NOTE 2: INVESTMENT SECURITIES

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



			September 30, 2016
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,161		$	480	$	-	$	8,641
Government Sponsored Entities (GSE) mortgage-backed securities		1,545			65		-		1,610
Corporate bonds		12,854			414		(6)		13,262
Collateralized mortgage obligations GSE		2,148			30		-		2,178
State and municipal taxable		1,009			40		-		1,049
State and municipal tax-exempt		48,072			313		(14)		48,371
Total	$	73,789		$	1,342	$	(20)	$	75,111

Available For Sale
US Government agency obligations	$	52,436		$	121	$	(15)	$	52,542
GSE mortgage-backed securities		32,605			236		-		32,841
Collateralized mortgage obligations GSE		13,834			28		(107)		13,755
Corporate bonds		17,522			69		(140)		17,451
State and municipal tax-exempt		5,095			8		(4)		5,099
Total	$	121,492		$	462	$	(266)	$	121,688



			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 September 30, 2016 and December 31, 2015.



		September 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	$	1,988	$	(6)	$	-	$	-	$	1,988	$	(6)
Collateralized mortgage obligations GSE		325		-		325		-		-		-
State and municipal tax-exempt		6,202		(14)		6,202		(14)		-		-
Total	$	8,515	$	(20)	$	6,527	$	(14)	$	1,988	$	(6)
Available For Sale
US Government agency obligations	$	20,185	$	(15)	$	20,185	$	(15)	$	-	$	-
Collateralized mortgage obligations GSE		9,078		(107)		1,734		(14)		7,344		(93)
Corporate bonds		10,752		(140)		5,315		(56)		5,437		(84)
State and municipal tax-exempt		3,087		(4)		3,087		(4)		-		-
Total	$	43,102	$	(266)	$	30,321	$	(89)	$	12,781	$	(177)



		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 September 30, 2016, there were twelve collateralized mortgage obligations GSE, two U.S. agency obligations, seven tax-exempt municipalities, and seven 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 September 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 September 30, 2016, the following securities were reviewed:

Collateralized mortgage obligations GSE There are twelve 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 1.84% 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 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

US Government agency obligations There are two 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 0.11% 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 have 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 September 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 0.47% 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 three uninsured school districts, two insured townships, and two uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

Corporate bonds There are seven impaired bonds classified as corporate bonds, four of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.98% 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 September 30, 2016 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.

The amortized cost and fair value of investment securities as of September 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	$	-	$	-	$	12,751	$	12,732
Due after one year through five years		22,695		23,572		58,429		58,504
Due after five years through ten years		30,108		30,460		7,295		7,336
Due after ten years		20,986		21,079		43,017		43,116
Total investment securities	$	73,789	$	75,111	$	121,492	$	121,688

The HTM security that was sold during the nine months ended September 30, 2016 was permissible because DNB collected greater than 85% of the original recorded investment on the HTM security prior to the sale. Gains and losses resulting from investment sales, redemptions or calls were as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2016		2015		2016		2015
Gross realized gains-AFS	$	176	$	13	$	440	$	77
Gross realized gains-HTM		21		-		21		-
Gross realized losses-AFS		-		(3)		(30)		(3)
Net realized gain	$	197	$	10	$	431	$	74

At September 30, 2016 and December 31, 2015, investment securities with a carrying value of approximately $111.3 million and $147.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.