Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities

INVESTMENT SECURITIES

NOTE 2: INVESTMENT SECURITIES

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

	June 30, 2011
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Held To Maturity
Government Sponsored Entities (GSE) mortgage-backed securities	$	17,089	$	284	$	(84	)	$	17,289
Corporate bonds		1,551		30		—			1,581
Collateralized mortgage obligations GSE		8,760		32		(37	)		8,755
State and municipal tax-exempt		12,380		3		—			12,383
Total	$	39,780	$	349	$	(121	)	$	40,008
Available For Sale
US Government agency obligations	$	49,841	$	99	$	(275	)	$	49,665
GSE mortgage-backed securities		34,218		477		(12	)		34,683
Collateralized mortgage obligations GSE		6,730		21		(8	)		6,743
Corporate bonds		24,712		243		(210	)		24,745
Equity securities		27		—		(14	)		13
Total	$	115,528	$	840	$	(519	)	$	115,849

	December 31, 2010
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Held To Maturity
GSE mortgage-backed securities	$	7,085	$	291	$	—		$	7,376
Collateralized mortgage obligations GSE		1,346		14		(13	)		1,347
Total	$	8,431	$	305	$	(13	)	$	8,723
Available For Sale
US Government agency obligations	$	45,128	$	32	$	(916	)	$	44,244
GSE mortgage-backed securities		64,463		127		(592	)		63,998
Collateralized mortgage obligations GSE		17,155		14		(551	)		16,618
Corporate bonds		17,432		159		(303	)		17,288
Equity securities		27		—		(14	)		13
Total	$	144,205	$	332	$	(2,376	)	$	142,161

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 table below details the aggregate unrealized losses and aggregate fair value of the underlying securities whose fair values are below their amortized cost at June 30, 2011 and December 31, 2010.

June 30, 2011

(Dollars in thousands)	Total Fair Value		Total Unrealized Loss			Fair value Impaired Less Than 12 Months		Unrealized Loss Less Than 12 Months			Fair value Impaired More Than 12 Months		Unrealized Loss More Than 12 Months
Held To Maturity
Collateralized mortgage obligations GSE	$	7,633	$	(37	)	$	7,633	$	(37	)	$	—	$	—
US Government agency obligations		12,195		(84	)		12,195		(84	)		—		—
Total	$	19,828	$	(121	)	$	19,828	$	(121	)	$	—	$	—
Available For Sale
Corporate bonds	$	15,739	$	(210	)	$	15,739	$	(210	)	$	—	$	—
US Government agency obligations		19,429		(275	)		19,429		(275	)		—		—
Collateralized mortgage obligations GSE		2,452		(8	)		2,452		(8	)		—		—
GSE mortgage-backed securities		3,984		(12	)		2,932		(11	)		1,052		(1	)
Equity securities		13		(14	)		—		—			13		(14	)
Total	$	41,617	$	(519	)	$	40,552	$	(504	)	$	1,065	$	(15	)

	December 31, 2010
(Dollars in thousands)	Total Fair Value		Total Unrealized Loss			Fair value Impaired Less Than 12 Months		Unrealized Loss Less Than 12 Months			Fair value Impaired More Than 12 Months		Unrealized Loss More Than 12 Months
Held To Maturity
Collateralized mortgage obligations GSE	$	789	$	(13	)	$	789	$	(13	)	$	—	$	—
Total	$	789	$	(13	)	$	789	$	(13	)	$	—	$	—
Available For Sale
Corporate bonds	$	9,845	$	(303	)	$	9,845	$	(303	)	$	—	$	—
US Government agency obligations		28,972		(916	)		28,972		(916	)		—		—
Collateralized mortgage obligations GSE		12,539		(551	)		12,539		(551	)		—		—
GSE mortgage-backed securities		40,013		(592	)		40,013		(592	)		—		—
Equity securities		13		(14	)		—		—			13		(14	)
Total	$	91,382	$	(2,376	)	$	91,369	$	(2,362	)	$	13	$	(14	)

As of June 30, 2011, there were 5 mortgage backed securities, 15 corporate bonds, 5 agency notes, 3 collateralized mortgage obligations, and 6 equity securities 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 does not believe any individual unrealized loss as of June 30, 2011 represents an other-than-temporary impairment. There were 6 equity securities and one MBS fixed rate security that were impaired for more than 12 months. DNB reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (OTTI). The OTTI analysis focuses on duration and amount a security is below book. As of June 30, 2011, the following securities were reviewed:

GSE mortgage-backed securities. There is currently one security classified as MBS fixed rate that has been impaired for more than twelve months. The current loss on the security is less than $1,000. The market value has declined as interest rates have risen since this security was purchased but DNB anticipates a recovery in the market value as this security approaches its maturity date or as rates decline. DNB expects to collect all principal and interest payments defined under the original terms. There are no securities classified as MBS fixed rate that have a loss greater than 10% of the book value.

Equity securities.  DNB's investment in six marketable equity securities consists primarily of investments in common stock of community banks. The unrealized losses on the six investments in the Equity securities portfolio were all impaired for more than twelve months. The severity and duration of the impairment are driven by higher collateral losses, wider credit spreads, and changes in interest rates within the financial services sector. DNB evaluated the prospects of all issuers in relation to the severity and duration of

the impairment. Based on this analysis and an evaluation of DNB's ability and intent to hold these investments for a reasonable period of time sufficient for each security to increase to DNB's cost, DNB does not intend to sell these investments and it is not more likely than not that DNB will be required to sell the investments before recovery of their cost, DNB does not consider these investments to be other-than-temporarily impaired at June 30, 2011.

The amortized cost and estimated fair value of investment securities as of June 30, 2011, by 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		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—	$	2,633	$	2,642
Due after one year through five years		—		—		47,387		47,620
Due after five years through ten years		5,353		5,645		30,412		30,036
Due after ten years		34,427		34,363		35,069		35,538
No stated maturity		—		—		27		13
Total investment securities	$	39,780	$	40,008	$	115,528	$	115,849

DNB sold $15.8 million and $115.0 million securities from the AFS portfolio during the six month period ending June 30, 2011 and 2010, respectively. During the same respective periods, DNB sold $0 and $29.9 million from the HTM portfolio. Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Six Months Ended June 30
(Dollars in thousands)	2011		2010
Gross realized gains-AFS	$	85	$	1,168
Gross realized gains-HTM		—		178
Gross realized losses-AFS		(83)		(168)
Gross realized losses-HTM		—		(203)
Net realized gain	$	2	$	975

In June 2011, DNB reclassified 3 mortgage backed securities and 2 collateralized mortgage obligations with book values (net carrying amount) of $12.5 million and $7.7 million, respectively, from available-for-sale (AFS) to held-to-maturity (HTM).  The fair value of the 3 mortgage backed securities and 2 collateralized mortgage obligations was $12.4 million and $7.7 million, respectively. The $116,000 difference between their book value and their fair value will be amortized as an adjustment to the carrying value of the investment securities over the remaining lives.

At June 30, 2011 and 2010, investment securities with a carrying value of approximately $128 million and $105 million, respectively, were pledged to secure public funds, repurchase agreements, FHLB advances and for other purposes as required by law.