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Item 1A. Risk Factors

2024-02-29 compared with 2023-03-01 · 200 added, 245 removed, 208 unchanged (68% of the section changed)

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The material risks and uncertainties that management believes affect the Company are described below.

Any of the following risks could affect the

Company’s financial condition and results of operations and could be material and/or adverse in nature.

Any of the following risks could affect

the Company’s financial condition and results of operations and could be material and/or adverse in nature.

You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.

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The Company may be adversely affected by conditions in the financial markets and economic conditions generally.

The economy in the United States and globally has experienced volatility in recent years and may continue to do so for the foreseeable future, particularly as a result of the COVID-19 pandemic.

can be no assurance that economic conditions will not worsen.

Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or

increases in the cost of credit and capital, increases in inflation or interest rates, the timing and impact of changing governmental policies, natural disasters, epidemics and pandemics (including COVID-19), terrorist attacks, acts of war or a

combination of these or other factors.

Key macroeconomic conditions historically have affected the Company’s business, results of operations and financial condition and are likely to affect them in the future.

Consumer confidence,

unemployment and other economic indicators are among the factors that often impact consumer spending and payment behavior and demand for credit.

The Company relies primarily on interest and fees on our loan receivables to generate net earnings.

economy in the United States and globally has experienced volatility in recent years and may continue to do so for the foreseeable future.

There can be no assurance that economic conditions will not worsen.

Unfavorable or uncertain economic

conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, the timing and

impact of geopolitical uncertainties, natural disasters, epidemics and pandemics, terrorist attacks, acts of war or a combination of these or other factors.

Federal budget deficit concerns and the potential for political conflict over legislation

government operations and raise the U.S.

government’s debt limit may increase the possibility of a default by the U.S.

government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States.

A worsening of business and economic conditions could have adverse effects on our business, including the following:

investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on the Company’s stock price and resulting market

consumer and business confidence levels could be lowered and cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and default rates;

the Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage and underwrite its customers become less predictive of future

investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on the

Company’s stock price and resulting market valuation;

consumer and business confidence levels could be lowered and cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and

default rates;

the Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage and underwrite its

customers become less predictive of future behaviors;

the Company could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with the Company;

demand for and income received from the Company’s fee-based services could decline;

customers of the Company’s trust and benefit plan administration business may liquidate investments, which together with lower asset values, may reduce the level of assets under management and administration and

thereby decrease the Company’s investment management and administration revenues;

competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions or otherwise;

customers of the Company’s trust and benefit plan administration business may liquidate investments, which together with lower asset values, may reduce the level of assets

under management and administration and thereby decrease the Company’s investment management and administration revenues;

competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market

conditions or otherwise;

the value of loans and other assets or collateral securing loans may decrease.

As economic conditions relating to the COVID-19 pandemic have improved, the Federal Reserve has shifted its focus to limiting inflationary and other potentially adverse effects of the extensive

pandemic-related government stimulus, which signals the potential for a continued period of economic uncertainty even though the pandemic has subsided.

In addition, there are continuing concerns related to, among other things, the level of U.S.

government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China and the Russian invasion of Ukraine, all of which may have a destabilizing effect on financial markets

and economic activity.

Economic pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing and saving habits.

These economic conditions and/or other negative developments in the

domestic or international credit markets or economies may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.

Declines in real estate values and

sales volumes and high unemployment or underemployment may also result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services.

These negative

events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

Deterioration in local economic conditions may negatively impact our financial performance.

The Company’s success depends primarily on the general economic conditions in central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern

Maine, central Connecticut and the specific local markets in which the Company operates.

Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers

primarily in the upstate New York areas of Norwich, Syracuse, Oneonta, Amsterdam-Gloversville, Albany, Binghamton, Utica-Rome, Plattsburgh, Glens Falls and Ogdensburg-Massena, the northeastern Pennsylvania areas of Scranton and Wilkes-Barre,

Berkshire County, Massachusetts, southern New Hampshire, Vermont, southern Maine and central Connecticut.

The local economic conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the

ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources.

The Company’s success depends primarily on the general economic conditions in upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine,

central and northwestern Connecticut and the specific local markets in which the Company operates.

Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to

customers primarily in the upstate New York areas of Norwich, Syracuse, Oneonta, Amsterdam-Gloversville, Albany, Binghamton, Utica-Rome, Plattsburgh, Glens Falls and Ogdensburg-Massena, the northeastern Pennsylvania areas of Scranton and

Wilkes-Barre, Berkshire County, Massachusetts, southern New Hampshire, Vermont, southern Maine and central and northwestern Connecticut.

The local economic conditions in these areas have a significant impact on the demand for the Company’s products

and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources.

A downturn in our local economies could cause significant increases in nonperforming loans, which could negatively impact our earnings.

Declines in real estate values in our market areas could cause

any of our loans to become inadequately collateralized, which would expose us to greater risk of loss.

Additionally, a decline in real estate values could result in the decline of originations of such loans, as most of our loans and the collateral

securing our loans are located in those areas.

Severe weather, flooding and other effects of climate change and other natural disasters could adversely affect our financial condition, results of operations or

Declines in real estate values in our market areas could

cause any of our loans to become inadequately collateralized, which would expose us to greater risk of loss.

Additionally, a decline in real estate values could result in the decline of originations of such loans, as most of our loans and the

collateral securing our loans are located in those areas.

Severe weather, flooding and other effects of climate change and other natural disasters could adversely affect our financial condition, results of

operations or liquidity.

Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, high winds and other effects of severe weather conditions that may be caused or exacerbated by

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result in increased capital expenditures to improve the energy efficiency of our branch locations and/or our customers’ properties.

Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate

change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company may face regulatory risk of increasing focus on the Company’s resilience to climate-related risks, including in the context of stress

testing for various climate stress scenarios.

Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.

Variations in interest rates could adversely affect our results of operations and financial condition.

The Company’s earnings and financial condition, like that of most financial institutions, are largely dependent upon net interest income, which is the difference between interest earned from loans and

investments and interest paid on deposits and borrowings.

The Company’s earnings and financial condition, like that of most financial institutions, are largely dependent upon net interest income, which is the difference between interest earned from

loans and investments and interest paid on deposits and borrowings.

The narrowing of interest rate spreads could adversely affect the Company’s earnings and financial condition.

The Company cannot predict with certainty, or control, changes in interest

The Company cannot predict with certainty, or control, changes in

interest rates.

Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect rates and, therefore, interest income and interest expense.

In order to address rising inflation, the FRB

raised interest rates in 2022 and may continue to do so;

however, the magnitude of any such further increase is not currently known.

High interest rates could also affect the amount of loans that the Company can originate because higher rates could

cause customers to apply for fewer mortgages or cause depositors to shift funds from accounts that have a comparatively lower cost to accounts with a higher cost.

The Company may also experience customer attrition due to competitor pricing on both

deposits and loans.

If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected.

Changes in the asset and liability mix may also affect

net interest income.

Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates.

If the Company is not able to reduce its funding costs sufficiently, due to either

competitive factors or the maturity schedule of existing liabilities, then the Company’s net interest margin will decline.

In order to address rising inflation, the

FRB raised interest rates in 2022 and in the first half 2023 and, while the Federal funds rate has remained unchanged over recent months, the FRB may again raise interest rates in response to inflation.

The magnitude of any such increase is not

currently known.

High interest rates could also affect the amount of loans that the Company can originate because higher rates could cause customers to apply for fewer mortgages or cause depositors to shift funds from accounts that have a

comparatively lower cost to accounts with a higher cost.

The Company may also experience customer attrition due to competitor pricing on both deposits and loans.

If the cost of interest-bearing deposits increases at a rate greater than the yields

on interest-earning assets increase, net interest income will be negatively affected.

Changes in the asset and liability mix may also affect net interest income.

Similarly, lower interest rates cause higher yielding assets to prepay and floating or

adjustable rate assets to reset to lower rates.

If the Company is not able to reduce its funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then the Company’s net interest margin will

Any substantial or unexpected change in, or prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations.

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As of December 31, 2023, approximately 52% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial construction and commercial real estate loans.

of loans generally expose a lender to greater risk of non-payment and loss than residential real estate loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for

construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction.

types of loans generally expose a lender to greater risk of non-payment and loss than residential real estate loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and,

for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction.

Such loans typically involve larger loan balances to single borrowers or groups of related borrowers

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Condition and Results of Operations located elsewhere in this report for further discussion related to our commercial and industrial, agricultural, construction and commercial real estate loans.

Our allowance for loan losses may not be sufficient to cover actual loan losses, which could have a material adverse effect on our business, financial condition

and results of operations.

The Company maintains an allowance for loan losses, which is an allowance established through a provision for loan losses charged to expense, that represents management’s best estimate of expected

credit losses within the existing portfolio of loans.

Our allowance for loan losses may not be sufficient to cover actual loan losses, which could have a material adverse effect on our business, financial

condition and results of operations.

The Company maintains an allowance for loan losses, which is an allowance established through a provision for loan losses charged to expense, that represents management’s best estimate of

expected credit losses within the existing portfolio of loans.

The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.

The determination of the appropriate level of the

allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, forecast economic conditions and future trends, all of which may undergo material changes.

Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance

for loan losses.

Bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different from

those of management.

The determination of the appropriate level of

the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, forecast economic conditions and future trends, all of which may undergo material

allowance for loan losses.

different from those of management.

In addition, if charge-offs in future periods exceed the allowance for loan losses, the Company may need additional provisions to increase the allowance for loan losses.

These potential increases in the allowance for loan

losses would result in a decrease in net income and, possibly, capital and may have a material adverse effect on the Company’s financial condition and results of operations.

These potential increases in the allowance

for loan losses would result in a decrease in net income and, possibly, capital and may have a material adverse effect on the Company’s financial condition and results of operations.

See the section captioned “Risk Management – Credit Risk” in Item

Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for loan losses.

Management expects that the CECL model may create more volatility in the level of our allowance for loan losses from quarter to quarter as changes in the level of allowance for loan losses will be dependent upon, among other things, macroeconomic

forecasts and conditions, loan portfolio volumes and credit quality.

Management expects that the Current Expected Credit Losses (“CECL”) model may create more volatility in the level of our allowance for loan losses from quarter to quarter as changes in the level of allowance for loan losses will be

dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality.

Strong competition within our industry and market area could adversely affect our performance and slow our growth.

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the ability to attract and retain talented employees.

Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have

a material adverse effect on the Company’s financial condition and results of operations.

Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could

have a material adverse effect on the Company’s financial condition and results of operations.

The Company is subject to liquidity risk, which could adversely affect net interest income and earnings.

The purpose of the Company’s liquidity management is to meet the cash flow obligations of its customers for both deposits and loans.

The primary liquidity measurement the Company utilizes is called

basic surplus, which captures the adequacy of the Company’s access to reliable sources of cash relative to the stability of its funding mix of average liabilities.

This approach recognizes the importance of balancing levels of cash flow liquidity

from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary.

However, competitive pressure on deposit pricing could result in a decrease in the Company’s deposit base or an

increase in funding costs.

Regulators are increasingly focused on liquidity risk after

the bank failures of 2023.

The primary liquidity measurement the Company utilizes is called basic surplus, which captures the adequacy of the Company’s access to reliable sources of cash relative to the stability of its funding mix of average

This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary.

However, competitive

pressure on deposit pricing could result in a decrease in the Company’s deposit base or an increase in funding costs.

In addition, liquidity will come under additional pressure if loan growth exceeds deposit growth.

These scenarios could lead to a decrease in the Company’s basic surplus measure to an amount below the minimum policy level

To manage this risk, the Company has the ability to purchase brokered time deposits, borrow against established borrowing facilities with other banks (Federal funds) and enter into repurchase agreements with investment companies.

on the level of interest rates applicable to these alternatives, the Company’s net interest income, and therefore earnings, could be adversely affected.

See the section captioned “Liquidity Risk” in Item 7.

Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due is substantially dependent on capital distributions from our

subsidiaries.

These scenarios could lead to a

decrease in the Company’s basic surplus measure to an amount below the minimum policy level of 5%.

To manage this risk, the Company has the ability to purchase brokered time deposits, borrow against established borrowing facilities with other banks

(Federal funds) and enter into repurchase agreements with investment companies.

Depending on the level of interest rates applicable to these alternatives, the Company’s net interest income, and therefore earnings, could be adversely affected.

the section captioned “Liquidity Risk” in Item 7.

Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due is substantially dependent on capital distributions from

our subsidiaries.

The Company is a separate and distinct legal entity from its subsidiaries.

It receives substantially all of its revenue from dividends from its subsidiaries.

These dividends are the principal source

of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt.

These dividends are the principal

source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt.

Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company.

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The credit rating agency rating our indebtedness regularly evaluates the Company and the Bank.

Credit ratings are based on a number of factors, including our financial strength and ability to generate

earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the economy and changes in rating methodologies.

There can be no assurance that the Company will maintain our

current credit ratings.

A downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital, significantly increase our cost of funds, and decrease the number of investors and counterparties

willing to lend to the Company or purchase our securities.

Credit ratings are based on a number of factors, including our financial strength and ability to

generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the economy and changes in rating methodologies.

There can be no assurance that the Company will

maintain our current credit ratings.

counterparties willing to lend to the Company or purchase our securities.

This could affect our growth, profitability, and financial condition, including liquidity.

The Company relies on third parties to provide key components of its business infrastructure.

The Company relies on third parties to provide key components for its business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and

services, internet connections and network access.

The Company relies on third parties to provide key components for its business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces

and services, internet connections and network access.

While the Company selects these third party vendors carefully, it does not control their actions.

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Replacing these third party vendors also could create significant delays and expense that adversely affect the Company’s business and performance.

There are substantial risks and uncertainties associated with the introduction or expansion of lines of business or new products and services within existing

lines of business.

There are substantial risks and uncertainties associated with the introduction or expansion of lines of business or new products and services within

existing lines of business.

From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business.

There are substantial risks and uncertainties associated with

these efforts, particularly in instances where the markets are not fully developed.

There are substantial risks and uncertainties associated

with these efforts, particularly in instances where the markets are not fully developed.

In developing and marketing new lines of business and/or new products and services, the Company may invest significant time and resources.

Initial timetables for

the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable.

Initial timetables

for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable.

External factors, such as compliance with regulations, competitive

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Risks Related to Legal, Governmental and Regulatory Changes

We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our

financial results.

We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact

our financial results.

We are subject to extensive federal and state regulation and supervision.

Banking regulations are primarily intended to protect depositors’ funds, the DIF and the safety and soundness of the banking

system as a whole, not stockholders.

Banking regulations are primarily intended to protect depositors’ funds, the DIF and the safety and soundness of the

banking system as a whole, not stockholders.

These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.

Congress and federal regulatory agencies continually review

banking laws, regulations and policies for possible changes.

Congress and federal regulatory agencies continually

review banking laws, regulations and policies for possible changes.

Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in

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Compliance personnel and resources may increase our costs of operations and adversely impact our earnings.

Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our

business, financial condition and results of operations.

Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect

on our business, financial condition and results of operations.

While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

See the section captioned “Supervision

and Regulation” in Item 1.

See the section captioned

“Supervision and Regulation” in Item 1.

Business of this report for further information.

We are subject to heightened regulatory requirements because we now exceed $10 billion in total consolidated assets.

We are subject to heightened regulatory requirements because we exceed $10 billion in total consolidated assets.

As of December 31, 2023, we had total assets of approximately $13.31 billion.

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examinations by the CFPB for compliance with federal consumer financial protection laws and regulations;

limits on interchange fees from debit cards transactions.

limits on interchange fees from debit card transactions.

The EGRRCPA, which was enacted in 2018, amended the Dodd-Frank Act to raise the $10 billion stress testing threshold to $250 billion, among other things.

The federal financial regulators issued final

rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to $250 billion, consistent with the EGRRCPA.

We expect that our regulators will consider our compliance with these regulatory requirements that now apply to us (in addition to regulatory requirements that applied to us previously) when examining

our operations or considering any request for regulatory approval.

The federal financial regulators issued

final rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to $250 billion, consistent with the EGRRCPA.

Our regulators will consider our compliance with these regulatory requirements that apply to us (in addition to regulatory requirements that applied to us previously) when examining our

operations or considering any request for regulatory approval.

We may, therefore, incur associated compliance costs and may be required to maintain compliance procedures.

Failure to comply with these new requirements may negatively impact the results of our operations and financial condition.

Failure to comply with these requirements may negatively impact the results of our operations and financial condition.

To ensure compliance, we will be required to invest significant resources,

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Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.

In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced that the FCA intends to stop persuading or

compelling banks to submit the rates required to calculate LIBOR after 2021.

This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

bank regulators issued a Statement on LIBOR Transition on November 30, 2020 and subsequent guidance encouraging banks to transition away from U.S.

Dollar (USD) LIBOR by December 31, 2021 at

the latest for new contracts.

LIBOR is currently anticipated to be fully phased out by June 30, 2023.

The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that

represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.

ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently

working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR.

The Company is in the process of transitioning legacy LIBOR loans to SOFR by June 30, 2023.

We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.

The transition from

LIBOR, or any changes or reforms to the determination or supervision of LIBOR, could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to

us, could create considerable costs and additional risk and could have an adverse impact on our overall financial condition or results of operations.

Since proposed alternative rates are calculated differently, payments under contracts referencing

new rates will differ from those referencing LIBOR.

The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies.

Furthermore, failure to adequately manage

this transition process with our customers could adversely impact our reputation.

In March 2021, the United Kingdom’s Financial Conduct Authority and the Intercontinental Exchange Benchmark Administration, the administrator for London Interbank Offered Rate (“LIBOR”),

concurrently announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S.

dollar LIBOR settings would no longer be published on a representative basis after

June 30, 2023.

The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR for use in

derivatives and other financial contracts that are currently indexed to LIBOR.

We had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR.

transition from LIBOR to SOFR as the preferred alternative to LIBOR, we have transitioned and amended our contracts and financial instruments to reference the SOFR rate where required.

Since alternative rates (including SOFR) are calculated

differently, payments under contracts referencing new rates will differ from those referencing LIBOR.

The future performance of SOFR, including how changes in SOFR rates may differ from other rates during different economic conditions, cannot be

predicted based on its limited historical performance.

Further, we cannot predict how SOFR will perform in comparison to LIBOR in changing market conditions, what the effect of such rate’s implementation may be on the markets for floating-rate

financial instruments or whether such rates will be vulnerable to manipulation.

The implementation of an alternative index or indices for the Company’s financial arrangements may result in less predictable outcomes, including reduced or more

volatile interest income if the alternative index or indices respond differently to market and other factors, and may result in reduced loan balances if borrowers do not accept the substitute index or indices and may result in disputes or

litigation with customers over the appropriateness or comparability of the alternative index to LIBOR, which could have an adverse effect on the Company’s results of operations.

Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.

Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance policies and procedures.

Any system of controls, however well designed and

operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

Any failure or circumvention of the controls and procedures or failure to comply with regulations

related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

Any system of controls, however well designed

and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

Any failure or circumvention of the controls and procedures or failure to comply with

regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

We may be held responsible for environmental liabilities with respect to properties to which we obtain title, resulting in significant financial loss.

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Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.

Financial services companies are interrelated

as a result of trading, clearing, counterparty or other relationships.

We have exposure to many different industries and counterparties and we routinely execute transactions with counterparties in the financial services industry, including brokers

and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients.

As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry

generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.

Financial services companies are

interrelated as a result of trading, clearing, counterparty or other relationships.

We have exposure to many different industries and counterparties and we routinely execute transactions with counterparties in the financial services industry,

including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients.

As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial

services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.

Many of these transactions expose us to credit risk in the event of default of our counterparty or client.

In addition, our

credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us.

There is no assurance that any such losses would not

materially and adversely affect our business, financial condition or results of operations.

In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us.

There is no assurance that any such

losses would not materially and adversely affect our business, financial condition or results of operations.

The Company owns common stock of FHLB of New York in order to qualify for membership in the FHLB system, which enables it to borrow funds under the FHLB of New York’s advance program.

value and fair market value of our FHLB of New York common stock was $26.8 million as of December 31, 2022.

carrying value and fair value of our FHLB of New York common stock was $21.6 million as of December 31, 2023.

There are 11 branches of the FHLB, including New York, which are jointly liable for the consolidated obligations of the FHLB system.

extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment.

the extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment.

Any adverse effects on the FHLB of New York could adversely affect the value of our

investment in its common stock and negatively impact our results of operations.

Provisions of our certificate of incorporation and bylaws, as well as Delaware law and certain banking laws, could delay or prevent a takeover of us by a third

Provisions of the Company’s certificate of incorporation and bylaws, the corporate law of the State of Delaware and state and federal banking laws, including regulatory approval requirements, could

delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s stockholders, or otherwise adversely affect the market price of the Company’s common stock.

Provisions of our certificate of incorporation and bylaws, as well as Delaware law and certain banking laws, could delay or prevent a takeover of us by a

Provisions of the Company’s certificate of incorporation and bylaws, the corporate law of the State of Delaware and state and federal banking laws, including regulatory approval requirements,

could delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s stockholders, or otherwise adversely affect the market price of the Company’s common stock.

These provisions include supermajority

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The Company is involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities.

The Company establishes reserves

for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated.

The Company establishes

reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated.

We may still incur legal costs for a matter even if a reserve is not established.

In addition, the actual cost of resolving a legal

claim may be substantially higher than any amounts reserved for that matter.

The ultimate resolution of a pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations

and financial condition.

In addition, the actual cost of

resolving a legal claim may be substantially higher than any amounts reserved for that matter.

The ultimate resolution of a pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our

results of operations and financial condition.

Risks Related to Cybersecurity and Data Privacy

The Company faces operational risks and cybersecurity risks associated with incidents which have the potential to disrupt our operations, cause material harm to

our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and cannot guarantee that the steps we and our service providers take in response to these risks will be

The Company faces operational risks and cybersecurity risks associated with incidents which have the potential to disrupt our operations, cause material

harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and cannot guarantee that the steps we and our service providers take in response to these risks

will be effective.

We depend upon data processing, communication systems, and information exchange on a variety of platforms and networks and over the internet to conduct business operations.

In addition, we rely on the

services of a variety of vendors to meet our data processing and communication needs.

In addition, we rely

on the services of a variety of vendors to meet our data processing and communication needs.

Although we require third party providers to maintain certain levels of security, such providers remain vulnerable to breaches, security incidents, system

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will not be successful or damaging, or, if any such breach or disruption does occur, that it can be sufficiently or timely remediated.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not

recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are

not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other

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The Company is not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.

Company also grants shares of common stock to employees and directors under the Company’s incentive plan each year.

The issuance of any additional shares of the Company’s common stock or preferred stock or securities convertible into, exchangeable

for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to stockholders of the Company’s common stock.

Holders of the Company’s common stock have no preemptive rights that entitle

such holders to purchase their pro rata share of any offering of shares of any class or series.

Because the Company’s decision to issue securities in any future offering will depend on market conditions, its acquisition activity and other factors,

the Company cannot predict or estimate the amount, timing or nature of its future offerings.

Thus, the Company’s stockholders bear the risk of the Company’s future offerings reducing the market price of the Company’s common stock and diluting their

stock holdings in the Company.

Risks Related to the Merger

The merger is subject to a number of conditions, including the receipt of consents and approvals from governmental authorities, that may delay the merger or

adversely impact the Company’s and Salisbury’s ability to complete the merger.

The completion of the merger is subject to the satisfaction or waiver of a number of conditions.

Before the merger may be completed, various approvals, waivers and/or consents must be obtained from

state and federal governmental authorities, including the FRB, the OCC and the Connecticut Department of Banking (“CTDOB”).

Satisfying the requirements of these governmental authorities may delay the date of completion of the merger.

these governmental authorities may include conditions on the completion of the merger, or require changes to the terms of the merger.

While it is currently anticipated that the merger will be completed promptly following the receipt of all required

regulatory approvals, there can be no assurance that the conditions to closing will be satisfied in a timely manner or at all, or that no effect, event, development or change will transpire that could delay or prevent these conditions from being

satisfied or impose additional costs on or limit the revenues of the Company following the merger, any of which might have a material adverse effect on the Company following the merger.

The parties are not obligated to complete the merger should

any regulatory approval contain a condition, restriction or requirement that our Board of Directors reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the merger to such a degree that the

Company would not have entered into the merger agreement had such condition, restriction or requirement been known at the date of the merger agreement.

The Company and Salisbury cannot provide any assurances with respect to the timing of the closing of the merger, whether the merger will be completed at all or when Salisbury stockholders would

receive the consideration for the merger, if at all.

Failure to complete the merger could negatively impact the stock price of the Company and its future business and financial results.

Completion of the merger is subject to the satisfaction or waiver of a number of conditions, including approval by Salisbury stockholders of the merger.

The Company cannot guarantee when or if these

conditions will be satisfied or that the merger will be successfully completed.

The consummation of the merger may be delayed, the merger may be consummated on terms different than those contemplated by the merger agreement, or the merger may not

be consummated at all.

If the merger is not completed, the ongoing business of the Company may be adversely affected, and the Company and will be subject to several risks, including the following:

the Company could incur substantial costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;

the Company’s management’s and employees’ attention may be diverted from their day-to-day business and operational matters as a result of efforts relating to attempting to consummate the merger.

In addition, if the merger is not completed, the Company may experience negative reactions from the financial markets, and the Company may experience negative reactions from its customers and

The Company also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against the Company to perform its obligations under the merger agreement.

If the merger is not

completed, the Company and Salisbury cannot assure their respective stockholders that the risks described above will not materialize and will not materially affect the business and financial results of the Company or the stock price of the Company.

The integration of the Company and Salisbury will present significant challenges that may result in the combined business not operating as effectively as

expected or in the failure to achieve some or all of the anticipated benefits of the transaction.

The benefits and synergies expected to result from the proposed transaction will depend in part on whether the operations of Salisbury can be integrated in a timely and efficient manner with those of

The Company will face challenges in consolidating its functions with those of Salisbury, and integrating the organizations, procedures and operations of the two businesses.

The integration of the Company and Salisbury will be complex

and time-consuming, and the management of both companies will have to dedicate substantial time and resources to it.

These efforts could divert management’s focus and resources from serving existing customers or other strategic opportunities and

from day-to-day operational matters during the integration process.

Failure to successfully integrate the operations of the Company and Salisbury could result in the failure to achieve some of the anticipated benefits from the transaction,

including cost savings and other operating efficiencies, and the Company may not be able to capitalize on the existing relationships of Salisbury to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to

achieve these goals.

This could have an adverse effect on the business, results of operations, financial condition or prospects of the Company and/or the Bank after the transaction.

Unanticipated costs relating to the merger could reduce our future earnings per share.

The Company has incurred substantial legal, accounting, financial advisory and other costs, and management has devoted considerable time and effort in connection with the merger.

If the merger is not

completed, the Company will bear certain fees and expenses associated with the merger without realizing the benefits of the merger.

If the merger is completed, the Company expects to incur substantial expenses in connection with integrating the

business, operations, network, systems, technologies, policies and procedures of the two companies.

The fees and expenses may be significant and could have an adverse impact on the Company’s results of operations.

The Company believes that it has reasonably estimated the likely costs of integrating the operations of the Company and Salisbury, and the incremental costs of operating as a combined company.

However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse

developments, could have a material adverse effect on the results of operations and financial condition of the combined company.

If unexpected costs are incurred, the merger could have a dilutive effect on the Company’s earnings per share.

words, if the merger is completed, the earnings per share of our common stock could be less than anticipated or even less than if the merger had not been completed.

Following the merger, the Company may not continue to pay dividends at or above the rate currently paid.

Following the merger, our stockholders may not receive dividends at the same rate that they did as stockholders of the Company prior to the merger for various reasons, including the following:

we may not have enough cash to pay such dividends due to changes in its cash requirements, capital spending plans, cash flow or financial position;

decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of our Board of Directors, which reserves the right to change our dividend practices

at any time and for any reason;

the amount of dividends that our subsidiaries may distribute to us may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these

subsidiaries may incur.

Our stockholders will have no contractual or other legal right to dividends that have not been declared by our Board of Directors.

The Company also grants shares of common stock to employees and directors under the Company’s incentive plan each year.

The issuance of any additional shares of the Company’s common stock or preferred stock or securities convertible into,

exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to stockholders of the Company’s common stock.

Holders of the Company’s common stock have no preemptive rights

that entitle such holders to purchase their pro rata share of any offering of shares of any class or series.

Because the Company’s decision to issue securities in any future offering will depend on market conditions, its acquisition activity and

other factors, the Company cannot predict or estimate the amount, timing or nature of its future offerings.

Thus, the Company’s stockholders bear the risk of the Company’s future offerings reducing the market price of the Company’s common stock and

diluting their stock holdings in the Company.

Risks Related to the Merger with Salisbury

The merger with Salisbury could adversely affect the Company’s future business and financial results.

Despite the successful integration of Salisbury’s operations with the Company’s, inherent challenges persist, particularly in harmonizing operational processes, technology platforms, and

corporate cultures.

The complexity of this integration process may lead to unforeseen delays or disruptions, potentially impacting customer service quality and operational efficiency.

Additionally, increased regulatory scrutiny following the merger

could result in heightened compliance requirements and regulatory enforcement actions, posing additional risks to our business operations and financial performance.

Moreover, the loss of key personnel, customer attrition, and competitive pressures

post-merger could adversely affect the Company’s ability to execute strategic initiatives and sustain growth momentum.

While the Company remains committed to mitigating these risks through diligent management and proactive measures, the

uncertainties associated with the post-merger environment necessitate ongoing vigilance and risk management efforts to safeguard our stakeholders’ interests and ensure long-term success.

General Risks

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The business strategy of the Company has included and may continue to include growth through acquisition.

Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions.

Any acquisitions (including the acquisition of Salisbury) will be accompanied by the

risks commonly encountered in acquisitions.

These risks may include, among other things:

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our ability to realize anticipated cost savings;

the difficulty of integrating operations and personnel and the potential loss of key employees;

the potential disruption of our or the acquired company’s ongoing business in such a way that could result in decreased revenues or the inability of our management to maximize our financial and strategic position;

the difficulty of integrating operations and personnel (including the operations and personnel of Salisbury) and the potential loss of key employees;

the potential disruption of our or the acquired company’s ongoing business in such a way that could result in decreased revenues or the inability of our management to maximize

our financial and strategic position;

the inability to maintain uniform standards, controls, procedures and policies;

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We cannot provide any assurance that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions.

Our inability to overcome these risks could have

an adverse effect on the achievement of our business strategy and results of operations.

Our inability to overcome these risks could

have an adverse effect on the achievement of our business strategy and results of operations.

We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.

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The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial condition.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors