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: September 30, 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)   4,229,331(Shares Outstanding as of November 4, 2016)

1

DNB FINANCIAL CORPORATION AND SUBSIDIARY

INDEX

	PART  I - FINANCIAL INFORMATION	PAGE NO.
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	September 30, 2016 and December 31, 2015	3
	CONSOLIDATED STATEMENTS OF INCOME
	Three and Nine-Months Ended September 30, 2016 and 2015	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
	Three and Nine-Months Ended September 30, 2016 and 2015	5
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	Nine Months Ended September 30, 2016 and 2015
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Nine Months Ended September 30, 2016 and 2015	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 4.	CONTROLS AND PROCEDURES	46
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	46
ITEM 1A.	RISK FACTORS	46
ITEM 2.	UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS	46
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	47
ITEM 4.	MINE SAFETY DISCLOSURES	47
ITEM 5.	OTHER INFORMATION	47
ITEM 6.	EXHIBITS	47
SIGNATURES		48
EXHIBIT INDEX

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

	September 30,		December 31,
(Dollars in thousands, except share and per share data)	2016		2015
Assets
Cash and due from banks	$	30,442	$	21,119
Cash and cash equivalents		30,442		21,119
Available-for-sale investment securities at fair value (amortized cost of $121,492 and $153,559)		121,688		152,379
Held-to-maturity investment securities (fair value of $75,111 and $68,431)		73,789		67,829
Total investment securities		195,477		220,208
Loans		509,475		481,758
Allowance for credit losses		(5,303)		(4,935)
Net loans		504,172		476,823
Restricted stock		3,623		3,447
Office property and equipment, net		9,033		6,806
Accrued interest receivable		2,639		2,410
Other real estate owned & other repossessed property		2,939		2,581
Bank owned life insurance (BOLI)		9,492		9,326
Core deposit intangible		56		66
Net deferred taxes		3,592		3,733
Other assets		8,807		2,299
Total assets	$	770,272	$	748,818
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	146,731	$	125,581
Interest-bearing deposits:
NOW		169,400		185,973
Money market		160,312		137,555
Savings		73,867		72,660
Time		71,920		66,018
Brokered deposits		23,313		18,488
Total deposits		645,543		606,275
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		20,000		30,000
Repurchase agreements		19,483		32,416
Junior subordinated debentures		9,279		9,279
Subordinated debt		9,750		9,750
Other borrowings		431		464
Total borrowings		58,943		81,909
Accrued interest payable		329		345
Other liabilities		6,240		4,801
Total liabilities		711,055		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; 2,853,434 and 2,823,840 outstanding, respectively		2,975		2,955
Treasury stock, at cost; 97,694 and 109,209 shares, respectively		(1,805)		(2,015)
Surplus		35,614		35,097
Retained earnings		23,504		21,436
Accumulated other comprehensive loss		(1,071)		(1,985)
Total stockholders’ equity		59,217		55,488
Total liabilities and stockholders’ equity	$	770,272	$	748,818

See accompanying notes to unaudited consolidated financial statements.

3

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2016		2015		2016		2015
Interest Income:
Interest and fees on loans	$	5,218	$	5,083	$	15,377	$	15,006
Interest and dividends on investment securities:
Taxable		716		714		2,150		2,208
Exempt from federal taxes		316		354		944		1,042
Interest on cash and cash equivalents		27		10		91		32
Total interest and dividend income		6,277		6,161		18,562		18,288
Interest Expense:
Interest on NOW, money market and savings		230		148		588		450
Interest on time deposits		139		84		396		291
Interest on brokered deposits		81		68		214		118
Interest on FHLB advances		92		198		276		589
Interest on repurchase agreements		9		16		30		35
Interest on junior subordinated debentures		89		77		254		224
Interest on subordinated debt		104		103		311		237
Interest on other borrowings		16		17		49		51
Total interest expense		760		711		2,118		1,995
Net interest income		5,517		5,450		16,444		16,293
Provision for credit losses		100		100		630		815
Net interest income after provision for credit losses		5,417		5,350		15,814		15,478
Non-interest Income:
Service charges		280		292		827		860
Wealth management		393		317		1,231		1,091
Mortgage banking		76		38		189		127
Increase in cash surrender value of BOLI		56		57		166		169
Gain on sale of investment securities, net		197		10		431		74
Gain on sale of loans		-		-		39		416
Gains from insurance proceeds		30		-		1,180		-
Other fees		337		323		1,022		973
Total non-interest income		1,369		1,037		5,085		3,710
Non-interest Expense:
Salaries and employee benefits		2,817		2,615		8,636		7,897
Furniture and equipment		422		303		1,093		908
Occupancy		524		431		1,459		1,500
Professional and consulting		306		317		948		906
Advertising and marketing		111		141		460		480
Printing and supplies		36		35		129		122
FDIC insurance		73		129		323		376
PA shares tax		157		151		476		452
Telecommunications		63		63		185		184
Postage		28		20		70		65
Loss on sale or write down of OREO, net		160		154		164		154
Due diligence and merger expense		1,498		-		1,961		-
Other expenses		509		400		1,390		1,263
Total non-interest expense		6,704		4,759		17,294		14,307
Income before income tax expense		82		1,628		3,605		4,881
Income tax expense		81		359		939		1,125
Net income	$	1	$	1,269	$	2,666	$	3,756
Preferred stock dividends and accretion of discount		-		8		-		42
Net income available to common shareholders	$	1	$	1,261	$	2,666	$	3,714
Earnings per common share:
Basic	$	0.00	$	0.45	$	0.94	$	1.33
Diluted	$	0.00	$	0.44	$	0.93	$	1.31
Cash dividends per common share	$	0.07	$	0.07	$	0.21	$	0.21
Weighted average common shares outstanding:
Basic	2,853,080		2,806,549		2,844,780		2,798,360
Diluted	2,885,799		2,852,237		2,879,240		2,844,319

See accompanying notes to unaudited consolidated financial statement.s

4

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2016		2015		2016		2015
Net income	$	1	$	1,269	$	2,666	$	3,756
Other Comprehensive (Loss) Income:
Unrealized holding (losses) gains arising during the period
Before tax amount		(288)		767		1,786		714
Tax effect		99		(261)		(607)		(243)
		(189)		506		1,179		471
Accretion of discount on AFS to HTM reclassification(1)
Before tax amount		6		2		9		6
Tax effect(2)		(2)		(1)		(3)		(2)
		4		1		6		4
Less reclassification for gains included in net income
Before tax amount		(176)		(10)		(410)		(74)
Tax effect(2)		59		4		139		25
		(117)		(6)		(271)		(49)
Total other comprehensive (loss) income		(302)		501		914		426
Total comprehensive (loss) income	$	(301)	$	1,770	$	3,580	$	4,182
(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 (loss) income.

See accompanying notes to unaudited consolidated financial statements.

5

DNB Financial Corporation and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

											Accumulated
											Other
	Preferred		Common		Treasury				Retained		Comprehensive
(Dollars in thousands)	Stock		Stock		Stock		Surplus		Earnings		Loss		Total
Balance at January 1, 2016	$	-	$	2,955	$	(2,015)	$	35,097	$	21,436	$	(1,985)	$	55,488
Net income for nine months ended September 30, 2016		-		-		-		-		2,666		-		2,666
Other comprehensive income		-		-		-		-		-		914		914
Restricted stock compensation expense (18,079 shares vested)		-		36		-		765		-		-		801
Taxes on share award vest		-		(16)		-		(421)		-		-		(437)
Tax benefit for restricted stock vest		-		-		-		64		-		-		64
Cash dividends - common ($0.21 per share)		-		-		-		-		(598)		-		(598)
Sale of treasury shares to 401(k) (7,111 shares)		-		-		130		68		-		-		198
Sale of treasury shares to deferred comp. plan (4,404 shares)		-		-		80		41		-		-		121
Balance at September 30, 2016	$	-	$	2,975	$	(1,805)	$	35,614	$	23,504	$	(1,071)	$	59,217

											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 nine months ended September 30, 2015		-		-		-		-		3,756		-		3,756
Other comprehensive income		-		-		-		-		-		426		426
Redemption of preferred stock (9,750 shares)		(9,750)		-		-		-		-		-		(9,750)
Restricted stock compensation expense		-		14		-		236		-		-		250
Exercise of stock options (95,834 shares)		-		16		-		247		-		-		263
Taxes on stock option exercise and share award vest		-		-		-		(153)		-		-		(153)
Cash dividends - common ($0.21 per share)		-		-		-		-		(587)		-		(587)
Cash dividends SBLF preferred		-		-		-		-		(42)		-		(42)
Sale of treasury shares to 401(k) (8,280 shares)		-		-		151		49		-		-		200
Sale of treasury shares to deferred comp. plan (4,029 shares)		-		-		74		23		-		-		97
Balance at September 30, 2015	$	3,250	$	2,961	$	(2,076)	$	35,147	$	20,259	$	(1,173)	$	58,368

See accompanying notes to unaudited consolidated financial statements.

6

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	September 30,
(Dollars in thousands)	2016		2015
Cash Flows From Operating Activities:
Net income	$	2,666	$	3,756
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and accretion		1,178		1,385
Provision for credit losses		630		815
Stock based compensation		801		250
Net gain on sale of securities		(431)		(74)
Net loss on sale and write down of OREO and other repossessed property		164		154
Earnings from investment in BOLI		(166)		(169)
Deferred tax benefit		(330)		(285)
Proceeds from sales of loans		8,725		14,332
Loans originated for sale		(8,497)		(13,172)
Gain on sale of loans and mortgage banking income		(228)		(543)
Write-off of property and equipment		-		690
Increase in accrued interest receivable		(229)		(289)
Increase in other assets		(6,505)		(859)
Decrease in accrued interest payable		(16)		(29)
Increase (decrease) in other liabilities		1,439		(245)
Net Cash (Used in) Provided By Operating Activities		(799)		5,717
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Sales		43,913		17,969
Maturities, repayments and calls		50,660		39,982
Purchases		(62,646)		(47,929)
Activity in held-to-maturity securities:
Sales		757		-
Maturities, repayments and calls		6,864		1,452
Purchases		(13,507)		(7,209)
Net increase in restricted stock		(176)		(377)
Net increase in loans		(27,979)		(17,273)
Purchases of property and equipment		(2,892)		(280)
Costs capitalized in OREO and other repossessed property		(954)		-
Proceeds from sale of OREO and other repossessed property		432		-
Net Cash Used in Investing Activities		(5,528)		(13,665)
Cash Flows From Financing Activities:
Net increase in deposits		39,268		3,375
Repayment of FHLBP advances		(10,000)		-
Net (decrease) increase in repurchase agreements		(12,933)		11,280
Proceeds from issuance of subordinated debt		-		9,750
Repayment of other borrowings		(33)		(30)
Dividends paid		(598)		(629)
Proceeds from the exercise of stock options		-		263
Taxes on exercise of stock options		(437)		(153)
Tax benefit for restricted stock vest		64		-
Redemption of preferred stock		-		(9,750)
Sale of treasury stock		319		297
Net Cash Provided by Financing Activities		15,650		14,403
Net Change in Cash and Cash Equivalents		9,323		6,455
Cash and Cash Equivalents at Beginning of Period		21,119		12,504
Cash and Cash Equivalents at End of Period	$	30,442	$	18,959
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,134	$	2,024
Income taxes		875		1,702
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans to real estate owned and other repossessed property		-		1,488

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 nine months ended September 30, 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 September 30, 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.

East River Bank Acquisition

Effective October 1, 2016, DNB completed its previously announced merger (the "Merger") with East River Bank (“ERB”).Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 4, 2016, at the effective time of the Merger, ERB merged with and into DNB First, N.A., a wholly owned subsidiary of DNB.

ERB was a locally-managed institution, headquartered in Philadelphia, Pennsylvania with three locations in Philadelphia. With this acquisition, DNB will have 15 locations in Chester, Delaware and Philadelphia Counties, Pennsylvania. As of June 30, 2016, ERB had approximately $306.8 million in loans, $229.0 million in deposits and $320.4 million in total assets. In accordance with the terms of the Merger Agreement, holders of East River Bank common shares received, in aggregate, $6.7 million in cash and 1,368,611 shares or approximately 32% of DNB’s outstanding common stock. The transaction was valued at $47.5 million based on DNB’s September 30, 2016 closing share price of $28.42 as quoted on NASDAQ. The results of the combined entity’s operations will be included in DNB’s Consolidated Financial Statements from the date of acquisition.

The acquisition of ERB will be accounted for as a business combination using the acquisition method of accounting, which includes estimating the fair value of assets acquired, liabilities assumed and consideration paid as of the acquisition date. These preliminary estimates will be completed during the fourth quarter of 2016 and will be subject to adjustments during the up to one year measurement period after the acquisition.

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.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current information, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better understand the credit risk within the portfolio and the methodologies for determining allowance. ASU 2016-13 is effective for DNB on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. Early adoption is permitted. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

8

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments in this update provide guidance for eight specific cash flow classification issues for which current guidance is unclear or does not exist, thereby reducing diversity in practice. For public companies, the update is effective for annual periods beginning after December 15, 2017. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on DNB's consolidated financial statements.

NOTE 2: INVESTMENT SECURITIES

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

			September 30, 2016
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,161		$	480	$	-	$	8,641
Government Sponsored Entities (GSE) mortgage-backed securities		1,545			65		-		1,610
Corporate bonds		12,854			414		(6)		13,262
Collateralized mortgage obligations GSE		2,148			30		-		2,178
State and municipal taxable		1,009			40		-		1,049
State and municipal tax-exempt		48,072			313		(14)		48,371
Total	$	73,789		$	1,342	$	(20)	$	75,111
Available For Sale
US Government agency obligations	$	52,436		$	121	$	(15)	$	52,542
GSE mortgage-backed securities		32,605			236		-		32,841
Collateralized mortgage obligations GSE		13,834			28		(107)		13,755
Corporate bonds		17,522			69		(140)		17,451
State and municipal tax-exempt		5,095			8		(4)		5,099
Total	$	121,492		$	462	$	(266)	$	121,688

			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 September 30, 2016 and December 31, 2015.

9

		September 30, 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	$	1,988	$	(6)	$	-	$	-	$	1,988	$	(6)
Collateralized mortgage obligations GSE		325		-		325		-		-		-
State and municipal tax-exempt		6,202		(14)		6,202		(14)		-		-
Total	$	8,515	$	(20)	$	6,527	$	(14)	$	1,988	$	(6)
Available For Sale
US Government agency obligations	$	20,185	$	(15)	$	20,185	$	(15)	$	-	$	-
Collateralized mortgage obligations GSE		9,078		(107)		1,734		(14)		7,344		(93)
Corporate bonds		10,752		(140)		5,315		(56)		5,437		(84)
State and municipal tax-exempt		3,087		(4)		3,087		(4)		-		-
Total	$	43,102	$	(266)	$	30,321	$	(89)	$	12,781	$	(177)

		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 September 30, 2016, there were twelve collateralized mortgage obligations GSE, two U.S. agency obligations, seven tax-exempt municipalities, and seven corporate bonds 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 September 30, 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 September 30, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are twelve impaired securities classified as collateralized mortgage obligations, eight of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.84% 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

US Government agency obligations  There are two impaired securities classified as agencies, none of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 0.11% of its book value. All of these securities were issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on all of these securities

10

and none of these agencies have ever defaulted on their bonds. DNB anticipates a recovery in the market value as the securities approach their maturity dates. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

State and municipal tax-exempt There are seven impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for less than 12 months. The largest unrealized loss of a security in this group is 0.47% 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 seven municipal securities, there are three uninsured school districts, two insured townships, and two uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

Corporate bonds There are seven impaired bonds classified as corporate bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.98% 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

The amortized cost and fair value of investment securities as of September 30, 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	$	-	$	-	$	12,751	$	12,732
Due after one year through five years		22,695		23,572		58,429		58,504
Due after five years through ten years		30,108		30,460		7,295		7,336
Due after ten years		20,986		21,079		43,017		43,116
Total investment securities	$	73,789	$	75,111	$	121,492	$	121,688

The HTM security that was sold during the nine months ended September 30, 2016 was permissible because DNB collected greater than 85% of the original recorded investment on the HTM security prior to the sale. Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2016		2015		2016		2015
Gross realized gains-AFS	$	176	$	13	$	440	$	77
Gross realized gains-HTM		21		-		21		-
Gross realized losses-AFS		-		(3)		(30)		(3)
Net realized gain	$	197	$	10	$	431	$	74

At September 30, 2016 and December 31, 2015, investment securities with a carrying value of approximately $111.3 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)	September 30, 2016		December 31, 2015
Residential mortgage	$	28,379	$	28,651
Commercial mortgage		287,638		274,132
Commercial:
Commercial term		104,755		102,178
Commercial construction		29,677		20,364
Consumer:
Home equity		53,175		51,270
Other		5,851		5,163
Total loans	$	509,475	$	481,758
Less allowance for credit losses		(5,303)		(4,935)
Net loans	$	504,172	$	476,823

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

					Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
(Dollars in thousands)	December 31, 2015		September 30, 2016		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,619	$	1,759	$	15	$	-	$	15	$	51	$	-	$	51
Commercial mortgage		1,048		3,061		74		-		74		139		-		139
Commercial:
Commercial term		188		202		3		-		3		9		-		9
Commercial construction		1,028		1,217		46		-		46		134		-		134
Consumer:
Home equity		563		492		7		-		7		23		-		23
Other		189		221		5		-		5		14		-		14
Total non-accrual loans	$	4,635	$	6,952	$	150	$	-	$	150	$	370	$	-	$	370
Loans 90 days past due and accruing		457		-		-		-		-		2		2		-
Total non-performing loans	$	5,092	$	6,952	$	150	$	-	$	150	$	372	$	2	$	370

			Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
(Dollars in thousands)	September 30, 2015		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,600	$	10	$	-	$	10	$	50	$	-	$	50
Commercial mortgage		1,075		21		-		21		64		-		64
Commercial:
Commercial term		191		2		-		2		7		-		7
Commercial construction		451		56		-		56		226		-		226
Consumer:
Home equity		313		7		-		7		19		-		19
Other		120		6		-		6		14		-		14
Total non-accrual loans	$	3,750	$	102	$	-	$	102	$	380	$	-	$	380
Loans 90 days past due and accruing		498		-		-		-		5		5		-
Total non-performing loans	$	4,248	$	102	$	-	$	102	$	385	$	5	$	380

12

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 September 30, 2016 and December 31, 2015. 

Age Analysis of Past Due Loans Receivable

September 30, 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	$	135	$	377	$	1,686	$	2,198	$	26,181	$	28,379	$	-
Commercial mortgage		-		-		2,294		2,294		285,344		287,638		-
Commercial:
Commercial term		-		-		23		23		104,732		104,755		-
Commercial construction		-		-		1,217		1,217		28,461		29,677		-
Consumer:
Home equity		-		-		344		344		52,831		53,175		-
Other		123		6		181		310		5,541		5,851		-
Total	$	258	$	383	$	5,745	$	6,386	$	503,090	$	509,475	$	-

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

13

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three and nine months ended September 30, 2016 and 2015 and as of December 31, 2015.

Impaired Loans

		September 30, 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	$	829	$	867	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		23		25		-		-		-		-
Commercial construction		770		770		-		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		115		123		-		82		90		-
Total	$	5,393	$	5,865	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		930		1,191		194		-		-		-
Commercial:
Commercial term		179		197		100		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		106		106		3		107		107		4
Total	$	1,662	$	4,327	$	386	$	307	$	318	$	114
Total:
Residential mortgage		1,759		2,058		194		1,620		1,919		-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		202		222		100		200		211		110
Commercial construction		1,217		3,603		89		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		221		229		3		189		197		4
Total	$	7,055	$	10,192	$	386	$	5,021	$	8,030	$	114

14

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	880	$	-	$	1,577	$	-	$	1,254	$	-	$	1,948	$	-
Commercial mortgage		3,101		-		2,277		28		2,102		-		2,831		85
Commercial:
Commercial term		24		-		-		-		18		-		-		-
Commercial construction		924		-		125		-		944		-		763		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		497		3
Other		116		-		125		-		101		-		134		-
Total	$	5,676	$	1	$	4,593	$	29	$	5,076	$	3	$	6,173	$	88
With allowance recorded:
Residential mortgage		886		-		59		-		479		-		131		-
Commercial mortgage		-		-		101		-		-		-		151		-
Commercial:
Commercial term		181		-		200		-		187		-		200		-
Commercial construction		447		-		588		-		335		-		672		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		-		-		-		-		-		-		22		-
Other		106		-		20		-		107		-		10		-
Total	$	1,620	$	-	$	968	$	-	$	1,108	$	-	$	1,186	$	-
Total:
Residential mortgage		1,766		-		1,636		-		1,733		-		2,079		-
Commercial mortgage		3,101		-		2,378		28		2,102		-		2,982		85
Commercial:
Commercial term		205		-		200		-		205		-		200		-
Commercial construction		1,371		-		713		-		1,279		-		1,435		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		519		3
Other		222		-		145		-		208		-		144		-
Total	$	7,296	$	1	$	5,561	$	29	$	6,184	$	3	$	7,359	$	88

15

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 September 30, 2016 and December 31, 2015.

Credit Quality Indicators

	September 30, 2016
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,357	$	-	$	2,022	$	-	$	28,379
Commercial mortgage		272,094		4,771		10,773		-		287,638
Commercial:
Commercial term		96,873		592		7,290		-		104,755
Commercial construction		26,945		-		2,732		-		29,677
Consumer:
Home equity		52,522		-		653		-		53,175
Other		5,630		-		221		-		5,851
Total	$	480,421	$	5,363	$	23,691	$	-	$	509,475

	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 September 30, 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 September 30, 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 nine months ended September 30, 2016 and 2015, there were no defaults on any terms of this loan.

As of September 30, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to one consumer installment loan classified as a TDR totaling $40,000 (the same loan) at December 31, 2015, and no such loans at September 30, 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 nine months ended September 30, 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 September 30, 2016 and December 31, 2015, the activity for the three and nine months ended September 30, 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 - July 1, 2016	$	314	$	2,370	$	891	$	866	$	-	$	191	$	64	$	551	$	5,247
Charge-offs		-		(39)		(8)		-		-		-		-		-		(47)
Recoveries		2		-		-		-		1		-		-		-		3
Provisions		87		141		(90)		7		(1)		11		(2)		(53)		100
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303

	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		(206)		(39)		(32)		-		-		-		-		-		(277)
Recoveries		10		-		1		1		2		-		1		-		15
Provisions		383		136		(165)		303		(2)		7		(3)		(29)		630
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303
Ending balance: individually evaluated for impairment	$	194	$	-	$	100	$	89	$	-	$	-	$	3	$	-	$	386
Ending balance: collectively evaluated for impairment	$	209	$	2,472	$	693	$	784	$	-	$	202	$	59	$	498	$	4,917
Loans receivables:
Ending balance	$	28,379	$	287,638	$	104,755	$	29,677	$	-	$	53,175	$	5,851			$	509,475
Ending balance: individually evaluated for impairment	$	1,759	$	3,061	$	202	$	1,217	$	-	$	595	$	221			$	7,055
Ending balance: collectively evaluated for impairment	$	26,620	$	284,577	$	104,553	$	28,460	$	-	$	52,580	$	5,630			$	502,420
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	119	$	64	$	-	$	13	$	-			$	199

	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 - July 1, 2015	$	265	$	2,562	$	721	$	774	$	-	$	190	$	65	$	531	$	5,108
Charge-offs		(34)		(105)		(16)		(299)		-		(10)		(30)		-		(494)
Recoveries		2		-		8		5		-		-		-		-		15
Provisions		(39)		34		6		198		-		20		31		(150)		100
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729

17

	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		(69)		(105)		(190)		(577)		-		(11)		(60)		-		(1,012)
Recoveries		2		-		10		5		2		-		1		-		20
Provisions		(8)		296		190		369		(2)		22		55		(107)		815
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	105	$	57	$	-	$	12	$	-			$	178

	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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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 16,595 anti-dilutive stock awards outstanding at September 30, 2016. There were no anti-dilutive stock warrants outstanding, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at September 30, 2015. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended					Nine Months Ended
	September 30, 2016					September 30, 2016
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1	2,853	$	0.00	$	2,666	2,845	$	0.94
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	33		(0.00)		-	34		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1	2,886	$	0.00	$	2,666	2,879	$	0.93

	Three Months Ended					Nine Months Ended
	September 30, 2015					September 30, 2015
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1,261	2,807	$	0.45	$	3,714	2,798	$	1.33
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	45		(0.01)		-	46		(0.02)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,261	2,852	$	0.44	$	3,714	2,844	$	1.31

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
September 30, 2016
Net unrealized gain on AFS securities	$	196	$	(66)	$	130
Discount on AFS to HTM reclassification		(8)		3		(5)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,624)	$	553	$	(1,071)
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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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
September 30, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	19,483	$	-	$	-	$	-	$	19,483
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	19,483							$	19,483
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 September 30, 2016 and December 31, 2015, DNB had $19.5 million and $32.4 million of repurchase agreements, respectively. In conjunction with these repurchase agreements, $19.9 million and $33.1 million of state and municipal securities were sold on an overnight basis as of September 30, 2016 and December 31, 2015, respectively, which represents 102% of the repurchase agreement amounts.

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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 September 30, 2016. All options are immediately exercisable. During the three and nine months ended September 30, 2016 and 2015, DNB hadno expenses related to the plan. DNB has no anticipated additional expense related to the plan. 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 September 30, 2016		64,500	$	8.67

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015		163,586	$	15.13
Issued		-		-
Exercised		95,834		19.40
Forfeited		-		-
Expired		-		-
Outstanding September 30, 2015		67,752	$	9.09

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

September 30, 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	1.40 years	$	1,077,000

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 and nine month periods ended September 30, 2016, $71,000 and $801,000 was amortized to expense, respectively. For the three and nine month periods ended September 30, 2015, $85,000 and $250,000 was amortized to expense, respectively. As of September 30, 2016, there was approximately $523,000 in additional compensation that will be

21

recognized over the remaining service period of approximately 1.66 years. At September 30, 2016, 87,629 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	3,540		28.33
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—September 30, 2016	47,095	$	22.46

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2015	75,930	$	17.66
Granted	-		-
Forfeited	1,270		19.21
Vested	-		-
Non-vested stock awards—September 30, 2015	74,660	$	17.63

NOTE 9:  INCOME TAXES

As of September 30, 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 September 30, 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 September 30, 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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		September 30, 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	$	-	$	52,542	$	-	$	52,542
GSE mortgage-backed securities		-		32,841		-		32,841
Collateralized mortgage obligations GSE		-		13,755		-		13,755
Corporate bonds		-		17,451		-		17,451
State and municipal tax-exempt		-		5,099		-		5,099
Total	$	-	$	121,688	$	-	$	121,688
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,333	$	1,333
Total	$	-	$	-	$	1,333	$	1,333

		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:

September 30, 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	$	736	Appraisal of	Appraisal adj. (2)	-25%	to	-25%	(-25%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
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 - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,333

(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 $7.1 million at September 30, 2016. Of this, $1.7 million had specific valuation allowances of $386,000, leaving a fair value of $1.3 million as of September, 2016. In addition, DNB had $96,000 in impaired loans that were partially charged down by $39,000, leaving $57,000 at fair value as of September 30, 2016. 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.

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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 $2.9 million of such assets at September 30, 2016, $2.8 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 nine month period ended September 30, 2016. DNB wrote down the carrying value of one OREO property by $154,000 to $453,000 during the nine months period ended September 30, 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 and nine months ended September 30, 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 September 30, 2016 and December 31, 2015 are as follows:

		September 30, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	30,442	$	30,442	$	30,442	$	-	$	-
AFS investment securities		121,688		121,688		-		121,688		-
HTM investment securities		73,789		75,111		-		73,111		2,000
Restricted stock		3,623		3,623		-		3,623		-
Loans, net of allowance, including impaired		504,172		492,616		-		-		492,616
Accrued interest receivable		2,639		2,639		-		2,639		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		146,731		146,731		-		146,731		-
Interest-bearing deposits		403,579		403,579		-		403,579		-
Time deposits		71,920		71,751		-		71,751		-
Brokered deposits		23,313		23,235		-		23,235		-
Repurchase agreements		19,483		19,483		-		19,483		-
FHLBP advances		20,000		20,222		-		20,222		-
Junior subordinated debentures and other borrowings		9,279		8,431		-		8,431		-
Subordinated debt		9,750		9,472		-		9,472		-
Accrued interest payable		329		329		-		329		-
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, 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.

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

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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 $23.3 million in brokered deposits, $10.0 million matures in 2017, $3.2 million matures in 2018, $5.2 million matures in 2020, and $5.0 million matures in 2021.

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 September 30, 2016, un-funded loan commitments totaled $122.1 million and stand-by letters of credit totaled $2.7 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 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

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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 the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Corporation conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the 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.

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.

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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, annuities, 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 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 $1,000, or less than a penny per diluted share, for the quarter ending September 30, 2016, compared with $1.3 million, or $0.44 per diluted share, for the same quarter, last year. Results for the three months ended September 30, 2016 included merger-related costs of $1.5 million associated with East River Bank and gains from insurance proceeds of $30,000. There was an associated income tax adjustment of $259,000 for these two items. See DNB’s 8-K filed on October 20, 2016.

On both a year-over-year and sequential quarter basis, the net interest margin remained relatively stable despite continuing pressure from ultra-low interest rates and the flattening yield curve.  The net interest margin was 3.06% for the third quarter of 2016, compared with 3.13% for the same quarter, last year.  On a sequential quarter basis, the net interest margin slipped only two basis points from 3.08% for the three months ending June 30, 2016. 

On a sequential quarter basis, total loans increased $15.1 million, or 3.0% (not annualized), to $509.2 million as of September 30, 2016.  As of the same date, total loans were 66.1% of total assets.  The loan growth occurred primarily in the commercial real estate and consumer loan categories.  The Company remains disciplined and intends to maintain conservative underwriting standards while growing commercial-oriented loans in a competitive market.

Asset quality remained solid as net charge-offs were only 0.03% of total average loans for the quarter ending September 30, 2016, compared with 0.10% for the quarter ending June 30, 2016, and 0.40% for the quarter ending September 30, 2015.  Total non-performing assets, including loans and other real estate property, were $9.9 million as of September 30, 2016, compared with $10.5 million as of June 30, 2016 and $7.7 million as of December 31, 2015.  The ratio of non-performing loans to total loans was 1.36% as of September 30, 2016, compared with 1.54% as of June 30, 2016. As of September 30, 2016, the allowance for loan losses to total loans ratio was 1.04%.

On a sequential quarter basis, total core deposits increased $5.5 million to $550.3 million and were 85.3% of total deposits as of September 30, 2016.  Total deposits were $645.5 million as of September 30, 2016, compared with $606.3 million as of December 31, 2015.

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Total non-interest income for the third quarter of 2016 was $1.4 million, compared with $1.4 million for the prior quarter and $1.0 million for the quarter ended September 30, 2015.  Total non-interest income for the third quarter of 2016 included a $30,000 gain from the insurance proceeds associated with the fire at our West Chester location.  Wealth management fees were $393,000 for the third quarter of 2016 compared with $441,000 for the second quarter of 2016, and $317,000 for the quarter ending September 30, 2015.  Wealth management fees represented approximately one-third of total fee income.  Net gains from the sale of investment securities were $197,000 for the three months ending September 30, 2016, compared with $203,000 for the quarter ending June 30, 2016, and $10,000 for the same quarter, last year.

Non-interest expense was $6.7  million for the third quarter of 2016, compared with $5.2 million for the second quarter of 2016, and $4.8 million for the quarter ending September 30, 2015.  Non-interest expense for the quarter ending September 30, 2016 included merger-related costs of $1.5 million associated with East River Bank.  Excluding these items, non-interest expense was $5.2  million for the quarter ending September 30, 2016.  On a sequential quarter basis, salary and employee benefits expense increased $124,000, or 4.6% (not annualized), primarily due to new hires and incentives. Occupancy and equipment increased $137,000, or 16.9% (not annualized), largely due to the West Chester branch office being reopened in the second quarter of 2016 following a fire, which occurred in the second quarter of 2015.  Rent and depreciation expense had been suspended since that time. 

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 nine month period ended September 30, 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.

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

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

Competition. In addition to the challenges related to the interest rate environment, community banks in Chester and Delaware Counties have been experiencing increased competition from large regional and international banks entering DNB’s marketplace through mergers and acquisitions. Competition for loans and deposits may negatively affect DNB’s net interest margin. To compensate for the increased competition, DNB has 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 56 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 $38,000 in 2016.

Completion of Acquisition.On October 1, 2016, DNB completed its previously announced merger (the "Merger") with East River Bank (“ERB”).  Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 4, 2016, at the effective time of the Merger, ERB merged with and into DNB First, N.A., a wholly owned subsidiary of DNB.

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Pursuant to the Merger Agreement, at the effective time of the Merger, each outstanding share of ERB common stock was converted into the right to receive, at the election of the ERB shareholder (subject to certain conditions, including conditions relating to pro-ration):  (i) 0.6562 shares of DNB common stock or (ii) $18.65 in cash.  The Merger Agreement provides that election of shares of DNB stock or cash is subject to pro-ration such that 2,085,662 ERB shares of common stock, or approximately 85.3% of the current outstanding ERB shares, will be exchanged for DNB common stock with the remaining ERB shares to be exchanged for cash and that the aggregate cash consideration payable to ERB shareholders will be $6.7 million (subject to adjustment for outstanding options exercised prior to closing).  The Merger Agreement also provides that options to purchase ERB common stock outstanding at the effective time of the Merger will be exchanged for a cash payment equal to the difference between the per share cash consideration under the Merger Agreement and the corresponding exercise price of such option.  Options to acquire an aggregate of 248,000 shares of ERB common stock were exchanged for such cash payment.  DNB is also required under the Merger Agreement to make a cash payment to ERB shareholders who would otherwise be entitled to a fractional share of DNB common stock. The aggregate payment made by DNB for these fractional shares is approximately $2,080.Material Trends and Uncertainties.

DNB reported net income available to common stockholders of $1,000, or less than a penny per diluted share, for the quarter ending September 30, 2016, compared with $1.3 million, or $0.44 per diluted share, for the same quarter, last year. Results for the three months ended September 30, 2016 included merger-related costs of $1.5 million associated with East River Bank and $30,000 of gains from insurance proceeds (There was an associated income tax adjustment of $259,000 for these two items).  Even though DNB’s quarterly earnings have increased compared to the same quarter last year (absent merger costs and insurance proceeds, net of taxes), 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 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 September 7, 2016 Beige Book indicated that aggregate business activity in the Third District grew slightly during the period--a bit slower than the modest pace reported during the July 13, 2016 Beige Book period. Similarly, overall hiring slowed to a slight pace of growth. Staffing firms reported a modest increase in activity, while manufacturers continued to report job cuts, and other sectors noted mixed trends. On balance, firms reported that prices continued to rise slightly over the September 7, 2016 Beige Book period, as did home prices. Other than health-care costs and wages for certain skilled positions, the Federal Reserve’s banking and staffing contacts reported that wages continued to rise modestly. Overall, firms expect moderate growth over the next six months--a little higher than they reported during the July 13, 2016 Beige Book period.

Overall, Third District homebuilders reported that activity continued to rise slightly, although prospective traffic slowed more than expected for the late summer season. Builders noted few cost pressures, other than for some subcontractors with skilled labor positions; material costs pressures remained subdued. Brokers in the major Third District housing markets noted that existing home sales activity had leveled off since the July 13, 2016 Beige Book period. A major Philadelphia-area broker as well as bankers throughout the Third District noted that sales continued to be weak because of the lack of inventory for mid-priced housing and a lack of demand for high-priced homes. Overall, home prices are still rising slightly, although this varies across markets and price categories.

The Federal Reserve’s nonresidential real estate contacts, predominately in the Greater Philadelphia area, reported that construction activity remained steady at healthy levels, while leasing activity was flat to up slightly. The Federal Reserve’s contacts reported that activity in both segments was growing at a somewhat softer pace compared with July 13, 2016 Beige Book period's modest growth. Contacts noted that more projects are in the pipeline for future groundbreaking, which should keep the level of new construction relatively high. The Federal Reserve’s contacts noted a critical mass of deals from a variety of sectors, including health and finance, which are creating demand beyond Center City Philadelphia to include the inner-ring transit suburbs.

Third District financial firms continued to report moderate growth of total loan volumes over the July 13, 2016 Beige Book period. Volumes within all lending categories have grown since the July 13, 2016 Beige Book period except for home equity loans and commercial and industrial (C&I) loans, which tailed off in August. All categories except C&I loans and automobile loans grew at a faster pace than during the same period one year ago. The strongest growth during the September 7, 2016 Beige Book period was for credit card debt, commercial real estate, automobile loans, and other consumer lending. Mortgage lending was up slightly during the period, while home equity loans were down slightly; both have declined since last year. On balance, banking contacts continued to describe their loan portfolios as healthy and their customers' financials as improving. Most of the Federal Reserve’s contacts state they have left their loan standards unchanged for most loan categories, and few expressed concerns about riskier loans by their competitors. Many continued to characterize the lending environment as competitive. Most bankers described the confidence of their business and

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consumer customers as low; some said that confidence was steady, if not rising, but that customers remained cautious of borrowing and investing. Bankers remained cautiously optimistic that slow, steady growth would continue.

Third District manufacturers reported that overall activity had changed little since the July 13, 2016 Beige Book period. Reports indicated that general activity fell and then rose during the September 7, 2016 Beige Book period, orders rose and then fell, and shipments increased throughout. Along with these offsetting trends, firms reported to the Federal Reserve that the number of employees and the average employee work hours continued to fall. The makers of paper products, fabricated metal products, and electronic equipment noted overall gains in activity from the July 13, 2016 Beige Book, while the makers of lumber, chemicals, and primary metals noted weaker activity. The Federal Reserve’s contacts expressed higher expectations of growth over the next six months than they did during the July 13, 2016 Beige Book period. Expectations of future capital expenditures also rose; however, those for future employment did not.

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 3.8% as of March 2016, compared to a Pennsylvania unemployment rate of 5.3% and a national unemployment rate of 5.1%. 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 285,486, with manufacturing jobs representing 23.1% of the workforce and retail shopping comprising 13.8% of the total employment. During the last few years, the County has been able to keep most of its major employers; however some of them have downsized in order to remain competitive. Chester County is home to several Fortune 500 companies. Thirteen Chester County employers have 1,000 employees or more. Of these 13 companies, two companies have more than 5,000 employees.

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

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

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

The Dodd-Frank Act could require us to make material expenditures, in particular personnel training costs and additional compliance expenses, or otherwise adversely affect our business or financial results.  It could also require us to change certain of our business practices, adversely affect our ability to pursue business opportunities we might otherwise consider engaging in, cause business disruptions and/or have other impacts that are as-of-yet unknown to DNB and the Bank.  Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, fines or additional licensing expenses, any of which could have an adverse effect on our cash flow and results of operations.  For example, a provision of the Dodd-Frank Act precludes bank holding companies from treating future trust preferred securities issuances as Tier 1 capital for regulatory capital adequacy purposes.  This provision may narrow the number of possible capital raising opportunities DNB and other bank holding companies might have in the future.  Further, the new rules issued by the Consumer Financial Protection Bureau may materially affect the methods and costs of compliance by the Bank in connection with future consumer-related transactions.

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

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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 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

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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 September 30, 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 $770.3 million at September 30, 2016, compared to $748.8 million at December 31, 2015.  The $21.5 million increase in total assets was primarily attributable to a $27.7 million increase in loans before allowance for credit losses, a $9.3 million increase in cash and cash equivalents, a $6.5 million increase in other assets (primarily related to the future cash consideration payable to ERB shareholders per the merger agreement), and a $2.2 million increase in office property and equipment, offset by a decrease of $24.7 million in investment securities (excluding restricted stock) and a $368,000 increase in allowance for credit losses.

Investment Securities. Investment securities, including restricted stock, at September 30, 2016 were $199.1 million, compared to $223.7 million at December 31, 2015. The $24.6 million decrease in investment securities and restricted stock was primarily due to $76.2 million in purchases of investment securities and a $1.4 million change in fair value, and a $176,000 net increase in restricted stock, offset by $102.2 million in sales, principal pay-downs, calls and maturities.

Gross Loans. DNB’s loans increased $27.7 million to $509.5 million at September 30, 2016, compared to $481.8 million at December 31, 2015. Total commercial loans increased $25.4 million and consumer loans increased $2.6 million while residential loans decreased $272,000.

Deposits. Deposits were $645.5 million at September 30, 2016, compared to $606.3 million at December 31, 2015.  Deposits increased $39.3 million or 6.48% during the nine-month period ended September 30, 2016. Core deposits, which are comprised of demand, NOW, money markets and savings accounts, increased by $28.5 million, time deposits increased by $5.9 million and brokered deposits increased by $4.8 million. 

Borrowings.Borrowings were $58.9 million at September 30, 2016, compared to $81.9 million at December 31, 2015.  The decrease of $23.0 million or 28.0% was primarily due to a $12.9 million decrease in repurchase agreements and a $10.0 million decrease in FHLBP advances.

Stockholders’ Equity.Stockholders' equity was $59.2 million at September 30, 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 $2.7 million and $914,000 of other comprehensive (loss) income, and restricted stock compensation expense of $801,000. These additions to stockholders’ equity were partially offset by taxes on share award vesting of $437,000 and $598,000 of dividends paid on DNB’s common stock.

RESULTS OF OPERATIONS

SUMMARY

Net income for the three and nine-month periods ended September 30, 2016 was $1,000 and $2.7  million compared to $1.3

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million and $3.7 million for the same periods in 2015. Diluted earnings per share for the three and nine-month periods ended September 30, 2016 were $0.00 and $0.93 compared to $0.44 and $1.31 for the same periods in 2015. The $1.3 million decrease in net income in the third quarter of 2016 compared to the third quarter of 2015 was primarily attributable to a $1.9 million increase in non-interest expense (primarily due diligence and merger expenses) , offset by a $332,000 increase in non-interest income a $278,000 decrease in income tax expense, and a $67,000 increase in net interest income. The $1.1 million decrease in net income during the nine-month period was primarily attributable to a $3.0 million increase in non-interest expense (primarily due diligence and merger expenses) offset by a $1.4 million increase in non-interest income (primarily gains from insurance proceeds),  a $186,000 decrease in income tax expense, a $185,000 decrease in the provision for credit losses, and a $151,000 increase in net interest income.

NET INTEREST INCOME

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

Net interest income for the three and nine-month periods ended September 30, 2016 was $5.5 million and $16.4 million, compared to $5.5 million and $16.3 million for the same periods in 2015. Interest income for the three and nine-month periods ended September 30, 2016 was $6.3 million and $18.6 million, compared to $6.2 million and $18.3 million for the same periods in 2015. Interest expense for the three and nine-month periods ended September 30, 2016 was $760,000 and $2.1 million, compared to $711,000 and $2.0 million for the same periods in 2015. The composite cost of funds for the three and nine-month periods ended September 30, 2016 was 0.43% and 0.41%, compared to 0.42% and 0.39% for the same periods in 2015. The net interest margin for the three and nine-month periods ended September 30, 2016 was 3.06% and 3.10%, compared to 3.13% and 3.13% for the same periods in 2015.

Interest on loans was $5.2 million and $15.4 million for the three and nine-month periods ended September 30, 2016, compared to $5.1 million and $15.0 million for the same periods in 2015. The average balance of loans was $498.6 million with an average yield of 4.18% for the third quarter of 2016, compared to $469.9 million with an average yield of 4.32% for the same period in 2015. The average balance of loans was $490.1 million with an average yield of 4.21% for the nine months ended September 30, 2016, compared to $463.3 million with an average yield of 4.33% for the same period in 2015.

Interest and dividends on investment securities was $1.0 million and $3.1 million for the three and nine-month periods ended September 30, 2016, compared to $1.1 million and $3.3 million for the same periods in 2015. The average balance of investment securities was $215.0 million with a tax equivalent average yield of 2.19% for the third quarter of 2016, compared to $225.8 million with a tax equivalent average yield of 2.17% for the same period in 2015. The average balance of investment securities was $213.3 million with a tax equivalent average yield 2.24% for the nine months ended September 30, 2016, compared to $230.9 million with a tax equivalent average yield of 2.11% for the same period in 2015.

Interest on deposits was $450,000 and $1.2 million for the three and nine-month periods ended September 30, 2016, compared to $300,000 and $859,000 for the same periods in 2015. The average balance of deposits was $640.8 million with an average rate of 0.28% for the third quarter of 2016, compared to $607.3 million with an average rate of 0.20% for the same period in 2015. The average balance of deposits was $631.3 million with an average rate of 0.25% for the nine months ended September 30, 2016, compared to $616.0 million with an average rate of 0.19% for the same period in 2015.

Interest on borrowings was $310,000 and $920,000 for the three and nine-month periods ended September 30, 2016, compared to $411,000 and $1.1 million for the same periods in 2015. The average balance of borrowings was $58.5 million with an average rate of 2.10% for the third quarter of 2016, compared to $71.5 million with an average rate of 2.29% for the same period in 2015. The average balance of borrowings was $61.2 million with an average rate of 2.00% for the nine months ended September 30, 2016, compared to $60.9 million with an average rate of 2.49% 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”).

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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

•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

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financial strength along with their ability and willingness to provide financial support of their obligations on an immediate and continuing basis.

There was a $100,000 and $630,000 provision made during the three and nine months ended September 30, 2016, compared to $100,000 and $815,000 for the same periods in 2015. DNB’s percentage of allowance for credit losses to total loans was 1.04%  at September 30, 2016 compared to 1.02% and 1.01% at December 31, 2015 and September 30, 2015, respectively. Net charge-offs were $262,000, $1.1 million, and $992,000 during the nine months ended September 30, 2016, year ended December 31, 2015, and nine months ended September 30, 2015, respectively. The percentage of net charge-offs to total average loans were 0.05%, 0.23%, and 0.21% 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 September 30, 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 $1.9 million during the nine month period ended September 30, 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 slow economy, 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 September 30, 2016, DNB had $9.9 million of non-performing assets, which included $7.0 million of non-performing loans and $2.9 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 $7.1 million of impaired loans ($7.0 million of non-performing loans and $104,000 of performing TDRs) at September 30, 2016, $1.7 million had valuation allowances of $386,000 and $5.4 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 September 30, 2016, DNB recognized $47,000 in total charge-offs, $39,000 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

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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.

Analysis of Allowance for Credit Losses

(Dollars in thousands)

	Nine Months Ended		Year Ended		Nine Months Ended
	September 30, 2016		December 31, 2015		September 30, 2015
Beginning balance	$	4,935	$	4,906	$	4,906
Provisions:		630		1,105		815
Loans charged off:
Residential mortgage		(206)		(194)		(69)
Commercial mortgage		(39)		(105)		(105)
Commercial:
Commercial term		(32)		(200)		(190)
Commercial construction		-		(581)		(577)
Lease financing		-		-		-
Consumer:
Home equity		-		(11)		(11)
Other		-		(63)		(60)
Total charged off		(277)		(1,154)		(1,012)
Recoveries:
Residential mortgage		10		4		2
Commercial mortgage		-		-		-
Commercial:
Commercial term		1		13		10
Commercial construction		1		10		5
Lease financing		2		49		2
Consumer:
Home Equity		-		-		-
Other		1		2		1
Total recoveries		15		78		20
Ending balance	$	5,303	$	4,935	$	4,729
Reserve for unfunded loan commitments	$	199	$	188	$	178

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

Composition of Allowance for Credit Losses

(Dollars in thousands)

		September 30, 2016				December 31, 2015				September 30, 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	$	403	6	%	$	216	6	%	$	194	6	%
Commercial mortgage		2,472	56			2,375	57			2,491	61
Commercial:
Commercial term		793	21			989	21			719	16
Commercial construction		873	6			569	4			678	5
Consumer:
Home equity		202	10			195	11			200	11
Other		62	1			64	1			66	1
Unallocated		498	-			527	-			381	-
Total	$	5,303	100	%	$	4,935	100	%	$	4,729	100	%
Reserve for unfunded loan commitments	$	199			$	188			$	178

41

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 and nine-month periods ended September 30, 2016 was $1.4 million and $5.1 million, compared to $1.0 million and $3.7 million for the same periods in 2015. The $332,000 increase during the three months ended September 30, 2016 was mainly attributable to increases of $187,000 in net gains on sale of investments, $76,000 in wealth management, $38,000 in mortgage banking, $30,000 in gains on insurance proceeds, and $14,000 in other fees (mostly servicing fee income). These increases were offset by a  decrease of $12,000 in service charges (mostly NSF fees and business analysis charges). The $1.4 million increase during the nine months ended September 30, 2016 was mainly attributable to increases of $1.2 million in gains from insurance proceeds related to the fire in the West Chester office, $357,000 in net gain on sale of investments, $140,000 in wealth management, $62,000 in mortgage banking, and $48,000 in other fees (mostly servicing fee income, Visa debit interchange, and merchant card processing).

NON-INTEREST EXPENSE

Non-interest expense for the three and nine-month periods ended September 30, 2016 was $6.7 million and $17.3 million, compared to $4.8 million and $14.3 million for the same periods in 2015. During the three months ended September 30, 2016, total non-interest expense increased by $1.9 million. The increase was primarily due to increases of $1.5 million in due diligence and merger expense,$202,000 in salary and employee benefits, $119,000 in furniture and equipment, $109,000 in other expenses (mostly charge-off expense, director’s fees, and miscellaneous expense), and $93,000 in occupancy. These increases were partially offset by decreases of $56,000 in FDIC insurance, $30,000 in advertising and marketing, and $11,000 in professional and consulting. During the nine months ended September 30, 2016, total non-interest expense increased $3.0 million. The increase was primarily due to increases of $2.0 million in due diligence and merger expenses, $739,000 in salary and employee benefits (restricted stock vestings, normal merit increases, and higher commissions), $185,000 in furniture and equipment, $127,000 in other expenses (mostly charge-off expenses and director’s fees), and $42,000 in professional and consulting.  

INCOME TAXES

Income tax expense for the three and nine-month periods ended September 30, 2016 was $81,000 and $939,000, compared to $359,000 and $1.1 million for the same periods in 2015. The effective tax rate for the three and nine-month periods ended September 30, 2016 was 99.1% and 26.0% compared to 22.1% and 23.0% for the same periods in 2015. The effective tax rate increased to 99.1% primarily due to an increased taxable adjustment in the quarter for non-deductible due diligence and merger expense of $313,000. 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 $9.9 million at September 30, 2016 compared to $7.7 million at December 31, 2015 and $6.5 million at September 30, 2015. The non-performing loans to total loans ratio was 1.36% at September 30, 2016, 1.06% at December 31, 2015 and 0.90% at September 30, 2015. The non-performing assets to total assets ratio was 1.28% at September 30, 2016, 1.02% at December 31, 2015, and 0.87% at September 30, 2015. The allowance to non-performing loans ratio was 76.3% at September 30, 2016, 96.9% at December 31, 2015 and 111.3% at September 30, 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

42

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 recovery of each troubled asset. As of September 30, 2016, DNB had $23.7 million of substandard loans. Of the $23.7 million, $16.4 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)

	September 30, 2016			December 31, 2015			September 30, 2015
Non-accrual loans:
Residential mortgage	$	1,759		$	1,619		$	1,600
Commercial mortgage		3,061			1,048			1,075
Commercial:
Commercial term		202			188			191
Commercial construction		1,217			1,028			451
Consumer:
Home equity		492			563			313
Other		221			189			120
Total non-accrual loans		6,952			4,635			3,750
Loans 90 days past due and still accruing		-			457			498
Total non-performing loans		6,952			5,092			4,248
Other real estate owned & other repossessed property		2,939			2,581			2,235
Total non-performing assets	$	9,891		$	7,673		$	6,483
Asset quality ratios:
Non-performing loans to total loans		1.36	%		1.06	%		0.90	%
Non-performing assets to total assets		1.28			1.02			0.87
Allowance for credit losses to:
Total loans		1.04			1.02			1.01
Non-performing loans		76.3			96.9			111.3

As of September 30, 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 September 30, 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 nine months ended September 30, 2016 and 2015, there were no defaults on any terms of this loan.

As of September 30, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to one consumer installment loan classified as a TDR totaling $40,000 (the same loan) at December 31, 2015, and no such loans at September 30, 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 nine months ended September 30, 2016 and 2015, there were no defaults on any terms of this loan.

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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
	Nine Months Ended		Year Ended		Nine Months Ended
(Dollars in thousands)	September 30, 2016		December 31, 2015		September 30, 2015
Total recorded investment	$	7,055	$	5,021	$	4,105
Impaired loans with a specific allowance		1,662		307		920
Impaired loans without a specific allowance		5,393		4,714		3,185
Average recorded investment		6,184		6,891		7,359
Specific allowance allocation		386		114		120
Total principal and interest collected		772		2,878		2,830
Interest income recorded		3		96		88

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 $118.2 million at September 30, 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 $111.3 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 $312.9 million at September 30, 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 September 30, 2016, our Maximum Borrowing Capacity with the FHLB was $266.9 million. At September 30, 2016, DNB had borrowed $20.0 million and the FHLB had issued letters of credit, on DNB's behalf, totaling $70.0 million against its available credit lines. At September 30, 2016, we also had available $46.0 million of unsecured federal funds lines of credit with other financial institutions as well as $104.0 million of available short or long term funding through the Certificate of Deposit Account Registry Service (CDARS) program and $129.1 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 or 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 September 30, 2016, DNB had $122.1 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 September 30, 2016 totaled $40.2 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 September 30, 2016.  The Bank’s capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations and for determining levels of deposit insurance assessments and may not constitute an accurate representation of the Corporation’s or the Bank’s overall financial condition or prospects. The Corporation’s capital exceeds the FRB’s minimum leverage ratio requirements for bank holding companies (see additional discussion included in 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

44

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 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
September 30, 2016
Total risk-based capital	$	84,509	14.7	%	$	49,511	8.625	%		N/A	N/A
Common Equity Tier 1 capital		60,257	10.5			29,420	5.125			N/A	N/A
Tier 1 risk-based capital		69,257	12.1			38,030	6.625			N/A	N/A
Tier 1 (leverage) capital		69,257	9.1			30,574	4.000			N/A	N/A
December 31, 2015
Total risk-based capital	$	81,321	14.8	%	$	44,003	8.0	%		N/A	N/A
Common equity tier 1 capital		57,448	10.4			24,752	4.5			N/A	N/A
Tier 1 risk-based capital		66,448	12.1			33,002	6.0			N/A	N/A
Tier 1 (leverage) capital		66,448	8.9			29,717	4.0			N/A	N/A
DNB First, N.A.
September 30, 2016
Total risk-based capital	$	74,870	13.2	%	$	48,806	8.625	%	$	56,587	10.0	%
Common Equity Tier 1 capital		69,368	12.3			29,001	5.125			36,782	6.5
Tier 1 risk-based capital		69,368	12.3			37,489	6.625			45,270	8.0
Tier 1 (leverage) capital		69,368	9.1			30,519	4.000			38,148	5.0
December 31, 2015
Total risk-based capital	$	80,286	14.6	%	$	43,904	8.0	%	$	54,880	10.0	%
Common equity tier 1 capital		75,163	13.7			24,696	4.5			35,672	6.5
Tier 1 risk-based capital		75,163	13.7			32,928	6.0			43,904	8.0
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.

45

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 September 30, 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 September 30, 2016 and December 31, 2015.

(Dollars in thousands)		September 30, 2016						December 31, 2015
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	70,092	$	73,738	$	70,205	$	68,118	$	58,298	$	58,936
Change				3,646		113				(9,820)		(9,182)
Change as % of assets				0.5%		0.0%				(1.3%)		(1.2%)
Change as % of PV equity				5.2%		0.2%				(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 September 30, 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 September 30, 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 September 30, 2016. The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended September 30, 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)
July 1, 2016 – July 31, 2016	-	$	-	-	$	63,016
August 1, 2016 – August 31, 2016	-		-	-	$	63,016
September 1, 2016 – September 30, 2016	-		-	-	$	63,016
Total	-	$	-	-	$	63,016

46

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

47

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

overmber
		DNB FINANCIAL CORPORATION
November  7, 2016	BY:	/s/ William J. Hieb
		William J. Hieb, Chief Executive Officer, President and Director
November  7, 2016	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

48

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

49

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

November 7, 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

November 7, 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 September  30, 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

November 7, 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  September 30, 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

November 7, 2016

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 04, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
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		4,229,331

XML

Consolidated Statements of Financial Condition - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 30,442	$ 21,119
Cash and cash equivalents	30,442	21,119
Available-for-sale investment securities at fair value (amortized cost of $121,492 and $153,559)	121,688	152,379
Held-to-maturity investment securities (fair value of $75,111 and $68,431)	73,789	67,829
Total investments securities	195,477	220,208
Loans	509,475	481,758
Allowance for credit losses	(5,303)	(4,935)
Net loans	504,172	476,823
Restricted stock	3,623	3,447
Office property and equipment, net	9,033	6,806
Accrued interest receivable	2,639	2,410
Other real estate owned & other repossessed property	2,939	2,581
Bank owned life insurance (BOLI)	9,492	9,326
Core deposit intangible	56	66
Net deferred taxes	3,592	3,733
Other assets	8,807	2,299
Total assets	770,272	748,818
Liabilities
Non-interest-bearing deposits	146,731	125,581
Interest-bearing deposits:
NOW	169,400	185,973
Money market	160,312	137,555
Savings	73,867	72,660
Time	71,920	66,018
Brokered deposits	23,313	18,488
Total deposits	645,543	606,275
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	20,000	30,000
Repurchase agreements	19,483	32,416
Junior subordinated debentures	9,279	9,279
Subordinated debt	9,750	9,750
Other borrowings	431	464
Total borrowings	58,943	81,909
Accrued interest payable	329	345
Other liabilities	6,240	4,801
Total liabilities	711,055	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; 2,853,434 and 2,823,840 outstanding, respectively	2,975	2,955
Treasury stock, at cost; 97,694 and 109,209 shares, respectively	(1,805)	(2,015)
Surplus	35,614	35,097
Retained earnings	23,504	21,436
Accumulated other comprehensive loss	(1,071)	(1,985)
Total stockholders' equity	59,217	55,488
Total liabilities and stockholders' equity	$ 770,272	$ 748,818

XML

Consolidated Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 121,492	$ 153,559
Held-to-maturity Securities, Fair Value	$ 75,111	$ 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	2,853,434	2,823,840
Treasury Stock, Shares	97,694	109,209

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest Income:
Interest and fees on loans	$ 5,218	$ 5,083	$ 15,377	$ 15,006
Interest and dividends on investment securities: Taxable	716	714	2,150	2,208
Interest and dividends on investment securities: Exempt from federal taxes	316	354	944	1,042
Interest on cash and cash equivalents	27	10	91	32
Total interest and dividend income	6,277	6,161	18,562	18,288
Interest Expense:
Interest on NOW, money market and savings	230	148	588	450
Interest on time deposits	139	84	396	291
Interest on brokered deposits	81	68	214	118
Interest on FHLB advances	92	198	276	589
Interest on repurchase agreements	9	16	30	35
Interest on junior subordinated debentures	89	77	254	224
Interest on subordinated debt	104	103	311	237
Interest on other borrowings	16	17	49	51
Total interest expense	760	711	2,118	1,995
Net interest income	5,517	5,450	16,444	16,293
Provision for credit losses	100	100	630	815
Net interest income after provision for credit losses	5,417	5,350	15,814	15,478
Non-interest Income:
Service charges	280	292	827	860
Wealth management	393	317	1,231	1,091
Mortgage banking	76	38	189	127
Increase in cash surrender value of BOLI	56	57	166	169
Gains on sale of investment securities, net	197	10	431	74
Gain on sale of loans			39	416
Gains from insurance proceeds	30		1,180
Other fees	337	323	1,022	973
Total non-interest income	1,369	1,037	5,085	3,710
Non-interest Expense:
Salaries and employee benefits	2,817	2,615	8,636	7,897
Furniture and equipment	422	303	1,093	908
Occupancy	524	431	1,459	1,500
Professional and consulting	306	317	948	906
Advertising and marketing	111	141	460	480
Printing and supplies	36	35	129	122
FDIC insurance	73	129	323	376
PA shares tax	157	151	476	452
Telecommunications	63	63	185	184
Postage	28	20	70	65
Loss on sale or write down of OREO, net	160	154	164	154
Due diligence and merger expense	1,498		1,961
Other expenses	509	400	1,390	1,263
Total non-interest expense	6,704	4,759	17,294	14,307
Income before income tax expense	82	1,628	3,605	4,881
Income tax expense	81	359	939	1,125
Net income	1	1,269	2,666	3,756
Preferred stock dividends and accretion of discount		8		42
Net income available to common shareholders	$ 1	$ 1,261	$ 2,666	$ 3,714
Earnings per common share:
Basic	$ 0.00	$ 0.45	$ 0.94	$ 1.33
Diluted	0.00	0.44	0.93	1.31
Cash dividends per common share	$ 0.07	$ 0.07	$ 0.21	$ 0.21
Weighted average common shares outstanding:
Basic	2,853,080	2,806,549	2,844,780	2,798,360
Diluted	2,885,799	2,852,237	2,879,240	2,844,319

XML

Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Consolidated Statements of Comprehensive (Loss) Income [Abstract]
Net income	$ 1	$ 1,269	$ 2,666	$ 3,756
Other Comprehensive (Loss) Income:
Unrealized holding (losses) gains arising during the period, Before tax amount	(288)	767	1,786	714
Unrealized holding (losses) gains arising during the period, Tax effect	99	(261)	(607)	(243)
Unrealized holding (losses) gains arising during the period	(189)	506	1,179	471
Accretion of discount on AFS to HTM reclassification, Before tax amount	6	2	9	6
Accretion of discount on AFS to HTM reclassification, Tax effect	(2)	(1)	(3)	(2)
Accretion of discount on AFS to HTM reclassification	4	1	6	4
Less reclassification for gains included in net income, Before Tax amount	(176)	(10)	(410)	(74)
Less reclassification for gains included in net income, Tax effect	59	4	139	25
Less reclassification for gains included in net income	(117)	(6)	(271)	(49)
Total other comprehensive (loss) income	(302)	501	914	426
Total comprehensive (loss) income	$ (301)	$ 1,770	$ 3,580	$ 4,182

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					3,756		3,756
Other comprehensive income (loss)						426	426
Redemption of preferred stock	(9,750)						(9,750)
Restricted stock compensation expense		14		236			250
Exercise of stock options		16		247			263
Taxes on stock option exercise and share award vest				(153)			(153)
Cash dividends - common					(587)		(587)
Cash dividends SBLF preferred					(42)		(42)
Sale of treasury shares to 401(k)			151	49			200
Sale of treasury shares to deferred comp. plan			74	23			97
Balance at Sep. 30, 2015	$ 3,250	2,961	(2,076)	35,147	20,259	(1,173)	58,368
Balance at Dec. 31, 2015		2,955	(2,015)	35,097	21,436	(1,985)	55,488
Net income					2,666		2,666
Other comprehensive income (loss)						914	914
Restricted stock compensation expense		36		765			801
Taxes on stock option exercise and share award vest		(16)		(421)			(437)
Tax benefit for restricted stock vest				64			64
Cash dividends - common					(598)		(598)
Sale of treasury shares to 401(k)			130	68			198
Sale of treasury shares to deferred comp. plan			80	41			121
Balance at Sep. 30, 2016		$ 2,975	$ (1,805)	$ 35,614	$ 23,504	$ (1,071)	$ 59,217

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 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, shares		95,834
Cash Dividends-Common Stock per share	$ 0.21	$ 0.21
Sale of treasury shares to 401(k), shares	7,111	8,280
Sale of treasury shares to deferred compensation plan, Shares	4,404	4,029

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows From Operating Activities:
Net income	$ 2,666	$ 3,756
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and accretion	1,178	1,385
Provision for credit losses	630	815
Stock based compensation	801	250
Net gain on sale of securities	(431)	(74)
Net loss on sale and write down of OREO and other repossessed property	164	154
Earnings from investment in BOLI	(166)	(169)
Deferred tax benefit	(330)	(285)
Proceeds from sales of loans	8,725	14,332
Loans originated for sale	(8,497)	(13,172)
Gain on sale of loans and mortgage banking income	(228)	(543)
Write off of property and equipment		690
Increase in accrued interest receivable	(229)	(289)
Increase in other assets	(6,505)	(859)
Decrease in accrued interest payable	(16)	(29)
Increase (decrease) in other liabilities	1,439	(245)
Net Cash (Used in) Provided By Operating Activities	(799)	5,717
Cash Flows From Investing Activities:
Activity in available-for-sale securities: Sales	43,913	17,969
Activity in available-for-sale securities: Maturities, repayments and calls	50,660	39,982
Activity in available-for-sale securities: Purchases	(62,646)	(47,929)
Activity in held-to-maturity securities: Sales	757
Activity in held-to-maturity securities: Maturities, repayments and calls	6,864	1,452
Activity in held-to-maturity securities: Purchases	(13,507)	(7,209)
Net increase in restricted stock	(176)	(377)
Net increase in loans	(27,979)	(17,273)
Purchases of property and equipment	(2,892)	(280)
Costs capitalized in OREO and other repossessed property	(954)
Proceeds from sale of OREO and other repossessed property	432
Net Cash Used in Investing Activities	(5,528)	(13,665)
Cash Flows From Financing Activities:
Net increase in deposits	39,268	3,375
Repayment of FHLBP advances	(10,000)
Net (decrease) increase in repurchase agreements	(12,933)	11,280
Proceeds from issuance of subordinated debt		9,750
Repayment of other borrowings	(33)	(30)
Dividends paid	(598)	(629)
Proceeds from the exercise of stock options		263
Taxes on exercise of stock options	(437)	(153)
Tax benefit for restricted stock vest	64
Redemption of preferred stock		(9,750)
Sale of treasury stock	319	297
Net Cash Provided by Financing Activities	15,650	14,403
Net Change in Cash and Cash Equivalents	9,323	6,455
Cash and Cash Equivalents at Beginning of Period	21,119	12,504
Cash and Cash Equivalents at End of Period	30,442	18,959
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	2,134	2,024
Cash paid during the period for: Income taxes	$ 875	1,702
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans to real estate owned and other repossessed property		$ 1,488

XML

Basis Of Presentation

9 Months Ended

Sep. 30, 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 nine months ended September 30, 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 September 30, 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.

East River Bank Acquisition

Effective October 1, 2016, DNB completed its previously announced merger (the "Merger") with East River Bank (“ERB”). Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 4, 2016, at the effective time of the Merger, ERB merged with and into DNB First, N.A., a wholly owned subsidiary of DNB.

ERB was a locally-managed institution, headquartered in Philadelphia, Pennsylvania with three locations in Philadelphia. With this acquisition, DNB will have 15 locations in Chester, Delaware and Philadelphia Counties, Pennsylvania. As of June 30, 2016, ERB had approximately $306.8 million in loans, $229.0 million in deposits and $320.4 million in total assets. In accordance with the terms of the Merger Agreement, holders of East River Bank common shares received, in aggregate, $6.7 million in cash and 1,368,611 shares or approximately 32% of DNB’s outstanding common stock. The transaction was valued at $47.5 million based on DNB’s September 30, 2016 closing share price of $28.42 as quoted on NASDAQ. The results of the combined entity’s operations will be included in DNB’s Consolidated Financial Statements from the date of acquisition.

The acquisition of ERB will be accounted for as a business combination using the acquisition method of accounting, which includes estimating the fair value of assets acquired, liabilities assumed and consideration paid as of the acquisition date. These preliminary estimates will be completed during the fourth quarter of 2016 and will be subject to adjustments during the up to one year measurement period after the acquisition.

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.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current information, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better understand the credit risk within the portfolio and the methodologies for determining allowance. ASU 2016-13 is effective for DNB on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. Early adoption is permitted. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments in this update provide guidance for eight specific cash flow classification issues for which current guidance is unclear or does not exist, thereby reducing diversity in practice. For public companies, the update is effective for annual periods beginning after December 15, 2017. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on DNB's consolidated financial statements.

XML

Investment Securities

9 Months Ended

Sep. 30, 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:

			September 30, 2016
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,161		$	480	$	-	$	8,641
Government Sponsored Entities (GSE) mortgage-backed securities		1,545			65		-		1,610
Corporate bonds		12,854			414		(6)		13,262
Collateralized mortgage obligations GSE		2,148			30		-		2,178
State and municipal taxable		1,009			40		-		1,049
State and municipal tax-exempt		48,072			313		(14)		48,371
Total	$	73,789		$	1,342	$	(20)	$	75,111
Available For Sale
US Government agency obligations	$	52,436		$	121	$	(15)	$	52,542
GSE mortgage-backed securities		32,605			236		-		32,841
Collateralized mortgage obligations GSE		13,834			28		(107)		13,755
Corporate bonds		17,522			69		(140)		17,451
State and municipal tax-exempt		5,095			8		(4)		5,099
Total	$	121,492		$	462	$	(266)	$	121,688

			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 September 30, 2016 and December 31, 2015.

		September 30, 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	$	1,988	$	(6)	$	-	$	-	$	1,988	$	(6)
Collateralized mortgage obligations GSE		325		-		325		-		-		-
State and municipal tax-exempt		6,202		(14)		6,202		(14)		-		-
Total	$	8,515	$	(20)	$	6,527	$	(14)	$	1,988	$	(6)
Available For Sale
US Government agency obligations	$	20,185	$	(15)	$	20,185	$	(15)	$	-	$	-
Collateralized mortgage obligations GSE		9,078		(107)		1,734		(14)		7,344		(93)
Corporate bonds		10,752		(140)		5,315		(56)		5,437		(84)
State and municipal tax-exempt		3,087		(4)		3,087		(4)		-		-
Total	$	43,102	$	(266)	$	30,321	$	(89)	$	12,781	$	(177)

		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 September 30, 2016, there were twelve collateralized mortgage obligations GSE, two U.S. agency obligations, seven tax-exempt municipalities, and seven corporate bonds 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 September 30, 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 September 30, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are twelve impaired securities classified as collateralized mortgage obligations, eight of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.84% 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

US Government agency obligations  There are two impaired securities classified as agencies, none of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 0.11% of its book value. All of these securities were issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on all of these securities and none of these agencies have ever defaulted on their bonds. DNB anticipates a recovery in the market value as the securities approach their maturity dates. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

State and municipal tax-exempt There are seven impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for less than 12 months. The largest unrealized loss of a security in this group is 0.47% 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 seven municipal securities, there are three uninsured school districts, two insured townships, and two uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

Corporate bonds There are seven impaired bonds classified as corporate bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.98% 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

The amortized cost and fair value of investment securities as of September 30, 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	$	-	$	-	$	12,751	$	12,732
Due after one year through five years		22,695		23,572		58,429		58,504
Due after five years through ten years		30,108		30,460		7,295		7,336
Due after ten years		20,986		21,079		43,017		43,116
Total investment securities	$	73,789	$	75,111	$	121,492	$	121,688

The HTM security that was sold during the nine months ended September 30, 2016 was permissible because DNB collected greater than 85% of the original recorded investment on the HTM security prior to the sale. Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2016		2015		2016		2015
Gross realized gains-AFS	$	176	$	13	$	440	$	77
Gross realized gains-HTM		21		-		21		-
Gross realized losses-AFS		-		(3)		(30)		(3)
Net realized gain	$	197	$	10	$	431	$	74

At September 30, 2016 and December 31, 2015, investment securities with a carrying value of approximately $111.3 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.

XML

Loans

9 Months Ended

Sep. 30, 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)	September 30, 2016		December 31, 2015
Residential mortgage	$	28,379	$	28,651
Commercial mortgage		287,638		274,132
Commercial:
Commercial term		104,755		102,178
Commercial construction		29,677		20,364
Consumer:
Home equity		53,175		51,270
Other		5,851		5,163
Total loans	$	509,475	$	481,758
Less allowance for credit losses		(5,303)		(4,935)
Net loans	$	504,172	$	476,823

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

					Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
(Dollars in thousands)	December 31, 2015		September 30, 2016		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,619	$	1,759	$	15	$	-	$	15	$	51	$	-	$	51
Commercial mortgage		1,048		3,061		74		-		74		139		-		139
Commercial:
Commercial term		188		202		3		-		3		9		-		9
Commercial construction		1,028		1,217		46		-		46		134		-		134
Consumer:
Home equity		563		492		7		-		7		23		-		23
Other		189		221		5		-		5		14		-		14
Total non-accrual loans	$	4,635	$	6,952	$	150	$	-	$	150	$	370	$	-	$	370
Loans 90 days past due and accruing		457		-		-		-		-		2		2		-
Total non-performing loans	$	5,092	$	6,952	$	150	$	-	$	150	$	372	$	2	$	370

			Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
(Dollars in thousands)	September 30, 2015		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,600	$	10	$	-	$	10	$	50	$	-	$	50
Commercial mortgage		1,075		21		-		21		64		-		64
Commercial:
Commercial term		191		2		-		2		7		-		7
Commercial construction		451		56		-		56		226		-		226
Consumer:
Home equity		313		7		-		7		19		-		19
Other		120		6		-		6		14		-		14
Total non-accrual loans	$	3,750	$	102	$	-	$	102	$	380	$	-	$	380
Loans 90 days past due and accruing		498		-		-		-		5		5		-
Total non-performing loans	$	4,248	$	102	$	-	$	102	$	385	$	5	$	380

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Allowance For Credit Losses

9 Months Ended

Sep. 30, 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 September 30, 2016 and December 31, 2015. 

Age Analysis of Past Due Loans Receivable

September 30, 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	$	135	$	377	$	1,686	$	2,198	$	26,181	$	28,379	$	-
Commercial mortgage		-		-		2,294		2,294		285,344		287,638		-
Commercial:
Commercial term		-		-		23		23		104,732		104,755		-
Commercial construction		-		-		1,217		1,217		28,461		29,677		-
Consumer:
Home equity		-		-		344		344		52,831		53,175		-
Other		123		6		181		310		5,541		5,851		-
Total	$	258	$	383	$	5,745	$	6,386	$	503,090	$	509,475	$	-

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 and nine months ended September 30, 2016 and 2015 and as of December 31, 2015.

Impaired Loans

		September 30, 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	$	829	$	867	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		23		25		-		-		-		-
Commercial construction		770		770		-		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		115		123		-		82		90		-
Total	$	5,393	$	5,865	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		930		1,191		194		-		-		-
Commercial:
Commercial term		179		197		100		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		106		106		3		107		107		4
Total	$	1,662	$	4,327	$	386	$	307	$	318	$	114
Total:
Residential mortgage		1,759		2,058		194		1,620		1,919		-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		202		222		100		200		211		110
Commercial construction		1,217		3,603		89		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		221		229		3		189		197		4
Total	$	7,055	$	10,192	$	386	$	5,021	$	8,030	$	114

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	880	$	-	$	1,577	$	-	$	1,254	$	-	$	1,948	$	-
Commercial mortgage		3,101		-		2,277		28		2,102		-		2,831		85
Commercial:
Commercial term		24		-		-		-		18		-		-		-
Commercial construction		924		-		125		-		944		-		763		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		497		3
Other		116		-		125		-		101		-		134		-
Total	$	5,676	$	1	$	4,593	$	29	$	5,076	$	3	$	6,173	$	88
With allowance recorded:
Residential mortgage		886		-		59		-		479		-		131		-
Commercial mortgage		-		-		101		-		-		-		151		-
Commercial:
Commercial term		181		-		200		-		187		-		200		-
Commercial construction		447		-		588		-		335		-		672		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		-		-		-		-		-		-		22		-
Other		106		-		20		-		107		-		10		-
Total	$	1,620	$	-	$	968	$	-	$	1,108	$	-	$	1,186	$	-
Total:
Residential mortgage		1,766		-		1,636		-		1,733		-		2,079		-
Commercial mortgage		3,101		-		2,378		28		2,102		-		2,982		85
Commercial:
Commercial term		205		-		200		-		205		-		200		-
Commercial construction		1,371		-		713		-		1,279		-		1,435		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		519		3
Other		222		-		145		-		208		-		144		-
Total	$	7,296	$	1	$	5,561	$	29	$	6,184	$	3	$	7,359	$	88

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 September 30, 2016 and December 31, 2015.

Credit Quality Indicators

	September 30, 2016
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,357	$	-	$	2,022	$	-	$	28,379
Commercial mortgage		272,094		4,771		10,773		-		287,638
Commercial:
Commercial term		96,873		592		7,290		-		104,755
Commercial construction		26,945		-		2,732		-		29,677
Consumer:
Home equity		52,522		-		653		-		53,175
Other		5,630		-		221		-		5,851
Total	$	480,421	$	5,363	$	23,691	$	-	$	509,475

	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 September 30, 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 September 30, 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 nine months ended September 30, 2016 and 2015, there were no defaults on any terms of this loan.

As of September 30, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to one consumer installment loan classified as a TDR totaling $40,000 (the same loan) at December 31, 2015, and no such loans at September 30, 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 nine months ended September 30, 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 September 30, 2016 and December 31, 2015, the activity for the three and nine months ended September 30, 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 - July 1, 2016	$	314	$	2,370	$	891	$	866	$	-	$	191	$	64	$	551	$	5,247
Charge-offs		-		(39)		(8)		-		-		-		-		-		(47)
Recoveries		2		-		-		-		1		-		-		-		3
Provisions		87		141		(90)		7		(1)		11		(2)		(53)		100
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303

	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		(206)		(39)		(32)		-		-		-		-		-		(277)
Recoveries		10		-		1		1		2		-		1		-		15
Provisions		383		136		(165)		303		(2)		7		(3)		(29)		630
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303
Ending balance: individually evaluated for impairment	$	194	$	-	$	100	$	89	$	-	$	-	$	3	$	-	$	386
Ending balance: collectively evaluated for impairment	$	209	$	2,472	$	693	$	784	$	-	$	202	$	59	$	498	$	4,917
Loans receivables:
Ending balance	$	28,379	$	287,638	$	104,755	$	29,677	$	-	$	53,175	$	5,851			$	509,475
Ending balance: individually evaluated for impairment	$	1,759	$	3,061	$	202	$	1,217	$	-	$	595	$	221			$	7,055
Ending balance: collectively evaluated for impairment	$	26,620	$	284,577	$	104,553	$	28,460	$	-	$	52,580	$	5,630			$	502,420
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	119	$	64	$	-	$	13	$	-			$	199

	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 - July 1, 2015	$	265	$	2,562	$	721	$	774	$	-	$	190	$	65	$	531	$	5,108
Charge-offs		(34)		(105)		(16)		(299)		-		(10)		(30)		-		(494)
Recoveries		2		-		8		5		-		-		-		-		15
Provisions		(39)		34		6		198		-		20		31		(150)		100
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729

	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		(69)		(105)		(190)		(577)		-		(11)		(60)		-		(1,012)
Recoveries		2		-		10		5		2		-		1		-		20
Provisions		(8)		296		190		369		(2)		22		55		(107)		815
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	105	$	57	$	-	$	12	$	-			$	178

	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

9 Months Ended

Sep. 30, 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 16,595 anti-dilutive stock awards outstanding at September 30, 2016. There were no anti-dilutive stock warrants outstanding, no anti-dilutive stock options outstanding, and no anti-dilutive stock awards outstanding at September 30, 2015. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended					Nine Months Ended
	September 30, 2016					September 30, 2016
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1	2,853	$	0.00	$	2,666	2,845	$	0.94
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	33		(0.00)		-	34		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1	2,886	$	0.00	$	2,666	2,879	$	0.93

	Three Months Ended					Nine Months Ended
	September 30, 2015					September 30, 2015
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1,261	2,807	$	0.45	$	3,714	2,798	$	1.33
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	45		(0.01)		-	46		(0.02)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,261	2,852	$	0.44	$	3,714	2,844	$	1.31

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 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
September 30, 2016
Net unrealized gain on AFS securities	$	196	$	(66)	$	130
Discount on AFS to HTM reclassification		(8)		3		(5)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,624)	$	553	$	(1,071)
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

9 Months Ended

Sep. 30, 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
September 30, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	19,483	$	-	$	-	$	-	$	19,483
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	19,483							$	19,483
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 September 30, 2016 and December 31, 2015, DNB had $19.5 million and $32.4 million of repurchase agreements, respectively. In conjunction with these repurchase agreements, $19.9 million and $33.1 million of state and municipal securities were sold on an overnight basis as of September 30, 2016 and December 31, 2015, respectively, which represents 102% of the repurchase agreement amounts.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 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 September 30, 2016. All options are immediately exercisable. During the three and nine months ended September 30, 2016 and 2015, DNB had no expenses related to the plan. DNB has no anticipated additional expense related to the plan. 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 September 30, 2016		64,500	$	8.67

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015		163,586	$	15.13
Issued		-		-
Exercised		95,834		19.40
Forfeited		-		-
Expired		-		-
Outstanding September 30, 2015		67,752	$	9.09

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

September 30, 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	1.40 years	$	1,077,000

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 and nine month periods ended September 30, 2016, $71,000 and $801,000 was amortized to expense, respectively. For the three and nine month periods ended September 30, 2015, $85,000 and $250,000 was amortized to expense, respectively. As of September 30, 2016, there was approximately $523,000 in additional compensation that will be recognized over the remaining service period of approximately 1.66 years. At September 30, 2016, 87,629 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	3,540		28.33
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—September 30, 2016	47,095	$	22.46

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2015	75,930	$	17.66
Granted	-		-
Forfeited	1,270		19.21
Vested	-		-
Non-vested stock awards—September 30, 2015	74,660	$	17.63

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Taxes [Abstract]

Income Taxes

NOTE 9:  INCOME TAXES

As of September 30, 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 September 30, 2016.

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Fair Value Of Financial Instruments

9 Months Ended

Sep. 30, 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 September 30, 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:

		September 30, 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	$	-	$	52,542	$	-	$	52,542
GSE mortgage-backed securities		-		32,841		-		32,841
Collateralized mortgage obligations GSE		-		13,755		-		13,755
Corporate bonds		-		17,451		-		17,451
State and municipal tax-exempt		-		5,099		-		5,099
Total	$	-	$	121,688	$	-	$	121,688
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,333	$	1,333
Total	$	-	$	-	$	1,333	$	1,333

		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:

September 30, 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	$	736	Appraisal of	Appraisal adj. (2)	-25%	to	-25%	(-25%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
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 - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,333

(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 $7.1 million at September 30, 2016. Of this, $1.7 million had specific valuation allowances of $386,000, leaving a fair value of $1.3 million as of September, 2016. In addition, DNB had $96,000 in impaired loans that were partially charged down by $39,000, leaving $57,000 at fair value as of September 30, 2016. 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.

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 $2.9 million of such assets at September 30, 2016, $2.8 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 nine month period ended September 30, 2016. DNB wrote down the carrying value of one OREO property by $154,000 to $453,000 during the nine months period ended September 30, 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 and nine months ended September 30, 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 September 30, 2016 and December 31, 2015 are as follows:

		September 30, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	30,442	$	30,442	$	30,442	$	-	$	-
AFS investment securities		121,688		121,688		-		121,688		-
HTM investment securities		73,789		75,111		-		73,111		2,000
Restricted stock		3,623		3,623		-		3,623		-
Loans, net of allowance, including impaired		504,172		492,616		-		-		492,616
Accrued interest receivable		2,639		2,639		-		2,639		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		146,731		146,731		-		146,731		-
Interest-bearing deposits		403,579		403,579		-		403,579		-
Time deposits		71,920		71,751		-		71,751		-
Brokered deposits		23,313		23,235		-		23,235		-
Repurchase agreements		19,483		19,483		-		19,483		-
FHLBP advances		20,000		20,222		-		20,222		-
Junior subordinated debentures and other borrowings		9,279		8,431		-		8,431		-
Subordinated debt		9,750		9,472		-		9,472		-
Accrued interest payable		329		329		-		329		-
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, 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.

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 $23.3 million in brokered deposits, $10.0 million matures in 2017, $3.2 million matures in 2018, $5.2 million matures in 2020, and $5.0 million matures in 2021.

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 September 30, 2016, un-funded loan commitments totaled $122.1 million and stand-by letters of credit totaled $2.7 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

9 Months Ended

Sep. 30, 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)

9 Months Ended

Sep. 30, 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 nine months ended September 30, 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 September 30, 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.

East River Bank Acquisition

Effective October 1, 2016, DNB completed its previously announced merger (the "Merger") with East River Bank (“ERB”). Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 4, 2016, at the effective time of the Merger, ERB merged with and into DNB First, N.A., a wholly owned subsidiary of DNB.

ERB was a locally-managed institution, headquartered in Philadelphia, Pennsylvania with three locations in Philadelphia. With this acquisition, DNB will have 15 locations in Chester, Delaware and Philadelphia Counties, Pennsylvania. As of June 30, 2016, ERB had approximately $306.8 million in loans, $229.0 million in deposits and $320.4 million in total assets. In accordance with the terms of the Merger Agreement, holders of East River Bank common shares received, in aggregate, $6.7 million in cash and 1,368,611 shares or approximately 32% of DNB’s outstanding common stock. The transaction was valued at $47.5 million based on DNB’s September 30, 2016 closing share price of $28.42 as quoted on NASDAQ. The results of the combined entity’s operations will be included in DNB’s Consolidated Financial Statements from the date of acquisition.

The acquisition of ERB will be accounted for as a business combination using the acquisition method of accounting, which includes estimating the fair value of assets acquired, liabilities assumed and consideration paid as of the acquisition date. These preliminary estimates will be completed during the fourth quarter of 2016 and will be subject to adjustments during the up to one year measurement period after the acquisition.

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.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current information, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better understand the credit risk within the portfolio and the methodologies for determining allowance. ASU 2016-13 is effective for DNB on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. Early adoption is permitted. DNB is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments in this update provide guidance for eight specific cash flow classification issues for which current guidance is unclear or does not exist, thereby reducing diversity in practice. For public companies, the update is effective for annual periods beginning after December 15, 2017. DNB is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on DNB's consolidated financial statements.

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Fair Value Of Financial Instruments (Policy)

9 Months Ended

Sep. 30, 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.

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 $23.3 million in brokered deposits, $10.0 million matures in 2017, $3.2 million matures in 2018, $5.2 million matures in 2020, and $5.0 million matures in 2021.

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 September 30, 2016, un-funded loan commitments totaled $122.1 million and stand-by letters of credit totaled $2.7 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)

9 Months Ended

Sep. 30, 2016

Investment Securities [Abstract]

Amortized Cost and Estimated Fair Values of Investment Securities

			September 30, 2016
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,161		$	480	$	-	$	8,641
Government Sponsored Entities (GSE) mortgage-backed securities		1,545			65		-		1,610
Corporate bonds		12,854			414		(6)		13,262
Collateralized mortgage obligations GSE		2,148			30		-		2,178
State and municipal taxable		1,009			40		-		1,049
State and municipal tax-exempt		48,072			313		(14)		48,371
Total	$	73,789		$	1,342	$	(20)	$	75,111
Available For Sale
US Government agency obligations	$	52,436		$	121	$	(15)	$	52,542
GSE mortgage-backed securities		32,605			236		-		32,841
Collateralized mortgage obligations GSE		13,834			28		(107)		13,755
Corporate bonds		17,522			69		(140)		17,451
State and municipal tax-exempt		5,095			8		(4)		5,099
Total	$	121,492		$	462	$	(266)	$	121,688

			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

		September 30, 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	$	1,988	$	(6)	$	-	$	-	$	1,988	$	(6)
Collateralized mortgage obligations GSE		325		-		325		-		-		-
State and municipal tax-exempt		6,202		(14)		6,202		(14)		-		-
Total	$	8,515	$	(20)	$	6,527	$	(14)	$	1,988	$	(6)
Available For Sale
US Government agency obligations	$	20,185	$	(15)	$	20,185	$	(15)	$	-	$	-
Collateralized mortgage obligations GSE		9,078		(107)		1,734		(14)		7,344		(93)
Corporate bonds		10,752		(140)		5,315		(56)		5,437		(84)
State and municipal tax-exempt		3,087		(4)		3,087		(4)		-		-
Total	$	43,102	$	(266)	$	30,321	$	(89)	$	12,781	$	(177)

		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	$	-	$	-	$	12,751	$	12,732
Due after one year through five years		22,695		23,572		58,429		58,504
Due after five years through ten years		30,108		30,460		7,295		7,336
Due after ten years		20,986		21,079		43,017		43,116
Total investment securities	$	73,789	$	75,111	$	121,492	$	121,688

Gains and Losses Resulting from Investment Sales, Redemptions or Calls

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2016		2015		2016		2015
Gross realized gains-AFS	$	176	$	13	$	440	$	77
Gross realized gains-HTM		21		-		21		-
Gross realized losses-AFS		-		(3)		(30)		(3)
Net realized gain	$	197	$	10	$	431	$	74

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Loans (Tables)

9 Months Ended

Sep. 30, 2016

Loans [Abstract]

Schedule of Loans

(Dollars in thousands)	September 30, 2016		December 31, 2015
Residential mortgage	$	28,379	$	28,651
Commercial mortgage		287,638		274,132
Commercial:
Commercial term		104,755		102,178
Commercial construction		29,677		20,364
Consumer:
Home equity		53,175		51,270
Other		5,851		5,163
Total loans	$	509,475	$	481,758
Less allowance for credit losses		(5,303)		(4,935)
Net loans	$	504,172	$	476,823

Interest Income On Non-Accrual Loans

					Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
(Dollars in thousands)	December 31, 2015		September 30, 2016		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,619	$	1,759	$	15	$	-	$	15	$	51	$	-	$	51
Commercial mortgage		1,048		3,061		74		-		74		139		-		139
Commercial:
Commercial term		188		202		3		-		3		9		-		9
Commercial construction		1,028		1,217		46		-		46		134		-		134
Consumer:
Home equity		563		492		7		-		7		23		-		23
Other		189		221		5		-		5		14		-		14
Total non-accrual loans	$	4,635	$	6,952	$	150	$	-	$	150	$	370	$	-	$	370
Loans 90 days past due and accruing		457		-		-		-		-		2		2		-
Total non-performing loans	$	5,092	$	6,952	$	150	$	-	$	150	$	372	$	2	$	370

			Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
(Dollars in thousands)	September 30, 2015		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	1,600	$	10	$	-	$	10	$	50	$	-	$	50
Commercial mortgage		1,075		21		-		21		64		-		64
Commercial:
Commercial term		191		2		-		2		7		-		7
Commercial construction		451		56		-		56		226		-		226
Consumer:
Home equity		313		7		-		7		19		-		19
Other		120		6		-		6		14		-		14
Total non-accrual loans	$	3,750	$	102	$	-	$	102	$	380	$	-	$	380
Loans 90 days past due and accruing		498		-		-		-		5		5		-
Total non-performing loans	$	4,248	$	102	$	-	$	102	$	385	$	5	$	380

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Allowance For Credit Losses (Tables)

9 Months Ended

Sep. 30, 2016

Allowance For Credit Losses [Abstract]

Age Analysis Of Past Due Loans Receivables

Age Analysis of Past Due Loans Receivable

September 30, 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	$	135	$	377	$	1,686	$	2,198	$	26,181	$	28,379	$	-
Commercial mortgage		-		-		2,294		2,294		285,344		287,638		-
Commercial:
Commercial term		-		-		23		23		104,732		104,755		-
Commercial construction		-		-		1,217		1,217		28,461		29,677		-
Consumer:
Home equity		-		-		344		344		52,831		53,175		-
Other		123		6		181		310		5,541		5,851		-
Total	$	258	$	383	$	5,745	$	6,386	$	503,090	$	509,475	$	-

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

		September 30, 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	$	829	$	867	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		23		25		-		-		-		-
Commercial construction		770		770		-		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		115		123		-		82		90		-
Total	$	5,393	$	5,865	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		930		1,191		194		-		-		-
Commercial:
Commercial term		179		197		100		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		106		106		3		107		107		4
Total	$	1,662	$	4,327	$	386	$	307	$	318	$	114
Total:
Residential mortgage		1,759		2,058		194		1,620		1,919		-
Commercial mortgage		3,061		3,433		-		1,181		1,461		-
Commercial:
Commercial term		202		222		100		200		211		110
Commercial construction		1,217		3,603		89		1,140		3,526		-
Consumer:
Home equity		595		647		-		691		716		-
Other		221		229		3		189		197		4
Total	$	7,055	$	10,192	$	386	$	5,021	$	8,030	$	114

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
	Average		Interest		Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	880	$	-	$	1,577	$	-	$	1,254	$	-	$	1,948	$	-
Commercial mortgage		3,101		-		2,277		28		2,102		-		2,831		85
Commercial:
Commercial term		24		-		-		-		18		-		-		-
Commercial construction		924		-		125		-		944		-		763		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		497		3
Other		116		-		125		-		101		-		134		-
Total	$	5,676	$	1	$	4,593	$	29	$	5,076	$	3	$	6,173	$	88
With allowance recorded:
Residential mortgage		886		-		59		-		479		-		131		-
Commercial mortgage		-		-		101		-		-		-		151		-
Commercial:
Commercial term		181		-		200		-		187		-		200		-
Commercial construction		447		-		588		-		335		-		672		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		-		-		-		-		-		-		22		-
Other		106		-		20		-		107		-		10		-
Total	$	1,620	$	-	$	968	$	-	$	1,108	$	-	$	1,186	$	-
Total:
Residential mortgage		1,766		-		1,636		-		1,733		-		2,079		-
Commercial mortgage		3,101		-		2,378		28		2,102		-		2,982		85
Commercial:
Commercial term		205		-		200		-		205		-		200		-
Commercial construction		1,371		-		713		-		1,279		-		1,435		-
Lease financing		-		-		-		-		-		-		-		-
Home equity		631		1		489		1		657		3		519		3
Other		222		-		145		-		208		-		144		-
Total	$	7,296	$	1	$	5,561	$	29	$	6,184	$	3	$	7,359	$	88

Credit Quality Indicators

	September 30, 2016
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,357	$	-	$	2,022	$	-	$	28,379
Commercial mortgage		272,094		4,771		10,773		-		287,638
Commercial:
Commercial term		96,873		592		7,290		-		104,755
Commercial construction		26,945		-		2,732		-		29,677
Consumer:
Home equity		52,522		-		653		-		53,175
Other		5,630		-		221		-		5,851
Total	$	480,421	$	5,363	$	23,691	$	-	$	509,475

	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 - July 1, 2016	$	314	$	2,370	$	891	$	866	$	-	$	191	$	64	$	551	$	5,247
Charge-offs		-		(39)		(8)		-		-		-		-		-		(47)
Recoveries		2		-		-		-		1		-		-		-		3
Provisions		87		141		(90)		7		(1)		11		(2)		(53)		100
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303

	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		(206)		(39)		(32)		-		-		-		-		-		(277)
Recoveries		10		-		1		1		2		-		1		-		15
Provisions		383		136		(165)		303		(2)		7		(3)		(29)		630
Ending balance - September 30, 2016	$	403	$	2,472	$	793	$	873	$	-	$	202	$	62	$	498	$	5,303
Ending balance: individually evaluated for impairment	$	194	$	-	$	100	$	89	$	-	$	-	$	3	$	-	$	386
Ending balance: collectively evaluated for impairment	$	209	$	2,472	$	693	$	784	$	-	$	202	$	59	$	498	$	4,917
Loans receivables:
Ending balance	$	28,379	$	287,638	$	104,755	$	29,677	$	-	$	53,175	$	5,851			$	509,475
Ending balance: individually evaluated for impairment	$	1,759	$	3,061	$	202	$	1,217	$	-	$	595	$	221			$	7,055
Ending balance: collectively evaluated for impairment	$	26,620	$	284,577	$	104,553	$	28,460	$	-	$	52,580	$	5,630			$	502,420
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	119	$	64	$	-	$	13	$	-			$	199

	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 - July 1, 2015	$	265	$	2,562	$	721	$	774	$	-	$	190	$	65	$	531	$	5,108
Charge-offs		(34)		(105)		(16)		(299)		-		(10)		(30)		-		(494)
Recoveries		2		-		8		5		-		-		-		-		15
Provisions		(39)		34		6		198		-		20		31		(150)		100
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729

	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		(69)		(105)		(190)		(577)		-		(11)		(60)		-		(1,012)
Recoveries		2		-		10		5		2		-		1		-		20
Provisions		(8)		296		190		369		(2)		22		55		(107)		815
Ending balance - September 30, 2015	$	194	$	2,491	$	719	$	678	$	-	$	200	$	66	$	381	$	4,729
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	105	$	57	$	-	$	12	$	-			$	178

	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)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

	Three Months Ended					Nine Months Ended
	September 30, 2016					September 30, 2016
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1	2,853	$	0.00	$	2,666	2,845	$	0.94
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	33		(0.00)		-	34		(0.01)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1	2,886	$	0.00	$	2,666	2,879	$	0.93

	Three Months Ended					Nine Months Ended
	September 30, 2015					September 30, 2015
(In thousands, except per-share data)	Income		Shares	Amount		Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	1,261	2,807	$	0.45	$	3,714	2,798	$	1.33
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	45		(0.01)		-	46		(0.02)
Diluted EPS
Income available to common stockholders after assumed conversions	$	1,261	2,852	$	0.44	$	3,714	2,844	$	1.31

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 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
September 30, 2016
Net unrealized gain on AFS securities	$	196	$	(66)	$	130
Discount on AFS to HTM reclassification		(8)		3		(5)
Unrealized actuarial losses-pension		(1,812)		616		(1,196)
	$	(1,624)	$	553	$	(1,071)
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)

9 Months Ended

Sep. 30, 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
September 30, 2016
Repurchase agreements and repurchase-to-maturity transactions	$	19,483	$	-	$	-	$	-	$	19,483
Gross amount of recognized liabilities for repurchase agreements
in statement of condition	$	19,483							$	19,483
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)

9 Months Ended

Sep. 30, 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 September 30, 2016		64,500	$	8.67

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2015		163,586	$	15.13
Issued		-		-
Exercised		95,834		19.40
Forfeited		-		-
Expired		-		-
Outstanding September 30, 2015		67,752	$	9.09

Weighted Average Price And Weighted Average Remaining Contractual Life

September 30, 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	1.40 years	$	1,077,000

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	3,540		28.33
Forfeited	-		-
Vested	33,700		23.66
Non-vested stock awards—September 30, 2016	47,095	$	22.46

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2015	75,930	$	17.66
Granted	-		-
Forfeited	1,270		19.21
Vested	-		-
Non-vested stock awards—September 30, 2015	74,660	$	17.63

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Fair Value Of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Of Financial Instruments [Abstract]

Fair Value Measurements on Differing Levels

		September 30, 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	$	-	$	52,542	$	-	$	52,542
GSE mortgage-backed securities		-		32,841		-		32,841
Collateralized mortgage obligations GSE		-		13,755		-		13,755
Corporate bonds		-		17,451		-		17,451
State and municipal tax-exempt		-		5,099		-		5,099
Total	$	-	$	121,688	$	-	$	121,688
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,333	$	1,333
Total	$	-	$	-	$	1,333	$	1,333

		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

September 30, 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	$	736	Appraisal of	Appraisal adj. (2)	-25%	to	-25%	(-25%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		57	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-13%	to	-13%	(-13%)
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 - Consumer other		103	Appraisal of	Appraisal adj. (2)	0%	to	0%	(0%)
			collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,333

(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

		September 30, 2016
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	30,442	$	30,442	$	30,442	$	-	$	-
AFS investment securities		121,688		121,688		-		121,688		-
HTM investment securities		73,789		75,111		-		73,111		2,000
Restricted stock		3,623		3,623		-		3,623		-
Loans, net of allowance, including impaired		504,172		492,616		-		-		492,616
Accrued interest receivable		2,639		2,639		-		2,639		-
Financial liabilities
Deposits:
Non-interest-bearing deposits		146,731		146,731		-		146,731		-
Interest-bearing deposits		403,579		403,579		-		403,579		-
Time deposits		71,920		71,751		-		71,751		-
Brokered deposits		23,313		23,235		-		23,235		-
Repurchase agreements		19,483		19,483		-		19,483		-
FHLBP advances		20,000		20,222		-		20,222		-
Junior subordinated debentures and other borrowings		9,279		8,431		-		8,431		-
Subordinated debt		9,750		9,472		-		9,472		-
Accrued interest payable		329		329		-		329		-
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, 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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Basis Of Presentation (Narrative) (Details) $ / shares in Units, $ in Thousands		9 Months Ended
	Oct. 01, 2016 USD ($) item shares	Sep. 30, 2016 USD ($) $ / shares	Dec. 31, 2015 USD ($)
Loans		$ 504,172	$ 476,823
Deposits		645,543	606,275
Assets		$ 770,272	$ 748,818
Business acquisition share price | $ / shares		$ 28.42
Philadelphia, Pennsylvania [Member] | Subsequent Event [Member]
Number of locations | item	3
Chester, Delaware And Philadelphia Counties, Pennsylvania [Member] | Subsequent Event [Member]
Number of locations | item	15
East River Bank [Member]
Business acquisition effective date of acquisition		Oct. 01, 2016
Business acquisition date of acquisition agreement		Apr. 04, 2016
Loans		$ 306,800
Deposits		229,000
Assets		320,400
Business combination transaction value		$ 47,500
Business combination percentage of outstanding common stock	32.00%
East River Bank [Member] | Subsequent Event [Member]
Business acquisition cash paid	$ 6,700
Business acquisition number of share issued | shares	1,368,611

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Investment Securities (Narrative) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($) security	Dec. 31, 2015 USD ($)
Securities [Line Items]
Available-for-sale Securities Pledged as Collateral | $	$ 111.3	$ 147.9
Percent of principal outstanding collected of held-to-maturity securities	85.00%
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	7
Number Of Impaired Municipal Securities, School Districts, Uninsured	3
Number Of Impaired Municipal Securities, Townships, Uninsured	2
Number Of Impaired Municipal Securities, Townships, Insured	2
Unrealized loss of security from book value	0.47%
Corporate Bonds [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	7
Number of securities, impaired for more than 12 months	4
Unrealized loss of security from book value	2.98%
US Government Agency Obligations [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	2
Number of securities, impaired for more than 12 months	0
Unrealized loss of security from book value	0.11%
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	12
Number of securities, impaired for more than 12 months	8
Unrealized loss of security from book value	1.84%

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Investment Securities (Amortized Cost and Estimated Fair Values of Investment Securities) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 73,789	$ 67,829
Held-to-maturity Securities, Unrealized Gains	1,342	946
Held-to-maturity Securities, Unrealized Losses	(20)	(344)
Held-to-maturity Securities, Fair Value	75,111	68,431
Available-for-sale Securities, Amortized Cost	121,492	153,559
Available-for-sale Securities, Unrealized Gains	462	196
Available-for-sale Securities, Unrealized Losses	(266)	(1,376)
Available-for-sale securities, Fair Value	121,688	152,379
US Government Agency Obligations [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	8,161	7,973
Held-to-maturity Securities, Unrealized Gains	480	320
Held-to-maturity Securities, Fair Value	8,641	8,293
Available-for-sale Securities, Amortized Cost	52,436	58,460
Available-for-sale Securities, Unrealized Gains	121
Available-for-sale Securities, Unrealized Losses	(15)	(252)
Available-for-sale securities, Fair Value	52,542	58,208
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	1,545	2,759
Held-to-maturity Securities, Unrealized Gains	65	83
Held-to-maturity Securities, Fair Value	1,610	2,842
Available-for-sale Securities, Amortized Cost	32,605	40,663
Available-for-sale Securities, Unrealized Gains	236	13
Available-for-sale Securities, Unrealized Losses		(325)
Available-for-sale securities, Fair Value	32,841	40,351
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	12,854	11,518
Held-to-maturity Securities, Unrealized Gains	414	234
Held-to-maturity Securities, Unrealized Losses	(6)	(42)
Held-to-maturity Securities, Fair Value	13,262	11,710
Available-for-sale Securities, Amortized Cost	17,522	20,921
Available-for-sale Securities, Unrealized Gains	69
Available-for-sale Securities, Unrealized Losses	(140)	(350)
Available-for-sale securities, Fair Value	17,451	20,571
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	2,148	2,623
Held-to-maturity Securities, Unrealized Gains	30	9
Held-to-maturity Securities, Unrealized Losses		(26)
Held-to-maturity Securities, Fair Value	2,178	2,606
Available-for-sale Securities, Amortized Cost	13,834	16,241
Available-for-sale Securities, Unrealized Gains	28	3
Available-for-sale Securities, Unrealized Losses	(107)	(438)
Available-for-sale securities, Fair Value	13,755	15,806
State And Municipal Taxable [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	1,009
Held-to-maturity Securities, Unrealized Gains	40
Held-to-maturity Securities, Fair Value	1,049
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	48,072	42,956
Held-to-maturity Securities, Unrealized Gains	313	300
Held-to-maturity Securities, Unrealized Losses	(14)	(276)
Held-to-maturity Securities, Fair Value	48,371	42,980
Available-for-sale Securities, Amortized Cost	5,095	17,274
Available-for-sale Securities, Unrealized Gains	8	180
Available-for-sale Securities, Unrealized Losses	(4)	(11)
Available-for-sale securities, Fair Value	$ 5,099	$ 17,443

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Investment Securities (Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	$ 8,515	$ 22,240
Held-to-maturity Securities, Unrealized Losses	(20)	(344)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	6,527	12,365
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(14)	(86)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	1,988	9,875
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(6)	(258)
Available-for-sale Securities, Fair Value, Total	43,102	138,977
Available-for-sale Securities, Unrealized Loss, Total	(266)	(1,376)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	30,321	119,196
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(89)	(806)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	12,781	19,781
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(177)	(570)
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value, Total	20,185	58,208
Available-for-sale Securities, Unrealized Loss, Total	(15)	(252)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	20,185	58,208
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(15)	(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	325	1,482
Held-to-maturity Securities, Unrealized Losses		(26)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	325	388
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(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	9,078	15,231
Available-for-sale Securities, Unrealized Loss, Total	(107)	(438)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	1,734	4,187
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(14)	(41)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	7,344	11,044
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(93)	(397)
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	1,988	7,597
Held-to-maturity Securities, Unrealized Losses	(6)	(42)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months		7,597
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(42)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	1,988
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(6)
Available-for-sale Securities, Fair Value, Total	10,752	20,571
Available-for-sale Securities, Unrealized Loss, Total	(140)	(350)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	5,315	16,157
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(56)	(264)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	5,437	4,414
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(84)	(86)
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value, Total	6,202	13,161
Held-to-maturity Securities, Unrealized Losses	(14)	(276)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months	6,202	4,380
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months	(14)	(34)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months		8,781
Held-to-maturity Securities, Unrealized Loss More Than 12 Months		(242)
Available-for-sale Securities, Fair Value, Total	3,087	6,660
Available-for-sale Securities, Unrealized Loss, Total	(4)	(11)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	3,087	6,660
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	$ (4)	$ (11)

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Investment Securities (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investment Securities [Abstract]
Held to Maturity, Due after one year through five years, Amortized Cost	$ 22,695
Held to Maturity, Due after five years through ten years, Amortized Cost	30,108
Held to Maturity, Due after ten years, Amortized Cost	20,986
Held-to-maturity Securities, Amortized Cost	73,789	$ 67,829
Held to Maturity, Due after one year through five years, Fair Value	23,572
Held to Maturity, Due after five years through ten years, Fair Value	30,460
Held to Maturity, Due after ten years, Fair Value	21,079
Held-to-maturity, Total investment securities, Fair Value	75,111	68,431
Available for Sale, Due in one year or less, Amortized Cost	12,751
Available for Sale, Due after one year through five years, Amortized Cost	58,429
Available for Sale, Due after five years through ten years, Amortized Cost	7,295
Available for Sale, Due after ten years, Amortized Cost	43,017
Available-for-sale Securities, Amortized Cost	121,492	153,559
Available for Sale, Due in one year or less, Fair Value	12,732
Available for Sale, Due after one year through five years, Fair Value	58,504
Available for Sale, Due after five years through ten years, Fair Value	7,336
Available for Sale, Due after ten years, Fair Value	43,116
Available for Sale, Total investment securities, Fair Value	$ 121,688	$ 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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Investment Securities [Abstract]
Gross realized gains-AFS	$ 176	$ 13	$ 440	$ 77
Gross realized gains-HTM	21		21
Gross realized losses-AFS		(3)	(30)	(3)
Net realized gain	$ 197	$ 10	$ 431	$ 74

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Loans (Schedule of Loans) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 509,475		$ 481,758
Less allowance for credit losses	(5,303)	$ (5,247)	(4,935)	$ (4,729)	$ (5,108)	$ (4,906)
Net loans	504,172		476,823
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	28,379		28,651
Less allowance for credit losses	(403)	(314)	(216)	(194)	(265)	(269)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	287,638		274,132
Less allowance for credit losses	(2,472)	(2,370)	(2,375)	(2,491)	(2,562)	(2,300)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	104,755		102,178
Less allowance for credit losses	(793)	(891)	(989)	(719)	(721)	(709)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	29,677		20,364
Less allowance for credit losses	(873)	(866)	(569)	(678)	(774)	(881)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	53,175		51,270
Less allowance for credit losses	(202)	(191)	(195)	(200)	(190)	(189)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,851		5,163
Less allowance for credit losses	$ (62)	$ (64)	$ (64)	$ (66)	$ (65)	$ (70)

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Loans (Interest Income On Non-Accrual Loans) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 6,952	$ 3,750	$ 6,952	$ 3,750	$ 4,635
Loans 90 day past due and accruing		498		498	457
Total non-performing loans	6,952	4,248	6,952	4,248	5,092
Interest income that would have been recorded under original terms, non-accrual loans	150	102	370	380
Interest income that would have been recorded under original terms, 90 days past due and accruing			2	5
Interest income that would have been recorded under original terms	150	102	372	385
Interest income recorded during the period, 90 days past due and accruing			2	5
Interest income recorded during the period			2	5
Net impact on interest income, non-accrual loans	150	102	370	380
Net impact on interest income	150	102	370	380
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,759	1,600	1,759	1,600	1,619
Loans 90 day past due and accruing					457
Interest income that would have been recorded under original terms, non-accrual loans	15	10	51	50
Net impact on interest income, non-accrual loans	15	10	51	50
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	3,061	1,075	3,061	1,075	1,048
Interest income that would have been recorded under original terms, non-accrual loans	74	21	139	64
Net impact on interest income, non-accrual loans	74	21	139	64
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	202	191	202	191	188
Interest income that would have been recorded under original terms, non-accrual loans	3	2	9	7
Net impact on interest income, non-accrual loans	3	2	9	7
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,217	451	1,217	451	1,028
Interest income that would have been recorded under original terms, non-accrual loans	46	56	134	226
Net impact on interest income, non-accrual loans	46	56	134	226
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	492	313	492	313	563
Interest income that would have been recorded under original terms, non-accrual loans	7	7	23	19
Net impact on interest income, non-accrual loans	7	7	23	19
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	221	120	221	120	$ 189
Interest income that would have been recorded under original terms, non-accrual loans	5	6	14	14
Net impact on interest income, non-accrual loans	$ 5	$ 6	$ 14	$ 14

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Allowance For Credit Losses (Narrative) (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) loan	Sep. 30, 2015 USD ($) loan	Dec. 31, 2015 USD ($) loan
Financing Receivable, Modifications [Line Items]
Interest income that would have been recorded under original terms, non-accrual loans	$ 150,000	$ 102,000	$ 370,000	$ 380,000
Partial charge-off of loan amount	47,000	494,000	$ 277,000	$ 1,012,000
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	$ 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		1
TDR amount	$ 40,000	$ 0	$ 40,000	$ 0	$ 40,000
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
Reduction of principal			$ 0

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Allowance For Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 6,386	$ 5,094
Current	503,090	476,664
Total Loans Receivables	509,475	481,758
Loans Receivable >90 Days and Accruing		457	$ 498
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	258	645
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	383	1,529
Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	5,745	2,920
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	2,198	3,130
Current	26,181	25,521
Total Loans Receivables	28,379	28,651
Loans Receivable >90 Days and Accruing		457
Residential Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	135	502
Residential Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	377	552
Residential Mortgage [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	1,686	2,076
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	2,294	218
Current	285,344	273,914
Total Loans Receivables	287,638	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	2,294	96
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	23
Current	104,732	102,178
Total Loans Receivables	104,755	102,178
Commercial Term [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	23
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	1,217	1,028
Current	28,461	19,336
Total Loans Receivables	29,677	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	1,217	447
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	344	470
Current	52,831	50,800
Total Loans Receivables	53,175	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		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	344	153
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	310	248
Current	5,541	4,915
Total Loans Receivables	5,851	5,163
Consumer: Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	123	100
Consumer: Other [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	6
Consumer: Other [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 181	$ 148

XML

Allowance For Credit Losses (Impaired Loans By Loan Portfolio) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 5,393		$ 5,393		$ 4,714
Unpaid Principal Balance, With no related allowance recorded	5,865		5,865		7,712
Average Recorded Investment, With no related allowance recorded	5,676	$ 4,593	5,076	$ 6,173
Interest Income Recognized, With no related allowance recorded	1	29	3	88
Recorded Investment, with allowance recorded	1,662		1,662		307
Unpaid Principal Balance, With allowance recorded	4,327		4,327		318
Related Allowance	386		386		114
Average Recorded Investment, With allowance recorded	1,620	968	1,108	1,186
Recorded Investment, Total	7,055		7,055		5,021
Unpaid Principal Balance, Total	10,192		10,192		8,030
Average Recorded Investment, Total	7,296	5,561	6,184	7,359
Interest Income Recognized, Total	1	29	3	88
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	829		829		1,620
Unpaid Principal Balance, With no related allowance recorded	867		867		1,919
Average Recorded Investment, With no related allowance recorded	880	1,577	1,254	1,948
Recorded Investment, with allowance recorded	930		930
Unpaid Principal Balance, With allowance recorded	1,191		1,191
Related Allowance	194		194
Average Recorded Investment, With allowance recorded	886	59	479	131
Recorded Investment, Total	1,759		1,759		1,620
Unpaid Principal Balance, Total	2,058		2,058		1,919
Average Recorded Investment, Total	1,766	1,636	1,733	2,079
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	3,061		3,061		1,181
Unpaid Principal Balance, With no related allowance recorded	3,433		3,433		1,461
Average Recorded Investment, With no related allowance recorded	3,101	2,277	2,102	2,831
Interest Income Recognized, With no related allowance recorded		28		85
Average Recorded Investment, With allowance recorded		101		151
Recorded Investment, Total	3,061		3,061		1,181
Unpaid Principal Balance, Total	3,433		3,433		1,461
Average Recorded Investment, Total	3,101	2,378	2,102	2,982
Interest Income Recognized, Total		28		85
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	23		23
Unpaid Principal Balance, With no related allowance recorded	25		25
Average Recorded Investment, With no related allowance recorded	24		18
Recorded Investment, with allowance recorded	179		179		200
Unpaid Principal Balance, With allowance recorded	197		197		211
Related Allowance	100		100		110
Average Recorded Investment, With allowance recorded	181	200	187	200
Recorded Investment, Total	202		202		200
Unpaid Principal Balance, Total	222		222		211
Average Recorded Investment, Total	205	200	205	200
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	770		770		1,140
Unpaid Principal Balance, With no related allowance recorded	770		770		3,526
Average Recorded Investment, With no related allowance recorded	924	125	944	763
Recorded Investment, with allowance recorded	447		447
Unpaid Principal Balance, With allowance recorded	2,833		2,833
Related Allowance	89		89
Average Recorded Investment, With allowance recorded	447	588	335	672
Recorded Investment, Total	1,217		1,217		1,140
Unpaid Principal Balance, Total	3,603		3,603		3,526
Average Recorded Investment, Total	1,371	713	1,279	1,435
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	595		595		691
Unpaid Principal Balance, With no related allowance recorded	647		647		716
Average Recorded Investment, With no related allowance recorded	631	489	657	497
Interest Income Recognized, With no related allowance recorded	1	1	3	3
Average Recorded Investment, With allowance recorded				22
Recorded Investment, Total	595		595		691
Unpaid Principal Balance, Total	647		647		716
Average Recorded Investment, Total	631	489	657	519
Interest Income Recognized, Total	1	1	3	3
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	115		115		82
Unpaid Principal Balance, With no related allowance recorded	123		123		90
Average Recorded Investment, With no related allowance recorded	116	125	101	134
Recorded Investment, with allowance recorded	106		106		107
Unpaid Principal Balance, With allowance recorded	106		106		107
Related Allowance	3		3		4
Average Recorded Investment, With allowance recorded	106	20	107	10
Recorded Investment, Total	221		221		189
Unpaid Principal Balance, Total	229		229		$ 197
Average Recorded Investment, Total	$ 222	$ 145	$ 208	$ 144

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Allowance For Credit Losses (Credit Quality Indicators) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 509,475	$ 481,758
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	480,421	454,869
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,363	7,357
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	23,691	19,532
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	28,379	28,651
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	26,357	26,762
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,022	1,889
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	287,638	274,132
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	272,094	262,036
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4,771	4,802
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	10,773	7,294
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	104,755	102,178
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	96,873	93,025
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	592	2,555
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	7,290	6,598
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	29,677	20,364
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	26,945	17,521
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,732	2,843
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	53,175	51,270
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	52,522	50,551
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	653	719
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,851	5,163
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,630	4,974
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 221	$ 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		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 5,247	$ 5,108	$ 4,935	$ 4,906	$ 4,906
Charge offs	(47)	(494)	(277)	(1,012)
Recoveries	3	15	15	20
Provisions	100	100	630	815
Ending balance	5,303	4,729	5,303	4,729	4,935
Ending balance: individually evaluated for impairment	386		386		114
Ending balance: collectively evaluated for impairment	4,917		4,917		4,821
Loans receivables, Ending Balance	509,475		509,475		481,758
Loans receivables, Ending Balance: individually evaluated for impairment	7,055		7,055		5,021
Loans receivable, Ending Balance: collectively evaluated for impairment	502,420		502,420		476,737
Reserve for unfunded loan commitments included in other liabilities			199	178	188
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	314	265	216	269	269
Charge offs		(34)	(206)	(69)
Recoveries	2	2	10	2
Provisions	87	(39)	383	(8)
Ending balance	403	194	403	194	216
Ending balance: individually evaluated for impairment	194		194
Ending balance: collectively evaluated for impairment	209		209		216
Loans receivables, Ending Balance	28,379		28,379		28,651
Loans receivables, Ending Balance: individually evaluated for impairment	1,759		1,759		1,620
Loans receivable, Ending Balance: collectively evaluated for impairment	26,620		26,620		27,031
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	2,370	2,562	2,375	2,300	2,300
Charge offs	(39)	(105)	(39)	(105)
Provisions	141	34	136	296
Ending balance	2,472	2,491	2,472	2,491	2,375
Ending balance: collectively evaluated for impairment	2,472		2,472		2,375
Loans receivables, Ending Balance	287,638		287,638		274,132
Loans receivables, Ending Balance: individually evaluated for impairment	3,061		3,061		1,181
Loans receivable, Ending Balance: collectively evaluated for impairment	284,577		284,577		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	891	721	989	709	709
Charge offs	(8)	(16)	(32)	(190)
Recoveries		8	1	10
Provisions	(90)	6	(165)	190
Ending balance	793	719	793	719	989
Ending balance: individually evaluated for impairment	100		100		110
Ending balance: collectively evaluated for impairment	693		693		879
Loans receivables, Ending Balance	104,755		104,755		102,178
Loans receivables, Ending Balance: individually evaluated for impairment	202		202		200
Loans receivable, Ending Balance: collectively evaluated for impairment	104,553		104,553		101,978
Reserve for unfunded loan commitments included in other liabilities			119	105	115
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	866	774	569	881	881
Charge offs		(299)		(577)
Recoveries		5	1	5
Provisions	7	198	303	369
Ending balance	873	678	873	678	569
Ending balance: individually evaluated for impairment	89		89
Ending balance: collectively evaluated for impairment	784		784		569
Loans receivables, Ending Balance	29,677		29,677		20,364
Loans receivables, Ending Balance: individually evaluated for impairment	1,217		1,217		1,140
Loans receivable, Ending Balance: collectively evaluated for impairment	28,460		28,460		19,224
Reserve for unfunded loan commitments included in other liabilities			64	57	58
Leases Financing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Charge offs
Recoveries	1		2	2
Provisions	(1)		(2)	(2)
Consumer: Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	191	190	195	189	189
Charge offs		(10)		(11)
Provisions	11	20	7	22
Ending balance	202	200	202	200	195
Ending balance: collectively evaluated for impairment	202		202		195
Loans receivables, Ending Balance	53,175		53,175		51,270
Loans receivables, Ending Balance: individually evaluated for impairment	595		595		691
Loans receivable, Ending Balance: collectively evaluated for impairment	52,580		52,580		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	65	64	70	70
Charge offs		(30)		(60)
Recoveries			1	1
Provisions	(2)	31	(3)	55
Ending balance	62	66	62	66	64
Ending balance: individually evaluated for impairment	3		3		4
Ending balance: collectively evaluated for impairment	59		59		60
Loans receivables, Ending Balance	5,851		5,851		5,163
Loans receivables, Ending Balance: individually evaluated for impairment	221		221		189
Loans receivable, Ending Balance: collectively evaluated for impairment	5,630		5,630		4,974
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	551	531	527	488	488
Charge offs
Provisions	(53)	(150)	(29)	(107)
Ending balance	498	$ 381	498	$ 381	527
Ending balance: collectively evaluated for impairment	$ 498		$ 498		$ 527

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Earnings Per Share (Narrative) (Details) - shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Stock Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	0	0
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	0	0
Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share	16,595	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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Net income available to common stockholders, Income	$ 1	$ 1,261	$ 2,666	$ 3,714
Income available to common stockholders after assumed conversions, Income	$ 1	$ 1,261	$ 2,666	$ 3,714
Net income available to common stockholders, Shares	2,853,080	2,806,549	2,844,780	2,798,360
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Shares	33,000	45,000	34,000	46,000
Income available to common stockholders after assumed conversions, Shares	2,885,799	2,852,237	2,879,240	2,844,319
Net income available to common stockholders, Amount	$ 0.00	$ 0.45	$ 0.94	$ 1.33
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Amount	0.00	(0.01)	(0.01)	(0.02)
Income available to common stockholders after assumed conversions, Amount	$ 0.00	$ 0.44	$ 0.93	$ 1.31

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gain (loss) on AFS securities, Before-Tax Amount	$ 196	$ (1,180)
Net unrealized gain (loss) on AFS securities, Tax Effect	(66)	402
Net unrealized gain (loss) on AFS securities, Net-of-Tax Amount	130	(778)
Discount on AFS to HTM reclassification, Before-Tax Amount	(8)	(17)
Discount on AFS to HTM reclassification, Tax Effect	3	6
Discount on AFS to HTM reclassification, Net-of-Tax Amount	(5)	(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	(1,624)	(3,009)
Total of all items above, Tax Effect	553	1,024
Total of all items above, Net-of-Tax Effect	$ (1,071)	$ (1,985)

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Subordinated Debentures, Notes And Other Borrowings (Narrative) (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 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	$ 19,483,000	$ 32,416,000
State and municipal securites sold	$ 19,900,000	$ 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	Sep. 30, 2016	Dec. 31, 2015
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements and repurchase-to-maturity transactions	$ 19,483	$ 32,416
Gross amount of recognized liabilities for repurchase agreements in statement of condition	19,483	32,416
Maturity Overnight and Continuous [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Repurchase agreements and repurchase-to-maturity transactions	19,483	32,416
Gross amount of recognized liabilities for repurchase agreements in statement of condition	$ 19,483	$ 32,416

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Stock-Based Compensation (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares	793,368		793,368
Shares available for future grants	354,090		354,090
Stock based compensation	$ 0	$ 0	$ 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		243,101
Share issuance, restricted sale period			1 year
Shares available for future grants	87,629		87,629
Stock based compensation	$ 71,000	$ 85,000	$ 801,000	$ 250,000
Share based compensation cost not yet recognized	$ 523,000		$ 523,000
Share based compensation cost not yet recognized, period for recognition			1 year 7 months 28 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	9 Months Ended
	Sep. 30, 2016	Sep. 30, 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		95,834
Exercised, Weighted Average Exercise Price		$ 19.40
Forfeited
Forfeited, Weighted Average Exercise Price
Expired
Expired, Weighted Average Exercise Price
Outstanding	64,500	67,752
Weighted Average Exercise Price	$ 8.67	$ 9.09

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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 ($)	9 Months Ended	12 Months Ended
	Sep. 30, 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 4 months 24 days	2 years 1 month 24 days
Intrinsic Value	$ 1,077,000	$ 1,344,000

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Stock-Based Compensation (Stock Grant Activity) (Details) - $ / shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Stock-Based Compensation [Abstract]
Non-vested stock awards, Shares, beginning balance	77,255	75,930
Granted, Shares	3,540
Forfeited, Shares		1,270
Vested, Shares	33,700
Non-vested stock awards, Shares, ending balance	47,095	74,660
Non-vested stock awards, Weighted Average Stock Price	$ 22.71	$ 17.66
Granted, Weighted Average Stock Price	28.33
Forfeited, Weighted Average Stock Price		19.21
Vested, Weighted Average Stock Price	23.66
Non-vested stock awards, Weighted Average Stock Price	$ 22.46	$ 17.63

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Income Taxes (Narrative) (Details)	9 Months Ended
	Sep. 30, 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	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Total recorded investment	$ 7,055		$ 5,021
Recorded Investment, with allowance recorded	1,662		307
Impaired Financing Receivable, Related Allowance	386		114
Additional impaired financing receivable	96		931
Partial charge down loans	39		160
Other real estate owned & other repossessed property	2,939		2,581
OREO	2,800		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	23,313		18,488
Brokered deposits maturing in 2017	10,000
Brokered deposits maturing in 2018	3,200
Brokered deposits maturing in 2020	5,200
Brokered deposits maturing in 2021	5,000
Un-funded Loan Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	122,100		116,400
Stand-by Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet risks liability amount	2,700		3,200
Estimated Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Recorded Investment, with allowance recorded	1,300		193
Additional impaired financing receivable	57		771
Interest-bearing domestic deposit, brokered	23,235		$ 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
Maximum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Amount wrote down of carrying value of OREO property		$ 453
Minimum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Amount wrote down of carrying value of OREO property		$ 154

XML

Fair Value Of Financial Instruments (Fair Value Measurements on Differing Levels) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	$ 121,688	$ 152,379
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	121,688	152,379
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	1,333	964
OREO and other repossessed property		682
Total	1,333	1,646
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	121,688	152,379
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	121,688	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	1,333	964
OREO and other repossessed property		682
Total	1,333	1,646
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	52,542	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	52,542	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	52,542	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	32,841	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	32,841	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	32,841	40,351
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	13,755	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	13,755	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	13,755	15,806
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities	17,451	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	17,451	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	17,451	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	5,099	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	5,099	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	$ 5,099	$ 17,443

XML

Fair Value Of Financial Instruments (Quantitative Information About Level 3 Fair Value Measurements) (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		$ 1,333	$ 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		1,333	964
Other Real Estate Owned, fair value			682
Level 3 [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		736	115
Level 3 [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		57	97
Level 3 [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		79	90
Level 3 [Member] | Commercial Construction [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		358	559
Level 3 [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		$ 103	$ 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	[1],[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]	(25.00%)	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%	0.00%
Disposal costs	[1],[2]	(13.00%)	(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: 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	[1],[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]	(25.00%)	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%	0.00%
Disposal costs	[1],[2]	(13.00%)	(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: 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	[1],[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]	(25.00%)	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%	0.00%
Disposal costs	[1],[2]	(13.00%)	(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: 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] Appraisals are adjusted by management for qualitative factors and disposal costs.

[2] 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.

XML

Fair Value Of Financial Instruments (Carrying Amounts and Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities, Fair Value	$ 121,688	$ 152,379
Held to Maturity Securities	73,789	67,829
Time deposits	71,920	66,018
Brokered deposits	23,313	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	30,442	21,119
Available-for-sale securities, Fair Value	121,688	152,379
Held to Maturity Securities	73,789	67,829
Restricted stock	3,623	3,447
Loans, net of allowance, including impaired	504,172	476,823
Accrued interest receivable	2,639	2,410
Non-interest-bearing deposits	146,731	125,581
Interest-bearing deposits	403,579	396,188
Time deposits	71,920	66,018
Brokered deposits	23,313	18,488
Repurchase agreements	19,483	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	329	345
Estimated Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	30,442	21,119
Available-for-sale securities, Fair Value	121,688	152,379
Held to Maturity Securities	75,111	68,431
Restricted stock	3,623	3,447
Loans, net of allowance, including impaired	492,616	461,925
Accrued interest receivable	2,639	2,410
Non-interest-bearing deposits	146,731	125,581
Interest-bearing deposits	403,579	396,188
Time deposits	71,751	65,697
Brokered deposits	23,235	18,327
Repurchase agreements	19,483	32,416
FHLBP advances	20,222	30,210
Junior subordinated debentures and other borrowings	8,431	7,889
Subordinated debt	9,472	9,999
Accrued interest payable	329	345
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	30,442	21,119
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale securities, Fair Value	121,688	152,379
Held to Maturity Securities	73,111	66,431
Restricted stock	3,623	3,447
Accrued interest receivable	2,639	2,410
Non-interest-bearing deposits	146,731	125,581
Interest-bearing deposits	403,579	396,188
Time deposits	71,751	65,697
Brokered deposits	23,235	18,327
Repurchase agreements	19,483	32,416
FHLBP advances	20,222	30,210
Junior subordinated debentures and other borrowings	8,431	7,889
Subordinated debt	9,472	9,999
Accrued interest payable	329	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	$ 492,616	$ 461,925

XML

Stockholders' Equity (Details) - USD ($) $ / shares in Units, shares in Thousands		12 Months Ended
	Aug. 04, 2011	Dec. 31, 2010	Sep. 30, 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