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 September 30, 2019 and December 31, 2018.

Age Analysis of Past Due Loans Receivable



	September 30, 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	$	1,146	$	494	$	1,031	$	2,671	$	90,915	$	93,586	$	-
Commercial mortgage (less acquired with credit deterioration)		540		112		698		1,350		525,809		527,159		-
Acquired commercial mortgage with credit deterioration		-		-		-		-		521		521		-
Commercial:
Commercial term		-		113		1,517		1,630		172,815		174,445		-
Commercial construction		-		96		1,462		1,558		74,015		75,573		-
Consumer:
Home equity		30		-		143		173		47,921		48,094		-
Other		19		1		86		106		4,465		4,571		-
Total	$	1,735	$	816	$	4,937	$	7,488	$	916,461	$	923,949	$	-



	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 $343,000 of residential mortgage loans in the process of foreclosure and $140,000 in residential real estate in other real estate owned as of September 30, 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 September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and 2018.

Impaired Loans


		September 30, 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	$	2,781	$	3,147	$	-	$	1,462	$	1,804	$	-
Commercial mortgage		1,643		1,896		-		1,532		1,780		-
Acquired commercial mortgage with credit deterioration		521		535		-		514		527
Commercial:
Commercial term		1,573		2,140		-		1,343		1,845		-
Commercial construction		1,558		1,563		-		476		514		-
Consumer:
Home equity		277		282		-		531		535		-
Other		129		198		-		156		205		-
Total	$	8,482	$	9,761	$	-	$	6,014	$	7,210	$	-
With allowance recorded:
Residential mortgage		-		-		-		73		73		1
Commercial mortgage		-		-		-		737		802		78
Commercial:
Commercial term		1,630		1,664		302		957		1,015		203
Consumer:
Other		34		41		5		41		42		3
Total	$	1,664	$	1,705	$	307	$	1,808	$	1,932	$	285
Total:
Residential mortgage		2,781		3,147		-		1,535		1,877		1
Commercial mortgage		1,643		1,896		-		2,269		2,582		78
Acquired commercial mortgage with credit deterioration		521		535		-		514		527		-
Commercial:
Commercial term		3,203		3,804		302		2,300		2,860		203
Commercial construction		1,558		1,563		-		476		514		-
Consumer:
Home equity		277		282		-		531		535		-
Other		163		239		5		197		247		3
Total	$	10,146	$	11,466	$	307	$	7,822	$	9,142	$	285


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	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	$ 2,770	$ 13	$ 1,748	$ 6	$ 2,464	$ 31	$ 1,925	$ 12
Commercial mortgage	1,578	12	2,446	13	1,900	36	2,602	37
Acquired commercial mortgage with credit deterioration	521	9	521	9	519	27	691	24
Commercial:
Commercial term	1,441	-	1,662	-	1,388	-	1,790	-
Commercial construction	1,916	-	484	-	958	-	495	-
Consumer:
Home equity	278	2	706	1	404	6	658	5
Other	148	1	182	1	167	2	173	1
Total	$ 8,652	$ 37	$ 7,749	$ 30	$ 7,800	$ 102	$ 8,334	$ 79
With allowance recorded:
Residential mortgage	-	-	74	1	-	-	37	1
Acquired residential mortgage with credit deterioration	-	-	-	-	-	-	2	-
Commercial mortgage	-	-	100	-	-	-	76	-
Commercial:
Commercial term	1,174	-	941	-	1,005	-	786	-
Consumer:
Other	17	-	42	-	9	-	78	-
Total	$ 1,191	$ -	$ 1,157	$ 1	$ 1,014	$ -	$ 979	$ 1
Total:
Residential mortgage	2,770	13	1,822	7	2,464	31	1,962	13
Acquired residential mortgage with credit deterioration	-	-	-	-	-	-	2	-
Commercial mortgage	1,578	12	2,546	13	1,900	36	2,678	37
Acquired commercial mortgage with credit deterioration	521	9	521	9	519	27	691	24
Commercial:
Commercial term	2,615	-	2,603	-	2,393	-	2,576	-
Commercial construction	1,916	-	484	-	958	-	495	-
Consumer:
Home equity	278	2	706	1	404	6	658	5
Other	165	1	224	1	176	2	251	1
Total	$ 9,843	$ 37	$ 8,906	$ 31	$ 8,814	$ 102	$ 9,313	$ 80

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 September 30, 2019 and December 31, 2018.

Credit Quality Indicators



	September 30, 2019
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage	$	90,263	$	185	$	3,138	$	-	$	93,586
Commercial mortgage		509,820		3,576		14,284		-		527,680
Commercial:
Commercial term		168,720		768		4,957		-		174,445
Commercial construction		72,703		1,312		1,558		-		75,573
Consumer:
Home equity		47,829		122		143		-		48,094
Other		4,438		-		133		-		4,571
Total	$	893,773	$	5,963	$	24,213	$	-	$	923,949



	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 nine month period ended September 30, 2019, DNB classified two residential mortgage loans totaling $1.5 million and four commercial term loans totaling $421,000 as TDR. One residential mortgage loan’s rate was changed but the term was not extended, and the other residential mortgage loan and the four commercial term loans had their terms extended. During the nine month period ended September 30, 2018, DNB classified one residential mortgage loan totaling $73,000 as TDR. The loan’s rate was changed but the term was not extended. Loans classified as troubled debt restructurings are designated as impaired. The recorded investments in troubled debt restructured loans at September 30, 2019 and December 31, 2018 are as follows:



	September 30, 2019
	Pre-Modification		Post-Modification
(Dollars in thousands)	Outstanding Recorded Investment		Outstanding Recorded Investment		Recorded Investment
Residential mortgage	$	2,155	$	2,308	$	2,091
Commercial mortgage		992		992		945
Commercial term		421		421		414
Consumer:
Home equity		148		148		134
Other		40		42		29
Total	$	3,756	$	3,911	$	3,613

	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 September 30, 2019, DNB had fifteen TDRs with recorded investment totaling $3,613,000, eight of which are accruing loans in compliance with the terms of the modifications and seven of which are non-accrual loans. 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 September 30, 2019, there were no defaulted TDRs as all TDRs were current with respect to their associated forbearance agreements. There were two residential mortgages classified as TDRs that were moved to non-accrual due to payments being more than 90 days past due during the nine months ended September 30, 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 September 30, 2019 and December 31, 2018, the activity for the three and nine months ended September 30, 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 - July 1, 2019	$	133	$	3,579	$	1,144	$	1,032	$	209	$	39	$	536	$	6,672
Charge-offs		(125)		-		(24)		-		-		(3)		-		(152)
Recoveries		-		1		7		-		-		-		-		8
Provisions		115		95		119		(38)		(3)		10		27		325
Ending balance - September 30, 2019	$	123	$	3,675	$	1,246	$	994	$	206	$	46	$	563	$	6,853



	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		(125)		(105)		(115)		-		(128)		(20)		-		(493)
Recoveries		4		8		34		-		-		-		-		46
Provisions		83		125		265		(38)		144		20		26		625
Ending balance - September 30, 2019	$	123	$	3,675	$	1,246	$	994	$	206	$	46	$	563	$	6,853
Ending balance: individually evaluated for impairment	$	-	$	-	$	302	$	-	$	-	$	5	$	-	$	307
Ending balance: collectively evaluated for impairment	$	123	$	3,675	$	944	$	994	$	206	$	41	$	563	$	6,546
Loans receivables:
Ending balance	$	93,586	$	527,680	$	174,445	$	75,573	$	48,094	$	4,571			$	923,949
Ending balance: individually evaluated for impairment	$	2,781	$	1,643	$	3,203	$	1,558	$	277	$	163			$	9,625
Ending balance: acquired with credit deterioration	$	-	$	521	$	-	$	-	$	-	$	-			$	521
Ending balance: collectively evaluated for impairment	$	90,805	$	525,516	$	171,242	$	74,015	$	47,817	$	4,408			$	913,803
Reserve for unfunded loan commitments included in other liabilities	$	-	$	4	$	178	$	197	$	19	$	-			$	398



	Residential		Commercial		Commercial		Commercial		Consumer		Consumer
(Dollars in thousands)	Mortgage		Mortgage		Term		Construction		Home Equity		Other		Unallocated		Total
Allowance for credit losses:
Beginning balance - July 1, 2018	$	207	$	3,076	$	889	$	1,355	$	196	$	49	$	416	$	6,188
Charge-offs		-		-		(15)		-		-		(23)		-		(38)
Recoveries		308		-		-		-		-		1		-		309
Provisions		(352)		213		113		(287)		-		21		392		100
Ending balance - September 30, 2018	$	163	$	3,289	$	987	$	1,068	$	196	$	48	$	808	$	6,559



	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		(137)		(184)		(79)		-		-		(72)		-		(472)
Recoveries		334		-		2		-		-		2		-		338
Provisions		(255)		617		219		(60)		13		55		261		850
Ending balance - September 30, 2018	$	163	$	3,289	$	987	$	1,068	$	196	$	48	$	808	$	6,559
Reserve for unfunded loan commitments included in other liabilities	$	-	$	3	$	176	$	186	$	21	$	-			$	386



	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