NOTE 3: INVESTMENT SECURITIES

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



		March 31, 2013
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,322	$	557	$	-	$	7,879
Government Sponsored Entities (GSE) mortgage-backed securities		7,981		387		-		8,368
Corporate Bonds		6,404		413		-		6,817
Collateralized mortgage obligations GSE		6,563		146		(12)		6,697
State and municipal tax-exempt		38,704		571		(566)		38,709
Total	$	66,974	$	2,074	$	(578)	$	68,470

Available For Sale
US Government agency obligations	$	40,985	$	134	$	(12)	$	41,107
GSE mortgage-backed securities		20,823		343		-		21,166
Collateralized mortgage obligations GSE		26,582		223		(211)		26,594
Corporate bonds		34,699		691		(130)		35,260
State and municipal tax-exempt		5,196		1		(12)		5,185
Asset-backed securities		2,967		8		-		2,975
Certificates of deposit		1,250		4		(1)		1,253
Equity securities		27		1		(13)		15
Total	$	132,529	$	1,405	$	(379)	$	133,555



		December 31, 2012
		Amortized		Unrealized		Unrealized
(Dollars in thousands)		Cost		Gains		Losses		Fair Value
Held To Maturity
US Government agency obligations	$	7,266	$	563	$	-	$	7,829
Government Sponsored Entities (GSE) mortgage-backed securities		9,135		435		-		9,570
Corporate bonds		6,500		371		(11)		6,860
Collateralized mortgage obligations GSE		7,204		185		-		7,389
State and municipal tax-exempt		35,919		759		(19)		36,659
Total	$	66,024	$	2,313	$	(30)	$	68,307

Available For Sale
US Government agency obligations	$	35,424	$	133	$	(18)	$	35,539
GSE mortgage-backed securities		21,885		507		-		22,392
Collateralized mortgage obligations GSE		21,526		151		(27)		21,650
Corporate bonds		41,005		772		(330)		41,447
State and municipal tax-exempt		3,195		1		(11)		3,185
Asset-backed securities		9,723		90		-		9,813
Certificates of deposit		1,250		3		(5)		1,248
Equity securities		27		-		(13)		14
Total	$	134,035	$	1,657	$	(404)	$	135,288

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 March 31, 2013 and December 31, 2012.



		March 31, 2013
						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
Collateralized mortgage obligations GSE	$	833	$	(12)	$	833	$	(12)	$	-	$	-
State and municipal tax-exempt		13,265		(566)		13,265		(566)		-		-
Total	$	14,098	$	(578)	$	14,098	$	(578)	$	-	$	-
Available For Sale
US Government agency obligations	$	6,743	$	(12)	$	6,743	$	(12)	$	-	$	-
Collateralized mortgage obligations GSE		9,826		(211)		9,826		(211)		-		-
Corporate bonds		8,023		(130)		6,052		(101)		1,971		(29)
State and municipal tax-exempt		3,097		(12)		3,097		(12)		-		-
Certificates of deposit		499		(1)		499		(1)		-		-
Equity securities		11		(13)		-		-		11		(13)
Total	$	28,199	$	(379)	$	26,217	$	(337)	$	1,982	$	(42)



		December 31, 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	$	2,587	$	(11)	$	2587	$	(11)	$	-	$	-
State and municipal tax-exempt		8,690		(19)		8,690		(19)		-		-
Total	$	11,277	$	(30)	$	11,277	$	(30)	$	-	$	-
Available For Sale
US Government agency obligations	$	10,238	$	(18)	$	10,238	$	(18)	$	-	$	-
Collateralized mortgage obligations GSE		4,703		(27)		4,703		(27)		-		-
Corporate bonds		15,989		(330)		12,604		(215)		3,385		(115)
State and municipal tax-exempt		1,095		(11)		1,095		(11)		-		-
Certificates of deposits		745		(5)		745		(5)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	32,784	$	(404)	$	29,385	$	(276)	$	3,399	$	(128)

As of March 31, 2013, there were five corporate bonds, four U.S. agency obligations, seven collateralized mortgage obligations, twenty-five tax-exempt municipalities, two certificates of deposit, and five 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 March 31, 2013 represents an other-than-temporary impairment. There were two corporate bonds and five equity securities 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 by which a security is below book. As of March 31, 2013, the following securities were reviewed:

Corporate Securities The unrealized loss on two 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 two securities is $2.0 million and the unrealized loss is $29,000 or 1.5%. Both of the bonds have been impaired for more than twelve months and have a loss less 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 March 31, 2013.

Equity securities. DNB’s investment in five marketable equity securities consists primarily of securities in common stock of community banks in Pennsylvania. The unrealized losses on the five 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 March 31, 2013.

The amortized cost and fair value of investment securities as of March 31, 2013, 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				Amortized
(Dollars in thousands)		Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	714	$	714	$	9,838	$	9,874
Due after one year through five years		-		-		36,937		37,577
Due after five years through ten years		23,998		25,077		34,565		34,616
Due after ten years		42,262		42,679		51,162		51,473
No stated maturity		-		-		27		15
Total investment securities	$	66,974	$	68,470	$	132,529	$	133,555

DNB sold $16.3 million and no securities from the Available For Sale portfolio during the three month periods ending March 31, 2013 and 2012, respectively. Gains and losses resulting from investment sales, redemptions or calls were as follows:



		Three Months Ended
		March 31,
(Dollars in thousands)		2013		2012
Gross realized gains-AFS	$	316	$	-
Gross realized losses-AFS		(257)		-
Net realized gain	$	59	$	-

At March 31, 2013 and December 31, 2012, investment securities with a carrying value of approximately $97.0 million and $90.0 million, respectively, were pledged to secure public funds, repurchase agreements and for other purposes as required by law.