NOTE 2: INVESTMENT SECURITIES

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



	March 31, 2019
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,817	$	33	$	-	$	8,850
Government Sponsored Entities (GSE) mortgage-backed securities		369		4		-		373
Corporate bonds		13,759		142		(12)		13,889
Collateralized mortgage obligations GSE		1,102		-		(21)		1,081
State and municipal taxable		362		-		(1)		361
State and municipal tax-exempt		36,591		52		(291)		36,352
Total	$	61,000	$	231	$	(325)	$	60,906

Available For Sale
US Government agency obligations	$	38,088	$	3	$	(139)	$	37,952
GSE mortgage-backed securities		27,591		3		(605)		26,989
Collateralized mortgage obligations GSE		9,909		-		(363)		9,546
Corporate bonds		10,868		-		(126)		10,742
State and municipal tax-exempt		1,978		-		(85)		1,893
Total	$	88,434	$	6	$	(1,318)	$	87,122



	December 31, 2018
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	8,749	$	41	$	-	$	8,790
Government Sponsored Entities (GSE) mortgage-backed securities		389		-		-		389
Corporate bonds		13,851		124		(47)		13,928
Collateralized mortgage obligations GSE		1,159		-		(27)		1,132
State and municipal taxable		362		-		(3)		359
State and municipal tax-exempt		37,516		19		(998)		36,537
Total	$	62,026	$	184	$	(1,075)	$	61,135

Available For Sale
US Government agency obligations	$	48,082	$	-	$	(359)	$	47,723
GSE mortgage-backed securities		27,563		-		(1,005)		26,558
Collateralized mortgage obligations GSE		10,249		-		(441)		9,808
Corporate bonds		10,890		-		(186)		10,704
State and municipal tax-exempt		1,981		-		(131)		1,850
Total	$	98,765	$	-	$	(2,122)	$	96,643

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, 2019 and December 31, 2018.


	March 31, 2019
					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	$	4,164	$	(12)	$	-	$	-	$	4,164	$	(12)
Collateralized mortgage obligations GSE		1,081		(21)		-		-		1,081		(21)
State and municipal taxable		361		(1)		-		-		361		(1)
State and municipal tax-exempt		12,999		(291)		-		-		12,999		(291)
Total	$	18,605	$	(325)	$	-	$	-	$	18,605	$	(325)
Available For Sale
US Government agency obligations	$	27,749	$	(139)	$	-	$	-	$	27,749	$	(139)
GSE mortgage-backed securities		25,840		(605)		-		-		25,840		(605)
Collateralized mortgage obligations GSE		9,546		(363)		-		-		9,546		(363)
Corporate bonds		10,742		(126)		1,020		(20)		9,722		(106)
State and municipal tax-exempt		1,893		(85)		-		-		1,893		(85)
Total	$	75,770	$	(1,318)	$	1,020	$	(20)	$	74,750	$	(1,298)


	December 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	$	4,157	$	(47)	$	1,887	$	(15)	$	2,270	$	(32)
Collateralized mortgage obligations GSE		1,132		(27)		-		-		1,132		(27)
State and municipal taxable		359		(3)		-		-		359		(3)
State and municipal tax-exempt		26,466		(998)		2,045		(31)		24,421		(967)
Total	$	32,114	$	(1,075)	$	3,932	$	(46)	$	28,182	$	(1,029)
Available For Sale
US Government agency obligations	$	37,723	$	(359)	$	-	$	-	$	37,723	$	(359)
GSE mortgage-backed securities		26,558		(1,005)		-		-		26,558		(1,005)
Collateralized mortgage obligations GSE		9,808		(441)		-		-		9,808		(441)
Corporate bonds		10,704		(186)		2,035		(7)		8,669		(179)
State and municipal tax-exempt		1,850		(131)		-		-		1,850		(131)
Total	$	86,643	$	(2,122)	$	2,035	$	(7)	$	84,608	$	(2,115)

As of March 31, 2019, there were nineteen collateralized mortgage obligations GSE, nineteen GSE mortgage-backed securities, six U.S. agency obligations, twenty-one 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, 2019 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, 2019, the following securities were reviewed:

Collateralized mortgage obligations GSE There are nineteen impaired securities classified as collateralized mortgage obligations GSE, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 8.90% 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, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

GSE mortgage-backed securities There are nineteen impaired securities classified as GSE mortgage-backed securities, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 3.06% 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 March 31, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

US Government agency obligations There are six impaired securities classified as agencies, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 1.24% 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, 2019.

State and municipal tax-exempt There are twenty-one impaired securities in this category, which are comprised of intermediate to long-term municipal bonds, all of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 7.70% of its carrying 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 twenty-one municipal securities, nine are school districts that have state school district credit enhancement programs and four of those have additional insurance. The remaining twelve are one uninsured school district, 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, 2019.

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 0.38% 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, 2019.

Corporate bonds There are eleven impaired bonds classified as corporate bonds, ten of which have been impaired for more than 12 months. The largest unrealized loss of a security in this group is 2.91% 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, 2019 levels. Management concluded that these securities were not other-than-temporarily impaired at March 31, 2019.

The amortized cost and fair value of investment securities as of March 31, 2019, 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	$	11,668	$	11,701	$	15,555	$	15,508
Due after one year through five years		14,974		15,035		30,137		29,957
Due after five years through ten years		26,711		26,720		18,405		18,067
Due after ten years		7,647		7,450		24,337		23,590
Total investment securities	$	61,000	$	60,906	$	88,434	$	87,122

The HTM securities called during the three months ended March 31, 2019 resulted in a gain on call of $3,000. Gains and losses resulting from investment sales, redemptions or calls were as follows:


	Three Months Ended
	March 31,
(Dollars in thousands)	2019		2018
Gross realized gains-HTM	$	3	$	-
Net realized gain	$	3	$	-

At March 31, 2019 and December 31, 2018, investment securities with a carrying value of approximately $84.8 million and $95.8 million, respectively, were pledged to secure public funds and for other purposes as required by law.