NOTE 2: INVESTMENT SECURITIES

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



			June 30, 2017
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,352		$	276	$	-	$	8,628
Government Sponsored Entities (GSE) mortgage-backed securities		547			14		-		561
Corporate bonds		14,108			270		(1)		14,377
Collateralized mortgage obligations GSE		1,693			3		(15)		1,681
State and municipal taxable		1,008			3		-		1,011
State and municipal tax-exempt		41,541			90		(501)		41,130
Total	$	67,249		$	656	$	(517)	$	67,388

Available For Sale
US Government agency obligations	$	53,301		$	-	$	(222)	$	53,079
GSE mortgage-backed securities		31,719			-		(587)		31,132
Collateralized mortgage obligations GSE		13,270			-		(386)		12,884
Corporate bonds		11,033			5		(150)		10,888
State and municipal tax-exempt		1,996			-		(79)		1,917
Total	$	111,319		$	5	$	(1,424)	$	109,900



			December 31, 2016
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,224		$	309	$	-	$	8,533
Government Sponsored Entities (GSE) mortgage-backed securities		1,440			38		-		1,478
Corporate bonds		12,825			230		(63)		12,992
Collateralized mortgage obligations GSE		1,966			2		(22)		1,946
State and municipal taxable		1,008			6		-		1,014
State and municipal tax-exempt		41,559			8		(1,406)		40,161
Total	$	67,022		$	593	$	(1,491)	$	66,124

Available For Sale
US Government agency obligations	$	52,428		$	31	$	(150)	$	52,309
GSE mortgage-backed securities		30,861			2		(723)		30,140
Collateralized mortgage obligations GSE		12,957			3		(387)		12,573
Corporate bonds		15,474			5		(299)		15,180
State and municipal tax-exempt		5,084			-		(128)		4,956
Asset-backed security		26			-		-		26
Total	$	116,830		$	41	$	(1,687)	$	115,184

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, 2017 and December 31, 2016.


	June 30, 2017
					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	$	500	$	(1)	$	500	$	(1)	$	-	$	-
Collateralized mortgage obligations GSE		957		(15)		957		(15)		-		-
State and municipal tax-exempt		17,163		(501)		17,163		(501)		-		-
Total	$	18,620	$	(517)	$	18,620	$	(517)	$	-	$	-
Available For Sale
US Government agency obligations	$	50,079	$	(222)	$	50,079	$	(222)	$	-	$	-
GSE mortgage-backed securities		31,132		(587)		31,132		(587)		-		-
Collateralized mortgage obligations GSE		12,884		(386)		5,920		(98)		6,964		(288)
Corporate bonds		8,260		(150)		3,801		(92)		4,459		(58)
State and municipal tax-exempt		1,917		(79)		1,917		(79)		-		-
Total	$	104,272	$	(1,424)	$	92,849	$	(1,078)	$	11,423	$	(346)


	December 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	$	5,962	$	(63)	$	3,992	$	(39)	$	1,970	$	(24)
Collateralized mortgage obligations GSE		1,104		(22)		1,104		(22)		-		-
State and municipal tax-exempt		32,690		(1,406)		32,690		(1,406)		-		-
Total	$	39,756	$	(1,491)	$	37,786	$	(1,467)	$	1,970	$	(24)
Available For Sale
US Government agency obligations	$	27,270	$	(150)	$	27,270	$	(150)	$	-	$	-
GSE mortgage-backed securities		29,145		(723)		29,145		(723)		-		-
Collateralized mortgage obligations GSE		12,116		(387)		4,868		(94)		7,248		(293)
Corporate bonds		13,031		(299)		7,593		(218)		5,438		(81)
State and municipal tax-exempt		4,956		(128)		4,956		(128)		-		-
Asset-backed security		26		-		26		-		-		-
Total	$	86,544	$	(1,687)	$	73,858	$	(1,313)	$	12,686	$	(374)

As of June 30, 2017, there were eighteen collateralized mortgage obligations GSE, seventeen GSE mortgage-backed securities, ten U.S. agency obligations, twenty-eight tax-exempt municipalities, and six 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, 2017 represents an other-than-temporary impairment (OTTI). DNB reviews its investment portfolio on a quarterly basis reviewing 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, 2017, the following securities were reviewed:

Collateralized mortgage obligations GSE There are eighteen impaired securities classified as collateralized mortgage obligations, ten of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 5.11% 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 have 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, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2017.

GSE mortgage-backed securities There are seventeen impaired securities classified as GSE mortgage-backed securities, all of which have been impaired for less than 12 months. The largest unrealized loss of a security in this group is 2.58% of its book value. These securities were issued and insured by FNMA, FHLMC or GNMA. DNB receives monthly principal and interest payments on these securities on a timely basis and none of these have ever defaulted on mortgage-backed principal or interest. DNB anticipates a recover in the market value as the securities approach their maturity dates or if interest rates decline from June 30, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2017.

US Government agency obligations There are ten 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 1.83% 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 June 30, 2017.

State and municipal tax-exempt There are twenty-eight 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 4.96% of its book value. All of the issues carry a “BBB-” 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 twenty-eight municipal securities, there are eight insured school districts, nine uninsured school districts, four insured townships, and seven uninsured townships, all of which have strong underlying ratings. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2017.

Corporate bonds There are six 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 4.17% 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, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2017.

The amortized cost and fair value of investment securities as of June 30, 2017, 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
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	15,222	$	15,214
Due after one year through five years		26,086		26,585		42,350		42,134
Due after five years through ten years		27,031		27,055		11,921		11,728
Due after ten years		14,132		13,748		41,826		40,824
Total investment securities	$	67,249	$	67,388	$	111,319	$	109,900

The HTM security sold during the six months ended June 30, 2017 was sold in accordance with GAAP, as DNB collected greater than 85% of the original recorded investment on the HTM security prior to the sale. As a result, it is appropriate to continue to carry the remaining HTM portfolio as currently classified. 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)	2017		2016		2017		2016
Gross realized gains-AFS	$	10	$	203	$	10	$	264
Gross realized gains-HTM		16		-		16		-
Gross realized losses-AFS		(1)		-		(1)		(30)
Net realized gain	$	25	$	203	$	25	$	234

At June 30, 2017 and December 31, 2016, investment securities with a carrying value of approximately $118.2 million and $116.7 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.