8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 20, 2006

DNB Financial Corporation

__________________________________________

(Exact name of registrant as specified in its charter)

Pennsylvania	0-16667	23-2222567
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
4 Brandywine Avenue, Downingtown, Pennsylvania		19335
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: (610) 269-1040

Not Applicable

______________________________________________

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(a) On December 20, 2006, the registrant (“DNB”) and its wholly owned subsidiary, DNB First, National Association (the “Bank”) (collectively, the "Company") entered into a change in control agreement with Albert J. Melfi, Jr., in connection with his appointment as the Company's Executive Vice President and Chief Lending Officer. Except for the factor by which Mr. Melfi’s base severance is calculated from total annual compensation, and the period for which DNB agrees to pay medical benefits for Mr. Melfi, his Change of Control Agreement is on substantially the same terms as the Change of Control Agreements for the other executive officers of DNB and the Bank.

The agreement obligates the Company to pay Mr. Melfi, upon a termination of his employment with the Company after a “change in control” (as defined in the agreement), either by the Company other than for “cause” (as defined in the agreement), or by him for “good reason” (as defined in the agreement), “Base Severance” in an amount equal to 1.5 times his “Total Annual Cash Compensation.” The agreement defines his “Total Annual Cash Compensation as the sum of two elements: (I) the aggregate amount of (i) salary, (ii) the Company’s cash contribution toward the cost of medical, life, disability and health insurance benefits, and (iii) employer contributions (whether or not matching) under the Company’s qualified defined contribution retirement plans, that was payable to or for the benefit of Mr. Melfi at any time during the most recent full fiscal year of the Company ended prior to the time Mr. Melfi becomes entitled to severance payments (the “Base Element”), plus (II) the aggregate cash bonuses that have been earned by Mr. Melfi for performance by Mr. Melfi during the most recent fiscal year of the Company ended prior to the time Mr. Melfi becomes entitled to severance payments, but any bonus shall only be included in the foregoing to the extent it has been finally approved and fixed as to amount at the time Mr. Melfi becomes entitled to severance payments (the “Bonus Element”). These payments are subject to withholding of applicable taxes. In addition, in such event, the agreement provides that the Company will pay for one (1) year’s medical insurance coverage on the same terms available to other employees from time to time.

The agreement defines a “change in control” as any one or more of the following: (1) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")(or any successor provision) as it may be amended from time to time; (2) any "persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first written above), other than DNB or the Bank or any "person" who on the date hereof is a director of officer of DNB or the Bank, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of DNB or the Bank representing 25% or more of the combined voting power of Company's or Bank's then outstanding securities; (3) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of DNB or the Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period; or (4) the signing of a letter of intent or a formal acquisition or merger agreement between DNB or the Bank, of the one part, and a third party which contemplates a transaction which would result in a "change of control" of the type described in clauses (1), (2) or (3) of this sentence, but only if the letter of intent or agreement, or the transaction contemplated thereby, has not been canceled or terminated at the time employment terminates. The agreement defines termination for “cause” as termination for personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, conviction of a felony, suspension or removal from office or prohibition from participation in the conduct of DNB's or Bank's affairs pursuant to a notice or other action by any Regulatory Agency, or willful violation of any law, rule or regulation or final cease-and-desist order which in the reasonable judgment of the Board of Directors of the Company will probably cause substantial economic damages to the Company, willful or intentional breach or neglect by Mr. Melfi of his duties, or material breach of any material provision of this Agreement. For purposes of this paragraph, no act, or failure to act on Mr. Melfi's part shall be considered "willful" unless done, or omitted to be done, by him without good faith and without reasonable belief that this action or omission was in the best interest of Company; provided that any act or omission to act by Mr. Melfi in reliance upon an approving opinion of counsel to the Company or counsel to Mr. Melfi shall not be deemed to be willful. The terms "incompetence" and "misconduct" shall be defined with reference to standards generally prevailing in the banking industry. In determining incompetence and misconduct, Company shall have the burden of proof with regard to the acts or omission of Mr. Melfi and the standards prevailing in the banking industry. Mr. Melfi shall be deemed to have "good reason" for terminating his employment under the Agreement if Mr. Melfi terminates such employment within two (2) years after the occurrence of any one or more of the following events without his express written consent, but only if the event occurs within two (2) years after a "change in control" (as defined in the agreement): (i) the assignment to Mr. Melfi of any duties inconsistent with Mr. Melfi's positions, duties, responsibilities, titles or offices with Bank or DNB as in effect immediately prior to a change in control of Bank or DNB, (ii) any removal of Mr. Melfi from, or any failure to re-elect Mr. Melfi to, any of such positions, except in connection with a termination or suspension of employment for cause, disability, death or retirement, (iii) a reduction by DNB or the Bank in Mr. Melfi's base annual salary, bonus and/or benefits as in effect immediately prior to a change in control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in Mr. Melfi's base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of the Company having the title of senior vice president or above, or (iv) any purported termination of Mr. Melfi's employment with Bank or DNB when "cause" (as defined in this Agreement) for such termination does not exist, or (v) a relocation of Mr. Melfi’s workplace outside of Chester County.

(b) On December 20, 2006, the Company’s Board of Directors approved an amendment and restatement to the existing Change of Control Agreement between the Company and William S. Latoff, the Chairman and Chief Executive Officer of DNB and the Bank. The amended and restated agreement amends his existing Change of Control Agreement in the following significant respects:

(1)The base upon which Mr. Latoff’s severance is calculated has been changed from his most recent annual salary as of the time of termination to the sum of two elements: (I) the aggregate amount of (i) salary, (ii) the Company’s cash contribution toward the cost of medical, life, disability and health insurance benefits, and (iii) employer contributions (whether or not matching) under the Company’s qualified defined contribution retirement plans, that was payable to or for the benefit of Mr. Latoff at any time during the most recent full fiscal year of the Company ended prior to the time Mr. Latoff becomes entitled to severance payments (the “Base Element”), plus (II) the average of the aggregate annual cash bonuses that have been earned by Mr. Latoff for performance by Mr. Latoff during each of the three (3) most recent fiscal years of the Company ended prior to the time Mr. Latoff becomes entitled to severance payments, but any bonus shall only be included in the foregoing average to the extent it has been finally approved and fixed as to amount at the time Mr. Latoff becomes entitled to severance payments (the “Bonus Element”).

(2)If, as a result of payments provided for under the agreement, together with all other payments in the nature of compensation provided to or for the benefit of Mr. Latoff under any other plans or agreements in connection with a Change in Control, Mr. Latoff becomes subject to excise taxes under Section 4999 of the Code, then, in addition to any other benefits provided under or pursuant to the Agreement or otherwise, the Company will be obligated to pay to Mr. Latoff at the time any such payments are made under or pursuant to this or other plans or agreements, an amount equal to the amount of such excise taxes (this is referred to in the Agreement as the “Parachute Tax Reimbursement”). In addition, the Company shall “gross up” any Parachute Tax Reimbursement by paying to Mr. Latoff at the same time an additional amount equal to the aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise, and whether Federal, state or local) that are or will be payable by Mr. Latoff as a result of the Parachute Tax Reimbursement being paid or payable to Mr. Latoff and as a result of such additional amounts paid or payable to Mr. Latoff for the Parachute Tax Reimbursement or its gross-up, such that after payment of such additional taxes Mr. Latoff shall have been paid on a net, after-tax basis an amount equal to the Parachute Tax Reimbursement. The amount of the gross-up described in the immediately preceding sentence shall be computed on the assumption that Mr. Latoff shall be subject to each applicable tax at the highest marginal rate of such tax. The amount of any Parachute Tax Reimbursement and any gross-up is to be determined by a registered public accounting firm selected by the Compensation Committee of the Board of Directors of the Company, whose determination, absent manifest error, shall be treated as conclusive and binding absent a binding determination by a governmental authority that a greater or lesser amount of taxes is payable by Mr. Latoff. If the Parachute Tax Reimbursement and a gross-up are provided for Mr. Latoff pursuant to one or more other plans or agreements in addition to this Agreement, they shall be provided only once.

(3)Events which, under the agreement, would be a basis for Mr. Latoff to resign with “good reason” after a “change in control” and hence be eligible for severance under the agreement have been modified to include the following in addition to the others specified in the agreement: (a) a reduction by DNB or the Bank in Mr. Latoff’s base annual salary, bonus and/or benefits as in effect immediately prior to a change in control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in Mr. Latoff’s base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of DNB having the title of executive vice president or above, and (b) a relocation of Executive’s workplace outside of Chester County.

(c) On December 20, 2006, the Company’s Board of Directors approved an amendment and restatement to the existing Change of Control Agreement between the Company and William J. Hieb, the President and Chief Operating Officer of DNB and the Bank. The amended and restated agreement amends his existing Change of Control Agreement in the following significant respects:

(1)The base upon which Mr. Hieb’s severance is calculated has been changed from his most recent annual salary as of the time of termination to the sum of two elements: (I) the aggregate amount of (i) salary, (ii) the Company’s cash contribution toward the cost of medical, life, disability and health insurance benefits, and (iii) employer contributions (whether or not matching) under the Company’s qualified defined contribution retirement plans, that was payable to or for the benefit of Mr. Hieb at any time during the most recent full fiscal year of the Company ended prior to the time Mr. Hieb becomes entitled to severance payments (the “Base Element”), plus (II) the aggregate cash bonuses that have been earned by the executive for performance by the executive during the most recent fiscal year of the Company ended prior to the time the executive becomes entitled to severance payments, but any bonus shall only be included in the foregoing to the extent it has been finally approved and fixed as to amount at the time the executive becomes entitled to severance payments (the “Bonus Element”).

(2)Events which, under the agreement, would be a basis for Mr. Hieb to resign with “good reason” after a “change in control” and hence be eligible for severance under the agreement have been modified to include the following in addition to the others specified in the agreement: (a) a reduction by DNB or the Bank in Mr. Hieb’s base annual salary, bonus and/or benefits as in effect immediately prior to a change in control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in Mr. Hieb’s base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of DNB having the title of executive vice president or above, and (b) a relocation of Executive’s workplace outside of Chester County.

(d) On December 20, 2006, the Company’s Board of Directors approved amendments and restatements to the existing Change of Control Agreements between the Company and the following respective executive officers of DNB and the Bank: Bruce E. Moroney, the Company’s Executive Vice President and Chief Financial Officer; Ronald K. Dankanich, the Company’s Executive Vice President of Operations; Richard J. Hartmann, the Company’s Executive Vice President of Retail Banking; and C. Tomlinson Kline III, the Company’s Senior Vice President and Chief Credit Officer. The amended and restated agreement amends his existing Change of Control Agreement in the following significant respects:

(1)The base upon which the executive’s severance is calculated has been changed from his most recent annual salary as of the time of termination to the sum of two elements: (I) the aggregate amount of (i) salary, (ii) the Company’s cash contribution toward the cost of medical, life, disability and health insurance benefits, and (iii) employer contributions (whether or not matching) under the Company’s qualified defined contribution retirement plans, that was payable to or for the benefit of the executive at any time during the most recent full fiscal year of the Company ended prior to the time the executive becomes entitled to severance payments (the “Base Element”), plus (II) the average of the aggregate annual cash bonuses that have been earned by the executive for performance by the executive during each of the two (2) most recent fiscal years of the Company ended prior to the time the executive becomes entitled to severance payments, but any bonus shall only be included in the foregoing average to the extent it has been finally approved and fixed as to amount at the time the executive becomes entitled to severance payments (the “Bonus Element”).

(2)Events which, under the agreement, would be a basis for the executive to resign with “good reason” after a “change in control” and hence be eligible for severance under the agreement have been modified to include the following in addition to the others specified in the agreement: (a) a reduction by DNB or the Bank in the executive’s base annual salary, bonus and/or benefits as in effect immediately prior to a change in control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in the executive’s base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of DNB having the title of executive vice president or above, and (b) a relocation of Executive’s workplace outside of Chester County.

(e) On December 20, 2006, the registrant’s wholly owned subsidiary, DNB First, National Association (the “Bank”) entered into a Marketing Services Agreement (the “Agreement”) with TSG, Inc., a Pennsylvania business corporation (the “Service Provider”) for which Eli Silberman, a Director of Registrant, is the President and owner. The Agreement is for a twelve (12) month term ending December 31, 2007. The Agreement obligates the Bank to pay the Service Provider compensation of $30,000.00 for the following services: (a) Assist DNB with niche marketing, and the development of DNB’s Advisory Board Strategy; and (b) Assist DNB Management with creative supervision and copywriting as needed for all advertising and communications including, but not limited to, the Annual Report. The Agreement requires the Services Provider to produce the deliverables, and be consistent with, documented discussions between DNB and the Service Provider, and the services are to be subject to such performance measures for each stage of performance as the parties shall identify prior to commencement of each stage of services. This Agreement expires on December 31, 2007, however it is terminable by either party upon sixty (60) days written notice.

(f) On December 20, 2006 the Board of Directors of the Company approved an increase in annual base salary for William S. Latoff, the Company's Chairman and CEO, to $295,000, and an increase in the annual base salary for William J. Hieb, the Company’s President and COO, to $210,000, respectively. Each salary increase will become effective January 1, 2007.

(g) On December 20, 2006, the Board of Directors of DNB Financial Corporation approved a Supplemental Executive Retirement Plan (also known as a SERP) for its Chairman and Chief Executive Officer, William S. Latoff. The purpose of the SERP is to provide Mr. Latoff a pension supplement beginning at age 70 for 10 years in approximately equal amounts each year and to compensate him for the loss of retirement plan funding opportunities from his other business interests because of his commitments to DNB as Chairman and CEO. Mr. Latoff was age 55 when DNB hired him as Chairman and CEO. Pursuant to the SERP, DNB proposes to make annual contributions of $70,000 prior to December 31 each year, commencing in 2006, until 2018, the year in which Mr. Latoff turns age 70, for a total of 13 installments. These contributions will be funded under a Trust Agreement (also known as a rabbi trust) between DNB Financial Corporation, as grantor, and its wholly owned subsidiary DNB First, National Association, as trustee, which was also approved by the Board of Directors of DNB Financial Corporation on December 20, 2006. The SERP provides that the adoption of the plan shall not constitute an employment contract between DNB and Mr. Latoff.

Pursuant to the SERP, DNB will direct the trustee to invest the assets of the trust in accordance with written investment directions provided from time to time by Mr. Latoff, or, after his death, the compensation committee of DNB’s Board of Directors. Mr. Latoff or his beneficiary will be entitled to select from a variety of investment to be designated by DNB. The SERP provides that neither DNB, the compensation committee, the trustee, nor their respective employees and agents shall be liable for any losses attributable to the investment selections or changes to them, or a reasonable delay in implementing the selections or changes, or for investment selections made by the compensation committee following his death. The SERP account will be credited monthly with earnings or losses on the balance of the SERP account since the preceding month in accordance with the performance of the investments selected.

At any point in time, Mr. Latoff’s accrued benefit under the SERP will be his vested interest in the balance of the SERP account. Initially, Mr. Latoff’s accrued benefit is equal to 40% of the SERP account balance. Provided that he remains employed continuously by DNB or the Bank through the following dates, he will become 60% vested in the SERP account on December 15, 2007, 80% vested on December 15, 2008 and 100% vested on December 15, 2009. However, the SERP provides that he will become 100% vested in the SERP account if his employment with DNB or the Bank is terminated for reasons other than “Cause” (as defined in the SERP), or if he terminates his employment for “Good Reason” (as defined in the SERP) following a “Change in Control” (as defined in the SERP). He will also become 100% vested in the SERP account if he terminates his employment for Good Reason following the signing of a letter of intent or a formal acquisition or merger agreement between DNB or the Bank, of the one part, and a third party which contemplates a transaction that would result in a Change in Control, but only if the letter of intent or agreement, or the transaction it contemplates, has not been canceled or terminated at the time of his termination for Good Reason. If Mr. Latoff’s employment is terminated for Cause before payments begin, he will forfeit his entire benefit and no payments will be made to him or his beneficiary. If his employment is terminated for Cause after payments begin, no further payments will be made to him or his beneficiary.

The SERP defines “Cause” as personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, conviction of a felony, suspension or removal from office or prohibition from participation in the conduct of DNB’s or Bank’s affairs pursuant to a notice or other action by any regulatory agency having jurisdiction over DNB or the Bank, or willful violation of any law, rule or regulation or final cease-and-desist order which in the reasonable judgment of the Board of Directors will probably cause substantial economic damages to DNB, willful or intentional breach or neglect by Mr. Latoff of his duties, or material breach of any material provision of any agreement between DNB or the Bank and Mr. Latoff pertaining to his employment. For purposes of this definition of “Cause,” no act, or failure to act on Mr. Latoff’s part shall be considered “willful” unless done, or omitted to be done, by him without good faith and without reasonable belief that this action or omission was in the best interest of Company; provided that any act or omission to act by Mr. Latoff in reliance upon an approving opinion of counsel to DNB or counsel to Mr. Latoff shall not be deemed to be willful. The terms “incompetence” and “misconduct” shall be defined with reference to standards generally prevailing in the banking industry. In determining incompetence and misconduct, Company shall have the burden of proof with regard to the acts or omission of Mr. Latoff and the standards prevailing in the banking industry.

The SERP defines “Good Reason” as (a) the assignment to Mr. Latoff of any duties inconsistent with Mr. Latoff’s positions, duties, responsibilities, titles or offices with DNB or the Bank as in effect immediately prior to a Change in Control, (b) any removal of Mr. Latoff from, or any failure to re-elect Mr. Latoff to, any of such positions, except in connection with a termination or suspension of employment for Cause, disability, death or retirement, (c) a reduction by DNB or the Bank in Mr. Latoff’s base annual salary, bonus and/or benefits as in effect immediately prior to a Change in Control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in Mr. Latoff’s base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of DNB having the title of executive vice president or above, (iv) any purported termination of Mr. Latoff’s employment with DNB or the Bank when Cause does not exist, or (v) a relocation of Mr. Latoff’s workplace outside of Chester County.

The SERP defines “Change in Control” as any one or more of the following three events with respect to DNB or the Bank:

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

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

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

The SERP provides that, commencing on January 1, 2019, or as soon as practicable after that date, Mr. Latoff’s accrued benefit under the SERP will be paid to him in ten annual installments. The payments are to be made on those dates whether or not he is still employed by DNB or the Bank as of January 1, 2019. However, no later than January 1, 2018, he may elect in writing to defer receipt of the installment payments and instead receive the benefit in a lump sum or in two to ten annual installments, commencing as of a date he specifies, provided that no deferred payment can be made earlier than January 1, 2024. If Mr. Latoff dies before January 1, 2019, his beneficiary may elect to receive the benefit beginning on January 1, 2019, or as soon as practicable after that date, in either a single lump sum, or in annual installments over a period of up to ten years, or in a commercial annuity, but if a valid election is not made by the beneficiary, the payment will be in a single lump sum. All payments will be subject to all applicable Federal, state and local tax withholding requirements, and other charges and assessments imposed by law.

Payments under the SERP are to be grossed up to compensate Mr. Latoff for any “parachute payment” excise taxes under Section 4999 of the Internal Revenue Code to which he would otherwise be subjected if the payments under the SERP, together with any other payments to him or for his benefit would subject him to those taxes. In addition, DNB will further compensate him for any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise, and whether Federal, state or local) that he will have to pay as a result of this gross up reimbursement or taxes on it. The amount of the gross-up for additional taxes on the parachute payment gross up reimbursement is to be computed on the assumption that he will be subject to each tax at the highest marginal rate. The SERP provides, however, that if another plan or agreement also provides for a reimbursement of these costs or taxes, only one reimbursement will be given to him. The excise tax and the gross-ups shall be computed by a registered public accounting firm selected by the compensation committee.

DNB may amend the SERP at any time to the extent necessary to comply with any requirement or limitation set forth in Section 409A of the Internal Revenue Code or its regulations, but otherwise DNB may amend it only with the express, written consent of Mr. Latoff or his beneficiary.

While the trust agreement directs the trustee to cause any DNB stock held in the trust to be voted as Mr. Latoff directs, the SERP provides that neither Mr. Latoff nor his beneficiary shall have any right, title, or interest in or to any investments which DNB may make to aid it in meeting its obligations under the SERP, all of which will continue to be unrestricted corporate assets. Further, except as may otherwise be required by law, no amount payable at any time under the SERP is to be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, encumbrance or garnishment by creditors of Mr. Latoff or his beneficiary nor be subject in any manner to the debts or liabilities of any person, and it provides that any attempt to do so alienate or subject any such amount, whether presently or thereafter payable, shall be void. The trust agreement obligates the trustee to cease payment of benefits if DNB becomes insolvent, and it further provides that the assets of the trust will be subject to claims of general creditors of DNB as more fully provided in the trust agreement.

Except as the trust agreement otherwise provides, DNB will have no right or power to direct the trustee to return any trust assets to DNB or to divert them to others before all payment of benefits has been made. However, DNB may direct the trustee to transfer to DNB trust assets in an amount necessary to avoid triggering taxable income to Mr. Latoff or a beneficiary if either of them would be required to recognize income tax on any funds if they remain in the trust.

All expenses of the trust, and any taxes that may be levied against the trust, will be paid by DNB, other than taxes required to be withheld from payments of trust assets to Mr. Latoff or his beneficiary. In the event that any trust assets are used to pay expenses or taxes of the trust, DNB is obligated to reimburse the trust.

Complete copies of the SERP and rabbi trust agreement are filed herewith as Exhibits 99.1 and 99.2 respectively and are incorporated herein as if set forth in full.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits. The following exhibits are furnished or filed herewith:

99.1	DNB Financial Corporation Supplemental Executive Retirement Plan for William S. Latoff dated as of December 20, 2006.
99.2	Trust Agreement, effective as of December 20, 2006, is made by and between DNB Financial Corporation ("Company") and DNB First, National Association.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DNB FINANCIAL CORPORATION
December 22, 2006	By:	/s/ Bruce E. Moroney
		Name: Bruce E, Moroney
		Title: Chief financial Officer and Executive VP

EXHIBIT INDEX

99.1	DNB Financial Corporation Supplemental Executive Retirement Plan for William S. Latoff dated as of December 20, 2006.
99.2	Trust Agreement, effective as of December 20, 2006, is made by and between DNB Financial Corporation ("Company") and DNB First, National Association.

EX-99.1

Exhibit 99.1
 

DNB FINANCIAL CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

FOR

WILLIAM S. LATOFF

TABLE OF CONTENTS

	PAGE
ARTICLE I. PURPOSE	1
ARTICLE II. DEFINITIONS	1
ARTICLE III. ALLOCATION OF DEFERRED COMPENSATION	3
ARTICLE IV. VESTING	3
ARTICLE V. ENTITLEMENT TO DEFERRED COMPENSATION	4
ARTICLE VI. FUNDING OF DEFERRED COMPENSATION	6
ARTICLE VII. DESIGNATION OF BENEFICIARIES	6
ARTICLE VIII. ADMINISTRATION	7
ARTICLE IX. AMENDMENT	8
ARTICLE X. MISCELLANEOUS	8
APPENDIX A DESIGNATION OF BENEFICIARY	10

ARTICLE I

PURPOSE

1.01 The primary purpose of this Plan is to provide a supplemental retirement benefit to the Executive in order to competitively compensate him for being elected full-time Chairman and Chief Executive Officer of the Company in 2004 and, as a result, foregoing opportunities to accrue substantial retirement income in connection with his other business interests. The Deferred Compensation shall be earned by the Executive and accrued by the Company on a defined contribution basis.

ARTICLE II

DEFINITIONS

2.01 "Account" means a bookkeeping reserve account established in the books of the Company for the Executive.

2.02“Accrued Benefit” means, at any point in time, the Executive’s vested interest, as determined pursuant to Article IV, below, in the Account resulting from all thirteen (13) allocations pursuant to Section 3.01, below, plus or minus earnings or losses pursuant to Section 3.02, below, and after taking into account any previous payments pursuant to Article V, below.

2.03 “Bank” means DNB First, National Association.

2.04"Beneficiary" means the beneficiary or beneficiaries designated by the Executive to receive the amounts, if any, payable under the Plan upon his or her death, pursuant to Article VII, below.

2.05 "Board of Directors" means the Board of Directors of the Company.

2.06“Cause” means personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, conviction of a felony, suspension or removal from office or prohibition from participation in the conduct of the Company’s or Bank’s affairs pursuant to a notice or other action by any regulatory agency having jurisdiction over the Company or the Bank, or willful violation of any law, rule or regulation or final cease-and-desist order which in the reasonable judgment of the Board of Directors will probably cause substantial economic damages to the Company, willful or intentional breach or neglect by Executive of his duties, or material breach of any material provision of any agreement between the Company or the Bank and the Executive pertaining to his employment. For purposes of this definition of “Cause,” no act, or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by him without good faith and without reasonable belief that this action or omission was in the best interest of Company; provided that any act or omission to act by Executive in reliance upon an approving opinion of counsel to the Company or counsel to the Executive shall not be deemed to be willful. The terms “incompetence” and “misconduct” shall be defined with reference to standards generally prevailing in the banking industry. In determining incompetence and misconduct, Company shall have the burden of proof with regard to the acts or omission of Executive and the standards prevailing in the banking industry.

1

2.07“Change of Control” means any one or more of the following, with respect to the Company or the Bank:

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

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

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

2.08“Code” means the Internal Revenue Code of 1986, as amended.

2.09"Company" means DNB Financial Corporation.

2.10 "Deferred Compensation" means the supplemental compensation and earnings thereon credited to the Account.

2.11 "Effective Date" means December 20, 2006.

2.12 "Executive" means William S. Latoff.

2.13 “Good Reason” means (a) the assignment to Executive of any duties inconsistent with Executive’s positions, duties, responsibilities, titles or offices with the Company or the Bank as in effect immediately prior to a Change in Control, (b) any removal of Executive from, or any failure to re-elect Executive to, any of such positions, except in connection with a termination or suspension of employment for Cause, disability, death or retirement, (c) a reduction by the Company or the Bank in Executive’s base annual salary, bonus and/or benefits as in effect immediately prior to a Change in Control or as the same may be increased from time to time thereafter, or the failure to grant periodic increases in the Executive’s base annual salary on a basis at least substantially comparable to the lowest periodic increase granted to other officers of the Company having the title of executive vice president or above, (iv) any purported termination of Executive’s employment with the Company or the Bank when Cause does not exist, or (v) a relocation of Executive’s workplace outside of Chester County.

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2.14“Payment Date” means January 1, 2019.

2.15"Plan" means this DNB Financial Corporation Supplemental Executive Retirement Plan, as the same may be amended from time to time.

2.16 "Trustee" means the individual or corporation appointed by the Company to serve as trustee of a trust established by the Company pursuant to Article VI, below.

2.17 "Valuation Date" means the last day of each calendar month on which the New York Stock Exchange is open for business.

ARTICLE III

ALLOCATION OF DEFERRED COMPENSATION

3.01 On or about the Effective Date, but not later than December 31, 2006, and on or about each one-year anniversary of the Effective Date during the years 2007 through 2018, but not later than December 31 of such year, the Company shall credit Deferred Compensation to the Account in the amount of seventy thousand dollars ($70,000).

3.02 As of each Valuation Date, the Company shall credit the Account with earnings or losses on the balance of the Account since the preceding Valuation Date in accordance with the performance of the investments selected pursuant to Section 6.04, below.

ARTICLE IV

VESTING

4.01 For purposes of this Plan, the Executive shall have a vested interest in the balance of the Account of forty percent (40%) as of the Effective Date. Thereafter, the Executive’s vested interest in the balance of the Account shall be determined in accordance with the following schedule, provided that the Executive remains employed, continuously, by the Company or the Bank through the dates indicated:

Date	Vested Percentage
December 15, 2007	60%
December 15, 2008	80%
December 15, 2009	100%

4.02Notwithstanding Section 4.01, above, (a) the Executive’s vested interest in the Account upon and at all times following his termination by the Company or the Bank for reasons other than Cause shall be one hundred percent (100%); (b) the Executive’s vested interest in the Account upon and at all times following his termination of employment with the Company or the Bank for Good Reason following a Change in Control shall be one hundred percent (100%); and (c) the Executive’s vested interest in the Account upon and at all times following his termination of employment with the Company or the Bank for Good Reason following the signing of a letter of intent or a formal acquisition or merger agreement between the Company or the Bank, of the one part, and a third party which contemplates a transaction that would result in a Change in Control, but only if such letter of intent or agreement, or the transaction contemplated thereby, has not been canceled or terminated at the time of his termination for Good Reason.

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ARTICLE V

ENTITLEMENT DEFERRED TO COMPENSATION

5.01 Commencing on the Payment Date, or as soon as practicable thereafter, the Executive’s Accrued Benefit shall be paid to him in ten (10) annual installments. Payment shall commence on the Payment Date whether or not the Executive is still employed by the Company or the Bank as of the Payment Date.

5.02At least one year prior to the Payment Date, the Executive may make an election to defer receipt of the installment payments set forth in Section 5.01, and instead receive payment of his Accrued Benefit in two or more, but not more than ten (10), annual installments commencing as of a date specified by the Executive, or in a single lump sum as of a date specified by the Executive, provided that in either case such date is at least five years following the Payment Date. Any such election shall be in writing and delivered to the Chief Financial Officer of the Company at least one year prior to the Payment Date.

5.03In the event of the death of the Executive prior to the Payment Date, the Executive’s Accrued Benefit shall be paid to his Beneficiary in either a single lump sum, in annual installments over a period of years not exceeding ten (10), or by the purchase and distribution of a commercial annuity contract, as of or commencing on the Payment Date, or as soon as practicable thereafter, as directed by the Beneficiary in a written election delivered to the Chief Financial Officer of the Company. Such written election shall be made no later than the last date permitted by Section 409A of the Code and the regulations thereunder. If no such written election is made in a timely manner, or if no such election is permitted by Section 409A of the Code and the regulations thereunder, the Executive’s Accrued Benefit shall be paid to the Beneficiary in a single lump sum as of the Payment Date, or as soon as practicable thereafter.

5.04If payments hereunder are to be made in two or more installments, the amount of each installment, other than the final installment, shall be equal to the Accrued Benefit as of the last Valuation Date preceding payment, divided by the number of payments remaining in the installment period, including the current payment. The amount of the final installment shall be equal to the Accrued Benefit as of the last Valuation Date preceding the date of payment. Any amount remaining upon the death of the Executive shall be paid to his Beneficiary in either a single lump sum, in annual installments over a period of years not exceeding ten (10), or by the purchase and distribution of a commercial annuity contract, as of or commencing on the Payment Date, or as soon as practicable thereafter, as directed by the Beneficiary in a written election delivered to the Chief Financial Officer of the Company. Such written election shall be made no later than the last date permitted by Section 409A of the Code and the regulations thereunder. If no such written election is made in a timely manner, or if no such election is permitted by Section 409A of the Code and the regulations thereunder, the Executive’s Accrued Benefit shall be paid to the Beneficiary in a single lump sum as of the Payment Date, or as soon as practicable thereafter.

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5.05All amounts payable pursuant to this Plan shall be subject to all applicable Federal, state and local tax withholding requirements, and other charges and assessments imposed by law.

5.06Notwithstanding the foregoing provisions of this Article V, or the vesting rules of Article IV, if the Executive’s employment with the Company or the Bank is terminated for Cause prior to the commencement of payments, he shall forfeit the Accrued Benefit, and no payments to him or his Beneficiary shall be made under this Plan. If the Executive’s employment with the Company or the Bank is terminated for Cause after the commencement of payments, he shall forfeit the Accrued Benefit, and no further payments to him or his Beneficiary shall be made under this Plan.

5.07(a)If, as a result of payments provided for under or pursuant to this Plan, together with all other payments in the nature of compensation provided to or for the benefit of the Executive under any other plans or agreements in connection with a Change in Control, the Executive becomes subject to excise taxes under Section 4999 of the Code, then, in addition to any other benefits provided under or pursuant to this Plan or otherwise, the Company shall pay to the Executive at the time any such payments are made under or pursuant to this or other plans or agreements, an amount equal to the amount of such excise taxes (the “Parachute Tax Reimbursement”). In addition, the Company shall “gross up” such Parachute Tax Reimbursement by paying to the Executive at the same time an additional amount equal to the aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise, and whether Federal, state or local) that are or will be payable by the Executive as a result of the Parachute Tax Reimbursement being paid or payable to the Executive and as a result of such additional amounts paid or payable to the Executive pursuant to this sentence, such that after payment of such additional taxes the Executive shall have been paid on a net, after-tax basis an amount equal to the Parachute Tax Reimbursement. The amount of the gross-up described in the immediately preceding sentence shall be computed on the assumption that the Executive shall be subject to each applicable tax at the highest marginal rate of such tax.

(b)The amount of any Parachute Tax Reimbursement and any gross-up shall be determined by a registered public accounting firm selected by the Compensation Committee of the Board of Directors of the Company, whose determination, absent manifest error, shall be treated as conclusive and binding absent a binding determination by a governmental authority that a greater or lesser amount of taxes is payable by the Executive.

(c)If the Parachute Tax Reimbursement and a gross-up are provided for the Executive pursuant to one or more other plans or agreements in addition to this Plan, they shall be provided only once.

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ARTICLE VI

FUNDING OF DEFERRED COMPENSATION

6.01 Except as provided by the terms of the Trust established pursuant to Section 6.02, below, neither the Executive nor the Beneficiary shall have any right, title, or interest in or to any investments which the Company may make to aid it in meeting its obligations hereunder. Such investments, whether held in trust or otherwise, shall be unrestricted corporate assets.

6.02 The Company shall establish the Trust for the purpose of funding the Deferred Compensation provided hereunder. The Trust shall include such terms, restrictions and limitations as necessary to ensure that it will be treated as a "grantor trust" within the meaning of subpart E, part I, subchapter J, chapter I, subtitle A of the Code, with respect to the Company. Moreover, the Trust shall be evidenced by an agreement substantially similar to the form of the model trust agreement set forth in Internal Revenue Service Revenue Procedure 92-64, including any modification to such Revenue Procedure, and include provisions required in such model trust agreement that all assets of the trust shall be subject to the claims of creditors of the Company in the event of its insolvency. Any assets of the Trust remaining after the obligations to the Executive and his Beneficiary have been satisfied shall be paid to the Company.

6.03On each date an amount is credited to the Account pursuant to Section 3.01, above, the Company shall contribute such amount to the Trust.

6.04The Company shall direct the Trustee of the Trust to invest the assets of the Trust in accordance with the investment directions of the Executive, or, after the Executive’s death, the Compensation Committee of the Board of Directors. The Executive shall communicate his investment selections, and any changes thereto, in writing to the Company, and the Company shall direct the Trustee to implement such investment selections or changes thereto as soon as practicable thereafter. Neither the Company, the Compensation Committee of the Board of Directors, the Trustee, nor their respective employees and agents shall be liable for any losses attributable to the Executive’s investment selections or changes thereto, or a reasonable delay in implementation thereof, or the investment selections made by the Compensation Committee of the Board of Directors following the Executive’s death.

6.05Notwithstanding any provision of the Trust to the contrary, all expenses of the Trust, and any taxes that may be levied against the Trust, shall be paid by the Company, other than taxes required to be withheld from payments of Trust assets to the Executive or his Beneficiary. In the event that any Trust assets are used to pay expenses or taxes of the Trust, the Company shall reimburse the Trust within five business days of such payment.

ARTICLE VII

DESIGNATION OF BENEFICIARIES

7.01 The Executive shall file with the Company a written designation in the form attached hereto as Appendix A of one or more persons as Beneficiary to receive the amount, if any, payable under the Plan upon his death. The Executive may, from time to time, revoke or change his Beneficiary designation by filing a new designation with the Company. The last such designation received by the Company shall be controlling, provided, however, that no designation, change or revocation thereof, shall be effective unless received by the Company prior to the Executive’s death.

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7.02 If no such Beneficiary designation is in effect at the time of the Executive’s death, or if no designated Beneficiary survives the Executive, the payment of the amount, if any, payable under the Plan upon his or her death shall be made to his or her surviving spouse; if no surviving spouse, to the Executive’s surviving children equally; if no surviving children, to the Executive’s surviving grandchildren equally; if no surviving grandchildren, to the Executive’s estate.

ARTICLE VIII

ADMINISTRATION

8.01 The Company shall have the discretionary authority to determine eligibility for payments under the Plan and to construe, interpret and administer the Plan, and shall do so in a manner that is consistent with the requirements and limitations of Section 409A of the Code.

8.02The Executive or, in the event of the Executive’s death, the Executive’s Beneficiary, may file a written claim for payment hereunder with the Company. In the event of a denial of any payment due to or requested by the Executive or Beneficiary (the “claimant”), the Company will give the claimant written notification containing specific reasons for the denial. The written notification will contain specific reference to the pertinent provisions of this Agreement on which the denial of the claim is based. In addition, it will contain a description of any other material or information necessary for the claimant to perfect a claim, and an explanation of why such material or information is necessary. The notification will provide further appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits applicable thereto, and a statement of the claimant’s right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended. This written notification will be given to a claimant within ninety (90) days after receipt of the claim by the Company unless special circumstances require an extension of time for processing the claim, in which case the Company shall provide written notice of the extension to the claimant and the reasons therefore, and the date by which the Company expects to make its determination with respect to the claim. In no event shall such extension exceed 90 days.

8.03In the event of a denial of a claim for benefits, the claimant or a duly authorized representative will be permitted to submit issues and comments in writing to the Company and to submit documents, records and other information relating to the claim for benefits. The claimant or a duly authorized representative shall also be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits. In addition, the claimant or a duly authorized representative may make a written request for a full and fair review of the claim and its denial by the Company that takes into account all comments, documents, records and other information submitted by the claimant, without regard to whether such information was submitted or considered in the initial benefits determination; provided, however, that such written request is received by the Company (or its delegate) within sixty (60) days after receipt by the claimant of written notification of the denial. The sixty (60) day requirement may be waived by the Company in appropriate cases.

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8.04A decision on review of a claim for benefits will be rendered by the Company within sixty (60) days after the receipt of the request. Under special circumstances, an extension (up to an additional 60 days) can be granted for processing the decision. Notice of this extension must be provided in writing to the claimant prior to the expiration of the initial sixty-day period. In no event will the decision be rendered more than one hundred twenty (120) days after the initial request for review. Any decision by the Company will be furnished to the claimant in writing and will set forth the specific reasons for the decision and the specific provisions on which the decision is based. The claimant or a duly authorized representative shall also be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.

ARTICLE IX

AMENDMENT

9.01 Except as provided in Section 9.02, the Company may amend the Plan only with the express, written consent of the Executive or, after his death, the Beneficiary.

9.02The Company may amend the Plan at any time to the extent necessary to comply with any requirement or limitation set forth in Section 409A of the Code or the regulations relating thereto.

ARTICLE X

MISCELLANEOUS

10.01 Nothing contained in the Plan shall give the Executive the right to be retained in the employment of the Company or the Bank or affect the right of either party to terminate the Executive’s services. The adoption of the Plan shall not constitute an employment contract between the Company and Executive.

10.02 If the Company shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, the Company may direct that any amount to which such person is entitled be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Company to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Company therefor.

10.03 Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, encumbrance or garnishment by creditors of the Executive or the Beneficiary nor be subject in any manner to the debts or liabilities of any person, and any attempt to do so alienate or subject any such amount, whether presently or thereafter payable, shall be void.

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10.04 It is the intention of the Company that the Plan shall be unfunded for Federal income tax purposes and for purposes of the Employee Retirement Income Security Act of 1974, as amended.

10.05All rights under this Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent such laws are superseded by the laws of the United States.

IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its authorized officers as of this 20th day of December, 2006.

ATTEST:     ______________________________ Ronald K. Dankanich Secretary DNB FINANCIAL CORPORATION     By: ___________________________ William J. Hieb President       By: ___________________________ James H. Thornton Chairman Benefits & Compensation Committee

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DNB FINANCIAL CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

FOR

WILLIAM S. LATOFF

APPENDIX A^·

DESIGNATION OF BENEFICIARY

Pursuant to the above-referenced Supplemental Executive Retirement Plan (“Plan”), I, William S. Latoff, hereby designate the following person(s) or entity(ies) as beneficiary(ies) of any and all amounts which shall be payable pursuant to the Plan by reason of or following my death and revoke all such prior beneficiary designations:

Primary Beneficiary I	Primary Beneficiary II (optional)
Name:	Name:
Address:	Address:
SSN/EIN:	SSN/EIN:
Relationship:	Relationship:
Percentage:	Percentage:
Contingent Beneficiary I	Contingent Beneficiary II (optional)
Name:	Name:
Address:	Address:
SSN/EIN:	SSN/EIN:
Relationship:	Relationship:
Percentage:	Percentage:
	____________________________________
	(signature)(date)

____________

^·This form should be revised if more than two Primary Beneficiaries or more than two Contingent Beneficiaries are to be designated.

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EX-99.2

Exhibit 99.2

TRUST AGREEMENT

THIS TRUST AGREEMENT, effective as of December 20, 2006, is made by and between DNB FINANCIAL CORPORATION ("Company") and DNB FIRST, NATIONAL ASSOCIATION in its capacity as Trustee ("Trustee").

WHEREAS, the Company has a adopted the DNB Financial Corporation Supplemental Executive Retirement Plan for William S. Latoff (the “Plan”);

WHEREAS, the Company has incurred or expects to incur liability under the terms of the Plan to Mr. Latoff (the “Participant”);

WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust the assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as defined in Section 4, until paid to the Participant in such manner and at such times as specified in the Plan and this Trust Agreement;

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a management or highly compensated employee as described in Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

WHEREAS, it is the intention of the Company to make contributions to the Trust to provide a source of funds to meet its liabilities under the Plan.

NOW THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

(a) The Company hereby establishes the Trust with the Trustee, consisting of such sums of money and other property acceptable to the Trustee as from time to time shall be paid and delivered to and accepted by the Trustee from the Company (the "Trust Fund"). The Trustee shall have no duty to determine or collect contributions under the Plan and shall have no responsibility for any property until it is received and accepted by the Trustee. The Company shall have the sole duty and responsibility for the determination of the accuracy or sufficiency of the contributions to be made under the Plan. All such money and other property paid or delivered to and accepted by the Trustee shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement.

(b) The Trust hereby established shall be irrevocable; notwithstanding the fact that the Trust is irrevocable, the Company may terminate the Plan to the extent permitted by its terms.

(c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, as amended, and shall be construed accordingly. The Company represents and warrants to the Trustee that the Plan is not and shall not be subject to Part 4 of Title I of ERISA.

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(d) The principal of the Trust and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the purposes of paying benefits to the Participant under the Plan, expenses of the Trust and, in the event of Insolvency, obligations of the Company to its general creditors as herein set forth. The Participant and his beneficiaries shall have no preferred claim on, nor any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be unsecured contractual rights of the Participant and his beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein.

(e) In addition to the contributions necessary to meet the funding requirement described in Section 2, the Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor the Participant or any beneficiary shall have any right to compel such additional deposits.

Section 2. Trust Funding Requirement

From time to time, the Company shall contribute to the Trust (in cash or other property as provided or permitted by the Plan) the amounts the Company is obligated to credit to the Participant’s account under the Plan (herein, the “Deferred Compensation Account”), except that no amounts shall be contributed during any period to the extent necessary to avoid the application of Section 409A(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), or regulations applicable thereto.

Section 3. Payments to the Participant and his Beneficiaries.

(a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of the Participant and that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. The Company shall be responsible for notifying the Trustee of any change in the information on the Payment Schedule. Except as otherwise provided herein, the Trustee shall make payments to the Participant (including beneficiaries) in accordance with such Payment Schedule.

(b) It is the intent of the Company and the Trustee that the Company shall be responsible for determining and effecting all federal, state and local tax aspects of the Plan and the Trust Fund, including without limitation income taxes payable on the Trust Fund's income, if any, any required withholding of income or other payroll taxes in connection with the payment of benefits from the Trust Fund pursuant to the Plan, and all reporting required in connection with any such taxes. To the extent that the Company is required by applicable law to pay or withhold such taxes or to file such reports, such obligation shall be a responsibility allocated to the Company, as the case may be, hereunder. To the extent the Trustee is required by applicable law to pay or withhold such taxes or to file such reports, the Company shall inform the Trustee of such obligation, shall direct the Trustee with respect to the performance of such obligations and shall provide the Trustee with all information required by the Trustee to meet such obligations. Notwithstanding the foregoing, the Company may elect to pay any applicable taxes directly. In the event the Company pays taxes directly, such amounts may be reimbursed from Trust assets by the Trustee, provided that the Company certifies the amount of taxes paid directly and instructs the Trustee to remit a reimbursement of such taxes to the Company.

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(c) The entitlement of the Participant (including any beneficiaries) to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. The Company shall notify the Trustee of such determination and shall direct commencement of payments of such benefits.

(d) The Company may make payment of benefits directly to the Participant as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time such amounts are payable. If requested by the Company, the Trustee shall reimburse the Company for any benefits under the Plan and Trust which are paid by the Company or otherwise satisfied. In addition, if the principal of the Trust, together with any earnings thereon, are not sufficient to make payment of benefits in accordance with the terms of the Plan, the Company shall immediately make up the balance of each such payment as it falls due. The Trustee shall notify the Company when principal and earnings are not sufficient.

Section 4. Trustee Responsibility regarding Payments to Trust Beneficiary When Company Is or Is Alleged to Be Insolvent.

(a) The Trustee shall cease payment of benefits to the Participant and his beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. A determination of Insolvency under the terms of this Trust Agreement does not constitute an admission of insolvency by the Company for any other purpose.

(b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below.

(1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Participant and his beneficiaries. In all cases, the Trustee shall be entitled to conclusively rely upon the written certification of (i) the Board of Directors, or (ii) the Chairman of the Company’s Audit Committee, or (iii) the Chief Executive Officer of the Company at any time that the Participant is not Chief Executive Officer of the Company, when determining whether the Company is Insolvent.

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(2) Unless the Trustee has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency.

(3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to the Participant or his beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors except that the Trustee's fees and expenses may continue to be paid pursuant to Section 11 subject to any applicable bankruptcy rules. Nothing in this Trust Agreement shall in any way diminish any rights of the Participant or his beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise.

(4) The Trustee shall resume the payment of benefits to the Participant or his beneficiaries in accordance with Section 3 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient assets if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to the Participant or his beneficiaries under the terms of the Plan (as certified to the Trustee by the Company) for the period of such discontinuance less the aggregate amount of any payments made to the Participant or his beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance.

Section 5. Payments to Company.

Except as otherwise specifically provided in this Trust Agreement, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits has been made to the Participant and his beneficiaries pursuant to the terms of the Plan (as certified to the Trustee by the Company). Notwithstanding the above, the Company may direct the Trustee to transfer to the Company Trust Fund assets in an amount necessary to avoid triggering taxable income to the Participant or a beneficiary if the Participant or beneficiary would be required to recognize income tax on such funds if they remain in the Trust. The Trustee shall be entitled to rely solely on the Company's representation that the amount directed to be returned to the Company could become taxable to the Participant or a beneficiary and shall have no duty to review the Company's determination of the amount.

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Section 6. Investment and Administrative Authority.

(a) The Trustee shall invest the assets of the Trust in accordance with the directions of the Company. Subject to the investment directions of the Company, the Trustee shall have the following powers:

(1) The Trustee may invest and reinvest the principal and income of the Trust and keep it invested, without distinction between principal and income, as provided in the Investment Guidelines.

(2) The Trustee may collect and receive any and all money and other property due the Trust and give full discharge therefor.

(3) The Trustee may settle, compromise or submit to arbitration any claims, debt or damages due or owing to or from the Trust; the Trustee may also commence or defend suits or legal proceedings to protect any interest of the Trust, and may represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal.

(4) The Trustee may take all action necessary to pay for authorized transactions, including the temporary advancement of cash or securities to settle security purchases and/or foreign exchange or contracts for foreign exchange and any property at any time held in the Trust Fund shall be security therefore to the extent of such advancement until it is repaid.

(5) The Trustee may appoint custodians, subcustodians or subtrustees, domestic or foreign (including affiliates of the Trustee), as to part or all of the Trust. The Trustee shall not be responsible or liable for any losses or damages suffered by the Company arising as a result of the insolvency of any custodian, subcustodian or subtrustee, except to the extent the Trustee was negligent in its selection or continued retention of such custodian, subcustodian or subtrustee. In no event shall Trustee be liable for the acts or omissions of any custodian, subcustodian or subtrustee appointed pursuant to the direction of the Company or an investment manager.

(6) The Trustee may hold property in nominee name, in bearer form, or in book entry form, in a clearinghouse corporation or in a depository (including an affiliate of the Trustee), so long as the Trustee's records clearly indicate that the assets held are a part of the Trust. The Trustee shall not be responsible for any losses resulting from the deposit or maintenance of securities or other property (in accordance with market practice, custom, or regulation) with any recognized foreign or domestic clearing facility, book-entry system, centralized custodial depository, or similar organization.

(7) The Trustee may generally do all acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable for the protection of the Trust.

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(b) Notwithstanding any other provision of this Agreement, to the extent that the Company has directed the Trustee to invest Trust assets in shares of Company common stock or other stock for which Company common stock has been exchanged (“Stock”), the Trustee shall be authorized to accept, hold and purchase Stock, reinvest income in Stock, and otherwise administer Stock for the benefit of the Participant, without any obligation to diversify investments or investment risk for the benefit of the Participant, and without regard to any “prudent investor” or similar laws or rules, and notwithstanding that the Trustee may be affiliated with the Company or otherwise personally interested in the Company, the Stock or any transactions in Stock; and the Trustee shall have no obligation to refrain from self-dealing in connection with any Stock or any interests in Stock administered by the Trustee. Without limiting the foregoing, the Trustee shall not be obligated, even when requested by the Participant, to sell or otherwise dispose of any Stock prior to distribution of the Stock to the Participant in accordance with the provisions of the Plan, the Participant’s applicable elections, and this Trust Agreement. The Company, for itself and its successors, hereby releases, holds harmless and indemnifies the Trustee, all successors to the Trustee in such capacity, and each of their agents and the respective successors, personal representatives and heirs of each of the foregoing, from and against all liability (including without limitation due to claims of negligence), loss, cost, damages (including without limitation consequential damages, lost profits, loss of expectation and punitive or exemplary damages of all kinds) and expense (including without limitation attorneys fees and costs of litigation) which the Company or the Participant or his personal representatives, heirs or beneficiaries may now or hereafter suffer or incur by virtue of the Trustee’s acting or omitting to act based on the authority granted to the Trustee in this subsection. The provisions of this subsection shall survive the termination of this Trust Agreement.

(c) Neither the Company nor the Trustee shall have discretion to vote any shares of Stock except pursuant to instructions received from the Participant. The Trustee shall be authorized, in its discretion, to take either of the following actions in connection with shareholders meetings or other circumstances where the Participant’s vote, approval or other action is requested: (i) to forward to each Participant the materials received by the Trustee for the Participant with respect to the vote, approval or other action, along with a notification to the Participant to deliver the proxy card or other voting, approval or other materials directly to the Company or elsewhere as the Company shall direct; or (ii) to forward to the Participant copies of the materials received with respect to the vote, approval or other action, along with a notification to the Participant that the Trustee will vote or withhold votes, or provide or withhold other approvals or actions, with respect to shares of Stock allocated to the Deferred Compensation Account, only according to instructions received from the Participant. In the case described in clause (ii) of this subsection, the Trustee shall have no authority to take any action with respect to a vote, approval or other action requested of any Stock allocated to the Deferred Compensation Account in the absence of instructions from the Participant. The Company agrees, to the extent requested by the Trustee, to: (I) provide to the Trustee copies of materials being distributed to shareholders as the Trustee may request in order to fulfill the Trustee’s obligations to the Participant under this Trust Agreement with respect thereto; and (II) deliver such materials directly to the Participant, along with any notification or other materials required by the Trustee, to addresses to be provided by the Trustee.

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Section 7. Settlement and Income; Market Practice Settlements.

(a) In accordance with the Trustee's standard operating procedure, the Trustee shall credit the Trust Fund with income, which shall include interest, dividends and return of capital, and maturity proceeds on securities on contractual payment date net of any taxes or upon actual receipt. To the extent the Trustee credits income on contractual payment date, the Trustee may reverse such accounting entries to the contractual payment date if the Trustee reasonably believes that such amount will not be received.

(b) In accordance with the Trustee's standard operating procedure, the Trustee will attend to the settlement of securities transactions on the basis of either contractual settlement date accounting or actual settlement date accounting. To the extent the Trustee settles certain securities transactions on the basis of contractual settlement date accounting, the Trustee may reverse any entry relating to such contractual settlement if the Trustee reasonably believes that such amount will not be received.

(c) Settlements of transactions may be effected in trading and processing practices customary in the jurisdiction or market where the transaction occurs. The Company acknowledges that this may, in certain circumstances, require the delivery of cash or securities (or other property) without the concurrent receipt of securities (or other property) or cash. In such circumstances, the Trustee shall have no responsibility for nonreceipt of payment (or late payment) or nondelivery of securities or other property (or late delivery) by the counterparty.

Section 8. Disposition of Income.

During the term of this Trust, all income received by the Trust with respect to the Deferred Compensation Account, net of expenses and taxes, shall be accumulated and reinvested in and for the benefit of the Deferred Compensation Account, and in the case distributions with respect to Stock, according to the procedures and valuation provisions as are applicable under the Company’s dividend reinvestment plan from time to time. In order to comply with this requirement, the Trustee is authorized to deposit Stock held by it in one or more accounts under the Company’s dividend reinvestment plan. The Trustee shall have no liability to anyone whatsoever for any failure of the Company, any administrator or any other agent of the Company to adhere to the provisions of the Company’s dividend reinvestment plan.

Section 9. Accounting by Trustee.

The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty (60) days following the close of each calendar year and within ninety (90) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. If, within 120 days after the Trustee mails to the Company a statement with respect to the Trust, the Company has not given the Trustee written notice of any exception or objection thereto, the statement shall be deemed to have been approved, and in such case, the Trustee shall not be liable for any matters in such statements. The Company or its agent shall have the right at its own expense and with prior written notice to the Trustee to inspect the Trustee's books and records directly relating to the Trust Fund during normal business hours.

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Section 10. Responsibility of Trustee.

(a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan (as certified to the Trustee by the Company) or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a third party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b) The Trustee is not a party to and has no duties or responsibilities under the Plan other than those that may be expressly contained in this Trust Agreement. In any case in which a provision of this Trust Agreement conflicts with any provision in the Plan, this Trust Agreement shall control.

(c) The Trustee shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Trust Agreement and shall be held harmless in acting upon any notice, request, direction, instruction, consent, certification or other instrument believed by it to be genuine and delivered by the proper party or parties.

(d) The Company agrees to indemnify and hold harmless the Trustee, its parent, subsidiaries and affiliates, and each of their respective officers, directors, employees and agents from and against all liability, loss and expense, including reasonable attorneys' fees and expenses incurred by the Trustee or any of the foregoing indemnitees arising out of or in connection with this Trust Agreement, except as a result of the Trustee's own negligence, willful misconduct, bad faith or breach of this Agreement or of its fiduciary duties. The Trustee shall be fully indemnified by the Company for any action taken in accordance with, or any failure to act in the absence of, the Company's or an investment manager's directions. If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments except where the Trustee is determined to be liable due to its negligence, willful misconduct, bad faith, or breach of this Trust Agreement or of its fiduciary duties. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. This Section 10(d) shall survive the termination of this Trust Agreement. The provisions of this subsection shall supplement and shall not restrict the application of any other provisions of this Trust Agreement providing for indemnification, hold-harmless or release of the Trustee, and in the event of a conflict in application of this subsection and any other such provision, the provision most protective to the Trustee shall control.

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(e) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder and as a part of its reimbursable expenses under this Agreement, pay counsel's reasonable compensation and expenses. The Trustee shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice.

(f) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals, including affiliates, to assist it in performing any of its duties or obligations hereunder.

(g) The Trustee shall have without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

(h) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code.

(i) Notwithstanding anything in this Trust Agreement to the contrary contained herein, the Trustee shall not be responsible or liable for any losses to the Trust resulting from any event beyond the reasonable control of the Trustee, its agents or custodians, including but not limited to nationalization, strikes, expropriation, devaluation, seizure, or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, levies or other charges affecting the Trust's property; or the breakdown, failure or malfunction of any utilities or telecommunications systems; or any order or regulation of any banking or securities industry including changes in market rules and market conditions affecting the execution or settlement of transactions; or acts of war, terrorism, insurrection or revolution; or acts of God; or any other similar event; or any action or omission taken by the Trustee consistent with the provisions of this Trust Agreement.

(j) The Trustee shall not be liable for any act or omission of any other person, except to the extent that such person is an agent of the Trustee (not appointed pursuant to the direction of the Company or an investment manager) or under the control of the Trustee, in carrying out any responsibility imposed upon such person and under no circumstances shall the Trustee be liable for any indirect, consequential, or special damages with respect to its role as Trustee.

(k) The Trustee shall not be obligated to monitor, or to advise or give any notices to the Participant with respect to, the Stock, the Company or the market value, trading prices or other events affecting the Stock or the Company.

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(l) The provisions of this Section shall survive the termination of this Trust Agreement.

Section 11. Compensation and Expenses of Trustee.

The Company shall pay all Trustee's fees and expenses necessary for the Trustee to fulfill its duties hereunder as mutually agreed between the parties. If not so paid within sixty (60) days after an invoice is sent to the Company, the fees and expenses shall be paid from the Trust. The Company acknowledges that as part of the Trustee's compensation, the Trustee may earn interest on balances including disbursement balances and balances arising from purchase and sale transactions. If the Trustee advances cash or securities to the Trust for any purpose, or in the event that the Trustee shall incur or be assessed taxes, interest, charges, expenses, assessments, or other liabilities in connection with the performance of this Trust Agreement, except such as may arise from its own negligent failure to act or willful misconduct, any property at any time held in the Trust Fund shall be, to the extent of the advance, security therefor and the Trustee shall be entitled to collect from the Trust sufficient cash for reimbursement, and if such cash is insufficient, dispose of the assets of the Trust Fund to the extent necessary to obtain reimbursement. To the extent the Trustee advances funds to the Trust for disbursements or to effect the settlement of purchase transactions, the Trustee shall be entitled to collect from the Trust either (i) with respect to domestic assets, an amount equal to what would have been earned on the sums advanced (an amount approximating the "federal funds" interest rate) or (ii) with respect to non-domestic assets, the rate applicable to the appropriate foreign market.

Section 12. Change of Control

(a) For purposes of this Agreement, a "Change of Control" shall mean any one or more of the following with respect to the Company:

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

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

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

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(b) The Company shall have the duty to inform the Trustee in writing upon the occurrence of a Change of Control. The Trustee shall be entitled to conclusively rely upon such written certification of the Company and shall have no responsibility or liability for determining whether a Change of Control has occurred.

Section 13. Resignation and Removal of Trustee.

(a) The Trustee may resign at any time by written notice to the Company, which shall be effective sixty (60) days after receipt of such notice unless the Company and the Trustee agree otherwise.

(b) The Trustee may be removed by the Company on sixty (60) days notice or upon shorter notice accepted by the Trustee, except that after a Change of Control as defined herein, the Trustee may not be removed by the Company for one year.

(c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within ninety (90) days after receipt of the notice of resignation, removal or transfer, unless the Company extends the time limit.

(d) If the Trustee resigns or is removed, a successor shall be appointed in accordance with Section 14 hereof by the effective date of resignation or removal under paragraphs (a) or (b) of this Section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. The Trustee shall continue to fulfill its duties hereunder and shall receive compensation pursuant to Section 11 until the successor's appointment is effective. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

(e) If the Trustee resigns within one year of a Change of Control, as defined herein, the Trustee shall select a successor Trustee in accordance with the provisions of Section 14(c) hereof prior to the effective date of the Trustee's resignation.

Section 14. Appointment of Successor.

(a) If the Trustee resigns or is removed in accordance with Section 13 (a) or (b) hereof, the Company shall appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon such resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer.

(b) The successor Trustee need not examine the records and acts of any prior Trustee and shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

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(c) If the Trustee resigns pursuant to the provisions of Section 13(e) hereof and selects a successor Trustee, the Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer.

Section 15. Amendment or Termination.

(a) Subject to Section 15(c), this Trust Agreement may be amended by a written instrument which is executed by the Trustee and Company and which recites that it is an amendment to this Trust Agreement. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan (as certified to the Trustee by the Company) or shall make the Trust revocable.

(b) The Trust shall not terminate until the date on which the Participant and his beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan (as certified to the Trustee by the Company). Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company.

(c) Notwithstanding any other provision in this Trust Agreement, this Trust Agreement may not be amended within one year after the occurrence of a Change of Control, unless the Trustee determines, in its discretion, that such amendment is necessary for the administration of the trust and does not conflict with or alter the provisions of the Plan.

Section 16. Miscellaneous.

(a) Neither the Company nor the Trustee may assign this Trust Agreement without the prior written consent of the other, except that the Trustee may assign its rights and delegate its duties hereunder to any corporation or entity which directly or indirectly is controlled by, or is under common control with, the Trustee. This Trust Agreement shall be binding upon, and inure to the benefit of, the Company and the Trustee and their respective successors and permitted assigns. Any entity which shall by merger, consolidation, purchase, or otherwise, succeed to substantially all the trust business of the Trustee shall, upon such succession and without any appointment or other action by the Company, be and become successor trustee hereunder, upon notification to the Company

(b) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(c) Benefits payable to the Participant and his beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process

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(d) Notwithstanding anything to the contrary contained elsewhere in this Trust Agreement, any reference to the Plan or Plan provisions which require knowledge or interpretation of the Plan shall impose a duty upon the Company to communicate such knowledge or interpretation to the Trustee. The Trustee shall have no obligation to know or interpret any portion of the Plan and shall in no way be liable for any proper action taken contrary to the Plan.

(e) This Trust Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania (without reference to rules of conflicts of law or choice of law) and applicable federal law. The parties hereby expressly waive, to the full extent permitted by applicable law, any right to trial by jury with respect to any judicial proceeding arising from or related to this Trust Agreement.

Section 17. Reliance of Representations.

(a) The Company and the Trustee each acknowledge that the other will be relying, and shall be entitled to rely, on the representations, undertakings and acknowledgments of the other as set forth in this Trust Agreement. The Company and the Trustee each agree to notify the other promptly if any of its representations, undertakings, or acknowledgments set forth in this Trust Agreement ceases to be true.

(b) The Company and the Trustee hereby each represent and warrant to the other that it has full authority to enter into this Agreement upon the terms and conditions hereof and that the individual executing this Trust Agreement on their behalf has the requisite authority to bind the Company and the Trustee to this.

IN WITNESS WHEREOF, the parties have duly executed this Trust Agreement as of the date first set forth above.

DNB FINANCIAL CORPORATION       By: ___________________________ James H. Thornton Chairman Benefits & Compensation Committee DNB FIRST, NATIONAL ASSOCIATION, as Trustee     By: ___________________________ William J. Hieb President

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