Western New England Bancorp, Inc. (WNEB) Business

ITEM 1. BUSINESS.

General.

Western
New England Bancorp, Inc. (“WNEB” or “Company”) (f/k/a “Westfield Financial, Inc.”) headquartered
in Westfield, Massachusetts, is a Massachusetts-chartered stock holding company and is registered as a savings and loan holding
company with the Federal Reserve Board under the Home Owners’ Loan Act, as amended (the “HOLA”). In 2001, the
Company reorganized from a Massachusetts-chartered savings bank holding company to a Massachusetts-chartered stock corporation
with the second step conversion being completed in 2007. WNEB is the parent company and owns all of the capital stock of Westfield
Bank (“Westfield” or “Bank”). The Company is also subject to the jurisdiction of the SEC and is subject
to the disclosure and other regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, as administered by the SEC. Western New England Bancorp is traded on the NASDAQ under the ticker symbol “WNEB”
and is subject to the NASDAQ stock market rules. At December 31, 2025, WNEB had consolidated total assets of $2.7 billion, total
net loans of $2.2 billion, total deposits of $2.4 billion and total shareholders’ equity of $247.6 million.

Westfield
Bank, headquartered in Westfield, Massachusetts, is a federally-chartered savings bank organized in 1853 and is regulated by the
Office of the Comptroller of the Currency (“OCC”). The Bank is a full-service, community oriented financial institution
offering a full range of commercial and retail products and services as well as wealth management financial products. As of December
31, 2025, the Bank had twenty-five branches and seven freestanding automated teller machines (“ATMs”). The Bank also
conducts business through an additional fourteen freestanding and thirty-three seasonal or temporary ATMs that are owned and serviced
by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue. All branch and ATM locations serve Hampden
County and Hampshire County in western Massachusetts and the Capital Region in Connecticut. The Bank also provides a
variety of banking services including telephone and online banking, remote deposit capture, cash management services, overdraft
facilities, night deposit services, and safe deposit facilities. As a member of the Federal Deposit Insurance Corporation (“FDIC”),
the Bank’s deposits are insured up to the maximum FDIC insurance coverage limits. The Bank is also a member of the Federal
Home Loan Bank of Boston (“FHLB”).

On
October 21, 2016, the Company acquired Chicopee Bancorp, Inc. (“Chicopee”), the holding company for Chicopee Savings
Bank and in conjunction with the acquisition, the name of the Company was changed to Western New England Bancorp, Inc. The transaction
qualified as a tax-free reorganization for federal income tax purposes.

Subsidiary
Activities.

Western
New England Bancorp, Inc. has two subsidiaries that are included in the Company’s consolidated financial statements:

Westfield
Bank has three wholly owned subsidiaries that are included in the Company’s consolidated financial statements:

6

Market
Area.

Westfield
Bank’s headquarters are located at 141 Elm Street in Westfield, Massachusetts. The Bank’s primary lending and deposit
market areas include all of Hampden County and Hampshire County in western Massachusetts and the Capital Region in Connecticut.
The Bank operates twenty-five banking offices in Agawam, Chicopee, East Longmeadow, Feeding Hills, Holyoke, Huntington, Ludlow,
South Hadley, Southwick, Springfield, Ware, West Springfield and Westfield, Massachusetts and Bloomfield, Enfield, Granby and
West Hartford, Connecticut. We operate full-service ATMs at our branch locations and have seven freestanding ATM locations in
Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts. The Bank also conducts business through an additional
fourteen freestanding and thirty-three seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank
pays a rental fee and shares in the surcharge revenue. In addition, we provide online banking services, including online deposit
account opening and residential mortgage and consumer loan applications through our website at www.westfieldbank.com.

The
markets served by our branches are primarily suburban markets located in western Massachusetts and in Connecticut. Westfield,
Massachusetts, is located near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. Our middle market
and commercial real estate lending team is located in Springfield, the Pioneer Valley’s primary urban market. The Pioneer
Valley of western Massachusetts encompasses the sixth largest metropolitan area in New England. The Springfield metropolitan area
covers a relatively diverse area ranging from densely populated urban areas, such as Springfield, to outlying rural areas. Our
Financial Services Center in West Hartford serves as our Connecticut hub, housing employees across all commercial and retail lines
of business. Our markets fall within New England’s Knowledge Corridor, an interstate partnership of regional economic development,
planning, business, tourism and educational institutions that work together to advance the region’s economic progress.

A
diversified mix of industry groups are concentrated in western Massachusetts and Connecticut, including manufacturing,
health care, higher education, wholesale and retail trade and service. The economies of our primary markets have benefited from
the presence of large employers such as Baystate Medical Center/Baystate Health, Big Y Foods, Center for Human Development, Holyoke
Medical Center, MassMutual Financial Group, Mercy Medical Center/Trinity Health of New England, Mestek, MGM Springfield, Verizon
and Westover Air Reserve Base in Massachusetts, and Aetna, Air National Guard, Collins Aerospace/RTX, Connecticut Children’s
Medical Center, The Hartford Financial Services Group, Hartford Hospital/Hartford HealthCare, Kaman Corporation, LEGO Systems,
Talcott Financial Group and The Travelers Indemnity Company in Connecticut. Other employment and economic activity is provided
by financial institutions, colleges and universities, hospitals, and a variety of wholesale and retail trade business. Our Hampden
County market also enjoys a strong tourism business with attractions such as the Eastern States Exposition, which operates The
Big E, the largest fair in the northeast, the Basketball Hall of Fame, MGM Springfield and Six Flags New England.

Competition.

The
Company faces significant competition to attract and retain customers within existing and neighboring geographic markets. The
Company competes actively with local, regional, and national financial institutions, as well as credit unions which have a large
presence in the region. Competition for loans, deposits and cash management services, and investment advisory assets also comes
from other businesses that provide financial services, including consumer finance companies, mortgage brokers and lenders, private
lenders, insurance companies, securities brokerage firms, institutional mutual funds, registered investment advisors, non-bank
electronic payment and funding channels, internet-based banks and other financial intermediaries.

We
expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing
trend of consolidation in the financial services industry. Technological advances, for example, have lowered the barriers to market
entry, allowed banks and other lenders to expand their geographic reach by providing services over the internet and made it possible
for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal
laws permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the
financial services industry.

7

At
June 30, 2025, which is the most recent date for which data is available from the FDIC, we held approximately 13.5% of the deposits
in Hampden County, which was the third largest market share out of the eighteen banks and thrifts with offices in Hampden County.

Human
Capital.

We
understand that our human capital is one of our most valuable assets and a key to our success. The Company is an equal opportunity
employer and maintains hiring practices and policies that foster and promote a diverse and inclusive workforce. We strive to create
a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment, rewarding and
recognizing our employees based on their individual results and performance as well as that of their department and the Company
overall. We are dedicated to recruiting, developing and promoting a diverse workforce to meet the current and future demands of
our business.

Talent
Management

We
have been successful in attracting, developing and retaining qualified and competent staff. The Company believes that it has had
and continues to have strong employee relations. Our talent management strategy ensures we leverage the talent needed, not just
for today, but also for our future. Our employees are the foundation of our success and are responsible for upholding our guiding
principles of integrity, trust, empathy, collaboration, strong work ethic, loyalty, inclusion and a professional and positive
attitude.

As
of December 31, 2025, the Bank employed 334 total employees, with 292 employed full-time and 42 employed part-time. Employee retention
helps the Company operate efficiently and effectively. As of December 31, 2025, our average employee tenure was eight years.

There
are many factors that contribute to the success of the Company. We actively encourage and support the growth and development of
our employees. Whenever practical, management generally seeks to fill positions by promotion and transfer opportunities from within
the organization. Career development is advanced through ongoing mentoring and professional development programs, as well as internally
and externally developed training programs.

Employee
Compensation and Benefits

Management
promotes its core values through prioritizing concern for employees’ well-being, supporting employees’ career goals,
offering competitive wages, and providing valuable fringe benefits. The Company maintains a comprehensive employee benefit program
providing, among other benefits, group medical, dental and vision insurance, health savings accounts and flexible spending accounts,
life insurance and disability insurance, a 401(k) Safe Harbor Plan with a competitive company match, an employee stock ownership
plan, short-term and long-term incentive compensation programs, tuition reimbursement, paid time off, including vacation days
and paid holidays, and wellness and employee assistance programs. In addition, on an annual basis, the Company may make a discretionary
profit share contribution to each participant.

Workplace
Health and Safety

The
safety, health and wellness of our employees is considered a top priority. On an ongoing basis, the Company promotes the health
and wellness of its employees and strives to keep the employee portion of health care premiums competitive with local competition.
We communicate to our employees on a monthly basis through email and the Company’s intranet, sharing articles and best practices
on mental, emotional and physical well-being, health savings account and flexible spending account use, resources to find cheaper
prescriptions and other related topics. Our employees also have access to a platform that gives them the ability to participate
in interactive activities for wellness classes, stress management, mindfulness, healthy eating and health plan literacy.

8

Lending
Activities.

Loan
Approval Procedures and Authority.

Our
lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by the
Company’s Board of Directors (the “Board”) and Management. On an annual basis, the Board approves the Bank’s
Loan Policy (the “Loan Policy”). The Loan Policy governs the conditions under which loans are made, addresses the
lending authority of loan officers, documentation requirements, appraisal policy, charge-off policies and desired portfolio mix.
The Executive Committee of the Board approves loan relationships exceeding certain prescribed dollar limits as outlined in the
Loan Policy.

Loans
to One Borrower Limit.

The
Bank may not make a loan or extend credit to a single borrower or related group of borrowers if the aggregate of all loans or
extensions of credit to that single borrower or related group of borrowers would be in excess of 15% of the Bank’s unimpaired
capital and surplus. At December 31, 2025, the Bank’s regulatory limit on loans to one borrower was $41.5 million. Our internal
loan to one borrower limit is $39.1 million. At December 31, 2025, our largest lending relationship, secured by a 57-unit residential
condominium building in Connecticut, had a total loan exposure of $22.6 million, with no outstanding balance at December 31, 2025.
At December 31, 2025, our second largest lending relationship, secured by an industrial property in Massachusetts, had a total
loan exposure of $19.2 million, of which $18.1 million was outstanding. At December 31, 2025, our top ten largest lending relationships
have an average exposure of $18.2 million, or 6.6% of total bank risk-based capital, with a range in exposure from $15.1 million,
or 5.5% of total bank risk-based capital, to $22.6 million, or 8.2% or total bank risk-based capital. The Bank continually monitors
its loan portfolio to review compliance with new and existing regulations.

The
Bank offers a variety of loan products to its customers, including residential and commercial real estate loans, commercial loans,
and installment loans. The Bank primarily extends loans to customers located within the Company’s footprint. In 2025 and
2024, interest income on loans represented 80.4% and 80.6% of the total revenues of the Company, respectively. At December 31,
2025, the Bank’s loan portfolio totaled $2.2 billion, or 79.7% of total assets, compared to $2.1 billion, or 78.0% of total
assets, at December 31, 2024.

The
Company’s primary lending focus is to generate high quality commercial loan relationships achieved through active business
development efforts, long-term relationships with established commercial developers, community involvement, and focused marketing
strategies. Loans made to businesses, non-profits, and professional practices may include commercial real estate loans, construction
and land development loans, commercial and industrial loans, including lines of credit and letters of credit. Loans made to individuals
may include conventional residential real estate loans, home equity loans and lines of credit, residential construction loans
on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company
manages its loan portfolio to avoid concentration by industry, property type, relationship size, and source of repayment to lessen
its credit risk exposure.

Interest
rates on loans may be fixed or variable and variable rate loans may have a fixed initial period before periodic rate adjustments
begin. Individual rates offered are dependent on the associated degree of credit risk, term, underwriting and servicing costs,
loan amount, and the extent of other banking relationships maintained with the borrower, and may be subject to interest rate floors.
Rates are also subject to competitive pressures, the current interest rate environment, availability of funds, and government
regulations.

The
Company employs a seasoned commercial lending staff, with commercial lenders to support the Company’s loan growth strategy.
The Company contracts with an external third-party loan review company to review the internal credit ratings assigned to loan
relationships in the commercial loan portfolio on a pre-determined schedule, based on the type, size, rating, and overall risk
of the loan. During the course of their review, the third party examines a sample of loans, including new loans, existing relationships
over certain dollar amounts and classified loans. The Company’s internal residential origination and underwriting staff
originate residential loans and are responsible for compliance with residential lending regulations, consumer protection and internal
policy guidelines. The Company’s internal compliance department monitors the residential loan origination activity for regulatory
compliance.

9

Commercial
Real Estate Loans.

At
December 31, 2025, commercial real estate loans, including commercial construction loans, totaled $1.1 billion, or 50.4% of total
loans, and consisted of $406.4 million of fixed-rate loans and $692.6 million of adjustable-rate loans. At December 31, 2025,
the largest commercial real estate loan, a 57-unit residential condominium building in Connecticut, had total exposure of $22.6
million and no outstanding balance at December 31, 2025. Our second largest commercial real estate loan, an industrial property
in Massachusetts, had an outstanding balance of $18.1 million, and represented 0.8% of total loans and 6.5% of total bank risk-based
capital. This loan was performing in accordance with the original repayment terms at December 31, 2025. For more information relating
to the Company’s commercial real estate portfolio as of December 31, 2025 and December 31, 2024, see “Item 7 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations – CRE Concentrations.”

The
Company originates commercial real estate loans throughout its market area for the purpose of acquiring, developing, and refinancing
commercial real estate where the property is the primary collateral securing the loan. These loans are typically secured by a
variety of commercial and industrial property types, including one-to-four and multi-family apartment buildings, office, industrial,
or mixed-use facilities, or other commercial properties, and are generally guaranteed by the principals of the borrower. Commercial
real estate loans generally have repayment periods of approximately fifteen to thirty years. Variable interest rate loans in the
commercial real estate loan portfolio have a variety of adjustment terms and underlying interest rate indices, and are generally
fixed for an initial period before periodic rate adjustments begin.

Commercial
construction loans may include the development of residential housing and condominium projects, the development of commercial
and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part
by underlying real estate collateral and are generally guaranteed by the principals of the borrowers. Construction lenders work
to cultivate long-term relationships with established developers. The Company limits the amount of financing provided to any single
developer for the construction of properties built on a speculative basis. Funds for construction projects are disbursed as pre-specified
stages of construction are completed. Regular site inspections are performed, prior to advancing additional funds, at each construction
phase, either by experienced construction lenders on staff or by independent outside inspection companies. Commercial construction
loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms
of one to three years. At December 31, 2025 and December 31, 2024, there was $77.3 million and $94.8 million, respectively, in
commercial construction loans included within commercial real estate loans.

Commercial
and Industrial Loans.

At
December 31, 2025, our total commercial and industrial loan portfolio totaled $221.8 million, or 10.2% of total loans, compared
to $211.7 million, or 10.3% of total loans, at December 31, 2024. At December 31, 2025, the largest commercial and industrial
loan, with an outstanding balance of $15.6 million and total loan exposure of $21.0 million, was to a commercial borrower, located
in Westfield, Massachusetts. Total exposure represented 1.0% of total loans and 7.6% of total bank risk-based capital at December
31, 2025. This loan was performing in accordance with its original repayment terms at December 31, 2025.

Commercial
and industrial loans include revolving lines of credit, working capital loans, equipment financing and term loans. Commercial
and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by
real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally
guaranteed by the principals of the borrower. Variable rate loans and lines in this portfolio have interest rates that are periodically
adjusted, with term loans generally having fixed initial periods. Commercial and industrial loans have average repayment periods
of one to seven years.

Commercial
letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a
customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial
loan, with the same criteria associated with similar commercial loans.

10

At
December 31, 2025, our largest concentration of commercial loans was to new car dealerships, which comprised approximately 2.3%
of total loans and 18.1% of total bank risk-based capital.

Participation
Loans.

The
Company cultivates relationships with other financial institutions to mitigate the risk of our lending activities by participating
either as the lead bank or as a participant in various loan transactions. Participating in loans with other institutions provides
the Company with the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank,
while providing the customer with larger credit facilities than the Company might be willing to, or able to, offer independently.
The Company purchases participation interests in larger balance loans from other financial institutions generally in our market
area. Such participations are evaluated with the same level of due diligence and care as loans originated internally. The participations
are underwritten, reviewed for compliance, and approved in accordance with the Company’s underwriting policies and criteria.
The performance of participation loans is actively monitored and updated financial statements of the borrower are received periodically
from the participant in accordance with loan reporting requirements and covenant testing. These loans are reviewed annually in
accordance with the Company’s Loan Policy and graded based on credit risk. Loan grades assigned are also tested by the Company’s
external loan review firm in accordance with the Company’s loan review policy.

The
Company participated in commercial real estate loans with outstanding balances of $107.2 million, commercial construction loans
with outstanding balances of $14.4 million, and commercial and industrial loans with outstanding balances of $14.7 million at
December 31, 2025. At December 31, 2024, we participated in commercial real estate loans with outstanding balances of $116.2 million,
commercial construction loans with outstanding balances of $14.0 million, and commercial and industrial loans with outstanding
balances of $2.4 million.

The
Company sells loan participations in the ordinary course of business when a loan originated by the Company exceeds our legal lending
limit or we otherwise deem it prudent to share the risk with another lending institution. At December 31, 2025, the Company was
the lead bank in commercial real estate loans of $88.4 million, commercial construction loans of $2.1 million, and commercial
and industrial loans of $20.7 million, with participation balances sold that totaled $54.4 million for commercial real estate
loans, $1.4 million for commercial construction loans and $11.1 million for commercial and industrial loans, respectively.

At
December 31, 2024, the Company was the lead bank in commercial real estate loans of $80.9 million, commercial construction loans
of $1.5 million, and commercial and industrial loans of $22.8 million, with participation balances sold that totaled $52.0 million
for commercial real estate loans, $1.5 million for commercial construction loans and $12.2 million for commercial and industrial
loans, respectively.

One-to-Four
Family Residential Real Estate Loans.

At
December 31, 2025 and December 31, 2024, the one-to-four family residential real estate loan portfolio totaled $719.1 million,
or 33.0% of total loans, and $653.8 million, or 31.6% of total loans, respectively, and consisted of $639.7 million of fixed rate
loans and $79.4 million in adjustable rate loans. The Company originates and funds residential real estate loans, including first
mortgages, home equity loans, and home equity lines of credit, secured by one-to-four family residential properties primarily
located in western Massachusetts and Connecticut. At December 31, 2025, the largest residential real estate loan was
$2.0 million. The loan was secured by the borrower’s secondary residence located in New Hampshire and was performing according
to its original terms as of December 31, 2025.

These
residential properties may serve as the borrower’s primary residence, or as vacation homes or investment properties. First
mortgages may be underwritten in amounts up to 97% of the lesser of the appraised value or purchase price of the property for
owner-occupied homes, 90% for second homes and 85% for investment properties. Private mortgage insurance is required on all loans
with a loan-to-value ratio greater than 80%. We do not grant subprime loans. In addition, financing is provided for the construction
of owner-occupied primary and secondary residences. Residential mortgage loans may have terms of up to 30 years at either fixed
or adjustable rates of interest. Fixed and adjustable rate residential mortgage loans are generally originated using secondary
market underwriting and documentation standards. Home equity loans and lines of credit are secured by first or second mortgages
on one-to-four family owner-occupied properties. Home equity loans and lines of credit are underwritten by a maximum combined
loan-to-value of 85% of the appraised value of the property. Underwriting approval is dependent on review of the borrower’s
ability to repay and credit history in accordance with the Bank’s loan policies. The overall health of the economy, including
unemployment rates and housing pricing, will have an effect on the credit quality in this segment.

11

Depending
on the current interest rate environment, management may elect to sell eligible fixed and adjustable rate residential loans to
the secondary market, or hold some or all of its residential loan production in the Company’s portfolio. The Company may
retain or sell the servicing when selling the loans to the secondary market. The Company is an approved servicer with Fannie Mae,
an approved seller and servicer with Freddie Mac and the FHLB, and an approved Mass Housing lender. At December 31, 2025 and December
31, 2024, the Company serviced $77.1 million and $84.8 million, respectively, in residential loans previously sold to the secondary
market. The servicing rights will likely continue to be retained on all loans sold over the life of the loan.

Home
Equity Loans and Lines of Credit.

At
December 31, 2025 and December 31, 2024, home equity loans and lines of credit totaled $137.8 million, or 6.3% of total loans,
and $121.9 million, or 5.9% of total loans, respectively. The Company originates home equity revolving loans and lines of credit
for one-to-four family residential properties with maximum original loan-to-value ratios generally up to 85%. Home equity lines
generally have interest rates that adjust monthly based on changes in the Wall Street Journal Prime Rate, although minimum rates
may be applicable. Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment
schedule for home equity lines require interest only payments for the first ten years of the lines. Generally at the end of ten
years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen year amortization
schedule.

Consumer
Loans.

At
December 31, 2025 and December 31, 2024, consumer loans totaled $2.9 million, or 0.1%, of total loans and $4.4 million, or 0.2%,
of total loans, respectively. Consumer loans are generally originated at higher interest rates than residential and commercial
real estate loans, but they also generally tend to have a higher credit risk than residential real estate loans because they are
usually unsecured or secured by rapidly depreciable assets. Management, however, believes that offering consumer loan products
helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and
providing cross-marketing opportunities. We offer a variety of consumer loans to retail customers in the communities we serve.
Examples of our consumer loans include automobile loans, spa and pool loans, collateral loans and personal lines of credit tied
to deposit accounts to provide overdraft protection.

The
following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at
the dates indicated.

12

Loan
Maturity and Repricing.

The
following table shows the repricing dates or contractual maturity dates of our loans as of December 31, 2025. The table does not
reflect prepayments or scheduled principal amortization. Demand loans, loans having no stated maturity, and overdrafts are shown
as due within one year.

The
following table presents, as of December 31, 2025, the dollar amount of all loans contractually due or scheduled to reprice after
December 31, 2026, and whether such loans have fixed interest rates or adjustable interest rates.

13

Asset
Quality.

Maintaining
a high level of asset quality continues to be one of the Company’s key objectives. Credit administration reports directly
to the Chief Credit Officer and is responsible for the completion of independent credit analyses for all loans above a specific
threshold.

The
Company’s Loan Policy requires that management continuously monitor the status of the loan portfolio and report to the Board
on a monthly basis. These reports include information on concentration levels, delinquent loans, nonperforming loans, criticized
loans and foreclosed real estate, as well as our actions and plans to cure the nonperforming status of the loans and to dispose
of the foreclosed property.

The
Company contracts with an external third-party loan review company to review the internal risk ratings assigned to loans in the
commercial loan portfolio on a pre-determined schedule, based on the type, size, rating, and overall risk of the loan. During
the course of their review, the third party examines a sample of loans, including new loans, existing relationships over certain
dollar amounts and classified assets. The findings are reported to the Chief Credit Officer and the full report is then presented
to the Audit Committee.

Potential
Problem Loans.

The
Bank’s Loan Policy contain an internal rating system which evaluates the overall risk of a problem loan. The Company performs
an internal analysis of the loan portfolio in order to identify and quantify loans with higher than normal risk. Loans having
a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan.

Criticized
and Classified Loans.

The
Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.
The grades assigned and definitions are as follows, and loans graded excellent, above average, good (risk ratings 1-4) are treated
as “pass” for grading purposes. All loans risk rated special mention (5), substandard (6), Doubtful (7) and Loss (8)
are listed on the Company’s criticized report and are reviewed not less than on a quarterly basis to assess the level of
risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. In addition, the Company closely
monitors classified loans, defined as substandard, doubtful, and loss for signs of deterioration to mitigate the growth in nonperforming
loans, including performing additional due diligence, updating valuations and requiring additional financial reporting from the
borrower. Loans identified as containing a loss are partially charged-off or fully charged-off.

14

The
“criticized” risk rating (5) and the “classified” risk ratings (6-8) are detailed below:

5
– Special Mention- Loans rated 5 are considered “Special Mention” and may exhibit potential credit
weaknesses or downward trends and are being monitored by management. Loans in this category are currently protected based on collateral
and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration
of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s
financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.

6
– Substandard- Loans rated 6 are considered “Substandard.” A loan is classified as substandard if
the borrower exhibits a well-defined weakness and may be inadequately protected by the current net worth and cash flow capacity
to pay the current debt.

7
– Doubtful- Loans rated 7 are considered “Doubtful.” Loans classified as doubtful have all the weaknesses
inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation of the
loan highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors
that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more
exact status may be determined.

8
– Loss- Loans rated 8 are considered uncollectible. The loss classification does not mean that the asset has absolutely
no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery
and collection time may be affected in the future.

The
grades are determined through the use of qualitative and quantitative matrices that consider various characteristics of the loan
such as payment performance, quality of management, principals’/guarantors’ character, balance sheet strength, collateral
quality, cash flow coverage, position within the industry, loan structure and documentation.

At
December 31, 2025, the Company’s criticized loan portfolio totaled $39.7 million, or 1.8% of total loans, compared to $38.4
million, or 1.9% of total loans, at December 31, 2024. The Company’s special mention loans totaled $17.2 million, or 0.8%
of total loans, at December 31, 2025 and $11.4 million, or 0.6%, of total loans, at December 31, 2024. Classified loans totaled
$22.5 million, or 1.0% of total loans, at December 31, 2025 and $27.0 million, or 1.3% of total loans, at December 31, 2024. Classified
loans that were performing but possessed potential weaknesses and, as a result, could ultimately become nonaccrual loans totaled
$17.4 million, or 0.8% of total loans, at December 31, 2025 and $21.6 million, or 1.0% of total loans, at December 31, 2024. The
remaining balance of classified loans were nonaccrual loans totaling $5.1 million, or 0.2% of total loans, at December 31, 2025
and $5.4 million, or 0.3% of total loans, at December 31, 2024.

Total
individually evaluated loans totaled $5.9 million, or 0.3% of total loans, at December 31, 2025, while individually evaluated
loans totaled $14.3 million, or 0.7% of total loans, at December 31, 2024. Total accruing individually evaluated loans totaled
$726,000 at December 31, 2025, while accruing individually evaluated loans totaled $8.9 million at December 31, 2024. Nonaccrual
individually evaluated loans totaled $5.2 million as of December 31, 2025, while nonaccrual individually evaluated loans totaled
$5.4 million as of December 31, 2024.

At
December 31, 2025, commercial and industrial individually evaluated loans with a recorded investment of $464,000 carried a related
reserve amount of $122,000. At December 31, 2024, commercial and industrial individually evaluated loans with a recorded investment
of $494,000 carried a related reserve amount of $156,000. Management closely monitors these relationships for collateral or credit
deterioration. In management’s opinion, all remaining individually evaluated loan balances at December 31, 2025 and December
31, 2024, were supported by expected future cash flows or, for those collateral dependent loans, the net realizable value of the
underlying collateral.

Total
nonaccrual loans totaled $5.2 million, or 0.24% of total loans, at December 31, 2025, and $5.4 million, or 0.26% of total loans,
at December 31, 2024. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional
interest income of $284,000, $373,000 and $373,000 for the years ended December 31, 2025, 2024 and 2023, respectively.

15

OREO.

Assets
acquired through, or in lieu of, loan foreclosures are held for sale and are initially recorded at fair value less cost to sell
at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to development
and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. At December 31, 2025
and December 31, 2024, the Company carried no OREO balances.

The
following table presents, for the years indicated, an analysis of the allowance for credit losses and other related data.

16

During
the twelve months ended December 31, 2025, the Company recorded net recoveries of $472,000, compared to net recoveries of $87,000
for the twelve months ended December 31, 2024.

Allowance
for Credit Losses.

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 and $7.4 million at December 31, 2025 and 2024, respectively,
and is excluded from the estimate of 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. 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 weighted average remaining maturity (“WARM”)
method. For information on our methodology for assessing the appropriateness of the allowance for credit losses please see Footnote
1 – “Summary of Significant Accounting Policies” of our notes to consolidated financial statements.

Commercial
real estate loans. Loans in this segment include owner-occupied and non-owner occupied commercial real estate, multi-family
dwellings, and income producing investment properties, as well as commercial construction loans for commercial development projects
throughout New England. Typically, commercial real estate loans are secured by office buildings, apartment buildings, industrial
properties, warehouses, retail facilities, hotels, assisted living facilities, and educational facilities. Collateral values are
established by independent third-party appraisals and evaluations. Primary repayment sources for commercial real estate loans
include operating income and cash flow generated by the real estate, sale of the real estate and, funds from any liquidation of
the collateral. Under its lending guidelines, the Company generally requires a corporate or personal guarantee from individuals
that hold material ownership in the borrowing entity. The underlying cash flows generated by the properties or operations can
be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would
have an effect on the credit quality in this segment. Management obtains financial information annually and continually monitors
the cash flows of these loans.

Residential
real estate loans. This portfolio segment consists of first mortgages secured by one-to-four family residential properties and
home equity loans and home equity lines of credit secured by first or second mortgages on one-to-four family owner-occupied
properties. First mortgages may be underwritten to a maximum loan-to-value of 97% for owner-occupied homes, 90% for second homes and
85% for investment properties. Mortgages with loan-to-values greater than 80% require private mortgage insurance. We do not grant
subprime loans. Home equity loans and lines of credit are underwritten to a maximum combined loan-to-value of 85% of the appraised
value of the property. Underwriting approval is dependent on review of the borrower’s ability to repay principal and interest
on a monthly basis, credit history, financial resources and the value of the collateral. Residential real estate loans are
originated either for sale to investors or retained in the Company’s loan portfolio. Decisions about whether to sell or retain
residential real estate loans are made based on the interest rate, pricing for loans in the secondary market, and the
Company’s liquidity and capital needs. The overall health of the economy, including unemployment rates and housing pricing,
will have an effect on the credit quality in this segment.

17

Commercial
and industrial loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve
business results and cash flows consistent with those projected at loan origination. Collateral frequently consists of a first
lien position on business assets including, but not limited to, accounts receivable, inventory, and equipment. The primary repayment
source is operating cash flow, followed by liquidation of assets. Under its lending guidelines, the Company generally requires
a corporate or personal guarantee from individuals that hold material ownership in the borrowing entity. A weakened economy and
resultant decreased consumer spending will have an effect on the credit quality in this segment.

Consumer
loans. Loans in this segment are both secured and unsecured and repayment is dependent on the credit quality of the individual
borrower.

Allowance
for Credit Losses Methodology

In
estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans,
such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and
similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an estimated
credit loss assumption from a model that categorizes loan pools based on loan type and purpose.

The
discounted cash flow (“DCF”) model calculates an expected loss percentage for each loan class by considering the probability
of default, using life-of-loan analysis periods for the commercial and industrial, commercial real estate, residential real estate
loan segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. The expected
loss estimates for the consumer loan segment are based on historical loss rates using the remaining life method. The default and
severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other
loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates
and expected conditions over the remaining lives of the loans in the portfolio related to: (1) lending policies and procedures;
(2) international, national, regional and local economic business conditions and developments that affect the collectability of
the portfolio; (3) the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability,
and depth of the lending management and other relevant staff; (5) the volume and severity of past due and adversely classified
loans and the volume of nonperforming loans; (6) the quality of our loan review system and (7) the value of underlying collateral
for collateralized loans. Additional factors include the existence and effect of any concentrations of credit, and changes in
the level of such concentrations and the effect of external factors such as competition and legal and regulatory requirements
on the level of estimated credit losses in the existing portfolio. Such factors are used to adjust the historical probabilities
of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable
forecast. The Company uses regression analysis of historical internal and peer data to determine which variables are best suited
to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines
how expected probability of default and loss given default will react to forecasted levels of the economic variables.

For
all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts
back to a historical loss rate over four quarters on a straight-line basis. Other internal and external indicators of economic
forecasts are also considered by management when developing the forecast metrics.

The
company uses a WARM method to estimate the ACL for the consumer loan segment. Under this method, the historical average annual
charge-off rate is applied to the weighted average remaining maturity of the loan portfolio, currently calculated at 2.5 years.
This calculation is adjusted based on additional factors that include (1) lending policies and procedures; (2) international,
national, regional and local economic business conditions and developments that affect the collectability of the portfolio; (3)
the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability, and depth of the lending
management and other relevant staff; (5) the volume and severity of past due and adversely classified loans and the volume of
nonperforming loans; (6) the quality of our loan review system and (7) the value of underlying collateral for collateralized loans.

18

Individually
evaluated financial assets

For
a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value,
that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest
rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which
the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and
deferred loan fees and costs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial
difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases,
expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral.
The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent
on the sale (rather than only on the operation) of the collateral.

Allowance
for credit losses on off-balance sheet credit exposures, including unfunded loan commitments

The
Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments,
which is included in other liabilities on the balance sheet. Management estimates the amount of expected losses by calculating
a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Company and
applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit
losses related to unfunded commitments for each loan type. No credit loss estimate is reported for outstanding off-balance-sheet
credit exposures that are unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit
exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio
segments described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with
loans held for investment.

Based
on the foregoing, management believes that the Company is appropriately reserved for the current economic environment and supportable
forecast period as of December 31, 2025. For 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%.

Allocation
of Allowance for Credit Losses.

The
following tables set forth the allowance for credit losses allocated by loan category, the total loan balances by category, and
the percent of loans in each category to total loans.

19

Investment
Activities.

The
primary objective of the Company’s securities portfolio is to provide liquidity and maximize income while preserving safety
of principal. Secondary objectives include: providing collateral to secure local municipal deposits, the investment of funds during
periods of decreased loan demand, interest rate sensitivity considerations, supporting local communities through the purchase
of tax-exempt securities and tax planning considerations. The Board is responsible for establishing overall policy and reviewing
performance of the investment portfolio.

Under
the Investment Policy, acceptable portfolio investments include: United States Government obligations, obligations of federal
agencies or U.S. Government-sponsored enterprises, mortgage-backed securities, municipal obligations (general obligations, revenue
obligations, school districts and non-rated issues from the Bank’s general market area), banker’s acceptances, certificates
of deposit, Industrial Development Authority Bonds, Public Housing Authority Bonds, corporate bonds (each corporation limited
to the Bank’s legal lending limit), marketable equity securities, collateralized mortgage obligations, Small Business Investment
Companies (SBIC), Federal Reserve Bank stock and FHLB stock.

The
Investment Policy sets limits as a percentage of the total portfolio, identifies acceptable and unacceptable investment practices,
and denotes approved security dealers. The effect of changes in interest rates, market values, timing of principal payments and
credit risk are considered when purchasing securities.

As
of the balance sheet dates reflected in this annual report, held-to-maturity securities are carried at amortized cost and available-for-sale
securities are carried at fair value.

Marketable
equity securities are measured at fair value with changes in fair value reported on the Company’s income statement as a
component of non-interest income, regardless of whether such gains and losses are realized.

Restricted
Equity Securities.

At
December 31, 2025 and December 31, 2024, the Company held $4.9 million and $5.4 million, respectively, of FHLB stock. The FHLB
stock is carried at cost and classified as a restricted equity security. The investment must be held as a condition of membership
in the FHLB and as a condition for the Bank to borrow from the FHLB. We may be required to purchase additional FHLB stock if we
increase FHLB borrowings in the future. The Company periodically evaluates its investment in FHLB stock for impairment based on,
among other factors, the capital adequacy of the FHLB and its overall financial condition.

At
December 31, 2025 and December 31, 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. No impairment losses have been recorded through December 31, 2025 or December 31, 2024.

20

Securities
Portfolio Maturities.

The
composition and maturities of the debt securities portfolio and the mortgage-backed securities portfolio at December 31, 2025
are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact
of prepayments or redemptions that may occur. Weighted average yield is calculated using the amortized cost and yield to maturity
of securities divided by the total amortized cost of the segment, and does not adjust for tax-equivalent basis for any tax-exempt
obligations.

21

At
December 31, 2025, the Company had $175.8 million in securities classified as available-for-sale, $188.8 million in held-to-maturity,
and marketable equity securities of $632,000. There were no securities classified as trading. Securities classified as available-for-sale
were reported at fair value with net changes in the fair value from period to period included as a separate component of shareholders’
equity, net of income taxes. Changes in the fair value of debt securities classified as held-to-maturity or available-for-sale
do not affect our income, unless we determine there to be incurred credit losses for those securities in an unrealized loss position.

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. Management concluded that there were no incurred credit losses at
December 31, 2025 as all unrealized losses were related to interest rate fluctuations rather than any underlying credit quality
of the issuers. Additionally, the Company has no plans to sell these securities and has concluded that it is unlikely it would
have to sell these securities prior to the anticipated recovery of the unrealized losses.

Deposits.

At
December 31, 2025 and December 31, 2024, total deposits were $2.4 billion and $2.3 billion, respectively. Customer deposits represent
the primary source of the Bank’s funds for lending and other investment purposes. The Company offers a wide variety of deposit
products, including commercial, small business, nonprofit and municipal checking, money market and sweep accounts, as well as
time deposits. A broad selection of competitive retail deposit products are also offered, including interest-bearing and noninterest-bearing
checking, money market and savings accounts, as well as time deposits and individual retirement accounts, with terms on time deposits
ranging from three months to sixty months. As a member of the FDIC, the Bank’s depositors are provided deposit protection
up to the maximum FDIC insurance coverage limits.

Management
determines the interest rates offered on deposit accounts based on current and expected economic conditions, competition, and
the Bank’s liquidity needs, volatility of existing deposits, asset/liability position and overall objectives regarding the
growth and retention of relationships. We may also utilize brokered deposits, both term and overnight, from a number of available
sources, as part of our asset liability management strategy and as an alternative to borrowed funds to support asset growth in
excess of internally generated deposits. Brokered deposits along with borrowed funds may be referred to as wholesale funding.
There were $1.7 million in brokered deposits on the balance sheet at December 31, 2024 reported within time deposits. There were
no brokered deposits on the balance sheet at December 31, 2025.

At
December 31, 2025, uninsured deposits, defined as deposits that exceed the limits provided by the FDIC, were 29.5% of total deposits,
compared to 28.4% of total deposits, at December 31, 2024.

Core
deposits (which the Company defines as all deposits except time deposits) represented 70.8% of total deposits at December 31,
2025 and 68.9% at December 31, 2024. At December 31, 2025, time deposits with remaining terms to maturity of less than one year
amounted to $678.1 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Net Interest and Dividend Income” for information relating to the average balances and costs of our deposit
accounts for the years ended December 31, 2025, 2024 and 2023.

Cash
Management Services.

In
addition to the deposit products discussed above, commercial and municipal customers may take advantage of cash management services
including remote deposit capture, Automated Clearing House credit and debit origination, check payment fraud prevention, international
and domestic wire transfers and corporate credit cards.

22

IntraFi
Network, Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep Service (“ICS”).

We
participate in the IntraFi network, which provides depositors with access to FDIC insurance at network banks. Depositors can place
funds in time deposits through CDARS or in demand deposit accounts or money market deposit accounts through ICS. We use both CDARS
and ICS to place customer funds into bank accounts on a reciprocal basis, meaning that the Bank receives deposits in an amount
equal to the amount of funds the Bank places for its customers. When funds are placed through CDARS and ICS, they are allocated
to network banks in amounts that are less than FDIC insurance limits to ensure that depositors’ funds are eligible for FDIC
insurance. At December 31, 2025 and December 31, 2024, there were $45.4 million and $36.9 million, respectively, in CDARS deposits
reported within time deposits, and $89.7 million and $22.3 million, respectively, in ICS accounts reflected within core deposits.

Deposit
Distribution and Weighted Average Rates.

The
following table sets forth the Company’s average deposit balances and weighted average rates for the periods presented:

The
following table sets forth the maturity of time deposits at the dates indicated:

23

The
following table sets forth the uninsured portion of our core deposit accounts, by account type, at the dates indicated.

The
following table sets forth the uninsured portion of our time deposits, by remaining maturity.

_______________

Time
Deposit Maturities.

A
summary of time deposits greater than $250,000 by maturity is as follows(1):

_______________

24

Time
Deposit Balances by Rates.

A
summary of time deposits by maturity is as follows:

Other
Sources of Funds.

In
addition to deposits, other sources of funds include loan repayments, loan sales on the secondary market, interest and dividend
income from investments, matured investments, borrowings from the FHLB and from correspondent banks, and issuance of securities.

Federal
Home Loan Bank, Federal Reserve Bank of Boston and Other Borrowings.

The
Company utilizes advances from the FHLB and the Federal Reserve Bank of Boston (“FRB”), as well as other funding sources,
as part of our overall funding strategy, to meet short-term liquidity needs and to manage interest rate risk arising from the
difference in asset and liability maturities.

The
Bank is a member of the FHLB, which is part of the Federal Home Loan Bank System. Members are required to own capital stock of
the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged. The maximum amount of credit that the
FHLB will extend varies from time to time, depending on its policies and the amount of qualifying collateral the member can pledge.
The Bank had satisfied its collateral requirement at December 31, 2025.

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. Total short-term borrowings and long-term debt outstanding and weighted average rates at the periods
indicated are presented below:

25

The
Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral. In accordance
with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances. At December
31, 2025, the Bank had pledged $932.3 million of eligible collateral to support borrowing capacity at the FHLB of Boston. This
relationship is an integral component of the Company’s asset-liability management program. At December 31, 2025, the Bank
had immediate availability at the FHLB, including its $9.5 million overnight Ideal Way Line of Credit, to borrow an additional
$538.6 million based on qualified collateral.

Interest
on the Ideal Way Line of Credit is payable at a rate determined and reset by the FHLB on a daily basis. The outstanding principal
is due daily but the portion not repaid will be automatically renewed. At December 31, 2025 and 2024, the Company did not have
any outstanding advances under the facility.

In
addition, at December 31, 2025 and 2024, the Company had an available line of credit of $349.0 million and $382.9 million, respectively,
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 loans 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 the FRB Discount Window.

The
following table lists FHLB and FRB liquidity information as of December 31, 2025:

________________

The
Company also has pre-established, unsecured overnight borrowing arrangements with large national and regional correspondent banks
to provide additional overnight and short-term borrowing capacity for the Company. At December 31, 2025, the Company had borrowing
capacity with two correspondent banks consisting of a $15.0 million and a $10.0 million unsecured lines of credit, both arrangements
were at an interest rate determined and reset on a daily basis. As of December 31, 2025 and December 31, 2024, there were no advances
outstanding under these lines.

Subordinated
Debt.

On
April 20, 2021, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating
rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction.
The Company intends to use the net proceeds of the offering for general corporate purposes, including organic growth and repurchase
of the Company’s common shares.

Unless
earlier redeemed, the Notes mature on May 1, 2031. The Notes will bear interest from the initial issue date to, but excluding,
May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August
1, November 1 and February 1 of each year, beginning August 1, 2021, and (ii) from and including May 1, 2026, but excluding the
maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing
rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears
on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or
after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of
Governors of the Federal Reserve System (the “Federal Reserve”). The Notes were designed to qualify as Tier 2 capital
under the Federal Reserve’s capital adequacy regulations. At December 31, 2025 and December 31, 2024, $19.8 million aggregate
principal amount of the Notes was outstanding.

26

Financial
Services.

Westfield
Bank also provides access to insurance and investment products through Westfield Investment Services through LPL Financial (“LPL”),
a third-party registered broker-dealer. Westfield Investment Services representatives provide a broad range of wealth management,
investment, insurance, financial planning and strategic asset management services, helping clients meet all of their financial
needs.

Securities
and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. Westfield Bank and Westfield Investment Services are
not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services
using Westfield Investment Services, and may also be employees of Westfield Bank. These products and services are being offered
through LPL or its affiliates, which are separate entities from and not affiliates of Westfield Bank or Westfield Investment Services.
Securities and insurance offered through LPL or its affiliates are:

Supervision
and Regulation.

The
Company and the Bank are subject to extensive regulation under federal and state laws. The regulatory framework applicable to
savings and loan holding companies and their insured depository institution subsidiaries is intended to protect depositors, the
federal deposit insurance fund (the “DIF”), consumers and the U.S. banking system, rather than investors.

Set
forth below is a summary of the significant laws and regulations applicable to Western New England Bancorp and its subsidiaries.
The summary description that follows is qualified in its entirety by reference to the full text of the statutes, regulations,
and policies that are described. Such statutes, regulations, and policies are subject to ongoing review by Congress and state
legislatures and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable
to Western New England Bancorp and its subsidiaries could have a material effect on the results of the Company.

Overview.

Western
New England Bancorp is a separate and distinct legal entity from the Bank. The Company is a Massachusetts-chartered stock holding
company and a registered savings and loan holding company under the HOLA, and is subject to the supervision of and regular examination
by the Board of Governors of the Federal Reserve System (the “FRB,” the “Federal Reserve Board” or the
“Federal Reserve”) as its primary federal regulator. In addition, the Federal Reserve Board has enforcement authority
over Western New England Bancorp and its non-savings association subsidiaries. Western New England Bancorp is also subject to
the jurisdiction of the SEC and is subject to the disclosure and other regulatory requirements of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Western New England Bancorp is traded
on the NASDAQ under the ticker symbol, “WNEB,” and is subject to the NASDAQ stock market rules.

Westfield
Bank is organized as a federal savings association under the HOLA. The Bank is subject to the supervision of, and to regular examination
by, the OCC as its chartering authority and primary federal regulator. To a limited extent, the Bank is also subject to the supervision
and regulation of the FDIC as its deposit insurer. Financial products and services offered by Western New England Bancorp and
the Bank are subject to federal consumer protection laws and implementing regulations promulgated by the Consumer Financial Protection
Bureau (the “CFPB”). Western New England Bancorp and the Bank are also subject to oversight by state attorneys general
for compliance with state consumer protection laws. The Bank’s deposits are insured by the FDIC up to the applicable deposit
insurance limits in accordance with FDIC laws and regulations. The Bank is a member of the FHLB, and is subject to the rules and
requirements of the FHLB. The subsidiaries of Western New England Bancorp and the Bank are subject to federal and state laws and
regulations, including regulations of the FRB and the OCC, respectively.

27

Set
forth below is a description of the significant elements of the laws and regulations applicable to Western New England Bancorp
and its subsidiaries. Statutes, regulations and policies are subject to ongoing review by Congress, state legislatures and federal
and state agencies. A change in any statute, regulation or policy applicable to Western New England Bancorp may have a material
effect on the results of Western New England Bancorp and its subsidiaries.

Federal
Savings and Loan Holding Company Regulation.

Western
New England Bancorp is a savings and loan holding company as defined by the HOLA. In general, the HOLA restricts the business
activities of savings and loan holding companies to those permitted for financial holding companies under the Bank Holding Company
Act of 1956, as amended. Permissible businesses activities include banking, managing or controlling banks and other activities
that the FRB has determined to be so closely related to banking “as to be a proper incident thereto,” as well as any
activity that is either (i) financial in nature or incidental to such financial activity (as determined by the FRB in consultation
with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system generally (as determined solely by the FRB). Activities
that are financial in nature include, among others, securities underwriting and dealing, insurance underwriting and making merchant
banking investments.

Mergers
and Acquisitions.

The
HOLA, the federal Bank Merger Act and other federal and state statutes regulate direct and indirect acquisitions of savings associations
by savings and loan holding companies or other savings associations. The HOLA requires the prior approval of the FRB for the direct
or indirect acquisition of more than 5% of the voting shares of a savings association or its parent holding company and for a
company, other than a savings and loan holding company, to acquire “control” of a savings association or a savings
and loan holding company. A company can be deemed to “control” a savings association or a savings and loan holding
company by owning or controlling, directly or indirectly, more than 25% of the voting shares, but even below that threshold, a
company can be found to have “control” through other controlling influences. Under the Change in Bank Control Act,
no person, including a company, may acquire, directly or indirectly, control of an insured depository institution without providing
60 days’ prior notice and receiving a non-objection from the appropriate federal banking agency.

Under
the Bank Merger Act, the prior approval of the OCC is required for a federal savings association to merge with another insured
depository institution, where the resulting institution is a federal savings association, or to purchase the assets or assume
the deposits of another insured depository institution. In reviewing applications seeking approval of merger and acquisition transactions,
the federal bank regulatory agencies must consider, among other things, the competitive effect and public benefits of the transactions,
the capital position of the combined organization, performance records under the Community Reinvestment Act of 1977 (see the section
captioned “Community Reinvestment Act of 1977” included elsewhere in this section) and the effectiveness of the subject
organizations in combating money laundering.

Source
of Strength Doctrine.

FRB
policy requires savings and loan holding companies to act as a source of financial and managerial strength to their subsidiary
savings associations. Section 616 of the Dodd-Frank Act codified the requirement that holding companies act as a source of financial
strength to their insured depository institution subsidiaries. As a result, Western New England Bancorp is expected to commit
resources to support the Bank, including at times when Western New England Bancorp may not be in a financial position to provide
such resources. Any capital loans by a savings and loan holding company to any of its subsidiary savings associations are subordinate
in right of payment to deposits and to certain other indebtedness of such subsidiary savings associations. In the event of a savings
and loan holding company’s bankruptcy, any commitment by the savings and loan holding company to a federal banking agency
to maintain the capital of a subsidiary insured depository institution will be assumed by the bankruptcy trustee and entitled
to priority of payment.

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Dividends.

The
Company is a legal entity separate and distinct from its subsidiaries. The revenue of the Company (on a parent-only basis) is
derived primarily from dividends paid to it by the Bank and the Company’s other subsidiaries. The right of the Company,
and consequently the right of shareholders of the Company, to participate in any distribution of the assets or earnings of its
subsidiaries through the payment of dividends or otherwise is subject to the prior claims of creditors of the subsidiaries, including,
with respect to the Bank, depositors of the Bank, except to the extent that certain claims of the Company in a creditor capacity
may be recognized.

Restrictions
on Savings and Loan Holding Company Dividends.

The
Federal Reserve has the authority to prohibit savings and loan holding companies from paying dividends if such payment is deemed
to be an unsafe or unsound practice. The Federal Reserve has indicated generally that it may be an unsafe or unsound practice
for savings and loan holding companies to pay dividends unless the savings and loan holding company’s net income over the
preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s
capital needs, asset quality, and overall financial condition. Further, under the Federal Reserve’s capital rules, the Company’s
ability to pay dividends is restricted if it does not maintain capital above the capital conservation buffer (See Capital Adequacy
below).

Restrictions
on Bank Dividends.

The
OCC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of
dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will
result in the bank failing to meet its applicable capital requirements on a pro forma basis.

The
principal source of Company’s liquidity is dividends from the Bank. The OCC oversees the ability of the Bank to make capital
distributions, including dividends. The OCC generally prohibits a depository institution from making any capital distributions
(including payment of a dividend) if the bank would thereafter be undercapitalized. The OCC’s prior approval is required
if the total of all dividends declared by a federal savings association in any calendar year would exceed the sum of the bank’s
net income for that year and its undistributed net income for the preceding two calendar years, less any required transfers to
surplus, or if the bank would not be well capitalized after the dividend.

In
addition, section 10(f) of the HOLA requires a subsidiary savings association of a savings and loan holding company, such as the
Bank, to file a notice with the Federal Reserve prior to declaring certain types of dividends.

Capital
Adequacy.

In
July 2013, the FRB, the OCC and the FDIC approved final rules (the “Capital Rules”) that established a new capital
framework for U.S. banking organizations. The Capital Rules generally implement the Basel Committee on Banking Supervision’s
December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards.
In addition, the Capital Rules implement certain provisions of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act, Western New
England Bancorp, as a savings and loan holding company, is subject to the Capital Rules.

The
Capital Rules substantially revised the risk-based capital requirements applicable to holding companies and their depository institution
subsidiaries as compared to prior U.S. general risk-based capital rules. The Capital Rules revised the definitions and the components
of regulatory capital and impacted the calculation of the numerator in banking institutions’ regulatory capital ratios.
The Capital Rules became effective on January 1, 2015, subject to phase-in periods for certain components and other provisions.

The
Capital Rules: (i) require a capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory
capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1
capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory
capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from
and adjustments to capital as compared to existing regulations. Under the Capital Rules, for most banking organizations, including
Western New England Bancorp, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and
the most common forms of Tier 2 capital are subordinated notes and a portion of the allocation for loan and lease losses, in each
case, subject to the Capital Rules’ specific requirements.

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Pursuant
to the Capital Rules, the minimum capital ratios are:

The
Capital Rules also require a “capital conservation buffer,” composed entirely of CET1, on top of these minimum risk-weighted
asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions
with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints
on dividends, equity and other capital instrument repurchases and compensation based on the amount of the shortfall. The additional
capital conservation buffer must be 2.5% of CET1, effectively resulting in minimum ratios inclusive of the capital conservation
buffer of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii)
Total capital to risk-weighted assets of at least 10.5%.

The
Capital Rules provide for a number of deductions from and adjustments to CET1, which have been simplified for non-advanced approaches
institutions since the time the Capital Rules were initially finalized.

In
addition, under the current general risk-based capital rules, the effects of accumulated other comprehensive income or loss (“AOCI”)
items included in shareholders’ equity (for example, marks-to-market of securities held in the AFS portfolio) under generally
accepted accounting principles in the United States of America (“GAAP”) are reversed for the purposes of determining
regulatory capital ratios. Under the Capital Rules, the effects of certain AOCI items are not excluded; however, banking organizations
not using advanced approaches, were permitted to make a one-time permanent election to continue to exclude these items in January
2015. The Company and the Bank made this election.

The
risk-weighting categories in the Capital Rules are standardized and include a risk-sensitive number of categories, depending on
the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures,
and resulting in higher risk weights for a variety of assets. The implementation of the Capital Rules did not have a material
impact on the Company’s or the Bank’s consolidated capital levels.

The
Bank is subject to the Capital Rules as well. The Company and the Bank are each in compliance with the targeted capital ratios
under the Capital Rules at December 31, 2025.

In
September 2019, the OCC, the Federal Reserve Board and the FDIC adopted a final rule that was intended to further simplify the
Capital Rules for depository institutions and their holding companies that have less than $10 billion in total consolidated assets,
such as us, if such institutions meet certain qualifying criteria. This final rule became effective on January 1, 2020. Under
this final rule, if we meet the qualifying criteria, including having a leverage ratio (equal to tier 1 capital divided by average
total consolidated assets) of greater than 9 percent, we will be eligible to opt into the community bank leverage ratio framework.
If we opt into this framework, we will be considered to have satisfied the generally applicable risk-based and leverage capital
requirements in the Capital Rules (as modified pursuant to the simplification rule) and will be considered to have met the well-capitalized
ratio requirements for PCA (as defined below) purposes. The
Company and the Bank evaluated the simplified Capital Rules to determine our adoption status for the applicable filings periods
beginning in 2020 and decided not to opt in to the community bank leverage ratio framework.

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Prompt
Corrective Action.

Pursuant
to Section 38 of the Federal Deposit Insurance Act (“FDIA”), federal banking agencies are required to take “prompt
corrective action” (“PCA”) should an insured depository institutions fail to meet certain capital adequacy standards.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions,
including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of
dividends and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified
in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking
agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified
as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category
if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition,
or an unsafe or unsound practice, warrants such treatment.

For
purposes of PCA, to be: (i) well-capitalized, an insured depository institution must have a total risk-based capital ratio of
at least 10%, a Tier 1 risk-based capital ratio of at least 8%, a CET1 risk-based capital ratio of at least 6.5%, and a Tier 1
leverage ratio of at least 5%; (ii) adequately capitalized, an insured depository institution must have a total risk-based capital
ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 6%, a CET1 risk-based capital ratio of at least 4.5%, and
a Tier 1 leverage ratio of at least 4%; (iii) undercapitalized, an insured depository institution would have a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 6%, a CET1 risk-based capital ratio of less than
4.5%, and a Tier 1 leverage ratio of less than 4%; (iv) significantly undercapitalized, an insured depository institution would
have a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a CET1 risk-based capital
ratio of less than 3%, and a Tier 1 leverage ratio of less than 3%.; and (v) critically undercapitalized, an insured depository
institution would have a ratio of tangible equity to total assets that is less than or equal to 2%. As of December 31, 2025, the
Bank was “well-capitalized” under the PCA framework.

Business
Activities.

The
Bank derives its lending and investment powers from the HOLA and its implementing regulations promulgated by the OCC. Those laws
and regulations limit the Bank’s authority to invest in certain types of assets and to make certain types of loans. Permissible
investments include, but are not limited to, mortgage loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets. The Bank may also establish service corporations that
may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities
and insurance brokerage.

Loans
to One Borrower.

Generally,
a federal savings bank may not make a loan or extend credit to a single borrower or related group of borrowers if the aggregate
of all loans or extensions of credit to that single borrower or related group of borrowers would be in excess of 15% of the bank’s
unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the aggregate
amount of any loan above 15% of the bank’s unimpaired capital and surplus is fully secured by readily marketable collateral,
which generally does not include real estate. As of December 31, 2025, the Company was in compliance with these limitations on
loans to one borrower.

Concentrated
Commercial Real Estate Lending Regulations.

The
federal banking agencies, including the OCC, have promulgated guidance governing financial institutions with concentrations in
commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i)
total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total
reported loans secured by multifamily and nonfarm nonresidential properties (excluding loans secured by owner-occupied properties)
and loans for construction, land development, and other land represent 300% or more of total capital and the bank’s commercial
real estate loan portfolio has increased 50% or more during the prior 36 months.

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If
a concentration is present, management must employ heightened risk management practices that address the following key elements:
board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment
and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the
level of commercial real estate lending. On December 18, 2015, the federal banking agencies jointly issued a “Statement
on Prudent Risk Management for Commercial Real Estate Lending” reminding banks of the need to engage in risk management
practices for commercial real estate lending.

Qualified
Thrift Lender Test.

Under
federal law, as a federal savings association, the Bank must comply with the qualified thrift lender test (the “QTL Test”).
Under the QTL Test, the Bank is required to maintain at least 65% of its “portfolio assets” in certain “qualified
thrift investments” in at least nine months of the most recent twelve-month period. “Portfolio assets” means,
in general, the Bank’s total assets less the sum of:

“Qualified
thrift investments” include certain assets that are includable without limit, such as residential and manufactured housing
loans, home equity loans, education loans, small business loans, credit card loans, mortgage backed securities, FHLB stock and
certain U.S. government obligations. In addition, certain assets are includable as “qualified thrift investments”
in an amount up to 20% of portfolio assets, including certain consumer loans and loans in “credit-needy” areas.

The
Bank may also satisfy the QTL Test by qualifying as a “domestic building and loan association” as defined in the Internal
Revenue Code. Failure by the Bank to maintain its status as a qualified thrift lender (“QTL”) would result in restrictions
on activities, including restrictions on branching and the payment of dividends. If the Bank were unable to correct that failure
within a specified period of time, it must either continue to operate under those restrictions on its activities or convert to
a national bank charter. The Bank met the QTL Test in each of the prior 12 months and, therefore, is a “qualified thrift
lender.”

The
Community Reinvestment Act.

The
Community Reinvestment Act of 1977 (the “CRA”) and the regulations issued thereunder are intended to encourage banks
to help meet the credit needs of their entire assessment area, including low and moderate income neighborhoods, consistent with
the safe and sound operations of such banks. The CRA requires the OCC to evaluate the record of each financial institution in
meeting such credit needs. The CRA evaluation is also considered by the bank regulatory agencies in evaluating approvals for mergers,
acquisitions, and applications to open, relocate or close a branch or facility. Failure to adequately meet the criteria within
CRA guidelines could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose
the ability to request the Bank’s CRA Performance Evaluation and other various related documents. The Bank received a rating
of “Outstanding” on its most recent Community Reinvestment Act examination.

Consumer
Protection and CFPB Supervision.

The
Dodd-Frank Act centralized responsibility for consumer financial protection by creating the CFPB, an independent federal agency
responsible for implementing, enforcing, and examining compliance with federal consumer financial laws. As Western New England
Bancorp has less than $10 billion in total consolidated assets, the OCC continues to exercise primary examination authority over
the Bank with regard to compliance with federal consumer financial laws and regulations. Under the Dodd-Frank Act, state attorneys
general are also empowered to enforce rules issued by the CFPB.

The
Company and the Bank are subject to a number of federal and state laws designed to protect borrowers and promote fair lending.
These laws include, among others, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the
Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, various state law counterparts, and the Consumer Financial
Protection Act of 2010.

32

Transactions
with Affiliates and Loans to Insiders.

Under
federal law, transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of
the Federal Reserve Act (“FRA”), and the FRB’s implementing Regulation W. In a holding company context, at a
minimum, the parent holding company of a bank or savings association, and any companies which are controlled by such parent holding
company, are “affiliates” of the bank or savings association. Generally, sections 23A and 23B are intended to protect
insured depository institutions from losses arising from transactions with non-insured affiliates, by limiting the extent to which
a depository institution or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates
of the depository institution in the aggregate, and by requiring that such transactions be on market terms that are consistent
with safe and sound banking practices.

Section
22(h) of the FRA restricts loans to directors, executive officers, and principal stockholders (“Insiders”). Under
Section 22(h), loans to Insiders and their related interests may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the insured depository institution’s total capital and surplus. Loans to Insiders above
specified amounts must receive the prior approval of the Board. Further, under Section 22(h), loans to insiders must be made on
terms substantially the same as offered in comparable transactions to other persons, except that such Insiders may receive preferential
loans made under a benefit or compensation program that is widely available to the bank’s employees and does not give preference
to the insider over the employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Enforcement.

The
OCC has primary enforcement responsibility over federal savings associations, including the Bank. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response to unsafe or unsound practices, and any violation
of laws and regulations.

Standards
for Safety and Soundness.

The
Bank is subject to certain standards designed to maintain the safety and soundness of individual insured depository institutions
and the banking system. The OCC has prescribed safety and soundness guidelines relating to (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset
growth, concentration, and quality; (vi) earnings; and (vii) compensation and benefit standards for officers, directors, employees
and principal shareholders. A savings association not meeting one or more of the safety and soundness guidelines may be required
to file a compliance plan with the OCC.

Under
the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. Management is not aware of any practice, condition or violation that might lead to the termination of the
Bank’s deposit insurance.

Federal
Deposit Insurance.

The
FDIC’s deposit insurance limit is $250,000 per depositor, per insured bank, for each account ownership category. The deposits
of the Bank are insured up to applicable limits by the DIF of the FDIC. The Bank is subject to deposit insurance assessments to
maintain the DIF. The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes
into account an insured depository institution’s capital level and supervisory rating, commonly known as the “CAMELS”
rating. The risk matrix utilizes different risk categories which are distinguished by capital levels and supervisory ratings.
As a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible
equity. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed.

33

Depositor
Preference.

The
FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the
claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims
for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution.
If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment
ahead of unsecured, non-deposit creditors, including the parent holding company, with respect to any extensions of credit they
have made to such insured depository institution.

Federal
Home Loan Bank System.

The
Bank is a member of the Federal Home Loan Bank of Boston, which is one of the regional Federal Home Loan Banks comprising the
Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions.
The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB. Required percentages of
stock ownership are subject to change by the FHLB, and the Bank was in compliance with this requirement with an investment in
FHLB capital stock at December 31, 2025. If there are any developments that cause the value of our stock investment in the FHLB
to become impaired, we would be required to write down the value of our investment, which could affect our net income and shareholders’
equity.

Reserve
Requirements.

FRB
regulations authorize the Federal Reserve Board to require insured depository institutions to maintain non-interest earning reserves
against their transaction accounts (primary interest-bearing and regular checking accounts). The Bank’s required reserves
can be in the form of vault cash. If vault cash does not fully satisfy the required reserves, they may be satisfied in the form
of a balance maintained with the FRB. Currently, there is no reserve requirement because the Federal Reserve Board reduced the
reserve requirement to zero percent.

Financial
Privacy and Data Security.

Western
New England Bancorp is subject to federal laws, including the Gramm-Leach Bliley Act, and certain state laws containing consumer
privacy protection provisions. These provisions limit the ability of banks and other financial institutions to disclose non-public
information about consumers to affiliated and non-affiliated third parties and limit the reuse of certain consumer information
received from non-affiliated institutions. These provision require notice of privacy policies to consumers and, in some circumstances,
allow consumers to prevent disclosure of certain personal information to affiliates or non-affiliated third parties by means of
“opt out” or “opt in” authorizations.

The
Gramm-Leach Bliley Act requires that financial institutions implement comprehensive written information security programs that
include administrative, technical, and physical safeguards to protect consumer information. Further, pursuant to interpretive
guidance issued under the Gramm-Leach Bliley Act and certain state laws, financial institutions are required to notify customers
of security breaches that result in unauthorized access to their nonpublic personal information.

Preventing
Suspicious Activity.

Under
Title III of the USA PATRIOT Act (“Patriot Act”), all financial institutions are required to take certain measures
to identify their customers, prevent money laundering, monitor customer transactions and report suspicious activity to U.S. law
enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies
and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption
granted to complying financial institutions from the privacy provisions of Gramm-Leach Bliley Act and other privacy laws. Financial
institutions are required to have anti-money laundering programs in place, which include, among other things, performing risk
assessments and customer due diligence. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations
to implement several of these provisions. The Bank must also comply with the Customer Due Diligence Rule, which clarifies and
strengthens the existing obligations for identifying new and existing customers and explicitly includes risk-based procedures
for conducting ongoing customer due diligence. Financial institutions also are required to establish internal anti-money laundering
programs. The effectiveness of institutions in combating money laundering activities is a factor to be considered in any application
submitted by an insured depository institution under the Bank Merger Act. Western New England Bancorp and the Bank have in place
a Bank Secrecy Act and Patriot Act compliance program and engage in limited transactions with foreign financial institutions or
foreign persons.

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The
Fair Credit Reporting Act’s Red Flags Rule requires financial institutions with covered accounts (e.g. consumer bank accounts
and loans) to develop, implement, and administer an identity theft prevention program. This program must include reasonable policies
and procedures to detect suspicious patterns or practices that indicate the possibility of identity theft, such an inconsistencies
in personal information or changes in account activity.

Office
of Foreign Assets Control Regulation.

The
U.S. has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are
typically known as the “OFAC” rules based on their administration by the Office of Foreign Assets Control, which is
an office within the U.S. Department of Treasury (the “OFAC”). The OFAC-administered sanctions targeting countries
take many different forms. Generally, the sanctions contain one or more of the following elements: (i) restrictions on trade with
or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned
country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or
providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government
or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to
U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits)
cannot be paid out, withdrawn, set off or transferred in any manner without an OFAC license. Failure to comply with these sanctions
could have legal and reputational consequences.

Home
Mortgage Disclosure Act (“HMDA”).

On
October 15, 2015, pursuant to section 1094 of the Dodd-Frank Act, the CFPB issued amended rules in regards to the collection,
reporting and disclosure of certain residential mortgage transactions under the HMDA (the “HMDA Rules”). The Dodd-Frank
Act mandated additional loan data collection points in addition to authorizing the CFPB to require other data collection points
under implementing Regulation C. Most of the provisions of the HMDA Rule went into effect on January 1, 2018 and apply to data
collected in 2018 and reporting in 2019 and later years. The HMDA Rule adopts a uniform loan volume threshold for all financial
institutions, modifies the types of transactions that are subject to collection and reporting, expands the loan data information
being collected and reported, and modifies procedures for annual submission and annual public disclosures.

UDAP
and UDAAP.

Banking
regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise
“bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer
finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission
Act, referred to as the FTC Act, which is the primary federal law that prohibits unfair or deceptive acts or practices, referred
to as UDAP, and unfair methods of competition in or affecting commerce. “Unjustified consumer injury” is the principal
focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance
with UDAP laws and regulations. However, UDAP laws and regulations have been expanded under the Dodd-Frank Act to apply to “unfair,
deceptive or abusive acts or practices,” referred to as UDAAP, which have been delegated to the CFPB for rule-making. The
federal banking agencies have the authority to enforce such rules and regulations.

Incentive
Compensation.

The
Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first
annual meeting taking place six months after the date of enactment and at least every three years thereafter and on “golden
parachute” payments in connection with approvals of mergers and acquisitions. The legislation also authorized the SEC to
promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank
Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based
payment arrangements at specified regulated entities with at least $1 billion in total consolidated assets that encourage inappropriate
risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits
that could lead to material financial loss to the entity. The federal banking agencies and the SEC proposed such regulations in
2016 and issued re-proposed regulations in substantially the same form in May 2024, which have not been finalized. If the regulations
are adopted in the form initially proposed or a similar form, they will restrict the manner in which executive compensation is
structured.

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The
Dodd-Frank Act also gives the SEC authority to prohibit broker discretionary voting on elections of directors, executive compensation
matters and any other significant matter. At the 2012, 2017, and 2023 Annual Meeting of Shareholders, Western New England Bancorp’s
shareholders voted on a non-binding, advisory basis to hold a non-binding, advisory vote on the compensation of named executive
officers of Western New England Bancorp annually. In light of the results, the Board determined to hold the vote annually.

Future
Legislative and Regulatory Initiatives.

Various
legislative and regulatory initiatives are introduced by Congress, state legislatures and different financial regulatory agencies.
Such initiatives may include proposals to expand or contract the powers of savings and loan holding companies and/or depository
institutions, and may also include changes in priorities and operations of regulatory agencies in connection with new leadership.
Proposed legislation and regulatory initiatives could change banking statutes and the operating environment of Western New England
Bancorp in substantial and unpredictable ways. If enacted or implemented, such legislation and regulatory initiatives could increase
or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks,
savings associations, credit unions, and other financial institutions. Western New England Bancorp cannot predict whether any
such legislation and regulatory initiatives will be enacted or implemented, and, if enacted or implemented, the effect that it
or any implementing regulations would have on the financial condition or results of operations of Western New England Bancorp.
Other legislation may be introduced in Congress, or other regulatory initiatives introduced, which would further regulate, deregulate
or restructure the financial services industry, including proposals to substantially reform the financial regulatory framework.
It is not possible to predict whether any such proposals will be enacted into law or, if enacted, the effect which they may have
on our business and earnings.

Available
Information.

We
maintain a website at www.westfieldbank.com. The website contains information about us and our operations. Through a link
to the Investor Relations section of our website, copies of each of our filings with the SEC, including our Annual Report on Form
10-K, Quarterly Reports Form 10-Q and Current Reports on Form 8-K and all amendments to those reports, can be viewed and downloaded
free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to
the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file or furnish such information electronically with the SEC. The information found on our website or the
website of the SEC is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish
to the SEC.