NOTE 2: INVESTMENT SECURITIES

The amortized cost and fair values of investment securities, as of the dates indicated, are summarized as follows:



		June 30, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,851	$	347	$	-	$	8,198
Government Sponsored Entities (GSE) mortgage-backed securities		3,142		115		-		3,257
Corporate bonds		10,587		320		(15)		10,892
Collateralized mortgage obligations GSE		3,070		18		(12)		3,076
State and municipal tax-exempt		40,577		314		(940)		39,951
Total	$	65,227	$	1,114	$	(967)	$	65,374

Available For Sale
US Government agency obligations	$	60,891	$	95	$	(48)	$	60,938
GSE mortgage-backed securities		54,249		77		(185)		54,141
Collateralized mortgage obligations GSE		18,162		18		(421)		17,759
Corporate bonds		20,426		9		(213)		20,222
State and municipal tax-exempt		13,512		-		(105)		13,407
Equity securities		27		2		(11)		18
Total	$	167,267	$	201	$	(983)	$	166,485



		December 31, 2014
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,730	$	343	$	-	$	8,073
Government Sponsored Entities (GSE) mortgage-backed securities		3,579		133		-		3,712
Corporate bonds		3,951		324		-		4,275
Collateralized mortgage obligations GSE		3,605		3		(29)		3,579
State and municipal tax-exempt		40,589		418		(547)		40,460
Total	$	59,454	$	1,221	$	(576)	$	60,099

Available For Sale
US Government agency obligations	$	61,547	$	4	$	(197)	$	61,354
GSE mortgage-backed securities		66,669		189		(135)		66,723
Collateralized mortgage obligations GSE		20,499		8		(496)		20,011
Corporate bonds		13,208		-		(106)		13,102
State and municipal tax-exempt		10,917		87		(10)		10,994
Equity securities		27		2		(11)		18
Total	$	172,867	$	290	$	(955)	$	172,202

Included in unrealized losses are market losses on securities that have been in a continuous unrealized loss position for twelve months or more and those securities that have been in a continuous unrealized loss position for less than twelve months. The following table details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2015 and December 31, 2014.



		June 30, 2015
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Corporate bonds	$	4,191	$	(15)	$	4,191	$	(15)	$	-	$	-
Collateralized mortgage obligations GSE		1,752		(12)		464		(1)		1,288		(11)
State and Municipal tax-exempt		20,804		(940)		10,899		(254)		9,905		(686)
Total	$	26,747	$	(967)	$	15,554	$	(270)	$	11,193	$	(697)
Available For Sale
US Government agency obligations	$	9,361	$	(48)	$	9,361	$	(48)	$	-	$	-
GSE mortgage-backed securities		42,382		(185)		37,721		(104)		4,661		(81)
Collateralized mortgage obligations GSE		13,979		(421)		1,766		(18)		12,213		(403)
Corporate bonds		16,191		(213)		10,264		(141)		5,927		(72)
State and Municipal tax-exempt		13,407		(105)		13,407		(105)		-		-
Equity securities		12		(11)		-		-		12		(11)
Total	$	95,332	$	(983)	$	72,519	$	(416)	$	22,813	$	(567)



		December 31, 2014
						Fair Value		Unrealized		Fair Value		Unrealized
				Total		Impaired		Loss		Impaired		Loss
		Total		Unrealized		Less Than		Less Than		More Than		More Than
(Dollars in thousands)		Fair Value		Loss		12 Months		12 Months		12 Months		12 Months
Held To Maturity
Collateralized mortgage obligations GSE	$	3,043	$	(29)	$	3,043	$	(29)	$	-	$	-
State and municipal tax-exempt		19,054		(547)		2,138		(7)		16,916		(540)
Total	$	22,097	$	(576)	$	5,181	$	(36)	$	16,916	$	(540)
Available For Sale
US Government agency obligations	$	56,342	$	(197)	$	49,222	$	(97)	$	7,120	$	(100)
GSE mortgage-backed securities		22,157		(135)		14,996		(38)		7,161		(97)
Collateralized mortgage obligations GSE		18,133		(496)		3,669		(5)		14,464		(491)
Corporate bonds		13,102		(106)		9,531		(31)		3,571		(75)
State and municipal tax-exempt		2,967		(10)		2,360		(9)		607		(1)
Equity securities		12		(11)		-		-		12		(11)
Total	$	112,713	$	(955)	$	79,778	$	(180)	$	32,935	$	(775)

As of June 30, 2015, there were nineteen mortgage-backed securities, twelve corporate bonds, four U.S. agency obligations, sixteen collateralized mortgage obligations, fourty-two tax-exempt municipalities, and five equity securities which were in an unrealized loss position. DNB does not intend to sell these securities and management of DNB does not expect to be required to sell any of these securities prior to a recovery of its cost basis. Management has reviewed all of these securities and believes that DNB will collect all principal and interest that is due on debt securities on a timely basis. Management does not believe any individual unrealized loss as of June 30, 2015 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis judging each investment for OTTI. The OTTI analysis focuses on condition of the issuers as well as duration and severity of impairment in determining OTTI. As of June 30, 2015, the following securities were reviewed:

Collateralized mortgage obligations GSE There are sixteen impaired securities classified as collateralized mortgage obligations, fourteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 5.16% of its book value. All of these securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2015.

State and municipal tax-exempt There are fourty-two impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, fourteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 9.55% of its book value. All of the issues carry an “A+” or better underlying credit rating and/or have strong underlying fundamentals; included but not limited to annual financial reports, geographic location, population and debt ratios. In certain cases, options for calls reduce the effective duration and in turn, future market value fluctuations. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. There have not been disruptions of any payments, associated with any of these municipal securities. These bonds are investment grade and the value decline is related to the changes in interest rates. Of the fourty-two municipal securities, there are twenty-four insured school districts, thirteen uninsured school districts, two insured townships and three uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2015.

US Government agency obligations There are four impaired securities classified as agencies, none of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 0.74% of its book value. All of these securities were issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on all of these securities and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the securities approach their maturity dates. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2015.

GSE mortgage-backed securities There are nineteen impaired bonds classified as GSE mortgage-backed securities, three of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.84% of its book value. All of these securities were issued and insured by FNMA, FHLMC, or GNMA. DNB receives monthly principal and interest payments on all of these securities on a timely basis and none of these agencies has ever defaulted on principal or interest. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2015 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2015.

Corporate Securities There were twelve impaired bonds classified as corporate bonds, three of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.24% of its book value. The bonds are investment grade and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry an "BBB" or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, rating agency reports, capital strength and debt ratios. DNB anticipates a recovery in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2105 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2015.

Equity securities. DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 79.96%. The severity and duration of the impairment are driven by higher collateral losses, wider credit spreads, and changes in interest rates within the financial services sector. DNB evaluated the prospects of all issuers in relation to the severity and duration of the impairment. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated each of the underlying banks for credit impairment based on its financial condition and performance. Based on our evaluation and expectation that these investments will recover within a reasonable period of time, management does not consider these investments to be other-than-temporarily impaired at June 30, 2015.

The amortized cost and fair value of investment securities as of June 30, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid without penalties.



		Held to Maturity				Available for Sale
		Amortized				Amortized
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	4,102	$	4,102
Due after one year through five years		13,482		13,830		77,725		77,608
Due after five years through ten years		29,327		29,432		51,307		51,241
Due after ten years		22,418		22,112		34,106		33,516
No stated maturity		-		-		27		18
Total investment securities	$	65,227	$	65,374	$	167,267	$	166,485

The gross principal value of investments securites sold as of the dates indicated are shown below. The HTM securities that were sold during the six months ended June 30, 2014 were permissible because DNB collected greater than 85% of the original recorded investment on the HTM securities prior to the sale.



		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2015		2014		2015		2014
Available for sale securities sold	$	5,805	$	11,653	$	9,731	$	26,884
Held to maturity securities sold		-		-		-		1,228
Total sold securities	$	5,805	$	11,653	$	9,731	$	28,112

Gains and losses resulting from investment sales, redemptions or calls were as follows:



		Three Months Ended				Six Months Ended
		June 30,				June 30,
(Dollars in thousands)		2015		2014		2015		2014
Gross realized gains-AFS	$	11	$	102	$	64	$	294
Gross realized gains-HTM		-		-		-		68
Gross realized losses-AFS		-		-		-		(25)
Net realized gain	$	11	$	102	$	64	$	337

At June 30, 2015 and December 31, 2014, investment securities with a carrying value of approximately $169.6 million and $174.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.