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 September 30, 2013 and December 31, 2012.

Age Analysis of Past Due Loans Receivables



										September 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	$	825	$	-	$	2,177	$	3,002	$	20,812	$	23,814	$	-
Commercial mortgage		238		18		290		546		226,083		226,629		215
Commercial:
Commercial term		26		-		-		26		88,440		88,466		-
Commercial construction		-		-		2,554		2,554		12,935		15,489		-
Lease financing		-		3		-		3		-		3		-
Consumer:
Home equity		48		180		180		408		38,218		38,626		120
Other		68		75		41		184		6,028		6,212		-
Total	$	1,205	$	276	$	5,242	$	6,723	$	392,516	$	399,239	$	335



										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 nine months ended September 30, 2013 and as of and for the year ended December 31, 2012.

Impaired Loans





		September 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	$	2,499	$	3,097	$	-	$	2,386	$	2,883	$	-
Commercial mortgage		281		351		-		2,807		2,814		-
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		2,554		6,741		-		-		-		-
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	5,496	$	10,362	$	-	$	5,432	$	5,955	$	-
With allowance recorded:
Residential mortgage		-		-		-		-		-		-
Commercial mortgage		-		-		-		2,565		2,569		151
Commercial:
Commercial term		-		-		-		-		-		-
Commercial construction		-		-		-		4,326		4,864		864
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	6,891	$	7,433	$	1,015
Total:
Residential mortgage		2,499		3,097		-		2,386		2,883		-
Commercial mortgage		281		351		-		5,372		5,383		151
Commercial:
Commercial term		-		3		-		-		3		-
Commercial construction		2,554		6,741		-		4,326		4,864		864
Lease financing		-		-		-		28		36		-
Consumer:
Home equity		60		68		-		64		72		-
Other		102		102		-		147		147		-
Total	$	5,496	$	10,362	$	-	$	12,323	$	13,388	$	1,015




		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2013				September 30, 2012				September 30, 2013				September 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	$	2,472	$	-	$	2,409	$	-	$	2,428	$	-	$	2,207	$	-
Commercial mortgage		1,218		-		240		-		1,897		-		171		1
Commercial:
Commercial term		-		-		76		-		-		-		139		12
Commercial construction		1,277		-		3,177		130		1,184		-		2,318		130
Lease financing		-		-		46		-		14		-		54		-
Consumer:
Home equity		60		-		119		-		62		-		90		2
Other		102		-		42		-		124		3		66		2
Total	$	5,129	$	-	$	6,109	$	130	$	5,709	$	3	$	5,045	$	147
With allowance recorded:
Residential mortgage		-		-		-		-		80		-		-		-
Commercial mortgage		566		-		82		-		1,837		-		590		-
Commercial:
Commercial term		-		-		-		-		50		-		-		-
Commercial construction		2,163		-		2,031		27		3,245		-		2,203		66
Lease financing		-		-		-		-		-		-		-		-
Consumer:
Home equity		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-
Total	$	2,729	$	-	$	2,113	$	27	$	5,212	$	-	$	2,793	$	66
Total:
Residential mortgage		2,472		-		2,409		-		2,508		-		2,207		-
Commercial mortgage		1,784		-		322		-		3,734		-		761		1
Commercial:
Commercial term		-		-		76		-		50		-		139		12
Commercial construction		3,440		-		5,208		157		4,429		-		4,521		196
Lease financing		-		-		46		-		14		-		54		-
Consumer:
Home equity		60		-		119		-		62		-		90		2
Other		102		-		42		-		124		3		66		2
Total	$	7,858	$	-	$	8,222	$	157	$	10,921	$	3	$	7,838	$	213

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 September 30, 2013 and December 31, 2012.

Credit Quality Indicators



		September 30, 2013
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	21,409	$	-	$	2,405	$	-	$	23,814
Commercial mortgage		216,787		5,109		4,733		-		226,629
Commercial:
Commercial term		88,190		73		203		-		88,466
Commercial construction		12,822		-		1,967		700		15,489
Lease financing		3		-		-		-		3
Consumer:
Home equity		38,377		-		249		-		38,626
Other		6,208		-		4		-		6,212
Total	$	383,796	$	5,182	$	9,561	$	700	$	399,239



		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 September 30, 2013 and December 31, 2012, the activity for the three and nine months ended September 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 - July 1, 2013	$	309	$	3,110	$	484	$	2,004	$	-	$	181	$	80	$	522	$	6,690
Charge-offs		1		(322)		(13)		(3,648)		-		-		(12)		-		(3,994)
Recoveries		5		-		-		-		4		-		1		-		10
Provisions		(132)		(155)		99		1,846		(4)		11		9		(74)		1,600
Ending balance - September 30, 2013	$	183	$	2,633	$	570	$	202	$	-	$	192	$	78	$	448	$	4,306



		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		(183)		(716)		(235)		(3,648)		(26)		-		(17)		-		(4,825)
Recoveries		75		-		5		-		57		-		1		-		138
Provisions		(15)		255		294		2,314		(34)		14		8		(681)		2,155
Ending balance - September 30, 2013	$	183	$	2,633	$	570	$	202	$	-	$	192	$	78	$	448	$	4,306

Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Ending balance: collectively evaluated for impairment	$	183	$	2,633	$	570	$	202	$	-	$	192	$	78	$	448	$	4,306
Loans receivables:
Ending balance	$	23,814	$	226,629	$	88,466	$	15,489	$	3	$	38,626	$	6,212			$	399,239

Ending balance: individually evaluated for impairment	$	2,499	$	281	$	-	$	2,554	$	-	$	60	$	102			$	5,496

Ending balance: collectively evaluated for impairment	$	21,315	$	226,348	$	88,466	$	12,935	$	3	$	38,566	$	6,110			$	393,743

Reserve for unfunded loan commitments	$	-	$	17	$	88	$	37	$	-	$	10	$	-			$	152



		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 - July 1, 2012	$	378	$	2,860	$	485	$	1,455	$	5	$	176	$	92	$	763	$	6,214
Charge-offs		(81)		-		(10)		-		-		-		-		-		(91)
Recoveries		5		-		23		-		26		-		5		-		59
Provisions		104		526		(10)		(30)		(28)		(5)		(7)		(175)		375
Ending balance - September 30, 2012	$	406	$	3,386	$	488	$	1,425	$	3	$	171	$	90	$	588	$	6,557



		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		(99)		-		(28)		(848)		(1)		-		(9)		-		(985)
Recoveries		15		-		26		-		36		-		26		-		103
Provisions		107		(56)		16		1,244		(42)		6		(22)		22		1,275
Ending balance - September 30, 2012	$	406	$	3,386	$	488	$	1,425	$	3	$	171	$	90	$	588	$	6,557



		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