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, 2016 and December 31, 2015.

Age Analysis of Past Due Loans Receivable



March 31, 2016
														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	$	-	$	384	$	1,945	$	2,329	$	25,231	$	27,560	$	164
Commercial mortgage		-		-		182		182		274,190		274,372		-
Commercial:
Commercial term		-		-		24		24		107,208		107,232		-
Commercial construction		-		-		447		447		24,386		24,833		-
Consumer:
Home equity		31		-		417		448		49,097		49,545		-
Other		26		12		147		185		5,639		5,824		-
Total	$	57	$	396	$	3,162	$	3,615	$	485,751	$	489,366	$	164



December 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	$	502	$	552	$	2,076	$	3,130	$	25,521	$	28,651	$	457
Commercial mortgage		36		86		96		218		273,914		274,132		-
Commercial:
Commercial term		-		-		-		-		102,178		102,178		-
Commercial construction		-		581		447		1,028		19,336		20,364		-
Consumer:
Home equity		7		310		153		470		50,800		51,270		-
Other		100		-		148		248		4,915		5,163		-
Total	$	645	$	1,529	$	2,920	$	5,094	$	476,664	$	481,758	$	457

The following tables summarize information in regards to impaired loans by loan portfolio class as of and for the three months ended March 31, 2016 and 2015 and as of December 31, 2015.

Impaired Loans





		March 31, 2016						December 31, 2015
		Recorded		Unpaid		Related		Recorded		Unpaid		Related
		Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)				Balance						Balance
With no related allowance recorded:
Residential mortgage	$	1,637	$	1,790	$	-	$	1,620	$	1,919	$	-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		24		24		-		-		-		-
Commercial construction		790		790		-		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		92		100		-		82		90		-
Total	$	4,244	$	4,759	$	-	$	4,714	$	7,712	$	-
With allowance recorded:
Residential mortgage		144		290		1		-		-		-
Commercial:
Commercial term		186		200		107		200		211		110
Commercial construction		447		2,833		89		-		-		-
Consumer:
Other		107		107		3		107		107		4
Total	$	884	$	3,430	$	200	$	307	$	318	$	114
Total:
Residential mortgage		1,781		2,080		1		1,620		1,919		-
Commercial mortgage		1,025		1,320		-		1,181		1,461		-
Commercial:
Commercial term		210		224		107		200		211		110
Commercial construction		1,237		3,623		89		1,140		3,526		-
Consumer:
Home equity		676		735		-		691		716		-
Other		199		207		3		189		197		4
Total	$	5,128	$	8,189	$	200	$	5,021	$	8,030	$	114




		Three Months Ended				Three Months Ended
		March 31, 2016				March 31, 2015
		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income
(Dollars in thousands)		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	1,629	$	-	$	2,320	$	-
Commercial mortgage		1,103		-		3,386		26
Commercial:
Commercial term		12		-		-		-
Commercial construction		965		-		1,400		-
Consumer:
Home equity		684		1		504		1
Other		87		-		144		-
Total	$	4,480	$	1	$	7,754	$	27
With allowance recorded:
Residential mortgage		72		-		204		-
Commercial mortgage		-		-		201		-
Commercial:
Commercial term		193		-		200		-
Commercial construction		224		-		756		-
Consumer:
Home equity		-		-		44		-
Other		107		-		-		-
Total	$	596	$	-	$	1,405	$	-
Total:
Residential mortgage		1,701		-		2,524		-
Commercial mortgage		1,103		-		3,587		26
Commercial:
Commercial term		205		-		200		-
Commercial construction		1,189		-		2,156		-
Consumer:
Home equity		684		1		548		1
Other		194		-		144		-
Total	$	5,076	$	1	$	9,159	$	27

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, 2016 and December 31, 2015.

Credit Quality Indicators



		March 31, 2016
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	25,512	$	-	$	2,048	$	-	$	27,560
Commercial mortgage		260,529		4,763		9,080		-		274,372
Commercial:
Commercial term		98,787		2,507		5,938		-		107,232
Commercial construction		21,781		-		3,052		-		24,833
Consumer:
Home equity		48,814		-		731		-		49,545
Other		5,625		-		199		-		5,824
Total	$	461,048	$	7,270	$	21,048	$	-	$	489,366



		December 31, 2015
				Special
(Dollars in thousands)		Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	26,762	$	-	$	1,889	$	-	$	28,651
Commercial mortgage		262,036		4,802		7,294		-		274,132
Commercial:
Commercial term		93,025		2,555		6,598		-		102,178
Commercial construction		17,521		-		2,843		-		20,364
Consumer:
Home equity		50,551		-		719		-		51,270
Other		4,974		-		189		-		5,163
Total	$	454,869	$	7,357	$	19,532	$	-	$	481,758

Loans classified as troubled debt restructurings (“TDR”) are considered impaired. As of March 31, 2016, DNB had no commercial mortgages classified as a TDR, compared to no commercial mortgages classified as a TDR at December 31, 2015, and one commercial mortgage classified as a TDR totaling $2,234,000 at March 31, 2015. This loan paid off during the third quarter of 2015. 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, 2016, 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, 2015, and one consumer home equity loan classified as a TDR totaling $102,000 (the same loan) at March 31, 2015. 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, 2016 and 2015, there were no defaults on any terms of this loan.

As of March 31, 2016, DNB had one consumer installment loan classified as a TDR totaling $40,000 compared to no such loans at December 31, 2015 or March 31, 2015. The interest rate on the loan was reduced. The loan was extended and there was no reduction of principal. This loan was classified as a TDR in December of 2015. The balance of the loan prior to modification was $42,000 and the balance after the modification was $42,000. DNB recognized a partial charge-off on the loan in the amount of $2,000. During the three months ended March 31, 2016 and 2015, 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 March 31, 2016 and December 31, 2015, the activity for the three months ended March 31, 2016 and 2015 and as of and for the year ended December 31, 2015.

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, 2016	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Charge-offs		(84)		-		(13)		-		-		-		-		-		(97)
Recoveries		1		-		1		1		1		-		-		-		4
Provisions		87		1		(29)		195		(1)		(7)		3		81		330
Ending balance - March 31, 2016	$	220	$	2,376	$	948	$	765	$	-	$	188	$	67	$	608	$	5,172
Ending balance: individually evaluated for impairment	$	1	$	-	$	107	$	89	$	-	$	-	$	3	$	-	$	200
Ending balance: collectively evaluated for impairment	$	219	$	2,376	$	841	$	676	$	-	$	188	$	64	$	608	$	4,972
Loans receivables:
Ending balance	$	27,560	$	274,372	$	107,232	$	24,833	$	-	$	49,545	$	5,824			$	489,366
Ending balance: individually evaluated for impairment	$	1,781	$	1,025	$	210	$	1,237	$	-	$	676	$	199			$	5,128
Ending balance: collectively evaluated for impairment	$	25,779	$	273,347	$	107,022	$	23,596	$	-	$	48,869	$	5,625			$	484,238
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	115	$	55	$	-	$	13	$	-			$	186



	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
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:
Ending balance - December 31, 2015	$	216	$	2,375	$	989	$	569	$	-	$	195	$	64	$	527	$	4,935
Ending balance: individually evaluated for impairment	$	-	$	-	$	110	$	-	$	-	$	-	$	4	$	-	$	114
Ending balance: collectively evaluated for impairment	$	216	$	2,375	$	879	$	569	$	-	$	195	$	60	$	527	$	4,821
Loans receivables:
Ending balance	$	28,651	$	274,132	$	102,178	$	20,364	$	-	$	51,270	$	5,163			$	481,758
Ending balance: individually evaluated for impairment	$	1,620	$	1,181	$	200	$	1,140	$	-	$	691	$	189			$	5,021
Ending balance: collectively evaluated for impairment	$	27,031	$	272,951	$	101,978	$	19,224	$	-	$	50,579	$	4,974			$	476,737
Reserve for unfunded loan commitments included in other liabilities	$	-	$	2	$	115	$	58	$	-	$	13	$	-			$	188