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Item 1A. Risk Factors

2026-03-10 compared with 2025-03-10 · 107 added, 106 removed, 671 unchanged (24% of the section changed)

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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

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

may be taken to address that debt, economic and political instability and uncertainty, wars and military conflict, such as in

Ukraine, the Middle East and Venezuela, 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.

Rate Volatility Could Adversely Affect Our Results of Operations and Financial Condition.

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of credit markets, and competition.

During 2024, the Federal Reserve Board began reducing the federal funds rate, which had been

raised significantly during 2022 and 2023 to combat rising inflation in the U.S.

Notwithstanding these reductions, there can be

no assurances that the Federal Reserve Board will continue to cut the target federal funds rate in 2025 and it may remain open

to increasing rates further should inflation dynamics remain unfavorable.

Changes in monetary policy, including changes in interest

rates, influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings,

During 2025, the Federal Reserve Board continued reducing the federal funds rate, which had

been raised significantly during 2022 and 2023 to combat rising inflation in the U.S.

Notwithstanding these reductions, there

can be no assurances that the Federal Reserve Board will continue to cut the target federal funds rate in 2026 and it may remain

open to increasing rates further should inflation dynamics remain unfavorable.

Changes in monetary policy, including changes in

interest rates, influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings,

but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities,

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While the Federal

Reserve began reducing the federal funds rate in 2024, there can be no assurances that the Federal Reserve will continue to cut

target funds rates in 2025 and it may remain open to increasing rates further should inflation dynamics remain unfavorable in

Additionally, the Federal Reserve has raised certain benchmark interest rates in response to this elevated inflation.

discussed above, changes in interest rates could hurt our profits, as inflation increases and market interest rates rise, the

value of the Company’s investment securities, particularly those with longer maturities, would decrease, although this effect

can be less pronounced for floating rate instruments.

In addition, inflation generally increases the cost of goods and services

the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages,

any of which can increase the Company’s non-interest expenses.

Furthermore, the Company’s customers are also affected

by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact

on their ability to repay their loans with the Company.

Sustained higher interest rates by the Federal Reserve Board to tame persistent

inflationary price pressures could also push down asset prices and weaken economic activity.

A deterioration in economic conditions

in the United States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets,

decreases in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn,

would adversely affect the Company’s business, financial condition and results of operations.

Reserve reduced the federal funds rate in 2025, there can be no assurances that the Federal Reserve will continue to cut target

funds rates in 2026 and it may remain open to increasing rates further should inflation dynamics remain unfavorable in 2026.

Additionally,

the Federal Reserve has raised certain benchmark interest rates in response to this elevated inflation.

As discussed above, changes

in interest rates could hurt our profits, as inflation increases and market interest rates rise, the value of the Company’s

investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced

for floating rate instruments.

In addition, inflation generally increases the cost of goods and services the Company uses in its

business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase

the Company’s non-interest expenses.

Furthermore, the Company’s customers are also affected by inflation and the rising

costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay

their loans with the Company.

Sustained higher interest rates by the Federal Reserve Board to tame persistent inflationary price

pressures could also push down asset prices and weaken economic activity.

A deterioration in economic conditions in the United

States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets, decreases

in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn, would

adversely affect the Company’s business, financial condition and results of operations.

Company’s Allowance for Credit Losses May Not be Adequate to Cover Loan Losses, Which Could Have a Material Adverse Effect

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when appropriate, is derived from a combination of recessionary and non-recessionary performance periods for which data is available.

The expected loss estimates for the consumer loan segment are based on historical loss rates using the WARM method.

allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates

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These nonperforming loans and other real estate owned also increase the Company’s risk profile

and the capital that regulators believe is appropriate in light of such risks, and have an impact on the Company’s FDIC

risk based deposit insurance premium rate.

The resolution of nonperforming assets requires significant time commitments from management

and the capital that regulators believe is appropriate in light of such risks and have an impact on the Company’s FDIC risk-based

deposit insurance premium rate.

The resolution of nonperforming assets requires significant time commitments from management and

The Company may experience further increases in nonperforming loans in the future, and nonperforming assets may result

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to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit

as the effects of climate change continue to create a level of concern for the state of the global environment, companies are

facing increasing scrutiny from customers, regulators, investors and other stakeholders related to their environmental, social

and governance (“ESG”) practices and disclosure.

New government regulations could result in more stringent forms of

ESG oversight and reporting and diligence and disclosure requirements.

Increased ESG related compliance costs, in turn, could

result in increases to our overall operational costs.

Failure to adapt to or comply with regulatory requirements or investor or

stakeholder expectations and standards, including with respect to the Company’s involvement in certain industries or projects

associated with causing or exacerbating climate change, may negatively affect the Company’s reputation and commercial relationships,

which could adversely affect our business.

in Our Primary Market Area May Reduce Our Ability to Attract and Retain Deposits and Originate Loans.

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and provide for other liquidity needs.

At December 31, 2024 and 2023, the Bank had $1.7 million in brokered time deposits.

of the Bank’s sources for deposits is CDARS.

At December 31, 2024, the Bank has $36.9 million in CDARS reciprocal deposits

and $22.3 million in ICS network deposits.

These amounts, are reciprocal and are not considered brokered deposits under recent

regulatory reform.

There were no brokered time deposits at December 31, 2025.

One of the Bank’s sources

for deposits is CDARS.

At December 31, 2025, the Bank has $45.4 million in CDARS reciprocal deposits and $89.7 million in ICS

network deposits.

These amounts, are reciprocal and are not considered brokered deposits under recent regulatory reform.

Company, as Part of its Strategic Plans, Periodically Considers Potential Acquisitions.

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Company Relies on Dividends from the Bank for Substantially All of its Revenue.

The Company is a separate and distinct legal

entity from the Bank.

The Company is a separate and distinct

legal entity from the Bank.

It receives substantially all of its revenue from dividends paid by the Bank.

These dividends are the

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

Company’s subordinated debt.

Various federal and state laws and regulations limit the amount of dividends that the Bank may

pay to the Company.

If the Bank, due to its capital position, inadequate net income levels, or otherwise, is unable to pay dividends

to the Company, then the Company will be unable to service debt, pay obligations or pay dividends on the Company’s common

The OCC also has the authority to use its enforcement powers to prohibit the Bank from paying dividends if, in its opinion,

the payment of dividends would constitute an unsafe or unsound practice.

The Bank’s inability to pay dividends could have a

material adverse effect on the Company’s business, financial condition, results of operations and the market price of the

Company’s common stock.

These dividends are

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

subordinated debt.

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

If the Bank, due to its capital position, inadequate net income levels, or otherwise, is unable to pay dividends to the Company,

then the Company will be unable to service debt, pay obligations or pay dividends on the Company’s common stock.

also has the authority to use its enforcement powers to prohibit the Bank from paying dividends if, in its opinion, the payment

of dividends would constitute an unsafe or unsound practice.

The Bank’s inability to pay dividends could have a material

adverse effect on the Company’s business, financial condition, results of operations and the market price of the Company’s

common stock.

Carrying Value of the Company’s Goodwill Could Become Impaired.

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there can be no assurance that violations will not occur.

See the section titled, “Supervision and Regulation” in

the 2008 global financial crisis, financial institutions have been subject to increased scrutiny from Congress, state legislatures

and federal and state financial regulatory agencies.

Changes to the legal and regulatory framework have significantly altered

the laws and regulations under which we operate.

Compliance with these changes and any additional or amended laws, regulations

and regulatory policies may reduce our ability to effectively compete in attracting and retaining customers.

The passage and continued

implementation of the Dodd-Frank Act, among other laws and regulations, has increased our costs of doing business and resulted

in decreased revenues and net income.

We cannot provide assurance that future changes in laws, regulations and policies will not

adversely affect our business.

We cannot provide assurance that future changes in laws, regulations

and policies will not adversely affect our business.

See the section titled, “Supervision and Regulation” in ITEM

and Federal Regulatory Agencies Periodically Conduct Examinations of Our Business, Including for Compliance With Laws and Regulations,

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We face cybersecurity risks and risks associated with security breaches or disruptions such as those

through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to emails, social engineering

and phishing schemes or persons inside our organization.

The risk of a security breach or disruption, particularly through cyber-attacks

or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased

as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

These incidents

may result in disruption of our operations, material harm to our financial condition, cash flows and the market price of our common

stock, misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting

our business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory enforcement,

litigation and damage to our stakeholder relationships.

These risks require continuous and likely increasing attention and other

resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technologies, systems and

processes to adequately address them and provide periodic training for our employees to assist them in detecting phishing, malware

and other schemes.

Such attention diverts time and other resources from other activities and there is no assurance that our efforts

will be effective.

through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments and links in emails, social

engineering and phishing schemes or persons inside our organization.

The risk of a security breach or disruption, particularly

through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists,

has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world

have increased.

These incidents may result in disruption of our operations, material harm to our financial condition, cash flows

and the market price of our common stock, misappropriation of assets, compromise or corruption of confidential information collected

in the course of conducting our business, liability for stolen information or assets, increased cybersecurity protection and insurance

costs, regulatory enforcement, litigation and damage to our stakeholder relationships.

These risks require continuous and likely

increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand

our technologies, systems and processes to adequately address them and provide periodic training for our employees to assist them

in detecting phishing, malware and other schemes.

Such attention diverts time and other resources from other activities and there

is no assurance that our efforts will be effective.

the normal course of business, we collect and retain certain personal information provided by our customers, employees and vendors.

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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 be detected and, in fact, may not be detected.

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

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

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success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services

that will satisfy customer demands, as well as to create additional efficiencies in our operations.

that will satisfy customer demands, as well as create additional efficiencies in our operations.

Many of our competitors have

substantially greater resources to invest in technological improvements.

We may not be able to effectively implement new technology-driven

products and services or be successful in marketing these products and services to customers.

Failure to successfully keep pace

with technological changes affecting the financial services industry could have a material adverse impact on our business and,

in turn, our financial condition and results of operations.

substantially greater resources to invest in technological improvements, including the use of artificial intelligence.

not be able to keep pace with technological change or effectively implement new technology-driven products and services or be

successful in marketing these products and services to customers.

Failure to successfully keep pace with technological changes

affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition

and results of operations.

Development and Use of Artificial Intelligence Exposes Us to Risks That May Adversely Impact our Business.

We or our third-party

providers may develop or incorporate artificial intelligence (“AI”) technology in certain business processes, services,

The development and use of AI poses a number of risks and challenges to our business.

The legal and regulatory environment

relating to AI is uncertain and rapidly evolving, and we may be subject to increasing regulations related to our use of these

technologies, including regulations related to privacy, data security, and intellectual property rights, which could expose us

to legal risks.

AI models, particularly generative AI models, may produce incorrect, biased, or misleading results, expose confidential

information, or infringe on intellectual property rights.

Further, we may rely on AI models developed by third parties, and, to

that extent, would be subject to additional risks, including limited oversight of how these models are developed and trained and

potential exposure to unauthorized data usage.

If our AI models, or those developed by third parties, produce inaccurate or controversial

results, we could face legal liability, regulatory scrutiny, reputational harm, or operational inefficiencies.

These risks could

negatively impact our business, financial results, and the perception of our security measures.

in the Local Economy May Affect our Future Growth Possibilities.

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The Company’s market area is principally located in Hampden and Hampshire Counties, Massachusetts and Hartford

and Tolland Counties in northern Connecticut.

and Tolland Counties in Connecticut.

The local economy may affect future growth possibilities.

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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