NOTE 5: ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses, for the periods indicated, are as follows:


	Six Months Ended June 30
(Dollars in thousands)	2012	2011
Beginning balance	$6,164	$5,884
Provision	900	852
Loans charged off	(893)	(186)
Leases charged off	(1)	(187)
Recoveries	44	80
Net charge-offs	(850)	(293)
Ending balance	$6,214	$6,443
Reserve for unfunded loan commitments	$99	$113

Impaired loans are loans individually evaluated for collectability, and which will probably not be collected in accordance with their contractual terms. Information regarding impaired loans is for the periods indicated is as follows:


	Six Months Ended June 30
(Dollars in thousands)	2012	2011
Total recorded investment	$9,146	$6,976
Impaired loans with a specific allowance	2,114	3,971
Impaired loans without a specific allowance	7,032	3,005
Average recorded investment	8,018	7,073
Specific allowance allocation	851	578
Total cash collected	249	823
Interest income recorded	56	6

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, 2012 and December 31, 2011.

Age Analysis of Past Due Loans Receivables


					June 30, 2012
							Loans Receivable
(Dollars in thousands)	30-59 Days Past Due	60-89 Days Past Due	Greater than 90 Days	Total Past Due	Current	Total Loans Receivables	> 90 Days and Accruing
Residential mortgage	$516	$61	$2,286	$2,863	$23,188	$26,051	$—
Commercial mortgage	2,489	—	322	2,811	240,572	243,383	—
Commercial:
Commercial term	—	—	86	86	78,611	78,697	—
Commercial construction	—	—	3,796	3,796	12,423	16,219	—
Lease financing	—	2	60	62	39	101	—
Consumer:
Home equity	10	94	119	223	35,166	35,389	—
Other	—	21	—	21	7,344	7,365	—
Total	$3,015	$178	$6,669	$9,862	$397,343	$407,205	$—

					December 31, 2011
							Loans Receivable
(Dollars in thousands)	30-59 Days Past Due	60-89 Days Past Due	Greater than 90 Days	Total Past Due	Current	Total Loans Receivables	> 90 Days and Accruing
Residential mortgage	$692	$—	$1,873	$2,565	$23,896	$26,461	$—
Commercial mortgage	257	—	2,324	2,581	229,716	232,297	210
Commercial:
Commercial term	—	54	200	254	76,048	76,302	—
Commercial construction	—	—	312	312	24,506	24,818	—
Lease financing	—	—	61	61	130	191	—
Consumer:
Home equity	175	—	60	235	35,807	36,042	—
Other	15	—	21	36	7,537	7,573	—
Total	$1,139	$54	$4,851	$6,044	$397,640	$403,684	$210

The following table sets forth those assets that are: (i) placed on non-accrual status, (ii) contractually delinquent by 90 days or more and still accruing, (iii) troubled debt restructurings other than those included in items (i) and (ii), and (iv) OREO as a result of foreclosure or voluntary transfer to DNB as well as other repossessed assets.

Non-Performing Assets


(Dollars in thousands)	June 30, 2012		Dec. 31, 2011
Non-accrual loans:
Residential mortgage	$2,286		$1,873
Commercial mortgage		322	2,114
Commercial		6,177	3,233
Lease financing		60	61
Consumer		159	151
Total non-accrual loans		9,004	7,432
Loans 90 days past due and still accruing		—	210
Troubled debt restructurings		—	—
Total non-performing loans		9,004	7,642
Other real estate owned & other repossessed property		3,776	3,974
Total non-performing assets		$12,780	$11,616

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, 2012 and as of and for the year ended December 31, 2011.

Impaired Loans


				June 30, 2012
(Dollars in thousands)	Recorded Investment	Unpaid Principal Balance	Related Allowance		Average Recorded Investment 3 months ended June 30, 2012	Average Recorded Investment 6 months ended June 30, 2012	Interest Income Recognized 3 months ended June 30, 2012	Interest Income Recognized 6 months ended June 30, 2012
With no related allowance recorded:
Residential mortgage	$2,428	$2,844	$—		$2,212	$2,146	$—	$—
Commercial mortgage	239	245	—		223	149	1	1
Commercial:
Commercial term	87	442	—		144	163	12	12
Commercial construction	4,059	5,342	—		3,333	2,326	—	—
Lease financing	60	74	—		60	60	—	—
Consumer	159	160	—		154	153	4	4
With allowance recorded:
Residential mortgage	—	—	—		—	—	—	—
Commercial mortgage	83	85	45		83	760	—	—
Commercial:
Commercial term	—	—	—		—	—	—	—
Commercial construction	2,031	2,031	806		2,031	2,261	39	39
Lease financing	—	—	—		—	—	—	—
Consumer	—	—	—		—	—	—	—
Total:
Residential mortgage	2,428	2,844	—		2,212	2,146	—	—
Commercial mortgage	322	330	45		306	909	1	1
Commercial:
Commercial term	87	442	—		144	163	12	12
Commercial construction	6,090	7,373	806		5,364	4,587	39	39
Lease financing	60	74	—		60	60	—	—
Consumer	159	160	—		154	153	4	4
Total	$9,146	$11,223	$851		8,240	$8,018	$56	$56


				December 31, 2011
(Dollars in thousands)	Recorded Investment	Unpaid Principal Balance	Related Allowance		Average Recorded Investment 3 months ended Dec 31, 2011	Average Recorded Investment year ended Dec 31. 2011	Interest Income Recognized 3 months ended Dec 31, 2011	Interest Income Recognized year ended Dec 31, 2011
With no related allowance recorded:
Residential mortgage	$2,014	$2,413	$—		$1,262	$1,095	$—	$—
Commercial mortgage	—	—	—		1,019	821	—	58
Commercial:
Commercial term	202	566	—		217	206	—	1
Commercial construction	312	634	—		156	339	—	—
Lease financing	61	74	—		63	123	—	—
Consumer	151	152	—		107	79	—	—
With allowance recorded:
Residential mortgage	—	—	—		755	959	—	—
Commercial mortgage	2,114	2,116	826		1,057	444	—	—
Commercial:
Commercial term	—	—	—		192	450	—	—
Commercial construction	2,720	2,833	359		2,952	2,813	—	—
Lease financing	—	—	—		—	27	—	—
Consumer	—	—	—		—	—	—	—
Total:
Residential mortgage	2,014	2,413	—		2,017	2,054	—	—
Commercial mortgage	2,114	2,116	826		2,076	1,265	—	58
Commercial:
Commercial term	202	566	—		409	656	—	1
Commercial construction	3,032	3,467	359		3,108	3,152	—	—
Lease financing	61	74	—		63	150	—	—
Consumer	151	152	—		107	79	—	—
Total	$7,574	$8,788	$1,185		$7,780	$7,356	$—	$59

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, 2012 and December 31, 2011.

Credit Quality Indicators


	June 30, 2012
(Dollars in thousands)	Pass	Special Mention	Substandard	Doubtful	Total
Residential mortgage	$24,138	$—	$1,913	$—	$26,051
Commercial mortgage	223,625	14,946	4,812	—	243,383
Commercial:
Commercial term	77,600	573	459	65	78,697
Commercial construction	6,225	—	7,963	2,031	16,219
Lease financing	101	—	—	—	101
Consumer:
Home equity	35,081	—	308	—	35,389
Other	7,365	—	—	—	7,365
Total	$374,135	$15,519	$15,455	$2,096	$407,205


		December 31, 2011
(Dollars in thousands)	Pass		Special Mention	Substandard	Doubtful	Total
Residential mortgage	$24,589		$—	$1,872	$—	$26,461
Commercial mortgage	214,086		11,346	4,834	—	230,266
Commercial:
Commercial term	74,961		690	586	65	76,302
Commercial construction	17,624		—	7,194	2,031	26,849
Lease financing	191		—	—	—	191
Consumer:
Home equity	35,976		—	66	—	36,042
Other	7,573		—	—	—	7,573
Total	$375,000		$12,036	$14,552	$2,096	$403,684

The following tables sets forth the composition of DNB's allowance for credit losses as of June 30, 2012, the activity for the three and six months ended June 30, 2012 and the twelve months ended December 31, 2011.

Allowance for Credit Losses and Recorded Investment in Loans Receivables

(Dollars in thousands)	Commercial	Lease financing	Residential mortgage	Consumer	Unallocated	Total
Allowance for credit losses:
Beginning balance - April 1, 2012	$4,967	$7	$376	$273	$519	$6,142
Charge-offs	(429)	(1)	—	(1)	—	(431)
Recoveries	—	10	5	13	—	28
Provisions	262	(11)	(3)	(17)	244	475
Ending balance - June 30, 2012	$4,800	$5	$378	$268	$763	$6,214

(Dollars in thousands)	Commercial	Lease financing	Residential mortgage	Consumer	Unallocated	Total
Allowance for credit losses:
Beginning balance - January 1, 2012	$4,945	$10	$383	$260	$566	$6,164
Charge-offs	(866)	(1)	(18)	(9)	—	(894)
Recoveries	3	10	10	21	—	44
Provisions	718	(14)	3	(4)	197	900
Ending balance - June 30, 2012	$4,800	$5	$378	$268	$763	$6,214
Ending balance: individually evaluated for impairment	$851	$—	$—	$—	$—	$851
Ending balance: collectively evaluated for impairment	$3,949	$5	$378	$268	$763	$5,363
Loans receivables:
Ending balance	$338,299	$101	$26,051	$42,754		$407,205
Ending balance: individually evaluated for impairment	$6,499	$60	$2,428	$159		$9,146
Ending balance: collectively evaluated for impairment	$331,800	$41	$23,623	$42,595		$398,059
Reserve for unfunded loan commitments	$90	$—	$—	$9		$99

(Dollars in thousands)	Commercial	Lease financing	Residential mortgage	Consumer	Unallocated	Total
Allowance for credit losses:
Beginning balance - April 1, 2011	$4,472	$121	$521	$486	$707	$6,307
Charge-offs	(6)	(187)	(126)	—	—	(319)
Recoveries	1	—	16	12	—	29
Provisions	218	85	(25)	(16)	164	426
Ending balance - June 30, 2011	$4,685	$19	$386	$482	$871	$6,443

(Dollars in thousands)	Commercial	Lease financing	Residential mortgage	Consumer	Unallocated	Total
Allowance for credit losses:
Beginning balance - January 1, 2011	$4,387	$86	$454	$482	$475	$5,884
Charge-offs	(20)	(187)	(166)	—	—	(373)
Recoveries	5	1	62	12	—	80
Provisions	313	119	36	(12)	396	852
Ending balance - June 30, 2011	$4,685	$19	$386	$482	$871	$6,443
Ending balance: individually evaluated for impairment	$578	$—	$—	$—	$—	$578
Ending balance: collectively evaluated for impairment	$4,107	$19	$386	$482	$871	$5,865
Loans receivables:
Ending balance	$341,006	$385	$28,887	$47,195		$417,473
Ending balance: individually evaluated for impairment	$4,809	$76	$2,031	$60		$6,976
Ending balance: collectively evaluated for impairment	$336,197	$309	$26,856	$47,135		$410,497
Reserve for unfunded loan commitments	$95	$—	$—	$18		$113



(Dollars in thousands)	Commercial	Lease financing	Residential mortgage	Consumer	Unallocated	Total
Allowance for credit losses:
Beginning balance - January 1, 2011	$4,387	$86	$454	$482	$475	$5,884
Charge-offs	(768)	(200)	(280)	(64)	—	(1,312)
Recoveries	9	3	79	21	—	112
Provisions	1,317	121	130	(179)	91	1,480
Ending balance - December 31, 2011	$4,945	$10	$383	$260	$566	$6,164
Ending balance: individually evaluated for impairment	$1,185	$—	$—	$—	$—	$1,185
Ending balance: collectively evaluated for impairment	$3,760	$10	$383	$260	$566	$4,979
Loans receivables:
Ending balance	$333,417	$191	$26,461	$43,615		$403,684
Ending balance: individually evaluated for impairment	$5,348	$61	$2,014	$151		$7,574
Ending balance: collectively evaluated for impairment	$328,069	$130	$24,447	$43,464		$396,110
Reserve for unfunded loan commitments	$90	$—	$—	$9		$99