NOTE 3: INVESTMENT SECURITIES

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



		September 30, 2012
		Amortized		Unrealized		Unrealized		Estimated
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,210	$	595	$	-	$	7,805
Government Sponsored Entities (GSE) mortgage-backed securities		10,473		544		-		11,017
Corporate bonds		6,513		271		(5)		6,779
Collateralized mortgage obligations GSE		7,805		196		-		8,001
State and municipal tax-exempt		22,089		769		-		22,858
Total	$	54,090	$	2,375	$	(5)	$	56,460

Available For Sale
US Government agency obligations	$	36,772	$	110	$	(1)	$	36,881
GSE mortgage-backed securities		24,183		703		-		24,886
Collateralized mortgage obligations GSE		10,746		62		(19)		10,789
Corporate bonds		38,838		825		(224)		39,439
State and municipal tax-exempt		1,108		-		(11)		1,097
Asset-backed securities		9,703		88		-		9,791
Certificates of deposit		1,000		4		(1)		1,003
Equity securities		27		-		(13)		14
Total	$	122,377	$	1,792	$	(269)	$	123,900



		December 31, 2011
		Amortized		Unrealized		Unrealized		Estimated
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
Government Sponsored Entities (GSE) mortgage-backed securities	$	14,363	$	493	$	-	$	14,856
Corporate Bonds		1,548		18		-		1,566
Collateralized mortgage obligations GSE		8,139		163		-		8,302
State and Municipal tax-exempt		12,377		580		-		12,957
Total	$	36,427	$	1,254	$	-	$	37,681

Available For Sale
US Government agency obligations	$	43,698	$	194	$	(1)	$	43,891
GSE mortgage-backed securities		24,792		533		(12)		25,313
Collateralized mortgage obligations GSE		6,148		24		(20)		6,152
Corporate bonds		27,141		84		(878)		26,347
Asset-backed securities		5,737		78		-		5,815
Equity securities		27		-		(15)		12
Total	$	107,543	$	913	$	(926)	$	107,530

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, 2012 and December 31, 2011.



		September 30, 2012
						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	$	2,595	$	(5)	$	2,595	$	(5)	$	-	$	-
Total	$	2,595	$	(5)	$	2,595	$	(5)	$	-	$	-
Available For Sale
US Government agency obligations	$	4,029	$	(1)	$	4,029	$	(1)	$	-	$	-
Collateralized mortgage obligations GSE		4,023		(19)		4,023		(19)		-		-
Corporate bonds		7,778		(224)		3,459		(41)		4,319		(183)
State and municipal tax-exempt		1,097		(11)		1,097		(11)		-		-
Certificates of deposit		249		(1)		249		(1)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	17,190	$	(269)	$	12,857	$	(73)	$	4,333	$	(196)



		December 31, 2011
						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
Available For Sale
US Government agency obligations	$	1,522	$	(1)	$	1,522	$	(1)	$	-	$	-
GSE mortgage-backed securities		4,428		(12)		4,428		(12)		-		-
Collateralized mortgage obligations GSE		4,554		(20)		4,554		(20)		-		-
Corporate bonds		18,023		(878)		14,232		(477)		3,791		(401)
Equity securities		12		(15)		-		-		12		(15)
Total	$	28,539	$	(926)	$	24,736	$	(510)	$	3,803	$	(416)

As of September 30, 2012, there were eight corporate bonds, two U.S. agency obligations, two collateralized mortgage obligations, three tax-exempt municipalities, one certificate of deposit, and six equity securities which were in an unrealized loss position. Twelve of these twenty-two securities did not meet the criteria of having market value loss greater than 10% of book value or had been 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, 2012 represents an other-than-temporary impairment. There were four corporate bonds and six equity securities that were impaired for more than 12 months. One of the corporate bonds that was impaired for more than 12 months had a market value loss 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 by which a security is below book. As of September 30, 2012, the following securities were reviewed:

Corporate Securities The unrealized loss on eight investments in the corporate bond portfolio was caused by a number of factors. Some of the bonds have had downgrades since they were purchased. Some of the Corporates have been affected by the market's perception of the impact of sovereign debit holdings and spreads on the financial sector have widened since they were purchased. The book value of the four securities is $4.5 million and the unrealized loss is $183,000 or 4.0%. Three of the bonds have been impaired for more than twelve months and have a loss less than 10% of the book value. One of the bonds has been impaired for more than twelve months and has a loss greater than 10% of the book value. The contractual terms of those investments do not permit the issuer to settle these securities at a price less than the par value of the investments. Based on this analysis and an evaluation of DNB’s ability and intent to hold these securities for a reasonable period of time sufficient for each security to increase to DNB’s cost, DNB does not intend to sell these securities and it is not more likely than not that DNB will be required to sell the securities before recovery of their cost, DNB does not consider these securities to be other-than-temporarily impaired at September 30, 2012.

Equity securities. DNB’s investment in six marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania. The unrealized losses on the six securities 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 securities for a reasonable period of time sufficient for each security to increase to DNB’s cost, DNB does not intend to sell these securities and it is not more likely than not that DNB will be required to sell the securities before recovery of their cost, DNB does not consider these securities to be other-than-temporarily impaired at September 30, 2012.

The amortized cost and estimated fair value of investment securities as of September 30, 2012, 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
		Amortized		Estimated		Amortized		Estimated
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	-	$	-	$	4,556	$	4,597
Due after one year through five years		17		17		48,786		49,442
Due after five years through ten years		23,324		24,346		25,304		25,333
Due after ten years		30,749		32,097		43,704		44,514
No stated maturity		-		-		27		14
Total investment securities	$	54,090	$	56,460	$	122,377	$	123,900

DNB sold $14.4 million and $15.8 million from the Available For Sale portfolio during the nine month periods ending September 30, 2012 and 2011, respectively. 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)		2012		2011		2012		2011
Gross realized gains-AFS	$	161	$	-	$	246	$	85
Gross realized losses-AFS		-		-		(6)		(83)
Net realized gain	$	161	$	-	$	240	$	2

At September 30, 2012 and December 31 2011, investment securities with a carrying value of approximately $96 million and $96 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.