(2) INVESTMENT SECURITIES

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

	December 31, 2011

(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated 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

			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 December 31, 2011 and 2010.

	December 31, 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
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	)

	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 December 31, 2011, there were 2 mortgage backed securities, 18 corporate bonds, 1 agency note, 2 collateralized mortgage obligations and 6 equity securities which were in an unrealized loss position. Seventeen of these 29 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 December 31, 2011 represents an other-than-temporary impairment. There were 5 corporate bonds and 6 equity securities that were impaired for more than 12 months and one corporate bond that had 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 December 31, 2011, the following securities were reviewed:

Corporates The unrealized loss on six investments in the Corporate Bond portfolio were caused by interest rate increases and increased spreads in this sector. Some of the bonds have had downgrades since they were purchased. The book value of the six securities is $5.7 million and the unrealized loss is $608,000. Three of the bonds have been impaired for more than twelve months and had a loss less than 10% of the book value. Two of the bonds have been impaired for more than twelve months and had a loss greater than 10% of the book value. One of the bonds had a loss greater than 10% of the book value and was impaired for less than twelve months. The contractual terms of those investments do not permit the issuer to settle these securities at a price less than the amortized cost basis of the investments. 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 December 31, 2011.

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 December 31, 2011.

The amortized cost and estimated fair value of investment securities as of December 31, 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	$	—	$	—	$	513	$	514
Due after one year through five years		—		—		57,900		57,529
Due after five years through ten years		4,697		4,918		17,441		17,369
Due after ten years		31,730		32,763		31,662		32,106
No stated maturity		—		—		27		12

Total investment securities	$	36,427	$	37,681	$	107,543	$	107,530

During the quarter ended June 30, 2010, DNB sold its entire municipal securities portfolio, which had a book value of approximately $26.9 million for a net loss of $64,000. Management sold the municipal securities out of the HTM portfolio due to media and headline risk related to municipal budget shortfalls, which management believes could impair the value of the bonds. In particular, management believes that reported problems with budgets, in California and other states across the country that are experiencing budget shortfalls, could trickle down to individual municipalities. In addition, numerous municipalities are struggling financially as promised pensions benefits for public sector employees represent a massive overhang that threatens the financial future of many cities and states. This was a change in circumstances that was unusual and non-recurring, and could not have been reasonably anticipated when the bonds were placed in the HTM Portfolio. In addition to the municipal securities, management sold mortgaged backed securities with a book value of $3.0 million out of the HTM portfolio for a net gain of $39,000. Such sales are allowed under ASC 320 guidelines, as more than 85% of the principal outstanding at acquisition had been paid down, due to prepayments and normal scheduled payments. During 2011, DNB purchased municipal securities which had an amortized cost of $12.4 million at December 31, 2011. All of these municipal securities were issued by school districts within the Commonwealth of Pennsylvania. They are backed by the full faith, credit and taxing power of the issuing school district. All have strong underlying credit ratings and $11.2 million of these securities are insured by a highly rated insurance company. In addition to these guarantees, 100% of these securities are guaranteed by the Commonwealth of Pennsylvania through Pennsylvania's State Aid Intercept Program.

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.

DNB sold $27.8 million and $196.1 million securities from the AFS portfolio during 2011 and 2010, respectively. DNB also sold $0 and $29.9 million securities from the HTM portfolio during 2011 and 2010, respectively. The sales from HTM in 2010 are discussed in the paragraph above. Gains and losses resulting from investment sales, redemptions or calls were as follows:

	Year Ended December 31

(Dollars in thousands)	2011			2010

Gross realized gains-AFS	$	294		$	2,246
Gross realized gains-HTM		—			178
Gross realized losses-AFS		(256	)		(214	)
Gross realized losses-HTM		—			(203	)

Net realized gain	$	38		$	2,007

At December 31, 2011 and 2010, investment securities with a carrying value of approximately $96 million and $105 million, respectively, were pledged to secure public funds, repurchase agreements, FHLBP advances and for other purposes as required by law. See Footnote 7 regarding the use of certain securities as collateral.