	146	133
Held-to-maturity, Estimated Fair Value	3,520	3,712
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	5,390	3,951
Held-to-maturity Securities, Unrealized Gains	345	324
Held-to-maturity, Estimated Fair Value	5,735	4,275
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	3,344	3,605
Held-to-maturity Securities, Unrealized Gains	34	3
Held-to-maturity Securities, Unrealized Losses	(6)	(29)
Held-to-maturity, Estimated Fair Value	3,372	3,579
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	40,582	40,589
Held-to-maturity Securities, Unrealized Gains	449	418
Held-to-maturity Securities, Unrealized Losses	(380)	(547)
Held-to-maturity, Estimated Fair Value	40,651	40,460
US Government Agency Obligations [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	60,932	61,547
Available-for-sale Securities, Unrealized Gains	136	4
Available-for-sale Securities, Unrealized Losses	(47)	(197)
Available-for-sale securities	61,021	61,354
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	60,390	66,669
Available-for-sale Securities, Unrealized Gains	544	189
Available-for-sale Securities, Unrealized Losses	(63)	(135)
Available-for-sale securities	60,871	66,723
Corporate Bonds [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	20,501	13,208
Available-for-sale Securities, Unrealized Gains	24
Available-for-sale Securities, Unrealized Losses	(94)	(106)
Available-for-sale securities	20,431	13,102
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	19,346	20,499
Available-for-sale Securities, Unrealized Gains	54	8
Available-for-sale Securities, Unrealized Losses	(313)	(496)
Available-for-sale securities	19,087	20,011
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	10,913	10,917
Available-for-sale Securities, Unrealized Gains	137	87
Available-for-sale Securities, Unrealized Losses		(10)
Available-for-sale securities	11,050	10,994
Equity Securities [Member]
Securities [Line Items]
Available for Sale, Total investment securities, Amortized Cost	27	27
Available-for-sale Securities, Unrealized Gains	2	2
Available-for-sale Securities, Unrealized Losses	(11)	(11)
Available-for-sale securities	$ 18	$ 18

XML

Investment Securities (Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	$ 17,776	$ 22,097
Held-to-maturity Securities, Unrealized Losses	(386)	(576)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	6,111	5,181
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(42)	(36)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	11,665	16,916
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(344)	(540)
Available-for-sale Securities, Fair Value, Total	35,225	112,713
Available-for-sale Securities, Unrealized Loss, Total	(528)	(955)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	14,902	79,778
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(90)	(180)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	20,323	32,935
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(438)	(775)
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	5,007	56,342
Available-for-sale Securities, Unrealized Loss, Total	(47)	(197)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	5,007	49,222
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(47)	(97)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months		7,120
Available-for-sale Securities, Unrealized Loss More Than 12 Months		(100)
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	6,952	22,157
Available-for-sale Securities, Unrealized Loss, Total	(63)	(135)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	2,092	14,996
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(7)	(38)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	4,860	7,161
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(56)	(97)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	13,009	18,133
Available-for-sale Securities, Unrealized Loss, Total	(313)	(496)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months		3,669
Available-for-sale Securities, Unrealized Loss Less Than 12 Months		(5)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	13,009	14,464
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(313)	(491)
Corporate Bonds [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	10,245	13,102
Available-for-sale Securities, Unrealized Loss, Total	(94)	(106)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	7,803	9,531
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(36)	(31)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	2,442	3,571
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(58)	(75)
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total		2,967
Available-for-sale Securities, Unrealized Loss, Total		(10)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months		2,360
Available-for-sale Securities, Unrealized Loss Less Than 12 Months		(9)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months		607
Available-for-sale Securities, Unrealized Loss More Than 12 Months		(1)
Equity Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	12	12
Available-for-sale Securities, Unrealized Loss, Total	(11)	(11)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	12	12
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(11)	(11)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	1,412	3,043
Held-to-maturity Securities, Unrealized Losses	(6)	(29)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months		3,043
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(29)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,412
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(6)
State And Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	16,364	19,054
Held-to-maturity Securities, Unrealized Losses	(380)	(547)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	6,111	2,138
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(42)	(7)
Held-to-maturity Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	10,253	16,916
Held-to-maturity Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	$ (338)	$ (540)

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash Flows From Operating Activities:
Net income	$ 1,252	$ 1,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	460	462
Provision for credit losses	300	375
Stock based compensation	87	70
Net gain on sale of securities	(53)	(235)
Net loss on sale and write down of OREO and other repossessed property		6
Earnings from investment in BOLI	(55)	(58)
Deferred tax benefit	(339)
Proceeds from sales of loans originated for sale	5,555
Loans originated for sale	(4,669)
Gain on sale of loans	(269)
Taxes on exercise of stock options	(46)
Increase in accrued interest receivable	(319)	(63)
(Increase) decrease in other assets	(61)	798
Decrease in accrued interest payable	(45)	(59)
Decrease in other liabilities	(123)	(411)
Net Cash Provided By Operating Activities	1,675	1,889
Cash Flows From Investing Activities:
Activity in available-for-sale securities: Sales	3,926	15,228
Activity for available-for-sale securities: Maturities, repayments and calls	11,386	10,931
Activity in available-for-sale securities: Purchases	(14,778)	(32,010)
Activity in held-to-maturity securities: Sales		1,228
Activity in held-to-maturity securities: Maturities, repayments and calls	509	678
Activity in held-to-maturity securities: Purchases	(1,500)
Net (increase) decrease in restricted stock	(133)	169
Net increase in loans and leases	(8,520)	(15,065)
Purchases of property and equipment, less proceeds from disposals	(35)	(131)
Proceeds from sale of OREO and other repossessed property		133
Net Cash Used in Investing Activities	(9,145)	(18,839)
Cash Flows From Financing Activities:
Net increase in deposits	22,178	3,026
Net increase in repurchase agreements	1,095	15,701
Proceeds from issuance of subordinated debt	9,750
Repayment of other borrowings	(10)	(9)
Dividends paid	(220)	(226)
Proceeds from the exercise of stock options	163
Redemption of preferred stock	(9,750)
Sale of treasury stock	95	90
Net Cash Provided by Financing Activities	23,301	18,582
Net Change in Cash and Cash Equivalents	15,831	1,632
Cash and Cash Equivalents at Beginning of Period	12,504	34,060
Cash and Cash Equivalents at End of Period	28,335	35,692
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	651	684
Cash paid during the period for: Income taxes	858	22
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans and leases to real estate owned and other repossessed property	$ 7

XML

Investment Securities (Investments Classified By Contractual Maturity Date) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Investment Securities [Abstract]
Held to Maturity, Due after one year through five years, Amortized Cost	$ 10,649
Held to Maturity, Due after five years through ten years, Amortized Cost	24,014
Held to Maturity, Due after ten years, Amortized Cost	25,817
Held to Maturity, Total investment securities, Amortized Cost	60,480	59,454
Held to Maturity, Due after one year through five years, Estimated Fair Value	11,079
Held to Maturity, Due after five years through ten years, Estimated Fair Value	24,408
Held to Maturity, Due after ten years, Estimated Fair Value	26,013
Held-to-maturity, Total investment securities, Estimated Fair Value	61,500	60,099
Available for Sale, Due in one year or less, Amortized Cost	1,500
Available for Sale, Due after one year through five years, Amortized Cost	69,968
Available for Sale, Due after five years through ten years, Amortized Cost	63,211
Available for Sale, Due after ten years, Amortized Cost	37,403
Available for Sale, No state maturity, Amortized Cost	27
Available for Sale, Total investment securities, Amortized Cost	172,109	172,867
Available for Sale, Due in one year or less, Estimated Fair Value	1,497
Available for Sale, Due after one year through five years, Estimated Fair Value	69,989
Available for Sale, Due after five years through ten years, Estimated Fair Value	63,729
Available for Sale, Due after ten years, Estimated Fair Value	37,245
Available for Sale, No stated maturity, Estimated Fair Value	18
Available for Sale, Total investment securities, Estimated Fair Value	$ 172,478	$ 172,202

XML

Allowance For Credit Losses (Credit Quality Indicators) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 464,100	$ 455,603
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	438,611	430,198
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,665	2,682
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	22,824	22,723
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	26,538	25,993
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	23,817	23,259
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,721	2,734
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	268,586	257,310
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	256,698	245,307
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,593	2,610
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,295	9,393
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	81,730	80,819
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	76,192	75,303
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	72	72
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,466	5,444
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	30,415	35,534
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	25,846	31,057
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4,569	4,477
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	51,269	50,192
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	50,690	49,611
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	579	581
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,562	5,755
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,368	5,661
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 194	$ 94

XML

Fair Value Of Financial Instruments (Quantitative Information About Level 3 Fair Value Measurements) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015		Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	1,559		2,916
Other Real Estate Owned, fair value			100
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	1,559		2,916
Other Real Estate Owned, fair value			100
Level 3 [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	407	[1]	1,244	[1]
Level 3 [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	83	[1]	81	[1]
Level 3 [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	97	[1]	97	[1]
Level 3 [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	915	[1]	1,494	[1]
Level 3 [Member] | Consumer: Home Equity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	57	[1]
Level 3 [Member] | Minimum [Member] | Other Real Estate Owned [Member] | Disposal Costs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate			(16.00%)	[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%	[2]	0.00%	[2]
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] | Commercial Term [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]	0.00%	[2]
Level 3 [Member] | Minimum [Member] | Commercial Term [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%	[2]	0.00%	[2]
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	(13.00%)	[2]	(13.00%)	[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%)	[2]	(47.00%)	[2]
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] | Consumer: Home Equity [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]
Level 3 [Member] | Minimum [Member] | Consumer: Home Equity [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] | Other Real Estate Owned [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] | Residential Mortgage [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]	0.00%	[2]
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] | Commercial Term [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]	0.00%	[2]
Level 3 [Member] | Maximum [Member] | Commercial Term [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] | 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%	[2]	0.00%	[2]
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	(13.00%)	[2]	(13.00%)	[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	(15.00%)	[2]	0.00%	[2]
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]	(11.00%)	[2]
Level 3 [Member] | Maximum [Member] | Consumer: Home Equity [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]
Level 3 [Member] | Maximum [Member] | Consumer: Home Equity [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] | Other Real Estate Owned [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%	[2]	0.00%	[2]
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] | Commercial Term [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]	0.00%	[2]
Level 3 [Member] | Weighted Average [Member] | Commercial Term [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] | 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%	[2]	0.00%	[2]
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	(13.00%)	[2]	(13.00%)	[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	(35.00%)	[2]	(19.00%)	[2]
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]	(11.00%)	[2]
Level 3 [Member] | Weighted Average [Member] | Consumer: Home Equity [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount Rate	0.00%	[2]
Level 3 [Member] | Weighted Average [Member] | Consumer: Home Equity [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.

XML

Consolidated Statements of Financial Condition (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 28,335	$ 12,504
Cash and cash equivalents	28,335	12,504
Available-for-sale investment securities at fair value (amortized cost of $172,109 and $172,867)	172,478	172,202
Held-to-maturity investment securities (fair value of $61,500 and $60,099)	60,480	59,454
Total investments securities	232,958	231,656
Loans held for sale		617
Loans and leases	464,100	455,603
Allowance for credit losses	(5,190)	(4,906)
Net loans and leases	458,910	450,697
Restricted stock	2,720	2,587
Office property and equipment, net	7,490	7,668
Accrued interest receivable	2,572	2,253
Other real estate owned & other repossessed property	908	901
Bank owned life insurance (BOLI)	9,153	9,098
Core deposit intangible	78	82
Net deferred taxes	3,433	3,446
Other assets	1,883	1,821
Total assets	748,440	723,330
Liabilities
Non-interest-bearing deposits	113,419	102,107
Interest-bearing deposits:
NOW	215,799	205,816
Money market	144,648	143,483
Savings	70,363	66,634
Time	72,784	76,805
Brokered deposits	10,248	10,238
Total deposits	627,261	605,083
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	20,000	20,000
Repurchase agreements	20,316	19,221
Junior Subordinated debt	9,279	9,279
Subordinated debt	9,750
Other borrowings	495	505
Total borrowings	59,840	49,005
Accrued interest payable	306	351
Other liabilities	4,860	4,983
Total liabilities	692,267	659,422
Stockholders' Equity
Preferred stock, $10.00 par value; 1,000,000 shares authorized; $1,000 liquidation preference per share; 3,250 and 13,000 issued, respectively	3,250	13,000
Common stock, $1.00 par value; 10,000,000 shares authorized; 2,918,306 and 2,903,610 issued, respectively; 2,797,820 and 2,778,724 outstanding, respectively	2,950	2,931
Treasury stock, at cost; 120,486 and 124,886 shares, respectively	(2,220)	(2,301)
Surplus	34,944	34,745
Retained earnings	18,164	17,132
Accumulated other comprehensive loss	(915)	(1,599)
Total stockholders' equity	56,173	63,908
Total liabilities and stockholders' equity	$ 748,440	$ 723,330

XML

Subordinated Debentures, Notes And Other Borrowings (Details) (USD $)	3 Months Ended
	Mar. 31, 2015 item
Debt Instrument [Line Items]
Number of issuances of junior subordinated debentures	2
Repurchase Agreements	$ 20,300,000
State and Municipal bonds sold	20,700,000
Repurchase Agreement amount, percentage	102.00%
Subordinated Debt [Member]
Debt Instrument [Line Items]
Debt instrument, face amount	9,750,000
Maturity date	Mar. 06, 2025
Subordinated Debt [Member] | Maximum [Member]
Debt Instrument [Line Items]
Variable interest rate	5.75%
Subordinated Debt [Member] | Minimum [Member]
Debt Instrument [Line Items]
Variable interest rate	3.00%
Fixed Rate, First 5 Years [Member] | Subordinated Debt [Member]
Debt Instrument [Line Items]
Fixed interest rate	4.25%
Interest rate period, in years	5 years
Prime Rate [Member] | Subordinated Debt [Member]
Debt Instrument [Line Items]
Basis spread on variable rate	1.00%
DNB Capital Trust I [Member]
Debt Instrument [Line Items]
Issuance date	Jul. 20, 2001
Floating rate capital preferred securities	5,000,000
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	5,200,000
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	4,000,000
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	$ 4,100,000
Maturity date range, start	May 23, 2010
Maturity date range, end	May 23, 2035

XML

Consolidated Statements of Stockholders' Equity (USD $) In Thousands	Preferred Stock [Member]	Common Stock [Member]	Treasury Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at Dec. 31, 2013	$ 12,995	$ 2,910	$ (2,629)	$ 34,441	$ 13,239	$ (2,373)	$ 58,583
Net income					1,004		1,004
Other comprehensive income						600	600
SBLF issuance costs accretion	4				(4)
Restricted stock compensation expense		4		49			53
Stock option compensation expense				17			17
Cash dividends - common ($0.07 per share)					(193)		(193)
Cash dividends SBLF preferred					(33)		(33)
Sale of treasury shares to 401(k)			55	5			60
Sale of treasury shares to deferred comp. plan			27	3			30
Balance at Mar. 31, 2014	12,999	2,914	(2,547)	34,515	14,013	(1,773)	60,121
Balance at Dec. 31, 2014	13,000	2,931	(2,301)	34,745	17,132	(1,599)	63,908
Net income					1,252		1,252
Other comprehensive income						684	684
Redemption of preferred stock ( 9,750 shares)	(9,750)						(9,750)
Restricted stock compensation expense		5		82			87
Exercise of stock options		14		149			163
Taxes on exercise of stock options				(46)			(46)
Cash dividends - common ($0.07 per share)					(194)		(194)
Cash dividends SBLF preferred					(26)		(26)
Sale of treasury shares to 401(k)			54	9			63
Sale of treasury shares to deferred comp. plan			27	5			32
Balance at Mar. 31, 2015	$ 3,250	$ 2,950	$ (2,220)	$ 34,944	$ 18,164	$ (915)	$ 56,173

XML

Loans (Total Loans And Leases Outstanding) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	$ 464,100	$ 455,603
Less allowance for credit losses	(5,190)	(4,906)	(4,750)	(4,623)
Net loans and leases	458,910	450,697
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	26,538	25,993
Less allowance for credit losses	(269)	(269)	(347)	(285)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	268,586	257,310
Less allowance for credit losses	(2,398)	(2,300)	(2,166)	(2,010)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	81,730	80,819
Less allowance for credit losses	(705)	(709)	(652)	(621)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	30,415	35,534
Less allowance for credit losses	(922)	(881)	(806)	(1,033)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	51,269	50,192
Less allowance for credit losses	(224)	(189)	(167)	(156)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases	5,562	5,755
Less allowance for credit losses	$ (66)	$ (70)	$ (125)	$ (78)

XML

Investment Securities (Tables)

3 Months Ended

Mar. 31, 2015

Investment Securities [Abstract]

Amortized Cost And Estimated Fair Values

		March 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,790	$	432	$	-	$	8,222
Government Sponsored Entities (GSE) mortgage-backed securities		3,374		146		-		3,520
Corporate bonds		5,390		345		-		5,735
Collateralized mortgage obligations GSE		3,344		34		(6)		3,372
State and municipal tax-exempt		40,582		449		(380)		40,651
Total	$	60,480	$	1,406	$	(386)	$	61,500
Available For Sale
US Government agency obligations	$	60,932	$	136	$	(47)	$	61,021
GSE mortgage-backed securities		60,390		544		(63)		60,871
Collateralized mortgage obligations GSE		19,346		54		(313)		19,087
Corporate bonds		20,501		24		(94)		20,431
State and municipal tax-exempt		10,913		137		-		11,050
Equity securities		27		2		(11)		18
Total	$	172,109	$	897	$	(528)	$	172,478

		December 31, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,730	$	343	$	-	$	8,073
Government Sponsored Entities (GSE) mortgage-backed securities		3,579		133		-		3,712
Corporate bonds		3,951		324		-		4,275
Collateralized mortgage obligations GSE		3,605		3		(29)		3,579
State and municipal tax-exempt		40,589		418		(547)		40,460
Total	$	59,454	$	1,221	$	(576)	$	60,099
Available For Sale
US Government agency obligations	$	61,547	$	4	$	(197)	$	61,354
GSE mortgage-backed securities		66,669		189		(135)		66,723
Collateralized mortgage obligations GSE		20,499		8		(496)		20,011
Corporate bonds		13,208		-		(106)		13,102
State and municipal tax-exempt		10,917		87		(10)		10,994
Equity securities		27		2		(11)		18
Total	$	172,867	$	290	$	(955)	$	172,202

Unrealized Losses And Fair Value

		March 31, 2015
						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	$	1,412	$	(6)	$	-	$	-	$	1,412	$	(6)
State and Municipal tax-exempt		16,364		(380)		6,111		(42)		10,253		(338)
Total	$	17,776	$	(386)	$	6,111	$	(42)	$	11,665	$	(344)
Available For Sale
US Government agency obligations	$	5,007	$	(47)	$	5,007	$	(47)	$	-	$	-
GSE mortgage-backed securities		6,952		(63)		2,092		(7)		4,860		(56)
Collateralized mortgage obligations GSE		13,009		(313)		-		-		13,009		(313)
Corporate bonds		10,245		(94)		7,803		(36)		2,442		(58)
Equity securities		12		(11)		-		-		12		(11)
Total	$	35,225	$	(528)	$	14,902	$	(90)	$	20,323	$	(438)

		December 31, 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	$	3,043	$	(29)	$	3,043	$	(29)	$	-	$	-
State and municipal tax-exempt		19,054		(547)		2,138		(7)		16,916		(540)
Total	$	22,097	$	(576)	$	5,181	$	(36)	$	16,916	$	(540)
Available For Sale
US Government agency obligations	$	56,342	$	(197)	$	49,222	$	(97)	$	7,120	$	(100)
GSE mortgage-backed securities		22,157		(135)		14,996		(38)		7,161		(97)
Collateralized mortgage obligations GSE		18,133		(496)		3,669		(5)		14,464		(491)
Corporate bonds		13,102		(106)		9,531		(31)		3,571		(75)
State and municipal tax-exempt		2,967		(10)		2,360		(9)		607		(1)
Equity securities		12		(11)		-		-		12		(11)
Total	$	112,713	$	(955)	$	79,778	$	(180)	$	32,935	$	(775)

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	$	-	$	-	$	1,500	$	1,497
Due after one year through five years		10,649		11,079		69,968		69,989
Due after five years through ten years		24,014		24,408		63,211		63,729
Due after ten years		25,817		26,013		37,403		37,245
No stated maturity		-		-		27		18
Total investment securities	$	60,480	$	61,500	$	172,109	$	172,478

Principal Value Of Investments Securities Sold

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Available for sale securities sold	$	3,926	$	15,228
Held to maturity securities sold		-		1,228
Total sold securities	$	3,926	$	16,456

Gain (Loss) On Investment Sales

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Gross realized gains-AFS	$	53	$	192
Gross realized gains-HTM		-		68
Gross realized losses-AFS		-		(25)
Net realized gain	$	53	$	235

XML

Loans (Interest Income On Non-Accrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 6,570	$ 5,322	$ 6,519
Loans 90 day past due and accruing	239	100	334
Total non-performing loans	6,809	5,422	6,853
Interest income that would have been recorded under original terms, non-accrual loans	135	125
Interest income that would have been recorded under original terms, 90 days past due and accruing	5	3
Interest income that would have been recorded under original terms	140	128
Interest income recorded during the period, non-accrual loans		1
Interest income recorded during the period, 90 days past due and accruing	5	3
Interest income recorded during the period	5	4
Net impact on interest income, non-accrual loans	135	124
Net impact on interest income	135	124
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	2,446	2,245	2,458
Loans 90 day past due and accruing	189		191
Interest income that would have been recorded under original terms, non-accrual loans	16	16
Net impact on interest income, non-accrual loans	16	16
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,262	244	1,294
Interest income that would have been recorded under original terms, non-accrual loans	21	5
Net impact on interest income, non-accrual loans	21	5
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	196		198
Interest income that would have been recorded under original terms, non-accrual loans	2
Net impact on interest income, non-accrual loans	2
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	2,043	2,293	2,043
Interest income that would have been recorded under original terms, non-accrual loans	84	94
Net impact on interest income, non-accrual loans	84	94
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	429	386	432
Loans 90 day past due and accruing	50		119
Interest income that would have been recorded under original terms, non-accrual loans	7	7
Interest income recorded during the period, non-accrual loans		1
Net impact on interest income, non-accrual loans	7	6
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	194	154	94
Loans 90 day past due and accruing			24
Interest income that would have been recorded under original terms, non-accrual loans	5	3
Net impact on interest income, non-accrual loans	$ 5	$ 3

XML

Allowance For Credit Losses (Tables)

3 Months Ended

Mar. 31, 2015

Allowance For Credit Losses [Abstract]

Age Analysis Of Past Due Loans Receivables

Age Analysis of Past Due Loans Receivable

March 31, 2015
														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		Receivable		Accruing
Residential mortgage	$	1,408	$	-	$	2,635	$	4,043	$	22,495	$	26,538	$	189
Commercial mortgage		43		-		363		406		268,180		268,586		-
Commercial:
Commercial term		-		-		-		-		81,730		81,730		-
Commercial construction		-		-		2,043		2,043		28,372		30,415		-
Consumer:
Home equity		16		112		405		533		50,736		51,269		50
Other		-		-		194		194		5,368		5,562		-
Total	$	1,467	$	112	$	5,640	$	7,219	$	456,881	$	464,100	$	239

December 31, 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		Receivable		Accruing
Residential mortgage	$	1,005	$	302	$	2,648	$	3,955	$	22,038	$	25,993	$	191
Commercial mortgage		48		187		236		471		256,839		257,310		-
Commercial:
Commercial term		-		-		-		-		80,819		80,819		-
Commercial construction		-		-		2,043		2,043		33,491		35,534		-
Consumer:
Home equity		58		214		386		658		49,534		50,192		119
Other		71		70		119		260		5,495		5,755		24
Total	$	1,182	$	773	$	5,432	$	7,387	$	448,216	$	455,603	$	334

Impaired Loans By Loan Portfolio

		March 31, 2015						December 31, 2014
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,182	$	2,958	$	-	$	2,457	$	3,270	$	-
Commercial mortgage		3,372		3,492		-		3,400		3,501		-
Commercial construction		1,094		1,877		-		1,706		4,822		-
Consumer:
Home equity		459		474		-		549		564		-
Other		194		194		-		94		102		-
Total	$	7,301	$	8,995	$	-	$	8,206	$	12,259	$	-
With allowance recorded:
Residential mortgage		408		445		1		-		-		-
Commercial mortgage		202		202		106		200		200		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		1,062		4,976		147		450		2,031		50
Consumer:
Home equity		88		88		31		-		-		-
Total	$	1,960	$	5,916	$	401	$	850	$	2,433	$	273
Total:
Residential mortgage		2,590		3,403		1		2,457		3,270		-
Commercial mortgage		3,574		3,694		106		3,600		3,701		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		2,156		6,853		147		2,156		6,853		50
Consumer:
Home equity		547		562		31		549		564		-
Other		194		194		-		94		102		-
Total	$	9,261	$	14,911	$	401	$	9,056	$	14,692	$	273

		Three Months Ended				Three Months Ended
		March 31, 2015				March 31, 2014
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,320	$	-	$	1,872	$	-
Commercial mortgage		3,386		26		2,509		-
Commercial construction		1,400		-		797		-
Consumer:
Home equity		504		1		415		1
Other		144		-		47		-
Total	$	7,754	$	27	$	5,640	$	1
With allowance recorded:
Residential mortgage		204		-		377		-
Commercial mortgage		201		-		36		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		756		-		1,684		-
Consumer:
Home equity		44		-		-		-
Other		-		-		71		-
Total	$	1,405	$	-	$	2,168	$	-
Total:
Residential mortgage		2,524		-		2,249		-
Commercial mortgage		3,587		26		2,545		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		2,156		-		2,481		-
Consumer:
Home equity		548		1		415		1
Other		144		-		118		-
Total	$	9,159	$	27	$	7,808	$	1

Credit Quality Indicators

		March 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,817	$	-	$	2,721	$	-	$	26,538
Commercial mortgage		256,698		2,593		9,295		-		268,586
Commercial:
Commercial term		76,192		72		5,466		-		81,730
Commercial construction		25,846		-		4,569		-		30,415
Consumer:
Home equity		50,690		-		579		-		51,269
Other		5,368		-		194		-		5,562
Total	$	438,611	$	2,665	$	22,824	$	-	$	464,100

		December 31, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,259	$	-	$	2,734	$	-	$	25,993
Commercial mortgage		245,307		2,610		9,393		-		257,310
Commercial:
Commercial term		75,303		72		5,444		-		80,819
Commercial construction		31,057		-		4,477		-		35,534
Consumer:
Home equity		49,611		-		581		-		50,192
Other		5,661		-		94		-		5,755
Total	$	430,198	$	2,682	$	22,723	$	-	$	455,603

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 - January 1, 2015	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Charge-offs		-		-		(11)		-		-		-		(6)		-		(17)
Recoveries		-		-		-		-		1		-		-		-		1
Provisions		-		98		7		41		(1)		35		2		118		300
Ending balance - March 31, 2015	$	269	$	2,398	$	705	$	922	$	-	$	224	$	66	$	606	$	5,190
Ending balance: individually evaluated for impairment	$	1	$	106	$	116	$	147	$	-	$	31	$	-	$	-	$	401
Ending balance: collectively evaluated for impairment	$	268	$	2,292	$	589	$	775	$	-	$	193	$	66	$	606	$	4,789
Loans receivables:
Ending balance	$	26,538	$	268,586	$	81,730	$	30,415	$	-	$	51,269	$	5,562			$	464,100
Ending balance: individually evaluated for impairment	$	2,590	$	3,574	$	200	$	2,156	$	-	$	547	$	194			$	9,261
Ending balance: collectively evaluated for impairment	$	23,948	$	265,012	$	81,530	$	28,259	$	-	$	50,722	$	5,368			$	454,839
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	87	$	53	$	-	$	12	$	-			$	156

	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		-		-		(7)		(261)		-		-		-		-		(268)
Recoveries		3		-		-		10		1		-		6		-		20
Provisions		59		156		38		24		(1)		11		41		47		375
Ending balance - March 31, 2014	$	347	$	2,166	$	652	$	806	$	-	$	167	$	125	$	487	$	4,750
Reserve for unfunded loan commitments included in other liabilities	$	-	$	11	$	70	$	50	$	-	$	11	$	-			$	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, 2014	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Ending balance: individually evaluated for impairment	$	-	$	104	$	119	$	50	$	-	$	-	$	-	$	-	$	273
Ending balance: collectively evaluated for impairment	$	269	$	2,196	$	590	$	831	$	-	$	189	$	70	$	488	$	4,633
Loans receivables:
Ending balance	$	25,993	$	257,310	$	80,819	$	35,534	$	-	$	50,192	$	5,755			$	455,603
Ending balance: individually evaluated for impairment	$	2,457	$	3,600	$	200	$	2,156	$	-	$	549	$	94			$	9,056
Ending balance: collectively evaluated for impairment	$	23,536	$	253,710	$	80,619	$	33,378	$	-	$	49,643	$	5,661			$	446,547
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	89	$	55	$	-	$	12	$	-			$	166

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Consolidated Statements of Stockholders' Equity [Abstract]
Exercise of stock options, shares	93,834
Cash Dividends-Common Stock per share	$ 0.07	$ 0.07
Sale of treasury shares to 401(k), Shares	2,926	3,015
Sale of treasury shares to deferred compensation plan, Shares	1,474	1,491

XML

Consolidated Statements of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 172,109	$ 172,867
Held-to-maturity Securities, Fair Value	$ 61,500	$ 60,099
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	3,250	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	2,918,306	2,903,610
Common Stock, Shares, Outstanding	2,797,820	2,778,724
Treasury Stock, Shares	120,486	124,886

XML

Income Taxes

3 Months Ended

Mar. 31, 2015

Income Taxes [Abstract]

Income Taxes

NOTE 9:  INCOME TAXES

As of March 31, 2015, 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 2011 through 2014 were open for examination as of March 31, 2015.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2015	May 11, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
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		2,802,082

XML

Fair Value Of Financial Instruments

3 Months Ended

Mar. 31, 2015

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 March 31, 2015 and December 31, 2014 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

		March 31, 2015
(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	$	-	$	61,021	$	-	$	61,021
GSE mortgage-backed securities		-		60,871		-		60,871
Collateralized mortgage obligations GSE		-		19,087		-		19,087
Corporate bonds		-		20,431		-		20,431
State and municipal tax-exempt		-		11,050		-		11,050
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,460	$	-	$	172,478
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,559	$	1,559
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	1,559	$	1,559

		December 31, 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	$	-	$	61,354	$	-	$	61,354
GSE mortgage-backed securities		-		66,723		-		66,723
Collateralized mortgage obligations GSE		-		20,011		-		20,011
Corporate bonds		-		13,102		-		13,102
State and municipal tax-exempt		-		10,994		-		10,994
Equity securities		18		-		-		18
Total assets measured at fair value on a recurring basis	$	18	$	172,184	$	-	$	172,202
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	2,916	$	2,916
OREO and other repossessed property		-		-		100		100
Total assets measured at fair value on a nonrecurring basis	$	-	$	-	$	3,016	$	3,016

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:

March 31, 2015
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	407	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		83	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		915	Appraisal of	Appraisal adj. (2)	-15%	to	-47%	(-35%)
			collateral (1)	Disposal costs (2)	-8%	to	-11%	(-10%)
Impaired loans - Home equity		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,559

(1)

December 31, 2014
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Residential mortgage	$	1,244	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		97	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
Impaired loans - Commercial term		81	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		1,494	Appraisal of	Appraisal adj. (2)	0%	to	-47%	(-19%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loan total	$	2,916
Other real estate owned	$	100		Disposal costs (2)	-8%	to	-16%	(-12%)

⁽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 $9.3 million at March 31, 2015. Of this, $2.0 million had a specific valuation allowance of $401,000, leaving a fair value of $1.6 million as of March 31, 2015. DNB had no impaired loans that were partially charged down as of March 31, 2015. The total fair value of impaired loans at March 31, 2015 was $1.6 million.

Impaired loans had a carrying amount of $9.1 million at December 31, 2014. Of this, $850,000 had a specific valuation allowance of $273,000, leaving a fair value of $577,000 at December 31, 2014. In addition, DNB had $2.9 million in impaired loans that were partially charged down by $526,000, leaving $2.3 million at fair value as of December 31, 2014. The total fair value of impaired loans at December 31, 2014 was $2.9 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 $908,000 of such assets at March 31, 2015, $837,000 of which was OREO and $71,000 was in other repossessed property. DNB had $901,000 of such assets at December 31, 2014, which consisted of $837,000 in OREO and $64,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did not write down the carrying values during the three month period ending March 31, 2015 or the three month period ending March 31, 2014.

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 nine months ended March 31, 2015.

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 March 31, 2015 and December 31, 2014 are as follows:

		March 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	28,335	$	28,335	$	28,335	$	-	$	-
AFS investment securities		172,478		172,478		18		172,460		-
HTM investment securities		60,480		61,500		-		61,500		-
Restricted stock		2,720		2,720		-		2,720		-
Loans and leases, net of allowance, including impaired		458,910		452,830		-		-		452,830
Accrued interest receivable		2,572		2,572		-		2,572		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		113,419		113,419		-		113,419		-
Interest-bearing deposits:		430,810		430,810		-		430,810		-
Time		72,784		72,562		-		72,562		-
Brokered deposits		10,248		10,258		-		10,258		-
Repurchase agreements		20,316		20,316		-		20,316		-
FHLBP advances		20,000		20,631		-		20,631		-
Junior subordinated debentures and other borrowings		9,279		7,349		-		7,349		-
Subordinated debt		9,750		9,750		-		9,750		-
Accrued interest payable		306		306		-		306		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2014
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	12,504	$	12,504	$	12,504	$	-	$	-
AFS investment securities		172,202		172,202		18		172,184		-
HTM investment securities		59,454		60,099		-		60,099		-
Restricted stock		2,587		2,587		-		2,587		-
Loans held-for-sale		617		640		-		-		-
Loans and leases, net of allowance, including impaired		450,697		436,499		-		-		436,499
Accrued interest receivable		2,253		2,253		-		2,253		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		102,107		102,107		-		102,107		-
Interest-bearing deposits:		415,933		415,933		-		415,933		-
Time		76,805		76,519		-		76,519		-
Brokered deposits		10,238		10,204		-		10,204		-
Repurchase agreements		19,221		19,221		-		19,221		-
FHLBP advances		20,000		20,616		-		20,616		-
Junior subordinated debentures and other borrowings		9,279		7,546		-		7,546		-
Accrued interest payable		351		351		-		351		-
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.

Loans Held-for-Sale  The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices. If no such quotes prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan.

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 and brokered deposits (all of which are 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. Of the $10.2 million in brokered deposits, $4.0 million matures in 2016 and $6.2 million matures in 2017.

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.

Subordinated NoteThe fair value of the subordinated note was estimated using either a discounted cash flow analysis based on current market interest rates for debt with similar maturities and credit quality or estimated using market quotes.

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 March 31, 2015, un-funded loan commitments totaled $100.6 million and stand-by letters of credit totaled $2.2 million. At December 31, 2014, un-funded loan commitments totaled $101.7 million and stand-by letters of credit totaled $2.2 million.

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Interest Income:
Interest and fees on loans and leases	$ 4,912	$ 4,805
Interest and dividends on investment securities: Taxable	735	710
Interest and dividends on investment securities: Exempt from federal taxes	342	276
Interest on cash and cash equivalents	7	11
Total interest and dividend income	5,996	5,802
Interest Expense:
Interest on NOW, money market and savings	149	155
Interest on time deposits	109	223
Interest in brokered deposits	24
Interest on FHLB advances	194	146
Interest on repurchase agreements	9	10
Interest on junior subordinated debentures	74	73
Interest on Subordinated Debt	30
Interest on other borrowings	17	18
Total interest expense	606	625
Net interest income	5,390	5,177
Provision for credit losses	300	375
Net interest income after provision for credit losses	5,090	4,802
Non-interest Income:
Service charges	296	330
Wealth management	352	311
Mortgage banking	38
Increase in cash surrender value of BOLI	55	58
Gains on sale of investment securities, net	53	235
Gain on sale of SBA loans	231
Other fees	310	285
Total non-interest income	1,335	1,219
Non-interest Expense:
Salaries and employee benefits	2,644	2,503
Furniture and equipment	302	331
Occupancy	603	619
Professional and consulting	328	318
Advertising and marketing	169	155
Printing and supplies	48	39
FDIC insurance	123	112
PA shares tax	150	150
Telecommunications	61	57
Postage	23	20
Loss on sale or write down of OREO, net		6
Other expenses	373	384
Total non-interest expense	4,824	4,694
Income before income tax expense	1,601	1,327
Income tax expense	349	323
Net income	1,252	1,004
Preferred stock dividends and accretion of discount	26	37
Net income available to Common Shareholders	$ 1,226	$ 967
Earnings per common share:
Basic	$ 0.44	$ 0.35
Diluted	$ 0.43	$ 0.35
Cash dividends per common share	$ 0.07	$ 0.07
Weighted average common shares outstanding:
Basic	2,786,012	2,758,135
Diluted	2,832,869	2,802,362

XML

Allowance For Credit Losses

3 Months Ended

Mar. 31, 2015

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 March 31, 2015 and December 31, 2014. 

Age Analysis of Past Due Loans Receivable

March 31, 2015
														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		Receivable		Accruing
Residential mortgage	$	1,408	$	-	$	2,635	$	4,043	$	22,495	$	26,538	$	189
Commercial mortgage		43		-		363		406		268,180		268,586		-
Commercial:
Commercial term		-		-		-		-		81,730		81,730		-
Commercial construction		-		-		2,043		2,043		28,372		30,415		-
Consumer:
Home equity		16		112		405		533		50,736		51,269		50
Other		-		-		194		194		5,368		5,562		-
Total	$	1,467	$	112	$	5,640	$	7,219	$	456,881	$	464,100	$	239

December 31, 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		Receivable		Accruing
Residential mortgage	$	1,005	$	302	$	2,648	$	3,955	$	22,038	$	25,993	$	191
Commercial mortgage		48		187		236		471		256,839		257,310		-
Commercial:
Commercial term		-		-		-		-		80,819		80,819		-
Commercial construction		-		-		2,043		2,043		33,491		35,534		-
Consumer:
Home equity		58		214		386		658		49,534		50,192		119
Other		71		70		119		260		5,495		5,755		24
Total	$	1,182	$	773	$	5,432	$	7,387	$	448,216	$	455,603	$	334

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2015 and 2014 and as of December 31, 2014.

Impaired Loans

		March 31, 2015						December 31, 2014
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,182	$	2,958	$	-	$	2,457	$	3,270	$	-
Commercial mortgage		3,372		3,492		-		3,400		3,501		-
Commercial construction		1,094		1,877		-		1,706		4,822		-
Consumer:
Home equity		459		474		-		549		564		-
Other		194		194		-		94		102		-
Total	$	7,301	$	8,995	$	-	$	8,206	$	12,259	$	-
With allowance recorded:
Residential mortgage		408		445		1		-		-		-
Commercial mortgage		202		202		106		200		200		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		1,062		4,976		147		450		2,031		50
Consumer:
Home equity		88		88		31		-		-		-
Total	$	1,960	$	5,916	$	401	$	850	$	2,433	$	273
Total:
Residential mortgage		2,590		3,403		1		2,457		3,270		-
Commercial mortgage		3,574		3,694		106		3,600		3,701		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		2,156		6,853		147		2,156		6,853		50
Consumer:
Home equity		547		562		31		549		564		-
Other		194		194		-		94		102		-
Total	$	9,261	$	14,911	$	401	$	9,056	$	14,692	$	273

		Three Months Ended				Three Months Ended
		March 31, 2015				March 31, 2014
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,320	$	-	$	1,872	$	-
Commercial mortgage		3,386		26		2,509		-
Commercial construction		1,400		-		797		-
Consumer:
Home equity		504		1		415		1
Other		144		-		47		-
Total	$	7,754	$	27	$	5,640	$	1
With allowance recorded:
Residential mortgage		204		-		377		-
Commercial mortgage		201		-		36		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		756		-		1,684		-
Consumer:
Home equity		44		-		-		-
Other		-		-		71		-
Total	$	1,405	$	-	$	2,168	$	-
Total:
Residential mortgage		2,524		-		2,249		-
Commercial mortgage		3,587		26		2,545		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		2,156		-		2,481		-
Consumer:
Home equity		548		1		415		1
Other		144		-		118		-
Total	$	9,159	$	27	$	7,808	$	1

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 March 31, 2015 and December 31, 2014.

Credit Quality Indicators

		March 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,817	$	-	$	2,721	$	-	$	26,538
Commercial mortgage		256,698		2,593		9,295		-		268,586
Commercial:
Commercial term		76,192		72		5,466		-		81,730
Commercial construction		25,846		-		4,569		-		30,415
Consumer:
Home equity		50,690		-		579		-		51,269
Other		5,368		-		194		-		5,562
Total	$	438,611	$	2,665	$	22,824	$	-	$	464,100

		December 31, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,259	$	-	$	2,734	$	-	$	25,993
Commercial mortgage		245,307		2,610		9,393		-		257,310
Commercial:
Commercial term		75,303		72		5,444		-		80,819
Commercial construction		31,057		-		4,477		-		35,534
Consumer:
Home equity		49,611		-		581		-		50,192
Other		5,661		-		94		-		5,755
Total	$	430,198	$	2,682	$	22,723	$	-	$	455,603

As of March 31, 2015, DNB had one commercial mortgage classified as a TDR totaling $2,234,000, compared to one commercial mortgage classified as a TDR totaling $2,246,000 (the same loan) at December 31, 2014, and one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at March 31, 2014.  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 commenced normal principal and interest payments in June 2014.  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 months ended March 31, 2015, there were no defaults on any terms of this loan.

As of March 31, 2015, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared toone consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2014, and no such loans at 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 months ended March 31, 2015, there were no defaults on any terms of this loan.

Loans classified as TDR, are considered impaired. The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2015 and December 31, 2014, the activity for the three months ended March 31, 2015 and 2014 and as of and for the year ended December 31, 2014.

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 - January 1, 2015	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Charge-offs		-		-		(11)		-		-		-		(6)		-		(17)
Recoveries		-		-		-		-		1		-		-		-		1
Provisions		-		98		7		41		(1)		35		2		118		300
Ending balance - March 31, 2015	$	269	$	2,398	$	705	$	922	$	-	$	224	$	66	$	606	$	5,190
Ending balance: individually evaluated for impairment	$	1	$	106	$	116	$	147	$	-	$	31	$	-	$	-	$	401
Ending balance: collectively evaluated for impairment	$	268	$	2,292	$	589	$	775	$	-	$	193	$	66	$	606	$	4,789
Loans receivables:
Ending balance	$	26,538	$	268,586	$	81,730	$	30,415	$	-	$	51,269	$	5,562			$	464,100
Ending balance: individually evaluated for impairment	$	2,590	$	3,574	$	200	$	2,156	$	-	$	547	$	194			$	9,261
Ending balance: collectively evaluated for impairment	$	23,948	$	265,012	$	81,530	$	28,259	$	-	$	50,722	$	5,368			$	454,839
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	87	$	53	$	-	$	12	$	-			$	156

	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		-		-		(7)		(261)		-		-		-		-		(268)
Recoveries		3		-		-		10		1		-		6		-		20
Provisions		59		156		38		24		(1)		11		41		47		375
Ending balance - March 31, 2014	$	347	$	2,166	$	652	$	806	$	-	$	167	$	125	$	487	$	4,750
Reserve for unfunded loan commitments included in other liabilities	$	-	$	11	$	70	$	50	$	-	$	11	$	-			$	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, 2014	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Ending balance: individually evaluated for impairment	$	-	$	104	$	119	$	50	$	-	$	-	$	-	$	-	$	273
Ending balance: collectively evaluated for impairment	$	269	$	2,196	$	590	$	831	$	-	$	189	$	70	$	488	$	4,633
Loans receivables:
Ending balance	$	25,993	$	257,310	$	80,819	$	35,534	$	-	$	50,192	$	5,755			$	455,603
Ending balance: individually evaluated for impairment	$	2,457	$	3,600	$	200	$	2,156	$	-	$	549	$	94			$	9,056
Ending balance: collectively evaluated for impairment	$	23,536	$	253,710	$	80,619	$	33,378	$	-	$	49,643	$	5,661			$	446,547
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	89	$	55	$	-	$	12	$	-			$	166

XML

Loans

3 Months Ended

Mar. 31, 2015

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)		March 31, 2015		December 31, 2014
Residential mortgage	$	26,538	$	25,993
Commercial mortgage		268,586		257,310
Commercial:
Commercial term		81,730		80,819
Commercial construction		30,415		35,534
Consumer:
Home equity		51,269		50,192
Other		5,562		5,755
Total loans and leases	$	464,100	$	455,603
Less allowance for credit losses		(5,190)		(4,906)
Net loans and leases	$	458,910	$	450,697

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

					Three Months Ended March 31, 2015
(Dollars in thousands)	December 31, 2014		March 31, 2015		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	$	2,458	$	2,446	$	16	$	-	$	16
Commercial mortgage		1,294		1,262		21		-		21
Commercial:
Commercial term		198		196		2		-		2
Commercial construction		2,043		2,043		84		-		84
Consumer:
Home equity		432		429		7		-		7
Other		94		194		5		-		5
Total non-accrual loans	$	6,519	$	6,570	$	135	$	-	$	135
Loans 90 days past due and accruing		334		239		5		5		-
Total non-performing loans	$	6,853	$	6,809	$	140	$	5	$	135

			Three Months Ended March 31, 2014
(Dollars in thousands)	March 31, 2014		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	$	2,245	$	16	$	-	$	16
Commercial mortgage		244		5		-		5
Commercial:
Commercial term		-		-		-		-
Commercial construction		2,293		94		-		94
Consumer:
Home equity		386		7		1		6
Other		154		3		-		3
Total non-accrual loans	$	5,322	$	125	$	1	$	124
Loans 90 days past due and accruing		100		3		3		-
Total non-performing loans	$	5,422	$	128	$	4	$	124

XML

Loans (Tables)

3 Months Ended

Mar. 31, 2015

Loans [Abstract]

Total Loans And Leases Outstanding

(Dollars in thousands)		March 31, 2015		December 31, 2014
Residential mortgage	$	26,538	$	25,993
Commercial mortgage		268,586		257,310
Commercial:
Commercial term		81,730		80,819
Commercial construction		30,415		35,534
Consumer:
Home equity		51,269		50,192
Other		5,562		5,755
Total loans and leases	$	464,100	$	455,603
Less allowance for credit losses		(5,190)		(4,906)
Net loans and leases	$	458,910	$	450,697

Interest Income On Non-Accrual Loans

					Three Months Ended March 31, 2015
(Dollars in thousands)	December 31, 2014		March 31, 2015		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	$	2,458	$	2,446	$	16	$	-	$	16
Commercial mortgage		1,294		1,262		21		-		21
Commercial:
Commercial term		198		196		2		-		2
Commercial construction		2,043		2,043		84		-		84
Consumer:
Home equity		432		429		7		-		7
Other		94		194		5		-		5
Total non-accrual loans	$	6,519	$	6,570	$	135	$	-	$	135
Loans 90 days past due and accruing		334		239		5		5		-
Total non-performing loans	$	6,853	$	6,809	$	140	$	5	$	135

			Three Months Ended March 31, 2014
(Dollars in thousands)	March 31, 2014		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	$	2,245	$	16	$	-	$	16
Commercial mortgage		244		5		-		5
Commercial:
Commercial term		-		-		-		-
Commercial construction		2,293		94		-		94
Consumer:
Home equity		386		7		1		6
Other		154		3		-		3
Total non-accrual loans	$	5,322	$	125	$	1	$	124
Loans 90 days past due and accruing		100		3		3		-
Total non-performing loans	$	5,422	$	128	$	4	$	124

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2015

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 11:  STOCKHOLDERS’ EQUITY

In July 2013, the Board of Directors of the FRB approved the Basel III intereim final rule (Basel III), which is intended to strengthen the quality and increase the required level of regulatory capital for a more stable and resilient banking system. The changes include (1) a new regulatory capital measure, Common Equity Tier 1 (CET1), which is limited to capital elements of the highest quality, (2) a new definition and increase of tier 1 capital which is now comprised of CET1 and Additional Tier 1, (3) changes in calculation of some risk-weighted assets and off-balance sheet exposure, and (4) a capital conservation buffer that will limit capital distributions, stock redemptions, and certain discretionary bonus payments if the institution does not maintain capital in excess of the minimum capital requirements. These new capital rules took effect for our bank on January 1, 2015 and reporting began with the March 31, 2015 call report.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Corporation 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 Corporation’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 Corporation 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 Corporation 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 Corporation’s Board of Directors. DNB paid an annual rate on the $13.0 million of Series 2011A Preferred Stock of 1.00% for the year ended December 31, 2014 and the annual rate remained at 1.00% as of March 31, 2015.

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 Corporation 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 Corporation’s primary federal banking regulator.

On March 6, 2015, DNB  redeemed  9,750 of the 13,000 shares of the Corporation’s Series 2011A Preferred Stock that had been issued to the United States Department of the Treasury in connection with the Corporation’s participation in the SBLF program. The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends for a total redemption price of $9,767,604.17. Following the consummation of this partial redemption, the Corporation continues to have outstanding3,250 shares of its Series 2011A Preferred Stock.

XML

Subordinated Debentures, Notes And Other Borrowings

3 Months Ended

Mar. 31, 2015

Subordinated Debentures, Notes And Other Borrowings [Abstract]

Subordinated Debentures, Notes, And Other Borrowings

NOTE 7: SUBORDINATED DEBENTURES, NOTES, AND OTHER BORROWINGS

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.

Subordinated Note

On March 5, 2015, DNB Financial Corporation entered into a Subordinated Note Purchase Agreement (the “Agreement”) with an accredited investor under which the Company issued a $9.75 million subordinated note (the “Note”) to the investor. The Note has a maturity date of March 6, 2025, and will bear interest at a fixed rate of 4.25% per annum for the first 5 years and then float at the Wall Street Journal Prime rate  plus 1.00%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 3.0% and more than 5.75% per annum.

The Company may, at its option, beginning with the first interest payment date after March 6, 2019, and on any interest payment date thereafter, redeem the Note, in whole or in part, at par plus accrued and unpaid interest to the date of redemption. The Note is not subject to repayment at the option of the noteholder.

The Note is unsecured and ranks junior in right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors and qualifies as Tier 2 capital for regulatory purposes.

Repurchase Agreements Accounted for as Secured Borrowings

As of March 31, 2015, DNB had $20.3 million of repurchase agreements. In conjunction with these repurchase agreements, $20.7 million of state and municipal securities were sold on an overnight basis as of March 31, 2015, which represents 102% of the repurchase agreement amount.

XML

Earnings Per Share

3 Months Ended

Mar. 31, 2015

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, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at March 31, 2015. There were no anti-dilutive stock warrants outstanding, 66,853 anti-dilutive stock options outstanding, and 17,125 anti-dilutive stock awards outstanding at March 31, 2014. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		March 31, 2015
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,226	2,786	$	0.44
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	47		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,226	2,833	$	0.43

		Three Months Ended
		March 31, 2014
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	967	2,758	$	0.35
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	44		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	967	2,802	$	0.35

XML

Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2015

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		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
March 31, 2015
Net unrealized gain on AFS securities	$	369	$	(125)	$	244
Discount on AFS to HTM reclassification		(21)		7		(14)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(1,386)	$	471	$	(915)
December 31, 2014
Net unrealized loss on AFS securities	$	(665)	$	227	$	(438)
Discount on AFS to HTM reclassification		(24)		8		(16)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(2,423)	$	824	$	(1,599)

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2015

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 354,090 shares available for grant at March 31, 2015. All options are immediately exercisable. DNB had no expenses during the three months ended March 31, 2015 compared to $17,000 during the three months ended March 31, 2014. DNB has no anticipated additional expense. Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015	163,586	$	15.13
Issued	-		-
Exercised	93,834		19.60
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2015	69,752	$	9.13

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2014	207,303	$	15.92
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2014	207,303	$	15.92

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

	March 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	66,500	66,500	$	8.72	2.93 years	$	1,149,000
	14.00-19.99	3,252	3,252		17.51	0.73 years		28,000
	Total	69,752	69,752	$	9.13	2.83 years	$	1,177,000

	December 31, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	80,650	80,650	$	8.66	3.15 years	$	1,044,000
	14.00-19.99	34,895	34,895		17.51	0.97 years		143,000
	23.00-24.27	48,041	48,041		24.27	0.29 years		-
	Total	163,586	163,586	$	15.13	1.85 years	$	1,187,000

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 threeor fouryears (cliff vesting period) 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 a  three or fouryear cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized.  For the three month periods ended March 31, 2015 and 2014, $87,000 and $53,000 was amortized to expense, respectively. As of March 31, 2015, there was approximately $868,000 in additional compensation that will be recognized over the remaining service period of approximately 2.29 years.  At March 31, 2015, 116,494 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, 2015	75,930	$	17.66
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2015	75,930	$	17.66

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2014	50,795	$	15.65

XML

Investment Securities (Gain (Loss) On Investment Sales) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Investment Securities [Abstract]
Gross realized gains-AFS	$ 53	$ 192
Gross realized gains-HTM		68
Gross realized losses-AFS		(25)
Net realized gain	$ 53	$ 235

XML

Fair Value Of Financial Instruments (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Mar. 31, 2015
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Total recorded investment	$ 9,056,000	$ 9,261,000
Recorded Investment, With allowance recorded	850,000	1,960,000
Impaired Financing Receivable, Related Allowance	273,000	401,000
Additional impaired financing receivable	2,900,000	0
Partial charge down	526,000
Total fair value of impaired loans	2,900,000	1,600,000
Other real estate owned & other repossessed property	901,000	908,000
OREO	837,000	837,000
Other Repossessed Assets	64,000	71,000
Transfers from level 1 to level 2		0
Transfers from level 2 to level 1		0
Interest-bearing Domestic Deposit, Brokered	10,238,000	10,248,000
Brokered deposits maturing in 2016		4,000,000
Brokered deposits maturing in 2017		6,200,000
Un-funded Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	101,700,000	100,600,000
Stand-by Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	2,200,000	2,200,000
Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Recorded Investment, With allowance recorded	577,000	1,600,000
Additional impaired financing receivable	2,300,000
Interest-bearing Domestic Deposit, Brokered	$ 10,204,000	$ 10,258,000

XML

Fair Value Of Financial Instruments (Policy)

3 Months Ended

Mar. 31, 2015

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.

Loans Held-for-Sale  The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices. If no such quotes prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan.

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 and brokered deposits (all of which are 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. Of the $10.2 million in brokered deposits, $4.0 million matures in 2016 and $6.2 million matures in 2017.

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.

Subordinated NoteThe fair value of the subordinated note was estimated using either a discounted cash flow analysis based on current market interest rates for debt with similar maturities and credit quality or estimated using market quotes.

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 March 31, 2015, un-funded loan commitments totaled $100.6 million and stand-by letters of credit totaled $2.2 million. At December 31, 2014, un-funded loan commitments totaled $101.7 million and stand-by letters of credit totaled $2.2 million

XML

Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2015

Accumulated Other Comprehensive Loss [Abstract]

Components Of Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
March 31, 2015
Net unrealized gain on AFS securities	$	369	$	(125)	$	244
Discount on AFS to HTM reclassification		(21)		7		(14)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(1,386)	$	471	$	(915)
December 31, 2014
Net unrealized loss on AFS securities	$	(665)	$	227	$	(438)
Discount on AFS to HTM reclassification		(24)		8		(16)
Unrealized actuarial losses-pension		(1,734)		589		(1,145)
	$	(2,423)	$	824	$	(1,599)

XML

Stock-Based Compensation (Stock Grant Activity) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Stock-Based Compensation [Abstract]
Non-vested stock awards, Shares, beginning balance	75,930	50,795
Granted, Shares
Forfeited, Shares
Vested, Shares
Non-vested stock awards, Shares, ending balance	75,930	50,795
Non-vested stock awards, Weighted Average Stock Price	$ 17.66	$ 15.65
Granted, Weighted Average Stock Price
Forfeited, Weighted Average Stock Price
Vested, Weighted Average Stock Price
Non-vested stock awards, Weighted Average Stock Price	$ 17.66	$ 15.65

XML

Allowance For Credit Losses (Allowance For Credit Losses And Recorded Investments In Loans Receivables) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 4,906	$ 4,623	$ 4,623
Charge offs	(17)	(268)
Recoveries	1	20
Provisions	300	375
Ending balance	5,190	4,750	4,906
Ending balance: individually evaluated for impairment	401		273
Ending balance: collectively evaluated for impairment	4,789		4,633
Loans receivables, Ending Balance	464,100		455,603
Loans receivables, Ending Balance: individually evaluated for impairment	9,261		9,056
Loans receivable, Ending Balance: collectively evaluated for impairment	454,839		446,547
Reserve for unfunded loan commitments included in other liabilities	156	142	166
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	269	285	285
Charge offs
Recoveries		3
Provisions		59
Ending balance	269	347
Ending balance: individually evaluated for impairment	1
Ending balance: collectively evaluated for impairment	268		269
Loans receivables, Ending Balance	26,538		25,993
Loans receivables, Ending Balance: individually evaluated for impairment	2,590		2,457
Loans receivable, Ending Balance: collectively evaluated for impairment	23,948		23,536
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	2,300	2,010	2,010
Charge offs
Provisions	98	156
Ending balance	2,398	2,166	2,300
Ending balance: individually evaluated for impairment	106		104
Ending balance: collectively evaluated for impairment	2,292		2,196
Loans receivables, Ending Balance	268,586		257,310
Loans receivables, Ending Balance: individually evaluated for impairment	3,574		3,600
Loans receivable, Ending Balance: collectively evaluated for impairment	265,012		253,710
Reserve for unfunded loan commitments included in other liabilities	4	11	10
Commercial Term [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	709	621	621
Charge offs	(11)	(7)
Provisions	7	38
Ending balance	705	652	709
Ending balance: individually evaluated for impairment	116		119
Ending balance: collectively evaluated for impairment	589		590
Loans receivables, Ending Balance	81,730		80,819
Loans receivables, Ending Balance: individually evaluated for impairment	200		200
Loans receivable, Ending Balance: collectively evaluated for impairment	81,530		80,619
Reserve for unfunded loan commitments included in other liabilities	87	70	89
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	881	1,033	1,033
Charge offs		(261)
Recoveries		10
Provisions	41	24
Ending balance	922	806	881
Ending balance: individually evaluated for impairment	147		50
Ending balance: collectively evaluated for impairment	775		831
Loans receivables, Ending Balance	30,415		35,534
Loans receivables, Ending Balance: individually evaluated for impairment	2,156		2,156
Loans receivable, Ending Balance: collectively evaluated for impairment	28,259		33,378
Reserve for unfunded loan commitments included in other liabilities	53	50	55
Leases Financing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Charge offs
Recoveries	1	1
Provisions	(1)	(1)
Consumer: Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	189	156	156
Charge offs
Provisions	35	11
Ending balance	224	167	189
Ending balance: individually evaluated for impairment	31
Ending balance: collectively evaluated for impairment	193		189
Loans receivables, Ending Balance	51,269		50,192
Loans receivables, Ending Balance: individually evaluated for impairment	547		549
Loans receivable, Ending Balance: collectively evaluated for impairment	50,722		49,643
Reserve for unfunded loan commitments included in other liabilities	12	11	12
Consumer: Other [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	70	78	78
Charge offs	(6)
Recoveries		6
Provisions	2	41
Ending balance	66	125
Ending balance: collectively evaluated for impairment	66		70
Loans receivables, Ending Balance	5,562		5,755
Loans receivables, Ending Balance: individually evaluated for impairment	194		94
Loans receivable, Ending Balance: collectively evaluated for impairment	5,368		5,661
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	488	440	440
Charge offs
Provisions	118	47
Ending balance	606	487
Ending balance: collectively evaluated for impairment	$ 606		$ 488

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,252		$ 1,004
Other Comprehensive Income:
Unrealized holding gains arising during the period, Before tax amount	1,087		1,142
Unrealized holding gains arising during the period, Tax effect	(370)		(388)
Unrealized holding gains arising during the period, Net of tax	717		754
Accretion of discount on AFS to HTM reclassification, Before tax amount	3	[1]	2	[1]
Accretion of discount on AFS to HTM reclassification, Tax effect	(1)	[1],[2]	(1)	[1],[2]
Accretion of discount on AFS to HTM reclassification, Net of tax	2	[1]	1	[1]
Less reclassification for gains included in net income, Before Tax amount	(53)		(235)
Less reclassification for gains included in net income, Tax effect	18	[2]	80	[2]
Less reclassification for gains included in net income, Net of tax	(35)		(155)
Total other comprehensive income	684		600
Total comprehensive income	$ 1,936		$ 1,604

[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 (benefit) in the consolidated statements of income.

XML

Investment Securities

3 Months Ended

Mar. 31, 2015

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:

		March 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,790	$	432	$	-	$	8,222
Government Sponsored Entities (GSE) mortgage-backed securities		3,374		146		-		3,520
Corporate bonds		5,390		345		-		5,735
Collateralized mortgage obligations GSE		3,344		34		(6)		3,372
State and municipal tax-exempt		40,582		449		(380)		40,651
Total	$	60,480	$	1,406	$	(386)	$	61,500
Available For Sale
US Government agency obligations	$	60,932	$	136	$	(47)	$	61,021
GSE mortgage-backed securities		60,390		544		(63)		60,871
Collateralized mortgage obligations GSE		19,346		54		(313)		19,087
Corporate bonds		20,501		24		(94)		20,431
State and municipal tax-exempt		10,913		137		-		11,050
Equity securities		27		2		(11)		18
Total	$	172,109	$	897	$	(528)	$	172,478

		December 31, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,730	$	343	$	-	$	8,073
Government Sponsored Entities (GSE) mortgage-backed securities		3,579		133		-		3,712
Corporate bonds		3,951		324		-		4,275
Collateralized mortgage obligations GSE		3,605		3		(29)		3,579
State and municipal tax-exempt		40,589		418		(547)		40,460
Total	$	59,454	$	1,221	$	(576)	$	60,099
Available For Sale
US Government agency obligations	$	61,547	$	4	$	(197)	$	61,354
GSE mortgage-backed securities		66,669		189		(135)		66,723
Collateralized mortgage obligations GSE		20,499		8		(496)		20,011
Corporate bonds		13,208		-		(106)		13,102
State and municipal tax-exempt		10,917		87		(10)		10,994
Equity securities		27		2		(11)		18
Total	$	172,867	$	290	$	(955)	$	172,202

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 table details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at March 31, 2015 and December 31, 2014.

		March 31, 2015
						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	$	1,412	$	(6)	$	-	$	-	$	1,412	$	(6)
State and Municipal tax-exempt		16,364		(380)		6,111		(42)		10,253		(338)
Total	$	17,776	$	(386)	$	6,111	$	(42)	$	11,665	$	(344)
Available For Sale
US Government agency obligations	$	5,007	$	(47)	$	5,007	$	(47)	$	-	$	-
GSE mortgage-backed securities		6,952		(63)		2,092		(7)		4,860		(56)
Collateralized mortgage obligations GSE		13,009		(313)		-		-		13,009		(313)
Corporate bonds		10,245		(94)		7,803		(36)		2,442		(58)
Equity securities		12		(11)		-		-		12		(11)
Total	$	35,225	$	(528)	$	14,902	$	(90)	$	20,323	$	(438)

		December 31, 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	$	3,043	$	(29)	$	3,043	$	(29)	$	-	$	-
State and municipal tax-exempt		19,054		(547)		2,138		(7)		16,916		(540)
Total	$	22,097	$	(576)	$	5,181	$	(36)	$	16,916	$	(540)
Available For Sale
US Government agency obligations	$	56,342	$	(197)	$	49,222	$	(97)	$	7,120	$	(100)
GSE mortgage-backed securities		22,157		(135)		14,996		(38)		7,161		(97)
Collateralized mortgage obligations GSE		18,133		(496)		3,669		(5)		14,464		(491)
Corporate bonds		13,102		(106)		9,531		(31)		3,571		(75)
State and municipal tax-exempt		2,967		(10)		2,360		(9)		607		(1)
Equity securities		12		(11)		-		-		12		(11)
Total	$	112,713	$	(955)	$	79,778	$	(180)	$	32,935	$	(775)

As of March 31, 2015, there were four mortgage-backed securities, seven corporate bonds, two U.S. agency obligations, twelve collateralized mortgage obligations,twenty-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 March 31, 2015 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis judging each investment for OTTI. The OTTI analysis focuses on condition of the issuers as well as duration and severity of impairment in determining OTTI. As of March 31, 2015, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are twelve impaired securities classified as collateralized mortgage obligations, all 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 March 31, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

State and municipal tax-exempt There are twenty-three impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, fourteen of which were impaired for more than 12 months. All of the issues carry an “A” or better underlying credit rating and/or have strong 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 twenty-three municipal securities, there are sixteen insured school districts, six uninsured school districts, and one uninsured township, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

US Government agency obligations  There are two impaired securities classified as agencies, neither 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 March 31, 2015.

GSE mortgage-backed securities  There are four impaired bonds classified as GSE mortgage-backed securities, three 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 principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

Corporate Securities There were seven impaired bonds classified as corporate bonds, one of which was 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 March 31, 2105 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2015.

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, management does not consider these investments to be other-than-temporarily impaired at March 31, 2015.

The amortized cost and fair value of investment securities as of March 31, 2015, 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	$	-	$	-	$	1,500	$	1,497
Due after one year through five years		10,649		11,079		69,968		69,989
Due after five years through ten years		24,014		24,408		63,211		63,729
Due after ten years		25,817		26,013		37,403		37,245
No stated maturity		-		-		27		18
Total investment securities	$	60,480	$	61,500	$	172,109	$	172,478

The gross principal value of investments securites sold as of the dates indicated are shown below. The HTM securities that were sold during the three months ended March 31, 2014 were permissible because DNB collected greater than 85% of the original recorded investment on the HTM securities prior to the sale.

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Available for sale securities sold	$	3,926	$	15,228
Held to maturity securities sold		-		1,228
Total sold securities	$	3,926	$	16,456

Gains and losses resulting from investment sales, redemptions or calls were as follows:

		Three Months Ended
		March 31,
(Dollars in thousands)		2015		2014
Gross realized gains-AFS	$	53	$	192
Gross realized gains-HTM		-		68
Gross realized losses-AFS		-		(25)
Net realized gain	$	53	$	235

At March 31, 2015 and December 31, 2014, investment securities with a carrying value of approximately $168.9 million and $174.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law

.

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Stock-Based Compensation [Abstract]

Stock Option Activity

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015	163,586	$	15.13
Issued	-		-
Exercised	93,834		19.60
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2015	69,752	$	9.13

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2014	207,303	$	15.92
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2014	207,303	$	15.92

Weighted Average Price And Weighted Average Remaining Contractual Life

	March 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	66,500	66,500	$	8.72	2.93 years	$	1,149,000
	14.00-19.99	3,252	3,252		17.51	0.73 years		28,000
	Total	69,752	69,752	$	9.13	2.83 years	$	1,177,000

	December 31, 2014
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	80,650	80,650	$	8.66	3.15 years	$	1,044,000
	14.00-19.99	34,895	34,895		17.51	0.97 years		143,000
	23.00-24.27	48,041	48,041		24.27	0.29 years		-
	Total	163,586	163,586	$	15.13	1.85 years	$	1,187,000

Stock Grant Activity

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2015	75,930	$	17.66
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2015	75,930	$	17.66

			Weighted Average
	Shares		Stock Price
Non-vested stock awards—January 1, 2014	50,795	$	15.65
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2014	50,795	$	15.65

XML

Allowance For Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	$ 1,467	$ 1,182
60 to 89 Days Past Due	112	773
Greater than 90 Days	5,640	5,432
Total Past Due	7,219	7,387
Current	456,881	448,216
Total Loans Receivables	464,100	455,603
Loans Receivable >90 Days and Accruing	239	334	100
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	1,408	1,005
60 to 89 Days Past Due		302
Greater than 90 Days	2,635	2,648
Total Past Due	4,043	3,955
Current	22,495	22,038
Total Loans Receivables	26,538	25,993
Loans Receivable >90 Days and Accruing	189	191
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	43	48
60 to 89 Days Past Due		187
Greater than 90 Days	363	236
Total Past Due	406	471
Current	268,180	256,839
Total Loans Receivables	268,586	257,310
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	81,730	80,819
Total Loans Receivables	81,730	80,819
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	2,043	2,043
Total Past Due	2,043	2,043
Current	28,372	33,491
Total Loans Receivables	30,415	35,534
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	16	58
60 to 89 Days Past Due	112	214
Greater than 90 Days	405	386
Total Past Due	533	658
Current	50,736	49,534
Total Loans Receivables	51,269	50,192
Loans Receivable >90 Days and Accruing	50	119
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due		71
60 to 89 Days Past Due		70
Greater than 90 Days	194	119
Total Past Due	194	260
Current	5,368	5,495
Total Loans Receivables	5,562	5,755
Loans Receivable >90 Days and Accruing		$ 24

XML

Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2015

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 months ended March 31, 2015 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, 2014. 

Subsequent Events

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2015 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. The adoption of this FASB ASU has not had a material impact on DNB’s 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.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2015, and is to be applied retrospectively. Early adoption is permitted. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the DNB's consolidated financial statements.