NOTE 2: INVESTMENT SECURITIES

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



		June 30, 2016
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,098	$	521	$	-	$	8,619
Government Sponsored Entities (GSE) mortgage-backed securities		2,459		108		-		2,567
Corporate bonds		12,887		398		(7)		13,278
Collateralized mortgage obligations GSE		2,300		43		-		2,343
State and municipal taxable		1,009		41		-		1,050
State and municipal tax-exempt		48,082		464		-		48,546
Total	$	74,835	$	1,575	$	(7)	$	76,403

Available For Sale
US Government agency obligations	$	54,442	$	223	$	-	$	54,665
GSE mortgage-backed securities		48,290		425		(1)		48,714
Collateralized mortgage obligations GSE		14,706		56		(64)		14,698
Corporate bonds		17,877		90		(90)		17,877
State and municipal tax-exempt		12,330		24		(3)		12,351
Total	$	147,645	$	818	$	(158)	$	148,305



		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 June 30, 2016 and December 31, 2015.



		June 30, 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	$	1,987	$	(7)	$	1,987	$	(7)	$	-	$	-
State and municipal tax-exempt		558		-		558		-		-		-
Total	$	2,545	$	(7)	$	2,545	$	(7)	$	-	$	-
Available For Sale
GSE mortgage-backed securities	$	2,598	$	(1)	$	2,598	$	(1)	$	-	$	-
Collateralized mortgage obligations GSE		8,610		(64)		703		(7)		7,907		(57)
Corporate bonds		5,432		(90)		996		(26)		4,436		(64)
State and municipal tax-exempt		7,735		(3)		7,735		(3)		-		-
Total	$	24,375	$	(158)	$	12,032	$	(37)	$	12,343	$	(121)



		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 June 30, 2016, there were nine collateralized mortgage obligations GSE, one GSE mortgage-backed security, seven tax-exempt municipalities, and four corporate bonds 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, 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 June 30, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE There are nine impaired securities classified as collateralized mortgage obligations, eight of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.46% 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, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2016.

GSE mortgage-backed securities There is one impaired security classified as a GSE mortgage-backed security, which has been impaired for less than 12 months and is currently at 0.04% of its book value. This security was issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on this security on a timely basis and it has never defaulted on mortgage-backed principal or interest. DNB anticipates a recovery in the market value as the security approaches its maturity date or if interest rates decline from June 30, 2016 levels. Management concluded that this security was not other-than-temporarily impaired at June 30, 2016.

State and municipal tax-exempt There are seven impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for less than 12 months. The largest unrealized loss of a security in this group is 0.07% 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 seven municipal securities, there are two 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, 2016.

Corporate bonds There are four impaired bonds classified as corporate bonds, two of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.61% 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 June 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2016.

The amortized cost and fair value of investment securities as of June 30, 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	$	-	$	-	$	16,704	$	16,684
Due after one year through five years		20,077		20,947		61,561		61,787
Due after five years through ten years		30,280		30,749		24,278		24,567
Due after ten years		24,478		24,707		45,102		45,267
Total investment securities	$	74,835	$	76,403	$	147,645	$	148,305

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)		2016		2015		2016		2015
Gross realized gains-AFS	$	203	$	11	$	264	$	64
Gross realized losses-AFS		-		-		(30)		-
Net realized gain	$	203	$	11	$	234	$	64

At June 30, 2016 and December 31, 2015, investment securities with a carrying value of approximately $133.9 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.