NOTE 2: INVESTMENT SECURITIES

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



		March 31, 2016
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,035	$	482	$	-	$	8,517
Government Sponsored Entities (GSE) mortgage-backed securities		2,615		105		-		2,720
Corporate bonds		11,420		304		(70)		11,654
Collateralized mortgage obligations GSE		2,455		25		(2)		2,478
State and municipal tax-exempt		41,125		376		(73)		41,428
Total	$	65,650	$	1,292	$	(145)	$	66,797

Available For Sale
US Government agency obligations	$	58,950	$	169	$	(3)	$	59,116
GSE mortgage-backed securities		34,055		173		-		34,228
Collateralized mortgage obligations GSE		15,518		28		(157)		15,389
Corporate bonds		19,951		69		(148)		19,872
State and municipal tax-exempt		12,641		136		(9)		12,768
Total	$	141,115	$	575	$	(317)	$	141,373



		December 31, 2015
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,973	$	320	$	-	$	8,293
Government Sponsored Entities (GSE) mortgage-backed securities		2,759		83		-		2,842
Corporate bonds		11,518		234		(42)		11,710
Collateralized mortgage obligations GSE		2,623		9		(26)		2,606
State and municipal tax-exempt		42,956		300		(276)		42,980
Total	$	67,829	$	946	$	(344)	$	68,431

Available For Sale
US Government agency obligations	$	58,460	$	-	$	(252)	$	58,208
GSE mortgage-backed securities		40,663		13		(325)		40,351
Collateralized mortgage obligations GSE		16,241		3		(438)		15,806
Corporate bonds		20,921		-		(350)		20,571
State and municipal tax-exempt		17,274		180		(11)		17,443
Total	$	153,559	$	196	$	(1,376)	$	152,379

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 March 31, 2016 and December 31, 2015.



		March 31, 2016
						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	$	3,423	$	(70)	$	3,423	$	(70)	$	-	$	-
Collateralized mortgage obligations GSE		368		(2)		368		(2)		-		-
State and municipal tax-exempt		4,144		(73)		563		(7)		3,581		(66)
Total	$	7,935	$	(145)	$	4,354	$	(79)	$	3,581	$	(66)
Available For Sale
US Government agency obligations	$	9,997	$	(3)	$	9,997	$	(3)	$	-	$	-
Collateralized mortgage obligations GSE		12,321		(157)		1,507		(15)		10,814		(142)
Corporate bonds		10,975		(148)		4,487		(53)		6,488		(95)
State and municipal tax-exempt		6,644		(9)		6,644		(9)		-		-
Total	$	39,937	$	(317)	$	22,635	$	(80)	$	17,302	$	(237)



		December 31, 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	$	7,597	$	(42)	$	7,597	$	(42)	$	-	$	-
Collateralized mortgage obligations GSE		1,482		(26)		388		(10)		1,094		(16)
State and municipal tax-exempt		13,161		(276)		4,380		(34)		8,781		(242)
Total	$	22,240	$	(344)	$	12,365	$	(86)	$	9,875	$	(258)
Available For Sale
US Government agency obligations	$	58,208	$	(252)	$	58,208	$	(252)	$	-	$	-
GSE mortgage-backed securities		38,307		(325)		33,984		(238)		4,323		(87)
Collateralized mortgage obligations GSE		15,231		(438)		4,187		(41)		11,044		(397)
Corporate bonds		20,571		(350)		16,157		(264)		4,414		(86)
State and municipal tax-exempt		6,660		(11)		6,660		(11)		-		-
Total	$	138,977	$	(1,376)	$	119,196	$	(806)	$	19,781	$	(570)

As of March 31, 2016, there were no GSE mortgage-backed securities, eight corporate bonds, one U.S. agency obligation, fourteen collateralized mortgage obligations GSE, and nine tax-exempt municipalities 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 March 31, 2016 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 March 31, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE There are fourteen impaired securities classified as collateralized mortgage obligations, eleven of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.37% 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 March 31, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

State and municipal tax-exempt There are nine impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.26% 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 nine municipal securities, there is one insured school district, three uninsured school districts, and five uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

US Government agency obligations There is one impaired security classified as an agency, which has been impaired for less than 12 monthsat 0.03% of its book value. This security was issued and insured by FHLB, FNMA, or FHLMC. DNB has received timely interest payments on this security and none of these agencies has ever defaulted on their bonds. DNB anticipates a recovery in the market value as the security approaches its maturity date. Management concluded that this security was not other-than-temporarily impaired at March 31, 2016.

Corporate bonds There are eight 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 3.06% 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 a "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 March 31, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016.

The amortized cost and fair value of investment securities as of March 31, 2016, by final 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	$	-	$	-	$	18,669	$	18,657
Due after one year through five years		20,021		20,802		62,804		62,906
Due after five years through ten years		27,530		27,778		34,738		34,935
Due after ten years		18,099		18,217		24,904		24,875
Total investment securities	$	65,650	$	66,797	$	141,115	$	141,373

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



		Three Months Ended
		March 31,
(Dollars in thousands)		2016		2015
Gross realized gains-AFS	$	61	$	53
Gross realized losses-AFS		(30)		-
Net realized gain	$	31	$	53

At March 31, 2016 and December 31, 2015, investment securities with a carrying value of approximately $146.2 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.