UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

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

For the quarterly period ended: June 30, 2005

or

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

For the transition period from ________________ to _____________

Commission File Number: 0-16667

DNB Financial Corporation

(Exact name of registrant as specified in its charter)

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

4 Brandywine Avenue - Downingtown, PA 19335

(Address of principal executive offices and Zip Code)

(610) 269-1040

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock ($1.00 Par Value)	1,978,360
(Class)	(Shares Outstanding as of
	August 15, 2005)

1

DNB FINANCIAL CORPORATION AND SUBSIDIARY

INDEX

	PART I - FINANCIAL INFORMATION	PAGE NO.
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	June 30, 2005 and December 31, 2004	3
	CONSOLIDATED STATEMENTS OF OPERATIONS
	Three and Six Months Ended June 30, 2005 and 2004	4
	CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY	5
	June 30, 2005 and December 31, 2004
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six Months Ended June 30, 2005 and 2004	6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	June 30, 2005 and December 31, 2004	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	22
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	23
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS INDEX	24
SIGNATURES		26
EXHIBITS		27

2

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)
	June 30			December 31
(Dollars in thousands except share data)	2005			2004
Assets
Cash and due from banks	$	11,683		$	9,535
Federal funds sold		4,718			14,586
Cash and cash equivalents		16,401			24,121
AFS investment securities, at fair value		128,252			132,288
HTM investment securities (fair value of $32,651 and $37,095)		33,163			37,475
Loans and leases		261,313			232,577
Allowance for credit losses		(4,484	)		(4,436	)
Net loans and leases		256,829			228,141
Office property and equipment		7,000			7,186
Bank owned life insurance		6,392			6,295
Other assets		3,001			2,831
Accrued interest receivable		1,872			1,772
Net deferred taxes		777			950
Total assets	$	453,687		$	441,059
Liabilities and Stockholders’ Equity
Liabilities
Non-interest-bearing deposits	$	55,813		$	53,402
Interest-bearing deposits:
NOW		69,737			79,527
Money market		37,732			42,199
Savings		88,784			77,897
Time		73,529			70,119
Total deposits		325,595			323,144
FHLB advances		60,150			61,650
Repurchase agreements		30,542			23,127
Junior subordinated debentures		9,279			5,155
Other borrowings		706			711
Total borrowings		100,677			90,643
Accrued interest payable		944			923
Other liabilities		1,013			1,611
Total liabilities		428,229			416,321
Stockholders’ Equity
Preferred stock, $10.00 par value;
1,000,000 shares authorized; none issued		—			—
Common stock, $1.00 par value;
10,000,000 shares authorized; 2,181,212 and 2,170,237 issued		2,181			2,170
Treasury stock, at cost; 202,852 shares		(4,488	)		(4,488	)
Surplus		29,537			29,388
Accumulated deficit		(2,070	)		(2,273	)
Accumulated other comprehensive income (loss), net		298			(59	)
Total stockholders’ equity		25,458			24,738
Total liabilities and stockholders’ equity	$	453,687		$	441,059
See accompanying notes to consolidated financial statements.

3

DNB Financial Corporation and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands except share data)	2005		2004			2005			2004
Interest Income:
Interest and fees on loans and leases	$	4,037	$	3,387		$	7,678		$	6,725
Interest and dividends on investment securities:
Taxable		1,343		1,191			2,591			2,393
Exempt from Federal taxes		249		253			491			495
Tax-preferred DRD		8		60			40			145
Interest on cash and cash equivalents		78		10			122			26
Total interest income		5,715		4,901			10,922			9,784
Interest Expense:
Interest on NOW, money market and savings		560		274			980			515
Interest on time deposits		490		363			902			739
Interest on FHLB advances		831		890			1,663			1,865
Interest on repurchase agreements		192		1			298			1
Interest on junior subordinated debentures		153		64			235			128
Interest on other borrowings		29		28			59			54
Total interest expense		2,255		1,620			4,137			3,302
Net interest income		3,460		3,281			6,785			6,482
Provision for credit losses		30		—			45			—
Net interest income after provision for credit losses		3,430		3,281			6,740			6,482
Non-interest Income:
Service charges on deposits		311		335			601			647
Wealth management fees		154		164			401			375
Increase in cash surrender value of BOLI		64		52			114			105
Net gains (losses) on sales of available for sale securities		39		(69	)		(660	)		(23	)
Other		192		340			360			505
Total non-interest income		760		822			816			1,609
Non-interest Expense:
Salaries and employee benefits		2,072		1,757			4,078			3,479
Furniture and equipment		304		301			603			601
Occupancy		230		216			460			439
Professional and consulting		320		118			575			298
Advertising and marketing		151		238			294			327
Printing and supplies		81		91			160			192
Other		380		488			809			1,038
Total non-interest expense		3,538		3,209			6,979			6,374
Income before income taxes		652		894			577			1,717
Income tax expense (benefit)		15		185			(139	)		339
Net Income	$	637	$	709		$	716		$	1,378
Earnings per share:
Basic	$	0.32	$	0.36		$	0.36		$	0.69
Diluted	$	0.32	$	0.35		$	0.36		$	0.68
Cash dividends per share	$	0.13	$	0.12		$	0.26		$	0.25
Weighted average common shares outstanding:
Basic		1,976,165		1,988,983			1,973,851			1,992,059
Diluted		2,011,874		2,020,322			2,008,577			2,031,122
See accompanying notes to consolidated financial statements.

4

DNB Financial Corporation and Subsidiary

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

	Common Stock		Treasury Stock			Surplus		Retained Earnings (Accumulated deficit)			Accumulated Other Comprehensive (Loss) Income			Total
Balance at January 1, 2004	$	2,041	$	(3,097	)	$	26,373	$	1,092		$	(1,037	)	$	25,372
Net income		—		—			—		298			—			298
Other comprehensive income,
net of tax, relating to net
unrealized gains on investments		—		—			—		—			89			89
Reclass for other-than-temporary
impairment charge		—		—			—		—			889			889
Cash dividends		—		—			—		(981	)		—			(981	)
Issuance of stock dividends		103		—			2,570		(2,673	)		—			—
Purchase of treasury shares		—		(1,391	)		—		—			—			(1,391	)
Cash payment for fractional shares		—		—			—		(9	)		—			(9	)
Exercise of stock options		26		—			445		—			—			471
Balance at December 31, 2004		2,170		(4,488	)		29,388		(2,273	)		(59	)		24,738
Net income		—		—			—		716			—			716
Other comprehensive income,
net of tax, relating to net
unrealized gains on investments		—		—			—		—			357			357
Cash dividends		—		—			—		(513	)		—			(513	)
Exercise of stock options		11		—			149		—			—			160
Balance at June 30, 2005	$	2,181	$	(4,488	)	$	29,537	$	(2,070	)	$	298		$	25,458

See accompanying notes to consolidated financial statements.

5

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2005			2004
Cash Flows From Operating Activities:
Net income	$	716		$	1,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion		658			784
Provision for credit losses		45			—
Net loss on sale of securities		660			23
Increase in accrued interest receivable		(100	)		(47	)
Increase in other assets		(170	)		(751	)
Increase in investment in BOLI		(97	)		(104	)
Increase (decrease) in accrued interest payable		21			(55	)
Increase in deferred tax benefit		(19	)		(52	)
(Decrease) increase in other liabilities		(598	)		70
Net Cash Provided By Operating Activities		1,116			1,246
Cash Flows From Investing Activities:
Proceeds from maturities and paydowns - AFS securities		12,073			22,272
Proceeds from maturities and paydowns - HTM securities		3,473			7,433
Purchase of AFS securities		(94,852	)		(50,665	)
Proceeds from sale of AFS - securities		86,310			6,200
Proceeds from sale of HTM - securities		1,000			—
Net increase in loans and leases		(28,733	)		(18,066	)
Purchase of bank property and equipment, net		(239	)		89
Net Cash Used By Investing Activities		(20,968	)		(32,737	)
Cash Flows From Financing Activities:
Net increase in deposits		2,451			12,808
(Decrease) increase in FHLB advances		(1,500	)		4,855
Increase in junior subordinated debentures		4,124			—
Proceeds from short term repurchase agreements		7,415			9,442
Decrease in lease obligations		(5	)		(4	)
Dividends paid		(513	)		(494	)
Proceeds from issuance of stock under stock option plan		160			125
Purchase of treasury stock		—			(621	)
Net Cash Provided By Financing Activities		12,132			26,111
Net Change in Cash and Cash Equivalents		(7,720	)		(5,380	)
Cash and Cash Equivalents at Beginning of Period		24,121			15,582
Cash and Cash Equivalents at End of Period	$	16,401		$	10,202
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	4,116		$	3,357
Income taxes		—			158
Supplemental Disclosure of Non-cash Flow Information:
Change in unrealized losses on AFS securities	$	549		$	(1,815	)
Change in deferred taxes due to change in unrealized
losses on AFS securities		(192	)		617
See accompanying notes to consolidated financial statements.

6

DNB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform with current period classifications. The results of operations for the six months ended June 30, 2005, are not necessarily indicative of the results, which may be expected for the entire year. The consolidated financial statements should be read in conjunction with the Annual Report and report on Form 10-K for the year ended December 31, 2004.

In December 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure ("SFAS 148"). This statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. DNB has complied with the disclosure requirements of this statement. The following table illustrates the effect on net income and earnings per share had DNB applied the fair value recognition provision of SFAS No. 123.

Effective January 1, 2006, DNB will implement SFAS No. 123 (Revised 2004), Share-Based-Payment-An Amendment of Statement No. 123 and 95. DNB does not anticipate recording expense significantly different than what is presented in the table below.

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share data)	2005		2004		2005		2004
Net income as reported	$	637	$	709	$	716	$	1,378
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	$	255		—	$	255		—
Pro forma net income	$	382	$	709	$	461	$	1,378
Earnings per share:
Basic - as reported	$	0.32	$	0.36	$	0.36	$	0.69
Basic - pro forma	$	0.19	$	0.36	$	0.23	$	0.69
Diluted - as reported	$	0.32	$	0.35	$	0.36	$	0.68
Diluted - pro forma	$	0.19	$	0.35	$	0.23	$	0.68

7

NOTE 2: EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur from the conversion of common stock equivalents and is computed using the treasury stock method. The difference between basic and diluted EPS, for DNB, is attributable to stock options and restricted stock. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. At June 30, 2005, there were 41,500 anti-dilutive stock options outstanding as well as 16,680 anti-dilutive stock awards. DNB did not have anti-dilutive stock options or awards outstanding at June 30, 2004. EPS, dividends per share and weighted average shares outstanding have been adjusted to reflect the effects of the 5% stock dividend paid in December 2004. The dilutive effect of stock options on basic earnings per share is presented below.

	Three Months Ended						Three Months Ended
	June 30, 2005						June 30, 2004
(Dollars in thousands ,except per share data)	Income		Shares		Amount		Income		Shares		Amount
Basic EPS
Income available to common stockholders	$	637		1,976	$	0.32	$	709		1,989	$	0.36
Effect of dilutive common stock equivalents - stock options and awards		—		36		—		—		31		(.01	)
Diluted EPS
Income available to common stockholders after assumed conversions	$	637		2,012	$	0.32	$	709		2,020	$	0.35
	Six Months Ended						Six Months Ended
	June 30, 2005						June 30, 2004
(Dollars in thousands ,except per share data)		Income		Shares		Amount		Income		Shares		Amount
Basic EPS
Income available to common stockholders	$	716		1,974	$	0.36	$	1,378		1,992	$	0.69
Effect of dilutive common stock equivalents - stock options and awards		—		35		—		—		39		(.01	)
Diluted EPS
Income available to common stockholders after assumed conversions	$	716		2,009	$	0.36	$	1,378		2,031	$	0.68

NOTE 3:TOTAL COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes all changes in stockholders' equity during the period, except those resulting from investments by owners and distributions to owners. Total comprehensive income for all periods consisted of net income and other comprehensive income relating to the change in unrealized gains (losses) gains on investment securities available for sale. Total comprehensive income (loss) and the related tax effects on each component are shown in the following table.

	Three Months Ended			Three Months Ended
	June 30, 2005			June 30, 2004
(Dollars in thousands)	Net-of-Tax Amount			Net-of-Tax Amount
Net Income	$	637		$	709
Other Comprehensive Income:
Unrealized holding gains (losses) arising during the period		553			(2,043	)
Reclassification for (gains) losses included in net income		(26	)		46
Total Comprehensive Income (Loss)	$	1,164		$	(1,288	)
		Six Months Ended			Six Months Ended
		June 30, 2005			June 30, 2004
(Dollars in thousands)		Net-of-Tax Amount			Net-of-Tax Amount
Net Income	$	716		$	1,378
Other Comprehensive Income:
Unrealized holding losses arising during the period		(79	)		(1,213	)
Reclassification for losses included in net income		436			15
Total Comprehensive Income	$	1,073		$	180

8

NOTE 4: COMPOSITION OF LOAN AND LEASE PORTFOLIO

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

	June 30			December 31
(Dollars in thousands)	2005			2004
Commercial mortgage	$	87,498		$	87,795
Commercial term		75,414			63,595
Consumer		45,434			43,210
Residential mortgage		28,648			18,677
Commercial Leases		24,319			19,300
Gross loans and leases		261,313			232,577
Less allowance for credit losses		(4,484	)		(4,436	)
Net loans and leases	$	256,829		$	228,141

NOTE 5: JUNIOR SUBORDINATED DEBENTURES

DNB has two issuances of junior subordinated debentures (the "debentures") as follows:

DNB Capital Trust I

DNB’s first issuance of junior subordinated debentures was on July 20, 2001. This issuance of debentures are floating rate and were issued to DNB Capital Trust I, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust I issued $5.0 million of floating rate (6 month Libor plus 3.75%, with a cap of 12%) capital preferred securities ("TruPS") to a qualified institutional buyer. The proceeds of these securities were used by the Trust, along with DNB's capital contribution, to purchase $5,155,000 principal amount of DNB's floating rate junior subordinated debentures. The preferred securities are redeemable by DNB on or after July 25, 2006, or earlier in the event of certain adverse tax or bank regulatory developments. The preferred securities must be redeemed upon maturity of the debentures on July 25, 2031.

Effective March 31, 2004, as a result of the adoption of FIN 46, DNB deconsolidated the Trust, resulting in a change in the characterization of the underlying consolidated debt obligations from the previous trust preferred securities to junior subordinated debentures. The result was an increase in junior subordinated debentures of $155,000. The junior subordinated debentures qualify as a component of capital for regulatory purposes.

DNB Capital Trust II

DNB’s second issuance of junior subordinated debentures was on March 30, 2005. This issuance of debentures are floating rate and were issued to DNB Capital Trust II, a Delaware business trust in which DNB owns all of the common equity. DNB Capital Trust II issued $4 million of floating rate (6.56% for the first 5 years and a rate of 3-month LIBOR plus 1.77% thereafter) capital preferred securities. The proceeds of these securities were used by the Trust, along with DNB's capital contribution, to purchase $4.1 million principal amount of DNB's floating rate junior subordinated debentures. The preferred securities are redeemable by DNB on or after May 23, 2010, or earlier in the event of certain adverse tax or bank regulatory developments. The preferred securities must be redeemed upon maturity of the debentures on May 23, 2035.

9

NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised 2004), “Share-Based Payment - An Amendment of Statements No. 123 and 95” (“SFAS 123(R)”), that addresses the accounting for equity-based compensation arrangements, including employee stock options. Upon implementation of the changes proposed in this statements, entities would no longer be able to account for equity-based compensation using the intrinsic value method under Opinion 25. Entities would be required to measure the cost of employees service received in exchange for awards of equity instruments at the grant date of the award using a fair value based method. The comment period for this proposed statement ended on June 30, 2004. In October 2004, FASB announced that for public entities, this proposed statement would apply prospectively for reporting periods beginning after June 15, 2005 as if all equity-based compensation awards granted, modified or settled after December 15, 1994 had been accounted for using a fair value based method of accounting. On April 14, 2005 the Securities and Exchange Commission amended the compliance dates for SFAS 123 (R). Under the amended compliance dates, SFAS 123 (R) becomes effective for public entities that do not file as small business issuers, as of the beginning of the first fiscal reporting period that begins after June 15, 2005. For the Bank, this will become effective on January 1, 2006. The adoption of Statement No. 123 (R), will not have a negative impact on earnings for any option issued prior to December 31, 2005. Effective January 1, 2006, DNB does not anticipate recording expense significantly different than what is presented in Note 1 to the financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” - a replacement of APB Opinion No. 20 and FASB Statement No. 3 that requires retrospective application to prior periods financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions unless it is impracticable to do so. SFAS 154 becomes effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. For DNB, this will become effective on January 1, 2006.

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

DESCRIPTION OF DNB'S BUSINESS AND BUSINESS STRATEGY

DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association (the “Bank”) is a nationally chartered commercial bank with trust powers, and a member of the FDIC. DNB provides a broad range of banking services to individual and corporate customers through its nine full service community offices located throughout Chester County, Pennsylvania. During the second quarter in 2005, The Bank opened a new lending and wealth management center in Newtown Square, Pennsylvania, representing the Bank’s initial entry into Delaware County, Pennsylvania. The Bank also announced that it signed an agreement to lease an additional branch office in downtown West Chester, Pennsylvania, the county seat for Chester County, but does not expect to take occupancy or begin operations there until after September 1, 2005. DNB is a community banking organization that focuses its lending and other services on businesses and consumers in the local market area. DNB funds all these activities with retail and business deposits and borrowings. Through its DNB Advisors division, the Bank provides wealth management and trust services to individuals and businesses. The Bank and its subsidiary, DNB Financial Services, Inc. through the name “DNB Financial Services,” make available certain non-depository products and services, such as securities brokerage, mutual funds, life insurance and annuities.

DNB earns revenues and generates cash flows by lending funds to commercial and consumer customers in its marketplace. DNB generates its largest source of interest income through its lending function. Secondary sources of interest income are DNB’s investment portfolio, which provide liquidity and cash flows for future lending needs.

In addition to interest earned on loans and investments, DNB earns revenues from fees it charges customers for non-lending services. These services include wealth management and trust services; brokerage and investment services; cash management services; banking and ATM services; as well as safekeeping and other depository services.

DNB has embarked on a strategy called “Helping Our Customers Succeed”. The key goal of this strategy is to become the “Bank of Choice” in Chester County by delivering consistent, high quality customer service to businesses and individuals. We focus our efforts on assisting our customers in ways that will help them become successful. To that end, DNB continues to make appropriate investments in all areas of our business, including people, technology, facilities and marketing.

Previously, management announced that it had developed a comprehensive plan designed to reposition its balance sheet and improve core earnings. As part of the plan, management announced its intentions to substantially reduce the size of its investment portfolio and expand its loan portfolio through new originations, increased loan participations, as well as strategic loan and lease

10

receivable purchases. The plan also includes reducing the absolute level of borrowings with cash flows from existing loans and investments as well as from new core deposit growth.

For the six-month period ended June 30, 2005, DNB has grown its loan and lease portfolio by $28.7 million and reduced the overall investment securities portfolio by $8.3 million. The absolute level of borrowings increased by $10.0 million, however, this was mostly attributable to growth in lower cost customer repurchase agreements.

During the first quarter in 2005, DNB took advantage of the rate environment to restructure a significant portion of its investment securities portfolio. Management sold $73.3 million of structured securities, government agency stock, longer-term municipal securities, as well as corporate securities. DNB invested the majority of the proceeds into higher yielding agency mortgage-backed securities, agency bonds and municipal securities.

DNB's financial objectives are focused on growing earnings per share on a diluted basis and return on average equity. In order to achieve its financial objectives, DNB’s 5-Year Strategic Plan focuses on the following strategies:

• Grow loans and diversify the mix

• Reduce the size of the investment portfolio

• Reduce long-term borrowings

• Enhance the branch network and alternative delivery options

• Focus on profitable customer segments

• Grow and diversify non-interest income

Management’s strategies are designed to direct DNB’s tactical investment decisions and support financial objectives. DNB’s most significant revenue source continues to be net interest income, defined as total interest income less interest expense. To produce net interest income and consistent earnings growth over the long-term, DNB must generate loan and deposit growth at acceptable economic spreads within its market area. To generate and grow loans and deposits, DNB must focus on a number of areas including, but not limited to, the economy, branch expansion, sales practices, customer satisfaction and retention, competition, customer behavior, technology, product innovation and credit performance of its customers.

Management has made a concerted effort to improve the measurement and tracking of business lines and overall corporate performance levels. Improved information systems have increased DNB’s ability to track key indicators and enhance corporate performance levels. Better measurement against goals and objectives and increased accountability will be integral in attaining desired loan, deposit and fee income production.

RECENT DEVELOPMENTS

The most recent Federal Reserve Board’s report as of June 15, 2005 suggested that the nation’s economy continued to expand at a moderate pace since mid-April through May. Most Districts characterized the pace of expansion as moderate, solid, or well-sustained. However, Philadelphia noted that the pace of growth had eased in May while other regions observed some unevenness across sectors.

Reports on retail sales in April and May were mixed. Most Districts characterized retail sales as subdued or soft in those months due to various factors. Principally, the unseasonable weather and the high gasoline prices had a negative impact on retail sales.

Business conditions in the Third District (Philadelphia) expanded in May, but the pace of growth appeared to ease. Manufacturers reported increases in orders and shipments during the month, although the gains were not as widespread as in April. Retail sales of general merchandise edged down during the month, and auto sales fell. Banks reported that lending continued on an upward trend in May, although at a slower rate compared with April. Commercial real estate market conditions showed little change, although leasing activity has been on the rise. Sales of new and existing homes continued at a brisk pace.

Contacts in the Third District business community generally expect improvement in the region's economy in the months ahead, but not a strengthening in growth. Manufacturers expect increases in shipments and orders during the next six months. Retailers anticipate an improved rate of sales during the spring, with modest year-over-year gains. However, auto dealers expect slower sales for the rest of the year. Commercial real estate contacts forecast gradual tightening in office markets. Residential builders and real estate agents expect sales to continue at high rate, but some expect sales for the year as whole to be lower than last year.

The volume of loans outstanding at Third District banks rose in May compared with April, according to banks surveyed, although some noted slower growth during the month. Commercial and industrial loans have been increasing, and bankers reported the new

11

borrowing has been for capital expenditures by firms in a wide range of industries. Lending for residential mortgages, home equity loans, and home equity credit lines was also on the rise. Banks and other mortgage lenders reported strong demand for purchase mortgages, but they indicated that refinancing activity was slower than they had expected. Looking ahead, bankers in the District expect continued growth in the regional economy, and overall lending is expected to rise in step with the expansion in business.

Overall, both the national and regional economies continue to show signs of improvement despite the increase in prices of some goods and services. Reported economic data suggested that inflation, though elevated, have remained relatively well contained. Hence, the Federal Reserve raised Prime Interest Rate by a quarter-percent to 6.25 percent as of June 30, 2005. Outlook for future growth for the remainder of the year remains favorable, according to the Business Outlook Survey as of June 2005 by the Federal Reserve Bank of Philadelphia.

MATERIAL CHALLENGES, RISKS AND OPPORTUNITIES

The following is a summary of changes to material challenges, risks and opportunities DNB has faced during the first six months in 2005.

Interest Rate Risk Management. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. DNB considers interest rate risk a predominant risk in terms of its potential impact on earnings. Interest rate risk can occur for any one or more of the following reasons: (a) assets and liabilities may mature or re-price at different times; (b) short-term or long-term market rates may change by different amounts; or (c) the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change.

The principal objective of the Bank’s interest rate risk management is to evaluate the interest rate risk included in certain on and off balance sheet accounts, determine the level of risk appropriate given the Bank’s business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. Through such management, the Bank seeks to reduce the vulnerability of its operations to changes in interest rates. The Bank’s Asset Liability Committee (the “ALCO”) is responsible for reviewing the Bank’s asset/liability policies and interest rate risk position and making decisions involving asset liability considerations. The ALCO meets on a monthly basis and reports trends and the Bank’s interest rate risk position to the Board of Directors. The extent of the movement of interest rates is an uncertainty that could have a negative impact on the earnings of the Bank.

The largest component of DNB’s total income is net interest income, and the majority of DNB’s financial instruments are comprised of interest rate-sensitive assets and liabilities with various terms and maturities. The primary objective of management is to maximize net interest income while minimizing interest rate risk. Interest rate risk is derived from timing differences in the re-pricing of assets and liabilities, loan prepayments, deposit withdrawals, and differences in lending and funding rates. The Asset/Liability Committee (“ALCO”) actively seeks to monitor and control the mix of in-terest rate-sensitive assets and interest rate-sensitive -liabilities.

One measure of interest rate risk is net interest income simulation analysis. The ALCO utilizes simulation analysis, whereby the model estimates the variance in net interest income with a change in interest rates of plus or minus 300 basis points over a twelve-month period. Given today’s rising interest rate environment, our simulation model measures the effect that a 100 through 300 basis point increase in rates or the effect a 100 basis point decline would have on earnings. Recent simulations indicate that net interest income would be within policy guidelines regardless of the direction of market rates.

Liquidity and Market Risk Management. Liquidity is the ability to meet current and future financial obligations. The Bank further defines liquidity as the ability to respond to deposit outflows as well as maintain flexibility to take advantage of lending and investment opportunities. The Bank’s primary sources of funds are operating earnings, deposits, principal and interest payments on loans, proceeds from loan sales, sales and maturities of mortgage-backed and investment securities, and FHLB advances. The Bank uses the funds generated to support its lending and investment activities as well as any other demands for liquidity such as deposit outflows. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments, loan and security sales and the exercise of call features are greatly influenced by general interest rates, economic conditions and competition.

The objective of DNB’s asset/liability management function is to maintain consistent growth in net interest income within DNB’s policy limits. This objective is accomplished through the management of liquidity and interest rate risk, as well as customer offerings of various loan and deposit products. DNB maintains adequate liquidity to meet daily funding requirements, anticipated deposit withdrawals, or asset opportunities in a timely manner. Liquidity is also necessary to meet obligations during unusual, extraordinary or adverse operating circumstances, while avoiding a significant loss or cost. DNB’s foundation for liquidity is a stable deposit base as well as a marketable investment portfolio that provides cash flow through regular maturities or that can be used for collateral to secure funding in an emergency.

12

Credit Risk Management. DNB defines credit risk as the risk of default by a customer or counter-party. The objective of DNB’s credit risk management strategy is to quantify and manage credit risk on an aggregate portfolio basis as well as to limit the risk of loss resulting from an individual customer default. Credit risk is managed through a combination of underwriting, documentation and collection standards. DNB’s credit risk management strategy calls for regular credit examinations and quarterly management reviews of large credit exposures and credits experiencing credit quality deterioration. DNB’s loan review procedures provide objective assessments of the quality of underwriting, documentation, risk grading and charge-off procedures, as well as an assessment of the allowance for credit loss reserve analysis process.

Competition. In addition to the challenges related to the interest rate environment, community banks in Chester County have been experiencing increased competition from large regional and international banks entering DNB’s marketplace through mergers and acquisitions. Competition for loans and deposits has negatively affected DNB’s net interest margin. To compensate for the increased competition, DNB, along with other area community banks, has aggressively sought and marketed customers who have been disenfranchised by these mergers. To attract these customers, DNB has introduced new deposit products, such as the Partnership Banking Program, the Platinum Account, the Executive and Employee Package as well as the Business Package. In addition, DNB has introduced Market Managers and Personal Bankers to serve the special banking needs of its clients.

Material Trends and Uncertainties. The industry is experiencing an on-going and widespread trend of consolidation in response to shrinking margins, as well as competitive and economic challenges. In an effort to broaden market share by capitalizing on operational efficiencies, larger institutions have been acquiring smaller regional and community banks and thrifts. Chester County has witnessed many recent mergers due to attractive demographics, commercial expansion and other growth indicators. As a result of these factors, the operating environment is very competitive as Chester County hosts over 45 banks, thrifts and credit unions. In addition, brokerage firms, mutual fund companies and boutique investment firms are prevalent, given the county’s attractive demographics. This intense competition continually puts pressures on DNB’s margins and operating results as competitors offer a full range of loan, deposit and investment products and services. In addition, many of these competitors are much larger than DNB and consistently outspend the Bank in marketing to attract new customers and buy market share. DNB anticipates these pressures will continue to adversely affect operating results.

Other Material Challenges, Risks and Opportunities. As a financial institution, DNB's earnings are significantly affected by general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and local economics in which we operate. For example, an economic downturn, increase in unemployment, or other events that negatively impact household and/or corporate incomes could decrease the demand for DNB's loan and non-loan products and services and increase the number of customers who fail to pay interest or principal on their loans. Geopolitical conditions can also affect DNB's earnings. Acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and our military conflicts including the aftermath of the war with Iraq, could impact business conditions in the United States.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States of America. Generally accepted accounting principles are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. Actual results may differ from these estimates under different assumptions or conditions.

In management's opinion, the most critical accounting policies and estimates impacting DNB's consolidated financial statements are listed below. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. For a complete discussion of DNB's significant accounting policies, see the footnotes to DNB Consolidated Financial Statements for the fiscal year ended December 31, 2004, incorporated in DNB's 10-K for the year ended December 31, 2004.

1. Determination of the allowance for credit losses. Credit loss allowance policies involve significant judgments and assumptions by management which may have a material impact on the carrying value of net loans and, potentially, on the net income recognized by DNB from period to period. The allowance for credit losses is based on management’s ongoing evaluation of the loan and lease portfolio and reflects an amount considered by management to be its best estimate of the amount necessary to absorb known and inherent losses in the portfolio. Management considers a variety of factors when establishing the allowance, such as the impact of

13

current economic conditions, diversification of the portfolios, delinquency statistics, results of loan review and related classifications, and historic loss rates. In addition, certain individual loans which management has identified as problematic are specifically provided for, based upon an evaluation of the borrower’s perceived ability to pay, the estimated adequacy of the underlying collateral and other relevant factors. In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for credit losses. They may require additions to the allowance based upon their judgments about information available to them at the time of examination. Although provisions have been established and segmented by type of loan, based upon management’s assessment of their differing inherent loss characteristics, the entire allowance for credit losses is available to absorb further losses in any category.

Management uses significant estimates to determine the allowance for credit losses. Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond DNB’s control, management’s estimate of the amount necessary to absorb allowance for credit losses and actual credit losses could differ. DNB’s current judgment is that the valuation of the allowance for credit losses remains appropriate at June 30, 2005. For a description of DNB’s accounting policies in connection with its allowance for credit losses, see, “Allowance for Credit Losses”, in Management’s Discussion and Analysis.

2. Realization of deferred income tax items. Estimates of deferred tax assets and deferred tax liabilities make up the asset category titled “net deferred taxes”. These estimates involve significant judgments and assumptions by management, which may have a material impact on the carrying value of net deferred tax assets for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. For a more detailed description of these items, refer to Footnote 11 (Federal Income Taxes) to DNB’s audited consolidated financial statements for the fiscal year ended December 31, 2004.

3. Other-than temporary impairment of investment securities.FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities states, in part: for individual securities classified as either available-for-sale or held-to-maturity, an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary. For example, if it is probable that the investor will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the write-down shall be included in earnings (that is, accounted for as a realized loss). While FASB Statement No. 115 uses a debt security as an example, similar considerations exist for investments in marketable equity securities. Accordingly, judgment is required in determining whether factors exist that indicate that an impairment loss has been incurred at the end of the reporting period. These judgments are based on subjective as well as objective factors, including knowledge and experience about past and current events and assumptions about future events. The following are examples of such factors.

• Fair value is significantly below cost and the decline is attributable to adverse conditions specifically related to the security or to specific conditions in an industry or in a geographic area, the decline has existed for an extended period of time or Management does not possess both the intent and the ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

• The security has been downgraded by a rating agency.

• The financial condition of the issuer has deteriorated.

• Dividends have been reduced or eliminated, or scheduled interest payments have not been made.

• The entity recorded losses from the security subsequent to the end of the reporting period.

The Footnotes to DNB's most recent Consolidated Financial Statements as set forth in DNB's Annual Report 10-K identify other significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of DNB and its results of operations.

FINANCIAL CONDITION

DNB's total assets were $453.7 million at June 30, 2005 compared to $441.1 million at December 31, 2004. The growth in total assets was primarily attributable to strong loan growth offset by a decrease in investment securities as discussed below.

14

Investment Securities. Investment securities at June 30, 2005 were $161.4 million compared to $169.8 million at December 31, 2004. The decrease in investment securities was primarily due to $102.9 million in principal pay-downs, maturities and investment sales offset by the purchase of $94.9 million in investment securities as well as a $549,000 favorable mark to market adjustment relating to the AFS investment portfolio.

Gross Loans and Leases. Loans and leases were $261.3 million at June 30, 2005 compared to $232.6 million at December 31, 2004. DNB continued to grow its loan and lease portfolio, which increased by $28.7 million or 12.4%. Residential real estate loans, primarily variable rate, grew $10.0 million, while commercial loans and commercial leases grew $11.5 million and $5.0 million, respectively. In order to continue building its loan portfolio and diversify its credit risk, DNB opened a loan production office in Newtown Square, Delaware County, Pennsylvania during the second quarter of 2005.

Deposits. Deposits were $325.6 million at June 30, 2005 compared to $323.1 million at December 31, 2004. Deposits increased $2.5 million or .8%, despite an $11.1 million estate deposit that was withdrawn during the first quarter of 2005.

Borrowings. Borrowings were $100.7 million at June 30, 2005 compared to $90.6 million at December 31, 2004. The increase of $10.0 million, or 11.1% was primarily related to an increase of $7.4 million in repurchase agreements and $4.1 million in junior subordinated debentures, which was offset by a $1.5 million decrease in FHLB advances. The increase in repurchase agreements was the result of expanding DNB’s cash management services by focusing on commercial customers and providing them with the ability to sell excess funds to DNB through repurchase agreements. Repurchase agreements have helped to compliment DNB’s existing funding sources while providing low cost borrowings to DNB’s balance sheet. The increase in junior subordinated debentures was related to a private offering of $4.1 million Trust Preferred Securities, which was completed during the first quarter of 2005 and is discussed in more detail in Footnote 5 (“Junior Subordinated Debentures”).

Stockholder’s Equity. Stockholders' equity was $25.5 million at June 30, 2005 compared to $24.7 million at December 31, 2004. The increase in stockholder’s equity was primarily a result of year-to-date earnings, a decrease in accumulated other comprehensive loss, cash proceeds received on the issuance of common stock resulting from stock option exercises offset by cash dividends paid. The Corporation's common equity position at June 30, 2005 exceeds the regulatory required minimums as disclosed on page 21.

RESULTS OF OPERATIONS

SUMMARY

Diluted earnings per share were $.32 and net income of $637,000 for the three-month period ended June 30, 2005 compared to diluted earnings per share of $.35 and net income of $709,000 for the three-month period ended June 30, 2004. Diluted earnings per share for the six-month period ending June 30, 2005 was $.36 and net income of $716,000 compared to $.68 and net income of $1.4 million for the six-month period ended June 30, 2004. Earnings per share in 2004 have been restated to reflect the effect of the 5% stock dividend paid in December 2004. The decrease in 2005 earnings for the six-month period ended June 30, 2005 compared to the same period in 2004 was primarily due to investment portfolio restructuring costs totaling $660,000, which is discussed below.

Investment Portfolio Restructure

As part of its previously announced balance sheet repositioning, DNB took advantage of the rate environment to restructure a significant portion of its investment securities portfolio. In March 2005, DNB sold $73.3 million of structured securities, government agency preferred stock, longer-term municipal securities, as well as corporate securities, resulting in a net pre-tax loss of $699,000 . During the second quarter 2005, DNB sold $15.0 million of additional investment securities resulting in net pre-tax gains of $39,000. Of the $15.0 million sold in the second quarter, $6.3 million of agency preferred stock was sold, resulting in pre-tax gains of $212,000. An additional $8.7 million of debt securities were sold resulting in pre-tax losses of $232,000. In total, net pre-tax gains of $300,000 were recognized for the six-month period ended June 30, 2005, on the sale of preferred stock. As such, the gains recognized on the sale of the preferred stock (capital assets) resulted in a reversal of a portion of a previously recorded valuation allowance for deferred tax assets in the amounts of $73,000 and $102,000 for the three and six-month periods ended June 30, 2005. These amounts contributed to a reduction in income tax expense for the respective periods.

The majority of the proceeds received on the sale of these investments were re-invested into higher yielding agency mortgage-backed securities, agency bonds and municipal securities. Management believes that the restructured portfolio will result in more stable earnings and cash flow, as well as improved value metrics. The higher yielding investment securities that were purchased with the proceeds are projected, at their current rates of income, to add $415,000 of pre-tax income, which will help to offset some of the $660,000 in losses recognized so far during 2005.

15

NET INTEREST INCOME

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

Net interest income for the three and six-month periods ended June 30, 2005 was $3.4 million and $6.7 million compared to $3.3 million and $6.5 million for the same periods in 2004. The increase in net interest income was primarily attributable to an increase of interest on loans and leases, which was a result of strong growth in the loan and lease portfolio. The yield on interest-earning assets for the three-month period ended June 30, 2005 was 5.50%, compared to 4.97% for the same period in 2004. The increase in interest income outpaced an increase in interest expense, which was attributable to higher interest rates resulting from a 225 basis point increase in the federal funds rate from June 2004 through June 2005. The costs of deposits increased to 1.34% for the three-month period ended June 30, 2005 compared to .85% for the same period in 2004. The net interest margin for the three-month period ended June 30, 2005 was 3.38%, compared to 3.37% for the same period in 2004.

Interest on loans and leases was $4.0 million and $7.7 million for the three and six-month periods ended June 30, 2005, compared to $3.4 million and $6.7 million for the same periods in 2004. The average balance of loans and leases was $242.9 million with an average yield of 6.36% for the six-month period ended June 30, 2005 compared to an average balance of $209.9 million with an average yield of 6.41% for the same period in 2004. The increase in the average balance is the result of management’s increased origination efforts towards growing DNB’s loan and lease portfolio. DNB has added additional commercial loan officers and business bankers to aggressively originate loans. The decrease in yield is primarily the result of a low and declining interest rate environment relating to long-term rates in recent years as well as the impact of competition for loans in Chester County. Please refer to the discussion on “Competition” on page 14.

Interest and dividends on investment securities was $1.6 million and $3.1 million for the three and six-month periods ended June 30, 2005, compared to $1.5 million and $3.0 million for the same periods in 2004. The average balance of investment securities was $162.9 million with an average yield of 4.16% for the six-month period ended June 30, 2005 compared to $173.2 million with an average yield of 3.84% for the same period in 2004. The decrease in the average balance was part of DNB’s strategic plan to reduce the size of its investment portfolio. The increase in yield was primarily due to the investment portfolio restructuring, which occurred during the first quarter of 2005, and discussed above.

Interest on deposits was $1.1 million and $1.9 million for the three and six-month periods ended June 30, 2005, compared to $637,000 and $1.3 million for the same periods in 2004. The average balance of deposits was $311.5 million with an average rate of 1.22% for the six-month period ended June 30, 2005 compared to $293.4 million with an average rate of .86% for the same period in 2004. The increase in the average balance was primarily the result of increased deposit relationships through aggressive marketing efforts. The increase in rate was primarily attributable to higher interest rates resulting from a 225 basis point increase in the federal funds rate over the last year.

Interest on borrowings was $1.2 million and $2.3 million for the three and six-month periods ended June 30, 2005, compared to $982,000 and $2.0 million for the same periods in 2004. The average balance of borrowings was $97.9 million with an average rate of 4.65% for the six-month period ended June 30, 2005 compared to $91.4 million with an average rate of 4.52% for the same period in 2004. The increase in the average balance was attributable to growth in customer repurchase agreements and the funding of a junior subordinated debenture offset by the repayment of FHLB borrowings. The increase in rate was attributable to an increase in market rates.

ALLOWANCE FOR CREDIT LOSSES

To provide for known and inherent losses in the loan and lease portfolios, DNB maintains an allowance for credit losses. Provisions for credit losses are charged against income to increase the allowance when necessary. Loan and lease losses are charged directly against the allowance and recoveries on previously charged-off loans and leases are added to the allowance. In establishing its allowance for credit losses, management considers the size and risk exposure of each segment of the loan and lease portfolio, past loss experience, present indicators of risk such as delinquency rates, levels of non-accruals, the potential for losses in future periods, and other relevant factors. Management’s evaluation of the loan and lease portfolio generally includes reviews of problem borrowers of $100,000 or greater. Consideration is also given to examinations performed by regulatory agencies, primarily the Office of the Comptroller of the Currency (“OCC).

In establishing and reviewing the allowance for adequacy, Management establishes the allowance for credit losses in accordance with generally accepted accounting principles in the United States and the guidance provided in the Securities and Exchange

16

Commission’s Staff Accounting Bulletin 102 (SAB 102). Its methodology for assessing the appropriateness of the allowance consists of several key elements which include: specific allowances for identified problem loans; formula allowances for commercial and commercial real estate loans; and allowances for pooled homogenous loans as well as an allowance for un-funded commitments. As a result, management has taken into consideration factors and variables which may influence the risk of loss within the loan portfolio, including: (i) trends in delinquency and non-accrual loans; (ii) changes in the nature and volume of the loan portfolio; (iii) effects of any changes in lending policies; (iv) experience, ability, and depth of management; (v) quality of loan review; (vi) national and local economic trends and conditions; (vii) concentrations of credit; and (viii) effect of external factors on estimated credit losses. The unallocated portion of the allowance is intended to provide for probable likelihood that the bank would advance funds into a known troubled situation, and then sustain a loss on the newly advanced funds. The risk of loss factors are then applied against the percentage of unfunded commitments in each category of loans. In addition, DNB reviews historical loss experience for the commercial real estate, commercial, residential real estate, home equity and consumer installment loan pools to determine a historical loss factor. The historical loss factors are then applied to the current portfolio balances to determine the required reserve percentage for each loan pool based on risk rating.

DNB’s percentage of allowance for credit losses to total loans and leases was 1.72% at June 30, 2005 compared to 1.91% at December 31, 2004. The decrease in the percentage of allowance for credit losses to total loans and leases was attributable to the strong loan and lease growth DNB experienced during the period as the loan and lease portfolio grew $28.7 million or 12.4%. Management’s opinion is that the allowance for credit losses was adequate and provided for known and inherent credit losses.

The following table summarizes the changes in the allowance for credit losses for the periods indicated.

(Dollars in thousands)	Six Months  Ended June 30, 2005			Year Ended December 31, 2004			Six Months Ended June 30, 2004
Beginning balance	$	4,436		$	4,559		$	4,559
Provisions		45			—			—
Charged-off		(8	)		(188	)		(131	)
Recoveries		11			65			51
Ending balance	$	4,484		$	4,436		$	4,479

NON-INTEREST INCOME

Total non-interest income includes service charges on deposit products; fees received in connection with the sale of non-depository products and services, including fiduciary and investment advisory services offered through DNB Advisors; securities brokerage products and services and insurance brokerage products and services offered through DNB Financial Services; and other sources of income such as increases in the cash surrender value of bank owned life insurance ("BOLI"), net gains on sales of investment securities and other real estate owned ("OREO") properties. In addition, DNB receives fees for cash management, merchant services, debit cards, safe deposit box rentals, check cashing, lockbox services and similar activities.

Non-interest income for the three and six-month periods ended June 30, 2005 was $760,000 and $816,000, compared to $822,000 and $1.6 million for the same periods in 2004. The $62,000 decrease for the three-month period was primarily attributable to

-   a $259,000 gain recognized during 2004 on the sale of land adjacent to DNB’s Ludwig’s Corner Branch, offset by

-   an $86,000 loss recognized on the disposal of signs relating to the Bank’s name change from Downingtown National Bank to DNB First, and

-   gains of $39,000 on the sale of investment securities for the three-month period ended June 30, 2005 compared to $69,000 loss for the same period in 2004

All of the items mentioned above contributed to the decrease in non-interest income quarter over quarter.

The $793,000 decrease for the six-month period was primarily attributable to an increase of $637,000 of investment security losses for the six-month period ended June 30, 2005. Additionally, DNB recognized a net gain on the sale of fixed assets of $164,000 in 2004, which also contributed to the decrease in non-interest income in 2005.

17

NON-INTEREST EXPENSE

Non-interest expense includes salaries & employee benefits, furniture & equipment, occupancy, professional & consulting fees as well as printing & supplies, marketing and other less significant expense items. Non-interest expense was $3.5 million and $7.0 million for the three and six-month periods in 2005, compared to $3.2 million and $6.4 million for the same periods in 2004. The increases for both periods was related to:

-Increased salary expenses and related payroll taxes associated with key additions to the Bank’s staff. During the second quarter DNB continued to make significant progress by adding several seasoned individuals who will provide DNB additional leadership serving the Private Banking, Credit and Retail needs of our customers.

Ray M. Mincarelli, Senior Vice President/Commercial Real Estate and Linda D. Humphrey, Vice President Commercial Lending recently joined the organization and have been focusing their efforts on DNB’s new loan production office in Newtown Square, PA. Ray Mincarelli has over 33 years of real estate related experience, with Keystone Financial Bank, National Bank of the Main Line, First Fidelity Bank and Continental Bank while Linda Humphrey, a former Regional Sales Manager with Citizens Bank, brings over 24 years of commercial and retail banking experience to DNB First.

Richard Hartmann joined DNB as our Senior Vice President of Market Development. Richard Hartmann was recently at Susquehanna Bank where he was Executive Vice President/Retail Banking, responsible for 40 offices, 300 employees and $1 billion in deposits. He has over 28 years of retail banking experience including management positions at M & T Bank and PNC.

Glen Reyburn has joined the Bank as Senior Vice President to head up DNB Advisors and was most recently a Vice President for Millennium Wealth Management, serving the needs of high net worth individuals. Prior to Millennium, Glen served as a Vice President in the Private Banking and Wealth Management areas of Hudson United Bank, Wilmington Trust and PNC Bank.

-Increased professional & consulting fees. The reason for the increase in professional & consulting fees was due to the following. First, an outside party was hired to assist the company with several marketing initiatives which includes (a) Providing a comprehensive analysis of DNB's product and service offerings, competitive position and customer profiles, including interviews with selected samples of customers of DNB and other financial institutions; (b) Consulting with and assisting DNB's management in establishing strategies for branding based on the foregoing analysis and research; (c) Assisting DNB with marketing, public relations and customer relations strategies to implement the new branding strategies. Second, a third-party was hired to assist the Company in its efforts to comply with the provisions of the Sarbanes-Oxley Act. Third, fees associated with a third-party providing network support increased which was a result of the growth in the bank’s overall staff and other initiatives such as the opening of Loan Production Office as well as upgrading the Company’s network. Last, audit and legal expenses increased which was the result of several initiatives designed to increase inside ownership within the Company. These initiatives include the implementation of the Incentive Equity and Deferred Compensation Plan and incorporating the Company’s stock into the DNB First 401-K Retirement Plan

INCOME TAXES

Income tax expense (benefit) was $15,000 and ($139,000) for the three and six-month periods ended June 30, 2005 compared to $185,000 and $339,000 for the same periods in 2004. Income tax expense (benefit) for each period differs from the amount determined at the statutory rate of 34% due to tax-exempt income on loans and investment securities, DNB's ownership of BOLI policies, tax credits recognized on low-income housing limited partnership being greater than taxable income. In addition, DNB reversed of a portion of a previously recorded valuation allowance for deferred tax assets and recognized related income tax benefits in the amounts of $73,000 and $102,000 for the three and six-month periods ended June 30, 2005, respectively, in connection with the sale of agency preferred securities.

ASSET QUALITY

Non-performing assets are comprised of non-accrual loans and leases, loans and leases delinquent over ninety days and still accruing and Other Real Estate Owned ("OREO"). Non-accrual loans and leases are loans and leases for which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the policy of DNB to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more (unless the loan principal and interest are determined by management to be fully secured and in the process of collection), or earlier, if considered prudent. Interest received on such loans is applied to the principal balance, or may, in some instances, be recognized as income on a cash basis. A non-

18

accrual loan or lease may be restored to accrual status when management expects to collect all contractual principal and interest due and the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms. OREO consists of real estate acquired by foreclosure or deed in lieu of foreclosure. OREO is typically carried at the lower of cost or estimated fair value, less estimated disposition costs. Any significant change in the level of non-performing assets is dependent, to a large extent, on the economic climate within DNB's market area.

The following table sets forth those assets that are: (i) placed on non-accrual status, (ii) contractually delinquent by 90 days or more and still accruing, (iii) troubled debt restructurings other than those included in items (i) and (ii), and (iv) OREO as a result of foreclosure or voluntary transfer to DNB. DNB did not have any OREO at the end of all reported periods.

Non-Performing Assets
(Dollars in thousands)	June 30, 2005		December 31, 2004		June 30, 2004
Loans and leases:
Non-accrual	$	1,369	$	389	$	2,342
90 days past due and still accruing		5		36		44
Troubled debt restructurings		—		—		—
Total non-performing loans and leases		1,374		425		2,386
Other real estate owned		—		—		—
Total non-performing assets	$	1,374	$	425	$	2,386

The following table sets forth DNB's asset quality and allowance coverage ratios at the dates indicated:

	June 30, 2005			December 31, 2004			June 30, 2004
Asset quality ratios:
Non-performing loans to total loans		0.5	%		0.2	%		1.1	%
Non-performing assets to total assets		0.3			0.1			0.5
Allowance for credit losses to:
Total loans and leases		1.7			1.9			2.0
Non-performing loans and leases		326.3			1,043.8			187.7

If contractual interest income had been recorded on non-accrual loans, interest would have been increased as shown in the following table:

(Dollars in thousands)	June 30, 2005			December 31, 2004			June 30, 2004
Interest income which would have been
Recorded under original terms	$	58		$	31		$	90
Interest income recorded during the year		(10	)		(5	)		(11	)
Net impact on interest income	$	48		$	26		$	79

Information regarding impaired loans is as follows:

(Dollars in thousands)	June 30, 2005		December 31, 2004		June 30, 2004
Total recorded investment	$	1,159	$	216	$	1,956
Average recorded investment		1,223		1,083		2,057
Specific allowance allocation		458		—		—
Total cash collected		266		2,249		102
Interest income recorded		6		133		102

19

LIQUIDITY AND CAPITAL RESOURCES

For a financial institution, liquidity is a measure of the ability to fund customers' needs for loans and deposit withdrawals. Management regularly evaluates economic conditions in order to maintain a strong liquidity position. One of the most significant factors considered by management when evaluating liquidity requirements is the stability of DNB's core deposit base. In addition to cash, DNB maintains a portfolio of short-term investments to meet its liquidity requirements. DNB has historically relied on cash flow from operations and other financing activities. Liquidity is provided by investing activities, including the repayment and maturing of loans and investment securities.

At June 30, 2005, DNB had $50.6 million in un-funded commitments. The bank normally funds such commitments by means of normal cash flows. Certificates of deposit greater than $100,000 scheduled to mature in one year or less from June 30, 2005 totaled $12.2 million. Management believes that the majority of such deposits will be reinvested with DNB and that certificates that are not renewed will be funded by a reduction in Federal funds sold or by pay-downs and maturities of loans and investments.

At the end of March 2005, DNB completed a private offering of $4 million Trust Preferred Securities. DNB invested the majority of the proceeds into the Bank to increase the Bank’s capital levels and legal lending limit.

Effective April 11, 2005, the Federal Reserve Board adopted a final rule to allow the continued inclusion of outstanding and prospective issuances of trust preferred securities in the tier 1 capital of bank holding companies, subject to stricter quantitative limits and qualitative standards. The Board also limited the aggregate amount of cumulative perpetual preferred stock, trust preferred securities, and minority interests in the equity accounts of certain consolidated subsidiaries (collectively, “restricted core capital elements”) included in the tier 1 capital of bank holding companies to a percentage of the sum of core capital elements, net of goodwill less any associated deferred tax liability. The quantitative limits will become effective after a five-year transition period at the end of the first quarter of 2009. In addition, the Board proposed to revise the qualitative standards for capital instruments included in regulatory capital consistent with longstanding Board policies. These proposals were intended to address supervisory concerns, competitive equity considerations, and changes in generally accepted accounting principles. Management does not anticipate that the Federal Reserve Board's proposal will have a material adverse impact on DNB, the Bank or their regulatory capital ratio compliance.

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

	Actual					For Capital Adequacy Purposes					To Be Well  Capitalized Under  Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
DNB Financial Corporation
June 30, 2005:
Total risk-based capital	$	37,367		12.89	%	$	23,200		8.00	%	$	29,000		10.00	%
Tier 1 capital		33,315		11.49			11,600		4.00			17,400		6.00
Tier 1 (leverage) capital		33,315		7.54			17,683		4.00			22,104		5.00
December 31, 2004:
Total risk-based capital	$	32,778		11.96	%	$	21,917		8.00	%	$	27,396		10.00	%
Tier 1 capital		29,341		10.71			10,959		4.00			16,438		6.00
Tier 1 (leverage) capital		29,341		6.75			17,389		4.00			21,737		5.00
DNB First, N.A.
June 30, 2005:
Total risk-based capital	$	37,409		12.92	%	$	23,165		8.00	%	$	28,956		10.00	%
Tier 1 capital		33,777		11.66			11,582		4.00			17,374		6.00
Tier 1 (leverage) capital		33,777		7.65			17,666		4.00			22,083		5.00

20

December 31, 2004:
Total risk-based capital	$	32,750	11.97	%	$	21,894	8.00	%	$	27,368	10.00	%
Tier 1 capital		29,316	10.71			10,947	4.00			16,421	6.00
Tier 1 (leverage) capital		29,316	6.75			17,366	4.00			21,707	5.00

In addition, the Federal Reserve Bank (the "FRB") leverage ratio rules require bank holding companies to maintain a minimum level of "primary capital" to total assets of 5.5% and a minimum level of "total capital" to total assets of 6%. For this purpose, (i) "primary capital" includes, among other items, common stock, certain perpetual debt instruments such as eligible Trust preferred securities, contingency and other capital reserves, and the allowance for loan losses, (ii) "total capital" includes, among other things, certain subordinated debt, and "total assets" is increased by the allowance for loan losses. DNB's primary capital ratio and its total capital ratio are both well in excess of FRB requirements.

REGULATORY MATTERS

Dividends payable to the Corporation by the Bank are subject to certain regulatory limitations. Under normal circumstances, the payment of dividends in any year without regulatory permission is limited to the net profits (as defined for regulatory purposes) for that year, plus the retained net profits for the preceding two calendar years.

FORWARD-LOOKING STATEMENTS

This report may contain statements that are not of historical facts and may pertain to future operating results or events or management's expectations regarding those results or events. These are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. When used in this report, the words "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", or words of similar meaning, or future or conditional verbs, such as "will", "would", "should", "could", or "may" are generally intended to identify forward-looking statements. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those contemplated by such statements. For example, actual results may be adversely affected by the following possibilities: (1) competitive pressures among financial institutions may increase; (2) changes in interest rates may reduce banking interest margins; (3) general economic conditions and real estate values may be less favorable than contemplated; (4) adverse legislation or regulatory requirements may be adopted; (5) other unexpected contingencies may arise; (6) DNB may change one or more strategies described in this document; or (7) management's evaluation of certain facts, circumstances or trends and the appropriate responses to them may change. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are either beyond our control or not reasonably capable of predicting at this time. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the results discussed in these forward-looking statements. Readers of this report are accordingly cautioned not to place undue reliance on forward-looking statements. DNB disclaims any intent or obligation to update publicly any of the forward-looking statements herein, whether in response to new information, future events or otherwise.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To measure the impacts of longer-term asset and liability mismatches beyond two years, DNB utilizes Modified Duration of Equity and Economic Value of Equity ("EVE") models. The modified duration of equity measures the potential price risk of equity to changes in interest rates. A longer modified duration of equity indicates a greater degree of risk to rising interest rates. Because of balance sheet optionality, an EVE analysis is also used to dynamically model the present value of asset and liability cash flows, with rates ranging up or down 200 basis points. The economic value of equity is likely to be different if rates change. Results falling outside prescribed ranges require action by management. At June 30, 2005 and December 31, 2004, DNB's variance in the economic value of equity as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points was within its negative 3% guideline, as shown in the table below. The change as a percentage of the present value of equity with a 200 basis point increase or decrease at June 30, 2005 and December 31, 2004, was within DNB's negative 25% guideline.

	June 30, 2005								December 31, 2004
Change in rates	Flat		-200bp			+200bp			Flat		-200bp			+200bp
EVE	$	50,150	$	43,787		$	46,096		$	40,712	$	33,327		$	36,297
Change				(6,363	)		(4,054	)				(7,385	)		(4,415	)
Change as a % of assets				(1.4	%)		(0.9	%)				(1.7	%)		(1.0	%)
Change as a % of PV equity				(12.7	%)		(8.1	%)				(18.1	%)		(10.9	%)

21

ITEM 4 - CONTROLS AND PROCEDURES

DNB’s Chief Executive Officer, President and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2005, the end of the period covered by this report, in accordance with the requirements of Exchange Act Rule 240.13a-15(b). Based on that evaluation, the Chief Executive Officer, President and the Chief Financial Officer have concluded that DNB’s current disclosure controls and procedures are effective and timely, providing them with material information relating to DNB and its subsidiaries required to be disclosed in the report DNB files under the Exchange Act.

Management of DNB is responsible for establishing and maintaining adequate internal control over financial reporting for DNB, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

There was no change in the DNB’s “internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, DNB’s internal control over financial reporting.

22

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable

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

The following table provides information on repurchases by DNB of its common stock in each month of the quarter ended June 30, 2005:

Period	Total Number Of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (a)
April 1 , 2005 - April 30, 2005	—	$	—	—	138,398
May 1, 2005 - May 31, 2005	—		—	—	138,398
June 1, 2005 - June 30, 2005	—		—	—	138,398
Total	—	$	—	—	138,398

(a) On July 25, 2001, DNB authorized the buyback of up to 175,000 shares of its common stock over an indefinite period. On August 27, 2004, DNB increased the buyback from 175,000 to 341,250 shares of its common stock over an indefinite period. This number has been adjusted to reflect the 5% stock dividend issued in December 2004.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Corporation's Annual Meeting held April 18, 2005, the stockholders voted as follows:

A.   Election of Class "A" Directors:

	For	Withheld
James H. Thornton	1,513,044	47,661
William J. Hieb	1,519,243	41,462

B. The motion to ratify the appointment of KPMG LLP as the independent auditors for the fiscal year ending December 31, 2005:

For	Against	Abstain
1,532,628	26,767	1,310

ITEM 5. OTHER INFORMATION

Not Applicable

23

ITEM 6. EXHIBITS

Exhibits required by Item 601 of Regulation S-K.

3	(i)	Amended and Restated Articles of Incorporation, as amended effective June 15, 2001, filed on August 14, 2001, as Item 6(a) to Form 10Q (No. 0-16667) and incorporated herein by reference.
	(ii)	By-laws of the Registrant as amended December 19, 2001, filed on March 24, 2002 at Item 3b to Form 10-K for the fiscal year ended December 31, 2001 (No. 0-16667) and incorporated herein by reference.
4		Registrant has certain debt obligations outstanding, for none of which do the instruments defining holders rights authorize an amount of securities in excess of 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish copies of such agreements to the Commission on request.
10	(a)*	Employment Agreement between DNB First, N.A. and Henry F. Thorne dated December 31, 1996 filed on March 26, 1999 at Item 10.1 to Form 10-K for the fiscal year ended December 31, 1998 (No. 0-16667) and incorporated herein by reference.
	(b)*	Change of Control Agreements between DNB Financial Corporation and DNB First, N.A. and the following executive officers each in the form filed on March 26, 1999 at Item 10.2 to Form 10-K for the fiscal year ended December 31, 1998 (No. 0-16667), and incorporated herein by reference: (i) dated May 5, 1998 with Ronald K. Dankanich; Eileen M. Knott and Bruce B. Moroney, (ii) dated July 18, 2000, April 28, 2003 and September 22, 2003 with William J. Hieb and Richard M. Wright, respectively, and (iii) dated December 3, 2004 with Thomas M. Miller.
	(c)**	1995 Stock Option Plan of DNB Financial Corporation (as amended and restated, effective as of April 27, 2004), filed on March 29, 2004 as Appendix A to Registrant’s Proxy Statement for its Annual Meeting of Stockholders held April 27, 2004, and incorporated herein by reference.
	(d)*	Death Benefit Agreement between DNB First, N.A. and Henry F. Thorne dated November 24, 1999, filed March 20, 2002 as Item 10(d) to Form 10-K for the fiscal year ended December 31, 2001 (No. 0-16667) and incorporated herein by reference.
	(e)*	Form of Change of Control Agreements, as amended November 10, 2003, filed on November 14, 2003 as Item 10(e) to Form 8-K (No. 0-16667) and incorporated herein by reference between DNB Financial Corporation and DNB First, N.A. and each of the following Directors: (i) dated November 10, 2005 with James H. Thornton, James J. Koegel and Eli Silberman, and (ii) dated February 23, 2005 with Mildred C. Joyner.
	(f)*	Retirement and Change of Control Agreement dated as of February 27, 2002, between DNB Financial Corporation and DNB First, N.A. and Thomas R. Greenleaf, a Director, filed on November 14, 2003 as item 10(f) to Form 8-K (No. 0-16667) and incorporated herein by reference.
	(g)*	First Amendment to Employment Agreement of Henry F. Thorne dated December 23, 2003 filed March 29, 2004 as Item 10(g) to Form 10-K for the fiscal year ended December 31, 2003 (No. 0-16667) and incorporated herein by reference.
	(h)*	Retirement and Death Benefit Agreement between DNB First, N.A. and Henry F. Thorne dated December 23, 2003 filed March 29, 2004 as Item 10(h) to Form 10-K for the fiscal year ended December 31, 2003 (No. 0-16667) and incorporated herein by reference.
	(i)***	DNB Financial Corp. Incentive Equity and Deferred Compensation Plan, filed March 10, 2005 as item 10(i) to Form 10-K for the fiscal year-ended December 31, 2004 (No. 0-16667) and incorporated herein by reference.

24

	(j)*	Retirement Agreement among DNB Financial Corporation, DNB First, N.A. and Henry F. Thorne, dated December 17, 2004, filed March 10, 2005 as Item 10(i) to Form 10-K for the fiscal year ended December 31, 2004 (No. 0-16667) and incorporated herein by reference.
	(k)*	Change of Control Agreement among DNB Financial Corporation, DNB First, N.A. and William S. Latoff, dated December 17, 2004, filed March 10, 2005 as Item 10(i) to Form 10-K for the fiscal year ended December 31, 2004 (No. 0-16667) and incorporated herein by reference.
	(l)	Agreement of Lease dated February 10, 2005 between Headwaters Associates, a Pennsylvania general partnership, as Lessor, and DNB First, National Association as Lessee for a portion of premises at 2 North Church Street, West Chester, Pennsylvania, filed March 10, 2005 as Item 10(i) to Form 10-K for the fiscal year ended December 31, 2004 (No. 0-16667) and incorporated herein by reference.
	(m)	Marketing Services Agreement between TSG, INC., a Pennsylvania business corporation (the "Service Provider") for which Eli Silberman, a Director of Registrant, is the Presidentand owner dated April 11, 2005, filed herewith.
	(n)**	Form of Stock Option Agreement for grants prior to 2005 under the Registrant’s Stock Option Plan, filed herewith.
	(o)**	Form of Nonqualified Stock Option Agreement for April 18, 2005 and subsequent grants under the Stock Option Plan, filed herewith.
	(p)	Agreement of Sale dated June 1, 2005 between DNB First, National Association (the “Bank”), as seller, and Papermill Brandywine Company, LLC, a Pennsylvania limited liability company, as buyer (“Buyer”) with respect to the sale of the Bank’s operations center and an adjunct administrative office (the “Property”) and accompanying (i) Agreement of Lease between the Buyer as landlord and the Bank as tenant, pursuant to which the Property will be leased back to the Bank, and (ii) Parking Easement Agreement to provide cross easements with respect to the Property, the Buyer’s other adjoining property and the Bank’s other adjoining property, filed herewith.
11		Registrant’s Statement of Computation of Earnings Per Share. The information for this Exhibit is incorporated by reference to page 8 of this Form 10-Q.
14		Code of Ethics as amended and restated effective February 23, 2005, filed on May 11, 2005 as Exhibit 14 to Form 10-Q for the quarter ended March 31, 2005 (No. 0-16667) and incorporated herein by reference.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer, and incorporated herein by reference.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Financial Officer, and incorporated herein by reference.
32.1		Certification of Chief Executive Officer pursuant to Section 906, and incorporated herein by reference.
32.2		Certification of Chief Financial Officer pursuant to Section 906, and incorporated herein by reference.
	*	Management contract or compensatory plan arrangement.
	**	Shareholder approved compensatory plan pursuant to which the Registrant’s Common Stock may be issued to employees of the Corporation.

25

*** Non-shareholder approved compensatory plan pursuant to which the Registrant’s Common Stock may be issued to employees of the Corporation.

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

		DNB FINANCIAL CORPORATION
August 15, 2005	BY:	/s/ William S. Latoff
		William S. Latoff, Chairman of the Board and Chief Executive Officer
August 15, 2005	BY:	/s/ Bruce E. Moroney
		Bruce E. Moroney, Chief Financial  Officer and Executive Vice President

26