(1)Includes $16.8 million and $26.5 million in loans secured by cryptocurrency mining rigs at June 30, 2023 and December 31, 2022, respectively.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses for loans. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Accrued interest receivable totaled $4.8 million and $6.4 million at June 30, 2023 and December 31, 2022, respectively, and was reported as accrued interest receivable on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. Interest income is accrued on unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using either the level-yield or straight-line method without anticipating prepayments.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for credit losses for loans (“ACLL”) is a valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected. Loans are charged off against the allowance when management believes the un-collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance and do not exceed the aggregate of amounts previously charged-off.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments:

Commercial real estate: Loans in this segment are primarily income-producing properties throughout Massachusetts and New Hampshire. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, can have an effect on the credit quality in this segment. Management periodically obtains rent rolls and continually monitors the cash flows of these loans.

Commercial: Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, can have an effect on the credit quality in this segment.

Enterprise value: Loans in this segment are made to small- and medium-size businesses in a senior secure position and are generally secured by the enterprise value of the business. The enterprise value consists of the going concern value of the business and takes into

When the discounted cash flow method is used to determine the allowance for credit losses, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

When the remaining life method is used to determine the allowance for credit losses, a calculated loss rate is applied to the pool of loans based on the remaining life expectation of the pool. The remaining life expectation is based on management’s reasonable expectation at the reporting date.

Loans that do not share risk characteristics, whether or not they are performing in accordance with their loan terms, are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. The Company will individually evaluate a loan when, based on current information and events, it is probable that it will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in making this determination include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Insignificant payment delays and payment shortfalls generally are not considered reason enough to individually analyze a loan. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. When management determines that a loan should be individually analyzed, expected credit losses are based on either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral at the reporting date, adjusted for selling costs, as appropriate.

The following table presents the activity in the allowance for credit losses for loans by portfolio segment for the three and six months ended June 30, 2023 and 2022:



	For the three months ended June 30,
(In thousands)	Commercial Real Estate		Commercial		Enterprise value		Digital asset		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
Balance at March 31, 2023	$	4,249	$	2,615	$	10,161	$	7,219	$	57	$	470	$	3	$	38	$	24,812
Charge-offs		—		(126)		—		—		—		—		(13)		—		(139)
Recoveries		—		—		45		—		—		—		3		—		48
Provision (credit)		(180)		(112)		(512)		—		(2)		51		9		6		(740)
Balance at June 30, 2023	$	4,069	$	2,377	$	9,694	$	7,219	$	55	$	521	$	2	$	44	$	23,981

Balance at March 31, 2022	$	4,935	$	5,380	$	6,076	$	1,868	$	14	$	565	$	123	$	335	$	19,296
Charge-offs		—		(1,338)		—		—		—		—		(7)		—		(1,345)
Recoveries		—		5		—		—		—		—		11		—		16
Provision (credit)		(133)		189		407		502		—		173		(38)		(95)		1,005
Balance at June 30, 2022	$	4,802	$	4,236	$	6,483	$	2,370	$	14	$	738	$	89	$	240	$	18,972



	For the six months ended June 30,
(In thousands)	Commercial Real Estate		Commercial		Enterprise value		Digital asset		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
Balance at December 31, 2022	$	5,062	$	3,582	$	7,712	$	10,493	$	43	$	909	$	55	$	213	$	28,069
Impact of adopting ASC 326		(745)		(711)		(270)		(157)		18		(513)		(51)		(159)		(2,588)
Charge-offs		—		(167)		(3,560)		—		—		—		(29)		—		(3,756)
Recoveries		—		10		45		—		—		—		6		—		61
Provision (credit)		(248)		(337)		5,767		(3,117)		(6)		125		21		(10)		2,195
Balance at June 30, 2023	$	4,069	$	2,377	$	9,694	$	7,219	$	55	$	521	$	2	$	44	$	23,981

Balance at December 31, 2021	$	4,889	$	5,371	$	6,158	$	2,012	$	38	$	479	$	168	$	381	$	19,496
Charge-offs		—		(1,338)		(351)		—		—		—		(35)		—		(1,724)
Recoveries		—		6		87		—		—		—		19		—		112
Provision (credit)		(87)		197		589		358		(24)		259		(63)		(141)		1,088
Balance at June 30, 2022	$	4,802	$	4,236	$	6,483	$	2,370	$	14	$	738	$	89	$	240	$	18,972

The following table presents loan delinquencies by portfolio segment at June 30, 2023 and December 31, 2022:


					90 Days		Total
	30 - 59		60 - 89		or More		Past		Total		Total
(In thousands)	Days		Days		Past Due		Due		Current		Loans
June 30, 2023
Commercial real estate	$	—	$	—	$	1	$	1	$	438,028	$	438,029
Commercial		—		—		32		32		187,933		187,965
Enterprise value		—		—		92		92		436,482		436,574
Digital asset		—		—		—		—		16,768		16,768
Residential real estate		117		2		213		332		7,158		7,490
Construction and
land development		—		—		—		—		96,757		96,757
Consumer		—		1		—		1		206		207
Mortgage warehouse		—		—		—		—		173,755		173,755
Total	$	117	$	3	$	338	$	458	$	1,357,087	$	1,357,545

December 31, 2022
Commercial real estate	$	240	$	—	$	1	$	241	$	453,351	$	453,592
Commercial		—		—		41		41		216,890		216,931
Enterprise value		—		—		92		92		438,653		438,745
Digital asset		—		—		—		—		40,781		40,781
Residential real estate		—		—		73		73		8,092		8,165
Construction and
land development		—		—		—		—		72,267		72,267
Consumer		—		9		—		9		382		391
Mortgage warehouse		—		—		—		—		213,244		213,244
Total	$	240	$	9	$	207	$	456	$	1,443,660	$	1,444,116

The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days but still accruing as of June 30, 2023 and December 31, 2022:



	Non-accrual				90 Days
	With No				or More
	Allowance		Non-accrual		Past Due
(In thousands)	for Credit Loss		Loans		and Accruing
June 30, 2023
Commercial real estate	$	160	$	160	$	—
Commercial		70		70		—
Enterprise value		92		4,310		—
Digital asset		—		16,768		—
Residential real estate		—		361		—
Construction and
land development		—		—		—
Consumer		—		—		—
Mortgage warehouse		—		—		—
Total	$	322	$	21,669	$	—

December 31, 2022
Commercial real estate	$	56	$	56	$	—
Commercial		101		101		—
Enterprise value		92		92		—
Digital asset		—		26,488		—
Residential real estate		(70)		227		—
Construction and
land development		—		—		—
Consumer		—		—		—
Mortgage warehouse		—		—		—
Total	$	179	$	26,964	$	—

The Company did not recognize interest income on non-accrual loans during the six months ended June 30, 2023.

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2023:


	Commercial				Cryptocurrency
	Real		Business		Mining Rigs
(In thousands)	Estate		Assets		and Other (1)		Cash
Commercial real estate	$	19,849	$	—	$	—	$	—
Commercial		37		1		—		—
Enterprise value		—		4,218		—		92
Digital asset		—		—		16,768		—
Residential real estate		—		—		—		—
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
	$	19,886	$	4,219	$	16,768	$	92

(1)Other collateral includes the USD value of Bitcoin held in control accounts as well as cash accounts held at the Bank.

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing the following modifications: principal forgiveness, other-than-insignificant payment delays, term extensions, interest rate reductions, or a combination of modifications. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses on loans.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.


(Dollars in thousands)	Principal Forgiveness		Other-Than-Insignificant Payment Delay		Term Extension		Interest Rate Reduction		Term Extension and Interest Rate Reduction		Total Class of Financing Receivable $		Total Class of Financing Receivable %
June 30, 2023
Commercial	$	—	$	—	$	—	$	—	$	21	$	21	0.01	%
Enterprise value		—		21,023		—		—		—		21,023	4.82
Digital asset		—		—		16,580		—		—		16,580	98.88
Total	$	—	$	21,023	$	16,580	$	—	$	21	$	37,624	2.77	%

The Company has committed to lend an additional $50,000 based on fund availability through an existing line of credit to a borrower experiencing financial difficulty whose loans had been modified during the six months ended June 30, 2023.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the six months ended June 30, 2023:


	Weighted-Average Payment Delay	Weighted-Average Term Extension	Weighted-Average Term Extension and Interest Rate Reduction
	Months	Months	Months	Percentage
June 30, 2023
Commercial	—	—	4	3.25	%
Enterprise value	5	—	—	—	%
Digital asset	—	3	—	—	%

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. As of June 30, 2023, there were no past due balances or subsequent defaults related to loans modified during the six months ended June 30, 2023.

Prior to the Company’s adoption of ASU 2022-02 on January 1, 2023 (see Note 4 for additional information), loans were considered TDRs when the Company granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions could include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt could be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan could benefit the Company by increasing the ultimate probability of collection.

There were no new TDRs entered into during the six months ended June 30, 2022. The total recorded investment in TDRs was $20.6 million at June 30, 2022 and as of that date there were no material commitments to lend additional funds to borrowers whose loans had been restructured.

Credit Quality Information

The Company utilizes a seven grade internal loan risk rating system for commercial real estate, construction and land development, and commercial loans as follows:

Loans rated 1-3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and land development, and commercial loans.

On an annual basis, or more often if needed, the Company completes a credit recertification on all mortgage warehouse originators.

For residential real estate loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and rates such loans as pass. Ongoing monitoring is based upon the borrower’s payment activity.

Consumer loans are not formally rated.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


	Term Loans at Amortized Cost by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost		Revolving Loans Converted to Term Loans		Total
Commercial Real Estate
Pass	$	18,014	$	54,463	$	73,090	$	31,353	$	62,710	$	138,942	$	19,420	$	—	$	397,992
Special mention		—		—		—		—		3,133		9,764		—		—		12,897
Substandard		—		—		—		1,048		4,518		21,573		—		—		27,139
Doubtful		—		—		—		—		—		—		—		—		—
Loss		—		—		1		—		—		—		—		—		1
Total commercial real estate		18,014		54,463		73,091		32,401		70,361		170,279		19,420		—		438,029
Commercial real estate
Current period gross write offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		3,173		12,389		54,060		15,151		17,563		29,048		42,689		—		174,073
Special mention		—		—		—		—		11		9,955		1,295		—		11,261
Substandard		—		—		205		—		1,959		239		225		—		2,628
Doubtful		—		—		—		—		1		—		—		—		1
Loss		—		—		—		—		—		2		—		—		2
Total commercial		3,173		12,389		54,265		15,151		19,534		39,244		44,209		—		187,965
Commercial
Current period gross write offs		—		—		—		—		101		66		—		—		167

Enterprise Value
Pass	35,659	118,822	132,858	54,563	29,175	7,716	15,886	—	394,679
Special mention	—	12,658	6,473	4,827	2,763	1,662	9,201	—	37,584
Substandard	—	—	—	—	—	3,438	780	—	4,218
Doubtful	—	—	—	—	—	92	—	—	92
Loss	—	—	—	2	1	(2)	—	—	1
Total enterprise value	35,659	131,480	139,331	59,392	31,939	12,906	25,867	—	436,574
Enterprise value
Current period gross write offs	—	3,560	—	—	—	—	—	—	3,560
Digital Asset
Pass	—	—	—	—	—	—	—	—	—
Special mention	—	—	—	—	—	—	—	—	—
Substandard	—	16,580	188	—	—	—	—	—	16,768
Doubtful	—	—	—	—	—	—	—	—	—
Loss	—	—	—	—	—	—	—	—	—
Total digital asset	—	16,580	188	—	—	—	—	—	16,768
Digital asset
Current period gross write offs	—	—	—	—	—	—	—	—	—
Residential Real Estate
Pass	—	—	—	—	193	3,868	2,716	347	7,124
Substandard	—	—	—	5	—	291	70	—	366
Total residential real estate	—	—	—	5	193	4,159	2,786	347	7,490
Residential real estate
Current period gross write offs	—	—	—	—	—	—	—	—	—
Construction and Land Development
Pass	12	44,761	49,394	—	—	1,539	1,051	—	96,757
Special mention	—	—	—	—	—	—	—	—	—
Substandard	—	—	—	—	—	—	—	—	—
Doubtful	—	—	—	—	—	—	—	—	—
Loss	—	—	—	—	—	—	—	—	—
Total construction and land development	12	44,761	49,394	—	—	1,539	1,051	—	96,757
Construction and land development
Current period gross write offs	—	—	—	—	—	—	—	—	—
Consumer
Not formally rated	—	—	—	—	119	—	88	—	207
Total consumer	—	—	—	—	119	—	88	—	207
Consumer
Current period gross write offs	—	—	—	—	12	17	—	—	29
Mortgage Warehouse
Pass	—	—	—	—	—	—	173,755	—	173,755
Special mention	—	—	—	—	—	—	—	—	—
Substandard	—	—	—	—	—	—	—	—	—
Doubtful	—	—	—	—	—	—	—	—	—
Loss	—	—	—	—	—	—	—	—	—
Total mortgage warehouse	—	—	—	—	—	—	173,755	—	173,755

The following table presents the Company’s loans by risk rating and portfolio segment at December 31, 2022:



(In thousands)	Commercial Real Estate		Commercial		Enterprise Value		Digital Asset		Residential Real Estate			Construction ‎and Land ‎Development	Consumer		Mortgage Warehouse		Total
December 31, 2022
Grade:
Pass	$	399,455	$	202,895	$	408,616	$	4,724	$	7,938	$	72,267	$	—	$	213,244	$	1,309,139
Special mention		26,995		11,015		20,091		9,569		—		—		—		—		67,670
Substandard		27,141		2,854		9,946		26,488		227		—		—		—		66,656
Doubtful		—		165		92		—		—		—		—		—		257
Loss		1		2		—		—		—		—		—		—		3
Not formally rated		—		—		—		—		—		—		391		—		391
Total	$	453,592	$	216,931	$	438,745	$	40,781	$	8,165	$	72,267	$	391	$	213,244	$	1,444,116