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, 2019 and December 31, 2018.

Age Analysis of Past Due Loans Receivable



	March 31, 2019
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	2,753	$	348	$	606	$	3,707	$	97,332	$	101,039	$	-
Commercial mortgage (less acquired with credit deterioration)		309		-		659		968		515,763		516,731		-
Acquired commercial mortgage with credit deterioration		-		-		-		-		505		505		-
Commercial:
Commercial term		6		-		748		754		181,323		182,077		-
Commercial construction		-		-		-		-		78,967		78,967		-
Consumer:
Home equity		284		-		391		675		48,737		49,412		-
Other		77		-		92		169		4,797		4,966		-
Total	$	3,429	$	348	$	2,496	$	6,273	$	927,424	$	933,697	$	-



	December 31, 2018
													Loans
	30-59		60-89										Receivable
	Days		Days		Greater						Total		> 90
	Past		Past		than		Total				Loans		Days and
(Dollars in thousands)	Due		Due		90 Days		Past Due		Current		Receivable		Accruing
Residential mortgage	$	666	$	1,742	$	845	$	3,253	$	96,679	$	99,932	$	130
Commercial mortgage (less acquired with credit deterioration)		-		-		840		840		534,739		535,579		103
Acquired commercial mortgage with credit deterioration		-		-		-		-		156		156		-
Commercial:
Commercial term		20		37		957		1,014		165,321		166,335		-
Commercial construction		-		-		-		-		76,302		76,302		-
Consumer:
Home equity		398		144		247		789		50,747		51,536		-
Other		26		-		108		134		4,997		5,131		-
Total	$	1,110	$	1,923	$	2,997	$	6,030	$	928,941	$	934,971	$	233

DNB had $362,000 of residential mortgage loans in the process of foreclosure and $97,000 in residential real estate in other real estate owned as of March 31, 2019. DNB had no residential mortgage loans in the process of foreclosure and $97,000 of residential real estate in other real estate owned as of December 31, 2018.

The following tables summarize information in regards to impaired loans by loan portfolio class as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018.

Impaired Loans


		March 31, 2019						December 31, 2018
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
	Investment		Principal		Allowance		Investment		Principal		Allowance
(Dollars in thousands)			Balance						Balance
With no related allowance recorded:
Residential mortgage	$	2,782	$	3,120	$	-	$	1,462	$	1,804	$	-
Commercial mortgage		2,177		2,573		-		1,532		1,780		-
Acquired commercial mortgage with credit deterioration		521		535		-		514		527
Commercial:
Commercial term		1,327		1,841		-		1,343		1,845		-
Commercial construction		-		-		-		476		514		-
Lease financing		-		-		-		-		-		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		156		205		-
Total	$	7,512	$	8,848	$	-	$	6,014	$	7,210	$	-
With allowance recorded:
Residential mortgage		-		-		-		73		73		1
Commercial mortgage		-		-		-		737		802		78
Commercial:
Commercial term		718		745		201		957		1,015		203
Consumer:
Other		-		-		-		41		42		3
Total	$	718	$	745	$	201	$	1,808	$	1,932	$	285
Total:
Residential mortgage		2,782		3,120		-		1,535		1,877		1
Commercial mortgage		2,177		2,573		-		2,269		2,582		78
Acquired commercial mortgage with credit deterioration		521		535		-		514		527		-
Commercial:
Commercial term		2,045		2,586		201		2,300		2,860		203
Commercial construction		-		-		-		476		514		-
Consumer:
Home equity		530		534		-		531		535		-
Other		175		245		-		197		247		3
Total	$	8,230	$	9,593	$	201	$	7,822	$	9,142	$	285


		Three Months Ended				Three Months Ended
		March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Residential mortgage	$	2,158	$	2	$	2,102	$	1
Commercial mortgage		2,223		12		2,759		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		1,335		-		1,918		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		164		-
Total	$	6,949	$	25	$	8,919	$	22
With allowance recorded:
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		-		-		51		-
Commercial:
Commercial term		837		-		630		-
Consumer:
Other		-		-		114		-
Total	$	837	$	-	$	799	$	-
Total:
Residential mortgage		2,158		2		2,102		1
Acquired residential mortgage with credit deterioration		-		-		4		-
Commercial mortgage		2,223		12		2,810		12
Acquired commercial mortgage with credit deterioration		517		9		861		7
Commercial:
Commercial term		2,172		-		2,548		-
Commercial construction		-		-		505		-
Consumer:
Home equity		530		1		610		2
Other		186		1		278		-
Total	$	7,786	$	25	$	9,718	$	22

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, 2019 and December 31, 2018.

Credit Quality Indicators



	March 31, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	98,441	$	433	$	2,165	$	-	$	101,039
Commercial mortgage		503,900		9,629		3,707		-		517,236
Commercial:
Commercial term		177,246		1,235		3,596		-		182,077
Commercial construction		74,840		3,642		485		-		78,967
Consumer:
Home equity		48,865		156		391		-		49,412
Other		4,821		-		145		-		4,966
Total	$	908,113	$	15,095	$	10,489	$	-	$	933,697



	December 31, 2018
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	97,577	$	-	$	2,355	$	-	$	99,932
Commercial mortgage		528,692		2,367		4,676		-		535,735
Commercial:
Commercial term		161,051		1,178		4,106		-		166,335
Commercial construction		72,077		3,603		622		-		76,302
Consumer:
Home equity		50,988		143		405		-		51,536
Other		4,924		-		207		-		5,131
Total	$	915,309	$	7,291	$	12,371	$	-	$	934,971

Troubled Debt Restructurings Loans whose terms are modified are classified as troubled debt restructurings (“TDR”) if DNB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. During the three month period ended March 31, 2019, DNB classified one residential mortgage loan totaling $1.4 million as TDR. The loan’s rate was changed but the term was not extended. During the three month period ended March 31, 2018, DNB did not classify any loans as TDR. Loans classified as troubled debt restructurings are designated as impaired. The recorded investments in troubled debt restructured loans at March 31, 2019 and December 31, 2018 are as follows:



	March 31, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,025	$	2,177	$	1,990
Commercial mortgage		992		992		955
Consumer:
Home equity		148		148		139
Other		40		42		30
Total	$	3,205	$	3,359	$	3,114

	December 31, 2018
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	676	$	805	$	630
Commercial mortgage		992		992		962
Consumer:
Home equity		148		148		140
Other		40		42		30
Total	$	1,856	$	1,987	$	1,762

At March 31, 2019, DNB had ten TDRs with recorded investment totaling $3,114,000, all of which are accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of March 31, 2019, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs during the three months ended March 31, 2019.

At December 31, 2018, DNB had nine TDRs with recorded investment totaling $1,762,000, all of which were accruing loans in compliance with the terms of the modifications. As a result of collateral evaluations, specific reserves and charge-offs have been taken where appropriate. As of December 31, 2018, DNB recognized partial charge-offs totaling $151,000 on two residential loans prior to their restructuring and $2,000 on one consumer installment loan after its restructuring. As of December 31, 2018, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were no defaults on TDRs within twelve months of restructure during 2018. DNB classified one residential mortgage loan totaling $73,000 as TDR during the year ended December 31, 2018.

The following tables set forth the composition of DNB’s allowance for credit losses as of March 31, 2019 and December 31, 2018, the activity for the three months ended March 31, 2019 and 2018 and as of and for the year ended December 31, 2018.

Allowance for Credit Losses and Recorded Investment in Loans Receivables



	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2019	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Charge-offs		-		(82)		(69)		-		-		(17)		-		(168)
Recoveries		4		-		8		-		-		-		-		12
Provisions		(9)		(72)		188		48		(7)		14		38		200
Ending balance - March 31, 2019	$	156	$	3,493	$	1,189	$	1,080	$	183	$	43	$	575	$	6,719
Ending balance: individually evaluated for impairment	$	-	$	-	$	201	$	-	$	-	$	-	$	-	$	201
Ending balance: collectively evaluated for impairment	$	156	$	3,493	$	988	$	1,080	$	183	$	43	$	575	$	6,518
Loans receivables:
Ending balance	$	101,039	$	517,236	$	182,077	$	78,967	$	49,412	$	4,966			$	933,697
Ending balance: individually evaluated for impairment	$	2,782	$	2,177	$	2,045	$	-	$	530	$	175			$	7,709
Ending balance: acquired with credit deterioration	$	-	$	521	$	-	$	-	$	-	$	-			$	521
Ending balance: collectively evaluated for impairment	$	98,257	$	514,538	$	180,032	$	78,967	$	48,882	$	4,791			$	925,467
Reserve for unfunded loan commitments included in other liabilities	$	-	$	1	$	184	$	219	$	20	$	-			$	424



	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - January 1, 2018	$	221	$	2,856	$	845	$	1,128	$	183	$	63	$	547	$	5,843
Charge-offs		(34)		(13)		(17)		-		-		(12)		-		(76)
Recoveries		1		-		2		-		-		-		-		3
Provisions		38		144		74		91		(7)		4		31		375
Ending balance - March 31, 2018	$	226	$	2,987	$	904	$	1,219	$	176	$	55	$	578	$	6,145
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	150	$	139	$	17	$	-			$	309



	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Ending balance - December 31, 2018	$	161	$	3,647	$	1,062	$	1,032	$	190	$	46	$	537	$	6,675
Ending balance: individually evaluated for impairment	$	1	$	78	$	203	$	-	$	-	$	3	$	-	$	285
Ending balance: collectively evaluated for impairment	$	160	$	3,569	$	859	$	1,032	$	190	$	43	$	537	$	6,390
Loans receivables:
Ending balance	$	99,932	$	535,735	$	166,335	$	76,302	$	51,536	$	5,131			$	934,971
Ending balance: individually evaluated for impairment	$	1,535	$	2,269	$	2,300	$	476	$	531	$	197			$	7,308
Ending balance: acquired with credit deterioration	$	-	$	514	$	-	$	-	$	-	$	-			$	514
Ending balance: collectively evaluated for impairment	$	98,397	$	532,952	$	164,035	$	75,826	$	51,005	$	4,934			$	927,149
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	167	$	206	$	21	$	-			$	398