NOTE 2: INVESTMENT SECURITIES

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



			March 31, 2018
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,549		$	100	$	-	$	8,649
Government Sponsored Entities (GSE) mortgage-backed securities		467			1		-		468
Corporate bonds		13,944			159		(37)		14,066
Collateralized mortgage obligations GSE		1,372			-		(45)		1,327
State and municipal taxable		362			-		(12)		350
State and municipal tax-exempt		37,525			12		(1,393)		36,144
Total	$	62,219		$	272	$	(1,487)	$	61,004

Available For Sale
US Government agency obligations	$	53,285		$	-	$	(622)	$	52,663
GSE mortgage-backed securities		31,791			-		(1,204)		30,587
Collateralized mortgage obligations GSE		11,653			-		(550)		11,103
Corporate bonds		12,958			11		(258)		12,711
State and municipal tax-exempt		1,988			-		(163)		1,825
Total	$	111,675		$	11	$	(2,797)	$	108,889



			December 31, 2017
	Amortized			Unrealized		Unrealized
(Dollars in thousands)	Cost			Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,483		$	163	$	-	$	8,646
Government Sponsored Entities (GSE) mortgage-backed securities		496			9		-		505
Corporate bonds		14,047			243		(2)		14,288
Collateralized mortgage obligations GSE		1,471			-		(29)		1,442
State and municipal taxable		363			-		(8)		355
State and municipal tax-exempt		37,530			59		(405)		37,184
Total	$	62,390		$	474	$	(444)	$	62,420

Available For Sale
US Government agency obligations	$	53,279		$	-	$	(386)	$	52,893
GSE mortgage-backed securities		33,203			-		(715)		32,488
Collateralized mortgage obligations GSE		12,101			-		(447)		11,654
Corporate bonds		12,981			12		(173)		12,820
State and municipal tax-exempt		1,991			-		(63)		1,928
Total	$	113,555		$	12	$	(1,784)	$	111,783

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, 2018 and December 31, 2017.


	March 31, 2018
					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	$	5,257	$	(37)	$	5,257	$	(37)	$	-	$	-
Collateralized mortgage obligations GSE		1,327		(45)		568		(13)		759		(32)
State and municipal taxable		350		(12)		350		(12)		-		-
State and municipal tax-exempt		28,058		(1,393)		15,261		(390)		12,797		(1,003)
Total	$	34,992	$	(1,487)	$	21,436	$	(452)	$	13,556	$	(1,035)
Available For Sale
US Government agency obligations	$	52,663	$	(622)	$	17,534	$	(331)	$	35,129	$	(291)
GSE mortgage-backed securities		30,587		(1,204)		8,518		(262)		22,069		(942)
Collateralized mortgage obligations GSE		11,103		(550)		2,065		(74)		9,038		(476)
Corporate bonds		11,653		(258)		5,500		(109)		6,153		(149)
State and municipal tax-exempt		1,825		(163)		285		(2)		1,540		(161)
Total	$	107,831	$	(2,797)	$	33,902	$	(778)	$	73,929	$	(2,019)


	December 31, 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	$	498	$	(2)	$	498	$	(2)	$	-	$	-
Collateralized mortgage obligations GSE		1,442		(29)		620		(5)		822		(24)
State and municipal taxable		355		(8)		355		(8)		-		-
State and municipal tax-exempt		20,240		(405)		6,775		(67)		13,465		(338)
Total	$	22,535	$	(444)	$	8,248	$	(82)	$	14,287	$	(362)
Available For Sale
US Government agency obligations	$	52,893	$	(386)	$	30,894	$	(185)	$	21,999	$	(201)
GSE mortgage-backed securities		32,488		(715)		9,055		(133)		23,433		(582)
Collateralized mortgage obligations GSE		11,654		(447)		2,132		(56)		9,522		(391)
Corporate bonds		10,759		(173)		4,572		(43)		6,187		(130)
State and municipal tax-exempt		1,928		(63)		288		(2)		1,640		(61)
Total	$	109,722	$	(1,784)	$	46,941	$	(419)	$	62,781	$	(1,365)

As of March 31, 2018, there were nineteen collateralized mortgage obligations GSE, nineteen GSE mortgage-backed securities, eleven U.S. agency obligations, forty-six tax-exempt municipalities, one taxable municipality, and eleven 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 their 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, 2018 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 March 31, 2018, the following securities were reviewed:

Collateralized mortgage obligations GSE There are nineteen impaired securities classified as collateralized mortgage obligations, sixteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 6.74% of its carrying 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 March 31, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2018.

GSE mortgage-backed securities There are nineteen impaired securities classified as GSE mortgage-backed securities, fourteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 4.69% of its carrying 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 March 31, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2018.

US Government agency obligations There are eleven impaired securities classified as agencies, six of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 4.26% of its carrying 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 March 31, 2018.

State and municipal tax-exempt There are forty-six impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, twenty of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 10.39% of its carrying 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 forty-six municipal securities, there are seventeen insured school districts, eighteen 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 March 31, 2018.

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 3.42% of its carrying 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 March 31, 2018.

Corporate bonds There are eleven 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 5.00% of its carrying 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, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2018.

The amortized cost and fair value of investment securities as of March 31, 2018, 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	$	-	$	-	$	27,420	$	27,236
Due after one year through five years		22,480		22,637		33,510		33,034
Due after five years through ten years		27,886		27,251		18,216		17,627
Due after ten years		11,853		11,116		32,529		30,992
Total investment securities	$	62,219	$	61,004	$	111,675	$	108,889

DNB did not sell any investment securities during the three months ended March 31, 2018 and 2017, and therefore had no realized gains or losses during these respective periods.

At March 31, 2018 and December 31, 2017, investment securities with a carrying value of approximately $103.8 million and $105.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.