NOTE 8: STOCK-BASED COMPENSATION

Stock Option Plan

DNB has a Stock Option Plan for employees and directors. Under the plan, options (both qualified and non-qualified) to purchase a maximum of 793,368 (as adjusted for subsequent stock dividends) shares of DNB’s common stock could be issued to employees and directors. Under the plan, option exercise prices must equal the fair market value of the shares on the date of option grant and the option exercise period may not exceed ten years. Vesting of options under the plan is determined by the Plan Committee. There were 354,090 shares available for grant at March 31, 2018. All options are immediately exercisable. During the three months ended March 31, 2018 and 2017, DNB had no expenses related to the plan. DNB has no anticipated additional expense related to the plan. Under the Stock Option Plan, 2,100 shares were exercised during the three months ended March 31, 2018. The shares awarded from the non-qualified cashless exercises resulted in an increase in shares outstanding of 966 shares. There was a cash equivalent of 1,134 shares used to pay all applicable taxes on the transactions. Under the Stock Option Plan, 13,700 shares were exercised during the three months ended March 31, 2017. The shares awarded frm the non-qualified cashless exercises resulted in an increase in shares outstanding of 6,623 shares. There was a cash equivalent of 7,077 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, 2018		16,450	$	10.31
Issued		-		-
Exercised		2,100		10.31
Forfeited		-		-
Expired		-		-
Outstanding March 31, 2018		14,350	$	10.31



	Number		Weighted Average
	Outstanding		Exercise Price
Outstanding January 1, 2017		49,700	$	9.18
Issued		-		-
Exercised		13,700		7.42
Forfeited		-		-
Expired		-		-
Outstanding March 31, 2017		36,000	$	9.85

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



March 31, 2018
Range of				Weighted Average
Exercise		Number	Number	Exercise		Remaining	Intrinsic
Prices		Outstanding	Exercisable	Price		Contractual Life	Value
$	6.93-10.99	14,350	14,350	$	10.31	0.70 years	$	364,000



December 31, 2017
Range of				Weighted Average
Exercise		Number	Number	Exercise		Remaining	Intrinsic
Prices		Outstanding	Exercisable	Price		Contractual Life	Value
$	6.93-10.99	16,450	16,450	$	10.31	0.95 years	$	385,000

Other Stock-Based Compensation

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

Share awards granted by the Plan were recorded at the date of award based on the market value of shares. Awards are being amortized to expense over a three or four year cliff-vesting period. DNB records compensation expense equal to the value of the shares being amortized. For the three month period ended March 31, 2018, $96,000 was amortized to expense. For the three month period ended March 31, 2017, $107,000 was amortized to expense.

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%.

As of March 31, 2018, there was approximately $664,000 in additional compensation that will be recognized over the remaining service period of approximately 1.68 years. At March 31, 2018, 304,159 shares were reserved for future grants under the Plan.

There were 1,400 restricted shares that vested during the three months ended March 31, 2018. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 896 shares. There was a cash equivalent of 504 shares used to pay all apllicable taxes on the transactions. There were no such transaction during the three months ended March 31, 2017. Stock grant activity is indicated below:



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



		Weighted Average
	Shares	Stock Price
Non-vested stock awards—January 1, 2017	55,775	$	25.63
Granted	-		-
Forfeited	-		-
Vested	-		-
Non-vested stock awards—March 31, 2017	55,775	$	25.63