| If any of these risks occurs, the Companyapstas business, financial condition or operating results could be adversely affected |
| The Companyapstas business and financial condition is directly affected by the Bankapstas business and financial condition and, thus, is subject to certain risks of the Bank |
| Changes in economic conditions could materially hurt the Companyapstas business |
| The business of the Company and the Bank is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond the Companyapstas control |
| The Bank is particularly affected by economic conditions in Litchfield County, Connecticut, Berkshire County, Massachusetts, and Colombia and Dutchess Counties in New York |
| Deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows: o problem assets and foreclosures may increase; o demand for the Bankapstas products and services may decline; o low cost or non-interest bearing deposits may decrease; and, o collateral for loans made by the Bank, especially real estate, may decline in value, in turn reducing customers &apos borrowing power, and reducing the value of assets and collateral associated with the Bankapstas existing loans |
| In view of the geographic concentration of the Bankapstas operations and the collateral securing the Bankapstas loan portfolio, the Company may be particularly susceptible to the adverse effects of any of these consequences, any of which could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| 10 The Company is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Companyapstas prospects |
| Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the banking industry within the communities the Bank serves |
| The Companyapstas and the Bankapstas success depends to a significant degree upon the ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of management and personnel |
| The loss of the services of the senior executive management team members or other key executives could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| The Bankapstas business is subject to interest rate risk |
| A substantial portion of the Companyapstas income is derived from the differential or "e spread "e between the Bankapstas interest earned on loans, securities and other interest earning assets, and interest paid on deposits, borrowings and other interest bearing liabilities |
| Because of the differences in the maturities and repricing characteristics of interest earning assets and interest bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest earning assets and interest paid on interest bearing liabilities |
| Accordingly, fluctuations in interest rates could adversely affect the interest rate spread and, in turn, the Companyapstas profitability |
| In addition, loan origination volumes are affected by market interest rates |
| Rising interest rates, generally, are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations |
| Conversely, in rising interest rate environments, loan repayment rates may decline and in falling interest rate environments, loan repayment rates may increase |
| Falling interest rate environments may cause additional refinancing of commercial real estate and 1-4 family residence loans, which may depress the Companyapstas loan volumes or cause rates on loans to decline |
| In addition, an increase in the general level of short-term interest rates on variable rate loans may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations or reduce the amount they wish to borrow |
| As short-term rates continue to rise, retention of existing deposit customers and the attraction of new deposit customers may require the Company to increase rates it pays on deposit accounts |
| Changes in levels of market interest rates could materially and adversely affect net interest spread, asset quality, loan origination volume, business, financial condition, results of operations and cash flows |
| Certain types of loans have a higher degree of risk |
| A downturn in the Companyapstas real estate markets could hurt the Companyapstas business because most of the Bankapstas loans are secured by real estate |
| Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature |
| If real estate prices decline, the value of real estate collateral securing the Bankapstas loans could be reduced |
| The Bankapstas ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and the Company would be more likely to suffer losses on defaulted loans |
| If there is a significant decline in real estate values, especially in the Companyapstas market area, the collateral for the Bankapstas loans will provide less security |
| Any such downturn could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| The ability to attract deposits may effect Bankapstas growth |
| The Companyapstas ability to increase its assets depends in large part on the Bankapstas ability to attract additional deposits at favorable rates |
| The Bank anticipates seeking additional deposits by offering deposit products that are competitive with those offered by other financial institutions in the Companyapstas markets and by establishing personal relationships with the Bankapstas customers |
| The Bankapstas ability to attract additional deposits at competitive rates could have a material effect on the Companyapstas business, financial condition, results of operations and cash flows |
| A source of risk arises from the possibility that losses could be sustained because borrowers, guarantors, and related parties may fail to perform in accordance with the terms of their loans and leases |
| The underwriting and credit monitoring policies and procedures that the Company has adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| Unexpected losses may arise from a 11 wide variety of specific or systemic factors, many of which are beyond the Companyapstas ability to predict, influence or control |
| Like all banking institutions, the Bank maintains an allowance for loan and lease losses to provide for loan and lease defaults and non-performance |
| The Bankapstas allowance for loan and lease losses is based on prior experience, as well as an evaluation of the known risks in the current portfolio, composition and growth of the loan and lease portfolio and economic factors |
| The determination of an appropriate level of loan and lease loss allowance is an inherently difficult process and is based on numerous assumptions |
| The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond the Bankapstas control and these losses may exceed current estimates |
| Federal and state regulatory agencies, as an integral part of their examination process, review the Bankapstas loans and leases and allowance for loan and lease losses |
| Banks rely on communications, information, operating and financial control systems technology from third-party service providers, and banks may suffer an interruption in those systems that may result in lost business and banks may not be able to obtain substitute providers on terms that are as favorable if a bankapstas relationships with bankapstas existing service providers are interrupted |
| The Bank relies on certain third-party service providers for much of the Bankapstas communications, information, operating and financial control systems technology |
| Any failure or interruption or breach in security of these systems could result in failures or interruptions in the Bankapstas customer relationship management, general ledger, deposit, servicing and/or loan origination systems |
| The Bank cannot be certain that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by the Bank or the third parties on which the Bank relies |
| The occurrence of any failures or interruptions could have a material adverse effect on the Bankapstas business, financial condition, results of operations and cash flows |
| If any of the Bankapstas third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in the Bankapstas relationships with them, the Bank may be required to locate alternative sources of such services, and the Company cannot be certain that the Bank could negotiate terms that are as favorable to the Company, or could obtain services with similar functionality as found in the Bankapstas existing systems without the need to expend substantial resources, if at all |
| Any of these circumstances could have a material adverse effect on the Companyapstas business, financial condition, results of operations and cash flows |
| The Bank faces strong competition from financial service companies and other companies that offer banking services |
| Increased competition in the Bankapstas markets may result in reduced loans and deposits |
| Ultimately, the Bank may not be able to compete successfully against current and future competitors |
| Many competitors offer the banking services that the Bank offers in its service areas |
| These competitors include national banks, regional banks and other community banks |
| The Bank also faces competition from many other types of financial institutions, including savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries |
| In particular, the Bankapstas competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous locations and mount extensive promotional and advertising campaigns |
| Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions may have larger lending limits, which would allow them to serve the credit needs of larger customers |
| Areas of competition include interest rates for loans and deposits, efforts to obtain loan and deposit customers and a range in quality of products and services provided, including new technology-driven products and services |
| Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological advances enable more companies to provide financial services |
| The Bank also faces competition from out-of-state financial intermediaries that solicit deposits in the Bankapstas market areas |
| If the Bank is unable to attract and retain banking customers, it may be unable to continue the Bankapstas loan and deposit growth and the Companyapstas business, financial condition, results of operations and cash flows may be adversely affected |
| The Company and the Bank are subject to extensive government regulation |
| The operations of the Company and the Bank are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of the operations of the Company and the Bank |
| Because the Companyapstas and the Bankapstas business is highly regulated, the applicable laws, rules and regulations are subject to regular modification and change |
| The Company cannot be certain that laws, rules and regulations will not be adopted in the future, which could make compliance much more difficult or expensive, or 12 otherwise adversely affect the Companyapstas and the Bankapstas business, financial condition, results of operations or cash flows |
| The Company may be exposed to risk of environmental liabilities with respect to properties to which the Bank takes title |
| In the course of the Bankapstas business, the Bank may foreclose and take title to real estate, and could subject the Company to environmental liabilities with respect to these properties |