(2) INVESTMENT SECURITIES

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



		December 31, 2012
		Amortized		Unrealized		Unrealized		Estimated
(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



		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 December 31, 2012 and 2011.



		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)	$	2,587	$	(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 deposit		745		(5)		745		(5)		-		-
Equity securities		14		(13)		-		-		14		(13)
Total	$	32,784	$	(404)	$	29,385	$	(276)	$	3,399	$	(128)



	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 December 31, 2012, there were 3 certificates of deposit, 14 municipalities, 13 corporate bonds, 5 agency notes, 3 collateralized mortgage obligations and 6 equity securities which were in an unrealized loss position. Thirty-five of these 44 securities did not meet the criteria of having market value loss greater than 10% of book value or having been in a loss position 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, 2012 represents an other-than-temporary impairment. There were 3 corporate bonds and 6 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 a security is below book. As of December 31, 2012, the following securities were reviewed:

Corporates The unrealized loss on three 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 three securities is $3.5 million and the unrealized loss is $115,000. The three corporate bonds have been impaired for more than twelve months and had 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 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, 2012.

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, 2012.

The amortized cost and estimated fair value of investment securities as of December 31, 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	$	-	$	-	$	9,860	$	9,911
Due after one year through five years		2		2		39,573		40,231
Due after five years through ten years		23,131		24,159		30,850		30,729
Due after ten years		42,891		44,146		53,725		54,403
No stated maturity		-		-		27		14
Total investment securities	$	66,024	$	68,307	$	134,035	$	135,288

DNB sold $19.7 million and $27.8 million securities from the AFS portfolio during 2012 and 2011, respectively. Gains and losses resulting from investment sales, redemptions or calls were as follows:



	Year Ended
	December 31
(Dollars in thousands)	2012		2011
Gross realized gains-AFS	$	424	$	294
Gross realized losses-AFS		(6)		(256)
Net realized gain	$	418	$	38

At December 31, 2012 and 2011, investment securities with a carrying value of approximately $90 million and $96 million, respectively, were pledged to secure public funds, repurchase agreements, FHLBP advances and for other purposes as required by law. See Note 7 regarding the use of certain securities as collateral.