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, 2016

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)   2,848,773(Shares Outstanding as of May 16, 2016)

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, 2016 and December 31, 2015	3
	CONSOLIDATED STATEMENTS OF INCOME
	ThreeMonths Ended March 31, 2016 and 2015	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended March 31, 2016  and 2015	5
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	ThreeMonths Ended March 31, 2016and 2015
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	ThreeMonths Ended March 31, 2016and 2015	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4.	CONTROLS AND PROCEDURES	44
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	44
ITEM 1A.	RISK FACTORS	44
ITEM 2.	UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS	44
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	45
ITEM 4.	MINE SAFETY DISCLOSURES	45
ITEM 5.	OTHER INFORMATION	45
ITEM 6.	EXHIBITS	45
SIGNATURES		46
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)		2016		2015
Assets
Cash and due from banks	$	38,740	$	21,119
Federal Funds Sold		-		-
Cash and cash equivalents		38,740		21,119
Available-for-sale investment securities at fair value (amortized cost of $141,115 and $153,559)		141,373		152,379
Held-to-maturity investment securities (fair value of $66,797 and $68,431)		65,650		67,829
Total investment securities		207,023		220,208
Loans held for sale		359		-
Loans		489,366		481,758
Allowance for credit losses		(5,172)		(4,935)
Net loans		484,194		476,823
Restricted stock		3,166		3,447
Office property and equipment, net		7,817		6,806
Accrued interest receivable		2,569		2,410
Other real estate owned & other repossessed property		2,612		2,581
Bank owned life insurance (BOLI)		9,381		9,326
Core deposit intangible		63		66
Net deferred taxes		2,946		3,733
Other assets		2,570		2,299
Total assets	$	761,440	$	748,818
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	131,951	$	125,581
Interest-bearing deposits:
NOW		201,566		185,973
Money market		138,241		137,555
Savings		75,535		72,660
Time		71,264		66,018
Brokered deposits		18,498		18,488
Total deposits		637,055		606,275
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		20,000		30,000
Repurchase agreements		21,661		32,416
Junior subordinated debentures		9,279		9,279
Subordinated debt		9,750		9,750
Other borrowings		454		464
Total borrowings		61,144		81,909
Accrued interest payable		313		345
Other liabilities		4,748		4,801
Total liabilities		703,260		693,330
Stockholders’ Equity
Preferred stock, $10.00 par value;
1,000,000 shares authorized; $1,000 liquidation preference per share; 0 and 0 issued, respectively		-		-
Common stock, $1.00 par value;
10,000,000 shares authorized; 2,951,128 and 2,933,049 issued, respectively; 2,844,973 and 2,823,840 outstanding, respectively		2,969		2,955
Treasury stock, at cost; 106,155 and 109,209 shares, respectively		(1,960)		(2,015)
Surplus		35,413		35,097
Retained earnings		22,793		21,436
Accumulated other comprehensive loss		(1,035)		(1,985)
Total stockholders’ equity		58,180		55,488
Total liabilities and stockholders’ equity	$	761,440	$	748,818

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)		2016		2015
Interest Income:
Interest and fees on loans	$	5,068	$	4,912
Interest and dividends on investment securities:
Taxable		682		735
Exempt from federal taxes		334		342
Interest on cash and cash equivalents		21		7
Total interest and dividend income		6,105		5,996
Interest Expense:
Interest on NOW, money market and savings		164		149
Interest on time deposits		117		109
Interest on brokered deposits		62		24
Interest on FHLB advances		94		194
Interest on repurchase agreements		11		9
Interest on junior subordinated debentures		81		74
Interest on subordinated debt		104		30
Interest on other borrowings		17		17
Total interest expense		650		606
Net interest income		5,455		5,390
Provision for credit losses		330		300
Net interest income after provision for credit losses		5,125		5,090
Non-interest Income:
Service charges		307		296
Wealth management		397		352
Mortgage banking		32		38
Increase in cash surrender value of BOLI		55		55
Gain on sale of investment securities, net		31		53
Gain on sale of loans		39		231
Gains from insurance proceeds		1,150		-
Other fees		318		310
Total non-interest income		2,329		1,335
Non-interest Expense:
Salaries and employee benefits		3,126		2,644
Furniture and equipment		329		302
Occupancy		468		603
Professional and consulting		497		328
Advertising and marketing		183		169
Printing and supplies		33		48
FDIC insurance		129		123
PA shares tax		162		150
Telecommunications		61		61
Postage		21		23
Other expenses		409		373
Total non-interest expense		5,418		4,824
Income before income tax expense		2,036		1,601
Income tax expense		480		349
Net income	$	1,556	$	1,252
Preferred stock dividends and accretion of discount		-		26
Net income available to common shareholders	$	1,556	$	1,226
Earnings per common share:
Basic	$	0.55	$	0.44
Diluted	$	0.54	$	0.43
Cash dividends per common share	$	0.07	$	0.07
Weighted average common shares outstanding:
Basic		2,832,521		2,786,012
Diluted		2,869,119		2,832,869

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)		2016		2015
Net income	$	1,556	$	1,252
Other Comprehensive Income:
Unrealized holding gains arising during the period
Before tax amount		1,469		1,087
Tax effect		(499)		(370)
		970		717
Accretion of discount on AFS to HTM reclassification(1)
Before tax amount		2		3
Tax effect(2)		(1)		(1)
		1		2
Less reclassification for gains included in net income
Before tax amount		(31)		(53)
Tax effect(2)		10		18
		(21)		(35)
Total other comprehensive income		950		684
Total comprehensive income	$	2,506	$	1,936
(1) Amounts are included in interest and dividends on investment securities in the consolidated statements of income.
(2) Amounts are included in income tax expense in the consolidated statements of income.

See accompanying notes to unaudited consolidated financial statements.

5

DNB Financial Corportation 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, 2016	$	-	$	2,955	$	(2,015)	$	35,097	$	21,436	$	(1,985)	$	55,488
Net income for three months ended March 31, 2016		-		-		-		-		1,556		-		1,556
Other comprehensive income		-		-		-		-		-		950		950
Restricted stock compensation expense (18,079 shares vested)		-		29		-		631		-		-		660
Taxes on share award vest		-		(15)		-		(421)		-		-		(436)
Tax benefit for restricted stock vest		-		-		-		64		-		-		64
Cash dividends - common ($0.07 per share)		-		-		-		-		(199)		-		(199)
Sale of treasury shares to 401(k) (2,040 shares)		-		-		37		28		-		-		65
Sale of treasury shares to deferred comp. plan (1,014 shares)		-		-		18		14		-		-		32
Balance at March 31, 2016	$	-	$	2,969	$	(1,960)	$	35,413	$	22,793	$	(1,035)	$	58,180

											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 (14,696 shares)		-		14		-		149		-		-		163
Taxes on stock option exercise and share award vest		-		-		-		(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

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)		2016		2015
Cash Flows From Operating Activities:
Net income	$	1,556	$	1,252
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		361		460
Provision for credit losses		330		300
Stock based compensation		660		87
Net gain on sale of securities		(31)		(53)
Earnings from investment in BOLI		(55)		(55)
Deferred tax expense (benefit)		298		(339)
Proceeds from sales of loans		1,233		5,555
Loans originated for sale		(1,521)		(4,669)
Gain on sale of loans		(71)		(269)
Increase in accrued interest receivable		(159)		(319)
Increase in other assets		(271)		(61)
Decrease in accrued interest payable		(32)		(45)
Decrease in other liabilities		(53)		(123)
Net Cash Provided By Operating Activities		2,245		1,721
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Sales		12,118		3,926
Maturities, repayments and calls		8,867		11,386
Purchases		(8,687)		(14,778)
Activity in held-to-maturity securities:
Sales		-		-
Maturities, repayments and calls		2,194		509
Purchases		-		(1,500)
Net decrease (increase) in restricted stock		281		(133)
Net increase in loans		(7,701)		(8,520)
Purchases of property and equipment		(1,206)		(35)
Costs capitalized in OREO and other repossessed property		(315)		-
Proceeds from sale of OREO and other repossessed property		284		-
Net Cash Provided By (Used In) Investing Activities		5,835		(9,145)
Cash Flows From Financing Activities:
Net increase in deposits		30,780		22,178
Repayment of FHLBP advances		(10,000)		-
Net (decrease) increase in repurchase agreements		(10,755)		1,095
Proceeds from issuance of subordinated debt		-		9,750
Repayment of other borrowings		(10)		(10)
Dividends paid		(199)		(220)
Proceeds from the exercise of stock options		-		163
Taxes on exercise of stock options		(436)		(46)
Tax benefit for restricted stock vest		64		-
Redemption of preferred stock		-		(9,750)
Sale of treasury stock		97		95
Net Cash Provided by Financing Activities		9,541		23,255
Net Change in Cash and Cash Equivalents		17,621		15,831
Cash and Cash Equivalents at Beginning of Period		21,119		12,504
Cash and Cash Equivalents at End of Period	$	38,740	$	28,335
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	682	$	651
Income taxes		150		858
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans 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 months ended March 31, 2016 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, 2015. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2016 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements-  

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. DNB is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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, 2016
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,035	$	482	$	-	$	8,517
Government Sponsored Entities (GSE) mortgage-backed securities		2,615		105		-		2,720
Corporate bonds		11,420		304		(70)		11,654
Collateralized mortgage obligations GSE		2,455		25		(2)		2,478
State and municipal tax-exempt		41,125		376		(73)		41,428
Total	$	65,650	$	1,292	$	(145)	$	66,797
Available For Sale
US Government agency obligations	$	58,950	$	169	$	(3)	$	59,116
GSE mortgage-backed securities		34,055		173		-		34,228
Collateralized mortgage obligations GSE		15,518		28		(157)		15,389
Corporate bonds		19,951		69		(148)		19,872
State and municipal tax-exempt		12,641		136		(9)		12,768
Total	$	141,115	$	575	$	(317)	$	141,373

		December 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,973	$	320	$	-	$	8,293
Government Sponsored Entities (GSE) mortgage-backed securities		2,759		83		-		2,842
Corporate bonds		11,518		234		(42)		11,710
Collateralized mortgage obligations GSE		2,623		9		(26)		2,606
State and municipal tax-exempt		42,956		300		(276)		42,980
Total	$	67,829	$	946	$	(344)	$	68,431
Available For Sale
US Government agency obligations	$	58,460	$	-	$	(252)	$	58,208
GSE mortgage-backed securities		40,663		13		(325)		40,351
Collateralized mortgage obligations GSE		16,241		3		(438)		15,806
Corporate bonds		20,921		-		(350)		20,571
State and municipal tax-exempt		17,274		180		(11)		17,443
Total	$	153,559	$	196	$	(1,376)	$	152,379

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, 2016 and December 31, 2015.

9

		March 31, 2016
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	3,423	$	(70)	$	3,423	$	(70)	$	-	$	-
Collateralized mortgage obligations GSE		368		(2)		368		(2)		-		-
State and municipal tax-exempt		4,144		(73)		563		(7)		3,581		(66)
Total	$	7,935	$	(145)	$	4,354	$	(79)	$	3,581	$	(66)
Available For Sale
US Government agency obligations	$	9,997	$	(3)	$	9,997	$	(3)	$	-	$	-
Collateralized mortgage obligations GSE		12,321		(157)		1,507		(15)		10,814		(142)
Corporate bonds		10,975		(148)		4,487		(53)		6,488		(95)
State and municipal tax-exempt		6,644		(9)		6,644		(9)		-		-
Total	$	39,937	$	(317)	$	22,635	$	(80)	$	17,302	$	(237)

		December 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
Corporate bonds	$	7,597	$	(42)	$	7,597	$	(42)	$	-	$	-
Collateralized mortgage obligations GSE		1,482		(26)		388		(10)		1,094		(16)
State and municipal tax-exempt		13,161		(276)		4,380		(34)		8,781		(242)
Total	$	22,240	$	(344)	$	12,365	$	(86)	$	9,875	$	(258)
Available For Sale
US Government agency obligations	$	58,208	$	(252)	$	58,208	$	(252)	$	-	$	-
GSE mortgage-backed securities		38,307		(325)		33,984		(238)		4,323		(87)
Collateralized mortgage obligations GSE		15,231		(438)		4,187		(41)		11,044		(397)
Corporate bonds		20,571		(350)		16,157		(264)		4,414		(86)
State and municipal tax-exempt		6,660		(11)		6,660		(11)		-		-
Total	$	138,977	$	(1,376)	$	119,196	$	(806)	$	19,781	$	(570)

As of March31, 2016, there were noGSE mortgage-backed securities, eight corporate bonds, one U.S. agency obligation, fourteen collateralized mortgage obligations GSE,  and nine tax-exempt municipalities 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, 2016 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, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are fourteen impaired securities classified as collateralized mortgage obligations, eleven of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.37% of its book value. 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, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

State and municipal tax-exempt There are nine impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.26% of its book value. All of the issues carry an “A+” or better underlying credit rating and/or have strong underlying

10

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 nine municipal securities, there isone insured school district, three uninsured school districts, and five uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

US Government agency obligations  There isone impaired security classified as an agency, which has been impaired for lessthan 12 monthsat0.03% of its book value. This security  wasissued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on this security and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the security approaches its maturity date. Management concluded that thissecurity  wasnot other-than-temporarily impaired at March 31, 2016.

Corporate bondsThere are eight impaired bonds classified as corporate bonds, three of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 3.06% of its book value. 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 a "BBB-" 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, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

The amortized cost and fair value of investment securities as of March 31, 2016, by final 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	$	-	$	-	$	18,669	$	18,657
Due after one year through five years		20,021		20,802		62,804		62,906
Due after five years through ten years		27,530		27,778		34,738		34,935
Due after ten years		18,099		18,217		24,904		24,875
Total investment securities	$	65,650	$	66,797	$	141,115	$	141,373

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

		Three Months Ended
		March 31,
(Dollars in thousands)		2016		2015
Gross realized gains-AFS	$	61	$	53
Gross realized losses-AFS		(30)		-
Net realized gain	$	31	$	53

At March 31, 2016 and December 31, 2015, investment securities with a carrying value of approximately $146.2 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.

11

NOTE 3: LOANS

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

(Dollars in thousands)	March 31, 2016		December 31, 2015
Residential mortgage	$	27,560	$	28,651
Commercial mortgage		274,372		274,132
Commercial:
Commercial term		107,232		102,178
Commercial construction		24,833		20,364
Consumer:
Home equity		49,545		51,270
Other		5,824		5,163
Total loans	$	489,366	$	481,758
Less allowance for credit losses		(5,172)		(4,935)
Net loans	$	484,194	$	476,823

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

					Three Months Ended March 31, 2016
(Dollars in thousands)	December 31, 2015		March 31, 2016		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	$	1,619	$	1,781	$	19	$	-	$	19
Commercial mortgage		1,048		1,025		20		-		20
Commercial:
Commercial term		188		210		3		-		3
Commercial construction		1,028		1,237		41		-		41
Consumer:
Home equity		563		574		16		-		16
Other		189		199		5		-		5
Total non-accrual loans	$	4,635	$	5,026	$	104	$	-	$	104
Loans 90 days past due and accruing		457		164		1		1		-
Total non-performing loans	$	5,092	$	5,190	$	105	$	1	$	104

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

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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, 2016 and December 31, 2015. 

Age Analysis of Past Due Loans Receivable

March 31, 2016
														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	$	-	$	384	$	1,945	$	2,329	$	25,231	$	27,560	$	164
Commercial mortgage		-		-		182		182		274,190		274,372		-
Commercial:
Commercial term		-		-		24		24		107,208		107,232		-
Commercial construction		-		-		447		447		24,386		24,833		-
Consumer:
Home equity		31		-		417		448		49,097		49,545		-
Other		26		12		147		185		5,639		5,824		-
Total	$	57	$	396	$	3,162	$	3,615	$	485,751	$	489,366	$	164

December 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	$	502	$	552	$	2,076	$	3,130	$	25,521	$	28,651	$	457
Commercial mortgage		36		86		96		218		273,914		274,132		-
Commercial:
Commercial term		-		-		-		-		102,178		102,178		-
Commercial construction		-		581		447		1,028		19,336		20,364		-
Consumer:
Home equity		7		310		153		470		50,800		51,270		-
Other		100		-		148		248		4,915		5,163		-
Total	$	645	$	1,529	$	2,920	$	5,094	$	476,664	$	481,758	$	457

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The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2016 and 2015 and as of December 31, 2015.

Impaired Loans

		March 31, 2016						December 31, 2015
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,637	$	1,790	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		24		24		-		-		-		-
Commercial construction		790		790		-		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		92		100		-		82		90		-
Total	$	4,244	$	4,759	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		144		290		1		-		-		-
Commercial:
Commercial term		186		200		107		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		107		107		3		107		107		4
Total	$	884	$	3,430	$	200	$	307	$	318	$	114
Total:
Residential mortgage		1,781		2,080		1		1,620		1,919		-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		210		224		107		200		211		110
Commercial construction		1,237		3,623		89		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		199		207		3		189		197		4
Total	$	5,128	$	8,189	$	200	$	5,021	$	8,030	$	114

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		Three Months Ended				Three Months Ended
		March 31, 2016				March 31, 2015
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	1,629	$	-	$	2,320	$	-
Commercial mortgage		1,103		-		3,386		26
Commercial:
Commercial term		12		-		-		-
Commercial construction		965		-		1,400		-
Consumer:
Home equity		684		1		504		1
Other		87		-		144		-
Total	$	4,480	$	1	$	7,754	$	27
With allowance recorded:
Residential mortgage		72		-		204		-
Commercial mortgage		-		-		201		-
Commercial:
Commercial term		193		-		200		-
Commercial construction		224		-		756		-
Consumer:
Home equity		-		-		44		-
Other		107		-		-		-
Total	$	596	$	-	$	1,405	$	-
Total:
Residential mortgage		1,701		-		2,524		-
Commercial mortgage		1,103		-		3,587		26
Commercial:
Commercial term		205		-		200		-
Commercial construction		1,189		-		2,156		-
Consumer:
Home equity		684		1		548		1
Other		194		-		144		-
Total	$	5,076	$	1	$	9,159	$	27

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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, 2016 and December 31, 2015.

Credit Quality Indicators

		March 31, 2016
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	25,512	$	-	$	2,048	$	-	$	27,560
Commercial mortgage		260,529		4,763		9,080		-		274,372
Commercial:
Commercial term		98,787		2,507		5,938		-		107,232
Commercial construction		21,781		-		3,052		-		24,833
Consumer:
Home equity		48,814		-		731		-		49,545
Other		5,625		-		199		-		5,824
Total	$	461,048	$	7,270	$	21,048	$	-	$	489,366

		December 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,762	$	-	$	1,889	$	-	$	28,651
Commercial mortgage		262,036		4,802		7,294		-		274,132
Commercial:
Commercial term		93,025		2,555		6,598		-		102,178
Commercial construction		17,521		-		2,843		-		20,364
Consumer:
Home equity		50,551		-		719		-		51,270
Other		4,974		-		189		-		5,163
Total	$	454,869	$	7,357	$	19,532	$	-	$	481,758

Loans classified as troubled debt restructurings (“TDR”) are considered impaired. As of March 31, 2016, DNB had no commercial mortgages classified as a TDR, compared to no commercial mortgages classified as a TDR at December 31, 2015, andone commercial mortgage classified as a TDR totaling $2,234,000 at March 31, 2015.  This loan paid off during the third quarter of 2015. 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, 2016, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2015, and one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at March 31, 2015. 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, 2016 and 2015, there were no defaults on any terms of this loan.

As of March 31, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to no such loans at December 31, 2015 or March 31, 2015. The interest rate on the loan was reduced. The loan was extended and there was no reduction of principal. This loan was classified as a TDR in December of 2015. The balance of the loan prior to modification was $42,000 and the balance after the modification was $42,000. DNB recognized a partial charge-off onthe loan in the amount of $2,000. During the three months ended March 31, 2016 and 2015, there were no defaults on any terms of this loan.

The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2016 and December 31, 2015, the activity for the three months ended March 31, 2016 and 2015 and as of and for the year ended December 31, 2015.

16

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, 2016	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Charge-offs		(84)		-		(13)		-		-		-		-		-		(97)
Recoveries		1		-		1		1		1		-		-		-		4
Provisions		87		1		(29)		195		(1)		(7)		3		81		330
Ending balance - March 31, 2016	$	220	$	2,376	$	948	$	765	$	-	$	188	$	67	$	608	$	5,172
Ending balance: individually evaluated for impairment	$	1	$	-	$	107	$	89	$	-	$	-	$	3	$	-	$	200
Ending balance: collectively evaluated for impairment	$	219	$	2,376	$	841	$	676	$	-	$	188	$	64	$	608	$	4,972
Loans receivables:
Ending balance	$	27,560	$	274,372	$	107,232	$	24,833	$	-	$	49,545	$	5,824			$	489,366
Ending balance: individually evaluated for impairment	$	1,781	$	1,025	$	210	$	1,237	$	-	$	676	$	199			$	5,128
Ending balance: collectively evaluated for impairment	$	25,779	$	273,347	$	107,022	$	23,596	$	-	$	48,869	$	5,625			$	484,238
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	115	$	55	$	-	$	13	$	-			$	186

	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
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:
Ending balance - December 31, 2015	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Ending balance: individually evaluated for impairment	$	-	$	-	$	110	$	-	$	-	$	-	$	4	$	-	$	114
Ending balance: collectively evaluated for impairment	$	216	$	2,375	$	879	$	569	$	-	$	195	$	60	$	527	$	4,821
Loans receivables:
Ending balance	$	28,651	$	274,132	$	102,178	$	20,364	$	-	$	51,270	$	5,163			$	481,758
Ending balance: individually evaluated for impairment	$	1,620	$	1,181	$	200	$	1,140	$	-	$	691	$	189			$	5,021
Ending balance: collectively evaluated for impairment	$	27,031	$	272,951	$	101,978	$	19,224	$	-	$	50,579	$	4,974			$	476,737
Reserve for unfunded loan commitments included in other liabilities	$	-	$	2	$	115	$	58	$	-	$	13	$	-			$	188

17

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, 2016. There were no anti-dilutive stock warrants outstanding, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at March 31, 2015. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		March 31, 2016
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,556	2,833	$	0.55
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	36		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,556	2,869	$	0.54

		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

18

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, 2016
Net unrealized gain on AFS securities	$	258	$	(87)	$	171
Discount on AFS to HTM reclassification		(15)		5		(10)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,569)	$	534	$	(1,035)
December 31, 2015
Net unrealized loss on AFS securities	$	(1,180)	$	402	$	(778)
Discount on AFS to HTM reclassification		(17)		6		(11)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(3,009)	$	1,024	$	(1,985)

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 DNB issued a $9.75 million subordinated note (the “Note”) to the investor. The Note has a maturity date of March 6, 2025, and bears interest at a fixed rate of 4.25% per annum for the first 5 years and then will 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.

DNB 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 DNB’s senior indebtedness and to DNB’s obligations to its general creditors and qualifies as Tier 2 capital for regulatory purposes.

19

Repurchase Agreements Accounted for as Secured Borrowings

Repurchase agreements accounted for as secured borrowings are shown in the following table.

(Dollars in thousands)	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
March 31, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	21,661	$	-	$	-	$	-	$	21,661
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	21,661							$	21,661
December 31, 2015
Repurchase agreements and repurchase-to-maturity transactions	$	32,416	$	-	$	-	$	-	$	32,416
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	32,416							$	32,416

As of March 31, 2016 and December 31, 2015, DNB had $21.7 millionand $32.4 million of repurchase agreements, respectively.  In conjunction with these repurchase agreements,  $22.1 million and $33.1 million of state and municipal securities were sold on an overnight basis as of March 31, 2016 and December 31, 2015,  respectively, 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, 2016. All options are immediately exercisable. During the three months ended March 31, 2016 and 2015, DNB had no expensesrelated to the plan forward looking. Stock option activity is indicated below.

	Number	Weighted Average
	Outstanding	Exercise Price
Outstanding January 1, 2016	64,500	$	8.67
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2016	64,500	$	8.67

	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

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

March 31, 2016
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	1.91 years	$	1,281,000

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December 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	2.15 years	$	1,344,000

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 243,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three or 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, 2016 and 2015,  $660,000 and$87,000 was amortized to expense, respectively. As of March 31, 2016, there was approximately $650,000 in additional compensation that will be recognized over the remaining service period of approximately 2.14 years. At March 31, 2016,88,169 shares were reserved for future grants under the Plan. 

The shares awarded from the vesting resulted in an increase in shares outstanding of 18,079. There was a cash equivalent of 15,621 shares used to pay all applicable taxes on the transaction. Stock grant activity is indicated below:

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2016	77,255	$	22.71
Granted	3,000		28.75
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—March 31, 2016	46,555	$	22.42

		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

NOTE 9:  INCOME TAXES

As of March 31, 2016,  DNB had no material unrecognized tax benefits or accrued interest and penalties. It is DNB’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 2012 through 2015 were open for examination as of March 31, 2016.

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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, 2016 and December 31, 2015 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

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		March 31, 2016
(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	$	-	$	59,116	$	-	$	59,116
GSE mortgage-backed securities		-		34,228		-		34,228
Collateralized mortgage obligations GSE		-		15,389		-		15,389
Corporate bonds		-		19,872		-		19,872
State and municipal tax-exempt		-		12,768		-		12,768
Total	$	-	$	141,373	$	-	$	141,373
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	690	$	690
Total	$	-	$	-	$	690	$	690

		December 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	$	-	$	58,208	$	-	$	58,208
GSE mortgage-backed securities		-		40,351		-		40,351
Collateralized mortgage obligations GSE		-		15,806		-		15,806
Corporate bonds		-		20,571		-		20,571
State and municipal tax-exempt		-		17,443		-		17,443
Total	$	-	$	152,379	$	-	$	152,379
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	964	$	964
OREO and other repossessed property		-		-		682		682
Total	$	-	$	-	$	1,646	$	1,646

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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, 2016
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	$	143	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial term		79	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		358	Appraisal of	Appraisal adj. (2)	-20%	to	-20%	(-20%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Home equity		6	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		104	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	690

(1)

(2)

December 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	$	115	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		90	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		559	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	964
Other real estate owned	$	682		Disposal costs (2)	-8%	to	-8%	(-8%)

⁽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 $5.1 million at March 31, 2016. Of this, $884,000 had specific valuation allowances of $200,000, leaving a fair value of $684,000 as of March 31, 2016. DNB had $39,000 in impaired loans that were partially charged down by $33,000, leaving $6,000 at fair value as of March 31, 2016. The total fair value of impaired loans at March 31, 2016 was $690,000.

Impaired loans had a carrying amount of $5.0 million at December 31, 2015. Of this, $307,000 had specific valuation allowances of $114,000, leaving a fair value of $193,000 at December 31, 2015. In addition, DNB had $931,000 in impaired loans that

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were partially charged down by $160,000,  leaving $771,000 at fair value as of December 31, 2015. The total fair value of impaired loans at December 31, 2015 was $964,000.

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 $2.6 million of such assets at March 31, 2016, $2.4 million of which was OREO and $165,000 was in other repossessed property. DNB had $2.6 million of such assets at December 31, 2015, which consisted of $2.4 million in OREO and $165,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did notwrite down the carrying values of OREO during the three month period ending March 31, 2016.DNB did not write down the carrying values of OREO in the three month period ending March 31, 2015.

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 months ended March 31, 2016.

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, 2016 and December 31, 2015 are as follows:

		March 31, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	38,740	$	38,740	$	38,740	$	-	$	-
AFS investment securities		141,373		141,373		-		141,373		-
HTM investment securities		65,650		66,797		-		64,797		2,000
Restricted stock		3,166		3,166		-		3,166		-
Loans, net of allowance, including impaired		484,194		468,013		-		-		468,013
Accrued interest receivable		2,569		2,569		-		2,569		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		131,951		131,951		-		131,951		-
Interest-bearing deposits		415,342		415,342		-		415,342		-
Time deposits		71,264		71,098		-		71,098		-
Brokered deposits		18,498		18,566		-		18,566		-
Repurchase agreements		21,661		21,661		-		21,661		-
FHLBP advances		20,000		20,172		-		20,172		-
Junior subordinated debentures and other borrowings		9,279		8,243		-		8,243		-
Subordinated debt		9,750		9,304		-		9,304		-
Accrued interest payable		313		313		-		313		-
Off-balance sheet instruments		-		-		-		-		-

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		December 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	21,119	$	21,119	$	21,119	$	-	$	-
AFS investment securities		152,379		152,379		-		152,379		-
HTM investment securities		67,829		68,431		-		66,431		2,000
Restricted stock		3,447		3,447		-		3,447		-
Loans held-for-sale		-		-		-		-		-
Loans, net of allowance, including impaired		476,823		461,925		-		-		461,925
Accrued interest receivable		2,410		2,410		-		2,410		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		125,581		125,581		-		125,581		-
Interest-bearing deposits		396,188		396,188		-		396,188		-
Time deposits		66,018		65,697		-		65,697		-
Brokered deposits		18,488		18,327		-		18,327		-
Repurchase agreements		32,416		32,416		-		32,416		-
FHLBP advances		30,000		30,210		-		30,210		-
Junior subordinated debentures and other borrowings		9,279		7,889		-		7,889		-
Subordinated debt		9,750		9,999		-		9,999		-
Accrued interest payable		345		345		-		345		-
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.

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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 $18.5 million in brokered deposits, $4.0 million matures in 2016, $6.1 million matures in 2017, $3.2 million matures in 2018, and $5.3 million matures in 2019.

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 debt  The fair value of the subordinated debt 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.

Accrued Interest Receivable and Payable   The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

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, 2016, un-funded loan commitments totaled $116.9 million and stand-by letters of credit totaled $2.6 million. At December 31, 2015, un-funded loan commitments totaled $116.4 million and stand-by letters of credit totaled $3.2 million.

NOTE 11:  STOCKHOLDERS’ EQUITY

In July 2013, the Board of Governors of the Federal Reserve approved the Basel III interim 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 for the period ended March 31, 2015.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which DNB 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 $13.0 million. 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

27

to small businesses by providing capital to qualified community banks with assets of less than $10 billion. 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. Of the $13.0 million in aggregate proceeds, $11,879,000 was used on August 4, 2011 to repurchase all shares issued and sold in 2009 to the United States Department of the Treasury in connection with the U. S. Treasury Capital Purchase Program (“CPP Shares”) ($11,750,000 was paid in principal and $128,900 in dividends related to the CPP Shares) held by the Treasury as described above. As of December 31, 2015, DNB had redeemed all of the Series 2011A Preferred Stock issued to the U.S. Treasury.

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

FORWARD-LOOKING STATEMENTS

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

These forward-looking statements include statements with respect to the Corporation’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Corporation’s control).  The words “may,” “could,” “should,” “would,”"will," “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.  The following factors, among others, could cause the Corporation’s financial performance to differ materially from theplans, 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 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 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 twelve 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.

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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 products and services include trust administration, estate settlement, investment management, annuity, insurance and brokerage; 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 third quarter of 2015, 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 receivable purchases. Management also plans to reduce the absolute level of borrowings with cash flows from existing loans and investments as well as from new deposit growth. A discussion on DNB’s Key Strategies follows below:

•Focus on penetrating existing markets to maximize profitability;

•Grow loans and diversify the mix;

•Improve asset quality;

•Focus on profitable customer segments;

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

•Continue to grow core deposits to maintain low funding costs;

•Focus on cost containment and improving operational efficiencies; and

•Continue to engage employees to help them become more effective and successful.

Strategic Plan Update.  DNB reported net income available to common stockholders of $1.6 million, or $0.54 per diluted share, for the quarter ending March 31, 2016, compared with $1.3 million, or $0.43 per diluted share, for the same quarter, last year.  Earnings were up, in part, due to a gain from insurance proceeds of $1.15 million related to a fire at DNB’s West Chester location that occurred during 2015. This gain was offset by $446,000 of net compensation expense associated with the passing of DNB’s former Chairman and merger-related expense of $188,000 related to the recently announced pending acquisition of East River Bank.

The net interest margin remained stable despite continuing pressure due to the flattening yield curve.  The net interest margin was 3.15% for the first quarter of 2016 compared with 3.14% for both the fourth quarter of 2015 and first quarter of 2015.  As of March 31, 2016, the loan-to-deposit ratio was 77%, which suggests that the Company is largely core-funded. 

Quality loan growth was achieved over the past quarter and we remain committed to maintaining our prudent pricing and credit discipline.  On a sequential quarter basis, total loans increased $7.6 million, or 1.6% (not annualized), to $489.4 million as of March 31, 2016.  As of the same date, total loans were 64.3% of total assets.  Loan growth has been prudent; and the Company remains challenged to grow commercial-oriented loans in a competitive market, while maintaining its conservative underwriting standards.

Asset quality remained strong.  Net charge-offs were only 0.08% of total average loans for the quarter ending March 31, 2016 compared with 0.07% for the quarter ending December 31, 2015, and 0.01% for the quarter ending March 31, 2015.  Total non-performing assets, including loans and other real estate property, were $7.8 million as of March 31, 2016 compared with $7.7 million as of December 31, 2015.  The ratio of non-performing assets to total assets was 1.02% and non-performing loans were 1.06% of total loans as of March 31, 2016.  As of the same date, the allowance for loan losses to total loans ratio was 1.06%.

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On a sequential quarter basis, total core deposits grew $25.5 million, or 4.9% (not annualized), and were 85.9% of total deposits as of March 31, 2016.  Total deposits were $637.1 million as of March 31, 2016 compared with $606.3 million as of December 31, 2015.

Total non-interest income for the first quarter of 2016 was $2.3 million, compared with $1.3 million for both the prior quarter and the quarter ended March 31, 2015. Total non-interest income for the first quarter of 2016 included a $1.15 million gain from the insurance proceeds associated with the fire at our West Chester location.   Wealth management fees were $397,000 for the first quarter of 2016 compared with $352,000 for the quarter ending March 31, 2015.  Wealth management fees represented approximately one-third of total fee income.  Excluding the $1.15 million gain from the insurance proceeds, non-interest income was approximately $1.2 million, or 17% of total revenue, for the quarter ending March 31, 2016. 

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, 2016:  

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

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

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

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

The objective of DNB’s asset/liability management function is to maintain consistent growth in net interest income within DNB’s policy limits. This objective is accomplished through the management of liquidity and interest rate risk, as well as customer offerings of various loan and deposit products. DNB maintains adequate liquidity to meet daily funding requirements, anticipated deposit withdrawals, or asset opportunities in a timely manner. Liquidity is also necessary to meet obligations during unusual, extraordinary or adverse operating circumstances, while avoiding a significant loss or cost. DNB’s foundation for liquidity is a stable deposit base as well as a marketable investment portfolio that provides cash flow through regular maturities or that can be used for

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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 targeted customers 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.

FDIC Insurance and Assessments.  The Bank’s deposits are insured to applicable limits by the FDIC. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the maximum deposit insurance amount was permanently increased from $100,000 to $250,000.

The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. Within its risk category, an institution is assigned an initial base assessment which is then adjusted to determine its final assessment rate based on its level of brokered deposits, secured liabilities and unsecured debt.

The Dodd-Frank Act required the FDIC to take such steps as necessary to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020. In setting the assessments, the FDIC is required to offset the effect of the higher reserve ratio against insured depository institutions with total consolidated assets of less than $10 billion. The Dodd-Frank Act also broadened the base for FDIC insurance assessments so that assessments will be based on the average consolidated total assets less average tangible equity capital of a financial institution rather than on its insured deposits. The FDIC has adopted a restoration plan to increase the reserve ratio to 1.15% by September 30, 2020 with additional rulemaking scheduled regarding the method to be used to achieve a 1.35% reserve ratio by that date and offset the effect on institutions with less than $10 billion in assets.

Pursuant to these requirements, the FDIC adopted new assessment regulations effective April 1, 2011 that redefined the assessment base as average consolidated assets less average tangible equity. Insured banks with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages. Average assets would be reduced by goodwill and other intangibles. Average tangible equity equals Tier 1 capital. For institutions with more than $1.0 billion in assets, average tangible equity is calculated on a weekly basis while smaller institutions may use the quarter-end balance. The base assessment rate for insured institutions in Risk Category I will range between 5 to 9 basis points and for institutions in Risk Categories II, III, and IV will be 14, 23 and 35 basis points. An institution’s assessment rate will be reduced based on the amount of its outstanding unsecured long-term debt and for institutions in Risk Categories II, III and IV may be increased based on their brokered deposits.

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 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 $37,000 in 2016.

Material Trends and Uncertainties.

For the quarter ended March 31, 2016, DNB reported net income of $1.6 million versus $1.2 million for the same period in 2015. Per share earnings on a fully diluted basis were $0.54, up from $0.43 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 hinder 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, China 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

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of slow wage and economic growth. Moreover, financial institutions continue to be affected by a sluggish real estate market. 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 13, 2016 Beige Book indicated that aggregate business activity in the Third District continued to grow at a modest pace during the period. Overall, firms hired additional employees at a similarly slow, cautious pace; however, service-sector contacts, especially from staffing firms, reported stronger hiring rates. On balance, only slight increases were reported in wages and prices, including home prices. Firms tended to report less ambitious growth expectations than in prior periods--generally stating that the current, modest trends would continue.

Overall, Third District homebuilders have appeared to sustain a moderate growth rate since the March 2, 2016 Beige Book. A nationwide firm reported strong increases in contract signings for its markets covering Third District states. Reports from smaller builders were mixed. Most builders reported that large backlogs and unseasonably warm weather had kept construction crews more active than usual. Builders did note that the time required to deliver a new house has lengthened, as labor shortages continued to hamper their ability to secure subcontracting services on a timely basis.

The Federal Reserve’s nonresidential real estate contacts reported modest growth in construction and leasing activity. Contacts representing architects, engineers, and developers continued to report the strongest activity in Center City Philadelphia and other smaller urban cores. The Federal Reserve’s contacts attributed some of the increasing demand to employers choosing to relocate jobs to the urban cores to attract younger workers. They also noted that pent-up demand for prime Center City office space has pushed rents up to levels not seen since 2007. The Federal Reserve’s contacts remained optimistic for continued growth of both new construction and leasing activity through 2016.

Third District financial firms have continued to report moderate overall increases in total loan volumes since the March 2, 2016 Beige Book. Auto loans exhibited the greatest percentage gains during the period, while commercial and industrial (C&I) deals and commercial real estate activity continued to generate strong loan growth. Auto loans and C&I loans have been the strongest categories over the year as well. Abstracting from normal seasonal surges, credit card volumes rose modestly. Mortgages, home equity loans, and other consumer loans have been flat to down over the period as well as over the year. The Federal Reserve’s banking contacts continued to note a competitive lending environment, a greater demand for new mortgages than for refinances, and improving credit quality. Most continued to report few signs of inflation. These contacts remained optimistic for continued slow, steady growth in 2016.

Third District manufacturers reported that overall activity continued to decline slightly during the April 13th, 2016 Beige Book period. New orders also declined further; however, shipments appeared to rebound a bit. Despite the general declines, firms reported slight overall increases in the number of employees and in the average employee workweek. Although the year end is typically slow for most industrial firms, activity appeared to be weak for most major industrial sectors even after adjusting for seasonal factors. Weak global demand coupled with the strong dollar are generally cited as major contributors to the current declines; some firms also continued to cite weak demand from customers that supply Pennsylvania's energy extraction sector.

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 $85,373 and the County ranks 14th nationally in disposable income. The unemployment rate for Chester County stood at 3.6% as of September 2015, compared to a Pennsylvania unemployment rate of 5.3% and a national unemployment rate of4.9%. 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

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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.

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 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

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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, 2015.  

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

Management uses significant estimates to determine the allowance for credit losses.  Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond DNB’s control, management’s estimate of the amount necessary to absorb credit losses and actual credit losses could differ.  DNB’s current judgment is that the allowance for credit losses remains appropriate at March 31, 2016.  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.

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 $761.4 million at March 31, 2016, compared to $748.8 million at December 31, 2015.  The $12.6 million increase in total assets was primarily attributable to a $17.6 million increase in cash and cash equivalents, a $7.6 million increase in loans before allowance for credit losses, a $456,000 increase in all other assets, and a $359,000 increase in loans held for sale, offset by a $13.2 million decrease in investment securities, and a $237,000 increase in the allowance for credit losses.

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Investment Securities. Investment securities, including restricted stock, at March 31, 2016 were $210.2 million, compared to $223.7 million at December 31, 2015. The $13.5 million decrease in investment securities and restricted stock was primarily due to $23.6 million in sales, principal pay-downs, calls and maturities, offset by $8.7million in purchases of investment securities and restricted stock and a $1.4 million change in fair value.  

Gross Loans. DNB’s loans increased $7.6 million to $489.4 million at March 31, 2016, compared to $481.8 million at December 31, 2015. Total commercial loans increased $9.8 million while residential loans and consumer loans decreased $1.1 million, and $1.1 million, respectively.

Deposits.  Deposits were $637.1 million at March 31, 2016, compared to $606.3 million at December 31, 2015.  Deposits increased $30.8 million or 5.08% during the three-month period ended March 31, 2016.  Core deposits, which are comprised of demand, NOW, money markets and savings accounts, increased by $25.5 million, time deposits increased by $5.2 million and brokered deposits increased by $10,000. 

Borrowings.Borrowings were $61.1 million at March 31, 2016, compared to $81.9 million at December 31, 2015.  The decrease of $20.8 million or 25.4% was primarily due to a $10.8 million decrease in repurchase agreements and a $10.0 million decrease in FHLBP advances.

Stockholders’ Equity.Stockholders' equity was $58.2 million at March 31, 2016, compared to $55.5 million at December 31, 2015. The increase in stockholders’ equity was primarily a result of year-to-date earnings of $1.6 million and $950,000 of other comprehensive income, and restricted stock compensation expense of $660,000. These additions to stockholders’ equity were partially offset by taxes on share award vesting of $436,000 and $199,000 of dividends paid on DNB’s common stock.

RESULTS OF OPERATIONS

SUMMARY

Net income for the three-month period ended March 31, 2016 was $1.6 million compared to $1.3 million for the same period in 2015. Diluted earnings per share for the three-month period ended March 31, 2016 were $0.54compared to $0.43 for the same period in 2015. The $304,000 increase in net income during the most recent three-month period was primarily attributable to a $994,000 increase in non-interest income, a $65,000 increase in net interest income, offset by a $594,000 increase in non-interest expense, and a $30,000 increase in the provision for credit losses.

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 debentures and notes, and other borrowings.

Net interest income for the three-month period ended March 31, 2016 was $5.5 million, compared to $5.4 million for the same period in 2015. Interest income for the three-month period ended March 31, 2016 was $6.1 million, compared to $6.0 million for the same period in 2015. Interest expense for the three-month period ended March 31, 2016 was  $650,000, compared to $606,000 for the same period in 2015. The composite cost of funds for the three-month period ended March 31, 2016 was 0.38%, compared to 0.37% for the same period in 2015. The net interest margin for the three-month periods ended March 31, 2016 was 3.15%, compared to 3.14% for the same period in 2015.  

Interest on loans was $5.1 million for the three-month period ended March 31, 2016, compared to $4.9 million for the same period in 2015. The average balance of loans was $483.1 million with an average yield of 4.24% for the first quarter of 2016, compared to $460.6 million with an average yield of 4.31% for the same period in 2015.  

Interest and dividends on investment securities was $1.0 million for the three-month period ended March 31, 2016, compared to $1.1 million for the same period in 2015. The average balance of investment securities was $210.5 million with a tax equivalent average yield of 2.20% for the first quarter of 2016, compared to $232.6 million with a tax equivalent average yield of 2.04% for the same period in 2015.  

Interest on deposits was $343,000 for the three-month period ended March 31, 2016, compared to $282,000 for the same period in 2015. The average balance of deposits was $615.1 million with an average rate of 0.22% for the first quarter of 2016, compared to $617.4 million with an average rate of 0.19% for the same period in 2015.  

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Interest on borrowings was $307,000 for the three-month period ended March 31, 2016, compared to $324,000 for the same period in 2015. The average balance of borrowings was $66.7 million with an average rate of 1.85% for the first quarter of 2016, compared to $51.0 million with an average rate of 2.57% for the same period in 2015.

PROVISION FOR CREDIT LOSSES

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

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

In addition, DNB reviews historical loss experience for the residential mortgage, commercial mortgage, commercial term, commercial construction, home equity and consumer installment loan pools to determine a historical loss factor. The historical loss factors are then applied to the current portfolio balances to determine the required reserve percentage for each loan pool. 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 Loan Review Methodology and Degree of Oversight by Bank’s Board of Directors;

•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

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•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 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 $330,000 provision made during the three months ended March 31, 2016, compared to $300,000 for the same period in 2015. DNB’s percentage of allowance for credit losses to total loans was 1.06%  at March 31, 2016 compared to 1.02% and 1.12% at December 31, 2015 and March 31, 2015, respectively. Net charge-offs were $93,000, $1.1 million, and $16,000 during the three months ended March 31, 2016, year ended December 31, 2015, and three months ended March 31, 2015, respectively. The percentage of net charge-offs to total average loans were 0.02%, 0.23%, and 0.001% 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. Management is not aware of any potential problem loans, which were accruing and current at March 31, 2016, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms and that would result in a significant loss to DNB. Non-performing loans increased $98,000 during the three month period ended March 31, 2016.  The ratio of the allowance for credit losses as a percentage of loans 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, 2016, DNB had $7.8 million of non-performing assets, which included $5.2 million of non-performing loans and $2.6 million of OREO and other repossessed assets. This compares to $7.7 million of non-performing assets at December 31, 2015 which included $5.1 million of non-performing or impaired loans and $2.6 million of OREO and other repossessed assets. Loans are reviewed for impairment in accordance with FASB ASC 310-10-35. Impaired loans can either be secured or unsecured, not including large groups of smaller balance loans that are collectively evaluated. Impairment is measured by the difference between the loan amount and the present value of the future cash flow discounted at the loan’s effective interest rate. Management measures loans for impairment by using the fair value of collateral for collateral dependent loans. In general, management reduces the amount of the appraisal by the estimated cost of acquisition and disposition of the underlying collateral and compares that adjusted value with DNB’s carrying value. DNB establishes a specific valuation allowance on impaired loans that have a collateral shortfall and/or statement cashflow shortfalls, including estimated costs to sell in comparison to the carrying value of the loan. Of the $5.1 million of

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impaired loans at March 31, 2016, $884,000 had valuation allowances of $200,000 and $4.2 million had no specific allowance. Of the $5.0 million of impaired loans at December 31, 2015, $307,000 had valuation allowances of $114,000 and $4.7 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, 2016, DNB recognized $97,000 in total charge-offs, $84,000 of which related to impaired loans.  An impaired loan may not represent an expected loss.

We typically order new third-party appraisals or collateral valuations when a loan becomes impaired or is transferred to 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 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.

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Analysis of Allowance for Credit Losses

(Dollars in thousands)

		Three Months Ended		Year Ended		Three Months Ended
		March 31, 2016		December 31, 2015		March 31, 2015
Beginning balance	$	4,935	$	4,906	$	4,906
Provisions		330		1,105		300
Loans charged off:
Residential mortgage		(84)		(194)		-
Commercial mortgage		-		(105)		-
Commercial:
Commercial term		(13)		(200)		(11)
Commercial construction		-		(581)		-
Lease financing		-		-		-
Consumer:
Home equity		-		(11)		-
Other		-		(63)		(6)
Total charged off		(97)		(1,154)		(17)
Recoveries:
Residential mortgage		1		4		-
Commercial mortgage		-		-		-
Commercial:
Commercial term		1		13		-
Commercial construction		1		10		-
Lease financing		1		49		1
Consumer:
Home Equity		-		-		-
Other		-		2		-
Total recoveries		4		78		1
Ending balance	$	5,172	$	4,935	$	5,190
Reserve for unfunded loan commitments	$	186	$	188	$	156

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, 2016				December 31, 2015				March 31, 2015
			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	$	220	6	%	$	216	6	%	$	269	6	%
Commercial mortgage		2,376	56			2,375	57			2,398	58
Commercial:
Commercial term		948	22			989	21			705	18
Commercial construction		765	5			569	4			922	6
Consumer:
Home equity		188	10			195	11			224	11
Other		67	1			64	1			66	1
Unallocated		608	-			527	-			606	-
Total	$	5,172	100	%	$	4,935	100	%	$	5,190	100	%
Reserve for unfunded loan commitments	$	186			$	188			$	156

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NON-INTEREST INCOME

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

Non-interest income for the three-month period ended March 31, 2016 was $2.3 million, compared to $1.3 million for the same period in 2015. The $994,000 increase during the three months ended March 31, 2016 was mainly attributable to increases of $1.2 million in gains from insurance proceeds, $45,000 in wealth management, $11,000 in service charges (mostly NSF fees), and $8,000 in other fees (mostly check printing fees and merchant card processing). These increases were offset by decrease of $192,000 in gains on sale of loans, $22,000 in gains on sale of investment securities, and $6,000 in mortgage banking.

NON-INTEREST EXPENSE

Non-interest expense for the three-month period ended March 31, 2016 was $5.4 million, compared to $4.8 million for the same period in 2015.  During the three months ended March 31, 2016, total non-interest expense increased by $594,000.  The increase was primarily due to increases of $482,000 in salary and employee benefits (restricted stock vestings, normal merit increases, and higher commissions), $169,000 in professional and consulting (merger related costs associated with East River Bank), $36,000 in other expenses (mostly directors’ feesand contribution expense), $27,000 in furniture and equipment, $14,000 in advertising and marketing, $12,000 in PA shares tax, and $6,000 in FDIC insurance. The increases were partially offset by decreases of $135,000 in occupancy (snow removal expenses and rent abatement for the West Chester office due to the fire that occurred in 2015), $15,000 in printing and supplies, and $2,000 in postage.

INCOME TAXES

Income tax expense for the three-month period ended March 31, 2016 was $480,000, compared to $349,000 for the same period in 2015. The effective tax rate for the three-month period ended March 31, 2016 was 23.6% compared to 21.8%  for the same period in 2015.  The primary reason for the higher effective tax rate in the first quarter of 2016 was due to an income tax expense credit in the first quarter of 2015.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

DNB continues to work diligently to improve asset quality by adhering to strict underwriting standards and improving lending policies and procedures. Non-performing assets totaled $7.8 million at March 31, 2016 compared to $7.7 million at December 31, 2015 and $7.7 million at March 31, 2015. The non-performing loans to total loans ratio was 1.06% at March 31, 2016, 1.06% at December 31, 2015 and 1.47% at March 31, 2015. The non-performing assets to total assets ratio was 1.02% at March 31, 2016, 1.02% at December 31, 2015, and 1.03% at March 31, 2015. The allowance to non-performing loans ratio was 99.7% at March 31, 2016,  96.9% at December 31, 2015 and 76.2% at March 31, 2015. 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, loans delinquent over ninety days and still accruing, as well as OREO and other repossessed assets. Non-accrual loans are loans 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 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 consumer purchased chattel 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 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

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recovery of each troubled asset. As of March 31, 2016, DNB had $21.0 million of substandard loans. Of the $21.0 million, $15.7 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 December 31, 2015 was $14.6 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, 2016		December 31, 2015		March 31, 2015
Non-accrual loans:
Residential mortgage	$	1,781	$	1,619	$	2,446
Commercial mortgage		1,025		1,048		1,262
Commercial:
Commercial term		210		188		196
Commercial construction		1,237		1,028		2,043
Consumer:
Home equity		574		563		429
Other		199		189		194
Total non-accrual loans		5,026		4,635		6,570
Loans 90 days past due and still accruing		164		457		239
Total non-performing loans		5,190		5,092		6,809
Other real estate owned & other repossessed property		2,612		2,581		908
Total non-performing assets	$	7,802	$	7,673	$	7,717
Asset quality ratios:
Non-performing loans to total loans		1.06	%	1.06	%	1.47	%
Non-performing assets to total assets		1.02		1.02		1.03
Allowance for credit losses to:
Total loans		1.06		1.02		1.12
Non-performing loans		99.7		96.9		76.2

Included in the loan 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)		2016		2015		2015
Interest income which would have been
recorded under original terms	$	105	$	476	$	140
Interest income recorded during the period		1		3		5
Net impact on interest income	$	104	$	473	$	135

As of March 31, 2016, DNB had no commercial mortgages classified as a TDR, compared to no commercial mortgages classified as a TDR at December 31, 2015, and one commercial mortgage classified as a TDR totaling $2,234,000 at March 31, 2015. This loan paid off during the third quarter of 2015. 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, 2016, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2015, and one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at March 31, 2015. The monthly payment on this loan was reduced

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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, 2016 and 2015, there were no defaults on any terms of this loan.

As of March 31, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to no such loans at December 31, 2015 or March 31, 2015. The interest rate on the loan was reduced. The loan was extended and there was no reduction of principal. This loan was classified as a TDR in December of 2015. The balance of the loan prior to modification was $42,000 and the balance after the modification was $42,000. DNB recognized a partial charge-off of the loan in the amount of $2,000. During the three months ended March 31, 2016 and 2015, there were no defaults on any terms of this loan.

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

		At and For the		At and For the		At and For the
		Three Months Ended		Year Ended		Three Months Ended
		March 31,		December 31,		March 31,
(Dollars in thousands)		2016		2015		2015
Total recorded investment	$	5,128	$	5,021	$	9,261
Impaired loans with a specific allowance		884		307		1,960
Impaired loans without a specific allowance		4,244		4,714		7,301
Average recorded investment		5,076		6,891		9,159
Specific allowance allocation		200		114		401
Total principal and interest collected		43		2,878		92
Interest income recorded		-		3		27

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 $102.8 million at March 31, 2016 compared to $96.8 million at December 31, 2015.  Primary liquidity includes investments and restricted stock, Federal funds sold and cash and due from banks, less pledged securities of $146.2 million.  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 $311.4 million at March 31, 2016.  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, 2016, our Maximum Borrowing Capacity with the FHLB was $265.4 million. At March 31, 2016, DNB had borrowed $20.0 million and the FHLB had issued letters of credit, on DNB's behalf, totaling $40.0 million against its available credit lines. At March 31, 2016, we also had available $46.0 million of unsecured federal funds lines of credit with other financial institutions as well as $19.9 million of available short or long term funding through the Certificate of Deposit Account Registry Service (CDARS) program and $123.7 million of available short or long term funding through Raymond James’ brokered CDs agreement. 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, 2016, DNB had $116.9 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 $250,000 scheduled to mature in one year or less from March 31, 2016totaled $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, 2016.  The Bank’s capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations

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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 Note 16 of DNB’s December 31, 2015 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. Under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016. DNB must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2016 is 0.625%. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the fully phased-in 2.50% buffer.

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

										To Be Well
						For Capital				Capitalized Under
						Adequacy				Prompt Corrective
		Actual				Purposes				Action Provisions
(Dollars in thousands)		Amount	Ratio			Amount	Ratio			Amount	Ratio
DNB Financial Corporation
March 31, 2016
Total risk-based capital	$	83,299	15.1	%	$	58,021	10.5	%		N/A	N/A
Common Equity Tier 1 capital		59,191	10.7			38,680	7.0			N/A	N/A
Tier 1 risk-based capital		68,191	12.3			46,969	8.5			N/A	N/A
Tier 1 (leverage) capital		68,191	9.2			29,764	4.0			N/A	N/A
December 31, 2015
Total risk-based capital	$	81,321	14.8	%	$	57,744	10.5	%		N/A	N/A
Common equity tier 1 capital		57,448	10.4			38,502	7.0			N/A	N/A
Tier 1 risk-based capital		66,448	12.1			46,753	8.5			N/A	N/A
Tier 1 (leverage) capital		66,448	8.9			29,717	4.0			N/A	N/A
DNB First, N.A.
March 31, 2016
Total risk-based capital	$	81,974	14.9	%	$	57,869	10.5	%	$	68,892	12.5	%
Common Equity Tier 1 capital		76,616	13.9			38,579	7.0			49,602	9.0
Tier 1 risk-based capital		76,616	13.9			46,846	8.5			57,869	10.5
Tier 1 (leverage) capital		76,616	10.3			29,711	4.0			37,139	5.0
December 31, 2015
Total risk-based capital	$	80,286	14.6	%	$	57,624	10.5	%	$	68,600	12.5	%
Common equity tier 1 capital		75,163	13.7			38,416	7.0			49,392	9.0
Tier 1 risk-based capital		75,163	13.7			46,648	8.5			57,624	10.5
Tier 1 (leverage) capital		75,163	10.1			29,670	4.0			37,087	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.

43

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.  At March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015.

(Dollars in thousands)		March 31, 2016						December 31, 2015
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	70,518	$	71,707	$	65,664	$	68,118	$	58,298	$	58,936
Change				1,189		(4,854)				(9,820)		(9,182)
Change as % of assets				0.2%		(0.6%)				(1.3%)		(1.2%)
Change as % of PV equity				1.7%		(6.9%)				(14.4%)		(13.5%)

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, 2016, 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, 2016, 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, 2016. The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended March 31, 2016:

				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, 2016 – January 31, 2016	-	$	-	-	$	63,016
February 1, 2016 – February 29, 2016	-		-	-	$	63,016
March 1, 2016 – March 31, 2016	-		-	-	$	63,016
Total	-	$	-	-	$	63,016

44

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.

ITEM 6. EXHIBITS

a) The following exhibits are filed or furnished herewith:

Exhibit Number	Description
2.1	Agreement and Plan of Merger by and between DNB Financial Corporation and East River Bank, dated as of April 4, 2016, filed as Exhibit 2.1 to Form 8-K (No. 1-34242) on April 5, 2016 and incorporated herein by reference.
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

45

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
May 16, 2016	BY:	/s/ William J. Hieb
		William J. Hieb,  Chief Executive Officer, President and Director
May 16, 2016	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

46

Exhibit Number	Exhibit Index Description
2.1	Agreement and Plan of Merger by and between DNB Financial Corporation and East River Bank, dated as of April 4, 2016, filed as Exhibit 2.1 to Form 8-K (No. 1-34242) on April 5, 2016 and incorporated herein by reference.
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

47

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT

TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Hieb, 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 J.  Hieb

William J.  Hieb

Chief Executive Officer & President

May 16, 2016

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 16, 2016

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, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Hieb, Chief Executive Officer and President 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 J.  Hieb

William J. Hieb

Chief Executive Officer & President

May 16, 2016

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, 2016 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 16, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 16, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
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		2,848,773

XML

Consolidated Statements of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 38,740	$ 21,119
Cash and cash equivalents	38,740	21,119
Available-for-sale investment securities at fair value (amortized cost of $141,115 and $153,559)	141,373	152,379
Held-to-maturity investment securities (fair value of $66,797 and $68,431)	65,650	67,829
Total investments securities	207,023	220,208
Loans held for sale	359
Loans	489,366	481,758
Allowance for credit losses	(5,172)	(4,935)
Net loans	484,194	476,823
Restricted stock	3,166	3,447
Office property and equipment, net	7,817	6,806
Accrued interest receivable	2,569	2,410
Other real estate owned & other repossessed property	2,612	2,581
Bank owned life insurance (BOLI)	9,381	9,326
Core deposit intangible	63	66
Net deferred taxes	2,946	3,733
Other assets	2,570	2,299
Total assets	761,440	748,818
Liabilities
Non-interest-bearing deposits	131,951	125,581
Interest-bearing deposits:
NOW	201,566	185,973
Money market	138,241	137,555
Savings	75,535	72,660
Time	71,264	66,018
Brokered deposits	18,498	18,488
Total deposits	637,055	606,275
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	20,000	30,000
Repurchase agreements	21,661	32,416
Junior subordinated debentures	9,279	9,279
Subordinated debt	9,750	9,750
Other borrowings	454	464
Total borrowings	61,144	81,909
Accrued interest payable	313	345
Other liabilities	4,748	4,801
Total liabilities	$ 703,260	$ 693,330
Stockholders' Equity
Preferred stock, $10.00 par value; 1,000,000 shares authorized; $1,000 liquidation preference per share; 0 and 0 issued respectively
Common stock, $1.00 par value; 10,000,000 shares authorized; 2,951,128 and 2,933,049 issued, respectively; 2,844,973 and 2,823,840 outstanding, respectively	$ 2,969	$ 2,955
Treasury stock, at cost; 106,155 and 109,209 shares, respectively	(1,960)	(2,015)
Surplus	35,413	35,097
Retained earnings	22,793	21,436
Accumulated other comprehensive loss	(1,035)	(1,985)
Total stockholders' equity	58,180	55,488
Total liabilities and stockholders' equity	$ 761,440	$ 748,818

XML

Consolidated Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 141,115	$ 153,559
Held-to-maturity Securities, Fair Value	$ 66,797	$ 68,431
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	0	0
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	2,951,128	2,933,049
Common Stock, Shares, Outstanding	2,844,973	2,823,840
Treasury Stock, Shares	106,155	109,209

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest Income:
Interest and fees on loans	$ 5,068	$ 4,912
Interest and dividends on investment securities: Taxable	682	735
Interest and dividends on investment securities: Exempt from federal taxes	334	342
Interest on cash and cash equivalents	21	7
Total interest and dividend income	6,105	5,996
Interest Expense:
Interest on NOW, money market and savings	164	149
Interest on time deposits	117	109
Interest on brokered deposits	62	24
Interest on FHLB advances	94	194
Interest on repurchase agreements	11	9
Interest on junior subordinated debentures	81	74
Interest on Subordinated Debt	104	30
Interest on other borrowings	17	17
Total interest expense	650	606
Net interest income	5,455	5,390
Provision for credit losses	330	300
Net interest income after provision for credit losses	5,125	5,090
Non-interest Income:
Service charges	307	296
Wealth management	397	352
Mortgage banking	32	38
Increase in cash surrender value of BOLI	55	55
Gains on sale of investment securities, net	31	53
Gain on sale of loans	39	231
Gain from insurance proceeds	1,150
Other fees	318	310
Total non-interest income	2,329	1,335
Non-interest Expense:
Salaries and employee benefits	3,126	2,644
Furniture and equipment	329	302
Occupancy	468	603
Professional and consulting	497	328
Advertising and marketing	183	169
Printing and supplies	33	48
FDIC insurance	129	123
PA shares tax	162	150
Telecommunications	61	61
Postage	21	23
Other expenses	409	373
Total non-interest expense	5,418	4,824
Income before income tax expense	2,036	1,601
Income tax expense	480	349
Net income	1,556	1,252
Preferred stock dividends and accretion of discount		26
Net income available to common shareholders	$ 1,556	$ 1,226
Earnings per common share:
Basic	$ 0.55	$ 0.44
Diluted	0.54	0.43
Cash dividends per common share	$ 0.07	$ 0.07
Weighted average common shares outstanding:
Basic	2,832,521	2,786,012
Diluted	2,869,119	2,832,869

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2016	Mar. 31, 2015
Consolidated Statements of Comprehensive Income [Abstract]
Net income		$ 1,556	$ 1,252
Other Comprehensive Income:
Unrealized holding gains arising during the period, Before tax amount		1,469	1,087
Unrealized holding gains arising during the period, Tax effect		(499)	(370)
Unrealized holding gains arising during the period		970	717
Accretion of discount on AFS to HTM reclassification, Before tax amount	[1]	2	3
Accretion of discount on AFS to HTM reclassification, Tax effect	[1],[2]	(1)	(1)
Accretion of discount on AFS to HTM reclassification	[1]	1	2
Less reclassification for gains included in net income, Before Tax amount		(31)	(53)
Less reclassification for gains included in net income, Tax effect	[2]	10	18
Less reclassification for gains included in net income		(21)	(35)
Total other comprehensive income		950	684
Total comprehensive income		$ 2,506	$ 1,936

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

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

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, 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)						(9,750)
Restricted stock compensation expense		5		82			87
Exercise of stock options		14		149			163
Taxes on stock option exercise and share award vest				(46)			(46)
Cash dividends - common					(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
Balance at Dec. 31, 2015		2,955	(2,015)	35,097	21,436	(1,985)	55,488
Net income					1,556		1,556
Other comprehensive income						950	950
Restricted stock compensation expense		29		631			660
Taxes on stock option exercise and share award vest		(15)		(421)			(436)
Tax benefit for restricted stock vest				64			64
Cash dividends - common					(199)		(199)
Sale of treasury shares to 401(k)			37	28			65
Sale of treasury shares to deferred comp. plan			18	14			32
Balance at Mar. 31, 2016		$ 2,969	$ (1,960)	$ 35,413	$ 22,793	$ (1,035)	$ 58,180

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Consolidated Statements of Stockholders' Equity [Abstract]
Redemption of preferred stock		9,750
Restricted stock compensation, shares	18,079
Exercise of stock options, net of tax and exercise price		14,696
Cash Dividends-Common Stock per share	$ 0.07	$ 0.07
Sale of treasury shares to 401(k), Shares	2,040	2,926
Sale of treasury shares to deferred compensation plan, Shares	1,014	1,474

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash Flows From Operating Activities:
Net income	$ 1,556	$ 1,252
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	361	460
Provision for credit losses	330	300
Stock based compensation	660	87
Net gain on sale of securities	(31)	(53)
Earnings from investment in BOLI	(55)	(55)
Deferred tax expense (benefit)	298	(339)
Proceeds from sales of loans	1,233	5,555
Loans originated for sale	(1,521)	(4,669)
Gain on sale of loans	(71)	(269)
Increase in accrued interest receivable	(159)	(319)
Increase in other assets	(271)	(61)
Decrease in accrued interest payable	(32)	(45)
Decrease in other liabilities	(53)	(123)
Net Cash Provided By Operating Activities	2,245	1,721
Cash Flows From Investing Activities:
Activity in available-for-sale securities: Sales	12,118	3,926
Activity for available-for-sale securities: Maturities, repayments and calls	8,867	11,386
Activity in available-for-sale securities: Purchases	(8,687)	(14,778)
Activity in held-to-maturity securities: Maturities, repayments and calls	2,194	509
Activity in held-to-maturity securities: Purchases		(1,500)
Net decrease (increase) in restricted stock	281	(133)
Net increase in loans	(7,701)	(8,520)
Purchases of property and equipment	(1,206)	(35)
Costs capitalized in OREO and other repossessed property	(315)
Proceeds from sale of OREO and other repossessed property	284
Net Cash Provided By (Used In) Investing Activities	5,835	(9,145)
Cash Flows From Financing Activities:
Net increase in deposits	30,780	22,178
Repayment of FHLBP advances	(10,000)
Net (decrease) increase in repurchase agreements	(10,755)	1,095
Proceeds from issuance of subordinated debt		9,750
Repayment of other borrowings	(10)	(10)
Dividends paid	(199)	(220)
Proceeds from the exercise of stock options		163
Taxes on exercise of stock options	(436)	(46)
Tax benefit for restricted stock vest	64
Redemption of preferred stock		(9,750)
Sale of treasury stock	97	95
Net Cash Provided by Financing Activities	9,541	23,255
Net Change in Cash and Cash Equivalents	17,621	15,831
Cash and Cash Equivalents at Beginning of Period	21,119
Cash and Cash Equivalents at End of Period	38,740	28,335
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	682	651
Cash paid during the period for: Income taxes	$ 150	858
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans to real estate owned and other repossessed property		$ 7

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Basis Of Presentation

3 Months Ended

Mar. 31, 2016

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, 2016 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, 2015. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2016 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements-  

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. DNB is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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Investment Securities

3 Months Ended

Mar. 31, 2016

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, 2016
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,035	$	482	$	-	$	8,517
Government Sponsored Entities (GSE) mortgage-backed securities		2,615		105		-		2,720
Corporate bonds		11,420		304		(70)		11,654
Collateralized mortgage obligations GSE		2,455		25		(2)		2,478
State and municipal tax-exempt		41,125		376		(73)		41,428
Total	$	65,650	$	1,292	$	(145)	$	66,797
Available For Sale
US Government agency obligations	$	58,950	$	169	$	(3)	$	59,116
GSE mortgage-backed securities		34,055		173		-		34,228
Collateralized mortgage obligations GSE		15,518		28		(157)		15,389
Corporate bonds		19,951		69		(148)		19,872
State and municipal tax-exempt		12,641		136		(9)		12,768
Total	$	141,115	$	575	$	(317)	$	141,373

		December 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,973	$	320	$	-	$	8,293
Government Sponsored Entities (GSE) mortgage-backed securities		2,759		83		-		2,842
Corporate bonds		11,518		234		(42)		11,710
Collateralized mortgage obligations GSE		2,623		9		(26)		2,606
State and municipal tax-exempt		42,956		300		(276)		42,980
Total	$	67,829	$	946	$	(344)	$	68,431
Available For Sale
US Government agency obligations	$	58,460	$	-	$	(252)	$	58,208
GSE mortgage-backed securities		40,663		13		(325)		40,351
Collateralized mortgage obligations GSE		16,241		3		(438)		15,806
Corporate bonds		20,921		-		(350)		20,571
State and municipal tax-exempt		17,274		180		(11)		17,443
Total	$	153,559	$	196	$	(1,376)	$	152,379

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, 2016 and December 31, 2015.

		March 31, 2016
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	3,423	$	(70)	$	3,423	$	(70)	$	-	$	-
Collateralized mortgage obligations GSE		368		(2)		368		(2)		-		-
State and municipal tax-exempt		4,144		(73)		563		(7)		3,581		(66)
Total	$	7,935	$	(145)	$	4,354	$	(79)	$	3,581	$	(66)
Available For Sale
US Government agency obligations	$	9,997	$	(3)	$	9,997	$	(3)	$	-	$	-
Collateralized mortgage obligations GSE		12,321		(157)		1,507		(15)		10,814		(142)
Corporate bonds		10,975		(148)		4,487		(53)		6,488		(95)
State and municipal tax-exempt		6,644		(9)		6,644		(9)		-		-
Total	$	39,937	$	(317)	$	22,635	$	(80)	$	17,302	$	(237)

		December 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
Corporate bonds	$	7,597	$	(42)	$	7,597	$	(42)	$	-	$	-
Collateralized mortgage obligations GSE		1,482		(26)		388		(10)		1,094		(16)
State and municipal tax-exempt		13,161		(276)		4,380		(34)		8,781		(242)
Total	$	22,240	$	(344)	$	12,365	$	(86)	$	9,875	$	(258)
Available For Sale
US Government agency obligations	$	58,208	$	(252)	$	58,208	$	(252)	$	-	$	-
GSE mortgage-backed securities		38,307		(325)		33,984		(238)		4,323		(87)
Collateralized mortgage obligations GSE		15,231		(438)		4,187		(41)		11,044		(397)
Corporate bonds		20,571		(350)		16,157		(264)		4,414		(86)
State and municipal tax-exempt		6,660		(11)		6,660		(11)		-		-
Total	$	138,977	$	(1,376)	$	119,196	$	(806)	$	19,781	$	(570)

As of March 31, 2016, there were no GSE mortgage-backed securities, eight corporate bonds, one U.S. agency obligation, fourteen collateralized mortgage obligations GSE,and nine tax-exempt municipalities 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, 2016 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, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are fourteen impaired securities classified as collateralized mortgage obligations, eleven of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.37% of its book value. 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, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

State and municipal tax-exempt There are nine impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.26% of its book value. 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 nine municipal securities, there is one insured school district, three uninsured school districts, and five uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

US Government agency obligations  There is one impaired security classified as an agency, which has been impaired for less than 12 monthsat0.03% of its book value. This security  wasissued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on this security and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the security approaches its maturity date. Management concluded that this security  was not other-than-temporarily impaired at March 31, 2016.

Corporate bondsThere are eight impaired bonds classified as corporate bonds, three of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 3.06% of its book value. 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 a "BBB-" 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, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

The amortized cost and fair value of investment securities as of March 31, 2016, by final 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	$	-	$	-	$	18,669	$	18,657
Due after one year through five years		20,021		20,802		62,804		62,906
Due after five years through ten years		27,530		27,778		34,738		34,935
Due after ten years		18,099		18,217		24,904		24,875
Total investment securities	$	65,650	$	66,797	$	141,115	$	141,373

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

		Three Months Ended
		March 31,
(Dollars in thousands)		2016		2015
Gross realized gains-AFS	$	61	$	53
Gross realized losses-AFS		(30)		-
Net realized gain	$	31	$	53

At March 31, 2016 and December 31, 2015, investment securities with a carrying value of approximately $146.2 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.

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Loans

3 Months Ended

Mar. 31, 2016

Loans [Abstract]

Loans

NOTE 3: LOANS

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

(Dollars in thousands)	March 31, 2016		December 31, 2015
Residential mortgage	$	27,560	$	28,651
Commercial mortgage		274,372		274,132
Commercial:
Commercial term		107,232		102,178
Commercial construction		24,833		20,364
Consumer:
Home equity		49,545		51,270
Other		5,824		5,163
Total loans	$	489,366	$	481,758
Less allowance for credit losses		(5,172)		(4,935)
Net loans	$	484,194	$	476,823

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

					Three Months Ended March 31, 2016
(Dollars in thousands)	December 31, 2015		March 31, 2016		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	$	1,619	$	1,781	$	19	$	-	$	19
Commercial mortgage		1,048		1,025		20		-		20
Commercial:
Commercial term		188		210		3		-		3
Commercial construction		1,028		1,237		41		-		41
Consumer:
Home equity		563		574		16		-		16
Other		189		199		5		-		5
Total non-accrual loans	$	4,635	$	5,026	$	104	$	-	$	104
Loans 90 days past due and accruing		457		164		1		1		-
Total non-performing loans	$	5,092	$	5,190	$	105	$	1	$	104

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

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Allowance For Credit Losses

3 Months Ended

Mar. 31, 2016

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, 2016 and December 31, 2015. 

Age Analysis of Past Due Loans Receivable

March 31, 2016
														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	$	-	$	384	$	1,945	$	2,329	$	25,231	$	27,560	$	164
Commercial mortgage		-		-		182		182		274,190		274,372		-
Commercial:
Commercial term		-		-		24		24		107,208		107,232		-
Commercial construction		-		-		447		447		24,386		24,833		-
Consumer:
Home equity		31		-		417		448		49,097		49,545		-
Other		26		12		147		185		5,639		5,824		-
Total	$	57	$	396	$	3,162	$	3,615	$	485,751	$	489,366	$	164

December 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	$	502	$	552	$	2,076	$	3,130	$	25,521	$	28,651	$	457
Commercial mortgage		36		86		96		218		273,914		274,132		-
Commercial:
Commercial term		-		-		-		-		102,178		102,178		-
Commercial construction		-		581		447		1,028		19,336		20,364		-
Consumer:
Home equity		7		310		153		470		50,800		51,270		-
Other		100		-		148		248		4,915		5,163		-
Total	$	645	$	1,529	$	2,920	$	5,094	$	476,664	$	481,758	$	457

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2016 and 2015 and as of December 31, 2015.

Impaired Loans

		March 31, 2016						December 31, 2015
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,637	$	1,790	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		24		24		-		-		-		-
Commercial construction		790		790		-		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		92		100		-		82		90		-
Total	$	4,244	$	4,759	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		144		290		1		-		-		-
Commercial:
Commercial term		186		200		107		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		107		107		3		107		107		4
Total	$	884	$	3,430	$	200	$	307	$	318	$	114
Total:
Residential mortgage		1,781		2,080		1		1,620		1,919		-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		210		224		107		200		211		110
Commercial construction		1,237		3,623		89		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		199		207		3		189		197		4
Total	$	5,128	$	8,189	$	200	$	5,021	$	8,030	$	114

		Three Months Ended				Three Months Ended
		March 31, 2016				March 31, 2015
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	1,629	$	-	$	2,320	$	-
Commercial mortgage		1,103		-		3,386		26
Commercial:
Commercial term		12		-		-		-
Commercial construction		965		-		1,400		-
Consumer:
Home equity		684		1		504		1
Other		87		-		144		-
Total	$	4,480	$	1	$	7,754	$	27
With allowance recorded:
Residential mortgage		72		-		204		-
Commercial mortgage		-		-		201		-
Commercial:
Commercial term		193		-		200		-
Commercial construction		224		-		756		-
Consumer:
Home equity		-		-		44		-
Other		107		-		-		-
Total	$	596	$	-	$	1,405	$	-
Total:
Residential mortgage		1,701		-		2,524		-
Commercial mortgage		1,103		-		3,587		26
Commercial:
Commercial term		205		-		200		-
Commercial construction		1,189		-		2,156		-
Consumer:
Home equity		684		1		548		1
Other		194		-		144		-
Total	$	5,076	$	1	$	9,159	$	27

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, 2016 and December 31, 2015.

Credit Quality Indicators

		March 31, 2016
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	25,512	$	-	$	2,048	$	-	$	27,560
Commercial mortgage		260,529		4,763		9,080		-		274,372
Commercial:
Commercial term		98,787		2,507		5,938		-		107,232
Commercial construction		21,781		-		3,052		-		24,833
Consumer:
Home equity		48,814		-		731		-		49,545
Other		5,625		-		199		-		5,824
Total	$	461,048	$	7,270	$	21,048	$	-	$	489,366

		December 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,762	$	-	$	1,889	$	-	$	28,651
Commercial mortgage		262,036		4,802		7,294		-		274,132
Commercial:
Commercial term		93,025		2,555		6,598		-		102,178
Commercial construction		17,521		-		2,843		-		20,364
Consumer:
Home equity		50,551		-		719		-		51,270
Other		4,974		-		189		-		5,163
Total	$	454,869	$	7,357	$	19,532	$	-	$	481,758

Loans classified as troubled debt restructurings (“TDR”) are considered impaired. As of March 31, 2016, DNB had no commercial mortgages classified as a TDR, compared to no commercial mortgages classified as a TDR at December 31, 2015, andone commercial mortgage classified as a TDR totaling $2,234,000 at March 31, 2015. This loan paid off during the third quarter of 2015. 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, 2016, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2015, and one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at March 31, 2015. 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, 2016 and 2015, there were no defaults on any terms of this loan.

As of March 31, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to no such loans at December 31, 2015 or March 31, 2015. The interest rate on the loan was reduced. The loan was extended and there was no reduction of principal. This loan was classified as a TDR in December of 2015. The balance of the loan prior to modification was $42,000 and the balance after the modification was $42,000. DNB recognized a partial charge-off on the loan in the amount of $2,000. During the three months ended March 31, 2016 and 2015, there were no defaults on any terms of this loan.

The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2016 and December 31, 2015, the activity for the three months ended March 31, 2016 and 2015 and as of and for the year ended December 31, 2015.

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, 2016	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Charge-offs		(84)		-		(13)		-		-		-		-		-		(97)
Recoveries		1		-		1		1		1		-		-		-		4
Provisions		87		1		(29)		195		(1)		(7)		3		81		330
Ending balance - March 31, 2016	$	220	$	2,376	$	948	$	765	$	-	$	188	$	67	$	608	$	5,172
Ending balance: individually evaluated for impairment	$	1	$	-	$	107	$	89	$	-	$	-	$	3	$	-	$	200
Ending balance: collectively evaluated for impairment	$	219	$	2,376	$	841	$	676	$	-	$	188	$	64	$	608	$	4,972
Loans receivables:
Ending balance	$	27,560	$	274,372	$	107,232	$	24,833	$	-	$	49,545	$	5,824			$	489,366
Ending balance: individually evaluated for impairment	$	1,781	$	1,025	$	210	$	1,237	$	-	$	676	$	199			$	5,128
Ending balance: collectively evaluated for impairment	$	25,779	$	273,347	$	107,022	$	23,596	$	-	$	48,869	$	5,625			$	484,238
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	115	$	55	$	-	$	13	$	-			$	186

	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
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:
Ending balance - December 31, 2015	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Ending balance: individually evaluated for impairment	$	-	$	-	$	110	$	-	$	-	$	-	$	4	$	-	$	114
Ending balance: collectively evaluated for impairment	$	216	$	2,375	$	879	$	569	$	-	$	195	$	60	$	527	$	4,821
Loans receivables:
Ending balance	$	28,651	$	274,132	$	102,178	$	20,364	$	-	$	51,270	$	5,163			$	481,758
Ending balance: individually evaluated for impairment	$	1,620	$	1,181	$	200	$	1,140	$	-	$	691	$	189			$	5,021
Ending balance: collectively evaluated for impairment	$	27,031	$	272,951	$	101,978	$	19,224	$	-	$	50,579	$	4,974			$	476,737
Reserve for unfunded loan commitments included in other liabilities	$	-	$	2	$	115	$	58	$	-	$	13	$	-			$	188

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Earnings Per Share

3 Months Ended

Mar. 31, 2016

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, 2016. There were no anti-dilutive stock warrants outstanding, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at March 31, 2015. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended
		March 31, 2016
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,556	2,833	$	0.55
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	36		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,556	2,869	$	0.54

		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

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2016

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, 2016
Net unrealized gain on AFS securities	$	258	$	(87)	$	171
Discount on AFS to HTM reclassification		(15)		5		(10)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,569)	$	534	$	(1,035)
December 31, 2015
Net unrealized loss on AFS securities	$	(1,180)	$	402	$	(778)
Discount on AFS to HTM reclassification		(17)		6		(11)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(3,009)	$	1,024	$	(1,985)

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Subordinated Debentures, Notes And Other Borrowings

3 Months Ended

Mar. 31, 2016

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 DNB issued a $9.75 million subordinated note (the “Note”) to the investor. The Note has a maturity date of March 6, 2025, and bears interest at a fixed rate of 4.25% per annum for the first 5 years and then will 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.

DNB 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 DNB’s senior indebtedness and to DNB’s obligations to its general creditors and qualifies as Tier 2 capital for regulatory purposes.

Repurchase Agreements Accounted for as Secured Borrowings

Repurchase agreements accounted for as secured borrowings are shown in the following table.

(Dollars in thousands)	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
March 31, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	21,661	$	-	$	-	$	-	$	21,661
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	21,661							$	21,661
December 31, 2015
Repurchase agreements and repurchase-to-maturity transactions	$	32,416	$	-	$	-	$	-	$	32,416
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	32,416							$	32,416

As of March 31, 2016 and December 31, 2015, DNB had $21.7 millionand $32.4 million of repurchase agreements, respectively. In conjunction with these repurchase agreements, $22.1 million and $33.1 million of state and municipal securities were sold on an overnight basis as of March 31, 2016 and December 31, 2015, respectively, which represents 102% of the repurchase agreement amount.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2016

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, 2016. All options are immediately exercisable. During the three months ended March 31, 2016 and 2015, DNB had no expenses related to the plan forward looking. Stock option activity is indicated below.

	Number	Weighted Average
	Outstanding	Exercise Price
Outstanding January 1, 2016	64,500	$	8.67
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2016	64,500	$	8.67

	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

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

March 31, 2016
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	1.91 years	$	1,281,000

December 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	2.15 years	$	1,344,000

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 243,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three or 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, 2016 and 2015, $660,000 and$87,000 was amortized to expense, respectively. As of March 31, 2016, there was approximately $650,000 in additional compensation that will be recognized over the remaining service period of approximately 2.14 years. At March 31, 2016, 88,169 shares were reserved for future grants under the Plan. 

The shares awarded from the vesting resulted in an increase in shares outstanding of 18,079. There was a cash equivalent of 15,621 shares used to pay all applicable taxes on the transaction. Stock grant activity is indicated below:

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2016	77,255	$	22.71
Granted	3,000		28.75
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—March 31, 2016	46,555	$	22.42

		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

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Income Taxes

3 Months Ended

Mar. 31, 2016

Income Taxes [Abstract]

Income Taxes

NOTE 9:  INCOME TAXES

As of March 31, 2016, DNB had no material unrecognized tax benefits or accrued interest and penalties. It is DNB’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 2012 through 2015 were open for examination as of March 31, 2016.

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Fair Value Of Financial Instruments

3 Months Ended

Mar. 31, 2016

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, 2016 and December 31, 2015 that are recognized on DNB’s statement of financial condition using fair value measurement determined based on the differing levels of input:

		March 31, 2016
(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	$	-	$	59,116	$	-	$	59,116
GSE mortgage-backed securities		-		34,228		-		34,228
Collateralized mortgage obligations GSE		-		15,389		-		15,389
Corporate bonds		-		19,872		-		19,872
State and municipal tax-exempt		-		12,768		-		12,768
Total	$	-	$	141,373	$	-	$	141,373
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	690	$	690
Total	$	-	$	-	$	690	$	690

		December 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	$	-	$	58,208	$	-	$	58,208
GSE mortgage-backed securities		-		40,351		-		40,351
Collateralized mortgage obligations GSE		-		15,806		-		15,806
Corporate bonds		-		20,571		-		20,571
State and municipal tax-exempt		-		17,443		-		17,443
Total	$	-	$	152,379	$	-	$	152,379
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	964	$	964
OREO and other repossessed property		-		-		682		682
Total	$	-	$	-	$	1,646	$	1,646

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, 2016
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	$	143	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial term		79	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		358	Appraisal of	Appraisal adj. (2)	-20%	to	-20%	(-20%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Home equity		6	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		104	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	690

(1)

(2)

December 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	$	115	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		90	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		559	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	964
Other real estate owned	$	682		Disposal costs (2)	-8%	to	-8%	(-8%)

⁽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 $5.1 million at March 31, 2016. Of this, $884,000 had specific valuation allowances of $200,000, leaving a fair value of $684,000 as of March 31, 2016. DNB had $39,000 in impaired loans that were partially charged down by $33,000, leaving $6,000 at fair value as of March 31, 2016. The total fair value of impaired loans at March 31, 2016 was $690,000.

Impaired loans had a carrying amount of $5.0 million at December 31, 2015. Of this, $307,000 had specific valuation allowances of $114,000, leaving a fair value of $193,000 at December 31, 2015. In addition, DNB had $931,000 in impaired loans that were partially charged down by $160,000,  leaving $771,000 at fair value as of December 31, 2015. The total fair value of impaired loans at December 31, 2015 was $964,000.

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 $2.6 million of such assets at March 31, 2016, $2.4 million of which was OREO and $165,000 was in other repossessed property. DNB had $2.6 million of such assets at December 31, 2015, which consisted of $2.4 million in OREO and $165,000 in other repossessed property. Subsequent to the repossession of these assets, DNB did not write down the carrying values of OREO during the three month period ending March 31, 2016. DNB did not write down the carrying values of OREO in the three month period ending March 31, 2015.

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 months ended March 31, 2016.

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, 2016 and December 31, 2015 are as follows:

		March 31, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	38,740	$	38,740	$	38,740	$	-	$	-
AFS investment securities		141,373		141,373		-		141,373		-
HTM investment securities		65,650		66,797		-		64,797		2,000
Restricted stock		3,166		3,166		-		3,166		-
Loans, net of allowance, including impaired		484,194		468,013		-		-		468,013
Accrued interest receivable		2,569		2,569		-		2,569		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		131,951		131,951		-		131,951		-
Interest-bearing deposits		415,342		415,342		-		415,342		-
Time deposits		71,264		71,098		-		71,098		-
Brokered deposits		18,498		18,566		-		18,566		-
Repurchase agreements		21,661		21,661		-		21,661		-
FHLBP advances		20,000		20,172		-		20,172		-
Junior subordinated debentures and other borrowings		9,279		8,243		-		8,243		-
Subordinated debt		9,750		9,304		-		9,304		-
Accrued interest payable		313		313		-		313		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	21,119	$	21,119	$	21,119	$	-	$	-
AFS investment securities		152,379		152,379		-		152,379		-
HTM investment securities		67,829		68,431		-		66,431		2,000
Restricted stock		3,447		3,447		-		3,447		-
Loans held-for-sale		-		-		-		-		-
Loans, net of allowance, including impaired		476,823		461,925		-		-		461,925
Accrued interest receivable		2,410		2,410		-		2,410		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		125,581		125,581		-		125,581		-
Interest-bearing deposits		396,188		396,188		-		396,188		-
Time deposits		66,018		65,697		-		65,697		-
Brokered deposits		18,488		18,327		-		18,327		-
Repurchase agreements		32,416		32,416		-		32,416		-
FHLBP advances		30,000		30,210		-		30,210		-
Junior subordinated debentures and other borrowings		9,279		7,889		-		7,889		-
Subordinated debt		9,750		9,999		-		9,999		-
Accrued interest payable		345		345		-		345		-
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 $18.5 million in brokered deposits, $4.0 million matures in 2016, $6.1 million matures in 2017, $3.2 million matures in 2018, and $5.3 million matures in 2019.

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 debt  The fair value of the subordinated debt 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.

Accrued Interest Receivable and Payable   The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

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, 2016, un-funded loan commitments totaled $116.9 million and stand-by letters of credit totaled $2.6 million. At December 31, 2015, un-funded loan commitments totaled $116.4 million and stand-by letters of credit totaled $3.2 million.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2016

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 11:  STOCKHOLDERS’ EQUITY

In July 2013, the Board of Governors of the Federal Reserve approved the Basel III interim 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 for the period ended March 31, 2015.

On August 4, 2011, DNB entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which DNB 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 $13.0 million. 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. 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. Of the $13.0 million in aggregate proceeds, $11,879,000 was used on August 4, 2011 to repurchase all shares issued and sold in 2009 to the United States Department of the Treasury in connection with the U. S. Treasury Capital Purchase Program (“CPP Shares”) ($11,750,000 was paid in principal and $128,900 in dividends related to the CPP Shares) held by the Treasury as described above. As of December 31, 2015, DNB had redeemed all of the Series 2011A Preferred Stock issued to the U.S. Treasury.

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2016

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, 2016 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, 2015. 

Subsequent Events

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2016 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-  

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. DNB is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

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Fair Value Of Financial Instruments (Policy)

3 Months Ended

Mar. 31, 2016

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 $18.5 million in brokered deposits, $4.0 million matures in 2016, $6.1 million matures in 2017, $3.2 million matures in 2018, and $5.3 million matures in 2019.

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 debt  The fair value of the subordinated debt 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.

Accrued Interest Receivable and Payable   The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

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, 2016, un-funded loan commitments totaled $116.9 million and stand-by letters of credit totaled $2.6 million. At December 31, 2015, un-funded loan commitments totaled $116.4 million and stand-by letters of credit totaled $3.2 million.

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2016

Investment Securities [Abstract]

Amortized Cost and Estimated Fair Values of Investment Securities

		March 31, 2016
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,035	$	482	$	-	$	8,517
Government Sponsored Entities (GSE) mortgage-backed securities		2,615		105		-		2,720
Corporate bonds		11,420		304		(70)		11,654
Collateralized mortgage obligations GSE		2,455		25		(2)		2,478
State and municipal tax-exempt		41,125		376		(73)		41,428
Total	$	65,650	$	1,292	$	(145)	$	66,797
Available For Sale
US Government agency obligations	$	58,950	$	169	$	(3)	$	59,116
GSE mortgage-backed securities		34,055		173		-		34,228
Collateralized mortgage obligations GSE		15,518		28		(157)		15,389
Corporate bonds		19,951		69		(148)		19,872
State and municipal tax-exempt		12,641		136		(9)		12,768
Total	$	141,115	$	575	$	(317)	$	141,373

		December 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,973	$	320	$	-	$	8,293
Government Sponsored Entities (GSE) mortgage-backed securities		2,759		83		-		2,842
Corporate bonds		11,518		234		(42)		11,710
Collateralized mortgage obligations GSE		2,623		9		(26)		2,606
State and municipal tax-exempt		42,956		300		(276)		42,980
Total	$	67,829	$	946	$	(344)	$	68,431
Available For Sale
US Government agency obligations	$	58,460	$	-	$	(252)	$	58,208
GSE mortgage-backed securities		40,663		13		(325)		40,351
Collateralized mortgage obligations GSE		16,241		3		(438)		15,806
Corporate bonds		20,921		-		(350)		20,571
State and municipal tax-exempt		17,274		180		(11)		17,443
Total	$	153,559	$	196	$	(1,376)	$	152,379

Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities

		March 31, 2016
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	3,423	$	(70)	$	3,423	$	(70)	$	-	$	-
Collateralized mortgage obligations GSE		368		(2)		368		(2)		-		-
State and municipal tax-exempt		4,144		(73)		563		(7)		3,581		(66)
Total	$	7,935	$	(145)	$	4,354	$	(79)	$	3,581	$	(66)
Available For Sale
US Government agency obligations	$	9,997	$	(3)	$	9,997	$	(3)	$	-	$	-
Collateralized mortgage obligations GSE		12,321		(157)		1,507		(15)		10,814		(142)
Corporate bonds		10,975		(148)		4,487		(53)		6,488		(95)
State and municipal tax-exempt		6,644		(9)		6,644		(9)		-		-
Total	$	39,937	$	(317)	$	22,635	$	(80)	$	17,302	$	(237)

		December 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
Corporate bonds	$	7,597	$	(42)	$	7,597	$	(42)	$	-	$	-
Collateralized mortgage obligations GSE		1,482		(26)		388		(10)		1,094		(16)
State and municipal tax-exempt		13,161		(276)		4,380		(34)		8,781		(242)
Total	$	22,240	$	(344)	$	12,365	$	(86)	$	9,875	$	(258)
Available For Sale
US Government agency obligations	$	58,208	$	(252)	$	58,208	$	(252)	$	-	$	-
GSE mortgage-backed securities		38,307		(325)		33,984		(238)		4,323		(87)
Collateralized mortgage obligations GSE		15,231		(438)		4,187		(41)		11,044		(397)
Corporate bonds		20,571		(350)		16,157		(264)		4,414		(86)
State and municipal tax-exempt		6,660		(11)		6,660		(11)		-		-
Total	$	138,977	$	(1,376)	$	119,196	$	(806)	$	19,781	$	(570)

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	$	-	$	-	$	18,669	$	18,657
Due after one year through five years		20,021		20,802		62,804		62,906
Due after five years through ten years		27,530		27,778		34,738		34,935
Due after ten years		18,099		18,217		24,904		24,875
Total investment securities	$	65,650	$	66,797	$	141,115	$	141,373

Gains and Losses Resulting from Investment Sales, Redemptions or Calls

		Three Months Ended
		March 31,
(Dollars in thousands)		2016		2015
Gross realized gains-AFS	$	61	$	53
Gross realized losses-AFS		(30)		-
Net realized gain	$	31	$	53

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Loans (Tables)

3 Months Ended

Mar. 31, 2016

Loans [Abstract]

Schedule of Loans

(Dollars in thousands)	March 31, 2016		December 31, 2015
Residential mortgage	$	27,560	$	28,651
Commercial mortgage		274,372		274,132
Commercial:
Commercial term		107,232		102,178
Commercial construction		24,833		20,364
Consumer:
Home equity		49,545		51,270
Other		5,824		5,163
Total loans	$	489,366	$	481,758
Less allowance for credit losses		(5,172)		(4,935)
Net loans	$	484,194	$	476,823

Interest Income On Non-Accrual Loans

					Three Months Ended March 31, 2016
(Dollars in thousands)	December 31, 2015		March 31, 2016		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	$	1,619	$	1,781	$	19	$	-	$	19
Commercial mortgage		1,048		1,025		20		-		20
Commercial:
Commercial term		188		210		3		-		3
Commercial construction		1,028		1,237		41		-		41
Consumer:
Home equity		563		574		16		-		16
Other		189		199		5		-		5
Total non-accrual loans	$	4,635	$	5,026	$	104	$	-	$	104
Loans 90 days past due and accruing		457		164		1		1		-
Total non-performing loans	$	5,092	$	5,190	$	105	$	1	$	104

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

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Allowance For Credit Losses (Tables)

3 Months Ended

Mar. 31, 2016

Allowance For Credit Losses [Abstract]

Age Analysis Of Past Due Loans Receivables

Age Analysis of Past Due Loans Receivable

March 31, 2016
														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	$	-	$	384	$	1,945	$	2,329	$	25,231	$	27,560	$	164
Commercial mortgage		-		-		182		182		274,190		274,372		-
Commercial:
Commercial term		-		-		24		24		107,208		107,232		-
Commercial construction		-		-		447		447		24,386		24,833		-
Consumer:
Home equity		31		-		417		448		49,097		49,545		-
Other		26		12		147		185		5,639		5,824		-
Total	$	57	$	396	$	3,162	$	3,615	$	485,751	$	489,366	$	164

December 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	$	502	$	552	$	2,076	$	3,130	$	25,521	$	28,651	$	457
Commercial mortgage		36		86		96		218		273,914		274,132		-
Commercial:
Commercial term		-		-		-		-		102,178		102,178		-
Commercial construction		-		581		447		1,028		19,336		20,364		-
Consumer:
Home equity		7		310		153		470		50,800		51,270		-
Other		100		-		148		248		4,915		5,163		-
Total	$	645	$	1,529	$	2,920	$	5,094	$	476,664	$	481,758	$	457

Impaired Loans By Loan Portfolio

		March 31, 2016						December 31, 2015
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,637	$	1,790	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		24		24		-		-		-		-
Commercial construction		790		790		-		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		92		100		-		82		90		-
Total	$	4,244	$	4,759	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		144		290		1		-		-		-
Commercial:
Commercial term		186		200		107		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		107		107		3		107		107		4
Total	$	884	$	3,430	$	200	$	307	$	318	$	114
Total:
Residential mortgage		1,781		2,080		1		1,620		1,919		-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		210		224		107		200		211		110
Commercial construction		1,237		3,623		89		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		199		207		3		189		197		4
Total	$	5,128	$	8,189	$	200	$	5,021	$	8,030	$	114

		Three Months Ended				Three Months Ended
		March 31, 2016				March 31, 2015
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	1,629	$	-	$	2,320	$	-
Commercial mortgage		1,103		-		3,386		26
Commercial:
Commercial term		12		-		-		-
Commercial construction		965		-		1,400		-
Consumer:
Home equity		684		1		504		1
Other		87		-		144		-
Total	$	4,480	$	1	$	7,754	$	27
With allowance recorded:
Residential mortgage		72		-		204		-
Commercial mortgage		-		-		201		-
Commercial:
Commercial term		193		-		200		-
Commercial construction		224		-		756		-
Consumer:
Home equity		-		-		44		-
Other		107		-		-		-
Total	$	596	$	-	$	1,405	$	-
Total:
Residential mortgage		1,701		-		2,524		-
Commercial mortgage		1,103		-		3,587		26
Commercial:
Commercial term		205		-		200		-
Commercial construction		1,189		-		2,156		-
Consumer:
Home equity		684		1		548		1
Other		194		-		144		-
Total	$	5,076	$	1	$	9,159	$	27

Credit Quality Indicators

		March 31, 2016
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	25,512	$	-	$	2,048	$	-	$	27,560
Commercial mortgage		260,529		4,763		9,080		-		274,372
Commercial:
Commercial term		98,787		2,507		5,938		-		107,232
Commercial construction		21,781		-		3,052		-		24,833
Consumer:
Home equity		48,814		-		731		-		49,545
Other		5,625		-		199		-		5,824
Total	$	461,048	$	7,270	$	21,048	$	-	$	489,366

		December 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,762	$	-	$	1,889	$	-	$	28,651
Commercial mortgage		262,036		4,802		7,294		-		274,132
Commercial:
Commercial term		93,025		2,555		6,598		-		102,178
Commercial construction		17,521		-		2,843		-		20,364
Consumer:
Home equity		50,551		-		719		-		51,270
Other		4,974		-		189		-		5,163
Total	$	454,869	$	7,357	$	19,532	$	-	$	481,758

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, 2016	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Charge-offs		(84)		-		(13)		-		-		-		-		-		(97)
Recoveries		1		-		1		1		1		-		-		-		4
Provisions		87		1		(29)		195		(1)		(7)		3		81		330
Ending balance - March 31, 2016	$	220	$	2,376	$	948	$	765	$	-	$	188	$	67	$	608	$	5,172
Ending balance: individually evaluated for impairment	$	1	$	-	$	107	$	89	$	-	$	-	$	3	$	-	$	200
Ending balance: collectively evaluated for impairment	$	219	$	2,376	$	841	$	676	$	-	$	188	$	64	$	608	$	4,972
Loans receivables:
Ending balance	$	27,560	$	274,372	$	107,232	$	24,833	$	-	$	49,545	$	5,824			$	489,366
Ending balance: individually evaluated for impairment	$	1,781	$	1,025	$	210	$	1,237	$	-	$	676	$	199			$	5,128
Ending balance: collectively evaluated for impairment	$	25,779	$	273,347	$	107,022	$	23,596	$	-	$	48,869	$	5,625			$	484,238
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	115	$	55	$	-	$	13	$	-			$	186

	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
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:
Ending balance - December 31, 2015	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Ending balance: individually evaluated for impairment	$	-	$	-	$	110	$	-	$	-	$	-	$	4	$	-	$	114
Ending balance: collectively evaluated for impairment	$	216	$	2,375	$	879	$	569	$	-	$	195	$	60	$	527	$	4,821
Loans receivables:
Ending balance	$	28,651	$	274,132	$	102,178	$	20,364	$	-	$	51,270	$	5,163			$	481,758
Ending balance: individually evaluated for impairment	$	1,620	$	1,181	$	200	$	1,140	$	-	$	691	$	189			$	5,021
Ending balance: collectively evaluated for impairment	$	27,031	$	272,951	$	101,978	$	19,224	$	-	$	50,579	$	4,974			$	476,737
Reserve for unfunded loan commitments included in other liabilities	$	-	$	2	$	115	$	58	$	-	$	13	$	-			$	188

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

		Three Months Ended
		March 31, 2016
(In thousands, except per-share data)		Income	Shares		Amount
Basic EPS
Income available to common stockholders	$	1,556	2,833	$	0.55
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	36		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,556	2,869	$	0.54

		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

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2016

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss		Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)		Amount		Effect		Amount
March 31, 2016
Net unrealized gain on AFS securities	$	258	$	(87)	$	171
Discount on AFS to HTM reclassification		(15)		5		(10)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,569)	$	534	$	(1,035)
December 31, 2015
Net unrealized loss on AFS securities	$	(1,180)	$	402	$	(778)
Discount on AFS to HTM reclassification		(17)		6		(11)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(3,009)	$	1,024	$	(1,985)

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Subordinated Debentures, Notes And Other Borrowings (Tables)

3 Months Ended

Mar. 31, 2016

Subordinated Debentures, Notes And Other Borrowings [Abstract]

Repurchase Agreements Accounted for as Secured Borrowings

(Dollars in thousands)	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
March 31, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	21,661	$	-	$	-	$	-	$	21,661
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	21,661							$	21,661
December 31, 2015
Repurchase agreements and repurchase-to-maturity transactions	$	32,416	$	-	$	-	$	-	$	32,416
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	32,416							$	32,416

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2016

Stock-Based Compensation [Abstract]

Stock Option Activity

	Number	Weighted Average
	Outstanding	Exercise Price
Outstanding January 1, 2016	64,500	$	8.67
Issued	-		-
Exercised	-		-
Forfeited	-		-
Expired	-		-
Outstanding March 31, 2016	64,500	$	8.67

	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

Weighted Average Price And Weighted Average Remaining Contractual Life

March 31, 2016
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	1.91 years	$	1,281,000

December 31, 2015
	Range of				Weighted Average
	Exercise	Number	Number		Exercise	Remaining		Intrinsic
	Prices	Outstanding	Exercisable		Price	Contractual Life		Value
$	6.93-10.99	64,500	64,500	$	8.67	2.15 years	$	1,344,000

Stock Grant Activity

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2016	77,255	$	22.71
Granted	3,000		28.75
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—March 31, 2016	46,555	$	22.42

		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

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Fair Value Of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurements on Differing Levels

		March 31, 2016
(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	$	-	$	59,116	$	-	$	59,116
GSE mortgage-backed securities		-		34,228		-		34,228
Collateralized mortgage obligations GSE		-		15,389		-		15,389
Corporate bonds		-		19,872		-		19,872
State and municipal tax-exempt		-		12,768		-		12,768
Total	$	-	$	141,373	$	-	$	141,373
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	690	$	690
Total	$	-	$	-	$	690	$	690

		December 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	$	-	$	58,208	$	-	$	58,208
GSE mortgage-backed securities		-		40,351		-		40,351
Collateralized mortgage obligations GSE		-		15,806		-		15,806
Corporate bonds		-		20,571		-		20,571
State and municipal tax-exempt		-		17,443		-		17,443
Total	$	-	$	152,379	$	-	$	152,379
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	964	$	964
OREO and other repossessed property		-		-		682		682
Total	$	-	$	-	$	1,646	$	1,646

Quantitative Information About Level 3 Fair Value Measurements

March 31, 2016
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	$	143	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial term		79	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		358	Appraisal of	Appraisal adj. (2)	-20%	to	-20%	(-20%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Home equity		6	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		104	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	690

(1)

(2)

December 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	$	115	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		90	Appraisal of	Appraisal adj. (2)	-72%	to	-72%	(-72%)
			collateral (1)	Disposal costs (2)	-11%	to	-11%	(-11%)
Impaired loans - Commercial construction		559	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	964
Other real estate owned	$	682		Disposal costs (2)	-8%	to	-8%	(-8%)

⁽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.

Carrying Amounts and Estimated Fair Values of Financial Instruments

		March 31, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	38,740	$	38,740	$	38,740	$	-	$	-
AFS investment securities		141,373		141,373		-		141,373		-
HTM investment securities		65,650		66,797		-		64,797		2,000
Restricted stock		3,166		3,166		-		3,166		-
Loans, net of allowance, including impaired		484,194		468,013		-		-		468,013
Accrued interest receivable		2,569		2,569		-		2,569		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		131,951		131,951		-		131,951		-
Interest-bearing deposits		415,342		415,342		-		415,342		-
Time deposits		71,264		71,098		-		71,098		-
Brokered deposits		18,498		18,566		-		18,566		-
Repurchase agreements		21,661		21,661		-		21,661		-
FHLBP advances		20,000		20,172		-		20,172		-
Junior subordinated debentures and other borrowings		9,279		8,243		-		8,243		-
Subordinated debt		9,750		9,304		-		9,304		-
Accrued interest payable		313		313		-		313		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2015
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	21,119	$	21,119	$	21,119	$	-	$	-
AFS investment securities		152,379		152,379		-		152,379		-
HTM investment securities		67,829		68,431		-		66,431		2,000
Restricted stock		3,447		3,447		-		3,447		-
Loans held-for-sale		-		-		-		-		-
Loans, net of allowance, including impaired		476,823		461,925		-		-		461,925
Accrued interest receivable		2,410		2,410		-		2,410		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		125,581		125,581		-		125,581		-
Interest-bearing deposits		396,188		396,188		-		396,188		-
Time deposits		66,018		65,697		-		65,697		-
Brokered deposits		18,488		18,327		-		18,327		-
Repurchase agreements		32,416		32,416		-		32,416		-
FHLBP advances		30,000		30,210		-		30,210		-
Junior subordinated debentures and other borrowings		9,279		7,889		-		7,889		-
Subordinated debt		9,750		9,999		-		9,999		-
Accrued interest payable		345		345		-		345		-
Off-balance sheet instruments		-		-		-		-		-

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Investment Securities (Narrative) (Details) $ in Millions	3 Months Ended
	Mar. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($)
Securities [Line Items]
Available-for-sale Securities Pledged as Collateral | $	$ 146.2	$ 147.9
Mortgage Backed Securities [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	0
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	9
Number of securities, impaired for more than 12 months	4
Number Of Impaired Municipal Securities, School Districts, Insured	1
Number Of Impaired Municipal Securities, School Districts, Uninsured	3
Number Of Impaired Municipal Securities, Townships, Uninsured	5
Unrealized loss of security from book value	2.26%
Corporate Bonds [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	8
Number of securities, impaired for more than 12 months	3
Unrealized loss of security from book value	3.06%
US Government Agency Obligations [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	1
Unrealized loss of security from book value	0.03%
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	14
Number of securities, impaired for more than 12 months	11
Unrealized loss of security from book value	2.37%

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Investment Securities (Amortized Cost and Estimated Fair Values of Investment Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 65,650	$ 67,829
Held-to-maturity Securities, Unrealized Gains	1,292	946
Held-to-maturity Securities, Unrealized Losses	(145)	(344)
Held-to-maturity Securities, Fair Value	66,797	68,431
Available-for-sale Securities, Amortized Cost	141,115	153,559
Available-for-sale Securities, Unrealized Gains	575	196
Available-for-sale Securities, Unrealized Losses	(317)	(1,376)
Available-for-sale securities, Fair Value	141,373	152,379
US Government Agency Obligations [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	8,035	7,973
Held-to-maturity Securities, Unrealized Gains	482	320
Held-to-maturity Securities, Fair Value	8,517	8,293
Available-for-sale Securities, Amortized Cost	58,950	58,460
Available-for-sale Securities, Unrealized Gains	169
Available-for-sale Securities, Unrealized Losses	(3)	(252)
Available-for-sale securities, Fair Value	59,116	58,208
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	2,615	2,759
Held-to-maturity Securities, Unrealized Gains	105	83
Held-to-maturity Securities, Fair Value	2,720	2,842
Available-for-sale Securities, Amortized Cost	34,055	40,663
Available-for-sale Securities, Unrealized Gains	173	13
Available-for-sale Securities, Unrealized Losses		(325)
Available-for-sale securities, Fair Value	34,228	40,351
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	11,420	11,518
Held-to-maturity Securities, Unrealized Gains	304	234
Held-to-maturity Securities, Unrealized Losses	(70)	(42)
Held-to-maturity Securities, Fair Value	11,654	11,710
Available-for-sale Securities, Amortized Cost	19,951	20,921
Available-for-sale Securities, Unrealized Gains	69
Available-for-sale Securities, Unrealized Losses	(148)	(350)
Available-for-sale securities, Fair Value	19,872	20,571
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	2,455	2,623
Held-to-maturity Securities, Unrealized Gains	25	9
Held-to-maturity Securities, Unrealized Losses	(2)	(26)
Held-to-maturity Securities, Fair Value	2,478	2,606
Available-for-sale Securities, Amortized Cost	15,518	16,241
Available-for-sale Securities, Unrealized Gains	28	3
Available-for-sale Securities, Unrealized Losses	(157)	(438)
Available-for-sale securities, Fair Value	15,389	15,806
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	41,125	42,956
Held-to-maturity Securities, Unrealized Gains	376	300
Held-to-maturity Securities, Unrealized Losses	(73)	(276)
Held-to-maturity Securities, Fair Value	41,428	42,980
Available-for-sale Securities, Amortized Cost	12,641	17,274
Available-for-sale Securities, Unrealized Gains	136	180
Available-for-sale Securities, Unrealized Losses	(9)	(11)
Available-for-sale securities, Fair Value	$ 12,768	$ 17,443

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Investment Securities (Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	$ 7,935	$ 22,240
Held-to-maturity Securities, Unrealized Losses	(145)	(344)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	4,354	12,365
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(79)	(86)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	3,581	9,875
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(66)	(258)
Available-for-sale Securities, Fair Value, Total	39,937	138,977
Available-for-sale Securities, Unrealized Loss, Total	(317)	(1,376)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	22,635	119,196
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(80)	(806)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	17,302	19,781
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(237)	(570)
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	9,997	58,208
Available-for-sale Securities, Unrealized Loss, Total	(3)	(252)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	9,997	58,208
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(3)	(252)
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total		38,307
Available-for-sale Securities, Unrealized Loss, Total		(325)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months		33,984
Available-for-sale Securities, Unrealized Loss Less Than 12 Months		(238)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months		4,323
Available-for-sale Securities, Unrealized Loss More Than 12 Months		(87)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	368	1,482
Held-to-maturity Securities, Unrealized Losses	(2)	(26)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	368	388
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(2)	(10)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months		1,094
Held-to-maturity Securities, Unrealized Loss More Than 12 Months		(16)
Available-for-sale Securities, Fair Value, Total	12,321	15,231
Available-for-sale Securities, Unrealized Loss, Total	(157)	(438)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	1,507	4,187
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(15)	(41)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	10,814	11,044
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(142)	(397)
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	3,423	7,597
Held-to-maturity Securities, Unrealized Losses	(70)	(42)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	3,423	7,597
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(70)	(42)
Available-for-sale Securities, Fair Value, Total	10,975	20,571
Available-for-sale Securities, Unrealized Loss, Total	(148)	(350)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	4,487	16,157
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(53)	(264)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	6,488	4,414
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(95)	(86)
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	4,144	13,161
Held-to-maturity Securities, Unrealized Losses	(73)	(276)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	563	4,380
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(7)	(34)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	3,581	8,781
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(66)	(242)
Available-for-sale Securities, Fair Value, Total	6,644	6,660
Available-for-sale Securities, Unrealized Loss, Total	(9)	(11)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	6,644	6,660
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	$ (9)	$ (11)

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Investment Securities (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Investment Securities [Abstract]
Held to Maturity, Due after one year through five years, Amortized Cost	$ 20,021
Held to Maturity, Due after five years through ten years, Amortized Cost	27,530
Held to Maturity, Due after ten years, Amortized Cost	18,099
Held to Maturity, Total investment securities, Amortized Cost	65,650	$ 67,829
Held to Maturity, Due after one year through five years, Fair Value	20,802
Held to Maturity, Due after five years through ten years, Fair Value	27,778
Held to Maturity, Due after ten years, Fair Value	18,217
Held-to-maturity, Total investment securities, Fair Value	66,797	68,431
Available for Sale, Due in one year or less, Amortized Cost	18,669
Available for Sale, Due after one year through five years, Amortized Cost	62,804
Available for Sale, Due after five years through ten years, Amortized Cost	34,738
Available for Sale, Due after ten years, Amortized Cost	24,904
Available-for-sale Securities, Amortized Cost	141,115	153,559
Available for Sale, Due in one year or less, Fair Value	18,657
Available for Sale, Due after one year through five years, Fair Value	62,906
Available for Sale, Due after five years through ten years, Fair Value	34,935
Available for Sale, Due after ten years, Fair Value	24,875
Available for Sale, Total investment securities, Fair Value	$ 141,373	$ 152,379

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Investment Securities (Gains and Losses Resulting from Investment Sales, Redemptions or Calls) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Investment Securities [Abstract]
Gross realized gains-AFS	$ 61	$ 53
Gross realized losses-AFS	(30)
Net realized gain	$ 31	$ 53

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Loans (Schedule of Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 489,366	$ 481,758
Less allowance for credit losses	(5,172)	(4,935)	$ (5,190)	$ (4,906)
Net loans	484,194	476,823
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	27,560	28,651
Less allowance for credit losses	(220)	(216)	(269)	(269)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	274,372	274,132
Less allowance for credit losses	(2,376)	(2,375)	(2,398)	(2,300)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	107,232	102,178
Less allowance for credit losses	(948)	(989)	(705)	(709)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	24,833	20,364
Less allowance for credit losses	(765)	(569)	(922)	(881)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	49,545	51,270
Less allowance for credit losses	(188)	(195)	(224)	(189)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,824	5,163
Less allowance for credit losses	$ (67)	$ (64)	$ (66)	$ (70)

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Loans (Interest Income On Non-Accrual Loans) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 5,026	$ 6,570	$ 4,635
Loans 90 day past due and accruing	164	239	457
Total non-performing loans	5,190	6,809	5,092
Interest income that would have been recorded under original terms, non-accrual loans	104	135
Interest income that would have been recorded under original terms, 90 days past due and accruing	1	5
Interest income that would have been recorded under original terms	105	140
Interest income recorded during the period, 90 days past due and accruing	1	5
Interest income recorded during the period	1	5
Net impact on interest income, non-accrual loans	104	135
Net impact on interest income	104	135
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,781	2,446	1,619
Loans 90 day past due and accruing	164		457
Interest income that would have been recorded under original terms, non-accrual loans	19	16
Net impact on interest income, non-accrual loans	19	16
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,025	1,262	1,048
Interest income that would have been recorded under original terms, non-accrual loans	20	21
Net impact on interest income, non-accrual loans	20	21
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	210	196	188
Interest income that would have been recorded under original terms, non-accrual loans	3	2
Net impact on interest income, non-accrual loans	3	2
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,237	2,043	1,028
Interest income that would have been recorded under original terms, non-accrual loans	41	84
Net impact on interest income, non-accrual loans	41	84
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	574	429	563
Interest income that would have been recorded under original terms, non-accrual loans	16	7
Net impact on interest income, non-accrual loans	16	7
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	199	194	$ 189
Interest income that would have been recorded under original terms, non-accrual loans	5	5
Net impact on interest income, non-accrual loans	$ 5	$ 5

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Allowance For Credit Losses (Narrative) (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2016 USD ($) loan	Mar. 31, 2015 USD ($) loan	Dec. 31, 2015 USD ($) loan
Financing Receivable, Modifications [Line Items]
Interest income that would have been recorded under original terms, non-accrual loans	$ 104,000	$ 135,000
Partial charge-off of loan amount	$ 97,000	$ 17,000
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	0	1	0
TDR amount		$ 2,234,000
Pre-modification recorded investment	$ 2,272,000
Post-modification recorded investment	2,272,000
Number of subsequent defaults | loan		0
Reduction of principal	$ 0
Consumer: Home Equity [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	1	1	1
TDR amount	$ 102,000	$ 102,000	$ 102,000
Pre-modification recorded investment	102,000
Post-modification recorded investment	$ 102,000
Number of subsequent defaults | loan	0	0
Monthly payment reduced period, in months	36 months
Reduction of principal	$ 0
Consumer Installment Loan [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	1
TDR amount	$ 40,000	$ 0	$ 0
Pre-modification recorded investment	42,000
Post-modification recorded investment	42,000
Partial charge-off of loan amount	$ 2,000
Number of subsequent defaults | loan	0	0

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Allowance For Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 3,615	$ 5,094
Current	485,751	476,664
Total Loans Receivables	489,366	481,758
Loans Receivable >90 Days and Accruing	164	457	$ 239
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	57	645
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	396	1,529
Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	3,162	2,920
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	2,329	3,130
Current	25,231	25,521
Total Loans Receivables	27,560	28,651
Loans Receivable >90 Days and Accruing	164	457
Residential Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		502
Residential Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	384	552
Residential Mortgage [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	1,945	2,076
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	182	218
Current	274,190	273,914
Total Loans Receivables	274,372	274,132
Commercial Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		36
Commercial Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		86
Commercial Mortgage [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	182	96
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	24
Current	107,208	102,178
Total Loans Receivables	107,232	102,178
Commercial Term [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	24
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	447	1,028
Current	24,386	19,336
Total Loans Receivables	24,833	20,364
Commercial Construction [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		581
Commercial Construction [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	447	447
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	448	470
Current	49,097	50,800
Total Loans Receivables	49,545	51,270
Consumer: Home Equity [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	31	7
Consumer: Home Equity [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		310
Consumer: Home Equity [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	417	153
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	185	248
Current	5,639	4,915
Total Loans Receivables	5,824	5,163
Consumer: Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	26	100
Consumer: Other [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	12
Consumer: Other [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 147	$ 148

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Allowance For Credit Losses (Impaired Loans By Loan Portfolio) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 4,244		$ 4,714
Unpaid Principal Balance, With no related allowance recorded	4,759		7,712
Average Recorded Investment, With no related allowance recorded	4,480	$ 7,754
Interest Income Recognized, With no related allowance recorded	1	27
Recorded Investment, With allowance recorded	884		307
Unpaid Principal Balance, With allowance recorded	3,430		318
Related Allowance	200		114
Average Recorded Investment, With allowance recorded	596	1,405
Recorded Investment, Total	5,128		5,021
Unpaid Principal Balance, Total	8,189		8,030
Average Recorded Investment, Total	5,076	9,159
Interest Income Recognized, Total	1	27
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,637		1,620
Unpaid Principal Balance, With no related allowance recorded	1,790		1,919
Average Recorded Investment, With no related allowance recorded	1,629	2,320
Recorded Investment, With allowance recorded	144
Unpaid Principal Balance, With allowance recorded	290
Related Allowance	1
Average Recorded Investment, With allowance recorded	72	204
Recorded Investment, Total	1,781		1,620
Unpaid Principal Balance, Total	2,080		1,919
Average Recorded Investment, Total	1,701	2,524
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,025		1,181
Unpaid Principal Balance, With no related allowance recorded	1,320		1,461
Average Recorded Investment, With no related allowance recorded	1,103	3,386
Interest Income Recognized, With no related allowance recorded		26
Average Recorded Investment, With allowance recorded		201
Recorded Investment, Total	1,025		1,181
Unpaid Principal Balance, Total	1,320		1,461
Average Recorded Investment, Total	1,103	3,587
Interest Income Recognized, Total		26
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	24
Unpaid Principal Balance, With no related allowance recorded	24
Average Recorded Investment, With no related allowance recorded	12
Recorded Investment, With allowance recorded	186		200
Unpaid Principal Balance, With allowance recorded	200		211
Related Allowance	107		110
Average Recorded Investment, With allowance recorded	193	200
Recorded Investment, Total	210		200
Unpaid Principal Balance, Total	224		211
Average Recorded Investment, Total	205	200
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	790		1,140
Unpaid Principal Balance, With no related allowance recorded	790		3,526
Average Recorded Investment, With no related allowance recorded	965	1,400
Recorded Investment, With allowance recorded	447
Unpaid Principal Balance, With allowance recorded	2,833
Related Allowance	89
Average Recorded Investment, With allowance recorded	224	756
Recorded Investment, Total	1,237		1,140
Unpaid Principal Balance, Total	3,623		3,526
Average Recorded Investment, Total	1,189	2,156
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	676		691
Unpaid Principal Balance, With no related allowance recorded	735		716
Average Recorded Investment, With no related allowance recorded	684	504
Interest Income Recognized, With no related allowance recorded	1	1
Average Recorded Investment, With allowance recorded		44
Recorded Investment, Total	676		691
Unpaid Principal Balance, Total	735		716
Average Recorded Investment, Total	684	548
Interest Income Recognized, Total	1	1
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	92		82
Unpaid Principal Balance, With no related allowance recorded	100		90
Average Recorded Investment, With no related allowance recorded	87	144
Recorded Investment, With allowance recorded	107		107
Unpaid Principal Balance, With allowance recorded	107		107
Related Allowance	3		4
Average Recorded Investment, With allowance recorded	107
Recorded Investment, Total	199		189
Unpaid Principal Balance, Total	207		$ 197
Average Recorded Investment, Total	$ 194	$ 144

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Allowance For Credit Losses (Credit Quality Indicators) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 489,366	$ 481,758
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	461,048	454,869
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	7,270	7,357
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	21,048	19,532
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	27,560	28,651
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	25,512	26,762
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,048	1,889
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	274,372	274,132
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	260,529	262,036
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4,763	4,802
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,080	7,294
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	107,232	102,178
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	98,787	93,025
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,507	2,555
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,938	6,598
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	24,833	20,364
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	21,781	17,521
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,052	2,843
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	49,545	51,270
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	48,814	50,551
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	731	719
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,824	5,163
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,625	4,974
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 199	$ 189

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Allowance For Credit Losses (Allowance For Credit Losses And Recorded Investments In Loans Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 4,935	$ 4,906	$ 4,906
Charge offs	(97)	(17)
Recoveries	4	1
Provisions	330	300
Ending balance	5,172	5,190	4,935
Ending balance: individually evaluated for impairment	200		114
Ending balance: collectively evaluated for impairment	4,972		4,821
Loans receivables, Ending Balance	489,366		481,758
Loans receivables, Ending Balance: individually evaluated for impairment	5,128		5,021
Loans receivable, Ending Balance: collectively evaluated for impairment	484,238		476,737
Reserve for unfunded loan commitments included in other liabilities	186	156	188
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	216	269	269
Charge offs	(84)
Recoveries	1
Provisions	87
Ending balance	220	269	216
Ending balance: individually evaluated for impairment	1
Ending balance: collectively evaluated for impairment	219		216
Loans receivables, Ending Balance	27,560		28,651
Loans receivables, Ending Balance: individually evaluated for impairment	1,781		1,620
Loans receivable, Ending Balance: collectively evaluated for impairment	25,779		27,031
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 2,375	2,300	2,300
Charge offs
Provisions	$ 1	98
Ending balance	2,376	2,398	2,375
Ending balance: collectively evaluated for impairment	2,376		2,375
Loans receivables, Ending Balance	274,372		274,132
Loans receivables, Ending Balance: individually evaluated for impairment	1,025		1,181
Loans receivable, Ending Balance: collectively evaluated for impairment	273,347		272,951
Reserve for unfunded loan commitments included in other liabilities	3	4	2
Commercial Term [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	989	709	709
Charge offs	(13)	(11)
Recoveries	1
Provisions	(29)	7
Ending balance	948	705	989
Ending balance: individually evaluated for impairment	107		110
Ending balance: collectively evaluated for impairment	841		879
Loans receivables, Ending Balance	107,232		102,178
Loans receivables, Ending Balance: individually evaluated for impairment	210		200
Loans receivable, Ending Balance: collectively evaluated for impairment	107,022		101,978
Reserve for unfunded loan commitments included in other liabilities	115	87	115
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 569	881	881
Charge offs
Recoveries	$ 1
Provisions	195	41
Ending balance	765	922	569
Ending balance: individually evaluated for impairment	89
Ending balance: collectively evaluated for impairment	676		569
Loans receivables, Ending Balance	24,833		20,364
Loans receivables, Ending Balance: individually evaluated for impairment	1,237		1,140
Loans receivable, Ending Balance: collectively evaluated for impairment	23,596		19,224
Reserve for unfunded loan commitments included in other liabilities	$ 55	53	58
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	$ 195	189	189
Charge offs
Provisions	$ (7)	35
Ending balance	188	224	195
Ending balance: collectively evaluated for impairment	188		195
Loans receivables, Ending Balance	49,545		51,270
Loans receivables, Ending Balance: individually evaluated for impairment	676		691
Loans receivable, Ending Balance: collectively evaluated for impairment	48,869		50,579
Reserve for unfunded loan commitments included in other liabilities	13	12	13
Consumer: Other [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 64	70	70
Charge offs		(6)
Provisions	$ 3	2
Ending balance	67	66	64
Ending balance: individually evaluated for impairment	3		4
Ending balance: collectively evaluated for impairment	64		60
Loans receivables, Ending Balance	5,824		5,163
Loans receivables, Ending Balance: individually evaluated for impairment	199		189
Loans receivable, Ending Balance: collectively evaluated for impairment	5,625		4,974
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 527	488	488
Charge offs
Provisions	$ 81	118
Ending balance	608	$ 606	527
Ending balance: collectively evaluated for impairment	$ 608		$ 527

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings eer share	0	0
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings eer share	0	0
Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings eer share	0	0

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Earnings Per Share (Computation of Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Earnings Per Share [Abstract]
Net income available to common stockholders, Income	$ 1,556	$ 1,226
Income available to common stockholders after assumed conversions, Income	$ 1,556	$ 1,226
Net income available to common stockholders, Shares	2,832,521	2,786,012
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Shares	36,000	47,000
Income available to common stockholders after assumed conversions, Shares	2,869,119	2,832,869
Net income available to common stockholders, Amount	$ 0.55	$ 0.44
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Amount	(0.01)	(0.01)
Income available to common stockholders after assumed conversions, Amount	$ 0.54	$ 0.43

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gain (loss) on AFS securities, Before-Tax Amount	$ 258	$ (1,180)
Net unrealized gain (loss) on AFS securities, Tax Effect	(87)	402
Net unrealized gain (loss) on AFS securities, Net-of-Tax Amount	171	(778)
Discount on AFS to HTM reclassification, Before-Tax Amount	(15)	(17)
Discount on AFS to HTM reclassification, Tax Effect	5	6
Discount on AFS to HTM reclassification, Net-of-Tax Amount	(10)	(11)
Unrealized actuarial losses-pension, Before-Tax Amount	(1,812)	(1,812)
Unrealized actuarial losses-pension, Tax Effect	616	616
Unrealized actuarial losses-pension, Net-of-Tax Amount	(1,196)	(1,196)
Total of all items above, Before-Tax Amount	(1,569)	(3,009)
Total of all items above, Tax Effect	534	1,024
Total of all items above, Net-of-Tax Effect	$ (1,035)	$ (1,985)

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Subordinated Debentures, Notes And Other Borrowings (Narrative) (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2016 USD ($) item	Dec. 31, 2015 USD ($)	Mar. 05, 2015 USD ($)
Debt Instrument [Line Items]
Number of issuances of junior subordinated debentures | item	2
Repurchase agreements	$ 21,661,000	$ 32,416,000
State and municipal securites sold	$ 22,100,000	$ 33,100,000
Repurchase agreement amount, percentage	102.00%	102.00%
Subordinated Note [Member]
Debt Instrument [Line Items]
Debt instrument, face amount			$ 9,750,000
Debt maturity date	Mar. 06, 2025
Subordinated Note [Member] | Maximum [Member]
Debt Instrument [Line Items]
Variable interest rate	5.75%
Subordinated Note [Member] | Minimum [Member]
Debt Instrument [Line Items]
Variable interest rate	3.00%
Fixed Rate, First 5 Years [Member] | Subordinated Note [Member]
Debt Instrument [Line Items]
Fixed interest rate	4.25%
Interest rate period, in years	5 years
Prime Rate [Member] | Subordinated Note [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

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Subordinated Debentures, Notes And Other Borrowings (Repurchase Agreements Accounted for as Secured Borrowings) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements and repurchase-to-maturity transactions	$ 21,661	$ 32,416
Gross amount of recognized liabilities for repurchase agreements in statement of condition	21,661	32,416
Maturity Overnight and Continuous [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements and repurchase-to-maturity transactions	21,661	32,416
Gross amount of recognized liabilities for repurchase agreements in statement of condition	$ 21,661	$ 32,416

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Stock-Based Compensation (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Employee Stock Option [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	$ 0	$ 0
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	88,169
Stock based compensation	$ 660,000	$ 87,000
Share based compensation cost not yet recognized	$ 650,000
Share based compensation cost not yet recognized, period for recognition	2 years 1 month 21 days
Increase (decrease) in shares outstanding	18,079
Cash equivalent shares used to pay taxes	15,621
Maximum [Member] | Employee Stock Option [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

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Stock-Based Compensation (Stock Option Activity) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock-Based Compensation [Abstract]
Outstanding	64,500	163,586
Weighted Average Exercise Price	$ 8.67	$ 15.13
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	64,500	69,752
Weighted Average Exercise Price	$ 8.67	$ 9.13

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Stock-Based Compensation (Weighted Average Price And Weighted Average Remaining Contractual Life) (Details) - Range of Exercise Prices 6.93-10.99 [Member] - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
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	64,500	64,500
Number Exercisable	64,500	64,500
Weighted Average Exercise Price	$ 8.67	$ 8.67
Weighted Average Remaining Contractual Life	1 year 10 months 28 days	2 years 1 month 24 days
Intrinsic Value	$ 1,281,000	$ 1,344,000

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Stock-Based Compensation (Stock Grant Activity) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock-Based Compensation [Abstract]
Non-vested stock awards, Shares, beginning balance	77,255	75,930
Granted, Shares	3,000
Forfeited, Shares
Vested, Shares	33,700
Non-vested stock awards, Shares, ending balance	46,555	75,930
Non-vested stock awards, Weighted Average Stock Price	$ 22.71	$ 17.66
Granted, Weighted Average Stock Price	28.75
Forfeited, Weighted Average Stock Price
Vested, Weighted Average Stock Price	23.66
Non-vested stock awards, Weighted Average Stock Price	$ 22.42	$ 17.66

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Income Taxes (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016
Minimum [Member]
Income Tax Contingency [Line Items]
Open tax year for examinations	2012
Maximum [Member]
Income Tax Contingency [Line Items]
Open tax year for examinations	2015

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Fair Value Of Financial Instruments (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Total recorded investment	$ 5,128		$ 5,021
Recorded Investment, With allowance recorded	884		307
Impaired Financing Receivable, Related Allowance	200		114
Additional impaired financing receivable	39		931
Partial charge down	33		160
Total fair value of impaired loans	690		964
Other real estate owned & other repossessed property	2,612		2,581
OREO	2,400		2,400
Other repossessed assets	165		165
Transfers from level 1 to level 2	0
Transfers from level 2 to level 1	0
Interest-bearing domestic deposit, brokered	18,498		18,488
Brokered deposits maturing in 2016	4,000
Brokered deposits maturing in 2017	6,100
Brokered deposits maturing in 2018	3,200
Brokered deposits maturing in 2019	5,300
Un-funded Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	116,900		116,400
Stand-by Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	2,600		3,200
Estimated Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Recorded Investment, With allowance recorded	684		193
Additional impaired financing receivable	6		771
Interest-bearing domestic deposit, brokered	18,566		$ 18,327
Other Real Estate Owned [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Amount wrote down of carrying value of OREO property	$ 0	$ 0

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Fair Value Of Financial Instruments (Fair Value Measurements on Differing Levels) (Details) - USD ($) $ in Thousands		Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		$ 141,373	$ 152,379
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total		141,373	152,379
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		690	964
OREO and other repossessed property			682
Total		690	1,646
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		141,373	152,379
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total		141,373	152,379
Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	690	964
OREO and other repossessed property	[1]		682
Total		690	1,646
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		59,116	58,208
US Government Agency Obligations [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		59,116	58,208
US Government Agency Obligations [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		59,116	58,208
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		34,228	40,351
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		34,228	40,351
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		34,228	40,351
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		15,389	15,806
Collateralized Mortgage Obligations GSE [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		15,389	15,806
Collateralized Mortgage Obligations GSE [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		15,389	15,806
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		19,872	20,571
Corporate Bonds [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		19,872	20,571
Corporate Bonds [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		19,872	20,571
State and Municipal Tax-Exempt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		12,768	17,443
State and Municipal Tax-Exempt [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		12,768	17,443
State and Municipal Tax-Exempt [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		$ 12,768	$ 17,443

[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.

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Fair Value Of Financial Instruments (Quantitative Information About Level 3 Fair Value Measurements) (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		$ 690	$ 964
Other Real Estate Owned, fair value			682
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	690	964
Other Real Estate Owned, fair value	[1]		682
Level 3 [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	143	115
Level 3 [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]		97
Level 3 [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	79	90
Level 3 [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	358	559
Level 3 [Member] | Consumer: Home Equity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	6
Level 3 [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[1]	$ 104	$ 103
Level 3 [Member] | Minimum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Disposal costs	[2]		(8.00%)
Level 3 [Member] | Minimum [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Minimum [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]		0.00%
Disposal costs	[1],[2]		(13.00%)
Level 3 [Member] | Minimum [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(72.00%)	(72.00%)
Disposal costs	[1],[2]	(11.00%)	(11.00%)
Level 3 [Member] | Minimum [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(20.00%)	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Minimum [Member] | Consumer: Home Equity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%
Disposal costs	[1],[2]	(8.00%)
Level 3 [Member] | Minimum [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Maximum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Disposal costs	[2]		(8.00%)
Level 3 [Member] | Maximum [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Maximum [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]		0.00%
Disposal costs	[1],[2]		(13.00%)
Level 3 [Member] | Maximum [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(72.00%)	(72.00%)
Disposal costs	[1],[2]	(11.00%)	(11.00%)
Level 3 [Member] | Maximum [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(20.00%)	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Maximum [Member] | Consumer: Home Equity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%
Disposal costs	[1],[2]	(8.00%)
Level 3 [Member] | Maximum [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Weighted Average [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Disposal costs	[2]		(8.00%)
Level 3 [Member] | Weighted Average [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Weighted Average [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]		0.00%
Disposal costs	[1],[2]		(13.00%)
Level 3 [Member] | Weighted Average [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(72.00%)	(72.00%)
Disposal costs	[1],[2]	(11.00%)	(11.00%)
Level 3 [Member] | Weighted Average [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	(20.00%)	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)
Level 3 [Member] | Weighted Average [Member] | Consumer: Home Equity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%
Disposal costs	[1],[2]	(8.00%)
Level 3 [Member] | Weighted Average [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Appraisal adjustments	[1],[2]	0.00%	0.00%
Disposal costs	[1],[2]	(8.00%)	(8.00%)

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

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

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Fair Value Of Financial Instruments (Carrying Amounts and Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities, Fair Value	$ 141,373	$ 152,379
Held to Maturity Securities	65,650	67,829
Loans held-for-sale	359
Time deposits	71,264	66,018
Brokered deposits	18,498	18,488
Subordinated debt	9,750	9,750
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	38,740	21,119
Available-for-sale securities, Fair Value	141,373	152,379
Held to Maturity Securities	65,650	67,829
Restricted stock	3,166	3,447
Loans, net of allowance, including impaired	484,194	476,823
Accrued interest receivable	2,569	2,410
Non-interest-bearing deposits	131,951	125,581
Interest-bearing deposits	415,342	396,188
Time deposits	71,264	66,018
Brokered deposits	18,498	18,488
Repurchase agreements	21,661	32,416
FHLBP advances	20,000	30,000
Junior subordinated debentures and other borrowings	9,279	9,279
Subordinated debt	9,750	9,750
Accrued interest payable	313	345
Estimated Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	38,740	21,119
Available-for-sale securities, Fair Value	141,373	152,379
Held to Maturity Securities	66,797	68,431
Restricted stock	3,166	3,447
Loans, net of allowance, including impaired	468,013	461,925
Accrued interest receivable	2,569	2,410
Non-interest-bearing deposits	131,951	125,581
Interest-bearing deposits	415,342	396,188
Time deposits	71,098	65,697
Brokered deposits	18,566	18,327
Repurchase agreements	21,661	32,416
FHLBP advances	20,172	30,210
Junior subordinated debentures and other borrowings	8,243	7,889
Subordinated debt	9,304	9,999
Accrued interest payable	313	345
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	38,740	21,119
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities, Fair Value	141,373	152,379
Held to Maturity Securities	64,797	66,431
Restricted stock	3,166	3,447
Accrued interest receivable	2,569	2,410
Non-interest-bearing deposits	131,951	125,581
Interest-bearing deposits	415,342	396,188
Time deposits	71,098	65,697
Brokered deposits	18,566	18,327
Repurchase agreements	21,661	32,416
FHLBP advances	20,172	30,210
Junior subordinated debentures and other borrowings	8,243	7,889
Subordinated debt	9,304	9,999
Accrued interest payable	313	345
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Held to Maturity Securities	2,000	2,000
Loans, net of allowance, including impaired	$ 468,013	$ 461,925

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, shares in Thousands		12 Months Ended
	Aug. 04, 2011	Dec. 31, 2010	Mar. 31, 2016	Dec. 31, 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
Noncumulative Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock shares issued and sold to the Treasury	13
Liquidation preference per share	$ 1,000
Aggregate proceeds from shares issued	$ 13,000,000
Principal amount paid related to CPP shares	11,750,000
Dividends paid related to CPP shares	$ 128,900