10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________

FORM 10-Q

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

For the quarterly period ended: March 31, 2019

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

Pennsylvania (State or other jurisdiction of incorporation or organization) 23-2222567 (I.R.S. Employer Identification No.)

4 Brandywine Avenue - Downingtown, PA 19335

(Address of principal executive offices and Zip Code)

(610) 269-1040

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock ($1.00 Par Value)	DNBF	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted 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 such files). 

Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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)   4,331,121(Shares Outstanding as of May6, 2019)

DNB FINANCIAL CORPORATION AND SUBSIDIARY

INDEX

	PART  I - FINANCIAL INFORMATION	PAGE NO.
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	March 31, 2019 and December 31, 2018	3
	CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended March 31, 2019 and 2018	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended March 31, 2019 and 2018	5
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	6
	Three Months Ended March 31, 2019 and 2018
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2019 and 2018	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45
ITEM 4.	CONTROLS AND PROCEDURES	45
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	45
ITEM 1A.	RISK FACTORS	45
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	46
ITEM 4.	MINE SAFETY DISCLOSURES	46
ITEM 5.	OTHER INFORMATION	46
ITEM 6.	EXHIBITS	46
SIGNATURES		47
EXHIBIT INDEX		48

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

	March 31,		December 31,
(Dollars in thousands, except share and per share data)	2019		2018
Assets
Cash and due from banks	$	34,893	$	17,321
Cash and cash equivalents		34,893		17,321
Available-for-sale investment securities at fair value (amortized cost of $88,434 and $98,765)		87,122		96,643
Held-to-maturity investment securities (fair value of $60,906 and $61,135)		61,000		62,026
Total investment securities		148,122		158,669
Loans held for sale		449		419
Loans		933,697		934,971
Allowance for credit losses		(6,719)		(6,675)
Net loans		926,978		928,296
Restricted stock		6,389		5,616
Office property and equipment, net		7,360		7,636
Operating lease right-of-use asset		3,976		-
Accrued interest receivable		4,396		4,207
Other real estate owned & other repossessed property		3,466		5,051
Bank owned life insurance (BOLI)		9,582		9,530
Core deposit intangible		322		343
Goodwill		15,525		15,525
Net deferred taxes		2,407		2,762
Other assets		2,829		2,860
Total assets	$	1,166,694	$	1,158,235
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	166,806	$	164,746
Interest-bearing deposits:
NOW		233,077		236,071
Money market		231,524		235,023
Savings		78,748		77,979
Time		162,939		162,096
Brokered deposits		107,163		108,651
Total deposits		980,257		984,566
Federal Home Loan Bank of Pittsburgh (FHLBP) advances		41,918		32,935
Junior subordinated debentures		9,279		9,279
Subordinated debt		9,750		9,750
Other borrowings		289		3,305
Total borrowings		61,236		55,269
Accrued interest payable		699		646
Other liabilities		5,158		5,908
Operating lease liability		4,358		-
Total liabilities		1,051,708		1,046,389
Stockholders’ Equity
Common stock, $1.00 par value;
20,000,000 shares authorized; 4,381,872 and 4,381,872 issued, respectively; 4,327,415 and 4,321,745 outstanding, respectively		4,382		4,391
Treasury stock, at cost; 54,457 and 60,127 shares, respectively		(1,027)		(1,130)
Surplus		69,454		69,333
Retained earnings		44,507		42,223
Accumulated other comprehensive loss		(2,330)		(2,971)
Total stockholders’ equity		114,986		111,846
Total liabilities and stockholders’ equity	$	1,166,694	$	1,158,235

See accompanying notes to unaudited consolidated financial statements.

3

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

	Three Months Ended
	March 31,
(Dollars in thousands, except share and per share data)	2019		2018
Interest Income:
Interest and fees on loans	$	11,290	$	9,882
Interest and dividends on investment securities:
Taxable		811		793
Exempt from federal taxes		216		217
Interest on cash and cash equivalents		43		21
Total interest and dividend income		12,360		10,913
Interest Expense:
Interest on NOW, money market and savings		1,051		830
Interest on time deposits		828		325
Interest on brokered deposits		611		199
Interest on FHLB advances		225		301
Interest on repurchase agreements		-		6
Interest on junior subordinated debentures		127		105
Interest on subordinated debt		104		104
Interest on other borrowings		16		16
Total interest expense		2,962		1,886
Net interest income		9,398		9,027
Provision for credit losses		200		375
Net interest income after provision for credit losses		9,198		8,652
Non-interest Income:
Service charges		291		313
Wealth management		445		435
Mortgage banking		74		61
Increase in cash surrender value of BOLI		52		52
Gain on sale of investment securities, net		3		-
Other fees		409		412
Total non-interest income		1,274		1,273
Non-interest Expense:
Salaries and employee benefits		3,853		3,772
Furniture and equipment		541		489
Occupancy		725		697
Professional and consulting		577		403
Advertising and marketing		195		182
FDIC insurance		114		118
PA shares tax		260		242
Telecommunications		88		81
Loss on sale or write down of OREO, net		113		-
Other expenses		812		746
Total non-interest expense		7,278		6,730
Income before income tax expense		3,194		3,195
Income tax expense		607		582
Net income	$	2,587	$	2,613
Earnings per common share:
Basic	$	0.60	$	0.61
Diluted	$	0.60	$	0.61
Cash dividends per common share	$	0.07	$	0.07
Weighted average common shares outstanding:
Basic	4,327,226		4,290,971
Diluted	4,329,991		4,308,847

See accompanying notes to unaudited consolidated financial statements.

4

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Net income	$	2,587	$	2,613
Other Comprehensive Income (Loss):
Unrealized holding gains (losses) arising during the period
Before tax amount		810		(1,014)
Tax effect		(169)		213
Total other comprehensive income (loss)		641		(801)
Total comprehensive income	$	3,228	$	1,812

See accompanying notes to unaudited consolidated financial statements.

5

DNB Financial Corporation and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

									Accumulated
									Other
	Common		Treasury				Retained		Comprehensive
(Dollars in thousands)	Stock		Stock		Surplus		Earnings		Loss		Total
Balance at January 1, 2019	$	4,391	$	(1,130)	$	69,333	$	42,223	$	(2,971)	$	111,846
Net income for three months ended March 31, 2019		-		-		-		2,587		-		2,587
Other comprehensive income		-		-		-		-		641		641
Restricted stock compensation expense		(9)		-		70		-		-		61
Cash dividends - common ($0.07 per share)		-		-		-		(303)		-		(303)
Non-cash funding of 401(k) (3,931 shares)		-		72		35		-		-		107
Non-cash funding of deferred comp. plan (1,739 shares)		-		31		16		-		-		47
Balance at March 31, 2019	$	4,382	$	(1,027)	$	69,454	$	44,507	$	(2,330)	$	114,986

									Accumulated
									Other
	Common		Treasury				Retained		Comprehensive
(Dollars in thousands)	Stock		Stock		Surplus		Earnings		Loss		Total
Balance at January 1, 2018	$	4,379	$	(1,429)	$	69,110	$	32,272	$	(2,390)	$	101,942
Net income for three months ended March 31, 2018		-		-		-		2,613		-		2,613
Other comprehensive loss		-		-		-		-		(801)		(801)
Restricted stock compensation expense (896 shares vested)		4		-		92		-		-		96
Exercise of stock options (966 shares)		1		-		(1)		-		-		-
Shares withheld for employee taxes on stock option exercise and share award vest		(1)		-		(36)		-		-		(37)
Cash dividends - common ($0.07 per share)		-		-		-		(300)		-		(300)
Non-cash funding of 401(k) (3,230 shares)		-		58		50		-		-		108
Non-cash funding of deferred comp. plan (1,480 shares)		-		26		23		-		-		49
Adoption impact - ASU 2018-02		-		-		-		471		(471)		-
Balance at March 31, 2018	$	4,383	$	(1,345)	$	69,238	$	34,585	$	(3,191)	$	103,670

See accompanying notes to unaudited consolidated financial statements.

6

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March 31,
(Dollars in thousands)	2019		2018
Cash Flows From Operating Activities:
Net income	$	2,587	$	2,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		350		384
Provision for credit losses		200		375
Stock based compensation		61		96
Non-cash funding of retirement plans		154		157
Net gain on sale of securities		(3)		-
Net loss on sale or write down of OREO and other repossessed property		113		-
Earnings from investment in BOLI		(52)		(52)
Deferred tax expense		185		214
Proceeds from sales of mortgage loans		3,632		3,408
Mortgage loans originated for sale		(3,588)		(3,342)
Gain on sale of mortgage loans		(74)		(61)
Increase in accrued interest receivable		(189)		(160)
Decrease (increase) in other assets		31		(271)
Increase (decrease) in accrued interest payable		53		(60)
(Decrease) increase in other liabilities		(750)		577
Amortization of operating lease right-of-use asset		566		-
Accretion of operating lease liability		(184)		-
Net Cash Provided by Operating Activities		3,092		3,878
Cash Flows From Investing Activities:
Activity in available-for-sale securities:
Maturities, repayments and calls		21,617		1,803
Purchases		(11,346)		-
Activity in held-to-maturity securities:
Maturities, repayments and calls		1,063		199
Net (increase) decrease in restricted stock		(773)		278
Net decrease (increase) in loans		614		(18,535)
Purchases of property and equipment		(26)		(28)
Purchase of third party ownership in OREO		(165)		-
Proceeds from sale of OREO and other repossessed property		2,141		33
Net Cash Provided By (Used In) Investing Activities		13,125		(16,250)
Cash Flows From Financing Activities:
Net (decrease) increase in deposits		(4,309)		30,583
Repayment of FHLBP advances		(56,017)		(71,020)
Funding of FHLBP advances		65,000		60,000
Net decrease in repurchase agreements		-		(1,306)
Decrease in other borrowings		(3,016)		(2,387)
Dividends paid		(303)		(300)
Payment of employee taxes on stock option exercise and share award vest		-		(37)
Net Cash Provided by Financing Activities		1,355		15,533
Net Change in Cash and Cash Equivalents		17,572		3,161
Cash and Cash Equivalents at Beginning of Period		17,321		10,917
Cash and Cash Equivalents at End of Period	$	34,893	$	14,078
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,909	$	1,946
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans to real estate owned and other repossessed property		504		14

See accompanying notes to unaudited consolidated financial statements.

7

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three months ended March 31, 2019 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, 2018. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2019 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements-  

Accounting Developments Affecting DNB

In May 2014, the FASB issued ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016 and 2017, the FASB issued ASU Nos. 2016-10, 2016-12, 2016-20, and 2017-13 that provided additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements.

DNB adopted the new standards discussed above effective January 1, 2018 using the modified retrospective approach. A significant majority of DNB’s revenues are explicitly excluded from the scope of the new guidance including interest, dividend income, BOLI, gain/loss on sale of loans and investments on the Consolidated Statements of Income. The adoption of ASU 2014-09 did not require a cumulative adjustment to the opening balance of retained earnings as of January 1, 2018 and did not have a material impact on DNB’s Consolidated Statements of Financial Condition, Comprehensive Income, Stockholders’ Equity or Cash Flows for the year ended December 31, 2018. Non-interest income components in the scope of Topic 606 continue to be recognized when DNB’s performance obligations are complete or at the time of sale after a customer’s transaction posts in the account. Disclosures required for DNB’s revenue streams in the scope of ASU 2014-09 are included in Non-Interest Income in the following table.

8

Non-interest Income Non-interest income includes revenue from contracts with customers in the scope of ASU 2014-09 as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Non-interest Income:
Service charges:
Non-sufficient funds charges	$	133	$	159
Business analysis charges		46		41
Cycle charges		20		23
Lockbox fees		47		44
Stop payment fees		4		4
Wire transfer fees		22		21
Other service charges		19		21
Total service charges		291		313
Wealth management:
DNB Investments & Insurance		76		89
DNB First Investment Management & Trust		369		346
Total wealth management		445		435
Other fee income:
Cardholder interchange fees		253		245
Safe deposit box		23		24
Check printing		24		23
Merchant card processing		42		48
ATM surcharges for non-DNB customers		15		17
Other fee income		14		14
Total other fee income		371		371
Total Revenue from contracts with customers		1,107		1,119
Total Revenue not within the scope of ASC 606		167		154
Total non-interest income	$	1,274	$	1,273

Service charges on deposit accounts are recorded monthly when DNB’s performance obligations are complete. Deposit balances are disclosed in the Consolidated Statement of Condition. For transaction-based service charges such as non-sufficient funds charges, wire transfer fees, stop payment fees, ATM fees, and other transaction-based fees, revenue is recognized at the time of sale after the transaction posts in the customer’s account.

Wealth management revenue includes non-deposit products and services offered under the names “DNB Investment & Insurance” and “DNB First Investment Management & Trust”.

Through a third-party marketing agreement with Cetera Investment Services, LLC (“Cetera”), DNB Investment & Insurance offers a complete line of investment and insurance products. DNB’s performance obligation as an agent is to arrange for the sale of products by Cetera. Monthly, DNB recognizes commission fees in the amounts to which it is entitled in accordance with the terms of the marketing agreement for products sold. Shortly after a sale, the product provider remits the commission payment through Cetera to the Company, and the Company recognizes the revenue. DNB records revenue net of the cost of the services.

DNB First Investment Management & Trust offers a full line of investment and fiduciary services. DNB’s performance obligation is to manage investments, estates and trusts. Investment management and trust income is primarily comprised of fees earned from the management and administration of trusts, estates and investment agency portfolios. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized quarterly, based upon the quarter-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after quarter end through a direct charge to customers’ accounts. While managing estates and trusts, DNB contracts with a third-party tax preparation service. For tax preparation services, DNB’s obligation as an agent is to arrange for the performance of services by the third party. As tax services are rendered, DNB records revenue net of the cost of the services.

Cardholder interchange fees consist of revenue DNB is entitled per agreements with third party debit and credit card providers. DNB’s performance obligation as an agent is to arrange for cardholder services with its customers in accordance with fees and terms offered by the third-party service providers. Based on cardholder transactions reported by third party service providers, DNB recognizes fees for the amount it is contractually entitled.

DNB also contracts with third party providers for check printing, merchant card services, and ATM services. DNB’s performance obligation as an agent is to arrange for the services with its customers in accordance with fees and terms offered by the third-party service providers. Monthly, DNB recognizes fees for the amount it is contractually entitled.

9

DNB adopted ASU 2015-16, Business Combinations (Topic 805), in 2016: Simplifying the Accounting for Measurement Period Adjustments on a prospective basis. This amendment eliminates the requirement to account for adjustments to provisional amounts recognized in a business combination retrospectively. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. DNB evaluated the impact of this guidance and it does not have a material impact to the consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of March 31, 2019, DNB did not hold any equity investments (excluding restricted investments in bank stocks).  DNB does not expect to make significant purchases of equity investments; therefore, the adoption of this ASU is not expected to be material to DNB's consolidated financial statements. Adoption of the standard on January 1, 2018 also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.

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 has determined that upon the adoption of ASU 2016-02 is required to recognize a right-of-use asset and a corresponding liability based on the then present value of such obligation. The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $4.0 million. The adoption of the new standard did not have a material impact on its Consolidated Statements of Income. Update 2018-11 - Leases (topic 842): Targeted Improvements provided an additional/optional transition method to adopt the new leases standard. Prior to this ASU issuance, a modified retrospective transition approach was required. The adoption of this ASU does not materially impact our Consolidated Statement of Financial Condition and Consolidated Statements of Changes in Stockholders’ Equity. Update 2018-20 - Leases (topic 842): Narrow-Scope Improvements for Lessors was released to better clarify the treatment of sales taxes and other similar taxes related to Lessor and Lessees costs and payments. The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Also, certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. DNB’s lessor income is immaterial; as such, this ASU does not materially impact our Consolidated Statement of Financial Condition or Consolidated Statements of Comprehensive Income. DNB adopted the use-of-hindsight practical expedient.

DNB recognized rent expense associated with our leases as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Operating lease cost:
Fixed rent expense	$	259	$	285
Net lease cost		259		285
Lease costs
Amortization of lease liability		193		-
Interest expense		66		-
Net lease cost	$	259	$	-

10

DNB had the following cash and non-cash activites associated with our leases:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245	$	242
Non-cash investing and financing activities:
Additions to ROU assets obtained from:
New operating lease liabilities	$	4,358	$	-

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. Although early adoption is permitted for fiscal years beginning after December 15, 2018, DNB does not plan to early adopt. DNB has established a CECL Implementation Team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. DNB has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard and will be evaluating control and process framework, data, model, and resource requirements and areas where modifications will be required. DNB has selected a third party vendor to process and review various calculation methodologies and the approximate impact on DNB’s financial position, results of operations and cash flows. The team continues to assess the impact of the standard; however, DNB expects adopting this ASU will result in an increase in its allowance for credit losses. The amount of the increase in the allowance for credit losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

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. Accordingly, effective January 1, 2018, DNB adopted the pronouncement and it did not have a material impact to DNB’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The new guidance narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and should be applied prospectively. Early adoption is permitted. DNB will apply this guidance to applicable transactions after the adoption date.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with its carrying amount. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable. The update also eliminated the requirements for zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. DNB will not early adopt this ASU for its annual goodwill impairment test, and conducted a qualitative test (step zero) as of October 1, 2018 and determined that its Goodwill has not been impaired. The adoption of this ASU is not expected to have a material impact on DNB’s consolidated financial statements. 

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers

11

will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, DNB has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. ASU No. 2017-07 will not have a material impact on DNB Consolidated Financial Statements because the Pension plan has been frozen to new accruals since December 31, 2003, and thus, generated no service cost in any subsequent year.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):  Scope of Modification Accounting; (“ASU 2017-09”).  ASU 2017-09 provides clarity by offering guidance on the scope of modification accounting for share-based payment awards and gives direction on which changes to the terms or conditions of these awards require an entity to apply modification accounting.  Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.  The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. DNB adopted the ASU on January 1, 2018 and the effects were immaterial.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income; (“ASU 2018-02”). This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of the Tax Act. Consequently, the reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. DNB adopted this ASU on January 1, 2018. The amount of this reclassification is $471,000.

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NOTE 2: INVESTMENT SECURITIES

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

	March 31, 2019
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,817	$	33	$	-	$	8,850
Government Sponsored Entities (GSE) mortgage-backed securities		369		4		-		373
Corporate bonds		13,759		142		(12)		13,889
Collateralized mortgage obligations GSE		1,102		-		(21)		1,081
State and municipal taxable		362		-		(1)		361
State and municipal tax-exempt		36,591		52		(291)		36,352
Total	$	61,000	$	231	$	(325)	$	60,906
Available For Sale
US Government agency obligations	$	38,088	$	3	$	(139)	$	37,952
GSE mortgage-backed securities		27,591		3		(605)		26,989
Collateralized mortgage obligations GSE		9,909		-		(363)		9,546
Corporate bonds		10,868		-		(126)		10,742
State and municipal tax-exempt		1,978		-		(85)		1,893
Total	$	88,434	$	6	$	(1,318)	$	87,122

	December 31, 2018
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,749	$	41	$	-	$	8,790
Government Sponsored Entities (GSE) mortgage-backed securities		389		-		-		389
Corporate bonds		13,851		124		(47)		13,928
Collateralized mortgage obligations GSE		1,159		-		(27)		1,132
State and municipal taxable		362		-		(3)		359
State and municipal tax-exempt		37,516		19		(998)		36,537
Total	$	62,026	$	184	$	(1,075)	$	61,135
Available For Sale
US Government agency obligations	$	48,082	$	-	$	(359)	$	47,723
GSE mortgage-backed securities		27,563		-		(1,005)		26,558
Collateralized mortgage obligations GSE		10,249		-		(441)		9,808
Corporate bonds		10,890		-		(186)		10,704
State and municipal tax-exempt		1,981		-		(131)		1,850
Total	$	98,765	$	-	$	(2,122)	$	96,643

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The following table details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at March 31, 2019 and December 31, 2018.

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	March 31, 2019
					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	$	4,164	$	(12)	$	-	$	-	$	4,164	$	(12)
Collateralized mortgage obligations GSE		1,081		(21)		-		-		1,081		(21)
State and municipal taxable		361		(1)		-		-		361		(1)
State and municipal tax-exempt		12,999		(291)		-		-		12,999		(291)
Total	$	18,605	$	(325)	$	-	$	-	$	18,605	$	(325)
Available For Sale
US Government agency obligations	$	27,749	$	(139)	$	-	$	-	$	27,749	$	(139)
GSE mortgage-backed securities		25,840		(605)		-		-		25,840		(605)
Collateralized mortgage obligations GSE		9,546		(363)		-		-		9,546		(363)
Corporate bonds		10,742		(126)		1,020		(20)		9,722		(106)
State and municipal tax-exempt		1,893		(85)		-		-		1,893		(85)
Total	$	75,770	$	(1,318)	$	1,020	$	(20)	$	74,750	$	(1,298)

	December 31, 2018
					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	$	4,157	$	(47)	$	1,887	$	(15)	$	2,270	$	(32)
Collateralized mortgage obligations GSE		1,132		(27)		-		-		1,132		(27)
State and municipal taxable		359		(3)		-		-		359		(3)
State and municipal tax-exempt		26,466		(998)		2,045		(31)		24,421		(967)
Total	$	32,114	$	(1,075)	$	3,932	$	(46)	$	28,182	$	(1,029)
Available For Sale
US Government agency obligations	$	37,723	$	(359)	$	-	$	-	$	37,723	$	(359)
GSE mortgage-backed securities		26,558		(1,005)		-		-		26,558		(1,005)
Collateralized mortgage obligations GSE		9,808		(441)		-		-		9,808		(441)
Corporate bonds		10,704		(186)		2,035		(7)		8,669		(179)
State and municipal tax-exempt		1,850		(131)		-		-		1,850		(131)
Total	$	86,643	$	(2,122)	$	2,035	$	(7)	$	84,608	$	(2,115)

As of March 31, 2019, there were nineteen collateralized mortgage obligations GSE, nineteen GSE mortgage-backed securities, six U.S. agency obligations, twenty-one tax-exempt municipalities, one taxable municipality, and eleven 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 their cost basis. Management has reviewed all of these securities and believes that DNB will collect all principal and interest that is due on debt securities on a timely basis.  Management does not believe any individual unrealized loss as of March 31, 2019 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis, reviewing each investment for OTTI. The OTTI analysis focuses on condition of the issuers as well as duration and severity of impairment in determining OTTI. As of March 31, 2019, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are nineteen impaired securities classified as collateralized mortgage obligations GSE,  all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 8.90% of its carrying 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 have ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

GSE mortgage-backed securities  There are nineteen impaired securities classified as GSE mortgage-backed securities, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 3.06% of its carrying value. These securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on these securities on a timely basis and none of these have ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

US Government agency obligations  There are six impaired securities classified as agencies, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.24% of its carrying value. All of these securities

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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 March 31, 2019.  

State and municipal tax-exempt There are twenty-one impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 7.70% of its carrying 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 twenty-onemunicipal securities, nine are school districts that have state school district credit enhancement programs and four of those have additional insurance. The remaining twelve are one uninsured school district, four insured townships, and seven uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

State and municipal taxable There is one impaired security in this category, which has been impaired for more than 12 months. The unrealized loss of this security is 0.38% of its carrying value. This security is an insured township and carries a “BBB+” underlying credit. It is performing and is expected to continue to perform in accordance with its contractual terms and conditions. There have not been disruptions of any payments associated with this municipal security. Management concluded that this security was not other-than-temporarily impaired at March 31, 2019.

Corporate bonds There are eleven impaired bonds classified as corporate bonds, ten of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.91% of its carrying value. The bonds are investment grade and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry a "BBB+" or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, rating agency reports, capital strength and debt ratios. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

The amortized cost and fair value of investment securities as of March 31, 2019, 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
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	11,668	$	11,701	$	15,555	$	15,508
Due after one year through five years		14,974		15,035		30,137		29,957
Due after five years through ten years		26,711		26,720		18,405		18,067
Due after ten years		7,647		7,450		24,337		23,590
Total investment securities	$	61,000	$	60,906	$	88,434	$	87,122

The HTM securitiescalled during the three months ended March 31, 2019resulted in a gain on call of $3,000.  Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Gross realized gains-HTM	$	3	$	-
Net realized gain	$	3	$	-

At March 31, 2019 and December 31, 2018, investment securities with a carrying value of approximately $84.8 million and $95.8 million, respectively, were pledged to secure public fundsand for other purposes as required by law.

15

NOTE 3: LOANS

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

(Dollars in thousands)	March 31, 2019		December 31, 2018
Residential mortgage	$	101,039	$	99,932
Commercial mortgage		517,236		535,735
Commercial:
Commercial term		182,077		166,335
Commercial construction		78,967		76,302
Consumer:
Home equity		49,412		51,536
Other		4,966		5,131
Total loans	$	933,697	$	934,971
Less allowance for credit losses		(6,719)		(6,675)
Net loans	$	926,978	$	928,296

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

					Three Months Ended March 31, 2019
(Dollars in thousands)	March 31, 2019		December 31, 2018		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	$	792	$	905	$	12	$	-	$	12
Commercial mortgage		1,221		1,307		26		-		26
Commercial:
Commercial term		2,045		2,300		43		-		43
Commercial construction		-		476		-		-		-
Consumer:
Home equity		391		391		7		-		7
Other		145		167		3		-		3
Total non-accrual loans	$	4,594	$	5,546	$	91	$	-	$	91
Loans 90 days past due and accruing		-		233		-		-		-
Total non-performing loans	$	4,594	$	5,779	$	91	$	-	$	91

			Three Months Ended March 31, 2018
(Dollars in thousands)	March 31, 2018		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,033	$	25	$	-	$	25
Commercial mortgage		2,088		30		-		30
Commercial:
Commercial term		3,015		44		-		44
Commercial construction		497		11		-		11
Consumer:
Home equity		464		5		-		5
Other		311		8		-		8
Total non-accrual loans	$	8,408	$	123	$	-	$	123
Loans 90 days past due and accruing		-		-		-		-
Total non-performing loans	$	8,408	$	123	$	-	$	123

16

NOTE 4: ALLOWANCE FOR CREDIT LOSSES

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a scheduled payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2019 and December 31, 2018. 

Age Analysis of Past Due Loans Receivable

	March 31, 2019
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	2,753	$	348	$	606	$	3,707	$	97,332	$	101,039	$	-
Commercial mortgage (less acquired with credit deterioration)		309		-		659		968		515,763		516,731		-
Acquired commercial mortgage with credit deterioration		-		-		-		-		505		505		-
Commercial:
Commercial term		6		-		748		754		181,323		182,077		-
Commercial construction		-		-		-		-		78,967		78,967		-
Consumer:
Home equity		284		-		391		675		48,737		49,412		-
Other		77		-		92		169		4,797		4,966		-
Total	$	3,429	$	348	$	2,496	$	6,273	$	927,424	$	933,697	$	-

	December 31, 2018
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	666	$	1,742	$	845	$	3,253	$	96,679	$	99,932	$	130
Commercial mortgage (less acquired with credit deterioration)		-		-		840		840		534,739		535,579		103
Acquired commercial mortgage with credit deterioration		-		-		-		-		156		156		-
Commercial:
Commercial term		20		37		957		1,014		165,321		166,335		-
Commercial construction		-		-		-		-		76,302		76,302		-
Consumer:
Home equity		398		144		247		789		50,747		51,536		-
Other		26		-		108		134		4,997		5,131		-
Total	$	1,110	$	1,923	$	2,997	$	6,030	$	928,941	$	934,971	$	233

DNB had $362,000 of residential mortgage loans in the process of foreclosure and $97,000 in residential real estate in other real estate owned as of March 31, 2019. DNB had no residential mortgage loans in the process of foreclosure and $97,000 of residential real estate in other real estate owned as of December 31, 2018.

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The following tables summarize information in regards to impaired loans by loan portfolio class as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018.

Impaired Loans

		March 31, 2019						December 31, 2018
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
	Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)			Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,782	$	3,120	$	-	$	1,462	$	1,804	$	-
Commercial mortgage		2,177		2,573		-		1,532		1,780		-
Acquired commercial mortgage with credit deterioration		521		535		-		514		527
Commercial:
Commercial term		1,327		1,841		-		1,343		1,845		-
Commercial construction		-		-		-		476		514		-
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		156		205		-
Total	$	7,512	$	8,848	$	-	$	6,014	$	7,210	$	-
With allowance recorded:
Residential mortgage		-		-		-		73		73		1
Commercial mortgage		-		-		-		737		802		78
Commercial:
Commercial term		718		745		201		957		1,015		203
Consumer:
Other		-		-		-		41		42		3
Total	$	718	$	745	$	201	$	1,808	$	1,932	$	285
Total:
Residential mortgage		2,782		3,120		-		1,535		1,877		1
Commercial mortgage		2,177		2,573		-		2,269		2,582		78
Acquired commercial mortgage with credit deterioration		521		535		-		514		527		-
Commercial:
Commercial term		2,045		2,586		201		2,300		2,860		203
Commercial construction		-		-		-		476		514		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		197		247		3
Total	$	8,230	$	9,593	$	201	$	7,822	$	9,142	$	285

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		Three Months Ended				Three Months Ended
		March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,158	$	2	$	2,102	$	1
Commercial mortgage		2,223		12		2,759		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		1,335		-		1,918		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		164		-
Total	$	6,949	$	25	$	8,919	$	22
With allowance recorded:
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		-		-		51		-
Commercial:
Commercial term		837		-		630		-
Consumer:
Other		-		-		114		-
Total	$	837	$	-	$	799	$	-
Total:
Residential mortgage		2,158		2		2,102		1
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		2,223		12		2,810		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		2,172		-		2,548		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		278		-
Total	$	7,786	$	25	$	9,718	$	22

19

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within DNB’s internal risk rating system as of March 31, 2019 and December 31, 2018.

Credit Quality Indicators

	March 31, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	98,441	$	433	$	2,165	$	-	$	101,039
Commercial mortgage		503,900		9,629		3,707		-		517,236
Commercial:
Commercial term		177,246		1,235		3,596		-		182,077
Commercial construction		74,840		3,642		485		-		78,967
Consumer:
Home equity		48,865		156		391		-		49,412
Other		4,821		-		145		-		4,966
Total	$	908,113	$	15,095	$	10,489	$	-	$	933,697

	December 31, 2018
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	97,577	$	-	$	2,355	$	-	$	99,932
Commercial mortgage		528,692		2,367		4,676		-		535,735
Commercial:
Commercial term		161,051		1,178		4,106		-		166,335
Commercial construction		72,077		3,603		622		-		76,302
Consumer:
Home equity		50,988		143		405		-		51,536
Other		4,924		-		207		-		5,131
Total	$	915,309	$	7,291	$	12,371	$	-	$	934,971

Troubled Debt Restructurings Loans whose terms are modified are classified as troubled debt restructurings (“TDR”) if DNB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. During the three month period ended March 31, 2019, DNB classified one residential mortgage loan totaling $1.4 million as TDR. The loan’s rate was changedbut the term was not extended. During the three month period ended March 31, 2018, DNB did notclassifyany loans as TDR. Loans classified as troubled debt restructurings are designated as impaired. The recorded investments in troubled debt restructured loans at March 31, 2019 and December 31, 2018 are as follows:

	March 31, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,025	$	2,177	$	1,990
Commercial mortgage		992		992		955
Consumer:
Home equity		148		148		139
Other		40		42		30
Total	$	3,205	$	3,359	$	3,114
	December 31, 2018
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	676	$	805	$	630
Commercial mortgage		992		992		962
Consumer:
Home equity		148		148		140
Other		40		42		30
Total	$	1,856	$	1,987	$	1,762

20

At March 31, 2019, DNB had ten TDRs with recorded investment totaling $3,114,000, all of which are accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of March 31, 2019, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs during the three months ended March 31, 2019.

At December 31, 2018, DNB had nine TDRs with recorded investment totaling $1,762,000,  all of which were accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. As of December 31, 2018, DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on oneconsumer installment loan after its restructuring. As of December 31, 2018, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs within twelve months of restructure during 2018. DNB classified oneresidential mortgage loan totaling $73,000 as TDR during the year ended December 31, 2018.

The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2019 and December 31, 2018, the activity for the three months ended March 31, 2019 and 2018 and as of and for the year ended December 31, 2018.

Allowance for Credit Losses and Recorded Investment in Loans Receivables

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2019	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Charge-offs		-		(82)		(69)		-		-		(17)		-		(168)
Recoveries		4		-		8		-		-		-		-		12
Provisions		(9)		(72)		188		48		(7)		14		38		200
Ending balance - March 31, 2019	$	156	$	3,493	$	1,189	$	1,080	$	183	$	43	$	575	$	6,719
Ending balance: individually evaluated for impairment	$	-	$	-	$	201	$	-	$	-	$	-	$	-	$	201
Ending balance: collectively evaluated for impairment	$	156	$	3,493	$	988	$	1,080	$	183	$	43	$	575	$	6,518
Loans receivables:
Ending balance	$	101,039	$	517,236	$	182,077	$	78,967	$	49,412	$	4,966			$	933,697
Ending balance: individually evaluated for impairment	$	2,782	$	2,177	$	2,045	$	-	$	530	$	175			$	7,709
Ending balance: acquired with credit deterioration	$	-	$	521	$	-	$	-	$	-	$	-			$	521
Ending balance: collectively evaluated for impairment	$	98,257	$	514,538	$	180,032	$	78,967	$	48,882	$	4,791			$	925,467
Reserve for unfunded loan commitments included in other liabilities	$	-	$	1	$	184	$	219	$	20	$	-			$	424

21

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2018	$	221	$	2,856	$	845	$	1,128	$	183	$	63	$	547	$	5,843
Charge-offs		(34)		(13)		(17)		-		-		(12)		-		(76)
Recoveries		1		-		2		-		-		-		-		3
Provisions		38		144		74		91		(7)		4		31		375
Ending balance - March 31, 2018	$	226	$	2,987	$	904	$	1,219	$	176	$	55	$	578	$	6,145
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	150	$	139	$	17	$	-			$	309

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2018	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Ending balance: individually evaluated for impairment	$	1	$	78	$	203	$	-	$	-	$	3	$	-	$	285
Ending balance: collectively evaluated for impairment	$	160	$	3,569	$	859	$	1,032	$	190	$	43	$	537	$	6,390
Loans receivables:
Ending balance	$	99,932	$	535,735	$	166,335	$	76,302	$	51,536	$	5,131			$	934,971
Ending balance: individually evaluated for impairment	$	1,535	$	2,269	$	2,300	$	476	$	531	$	197			$	7,308
Ending balance: acquired with credit deterioration	$	-	$	514	$	-	$	-	$	-	$	-			$	514
Ending balance: collectively evaluated for impairment	$	98,397	$	532,952	$	164,035	$	75,826	$	51,005	$	4,934			$	927,149
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	167	$	206	$	21	$	-			$	398

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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 andno anti-dilutive stock options outstanding at March 31, 2019 and March 31, 2018.  There were 10,600 anti-dilutive stock awards outstanding at March 31, 2019 and no anti-dilutive stock awards outstanding at March 31, 2018. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended
	March 31, 2019
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,587	4,327	$	0.60
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	3		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,587	4,330	$	0.60

	Three Months Ended
	March 31, 2018
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,613	4,291	$	0.61
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	18		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,613	4,309	$	0.61

NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS 

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

Accumulated Other Comprehensive Loss	Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)	Amount		Effect		Amount
March 31, 2019
Net unrealized loss on AFS securities	$	(1,312)	$	276	$	(1,036)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(2,949)	$	619	$	(2,330)
December 31, 2018
Net unrealized loss on AFS securities	$	(2,122)	$	445	$	(1,677)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(3,759)	$	788	$	(2,971)

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NOTE 7: SUBORDINATED DEBENTURES AND NOTES

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.

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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 March 31, 2019. All options are immediately exercisable. During the three months ended March 31, 2019 and 2018, DNB had no expenses related to the plan. Under the Stock Option Plan, no shares were exercised during the three months ended March 31, 2019. Under the Stock Option Plan, 2,100 shares were exercised during the three months ended March 31, 2018. The shares awarded from the non-qualified cashless exercises resulted in an increase in shares outstanding of 966 shares. There was a cash equivalent of 1,134 shares used to pay all applicable taxes on the transactions. DNB had no stock option activity during the three months ended March 31, 2019 and had nostock options outstanding at March 31, 2019 or December 31, 2018.  Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2018		16,450	$	10.31
Issued		-		-
Exercised		2,100		10.31
Forfeited		-		-
Expired		-		-
Outstanding March 31, 2018		14,350	$	10.31

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 493,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three or four years (cliff vesting period) after the date of the grant or a change in control of DNB if the recipients are then employed by DNB (“Vest Date”).  Upon issuance of the shares, resale of the shares is restricted for an additional one year, during which the shares may not be sold, pledged or otherwise disposed of. Prior to the Vest Date and in the event the recipient terminates association with DNB for reasons other than death, disability or change in control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant.

Share awards granted by the Plan were recorded at the date of award based on the market value of shares. Awards are being amortized to expense over a three or four year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized. For the three month periods ended March 31, 2019 and 2018,  $61,000 and $96,000 was amortized to expense.

As of March 31, 2019, there was approximately $651,000 in additional compensation that will be recognized over the weighted average life of1.85 years. At March 31, 2019,  482,501 shares were reserved for future grants under the Plan. 

There were 1,400 restricted shares that vested during the three months ended March 31, 2018. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 896 shares. There was a cash equivalent of 504 shares used to pay all applicable taxes on the transactions. There were no such transaction during the three months ended March 31, 2019. Stock grant activity is indicated below:

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2019	18,590	$	30.90
Granted	10,600		39.36
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2019	29,190	$	33.98

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2018	31,130	$	26.53
Granted	10,750		33.98
Forfeited	250		28.00
Vested	1,400		25.84
Non-vested stock awards—March 31, 2018	40,230	$	28.53

25

NOTE 9:  INCOME TAXES

As of March 31, 2019, 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 2015 through 2017 were open for examination as of March 31, 2019.

NOTE 10:  FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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. When recorded at fair value, these assets are included as Level 3 fair values.

26

The following tables present assets measured at fair value on a recurring basis as of March 31, 2019and December 31, 2018:

		March 31, 2019
(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	$	-	$	37,952	$	-	$	37,952
GSE mortgage-backed securities		-		26,989		-		26,989
Collateralized mortgage obligations GSE		-		9,546		-		9,546
Corporate bonds		-		10,742		-		10,742
State and municipal tax-exempt		-		1,893		-		1,893
Total	$	-	$	87,122	$	-	$	87,122
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,317	$	1,317
OREO and other repossessed property		-		-		526		526
Total	$	-	$	-	$	1,843	$	1,843

		December 31, 2018
(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	$	-	$	47,723	$	-	$	47,723
GSE mortgage-backed securities		-		26,558		-		26,558
Collateralized mortgage obligations GSE		-		9,808		-		9,808
Corporate bonds		-		10,704		-		10,704
State and municipal tax-exempt		-		1,850		-		1,850
Total	$	-	$	96,643	$	-	$	96,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,523	$	1,523
OREO and other repossessed property		-		-		1,247		1,247
Total	$	-	$	-	$	2,770	$	2,770

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

March 31, 2019
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Commercial mortgage	$	659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		517	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-8%	(-4%)
Impaired loans - Consumer other		141	Appraisal of collateral (1)	Disposal costs (2)	-7%	to	-8%	(-8%)
Impaired loan total	$	1,317
Other real estate owned	$	526		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

(2)

December 31, 2018
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	$	72	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		754	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-16%	(-11%)
Impaired loans - Consumer other		38	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,523
Other real estate owned	$	1,247		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 $8.2 million at March 31, 2019. Of this, $718,000 had specific valuation allowances of $201,000, leaving a fair value of $517,000 as of March 31, 2019. In addition, DNB had $895,000 in impaired loans that were partially charged down by $95,000, leaving $800,000 at fair value as of March 31, 2019. The total fair value of impaired loans at March 31, 2019 was $1.3 million.

Impaired loans had a carrying amount of $7.8 million at December 31, 2018. Of this, $1.8 million had specific valuation allowances of $285,000, leaving a fair value of $1.5 million at December 31, 2018.  DNB did not have any impaired loans that were partially charged down that didn’t already have a specific reserve during the year ended December 31, 2018. The total fair value of impaired loans at December 31, 2018 was $1.5 million.

Other Real Estate Owned & other repossessed property.  Other real estate owned (“OREO”) consists of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets are classified as OREO and other repossessed property are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. DNB had $3.5 million of such assets at March 31, 2019, $3.3 million of which was OREO and $142,000 was in other repossessed property. DNB had $5.1 million of such assets at December 31, 2018, which consisted of $4.9 million in OREO and $142,000 in other repossessed property. DNB wrote down the carrying values of certain assets totaling$623,000by $97,000to $526,000 during the three month period ended March 31, 2019. DNB did not write down the carrying values of OREO during the three month period ended March 31, 2018.

DNB's policy is to recognize transfer between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1 and 2 for the three months ended March 31, 2019.

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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 statement of financial condition. The carrying amounts and fair values of financial instruments at March 31, 2019 and December 31, 2018 are as follows:

		March 31, 2019
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,893	$	34,893	$	34,893	$	-	$	-
AFS investment securities		87,122		87,122		-		87,122		-
HTM investment securities		61,000		60,906		-		58,906		2,000
Restricted stock		6,389		6,389		-		6,389		-
Loans held-for-sale		449		457		-		-		457
Loans, net of allowance, including impaired		926,978		912,038		-		-		912,038
Accrued interest receivable		4,396		4,396		-		4,396		-
Financial liabilities
Deposits:
Non-interest-bearing		166,806		166,806		-		166,806		-
NOW, Money market, and Savings		543,349		543,349		-		543,349		-
Time		162,939		162,513		-		162,513		-
Brokered		107,163		106,304		-		106,304		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		41,918		41,601		-		41,601		-
Junior subordinated debentures and other borrowings		9,279		10,166		-		10,166		-
Subordinated debt		9,750		9,435		-		9,435		-
Accrued interest payable		699		699		-		699		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2018
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,321	$	17,321	$	17,321	$	-	$	-
AFS investment securities		96,643		96,643		-		96,643		-
HTM investment securities		62,026		61,135		-		59,135		2,000
Restricted stock		5,616		5,616		-		5,616		-
Loans held-for-sale		419		429		-		-		429
Loans, net of allowance, including impaired		928,296		914,822		-		-		914,822
Accrued interest receivable		4,207		4,207		-		4,207		-
Financial liabilities
Deposits:
Non-interest-bearing		164,746		164,746		-		164,746		-
NOW, Money market, and Savings		549,073		549,073		-		549,073		-
Time		162,096		160,944		-		160,944		-
Brokered		108,651		97,250		-		97,250		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		32,935		32,347		-		32,347		-
Junior subordinated debentures and other borrowings		9,279		10,285		-		10,285		-
Subordinated debt		9,750		9,505		-		9,505		-
Accrued interest payable		646		646		-		646		-
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.

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

FORWARD-LOOKING STATEMENTS

DNB Financial Corporation (the “Registrant”, “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 Financial Corporation, a Pennsylvania business corporation, is a bank holding company registered with and supervised by the Board of Governors of the Federal Reserve System (Federal Reserve Board). The Registrant was incorporated on October 28, 1982 and commenced operations on July 1, 1983 upon consummation of the acquisition of all of the outstanding stock of Downingtown National Bank, now known as DNB First, National Association (the “Bank”). Since commencing operations, DNB’s business has consisted primarily of managing and supervising the Bank, and its principal source of income has been derived from the Bank.

The Bank was organized in 1860. The Bank is a national banking association that is a member of the Federal Reserve System, the deposits of which are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a full service commercial bank providing a wide range of services to individuals and small to medium sized businesses in the southeastern Pennsylvania market area, including accepting time, demand, and savings deposits and making secured and unsecured commercial, real estate and consumer loans. In addition, the Bank has fifteen (15) full service branches and a full-service wealth management group known as “DNB First Wealth Management.” The Bank’s financial subsidiary, DNB Financial Services, Inc., (also known as “DNB Investments & Insurance”) is a Pennsylvania licensed insurance agency, which, through a third party marketing agreement with Cetera Investment Services, LLC, sells a broad variety of insurance and investment products. The Bank’s other subsidiaries are Downco, Inc. and DN Acquisition Company, Inc. which were incorporated in December 1995 and December 2008, respectively, for the purpose of acquiring and holding Other Real Estate Owned acquired through foreclosure or deed in-lieu-of foreclosure, as well as Bank-occupied real estate.

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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. To that end, DNB continues to make appropriate investments in all areas of our business, including people, technology, facilities and marketing.

Strategic Plan. During the fourth quarter of 2018,  DNB updated its strategic plan, focusing on initiatives to increase core earnings and shareholder value. Key strategies include:  

· Maintain our focus on increasing core deposits.

· Continue to grow our commercial loan portfolio, while ensuring stable credit quality.

· Leverage treasury management services to deepen relationships with commercial customers and generate incremental fee revenue.

· Strengthen our emphasis on relationship-based banking, through development of consumer products that encourage and reward customer loyalty.

· Increase digital banking adoption rates and introduce emerging technology solutions to enhance customer experience and improve operating efficiency.

· Maintain strong capital ratios to ensure continued, sustainable growth and innovation.

· Intensify focus on expense control and improved operating leverage.

DNB reported net income of $2.6 million, or $0.60 per diluted share, for the quarter ending March 31, 2019, compared with $2.6 million, or $0.61 per diluted share, for the same quarter, last year. 

As of March 31, 2019, total assets were $1.2 billion.  Since December 31, 2018, total average loans increased $15.2 million, or 1.7%, which was partially offset by a $10.0 million, or 5.5% decrease in total average investment securities and other interest-earning assets.  Total average deposits decreased $1.2 million, or less than one percent since December 31, 2018.  As of March 31, 2019, total shareholders’ equity was $115.0 million, compared with $111.8 million as of December 31, 2018.  Tangible book value per share (a non-GAAP measure) was $22.91 as of March 31, 2019, compared with $22.21 as of December 31, 2018.

As of March 31, 2019, total loans were $933.7 million, or 80.0% of total assets.  At the same date, commercial loans totaled $778.3 million and represented 83.4% of total loans.  The Company views commercial lending as the highest and best use of its capital as these loans generally have higher yields and shorter durations.  Over the past three months, commercial business loans grew $15.7 million or 9.5%, and commercial construction loans increased $2.7 million, or 3.5%.  That growth, however, was offset by an $18.5 million, or 3.5%, decrease in commercial mortgage loans due to scheduled maturities and higher prepayments.  Consumer loans also declined over the quarter as overall loan demand appeared to be fairly constrained.  

Total core deposits decreased $3.7 million, or 0.5%, since December 31, 2018, and were 72.4% of total deposits as of March 31, 2019.  Non-interest bearing deposits increased $2.1 million or 1.25% (not annualized), over the past three months, and represented 17.0% of total deposits as of March 31, 2019. The $1.5 million, or 1.4%, decrease in brokered deposits was largely due to less favorable rates and maturities, compared with other funding sources, including FHLB advances.  As of March 31, 2019, the loan-to-deposit ratio was 95.3%. 

Asset quality remained strong as net charge-offs were 0.07% (annualized) of total average loans for the quarter ending March 31, 2019.  Total non-performing assets, including loans and other real estate property, were $8.1 million as of March 31, 2019, compared with $10.8 million as of December 31, 2018, and $13.4 million as of March 31, 2018.  The ratio of non-performing loans to total loans was 0.49% as of March 31, 2019, versus 0.62% as of December 31, 2018.    

DNB’s most significant revenue source continues to be net interest income, defined as total interest income less total interest expense, which accounted for approximately 88% of total revenue during the first quarter of 2019. To produce net interest income and consistent earnings growth over the long-term, DNB must generate loan and deposit growth at acceptable economic spreads within its market area. To generate and grow loans and deposits, DNB must focus on a number of areas including, but not limited to, the economy, branch expansion, sales practices, customer satisfaction and retention, competition, customer behavior, technology, product innovation and credit performance of its customers.

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.

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MATERIAL CHALLENGES, RISKS AND OPPORTUNITIES

The following is a summary of material challenges, risks and opportunities DNB has faced during the three month period ended March 31, 2019:  

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. Simulation model results continue to show moderate liability sensitivity to rising rates in 100, 200, 300 and 400 basis point shock scenarios over a 12 month period. Rate changes ramped in over 24 months also show moderate liability sensitivity.

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 (including brokered deposits), principal and interest payments on loans, proceeds from loan sales, sales and maturities of mortgage-backed and investment securities, and FHLBP advances. The Bank uses the funds generated to support its lending and investment activities as well as any other demands for liquidity such as deposit outflows. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments, loan and security sales and the exercise of call features are greatly influenced by general interest rates, economic conditions and competition.

The objective of DNB’s asset/liability management function is to maintain consistent growth in net interest income within DNB’s policy limits. This objective is accomplished through the management of liquidity and interest rate risk, as well as customer offerings of various loan and deposit products. DNB maintains adequate liquidity to meet daily funding requirements, anticipated deposit withdrawals, or asset opportunities in a timely manner. Liquidity is also necessary to meet obligations during unusual, extraordinary or adverse operating circumstances, while avoiding a significant loss or cost. DNB’s foundation for liquidity is a stable deposit base as well as a marketable investment portfolio that provides cash flow through regular maturities or that can be used for collateral to secure funding in an emergency. As part of its liquidity management, DNB maintains assets, which comprise its liquidity (Federal funds sold, investments and interest‑bearing cash balances, 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 experiencing credit quality deterioration. DNB’s loan review procedures provide objective 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. As the U.S. economy moves through a period of recession, it is possible that delinquencies and non-performing assets may rise as the value of homes decline and DNB’s borrowers experience financial difficulty due to corporate downsizing, reduced sales and income levels, or other negative events which will impact their ability to meet their contractual loan payments. To minimize the impact on DNB’s earnings and maintain sound credit quality, management continues to aggressively monitor credit and credit relationships that may be impacted by such adverse factors.

Competition. In addition to the challenges related to the interest rate environment, community banks in Chester, Philadelphia 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 has negatively affected DNB’s net interest margin.

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To compensate for the increased competition, DNB, along with other area community banks, has aggressively sought and marketed customers who have been disenfranchised by these mergers.

To attract these customers, DNB offers deposit products and services, such as Choice Checking relationship products, and Online Banking with bill payment, external transfer and account aggregation functionality. DNB also offers a complete package of cash management services including automated clearing house services, remote deposit, payroll services, merchant services, and account payment solutions. Our broad range of Business Checking products provides solutions to meet the needs of a variety of businesses and non-profit organizations.

FDIC Insurance and Assessments. The Bank’s deposits are insured to applicable limits by the FDIC. Under 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 FDIC may take action to increase insurance premiums if the deposit insurance fund is not funded to its regulatory mandated Designated Reserve Ratio (DRR). Currently, the FDIC is required to achieve a DRR of 1.35% by September 30, 2020, and has established a target DRR of 2.0%. Under the Dodd-Frank Act, the FDIC assesses premiums from each institution based on its average consolidated total assets minus its average tangible equity, while utilizing a scorecard method to determine each institution’s risk to the deposit insurance fund. The Dodd-Frank Act also requires the FDIC, in setting assessments, to offset the effect of increasing its reserve for the deposit insurance fund on institutions with consolidated total assets of less than $10 billion. To achieve the mandated DRR consistent with these provisions of the Dodd-Frank Act, the FDIC implemented a rule in 2016 imposing a surcharge of 4.5 basis points on all insured depository institutions with consolidated total assets of $10 billion or more in addition to their regular assessments. Under the rule, the surcharge would cease once a DRR of 1.35% had been achieved or on December 31, 2018, whichever came first. On September 30, 2018, the DRR reached 1.36%, and the surcharge was eliminated.

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, respectively. 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 12 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 $12,000 in 2019.

Material Trends and Uncertainties.

DNB reported net income available to common shareholders of $2.6 million, or $0.60 per diluted share, for the quarter ended March 31, 2019, compared with $2.6 million, or $0.61 per share, for the same quarter, last year. 

There are many aspects of the economy and the Federal Reserve’s monetary policy that influence DNB’s ability to grow revenues and net income. In general, the U.S. economy is growing at a moderate pace. According to the most recent forecast released at the Federal Open Market Committee meeting on December 19, 2018, the U.S. GDP growth will slow to 2.3 percent in 2019 from 3 percent in 2018. The unemployment rate ends the year at 3.7 percent in 2018 and will fall to 3.5 percent in 2019. Inflation was forecast to be 1.9 percent in 2018 and 2019. Employment growth remains robust which, coupled with buoyant asset prices and strong consumer confidence, is sustaining income and consumption growth. Business investment is projected to strengthen as a result of major tax reform and supportive financial conditions. A pick-up in the world economy is underpinning export growth, although tensions have emerged on how best to reduce barriers to trade.

Although the national and international economies influence DNB’s results, economic conditions in southeastern Pennsylvania are more germane, as the majority of DNB’s loan and deposits relationships are with businesses and individuals within the Third Federal Reserve District. The Federal Reserve’s April 17, 2019 Beige Book summarizes the economic climate which impacts DNB’s operating environment.

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The April 17, 2019 Beige Book indicated that, on balance, aggregate business activity in the Third District resumed a slight pace of growth during the April 17, 2019  Beige Book period following a brief pause in the March 6, 2019 Beige Book period. Nonfinancial services accelerated a bit to a modest pace of growth, while manufacturing, homebuilding, and tourism resumed a slight pace of growth. Consumer spending continued to grow slightly for non-auto retail goods and held steady for autos. Weak global demand and trade uncertainty continued to constrain firm growth and prompt inventory adjustments. Labor demand continued to exceed supply in most sectors, which constrained employment growth to a modest pace, increased search times, and spurred moderate wage increases. Overall, price pressures remained modest. The firms’ outlook for growth over the next six months remained positive but edged lower overall, with about half of all firms anticipating increases in general activity and a third expecting no change.

Overall, Third District homebuilders reported an uptick in contract signings for March, putting them back on pace to nearly match 2018 levels of activity. Demand remains greatest for more affordable units. Builders noted that margins remain very thin and that land availability remains a constraint. Existing home sales continued to decline moderately across most local markets. Sellers remain sidelined, and extremely low inventories continue to constrain sales.

The Federal Reserve’s non-residential real estate contacts reported that, on balance, commercial real estate construction and leasing activity continued to edge down slightly from relatively high levels. Contractors noted that activity was about the same, but the backlog is smaller, and design firms are less busy. Demand remained strong for industrial and warehouse space; however, absorption has become difficult in smaller markets with an insufficient supply of labor.

Third District financial firms reported an uptick to a moderate pace of growth in overall loan volumes (excluding credit cards) on a year-over-year basis, but a continuation of modest growth in credit card lending. During the April 17, 2019 Beige Book Period, volumes grew in commercial real estate loans and in commercial and industrial lending. Loans grew slightly for homes and autos. Home equity lines and other consumer loans declined. A few of the Federal Reserve’s contacts voiced concerns about looser lending standards; more noted overly aggressive pricing, especially on commercial loans. Overall, the Federal Reserve’s contacts continued to note few problems with credit quality. Bankers reported that they and their customers remained largely optimistic for the remainder of 2019.

During the April 17, 2019 Beige Book Period, Third District manufacturing firms reported a slight increase in activity after noting no change in the March 6, 2019 Beige Book Period.  The percentage of firms that reported increased shipments rose, easily outpacing the percentage reporting decreases. However, the percentage of firms that reported increased new orders was only slightly higher than the percentage reporting decreases. The makers of primary and fabricated metal products and of industrial equipment tended to note gains in new orders and shipments, while the makers of chemicals, paper products, and electronic products noted some weakness or declines since the March 6, 2019 Beige Book Period. Overall, the majority of these sectoral trends for this period were weaker than those reported for the same period last year. Comments from the Federal Reserve’s contacts on current business conditions were mainly negative and often cited decreased global demand. Manufacturers continued to expect general activity to increase over the next six months. However, expectations were somewhat lower this period, as were expectations of shipments, new orders, and planned capital expenditures.

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, compared to other areas of the country. DNB’s franchise spans Chester, Philadelphia and Delaware counties in southeastern Pennsylvania and the majority of loans and deposits relationships are with businesses and individuals within the Third Federal Reserve District.

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 Reform and Legislation.From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of DNB in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. DNB cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on its financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to DNB or our subsidiaries could have a material effect on our business, financial condition and results of operations.

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

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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 was 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 implemented 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 no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provided that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) were 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 Teir 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contained 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 be utilized 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 principles. 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 preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Statements of Financial Condition, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Amounts subject to significant estimates are items such as the allowance for credit losses and lending related commitments, the fair value of repossessed assets, pension and post-retirement obligations, the fair value of financial instruments, other-than-temporary impairments of investment securities, the valuation of assets acquired and liabilities assumed in business combinations, and the valuations of goodwill for impairment. Among other effects, such changes could result in future impairments of investment securities, and establishment of allowances for credit losses and lending related commitments as well as increased benefit plans’ expenses.  

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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 $1.17 billion at March 31, 2019, compared to $1.16 billion at December 31, 2018. The $8.5 million increase in total assets was primarily attributable to a $17.6 million increase in cash and cash equivalents offset by a $1.3 million decrease in net loans and a $10.5 million decrease in investment securities.

Investment Securities. Investment securities at March 31, 2019 were $148.1 million, compared to $158.7 million at December 31, 2018.  The $10.5 million decrease in investment securities was primarily due to $22.7 million in principal pay-downs, calls and maturities, offset by $11.3 million in purchases of investment securities, and an  $810,000decrease in unrealized loss of the AFS portfolio.

Gross Loans. DNB’s loans held for investment decreased $1.3 million to $933.7 million at March 31, 2019, compared to $935.0 million at December 31, 2018. Total commercial loans decreased $92,000 and residential loans increased $1.1 million, while consumer loans decreased $2.3 million.

Deposits. Deposits were $980.3 million at March 31, 2019, compared to $984.6 million at December 31, 2018. Deposits decreased $4.3 million or 0.44% during the three month period ended March 31, 2019. Core deposits, which are comprised of demand, NOW, money markets and savings accounts, decreased by $3.7 million, time deposits increased by $843,000 and brokered deposits decreased by $1.5 million. 

Borrowings.Borrowings were $61.2 million at March 31, 2019, compared to $55.3 million at December 31, 2018. The increase of $6.0 million or 10.80% was primarily due to a $9.0 million increase in FHLBP advances offset by a $3.0 million decrease in other borrowings.

Stockholders’ Equity.Stockholders' equity was $115.0 million at March 31, 2019, compared to $111.8 million at December 31, 2018. The increase in stockholders’ equity was primarily a result of year-to-date earnings of $2.6 million, other comprehensive income of $641,000, sales of treasury shares totaling $154,000, and restricted stock compensation expense of $61,000. These additions to stockholders’ equity were partially offset by $303,000 of dividends paid on DNB’s common stock.

RESULTS OF OPERATIONS

SUMMARY

Net income for the three month period ended March 31, 2019 was $2.6 million, or $0.60 per diluted share, compared to $2.6 million,or $0.61 per diluted share, for the same period in 2018. The $26,000 decrease in net income in the first quarter of 2019 compared to the first quarter of 2018 was primarily attributable to a $548,000 increase in non-interest expense (primarily due to increased professional and consulting and loss on sale or write down of OREO) and a $25,000 increase in income tax expense, offset by a $371,000 increase in net interest income before provision (primarily due to increased interest income on loans) and a $175,000 decrease in provision for credit losses.

NET INTEREST INCOME

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

Net interest income for the three month period ended March 31, 2019 was $9.4 million, compared to $9.0 million for the same period in 2018. Interest income for the three month period ended March 31, 2019 was $12.4 million, compared to $10.9 million for the same period in 2018. The $1.4 million increase in interest income in the first quarter of 2019, compared to the first quarter of 2018, was primarily due to increases of $1.4 million in interest and fees on loans and $17,000 in interest and dividends on investment securities and $22,000 in interest on cash and cash equivalents. The weighted average yield on total interest-earning assets was 4.51%for the three month period ended March 31, 2019, compared to 4.24%for the same period in 2018. Interest expense for the three month period ended March 31, 2019 was $3.0 million, compared to $1.9 million for the same period in 2018. The $1.1 million increase in interest expense in the firstquarter of 2019, compared to the first quarter of 2018, was primarily due to an increase of $1.1 million in interest on deposits offset by a decrease of  $60,000 in interest on borrowings. The composite cost of funds for the three month period ended March 31, 2019 was 1.16%, compared to 0.78% for the same period in 2018.  

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Interest on loans was $11.3 million for the three month period ended March 31, 2019, compared to $9.9 million for the same period in 2018. The average balance of loans was $935.2 million, with a tax equivalent average yield of 4.90% (a non-GAAP measure) for the first quarter of 2019, compared to $851.6 million, with a tax equivalent average yield of 4.71% (a non-GAAP measure) for the same period in 2018. See the following table for a reconciliation of the non-GAAP measure “tax equivalent average yield on loans.”

Tax equivalent average yield on loans (Non-GAAP)
	Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Interest and fees on loans (GAAP)	$	11,290		$	9,882
Tax adjustment		25			28
Tax equivalent interest and fees on loans (Non-GAAP)	$	11,315		$	9,910
Average balance of loans	$	935,169		$	851,623
Tax equivalent average yield on loans (Non-GAAP)		4.90	%		4.71	%

Interest and dividends on investment securities was $1.0million for the three month period ended March 31, 2019, compared to $1.0 million for the same period in 2018. The average balance of investment securities was $165.5 million with a tax equivalent average yield of 2.60% (a non-GAAP measure) for the first quarter of 2019, compared to $182.7 million with a tax equivalent average yield of 2.33% (a non-GAAP measure) for the same period in 2018. See the following table for a reconciliation of the non-GAAP measure “tax equivalent average yield on investment securities.”

Tax equivalent average yield on investment securities (Non-GAAP)
	Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Interest on tax exempt investment securities (GAAP)	$	1,027		$	1,010
Tax adjustment		50			52
Tax equivalent interest on tax-exempt investment securities (Non-GAAP)	$	1,077		$	1,062
Average balance of investment securities	$	165,517		$	182,653
Tax equivalent average yield on investment securities (Non-GAAP)		2.60	%		2.33	%

Interest on deposits was $2.5 million for the three month period ended March 31, 2019, compared to $1.4 million for the same period in 2018. The average balance of deposits was $971.9 million, with an average rate of 1.04% for the first quarter of 2019, compared to $872.9 million, with an average rate of 0.63% for the same period in 2018.  

Interest on borrowings was $472,000for the three month period ended March 31, 2019, compared to $532,000 for the same period in 2018. The average balance of borrowings was $66.4 million, with an average rate of 2.87% for the first quarter of 2019, compared to $108.0 million, with an average rate of 1.99% for the same period in 2018.

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”). Based on reviews and analyses by regulators, additional allowances may be required in the future.

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

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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 DNB’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. New appraisal values we have obtained for existing loans have generally been consistent with trends indicated by Case-Schiller and other indices.

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

There was a $200,000 provision made during the three month period ended March 31, 2019, compared to $375,000 for the same period in 2018. DNB’s percentage of allowance for credit losses to total loans was 0.72% at March 31, 2019 compared to 0.71% and 0.71% at December 31, 2018 and March 31, 2018, respectively. Net charge-offs were $156,000, $368,000, and $73,000 during the three months ended March 31, 2019, year ended December 31, 2018, and three months ended March 31, 2018, respectively. The percentage of net charge-offs to total average loans were 0.02%, 0.04%, and 0.01% for those same respective periods. Management believes that the allowance for credit losses is adequate, but continues to monitor it along with other performance metrics including those ratios related to non-performing loans. Management is not aware of any potential problem loans, which were accruing and current at March 31, 2019, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms and that would result in a significant loss to DNB. Non-performing loans decreased $1.2 million during the three month period ended March 31, 2019.  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.

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

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

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

As of March 31, 2019, DNB had $8.1 million of non-performing assets, which included $4.6 million of non-performing loans and $3.5 million of OREO and other repossessed assets. This compares to $10.8 million of non-performing assets at December 31, 2018 which included $5.8 million of non-performing loans and $5.1 million of OREO and other repossessed assets. Loans are reviewed for impairment in accordance with FASB ASC 310-10-35. Impaired loans can either be secured or unsecured, not including large groups of smaller balance loans that are collectively evaluated. Impairment is measured by the difference between the loan amount and the present value of the future cash flow discounted at the loan’s effective interest rate. Management measures loans for impairment by using the fair value of collateral for collateral dependent loans. In general, management reduces the amount of the appraisal by the estimated cost of acquisition and disposition of the underlying collateral and compares that adjusted value with DNB’s carrying value. DNB establishes a specific valuation allowance on impaired loans that have a collateral shortfall and/or cashflow shortfalls, including estimated costs to sell in comparison to the carrying value of the loan. Of the $8.2 million of impaired loans ($4.6 million of non-performing loans, $3.1 million of performing TDRs, and a $521,000 performing ASC 310-30 loan) at March 31, 2019, $718,000 had valuation allowances of $201,000 and $7.5 million had no specific allowance. Of the $7.8 million of impaired loans ($5.5 million of non-performing loans, $1.8 million of performing TDRs, and a $514,000 performing ASC 310-30 loan) at December 31, 2018, $1.8 million had valuation allowances of $285,000 and $6.0 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 no valuation was necessary. During the quarter ended March 31, 2019, DNB recognized $168,000 in total charge-offs, $156,000 of which related to impaired loans. An impaired loan may not represent an expected loss.

We typically order new third-party appraisals or collateral valuations when a loan becomes impaired or is transferred to OREO. This is done within two weeks of a loan becoming impaired or a loan moving to OREO. It generally takes two to eight weeks to receive the appraisals, depending on the type of property being appraised. We recognize any provision or related charge-off within two weeks of receiving the appraisal, after the appraisal has been reviewed by DNB. We generally order a new appraisal for all impaired real estate loans having a balance of $250,000 or higher, every twelve to twenty-four months, dependent upon management’s assessment of trends in relevant markets and property types. 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 our expected costs to sell the asset.

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Analysis of Allowance for Credit Losses

(Dollars in thousands)

	Three Months Ended		Year Ended		Three Months Ended
	March 31, 2019		December 31, 2018		March 31, 2018
Beginning balance	$	6,675	$	5,843	$	5,843
Provisions		200		1,200		375
Charge-offs:
Residential mortgage		-		(178)		(34)
Commercial mortgage		(82)		(249)		(13)
Commercial:
Commercial term		(69)		(243)		(17)
Commercial construction		-		-		-
Consumer:
Home equity		-		-		-
Other		(17)		(72)		(12)
Total charged off		(168)		(742)		(76)
Recoveries:
Residential mortgage		4		341		1
Commercial mortgage		-		22		-
Commercial:
Commercial term		8		4		2
Commercial construction		-		5		-
Consumer:
Home Equity		-		-		-
Other		-		2		-
Total recoveries		12		374		3
Ending balance	$	6,719	$	6,675	$	6,145

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

Composition of Allowance for Credit Losses

(Dollars in thousands)

		March 31, 2019				December 31, 2018				March 31, 2018
			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	$	156	11	%	$	161	11	%	$	226	11	%
Commercial mortgage		3,493	55			3,647	57			2,987	58
Commercial:
Commercial term		1,189	20			1,062	18			904	15
Commercial construction		1,080	8			1,032	8			1,219	9
Consumer:
Home equity		183	5			190	5			176	6
Other		43	1			46	1			55	1
Unallocated		575	-			537	-			578	-
Total	$	6,719	100	%	$	6,675	100	%	$	6,145	100	%
Reserve for unfunded loan commitments	$	424			$	398			$	309

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, mortgage loans, SBA loans and OREO properties. In addition, DNB receives fees for cash management, mortgage banking, remote capture, merchant services, debit cards, safe deposit box rentals and similar activities.

Non-interest income for the three month period ended March 31, 2019 was $1.3 million, compared to $1.3 million for the same period in 2018.  The $1,000 increase was primarily due to increases of $13,000 in mortgage banking, $10,000 in wealth management and $3,000 in gains on sale of investment securities, offset by decreases of $22,000 in service charges (mostly NSF fees) and $3,000 in

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other fees (mostly servicing fees).  

NON-INTEREST EXPENSE

Non-interest expense for the three month period ended March 31, 2019 was $7.3 million, compared to $6.7 million for the same period in 2018, an increase of $548,000. The increase was primarily due to increases of $174,000 in professional and consulting, $113,000 in loss on sale or write down of OREO, $81,000 in salaries and employee benefits (primarily due to open positions in 2018), $66,000 in other expenses, $52,000 in furniture and equipment (primarily maintenance agreements), $28,000 in occupancy (primarily operating lease expenses), $18,000 in PA shares tax, and $13,000 in advertising and marketing.

INCOME TAXES

Income tax expense for the three month period ended March 31, 2019 was $607,000 compared to $582,000 for the same period in 2018. The effective tax rate for the three month period ended March 31, 2019 was 19.0% compared to 18.2% for the same period in 2018. Income tax expense for each period differs from the amount determined at the statutory rate, due to tax-exempt income on loans and investment securities and DNB's ownership of BOLI policies.

ASSET QUALITY

DNB works diligently to improve asset quality by adhering to strict underwriting standards and improving lending policies and procedures. Non-performing assets totaled $8.1 million at March 31, 2019 compared to $10.8 million at December 31, 2018 and $13.4 million at March 31, 2018. Loans acquired in connection with the purchase of ERB have been recorded at fair value, in accordance with GAAP, and are based on an initial estimate of the expected cash flows, including a reduction for estimated credit losses, and without carryover of the respective portfolio’s historical allowance for credit losses. DNB will continually evaluate the loans acquired from ERB for additional impairment as part of our normal allowance review process. Non-performing assets have, and will continue to have, an impact on earnings; therefore management intends to continue working aggressively to reduce the level of such assets.

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

DNB’s Credit Policy Committee monitors the performance of the loan portfolio to identify potential problem assets on a timely basis. Committee members meet to design, implement and review asset recovery strategies, which serve to maximize the recovery of each troubled asset. As of March 31, 2019, DNB had $10.5 million of substandard loans. Of the $10.5 million, $5.9 million are performing and are believed to require supervision and review greater than loans rated pass or special mention; 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, 2018 was $6.3 million. DNB had $15.1 million of special mention loans at March 31, 2019 compared to $7.3 million at December 31, 2018. The increase in special mention loans during the three months ended March 31, 2019 was primarily due to rating downgrades in the portfolio, specifically $7.3 million of commercial mortgage loans, $433,000 of residential mortgages, $57,000 in commercial term loans, $39,000 in commercial construction loans, and $13,000 in home equity loans. The majority of the loans are secured by commercial real estate, with lesser amounts being secured by residential real estate, inventory and receivables.

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

Non-Performing Assets

(Dollars in thousands)

	March 31, 2019			December 31, 2018			March 31, 2018
Non-accrual loans:
Residential mortgage	$	792		$	905		$	2,033
Commercial mortgage		1,221			1,307			2,088
Commercial:
Commercial term		2,045			2,300			3,015
Commercial construction		-			476			497
Consumer:
Home equity		391			391			464
Other		145			167			311
Total non-accrual loans		4,594			5,546			8,408
Loans 90 days past due and still accruing		-			233			-
Total non-performing loans		4,594			5,779			8,408
Other real estate owned & other repossessed property		3,466			5,051			4,993
Total non-performing assets	$	8,060		$	10,830		$	13,401
Asset quality ratios:
Non-performing loans to total loans		0.49	%		0.62	%		0.97	%
Non-performing assets to total assets		0.69			0.94			1.22
Allowance for credit losses to:
Total loans		0.72			0.71			0.71
Non-performing loans		146.3			115.5			73.1

Troubled Debt Restructurings Loans whose terms are modified are classified as troubled debt restructurings (“TDR”) if DNB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired. The recorded investments in troubled debt restructured loans at March 31, 2019 and December 31, 2018 are as follows:

	March 31, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,025	$	2,177	$	1,990
Commercial mortgage		992		992		955
Consumer:
Home equity		148		148		139
Other		40		42		30
Total	$	3,205	$	3,359	$	3,114
	December 31, 2018
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	676	$	805	$	630
Commercial mortgage		992		992		962
Consumer:
Home equity		148		148		140
Other		40		42		30
Total	$	1,856	$	1,987	$	1,762

At March 31, 2019, DNB had ten TDRs with recorded investment totaling $3,114,000, all of which are accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of March 31, 2019, there were no defaulted TDRs as all TDRs were current

42

with respect to their associated forbearance agreements. There were no defaults on TDRs during the three months ended March 31, 2019.

At December 31, 2018, DNB had nine TDRs with recorded investment totaling $1,762,000, all of which were accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. As of December 31, 2018, DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of December 31, 2018, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs within twelve months of restructure during 2018. DNB classified one residential mortgage loan totaling $73,000 as TDR during the year ended December 31, 2018.

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

	At and For the		At and For the		At and For the
	Three Months Ended		Year Ended		Three Months Ended
(Dollars in thousands)	March 31, 2019		December 31, 2018		March 31, 2018
Total recorded investment	$	8,230	$	7,822	$	10,304
Impaired loans with a specific allowance		718		1,808		1,107
Impaired loans without a specific allowance		7,512		6,014		9,197
Average recorded investment		7,786		9,312		9,718
Specific allowance allocation		201		285		174
Total principal and interest collected		129		204		157
Interest income recorded		25		80		22

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 liquidity, which totaled $111.1 million at March 31, 2019 compared to $97.4 million at December 31, 2018. Liquidity includes investments and restricted stock, Federal funds sold and cash and due from banks, less the amount of securities required to be pledged for certain liabilities. 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 $557.4 million at March 31, 2019. As a member of the FHLB, we are eligible to borrow up to a specific credit limit which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of March 31, 2019, DNB’s Maximum Borrowing Capacity with the FHLBP was $497.4 million. At March 31, 2019, DNB had borrowed $41.9 million and the FHLB had issued letters of credit on DNB's behalf, totaling $50.0 million against its available credit lines. At March 31, 2019, DNB also had available $60.0 million of unsecured federal funds lines of credit with other financial institutions as well as $509.2 million of available short or long term funding through several agreements and programs with brokers. Management believes that DNB has adequate resources to meet its short-term and long-term funding requirements.

At March 31, 2019, DNB had $197.6 million in un-funded loan commitments. Management anticipates these commitments will be funded by means of normal cash flows. Certificates of deposit greater than or equal to $250,000 scheduled to mature in one year or less from March 31, 2019totaled $38.6 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 Bank has met the definition of “well capitalized” for regulatory purposes on March 31, 2019.  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 Federal Reserve Bank’s (“FRB”) minimum leverage ratio requirements for bank holding companies and meets other requirements to be considered “well capitalized” (see additional discussion included in Note 17 of DNB’s December 31, 2018 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

43

addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016. DNB must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% to 2.50% by 2019. The capital conservation buffer is 2.50% and 1.875% for 2019 and 2018, respectively.

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

										To Be Well
						For Capital				Capitalized Under
						Adequacy				Prompt Corrective
		Actual				Purposes*				Action Provisions
(Dollars in thousands)		Amount	Ratio			Amount	Ratio			Amount	Ratio
DNB Financial Corporation
March 31, 2019
Total risk-based capital	$	127,362	13.80	%	$	73,823	8.00	%		N/A	N/A
Common Equity Tier 1 capital		101,469	11.00			41,526	4.50			N/A	N/A
Tier 1 risk-based capital		110,469	11.97			55,367	6.00			N/A	N/A
Tier 1 (leverage) capital		110,469	9.95			45,795	4.00			N/A	N/A
December 31, 2018
Total risk-based capital	$	124,769	13.61	%	$	73,538	8.00	%		N/A	N/A
Common equity tier 1 capital		98,949	10.79			41,365	4.50			N/A	N/A
Tier 1 risk-based capital		107,949	11.77			55,153	6.00			N/A	N/A
Tier 1 (leverage) capital		107,949	9.48			45,557	4.00			N/A	N/A
DNB First, N.A.
March 31, 2019
Total risk-based capital	$	125,790	13.66	%	$	73,685	8.00	%	$	92,107	10.00	%
Common Equity Tier 1 capital		118,647	12.88			41,448	4.50			59,869	6.50
Tier 1 risk-based capital		118,647	12.88			55,264	6.00			73,685	8.00
Tier 1 (leverage) capital		118,647	10.38			45,742	4.00			57,178	5.00
December 31, 2018
Total risk-based capital	$	123,239	13.46	%	$	73,399	8.00	%	$	91,748	10.00	%
Common equity tier 1 capital		116,169	12.69			41,287	4.50			59,636	6.50
Tier 1 risk-based capital		116,169	12.69			55,049	6.00			73,399	8.00
Tier 1 (leverage) capital		116,169	10.21			45,503	4.00			56,879	5.00
*Does not include capital conservation buffer of 2.5% and 1.875% for March 31, 2019 and December 31, 2018, respectively.

In addition, 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.

44

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To measure the impacts of longer-term asset and liability mismatches beyond two years, DNB utilizes an Economic Value of Equity ("EVE") model. The EVE model measures the potential price risk of equity to changes in interest rates and factors in the optionality included on the balance sheet. EVE analysis is used to dynamically model the present value of asset and liability cash flows, with rates ranging up or down 200 basis points. The EVE is likely to be different if rates change. Results falling outside prescribed ranges may require action by management. At March 31, 2019 and December 31, 2018, DNB's variance in the EVE as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points was within its negative 3% guideline, as shown in the following table. The change as a percentage of the present value of equity with a 200 basis point increase was within DNB's negative 25% guideline at March 31, 2019 and December 31, 2018.

(Dollars in thousands)		March 31, 2019						December 31, 2018
Change in rates		Flat		-200bp		+200bp		Flat		-200bp		+200bp
EVE	$	140,038	$	146,231	$	138,289	$	153,190	$	148,270	$	145,420
Change				6,193		(1,749)				(4,920)		(7,770)
Change as % of assets				0.5%		(0.1%)				(0.4%)		(0.7%)
Change as % of PV equity				4.4%		(1.2%)				(3.2%)		(5.1%)

ITEM 4- CONTROLS AND PROCEDURES

DNB’s Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March 31, 2019, the end of the period covered by this report, in accordance with the requirements of Exchange Act Rule 240.13a-15(b). Based on that evaluation, Management has concluded that DNB’s current disclosure controls and procedures are effective.

Management of DNB is responsible for establishing and maintaining adequate internal control over financial reporting for DNB, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. There was no change in DNB’s “internal control over financial reporting” (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2019, 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

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Risk Factors” included within the 2018 Form 10-K. The risks described therein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

There were no unregistered sales of equity securities during the quarter ended March 31, 2019. The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended March 31, 2019:

				Total Number of		Maximum Number
				Shares Purchased		of Shares that May
	Total Number		Average	as Part of Publicly		Yet Be Purchased
	Of Shares		Price Paid	Announced Plans		Under the Plans or
Period	Purchased		Per Share	or Programs		Programs (a)
January 1, 2019 – January 31, 2019	-	$	-	-	$	63,016
February 1, 2019 – February 28, 2019	-		-	-	$	63,016
March 1, 2019 – March 31, 2019	-		-	-	$	63,016
Total	-	$	-	-	$	63,016

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

45

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 on April 5, 2016 and incorporated herein by reference.
3.1	Amended and Restated Articles of Incorporation, as amended effective June 30, 2017, filed as Exhibit 3.1 to Form 8-K on July 3, 2017 and incorporated herein by reference.
3.2	Bylaws of the Registrant as amended January 27, 2016, filed as Exhibit 3.1 to Form 8-K on January 29, 2016 and incorporated herein by reference.
31.1	Rule 13a-14(a)/15d-14 (a) Certification of Chief Executive Officer, filed herewith.
31.2	Rule 13a-14(a)/15d-14 (a) Certification of Chief Financial Officer, filed herewith.
32.1	Section 1350 Certification of Chief Executive Officer, filed herewith.
32.2	Section 1350 Certification of Chief Financial Officer, filed herewith.
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

46

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

overmber
		DNB FINANCIAL CORPORATION
May 6, 2019	BY:	/s/ William J. Hieb
		William J. Hieb, Chief Executive Officer, President and Director
May 6, 2019	BY:	/s/ Gerald F. Sopp
		Gerald F. Sopp, Chief Financial Officer and Executive Vice President

47

Exhibit Index

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 on April 5, 2016 and incorporated herein by reference.
3.1	Amended and Restated Articles of Incorporation, as amended effective June 30, 2017, filed as Exhibit 3.1 to Form 8-K on July 3, 2017 and incorporated herein by reference.
3.2	Bylaws of the Registrant as amended January 27, 2016, filed as Exhibit 3.1 to Form 8-K on January 29, 2016 and incorporated herein by reference.
31.1	Rule 13a-14(a)/15d-14 (a) Certification of Chief Executive Officer, filed herewith.
31.2	Rule 13a-14(a)/15d-14 (a) Certification of Chief Financial Officer, filed herewith.
32.1	Section 1350 Certification of Chief Executive Officer, filed herewith.
32.2	Section 1350 Certification of Chief Financial Officer, filed herewith.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

48

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT

TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William J. Hieb, certify that:

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

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

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

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

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

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

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

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

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

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

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

/s/ William J.  Hieb

William J.  Hieb

Chief Executive Officer & President

May 6, 2019

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT

TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Gerald F. Sopp, certify that:

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

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

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

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

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

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

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

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

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

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

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

/s/ Gerald F. Sopp

Gerald F. Sopp

Chief Financial Officer

May 6, 2019

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DNB Financial Corporation (the "Registrant") on Form 10-Q for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Hieb, Chief Executive Officer and President of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ William J.  Hieb

William J. Hieb

Chief Executive Officer & President

May 6, 2019

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DNB Financial Corporation (the "Registrant") on Form 10-Q for the period ended  March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald F. Sopp, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Gerald F. Sopp

Gerald F. Sopp

Chief Financial Officer

May 6, 2019

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	Mar. 31, 2019	May 06, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Entity Registrant Name	DNB FINANCIAL CORP /PA/
Entity Central Index Key	0000713671
Trading Symbol	DNBF
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		4,331,121

XML

Consolidated Statements of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 34,893	$ 17,321
Cash and cash equivalents	34,893	17,321
Available-for-sale investment securities at fair value (amortized cost of $88,434 and $98,765)	87,122	96,643
Held-to-maturity investment securities (fair value of $60,906 and $61,135)	61,000	62,026
Total investment securities	148,122	158,669
Loans held for sale	449	419
Loans	933,697	934,971
Allowance for credit losses	(6,719)	(6,675)
Net loans	926,978	928,296
Restricted stock	6,389	5,616
Office property and equipment, net	7,360	7,636
Operating lease right-of-use asset	3,976
Accrued interest receivable	4,396	4,207
Other real estate owned & other repossessed property	3,466	5,051
Bank owned life insurance (BOLI)	9,582	9,530
Core deposit intangible	322	343
Goodwill	15,525	15,525
Net deferred taxes	2,407	2,762
Other assets	2,829	2,860
Total assets	1,166,694	1,158,235
Liabilities
Non-interest-bearing deposits	166,806	164,746
Interest-bearing deposits:
NOW	233,077	236,071
Money market	231,524	235,023
Savings	78,748	77,979
Time	162,939	162,096
Brokered deposits	107,163	108,651
Total deposits	980,257	984,566
Federal Home Loan Bank of Pittsburgh (FHLBP) advances	41,918	32,935
Junior subordinated debentures	9,279	9,279
Subordinated debt	9,750	9,750
Other borrowings	289	3,305
Total borrowings	61,236	55,269
Accrued interest payable	699	646
Other liabilities	5,158	5,908
Operating lease liability	4,358
Total liabilities	1,051,708	1,046,389
Stockholders' Equity
Common stock, $1.00 par value; 20,000,000 shares authorized; 4,381,872 and 4,381,872 issued, respectively; 4,327,415 and 4,321,745 outstanding, respectively	4,382	4,391
Treasury stock, at cost; 54,457 and 60,127 shares, respectively	(1,027)	(1,130)
Surplus	69,454	69,333
Retained earnings	44,507	42,223
Accumulated other comprehensive loss, net	(2,330)	(2,971)
Total stockholders' equity	114,986	111,846
Total liabilities and stockholders' equity	$ 1,166,694	$ 1,158,235

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Consolidated Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Consolidated Statements of Financial Condition [Abstract]
Available-for-sale Securities, Amortized Cost	$ 88,434	$ 98,765
Held-to-maturity Securities, Fair Value	$ 60,906	$ 61,135
Common stock par value per share	$ 1.00	$ 1.00
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares, issued	4,381,872	4,381,872
Common stock, shares, outstanding	4,327,415	4,321,745
Treasury stock, shares	54,457	60,127

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest Income:
Interest and fees on loans	$ 11,290	$ 9,882
Interest and dividends on investment securities: Taxable	811	793
Interest and dividends on investment securities: Exempt from federal taxes	216	217
Interest on cash and cash equivalents	43	21
Total interest and dividend income	12,360	10,913
Interest Expense:
Interest on NOW, money market and savings	1,051	830
Interest on time deposits	828	325
Interest on brokered deposits	611	199
Interest on FHLBP advances	225	301
Interest on repurchase agreements		6
Interest on junior subordinated debentures	127	105
Interest on subordinated debt	104	104
Interest on other borrowings	16	16
Total interest expense	2,962	1,886
Net interest income	9,398	9,027
Provision for credit losses	200	375
Net interest income after provision for credit losses	9,198	8,652
Non-interest Income:
Increase in cash surrender value of BOLI	52	52
Gains on sale of investment securities, net	3
Total non-interest income	1,274	1,273
Non-interest Expense:
Salaries and employee benefits	3,853	3,772
Furniture and equipment	541	489
Occupancy	725	697
Professional and consulting	577	403
Advertising and marketing	195	182
FDIC insurance	114	118
PA shares tax	260	242
Telecommunications	88	81
Loss on sale or write down of OREO, net	113
Other expenses	812	746
Total non-interest expense	7,278	6,730
Income before income tax expense	3,194	3,195
Income tax expense	607	582
Net income	$ 2,587	$ 2,613
Earnings per common share:
Basic	$ 0.60	$ 0.61
Diluted	0.60	0.61
Cash dividends per common share	$ 0.07	$ 0.07
Weighted average common shares outstanding:
Basic	4,327,226	4,290,971
Diluted	4,329,991	4,308,847
Service Charges [Member]
Non-interest Income:
Non-interest Income	$ 291	$ 313
Wealth Management [Member]
Non-interest Income:
Non-interest Income	445	435
Mortgage Banking [Member]
Non-interest Income:
Non-interest Income	74	61
Other Fees [Member]
Non-interest Income:
Non-interest Income	$ 409	$ 412

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 2,587	$ 2,613
Unrealized holding gains (losses) arising during the period
Before tax amount	810	(1,014)
Tax effect	(169)	213
Total other comprehensive income (loss)	641	(801)
Total comprehensive income	$ 3,228	$ 1,812

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Treasury Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at Dec. 31, 2017	$ 4,379	$ (1,429)	$ 69,110	$ 32,272	$ (2,390)	$ 101,942
Net income				2,613		2,613
Other comprehensive loss					(801)	(801)
Restricted stock compensation expense	4		92			96
Exercise of stock options	1		(1)
Shares withheld for employee taxes on stock option exercise and share award vest	(1)		(36)			(37)
Cash dividends - common				(300)		(300)
Sale of treasury shares to 401(k)		58	50			108
Sale of treasury shares to deferred comp. plan		26	23			49
Adoption impact - ASU 2018-02				471	(471)
Balance at Mar. 31, 2018	4,383	(1,345)	69,238	34,585	(3,191)	103,670
Balance at Dec. 31, 2018	4,391	(1,130)	69,333	42,223	(2,971)	111,846
Net income				2,587		2,587
Other comprehensive loss					641	641
Restricted stock compensation expense	9		70			61
Cash dividends - common				(303)		(303)
Sale of treasury shares to 401(k)		72	35			107
Sale of treasury shares to deferred comp. plan		31	16			47
Balance at Mar. 31, 2019	$ 4,382	$ (1,027)	$ 69,454	$ 44,507	$ (2,330)	$ 114,986

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Restricted stock compensation expense, shares		896
Exercise of stock options, shares		966
Cash dividends- common stock per share	$ 0.07	$ 0.07
Sale of treasury shares to 401(k), shares	3,931	3,230
Sale of treasury shares to deferred compensation plan, shares	1,739	1,480

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash Flows From Operating Activities:
Net income	$ 2,587	$ 2,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	350	384
Provision for credit losses	200	375
Stock based compensation	61	96
Non-cash funding of retirement plans	154	157
Net gain on sale of securities	(3)
Net loss on sale or write down of OREO and other repossessed property	113
Earnings from investment in BOLI	(52)	(52)
Deferred tax expense	185	214
Proceeds from sales of mortgage loans	3,632	3,408
Mortgage loans originated for sale	(3,588)	(3,342)
Gain on sale of mortgage loans	(74)	(61)
Increase in accrued interest receivable	(189)	(160)
Decrease (increase) in other assets	31	(271)
Increase (decrease) in accrued interest payable	53	(60)
(Decrease) increase in other liabilities	(750)	577
Amortization of operating lease right-of-use asset	566
Accretion of operating lease liability	(184)
Net Cash Provided by Operating Activities	3,092	3,878
Activity in available-for-sale securities:
Maturities, repayments and calls	21,617	1,803
Purchases	(11,346)
Activity in held-to-maturity securities:
Maturities, repayments and calls	1,063	199
Net (increase) decrease in restricted stock	(773)	278
Net decrease (increase) in loans	614	(18,535)
Purchases of office property and equipment	(26)	(28)
Purchase of third party ownership in OREO	(165)
Proceeds from sale of OREO and other repossessed property	2,141	33
Net Cash Used in Investing Activities	13,125	(16,250)
Cash Flows From Financing Activities:
Net (decrease) increase in deposits	(4,309)	30,583
Repayment of FHLBP advances	(56,017)	(71,020)
Funding of FHLBP advances	65,000	60,000
Net decrease in repurchase agreements		(1,306)
Decrease in other borrowings	(3,016)	(2,387)
Dividends paid	(303)	(300)
Payment of employee taxes on stock option exercise and share award vest		(37)
Net Cash Provided by Financing Activities	1,355	15,533
Net Change in Cash and Cash Equivalents	17,572	3,161
Cash and Cash Equivalents at Beginning of Period	17,321	10,917
Cash and Cash Equivalents at End of Period	34,893	14,078
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for: Interest	2,909	1,946
Supplemental Disclosure of Non-cash Flow Information:
Transfers from loans to other real estate owned and other repossessed property	$ 504	$ 14

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Basis of Presentation

3 Months Ended

Mar. 31, 2019

Summary Of Significant Accounting Policies [Abstract]

Basis of Presentation

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three months ended March 31, 2019 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, 2018. 

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2019 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements-  

Accounting Developments Affecting DNB

In May 2014, the FASB issued ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016 and 2017, the FASB issued ASU Nos. 2016-10, 2016-12, 2016-20, and 2017-13 that provided additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements.

DNB adopted the new standards discussed above effective January 1, 2018 using the modified retrospective approach. A significant majority of DNB’s revenues are explicitly excluded from the scope of the new guidance including interest, dividend income, BOLI, gain/loss on sale of loans and investments on the Consolidated Statements of Income. The adoption of ASU 2014-09 did not require a cumulative adjustment to the opening balance of retained earnings as of January 1, 2018 and did not have a material impact on DNB’s Consolidated Statements of Financial Condition, Comprehensive Income, Stockholders’ Equity or Cash Flows for the year ended December 31, 2018. Non-interest income components in the scope of Topic 606 continue to be recognized when DNB’s performance obligations are complete or at the time of sale after a customer’s transaction posts in the account. Disclosures required for DNB’s revenue streams in the scope of ASU 2014-09 are included in Non-Interest Income in the following table.

Non-interest Income Non-interest income includes revenue from contracts with customers in the scope of ASU 2014-09 as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Non-interest Income:
Service charges:
Non-sufficient funds charges	$	133	$	159
Business analysis charges		46		41
Cycle charges		20		23
Lockbox fees		47		44
Stop payment fees		4		4
Wire transfer fees		22		21
Other service charges		19		21
Total service charges		291		313
Wealth management:
DNB Investments & Insurance		76		89
DNB First Investment Management & Trust		369		346
Total wealth management		445		435
Other fee income:
Cardholder interchange fees		253		245
Safe deposit box		23		24
Check printing		24		23
Merchant card processing		42		48
ATM surcharges for non-DNB customers		15		17
Other fee income		14		14
Total other fee income		371		371
Total Revenue from contracts with customers		1,107		1,119
Total Revenue not within the scope of ASC 606		167		154
Total non-interest income	$	1,274	$	1,273

Service charges on deposit accounts are recorded monthly when DNB’s performance obligations are complete. Deposit balances are disclosed in the Consolidated Statement of Condition. For transaction-based service charges such as non-sufficient funds charges, wire transfer fees, stop payment fees, ATM fees, and other transaction-based fees, revenue is recognized at the time of sale after the transaction posts in the customer’s account.

Wealth management revenue includes non-deposit products and services offered under the names “DNB Investment & Insurance” and “DNB First Investment Management & Trust”.

Through a third-party marketing agreement with Cetera Investment Services, LLC (“Cetera”), DNB Investment & Insurance offers a complete line of investment and insurance products. DNB’s performance obligation as an agent is to arrange for the sale of products by Cetera. Monthly, DNB recognizes commission fees in the amounts to which it is entitled in accordance with the terms of the marketing agreement for products sold. Shortly after a sale, the product provider remits the commission payment through Cetera to the Company, and the Company recognizes the revenue. DNB records revenue net of the cost of the services.

DNB First Investment Management & Trust offers a full line of investment and fiduciary services. DNB’s performance obligation is to manage investments, estates and trusts. Investment management and trust income is primarily comprised of fees earned from the management and administration of trusts, estates and investment agency portfolios. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized quarterly, based upon the quarter-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after quarter end through a direct charge to customers’ accounts. While managing estates and trusts, DNB contracts with a third-party tax preparation service. For tax preparation services, DNB’s obligation as an agent is to arrange for the performance of services by the third party. As tax services are rendered, DNB records revenue net of the cost of the services.

Cardholder interchange fees consist of revenue DNB is entitled per agreements with third party debit and credit card providers. DNB’s performance obligation as an agent is to arrange for cardholder services with its customers in accordance with fees and terms offered by the third-party service providers. Based on cardholder transactions reported by third party service providers, DNB recognizes fees for the amount it is contractually entitled.

DNB also contracts with third party providers for check printing, merchant card services, and ATM services. DNB’s performance obligation as an agent is to arrange for the services with its customers in accordance with fees and terms offered by the third-party service providers. Monthly, DNB recognizes fees for the amount it is contractually entitled.

DNB adopted ASU 2015-16, Business Combinations (Topic 805), in 2016: Simplifying the Accounting for Measurement Period Adjustments on a prospective basis. This amendment eliminates the requirement to account for adjustments to provisional amounts recognized in a business combination retrospectively. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. DNB evaluated the impact of this guidance and it does not have a material impact to the consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of March 31, 2019, DNB did not hold any equity investments (excluding restricted investments in bank stocks).  DNB does not expect to make significant purchases of equity investments; therefore, the adoption of this ASU is not expected to be material to DNB's consolidated financial statements. Adoption of the standard on January 1, 2018 also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.

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 has determined that upon the adoption of ASU 2016-02 is required to recognize a right-of-use asset and a corresponding liability based on the then present value of such obligation. The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $4.0 million. The adoption of the new standard did not have a material impact on its Consolidated Statements of Income. Update 2018-11 - Leases (topic 842): Targeted Improvements provided an additional/optional transition method to adopt the new leases standard. Prior to this ASU issuance, a modified retrospective transition approach was required. The adoption of this ASU does not materially impact our Consolidated Statement of Financial Condition and Consolidated Statements of Changes in Stockholders’ Equity. Update 2018-20 - Leases (topic 842): Narrow-Scope Improvements for Lessors was released to better clarify the treatment of sales taxes and other similar taxes related to Lessor and Lessees costs and payments. The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Also, certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. DNB’s lessor income is immaterial; as such, this ASU does not materially impact our Consolidated Statement of Financial Condition or Consolidated Statements of Comprehensive Income. DNB adopted the use-of-hindsight practical expedient.

DNB recognized rent expense associated with our leases as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Operating lease cost:
Fixed rent expense	$	259	$	285
Net lease cost		259		285
Lease costs
Amortization of lease liability		193		-
Interest expense		66		-
Net lease cost	$	259	$	-

DNB had the following cash and non-cash activites associated with our leases:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245	$	242
Non-cash investing and financing activities:
Additions to ROU assets obtained from:
New operating lease liabilities	$	4,358	$	-

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. Although early adoption is permitted for fiscal years beginning after December 15, 2018, DNB does not plan to early adopt. DNB has established a CECL Implementation Team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. DNB has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard and will be evaluating control and process framework, data, model, and resource requirements and areas where modifications will be required. DNB has selected a third party vendor to process and review various calculation methodologies and the approximate impact on DNB’s financial position, results of operations and cash flows. The team continues to assess the impact of the standard; however, DNB expects adopting this ASU will result in an increase in its allowance for credit losses. The amount of the increase in the allowance for credit losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

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. Accordingly, effective January 1, 2018, DNB adopted the pronouncement and it did not have a material impact to DNB’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The new guidance narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and should be applied prospectively. Early adoption is permitted. DNB will apply this guidance to applicable transactions after the adoption date.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with its carrying amount. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable. The update also eliminated the requirements for zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. DNB will not early adopt this ASU for its annual goodwill impairment test, and conducted a qualitative test (step zero) as of October 1, 2018 and determined that its Goodwill has not been impaired. The adoption of this ASU is not expected to have a material impact on DNB’s consolidated financial statements. 

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, DNB has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. ASU No. 2017-07 will not have a material impact on DNB Consolidated Financial Statements because the Pension plan has been frozen to new accruals since December 31, 2003, and thus, generated no service cost in any subsequent year.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):  Scope of Modification Accounting; (“ASU 2017-09”).  ASU 2017-09 provides clarity by offering guidance on the scope of modification accounting for share-based payment awards and gives direction on which changes to the terms or conditions of these awards require an entity to apply modification accounting.  Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.  The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. DNB adopted the ASU on January 1, 2018 and the effects were immaterial.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income; (“ASU 2018-02”). This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of the Tax Act. Consequently, the reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. DNB adopted this ASU on January 1, 2018. The amount of this reclassification is $471,000.

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Investment Securities

3 Months Ended

Mar. 31, 2019

Investment Securities [Abstract]

Investment Securities

NOTE 2: INVESTMENT SECURITIES

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

	March 31, 2019
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,817	$	33	$	-	$	8,850
Government Sponsored Entities (GSE) mortgage-backed securities		369		4		-		373
Corporate bonds		13,759		142		(12)		13,889
Collateralized mortgage obligations GSE		1,102		-		(21)		1,081
State and municipal taxable		362		-		(1)		361
State and municipal tax-exempt		36,591		52		(291)		36,352
Total	$	61,000	$	231	$	(325)	$	60,906
Available For Sale
US Government agency obligations	$	38,088	$	3	$	(139)	$	37,952
GSE mortgage-backed securities		27,591		3		(605)		26,989
Collateralized mortgage obligations GSE		9,909		-		(363)		9,546
Corporate bonds		10,868		-		(126)		10,742
State and municipal tax-exempt		1,978		-		(85)		1,893
Total	$	88,434	$	6	$	(1,318)	$	87,122

	December 31, 2018
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,749	$	41	$	-	$	8,790
Government Sponsored Entities (GSE) mortgage-backed securities		389		-		-		389
Corporate bonds		13,851		124		(47)		13,928
Collateralized mortgage obligations GSE		1,159		-		(27)		1,132
State and municipal taxable		362		-		(3)		359
State and municipal tax-exempt		37,516		19		(998)		36,537
Total	$	62,026	$	184	$	(1,075)	$	61,135
Available For Sale
US Government agency obligations	$	48,082	$	-	$	(359)	$	47,723
GSE mortgage-backed securities		27,563		-		(1,005)		26,558
Collateralized mortgage obligations GSE		10,249		-		(441)		9,808
Corporate bonds		10,890		-		(186)		10,704
State and municipal tax-exempt		1,981		-		(131)		1,850
Total	$	98,765	$	-	$	(2,122)	$	96,643

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The following table details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at March 31, 2019 and December 31, 2018.

	March 31, 2019
					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	$	4,164	$	(12)	$	-	$	-	$	4,164	$	(12)
Collateralized mortgage obligations GSE		1,081		(21)		-		-		1,081		(21)
State and municipal taxable		361		(1)		-		-		361		(1)
State and municipal tax-exempt		12,999		(291)		-		-		12,999		(291)
Total	$	18,605	$	(325)	$	-	$	-	$	18,605	$	(325)
Available For Sale
US Government agency obligations	$	27,749	$	(139)	$	-	$	-	$	27,749	$	(139)
GSE mortgage-backed securities		25,840		(605)		-		-		25,840		(605)
Collateralized mortgage obligations GSE		9,546		(363)		-		-		9,546		(363)
Corporate bonds		10,742		(126)		1,020		(20)		9,722		(106)
State and municipal tax-exempt		1,893		(85)		-		-		1,893		(85)
Total	$	75,770	$	(1,318)	$	1,020	$	(20)	$	74,750	$	(1,298)

	December 31, 2018
					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	$	4,157	$	(47)	$	1,887	$	(15)	$	2,270	$	(32)
Collateralized mortgage obligations GSE		1,132		(27)		-		-		1,132		(27)
State and municipal taxable		359		(3)		-		-		359		(3)
State and municipal tax-exempt		26,466		(998)		2,045		(31)		24,421		(967)
Total	$	32,114	$	(1,075)	$	3,932	$	(46)	$	28,182	$	(1,029)
Available For Sale
US Government agency obligations	$	37,723	$	(359)	$	-	$	-	$	37,723	$	(359)
GSE mortgage-backed securities		26,558		(1,005)		-		-		26,558		(1,005)
Collateralized mortgage obligations GSE		9,808		(441)		-		-		9,808		(441)
Corporate bonds		10,704		(186)		2,035		(7)		8,669		(179)
State and municipal tax-exempt		1,850		(131)		-		-		1,850		(131)
Total	$	86,643	$	(2,122)	$	2,035	$	(7)	$	84,608	$	(2,115)

As of March 31, 2019, there were nineteen collateralized mortgage obligations GSE, nineteen GSE mortgage-backed securities, six U.S. agency obligations, twenty-one tax-exempt municipalities, one taxable municipality, and eleven 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 their cost basis. Management has reviewed all of these securities and believes that DNB will collect all principal and interest that is due on debt securities on a timely basis.  Management does not believe any individual unrealized loss as of March 31, 2019 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis, reviewing each investment for OTTI. The OTTI analysis focuses on condition of the issuers as well as duration and severity of impairment in determining OTTI. As of March 31, 2019, the following securities were reviewed:

Collateralized mortgage obligations GSE  There are nineteen impaired securities classified as collateralized mortgage obligations GSE,  all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 8.90% of its carrying 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 have ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

GSE mortgage-backed securities  There are nineteen impaired securities classified as GSE mortgage-backed securities, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 3.06% of its carrying value. These securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on these securities on a timely basis and none of these have ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

US Government agency obligations  There are six impaired securities classified as agencies, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.24% of its carrying 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 March 31, 2019.  

State and municipal tax-exempt There are twenty-one impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 7.70% of its carrying 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 twenty-one municipal securities, nine are school districts that have state school district credit enhancement programs and four of those have additional insurance. The remaining twelve are one uninsured school district, four insured townships, and seven uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

State and municipal taxable There is one impaired security in this category, which has been impaired for more than 12 months. The unrealized loss of this security is 0.38% of its carrying value. This security is an insured township and carries a “BBB+” underlying credit. It is performing and is expected to continue to perform in accordance with its contractual terms and conditions. There have not been disruptions of any payments associated with this municipal security. Management concluded that this security was not other-than-temporarily impaired at March 31, 2019.

Corporate bonds There are eleven impaired bonds classified as corporate bonds, ten of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.91% of its carrying value. The bonds are investment grade and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry a "BBB+" or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, rating agency reports, capital strength and debt ratios. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

The amortized cost and fair value of investment securities as of March 31, 2019, 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
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	11,668	$	11,701	$	15,555	$	15,508
Due after one year through five years		14,974		15,035		30,137		29,957
Due after five years through ten years		26,711		26,720		18,405		18,067
Due after ten years		7,647		7,450		24,337		23,590
Total investment securities	$	61,000	$	60,906	$	88,434	$	87,122

The HTM securities called during the three months ended March 31, 2019 resulted in a gain on call of $3,000. Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Gross realized gains-HTM	$	3	$	-
Net realized gain	$	3	$	-

At March 31, 2019 and December 31, 2018, investment securities with a carrying value of approximately $84.8 million and $95.8 million, respectively, were pledged to secure public funds and for other purposes as required by law.

XML

Loans

3 Months Ended

Mar. 31, 2019

Loans [Abstract]

Loans

NOTE 3: LOANS

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

(Dollars in thousands)	March 31, 2019		December 31, 2018
Residential mortgage	$	101,039	$	99,932
Commercial mortgage		517,236		535,735
Commercial:
Commercial term		182,077		166,335
Commercial construction		78,967		76,302
Consumer:
Home equity		49,412		51,536
Other		4,966		5,131
Total loans	$	933,697	$	934,971
Less allowance for credit losses		(6,719)		(6,675)
Net loans	$	926,978	$	928,296

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

					Three Months Ended March 31, 2019
(Dollars in thousands)	March 31, 2019		December 31, 2018		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	$	792	$	905	$	12	$	-	$	12
Commercial mortgage		1,221		1,307		26		-		26
Commercial:
Commercial term		2,045		2,300		43		-		43
Commercial construction		-		476		-		-		-
Consumer:
Home equity		391		391		7		-		7
Other		145		167		3		-		3
Total non-accrual loans	$	4,594	$	5,546	$	91	$	-	$	91
Loans 90 days past due and accruing		-		233		-		-		-
Total non-performing loans	$	4,594	$	5,779	$	91	$	-	$	91

			Three Months Ended March 31, 2018
(Dollars in thousands)	March 31, 2018		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,033	$	25	$	-	$	25
Commercial mortgage		2,088		30		-		30
Commercial:
Commercial term		3,015		44		-		44
Commercial construction		497		11		-		11
Consumer:
Home equity		464		5		-		5
Other		311		8		-		8
Total non-accrual loans	$	8,408	$	123	$	-	$	123
Loans 90 days past due and accruing		-		-		-		-
Total non-performing loans	$	8,408	$	123	$	-	$	123

XML

Allowance for Credit Losses

3 Months Ended

Mar. 31, 2019

Allowance for Credit Losses [Abstract]

Allowance for Credit Losses

NOTE 4: ALLOWANCE FOR CREDIT LOSSES

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a scheduled payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2019 and December 31, 2018. 

Age Analysis of Past Due Loans Receivable

	March 31, 2019
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	2,753	$	348	$	606	$	3,707	$	97,332	$	101,039	$	-
Commercial mortgage (less acquired with credit deterioration)		309		-		659		968		515,763		516,731		-
Acquired commercial mortgage with credit deterioration		-		-		-		-		505		505		-
Commercial:
Commercial term		6		-		748		754		181,323		182,077		-
Commercial construction		-		-		-		-		78,967		78,967		-
Consumer:
Home equity		284		-		391		675		48,737		49,412		-
Other		77		-		92		169		4,797		4,966		-
Total	$	3,429	$	348	$	2,496	$	6,273	$	927,424	$	933,697	$	-

	December 31, 2018
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	666	$	1,742	$	845	$	3,253	$	96,679	$	99,932	$	130
Commercial mortgage (less acquired with credit deterioration)		-		-		840		840		534,739		535,579		103
Acquired commercial mortgage with credit deterioration		-		-		-		-		156		156		-
Commercial:
Commercial term		20		37		957		1,014		165,321		166,335		-
Commercial construction		-		-		-		-		76,302		76,302		-
Consumer:
Home equity		398		144		247		789		50,747		51,536		-
Other		26		-		108		134		4,997		5,131		-
Total	$	1,110	$	1,923	$	2,997	$	6,030	$	928,941	$	934,971	$	233

DNB had $362,000 of residential mortgage loans in the process of foreclosure and $97,000 in residential real estate in other real estate owned as of March 31, 2019. DNB had no residential mortgage loans in the process of foreclosure and $97,000 of residential real estate in other real estate owned as of December 31, 2018.

The following tables summarize information in regards to impaired loans by loan portfolio class as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018.

Impaired Loans

		March 31, 2019						December 31, 2018
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
	Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)			Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,782	$	3,120	$	-	$	1,462	$	1,804	$	-
Commercial mortgage		2,177		2,573		-		1,532		1,780		-
Acquired commercial mortgage with credit deterioration		521		535		-		514		527
Commercial:
Commercial term		1,327		1,841		-		1,343		1,845		-
Commercial construction		-		-		-		476		514		-
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		156		205		-
Total	$	7,512	$	8,848	$	-	$	6,014	$	7,210	$	-
With allowance recorded:
Residential mortgage		-		-		-		73		73		1
Commercial mortgage		-		-		-		737		802		78
Commercial:
Commercial term		718		745		201		957		1,015		203
Consumer:
Other		-		-		-		41		42		3
Total	$	718	$	745	$	201	$	1,808	$	1,932	$	285
Total:
Residential mortgage		2,782		3,120		-		1,535		1,877		1
Commercial mortgage		2,177		2,573		-		2,269		2,582		78
Acquired commercial mortgage with credit deterioration		521		535		-		514		527		-
Commercial:
Commercial term		2,045		2,586		201		2,300		2,860		203
Commercial construction		-		-		-		476		514		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		197		247		3
Total	$	8,230	$	9,593	$	201	$	7,822	$	9,142	$	285

		Three Months Ended				Three Months Ended
		March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,158	$	2	$	2,102	$	1
Commercial mortgage		2,223		12		2,759		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		1,335		-		1,918		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		164		-
Total	$	6,949	$	25	$	8,919	$	22
With allowance recorded:
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		-		-		51		-
Commercial:
Commercial term		837		-		630		-
Consumer:
Other		-		-		114		-
Total	$	837	$	-	$	799	$	-
Total:
Residential mortgage		2,158		2		2,102		1
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		2,223		12		2,810		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		2,172		-		2,548		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		278		-
Total	$	7,786	$	25	$	9,718	$	22

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within DNB’s internal risk rating system as of March 31, 2019 and December 31, 2018.

Credit Quality Indicators

	March 31, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	98,441	$	433	$	2,165	$	-	$	101,039
Commercial mortgage		503,900		9,629		3,707		-		517,236
Commercial:
Commercial term		177,246		1,235		3,596		-		182,077
Commercial construction		74,840		3,642		485		-		78,967
Consumer:
Home equity		48,865		156		391		-		49,412
Other		4,821		-		145		-		4,966
Total	$	908,113	$	15,095	$	10,489	$	-	$	933,697

	December 31, 2018
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	97,577	$	-	$	2,355	$	-	$	99,932
Commercial mortgage		528,692		2,367		4,676		-		535,735
Commercial:
Commercial term		161,051		1,178		4,106		-		166,335
Commercial construction		72,077		3,603		622		-		76,302
Consumer:
Home equity		50,988		143		405		-		51,536
Other		4,924		-		207		-		5,131
Total	$	915,309	$	7,291	$	12,371	$	-	$	934,971

Troubled Debt Restructurings Loans whose terms are modified are classified as troubled debt restructurings (“TDR”) if DNB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. During the three month period ended March 31, 2019, DNB classified one residential mortgage loan totaling $1.4 million as TDR. The loan’s rate was changed but the term was not extended. During the three month period ended March 31, 2018, DNB did not classify any loans as TDR. Loans classified as troubled debt restructurings are designated as impaired. The recorded investments in troubled debt restructured loans at March 31, 2019 and December 31, 2018 are as follows:

	March 31, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,025	$	2,177	$	1,990
Commercial mortgage		992		992		955
Consumer:
Home equity		148		148		139
Other		40		42		30
Total	$	3,205	$	3,359	$	3,114
	December 31, 2018
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	676	$	805	$	630
Commercial mortgage		992		992		962
Consumer:
Home equity		148		148		140
Other		40		42		30
Total	$	1,856	$	1,987	$	1,762

At March 31, 2019, DNB had ten TDRs with recorded investment totaling $3,114,000, all of which are accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of March 31, 2019, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs during the three months ended March 31, 2019.

At December 31, 2018, DNB had nine TDRs with recorded investment totaling $1,762,000,  all of which were accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. As of December 31, 2018, DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on oneconsumer installment loan after its restructuring. As of December 31, 2018, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs within twelve months of restructure during 2018. DNB classified one residential mortgage loan totaling $73,000 as TDR during the year ended December 31, 2018.

The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2019 and December 31, 2018, the activity for the three months ended March 31, 2019 and 2018 and as of and for the year ended December 31, 2018.

Allowance for Credit Losses and Recorded Investment in Loans Receivables

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2019	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Charge-offs		-		(82)		(69)		-		-		(17)		-		(168)
Recoveries		4		-		8		-		-		-		-		12
Provisions		(9)		(72)		188		48		(7)		14		38		200
Ending balance - March 31, 2019	$	156	$	3,493	$	1,189	$	1,080	$	183	$	43	$	575	$	6,719
Ending balance: individually evaluated for impairment	$	-	$	-	$	201	$	-	$	-	$	-	$	-	$	201
Ending balance: collectively evaluated for impairment	$	156	$	3,493	$	988	$	1,080	$	183	$	43	$	575	$	6,518
Loans receivables:
Ending balance	$	101,039	$	517,236	$	182,077	$	78,967	$	49,412	$	4,966			$	933,697
Ending balance: individually evaluated for impairment	$	2,782	$	2,177	$	2,045	$	-	$	530	$	175			$	7,709
Ending balance: acquired with credit deterioration	$	-	$	521	$	-	$	-	$	-	$	-			$	521
Ending balance: collectively evaluated for impairment	$	98,257	$	514,538	$	180,032	$	78,967	$	48,882	$	4,791			$	925,467
Reserve for unfunded loan commitments included in other liabilities	$	-	$	1	$	184	$	219	$	20	$	-			$	424

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2018	$	221	$	2,856	$	845	$	1,128	$	183	$	63	$	547	$	5,843
Charge-offs		(34)		(13)		(17)		-		-		(12)		-		(76)
Recoveries		1		-		2		-		-		-		-		3
Provisions		38		144		74		91		(7)		4		31		375
Ending balance - March 31, 2018	$	226	$	2,987	$	904	$	1,219	$	176	$	55	$	578	$	6,145
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	150	$	139	$	17	$	-			$	309

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2018	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Ending balance: individually evaluated for impairment	$	1	$	78	$	203	$	-	$	-	$	3	$	-	$	285
Ending balance: collectively evaluated for impairment	$	160	$	3,569	$	859	$	1,032	$	190	$	43	$	537	$	6,390
Loans receivables:
Ending balance	$	99,932	$	535,735	$	166,335	$	76,302	$	51,536	$	5,131			$	934,971
Ending balance: individually evaluated for impairment	$	1,535	$	2,269	$	2,300	$	476	$	531	$	197			$	7,308
Ending balance: acquired with credit deterioration	$	-	$	514	$	-	$	-	$	-	$	-			$	514
Ending balance: collectively evaluated for impairment	$	98,397	$	532,952	$	164,035	$	75,826	$	51,005	$	4,934			$	927,149
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	167	$	206	$	21	$	-			$	398

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Earnings Per Share

3 Months Ended

Mar. 31, 2019

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 and no anti-dilutive stock options outstanding at March 31, 2019 and March 31, 2018. There were 10,600 anti-dilutive stock awards outstanding at March 31, 2019 and no anti-dilutive stock awards outstanding at March 31, 2018. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended
	March 31, 2019
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,587	4,327	$	0.60
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	3		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,587	4,330	$	0.60

	Three Months Ended
	March 31, 2018
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,613	4,291	$	0.61
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	18		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,613	4,309	$	0.61

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS 

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

Accumulated Other Comprehensive Loss	Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)	Amount		Effect		Amount
March 31, 2019
Net unrealized loss on AFS securities	$	(1,312)	$	276	$	(1,036)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(2,949)	$	619	$	(2,330)
December 31, 2018
Net unrealized loss on AFS securities	$	(2,122)	$	445	$	(1,677)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(3,759)	$	788	$	(2,971)

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Subordinated Debentures And Notes

3 Months Ended

Mar. 31, 2019

Subordinated Debentures And Notes [Abstract]

Subordinated Debentures And Notes

NOTE 7: SUBORDINATED DEBENTURES AND NOTES

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.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 8: STOCK-BASED COMPENSATION

Stock Option Plan

DNB has a Stock Option Plan for employees and directors. Under the plan, options (both qualified and non-qualified) to purchase a maximum of 793,368 (as adjusted for subsequent stock dividends) shares of DNB’s common stock could be issued to employees and directors. Under the plan, option exercise prices must equal the fair market value of the shares on the date of option grant and the option exercise period may not exceed ten years. Vesting of options under the plan is determined by the Plan Committee. There were 354,090 shares available for grant at March 31, 2019. All options are immediately exercisable. During the three months ended March 31, 2019 and 2018, DNB had no expenses related to the plan. Under the Stock Option Plan, no shares were exercised during the three months ended March 31, 2019. Under the Stock Option Plan, 2,100 shares were exercised during the three months ended March 31, 2018. The shares awarded from the non-qualified cashless exercises resulted in an increase in shares outstanding of 966 shares. There was a cash equivalent of 1,134 shares used to pay all applicable taxes on the transactions. DNB had no stock option activity during the three months ended March 31, 2019 and had no stock options outstanding at March 31, 2019 or December 31, 2018. Stock option activity is indicated below.

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2018		16,450	$	10.31
Issued		-		-
Exercised		2,100		10.31
Forfeited		-		-
Expired		-		-
Outstanding March 31, 2018		14,350	$	10.31

Other Stock-Based Compensation

DNB maintains an Incentive Equity and Deferred Compensation Plan (the "Plan"). The Plan provides that up to 493,101 (as adjusted for subsequent stock dividends) shares of common stock may be granted, at the discretion of the Board, to individuals of the Corporation. Shares already granted are issuable on the earlier of three or four years (cliff vesting period) after the date of the grant or a change in control of DNB if the recipients are then employed by DNB (“Vest Date”).  Upon issuance of the shares, resale of the shares is restricted for an additional one year, during which the shares may not be sold, pledged or otherwise disposed of. Prior to the Vest Date and in the event the recipient terminates association with DNB for reasons other than death, disability or change in control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant.

Share awards granted by the Plan were recorded at the date of award based on the market value of shares. Awards are being amortized to expense over a three or four year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized. For the three month periods ended March 31, 2019 and 2018, $61,000 and $96,000 was amortized to expense.

As of March 31, 2019, there was approximately $651,000 in additional compensation that will be recognized over the weighted average life of1.85 years. At March 31, 2019, 482,501 shares were reserved for future grants under the Plan. 

There were 1,400 restricted shares that vested during the three months ended March 31, 2018. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 896 shares. There was a cash equivalent of 504 shares used to pay all applicable taxes on the transactions. There were no such transaction during the three months ended March 31, 2019. Stock grant activity is indicated below:

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2019	18,590	$	30.90
Granted	10,600		39.36
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2019	29,190	$	33.98

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2018	31,130	$	26.53
Granted	10,750		33.98
Forfeited	250		28.00
Vested	1,400		25.84
Non-vested stock awards—March 31, 2018	40,230	$	28.53

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Taxes [Abstract]

Income Taxes

NOTE 9:  INCOME TAXES

As of March 31, 2019, 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 2015 through 2017 were open for examination as of March 31, 2019.

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Fair Values

3 Months Ended

Mar. 31, 2019

Fair Values [Abstract]

Fair Values

NOTE 10:  FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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. When recorded at fair value, these assets are included as Level 3 fair values.

The following tables present assets measured at fair value on a recurring basis as of March 31, 2019and December 31, 2018:

		March 31, 2019
(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	$	-	$	37,952	$	-	$	37,952
GSE mortgage-backed securities		-		26,989		-		26,989
Collateralized mortgage obligations GSE		-		9,546		-		9,546
Corporate bonds		-		10,742		-		10,742
State and municipal tax-exempt		-		1,893		-		1,893
Total	$	-	$	87,122	$	-	$	87,122
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,317	$	1,317
OREO and other repossessed property		-		-		526		526
Total	$	-	$	-	$	1,843	$	1,843

		December 31, 2018
(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	$	-	$	47,723	$	-	$	47,723
GSE mortgage-backed securities		-		26,558		-		26,558
Collateralized mortgage obligations GSE		-		9,808		-		9,808
Corporate bonds		-		10,704		-		10,704
State and municipal tax-exempt		-		1,850		-		1,850
Total	$	-	$	96,643	$	-	$	96,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,523	$	1,523
OREO and other repossessed property		-		-		1,247		1,247
Total	$	-	$	-	$	2,770	$	2,770

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

March 31, 2019
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Commercial mortgage	$	659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		517	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-8%	(-4%)
Impaired loans - Consumer other		141	Appraisal of collateral (1)	Disposal costs (2)	-7%	to	-8%	(-8%)
Impaired loan total	$	1,317
Other real estate owned	$	526		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

(2)

December 31, 2018
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	$	72	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		754	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-16%	(-11%)
Impaired loans - Consumer other		38	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,523
Other real estate owned	$	1,247		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 $8.2 million at March 31, 2019. Of this, $718,000 had specific valuation allowances of $201,000, leaving a fair value of $517,000 as of March 31, 2019. In addition, DNB had $895,000 in impaired loans that were partially charged down by $95,000, leaving $800,000 at fair value as of March 31, 2019. The total fair value of impaired loans at March 31, 2019 was $1.3 million.

Impaired loans had a carrying amount of $7.8 million at December 31, 2018. Of this, $1.8 million had specific valuation allowances of $285,000, leaving a fair value of $1.5 million at December 31, 2018. DNB did not have any impaired loans that were partially charged down that didn’t already have a specific reserve during the year ended December 31, 2018. The total fair value of impaired loans at December 31, 2018 was $1.5 million.

Other Real Estate Owned & other repossessed property.  Other real estate owned (“OREO”) consists of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets are classified as OREO and other repossessed property are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or fair value, less estimated costs to sell. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. DNB had $3.5 million of such assets at March 31, 2019, $3.3 million of which was OREO and $142,000 was in other repossessed property. DNB had $5.1 million of such assets at December 31, 2018, which consisted of $4.9 million in OREO and $142,000 in other repossessed property. DNB wrote down the carrying values of certain assets totaling $623,000 by $97,000 to $526,000 during the three month period ended March 31, 2019. DNB did not write down the carrying values of OREO during the three month period ended March 31, 2018.

DNB's policy is to recognize transfer between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1 and 2 for the three months ended March 31, 2019.

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 statement of financial condition. The carrying amounts and fair values of financial instruments at March 31, 2019 and December 31, 2018 are as follows:

		March 31, 2019
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,893	$	34,893	$	34,893	$	-	$	-
AFS investment securities		87,122		87,122		-		87,122		-
HTM investment securities		61,000		60,906		-		58,906		2,000
Restricted stock		6,389		6,389		-		6,389		-
Loans held-for-sale		449		457		-		-		457
Loans, net of allowance, including impaired		926,978		912,038		-		-		912,038
Accrued interest receivable		4,396		4,396		-		4,396		-
Financial liabilities
Deposits:
Non-interest-bearing		166,806		166,806		-		166,806		-
NOW, Money market, and Savings		543,349		543,349		-		543,349		-
Time		162,939		162,513		-		162,513		-
Brokered		107,163		106,304		-		106,304		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		41,918		41,601		-		41,601		-
Junior subordinated debentures and other borrowings		9,279		10,166		-		10,166		-
Subordinated debt		9,750		9,435		-		9,435		-
Accrued interest payable		699		699		-		699		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2018
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,321	$	17,321	$	17,321	$	-	$	-
AFS investment securities		96,643		96,643		-		96,643		-
HTM investment securities		62,026		61,135		-		59,135		2,000
Restricted stock		5,616		5,616		-		5,616		-
Loans held-for-sale		419		429		-		-		429
Loans, net of allowance, including impaired		928,296		914,822		-		-		914,822
Accrued interest receivable		4,207		4,207		-		4,207		-
Financial liabilities
Deposits:
Non-interest-bearing		164,746		164,746		-		164,746		-
NOW, Money market, and Savings		549,073		549,073		-		549,073		-
Time		162,096		160,944		-		160,944		-
Brokered		108,651		97,250		-		97,250		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		32,935		32,347		-		32,347		-
Junior subordinated debentures and other borrowings		9,279		10,285		-		10,285		-
Subordinated debt		9,750		9,505		-		9,505		-
Accrued interest payable		646		646		-		646		-
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.

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Basis of Presentation (Policy)

3 Months Ended

Mar. 31, 2019

Summary Of Significant Accounting Policies [Abstract]

Principles of Consolidation

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three months ended March 31, 2019 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, 2018. 

Subsequent Events

Subsequent Events-- Management has evaluated events and transactions occurring subsequent to March 31, 2019 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.

Recent Accounting Pronouncements

Recent Accounting Pronouncements-  

Accounting Developments Affecting DNB

In May 2014, the FASB issued ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016 and 2017, the FASB issued ASU Nos. 2016-10, 2016-12, 2016-20, and 2017-13 that provided additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements.

DNB adopted the new standards discussed above effective January 1, 2018 using the modified retrospective approach. A significant majority of DNB’s revenues are explicitly excluded from the scope of the new guidance including interest, dividend income, BOLI, gain/loss on sale of loans and investments on the Consolidated Statements of Income. The adoption of ASU 2014-09 did not require a cumulative adjustment to the opening balance of retained earnings as of January 1, 2018 and did not have a material impact on DNB’s Consolidated Statements of Financial Condition, Comprehensive Income, Stockholders’ Equity or Cash Flows for the year ended December 31, 2018. Non-interest income components in the scope of Topic 606 continue to be recognized when DNB’s performance obligations are complete or at the time of sale after a customer’s transaction posts in the account. Disclosures required for DNB’s revenue streams in the scope of ASU 2014-09 are included in Non-Interest Income in the following table.

Non-interest Income Non-interest income includes revenue from contracts with customers in the scope of ASU 2014-09 as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Non-interest Income:
Service charges:
Non-sufficient funds charges	$	133	$	159
Business analysis charges		46		41
Cycle charges		20		23
Lockbox fees		47		44
Stop payment fees		4		4
Wire transfer fees		22		21
Other service charges		19		21
Total service charges		291		313
Wealth management:
DNB Investments & Insurance		76		89
DNB First Investment Management & Trust		369		346
Total wealth management		445		435
Other fee income:
Cardholder interchange fees		253		245
Safe deposit box		23		24
Check printing		24		23
Merchant card processing		42		48
ATM surcharges for non-DNB customers		15		17
Other fee income		14		14
Total other fee income		371		371
Total Revenue from contracts with customers		1,107		1,119
Total Revenue not within the scope of ASC 606		167		154
Total non-interest income	$	1,274	$	1,273

Service charges on deposit accounts are recorded monthly when DNB’s performance obligations are complete. Deposit balances are disclosed in the Consolidated Statement of Condition. For transaction-based service charges such as non-sufficient funds charges, wire transfer fees, stop payment fees, ATM fees, and other transaction-based fees, revenue is recognized at the time of sale after the transaction posts in the customer’s account.

Wealth management revenue includes non-deposit products and services offered under the names “DNB Investment & Insurance” and “DNB First Investment Management & Trust”.

Through a third-party marketing agreement with Cetera Investment Services, LLC (“Cetera”), DNB Investment & Insurance offers a complete line of investment and insurance products. DNB’s performance obligation as an agent is to arrange for the sale of products by Cetera. Monthly, DNB recognizes commission fees in the amounts to which it is entitled in accordance with the terms of the marketing agreement for products sold. Shortly after a sale, the product provider remits the commission payment through Cetera to the Company, and the Company recognizes the revenue. DNB records revenue net of the cost of the services.

DNB First Investment Management & Trust offers a full line of investment and fiduciary services. DNB’s performance obligation is to manage investments, estates and trusts. Investment management and trust income is primarily comprised of fees earned from the management and administration of trusts, estates and investment agency portfolios. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized quarterly, based upon the quarter-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after quarter end through a direct charge to customers’ accounts. While managing estates and trusts, DNB contracts with a third-party tax preparation service. For tax preparation services, DNB’s obligation as an agent is to arrange for the performance of services by the third party. As tax services are rendered, DNB records revenue net of the cost of the services.

Cardholder interchange fees consist of revenue DNB is entitled per agreements with third party debit and credit card providers. DNB’s performance obligation as an agent is to arrange for cardholder services with its customers in accordance with fees and terms offered by the third-party service providers. Based on cardholder transactions reported by third party service providers, DNB recognizes fees for the amount it is contractually entitled.

DNB also contracts with third party providers for check printing, merchant card services, and ATM services. DNB’s performance obligation as an agent is to arrange for the services with its customers in accordance with fees and terms offered by the third-party service providers. Monthly, DNB recognizes fees for the amount it is contractually entitled.

DNB adopted ASU 2015-16, Business Combinations (Topic 805), in 2016: Simplifying the Accounting for Measurement Period Adjustments on a prospective basis. This amendment eliminates the requirement to account for adjustments to provisional amounts recognized in a business combination retrospectively. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. DNB evaluated the impact of this guidance and it does not have a material impact to the consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of March 31, 2019, DNB did not hold any equity investments (excluding restricted investments in bank stocks).  DNB does not expect to make significant purchases of equity investments; therefore, the adoption of this ASU is not expected to be material to DNB's consolidated financial statements. Adoption of the standard on January 1, 2018 also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.

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 has determined that upon the adoption of ASU 2016-02 is required to recognize a right-of-use asset and a corresponding liability based on the then present value of such obligation. The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $4.0 million. The adoption of the new standard did not have a material impact on its Consolidated Statements of Income. Update 2018-11 - Leases (topic 842): Targeted Improvements provided an additional/optional transition method to adopt the new leases standard. Prior to this ASU issuance, a modified retrospective transition approach was required. The adoption of this ASU does not materially impact our Consolidated Statement of Financial Condition and Consolidated Statements of Changes in Stockholders’ Equity. Update 2018-20 - Leases (topic 842): Narrow-Scope Improvements for Lessors was released to better clarify the treatment of sales taxes and other similar taxes related to Lessor and Lessees costs and payments. The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Also, certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. DNB’s lessor income is immaterial; as such, this ASU does not materially impact our Consolidated Statement of Financial Condition or Consolidated Statements of Comprehensive Income. DNB adopted the use-of-hindsight practical expedient.

DNB recognized rent expense associated with our leases as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Operating lease cost:
Fixed rent expense	$	259	$	285
Net lease cost		259		285
Lease costs
Amortization of lease liability		193		-
Interest expense		66		-
Net lease cost	$	259	$	-

DNB had the following cash and non-cash activites associated with our leases:

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245	$	242
Non-cash investing and financing activities:
Additions to ROU assets obtained from:
New operating lease liabilities	$	4,358	$	-

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. Although early adoption is permitted for fiscal years beginning after December 15, 2018, DNB does not plan to early adopt. DNB has established a CECL Implementation Team to assess the impact of this ASU on its consolidated financial position, results of operations, and cash flows. DNB has been preserving certain historical loan information from its core processing system in anticipation of adopting the standard and will be evaluating control and process framework, data, model, and resource requirements and areas where modifications will be required. DNB has selected a third party vendor to process and review various calculation methodologies and the approximate impact on DNB’s financial position, results of operations and cash flows. The team continues to assess the impact of the standard; however, DNB expects adopting this ASU will result in an increase in its allowance for credit losses. The amount of the increase in the allowance for credit losses upon adoption will be dependent upon the characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that date. A cumulative effect adjustment will be made to retained earnings for the impact of the standard at the beginning of the period the standard is adopted.

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. Accordingly, effective January 1, 2018, DNB adopted the pronouncement and it did not have a material impact to DNB’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The new guidance narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs, as defined by the ASU. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and should be applied prospectively. Early adoption is permitted. DNB will apply this guidance to applicable transactions after the adoption date.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with its carrying amount. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable. The update also eliminated the requirements for zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. DNB will not early adopt this ASU for its annual goodwill impairment test, and conducted a qualitative test (step zero) as of October 1, 2018 and determined that its Goodwill has not been impaired. The adoption of this ASU is not expected to have a material impact on DNB’s consolidated financial statements. 

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately (e.g., Other Noninterest Expense) from the line item that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, DNB has decided not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. ASU No. 2017-07 will not have a material impact on DNB Consolidated Financial Statements because the Pension plan has been frozen to new accruals since December 31, 2003, and thus, generated no service cost in any subsequent year.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):  Scope of Modification Accounting; (“ASU 2017-09”).  ASU 2017-09 provides clarity by offering guidance on the scope of modification accounting for share-based payment awards and gives direction on which changes to the terms or conditions of these awards require an entity to apply modification accounting.  Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.  The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. DNB adopted the ASU on January 1, 2018 and the effects were immaterial.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income; (“ASU 2018-02”). This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of the Tax Act. Consequently, the reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. DNB adopted this ASU on January 1, 2018. The amount of this reclassification is $471,000.

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Fair Values (Policy)

3 Months Ended

Mar. 31, 2019

Fair Values [Abstract]

Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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. When recorded at fair value, these assets are included as Level 3 fair values.

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Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2019

Summary Of Significant Accounting Policies [Abstract]

Non-Interest Income Including Revenue From Contracts With Customers In Scope Of ASU 2014-09

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Non-interest Income:
Service charges:
Non-sufficient funds charges	$	133	$	159
Business analysis charges		46		41
Cycle charges		20		23
Lockbox fees		47		44
Stop payment fees		4		4
Wire transfer fees		22		21
Other service charges		19		21
Total service charges		291		313
Wealth management:
DNB Investments & Insurance		76		89
DNB First Investment Management & Trust		369		346
Total wealth management		445		435
Other fee income:
Cardholder interchange fees		253		245
Safe deposit box		23		24
Check printing		24		23
Merchant card processing		42		48
ATM surcharges for non-DNB customers		15		17
Other fee income		14		14
Total other fee income		371		371
Total Revenue from contracts with customers		1,107		1,119
Total Revenue not within the scope of ASC 606		167		154
Total non-interest income	$	1,274	$	1,273

Recognized Rent Expense

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Operating lease cost:
Fixed rent expense	$	259	$	285
Net lease cost		259		285
Lease costs
Amortization of lease liability		193		-
Interest expense		66		-
Net lease cost	$	259	$	-

Supplemental Cash Flow Information

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245	$	242
Non-cash investing and financing activities:
Additions to ROU assets obtained from:
New operating lease liabilities	$	4,358	$	-

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2019

Investment Securities [Abstract]

Amortized Cost and Estimated Fair Values of Investment Securities

	March 31, 2019
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,817	$	33	$	-	$	8,850
Government Sponsored Entities (GSE) mortgage-backed securities		369		4		-		373
Corporate bonds		13,759		142		(12)		13,889
Collateralized mortgage obligations GSE		1,102		-		(21)		1,081
State and municipal taxable		362		-		(1)		361
State and municipal tax-exempt		36,591		52		(291)		36,352
Total	$	61,000	$	231	$	(325)	$	60,906
Available For Sale
US Government agency obligations	$	38,088	$	3	$	(139)	$	37,952
GSE mortgage-backed securities		27,591		3		(605)		26,989
Collateralized mortgage obligations GSE		9,909		-		(363)		9,546
Corporate bonds		10,868		-		(126)		10,742
State and municipal tax-exempt		1,978		-		(85)		1,893
Total	$	88,434	$	6	$	(1,318)	$	87,122

	December 31, 2018
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,749	$	41	$	-	$	8,790
Government Sponsored Entities (GSE) mortgage-backed securities		389		-		-		389
Corporate bonds		13,851		124		(47)		13,928
Collateralized mortgage obligations GSE		1,159		-		(27)		1,132
State and municipal taxable		362		-		(3)		359
State and municipal tax-exempt		37,516		19		(998)		36,537
Total	$	62,026	$	184	$	(1,075)	$	61,135
Available For Sale
US Government agency obligations	$	48,082	$	-	$	(359)	$	47,723
GSE mortgage-backed securities		27,563		-		(1,005)		26,558
Collateralized mortgage obligations GSE		10,249		-		(441)		9,808
Corporate bonds		10,890		-		(186)		10,704
State and municipal tax-exempt		1,981		-		(131)		1,850
Total	$	98,765	$	-	$	(2,122)	$	96,643

Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities

	March 31, 2019
					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	$	4,164	$	(12)	$	-	$	-	$	4,164	$	(12)
Collateralized mortgage obligations GSE		1,081		(21)		-		-		1,081		(21)
State and municipal taxable		361		(1)		-		-		361		(1)
State and municipal tax-exempt		12,999		(291)		-		-		12,999		(291)
Total	$	18,605	$	(325)	$	-	$	-	$	18,605	$	(325)
Available For Sale
US Government agency obligations	$	27,749	$	(139)	$	-	$	-	$	27,749	$	(139)
GSE mortgage-backed securities		25,840		(605)		-		-		25,840		(605)
Collateralized mortgage obligations GSE		9,546		(363)		-		-		9,546		(363)
Corporate bonds		10,742		(126)		1,020		(20)		9,722		(106)
State and municipal tax-exempt		1,893		(85)		-		-		1,893		(85)
Total	$	75,770	$	(1,318)	$	1,020	$	(20)	$	74,750	$	(1,298)

	December 31, 2018
					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	$	4,157	$	(47)	$	1,887	$	(15)	$	2,270	$	(32)
Collateralized mortgage obligations GSE		1,132		(27)		-		-		1,132		(27)
State and municipal taxable		359		(3)		-		-		359		(3)
State and municipal tax-exempt		26,466		(998)		2,045		(31)		24,421		(967)
Total	$	32,114	$	(1,075)	$	3,932	$	(46)	$	28,182	$	(1,029)
Available For Sale
US Government agency obligations	$	37,723	$	(359)	$	-	$	-	$	37,723	$	(359)
GSE mortgage-backed securities		26,558		(1,005)		-		-		26,558		(1,005)
Collateralized mortgage obligations GSE		9,808		(441)		-		-		9,808		(441)
Corporate bonds		10,704		(186)		2,035		(7)		8,669		(179)
State and municipal tax-exempt		1,850		(131)		-		-		1,850		(131)
Total	$	86,643	$	(2,122)	$	2,035	$	(7)	$	84,608	$	(2,115)

Investments Classified by Contractual Maturity Date

	Held to Maturity				Available for Sale
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	11,668	$	11,701	$	15,555	$	15,508
Due after one year through five years		14,974		15,035		30,137		29,957
Due after five years through ten years		26,711		26,720		18,405		18,067
Due after ten years		7,647		7,450		24,337		23,590
Total investment securities	$	61,000	$	60,906	$	88,434	$	87,122

Gains and Losses Resulting from Investment Sales, Redemptions or Calls

	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Gross realized gains-HTM	$	3	$	-
Net realized gain	$	3	$	-

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Loans (Tables)

3 Months Ended

Mar. 31, 2019

Loans [Abstract]

Composition of Total Loans Outstanding

(Dollars in thousands)	March 31, 2019		December 31, 2018
Residential mortgage	$	101,039	$	99,932
Commercial mortgage		517,236		535,735
Commercial:
Commercial term		182,077		166,335
Commercial construction		78,967		76,302
Consumer:
Home equity		49,412		51,536
Other		4,966		5,131
Total loans	$	933,697	$	934,971
Less allowance for credit losses		(6,719)		(6,675)
Net loans	$	926,978	$	928,296

Information on Non-Accrual Loans

					Three Months Ended March 31, 2019
(Dollars in thousands)	March 31, 2019		December 31, 2018		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	$	792	$	905	$	12	$	-	$	12
Commercial mortgage		1,221		1,307		26		-		26
Commercial:
Commercial term		2,045		2,300		43		-		43
Commercial construction		-		476		-		-		-
Consumer:
Home equity		391		391		7		-		7
Other		145		167		3		-		3
Total non-accrual loans	$	4,594	$	5,546	$	91	$	-	$	91
Loans 90 days past due and accruing		-		233		-		-		-
Total non-performing loans	$	4,594	$	5,779	$	91	$	-	$	91

			Three Months Ended March 31, 2018
(Dollars in thousands)	March 31, 2018		Interest income that would have been recorded under original terms		Interest income recorded during the period		Net impact on interest income
Non-accrual loans:
Residential mortgage	$	2,033	$	25	$	-	$	25
Commercial mortgage		2,088		30		-		30
Commercial:
Commercial term		3,015		44		-		44
Commercial construction		497		11		-		11
Consumer:
Home equity		464		5		-		5
Other		311		8		-		8
Total non-accrual loans	$	8,408	$	123	$	-	$	123
Loans 90 days past due and accruing		-		-		-		-
Total non-performing loans	$	8,408	$	123	$	-	$	123

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Allowance For Credit Losses (Tables)

3 Months Ended

Mar. 31, 2019

Allowance for Credit Losses [Abstract]

Age Analysis of Past Due Loans Receivables

	March 31, 2019
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	2,753	$	348	$	606	$	3,707	$	97,332	$	101,039	$	-
Commercial mortgage (less acquired with credit deterioration)		309		-		659		968		515,763		516,731		-
Acquired commercial mortgage with credit deterioration		-		-		-		-		505		505		-
Commercial:
Commercial term		6		-		748		754		181,323		182,077		-
Commercial construction		-		-		-		-		78,967		78,967		-
Consumer:
Home equity		284		-		391		675		48,737		49,412		-
Other		77		-		92		169		4,797		4,966		-
Total	$	3,429	$	348	$	2,496	$	6,273	$	927,424	$	933,697	$	-

	December 31, 2018
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	666	$	1,742	$	845	$	3,253	$	96,679	$	99,932	$	130
Commercial mortgage (less acquired with credit deterioration)		-		-		840		840		534,739		535,579		103
Acquired commercial mortgage with credit deterioration		-		-		-		-		156		156		-
Commercial:
Commercial term		20		37		957		1,014		165,321		166,335		-
Commercial construction		-		-		-		-		76,302		76,302		-
Consumer:
Home equity		398		144		247		789		50,747		51,536		-
Other		26		-		108		134		4,997		5,131		-
Total	$	1,110	$	1,923	$	2,997	$	6,030	$	928,941	$	934,971	$	233

Impaired Loans by Loan Portfolio

		March 31, 2019						December 31, 2018
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
	Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)			Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,782	$	3,120	$	-	$	1,462	$	1,804	$	-
Commercial mortgage		2,177		2,573		-		1,532		1,780		-
Acquired commercial mortgage with credit deterioration		521		535		-		514		527
Commercial:
Commercial term		1,327		1,841		-		1,343		1,845		-
Commercial construction		-		-		-		476		514		-
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		156		205		-
Total	$	7,512	$	8,848	$	-	$	6,014	$	7,210	$	-
With allowance recorded:
Residential mortgage		-		-		-		73		73		1
Commercial mortgage		-		-		-		737		802		78
Commercial:
Commercial term		718		745		201		957		1,015		203
Consumer:
Other		-		-		-		41		42		3
Total	$	718	$	745	$	201	$	1,808	$	1,932	$	285
Total:
Residential mortgage		2,782		3,120		-		1,535		1,877		1
Commercial mortgage		2,177		2,573		-		2,269		2,582		78
Acquired commercial mortgage with credit deterioration		521		535		-		514		527		-
Commercial:
Commercial term		2,045		2,586		201		2,300		2,860		203
Commercial construction		-		-		-		476		514		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		197		247		3
Total	$	8,230	$	9,593	$	201	$	7,822	$	9,142	$	285

		Three Months Ended				Three Months Ended
		March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,158	$	2	$	2,102	$	1
Commercial mortgage		2,223		12		2,759		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		1,335		-		1,918		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		164		-
Total	$	6,949	$	25	$	8,919	$	22
With allowance recorded:
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		-		-		51		-
Commercial:
Commercial term		837		-		630		-
Consumer:
Other		-		-		114		-
Total	$	837	$	-	$	799	$	-
Total:
Residential mortgage		2,158		2		2,102		1
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		2,223		12		2,810		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		2,172		-		2,548		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		278		-
Total	$	7,786	$	25	$	9,718	$	22

Credit Quality Indicators

	March 31, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	98,441	$	433	$	2,165	$	-	$	101,039
Commercial mortgage		503,900		9,629		3,707		-		517,236
Commercial:
Commercial term		177,246		1,235		3,596		-		182,077
Commercial construction		74,840		3,642		485		-		78,967
Consumer:
Home equity		48,865		156		391		-		49,412
Other		4,821		-		145		-		4,966
Total	$	908,113	$	15,095	$	10,489	$	-	$	933,697

	December 31, 2018
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	97,577	$	-	$	2,355	$	-	$	99,932
Commercial mortgage		528,692		2,367		4,676		-		535,735
Commercial:
Commercial term		161,051		1,178		4,106		-		166,335
Commercial construction		72,077		3,603		622		-		76,302
Consumer:
Home equity		50,988		143		405		-		51,536
Other		4,924		-		207		-		5,131
Total	$	915,309	$	7,291	$	12,371	$	-	$	934,971

Recorded Investments in Troubled Debt Restructured Loans

	March 31, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,025	$	2,177	$	1,990
Commercial mortgage		992		992		955
Consumer:
Home equity		148		148		139
Other		40		42		30
Total	$	3,205	$	3,359	$	3,114
	December 31, 2018
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	676	$	805	$	630
Commercial mortgage		992		992		962
Consumer:
Home equity		148		148		140
Other		40		42		30
Total	$	1,856	$	1,987	$	1,762

Allowance for Credit Losses and Recorded Investments In Loans Receivables

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2019	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Charge-offs		-		(82)		(69)		-		-		(17)		-		(168)
Recoveries		4		-		8		-		-		-		-		12
Provisions		(9)		(72)		188		48		(7)		14		38		200
Ending balance - March 31, 2019	$	156	$	3,493	$	1,189	$	1,080	$	183	$	43	$	575	$	6,719
Ending balance: individually evaluated for impairment	$	-	$	-	$	201	$	-	$	-	$	-	$	-	$	201
Ending balance: collectively evaluated for impairment	$	156	$	3,493	$	988	$	1,080	$	183	$	43	$	575	$	6,518
Loans receivables:
Ending balance	$	101,039	$	517,236	$	182,077	$	78,967	$	49,412	$	4,966			$	933,697
Ending balance: individually evaluated for impairment	$	2,782	$	2,177	$	2,045	$	-	$	530	$	175			$	7,709
Ending balance: acquired with credit deterioration	$	-	$	521	$	-	$	-	$	-	$	-			$	521
Ending balance: collectively evaluated for impairment	$	98,257	$	514,538	$	180,032	$	78,967	$	48,882	$	4,791			$	925,467
Reserve for unfunded loan commitments included in other liabilities	$	-	$	1	$	184	$	219	$	20	$	-			$	424

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2018	$	221	$	2,856	$	845	$	1,128	$	183	$	63	$	547	$	5,843
Charge-offs		(34)		(13)		(17)		-		-		(12)		-		(76)
Recoveries		1		-		2		-		-		-		-		3
Provisions		38		144		74		91		(7)		4		31		375
Ending balance - March 31, 2018	$	226	$	2,987	$	904	$	1,219	$	176	$	55	$	578	$	6,145
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	150	$	139	$	17	$	-			$	309

	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2018	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Ending balance: individually evaluated for impairment	$	1	$	78	$	203	$	-	$	-	$	3	$	-	$	285
Ending balance: collectively evaluated for impairment	$	160	$	3,569	$	859	$	1,032	$	190	$	43	$	537	$	6,390
Loans receivables:
Ending balance	$	99,932	$	535,735	$	166,335	$	76,302	$	51,536	$	5,131			$	934,971
Ending balance: individually evaluated for impairment	$	1,535	$	2,269	$	2,300	$	476	$	531	$	197			$	7,308
Ending balance: acquired with credit deterioration	$	-	$	514	$	-	$	-	$	-	$	-			$	514
Ending balance: collectively evaluated for impairment	$	98,397	$	532,952	$	164,035	$	75,826	$	51,005	$	4,934			$	927,149
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	167	$	206	$	21	$	-			$	398

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

	Three Months Ended
	March 31, 2019
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,587	4,327	$	0.60
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	3		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,587	4,330	$	0.60

	Three Months Ended
	March 31, 2018
(In thousands, except per-share data)	Income		Shares	Amount
Basic EPS
Income available to common stockholders	$	2,613	4,291	$	0.61
Effect of potential dilutive common stock equivalents – stock options and  restricted shares		-	18		-
Diluted EPS
Income available to common stockholders after assumed conversions	$	2,613	4,309	$	0.61

XML

Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Loss [Abstract]

Components of Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss	Before-Tax		Tax		Net-of-Tax
(Dollars in thousands)	Amount		Effect		Amount
March 31, 2019
Net unrealized loss on AFS securities	$	(1,312)	$	276	$	(1,036)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(2,949)	$	619	$	(2,330)
December 31, 2018
Net unrealized loss on AFS securities	$	(2,122)	$	445	$	(1,677)
Unrealized actuarial losses-pension		(1,637)		343		(1,294)
	$	(3,759)	$	788	$	(2,971)

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Stock-Based Compensation [Abstract]

Stock Option Activity

	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2018		16,450	$	10.31
Issued		-		-
Exercised		2,100		10.31
Forfeited		-		-
Expired		-		-
Outstanding March 31, 2018		14,350	$	10.31

Stock Grant Activity

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2019	18,590	$	30.90
Granted	10,600		39.36
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2019	29,190	$	33.98

		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2018	31,130	$	26.53
Granted	10,750		33.98
Forfeited	250		28.00
Vested	1,400		25.84
Non-vested stock awards—March 31, 2018	40,230	$	28.53

XML

Fair Values (Tables)

3 Months Ended

Mar. 31, 2019

Fair Values [Abstract]

Assets Measured at Fair Value on a Recurring Basis

		March 31, 2019
(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	$	-	$	37,952	$	-	$	37,952
GSE mortgage-backed securities		-		26,989		-		26,989
Collateralized mortgage obligations GSE		-		9,546		-		9,546
Corporate bonds		-		10,742		-		10,742
State and municipal tax-exempt		-		1,893		-		1,893
Total	$	-	$	87,122	$	-	$	87,122
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,317	$	1,317
OREO and other repossessed property		-		-		526		526
Total	$	-	$	-	$	1,843	$	1,843

		December 31, 2018
(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	$	-	$	47,723	$	-	$	47,723
GSE mortgage-backed securities		-		26,558		-		26,558
Collateralized mortgage obligations GSE		-		9,808		-		9,808
Corporate bonds		-		10,704		-		10,704
State and municipal tax-exempt		-		1,850		-		1,850
Total	$	-	$	96,643	$	-	$	96,643
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired loans	$	-	$	-	$	1,523	$	1,523
OREO and other repossessed property		-		-		1,247		1,247
Total	$	-	$	-	$	2,770	$	2,770

Quantitative Information About Level 3 Fair Value Measurements

March 31, 2019
Quantitative Information about Level 3 Fair Value Measurement
		Fair Value	Valuation		Range
(Dollars in thousands)		Estimate	Techniques	Unobservable Input	(Weighted Average)
Impaired loans - Commercial mortgage	$	659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		517	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-8%	(-4%)
Impaired loans - Consumer other		141	Appraisal of collateral (1)	Disposal costs (2)	-7%	to	-8%	(-8%)
Impaired loan total	$	1,317
Other real estate owned	$	526		Disposal costs (2)	-8%	to	-8%	(-8%)

(1)

(2)

December 31, 2018
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	$	72	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loans - Commercial mortgage		659	Appraisal of collateral (1)	Disposal costs (2)	-14%	to	-14%	(-14%)
Impaired loans - Commercial term		754	Appraisal of collateral (1)	Disposal costs (2)	0%	to	-16%	(-11%)
Impaired loans - Consumer other		38	Appraisal of collateral (1)	Disposal costs (2)	-8%	to	-8%	(-8%)
Impaired loan total	$	1,523
Other real estate owned	$	1,247		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.

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

Carrying Amounts and Fair Values of Financial Instruments

		March 31, 2019
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	34,893	$	34,893	$	34,893	$	-	$	-
AFS investment securities		87,122		87,122		-		87,122		-
HTM investment securities		61,000		60,906		-		58,906		2,000
Restricted stock		6,389		6,389		-		6,389		-
Loans held-for-sale		449		457		-		-		457
Loans, net of allowance, including impaired		926,978		912,038		-		-		912,038
Accrued interest receivable		4,396		4,396		-		4,396		-
Financial liabilities
Deposits:
Non-interest-bearing		166,806		166,806		-		166,806		-
NOW, Money market, and Savings		543,349		543,349		-		543,349		-
Time		162,939		162,513		-		162,513		-
Brokered		107,163		106,304		-		106,304		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		41,918		41,601		-		41,601		-
Junior subordinated debentures and other borrowings		9,279		10,166		-		10,166		-
Subordinated debt		9,750		9,435		-		9,435		-
Accrued interest payable		699		699		-		699		-
Off-balance sheet instruments		-		-		-		-		-

		December 31, 2018
		Carrying		Fair
(Dollars in thousands)		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	17,321	$	17,321	$	17,321	$	-	$	-
AFS investment securities		96,643		96,643		-		96,643		-
HTM investment securities		62,026		61,135		-		59,135		2,000
Restricted stock		5,616		5,616		-		5,616		-
Loans held-for-sale		419		429		-		-		429
Loans, net of allowance, including impaired		928,296		914,822		-		-		914,822
Accrued interest receivable		4,207		4,207		-		4,207		-
Financial liabilities
Deposits:
Non-interest-bearing		164,746		164,746		-		164,746		-
NOW, Money market, and Savings		549,073		549,073		-		549,073		-
Time		162,096		160,944		-		160,944		-
Brokered		108,651		97,250		-		97,250		-
Repurchase agreements		-		-		-		-		-
FHLBP advances		32,935		32,347		-		32,347		-
Junior subordinated debentures and other borrowings		9,279		10,285		-		10,285		-
Subordinated debt		9,750		9,505		-		9,505		-
Accrued interest payable		646		646		-		646		-
Off-balance sheet instruments		-		-		-		-		-

XML

Basis of Presentation (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Right-of-use asset	$ 3,976
Accounting Standards Update 2016-02 [Member]
Operating lease liabilities		$ 4,400
Right-of-use asset		$ 4,000
Accounting Standards Update 2018-02 [Member]
Reclassification amount from accumulated other comprehensive income related to Tax Cuts and jobs Act	$ 471

XML

Basis of Presentation (Non-Interest Income Including Revenue From Contracts With Customers In Scope Of ASU 2014-09) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Total non-interest income	$ 1,274	$ 1,273
Total Revenue Not Within the Scope of ASC 606 [Member]
Revenue from contracts with customers	167	154
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member]
Revenue from contracts with customers	1,107	1,119
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges [Member]
Revenue from contracts with customers	291	313
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Non-Sufficient Funds Charges [Member]
Revenue from contracts with customers	133	159
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Business Analysis Charges [Member]
Revenue from contracts with customers	46	41
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Cycle Charges [Member
Revenue from contracts with customers	20	23
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Lockbox Fees [Member]
Revenue from contracts with customers	47	44
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Stop Payment Fees [Member]
Revenue from contracts with customers	4	4
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Wire Transfer Fees [Member]
Revenue from contracts with customers	22	21
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Service Charges Other Service Charges [Member]
Revenue from contracts with customers	19	21
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Wealth Management [Member]
Revenue from contracts with customers	445	435
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Wealth Management DNB Investments & Insurance [Member]
Revenue from contracts with customers	76	89
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Wealth Management DNB First Investment Management & Trust [Member]
Revenue from contracts with customers	369	346
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income [Member]
Revenue from contracts with customers	371	371
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income Cardholder Interchange Fees [Member]
Revenue from contracts with customers	253	245
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income Safe Deposit Box [Member]
Revenue from contracts with customers	23	24
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income Check Printing [Member]
Revenue from contracts with customers	24	23
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income Merchant Card Processing [Member]
Revenue from contracts with customers	42	48
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income ATM Surcharges For Non-DNB Customers [Member]
Revenue from contracts with customers	15	17
Revenue from Contracts with Customers in Scope of ASU 2014-09 [Member] | Other Fee Income Other Fee [Member]
Revenue from contracts with customers	$ 14	$ 14

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Basis of Presentation (Recognized Rent Expense) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Summary Of Significant Accounting Policies [Abstract]
Fixed rent expense	$ 259	$ 285
Amortization of lease liability	193
Interest expense	66
Net lease cost	$ 259

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Basis of Presentation (Supplemental Cash Flow Information) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Summary Of Significant Accounting Policies [Abstract]
Operating cash flows from operating leases	$ 245	$ 242
New operating lease liabilities	$ 4,358

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Investment Securities (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) security	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Securities [Line Items]
Available-for-sale securities pledged as collateral | $	$ 84,800		$ 95,800
Gain on call | $	$ 3
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	19
Number of securities, impaired for more than 12 months	19
Unrealized loss of security from book value	8.90%
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	19
Unrealized loss of security from book value	3.06%
US Government Agency Obligations [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	6
Unrealized loss of security from book value	1.24%
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	21
Number of impaired municipal securities, townships uninsured	7
Unrealized loss of security from book value	7.70%
State and Municipal Taxable [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	1
Unrealized loss of security from book value	0.38%
Corporate Bonds [Member]
Securities [Line Items]
Securities in unrealized loss positions qualitative disclosure number of positions	11
Number of securities, impaired for more than 12 months	10
Unrealized loss of security from book value	2.91%

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Investment Securities (Amortized Cost and Estimated Fair Values of Investment Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	$ 61,000	$ 62,026
Held-to-maturity Securities, Unrealized Gains	231	184
Held-to-maturity Securities, Unrealized Losses	(325)	(1,075)
Held-to-maturity Securities, Estimated Fair Value	60,906	61,135
Available-for-sale Securities, Amortized Cost	88,434	98,765
Available-for-sale Securities, Unrealized Gains	6
Available-for-sale Securities, Unrealized Losses	(1,318)	(2,122)
Available-for-sale, Estimated Fair Value	87,122	96,643
US Government Agency Obligations [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	8,817	8,749
Held-to-maturity Securities, Unrealized Gains	33	41
Held-to-maturity Securities, Estimated Fair Value	8,850	8,790
Available-for-sale Securities, Amortized Cost	38,088	48,082
Available-for-sale Securities, Unrealized Gains	3
Available-for-sale Securities, Unrealized Losses	(139)	(359)
Available-for-sale, Estimated Fair Value	37,952	47,723
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	369	389
Held-to-maturity Securities, Unrealized Gains	4
Held-to-maturity Securities, Estimated Fair Value	373	389
Available-for-sale Securities, Amortized Cost	27,591	27,563
Available-for-sale Securities, Unrealized Gains	3
Available-for-sale Securities, Unrealized Losses	(605)	(1,005)
Available-for-sale, Estimated Fair Value	26,989	26,558
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	13,759	13,851
Held-to-maturity Securities, Unrealized Gains	142	124
Held-to-maturity Securities, Unrealized Losses	(12)	(47)
Held-to-maturity Securities, Estimated Fair Value	13,889	13,928
Available-for-sale Securities, Amortized Cost	10,868	10,890
Available-for-sale Securities, Unrealized Losses	(126)	(186)
Available-for-sale, Estimated Fair Value	10,742	10,704
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	1,102	1,159
Held-to-maturity Securities, Unrealized Losses	(21)	(27)
Held-to-maturity Securities, Estimated Fair Value	1,081	1,132
Available-for-sale Securities, Amortized Cost	9,909	10,249
Available-for-sale Securities, Unrealized Losses	(363)	(441)
Available-for-sale, Estimated Fair Value	9,546	9,808
State and Municipal Taxable [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	362	362
Held-to-maturity Securities, Unrealized Losses	(1)	(3)
Held-to-maturity Securities, Estimated Fair Value	361	359
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Amortized Cost	36,591	37,516
Held-to-maturity Securities, Unrealized Gains	52	19
Held-to-maturity Securities, Unrealized Losses	(291)	(998)
Held-to-maturity Securities, Estimated Fair Value	36,352	36,537
Available-for-sale Securities, Amortized Cost	1,978	1,981
Available-for-sale Securities, Unrealized Losses	(85)	(131)
Available-for-sale, Estimated Fair Value	$ 1,893	$ 1,850

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Investment Securities (Aggregate Unrealized Losses and Aggregate Fair Value of Underlying Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Securities [Line Items]
Held-to-maturity Securities, Fair Value	$ 18,605	$ 32,114
Held-to-maturity Securities, Unrealized Losses	(325)	(1,075)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months		3,932
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(46)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	18,605	28,182
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(325)	(1,029)
Available-for-sale Securities, Fair Value	75,770	86,643
Available-for-sale Securities, Unrealized Loss	(1,318)	(2,122)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	1,020	2,035
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(20)	(7)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	74,750	84,608
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(1,298)	(2,115)
US Government Agency Obligations [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value	27,749	37,723
Available-for-sale Securities, Unrealized Loss	(139)	(359)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	27,749	37,723
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(139)	(359)
Government Sponsored Entities (GSE) Mortgage-Backed Securities [Member]
Securities [Line Items]
Available-for-sale Securities, Fair Value	25,840	26,558
Available-for-sale Securities, Unrealized Loss	(605)	(1,005)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	25,840	26,558
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(605)	(1,005)
Collateralized Mortgage Obligations GSE [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value	1,081	1,132
Held-to-maturity Securities, Unrealized Losses	(21)	(27)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	1,081	1,132
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(21)	(27)
Available-for-sale Securities, Fair Value	9,546	9,808
Available-for-sale Securities, Unrealized Loss	(363)	(441)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	9,546	9,808
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(363)	(441)
Corporate Bonds [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value	4,164	4,157
Held-to-maturity Securities, Unrealized Losses	(12)	(47)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months		1,887
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(15)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	4,164	2,270
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(12)	(32)
Available-for-sale Securities, Fair Value	10,742	10,704
Available-for-sale Securities, Unrealized Loss	(126)	(186)
Available-for-sale Securities, Fair Value Impaired Less Than 12 Months	1,020	2,035
Available-for-sale Securities, Unrealized Loss Less Than 12 Months	(20)	(7)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	9,722	8,669
Available-for-sale Securities, Unrealized Loss More Than 12 Months	(106)	(179)
State and Municipal Taxable [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value	361	359
Held-to-maturity Securities, Unrealized Losses	(1)	(3)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	361	359
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(1)	(3)
State and Municipal Tax-Exempt [Member]
Securities [Line Items]
Held-to-maturity Securities, Fair Value	12,999	26,466
Held-to-maturity Securities, Unrealized Losses	(291)	(998)
Held-to-maturity Securities, Fair Value Impaired Less Than 12 Months		2,045
Held-to-maturity Securities, Unrealized Loss Less Than 12 Months		(31)
Held-to-maturity Securities, Fair Value Impaired More Than 12 Months	12,999	24,421
Held-to-maturity Securities, Unrealized Loss More Than 12 Months	(291)	(967)
Available-for-sale Securities, Fair Value	1,893	1,850
Available-for-sale Securities, Unrealized Loss	(85)	(131)
Available-for-sale Securities, Fair Value Impaired More Than 12 Months	1,893	1,850
Available-for-sale Securities, Unrealized Loss More Than 12 Months	$ (85)	$ (131)

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Investment Securities (Investments Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment Securities [Abstract]
Held to Maturity, Due in one year or less, Amortized Cost	$ 11,668
Held to Maturity, Due after one year through five years, Amortized Cost	14,974
Held to Maturity, Due after five years through ten years, Amortized Cost	26,711
Held to Maturity, Due after ten years, Amortized Cost	7,647
Held-to-maturity Securities, Amortized Cost	61,000	$ 62,026
Held to Maturity, Due in one year or less, Estimated Fair Value	11,701
Held to Maturity, Due after one year through five years, Estimated Fair Value	15,035
Held to Maturity, Due after five years through ten years, Estimated Fair Value	26,720
Held to Maturity, Due after ten years, Estimated Fair Value	7,450
Held-to-maturity, Total investment securities, Estimated Fair Value	60,906	61,135
Available for Sale, Due in one year or less, Amortized Cost	15,555
Available for Sale, Due after one year through five years, Amortized Cost	30,137
Available for Sale, Due after five years through ten years, Amortized Cost	18,405
Available for Sale, Due after ten years, Amortized Cost	24,337
Available-for-sale Securities, Amortized Cost	88,434	98,765
Available for Sale, Due in one year or less, Estimated Fair Value	15,508
Available for Sale, Due after one year through five years, Estimated Fair Value	29,957
Available for Sale, Due after five years through ten years, Estimated Fair Value	18,067
Available for Sale, Due after ten years, Estimated Fair Value	23,590
Available for Sale, Total investment securities, Estimated Fair Value	$ 87,122	$ 96,643

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Investment Securities (Gains and Losses Resulting from Investment Sales, Redemptions or Calls) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Investment Securities [Abstract]
Gross realized gains-HTM	$ 3
Net realized gain	$ 3

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Loans (Composition of Total Loans Outstanding) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 933,697	$ 934,971
Less allowance for credit losses	(6,719)	(6,675)	$ (6,145)	$ (5,843)
Net loans	926,978	928,296
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	101,039	99,932
Less allowance for credit losses	(156)	(161)	(226)	(221)
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	517,236	535,735
Less allowance for credit losses	(3,493)	(3,647)	(2,987)	(2,856)
Commercial Term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	182,077	166,335
Less allowance for credit losses	(1,189)	(1,062)	(904)	(845)
Commercial Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	78,967	76,302
Less allowance for credit losses	(1,080)	(1,032)	(1,219)	(1,128)
Consumer: Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	49,412	51,536
Less allowance for credit losses	(183)	(190)	(176)	(183)
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,966	5,131
Less allowance for credit losses	$ (43)	$ (46)	$ (55)	$ (63)

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Loans (Information on Non-Accrual Loans) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 4,594	$ 8,408	$ 5,546
Loans 90 day past due and accruing			233
Total non-performing loans	4,594	8,408	5,779
Interest income that would have been recorded under original terms, non-accrual loans	91	123
Interest income that would have been recorded under original terms	91	123
Net impact on interest income, non-accrual loans	91	123
Net impact on interest income	91	123
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	792	2,033	905
Interest income that would have been recorded under original terms, non-accrual loans	12	25
Net impact on interest income, non-accrual loans	12	25
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,221	2,088	1,307
Interest income that would have been recorded under original terms, non-accrual loans	26	30
Net impact on interest income, non-accrual loans	26	30
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	2,045	3,015	2,300
Interest income that would have been recorded under original terms, non-accrual loans	43	44
Net impact on interest income, non-accrual loans	43	44
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans		497	476
Interest income that would have been recorded under original terms, non-accrual loans		11
Net impact on interest income, non-accrual loans		11
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	391	464	391
Interest income that would have been recorded under original terms, non-accrual loans	7	5
Net impact on interest income, non-accrual loans	7	5
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	145	311	$ 167
Interest income that would have been recorded under original terms, non-accrual loans	3	8
Net impact on interest income, non-accrual loans	$ 3	$ 8

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Allowance for Credit Losses (Narrative) (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($) loan	Mar. 31, 2018 USD ($) loan	Dec. 31, 2018 USD ($) loan
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	10		9
TDR recorded investment	$ 3,114,000		$ 1,762,000
Partial charge-off of loan amount	$ 168,000	$ 76,000
Number of defaulted TDRs | loan	0		0
Loan defaults on TDRs	$ 0		$ 0
Accruing Loans [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan			9
Residential Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Real estate loans in process of foreclosure	362,000
Number of TDR loans | loan			2
TDR recorded investment	1,990,000		$ 630,000
Partial charge-off of loan amount		$ 34,000	$ 151,000
Consumer Installment Loan [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	1		1
Partial charge-off of loan amount	$ 2,000		$ 2,000
Other Real Estate Owned [Member]
Financing Receivable, Modifications [Line Items]
Real estate loans in process of foreclosure	0		$ 97,000
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan		0	1
TDR recorded investment	955,000		$ 962,000
Partial charge-off of loan amount	$ 82,000	$ 13,000
Two Residential Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of TDR loans | loan	2
Partial charge-off of loan amount	$ 151,000
One Residential Mortgage [Member]
Financing Receivable, Modifications [Line Items]
TDR recorded investment	$ 1,400,000		$ 73,000

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Allowance for Credit Losses (Age Analysis Of Past Due Loans Receivables) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 6,273	$ 6,030
Current	927,424	928,941
Total Loans Receivables	933,697	934,971
Loans Receivable >90 Days and Accruing		233
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	3,429	1,110
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	348	1,923
Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	2,496	2,997
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	3,707
Current	97,332
Total Loans Receivables	101,039	99,932
Residential Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	2,753
Residential Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	348
Residential Mortgage [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	606
Residential Mortgage (Less Acquired With Credit Deterioration) [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		3,253
Current		96,679
Total Loans Receivables		99,932
Loans Receivable >90 Days and Accruing		130
Residential Mortgage (Less Acquired With Credit Deterioration) [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		666
Residential Mortgage (Less Acquired With Credit Deterioration) [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		1,742
Residential Mortgage (Less Acquired With Credit Deterioration) [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		845
Commercial Mortgage (Less Acquired With Credit Deterioration) [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	968	840
Current	515,763	534,739
Total Loans Receivables	516,731	535,579
Loans Receivable >90 Days and Accruing		103
Commercial Mortgage (Less Acquired With Credit Deterioration) [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	309
Commercial Mortgage (Less Acquired With Credit Deterioration) [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	659	840
Acquired Commercial Mortgage With Credit Deterioration [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	505	156
Total Loans Receivables	505	156
Commercial Term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	754	1,014
Current	181,323	165,321
Total Loans Receivables	182,077	166,335
Commercial Term [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	6	20
Commercial Term [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		37
Commercial Term [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	748	957
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	78,967	76,302
Total Loans Receivables	78,967	76,302
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	675	789
Current	48,737	50,747
Total Loans Receivables	49,412	51,536
Consumer: Home Equity [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	284	398
Consumer: Home Equity [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables		144
Consumer: Home Equity [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	391	247
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	169	134
Current	4,797	4,997
Total Loans Receivables	4,966	5,131
Consumer: Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	77	26
Consumer: Other [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans receivables	$ 92	$ 108

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Allowance for Credit Losses (Impaired Loans By Loan Portfolio) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 7,512		$ 6,014
Unpaid Principal Balance, With no related allowance recorded	8,848		7,210
Average Recorded Investment, With no related allowance recorded	6,949	$ 8,919
Interest Income Recognized, With no related allowance recorded	25	22
Recorded Investment, with allowance recorded	718		1,808
Unpaid Principal Balance, With allowance recorded	745		1,932
Average Recorded Investment, With allowance recorded	837	799
Recorded Investment, Total	8,230		7,822
Unpaid Principal Balance, Total	9,593		9,142
Related Allowance, Total	201		285
Average Recorded Investment, Total	7,786	9,718
Interest Income Recognized, Total	25	22
Residential Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,782		1,462
Unpaid Principal Balance, With no related allowance recorded	3,120		1,804
Average Recorded Investment, With no related allowance recorded	2,158	2,102
Interest Income Recognized, With no related allowance recorded	2	1
Recorded Investment, with allowance recorded			73
Unpaid Principal Balance, With allowance recorded			73
Recorded Investment, Total	2,782		1,535
Unpaid Principal Balance, Total	3,120		1,877
Related Allowance, Total			1
Average Recorded Investment, Total	2,158	2,102
Interest Income Recognized, Total	2	1
Acquired Residential Mortgage With Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment, With allowance recorded		4
Average Recorded Investment, Total		4
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,177		1,532
Unpaid Principal Balance, With no related allowance recorded	2,573		1,780
Average Recorded Investment, With no related allowance recorded	2,223	2,759
Interest Income Recognized, With no related allowance recorded	12	12
Recorded Investment, with allowance recorded			737
Unpaid Principal Balance, With allowance recorded			802
Average Recorded Investment, With allowance recorded		51
Recorded Investment, Total	2,177		2,269
Unpaid Principal Balance, Total	2,573		2,582
Related Allowance, Total			78
Average Recorded Investment, Total	2,223	2,810
Interest Income Recognized, Total	12	12
Acquired Commercial Mortgage With Credit Deterioration [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	521		514
Unpaid Principal Balance, With no related allowance recorded	535		527
Average Recorded Investment, With no related allowance recorded	517	861
Interest Income Recognized, With no related allowance recorded	9	7
Recorded Investment, Total	521		514
Unpaid Principal Balance, Total	535		527
Average Recorded Investment, Total	517	861
Interest Income Recognized, Total	9	7
Commercial Term [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,327		1,343
Unpaid Principal Balance, With no related allowance recorded	1,841		1,845
Average Recorded Investment, With no related allowance recorded	1,335	1,918
Recorded Investment, with allowance recorded	718		957
Unpaid Principal Balance, With allowance recorded	745		1,015
Average Recorded Investment, With allowance recorded	837	630
Recorded Investment, Total	2,045		2,300
Unpaid Principal Balance, Total	2,586		2,860
Related Allowance, Total	201		203
Average Recorded Investment, Total	2,172	2,548
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded			476
Unpaid Principal Balance, With no related allowance recorded			514
Average Recorded Investment, With no related allowance recorded		505
Recorded Investment, Total			476
Unpaid Principal Balance, Total			514
Average Recorded Investment, Total		505
Consumer: Home Equity [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	530		531
Unpaid Principal Balance, With no related allowance recorded	534		535
Average Recorded Investment, With no related allowance recorded	530	610
Interest Income Recognized, With no related allowance recorded	1	2
Recorded Investment, Total	530		531
Unpaid Principal Balance, Total	534		535
Average Recorded Investment, Total	530	610
Interest Income Recognized, Total	1	2
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	175		156
Unpaid Principal Balance, With no related allowance recorded	245		205
Average Recorded Investment, With no related allowance recorded	186	164
Interest Income Recognized, With no related allowance recorded	1
Recorded Investment, with allowance recorded			41
Unpaid Principal Balance, With allowance recorded			42
Average Recorded Investment, With allowance recorded		114
Recorded Investment, Total	175		197
Unpaid Principal Balance, Total	245		247
Related Allowance, Total			$ 3
Average Recorded Investment, Total	186	$ 278
Interest Income Recognized, Total	$ 1

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Allowance for Credit Losses (Recorded Investments in Troubled Debt Restructured Loans) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Pre-modification outstanding recorded investment	$ 3,205	$ 1,856
Post-modification outstanding recorded investment	3,359	1,987
Recorded Investment	3,114	1,762
Residential Mortgage [Member]
Pre-modification outstanding recorded investment	2,025	676
Post-modification outstanding recorded investment	2,177	805
Recorded Investment	1,990	630
Commercial Mortgage [Member]
Pre-modification outstanding recorded investment	992	992
Post-modification outstanding recorded investment	992	992
Recorded Investment	955	962
Consumer: Home Equity [Member]
Pre-modification outstanding recorded investment	148	148
Post-modification outstanding recorded investment	148	148
Recorded Investment	139	140
Consumer: Other [Member]
Pre-modification outstanding recorded investment	40	40
Post-modification outstanding recorded investment	42	42
Recorded Investment	$ 30	$ 30

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Allowance for Credit Losses (Credit Quality Indicators) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 933,697	$ 934,971
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	908,113	915,309
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	15,095	7,291
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	10,489	12,371
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	101,039	99,932
Residential Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	98,441	97,577
Residential Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	433
Residential Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,165	2,355
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	517,236	535,735
Commercial Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	503,900	528,692
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,629	2,367
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,707	4,676
Commercial Term [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	182,077	166,335
Commercial Term [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	177,246	161,051
Commercial Term [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	1,235	1,178
Commercial Term [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,596	4,106
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	78,967	76,302
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	74,840	72,077
Commercial Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,642	3,603
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	485	622
Consumer: Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	49,412	51,536
Consumer: Home Equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	48,865	50,988
Consumer: Home Equity [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	156	143
Consumer: Home Equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	391	405
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4,966	5,131
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	4,821	4,924
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 145	$ 207

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Allowance for Credit Losses (Allowance For Credit Losses And Recorded Investments In Loans Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 6,675	$ 5,843	$ 5,843
Charge-offs	(168)	(76)
Recoveries	12	3
Provisions	200	375
Ending balance	6,719	6,145	6,675
Ending balance: individually evaluated for impairment	201		285
Ending balance: collectively evaluated for impairment	6,518		6,390
Ending balance: Loans receivables	933,697		934,971
Ending Balance: individually evaluated for impairment	7,709		7,308
Ending Balance: collectively evaluated for impairment	925,467		927,149
Reserve for unfunded loan commitments included in other liabilities	424	309	398
Loans Receivables Acquired with Deteriorated Credit Quality [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: Loans receivables	521		514
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	161	221	221
Charge-offs		(34)	(151)
Recoveries	4	1
Provisions	(9)	38
Ending balance	156	226	161
Ending balance: individually evaluated for impairment			1
Ending balance: collectively evaluated for impairment	156		160
Ending balance: Loans receivables	101,039		99,932
Ending Balance: individually evaluated for impairment	2,782		1,535
Ending Balance: collectively evaluated for impairment	98,257		98,397
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	3,647	2,856	2,856
Charge-offs	(82)	(13)
Provisions	(72)	144
Ending balance	3,493	2,987	3,647
Ending balance: individually evaluated for impairment			78
Ending balance: collectively evaluated for impairment	3,493		3,569
Ending balance: Loans receivables	517,236		535,735
Ending Balance: individually evaluated for impairment	2,177		2,269
Ending Balance: collectively evaluated for impairment	514,538		532,952
Reserve for unfunded loan commitments included in other liabilities	1	3	4
Commercial Mortgage [Member] | Loans Receivables Acquired with Deteriorated Credit Quality [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending balance: Loans receivables	521		514
Commercial Term [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,062	845	845
Charge-offs	(69)	(17)
Recoveries	8	2
Provisions	188	74
Ending balance	1,189	904	1,062
Ending balance: individually evaluated for impairment	201		203
Ending balance: collectively evaluated for impairment	988		859
Ending balance: Loans receivables	182,077		166,335
Ending Balance: individually evaluated for impairment	2,045		2,300
Ending Balance: collectively evaluated for impairment	180,032		164,035
Reserve for unfunded loan commitments included in other liabilities	184	150	167
Commercial Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,032	1,128	1,128
Charge-offs
Provisions	48	91
Ending balance	1,080	1,219	1,032
Ending balance: collectively evaluated for impairment	1,080		1,032
Ending balance: Loans receivables	78,967		76,302
Ending Balance: individually evaluated for impairment			476
Ending Balance: collectively evaluated for impairment	78,967		75,826
Reserve for unfunded loan commitments included in other liabilities	219	139	206
Consumer: Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	190	183	183
Charge-offs
Provisions	(7)	(7)
Ending balance	183	176	190
Ending balance: collectively evaluated for impairment	183		190
Ending balance: Loans receivables	49,412		51,536
Ending Balance: individually evaluated for impairment	530		531
Ending Balance: collectively evaluated for impairment	48,882		51,005
Reserve for unfunded loan commitments included in other liabilities	20	17	21
Consumer: Other [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	46	63	63
Charge-offs	(17)	(12)
Provisions	14	4
Ending balance	43	55	46
Ending balance: individually evaluated for impairment			3
Ending balance: collectively evaluated for impairment	43		43
Ending balance: Loans receivables	4,966		5,131
Ending Balance: individually evaluated for impairment	175		197
Ending Balance: collectively evaluated for impairment	4,791		4,934
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	537	547	547
Charge-offs
Provisions	38	31
Ending balance	575	$ 578	537
Ending balance: collectively evaluated for impairment	$ 575		$ 537

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
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	10,600	0

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Earnings Per Share (Computation of Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income available to common stockholders, Income	$ 2,587	$ 2,613
Income available to common stockholders after assumed exercises, Income	$ 2,587	$ 2,613
Net income available to common stockholders, Shares	4,327,226	4,290,971
Effect of potential dilutive common stock equivalents– stock options and restricted shares, Shares	3,000	18,000
Income available to common stockholders after assumed exercises, Shares	4,329,991	4,308,847
Net income available to common stockholders, Amount	$ 0.60	$ 0.61
Income available to common stockholders after assumed exercises, Amount	$ 0.60	$ 0.61

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Accumulated Other Comprehensive Loss (Components of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized loss on AFS securities, Before-Tax Amount	$ (1,312)	$ (2,122)
Net unrealized loss on AFS securities, Tax Effect	276	445
Net unrealized loss on AFS securities, Net-of-Tax Amount	(1,036)	(1,677)
Unrealized actuarial losses-pension, Before-Tax Amount	(1,637)	(1,637)
Unrealized actuarial losses-pension, Tax Effect	343	343
Unrealized actuarial losses-pension, Net-of-Tax Amount	(1,294)	(1,294)
Total of all items above, Before-Tax Amount	(2,949)	(3,759)
Total of all items above, Tax Effect	619	788
Accumulated other comprehensive loss, net of tax	$ (2,330)	$ (2,971)

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Subordinated Debentures And Notes (Narrative) (Details)	3 Months Ended
	Mar. 31, 2019 USD ($) item	Mar. 05, 2015 USD ($)
Debt Instrument [Line Items]
Number of issuances of junior subordinated debentures | item	2
Subordinated Note [Member]
Debt Instrument [Line Items]
Interest rate period, in years	5 years
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]
Subordinate notes bearing fixed interest rate	4.25%
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%
Fixed interest rate	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%
Subordinate notes bearing 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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Stock-Based Compensation (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares issued	10,600	10,750
Exercise of stock options, shares		2,100
Stock options outstanding	0	14,350	16,450
Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of issuable shares of common stock	493,101
Share issuance, restricted sale period	1 year
Shares available for future grants	482,501
Stock based compensation	$ 61	$ 96
Share based compensation cost not yet recognized	$ 651
Share based compensation cost not yet recognized, period for recognition	1 year 10 months 6 days
Incentive Equity And Deferred Compensation Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares issued		1,400
Increase in shares outstanding		896
Cash equivalent shares used to pay taxes		504
Employees And Directors Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of issuable shares of common stock	793,368
Shares available for future grants	354,090
Stock based compensation	$ 0	$ 0
Exercise of stock options, shares	0	2,100
Increase in shares outstanding		966
Cash equivalent shares used to pay taxes		1,134
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
Maximum [Member] | Employees And Directors Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum option exercise period	10 years
Minimum [Member] | Incentive Equity And Deferred Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award issuable period after date of grant	3 years
Cliff-vesting period	3 years

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Stock-Based Compensation (Stock Option Activity) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock-Based Compensation [Abstract]
Balance		16,450
Beginning balance, Weighted Average Exercise Price		$ 10.31
Issued
Issued, Weighted Average Exercise Price
Exercised		2,100
Exercised, Weighted Average Exercise Price		$ 10.31
Forfeited
Forfeited, Weighted Average Exercise Price
Expired
Expired, Weighted Average Exercise Price
Balance	0	14,350
Ending balance, Weighted Average Exercise Price		$ 10.31

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Stock-Based Compensation (Stock Grant Activity) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock-Based Compensation [Abstract]
Non-vested stock awards	18,590	31,130
Granted	10,600	10,750
Forfeited		250
Vested		1,400
Non-vested stock awards	29,190	40,230
Non-vested stock awards, Weighted Average Stock Price	$ 30.90	$ 26.53
Granted, Weighted Average Stock Price	39.36	33.98
Forfeited, Weighted Average Stock Price		28.00
Vested, Weighted Average Stock Price		25.84
Non-vested stock awards, Weighted Average Stock Price	$ 33.98	$ 28.53

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Income Taxes (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Income Tax Contingency [Line Items]
Unrecognized tax positions
Minimum [Member] | Federal And State [Member]
Income Tax Contingency [Line Items]
Open tax year for examinations	2015
Maximum [Member] | Federal And State [Member]
Income Tax Contingency [Line Items]
Open tax year for examinations	2017

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Fair Values (Narrative) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Total recorded investment	$ 8,230,000	$ 7,822,000
Recorded Investment, with allowance recorded	718,000	1,808,000
Fair value of additional impaired financing receivable recorded investment	201,000	285,000
Impaired Financing Receivable, Related Allowance	201,000	285,000
Additional impaired financing receivable	895,000
Partially charged down loans	95,000
Total fair value of impaired loans	1,300,000	1,500,000
Other real estate owned & other repossessed property	3,466,000	5,051,000
OREO	3,300,000	4,900,000
Other repossessed property	142,000	142,000
Other Real Estate, Valuation Adjustments		0
Transfers from level 1 to level 2	0
Transfers from level 2 to level 1	0
Estimated Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Fair value of additional impaired financing receivable recorded investment	800,000
Impaired Financing Receivable, Related Allowance	517,000	$ 1,500,000
Other Real Estate Owned [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
OREO	623,000
Other Real Estate, Valuation Adjustments	97,000
Other Real Estate Owned [Member] | Estimated Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
OREO	$ 526,000

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Fair Values (Assets Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands		Mar. 31, 2019		Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		$ 87,122		$ 96,643
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Recurring, Total		87,122		96,643
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		1,317		1,523
OREO and other repossessed property		526		1,247
Assets, Fair Value Disclosure, Recurring, Total		1,843		2,770
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		87,122		96,643
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Recurring, Total		87,122		96,643
Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]	1,317	[1]	1,523
OREO and other repossessed property	[2]	526		1,247	[1]
Assets, Fair Value Disclosure, Recurring, Total		1,843		2,770
US Government Agency Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		37,952		47,723
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		37,952		47,723
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		37,952		47,723
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		26,989		26,558
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		26,989		26,558
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		26,989		26,558
Collateralized Mortgage Obligations GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		9,546		9,808
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		9,546		9,808
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		9,546		9,808
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		10,742		10,704
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		10,742		10,704
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		10,742		10,704
State and Municipal Tax-Exempt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for Sale Securities		1,893		1,850
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		1,893		1,850
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		$ 1,893		$ 1,850

[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.

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Fair Values (Quantitative Information About Level 3 Fair Value Measurements) (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 31, 2019		Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		$ 1,317		$ 1,523
Other real estate owned, fair value		526		1,247
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]	1,317	[1]	1,523
Other real estate owned, fair value	[2]	526		1,247	[1]
Level 3 [Member] | Residential Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]			72
Level 3 [Member] | Commercial Mortgage [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]	659		659	[1]
Level 3 [Member] | Commercial Term [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]	517	[1]	754
Level 3 [Member] | Consumer: Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	[2]	$ 141		$ 38	[1]
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%)		(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]			(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]	(14.00%)		(14.00%)
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]	0.00%		0.00%
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]	(7.00%)		(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%)		(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]			(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]	(14.00%)		(14.00%)
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]	(8.00%)		(16.00%)
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]	(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%)		(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]			(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]	(14.00%)		(14.00%)
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]	(4.00%)		(11.00%)
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]	(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.

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Fair Values (Carrying Amounts and Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
AFS investment securities	$ 87,122	$ 96,643
HTM investment securities	61,000	62,026
Loans held-for-sale	449	419
Time	162,939	162,096
Brokered	107,163	108,651
Subordinated debt	9,750	9,750
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	34,893	17,321
AFS investment securities	87,122	96,643
HTM investment securities	61,000	62,026
Restricted stock	6,389	5,616
Loans held-for-sale	449	419
Loans, net of allowance, including impaired	926,978	928,296
Accrued interest receivable	4,396	4,207
Non-interest-bearing deposits	166,806	164,746
NOW, Money market, and Savings	543,349	549,073
Time	162,939	162,096
Brokered	107,163	108,651
FHLBP advances	41,918	32,935
Junior subordinated debentures and other borrowings	9,279	9,279
Subordinated debt	9,750	9,750
Accrued interest payable	699	646
Estimated Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	34,893	17,321
AFS investment securities	87,122	96,643
HTM investment securities	60,906	61,135
Restricted stock	6,389	5,616
Loans held-for-sale	457	429
Loans, net of allowance, including impaired	912,038	914,822
Accrued interest receivable	4,396	4,207
Non-interest-bearing deposits	166,806	164,746
NOW, Money market, and Savings	543,349	549,073
Time	162,513	160,944
Brokered	106,304	97,250
FHLBP advances	41,601	32,347
Junior subordinated debentures and other borrowings	10,166	10,285
Subordinated debt	9,435	9,505
Accrued interest payable	699	646
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	34,893	17,321
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
AFS investment securities	87,122	96,643
HTM investment securities	58,906	59,135
Restricted stock	6,389	5,616
Accrued interest receivable	4,396	4,207
Non-interest-bearing deposits	166,806	164,746
NOW, Money market, and Savings	543,349	549,073
Time	162,513	160,944
Brokered	106,304	97,250
FHLBP advances	41,601	32,347
Junior subordinated debentures and other borrowings	10,166	10,285
Subordinated debt	9,435	9,505
Accrued interest payable	699	646
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
HTM investment securities	2,000	2,000
Loans held-for-sale	457	429
Loans, net of allowance, including impaired	$ 912,038	$ 914,822