NOTE 2: INVESTMENT SECURITIES

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



			September 30, 2017
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,418		$	242	$	-	$	8,660
Government Sponsored Entities (GSE) mortgage-backed securities		525			14		-		539
Corporate bonds		14,077			286		(4)		14,359
Collateralized mortgage obligations GSE		1,580			2		(15)		1,567
State and municipal taxable		1,007			-		(18)		989
State and municipal tax-exempt		41,533			65		(483)		41,115
Total	$	67,140		$	609	$	(520)	$	67,229

Available For Sale
US Government agency obligations	$	53,311		$	-	$	(209)	$	53,102
GSE mortgage-backed securities		30,270			-		(498)		29,772
Collateralized mortgage obligations GSE		12,678			-		(370)		12,308
Corporate bonds		11,009			9		(114)		10,904
State and municipal tax-exempt		1,994			-		(72)		1,922
Total	$	109,262		$	9	$	(1,263)	$	108,008



			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 September 30, 2017 and December 31, 2016.


	September 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	$	2,492	$	(4)	$	2,492	$	(4)	$	-	$	-
Collateralized mortgage obligations GSE		895		(15)		-		-		895		(15)
State and municipal taxable		989		(18)		989		(18)		-		-
State and municipal tax-exempt		20,309		(483)		6,131		(54)		14,178		(429)
Total	$	24,685	$	(520)	$	9,612	$	(76)	$	15,073	$	(444)
Available For Sale
US Government agency obligations	$	53,102	$	(209)	$	33,017	$	(94)	$	20,085	$	(115)
GSE mortgage-backed securities		29,772		(498)		12,055		(166)		17,717		(332)
Collateralized mortgage obligations GSE		12,308		(370)		3,730		(58)		8,578		(312)
Corporate bonds		9,895		(114)		3,660		(17)		6,235		(97)
State and municipal tax-exempt		1,922		(72)		293		(1)		1,629		(71)
Total	$	106,999	$	(1,263)	$	52,755	$	(336)	$	54,244	$	(927)


	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 September 30, 2017, there were eighteen collateralized mortgage obligations GSE, seventeen GSE mortgage-backed securities, eleven U.S. agency obligations, thirty-two tax-exempt municipalities, one taxable municipality, and nine 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, 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 September 30, 2017, the following securities were reviewed:

Collateralized mortgage obligations GSE There are eighteen impaired securities classified as collateralized mortgage obligations, fifteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 4.84% 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 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 September 30, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2017.

GSE mortgage-backed securities There are seventeen impaired securities classified as GSE mortgage-backed securities, ten of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.29% 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 recovery in the market value as the securities approach their maturity dates or if interest rates decline from September 30, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2017.

US Government agency obligations There are eleven impaired securities classified as agencies, two of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.30% 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, 2017.

State and municipal tax-exempt There are thirty-two impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, twenty-one of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 4.29% 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 thirty-two municipal securities, there are eleven insured school districts, ten 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 September 30, 2017.

State and municipal taxable There is one impaired security in this category, which has been impaired for less than 12 months. The unrealized loss of this security is 1.81% of its book value. This security is an insured township and carries a “BBB+” underlying credit. It is performing and is expected to continue to perform in accordance with its contractual terms and conditions. There have not been disruptions of any payments associated with this municipal security. Management concluded that this security was not other-than-temporarily impaired at September 30, 2017.

Corporate bonds There are nine 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 2.45% 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, 2017 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2017.

The amortized cost and fair value of investment securities as of September 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	$	-	$	-	$	14,220	$	14,200
Due after one year through five years		26,118		26,573		43,350		43,153
Due after five years through ten years		28,381		28,346		11,564		11,408
Due after ten years		12,641		12,310		40,128		39,247
Total investment securities	$	67,140	$	67,229	$	109,262	$	108,008

The HTM securities sold during the nine months ended September 30, 2017 and September 30, 2016 were 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				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2017		2016		2017		2016
Gross realized gains-AFS	$	-	$	176	$	10	$	440
Gross realized gains-HTM		-		21		16		21
Gross realized losses-AFS		-		-		(1)		(30)
Net realized gain	$	-	$	197	$	25	$	431

At September 30, 2017 and December 31, 2016, investment securities with a carrying value of approximately $113.1 million and $116.7 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.