NOTE 4: 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 scheduled payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2015 and December 31, 2014.

Age Analysis of Past Due Loans Receivable



March 31, 2015
														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		Receivable		Accruing
Residential mortgage	$	1,408	$	-	$	2,635	$	4,043	$	22,495	$	26,538	$	189
Commercial mortgage		43		-		363		406		268,180		268,586		-
Commercial:
Commercial term		-		-		-		-		81,730		81,730		-
Commercial construction		-		-		2,043		2,043		28,372		30,415		-
Consumer:
Home equity		16		112		405		533		50,736		51,269		50
Other		-		-		194		194		5,368		5,562		-
Total	$	1,467	$	112	$	5,640	$	7,219	$	456,881	$	464,100	$	239



December 31, 2014
														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		Receivable		Accruing
Residential mortgage	$	1,005	$	302	$	2,648	$	3,955	$	22,038	$	25,993	$	191
Commercial mortgage		48		187		236		471		256,839		257,310		-
Commercial:
Commercial term		-		-		-		-		80,819		80,819		-
Commercial construction		-		-		2,043		2,043		33,491		35,534		-
Consumer:
Home equity		58		214		386		658		49,534		50,192		119
Other		71		70		119		260		5,495		5,755		24
Total	$	1,182	$	773	$	5,432	$	7,387	$	448,216	$	455,603	$	334

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2015 and 2014 and as of December 31, 2014.

Impaired Loans





		March 31, 2015						December 31, 2014
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,182	$	2,958	$	-	$	2,457	$	3,270	$	-
Commercial mortgage		3,372		3,492		-		3,400		3,501		-
Commercial construction		1,094		1,877		-		1,706		4,822		-
Consumer:
Home equity		459		474		-		549		564		-
Other		194		194		-		94		102		-
Total	$	7,301	$	8,995	$	-	$	8,206	$	12,259	$	-
With allowance recorded:
Residential mortgage		408		445		1		-		-		-
Commercial mortgage		202		202		106		200		200		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		1,062		4,976		147		450		2,031		50
Consumer:
Home equity		88		88		31		-		-		-
Total	$	1,960	$	5,916	$	401	$	850	$	2,433	$	273
Total:
Residential mortgage		2,590		3,403		1		2,457		3,270		-
Commercial mortgage		3,574		3,694		106		3,600		3,701		104
Commercial:
Commercial term		200		205		116		200		202		119
Commercial construction		2,156		6,853		147		2,156		6,853		50
Consumer:
Home equity		547		562		31		549		564		-
Other		194		194		-		94		102		-
Total	$	9,261	$	14,911	$	401	$	9,056	$	14,692	$	273




		Three Months Ended				Three Months Ended
		March 31, 2015				March 31, 2014
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,320	$	-	$	1,872	$	-
Commercial mortgage		3,386		26		2,509		-
Commercial construction		1,400		-		797		-
Consumer:
Home equity		504		1		415		1
Other		144		-		47		-
Total	$	7,754	$	27	$	5,640	$	1
With allowance recorded:
Residential mortgage		204		-		377		-
Commercial mortgage		201		-		36		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		756		-		1,684		-
Consumer:
Home equity		44		-		-		-
Other		-		-		71		-
Total	$	1,405	$	-	$	2,168	$	-
Total:
Residential mortgage		2,524		-		2,249		-
Commercial mortgage		3,587		26		2,545		-
Commercial:
Commercial term		200		-		-		-
Commercial construction		2,156		-		2,481		-
Consumer:
Home equity		548		1		415		1
Other		144		-		118		-
Total	$	9,159	$	27	$	7,808	$	1

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 March 31, 2015 and December 31, 2014.

Credit Quality Indicators



		March 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,817	$	-	$	2,721	$	-	$	26,538
Commercial mortgage		256,698		2,593		9,295		-		268,586
Commercial:
Commercial term		76,192		72		5,466		-		81,730
Commercial construction		25,846		-		4,569		-		30,415
Consumer:
Home equity		50,690		-		579		-		51,269
Other		5,368		-		194		-		5,562
Total	$	438,611	$	2,665	$	22,824	$	-	$	464,100



		December 31, 2014
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	23,259	$	-	$	2,734	$	-	$	25,993
Commercial mortgage		245,307		2,610		9,393		-		257,310
Commercial:
Commercial term		75,303		72		5,444		-		80,819
Commercial construction		31,057		-		4,477		-		35,534
Consumer:
Home equity		49,611		-		581		-		50,192
Other		5,661		-		94		-		5,755
Total	$	430,198	$	2,682	$	22,723	$	-	$	455,603

As of March 31, 2015, DNB had one commercial mortgage classified as a TDR totaling $2,234,000, compared to one commercial mortgage classified as a TDR totaling $2,246,000 (the same loan) at December 31, 2014, and one commercial mortgage classified as a TDR totaling $2,272,000 (the same loan) at March 31, 2014. The rate on this loan was modified and the terms of the loans were changed to interest only while the project was being built out. The loan commenced normal principal and interest payments in June 2014. The loan was extended and there was no reduction of principal. The balance of the loan prior to modification was $2,272,000 and the balance after the modification was $2,272,000. During the three months ended March 31, 2015, there were no defaults on any terms of this loan.

As of March 31, 2015, DNB had one consumer home equity loan classified as a TDR totaling $102,000, compared to one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at December 31, 2014, and no such loans at March 31, 2014. The monthly payment on this loan was reduced for 36 months and the borrower will resume making contractual payments at the end of this period. The loan was extended and there was no reduction of principal. This loan was classified a TDR in June of 2014. The balance of the loan prior to modification was $102,000 and the balance after the modification was $102,000. During the three months ended March 31, 2015, there were no defaults on any terms of this loan.

Loans classified as TDR, are considered impaired. The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2015 and December 31, 2014, the activity for the three months ended March 31, 2015 and 2014 and as of and for the year ended December 31, 2014.

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 - January 1, 2015	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Charge-offs		-		-		(11)		-		-		-		(6)		-		(17)
Recoveries		-		-		-		-		1		-		-		-		1
Provisions		-		98		7		41		(1)		35		2		118		300
Ending balance - March 31, 2015	$	269	$	2,398	$	705	$	922	$	-	$	224	$	66	$	606	$	5,190

Ending balance: individually evaluated for impairment	$	1	$	106	$	116	$	147	$	-	$	31	$	-	$	-	$	401

Ending balance: collectively evaluated for impairment	$	268	$	2,292	$	589	$	775	$	-	$	193	$	66	$	606	$	4,789
Loans receivables:
Ending balance	$	26,538	$	268,586	$	81,730	$	30,415	$	-	$	51,269	$	5,562			$	464,100

Ending balance: individually evaluated for impairment	$	2,590	$	3,574	$	200	$	2,156	$	-	$	547	$	194			$	9,261

Ending balance: collectively evaluated for impairment	$	23,948	$	265,012	$	81,530	$	28,259	$	-	$	50,722	$	5,368			$	454,839

Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	87	$	53	$	-	$	12	$	-			$	156



	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, 2014	$	285	$	2,010	$	621	$	1,033	$	-		156	$	78	$	440	$	4,623
Charge-offs		-		-		(7)		(261)		-		-		-		-		(268)
Recoveries		3		-		-		10		1		-		6		-		20
Provisions		59		156		38		24		(1)		11		41		47		375
Ending balance - March 31, 2014	$	347	$	2,166	$	652	$	806	$	-	$	167	$	125	$	487	$	4,750
Reserve for unfunded loan commitments included in other liabilities	$	-	$	11	$	70	$	50	$	-	$	11	$	-			$	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:
Ending balance - December 31, 2014	$	269	$	2,300	$	709	$	881	$	-	$	189	$	70	$	488	$	4,906
Ending balance: individually evaluated for impairment	$	-	$	104	$	119	$	50	$	-	$	-	$	-	$	-	$	273
Ending balance: collectively evaluated for impairment	$	269	$	2,196	$	590	$	831	$	-	$	189	$	70	$	488	$	4,633
Loans receivables:
Ending balance	$	25,993	$	257,310	$	80,819	$	35,534	$	-	$	50,192	$	5,755			$	455,603
Ending balance: individually evaluated for impairment	$	2,457	$	3,600	$	200	$	2,156	$	-	$	549	$	94			$	9,056
Ending balance: collectively evaluated for impairment	$	23,536	$	253,710	$	80,619	$	33,378	$	-	$	49,643	$	5,661			$	446,547
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	89	$	55	$	-	$	12	$	-			$	166