Investment Securities

9 Months Ended

Sep. 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:

	September 30, 2011
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Held To Maturity
Government Sponsored Entities (GSE) mortgage-backed securities	$	16,081	$	494	$	—		$	16,575
Corporate bonds		1,550		51		—			1,601
Collateralized mortgage obligations GSE		8,460		172		—			8,632
State and municipal tax-exempt		12,378		212		—			12,590
Total	$	38,469	$	929	$	—		$	39,398
Available For Sale
US Government agency obligations	$	45,339	$	231	$	(6	)	$	45,564
GSE mortgage-backed securities		31,676		834		—			32,510
Collateralized mortgage obligations GSE		6,445		17		(58	)		6,404
Corporate bonds		25,665		70		(858	)		24,877
Equity securities		27		—		(17	)		10
Total	$	109,152	$	1,152	$	(939	)	$	109,365

	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 September 30, 2011 and December 31, 2010.

	September 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
Available For Sale
Corporate bonds	$	19,728	$	(858	)	$	17,373	$	(603	)	$	2,355	$	(255	)
US Government agency obligations		2,624		(6	)		2,624		(6	)		—		—
Collateralized mortgage obligations GSE		4,661		(58	)		4,661		(58	)		—		—
Equity securities		10		(17	)		—		—			10		(17	)
Total	$	27,023	$	(939	)	$	24,658	$	(667	)	$	2,365	$	(272	)

	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 September 30, 2011, there were 21 securities that were impaired, but did not meet management's criteria of having a market value loss greater than 10% of book value or being impaired for more than 12 months.  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 September 30, 2011 represents an other-than-temporary impairment. There are six equity securities and two corporate bonds that have been impaired for more than 12 months and one corporate bond that has a market value loss of greater than 10% of book value. 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 September 30, 2011, the following securities were reviewed:

Corporate Bonds - Fixed and Variable Rate. The unrealized loss on three investments in the Corporate Bond portfolio were caused by interest rate increases. Two have been impaired for more than twelve months and one has had a loss greater than 10% of the book value. The book value of the three securities is $3,696,750 and the unrealized loss is $393,156. The contractual terms of these investments do not permit the issuer to settle these securities at a price less than the amortized cost basis of the investments. Because DNB does not intend to sell the investments and it is not more than likely than not that DNB will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, DNB does not consider these investments to be other-than-temporarily impaired at September 30, 2011. Some of the bonds have had downgrades since they were purchased. DNB anticipates a recovery in the market value as the securities approach their reset or maturity dates. See discussion below regarding individual securities.

Goldman Sachs Gp (38141GER1) - Fixed rate senior unsecured domestic debt maturing on 10/1/16. Currently rated A1 by Moody's, A by S&P, and A+ by Fitch, stable. Goldman Sachs has never deferred or defaulted on interest payments on this issue, so credit risk is acceptable. This name and issue trades frequently, so liquidity risk is acceptable. The security matures on 10/1/16 with a modified duration of 4.339 years, so interest rate risk is acceptable. With a fixed coupon, earnings potential is good. Management has reviewed the most recent available financial information on this company as well as industry trends. Goldman Sachs reported net income of $8.4 billion in 2010 and a net income of $3.8 billion YTD 2011 (6 months). Both ROA and ROE were positive in 2010 and continue to be positive YTD 2011.

Bank of America Corp (060505CS1) - Fixed rate senior unsecured domestic debt maturing on 10/14/16. Currently rated Baa1 by Moody's, A by S&P, and A+/*- by Fitch, stable. Bank of America has never deferred or defaulted on interest payments on this issue, so credit risk is acceptable. This name and issue trades frequently, so liquidity risk is acceptable. The security matures on 10/14/16 with a modified duration of 4.379 years, so interest rate risk is acceptable. With a fixed coupon, earnings potential is good. BOA has recently been in the headlines due to the infusion of capital by Berkshire Hathaway as well as being named in a suit brought by the US Government regarding the sale of residential loan pools (primarily generated by Countrywide). Management has reviewed the most recent available financial information on this company as well as industry trends. BOA reported a net loss of $2.2 billion in 2010 and a net loss of $6.8 billion YTD 2011 (6 months). Both ROA and ROE were negative in 2010 and continue to be negative YTD 2011. BOA's non-performing assets remain high. Despite losses during the most recent periods, capital ratios remain strong and BOA has access to capital markets for additional capital if needed.

Bank of America Corp (06048WDE7) - Floating rate senior unsecured domestic debt maturing on 8/17/15. Currently rated Baa1 by Moody's, A by S&P, and A+/*- by Fitch, stable. Coupon currently resets quarterly at 3-month Libor + 125 bps. Bank of America has never deferred or defaulted on interest payments on this issue, so credit risk is acceptable. This name and issue trades frequently, so liquidity risk is acceptable. The security matures on 8/17/15 with a modified duration of 3.765 years, so interest rate risk is acceptable. With a floating coupon and no embedded options, earnings potential is good.

Equity securities.  DNB's investment in six marketable equity securities consist primarily of investments in common stock of community banks in Pennsylvania. 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 September 30, 2011.

The amortized cost and estimated fair value of investment securities as of September 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	$	—	$	—	$	2,615	$	2,617
Due after one year through five years		—		—		53,770		53,488
Due after five years through ten years		5,016		5,292		20,070		19,929
Due after ten years		33,453		34,106		32,670		33,321
No stated maturity		—		—		27		10
Total investment securities	$	38,469	$	39,398	$	109,152	$	109,365

DNB sold $15.8 million and $155.0 million securities from the AFS portfolio during the nine month period ending September 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:

	Nine Months Ended September 30
(Dollars in thousands)	2011			2010
Gross realized gains-AFS	$	85		$	1,589
Gross realized gains-HTM		—			178
Gross realized losses-AFS		(83	)		(190	)
Gross realized losses-HTM		—			(203	)
Net realized gain	$	2		$	1,374

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 September 30, 2011 and 2010, investment securities with a carrying value of approximately $116 million and $106 million, respectively, were pledged to secure public funds, repurchase agreements, FHLB advances and for other purposes as required by law.