(14) BENEFIT PLANS

Pension Plan The Bank maintains a defined benefit pension plan (the “Plan”) covering all employees, including officers, who have been employed for one year and have attained 21 years of age. Prior to May 1, 1985, an individual must have attained the age of 25 and accrued one year of service. The Plan provides pension benefits to eligible retired employees at 65 years of age equal to 1.5% of their average monthly pay multiplied by their years of accredited service (maximum 40 years). The accrued benefit is based on the monthly average of their highest five consecutive years of their last ten years of service. The Plan generally covers only full-time employees.

Effective December 31, 2003, DNB amended its Plan to curtail future eligibility and so that no participants will earn additional benefits under the Plan after December 31, 2003. As a result of this amendment, no further service or compensation was credited under the Plan after December 31, 2003. The Plan, although frozen, will continue to provide benefit payments and eligible employees can still earn vesting credits until retirement.

The following table summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted-average assumptions used to determine benefit obligations for the pension plan at December 31, 2016 and 2015. Amounts recognized at December 31, 2016 and 2015 are reflected in other assets, and in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. The estimation of DNB’s PBO associated with these plans considers various actuarial assumptions for mortality rates and discount rates.

The following table sets forth the Plan’s funded status, as of the measurement dates of December 31, 2016 and 2015 and amounts recognized in DNB’s consolidated financial statements at December 31, 2016 and 2015:



	December 31
(Dollars in thousands)	2016		2015
Projected benefit obligation	$	(6,695)	$	(6,583)
Accumulated benefit obligation		(6,695)		(6,583)
Fair value of plan assets		4,887		4,851
Amounts recognized in the statement of financial condition consist of:
Other liabilities	$	(1,808)	$	(1,732)
Funded status	$	(1,808)	$	(1,732)
Amounts recognized in accumulated other comprehensive loss consist of:
Net loss	$	1,792	$	1,812
Total	$	1,792	$	1,812

The amounts and changes in DNB’s pension benefit obligation and fair value of plan assets for the years ended December 31, 2016 and 2015 are as follows:



	Year ended December 31
(Dollars in thousands)	2016		2015
Change in benefit obligation
Benefit obligation at beginning of year	$	6,583	$	6,783
Interest cost		254		243
Actuarial loss (gain)		143		(162)
Benefits paid		(285)		(281)
Benefit obligation at end of year	$	6,695	$	6,583
Change in plan assets
Fair value of assets at beginning of year	$	4,851	$	5,197
Actual return on plan assets		304		(58)
Employer contribution		93		57
Benefits paid		(285)		(281)
Estimated expenses		(76)		(64)
Fair value of assets at end of year	$	4,887	$	4,851

The Plan’s assets are invested using an asset allocation strategy in units of certain equity, bond, real estate and money market funds. The following table summarizes the weighted average asset allocations as of the dates indicated:



	December 31
	2016		2015
Cash and cash equivalents	3.5	%	2.6	%
Equity securities	53.0		55.1
Fixed income securities	43.5		42.3
Total	100.0	%	100.0	%

Equity securities consist mainly of equity common trust funds and mutual funds. Fixed income securities consist mainly of fixed income common trust funds. Pension plan assets are invested with a moderate growth objective, with target asset allocations of approximately 50 - 60% bonds and cash and approximately 40 - 50% in stocks. As of December 31, 2016, the plan held 47.0% of its assets in bonds and cash.

Net periodic pension costs for the years indicated include the following components:



	Year Ended December 31
(Dollars in thousands)	2016			2015
Service cost	$	59		$	46
Interest cost		254			243
Expected return on plan assets		(252)			(272)
Recognized net actuarial loss		128			109
Net periodic cost	$	189		$	126
Assumptions used:
Discount rate:
Obligation		4.09	%		4.05	%
Expense		4.05			3.75
Rate of increase in compensation level		N/A			N/A
Expected long-term rate of return on assets		5.50			5.50

In selecting the expected long-term rate of return on assets used for the Plan, DNB considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of the Plan. This included considering the asset allocation and the expected returns likely to be earned over the life of the plan. This basis is consistent with the prior year. The discount rate is the rate used to determine the present value of DNB’s future benefit obligations for its pension. The projected benefit obligation at December 31, 2016 was determined using a variation of the RP-2014 mortality tables published by the Society of Actuaries.

DNB anticipates making contributions to the plan totaling $211,000 in 2017. DNB’s estimated future benefit payments are as follows:



(Dollars in thousands)	Period	Benefits
	2017	$	378
	2018		455
	2019		981
	2020		847
	2021		255
	2022-2026		1,993

The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the 2017 fiscal year are as follows:



(Dollars in thousands)
Service cost	$	66
Interest cost		261
Expected return on plan assets		(257)
Amortization of net loss		133
Recognized net actuarial loss		107
Estimated 2017 net periodic benefit cost	$	310

The fair value of DNB’s pension plan assets by asset category are as follows:



	December 31, 2016
							Assets at
							Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Mutual fund - equity:
US equities	$	1,398	$	-	$	-	$	1,398
International equities		1,080		-		-		1,080
Real estate		113		-		-		113
Mutual funds - fixed income:
Domestic fixed income		2,128		-		-		2,128
US corporate bonds, notes and cash:
Corporate bonds		-		-		-		-
Cash		168		-		-		168
Total assets measured at fair value on a recurring basis	$	4,887	$	-	$	-	$	4,887



	December 31, 2015
							Assets at
							Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Mutual fund - equity:
US equities	$	1,345	$	-	$	-	$	1,345
International equities		1,202		-		-		1,202
Real estate		126		-		-		126
Mutual funds - fixed income:
Domestic fixed income		2,052		-		-		2,052
US corporate bonds, notes and cash:
Corporate bonds		-		-		-		-
Cash		126		-		-		126
Total assets measured at fair value on a recurring basis	$	4,851	$	-	$	-	$	4,851

Retirement and Death Benefit Agreement During 1999, the Bank and Henry F. Thorne, its then current Chief Executive Officer (the “Executive”), entered into a Death Benefit Agreement providing for supplemental death and retirement benefits for him (the “Supplemental Plan”). In 2003, the Supplemental Plan was replaced by a Retirement and Death Benefit Agreement (the “Replacement Plan”).

The Replacement Plan provides that the Bank and the Executive share in the rights to the cash surrender value and death benefits of a split-dollar life insurance policy (the “Policy”) The policy is designed to provide the Executive, upon attaining age 65, with projected annual after-tax payments of approximately $35,000. In addition, the Policy is intended to provide the Executive with a projected death benefit of $750,000.

In July 2008, DNB commenced making monthly payments of $3,658 to the Executive. The remaining liability under the plan was $739,000 and $739,000 as of December 31, 2016 and 2015, respectively. The annual expense for the same respective periods was $56,000 and $54,000.

Supplemental Executive Retirement Plan for Chairman and Chief Executive Officer (William S. Latoff passed away on January 11, 2016) DNB had a Supplemental Executive Retirement Plan (also known as a SERP) for its former Chairman and Chief Executive Officer, William S. Latoff. The purpose of the SERP was to provide Mr. Latoff a pension supplement beginning at age 70 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. The liability based on the contract is $1.3 million at December 31, 2016. This amount will be paid out in 2019.

401(k) Retirement Savings Plan The Bank has adopted a retirement savings 401(k) plan. Participants are permitted to authorize pre-tax savings contributions to a separate trust established under the 401(k) plan, subject to limitations on deductibility of contributions imposed by the Internal Revenue Code. The plan allows after-tax contributions to be made as well. The contributions are subject to the same limitations. Management evaluates discretionary matching contributions each quarter based upon DNB’s financial performance. DNB made no matching contributions to the 401(k) plan in 2016 and 2015.

Profit Sharing Plan The Bank maintains a Profit Sharing Plan for eligible employees. The plan provides that the Bank make contributions equal to 3% of the eligible participant’s W-2 wages. DNB’s related expense associated with the Profit Sharing Plan was $304,000 and $262,000 in 2016 and 2015, respectively.

Stock Option Plan DNB has a Stock Option Plan for employees and directors. Under the plan, options (both qualified and non-qualified) to purchase a maximum of 793,368 (as adjusted for subsequent stock dividends) shares of DNB’s common stock could be issued to employees and directors.

Under the plan, option exercise prices must equal the fair market value of the shares on the date of option grant and the option exercise period may not exceed ten years. Vesting of options under the plan is determined by the Plan Committee. There were 354,090 shares available for grant at December 31, 2016 and 2015. All options currently outstanding are immediately exercisable. DNB fully recorded all stock option expense by the end of 2014. DNB had no stock option expense in 2016 or 2015.

The award agreement provides that, upon issuance of the plan shares, the grantee may elect to pay federal withholding taxes on the award in cash or by electing to apply some of the awarded shares at their fair market value, or both. Under the Stock Option Plan, 14,800 shares were exercised in 2016. The shares awarded from the NQ cashless exercises resulted in an increase in shares outstanding of 5,824. There was a cash equivalent of 8,976 shares used to pay all applicable taxes on the transactions. Stock option activity is indicated below:



	Number	Weighted Average
	Outstanding	Exercise Price
Outstanding January 1, 2015	163,586	$	15.13
Issued	-		-
Exercised	(99,086)		19.34
Forfeited	-		-
Expired	-		-
Outstanding December 31, 2015	64,500	$	8.67
Issued	-		-
Exercised	(14,800)		6.93
Forfeited	-		-
Expired	-		-
Outstanding December 31, 2016	49,700	$	9.18

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



December 31, 2016
Range of				Weighted Average
Exercise		Number	Number	Exercise		Remaining	Intrinsic
Prices		Outstanding	Exercisable	Price		Contractual Life	Value
$	6.93-10.99	49,700	49,700	$	9.18	1.40 years	$	955,000



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

Other Stock‑Based Compensation DNB maintains an Incentive Equity and Deferred Compensation Plan. The plan provides that up to 243,101 shares of common stock may be granted, at the discretion of the Board, to individuals of DNB. Shares already granted are issuable on the earlier of three years or four years after the date of the grant or a change in control of DNB if the recipients are then employed by DNB (“Vest Date”). For awards granted prior to December 2016, upon issuance of the shares, resale of the shares is restricted for an additional one year, during which the shares may not be sold, pledged or otherwise disposed of. Prior to the Vest Date and in the event the recipient terminates association with DNB for reasons other than death, disability or change in control, the recipient forfeits all rights to the shares that would otherwise be issued under the grant.

Share awards granted by the plan were recorded at the date of award based on the fair market value of shares. Awards are being amortized to expense over a three or four-year cliff-vesting period. Restricted stock awards are non-participating shares.

For the twelve‑month periods ended December 31, 2016 and 2015, $940,000 and $342,000 was amortized to expense. DNB issued 23,240 restricted stock awards to officers and directors in December 2016. These awards cliff vest in three years.

DNB issued 3,000 restricted stock awards during the first quarter of 2016 and 26,595 restricted stock awards in December 2015 that required the award recipient to hold the shares for one additional year after vesting. These awards cliff vest in three years. For these shares, DNB adopted the Chaffe Model to measure the fair value by applying a 9.1% discount due to the lack of marketability when these transactions took place. The input assumptions used and resulting fair values were an expected life of 5 years, volatility of 19.37%, annual rate of quarterly dividends of 1.01%, and bond equivalent yield of 1.742%.

At December 31, 2016, approximately $1.0 million in additional compensation will be recognized over the weighted average remaining service period of approximately 2.24 years. At December 31, 2016, 64,929 shares were reserved for future grants under the plan. 47,720 restricted shares vested in 2016. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 26,952. There was a cash equivalent of 20,768 shares used to pay all applicable taxes on the transactions. Stock grant activity is indicated below.



		Weighted Average
	Shares	Stock Price
Non-vested stock awards - January 1, 2015	75,930	$	17.66
Granted	26,595		27.55
Forfeited	(1,270)		19.21
Vested	(24,000)		12.28
Non-vested stock awards - December 31, 2015	77,255	$	22.71
Granted	26,240		27.82
Forfeited	-		-
Vested	(47,720)		22.11
Non-vested stock awards - December 31, 2016	55,775	$	25.63