NOTE 2: INVESTMENT SECURITIES

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



	September 30, 2018
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,682	$	34	$	-	$	8,716
Government Sponsored Entities (GSE) mortgage-backed securities		413		-		(4)		409
Corporate bonds		13,882		84		(95)		13,871
Collateralized mortgage obligations GSE		1,211		-		(55)		1,156
State and municipal taxable		362		-		(10)		352
State and municipal tax-exempt		37,519		2		(1,722)		35,799
Total	$	62,069	$	120	$	(1,886)	$	60,303

Available For Sale
US Government agency obligations	$	50,077	$	-	$	(622)	$	49,455
GSE mortgage-backed securities		28,762		-		(1,431)		27,331
Collateralized mortgage obligations GSE		10,610		-		(669)		9,941
Corporate bonds		10,913		-		(275)		10,638
State and municipal tax-exempt		1,983		-		(187)		1,796
Total	$	102,345	$	-	$	(3,184)	$	99,161



	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 September 30, 2018 and December 31, 2017.


	September 30, 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
GSE mortgage-backed securities	$	409	$	(4)	$	409	$	(4)	$	-	$	-
Corporate bonds		5,137		(95)		5,137		(95)		-		-
Collateralized mortgage obligations GSE		1,156		(55)		-		-		1,156		(55)
State and municipal taxable		352		(10)		-		-		352		(10)
State and municipal tax-exempt		33,969		(1,722)		17,644		(327)		16,325		(1,395)
Total	$	41,023	$	(1,886)	$	23,190	$	(426)	$	17,833	$	(1,460)
Available For Sale
US Government agency obligations	$	49,455	$	(622)	$	8,839	$	(138)	$	40,616	$	(484)
GSE mortgage-backed securities		27,331		(1,431)		2,500		(91)		24,831		(1,340)
Collateralized mortgage obligations GSE		9,941		(669)		-		-		9,941		(669)
Corporate bonds		10,638		(275)		4,529		(68)		6,109		(207)
State and municipal tax-exempt		1,796		(187)		-		-		1,796		(187)
Total	$	99,161	$	(3,184)	$	15,868	$	(297)	$	83,293	$	(2,887)


	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 September 30, 2018, there were nineteen collateralized mortgage obligations GSE, twenty GSE mortgage-backed securities, nine U.S. agency obligations, fifty-six tax-exempt municipalities, one taxable municipality, and twelve 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 September 30, 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 September 30, 2018, the following securities were reviewed:

Collateralized mortgage obligations GSE There are nineteen impaired securities classified as collateralized mortgage obligations, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 9.50% 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 September 30, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2018.

GSE mortgage-backed securities There are twenty impaired securities classified as GSE mortgage-backed securities, eighteen of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 6.06% 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 September 30, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2018.

US Government agency obligations There are nine impaired securities classified as agencies, eight of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 6.68% 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 September 30, 2018.

State and municipal tax-exempt There are fifty-six impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, twenty-nine of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 12.29% 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 fifty-six municipal securities, there are twenty-three insured school districts, seventeen uninsured school districts, nine 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, 2018.

State and municipal taxable There is one impaired security in this category, which has been impaired for more than 12 months. The unrealized loss of this security is 2.78% 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 September 30, 2018.

Corporate bonds There are twelve 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 6.14% 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 September 30, 2018 levels. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2018.

The amortized cost and fair value of investment securities as of September 30, 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	$	1,000	$	999	$	32,757	$	32,609
Due after one year through five years		22,277		22,264		24,443		23,925
Due after five years through ten years		29,384		28,449		20,482		19,498
Due after ten years		9,408		8,591		24,663		23,129
Total investment securities	$	62,069	$	60,303	$	102,345	$	99,161

The HTM security sold during the nine months ended September 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				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2018		2017		2018		2017
Gross realized gains-AFS	$	-	$	-	$	-	$	10
Gross realized gains-HTM		-		-		-		16
Gross realized losses-AFS		-		-		-		(1)
Net realized gain	$	-	$	-	$	-	$	25

At September 30, 2018 and December 31, 2017, investment securities with a carrying value of approximately $90.4 million and $105.9 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.