What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-11 · 318 added, 393 removed, 381 unchanged (65% of the section changed)

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each appearing elsewhere in this Annual Report on Form 10-K.

Management’s discussion focuses on 2022 results compared to 2021.

For a discussion of 2021 results compared to 2020, refer to Part II, Item 7 of our Annual Report filed on Form 10-K, which was filed

with the SEC on March 11, 2022.

strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the

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connection with our overall growth strategy, we seek to:

the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area

of Hampden County and Hampshire County in western Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase

the net interest margin and loan income;

the commercial portfolio by growing the residential real estate portfolio to diversify the loan portfolio and deepen customer

relationships;

on expanding our retail banking deposit franchise and increase the number of households served within our designated market area;

in people, systems and technology to grow revenue, improve efficiency and enhance the overall customer experience;

revenues, increase tangible book value, continue to pay competitive dividends to shareholders and utilize the Company’s

stock repurchase plan to leverage our capital and enhance franchise value;

the Company’s commercial loan portfolio and related commercial deposits by targeting

businesses in our primary market area of Hampden County and Hampshire County in western

Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase the

net interest margin and loan income;

the commercial portfolio by growing the residential real estate portfolio to diversify

the loan portfolio and deepen customer relationships;

on expanding our retail banking deposit franchise and increase the number of households

served within our designated market area;

in people, systems and technology to grow revenue, improve efficiency and enhance the

overall customer experience;

revenues, increase tangible book value, continue to pay competitive dividends to shareholders

and utilize the Company’s stock repurchase plan to leverage our capital and enhance

franchise value;

growth through acquisitions.

We may pursue expansion opportunities in existing or adjacent strategic locations with companies

that add complementary products to our existing business and at terms that add value to our existing shareholders.

We may pursue expansion opportunities in existing or adjacent

strategic locations with companies that add complementary products to our existing business

and at terms that add value to our existing shareholders.

should read the following financial results for the year ended December 31, 2022 in the context of this strategy.

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The results for the

twelve months ended December 31, 2021 showed a decrease in interest expense, a credit for loan losses, and an increase in non-interest

income, which were all partially offset by a decrease in interest income and an increase in non-interest expense.

The provision

for loan losses was a credit of $925,000 for the year ended December 31, 2021, compared to a provision for loan losses of $7.8

million for the year ended December 31, 2020.

The allowance for loan losses was $19.8 million, or 1.06% of total loans,

at December 31, 2021 and $21.2 million, or 1.10%, at December 31, 2020.

Excluding PPP loans, the allowance for loan losses as

a percentage of total loans was 1.08% and 1.20% at December 31, 2021 and 2020, respectively.

At December 31, 2021, the allowance

for loan losses as a percentage of nonperforming loans was 398.6%, compared to 269.8% at December 31, 2020.

The twelve months

ended 2020 was impacted by a higher provision for loan losses resulting from the COVID-19 pandemic mandated shutdowns and economic

disruption that caused elevated unemployment levels and deterioration in household, business, economic and market conditions.

interest income increased $8.7 million, or 13.6%, to $73.2 million for the twelve months ended December 31, 2021, compared to

twelve months ended December 31, 2022 showed increases in net interest income and non-interest income, which were both partially

offset by increases in the provision for loan losses and non-interest expense.

the twelve months ended December 31, 2022, net interest income increased $6.0 million, or 8.3%, to $79.2 million, compared to

$73.2 million for the twelve months ended December 31, 2021.

The increase in net interest income was due to a decrease in interest

expense of $11.8 million, or 63.8%, partially offset by a decrease in interest and dividend income of $3.0 million, or 3.7%.

the twelve months ended December 31, 2021, interest and dividend income included $6.8 million in PPP income, compared to $4.8

million during the twelve months ended December 31, 2020.

During the twelve months ended December 31, 2020, the Company recorded

$976,000 in positive purchase accounting adjustments and $193,000 in interest income and late charges from the full payoff of

a $3.5 million credit-marked substandard classified loan, compared to $55,000 in positive purchase accounting adjustments during

the twelve months ended December 31, 2021.

The Company recorded prepayment penalties of $181,000 and $409,000 during the twelve

months ended December 31, 2021 and 2020, respectively.

Excluding the items mentioned above, net interest income increased $8.3

million, or 14.3%, from the same period in 2020.

The decrease in interest expense of $11.8 million, or 63.8%, was due to a decrease

in interest expense on deposits of $8.0 million, or 59.2%, and a decrease in interest expense on borrowings of $3.8 million, or

The increase in net interest income was due to an increase in interest

and dividend income of $6.1 million, or 7.6%, partially offset by an increase in interest expense of $24,000, or 0.4%.

twelve months ended December 31, 2022, the Company generated net interest income growth of 8.3%, overcoming a $6.0 million, or

89.2%, decrease in PPP income as the PPP program comes to a close.

Excluding PPP income of $728,000 and $6.8 million for the twelve

months ended December 31, 2022 and the twelve months ended December 31, 2021, respectively, net interest income increased $12.1

million, or 18.2% for the same period.

the twelve months ended December 31, 2022, the provision for loan losses was $700,000, compared to a credit for loan losses of

$925,000 for the twelve months ended December 31, 2021.

The Company recorded net charge-offs of $556,000 for the twelve months

ended December 31, 2022, as compared to net charge-offs of $445,000 for the twelve months ended December 31, 2021.

consolidated results of operations depend primarily on net interest and dividend income.

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expense, FDIC insurance assessment, professional fees and other general and administrative expenses.

DEVELOPMENTS:

CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.

Company continues to monitor COVID-19’s impact on its business and customers, however, the extent to which COVID-19 will

impact its results and operations will depend on future developments, which are highly uncertain and cannot be predicted with

confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate

its impact, and the direct and indirect economic effects of the pandemic and containment measures.

business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions.

The COVID-19 global public health crisis and the resulting “stay-at-home” orders resulted in widespread volatility,

severe disruptions in the U.S.

economy at large, and for small businesses in particular, deterioration in household, business,

economic and market conditions.

Protection Program.

a Preferred Lender with the SBA, the Company was in a position to react quickly to the PPP component of the March 27, 2020 $2.2

trillion fiscal stimulus bill known as the CARES Act launched by the Treasury and the SBA.

An eligible business was able to apply

for a PPP loan up to the lesser of:

(1) 2.5 times its average monthly “payroll costs,” or (2) $10.0 million.

(a) an interest rate of 1.0%, (b) a two-year loan term to maturity, subsequently extended to a five-year loan term maturity

for loans granted on or after June 5, 2020 and (c) principal and interest payments deferred from six months to ten months from

the date of disbursement.

The SBA will guarantee 100% of the PPP loans made to eligible borrowers.

The entire principal amount

of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under

the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll

expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

As of December 31, 2021, the Company

received funding approval from the SBA for 2,146 applications totaling $302.2 million.

of December 31, 2021, the Company processed 1,982 PPP loan forgiveness applications totaling $276.9 million.

Total PPP loans decreased

$141.9 million, or 84.9%, from $167.3 million at December 31, 2020 to $25.3 million at December 31, 2021.

PPP loans are forgiven, the Company is accelerating the recognition of PPP loan origination fees that were being amortized over

the original lives of the loans.

The majority of the PPP loan portfolio has been repaid through forgiveness and earnings were

favorably impacted by the additional PPP origination fee income during the year ended December 31, 2021.

During the twelve months

ended December 31, 2021, the Company recognized $6.8 million in PPP loan origination fee income and PPP interest income (“PPP

income”), compared to $4.8 million during the twelve months ended December 31, 2020.

As of December 31, 2021, the Company

had $781,000 in remaining deferred PPP loan processing fees.

Modifications/Troubled Debt Restructurings .

banking regulatory agencies, through an Interagency Statement dated April 7, 2020, have encouraged financial institutions to work

“prudently” with borrowers who request loan modifications or deferrals as a result of the economic impacts of COVID-19.

Pursuant to Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current

for COVID-19 modifications.

Financial institutions can then suspend the requirements under U.S.

GAAP for loan modifications related

to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19

as being a TDR, including the requirement to determine impairment for accounting under U.S.

The Company has adopted this

policy election to address COVID-19 loan modification requests that have been received from the earlier of either January 1, 2022

or the 60 th day after the end of the COVID-19 national emergency.

a result of the COVID-19 pandemic, the Company granted deferred loan payments for impacted commercial, residential and consumer

customers who experienced financial hardship due to COVID-19.

The loan payment deferrals can be up to 90 days, depending upon

the financial needs of each customer.

Further deferrals will be re-evaluated on a customer-by-customer basis upon the expiration

of the existing deferral period.

As of December 31, 2021, of the $42.5 million in remaining modifications granted under the CARES

Act, eight loans in the amount of $33.5 million, or 78.8%, of the remaining modifications, were granted to the hotel industry,

and one loan in the amount of $9.0 million was granted to an assisted living facility.

Of the $42.5 million in remaining outstanding

modifications, $33.5 million, or 78.8%, have resumed interest only payments.

table below breaks out the remaining modifications granted under the CARES Act at December 31, 2021:

CARES Act Modifications

Loan Segment (1)(2)

Total Loan Segment Balance at December 31, 2021

% of Total Loans

Modification Balance

# of Loans Modified

% of Loan Segment

($ in millions)

Commercial real estate (3)

Commercial and industrial

Residential real estate

PPP loans of $25.3 million and the related deferred fees.

(2) Residential

includes home equity loans and lines of credit.

remaining modifications balance includes $32.9 million, which resumed regular payments

in January of 2022.

Company implemented a modification deferral program under the CARES Act, which allowed residential, commercial and consumer borrowers

who were adversely affected by the COVID-19 pandemic, to defer loan payments for a set period of time.

As of December 31, 2022,

the Company had no modified loans remaining under the CARES Act.

for Loan Losses.

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and the financial strength of the borrower.

Beginning at the end of March 2020, a record number of Americans filed for unemployment

The global pandemic could cause the Company to experience higher credit losses in its lending portfolio, reduced demand

for our products and services and other negative impacts on our financial position, results of operations and prospects.

December 31, 2021, the Company’s delinquency and nonperforming assets have not been materially impacted by the COVID-19

pandemic, and therefore, have not resulted in material credit losses within the lending portfolio.

COVID-19 pandemic materially impacted the Company’s determination of the allowance for loan losses for the twelve months

ended December 31, 2021 and 2020.

The Company recorded a credit for loan losses of $925,000 for the twelve months ended December

31, 2021, compared to a provision for loan losses of $7.8 million for the twelve months ended December 31, 2020.

on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24, 2016 from Chicopee.

acquired portfolio was initially recorded at fair value without a related allowance for loan losses.

Subsequent to acquisition,

there have been no indications that there has been any subsequent deterioration to the acquired portfolio.

During the three months

ended September 30, 2020, the Company determined that it was prudent to provide an allowance for loan losses related to the acquired

portfolio, which increased the provision by $2.5 million during 2020.

The Company is continuing to monitor COVID-19’s impact

on its business and its customers, however, the extent to which COVID-19 will impact its results and operations will depend on

future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration

of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects

of the pandemic and containment measures.

The long-term consequences of the COVID-19 pandemic could cause us to experience higher

credit losses in our lending portfolio, reduce demand for our products and services and other negative impacts on our financial

position, results of operations and prospects.

As of December 31, 2022, the Company’s delinquency and nonperforming assets

have not been materially impacted by the COVID-19 pandemic, and therefore, have not resulted in material credit losses within

the lending portfolio.

Accounting Policies.

Our accounting policies are disclosed in Note 1 to

our consolidated financial statements.

Given our current business strategy and asset/liability structure, the more critical policy is

the allowance for loan losses and provision for loan losses.

In addition to the informational disclosure in the notes to the consolidated

financial statements, our policy on this accounting policy is described in detail in the applicable sections of “Management’s

Discussion and Analysis of Financial Condition and Results of Operations.” Senior management has discussed the development and

selection of this accounting policy and the related disclosures with the Audit Committee of our Board of Directors.

The process of evaluating the loan portfolio, classifying

loans and determining the allowance and provision is described in detail in Part I under “Business – Lending Activities

- Allowance for Loan Losses.” This evaluation is inherently subjective as it requires material estimates that may be susceptible

to significant change.

Our methodology for assessing the allocation of the allowance consists of two key components, which are a specific

allowance for impaired loans and a general allowance for the remainder of the portfolio.

Measurement of impairment can be based on present

value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or

the fair value of the collateral, if the loan is collateral dependent.

The allocation of the allowance is also reviewed by management

based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such

as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral

values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date

accounting policies are disclosed in Note 1 to our consolidated financial statements.

Given our current business strategy and

asset/liability structure, the more critical policy is the allowance for loan losses and provision for loan losses.

to the informational disclosure in the notes to the consolidated financial statements, our policy on this accounting policy is

described in detail in the applicable sections of “Management’s Discussion and Analysis of Financial Condition

and Results of Operations.” Senior management has discussed the development and selection of this accounting policy

and the related disclosures with the Audit Committee of our Board of Directors.

process of evaluating the loan portfolio, classifying loans and determining the allowance and provision is described in detail

in Part I under “Business – Lending Activities - Allowance for Loan Losses.” This evaluation is inherently

subjective as it requires material estimates that may be susceptible to significant change.

Our methodology for assessing the

allocation of the allowance consists of two key components, which are a specific allowance for impaired loans and a general allowance

for the remainder of the portfolio.

Measurement of impairment can be based on present value of expected future cash flows discounted

at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral, if

the loan is collateral dependent.

The allocation of the allowance is also reviewed by management based upon our evaluation of

then-existing economic and business conditions affecting our key lending areas and other conditions, such as new loan products,

credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values,

loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date

and the impact that such conditions were believed to have had on the collectability of the loan portfolio.

Beginning in March 2020, the Bank added a new qualitative

factor category to the allowance calculation – “Economic Impact of COVID-19”.

The allocation of additional reserves

for the COVID-19 qualitative factor during the year was based upon continued analysis of the loan portfolio that included identifying

borrowers sensitive to the shutdown (i.e.

accommodation and food service, recreation, construction, manufacturing, and wholesale &

retail trade) as well as a general allocation for the negative economic outlook given the record number of unemployment benefits claims

during the period.

In addition, on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24,

2016 from Chicopee Bancorp, Inc.

(“Chicopee”).

The acquired portfolio was initially recorded at fair value without a related

allowance for loan losses.

Due to the ongoing impacts and extended nature of the pandemic, during the year ended December 31, 2020, the

Company determined that it was prudent to provide an allowance for loan losses related to the acquired portfolio.

Although management

believes it has established and maintained the allowance for loan losses at adequate levels, if management’s assumptions and judgments

prove to be incorrect due to continued deterioration in economic, real estate and other conditions, and the allowance for loan losses

is not adequate to absorb inherent losses, our earnings and capital could be significantly and adversely affected.

There were no changes

to the Company’s allowance for loan losses methodology during the year ended December 31, 2021.

management believes it has established and maintained the allowance for loan losses at adequate levels, if management’s

assumptions and judgments prove to be incorrect due to continued deterioration in economic, real estate and other conditions,

and the allowance for loan losses is not adequate to absorb inherent losses, our earnings and capital could be significantly and

adversely affected.

There were no changes to the Company’s allowance for loan losses methodology during the year ended December

of Net Interest Income.

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Balance Sheet.

following table sets forth information relating to the Company for the years ended December 31, 2021, 2020 and 2019.

yields and costs are derived by dividing interest income or interest expense by the average balance of interest-earning assets

or interest-bearing liabilities, respectively, for the periods shown.

The following

table sets forth information relating to the Company for the years ended December 31, 2022, 2021 and 2020.

The average yields

and costs are derived by dividing interest income or interest expense by the average balance of interest-earning assets or interest-bearing

liabilities, respectively, for the periods shown.

Average balances are derived from average daily balances.

The yields include fees which are considered adjustments to yields.

Loan interest and yield data does not include any accrued

interest from non-accruing loans.

The yields include

fees which are considered adjustments to yields.

Loan interest and yield data does not include any accrued interest from non-accruing

For the Years Ended December 31,

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Net interest margin, on a tax-equivalent basis(7)

Ratio of average interest-earning

assets to average interest-bearing liabilities

Ratio of average interest-earning assets to

average interest-bearing liabilities

including nonaccrual loans, are net of deferred loan origination costs and unadvanced

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statements of net income.

See “Explanation of Use of Non-GAAP Financial Measurements”.

(3) Short-term

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of Use of Non-GAAP Financial Measurements”.

loans, time deposits and borrowings are recorded at fair value at the time of acquisition.

The fair value marks on the loans, time deposits and borrowings acquired accrete and

amortize into net interest income over time.

For the twelve months ended December 31,

2021, 2020 and 2019, the loan accretion income and interest expense reduction on time

deposits and borrowings increased net interest income $55,000, $976,000 and $18,000,

respectively.

Excluding these items, net interest margin, on a tax-equivalent basis,

for the twelve months ended December 31, 2021, 2020 and 2019 was 3.16%, 2.91%, and 2.93%

respectively.

following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing

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and the changes due to rate.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Year Ended December 31, 2022

Compared to Year Ended December 31, 2021

Year Ended December 31, 2021

Compared to Year Ended December 31, 2020

Increase (Decrease) Due to

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statements of net income.

See “Explanation of Use of Non-GAAP Financial Measurements”.

of Use of Non-GAAP Financial Measurements.

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A reconciliation from GAAP to non-GAAP is provided below.

Twelve Months Ended December 31,

(Dollars in thousands)

Average Yield

For the twelve months ended

(In thousands)

Loans (no tax adjustment)

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Net interest income (tax-equivalent basis)

Interest rate spread (no tax adjustment)

Net interest income (no tax adjustment)

Purchase accounting adjustments

Prepayment penalties and fees

PPP fee income

Adjusted net interest income (non-GAAP)

Average interest-earning assets

Average interest-earnings asset, excluding average PPP loans

Net interest margin (no tax adjustment)

Net interest margin, tax-equivalent

Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)

For the twelve months ended

(In thousands)

Income Before Income Taxes (GAAP)

Provision (credit) for loan losses

Gain on defined benefit plan curtailment

Income Before Taxes, Provision, PPP Income and Defined Benefit Curtailment (non-GAAP)

Adjusted Efficiency Ratio:

Non-interest Expense (GAAP)

Non-GAAP adjustments:

Loss on prepayment of borrowings

Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP)

Net Interest Income (GAAP)

Non-interest Income (GAAP)

Non-GAAP adjustments:

Loss (gain) on securities, net

Unrealized losses (gain) on marketable equity securities

Loss on interest rate swap termination

Gain on non-marketable equity investments

Gain on defined benefit plan curtailment

Non-interest Income for Adjusted Efficiency Ratio (non-GAAP)

Total Revenue for Adjusted Efficiency Ratio (non-GAAP)

Efficiency Ratio (GAAP)

Adjusted Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))

tax equivalent adjustment is based upon a 21% tax rate for 2022, 2021 and 2020.

of Financial Condition at December 31, 2022 and December 31, 2021.

December 31, 2021, total assets of $2.5 billion increased $172.5 million, or 7.3%, from December 31, 2020.

The balance sheet composition

and changes since December 31, 2020 are discussed below.

December 31, 2022, total assets were $2.6 billion, an increase of $14.7 million, or 0.6%, from December 31, 2021.

sheet composition and changes since December 31, 2021 are discussed below.

and Cash Equivalents.

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proceeds, and the immediate liquidity needs of the Company.

The increase in cash and cash equivalents at both December 31, 2021

and 2020 is primarily due to an increase in deposits during both periods.

December 31, 2021, the investment portfolio of $428.5 million, or 16.9% of total assets, increased $214.7 million, compared to

$213.8 million, or 9.0% of total assets, at December 31, 2020.

Held-to-maturity securities, which are recorded at amortized cost,

comprised the majority of the portfolio and represented 51.9% of total investments at December 31, 2021.

The Company did not hold

any held-to-maturity securities in 2020.

The Company allocated some of its excess liquidity to the investment portfolio as an

alternative to cash and cash equivalents.

This shift from overnight investments to held-to-maturity securities assisted the Company

with managing the yield on interest-earning assets in the low interest rate environment that we experienced in 2021 while providing

ongoing cash flows from payments and pay downs.

The primary objective of the investment portfolio is to provide liquidity and

maximize income while preserving the safety of principal.

Available-for-sale securities, which are carried at fair value, totaled

$194.4 million, or 45.4% of investments, at December 31, 2021, compared to $201.9 million, or 94.4% of investments, at December

The marketable equity securities portfolio totaled $11.9 million and $12.0 million at December 31, 2021 and 2020.

The decrease in cash and cash equivalents at December 31, 2022 is

primarily due to the Company utilizing cash on hand to fund loan growth during the year ended December 31, 2022.

December 31, 2022, the Company’s available-for-sale securities portfolio decreased $47.4 million, or 24.4%, from $194.4

million at December 31, 2021 to $147.0 million at December 31, 2022.

The held-to-maturity securities portfolio, recorded at amortized

cost, increased $7.9 million, or 3.6%, from $222.3 million at December 31, 2021 to $230.2 million at December 31, 2022.

The marketable

equity securities portfolio decreased $5.7 million, or 47.6%, from $11.9 million at December 31, 2021 to $6.2 million at December

The decreases were due to principal pay downs and redemptions, as well as an increase in unrealized loss on securities

available-for-sale.

The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving

the safety of principal.

Bank is required to purchase FHLB stock at par value in association with advances from the FHLB.

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The Company’s investment in

FHLB capital stock amounted to $2.2 million at both December 31, 2021 and December 31, 2020, respectively.

FHLB capital stock amounted to $2.9 million and $2.2 million at December 31, 2022 and December 31, 2021, respectively.

December 31, 2022 and 2021, the Company held $423,000 of Atlantic Community Bankers Bank stock.

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The stock is evaluated for impairment based on an estimate of the ultimate recovery to the par value.

loans were $1.9 billion as of December 31, 2021, a decrease of $62.7 million, or 3.3%, from December 31, 2020, primarily due to

a decrease in PPP loans of $141.9 million, or 84.9%.

Excluding PPP loans, total loans increased $79.3 million, or 4.5%, driven

by an increase in commercial real estate loans of $146.0 million, or 17.5%, partially offset by a decrease in commercial and industrial

loans of $10.5 million, or 4.9%.

Residential real estate loans, which include home equity loans, decreased $56.5 million, or 8.0%,

as we continue to sell low coupon, fixed rate residential loans to the secondary market in order to diversify our loan mix and

reduce our interest rate risk.

In accordance with the Company’s asset/liability management strategy, during the twelve months

ended December 31, 2021, the Company sold $59.7 million of fixed rate, low coupon residential real estate loans to the secondary

There were no loans sold during 2020.

As of December 31, 2021, the Company serviced $88.2 million in loans sold to the

secondary market, compared to $38.1 million at December 31, 2020.

Servicing rights will likely continue to be retained on all

loans written and sold to the secondary market.

December 31, 2022, total loans were $2.0 billion, an increase of $126.7 million, or 6.8%, from December 31, 2021.

Excluding PPP

loans, total loans increased $149.7 million, or 8.1%, driven by an increase in commercial real estate loans of $89.4 million,

or 9.1%, an increase in total commercial and industrial loans of $16.2 million, or 8.1%, an increase in residential real estate

loans, which include home equity loans, of $43.0 million, or 6.6%, and a decrease in PPP loans of $23.1 million, or 91.0%, from

December 31, 2021.

During the twelve months ended December 31, 2022 and 2021, the Company sold $277,000 and $59.7 million, respectively,

of fixed rate, low coupon residential real estate loans to the secondary market.

As of December 31, 2022, the Company serviced

$79.3 million in loans sold to the secondary market, compared to $88.2 million at December 31, 2021.

Servicing rights will likely

continue to be retained on all loans written and sold to the secondary market.

Life Insurance (“BOLI”).

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The cash surrender value

of BOLI was $72.9 million at both December 31, 2021 and 2020, respectively.

December 31, 2021, total deposits were $2.3 billion, an increase of $213.5 million, 10.5%, from December 31, 2020, primarily due

to an increase in core deposits of $401.8 million, or 27.7%.

of BOLI was $74.6 million and $72.9 million at December 31, 2022 and 2021, respectively.

December 31, 2022, total deposits were $2.2 billion, a decrease of $27.5 million, or 1.2%, from December 31, 2021, primarily due

to a decrease in core deposits of $37.1 million, or 2.0%.

Core deposits, which the Company defines as all deposits except time

deposits, increased from $1.4 billion, or 71.0% of total deposits, at December 31, 2020, to $1.8 billion, or 82.1% of total deposits,

deposits, decreased from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.8 billion, or 81.5% of total deposits,

at December 31, 2022.

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accounts increased $3.0 million, or 2.1%, to $148.7 million, savings accounts increased $4.8 million, or 2.2%, to $222.4 million,

and money market accounts increased $209.5 million, or 32.7%, to $850.3 million.

The increase in core deposits can be attributed

to the government stimulus, lower consumer spending, PPP loan proceeds deposited into borrower checking accounts, as well as the

three new branches opened in 2020.

We anticipate that some of the deposit growth from PPP will be temporary as customers look

to make capital improvements and diversify investments as risk from the COVID-19 pandemic eases over time.

December 31, 2021, total borrowings decreased $35.6 million, or 61.5%, from $57.9 million at December 31, 2020, to $22.3 million.

FHLB advances decreased $55.2 million, or 95.4%, to $2.7 million and subordinated debt issued during the three months ended June

30, 2021 totaled $20.0 million at December 31, 2021.

and money market accounts decreased $49.3 million, or 5.8%, to $801.1 million.

Time deposits increased $9.7 million, or 2.4%,

from $402.0 million at December 31, 2021 to $411.7 million at December 31, 2022.

December 31, 2022, total borrowings increased $39.9 million, or 178.9%, from $22.3 million at December 31, 2021, to $62.2 million.

Short-term borrowings and long-term debt increased $39.9 million to $42.5 million and subordinated debt outstanding totaled $19.7

million at December 31, 2022 and $19.6 million at December 31, 2021.

Shareholders’

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of total assets, at December 31, 2021.

The decrease in shareholders’ equity reflects $23.1 million for the repurchase of

the Company’s common stock, the payment of regular cash dividends of $4.7 million and an increase in accumulated other comprehensive

loss of $1.0 million, partially offset by net income of $23.7 million.

The increase in shareholders’ equity reflects net income of $25.9 million, partially

offset by $6.4 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $5.3 million

and an increase in accumulated other comprehensive loss of $12.7 million.

Total shares outstanding as of December 31, 2022 were

Company’s book value per share was $10.27 at December 31, 2022 compared to $9.87 at December 31, 2021, while tangible book

value per share increased $0.85, or 10.2%, from $8.36 at December 31, 2020 to $9.21 at December 31, 2021.

As of December 31, 2021,

the Company’s and the Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized”

under federal banking regulations.

value per share, a non-GAAP financial measure, increased $0.40, or 4.3%, from $9.21 at December 31, 2021 to $9.61 at December

Reflected in the book value and tangible book value changes during the year ended December 31, 2022 are the Federal

Reserve’s 425 basis points interest rate increases, which resulted in significant changes in unrealized gains and losses

on investment securities.

Such unrealized gains and losses are generally due to changes in interest rates and represent the difference,

net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as

available-for-sale.

The Company had no other-than-temporary impairment charges in its investment portfolio in 2022 or 2021.

book value is a Non-GAAP measure.

For more information regarding the Company’s use of Non-GAAP financial measures see “Explanation

of Use of Non-GAAP Financial Measurements.” As of December 31, 2022, the Company’s and the Bank’s regulatory

capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

October 31, 2022, the Board of Director’s previously approved termination of the Westfield Bank Defined Benefit Pension

Plan (“DB Plan”) became effective, subject to regulatory approvals.

Once the Company has received regulatory approval

to terminate the DB Plan, which is expected in the first quarter of 2023, the Company will make an additional cash contribution

during the second quarter of 2023, if necessary, in order to fully fund the DB Plan on a plan termination basis, followed by the

purchase of annuity contracts to transfer its remaining liabilities under the DB Plan, for those participants who do not opt for

a one-time lump sum payment.

The actual amount of this cash contribution, if any, will depend upon the nature and timing of participant

settlements, as well as prevailing market conditions.

At December 31, 2022, the Company reversed $7.3 million in net unrealized

losses recorded in accumulated other comprehensive income attributed to both the DB plan curtailment resulting from the termination

of the DB Plan as well as changes in discount rates.

In addition, the Company recorded a gain on curtailment of $2.8 million through

non-interest income.

The improvement in book value and tangible book value for the three months ended December 31, 2022 were primarily

related to the termination of the DB Plan.

under Management.

assets under management includes loans serviced for others and investment assets under management.

assets under management include loans serviced for others and investment assets under management.

Loans serviced for others and

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useful in understanding the trends in total assets under management.

Company provides a wide range of investment advisory and wealth management services.

Investment assets under management of $188.1

million increased $16.4 million, or 9.6%, for the year ended December 31, 2021, from $171.7 million for the year ended December

Company provides a wide range of investment advisory and wealth management services through Westfield Investment Services through

LPL Financial, a third-party broker-dealer.

Investment assets under management decreased $35.6 million, or 18.9%, from $188.1

million for the year ended December 31, 2021, to $152.5 million for the year ended December 31, 2022.

of Operating Results for Years Ended December 31, 2022 and 2021.

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$73.2 million for the twelve months ended December 31, 2021.

The increase in net interest income was due to a decrease in interest

expense of $11.8 million, or 63.8%, partially offset by a decrease in interest and dividend income of $3.0 million, or 3.7%.

the twelve months ended December 31, 2021, interest and dividend income included $6.8 million in PPP income, compared to $4.8

million during the twelve months ended December 31, 2020.

During the twelve months ended December 31, 2020, the Company recorded

$976,000 in positive purchase accounting adjustments and $193,000 in interest income and late charges from the full payoff of

a $3.5 million credit-marked substandard classified loan, compared to $55,000 in positive purchase accounting adjustments during

the twelve months ended December 31, 2021.

The Company recorded prepayment penalties of $181,000 and $409,000 during the twelve

months ended December 31, 2021 and 2020, respectively.

Excluding the items mentioned above, net interest income increased $8.3

million, or 14.3%, from the same period in 2020.

The decrease in interest expense of $11.8 million, or 63.8%, was due to a decrease

in interest expense on deposits of $8.0 million, or 59.2%, and a decrease in interest expense on borrowings of $3.8 million, or

net interest margin for the twelve months ended December 31, 2021 was 3.14%, compared to 2.93% for the twelve months ended December

The net interest margin, on a tax-equivalent basis, was 3.16% for the twelve months ended December 31, 2021, compared

to 2.95% for the twelve months ended December 31, 2020.

Excluding the adjustments discussed above, the net interest margin increased

from 2.83% for the twelve months ended December 31, 2020 to 2.99% for the twelve months ended December 31, 2021.

average yield on interest-earning assets decreased 34 basis points from 3.77% for the twelve months ended December 31, 2020 to

The increase in net interest income was due to an increase in interest

and dividend income of $6.1 million, or 7.6%, partially offset by an increase in interest expense of $24,000, or 0.4%.

twelve months ended December 31, 2022, the Company generated net interest income growth of 8.3%, overcoming a $6.0 million, or

89.2%, decrease in PPP income as the PPP program comes to a close.

Excluding PPP income of $728,000 and $6.8 million for the twelve

months ended December 31, 2022 and the twelve months ended December 31, 2021, respectively, net interest income increased $12.1

million, or 18.2% for the same period.

net interest margin for the twelve months ended December 31, 2022 was 3.31%, compared to 3.14% during the twelve months ended

December 31, 2021.

The net interest margin, on a tax-equivalent basis, was 3.33% for the twelve months ended December 31, 2022,

compared to 3.16% for the twelve months ended December 31, 2021.

Excluding the PPP income, the net interest margin increased 29

basis points from 2.99% for the twelve months ended December 31, 2021 to 3.28% for the twelve months ended December 31, 2022.

average yield on interest-earning assets increased 15 basis point from 3.43% for the twelve months ended December 31, 2021 to

3.58% for the twelve months ended December 31, 2022.

The yield on average loans decreased from 4.05% during the twelve months

ended December 31, 2020 to 3.93% during the twelve months ended December 31, 2021.

Excluding the adjustments discussed above of

$6.9 million and $6.4 million for the twelve months ended December 31, 2021 and 2020, respectively, the yield on average loans

decreased 23 basis points from 4.02% for the twelve months ended December 31, 2020 to 3.79% for the twelve months ended December

the twelve months ended December 31, 2021, the average cost of total funds, including non-interest bearing demand accounts and

borrowings, decreased 59 basis points from 0.89% for the twelve months ended December 31, 2020 to 0.30%.

For the twelve months

ended December 31, 2021, the average cost of core deposits, including non-interest-bearing demand deposits, decreased 10 basis

points to 0.17%, from 0.27% for same period in 2020.

The average cost of time deposits decreased 107 basis points from 1.60% for

the twelve months ended December 31, 2020 to 0.53% during the same period in 2021.

The average cost of borrowings increased 45

basis points from 2.59% for the twelve months ended December 31, 2020 to 3.04% for the twelve months ended December 31, 2021 due

to the issuance of $20.0 million in subordinated debt during the twelve months ended December 31, 2021.

During the twelve months ended December 31, 2022, the average cost of funds,

including non-interest-bearing demand accounts and borrowings, decreased one basis point from 0.30% for the twelve months ended

December 31, 2021 to 0.29% for the twelve months ended December 31, 2022.

For the twelve months ended December 31, 2022, the average

cost of core deposits, including non-interest-bearing demand deposits, increased three basis points from 0.17% for the twelve

months ended December 31, 2021 to 0.20% for the twelve months ended December 31, 2022.

The average cost of time deposits decreased

12 basis points from 0.53% for the twelve months ended December 31, 2021 to 0.41% during the same period in 2022.

cost of borrowings, which include FHLB advances and subordinated debt, increased 122 basis points from 3.04% for the twelve months

ended December 31, 2021 to 4.26% for the twelve months ended December 31, 2022, due to the issuance of $20.0 million in subordinated

debt in April 2021.

the twelve months ended December 31, 2022, average demand deposits, an interest-free source of funds, increased $39.0 million,

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the twelve months ended December 31, 2022, average interest-earning assets increased $67.1 million, or 2.9%, to $2.4 billion.

The increase in average interest-earning assets was due to an increase in average securities of $105.5 million, or 49.2%, and

an increase in short-term investments of $66.1 million, or 144.1%, partially offset by a decrease in average loans of $34.7 million,

Excluding PPP loans, average interest-earning assets increased $167.1 million or 8.1%, and average loans remained unchanged

at $1.8 billion.

The increase in average interest-earning assets was due to an increase in average loans of $65.6 million, or 3.5%, as well as

an increase in average securities of $87.7 million, or 27.4%, partially offset by a decrease of $86.2 million, or 77.0%, in short-term

investments, which consists of cash and cash equivalents.

Excluding average PPP loans, average loans increased $170.5 million,

or 9.6%, and average interest-earnings assets increased $172.0 million, or 7.7%.

for Loan Losses.

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had on the collectability of the loan portfolio.

Company decreased the provision for loan losses by $8.7 million, or 111.9%, from $7.8 million for the twelve months ended December

31, 2020, to a credit balance of $925,000 for the twelve months ended December 31, 2021.

This change was reflective of the impact

of the COVID-19 pandemic on the Company’s allowance for loan losses during both periods.

provision for loan losses increased $1.6 million, to $700,000 for the twelve months ended December 31, 2022, from a credit for

loan losses of $925,000 for the twelve months ended December 31, 2021, primarily driven by loan growth during the year ended December

The credit for loan losses for the twelve months ended December 31, 2021 was due to the Company reducing its qualitative

factors related to the impact of the COVID-19 pandemic and other economic trends used in the Company’s allowance.

Company recorded net charge-offs of $556,000 for the twelve months ended December 31, 2022, as compared to net charge-offs of

$445,000 for the twelve months ended December 31, 2021.

During the twelve months ended December 31, 2021, the Company recorded

charge-offs of $645,000, compared to $963,000 during the same period in 2020.

During the twelve months ended December 31, 2021,

the Company recorded recoveries of $200,000, compared to recoveries of $243,000 during the same period in 2020.

allowance for loan losses as a percentage of total loans was 1.06% at December 31, 2021, compared to 1.10% at December 31, 2020.

At December 31, 2021, the allowance for loan losses as a percentage of nonperforming loans was 398.6%, compared to 269.8% at December

The allowance for loan losses as a percentage of total loans, excluding PPP loans, was 1.08% and 1.20% at December 31,

2021 and 2020, respectively.

The allowance for loan losses as a percentage of total loans was 1.00%

at December 31, 2022, compared to 1.06% at December 31, 2021.

At December 31, 2022, the allowance for loan losses as a percentage

of nonperforming loans was 350.0%, compared to 398.6%, at December 31, 2021.

management believes it has established and maintained the allowance for loan losses at appropriate levels, future adjustments

may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.

the twelve months ended December 31, 2021, non-interest income of $12.6 million increased $3.3 million, or 35.8%, compared to

$9.3 million for the twelve months ended December 31, 2020.

During the twelve months ended December 31, 2021, non-interest income

included the recognition of $555,000 in BOLI death benefits.

Excluding the BOLI death benefits, non-interest income increased

$2.8 million, or 30.1%.

charges and fees increased $1.3 million, or 18.3%, primarily due to an increase in card-based transaction usage across our checking

account base.

Mortgage banking income was $1.4 million for the twelve months ended December 31, 2021, due to the sale of fixed

rate residential real estate loans to the secondary market.

During the twelve months ended December 31, 2021, the Company sold

$59.7 million in loans to the secondary market.

The Company did not sell any fixed rate residential real estate loans during the

twelve months ended December 31, 2020.

Income from bank-owned life insurance increased $103,000, or 5.7%, and other income from

loan-level swap fees on commercial loans decreased $596,000, or 91.1%.

the twelve months ended December 31, 2021, the Company reported unrealized losses on marketable equity securities of $168,000,

compared to unrealized gains of $109,000 during the twelve months ended December 31, 2020.

In addition, during the twelve months

ended December 31, 2021, the Company reported realized losses on the sale of securities of $72,000 and a gain of $898,000 on non-marketable

equity securities, compared to realized gains of $2.0 million on the sale of securities during the twelve months ended December

During the twelve months ended December 31, 2021, the Company reported a loss on derivatives of $402,000, compared to

a loss on derivatives of $2.4 million during the twelve months ended December 31, 2020.

the twelve months ended December 31, 2022, non-interest income increased $768,000, or 6.1%, from $12.6 million for the twelve

months ended December 31, 2021 to $13.3 million for the twelve months ended December 31, 2022.

During the twelve months ended

December 31, 2021, non-interest income included the recognition of $555,000 in BOLI death benefits.

During the twelve months ended

December 31, 2022, service charges and fees increased $712,000, or 8.5%, and mortgage banking income decreased $1.4 million from

the twelve months ended December 31, 2021 to the twelve months ended December 31, 2022.

In 2021, the Company sold $59.7 million

in fixed rate residential real estate loans to the secondary market, compared to $277,000 in sales during the twelve months ended

December 31, 2022.

Other income from loan-level swap fees on commercial loans decreased $33,000, or 56.9%, and income from BOLI

decreased $187,000, or 9.8%.

October 31, 2022, the termination of the Westfield Bank Defined Benefit Pension Plan (the “DB Plan”) became effective,

subject to regulatory approvals expected in the first quarter of 2023, with final settlement expected to occur occurring in the

second quarter of 2023.

During the twelve months ended December 31, 2022, the Company recorded a curtailment gain related to the

DB Plan termination of $2.8 million through non-interest income.

Excluding the defined benefit curtailment gain as a result of

the termination of the DB Plan and BOLI death benefits, non-interest income decreased $1.5 million, or 12.5%.

During the twelve

months ended December 31, 2022, the Company reported unrealized losses on marketable equity securities of $717,000, compared to

unrealized losses of $168,000 during the twelve months ended December 31, 2021.

During the twelve months ended December 31, 2022,

the Company also reported realized losses on the sale of securities of $4,000, compared to realized losses on the sale of securities

of $72,000 during the twelve months ended December 31, 2021.

In addition, the Company reported a gain of $422,000 on non-marketable

equity investments during the twelve months ended December 31, 2022, compared to $898,000 during the twelve months ended December

Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the

related yield curve and valuation changes.

During the twelve months ended December 31, 2021, the Company also recognized a loss

on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the

previous termination of a $32.5 million interest rate swap on March 16, 2016.

the twelve months ended December 31, 2022, non-interest expense increased $2.3 million, or 4.2%, to $57.2 million, compared to

$54.9 million for the twelve months ended December 31, 2021.

During the year ended December 31, 2020, the Company prepaid $50.0

million of FHLB borrowings.

The transaction was accounted for as an early debt extinguishment resulting in a loss of $987,000,

compared to $45,000 during the twelve months ended December 31, 2021.

Excluding these losses, non-interest expense increased $4.1

million, or 8.1%, from the twelve months ended December 31, 2020 to the twelve months ended December 31, 2021.

increase in non-interest expense was primarily due to an increase in salaries and employee benefits expenses of $2.9 million,

The increase in salary and employee benefits was due to several factors, including higher commissions and incentives

associated with increased residential loan production as well as annual staff salary increases.

Furniture and equipment increased

$547,000, or 35.6%, other non-interest income increased $647,000, or 8.1%, advertising expense increased $186,000, or 16.8%, and

occupancy expense increased $136,000, or 3.0%.

FDIC insurance expense decreased $34,000, or 3.3%, professional fees decreased

$187,000, or 7.9%, and data processing fees remain flat at $2.9 million.

For the twelve months ended December 31, 2021, the efficiency

ratio was 64.6%, compared to 68.6% for the twelve months ended December 31, 2020.

tax expense for the twelve months ended December 31, 2021 was $8.0 million, or an effective tax rate of 25.3%, compared to $2.9

million, or an effective tax rate of 20.8%, for twelve months ended December 31, 2020.

The increase in the Company’s effective

tax rate was primarily due to the effect of higher pre-tax income for the fiscal year ended December 31, 2021.

The increase in non-interest expense was primarily due to an increase

in salaries and employee benefits expense of $511,000, or 1.6%, due to normal annual salary increases as well as higher incentive

compensation costs.

Other non-interest expense increased $878,000, or 10.2%, professional fees increased $531,000, or 24.3%, which

is comprised of legal fees, audit and compliance fees, as well as other professional fees.

Occupancy expense increased $328,000,

or 7.0%, advertising expense increased $116,000, or 9.0%, and FDIC insurance expense increased $50,000, or 5.0%.

These increases

were partially offset by a decrease in furniture and equipment expense of $58,000, or 2.8%, and a decrease in data processing

expense of $18,000, or 0.6%.

During the twelve months ended December 31, 2021, the Company prepaid $32.5 million of FHLB borrowings

resulting in a loss of $45,000.

For the twelve months ended December 31, 2022, the efficiency ratio was 61.8%, compared to 64.1%

for the twelve months ended December 31, 2021.

For the twelve months ended December 31, 2022, the adjusted efficiency ratio, a

non-GAAP financial measure, was 63.6%, compared to 64.6% for the twelve months ended December 31, 2021.

For more information regarding

the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.”

tax expense for the twelve months ended December 31, 2022 was $8.7 million, representing an effective tax rate of 25.2%, compared

to $8.0 million, representing an effective tax rate of 25.3%, for twelve months ended December 31, 2021.

and Capital Resources.

36 unchanged sentences

31, 2022, we originated $447.4 million in loans, compared to $611.4 million in 2021.

We purchased securities totaling $296.6 million

for the year ended December 31, 2021, compared to purchases of $159.0 million for the year ended December 31, 2020.

31, 2021, the Company had approximately $217.2 million in loan commitments and letters of credit to borrowers and approximately

$326.0 million in available home equity and other unadvanced lines of credit.

in flows and out flows are affected by the level of interest rates, the products and interest rates offered by competitors and

by other factors.

During the year ended December 31, 2022,

cash and cash equivalents decreased $73.1 million, or 70.7%, to $30.3 million, as cash on hand was used during the year to fund

We purchased securities totaling $33.0 million for the year ended December 31, 2022, compared to purchases of $296.6

million for the year ended December 31, 2021.

At December 31, 2022, the Company had approximately $176.7 million in loan commitments

and letters of credit to borrowers and approximately $328.8 million in available home equity and other unadvanced lines of credit.

inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by

other factors.

At December 31, 2022, time deposit accounts scheduled to mature within one year totaled $288.7 million.

on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of

these time deposits will remain on deposit.

the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these

time deposits will remain on deposit.

We monitor our liquidity position frequently and anticipate that it will have sufficient

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Total remaining contractual obligations outstanding with this vendor as of December 31, 2022 were estimated to be $10.7

million, with $4.5 million expected to be paid within one year and the remaining $9.7 million to be paid within the next five

million, with $4.9 million expected to be paid within one year and the remaining $5.8 million to be paid within the next three

Further, the Company has operating leases for certain of its banking offices and ATMs.

Our leases have remaining lease

terms of less than one year to seventeen years, some of which include options to extend the leases for additional five-year terms

up to fifteen years.

Lease liabilities totaled $10.5 million as of December 31, 2021.

Principal payments expected to be made on

our lease liabilities during the twelve months ended December 31, 2022 were $1.4 million.

The remaining lease liability payments

totaled $9.1 million and are expected to be made after December 31, 2022 (See Note 12, Leases , to our consolidated financial

statements for further information on our lease obligations).

terms of less than one year to sixteen years, some of which include options to extend the leases for additional five-year terms

up to ten years.

Undiscounted lease liabilities totaled $11.2 million as of December 31, 2022.

Principal payments expected to

be made on our lease liabilities during the twelve months ended December 31, 2023 were $1.4 million.

The remaining lease liability

payments totaled $9.8 million and are expected to be made after December 31, 2023 (See Note 12, Leases , to our consolidated

financial statements for further information on our lease obligations).

addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating rate

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Unless earlier redeemed, the Notes mature on May 1, 2031.

The Notes will bear interest from the initial issue date to,

but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears

on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but

excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight

financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly

in arrears on May 1, August 1, November 1 and February 1 of each year.

The Company may also redeem the Notes, in whole or in part,

on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board

of Governors of the Federal Reserve (See Note 8, Long-Term Debt , to our consolidated financial statements for further information

on our long-term debt).

At December 31, 2022, $19.7 million aggregate principle amount

of the Notes was outstanding.

The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the

earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and

February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier

redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points,

determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November

1 and February 1 of each year.

The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any

time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve

(See Note 8, Long-Term Debt , to our consolidated financial statements for further information on our long-term debt).

do not anticipate any material capital expenditures during the calendar year 2023, except in pursuance of the Company’s

32 unchanged sentences

appropriate, using interest rate swaps to manage the interest rate position of the balance

2021, cash flows from deposit inflows were used to pay down high cost FHLB borrowings, fund loan growth and purchase held-to-maturity

The Company continues its emphasis on growing commercial loans, which typically have variable interest rates and shorter

maturities than residential loans.

2022, cash flows from deposit inflows were used to fund loan growth and purchase held-to-maturity and available-for-sale securities.

The Company continues its emphasis on growing commercial loans, which typically have variable interest rates and shorter maturities

than residential loans.

actual amount of time before loans are repaid can be significantly affected by changes in market interest rates.

50 unchanged sentences

-100 basis points

-200 basis points

13 – 24 Months

1 unchanged sentence

-100 basis points

-200 basis points

(1) The down 200 basis points scenario for 2021 is not presented due to certain market rates being below 200 basis points.

preceding sensitivity analysis does not represent a forecast of net interest income, nor do the calculations represent any actions

16 unchanged sentences

We did not have any interest rate swap agreements

designated as cash flow hedges at December 31, 2021.

designated as cash flow hedges at December 31, 2022 or 2021.

Accounting Pronouncements.

16 unchanged sentences

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 7. Management’s Discussion and Analysis