Western New England Bancorp, Inc. (WNEB)

CIK: 0001157647. SIC: 6035 Savings Institution, Federally Chartered. Latest 10-K as of: 2026-03-10.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6035 Savings Institution, Federally Chartered

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1157647. Latest filing source: 0001999371-26-005514.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-16. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001157647.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-08. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001157647.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001999371-26-010347.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Confidence: high. Filing date: 2026-05-08. Report date: 2026-03-31.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

Overview.

We strive to remain a leader in meeting the financial
service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have
served since 1853. Historically, we have been a community-oriented provider of traditional banking products and services to business organizations
and individuals, including products such as residential and commercial real estate loans, commercial and industrial loans, consumer loans,
and a variety of deposit products. We meet the needs of our local community through a community-based and service-oriented approach to
banking.

The Company has adopted a growth-oriented strategy
that continues to focus on increasing commercial lending and residential lending. Our strategy also calls for increasing deposit relationships,
specifically core deposits, which the Company defines as all deposits except for time deposits, and broadening our product lines and services.
We believe that this business strategy is best for our long-term success and viability and complements our existing commitment to high-quality
customer service.

In connection with our overall growth strategy,
we seek to:

●

Increase market share and achieve scale to improve
the Company’s profitability, efficiency and return value to shareholders;

●

Grow the Company’s commercial loan portfolio
and related commercial deposits by targeting businesses in our primary market area of Hampden and Hampshire Counties in western Massachusetts
and the Capital Region in Connecticut;

●

Grow the Company’s residential real estate
portfolio to diversify the Company’s loan portfolio and deepen customer relationships;

●

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

●

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

●

Grow revenues, increase book value per share
and tangible book value per share (a non-GAAP financial measure), pay competitive dividends to shareholders, and utilize the Company’s
stock repurchase plan to leverage our capital and enhance franchise value; and

●

Consider growth through mergers and 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.

You should read the following financial results
for the three months ended March 31, 2026 in the context of this strategy.

●

The Company reported an increase in net income
of $2.5 million, or 107.4%, from $2.3 million, or $0.11 per diluted share, for the three months ended March 31, 2025, to $4.8 million,
or $0.24 per diluted share, for the three months ended March 31, 2026. Net interest income increased $3.3 million, or 21.2%, provision
for credit losses decreased $67,000, or 47.2%, non-interest income increased $674,000, or 24.4%, and non-interest expense increased $824,000,
or 5.4%, during the same period.

39

●

During the three months ended March 31, 2026,
the Company recorded a provision for credit losses of $75,000, a decrease of $67,000, or 47.2%, from $142,000 for the three months ended
March 31, 2025. The decrease was primarily due to a decrease in unfunded commitments.

●

Net interest income increased $3.3 million, or
21.2%, to $18.8 million, for the three months ended March 31, 2026, from $15.5 million for the three months ended March 31, 2025. The
increase in net interest income was due to an increase in interest and dividend income of $1.8 million, or 6.5%, and a decrease in interest
expense of $1.4 million, or 11.2%. The decrease in interest expense was primarily due to a decrease in the average cost of interest-bearing
liabilities of 36 basis points, from 2.82% for the three months ended March 31, 2025 to 2.46% for the three months ended March 31, 2026.

CRITICAL ACCOUNTING POLICIES.

Our consolidated financial statements are prepared
in accordance with GAAP and practices within the banking industry. Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions,
and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes,
the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.

Critical accounting estimates are necessary in
the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting
policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially
different results under different assumptions and conditions.

There have been no material changes to our critical
accounting policies during the three months ended March 31, 2026. For additional information on our critical accounting policies, please
refer to the information contained in Note 1 of the accompanying unaudited consolidated financial statements and Note 1 of the consolidated
financial statements included in our 2025 Annual Report. 

COMPARISON OF FINANCIAL CONDITION AT MARCH
31, 2026 AND DECEMBER 31, 2025

At March 31, 2026, total assets were $2.8 billion,
an increase of $28.0 million, or 1.0%, from December 31, 2025. The increase in total assets was primarily due to an increase in total
loans of $17.2 million, or 0.8%, and an increase in cash and cash equivalents of $15.8 million, or 39.0%.

At March 31, 2026, the investment securities portfolio
totaled $359.2 million, or 13.0% of total assets, compared to $365.2 million, or 13.3% of total assets, at December 31, 2025. At March
31, 2026, the Company’s available-for-sale securities portfolio, recorded at fair market value, was $173.2 million, a decrease of
$2.6 million, or 1.5%, from $175.8 million at December 31, 2025. The held-to-maturity securities portfolio, recorded at amortized cost,
decreased $3.4 million, or 1.8%, from $188.8 million at December 31, 2025 to $185.4 million at March 31, 2026.

At March 31, 2026, the Company reported net unrealized
losses on the available-for-sale securities portfolio of $23.0 million, or 11.7% of the amortized cost basis of the available-for-sale
securities portfolio, compared to net unrealized losses of $22.4 million, or 11.3% of the amortized cost basis of the available-for-sale
securities at December 31, 2025. At March 31, 2026, the Company reported net unrealized losses on the held-to-maturity securities portfolio
of $30.6 million, or 16.5% of the amortized cost basis of the held-to-maturity securities portfolio, compared to $30.3 million, or 16.1%
of the amortized cost basis of the held-to-maturity securities portfolio at December 31, 2025.

The securities in which the Company may
invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including
U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates
of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt
instruments, and marketable equity securities. The securities, with the exception of $11.0 million in corporate bonds, are issued by
the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to
the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the
disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases,
price improvement in future periods will be realized as the issuances approach maturity.

40

Management regularly reviews the portfolio for
securities in an unrealized loss position. At March 31, 2026 and December 31, 2025, the Company did not record any credit impairment
charges on its securities portfolio and attributed the unrealized losses primarily due to fluctuations in general interest rates or changes
in expected prepayments and not due to credit quality. The primary objective of the Company’s investment portfolio is to provide
liquidity and to secure municipal deposit accounts while preserving the safety of principal. The available-for-sale and held-to-maturity
portfolios are both eligible for pledging to the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”)
as collateral for borrowings. The portfolios are comprised of high-credit quality investments and both portfolios generated cash flows
monthly from interest, principal amortization, and payoffs, which supports the Bank’s objective to provide liquidity.

Total loans increased $17.2 million, or 0.8%,
from $2.2 billion, or 79.7% of total assets, at December 31, 2025 to $2.2 billion, or 79.5% of total assets, at March 31, 2026. The increase
in total loans was primarily driven by an increase in residential real estate loans, including home equity loans, of $9.6 million, or
1.1%, an increase in commercial and industrial loans of $6.0 million, or 2.7%, and an increase in commercial real estate loans of $2.1
million, or 0.2%.

Total delinquency was $3.2 million, or 0.14%
of total loans, at March 31, 2026, compared to $3.1 million, or 0.14% of total loans, at December 31, 2025. At March 31, 2026, nonaccrual
loans totaled $4.7 million, or 0.21% of total loans, compared to $5.2 million, or 0.24% of total loans, at December 31, 2025. At March
31, 2026 and December 31, 2025, there were no loans 90 or more days past-due and still accruing interest. Total nonperforming assets,
defined as nonaccrual loans and other real estate owned, totaled $4.7 million, or 0.17% of total assets, at March 31, 2026, compared
to $5.2 million, or 0.19% of total assets, at December 31, 2025. At March 31, 2026 and December 31, 2025, the Company did not have any
other real estate owned.

At March 31, 2026, the allowance for credit losses
was $20.5 million, or 0.93% of total loans and 436.9% of nonaccrual loans, compared to $20.3 million, or 0.93% of total loans and 393.2%
of nonaccrual loans, at December 31, 2025.

At March 31, 2026, total criticized loans, defined
as special mention and substandard loans, totaled $58.7 million, or 2.7% of total loans, compared to $39.7 million, or 1.8% of total loans,
at December 31, 2025. Loans designated special mention, which are not considered classified, increased $20.5 million, from $17.1 million,
or 0.8% of total loans, at December 31, 2025 to $37.6 million, or 1.7% of total loans, at March 31, 2026. During the same period, substandard
loans decreased $1.4 million, or 6.1%, to $21.1 million, or 1.0% of total loans.

Of the $37.6 million in loans designated special
mention at March 31, 2026, $14.7 million, or 39.1%, are commercial and industrial loans, and $22.9 million, or 60.9%, are commercial real
estate loans. Of the $21.1 million in loans categorized substandard at March 31, 2026, $7.3 million, or 34.4%, are commercial and industrial
loans, $9.5 million, or 44.8%, are commercial real estate loans, and $4.4 million, or 20.8%, are residential real estate loans. Of the
total $58.7 million in criticized loans at March 31, 2026, 96.1% are current and paying as agreed.

The increase in special mention loans from December
31, 2025 to March 31, 2026 resulted from the downgrade of two commercial relationships totaling $21.5 million, from “pass”
risk ratings to special mention. The two relationships are paying as agreed and are being monitored closely by management.

Our

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-03-10. Report date: 2025-12-31.

ITEM
7.

MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The
following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto,
each appearing elsewhere in this Annual Report on Form 10-K. Management’s discussion focuses on 2025 results compared to
2024. For a discussion of 2024 results compared to 2023, refer to Part II, Item 7 of our Annual Report filed on Form 10-K, which
was filed with the SEC on March 10, 2025.

Overview.

We
strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the
individuals and businesses in the market areas that we have served since 1853. Historically, we have been a community-oriented
provider of traditional banking products and services to business organizations and individuals, including products such as residential
and commercial real estate loans, consumer loans and a variety of deposit products. We meet the needs of our local community through
a community-based and service-oriented approach to banking.

We
have adopted a growth-oriented strategy that continues to focus on increasing commercial lending and residential lending. Our
strategy also calls for increasing deposit relationships, specifically core deposits, and broadening our product lines and services.
We believe that this business strategy is best for our long-term success and viability, and complements our existing commitment
to high quality customer service.

In
connection with our overall growth strategy, we seek to:

●

Increase
market share and achieve scale to improve the Company’s profitability and efficiency
and return value to shareholders;

●

Grow
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 the Capital Region in Connecticut to increase the
net interest margin and loan income;

●

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

●

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

●

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

●

Grow
revenues, increase book value per share and tangible book value, pay competitive dividends
to shareholders and utilize the Company’s stock repurchase plan to leverage our
capital and enhance franchise value; and

●

Consider
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.

You
should read the following financial results for the year ended December 31, 2025 in the context of this strategy.

58 

For
the twelve months ended December 31, 2025, the Company reported net income of $15.3 million, or $0.75 per diluted share, compared
to $11.7 million, or $0.56 per diluted share, for the twelve months ended December 31, 2024. Net interest income increased $10.3
million, or 17.2%, provision for credit losses increased $1.0 million, non-interest income decreased $387,000, or 3.0%, and non-interest
expense increased $4.1 million, or 6.9%, during the same period in 2024.

During
the twelve months ended December 31, 2025, net interest income increased $10.3 million, or 17.2%, to $70.1 million, compared to
$59.8 million for the twelve months ended December 31, 2024. The increase in net interest income was due to an increase in interest
income of $8.8 million, or 8.0%, and a decrease in interest expense of $1.5 million, or 3.0%.

During
the twelve months ended December 31, 2025, the Company recorded a provision for credit losses of $335,000, compared to a reversal
of credit losses of $665,000 during the twelve months ended December 31, 2024. The $1.0 million increase in the provision for
credit losses was primarily due to an increase in total loans of $113.2 million, or 5.5%.

General.

Our
consolidated results of operations depend primarily on net interest and dividend income. Net interest and dividend income is the
difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities.
Interest-earning assets consist primarily of commercial real estate loans, commercial and industrial loans, residential real estate
loans and securities. Interest-bearing liabilities consist primarily of time deposits and money market accounts, demand deposits,
savings accounts and borrowings from the FHLB. The consolidated results of operations also depend on the provision for loan losses,
non-interest income, and non-interest expense. Non-interest income includes service fees and charges, income on bank-owned life
insurance, gains (losses) on sales of mortgages, gains (losses) on non-marketable equity investments and gains (losses) on securities.
Non-interest expense includes salaries and employee benefits, occupancy expenses, data processing, advertising expense, FDIC insurance
assessment, professional fees and other general and administrative expenses.

Critical
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 credit losses and provision for credit 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 the Board.

The
allowance for credit losses is an estimate of expected losses inherent within the Company’s existing loans held for investment
portfolio. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted
by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued
interest receivable on loans held for investment was $7.6 million at December 31, 2025 and is excluded from the estimate of credit
losses.

This
evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. The credit
loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which
consist of commercial real estate loans, residential real estate loans, commercial and industrial loans, and consumer loans. These
segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these pools, the
Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment
speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds,
curtailment rates, and time to recovery are based on historical internal data. The quantitative component of the ACL on loans
is model-based and utilizes a forward-looking macroeconomic forecast. For commercial real estate loans, residential real estate
loans, and commercial and industrial loans, the Company uses a discounted cash flow method, incorporating probability of default
and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses.
This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considering
historical experience, current conditions, and future expectations for pools of loans over a reasonable and supportable forecast
period. The historical information either experienced by the Company or by a selection of peer banks, 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.

59 

Although
management believes it has established and maintained the allowance for credit losses at adequate levels for the current economic
environment and supportable forecast period, if management’s assumptions and judgments prove to be incorrect due to changes
in the economic environment and related adjustments to the quantitative components of the CECL methodology, and the allowance
for credit losses is not adequate to absorb forecasted losses, our earnings and capital could be significantly and adversely affected.

Analysis
of Net Interest Income.

The
Company’s earnings are largely dependent on its net interest income, which is the difference between interest earned on
loans and investments and the cost of funding (primarily deposits and borrowings). Net interest income expressed as a percentage
of average interest-earning assets is referred to as net interest margin. For more information regarding the Company’s use
of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.”

Average
Balance Sheet.

The
following table sets forth information relating to the Company for the years ended December 31, 2025, 2024 and 2023. 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.

60 

For the Years Ended December 31,

2025

2024

2023

Average

Average 

Yield/ 

Average

Average 

Yield/ 

Average

Average

Yield/ 

Balance

Interest

Cost

Balance

Interest

Cost

Balance

Interest

Cost

(Dollars in thousands)

ASSETS:

Interest-earning assets

Loans(1)(2)

$

2,108,767

$

105,866

5.02

%

$

2,035,149

$

99,369

4.88

%

$

2,006,166

$

91,640

4.57

%

Securities(2)

371,206

10,215

2.75

357,631

8,649

2.42

368,201

8,371

2.27

Other investments - at cost

14,907

690

4.63

14,669

687

4.68

12,425

558

4.49

Short-term investments(3)

54,770

2,335

4.26

33,254

1,598

4.81

20,459

1,021

4.99

Total interest-earning assets

2,549,650

119,106

4.67

2,440,703

110,303

4.52

2,407,251

101,590

4.22

Total non-interest-earning assets

156,591

155,056

155,511

Total assets

$

2,706,241

$

2,595,759

$

2,562,762

LIABILITIES AND EQUITY:

Interest-bearing liabilities

Interest-bearing checking accounts

$

155,831

1,497

0.96

$

136,861

1,022

0.75

$

142,005

1,041

0.73

Savings accounts

186,780

180

0.10

182,678

166

0.09

202,354

181

0.09

Money market accounts

704,654

15,242

2.16

631,197

12,242

1.94

697,621

9,529

1.37

Time deposits

693,208

25,593

3.69

666,917

28,806

4.32

524,827

15,898

3.03

Total interest-bearing deposits

1,740,473

42,512

2.44

1,617,653

42,236

2.61

1,566,807

26,649

1.70

Short-term borrowings and long-term debt

119,764

6,010

5.02

155,560

7,779

5.00

135,532

6,560

4.84

Interest-bearing liabilities

1,860,237

48,522

2.61

1,773,213

50,015

2.82

1,702,339

33,209

1.95

Non-interest-bearing deposits

582,168

561,264

602,652

Other non-interest-bearing liabilities

23,472

24,541

24,885

Total non-interest-bearing liabilities

605,640

585,805

627,537

Total liabilities

2,465,877

2,359,018

2,329,876

Total equity

240,364

236,741

232,886

Total liabilities and equity

$

2,706,241

$

2,595,759

$

2,562,762

Less: Tax-equivalent adjustment(2)

(487

)

(471

)

(472

)

Net interest and dividend income

$

70,097

$

59,817

$

67,909

Net interest rate spread(4)

2.04

%

1.68

%

2.25

%

Net interest rate spread, on a tax-equivalent basis(5)

2.06

%

1.70

%

2.27

%

Net interest margin(6)

2.75

%

2.45

%

2.82

%

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

2.77

%

2.47

%

2.84

%

Ratio of average interest-earning assets to average
interest-bearing liabilities

137.06

%

137.64

%

141.41

%

 61

(1)

Loans, including nonperforming loans, are net of deferred loan origination costs and unadvanced
funds.

(2)

Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21% for
2025, 2024 and 2023. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to
the amount reported on the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements.”

(3)

Short-term investments include federal funds sold.

(4)

Net interest rate spread represents the difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.

(5)

Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent
weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities.
See “Explanation of Use of Non-GAAP Financial Measurements.”

(6)

Net interest margin represents net interest and dividend income as a percentage of average interest-earning
assets.

(7)

Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend
income as a percentage of average interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements.”

 62

Rate/Volume Analysis.

The following table shows
how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected
our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with
respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest
income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.

The changes attributable
to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due
to rate.

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Increase (Decrease) Due to

Increase (Decrease) Due to

Volume

Rate

Net

Volume

Rate

Net

Interest-earning assets

(Dollars in thousands)

(Dollars in thousands)

Loans (1)

$

3,595

$

2,902

$

6,497

$

1,323

$

6,406

$

7,729

Investment securities (1)

328

1,238

1,566

(240

)

518

278

Other investments - at cost

11

(8

)

3

101

28

129

Short-term investments

1,034

(297

)

737

639

(62

)

577

Total interest-earning assets

4,968

3,835

8,803

1,823

6,890

8,713

Interest-bearing liabilities

Interest-bearing checking accounts

142

333

475

(39

)

20

(19

)

Savings accounts

4

10

14

(18

)

3

(15

)

Money market accounts

1,425

1,575

3,000

(907

)

3,620

2,713

Time deposits

1,136

(4,349

)

(3,213

)

4,304

8,604

12,908

Short-term borrowing and long-term debt

(1,790

)

21

(1,769

)

969

250

1,219

Total interest-bearing liabilities

917

(2,410

)

(1,493

)

4,309

12,497

16,806

Change in net interest and dividend income

$

4,051

$

6,245

$

10,296

$

(2,486

)

$

(5,607

)

$

(8,093

)

(1)

Securities and loan income and net interest income are
presented on a tax-equivalent basis using a tax rate of 21% for 2025, 2024 and 2023. The tax-equivalent adjustment is deducted
from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation
of Use of Non-GAAP Financial Measurements.”

 63

Explanation of Use of Non-GAAP Financial
Measurements.

We believe that it is common practice in
the banking industry to present interest income and related yield information on tax-exempt loans and securities on a tax-equivalent
basis, as well as presenting tangible book value per share and that such information is useful to investors because it facilitates
comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities
to a tax-equivalent amount, as well as the presentation of tangible book value per share may be considered to include financial
information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.

For the twelve months ended

12/31/2025

12/31/2024

12/31/2023

(Dollars in thousands)

Loans (no tax adjustment)

$

105,379

$

98,898

$

91,169

Tax-equivalent adjustment (1)

487

471

471

Loans (tax-equivalent basis)

$

105,866

$

99,369

$

91,640

Securities (no tax adjustment)

$

10,215

$

8,649

$

8,370

Tax-equivalent adjustment (1)

—

—

1

Securities (tax-equivalent basis)

$

10,215

$

8,649

$

8,371

Net interest income (no tax adjustment)

$

70,097

$

59,817

$

67,909

Tax equivalent adjustment (1)

487

471

472

Net interest income (tax-equivalent basis)

$

70,584

$

60,288

$

68,381

Net interest income (no tax adjustment)

$

70,097

$

59,817

$

67,909

Less:

Prepayment penalties

459

8

64

Fair value hedge interest income

—

1,398

1,085

Adjusted net interest income (non-GAAP)

$

69,638

$

58,411

$

66,760

Average interest-earning assets

$

2,549,650

$

2,440,703

$

2,407,251

Net interest margin (no tax adjustment)

2.75

%

2.45

%

2.82

%

Net interest margin, tax-equivalent

2.77

%

2.47

%

2.84

%

Adjusted net interest margin, excluding prepayment
penalties and fair value hedge interest income (non-GAAP)

2.73

%

2.39

%

2.77

%

 64

At or for the twelve months ended

12/31/2025

12/31/2024

12/31/2023

(Dollars in thousands)

Book Value per Share (GAAP)

$

12.16

$

11.30

$

10.96

Non-GAAP adjustments:

Goodwill

(0.61

)

(0.60

)

(0.58

)

Core deposit intangible

(0.06

)

(0.07

)

(0.08

)

Tangible Book Value per Share (non-GAAP)

$

11.49

$

10.63

$

10.30

Adjusted Efficiency Ratio:

Non-interest Expense (GAAP)

$

62,488

$

58,428

$

58,350

Net Interest Income (GAAP)

$

70,097

$

59,817

$

67,909

Non-interest Income (GAAP)

$

12,516

$

12,903

$

10,897

Non-GAAP adjustments:

Loss on disposal of premises and equipment

—

6

3

Unrealized (gain) loss on marketable equity securities

(35

)

(13

)

1

Gain on bank-owned life insurance death benefit

—

—

(778

)

Gain on non-marketable equity investments

(243

)

(1,287

)

(590

)

Loss on defined benefit plan termination

—

—

1,143

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

$

12,238

$

11,609

$

10,676

Total Revenue for Adjusted Efficiency Ratio (non-GAAP)

$

82,335

$

71,426

$

78,585

Efficiency Ratio (GAAP)

75.64

%

80.35

%

74.04

%

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

75.89

%

81.80

%

74.25

%

(1)

The tax equivalent adjustment is based upon a 21% tax rate for 2025,
2024 and 2023.

 65

Comparison of Financial Condition at
December 31, 2025 and December 31, 2024.

At December 31, 2025, total assets increased
$83.4 million, or 3.1%, from December 31, 2024 to $2.7 billion. The increase in total assets was primarily due to an increase in
total loans of $113.2 million, or 5.5%, partially offset by a decrease in cash and cash equivalents of $26.1 million, or 39.2%.
The balance sheet composition and changes since December 31, 2024 are discussed below.

Cash and Cash Equivalents.

Cash and cash equivalents is comprised
of cash on hand and amounts due from banks, interest-earning deposits in other financial institutions and federal funds sold. Cash
and cash equivalents totaled $40.4 million, or 1.5% of total assets, at December 31, 2025 and $66.5 million, or 2.5% of total assets,
at December 31, 2024. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net deposit flows, borrowing
and loan inflows and outflows, investment purchases and maturities, calls and sales proceeds, and the immediate liquidity needs
of the Company.

Investments.

At December 31, 2025, the investment securities
portfolio totaled $365.2 million, or 13.3% of total assets, compared to $366.1 million, or 13.8% of total assets, at December 31,
2024. At December 31, 2025, the Company’s available-for-sale securities portfolio, recorded at fair market value, increased
$15.1 million, or 9.4%, from $160.7 million at December 31, 2024 to $175.8 million. The held-to-maturity securities portfolio,
recorded at amortized cost, decreased $16.2 million, or 7.9%, from $205.0 million at December 31, 2024 to $188.8 million at December
31, 2025.

At December 31, 2025, the Company reported
gross unrealized losses on the available-for-sale securities portfolio of $23.4 million, or 11.8% of the amortized cost basis of
the available-for-sale securities portfolio, compared to gross unrealized losses of $31.2 million, or 16.2% of the amortized cost
basis of the available-for-sale securities at December 31, 2024. At December 31, 2025, the Company reported gross unrealized losses
on the held-to-maturity securities portfolio of $30.5 million, or 16.2% of the amortized cost basis of the held-to-maturity securities
portfolio, compared to $39.4 million, or 19.2% of the amortized cost basis of the held-to-maturity securities portfolio at December
31, 2024.

The Bank is required to purchase FHLB stock
at par value in association with advances from the FHLB. The stock is classified as a restricted investment and carried at cost
which management believes approximates fair value. The Company’s investment in FHLB capital stock amounted to $4.9 million
and $5.4 million at December 31, 2025 and December 31, 2024, respectively.

At December 31, 2025 and 2024, the Company
held $423,000 of Atlantic Community Bankers Bank stock. The stock is restricted and carried in other assets at cost. The stock
is evaluated for impairment based on an estimate of the ultimate recovery to the par value.

Loans.

Total loans increased $113.2 million, or
5.5%, from $2.1 billion, or 77.9% of total assets, at December 31, 2024 to $2.2 billion, or 79.7% of total assets, at December
31, 2025. The increase in total loans was primarily driven by an increase in residential real estate loans, including home equity
loans, of $81.2 million, or 10.5%, an increase in commercial and industrial loans of $10.1 million, or 4.8%, and an increase in
commercial real estate loans of $23.3 million, or 2.2%. The increase in total loans was partially offset by a decrease in consumer
loans of $1.5 million, or 33.3%.

Management continues to closely monitor
the loan portfolio for any signs of deterioration in borrowers’ financial condition and also in light of speculation that
commercial real estate values may deteriorate as the market continues to adjust to higher vacancies and interest rates. We continue
to proactively take steps to mitigate risk in our loan portfolio.

Total delinquency was $3.1 million, or
0.14% of total loans, at December 31, 2025, compared to $5.0 million, or 0.24% of total loans at December 31, 2024. At December
31, 2025, nonaccrual loans totaled $5.2 million, or 0.24% of total loans, compared to $5.4 million, or 0.26% of total loans, at
December 31, 2024. At December 31, 2025 and December 31, 2024, there were no loans 90 or more days past-due and still accruing
interest. Total nonperforming assets, defined as nonaccrual loans and other real estate owned, totaled $5.2 million, or 0.19% of
total assets, at December 31, 2025, compared to $5.4 million, or 0.20% of total assets, at December 31, 2024. At December 31, 2025
and December 31, 2024, the Company did not have any other real estate owned.

 66

At December 31, 2025, the allowance for
credit losses was $20.3 million, or 0.93% of total loans and 393.2% of nonaccrual loans, compared to $19.5 million, or 0.94% of
total loans and 362.9% of nonaccrual loans, at December 31, 2024. Total criticized loans, defined as special mention and substandard
loans, increased $1.3 million, or 3.4%, from $38.4 million, or 1.9% of total loans, at December 31, 2024 to $39.7 million, or 1.8%
of total loans, at December 31, 2025. A summary of our past due and nonperforming loans by class is listed in Note 3 of the accompanying
unaudited consolidated financial statements.

Our commercial real estate portfolio is
comprised of diversified property types and primarily within our geographic footprint. At December 31, 2025, the commercial real
estate portfolio totaled $1.1 billion and represented 50.4% of total loans. Of the $1.1 billion, $900.5 million, or 81.9%, was
categorized as non-owner occupied commercial real estate and represented 325.1% of the Bank’s total risk-based capital.

The Company’s commercial real estate
loans are considered to be relatively diversified by borrower, industry and concentrated in the New England geographical area.
A significant portion of the loan portfolio consists of commercial real estate loans, primarily made in Massachusetts, and to a
lesser degree, Connecticut, and secured by real estate or other collateral in the market. Although these loans are made to a diversified
pool of unrelated borrowers across numerous businesses, adverse developments in the local real estate market could have an adverse
impact on this portfolio of loans and the Company’s income and financial position. While our basic market area is in Massachusetts,
the Company has made loans outside that market area where the applicant is an existing customer, and the nature and quality of
such loans was consistent with the Company’s lending policies.

We continuously monitor the asset quality
of our loan portfolio. For the commercial portfolio, we monitor credit quality using a risk rating scale, which assigns a risk-grade
to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Management
utilizes a loan risk rating methodology based on an 8-point scale. Pass grades are 0-4 and non-pass categories, which align with
regulatory guidelines, include: special mention (5), substandard (6), doubtful (7) and loss (8). Risk rating assignment is determined
by analyzing key factors, which may include: industry and market conditions, position within the industry, earnings trends, operating
cash flow, debt capacity, guarantor strength, management, financial reporting, collateral and other considerations.

CRE Concentrations.

The
OCC, the FRB, and the FDIC (“Agencies”) issued guidance in 2006 which addresses institutions with increased
concentrations of commercial real estate (“CRE”) loans. The guidance does not establish specific CRE lending limits;
rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue
to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of
CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically
superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such
as speculative office space construction.

Institutions are encouraged to segment
their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for
which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate
collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance,
CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand,
changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1-
to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily
property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with
the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental
income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this guidance
are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cashflow from the ongoing operations
and activities conducted by the party, or affiliate of the party, who owns the property.

 67

As part of their ongoing supervisory monitoring
processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration
risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching
or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its
CRE concentration risk:

1. Total reported loans for construction,
land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or

2. Total commercial real estate
loans, as defined in this guidance, represent 300 percent or more of the institution’s total risk-based capital, and the
outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during
the prior 36 months.

The Agencies use the criteria as a preliminary
step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans
with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending
activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.

The Company holds a concentration in commercial
real estate loans. As of December 31, 2025, commercial real estate loans represented 396.8% of consolidated bank risk-based capital.
Non-owner occupied commercial real estate loans totaled $900.5 million, or 325.1% of consolidated bank risk-based capital, and
owner-occupied commercial real estate loans totaled $198.6 million, or 71.7% of consolidated bank risk-based capital. As of December
31, 2025, construction, land development and other land loans represented 39.0% of consolidated bank risk-based capital. During
the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio of 9.0%.

The management team has extensive experience
in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures
and strong underwriting criteria with respect to its commercial real estate portfolio. The Company’s Board of Directors (the
“Board”) has established internal maximum limits on CRE as an asset class overall as well as sub limits within CRE
by property class, to better manage and control the exposure to property classes during periods of changing economic conditions.
The Board also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.

Our risk management process begins with
a robust underwriting program. The underwriting and risk rating of all loans is completed by the Company’s Credit Department
that is independent of the originating lender(s).

At December 31, 2025 and December 31, 2024,
non-owner and owner occupied commercial real estate loans, totaled $1.1 billion, or 50.4%, of total gross loans, and $1.1 billion,
or 52.0%, of total gross loans, respectively.

 68

The table below breaks down the commercial
real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of December 31, 2025:

Property Type

Non-Owner Occupied

Owner Occupied

Total

% of CRE Portfolio

% of Total Loans

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

Office Portfolio

$

174,196

$

20,961

$

195,157

17.8

%

8.9

%

70.5

%

Apartment

174,330

—

174,330

15.9

%

8.0

%

62.9

%

Industrial

124,601

44,382

168,983

15.4

%

7.7

%

61.0

%

Retail

110,356

5,102

115,458

10.5

%

5.3

%

41.7

%

Mixed Use

75,593

5,741

81,334

7.4

%

3.7

%

29.4

%

Other

45,445

25,376

70,821

6.4

%

3.3

%

25.5

%

Self-Storage

46,106

67

46,173

4.2

%

2.1

%

16.7

%

Hotel/Hospitality

41,582

—

41,582

3.8

%

1.9

%

15.0

%

Shopping Center

28,854

6,292

35,146

3.2

%

1.6

%

12.7

%

Warehouse

23,560

10,339

33,899

3.1

%

1.6

%

12.2

%

Automotive Sales

697

33,822

34,519

3.1

%

1.6

%

12.4

%

Auto Service and Repair

6,153

21,783

27,936

2.5

%

1.3

%

10.1

%

Adult Care/Assisted Living

17,057

9,726

26,783

2.4

%

1.2

%

9.7

%

School/Higher Education

10,420

14,959

25,379

2.3

%

1.2

%

9.2

%

Student Housing

21,563

—

21,563

2.0

%

1.0

%

7.8

%

Total commercial real estate

$

900,513

$

198,550

$

1,099,063

100.0

%

50.4

%

396.8

%

% of Total Bank Risk-Based Capital(1)

325.1

%

71.7

%

396.8

%

% of Total CRE loans

81.9

%

18.1

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

The table below breaks down the commercial
real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of December 31, 2024:

Property Type

Non-Owner Occupied

Owner Occupied

Total

% of CRE Portfolio

% of Total Loans

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

Office Portfolio

$

177,102

$

23,013

$

200,115

18.6

%

9.7

%

73.9

%

Apartment

179,874

—

179,874

16.7

%

8.7

%

66.4

%

Industrial

116,663

51,618

168,281

15.6

%

8.1

%

62.1

%

Retail

109,936

7,105

117,041

10.9

%

5.7

%

43.2

%

Other

37,231

30,471

67,702

6.3

%

3.3

%

25.0

%

Mixed Use

71,226

6,402

77,628

7.2

%

3.8

%

28.7

%

Hotel/Hospitality

43,133

—

43,133

4.0

%

2.1

%

15.9

%

Automotive Sales

2,705

36,554

39,259

3.6

%

1.9

%

14.5

%

Adult Care/Assisted Living

31,635

6,119

37,754

3.5

%

1.8

%

13.9

%

Self-Storage

33,765

329

34,094

3.2

%

1.6

%

12.6

%

Student Housing

22,047

—

22,047

2.0

%

1.1

%

8.1

%

Warehouse

20,942

10,045

30,987

2.9

%

1.5

%

11.4

%

Shopping Center

23,193

7,518

30,711

2.9

%

1.5

%

11.3

%

School/Higher Education

11,376

15,730

27,106

2.5

%

1.3

%

10.0

%

Total commercial real estate

$

880,828

$

194,904

$

1,075,732

100.0

%

52.0

%

397.1

%

% of Total Bank Risk-Based Capital(1)

325.2

%

71.9

%

397.1

%

% of Total CRE loans

81.9

%

18.1

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

At December 31, 2025, of the $1.1 billion
in commercial real estate loans, $900.5 million, or 41.3% of total loans, were categorized as non-owner occupied and represented
325.1% of total bank risk-based capital.

 69

The following table further breaks down
the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average loan-to-value
(“LTV”) as of December 31, 2025:

Property Type

MA

CT

NH

RI

ME

Other

Total

%
of Total Bank Risk-Based Capital(1)

Weighted
Average

LTV(2)

(Dollars in thousands)

Apartment

$

107,299

$

43,612

$

—

$

23,419

$

—

$

—

$

174,330

62.9

%

52.2

%

Office

63,973

60,433

38,586

—

11,204

—

174,196

62.9

%

62.6

%

Industrial

74,031

34,887

—

11,229

—

4,454

124,601

45.0

%

56.4

%

Retail

53,291

25,964

13,865

6,070

11,166

—

110,356

39.8

%

50.8

%

Mixed Use

35,641

22,503

—

12,809

—

4,640

75,593

27.3

%

55.7

%

Self-Storage

36,155

9,180

771

—

—

—

46,106

16.6

%

55.4

%

Other

40,666

3,984

677

—

118

—

45,445

16.4

%

51.5

%

Hotel/Hospitality

20,074

21,508

—

—

—

—

41,582

15.0

%

51.1

%

Shopping Center

9,227

19,627

—

—

—

—

28,854

10.4

%

48.4

%

Warehouse

17,034

4,889

—

—

—

1,637

23,560

8.5

%

41.4

%

Student Housing

3,628

14,934

2,660

—

—

341

21,563

7.8

%

60.7

%

Adult Care/Assisted Living

8,543

8,514

—

—

—

—

17,057

6.2

%

58.6

%

School/Higher Education

10,420

—

—

—

—

—

10,420

3.8

%

43.3

%

Automotive Service and Repair

4,982

1,171

—

—

—

—

6,153

2.2

%

65.8

%

Automotive Sales

697

—

—

—

—

—

697

0.3

%

57.0

%

Total Non-Owner CRE

$

485,661

$

271,206

$

56,559

$

53,527

$

22,488

$

11,072

$

900,513

325.1

%

54.9

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

(2)

Weighted average LTV is based on the original appraisal and the current loan exposure.

At December 31, 2024, of the $1.1 billion
in commercial real estate loans, $880.8 million, or 42.6% of total loans, was categorized as non-owner occupied and represented
325.2% of total risk-based capital.

The following table further breaks down
the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average LTV
as of December 31, 2024.

Property Type

MA

CT

NH

RI

Other

Total

% of Total Bank Risk-Based Capital(1)

Weighted Average

LTV(2)

(Dollars in thousands)

Apartment

$

114,922

$

37,212

$

—

$

27,740

$

—

$

179,874

66.4

%

54.7

%

Office

62,554

62,906

40,237

—

11,405

177,102

65.4

%

64.4

%

Industrial

60,192

35,438

—

14,992

6,041

116,663

43.1

%

56.0

%

Retail

55,555

23,551

13,752

6,219

10,859

109,936

40.6

%

55.4

%

Mixed Use

31,899

21,552

—

13,062

4,713

71,226

26.3

%

57.7

%

Other

30,449

5,949

707

—

126

37,231

13.7

%

55.3

%

Hotel/Hospitality

20,813

22,320

—

—

—

43,133

15.9

%

51.8

%

Adult Care/Assisted Living

15,089

16,546

—

—

—

31,635

11.7

%

58.6

%

Self-Storage

24,433

8,548

784

—

—

33,765

12.5

%

63.0

%

Student Housing

3,717

15,323

2,660

—

347

22,047

8.1

%

72.4

%

Shopping Center

7,176

16,017

—

—

—

23,193

8.6

%

50.9

%

Warehouse

17,406

3,319

—

—

217

20,942

7.7

%

44.5

%

School/Higher Education

11,376

—

—

—

—

11,376

4.2

%

45.0

%

Automotive Sales

2,705

—

—

—

—

2,705

1.0

%

39.5

%

Total Non-Owner CRE

$

458,286

$

268,681

$

58,140

$

62,013

$

33,708

$

880,828

325.2

%

57.2

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

(2)

Weighted average LTV is based on the original appraisal and the current loan exposure.

 70

The Company also underwrites and originates
owner occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the
operations of the business occupying the property for repayment. The Agencies specifically excluded owner occupied commercial real
estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities
conducted by the party, or affiliate of the party, who owns the property.

The table below depicts a well-diversified
portfolio of owner occupied commercial real estate portfolio as of December 31, 2025:

Property Type

MA

CT

NH

Other

Total

% of Total Bank Risk-Based Capital(1)

Weighted Average LTV(2)

(Dollars in thousands)

Owner Occupied CRE

Adult Care/Assisted Living

$

—

$

—

$

9,726

$

—

$

9,726

3.5

%

57.2

%

Automotive Sales

27,404

6,418

—

—

33,822

12.2

%

57.7

%

Automotive Service and Repair

4,626

17,157

—

—

21,783

7.9

%

61.5

%

School/Higher Education

14,959

—

—

—

14,959

5.4

%

63.9

%

Industrial

37,852

6,331

—

199

44,382

16.0

%

50.9

%

Mixed Use

4,964

777

—

—

5,741

2.1

%

56.3

%

Office

18,550

2,411

—

—

20,961

7.6

%

56.1

%

Retail

5,102

—

—

—

5,102

2.1

%

50.4

%

Shopping Center

4,201

2,091

—

—

6,292

2.2

%

55.6

%

Self-Storage

67

—

—

—

67

-%

51.3

%

Warehouse

9,992

347

—

—

10,339

3.7

%

63.9

%

Other

15,903

8,600

873

—

25,376

9.0

%

40.6

%

Total Owner Occupied CRE

$

143,620

$

44,132

$

10,599

$

199

$

198,550

71.7

%

54.7

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

(2)

Weighted average LTV is based on the original appraisal and the current
loan exposure.

The table below depicts a well-diversified
portfolio of owner occupied commercial real estate as of December 31, 2024:

Property Type

MA

CT

NH

Other

Total

% of Total Bank Risk-Based Capital(1)

Weighted Average LTV(2)

(Dollars in thousands)

Owner Occupied CRE

Adult Care/Assisted Living

$

—

$

—

$

6,119

$

—

$

6,119

2.3

%

58.1

%

Automotive Sales

29,858

6,696

—

—

36,554

13.5

%

59.8

%

School/Higher Education

15,730

—

—

—

15,730

5.8

%

66.8

%

Industrial

42,456

8,594

—

568

51,618

19.1

%

52.7

%

Mixed Use

5,820

582

—

—

6,402

2.4

%

53.0

%

Office

20,477

2,536

—

—

23,013

8.5

%

57.2

%

Retail

7,105

—

—

—

7,105

2.6

%

53.4

%

Shopping Center

5,358

2,160

—

—

7,518

2.8

%

56.5

%

Self-Storage

329

—

—

—

329

0.1

%

20.5

%

Warehouse

9,671

374

—

—

10,045

3.7

%

63.2

%

Other

21,773

7,782

916

—

30,471

11.2

%

49.4

%

Total Owner Occupied CRE

$

158,577

$

28,724

$

7,035

$

568

$

194,904

72.0

%

56.0

%

____________________ 

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

(2)

Weighted average LTV is based on the original appraisal and the current loan exposure.

Commercial Real Estate Office Exposure.

Our total office related commercial real
estate loans (which is comprised of loans within our commercial real estate portfolio that are secured by office space, medical
office space, and mixed-use where rental income is primarily from office space) totaled $195.2 million, or 70.5% of total bank
risk-based capital and $200.1 million, or 73.9% of total bank risk-based capital, as of December 31, 2025 and December 31, 2024,
respectively.

 71

The table below breaks the commercial real
estate office loans by collateral type for the periods noted:

December 31, 2025

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

Collateral Type:

Office/Medical

$

108,113

$

9,941

$

118,054

60.5

%

42.6

%

Office/Professional Metro

3,577

7,796

11,373

5.8

%

4.1

%

Office/Professional Suburban

35,686

3,011

38,697

19.8

%

14.0

%

Office/Professional Urban

26,820

213

27,033

13.9

%

9.8

%

Total Office Portfolio

$

174,196

$

20,961

$

195,157

100.0

%

70.5

%

December 31, 2024

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

Collateral Type:

Office/Medical

$

106,884

$

10,760

$

117,644

58.8

%

43.4

%

Office/Professional Metro

3,693

8,259

11,952

6.0

%

4.4

%

Office/Professional Suburban

39,336

3,681

43,017

21.5

%

15.9

%

Office/Professional Urban

27,189

313

27,502

13.7

%

10.2

%

Total Office Portfolio

$

177,102

$

23,013

$

200,115

100.0

%

73.9

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

CRE office loans are primarily concentrated
in Massachusetts, where approximately 42.3% at December 31, 2025 and 41.5%, at December 31, 2024, of the total balance of CRE office
loans are located. The Company does not have CRE loans secured by office real estate in greater Boston or New York.

 December 31, 2025

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

By State:

Massachusetts

$

63,973

$

18,550

$

82,523

42.3

%

29.8

%

Connecticut

60,433

2,411

62,844

32.2

%

22.7

%

New Hampshire

38,586

—

38,586

19.8

%

14.0

%

Other

11,204

—

11,204

5.7

%

4.0

%

Total Office Portfolio

$

174,196

$

20,961

$

195,157

100.0

%

70.5

%

December 31, 2024

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

By State:

Massachusetts

$

62,554

$

20,477

$

83,031

41.5

%

30.7

%

Connecticut

62,906

2,536

65,442

32.7

%

24.2

%

New Hampshire

40,237

—

40,237

20.1

%

14.9

%

Other

11,405

—

11,405

5.7

%

4.2

%

Total Office Portfolio

$

177,102

$

23,013

$

200,115

100.0

%

73.9

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

 72

The following table sets forth the CRE
office loans for non-owner occupied and owner occupied CRE and their credit quality indicators as of the dates indicated:

December 31, 2025

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

By Risk Rating:

Pass

$

166,275

$

20,683

$

186,958

95.8

%

67.5

%

Special Mention

72

—

72

—

%

—

%

Substandard

7,849

278

8,127

4.2

%

3.0

%

Total Office Portfolio

$

174,196

$

20,961

$

195,157

100.0

%

70.5

%

December 31, 2024

Non-Owner Occupied

Owner

Occupied

Total

% of Office Portfolio

% of Total Bank Risk-Based Capital(1)

(Dollars in thousands)

By Risk Rating:

Pass

$

169,177

$

21,632

$

190,809

95.4

%

70.5

%

Special Mention

7,925

724

8,649

4.3

%

3.2

%

Substandard

—

657

657

0.3

%

0.2

%

Total Office Portfolio

$

177,102

$

23,013

$

200,115

100.0

%

73.9

%

(1)

Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the
call report.

Given prevailing market conditions such
as recent sustained increases in interest rates, reduced occupancy as a result of the increase in hybrid work arrangements post-COVID,
and lower commercial real estate valuations, we carefully monitor these loans for signs of deterioration in credit quality and
other risks. Such heightened monitoring includes incremental risk management strategies undertaken by management, including more
frequent portfolio reviews, ongoing monitoring of market conditions, and additional portfolio analysis, which may include monitoring
concentration limitations, including concentrations by loan type, property type, geographic area and with participants, where applicable,
and risk diversification, tracking aggregated policy and underwriting exceptions and stress testing the loan portfolios.

Bank-Owned Life Insurance.

The Company owns bank-owned life insurance
(“BOLI”) to help offset the cost of employee benefit plans. BOLI is recorded at its cash surrender value. BOLI policies
insure the lives of officers and certain employees and names the Bank as beneficiary. The change in the cash surrender value is
included as a component of non-interest income and is exempt from federal and state income taxes as long as the policies are held
until the death of the insured individuals. The cash surrender value of BOLI was $79.0 million and $77.1 million at December 31,
2025 and December 31, 2024, respectively, and was issued by eleven insurance companies rated investment grade or better.

Deposits.

At December 31, 2025, total deposits were
$2.4 billion and increased $98.3 million, or 4.3%, from December 31, 2024. Core deposits, which the Company defines as all deposits
except time deposits, increased $111.9 million, or 7.2%, from $1.6 billion, or 68.9% of total deposits, at December 31, 2024, to
$1.7 billion, or 70.8% of total deposits, at December 31, 2025. Non-interest-bearing deposits increased $28.9 million, or 5.1%,
to $594.5 million, and represent 25.2% of total deposits, money market accounts increased $54.1 million, or 8.2%, to $715.6 million,
interest-bearing checking accounts increased $23.9 million, or 15.9%, to $174.2 million, and savings accounts increased $5.0 million,
or 2.7%, to $186.6 million.

Time deposits decreased $13.7 million,
or 1.9%, from $703.6 million at December 31, 2024 to $689.9 million at December 31, 2025. Brokered time deposits, which are included
in time deposits, totaled $1.7 million at December 31, 2024. The Company did not have any brokered time deposits at December 31,
2025. We continue our disciplined and focused approach to core relationship management and customer outreach to meet funding requirements
and liquidity needs, with an emphasis on retaining a long-term core customer relationship base by competing for and retaining deposits
in our local market. At December 31, 2025, the Bank’s uninsured deposits totaled $697.6 million, or 29.5% of total deposits,
compared to $643.6 million, or 28.4% of total deposits, at December 31, 2024.

 73

Borrowed Funds.

At December 31, 2025, total borrowings
decreased $17.1 million, or 13.9%, from $123.1 million at December 31, 2024 to $106.1 million. At December 31, 2025, short-term
borrowings increased $7.9 million, or 146.2%, to $13.3 million, compared to $5.4 million at December 31, 2024. Long-term borrowings
decreased $25.0 million, or 25.5%, from $98.0 million at December 31, 2024 to $73.0 million at December 31, 2025. At December 31,
2025 and December 31, 2024, borrowings also consisted of $19.8 million in fixed-to-floating rate subordinated notes.

As of December 31, 2025, the Company had
$538.6 million of additional borrowing capacity at the FHLB, $349.0 million of additional borrowing capacity under the FRB Discount
Window and $25.0 million of other unsecured lines of credit with correspondent banks.

Shareholders’ Equity.

At December 31, 2025, shareholders’
equity was $247.6 million, or 9.1% of total assets, compared to $235.9 million, or 8.9% of total assets, at December 31, 2024.
The change was primarily attributable to net income of $15.3 million and a decrease in accumulated other comprehensive loss of
$6.6 million, partially offset by cash dividends paid of $5.7 million and the repurchase of shares at a cost of $6.2 million. At
December 31, 2025, total shares outstanding were 20,372,786. The Company’s regulatory capital ratios continue to be strong
and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company
targets.

The Company’s book value per share
was $12.16 at December 31, 2025, compared to $11.30 at December 31, 2024, while tangible book value per share, a non-GAAP financial
measure, increased $0.86, or 8.1%, from $10.63 at December 31, 2024 to $11.49 at December 31, 2025. For more information regarding
the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.”

Assets under Management.

Total assets under management include loans
serviced for others and investment assets under management. Loans serviced for others and investment assets under management are
not carried as assets on the Company’s consolidated balance sheet, and as such, total assets under management is not a financial
measurement recognized under GAAP, however, management believes its disclosure provides information useful in understanding the
trends in total assets under management.

The 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 increased $34.7 million, or 17.4%, to $234.0 million as of December 31, 2025, from $199.3 million
as of December 31, 2024.

Comparison of Operating Results for
Years Ended December 31, 2025 and 2024.

General.

For the twelve months ended December 31,
2025, the Company reported net income of $15.3 million, or $0.75 per diluted share, compared to $11.7 million, or $0.56 per diluted
share, for the twelve months ended December 31, 2024. Net interest income increased $10.3 million, or 17.2%, provision for credit
losses increased $1.0 million, non-interest income decreased $387,000, or 3.0%, and non-interest expense increased $4.1 million,
or 6.9%, compared to 2024. Return on average assets and return on average equity were 0.56% and 6.35% for the twelve months ended
December 31, 2025, respectively, compared to 0.45% and 4.93% for the twelve months ended December 31, 2024, respectively.

 74

Net Interest
Income and Net Interest Margin.

During the twelve months ended December
31, 2025, net interest income increased $10.3 million, or 17.2%, to $70.1 million, compared to $59.8 million for the twelve months
ended December 31, 2024. The increase in net interest income was due to an increase in interest income of $8.8 million, or 8.0%,
and a decrease in interest expense of $1.5 million, or 3.0%.

The net interest margin for the twelve
months ended December 31, 2025 was 2.75%, compared to 2.45% for the twelve months ended December 31, 2024. The net interest margin,
on a tax-equivalent basis, was 2.77% for the twelve months ended December 31, 2025, compared to 2.47% for the twelve months ended
December 31, 2024. During the twelve months ended December 31, 2024, the Company had fair value hedge income of $1.4 million, which
contributed six basis points to the net interest margin. The adjusted net interest margin, excluding income from the fair value
hedge, a non-GAAP financial measure, increased 36 basis points from 2.39% for the twelve months ended December 31, 2024 to 2.75%
for the twelve months ended December 31, 2025. The fair value hedge matured in October of 2024. For more information regarding
the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.”

The average yield on interest-earning assets,
without the impact of tax-equivalent adjustments, increased 15 basis points from 4.50% for the twelve months ended December 31,
2024 to 4.65% for the twelve months ended December 31, 2025. The average yield on loans, without the impact of tax-equivalent adjustments,
increased 14 basis points from 4.86% for the twelve months ended December 31, 2024 to 5.00% for the twelve months ended December
31, 2025. During the twelve months ended December 31, 2025, average interest-earning assets increased $108.9 million, or 4.5%,
to $2.5 billion, compared to the twelve months ended December 31, 2024, primarily due to an increase in average loans of $73.6
million, or 3.6%, an increase in average short-term investments, consisting of cash and cash equivalents, of $21.5 million, or
64.7%, and an increase in average securities of $13.6 million, or 3.8%.

During the twelve months ended December
31, 2025, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased 15 basis points from
2.14% for the twelve months ended December 31, 2024 to 1.99%. For the twelve months ended December 31, 2025, the average cost of
core deposits, including non-interest-bearing demand deposits, increased 15 basis points from 0.89% for the twelve months ended
December 31, 2024, to 1.04%. The average cost of time deposits decreased 63 basis points from 4.32% for the twelve months ended
December 31, 2024 to 3.69% for the twelve months ended December 31, 2025. The average cost of borrowings, which include borrowings
and subordinated debt, increased 2 basis points from 5.00% for the twelve months ended December 31, 2024 to 5.02% for the twelve
months ended December 31, 2025.

For the twelve months ended December 31,
2025, average demand deposits, an interest-free source of funds, increased $20.9 million, or 3.7%, from $561.3 million, or 25.8%
of total average deposits, for the twelve months ended December 31, 2024, to $582.2 million, or 25.1% of total average deposits.

Provision for Credit Losses.

The credit loss estimation process involves
procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate
loans, residential real estate loans, commercial and industrial loans, and consumer loans. These segments are further disaggregated
into loan classes, the level at which credit risk is monitored. For each of these pools, the Company generates cash flow projections
at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery,
probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery
are based on historical internal data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking
macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default
forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes
estimates which involve modeling loss projections attributable to existing loan balances, and considering historical experience,
current conditions, and future expectations for pools of loans over a reasonable and supportable forecast period. The historical
information either experienced by the Company or by a selection of peer banks, 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.

 75

During the twelve months ended December
31, 2025, the Company recorded a provision for credit losses of $335,000, compared to a reversal of credit losses of $665,000 during
the twelve months ended December 31, 2024. The $1.0 million increase in the provision for credit losses was primarily due to an
increase in total loans of $113.2 million, or 5.5%. The provision for credit losses was determined by a number of factors: the
continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s
consideration of existing economic conditions and the economic outlook from the Federal Reserve Bank’s actions to control
inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, tariffs, inflation and
concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment.

The Company recorded net recoveries of
$472,000 for the twelve months ended December 31, 2025, as compared to net recoveries of $87,000 for the twelve months ended December
31, 2024. During the twelve months ended December 31, 2025, the Company recorded a recovery of $624,000 on a previously charged-off
commercial relationship acquired on October 21, 2016 from Chicopee Bancorp, Inc. As of June 30, 2025, the relationship paid in
full.

Although management believes it has established
and maintained the allowance for credit losses at appropriate levels for the current economic environment and supportable forecast
period, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current
operating environment.

Non-Interest
Income.

For the twelve months ended December 31,
2025, non-interest income decreased $387,000, or 3.0%, from $12.9 million during the twelve months ended December 31, 2024 to $12.5
million. During the same period, service charges and fees on deposits increased $715,000, or 7.8%, and income from BOLI increased
$52,000, or 2.7%. During the twelve months ended December 31, 2025, the Company reported $347,000 in other income from loan-level
swap fees on commercial loans, compared to $261,000 during the same period in 2024. During the twelve months ended December 31,
2025, the Company reported a gain of $243,000 on non-marketable equity investments, compared to a gain of $1.3 million during the
twelve months ended December 31, 2024. During the twelve months ended December 31, 2025, the Company reported unrealized gains
on marketable equity securities of $35,000, compared to unrealized gains on marketable equity securities of $13,000 during the
twelve months ended December 31, 2024. 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, 2025, the Company
reported $11,000 in gains from mortgage banking activities, compared to $235,000 during the twelve months ended December 31, 2024
due to the sale of fixed rate residential real estate loans. In addition, during the twelve months ended December 31, 2024, the
Company reported a loss on the disposal of premises and equipment of $6,000 and did not have a comparable gain or loss during the
twelve months ended December 31, 2025.

Non-Interest
Expense.

For the twelve months ended December 31,
2025, non-interest expense increased $4.1 million, or 6.9%, to $62.5 million, compared to $58.4 million for the twelve months ended
December 31, 2024. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $3.0
million, or 9.3%, due to an increase in deferred compensation expense to reflect updated year-end performance award estimates as
well as annual merit increases. Advertising expense increased $385,000, or 30.3%, data processing expense increased $153,000, or
4.4%, FDIC insurance expense increased $144,000, or 9.9%, software related expenses increased $124,000, or 4.9%, debit card and
ATM processing fees increased $46,000, or 1.9%, and other non-interest expense increased $410,000, or 8.0%. These increases were
partially offset by a decrease in occupancy expense of $11,000 or 0.2%, a decrease in furniture and equipment expense of $87,000,
or 4.5%, and a decrease in professional fees of $144,000, or 6.7%.

For the twelve months ended December 31,
2025, the efficiency ratio was 75.6%, compared to 80.4% for the twelve months ended December 31, 2024. The decrease in the efficiency
ratio was driven by higher net interest income during the twelve months ended December 31, 2025 compared to the twelve months ended
December 31, 2024.

Income Taxes.

Income tax expense for the twelve months
ended December 31, 2025 was $4.5 million, representing an effective tax rate of 22.8%, compared to $3.3 million, representing an
effective tax rate of 22.0%, for the twelve months ended December 31, 2024. The increase in income tax expense was due to higher
pre-tax income for the twelve months ended December 31, 2025.

 76

Liquidity and Capital
Resources.

The term “liquidity”
refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals and operating
expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed
securities, maturities and calls of investment securities and funds provided by our operations. We also can borrow funds from the
FHLB based on eligible collateral of loans and securities. Our material cash commitments include funding loan originations, fulfilling
contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and
satisfying repayment of our long-term debt obligations.

Primary Sources
of Liquidity

The Company, on an ongoing
basis, closely monitors the Company’s liquidity position for compliance with internal policies, and believes that available
sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, the
Company stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions
of some significant deposit run-off as well as funds needed for loan closing and investment purchases. The Company does not anticipate
engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which
would therefore result in significant pressure on liquidity. However, an economic recession could negatively impact the Company’s
liquidity. The Bank relies heavily on FHLB as a source of funds, particularly with its overnight line of credit. In past economic
recessions, some FHLB branches have suspended dividends, cut dividend payments, and not bought back excess FHLB stock that members
hold in an effort to conserve capital. FHLB has stated that it expects to be able to continue to pay dividends, redeem excess capital
stock, and provide competitively priced advances in the future.

At December 31, 2025
and December 31, 2024, outstanding borrowings from the FHLB were $83.0 million and $98.0 million, respectively. At December 31,
2025, we had $538.6 million in available borrowing capacity with the FHLB, including our $9.5 million overnight Ideal Way Line
of Credit. We have the ability to increase our borrowing capacity with the FHLB by pledging investment securities or additional
loans.

The Company has an available line of credit
of $349.0 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. Borrowings from the FRB
Discount Window are secured by certain eligible loan collateral and securities from the Company’s investment portfolio not
otherwise pledged. As of December 31, 2025 and December 31, 2024, there were no advances outstanding under either of these lines.

In addition, we have available lines of
credit of $15.0 million and $10.0 million with other correspondent banks. Interest rates on these lines are determined and reset
on a daily basis by each respective bank. At December 31, 2025 and 2024, we did not have an outstanding balance under either of
these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase
agreements are agreements that allow us to borrow money using our securities as collateral.

We also have outstanding at any time, a
significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject
to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees
expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated
under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.

Maturing investment securities
are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed
securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace.
These factors reduce the predictability of the timing of these sources of funds.

The Company’s primary activities
are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well
as and the purchase of mortgage-backed and other investment securities. During the year ended December 31, 2025, we originated
$380.2 million in loans, compared to $336.4 million in 2024. Total loans increased $113.2 million, or 5.5%, from $2.1 billion,
or 77.9% of total assets, at December 31, 2024 to $2.2 billion, or 79.7% of total assets, at December 31, 2025. At December 31,
2025, the Company had approximately $144.0 million in loan commitments and letters of credit to borrowers and approximately $357.3
million in available home equity and other unadvanced lines of credit.

 77

Deposit 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, 2025, time deposit accounts scheduled to mature within one year totaled $678.1 million, or 98.3% of total time deposits. Based
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. We monitor our liquidity position frequently and anticipate that it will have sufficient
funds to meet our current funding commitments for the next 12 months and beyond.

At December 31, 2025,
the Company and the Bank exceeded each of the applicable regulatory capital requirements (See Note 13, Regulatory Capital,
to our consolidated financial statements for further information on our regulatory requirements).

Material Cash Commitments

The Company entered into
a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining
contractual obligations outstanding with this vendor as of December 31, 2025 were estimated to be $3.6 million, which is expected
to be paid within one year. 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 thirteen years, some of which include options to extend the leases for additional
five-year terms up to ten years. Undiscounted lease liabilities totaled $7.7 million as of December 31, 2025. Principal payments
expected to be made on our lease liabilities during the twelve months ended December 31, 2025 were $1.4 million. The remaining
lease liability payments totaled $6.3 million and are expected to be made after December 31, 2026 (See Note 12, Leases,
to our consolidated financial statements for further information on our lease obligations).

On April 20, 2021, the
Company completed an offering of its private placement of $20.0 million aggregate principal amount of 4.875% fixed-to-floating
rate subordinated notes due on May 1, 2031, unless earlier redeemed, to certain qualified institutional buyers (the “Notes”).
The Notes 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 (“SOFR”), 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, 2025 and December
31, 2024, $19.8 million in aggregate principal amount of the Notes was outstanding.

We do not anticipate
any material capital expenditures during the calendar year 2025, except in pursuance of the Company’s strategic initiatives.
The Company does not have any balloon or other payments due on any long-term obligations or any off-balance sheet items other than
the commitments and unused lines of credit noted above.

Off-Balance Sheet
Arrangements.

The Company does not
have any off-balance sheet arrangements, other than noted above and in Note 16, Commitments and Contingencies, to our consolidated
financial statements, that have or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to investors.

Management of Market Risk.

As a
financial institution, our primary market risk is interest rate risk since substantially all transactions are denominated in U.S.
dollars with no direct foreign exchange or changes in commodity price exposure. Fluctuations in interest rates will affect both
our level of income and expense on a large portion of our assets and liabilities. Fluctuations in interest rates will also affect
the market value of all interest-earning assets and interest-bearing liabilities.

 78

The Company’s interest rate management
strategy is to limit fluctuations in net interest income as interest rates vary up or down and control variations in the market
value of assets, liabilities and net worth as interest rates vary. We seek to coordinate asset and liability decisions so that,
under changing interest rate scenarios, net interest income will remain within an acceptable range.

In order to achieve the Company’s
objectives of managing interest rate risk, the Asset and Liability Management Committee (“ALCO”) meets periodically
to discuss and monitor the market interest rate environment relative to interest rates that are offered on our products. ALCO presents
quarterly reports to the Board which includes the Company’s interest rate risk position and liquidity position.

The Company’s primary
source of funds are deposits, consisting primarily of time deposits, money market accounts, savings accounts, demand accounts and
interest-bearing checking accounts, which have shorter terms to maturity than the loan portfolio. Several strategies have been
employed to manage the interest rate risk inherent in the asset/liability mix, including but not limited to:

●

maintaining the diversity of our existing loan portfolio through residential real estate loans,
commercial and industrial loans and commercial real estate loans;

●

emphasizing investments with an expected average duration of five years or less; and

●

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

In 2025, cash flows from
deposit inflows were used to fund loan growth. During 2025, the Company experienced net loan growth in residential real estate
loans, commercial real estate loans and commercial and industrial loans. The Company’s long-term focus continues to be on
growing commercial loans that present the appropriate levels of risk and return. Commercial loans typically have variable interest
rates and shorter maturities than residential loans.

The actual amount of
time before loans are repaid can be significantly affected by changes in market interest rates. Prepayment rates will also vary
due to a number of other factors, including the regional economy in the area where the loans were originated, seasonal factors,
demographic variables and the assumability of the loans. However, the major factors affecting prepayment rates are prevailing interest
rates, related financing opportunities and competition. We monitor interest rate sensitivity so that we can adjust our asset and
liability mix in a timely manner and minimize the negative effects of changing rates.

The Company’s liquidity
sources are vulnerable to various uncertainties beyond our control. Loan amortization and investment cash flows are a relatively
stable source of funds, while loan and investment prepayments and calls, as well as deposit flows vary widely in reaction to market
conditions, primarily prevailing interest rates. Asset sales are influenced by pledging activities, general market interest rates
and unforeseen market conditions. Our financial condition is affected by our ability to borrow at attractive rates, retain deposits
at market rates and other market conditions. We consider our sources of liquidity to be adequate to meet expected funding needs
and also to be responsive to changing interest rate markets.

Interest Rate Risk.

Interest rate risk represents
the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams
associated with our financial instruments also change, thereby impacting net interest income, the primary component of our earnings.
ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income
to sustained interest rate changes. While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year
horizon, they also utilize additional tools to monitor potential longer-term interest rate risk.

The simulation model
captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning
assets and interest-bearing liabilities reflected on our consolidated balance sheet, as well as for derivative financial instruments.
This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure
over a one and two-year horizon, assuming no balance sheet growth.

 79

The repricing and/or new rates of assets
and liabilities moved in tandem with market rates. However, in certain deposit products, the use of data from a historical analysis
indicated that the rates on these products would move only a fraction of the rate change amount. Pertinent data from each loan
account, deposit account and investment security was used to calculate future cash flows. The data included such items as maturity
date, payment amount, next repricing date, repricing frequency, repricing index, repricing spread, caps and floors. Prepayment
speed assumptions were based upon the difference between the account rate and the current market rate. We also evaluate changes
in interest rate sensitivity under various scenarios including but not limited to nonparallel shifts in the yield curve, variances
in prepayment speeds and variances to correlations of instrument rates to market indexes.

The table below shows
our net interest income sensitivity analysis reflecting the following changes to net interest income for the first and second years
of the simulation model. The analysis assumes no balance sheet growth, a parallel shift in interest rates, and all rate changes
were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the simulation
horizon.

Estimated Changes in

Net Interest Income

Changes in Interest Rates

At  

December 31, 2025 

At  

December 31, 2024 

1 – 12 Months

UP 200 basis points

-4.0

%

-4.4

%

DOWN 200 basis points

4.2

%

3.9

%

13 – 24 Months

UP 200 basis points

3.3

%

7.5

%

DOWN 200 basis points

15.8

%

24.6

%

The preceding sensitivity analysis does
not represent a forecast of net interest income, nor do the calculations represent any actions that management may undertake in
response to changes in interest rates. They should not be relied upon as being indicative of expected operating results. These
hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels,
yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement
of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we
cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences
might change.

Periodically, if deemed appropriate, we
may use interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge our interest rate exposure
to interest rate movements. The Board has approved hedging policy statements governing the use of these instruments. These interest
rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange
for our making fixed payments.

Recent Accounting Pronouncements.

Refer to Note 1 to our consolidated financial
statements for a summary of the recent accounting pronouncements.

 80

Impact of Inflation
and Changing Prices.

The Company’s consolidated
financial statements and accompanying notes have been prepared in accordance with GAAP. GAAP generally requires the measurement
of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike
industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates
have a greater impact on performance than do the effects of inflation.