(13) 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, 2018 and 2017. Amounts recognized at December 31, 2018 and 2017 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, 2018 and 2017 and amounts recognized in DNB’s consolidated financial statements at December 31, 2018 and 2017:



	December 31
(Dollars in thousands)	2018		2017
Projected benefit obligation	$	(6,133)	$	(6,925)
Accumulated benefit obligation		(6,133)		(6,925)
Fair value of plan assets		4,457		4,960
Amounts recognized in the statement of financial condition consist of:
Other liabilities	$	(1,676)	$	(1,965)
Funded status	$	(1,676)	$	(1,965)
Amounts recognized in accumulated other comprehensive loss consist of:
Net loss	$	1,637	$	1,849
Total	$	1,637	$	1,849

The amounts and changes in DNB’s pension benefit obligation and fair value of plan assets for the years ended December 31, 2018 and 2017 are as follows:



	Year ended December 31
(Dollars in thousands)	2018		2017
Change in benefit obligation
Benefit obligation at beginning of year	$	6,925	$	6,695
Interest cost		241		262
Actuarial (gain) loss		(567)		603
Benefits paid		(466)		(635)
Benefit obligation at end of year	$	6,133	$	6,925
Change in plan assets
Fair value of assets at beginning of year	$	4,960	$	4,887
Actual return on plan assets		(226)		575
Employer contribution		267		211
Benefits paid		(466)		(635)
Estimated expenses		(78)		(78)
Fair value of assets at end of year	$	4,457	$	4,960

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
	2018		2017
Cash and cash equivalents	4.9	%	3.3	%
Equity securities	48.3		53.1
Fixed income securities	46.8		43.6
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, 2018, the plan held 51.7% 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)	2018			2017
Service cost	$	80		$	65
Interest cost		241			262
Expected return on plan assets		(267)			(257)
Recognized net actuarial loss*		136			133
Recognized actuarial loss due to settlements		-			106
Net periodic cost	$	190		$	309
Assumptions used:
Discount rate:
Obligation		4.22	%		3.61	%
Expense		3.61			4.09
Rate of increase in compensation level		N/A			N/A
Expected long-term rate of return on assets		5.50			5.50
*Amounts are included in "Salaries and employee benefits" in the consolidated statements of income.

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, 2018 and 2017 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 $305,000 in 2019. DNB’s estimated future benefit payments are as follows:



(Dollars in thousands)	Period	Benefits
	2019	$	515
	2020		1,008
	2021		876
	2022		246
	2023		457
	2024-2028		1,726

The estimated components of net periodic benefit cost and other amounts recognized in other comprehensive income during the 2019 fiscal year are as follows:



(Dollars in thousands)
Service cost	$	82
Interest cost		248
Expected return on plan assets		(239)
Amortization of net loss		126
Estimated 2019 net periodic benefit cost	$	217

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


	December 31, 2018
							Assets at
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value
Mutual fund - equity:
US equities	$	987	$	-	$	-	$	987
International equities		1,040		-		-		1,040
Real estate		126		-		-		126
Mutual funds - fixed income:
Domestic fixed income		2,086		-		-		2,086
US corporate bonds, notes and cash:
Cash		218		-		-		218
Total assets measured at fair value on a recurring basis	$	4,457	$	-	$	-	$	4,457



	December 31, 2017
							Assets at
(Dollars in thousands)	Level 1		Level 2		Level 3		Fair Value
Mutual fund - equity:
US equities	$	1,227	$	-	$	-	$	1,227
International equities		1,273		-		-		1,273
Real estate		133		-		-		133
Mutual funds - fixed income:
Domestic fixed income		2,163		-		-		2,163
US corporate bonds, notes and cash:
Cash		164		-		-		164
Total assets measured at fair value on a recurring basis	$	4,960	$	-	$	-	$	4,960

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 $737,000 and $738,000 as of December 31, 2018 and 2017, respectively. The annual expense for the same respective periods was $58,000 and $57,000.

Supplemental Executive Retirement Plan for Chairman and Chief Executive Officer (William S. Latoff passed away on January 11, 2016) DNB has an unfunded 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, which is included in “Other liabilities” on the statement of financial condition, is $1.3 million at December 31, 2018. This amount will be paid out in 2019.

Supplemental Executive Retirement Plan for President & Chief Executive Officer and Chief Financial Officer DNB has an unfunded Supplemental Executive Retirement Plan (also known as a SERP) for William J. Hieb, DNB's President and Chief Executive Officer, and Gerald F. Sopp, DNB's Executive Vice President, Chief Financial Officer and Corporate Secretary (each, a "SERP," and collectively, the "SERPs"). The SERPs contain identical terms. Accordingly, each of Mr. Hieb and Mr. Sopp shall be referred to as the "Executive" below. Pursuant to the SERP, in the event that the Executive remains continuously employed by DNB until his 67th birthday, DNB shall pay to him a monthly retirement benefit for 180 months commencing on the first day of the first month following his 67th birthday. The monthly retirement benefit will be 2.5% of the average of the sum of the Executive's base salary and cash bonuses paid to him during the three calendar years ending immediately prior to his 67th birthday, except that the base salary for any year shall never be less than the base salary in effect on October 25, 2017. DNB’s liability to Mr. Hieb’s and Mr. Sopp’s SERP was $228,000 and $183,000, respectively at December 31, 2018, compared to $39,000 and $32,000, respectively at December 31, 2017.

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 2018 and 2017.

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 $392,000 and $376,000 in 2018 and 2017, 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, 2018 and 2017. 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 2018 or 2017.

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, 16,450 shares were exercised in 2018. The shares awarded from the non-qualified cashless exercises resulted in an increase in shares outstanding of 7,798. There was a cash equivalent of 8,652 shares used to pay all applicable taxes on the transactions. Under the Stock Option Plan, 33,250 shares were exercised in 2017. The shares awarded from the non-qualified cashless exercises resulted in an increase in shares outstanding of 14,748. There was a cash equivalent of 18,502 shares used to pay all applicable taxes on the transactions. Stock option activity is indicated in the following table:



	Number	Weighted Average
	Outstanding	Exercise Price
Outstanding January 1, 2017	49,700	$	9.18
Issued	-		-
Exercised	(33,250)		8.63
Forfeited	-		-
Expired	-		-
Outstanding December 31, 2017	16,450	$	10.31
Issued	-		-
Exercised	(16,450)		10.31
Forfeited	-		-
Expired	-		-
Outstanding December 31, 2018	-	$	-

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



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 provides that up to 493,101 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, 2018 and 2017, $315,000 and $559,000 was amortized to expense.

DNB issued 3,000 restricted stock awards during the first quarter of 2016 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%. DNB did not use the Chaffe Model on restricted stock awards issued during the years ended December 31, 2018 and 2017.

During the year ended December 31, 2018, DNB had $112,000 of tax benefits for stock option exercises and restricted stock vesting. In accordance with ASU 2016-09, forfeitures are recognized as they occur instead of applying an estimated forfeiture rate to each grant. For purposes of the determination of stock-based compensation expense for the year ended December 31, 2018, we recognized actual forfeitures of 5,595 shares of restricted stock awards that were granted to officers and other employees.

At December 31, 2018, approximately $294,000 in additional compensation will be recognized over the weighted average remaining service period of approximately 1.48 years. At December 31, 2018, 309,504 shares were reserved for future grants under the plan. There were 17,695 restricted shares that vested in 2018. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 11,135. There was a cash equivalent of 6,560 shares used to pay all applicable taxes on the transactions. There were 24,915 restricted shares that vested in 2017. The shares awarded from the cashless exercises resulted in an increase in shares outstanding of 13,839. There was a cash equivalent of 11,076 shares used to pay all applicable taxes on these transactions. Stock grant activity is indicated in the following table.



		Weighted Average
	Shares	Stock Price
Non-vested stock awards - January 1, 2017	55,775	$	25.63
Granted	500		34.00
Forfeited	(230)		22.92
Vested	(24,915)		24.69
Non-vested stock awards - December 31, 2017	31,130	$	26.53
Granted	10,750		33.98
Forfeited	(5,595)		29.00
Vested	(17,695)		25.67
Non-vested stock awards - December 31, 2018	18,590	$	30.90