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 June 30, 2015 and December 31, 2014.

Age Analysis of Past Due Loans Receivable



June 30, 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	$	1,248	$	615	$	1,763	$	3,626	$	22,667	$	26,293	$	168
Commercial mortgage		182		-		339		521		287,462		287,983		-
Commercial:
Commercial term		-		-		-		-		79,563		79,563		-
Commercial construction		-		-		749		749		21,850		22,599		-
Consumer:
Home equity		39		-		322		361		50,028		50,389		-
Other		40		-		169		209		5,299		5,508		-
Total	$	1,509	$	615	$	3,342	$	5,466	$	466,869	$	472,335	$	168



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 and six months ended June 30, 2015 and 2014 and as of December 31, 2014.

Impaired Loans





		June 30, 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	$	1,671	$	2,403	$	-	$	2,457	$	3,270	$	-
Commercial mortgage		3,362		3,495		-		3,400		3,501		-
Commercial construction		250		2,031		-		1,706		4,822		-
Consumer:
Home equity		547		561		-		549		564		-
Other		169		177		-		94		102		-
Total	$	5,999	$	8,667	$	-	$	8,206	$	12,259	$	-
With allowance recorded:
Commercial mortgage		202		202		106		200		200		104
Commercial:
Commercial term		200		207		114		200		202		119
Commercial construction		612		2,945		97		450		2,031		50
Total	$	1,014	$	3,354	$	317	$	850	$	2,433	$	273
Total:
Residential mortgage		1,671		2,403		-		2,457		3,270		-
Commercial mortgage		3,564		3,697		106		3,600		3,701		104
Commercial:
Commercial term		200		207		114		200		202		119
Commercial construction		862		4,976		97		2,156		6,853		50
Consumer:
Home equity		547		561		-		549		564		-
Other		169		177		-		94		102		-
Total	$	7,013	$	12,021	$	317	$	9,056	$	14,692	$	273




		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
		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	$	1,927	$	-	$	1,614	$	-	$	2,103	$	-	$	1,826	$	-
Commercial mortgage		3,367		29		2,508		-		3,378		57		2,506		-
Commercial construction		672		-		1,094		-		1,017		-		896		-
Consumer:
Home equity		503		1		428		2		518		2		430		3
Other		182		-		22		-		152		-		40		-
Total	$	6,651	$	30	$	5,666	$	2	$	7,168	$	59	$	5,698	$	3
With allowance recorded:
Residential mortgage		204		-		377		-		136		-		251		-
Commercial mortgage		202		-		18		-		201		-		24		-
Commercial:
Commercial term		200		-		-		-		200		-		-		-
Commercial construction		837		-		1,312		-		708		-		1,560		-
Consumer:
Home equity		44		-		-		-		29		-		-		-
Other		-		-		105		-		-		-		71		-
Total	$	1,487	$	-	$	1,812	$	-	$	1,274	$	-	$	1,906	$	-
Total:
Residential mortgage		2,131		-		1,991		-		2,239		-		2,077		-
Commercial mortgage		3,569		29		2,526		-		3,579		57		2,530		-
Commercial:
Commercial term		200		-		-		-		200		-		-		-
Commercial construction		1,509		-		2,406		-		1,725		-		2,456		-
Consumer:
Home equity		547		1		428		2		547		2		430		3
Other		182		-		127		-		152		-		111		-
Total	$	8,138	$	30	$	7,478	$	2	$	8,442	$	59	$	7,604	$	3

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, 2015 and December 31, 2014.

Credit Quality Indicators



		June 30, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	24,349	$	-	$	1,944	$	-	$	26,293
Commercial mortgage		276,065		2,577		9,341		-		287,983
Commercial:
Commercial term		73,460		72		6,031		-		79,563
Commercial construction		18,851		-		3,748		-		22,599
Consumer:
Home equity		49,812		-		577		-		50,389
Other		5,339		-		169		-		5,508
Total	$	447,876	$	2,649	$	21,810	$	-	$	472,335



		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

Loans classified as troubled debt restructurings (“TDR”) are considered impaired. As of June 30, 2015, DNB had one commercial mortgage classified as a TDR totaling $2,222,000, 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 $2,269,000 (the same loan) at June 30, 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 and six months ended June 30, 2015 and 2014, there were no defaults on any terms of this loan.

As of June 30, 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 one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at June 30, 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 and six months ended June 30, 2015 and 2014, there were no defaults on any terms of this loan.

The following tables set forth the composition of DNB’s allowance for credit losses as of June 30, 2015 and December 31, 2014, the activity for the three and six months ended June 30, 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 - April 1, 2015	$	269	$	2,398	$	705	$	922	$	-	$	224	$	66	$	606	$	5,190
Charge-offs		(35)		-		(163)		(278)		-		(1)		(24)		-		(501)
Recoveries		-		-		2		-		1		-		1		-		4
Provisions		31		164		177		130		(1)		(33)		22		(75)		415
Ending balance - June 30, 2015	$	265	$	2,562	$	721	$	774	$	-	$	190	$	65	$	531	$	5,108



	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		(35)		-		(174)		(278)		-		(1)		(30)		-		(518)
Recoveries		-		-		2		-		2		-		1		-		5
Provisions		31		262		184		171		(2)		2		24		43		715
Ending balance - June 30, 2015	$	265	$	2,562	$	721	$	774	$	-	$	190	$	65	$	531	$	5,108

Ending balance: individually evaluated for impairment	$	-	$	106	$	114	$	97	$	-	$	-	$	-	$	-	$	317

Ending balance: collectively evaluated for impairment	$	265	$	2,456	$	607	$	677	$	-	$	190	$	65	$	531	$	4,791
Loans receivables:
Ending balance	$	26,293	$	287,983	$	79,563	$	22,599	$	-	$	50,389	$	5,508			$	472,335

Ending balance: individually evaluated for impairment	$	1,671	$	3,564	$	200	$	862	$	-	$	547	$	169			$	7,013

Ending balance: collectively evaluated for impairment	$	24,622	$	284,419	$	79,363	$	21,737	$	-	$	49,842	$	5,339			$	465,322

Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	107	$	56	$	-	$	13	$	-			$	180



	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, 2014	$	347	$	2,146	$	652	$	806	$	-	$	167	$	125	$	507	$	4,750
Charge-offs		(100)		(8)		(11)		-		-		-		(11)		-		(130)
Recoveries		2		-		2		-		5		-		3		-		12
Provisions		66		(7)		(2)		213		(5)		9		(19)		-		255
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887



	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		(100)		(8)		(18)		(261)		-		-		(11)		-		(398)
Recoveries		5		-		2		10		6		-		9		-		32
Provisions		125		129		36		237		(6)		20		22		67		630
Ending balance - June 30, 2014	$	315	$	2,131	$	641	$	1,019	$	-	$	176	$	98	$	507	$	4,887
Reserve for unfunded loan commitments included in other liabilities	$	-	$	10	$	79	$	60	$	-	$	11	$	-			$	160



	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