The Company's lending activities are primarily conducted in and around Dover, New Hampshire, and in the areas surrounding its branches. The Company originates commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land loans, 1–4 family residential loans, home equity line of credit loans and consumer loans. Most loans are collateralized by real estate. The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’ geographic area and the general economy.

Effective January 1, 2023, the Company adopted the new accounting standard for credit losses, ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended ("ASU 2016-13"). This new accounting standard, commonly referred to as "CECL," significantly changed the methodology for accounting for reserves on loans and unfunded off-balance sheet ("OBS") credit exposures, including certain unfunded loan commitments and standby guarantees. ASU 2016-13 replaced the "incurred loss" methodology used to establish an allowance on loans and off-balance sheet credit exposures, with an "expected loss" approach. Under CECL, the ACL at each reporting period serves as a best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. Upon adoption of CECL, the Company made the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances separately on the balance sheet on the consolidated statements of condition; (ii) exclude accrued interest from the measurement of the ACL, including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income. The Company has a policy in place to write-off accrued interest when a loan is placed on non-accrual. Accrued interest is written-off by reversing previously recorded interest income. For loans, write-off typically occurs when a loan has been in default for 90 days or more. An immaterial amount of accrued interest on non-accrual loans was written off during the three and nine months ended September 30, 2024 and 2023, by reversing interest income. Historically, the Company has not experienced uncollectible accrued interest receivable on its securities available-for-sale.

The ACL is the sum of various components including the following: (a) historical loss experience, (b) a reasonable and supportable forecast, (c) loans evaluated individually, and (d) changes in relevant environmental factors. The historical loss component is segmented by loan type and serves as the core of the ACL adequacy methodology. The Company has selected the Weighted Average Remaining Maturity Model (“WARM”), for the loss calculation of each of the Bank’s loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate an ACL. A loss rate is applied to pool balances over time.

CECL may create more volatility in the ACL, specifically the ACL on loans and ACL on off-balance sheet credit exposures. Under CECL, the ACL may increase or decrease period to period based on many factors, including, but not limited to: (i)

macroeconomic forecasts and conditions; (ii) forecast period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative factors outlined in ASU 2016-13.

The significant key assumptions used with the ACL calculation at September 30, 2024 and December 31, 2023 using the CECL methodology, included:

•Macroeconomic factors (loss drivers): Monitoring and assessing local and national unemployment, changes in national GDP and other macroeconomic factors which may be the most predictive indicator of losses within the loan portfolio. The macroeconomic factors considered in determining the ACL may change from time to time.

•Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable will be set annually and validated through an assessment of economic leading indicators. In periods of greater volatility and uncertainty, such as the current interest rate environment, management will likely use a shorter forecast period, whereas when markets, economies, interest rate environment, political matters, and other factors are considered to be more stable and certain, a longer forecast period may be used. Also, in times of greater uncertainty, management may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, the forecasted period is expected to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. "reversion speed"), factors such as, historical credit loss experience over previous economic cycles, as well as where the Company believes it is within the current economic cycle, will be considered. The Company has chosen a forecast period of four quarters which will be similar to the historical loss period between January 2014 and December 2016 and then reverting to the long-term average over the following two quarters using the straight-line reversion method. The Company believes this historical forecast period to be representative of potential economic conditions over the next eighteen months.

•Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing the Company's historical loan data, as well as consideration of current environmental factors. The prepayment speed assumption is utilized with the WARM method to forecast expected cash flows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.

•Qualitative factors: As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses. The Company continues to consider qualitative factors in determining and arriving at an ACL at each reporting period such as: (i) actual or expected changes in economic trends and conditions, (ii) changes in the value of underlying collateral for loans, (iii) changes to lending policies, underwriting standards and/or management personnel performing such functions, (iv) delinquency and other credit quality trends, (v) credit risk concentrations, if any, (vi) changes to the nature of the Company's business impacting the loan portfolio, (vii) and other external factors, that may include, but are not limited to, results of internal loan reviews and examinations by bank regulatory agencies.

Certain loans which may not share similar risk characteristics with other loans in the portfolio may be tested individually for estimated credit losses, including (i) loans classified as special mention, substandard or doubtful and are on non-accrual status, (ii) a loan modified for a borrower experiencing financial difficulty or (iii) loans that have other unique characteristics. Factors considered in measuring the extent of the expected credit loss for these loans may include payment status, collateral value, borrower's financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

The CECL methodology reflects the Company's view of the state of the economy and forecasted macroeconomic conditions and their impact on the Company's loan portfolio as of the adoption date.

Changes in the ACL for the three and nine months ended September 30, 2024 and 2023, under the CECL model, by portfolio segment, are summarized as follows:


(Dollars in thousands)	CRE			MF			C+I		ADL			RES			HELOC		CON			Unallocated			Total
Balance, June 30, 2024	$	745		$	107		$	234	$	70		$	1,608		$	171	$	442		$	74		$	3,451
(Release) provision for credit losses on loans		(25	)		(47	)		3		8			44			3		61			(27	)		20
Charge-offs		—			—			—		—			—			—		(27	)		—			(27	)
Recoveries		—			—			—		—			—			—		1			—			1
Balance, September 30, 2024	$	720		$	60		$	237	$	78		$	1,652		$	174	$	477		$	47		$	3,445

Balance, December 31, 2023	$	830		$	76		$	236	$	105		$	1,601		$	156	$	357		$	29		$	3,390
(Release) provision for credit losses on loans		(110	)		(16	)		1		(27	)		51			18		145			18			80
Charge-offs		—			—			—		—			—			—		(27	)		—			(27	)
Recoveries		—			—			—		—			—			—		2			—			2
Balance, September 30, 2024	$	720		$	60		$	237	$	78		$	1,652		$	174	$	477		$	47		$	3,445

Balance, June 30, 2023	$	806		$	49		$	277	$	70		$	1,910		$	85	$	109		$	13		$	3,319
(Release) provision for credit losses on loans		(18	)		22			11		31			(174	)		76		95			(13	)		30
Charge-offs		—			—			—		—			—			—		—			—			—
Recoveries		—			—			—		—			—			—		—			—			—
Balance, September 30, 2023	$	788		$	71		$	288	$	101		$	1,736		$	161	$	204		$	—		$	3,349

Balance, December 31, 2022, Prior to Adoption of ASC 326	$	942		$	54		$	184	$	138		$	2,048		$	81	$	100		$	34		$	3,581
Impact of adopting ASC 326		(154	)		1			89		(18	)		(202	)		7		14			(32	)		(295	)
(Release) provision for credit losses on loans		—			16			15		(19	)		(110	)		73		92			(2	)		65
Charge-offs		—			—			—		—			—			—		(4	)		—			(4	)
Recoveries		—			—			—		—			—			—		2			—			2
Balance, September 30, 2023	$	788		$	71		$	288	$	101		$	1,736		$	161	$	204		$	—		$	3,349

Changes in the ACL for the three months ended September 30, 2024 consisted of a $16,000 provision for credit losses compared to a $120,000 provision for credit losses for the three months ended September 30, 2023. The provision for credit losses for the three months ended September 30, 2024 consisted of a $20,000 provision for credit losses on loans and a $(4,000) release of credit losses for off-balance sheet credit exposures. The provision for credit losses for the three months ended September 30, 2023 consisted of a $30,000 provision for credit losses on loans and a $90,000 provision for credit losses for off-balance sheet credit exposures. Changes in the ACL for the nine months ended September 30, 2024 consisted of a $(20,000) release of credit losses compared to a $170,000 provision for credit losses expense for the nine months ended September 30, 2023. The release of credit losses for the nine months ended September 30, 2024 consisted of an $80,000 provision for credit losses on loans and a $(100,000) release of credit losses for off-balance sheet credit exposures. The provision for credit losses expense for the nine months ended September 30, 2023 consisted of a $65,000 provision for credit losses on loans and a $105,000 provision for credit losses for off-balance sheet credit exposures.

The following is an aging analysis of past due loans by portfolio segment as of September 30, 2024 and December 31, 2023, including non-accrual loans without an ACL:


September 30, 2024:
(Dollars in thousands)	30-59 Days		60-89 Days		90 + Days		Total Past Due		Current		Total Loans		Non-Accrual Loans
CRE	$	—	$	—	$	—	$	—	$	85,696	$	85,696	$	—
MF		—		—		—		—		5,824		5,824		—
C+I		—		—		—		—		24,096		24,096		—
ADL		—		—		—		—		13,599		13,599		—
RES		—		—		—		—		279,832		279,832		—
HELOC		—		—		—		—		16,678		16,678		—
CON		—		—		—		—		12,266		12,266		—
	$	—	$	—	$	—	$	—	$	437,991	$	437,991	$	—

December 31, 2023:
(Dollars in thousands)	30-59 Days		60-89 Days		90 + Days		Total Past Due		Current		Total Loans		Non-Accrual Loans
CRE	$	—	$	—	$	—	$	—	$	86,566	$	86,566	$	—
MF		—		—		—		—		7,582		7,582		—
C+I		—		—		—		—		25,511		25,511		—
ADL		—		—		—		—		17,520		17,520		—
RES		—		131		—		131		268,812		268,943		127
HELOC		—		—		14		14		14,079		14,093		14
CON		—		—		—		—		9,816		9,816		—
	$	—	$	131	$	14	$	145	$	429,886	$	430,031	$	141

The Company's collateral-dependent non-accrual RES and HELOC loans with one borrower had an amortized cost basis of $141,000 at December 31, 2023, and was secured by real estate with an appraised value of $216,000. The property was sold on July 19, 2024 and all outstanding balances were repaid. Interest income recognized on non-accrual loans during three and nine months ended September 30, 2024 and 2023 was $-0-. There were no loans past due over 90 days still accruing interest at September 30, 2024 and December 31, 2023. There were no loans collateralized by residential real estate property in the process of foreclosure at September 30, 2024 and December 31, 2023.

There were no loans modified for borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024 and 2023. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification, if applicable. The ACL incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. Because the effect of most modifications made to borrowers experiencing financial difficulty would already be included in the ACL as a result of the measurement methodologies used to estimate the allowance, a change in the ACL is generally not recorded upon modification.

The Company utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition, development, and land loans. Residential real estate, home equity line of credit and consumer loans are considered “pass” rated loans until they become delinquent. Once delinquent, loans can be rated an 8, 9 or 10 as applicable.

Loans rated 1 through 6: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 7: 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 8: 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 Bank will sustain some loss if the weakness is not corrected.

Loans rated 9: 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 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted and should be charged off.

On an annual basis, or more often if needed, the Company formally reviews the ratings on its commercial and industrial, commercial real estate, acquisition, development and land loans and multifamily loans. On a periodic basis, the Company engages an independent third party to review a significant portion of loans within these segments and to assess the credit risk management practices of its commercial lending department. Management uses the results of these reviews as part of its annual review process, adequacy of the ACL on loans and overall credit risk administration. Also, to reduce the level of credit administration on small commercial loan relationships, the Company has established a reduced credit administration process for commercial relationships less than $500,000 with a risk rating of 5 or better. These relationships are monitored based upon performance standards by the assigned lending officer.

On a quarterly basis, the Company formally reviews the ratings on its applicable residential real estate and home equity loans if they have become classified as non-accrual. Criteria used to determine ratings consist of loan-to-value ratios and days delinquent.

Based upon the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of September 30, 2024 and December 31, 2023:

September 30, 2024:


(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
CRE:
Risk rating:
Pass	$	4,375	$	6,957	$	13,108	$	10,399	$	1,907	$	18,199	$	30,751	$	—	$	85,696
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total CRE		4,375		6,957		13,108		10,399		1,907		18,199		30,751		—		85,696
MF:
Risk rating:
Pass		—		1,919		133		632		1,045		1,789		306		—		5,824
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total MF		—		1,919		133		632		1,045		1,789		306		—		5,824
C+I:
Risk rating:
Pass		3,354		5,150		5,361		1,815		3,192		2,616		2,434		—		23,922
Special mention		—		—		—		—		—		174		—		—		174
Substandard		—		—		—		—		—		—		—		—		—
Total C+I		3,354		5,150		5,361		1,815		3,192		2,790		2,434		—		24,096
ADL:
Risk rating:
Pass		3,826		9,179		227		367		—		—		—		—		13,599
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total ADL		3,826		9,179		227		367		—		—		—		—		13,599
RES:
Risk rating:
Pass		14,940		25,378		43,048		65,255		46,962		84,249		—		—		279,832
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total RES		14,940		25,378		43,048		65,255		46,962		84,249		—		—		279,832
HELOC:
Risk rating:
Pass		—		—		—		—		—		—		16,678		—		16,678
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total HELOC		—		—		—		—		—		—		16,678		—		16,678
CON:
Risk rating:
Pass		3,912		2,486		2,676		1,598		1,370		224		—		—		12,266
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total CON		3,912		2,486		2,676		1,598		1,370		224		—		—		12,266
Total	$	30,407	$	51,069	$	64,553	$	80,066	$	54,476	$	107,251	$	50,169	$	—	$	437,991

December 31, 2023:


(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
CRE:
Risk rating:
Pass	$	7,552	$	10,849	$	11,977	$	2,268	$	2,724	$	18,713	$	32,244	$	—	$	86,327
Special mention		—		—		—		—		—		239		—		—		239
Substandard		—		—		—		—		—		—		—		—		—
Total CRE		7,552		10,849		11,977		2,268		2,724		18,952		32,244		—		86,566
MF:
Risk rating:
Pass		—		145		5,157		1,081		—		852		347		—		7,582
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total MF		—		145		5,157		1,081		—		852		347		—		7,582
C+I:
Risk rating:
Pass		5,745		6,580		4,151		2,875		1,537		1,917		2,704		—		25,509
Special mention		—		—		2		—		—		—		—		—		2
Substandard		—		—		—		—		—		—		—		—		—
Total C+I		5,745		6,580		4,153		2,875		1,537		1,917		2,704		—		25,511
ADL:
Risk rating:
Pass		10,511		4,048		1,507		—		1,454		—		—		—		17,520
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total ADL		10,511		4,048		1,507		—		1,454		—		—		—		17,520
RES:
Risk rating:
Pass		19,533		43,517		64,226		50,675		20,021		70,844		—		—		268,816
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		127		—		—		127
Total RES		19,533		43,517		64,226		50,675		20,021		70,971		—		—		268,943
HELOC:
Risk rating:
Pass		—		—		—		—		—		—		14,079		—		14,079
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		14		—		14
Total HELOC		—		—		—		—		—		—		14,093		—		14,093
CON:
Risk rating:
Pass		2,902		3,145		1,966		1,512		215		76		—		—		9,816
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total CON		2,902		3,145		1,966		1,512		215		76		—		—		9,816
Total	$	46,243	$	68,284	$	88,986	$	58,411	$	25,951	$	92,768	$	49,388	$	—	$	430,031

Certain directors and executive officers of the Company and entities in which they have significant ownership interests are customers of the Bank. Loans outstanding to these persons and entities at September 30, 2024 and December 31, 2023 were $4.5 million and $5.2 million, respectively.