NOTE 5: ALLOWANCE FOR CREDIT LOSSES

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of June 30, 2013 and December 31, 2012.

Age Analysis of Past Due Loans Receivables



										June 30, 2013
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	316	$	131	$	2,371	$	2,818	$	21,970	$	24,788	$	106
Commercial mortgage		525		-		3,286		3,811		223,656		227,467		-
Commercial:
Commercial term		-		-		-		-		80,591		80,591		-
Commercial construction		-		-		4,326		4,326		10,004		14,330		-
Lease financing		4		-		-		4		-		4		-
Consumer:
Home equity		151		78		60		289		35,911		36,200		-
Other		96		17		23		136		6,274		6,410		-
Total	$	1,092	$	226	$	10,066	$	11,384	$	378,406	$	389,790	$	106



										December 31, 2012
														Loans
														Receivable
		30-59		60-89		Greater						Total		> 90
		Days Past		Days Past		than		Total				Loans		Days and
(Dollars in thousands)		Due		Due		90 Days		Past Due		Current		Receivables		Accruing
Residential mortgage	$	692	$	319	$	2,256	$	3,267	$	22,568	$	25,835	$	60
Commercial mortgage		68		-		3,514		3,582		230,620		234,202		710
Commercial:
Commercial term		-		-		-		-		81,888		81,888		-
Commercial construction		-		-		2,031		2,031		10,216		12,247		-
Lease financing		-		-		28		28		39		67		-
Consumer:
Home equity		162		-		152		314		35,008		35,322		92
Other		95		-		54		149		6,788		6,937		7
Total	$	1,017	$	319	$	8,035	$	9,371	$	387,127	$	396,498	$	869

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the six months ended June 30, 2013 and as of and for the year ended December 31, 2012.

Impaired Loans





		June 30, 2013						December 31, 2012
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,444	$	3,042	$	-	$	2,386	$	2,883	$	-
Commercial mortgage		2,155		2,207		-		2,807		2,814		-
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		-		-		-		-		-		-
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	4,761	$	5,422	$	-	$	5,432	$	5,955	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		1,131		1,133		217		2,565		2,569		151
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	5,457	$	5,997	$	1,926	$	6,891	$	7,433	$	1,015
Total:
Residential mortgage		2,444		3,042		-		2,386		2,883		-
Commercial mortgage		3,286		3,340		217		5,372		5,383		151
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		4,326		4,864		1,709		4,326		4,864		864
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	10,218	$	11,419	$	1,926	$	12,323	$	13,388	$	1,015




		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,414	$	-	$	2,212	$	-	$	2,405	$	-	$	2,146	$	-
Commercial mortgage		2,250		-		223		1		2,436		-		149		1
Commercial:
Commercial term		-		-		144		12		-		-		163		12
Commercial construction		1,091		-		3,333		-		727		-		2,326		-
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	5,953	$	3	$	6,126	$	17	$	5,780	$	3	$	4,997	$	17
With allowance recorded:
Residential mortgage		159		-		-		-		106		-		-		-
Commercial mortgage		2,392		-		83		-		2,449		-		760		-
Commercial:
Commercial term		100		-		-		-		67		-		-		-
Commercial construction		4,326		-		2,031		39		4,326		-		2,261		39
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-
Total	$	6,977	$	-	$	2,114	$	39	$	6,948	$	-	$	3,021	$	39
Total:
Residential mortgage		2,573		-		2,212		-		2,511		-		2,146		-
Commercial mortgage		4,642		-		306		1		4,885		-		909		1
Commercial:
Commercial term		100		-		144		12		67		-		163		12
Commercial construction		5,417		-		5,364		39		5,053		-		4,587		39
Lease financing		13		-		60		-		18		-		60		-
Consumer:
Home equity		61		-		90		2		62		-		80		2
Other		124		3		64		2		132		3		73		2
Total	$	12,930	$	3	$	8,240	$	56	$	12,728	$	3	$	8,018	$	56

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within DNB’s internal risk rating system as of June 30, 2013 and December 31, 2012.

Credit Quality Indicators



		June 30, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	22,414	$	-	$	2,374	$	-	$	24,788
Commercial mortgage		208,035		9,743		9,689		-		227,467
Commercial:
Commercial term		80,315		73		203		-		80,591
Commercial construction		8,987		-		3,312		2,031		14,330
Lease financing		4		-		-		-		4
Consumer:
Home equity		35,949		-		251		-		36,200
Other		6,406		-		4		-		6,410
Total	$	362,110	$	9,816	$	15,833	$	2,031	$	389,790



		December 31, 2012
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,346	$	-	$	2,489	$	-	$	25,835
Commercial mortgage		211,001		10,847		12,354		-		234,202
Commercial:
Commercial term		81,394		73		421		-		81,888
Commercial construction		4,018		-		6,198		2,031		12,247
Lease financing		67		-		-		-		67
Consumer:
Home equity		35,069		-		253		-		35,322
Other		6,933		-		4		-		6,937
Total	$	361,828	$	10,920	$	21,719	$	2,031	$	396,498

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2013 and December 31, 2012, the activity for the three and six months ended June 30, 2013 and 2012 and as of and for the year ended December 31, 2012.

Allowance for Credit Losses and Recorded Investment in Loans Receivables



		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2013	$	327	$	3,248	$	711	$	1,930	$	2	$	180	$	83	$	642	$	7,123
Charge-offs		(184)		(394)		(212)		-		(26)		-		-		-		(816)
Recoveries		5		-		1		-		2		-		-		-		8
Provisions		161		256		(16)		74		22		1		(3)		(120)		375
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690



		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2013	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Charge-offs		(184)		(394)		(222)		-		(26)		-		(5)		-		(831)
Recoveries		70		-		5		-		53		-		-		-		128
Provisions		117		410		195		468		(30)		3		(1)		(607)		555
Ending balance - June 30, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690

Ending balance: individually evaluated for impairment	$	-	$	217	$	-	$	1,709	$	-	$	-	$	-	$	-	$	1,926

Ending balance: collectively evaluated for impairment	$	309	$	2,893	$	484	$	295	$	-	$	181	$	80	$	522	$	4,764
Loans receivables:
Ending balance	$	24,788	$	227,467	$	80,591	$	14,330	$	4	$	36,200	$	6,410			$	389,790

Ending balance: individually evaluated for impairment	$	2,444	$	3,286	$	-	$	4,326	$	-	$	60	$	102			$	10,218

Ending balance: collectively evaluated for impairment	$	22,344	$	224,181	$	80,591	$	10,004	$	4	$	36,140	$	6,308			$	379,572

Reserve for unfunded loan commitments	$	-	$	11	$	81	$	41	$	-	$	9	$	-			$	142



		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - April 1, 2012	$	376	$	2,734	$	505	$	1,728	$	7	$	180	$	93	$	519	$	6,142
Charge-offs		-		-		(7)		(422)		(1)		-		(1)		-		(431)
Recoveries		5		-		-		-		10		-		13		-		28
Provisions		(3)		126		(13)		149		(11)		(4)		(13)		244		475
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214



		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2012	$	383	$	3,442	$	474	$	1,029	$	10	$	165	$	95	$	566	$	6,164
Charge-offs		(18)		-		(18)		(848)		(1)		-		(9)		-		(894)
Recoveries		10		-		3		-		10		-		21		-		44
Provisions		3		(582)		26		1,274		(14)		11		(15)		197		900
Ending balance - June 30, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214



		Residential		Commercial		Commercial		Commercial		Lease		Consumer		Consumer
(Dollars in thousands)		mortgage		mortgage		term		construction		financing		home equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2012	$	306	$	3,094	$	506	$	1,536	$	3	$	178	$	86	$	1,129	$	6,838
Ending balance: individually evaluated for impairment	$	-	$	151	$	-	$	864	$	-	$	-	$	-	$	-	$	1,015
Ending balance: collectively evaluated for impairment	$	306	$	2,943	$	506	$	672	$	3	$	178	$	86	$	1,129	$	5,823
Loans receivables:
Ending balance	$	25,835	$	234,202	$	81,888	$	12,247	$	67	$	35,322	$	6,937			$	396,498
Ending balance: individually evaluated for impairment	$	2,386	$	5,372	$	-	$	4,326	$	28	$	64	$	147			$	12,323
Ending balance: collectively evaluated for impairment	$	23,449	$	228,830	$	81,888	$	7,921	$	39	$	35,258	$	6,790			$	384,175
Reserve for unfunded loan commitments	$	-	$	9	$	71	$	35	$	-	$	10	$	-	$		$	125