(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes☒ No☐~~

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such ~~files.) Yes☒ No☐~~files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act (Check one):~~Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ~~Act☐~~Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yes☐No☒~~Yes ☐ No ☒

At November 3, ~~2017,~~2020 the registrant had~~30,634,170~~25,527,199 shares of common stock, $0.01 par value, issued and outstanding.

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Quarterly Report on Form 10-Q contains “forward-looking statements” with respect to the Company’s financial condition, liquidity, results of operations, future performance, business, measures being taken in response to the coronavirus disease 2019 (“COVID-19") pandemic and the impact of COVID-19 on the Company’s business. Forward-looking statements~~” which~~ may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” ~~“would,~~“planned,” ~~“plan,~~“estimated,” ~~“estimate,” “potential”~~ and ~~other similar expressions.~~“potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of ~~operation~~operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated ~~events.~~events, except to the extent required by law.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollars in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Net income $ 3,815 $ 628 $ 12,674 $ 2,981

Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on available for sale securities 381 (359 ) 2,133 5,820
Reclassification adjustment for gains realized in income⁽¹⁾ (70 ) (1 ) (52 ) (684 )
Amortization of net unrealized loss on held-to-maturity securities⁽²⁾ — — — 26
Net unrealized loss upon transfer of held-to-maturity to available-for-sale⁽³⁾ — — — 2,288
Net unrealized gains (losses) 311 (360 ) 2,081 7,450
Tax effect (100 ) 125 (627 ) (2,567 )
Net-of-tax amount 211 (235 ) 1,454 4,883

Derivative instruments:
Change in fair value of derivatives used for cash flow hedges (14 ) 417 (307 ) (2,863 )
Reclassification adjustment for loss realized in interest expense⁽⁴⁾ 228 128 751 313
Reclassification adjustment for termination fee realized in interest expense⁽⁵⁾ 269 269 799 687
Net adjustments relating to derivative instruments 483 814 1,243 (1,863 )
Tax effect (133 ) (277 ) 32 633
Net-of-tax amount 350 537 1,275 (1,230 )

Defined benefit pension plans:
Amortization of defined benefit plans actuarial loss⁽⁶⁾ 51 24 153 71
Tax effect 28 (8 ) 312 (24 )
Net-of-tax amount 79 16 465 47

Other comprehensive income 640 318 3,194 3,700

Comprehensive income $ 4,455 $ 946 $ 15,868 $ 6,681


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Net income	$	2,101		$	3,225		$	6,202		$	9,913

Other comprehensive income (loss):
Unrealized (loss) gains on available-for-sale securities:
Unrealized holding (loss) gains		(1,059	)		1,439			3,490			9,133
Reclassification adjustment for net (gains) losses realized in income ⁽¹⁾		(1,929	)		(49	)		(1,965	)		12
Unrealized losses		(2,988	)		1,390			1,525			9,145
Tax effect		746			(350	)		(367	)		(2,330	)
Net-of-tax amount		(2,242	)		1,040			1,158			6,815

Cash flow hedges:

Change in fair value of derivatives used for cash flow hedges		(14	)		(142	)		(1,254	)		(1,053	)
Reclassification adjustment for loss realized in income for interest rate swap termination		2,353			—			2,353			—
Reclassification adjustment for loss realized in interest expense ⁽²⁾		257			105			674			257
Reclassification adjustment for termination fee realized in interest expense ⁽³⁾		186			269			677			799
Unrealized gains on cash flow hedges		2,782			232			2,450			3
Tax effect		(782	)		(65	)		(689	)		(1	)
Net-of-tax amount		2,000			167			1,761			2

Defined benefit pension plan:
Amortization of defined benefit plan actuarial loss⁽⁴⁾		99			32			296			96
Tax effect		(28	)		(10	)		(83	)		(28	)
Net-of-tax amount		71			22			213			68

Other comprehensive income (loss)		(171	)		1,229			3,132			6,885

Comprehensive income	$	1,930		$	4,454		$	9,334		$	16,798

(1)		Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income. The tax effects applicable to net realized gains and losses were ~~$29,000~~$494,000 and ~~$407~~$14,000 for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The tax effects applicable to net realized gains and losses were ~~$21,000~~$502,000 and ~~$236,000~~$(3,000) for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

(2)		Amortization of net unrealized gains on held-to-maturity securities is recognized as a component of interest income on debt securities. Income tax effects associated with the reclassification adjustments were $(9,000) for the nine months ended September 30, 2016.

~~(3)~~		~~Income tax effect associated with the reclassification adjustments upon transfer of held-to-maturity to available-for-sale was $790,000 for the nine months ended September 30, 2016.~~

~~(4)~~		Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on short-term debt. Income tax effects associated with the reclassification ~~adjustment~~adjustments were ~~$93,000~~$72,000 and ~~$44,000~~$30,000 for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Income tax effects associated with the reclassification ~~adjustment~~adjustments were ~~$307,000~~$189,000 and ~~$106,000~~$72,000 for the nine months ended September 30, ~~2017~~2020 and ~~2016, respectively~~2019, respectively.

~~(5)~~		~~Loss~~ (3) Termination fee realized in interest expense on derivative instruments is recognized as a component of interest expense on ~~short-term debt.~~long-term borrowings. Income tax effects associated with the reclassification ~~adjustment~~adjustments were ~~$110,000~~$52,000 and ~~$91,000~~$76,000 for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Income tax effects associated with the reclassification ~~adjustment~~adjustments were ~~$326,000~~$190,000 and ~~$234,000~~$225,000 for the nine months ended September 30, ~~2017~~2020 and ~~2016, respectively~~2019, respectively.

~~(6)~~		(4) Amounts represent the reclassification of defined benefit ~~plans~~plan amortization and have been recognized as a component of ~~salaries and employee benefit~~non-interest expense. Income tax effects associated with the reclassification adjustments were ~~$(21,000)~~$28,000 and ~~$8,000~~$10,000 for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Income tax effects associated with the reclassification adjustments were ~~$(63,000)~~$83,000 and ~~$24,000~~$28,000 for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~Tax rate on reclassification adjustments was 40.85% for the 2017 period and 34.0% for the comparable 2016 period.~~

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2020 AND ~~2016~~2019

(Dollars in thousands, except share data)

Common Stock Unearned Accumulated
Shares Par Value Additional
Paid-in
Capital Unearned Compensation-
ESOP Compensation-
Equity
Incentive Plan Retained
Earnings Other
Comprehensive
Loss Total

BALANCE AT DECEMBER 31, 2015 18,267,747 $ 183 $ 108,210 $ (6,952 ) $ (313 ) $ 49,316 $ (10,978 ) $ 139,466
Comprehensive income — — — — — 2,981 3,700 6,681
Common stock held by ESOP committed to be released (74,430 shares) — — 62 382 — — — 444
Share-based compensation - equity incentive plan — — — — 186 — — 186
Excess tax benefit from equity incentive plan — — 5 — — — — 5
Issuance of common stock in connection with equity incentive plan 62,740 1 484 — (485 ) — — —
Cash dividends declared and paid ($0.09 per share) — — — — — (1,559 ) — (1,559 )
BALANCE AT SEPTEMBER 30, 2016 18,330,487 $ 184 $ 108,761 $ (6,570 ) $ (612 ) $ 50,738 $ (7,278 ) $ 145,223

BALANCE AT DECEMBER 31, 2016 30,380,231 $ 304 $ 205,996 $ (6,418 ) $ (536 ) $ 51,711 $ (12,661 ) $ 238,396
Comprehensive income — — — — — 12,674 3,194 15,868
Common stock held by ESOP committed to be released (93,679 shares) — — 226 472 — — — 698
Share-based compensation - equity incentive plan — — — — 490 — — 490
Common stock repurchased (574,309 ) (5 ) (5,667 ) — — — — (5,672 )
Issuance of common stock in connection with stock option exercises 921,849 9 5,456 — — — — 5,465
Issuance of common stock in connection with equity incentive plan 89,042 1 903 — (904 ) — — —
Cash dividends declared and paid ($0.09 per share) — — — — — (2,690 ) — (2,690 )
BALANCE AT SEPTEMBER 30, 2017 30,816,813 $ 309 $ 206,914 $ (5,946 ) $ (950 ) $ 61,695 $ (9,467 ) $ 252,555


	Common Stock
		Shares		Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2019		26,557,981		$	266		$	164,248		$	(4,574	)	$	(1,124	)	$	82,176		$	(8,968	)	$	232,024
Comprehensive income		—			—			—			—			—			2,080			2,700			4,780
Common stock held by ESOP committed to be released (85,101 shares)		—			—			47			144			—			—			—			191
Share-based compensation - equity incentive plan		—			—			—			—			182			—			—			182
Forfeited equity incentive plan shares reissued (18,645 shares)		—			—			(186	)		—			186			—			—			—
Common stock repurchased		(1,015,055	)		(11	)		(8,069	)		—			—			—			—			(8,080	)
Issuance of common stock in connection with equity incentive plan		101,408			1			1,093			—			(1,094	)		—			—			—
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,288	)		—			(1,288	)
BALANCE AT MARCH 31, 2020		25,644,334		$	256		$	157,133		$	(4,430	)	$	(1,850	)	$	82,968		$	(6,268	)	$	227,809

BALANCE AT MARCH 31, 2020		25,644,334		$	256		$	157,133		$	(4,430	)	$	(1,850	)	$	82,968		$	(6,268	)	$	227,809
Comprehensive income		—			—			—			—			—			2,021			603			2,624
Common stock held by ESOP committed to be released (85,101 shares)		—			—			(1	)		144			—			—			—			143
Share-based compensation - equity incentive plan		—			—			—			—			195			—			—			195
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,251	)		—			(1,251	)
BALANCE AT JUNE 30, 2020		25,644,334		$	256		$	157,132		$	(4,286	)	$	(1,655	)	$	83,738		$	(5,665	)	$	229,520

BALANCE AT JUNE 30, 2020		25,644,334		$	256		$	157,132		$	(4,286	)	$	(1,655	)	$	83,738		$	(5,665	)	$	229,520
Comprehensive income		—			—			—			—			—			2,101			(171	)		1,930
Common stock held by ESOP committed to be released (85,101 shares)		—			—			(34	)		145			—			—			—			111
Share-based compensation - equity incentive plan		—			—			—			—			195			—			—			195
Common stock repurchased		(48,777	)		—			(283	)		—			—			—			—			(283	)
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,252	)		—			(1,252	)
BALANCE AT SEPTEMBER 30, 2020		25,595,557		$	256		$	156,815		$	(4,141	)	$	(1,460	)	$	84,587		$	(5,836	)	$	230,221

See accompanying notes to unaudited consolidated financial ~~statements~~. statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Dollars in thousands, except share data)


	Common Stock
	Shares			Par Value			Additional Paid-in Capital				Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2018		28,393,348		$	284		$	182,096		$	(5,171	)	$	(872	)	$	74,108		$	(13,416	)	$	237,029
Comprehensive income		—			—			—			—			—			3,430			3,212			6,642
Cumulative-effect adjustment due to change in accounting principle (ASU 2017-08)																	(7	)		7			—
Common stock held by ESOP committed to be released (88,117 shares)		—			—			60			149			—			—			—			209
Share-based compensation - equity incentive plan		—			—			(45	)		—			240			—			—			195
Common stock repurchased		(1,555,352	)		(15	)		(15,432	)		—			—			—			—			(15,447	)
Issuance of common stock in connection with stock option exercises		12,550			—			64			—			—			—			—			64
Issuance of common stock in connection with equity incentive plan		102,883			1			1,069			—			(1,070	)		—			—			—
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,375	)		—			(1,375	)
BALANCE AT MARCH 31, 2019		26,953,429		$	270		$	167,812		$	(5,022	)	$	(1,702	)	$	76,156		$	(10,197	)	$	227,317

BALANCE AT MARCH 31, 2019		26,953,429		$	270		$	167,812		$	(5,022	)	$	(1,702	)	$	76,156		$	(10,197	)	$	227,317
Comprehensive income		—			—			—			—			—			3,257			2,444			5,701
Common stock held by ESOP committed to be released (88,117 shares)		—			—			61			149			—			—			—			210
Share-based compensation - equity incentive plan		—			—			—			—			198			—			—			198
Common stock repurchased		(249,961	)		(3	)		(2,394	)		—			—			—			—			(2,397	)
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,313	)		—			(1,313	)
BALANCE AT JUNE 30, 2019		26,703,468		$	267		$	165,479		$	(4,873	)	$	(1,504	)	$	78,100		$	(7,753	)	$	229,716

BALANCE AT JUNE 30, 2019		26,703,468		$	267		$	165,479		$	(4,873	)	$	(1,504	)	$	78,100		$	(7,753	)	$	229,716
Comprehensive income		—			—			—			—			—			3,225			1,229			4,454
Common stock held by ESOP committed to be released (88,117 shares)		—			—			55			150			—			—			—			205
Share-based compensation - equity incentive plan		—			—			—			—			187			—			—			187
Common stock repurchased		(141,726	)		(1	)		(1,283	)		—			—			—			—			(1,284	)
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,297	)		—			(1,297	)
BALANCE AT SEPTEMBER 30, 2019		26,561,742		$	266		$	164,251		$	(4,723	)	$	(1,317	)	$	80,028		$	(6,524	)	$	231,981

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2020			2019
OPERATING ACTIVITIES:
Net income	$	12,674		$	2,981		$	6,202		$	9,913
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		850			400			7,275			1,675
Depreciation and amortization of premises and equipment		1,468			969			1,560			1,579
Accretion of purchase accounting adjustments, net		(1,431	)		—			(16	)		(67	)
Amortization of core deposit intangible		282			—			281			282
Net amortization of premiums and discounts on securities and mortgage loans		2,577			2,758			1,908			1,563
Net amortization of premiums on modified debt		—			60
Share-based compensation expense		490			186			572			580
ESOP expense		698			444			445			624
Excess tax benefits from equity incentive plan		—			(5	)
Net gains on sales of securities		(52	)		(684	)
Gain on sale of other real estate owned		(67	)		—
Loss on prepayment of borrowings		—			915
Deferred income tax benefit		(973	)		—
Net change in unrealized gains on marketable equity securities								(133	)		(194	)
Net (gain) loss on available-for-sale securities								(1,965	)		12
Income from bank-owned life insurance		(1,369	)		(1,133	)		(1,365	)		(1,347	)
Changes in assets and liabilities:
Net change in:
Accrued interest receivable		18			300			(2,424	)		192
Other assets		(3,578	)		(1,468	)		(239	)		(1,825	)
Other liabilities		1,995			(2,184	)		5,114			6,443
Net cash provided by operating activities		13,582			3,539			17,215			19,430

INVESTING ACTIVITIES:
Securities, held to maturity:
Proceeds from calls, maturities, and principal collections		—			6,835
INVESTING ACTIVITIES:
Securities, available for sale:
Purchases		(67,246	)		(59,595	)		(70,422	)		(54,138	)
Proceeds from sales		22,453			136,825
Proceeds from redemptions and sales								96,320			57,418
Proceeds from calls, maturities, and principal collections		46,576			46,639			69,060			26,761
Purchase of residential mortgages		(48,205	)		(107,632	)
Loan originations and principal payments, net		(4,133	)		(21,185	)		(199,289	)		(55,312	)
Redemption of Federal Home Loan Bank of Boston stock		420			2,880			5,225			1,631
Proceeds from sale of other real estate owned		365			—
Purchases of premises and equipment		(1,645	)		(565	)		(3,011	)		(1,001	)
Proceeds from sale of premises and equipment		—			20			66			27
Net cash (used in) provided by investing activities		(51,415	)		4,222

FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(2,120	)		62,195
Net cash used in investing activities								(102,051	)		(24,614	)
FINANCING ACTIVITIES:
Net increase in deposits								333,464			73,585
Net change in short-term borrowings		20,114			51,866			(35,000	)		(24,250	)
Repayment of long-term debt		(19,700	)		(84,333	)		(100,639	)		(58,036	)
Proceeds from long-term debt		1,420			1,165			46,417			55,765
Cash dividends paid		(2,690	)		(1,559	)		(3,791	)		(3,985	)
Common stock repurchased		(5,990	)		—			(8,244	)		(19,349	)
Issuance of common stock in connection with stock option exercises		5,465			—			—			64
Excess tax benefits in connection with equity incentive plan		—			5
Net cash (used in) provided by financing activities		(3,501	)		29,339
Net cash provided by financing activities								232,207			23,794

NET CHANGE IN CASH AND CASH EQUIVALENTS:		(41,334	)		37,100			147,371			18,610
Beginning of period		70,234			13,703			24,741			26,789
End of period	$	28,900		$	50,803		$	172,112		$	45,399

Supplemental cashflow information:
Securities reclassified from held-to-maturity to available-for-sale	$	—		$	(232,817	)
Net change in cash due to broker for common stock repurchased		(318	)		—
Supplemental cash flow information:
Net change in cash due to broker							$	57,226		$	(221	)
Interest paid		10,774			8,036			15,773			18,047
Taxes paid		3,658			2,150			6,213			3,017

See the accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, ~~2017~~2020

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – and Basis of Presentation. Western New England Bancorp, Inc. (“Western New England Bancorp,” “WNEB,” ~~the~~ “Company,” ~~“we”~~“we,” or “us”) is a Massachusetts-chartered stock holding company for Westfield Bank, a ~~federally chartered stock~~federally-chartered savings bank ~~(the “Bank”~~(“Bank”).

The Bank’s deposits are insured up to the ~~limits specified by the~~maximum Federal Deposit Insurance Corporation (“FDIC”). coverage limits. The Bank operates 2125 banking offices in Hampden and Hampshire counties in western Massachusetts and Hartford and Tolland counties in northern Connecticut, and its primary sources of revenue are ~~earnings on loans to small and middle-market businesses and to residential property homeowners and~~interest income from loans as well as interest income from investment securities. The Bank’s Huntington, Massachusetts branch opened on February 25, 2020 and its Bloomfield, Connecticut branch opened on July 6, 2020. In addition, the Bank’s Financial Services Center in West Hartford, Connecticut, opened on July 21, 2020. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending, Cash Management and a Mortgage Loan Officer (“MLO”).

~~Wholly-Owned~~Wholly-owned Subsidiaries ~~and Acquisition~~of the Bank–. Elm Street Securities Corporation, WFD Securities, Inc. and CSB Colts, Inc., are Massachusetts-chartered securities corporations, formed for the primary purpose of holding qualified securities. WB Real Estate Holdings, LLC, is a Massachusetts-chartered limited liability company that holds real property acquired as security for debts previously contracted by the Bank. On October 21, 2016, we acquired Chicopee Bancorp, Inc. (“Chicopee”), the holding company for Chicopee Savings Bank. The acquisition added eight full-service banking offices located in western Massachusetts.

Principles of Consolidation –. The ~~unaudited~~ consolidated financial statements include the accounts of Western New England Bancorp, the Bank, CSB Colts, Inc., Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

Estimates –. The preparation of ~~unaudited~~ consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~the~~and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses for ~~both at the date of the unaudited consolidated financial statements.~~each. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses ~~other-than-temporary impairment of securities,~~ and the realizability of deferred tax assets.

Basis of Presentation –.In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of September 30, ~~2017,~~2020, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, ~~2017~~2020 are not necessarily indicative of the results of operations for the year ending December 31, ~~2017.~~2020. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, ~~2016,~~2019, included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the ~~“2016~~"2019 Annual Report”).

Reclassifications –. Amounts in the prior period financial statements are reclassified when necessary to conform to the current year presentation.

2. EARNINGS PER SHARE

Basic earnings per share ~~represent~~represents income available to common shareholders divided by the ~~weighted average~~weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. ~~No dilutive potential~~Potential common shares ~~were~~that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated ESOP shares are not deemed outstanding ~~during the periods presented. Share-based compensation awards that qualify as participating securities (entitled to receive non-forfeitable dividends) are included in basic~~for earnings per ~~share.~~share calculations.

Earnings per common share for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 have been computed based on the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(In thousands, except per share data)

Net income applicable to common stock	$	2,101		$	3,225		$	6,202		$	9,913

Average number of common shares issued		25,641			26,621			25,859			27,092
Less: Average unallocated ESOP Shares		(569	)		(656	)		(590	)		(678	)
Less: Average unvested performance-based equity incentive plan shares		(126	)		(111	)		(123	)		(106	)

Average number of common shares outstanding used to calculate basic earnings per common share		24,946			25,854			25,146			26,308

Effect of dilutive performance-based equity incentive plan		—			47			—			42
Effect of dilutive stock options		—			68			18			73

Average number of common shares outstanding used to calculate diluted earnings per common share		24,946			25,969			25,164			26,423

Basic earnings per share	$	0.08		$	0.12		$	0.25		$	0.38
Diluted earnings per share	$	0.08		$	0.12		$	0.25		$	0.38

Anti-dilutive shares ⁽¹⁾		344			—			344			—

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
(In thousands, except per share data)

Net income applicable to common stock $ 3,815 $ 628 $ 12,674 $ 2,981

Average number of common shares issued 31,001 18,330 30,799 18,298
Less: Average unallocated ESOP Shares (838 ) (926 ) (861 ) (945 )
Less: Average unvested equity incentive plan shares (60 ) (26 ) (42 ) (13 )

Average number of common shares outstanding used to calculate basic earnings per common share 30,103 17,378 29,896 17,340

Effect of dilutive equity incentive plan 26 — 12 —
Effect of dilutive stock options 90 — 166 —

Average number of common shares outstanding used to calculate diluted earnings per common share 30,219 17,378 30,074 17,340

Basic earnings per share $ 0.13 $ 0.04 $ 0.42 $ 0.17
Diluted earnings per share $ 0.13 $ 0.04 $ 0.42 $ 0.17

~~3. COMPREHENSIVE INCOME/LOSS~~

(1)	Shares outstanding but not included because the impact of these shares would be anti-dilutive to the earnings per share calculation for the periods presented.

3. COMPREHENSIVE INCOME (LOSS)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive ~~income.~~income (loss).

The components of accumulated other comprehensive loss included in shareholders’ equity are as follows:

	September 30, 2020			December 31, 2019
	(In thousands)

Net unrealized gains (losses) on securities available-for-sale	$	1,132		$	(393	)
Tax effect		(296	)		71
Net-of-tax amount		836			(322	)

Fair value of derivatives used for cash flow hedges		—			(1,773	)
Termination fee on cancelled cash flow hedges		(849	)		(1,526	)
Total derivatives		(849	)		(3,299	)
Tax effect		239			928
Net-of-tax amount		(610	)		(2,371	)

Unrecognized actuarial loss on the defined benefit plan		(8,432	)		(8,728	)
Tax effect		2,370			2,453
Net-of-tax amount		(6,062	)		(6,275	)

Accumulated other comprehensive loss	$	(5,836	)	$	(8,968	)

September 30,
2017
December 31,
2016
(In thousands)

Net unrealized losses on securities available-for-sale $ (3,782 ) $ (5,863 )
Tax effect 1,397 2,024
Net-of-tax amount (2,385 ) (3,839 )

Fair value of derivatives used for cash flow hedges (2,709 ) (3,152 )
Termination fees on forward starting interest rate swaps (3,933 ) (4,733 )
Total derivatives (6,642 ) (7,885 )
Tax effect 2,713 2,681
Net-of-tax amount (3,929 ) (5,204 )

Unrecognized actuarial loss on defined benefit plan (5,329 ) (5,482 )
Tax effect 2,176 1,864
Net-of-tax amount (3,153 ) (3,618 )

Accumulated other comprehensive loss $ (9,467 ) $ (12,661 )

The following table presents changes in accumulated other comprehensive loss for the periods ended September 30, ~~2017~~2020 and ~~2016~~2019 by ~~component:~~component:

	Securities			Derivatives			Defined Benefit Plan			Accumulated Other Comprehensive Loss
	(In thousands)
Balance at December 31, 2018	$	(7,400	)	$	(2,770	)	$	(3,246	)	$	(13,416	)
Cumulative-effect adjustment due to change in accounting principle (ASU 2017-08)		7			—			—			7
Current-period other comprehensive income		6,815			2			68			6,885
Balance at September 30, 2019	$	(578	)	$	(2,768	)	$	(3,178	)	$	(6,524	)

Balance at December 31, 2019	$	(322	)	$	(2,371	)	$	(6,275	)	$	(8,968	)
Current-period other comprehensive income		1,158			1,761			213			3,132
Balance at September 30, 2020	$	836		$	(610	)	$	(6,062	)	$	(5,836	)

Securities Derivatives Defined
Benefit
Plans Accumulated
Other
Comprehensive
Loss
(In thousands)
Balance at December 31, 2015 $ (3,046 ) $ (5,501 ) $ (2,431 ) $ (10,978 )
Current-period other comprehensive income (loss) 4,883 (1,230 ) 47 3,700
Balance at September 30, 2016 $ 1,837 $ (6,731 ) $ (2,384 ) $ (7,278 )

Balance at December 31, 2016 $ (3,839 ) $ (5,204 ) $ (3,618 ) $ (12,661 )
Current-period other comprehensive income 1,454 1,275 465 3,194
Balance at September 30, 2017 $ (2,385 ) $ (3,929 ) $ (3,153 ) $ (9,467 )

4. SECURITIES

~~Securities available-for-sale~~Available-for-sale securities are summarized as ~~follows:~~follows:


	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	4,973	$	—	$	(23	)	$	4,950
State and municipal bonds		684		3		—			687
Corporate bonds		3,043		—		(73	)		2,970
Total debt securities		8,700		3		(96	)		8,607

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		159,151		1,640		(201	)		160,590
U.S. government guaranteed mortgage-backed securities		22,586		62		(276	)		22,372
Total mortgage-backed securities		181,737		1,702		(477	)		182,962

Total available-for-sale	$	190,437	$	1,705	$	(573	)	$	191,569

September 30, 2017
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
(In thousands)
Available-for-sale securities:
Government-sponsored mortgage-backed securities $ 193,037 $ 120 $ (2,836 ) $ 190,321
U.S. government guaranteed mortgage-backed securities 17,408 — (447 ) 16,961
Corporate bonds 56,192 582 (221 ) 56,553
State and municipal bonds 3,223 39 (37 ) 3,225
Government-sponsored enterprise obligations 25,150 — (697 ) 24,453
Mutual funds 6,691 — (285 ) 6,406
Total available-for-sale $ 301,701 $ 741 $ (4,523 ) $ 297,919


	December 31, 2016										December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
		(In thousands)								(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations										$	20,150	$	—	$	(136	)	$	20,014
State and municipal bonds											2,718		95		—			2,813
Corporate bonds											7,800		88		(22	)		7,866
Total debt securities											30,668		183		(158	)		30,693

Mortgage-backed securities:
Government-sponsored mortgage-backed securities	$	184,127	$	33	$	(4,024	)	$	180,136		186,236		780		(1,015	)		186,001
U.S. government guaranteed mortgage-backed securities		17,753		—		(403	)		17,350		11,197		33		(216	)		11,014
Corporate bonds		50,255		265		(203	)		50,317
State and municipal bonds		4,117		13		(122	)		4,008
Government-sponsored enterprise obligations		43,140		—		(1,132	)		42,008
Mutual funds		6,586		—		(290	)		6,296
Total available-for-sale securities	$	305,978	$	311	$	(6,174	)	$	300,115
Total mortgage-backed securities											197,433		813		(1,231	)		197,015

Total available-for-sale										$	228,101	$	996	$	(1,389	)	$	227,708

~~Our repurchase agreements are collateralized by government-sponsored enterprise obligations and certain~~At September 30, 2020, mortgage-backed securities ~~(see Note 8).~~with a fair value $71.7 million were pledged to secure public deposits and for other purposes as required or permitted by law.

The amortized cost and fair value of available-for-sale debt securities at September 30, ~~2017,~~2020, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or ~~repay~~prepay obligations. Also, because mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity ~~summary.~~summary.

	September 30, 2020
	Amortized Cost		Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Due after one year through five years	$	3,727	$	3,657
Due after ten years		4,973		4,950
Total debt securities		8,700		8,607
Mortgage-backed securities		181,737		182,962
Total available-for-sale securities	$	190,437	$	191,569

September 30, 2017
Amortized Cost Fair Value
(In thousands)
Available for securities:
Debt securities:
     Due in one year or less $ —   $ —
     Due after one year through five years 28,079 28,497
     Due after five years through ten years 49,735 49,149
     Due after ten years 6,751 6,585
Total securities $ 84,565 $ 84,231
Mortgage-backed securities 210,445 207,282
Total $ 295,010 $ 291,513

Gross realized gains and losses on sales of available-for-sale securities ~~available-for-sale~~ for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are as ~~follows:~~follows:

	Three Months Ended					Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30,					September 30,						September 30,					September 30,
	2017			2016		2017			2016			2020			2019		2020			2019
	(In thousands)											(In thousands)

Gross gains realized	$	71		$	1	$	117		$	1,521		$	1,944		$	49	$	2,187		$	148
Gross losses realized		(1	)		—		(65	)		(837	)		(15	)		—		(222	)		(160	)
Net gain realized	$	70		$	1	$	52		$	684
Net loss realized												$	1,929		$	49	$	1,965		$	(12	)

Proceeds from the sale and redemption of available-for-sale securities ~~available-for-sale~~ amounted to ~~$22.5~~$96.3 million and ~~$136.8~~$57.4 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Information pertaining to securities with gross unrealized losses at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as ~~follows:~~follows:

	September 30, 2020
	Less Than 12 Months				Over 12 Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)

Available-for-sale:
Government sponsored mortgage backed securities	$	147	$	20,043	$	54	$	2,164
U.S. government guaranteed mortgage-backed securities		172		16,198		104		2,737
Corporate bonds		73		2,970		—		—
Government-sponsored enterprise obligations		23		4,950		—		—
Total available-for-sale	$	415	$	44,161	$	158	$	4,901

September 30, 2017
Less Than 12 Months Over 12 Months
Gross
Unrealized
Losses Fair Value Gross
Unrealized
Losses Fair Value
(In thousands)

Available-for-sale:
Government-sponsored mortgage-backed securities $ 1,022 $ 105,596 $ 1,814 $ 61,415
U.S. government guaranteed mortgage-backed securities 160 9,874 287 7,086
Corporate bonds 210 20,915 11 2,058
State and municipal bonds — — 37 1,564
Government-sponsored enterprise obligations 129 5,021 568 19,432
Mutual funds 57 3,508 228 2,898
Total available-for-sale $ 1,578 $ 144,914 $ 2,945 $ 94,453

	December 31, 2019
	Less Than 12 Months				Over 12 Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)

Available-for-sale:
Government-sponsored mortgage-backed securities	$	122	$	42,834	$	893	$	70,581
U.S. government guaranteed mortgage-backed securities		13		2,783		203		4,688
Corporate bonds		16		1,623		6		3,046
Government-sponsored enterprise obligations		126		14,524		10		1,490
Total available-for-sale	$	277	$	61,764	$	1,112	$	79,805

December 31, 2016

Less Than 12 Months Over 12 Months
Gross
Unrealized
Losses Fair Value Gross
Unrealized
Losses Fair Value
(In thousands)

Available-for-sale:
Government-sponsored mortgage-backed securities $ 3,016 $ 147,691 $ 1,008 $ 27,303
U.S. government guaranteed mortgage-backed securities 192 12,536 211 4,814
Corporate bonds 203 18,481 — —
State and municipal bonds 95 1,507 27 305
Government-sponsored enterprise obligations 1,132 42,008 — —
Mutual funds 79 3,429 211 2,867
Total available-for-sale $ 4,717 $ 225,652 $ 1,457 $ 35,289

September 30, 2017
Less Than 12 Months Over 12 Months
Number of Securities Amortized
Cost Basis Gross
Loss Depreciation from Amortized Cost Basis (%) Number of Securities Amortized Cost Basis Gross Loss Depreciation from Amortized Cost Basis (%)
(Dollars in thousands)

Government-sponsored mortgage-backed securities 41 $ 106,618 $ 1,022 1.0 % 27 $ 63,229 $ 1,814 2.9 %
U.S. government guaranteed mortgage-backed securities 3 10,034 160 1.6 4 7,373 287 3.9
Corporate bonds 7 21,125 210 1.0 1 2,069 11 0.5
Government-sponsored enterprise obligations 1 5,150 129 2.5 8 20,000 568 2.8
State and municipal bonds — — — — 3 1,601 37 2.3
Mutual funds 1 3,565 57 1.6 2 3,126 228 7.3
$ 146,492 $ 1,578 $ 97,398 $ 2,945

These unrealized losses are the result of changes in interest rates and not credit quality. Because we do not intend to sell the securities and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost basis, no declines are deemed to be other-than-temporary.

~~5. LOANS AND ALLOWANCE FOR LOAN LOSSES~~

Loans consisted of the following amounts: September 30, December 31,
2017 2016
(In thousands)
Commercial real estate $ 716,890 $ 720,741
Residential real estate:
Residential 555,768 522,083
Home equity 92,359 92,083
Commercial and industrial 244,374 222,286
Consumer 4,467 4,424
Total Loans 1,613,858 1,561,617
Unearned premiums and deferred loan fees and costs, net 4,915 4,867
Allowance for loan losses (10,518 ) (10,068 )
$ 1,608,255 $ 1,556,416

During the nine months ended September 30, ~~2017~~2020 and ~~2016, we~~year ended December 31, 2019, the Company did not record any fair value impairment charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses. At September 30, 2020, management did not consider any debt securities to have other-than-temporary impairment (“OTTI”) and attributes the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased ~~residential real estate~~by the Company and not due to credit quality.

The process for assessing investments for OTTI may vary depending on the type of security. In assessing the Company’s investments in government-sponsored mortgage-backed securities and obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise: Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Federal Farm Credit Bank (“FFCB”), or Federal Home Loan Bank (“FHLB”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company’s investments. Management’s assessment of other debt securities within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investments’ materiality, and duration of the investments’ unrealized loss position.

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans ~~aggregating $48.2 million and $107.6 million, respectively.~~at the periods indicated were as follows:

	September 30,			December 31,
	2020			2019
	(In thousands)
Commercial real estate	$	812,139		$	816,886
Residential real estate:
Residential 1-4 family		608,350			597,727
Home equity		104,019			102,517
Commercial and industrial
Paycheck protection program (“PPP”) loans		223,104			—
Commercial and industrial		222,290			248,893
Consumer		5,541			5,747
Total gross loans		1,975,443			1,771,770
Unamortized PPP loan fees		(4,810	)		—
Unearned premiums and deferred loan fees and costs, net		3,754			4,264
Allowance for loan losses		(20,692	)		(14,102	)
Net loans	$	1,953,695		$	1,761,932

~~We have~~There were no purchases of loans during the nine months ended September 30, 2020 and year ended December 31, 2019.

Loans Serviced for Others.

The Company has transferred a portion of ~~our~~its originated commercial ~~real estate and commercial and industrial~~ loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in our accompanying ~~unaudited~~ consolidated balance sheets. We continue to service the loans on behalf of the participating lenders. We share ~~ratably~~ with ~~our~~ participating lenders, inon a pro-rata basis, any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. We continue to service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties. At September 30, ~~2017~~2020 and December 31, ~~2016, we serviced~~2019, the Company was servicing commercial loans ~~for participants aggregating $32.4~~participated out to various other institutions totaling $41.3 million and ~~$42.6~~$24.2 million, respectively.

Residential mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans totaled $67.8 million and $75.2 million at September 30, 2017 and December 31, 2016, respectively. Service fee income of $49,000 and $3,000 was recorded for the nine months ended September 30, 2017 and 2016, respectively, and is included in service charges and fees on the consolidated statements of net income.

Residential real estate mortgages are originated by the Bank both for its portfolio and for sale into the secondary market. The Bank may sell its loans to institutional investors such as the ~~Federal Home Loan Mortgage Corporation.~~FHLMC. Under loan sale and servicing agreements with the investor, the Bank generally continues to service the residential real estate mortgages. The Bank pays the investor an agreed upon rate on the loan, which is less than the interest rate received from the borrower. The Bank retains the difference as a fee for servicing the residential real estate mortgages. The Bank capitalizes mortgage servicing rights at their fair value upon sale of the related loans, amortizes the asset over the estimated life of the serviced loan, and periodically assesses the asset for impairment. The significant assumptions used by a third party to estimate the fair value of capitalized servicing rights at September 30, ~~2017,~~2020, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model ~~(203~~(300 PSA), weighted average internal rate of return ~~(10.05%~~(12.06%), weighted average servicing fee ~~(0.2501%~~(0.25%), and ~~average~~ net cost to service loans ($~~59.32~~84.44 per loan). The estimated fair value of capitalized servicing rights may vary significantly in subsequent periods primarily due to changing market interest rates, and their effect on prepayment speeds and discount rates.

At September 30, 2020 and December 31, 2019, the Company was servicing residential mortgage loans owned by investors totaling $40.5 million and $48.2 million, respectively. Net service fee income of $36,000 and $52,000 was recorded for the nine months ended September 30, 2020 and 2019, respectively, and is included in service charges and fees on the consolidated statements of net income.

A summary of the activity in the balances of mortgage servicing rights follows:

Three Months
Ended
September 30,
2017

Nine Months
Ended
September 30,
2017

(In thousands)

Balance at the beginning of period: $ 408 $ 465
Capitalized mortgage servicing rights — —
Amortization (28 ) (85 )
Balance at the end of period $ 380 $ 380
Fair value at the end of period $ 538 $ 538

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	(In thousands)

Balance at the beginning of period:	$	186		$	219
Capitalized mortgage servicing rights		—			—
Amortization		(16	)		(49	)
Write-down of mortgage servicing asset to fair value		(2	)		(2	)
Balance at the end of period	$	168		$	168
Fair value at the end of period	$	168		$	168

~~Prior to the acquisition of Chicopee in 2016, mortgage servicing rights were not material to the consolidated financial statements, and therefore, were not recorded.~~

Loans are recorded at the principal amount outstanding, adjusted for charge-offs, unearned premiums and deferred loan fees and costs. Interest on loans is calculated using the effective yield method on daily balances of the principal amount outstanding and is credited to income on the accrual basis to the extent it is deemed collectable. Our general policy is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more based on the contractual terms of the loan, or earlier if the loan is considered impaired. Any unpaid amounts previously accrued on these loans are reversed from income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgment of management, collection of the principal balance is not in question. Loans are returned to accrual status when they become current as to both principal and interest and perform in accordance with contractual terms for a period of at least six months, reducing the concern as to the collectability of principal and interest. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans.

The allowance for loan losses is established through provisions for loan losses charged to expense. Loans are charged-off against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated, and unallocated components, as further described below.

General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate (includes one-to-four family and home equity), commercial real estate, commercial and industrial, and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: trends in delinquencies and nonperforming loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; and national and local economic trends and industry conditions. ~~There~~The recent COVID-19 pandemic has put significant pressure on the local business community and increased unemployment. On March 23, 2020, the Governor of Massachusetts issued an emergency order requiring all businesses and organizations that do not provide COVID-19 essential services to close their physical workplaces and facilities to workers, customers and the public from March 24, 2020 until April 7, 2020, which was subsequently extended to May 18, 2020. The order put significant pressure on the local business community. The Company’s market area implemented a four-phase reopening plan. State and local governments are closely monitoring key public health data as the situation continues to evolve. On July 8, 2020, Massachusetts entered the first step of Phase 3 of the re-opening plan; however, on August 7, 2020, Massachusetts’ Governor Baker, indefinitely postponed the second step of Phase 3 of the plan. On September 29, 2020, Governor Baker announced that effective October 5, 2020, the Commonwealth of Massachusetts would transition to the second step of Phase 3 only in lower-risk communities. Lower-risk communities are defined as cities or towns that have not been a “red” community in any of the last three weekly Department of Public Health weekly reports. Under the final phase of the reopening plan, the “new normal,” businesses will not be allowed to resume normal operations until an effective treatment or vaccine is discovered. Because of the mandated shutdowns, a record number of individuals filed for unemployment benefits. Sectors that have been materially impacted include, but are not limited to: hospitality, retail, restaurant and food service, and fuel services. Beginning in March 2020, the Bank added a new qualitative factor category to the allowance calculation – “Economic Impact of COVID-19". The allocation of additional reserves for the COVID-19 qualitative factor at September 30, 2020 was based upon an analysis of the loan portfolio that included identifying borrowers sensitive to the shutdown (i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade) as well as a general allocation for the negative economic outlook given the record number of unemployment benefits claims during the period. In addition, on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24, 2016 from Chicopee Bancorp, Inc. (“Chicopee”). The acquired portfolio was initially recorded at fair value without a related allowance for loan losses. Subsequent to acquisition, there have been no indications that there has been any subsequent deterioration to the acquired portfolio. Due to the ongoing impacts and extended nature of the pandemic, during the three months ended September 30, 2020, the Company determined that it was prudent to provide an allowance for loan losses related to the acquired portfolio. Excluding the COVID-19 qualitative factor category and the allowance for the acquired loan portfolio, there were no additional changes in our policies or methodology pertaining to the general component of the allowance for loan losses during the periods presented for disclosure.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate –. We require private mortgage insurance for all loans originated with a loan-to-value ratio greater than ~~80%~~80% and we do not grant subprime loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Home equity loans are secured by first or second mortgages on one-to-four family owner occupied properties.

Commercial real estate – . Loans in this segment are primarily income-producing investment properties and owner-occupied commercial properties throughout New England. 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.

Commercial and industrial loans –. Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. 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 secured or unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired. Impaired loans are identified by analysis of loan performance, internal credit ratings and watch list loans that management believes are subject to a higher risk of loss. Impairment is measured on a loan by loan basis for commercial real estate and commercial and industrial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The extent to which COVID-19 impacts our borrower’s ability to repay and therefore the classification of a loan as impaired is highly uncertain and cannot be predicted with confidence as it is highly dependent upon the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

Unallocated component

An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance, if any, reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

An analysis of changes in the allowance for loan losses by segment for the ~~periods~~nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 is as follows:

	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Unallocated			Total			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Unallocated			Total
	(In thousands)																		(In thousands)
Three Months Ended
Balance at June 30, 2016	$	3,956		$	2,804		$	2,797		$	20		$	(7	)	$	9,570
Balance at June 30, 2019																			$	5,690		$	3,619		$	2,960		$	153		$	1		$	12,423
Provision (credit)		62			189			83			43			(2	)		375			844			312			63			81			(25	)		1,275
Charge-offs		—			(40	)		—			(46	)		—			(86	)		(200	)		(180	)		(20	)		(70	)		—			(470	)
Recoveries		59			—			—			9			—			68			—			26			5			13			—			44
Balance at September 30, 2016	$	4,077		$	2,953		$	2,880		$	26		$	(9	)	$	9,927
Balance at September 30, 2019																			$	6,334		$	3,777		$	3,008		$	177		$	(24	)	$	13,272

Balance at June 30, 2017	$	4,472		$	3,126		$	2,754		$	53		$	13		$	10,418
Balance at June 30, 2020																			$	10,271		$	4,167		$	3,564		$	237		$	14		$	18,253
Provision (credit)		(68	)		146			(109	)		83			148			200			2,103			117			458			50			(3	)		2,725
Charge-offs		—			(107	)		—			(104	)		—			(211	)		—			(26	)		(325	)		(37	)		—			(388	)
Recoveries		—			80			3			28			—			111			58			1			37			6			—			102
Balance at September 30, 2017	$	4,404		$	3,245		$	2,648		$	60		$	161		$	10,518
Balance at September 30, 2020																			$	12,432		$	4,259		$	3,734		$	256		$	11		$	20,692

Nine Months Ended
Balance at December 31, 2015	$	3,856		$	2,431		$	2,485		$	22		$	46		$	8,840
Balance at December 31, 2018																			$	5,260		$	3,556		$	3,114		$	135		$	(12	)	$	12,053
Provision (credit)		(614	)		610			395			64			(55	)		400			644			498			397			148			(12	)		1,675
Charge-offs		(170	)		(90	)		—			(87	)		—			(347	)		(419	)		(305	)		(514	)		(155	)		—			(1,393	)
Recoveries		1,005			2			—			27			—			1,034			849			28			11			49			—			937
Balance at September 30, 2016	$	4,077		$	2,953		$	2,880		$	26		$	(9	)	$	9,927
Balance at September 30, 2019																			$	6,334		$	3,777		$	3,008		$	177		$	(24	)	$	13,272

Balance at December 31, 2016	$	4,083		$	2,862		$	3,085		$	38		$	—		$	10,068
Balance at December 31, 2019																			$	6,807		$	3,920		$	3,183		$	203		$	(11	)	$	14,102
Provision (credit)		239			427			(180	)		203			161			850			5,674			406			1,057			116			22			7,275
Charge-offs		(36	)		(148	)		(285	)		(237	)		—			(706	)		(107	)		(135	)		(544	)		(96	)		—			(882	)
Recoveries		118			104			28			56			—			306			58			68			38			33			—			197
Balance at September 30, 2017	$	4,404		$	3,245		$	2,648		$	60		$	161		$	10,518
Balance at September 30, 2020																			$	12,432		$	4,259		$	3,734		$	256		$	11		$	20,692

~~Further~~The following table presents information pertaining to the allowance for loan losses by segment ~~at September 30, 2017~~ for the dates indicated:

	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Unallocated			Total
	(In thousands)
September 30, 2020

Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—		$	—
Amount of allowance for non-impaired loans		12,432		4,259		3,734		256		11			20,692
Total allowance for loan losses	$	12,432	$	4,259	$	3,734	$	256	$	11		$	20,692

Impaired loans	$	11,203	$	3,889	$	5,599	$	29	$	—		$	20,720
Non-impaired loans		793,577		705,993		439,048		5,512		—			1,944,130
Impaired loans acquired with deteriorated credit quality		7,359		2,487		747		—		—			10,593
Total loans	$	812,139	$	712,369	$	445,394	$	5,541	$	—		$	1,975,443

December 31, 2019

Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—		$	—
Amount of allowance for non-impaired loans		6,807		3,920		3,183		203		(11	)		14,102
Total allowance for loan losses	$	6,807	$	3,920	$	3,183	$	203	$	(11	)	$	14,102

Impaired loans	$	3,457	$	3,575	$	588	$	42	$	—		$	7,662
Non-impaired loans		805,007		694,080		247,499		5,705		—			1,752,291
Impaired loans acquired with deteriorated credit quality		8,422		2,589		806		—		—			11,817
Total loans	$	816,886	$	700,244	$	248,893	$	5,747	$	—		$	1,771,770

Past Due and ~~December 31, 2016 follows:~~Non-accrual Loans.

Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer Unallocated Total
(In thousands)
September 30, 2017

Amount of allowance for impaired loans $ — $ — $ — $ — $ — $ —
Amount of allowance for non-impaired loans 4,404 3,245 2,648 60 161 10,518
Total allowance for loan losses $ 4,404 $ 3,245 $ 2,648 $ 60 $ 161 $ 10,518

Impaired loans $ 3,993 $ 3,854 $ 2,869 $ 127 $ — $ 10,843
Non-impaired loans 699,945 640,622 240,421 4,340 — 1,585,328
Loans acquired with deteriorated credit quality 12,952 3,651 1,084 — — 17,687
Total loans $ 716,890 $ 648,127 $ 244,374 $ 4,467 $ — $ 1,613,858

December 31, 2016

Amount of allowance for impaired loans $ — $ — $ — $ — $ — $ —
Amount of allowance for non-impaired loans 4,083 2,862 3,085 38 — 10,068
Total allowance for loan losses 4,083 2,862 3,085 38 — 10,068

Impaired loans $ 3,335 $ 452 $ 3,042 $ — $ — $ 6,829
Non-impaired loans 701,766 609,107 217,972 4,424 — 1,533,269
Loans acquired with deteriorated credit quality 15,640 4,607 1,272 — — 21,519
Total loans $ 720,741 $ 614,166 $ 222,286 $ 4,424 $ — $ 1,561,617

The following ~~is a summary~~tables present an age analysis of past due ~~and non-accrual~~ loans, ~~by class at September 30, 2017 and December 31, 2016:~~excluding PPP loans, as of the dates indicated:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Past Due 90 Days or More and Still Accruing		Loans on Non- Accrual		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days or More Past Due		Total Past Due Loans		Total Current Loans		Total Loans		Non-Accrual Loans
	(In thousands)												(In thousands)
September 30, 2017
September 30, 2020

Commercial real estate	$	196	$	295	$	136	$	627	$	—	$	2,181	$	651	$	539	$	1,459	$	2,649	$	809,490	$	812,139	$	1,846
Residential real estate:
Residential		2,308		570		572		3,450		—		1,744		1,490		741		748		2,979		605,371		608,350		4,848
Home equity		218		135		72		425		—		73		—		—		117		117		103,902		104,019		281
Commercial and industrial		472		59		108		639		—		2,700		228		88		600		916		221,374		222,290		2,203
Consumer		54		18		5		77		—		17		17		—		—		17		5,524		5,541		30
Total legacy loans		3,248		1,077		893		5,218		—		6,715
Total loans													$	2,386	$	1,368	$	2,924	$	6,678	$	1,745,661	$	1,752,339	$	9,208

Loans acquired from Chicopee Savings Bank		2,957		1,610		1,279		5,846		—		6,450
December 31, 2019

Total	$	6,205	$	2,687	$	2,172	$	11,064	$	—	$	13,165

December 31, 2016
Commercial real estate	$	302	$	555	$	137	$	994	$	—	$	2,740	$	2,784	$	1,234	$	2,637	$	6,655	$	810,231	$	816,886	$	3,843
Residential real estate:
Residential		791		262		689		1,742		—		1,658		2,574		683		1,433		4,690		593,037		597,727		4,548
Home equity		208		36		—		244		—		37		80		38		149		267		102,250		102,517		445
Commercial and industrial		326		32		—		358		—		3,214		1,356		645		148		2,149		246,744		248,893		1,003
Consumer		27		9		7		43		—		14		24		—		17		41		5,706		5,747		42
Total legacy loans		1,654		894		833		3,381		—		7,663

Loans acquired from Chicopee Savings Bank		3,854		1,907		551		6,312		—		6,394

Total past due loans	$	5,508	$	2,801	$	1,384	$	9,693	$	—	$	14,057
Total loans													$	6,818	$	2,600	$	4,384	$	13,802	$	1,757,968	$	1,771,770	$	9,881

Impaired Loans.

The following is a summary of impaired loans by ~~class at and for the periods ended September 30, 2017 and December 31, 2016:~~class:


					Three Months Ended				Nine Months Ended
	At September 30, 2020				September 30, 2020				September 30, 2020
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired Loans⁽¹⁾:
Commercial real estate	$	18,562	$	19,911	$	19,709	$	169	$	18,361	$	369
Residential real estate		6,052		6,754		5,728		14		5,655		53
Home equity		324		381		384		1		413		4
Commercial and industrial		6,346		8,753		6,072		120		3,720		196
Consumer		29		43		32		—		36		—
Total impaired loans	$	31,313	$	35,842	$	31,925	$	304	$	28,185	$	622

					Three Months Ended				Nine Months Ended
	At December 31, 2019				September 30, 2019				September 30, 2019
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired Loans⁽¹⁾:
Commercial real estate	$	11,879	$	13,914	$	15,558	$	182	$	16,542	$	481
Residential real estate		5,695		6,383		6,375		23		6,805		87
Home equity		469		539		406		—		408		—
Commercial and industrial		1,394		4,192		3,466		37		3,743		111
Consumer		42		56		45		—		50		—
Total impaired loans	$	19,479	$	25,084	$	25,850	$	242	$	27,548	$	679

Impaired Loans⁽¹⁾⁽²⁾
Three Months Ended Nine Months Ended
At September 30, 2017⁽¹⁾ September 30, 2017 September 30, 2017
Recorded
Investment Unpaid
Principal
Balance Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
(In thousands)
Impaired loans without a valuation allowance⁽²⁾:
Commercial real estate $ 16,945 $ 19,380 $ 17,731 $ 199 $ 18,788 $ 650
Residential real estate:
Residential real estate 6,939 7,410 7,016 11 6,548 34
Home equity 566 590 407 1 260 3
Commercial and industrial 3,953 10,242 4,442 54 4,538 183
Consumer 127 131 122 — 83 —

Total impaired loans $ 28,530 $ 37,753 $ 29,718 $ 265 $ 30,217 $ 870

(1)

~~(1)~~ Includes loans acquired with deteriorated credit quality and performing troubled debt restructurings.

The majority of impaired loans are included within the non-accrual balances; however, not every loan on non-accrual status has been designated as impaired. Impaired loans include loans that have been modified in a troubled debt ~~restructurings.~~restructuring (“TDR”). Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR.

~~(2) Includes~~

All payments received on impaired loans ~~acquired with deteriorated credit quality from the Chicopee Bancorp merger.~~

Impaired Loans⁽¹⁾⁽²⁾
Three Months Ended Nine Months Ended
At December 31, 2016⁽¹⁾ September 30, 2016 September 30, 2016
Recorded
Investment Unpaid
Principal
Balance Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
(In thousands)
Impaired loans without a valuation allowance⁽²⁾:
Commercial real estate $ 18,975 $ 21,330 $ 3,487 $ 17 $ 3,551 $ 49
Residential real estate 5,059 5,676 515 — 482 —
Commercial and industrial 4,314 11,049 3,356 — 3,434 —

Total impaired loans $ 28,348 $ 38,055 $ 7,358 $ 17 $ 7,467 $ 49

⁽¹⁾~~Includes loans acquired with deteriorated credit quality from the Chicopee Bancorp, Inc. merger.~~

⁽²⁾~~Includes loans acquired with deteriorated credit quality from the Chicopee Bancorp merger.~~

Noin non-accrual status are applied to principal. There was no interest income ~~was~~ recognized ~~for~~on non-accrual impaired loans ~~on a cash-basis method~~ during the three and nine months ended September 30, ~~2017~~2020 and 2019. The Company’s obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower’s compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or ~~2016.~~may not be made at the Company’s discretion. During the third quarter of 2020, we loaned an additional $350,000 for one commercial and industrial loan classified as impaired. The loan proceeds were issued to fund ongoing operations in order to facilitate the sale of the real estate to a third party. As of September 30, 2020, we have $180,000 in unadvanced funds remaining on this loan. In addition, we have committed to lend an additional $350,000 to this customer to facilitate the sale of the real estate, which is expected to occur during the fourth quarter of 2020. Payments received on performing impaired loans are recorded in accordance with the contractual terms of the loan. Interest income recognized on ~~an accrual basis~~impaired loans during the three and nine months ended September 30, ~~2017 related~~2020 and 2019 pertained to performing ~~purchase~~TDRs and purchased impaired ~~loans while activity in the comparable 2016 periods related to performing~~loans.

Troubled Debt Restructurings.

Loans are designated as a TDR ~~loans.~~

~~We may periodically agree~~when, as part of an agreement to modify the original contractual terms of ~~loans. When~~the loan as a ~~loan is modified and~~result of financial difficulties of the borrower, the Bank grants the borrower a concession ~~is made to a borrower experiencing financial difficulty,~~on the ~~modification is considered a troubled debt restructuring (“TDR”). These~~terms, that would not otherwise be considered. Typically, such concessions ~~could include~~may consist of a reduction in ~~the~~ interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the ~~loan, payment extensions, postponement~~Bank’s position or ~~forgiveness~~significantly extends the note’s maturity date, such that the present value of ~~principal, forbearance or other actions intended~~cash flows to ~~maximize collection.~~be received is materially less than those contractually established at the loan’s origination. All ~~TDRs~~loans that are modified are reviewed by the Company to identify if a TDR has occurred. All TDR loans are classified as impaired.

When we modify loans in a TDR, we measure impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through ana specific allowance ~~estimate~~ or a charge-off to the allowance. ~~In periods subsequent to modification, we evaluate all~~Non-performing TDRs ~~including those that have payment defaults, for possible impairment and recognize impairment through the allowance.~~are included in non-performing loans.

~~Nonperforming TDRs are shown~~Loans modifications classified as ~~nonperforming assets. There were no loans modified in~~ TDRs during the three and nine months ended September 30, ~~2017. A substandard impaired loan relationship~~2020 and 2019 are included in the amount of $4.6 million was designated a TDR during the nine months ended September 30, 2016. The bank entered into a forbearance agreement which offered an interest only period. Due to the borrower continuing to experience declining sales, the interest only period was extended during the second quarter of 2016, resulting in the TDR classification. The loans are on non-accrual and are current. The loans are measured for impairment quarterly and appropriate reserves/charge offs have been taken.table below.

	Three Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		—	$	—	$	—		5	$	4,884	$	4,884
Commercial and Industrial		1		18		18		10		4,541		4,541
Total		1	$	18	$	18		15	$	9,425	$	9,425

	Three Months Ended						Nine Months Ended
	September 30, 2019						September 30, 2019
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		—	$	—	$	—		2	$	2,032	$	2,032
Commercial and Industrial		—		—		—		2		383		383
Total		—	$	—	$	—		4	$	2,415	$	2,415

Nine Months Ended
September 30, 2016
Number of
Contracts Pre-Modification
Outstanding
Recorded
Investment Post-Modification Outstanding
Recorded
Investment
(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate 1 $ 1,940 $ 1,940
Commercial and Industrial 3 2,681 2,681
Residential 2 161 161
Total 6 $ 4,782 $ 4,782

~~A default occurs when a loan is 30 days or more past due. No TDRs defaulted within twelve months of restructuring during~~During the three and nine months ended September 30, ~~2017~~2020 and 2019, 0 TDRs defaulted (defined as 30 days or ~~2016.~~

more past due) within 12 months of restructuring. There ~~were no~~was $440,000 in charge-offs on TDRs during the three and nine months ended September 30, ~~2017~~2019. There were 0 charge-offs on TDRs during the three and ~~2016.~~nine months ended September 30, 2020.

Loans Acquired with Deteriorated Credit ~~Quality~~Quality.

The following is a summary of loans acquired ~~from~~in the Chicopee Bancorp, Inc. (“Chicopee”) acquisition with evidence of credit deterioration as of September 30, ~~2017.~~2020 and 2019.

Contractual Required Payments Receivable Cash Expected To Be Collected Non-
Accretable Discount Accretable
Yield Loans
Receivable
(In thousands)

Balance at December 31, 2016 $ 37,437 $ 29,040 $ 8,397 $ 7,521 $ 21,519
Collections (3,860 ) (3,326 ) (534 ) (1,003 ) (2,323 )
Dispositions (1,833 ) (1,503 ) (330 ) 6 (1,509 )
Balance at September 30, 2017 $ 31,744 $ 24,211 $ 7,533 $ 6,524 $ 17,687

	Contractual Required Payments Receivable			Cash Expected To Be Collected			Non-Accretable Discount			Accretable Yield			Loans Receivable
	(In thousands)

Balance at December 31, 2019	$	20,689		$	15,909		$	4,780		$	4,092		$	11,817
Collections		(1,956	)		(1,431	)		(525	)		(241	)		(1,190	)
Dispositions		(300	)		(255	)		(45	)		(221	)		(34	)
Balance at September 30, 2020	$	18,433		$	14,223		$	4,210		$	3,630		$	10,593


	Contractual Required Payments Receivable			Cash Expected To Be Collected			Non-Accretable Discount			Accretable Yield			Loans Receivable
	(In thousands)

Balance at December 31, 2018	$	24,793		$	19,883		$	4,910		$	4,854		$	15,029
Collections		(2,313	)		(2,187	)		(126	)		(487	)		(1,700	)
Dispositions		(242	)		(242	)		—			(199	)		(43	)
Balance at September 30, 2019	$	22,238		$	17,454		$	4,784		$	4,168		$	13,286

Credit Quality ~~Information~~Information.

~~We utilize~~The Company utilizes an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans. Performing residential real estate, home equity and consumer loans are grouped with “Pass” rated loans. ~~Nonperforming~~Non-performing residential real estate, home equity and consumer loans are monitored individually for impairment and risk rated as ~~“Substandard.~~“substandard.”

Loans rated 1 – ~~3 are considered “Pass” rated loans with low to average risk.~~

4: Loans rated 41-4 represent groups of loans that are ~~considered “Pass Watch,” with an acceptable level of risk.~~not subject to adverse criticism as defined in regulatory guidance. Loans in ~~this category remain “pass”~~these groups exhibit characteristics that represent acceptable risk.

Loans rated ~~and are not a criticized or classified loan, however, represent borrowers which may exhibit tight cash flows and/or leveraged balance sheets.~~

5: Loans rated 5 are considered “Special ~~Mention.” These loans~~Mention” and may exhibit potential credit weaknesses or downward trends and are being ~~closely~~ monitored by ~~us.~~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.

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

Loans rated 7: 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 ~~in full, on~~of the ~~basis of currently existing facts,~~loan highly questionable and ~~improbable~~improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and ~~that a partial~~strengthening of the asset, its classification as an estimated loss ~~of principal~~ is ~~likely.~~deferred until its more exact status may be determined.

Loans rated 8: Loans rated 8 are considered ~~uncollectible and of such little~~uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that ~~their continuance as loans~~it is not ~~warranted.~~practical or desirable to defer writing off the asset because recovery and collection time may be affected in the future.

On an annual basis, or more often if needed, we formally review the ratings on all commercial real estate and commercial and industrial loans. Construction loans are reported within commercial real estate loans and total $67.6 million and $88.9 million at September 30, 2017 and December 31, 2016, respectively. We engage an independent third party to review a significant portion of loans within these segments on a semi-annual basis. We use the results of these reviews as part of our annual review process. In addition, management utilizes delinquency reports, the ~~watch list~~criticized report and other loan reports to monitor credit ~~quality~~quality. In addition, at least on an annual basis, the Company contracts with an external loan review company to review the internal credit ratings assigned to loans in ~~other segments.~~
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 its review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified assets.

The following table presents our loans by risk rating atfor the periods indicated:

	Commercial Real Estate		Residential 1-4 Family		Home Equity		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2020
Pass (Rated 1 – 4)	$	706,435	$	602,420	$	103,575	$	410,141	$	5,512	$	1,828,083
Special Mention (Rated 5)		76,650		—		—		18,104		—		94,754
Substandard (Rated 6)		29,054		5,930		444		17,149		29		52,606
Total	$	812,139	$	608,350	$	104,019	$	445,394	$	5,541	$	1,975,443

December 31, 2019
Pass (Rated 1 – 4)	$	766,124	$	591,911	$	101,908	$	222,847	$	5,705	$	1,688,495
Special Mention (Rated 5)		23,138		—		—		2,796		—		25,934
Substandard (Rated 6)		27,624		5,816		609		23,250		42		57,341
Total	$	816,886	$	597,727	$	102,517	$	248,893	$	5,747	$	1,771,770

6. GOODWILL AND OTHER INTANGIBLES

Goodwill.

At September 30, ~~2017~~2020 and December 31, ~~2016:~~

Commercial
Real Estate Residential
1-4 Family Home
Equity Commercial
and Industrial Consumer Total
(In thousands)
September 30, 2017
Loans rated 1 – 3 $ 647,599 $ 549,936 $ 91,854 $ 192,968 $ 4,340 $ 1,486,697
Loans rated 4 45,339 95 — 35,585 — 81,019
Loans rated 5 14,724 — — 7,521 — 22,245
Loans rated 6 9,228 5,737 505 8,300 127 23,897
$ 716,890 $ 555,768 $ 92,359 $ 244,374 $ 4,467 $ 1,613,858

December 31, 2016
Loans rated 1 – 3 $ 673,957 $ 516,339 $ 91,964 $ 180,675 $ 4,391 $ 1,467,326
Loans rated 4 24,207 — — 16,621 6 40,834
Loans rated 5 14,068 — — 6,727 — 20,795
Loans rated 6 6,604 5,744 119 15,379 27 27,873
Loans rated 7 1,905 — — 2,884 — 4,789
$ 720,741 $ 522,083 $ 92,083 $ 222,286 $ 4,424 $ 1,561,617

~~6. GOODWILL AND OTHER INTANGIBLES~~

~~Goodwill~~

~~Goodwill for the nine months ended September 30, 2017 is summarized as follows:~~

Nine Months
Ended
September 30,
2017

(In thousands)
Balance at December 31, 2016 $ 13,747
Current period adjustments (1,260 )
Balance at September 30, 2017 $ 12,487

~~At September 30, 2017 and December 31, 2016,~~2019, the Company’s goodwill was related to the acquisition of Chicopee in October 2016. There was no goodwill impairment recorded during the three and nine months ended September 30, 2020 or the year ended December 31, 2019. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment. ~~No goodwill impairment was recorded for the nine months ended September 30, 2017.~~

During the three months ended March 31, 2017, management completed their evaluation of premises and equipment acquired from Chicopee, which resulted in a $2.4 million adjustment to the provisional fair values of bank premises acquired and a $1.4 million reduction in goodwill. The remaining adjustments to goodwill of $140,000 during the three months ended March 31, 2017 resulted from information obtain during the quarter about events and circumstances that existed as of the acquisition date.

Core Deposit ~~Intangibles~~Intangibles.

In connection with the ~~assumption~~acquisition of ~~$545.7 million of deposit liabilities from the~~ Chicopee, ~~acquisition in October 2016, of which $345.2 million were core deposits,~~ the Bank recorded a core deposit intangible of ~~$4.5 million. The resulting core deposit intangible~~$4.5 million which is amortized over twelve years using the straight-line method. ~~Core deposit intangibles are summarized as follows:~~

Nine Months
Ended
September 30,
2017

(In thousands)
Balance at December 31, 2016 $ 4,438
Amortization (282 )
Balance at September 30, 2017 $ 4,156

Amortization expense was ~~$282,000~~$94,000 and $281,000 for the three and nine months ended September 30, ~~2017.~~2020 and 2019, respectively. At September 30, ~~2017,~~2020, future amortization of the core deposit intangible ~~totals $375,000~~totaled $375,000 for each of the next five years and ~~$2.3~~$1.2 million thereafter.

7. SHARE-BASED COMPENSATION

Stock ~~Options –~~Options.Under the terms of the Chicopee merger agreement dated April 4, 2016, each option to purchase shares of Chicopee common stock issued by Chicopee and outstanding at the effective time of the merger, October 21, 2016, pursuant to the Chicopee 2007 Equity Incentive Plan fully vested and converted into an option to purchase shares of WNEB common stock on the same terms and conditions as were applicable before the merger, except (1) the number of shares of WNEB common stock subject to the new option was adjusted to be equal to the product of the number of shares of Chicopee common stock subject to the existing option and the exchange ratio (rounding fractional shares to the nearest whole share) and (2) the exercise price per share of WNEB common stock under the new option was adjusted to be equal to the exercise price per share of Chicopee common stock of the existing option divided by the exchange ratio (rounded to the nearest whole cent).

A summary of stock option activity for the nine months ended September 30, ~~2017~~2020 is presented ~~below. No options were outstanding during the nine months ended September 30, 2016.~~below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)

Outstanding at December 31, 2019		218,214	$	6.42		2.62	$	695
Exercised		—		—		—		—
Outstanding at September 30, 2020		218,214	$	6.42		1.87	$	—

Exercisable at September 30, 2020		218,214	$	6.42		1.87	$	—

Shares Weighted
Average
Exercise
Price
Weighted
Average
Remaining Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

Outstanding at December 31, 2016 1,178,899 $ 6.01 1.98 $ 3,930
Exercised (921,849 ) 5.93 0.91 3,675
Outstanding at September 30, 2017 257,050 $ 6.31 4.66 $ 1,175

Exercisable at September 30, 2017 257,050 $ 6.31 4.66 $ 1,175

Cash received for options exercised during the nine months ended September 30, ~~2017~~2019 was ~~$5.5 million.~~$64,000. There were no options exercised during the nine months ended September 30, 2020.

Restricted Stock ~~Awards~~Awards.–

In May 2014, ~~our~~the Company’s shareholders approved a stock-based compensation plan ~~under which~~(the “RSA Plan”). Under the RSA Plan, up to 516,000 shares of ~~our~~the Company’s common stock were reserved for grants of stock awards, including stock options and restricted stock, which may be granted to any officer, key employee or non-employee director of WNEB. ~~Authorized but unissued~~Any shares that are ~~issued to awardees upon vesting of such awards. Any shares~~ not issued because vesting requirements are not met, will ~~again~~ be available for future issuance under the ~~plans.~~RSA Plan.

In January 2015, there were 48,560 shares ~~were~~ granted under ~~this plan and~~the RSA Plan. These shares vest ratably over five ~~years.~~years. The fair market value of shares awarded are based on the market price at the grant date ~~of grant, was~~and recorded as unearned ~~compensation and is being~~compensation. The shares are amortized over the applicable vesting ~~period.~~period, with the final tranche of shares vesting in January of 2020.

~~In 2016,~~On an annual basis, the Compensation Committee (the “Committee”) ~~approved the~~approves long-term incentive ~~program (the “LTI Plan”). The LTI~~awards out of the RSA Plan, ~~provides~~whereby shares will be granted to eligible participants of the Company that are nominated by the Chief Executive Officer and approved by the Committee, with vesting over a three-year term for employees and a one-year term for directors. Annual employee grants provide for a periodic award that is both performance and ~~retention based in that it~~time-based and is designed to recognize the executive’s responsibilities, reward ~~demonstrated~~ performance and leadership and ~~to retain such executives.~~as a retention tool. The objective of the ~~LTI Plan~~award is to align compensation for the named executive officers and directors over a multi-year period directly with the interests of our shareholders by motivating and rewarding creation and preservation of long-term financial strength, shareholder value and relative shareholder return.

The LTI Plan includes eligible officers of the Company who are nominated by the Company’s Chief Executive Officer and approved by the Committee. The LTI Plan is triggered by the Company’s achievement of satisfactory safety and soundness results from its most recent regulatory examination. Employee stock grants made through the 2016 LTI plan will be a combination of 50% time-vested restricted stock and 50% performance-based restricted stock.

In May ~~2016, 62,740~~2017, there were 89,042 shares ~~were granted under~~granted. Of the ~~LTI Plan. Of this total, 36,543~~89,042 shares, 55,159 shares are ~~retention-based,~~time-based, with ~~10,352~~21,276 vesting in one year and ~~26,191~~33,883 vesting ratably over a ~~three year~~three-year period. The remaining ~~26,197~~33,883 shares granted ~~are performance based~~were performance-based and are subject to the achievement of the ~~2016 LTI~~2017 performance ~~metric before vesting~~metric. Vesting is realized after a ~~three year~~three-year period. ~~For the performance shares, the~~The primary performance metric for ~~2016 awards is~~2017 grants was return on equity. ~~Performance~~Performance-based shares will be earned based upon how the Company performs relative to threshold, target and ~~target~~maximum absolute goals (i.e. Company-specific, not relative to a peer index) ~~over~~on an annual performance period, but will be distributed at the end of the three-year ~~performance~~ period. ~~The threshold amount for the performance period will be a return on equity of 5.85% and a target amount of 6.32%. Participants~~Eligible participants will be able to earn between ~~50% (for threshold~~50% (“threshold” performance), 100% (“target” performance) and ~~100%~~150% (“maximum” performance).

As a result of the Tax Cuts and Jobs Act of 2017, the return on equity performance metrics were adjusted to incorporate the impact and benefits of the corporate tax rate reductions thereunder.

The original and adjusted threshold, target ~~amount~~and maximum metrics for 2019 under the 2017 grant are as follows:

	Return on Equity Metrics
Performance Period Ending	Original Threshold	Adjusted Threshold	Original Target	Adjusted Target	Original Maximum	Adjusted Maximum

December 31, 2019	6.50%	7.09%	7.20%	7.85%	7.90%	8.61%

As of December 31, 2019, the three-year performance period for the ~~performance shares but will not earn additional shares if performance exceeds target performance.~~

~~In May~~ 2017 ~~89,042~~grants ended. Performance-based shares were earned based on the Company achieving the annual 2017 performance metrics adjusted threshold, target or maximum metrics at the end of each year of the three-year performance period. Of the original 33,883 performance-based shares granted in 2017, 15,898 performance-based shares vested and were issued to eligible recipients, while 17,985 shares were forfeited in February of 2020. Shares forfeited become available for reissuance under future grants.

In January 2018, there were 83,812 shares granted. Of the ~~LTI Plan. Of this total, 55,159~~83,812 shares, ~~are retention-based,~~50,852 shares were time-based, with ~~21,276~~17,908 vesting in one year and ~~33,883~~32,944 vesting ratably over a ~~three year~~three-year period. The remaining ~~33,883~~32,960 shares granted are ~~performance based~~performance-based and are subject to the achievement of the ~~2017 LTI~~2018 performance ~~metric before vesting is realized after a three year period. For the performance shares, the~~metric. The primary performance metric for ~~2017 awards is~~2018 grants was return on equity. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period, but will be distributed at the end of the ~~three year~~three-year period.

The threshold, target and ~~maximum for the three year period~~stretch metrics under the ~~2017 Plan is~~2018 grant are as follows:

	Return on Equity Metrics
Performance Period Ending	Threshold	Target	Stretch

December 31, 2019	6.85%	7.35%	7.75%
December 31, 2020	7.40%	7.90%	8.30%

Return on Equity Targets

Performance Period Ending Threshold Target Maximum

December 31, 2017 6.00 % 6.60 % 7.30 %
December 31, 2018 6.30 % 7.00 % 7.60 %
December 31, 2019 6.50 % 7.20 % 7.90 %

~~Participants~~Eligible participants will be able to earn between ~~50% (for threshold~~50% (“threshold” performance), ~~100% (for target~~100% (“target” performance) and ~~150% (for~~150% (“maximum” performance).

In February 2019, there were 108,718 shares granted. Of the 108,718 shares, 64,496 shares were time-based, with 20,262 vesting in one year and 44,234 vesting ratably over a three-year period. The remaining 44,222 shares granted are performance-based and are subject to the achievement of the 2019 long-term incentive performance metric. The primary performance metric for 2019 grants was return on equity. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum ~~performance).~~absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period, but will be distributed at the end of the three-year period.

The threshold, target and stretch metrics under the 2019 grants are as follows:

	Return on Equity Metrics
Performance Period Ending	Threshold	Target	Stretch
December 31, 2019	5.75%	6.13%	7.00%
December 31, 2020	6.00%	6.75%	7.75%
December 31, 2021	6.25%	7.00%	8.00%

Eligible participants will be able to earn between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).

In February 2020, there were 120,053 shares granted. Of the 120,053 shares, 69,898 shares were time-based, with 19,760 vesting in one year and 50,138 vesting ratably over a three-year period. The remaining 50,155 shares granted are performance-based and are subject to the achievement of the 2020 long-term incentive performance metrics, with 50% of the performance-shares vesting for each performance metric. The primary performance metrics for the 2020 grants were return on equity and earnings per share. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a three-year cumulative performance period for earnings per share, but will be distributed at the end of the three-year period as earned. The threshold, target and stretch metrics under the 2020 grants are as follows:

	Return on Equity Metrics
Performance Period Ending	Threshold	Target	Stretch

December 31, 2020	5.00%	5.48%	6.00%
December 31, 2021	5.62%	6.24%	6.86%
December 31, 2022	6.29%	6.99%	7.69%

	Earnings Per Share Metrics
Performance Period Ending	Threshold	Target	Stretch

Three-year Cumulative Diluted Earnings Per Share	$1.50	$1.65	$1.80

Eligible participants will be able to earn between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).

The fair market value of shares awarded is based on the market price at the ~~date of~~ grant isdate, recorded as unearned compensation and amortized over the applicable vesting period. ~~Shares granted under performance-based conditions~~Performance-based metrics are monitored on a quarterly basis in order to compare actual results to the performance metric, ~~established,~~ with any necessary adjustments being recognized through share-based compensation expense and unearned compensation.

At September 30, ~~2017,~~2020, there were an additional ~~315,658~~25,927 shares ~~were~~ available for future grants under ~~this plan.~~the RSA Plan.

A summary of the status of restricted stock awards at September 30, 2020 and 2019 is presented below:

	Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2019		172,866		$	10.07
Shares granted		101,408			9.11
Shares forfeited		(16,803	)		10.15
Shares vested		(41,894	)		9.54
Shares reissued		18,645			9.11
Balance at September 30, 2020		234,222		$	9.67

		Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2018		155,712		$	9.87
Shares granted		108,718			9.77
Shares vested		(53,465	)		8.75
Shares forfeited		(1,842	)		9.77
Balance at September 30, 2019		209,123		$	10.11

~~Our~~We recorded total expense for restricted stock ~~award plan activity~~awards of $572,000 and $580,000 for the nine months ended September 30, ~~2017~~2020 and ~~2016 is summarized below:~~2019, respectively.

Unvested Stock Awards
Outstanding
Shares Weighted
Average
Grant Date
Fair Value

Outstanding at December 31, 2016 91,371 $ 7.51
Shares granted 89,042 10.15
Shares vested (21,552 ) 7.44
Outstanding at September 30, 2017 158,861 $ 9.00

Outstanding at December 31, 2015 54,160 $ 7.28
Shares granted 62,740 7.73
Shares vested (11,200 ) 7.18
Outstanding at September 30, 2016 105,700 $ 7.56

~~We recorded compensation cost related to the stock awards of $490,000 and $186,000 for the nine months ended September 30, 2017 and 2016, respectively.~~

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

~~We utilize short-term borrowings~~As a member of the FHLB, the Bank has the potential capacity to borrow an amount up to the value of its discounted qualified collateral. Borrowings from the FHLB are secured by certain securities from the Company’s investment portfolio not otherwise pledged as well as certain residential real estate and ~~long-term debt as an additional source of funds to finance our lending and investing activities and to provide liquidity for daily operations.~~commercial real estate loans. Borrowings from the Federal Reserve Bank (“FRB”) Discount Window are secured by certain securities from the Company’s investment portfolio not otherwise pledged.

~~Short-term borrowings are made up of FHLBB~~FHLB advances with an original maturity of less than one year totaled $35.0 million at December 31, 2019 with a weighted average rate of 1.86%, while at September 30, 2020, there were no FHLB advances with a maturity of less than one year outstanding. At September 30, 2020, based on qualifying collateral less outstanding advances, the Bank had the capacity to borrow up to approximately $325.3 million from the FHLB.

In addition, at September 30, 2020 and December 31, 2019, the Company had an available Ideal Way line of credit with the FHLBB and customer repurchase agreements, which mature daily. Short-term borrowings issued by the FHLBB were $174.0 million at September 30, 2017 and $155.0 million at December 31, 2016. We have an “Ideal Way” line of credit with the FHLBBFHLB for ~~$9.5 million at September 30, 2017 and December 31, 2016.~~up to $9.5 million. Interest on this line of credit is payable at a rate determined and reset by the ~~FHLBB~~FHLB on a daily basis. The outstanding principal is due daily ~~but~~and the portion not repaid will be automatically renewed. ~~There~~At September 30, 2020 and December 31, 2019, there were no advances outstanding ~~on the~~under this line.

The Bank also had a line of credit ~~as of September 30, 2017 or December 31, 2016. Customer repurchase agreements were $18.5~~in the amount up to $15.0 million with a correspondent bank at ~~September 30, 2017 and $17.4 million at December 31, 2016. A customer repurchase agreement is an agreement by us to sell to and repurchase from the customer~~ an interest in specific securities issued by or guaranteed by the U.S. government. This transaction settles immediately on a same day basis in immediately available funds. Interest paid is commensurate with other products of equal interest and credit risk. In addition, we have lines of credit of $4.0 million and $50.0 million with Bankers Bank Northeast (“BBN”) and PNC Bank, respectively. The interest rates on these lines arerate determined and reset on a daily ~~basis by each respective bank.~~basis. There were no advances outstanding under ~~these lines of credit~~this line at September 30, ~~2017~~2020 and 2019. We also had a $50.0 million line of credit with another correspondent bank at an interest rate determined and reset on a daily basis. There were no advances outstanding under this line at September 30, 2020 and 2019. As of September 30, 2020, we also have an available line of credit of $18.3 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. There were no advances outstanding under this line at September 30, 2020 or December 31, ~~2016. As part of our contract with BBN, we are required to maintain a reserve balance of $300,000 with BBN for our use of this line of credit.~~2019.

~~Long-term debt consists of FHLBB advances with an original maturity of one year or more.~~

At September 30, ~~2017,~~2020, we had ~~$106.3~~$151.3 million in long-term debt with the ~~FHLBB. This compares~~FHLB, compared to ~~$124.8~~$205.5 million in long-term debt with ~~FHLBB advances~~the FHLB at December 31, ~~2016.~~

~~Customer repurchase agreements are collateralized by government-sponsored enterprise obligations with fair value~~2019. In addition, during the second quarter of ~~$6.8 million and $24.6 million, and mortgage backed securities with~~2020, in order to fund a fair value of $61.1 million and $57.6 million, at September 30, 2017 and December 31, 2016, respectively. The securities collateralizing repurchase agreements are subject to fluctuations in fair value. We monitor the fair valueportion of the ~~collateral on a periodic basis, and would pledge additional collateral if necessary based on changes in fair value of collateral~~Bank’s PPP loan originations, the Bank borrowed $26.4 million, or ~~the balances~~12.0% of the ~~repurchase agreements.~~PPP loans, from the Federal Reserve Bank’s PPP Loan Facility (“PPPLF”), which carried a rate of 0.35% fixed for two years with interest due at maturity. The Bank pledged eligible PPP loans as collateral for the borrowings. In July of 2020, the Bank repaid the $26.4 million in PPPLF funding utilizing excess liquidity on hand.

~~All FHLBB advances are collateralized by a blanket lien on our owner occupied residential real estate loans and certain eligible commercial real estate loans.~~

9. PENSION BENEFITS

We ~~maintain~~provide a defined benefit pension plan for ~~our~~ eligible ~~employees. On September 30, 2016, we effected~~employees (the “Plan”). Employees must work a ~~soft freeze on~~minimum of 1,000 hours per year to be eligible for the ~~Plan and therefore no new participants will be included~~Plan. Eligible employees become vested in the Plan after ~~such effective date.~~five years of service. We plan to contribute to the pension plan the amount required to meet the minimum funding standards under Section 412 of the Internal Revenue Code of 1986, as amended. Additional contributions will be made as deemed appropriate by management in conjunction with the pension plan’s actuaries. We have not yet determined how much we expect to contribute to our pension plan in ~~2017.~~2020. No contributions have been made to the plan for the nine months ended September 30, ~~2017.~~2020. The pension plan assets are invested in ~~group annuity contracts with the~~various pooled separate investment accounts offered by Principal Life Insurance Company, a division of Principal Financial Group, who ~~also acts as third-party administrator for our 401(k)~~is the Custodian of the Plan (the “Custodian”). The Plan is administered by an officer of Westfield Bank. On September 30, 2016, we effected a soft freeze on the Plan and ~~ESOP plans.~~therefore no new participants will be included in the Plan after such effective date.

The following table provides information regarding net pension benefit costs for the periods shown:


	Three Months Ended						Nine Months Ended,
	September 30,						September 30,
	2020			2019			2020			2019
	(In thousands)
Service cost	$	357		$	274		$	1,066		$	822
Interest cost		293			284			870			852
Expected return on assets		(382	)		(308	)		(1,146	)		(924	)
Amortization of actuarial loss		99			32			296			96
Net periodic pension cost	$	367		$	282		$	1,086		$	846

Three Months Ended
September 30, Nine Months Ended,
September 30,
2017 2016 2017 2016
(In thousands)
Service cost $ 245 $ 283 $ 778 $ 854
Interest cost 254 240 761 719
Expected return on assets (298 ) (275 ) (895 ) (823 )
Amortization of actuarial losses 51 24 153 71
Net periodic pension cost $ 252 $ 272 $ 797 $ 821

10. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using ~~Derivatives~~Derivatives.

~~We are~~The Company is exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings.

The following table presents information about interest rate swaps at September 30, 2020 and December 31, 2019:

September 30, 2020	Notional		Weighted Average		Weighted Average Rate						Estimated Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Non-hedging derivatives:
Loan-level swaps – dealer	$	13,599		12.7		1.98	%		3.75	%	$	(1,808	)
Loan-level swaps – borrower		13,599		12.7		3.75	%		1.98	%		1,808
Forward starting loan-level swaps - dealer		22,390		11.8								(335	)
Forward starting loan-level swaps - borrower		22,390		11.8								335
Total	$	71,978									$	0

2326

~~Fair Values of Derivative Instruments on the Balance Sheet~~

December 31, 2019	Notional		Weighted Average		Weighted Average Rate						Estimated Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Cash flow hedges:
Interest rate swaps on FHLB borrowings	$	35,000		2.7		1.89	%		3.54	%	$	(1,798	)
Non-hedging derivatives:
Loan-level swaps – dealer		6,484		13.2		3.45	%		3.79	%		(149	)
Loan-level swaps – borrower		6,484		13.2		3.79	%		3.45	%		149
Total	$	47,968									$	(1,798	)

~~The table below presents~~At September 30, 2020, the ~~fair value of our derivative financial~~Company had $72.0 million in derivatives designated as non-hedging instruments, compared to $35.0 million in derivatives designated as hedging instruments and $13.0 million in derivatives designated as ~~well~~non-hedging instruments at December 31, 2019. The Company had no derivatives designated as ~~our classification on the balance sheet as of~~cash flow hedges at September 30, ~~2017 and December 31, 2016.~~2020.

September 30, 2017 Asset Derivatives Liability Derivatives
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
(In thousands)

Interest rate swaps Other Assets $ 1 Other Liabilities $ 2,710

December 31, 2016 Asset Derivatives Liability Derivatives
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
(In thousands)

Interest rate swaps Other Assets $ — Other Liabilities $ 3,152

Cash Flow Hedges of Interest Rate ~~Risk~~Risk.

~~Our~~The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage ~~our~~its exposure to interest rate movements. To accomplish ~~this objective,~~these objectives, we entered into interest rate swaps as part of our interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for our making fixed payments.

~~The following table presents information about our cash flow hedges at September 30, 2017 and December 31, 2016:~~

Notional Weighted
Average Weighted Average Rate Estimated Fair
September 30, 2017 Amount Maturity Receive Pay Value
(In thousands) (In years) (In thousands)
Interest rate swaps on FHLBB borrowings $ 75,000 2.6 1.31 % 2.46 % $ (2,709 )

Notional Weighted
Average Weighted Average Rate Estimated Fair
December 31, 2016 Amount Maturity Receive Pay Value
(In thousands) (In years) (In thousands)
Interest rate swaps on FHLBB borrowings $ 75,000 3.4 0.92 % 2.46 % $ (3,152 )

During 2016, we terminated a forward-starting interest rate swap with a notional amount of $32.5 million and incurred a termination fee of $3.4 million. During 2015, we terminated forward-starting interest rate swaps with notional amounts of $47.5 million and incurred a termination fee of $2.4 million. The termination fees are amortized as a reclassification of other comprehensive income into interest expense over the terms of the previously hedged borrowings, which were six and five years for the swaps terminated in 2016 and 2015, respectively.

For derivatives designated as cash flow hedges, the ~~effective portion of~~ changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects ~~earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in~~ earnings. We assess the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. We did not recognize any hedge ineffectiveness in earnings during the nine months ended September 30, 2017 or 2016.

We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of six years (excluding forecasted payment of variable interest on existing financial instruments).

Non-hedging Derivatives.

Derivatives not designated as hedges are not speculative, but rather result from a service the Company provides to certain customers. The Company executes loan-level derivative products such as interest-rate swap agreements with commercial banking customers to aid them in managing their interest-rate risk by converting floating-rate loan payments to fixed-rate loan payments. The Company concurrently enters into offsetting swaps with a third-party financial institution, effectively minimizing the Company’s net risk exposure resulting from such transactions. The third-party financial institution exchanges the customer’s fixed-rate loan payments for floating-rate loan payments. As the interest-rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings.

Fair Values of Derivative Instruments on the Balance Sheet.

The table below presents the fair value of our derivative financial instruments designated as hedging and non-hedging instruments as well as our classification on the balance sheet as of September 30, 2020 and December 31, 2019.

September 30, 2020	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)

Derivatives not designated as hedging instruments:
Interest rate swap – with customers	Other Assets	$	2,143		$	—
Interest rate swap – with counterparties			—	Other Liabilities		2,143
Total derivatives not designated as hedging instruments		$	2,143		$	2,143

December 31, 2019	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)

Derivatives designated as hedging instruments:
Interest rate swaps – cash flow hedge	Other Assets	$	—	Other Liabilities	$	1,798
Total derivatives designated as hedging instruments		$	—		$	1,798
Derivatives not designated as hedging instruments:
Interest rate swap – with customers	Other Assets	$	149		$	—
Interest rate swap – with counterparties			—	Other Liabilities		149
Total derivatives not designated as hedging instruments		$	149		$	149

Effect of Derivative Instruments in the Consolidated Statements of Net Income and Changes in Shareholders’ Equity.

The table below presents the pre-tax net losses of our cash flow hedges for the periods ~~indicated.~~indicated:

Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Interest rate swaps $ (14 ) $ 417 $ (307 ) $ (2,863 )

	Amount of Gain (Loss) Recognized in OCI on Derivative
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
		(In thousands)

Interest rate swaps	$	(14	)	$	(142	)	$	(1,254	)	$	(1,053	)

Amounts reported in accumulated other comprehensive loss related to these derivatives are reclassified to interest expense as interest payments are made on our designated rate sensitive ~~assets/~~liabilities. The table below presents the amount reclassified from accumulated other comprehensive ~~income~~loss into net income as interest expense for ~~the effective portion of~~ interest rate swaps and termination ~~fees was $497,000 and $397,000 during~~fees:

	Amount of Loss Reclassified from OCI into Expense (Effective Portion)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
		(In thousands)

Interest rate swaps	$	443	$	374	$	1,351	$	1,056

During the ~~three months~~quarter ended September 30, ~~2017 and 2016, respectively and $1.6~~2020, the Company terminated one interest rate swap designated as a cash flow hedge prior to its respective maturity date. The net loss reclassified into earnings totaled $2.4 million ~~and $1.0 million during~~for the ~~nine months~~quarter ended September 30, ~~2017 and 2016, respectively.~~ 2020. This loss was immediately recognized into earnings as the forecasted transaction will not occur.

During the next 12 months, we estimate that ~~$1.8 million~~$590,000 will be reclassified as an increase in interest expense. ~~During the nine months ended September 30, 2017 and 2016, no gains or losses were reclassified from accumulated other comprehensive loss into income for ineffectiveness on cash flow hedges.~~

Credit-risk-related Contingent ~~Features~~Features.

By using derivative financial instruments, we expose ourselves to credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative is negative, we owe the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that we believe to be creditworthy and by limiting the amount of exposure to each counterparty.

We have agreements with our derivative counterparties that contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. We also have agreements with certain of our derivative counterparties that contain a provision where if we fail to maintain our status as well capitalized, then the counterparty could terminate the derivative positions and we would be required to settle our obligations under the agreements. Certain of our agreements with our derivative counterparties contain provisions where if a formal administrative action by a federal or state regulatory agency occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.

At September 30, 2020 and December 31, 2019, we had a net liability position of $2.1 million and $1.8 million with our counterparties, respectively. As of September 30, ~~2017, the termination value~~2020, we had minimum collateral posting thresholds with certain of ~~derivatives~~our derivative counterparties and $2.3 million in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $2.7 million. As of September 30, 2017, we have mortgage-backed securities with a fair value of $3.0 million and $50,000 cash posted as collateral against our obligations under these agreements. If we had breached any of these provisions at September 30, ~~2017,~~2020, we could have been required to settle our obligations under the agreements at the termination value.

11. FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair ~~Value~~Value.

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for our various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair Value ~~Hierarchy~~Hierarchy. –

We group our assets and liabilities that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level ~~1 –~~1: Valuation is based on quoted prices in active markets for identical assets. Level 1 assets generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level ~~2 –~~2: Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level ~~3 –~~3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Methods and assumptions for valuing our financial instruments measured at fair value on a recurring basis are set forth below. Estimated fair values are calculated based on the value without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications or estimated transaction cost.

~~Cash and cash equivalents~~Securities Available-for-sale. ~~– The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.~~

~~Securities and mortgage-backed securities~~~~– Fair value of securities are primarily measured using unadjusted information from an independent pricing service.~~ The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include marketable equity securities. All other securities are measured at fair value in Level 2 and are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. These securities include government-sponsored enterprise obligations, state and municipal obligations, residential mortgage-backed securities guaranteed and sponsored by the U.S. government or an agency thereof. Fair value measurements are obtained from a third-party pricing service and are not adjusted by management.

~~Federal Home Loan Bank and other stock~~ ~~– These investments are carried at cost which is their estimated redemption value.~~

Interest Rate Swaps.

~~Loans receivable~~ – For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans and residential real estate loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

~~Accrued interest~~ ~~– The carrying amounts of accrued interest approximate fair value.~~

~~Deposit liabilities~~ – The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and time deposits approximate their fair values at the reporting date. Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits.

~~Short-term borrowings and long-term debt~~ – The fair values of our debt instruments are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

~~Interest rate swaps~~ – The valuation of our interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We have determined that the majority of the inputs used to value our interest rate derivatives fall within Level 2 of the fair value hierarchy.

~~Commitments to extend credit~~ –Assets and Liabilities Measured at Fair ~~values for off-balance sheet lending commitments are based~~Value on fees currently charged to enter into similar agreements, taking into account the term and credit risk. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Such differences are not considered significant.a Recurring Basis.

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	191,569	$	—	$	191,569
Marketable equity securities		6,965		—		—		6,965
Interest rate swaps		—		2,143		—		2,143
Total assets	$	6,965	$	193,712	$	—	$	200,677

Liabilities:
Interest rate swaps	$	—	$	2,143	$	—	$	2,143

September 30, 2017
Level 1 Level 2 Level 3 Total
Assets: (In thousands)
Securities available-for-sale
Government-sponsored mortgage-backed securities $ — $ 190,321 $ — $ 190,321
U.S. government guaranteed mortgage-backed securities — 16,961 — 16,961
Corporate bonds — 56,553 — 56,553
State and municipal bonds — 3,225 — 3,225
Government-sponsored enterprise obligations — 24,453 — 24,453
Mutual funds 6,406 — — 6,406
Total securities available-for-sale 6,406 291,513 — 297,919

Interest rate swaps — 1 — 1
Total assets $ 6,406 $ 291,514 $ — $ 297,920

Liabilities:
Interest rate swaps $ — $ 2,710 $ — $ 2,710


	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	227,708	$	—	$	227,708
Marketable equity securities		6,737		—		—		6,737
Interest rate swaps		—		149		—		149
Total assets	$	6,737	$	227,857	$	—	$	234,594

Liabilities:
Interest rate swaps	$	—	$	1,947	$	—	$	1,947

December 31, 2016
Level 1 Level 2 Level 3 Total
Assets: (In thousands)
Government-sponsored mortgage-backed securities $ — $ 180,136 $ — $ 180,136
U.S. government guaranteed mortgage-backed securities — 17,350 — 17,350
Corporate bonds — 50,317 — 50,317
State and municipal bonds — 4,008 — 4,008
Government-sponsored enterprise obligations — 42,008 — 42,008
Mutual funds 6,296 — — 6,296
Total assets $ 6,296 $ 293,819 $ — $ 300,115

Liabilities:
Interest rate swaps $ — $ 3,152 $ — $ 3,152

Assets Measured at Fair Value on a Non-recurring Basis.

~~Also, we~~

We may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. ~~There were no assets measured at fair value on a non-recurring basis at September 30, 2017.~~ The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related assets at September 30, ~~2016.~~2020 and December 31, 2019. Total losses for the three and nine months ended September 30, 2020 and 2019, respectively, represent the change in carrying value as a result of fair value adjustments related to assets still held at ~~September 30, 2016.~~the periods indicated.

	At						Three Months Ended		Nine Months Ended
	September 30, 2020						September 30, 2020		September 30, 2020
							Total		Total
	Level 1		Level 2		Level 3		Losses		Losses
	(In thousands)
Impaired Loans	$	—	$	—	$	151	$	13	$	119

	At						Three Months Ended		Nine Months Ended
	December 31, 2019						September 30, 2019		September 30, 2019
							Total		Total
	Level 1		Level 2		Level 3		Losses		Losses
	(In thousands)
Impaired Loans	$	—	$	—	$	1,836	$	380	$	1,077

At September 30, 2016 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
Total Total
Level 1 Level 2 Level 3 Gains (Losses) Gains (Losses)
(In thousands)
Impaired Loans $ — $ — $ 2,059 $ — $ (220 )

The amount of impaired loans represents the carrying value, and net of the related write-down ~~and~~or valuation allowance of impaired loans for which adjustments are based on the estimated fair value of the underlying collateral. The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on real estate appraisals performed by independent licensed or certified appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management will discount appraisals as deemed necessary based on the date of the appraisal and new information deemed relevant to the valuation. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The resulting losses were recognized in earnings through the provision for loan losses. ~~Impaired loans with adjustments resulting from discounted cash flows or without a specific reserve are not included in this disclosure.~~

There were no ~~transfers to or from Level 1 and 2 during the three and nine months ended September 30, 2017 and 2016. We did not measure any~~ liabilities measured at fair value on a non-recurring basis ~~on the consolidated balance sheets.~~at September 30, 2020 and December 31, 2019.

Summary of Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdingsValues of a particular financial instrument. Where quoted market prices are not available, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the estimates. Financial Instruments.

The estimated fair values of our financial instruments are as follows:


	September 30, 2020
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	172,112	$	172,112	$	—	$	—	$	172,112
Securities available-for-sale		191,569		—		191,569		—		191,569
Marketable equity securities		6,965		6,965		—		—		6,965
Federal Home Loan Bank of Boston and other restricted stock		9,252		—		—		9,252		9,252
Loans - net		1,953,695		—		—		1,942,727		1,942,727
Accrued interest receivable		7,737		—		—		7,737		7,737
Mortgage servicing rights		168		—		168		—		168
Derivative assets		2,143		—		2,143		—		2,143

Liabilities:
Deposits		2,011,291		—		—		2,014,366		2,014,366
Long-term debt		151,258		—		152,568		—		152,568
Accrued interest payable		284		—		—		284		284
Derivative liabilities		2,143		—		2,143		—		2,143


	December 31, 2019
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	24,741	$	24,741	$	—	$	—	$	24,741
Securities available-for-sale		227,708		—		227,708		—		227,708
Marketable equity securities		6,737		6,737		—		—		6,737
Federal Home Loan Bank of Boston and other restricted stock		14,477		—		—		14,477		14,477
Loans - net		1,761,932		—		—		1,729,150		1,729,150
Accrued interest receivable		5,313		—		—		5,313		5,313
Mortgage servicing rights		219		—		345		—		345
Derivative assets		149		—		149		—		149

Liabilities:
Deposits		1,677,864		—		—		1,679,851		1,679,851
Short-term borrowings		35,000		—		35,004		—		35,004
Long-term debt		205,515		—		205,850		—		205,850
Accrued interest payable		525		—		—		525		525
Derivative liabilities		1,947		—		1,947		—		1,947

12. LEASES

The Company determines if an arrangement is a lease at inception. Effective in 2019, operating leases are included within other assets and other liabilities in our consolidated balance sheets. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. We have not elected the practical expedient to account for lease and non-lease components as one lease component. Additionally, the Company has elected the practical expedient whereby expired leases, existing operating lease classifications and initial direct costs will not be reassessed at inception. The Company has operating leases for certain of our banking offices and ATMs. Our leases have remaining lease terms of less than one year to eighteen years, some of which include options to extend the leases for additional five-year terms up to fifteen years.

The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
			(In thousands)

Amortization of ROU assets	$	325	$	244	$	863	$	729
Interest on lease liabilities		74		60		197		184
Operating lease cost	$	399	$	304	$	1,060	$	913

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30,
	2020		2019
	(In thousands)

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,016	$	878
ROU assets obtained in exchange for lease obligations:
Operating leases		4,211		411

Supplemental balance sheet information related to leases was as follows:


	September 30, 2020		December 31, 2019
	(In thousands)

Operating lease ROU assets	$	10,146	$	6,795
Operating lease liabilities	$	10,236	$	6,840

The weighted average remaining lease term for our operating leases was 10.9 years with a weighted average discount rate of 2.83% at September 30, 2020.

Maturities of the Company’s operating lease liabilities were as follows (in thousands):


Years Ending December 31,
2020	$	374
2021		1,450
2022		1,385
2023		1,153
2024		1,088
Thereafter		6,638
Total lease payments		12,088
Less imputed interest		(1,852	)
Total	$	10,236

September 30, 2017
Carrying Value Fair Value
Level 1 Level 2 Level 3 Total
(In thousands)
Assets:
Cash and cash equivalents $ 28,900 $ 28,900 $ —   $ —   $ 28,900
Securities available-for-sale 297,919 6,406 291,513 —   297,919
Federal Home Loan Bank of Boston and other restricted stock 15,704 —   —   15,704 15,704
Loans - net 1,608,255 —   —   1,577,309 1,577,309
Accrued interest receivable 5,764 —   —   5,764 5,764
Mortgage servicing rights 380 —   380 —   380
Derivative assets 1 —   1 —   1

Liabilities:
Deposits 1,515,198 —   —   1,514,641 1,514,641
Short-term borrowings 192,465 —   192,482 —   192,482
Long-term debt 106,339 —   106,517 —   106,517
Accrued interest payable 394 —   —   394 394
Derivative liabilities 2,710 —   2,710 —   2,710

December 31, 2016
Carrying Value Fair Value
Level 1 Level 2 Level 3 Total
(In thousands)
Assets:
Cash and cash equivalents $ 70,234 $ 70,234 $ —   $ —   $ 70,234
Securities available-for-sale 300,115 6,296 293,819 —   300,115
Federal Home Loan Bank of Boston and other restricted stock 16,124 —   —   16,124 16,124
Loans - net 1,556,416 —   —   1,525,274 1,525,274
Accrued interest receivable 5,782 —   —   5,782 5,782
Mortgage servicing rights 465 —   628 —   628

Liabilities:
Deposits 1,518,071 —   —   1,521,580 1,521,580
Short-term borrowings 172,351 —   172,351 —   172,351
Long-term debt 124,836 —   125,183 —   125,183
Accrued interest payable 1,012 —   —   1,012 1,012
Derivative liabilities 3,152 —   3,152 —   3,152

~~12.~~ 13. RECENT ACCOUNTING PRONOUNCEMENTS

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09,~~~~Revenue from Contracts with Customers~~ (Topic 606). The amendments in this Update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual reporting periods, including interim periods, beginning after December 15, 2017. We do not expect the application of this guidance to have a material impact on our consolidated financial statements other than expanded disclosures regarding non-interests income.

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments – Overall~~, (Subtopic 825-10). The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Targeted improvements to generally accepted accounting principles include the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income and the elimination of the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect the application of this guidance to have a material impact on our consolidated financial statements due to the limited amounts of marketable equity securities owned by the Company.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases~~ (Topic 842), which supersedes the requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted for all entities. Management is currently evaluating the impact to the consolidated financial statements of adopting this Update but does not expect adoption to have a material impact on our consolidated financial statements. As of September 30, 2017, the Company had $9.9 million of outstanding operating leases pertaining to banking premises, which would be recognized as assets and corresponding liabilities upon adoption.

~~In March 2016, the FASB issued ASU 2016-09,~~~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~ (Topic 718). This Update was issued as part of the FASB’s simplification initiative. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this Update during the nine months ended September 30, 2017 which resulted in the recognition of $821,000 in income tax benefit that would have previously been recognized in additional paid in capital.

~~In June 2016, the FASB issued ASU No.~~ 2016-13,Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, ~~2019, and for interim periods within that fiscal years. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.~~2022. The Company is in the process of ~~evaluating~~implementing the standard. We have put together a project team that has begun to identify appropriate loan segments along with related historical losses for each segment and potential models that would be most appropriate for each individual segment. We have not quantified the effects of any models, but do expect the standard to significantly change the approach to calculating our allowance for loan losses.

In August ~~2016,~~2018, the FASB issued ASU ~~No. 2016-15,~~2018-13, ~~Statement of Cash Flows~~Fair Value Measurement (Topic ~~230),~~820): ~~Classification of Certain Cash Receipts and Cash Payments~~Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ~~Update provides guidance on eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement~~ASU removes and modifies the previously required disclosures relating to fair value measurements. Specifically, the ASU removes the required disclosure of ~~zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate~~amounts and reasons for transfers between Level 1 and Level 2 of the ~~borrowing; contingent consideration payments made after~~fair value hierarchy, the policy for timing of transfers between levels, the valuation process for Level 3 fair value measurements and the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of a ~~business combination; proceeds from~~reporting period. It also modifies the ~~settlement~~required roll forward of ~~insurance claims; proceeds from~~Level 3 fair value measurements to a disclosure of any transfers into and out of Level 3, increases disclosure for investments in entities that calculate net asset value, and clarifies the ~~settlement~~measurement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; separately identifiable cash flows and application of the predominance principle.uncertainty disclosure. The ~~amendments in this Update are~~ASU became effective for ~~fiscal years,~~the Company on January 1, 2020, and ~~interim periods within those fiscal years, beginning after December 15, 2017. Early~~as this standard relates to disclosures, its adoption ~~is permitted. We do~~did not ~~expect the application of this guidance to~~ have a material impact on our consolidated financial statements.

~~In March 2017, the FASB issued ASU No. 2017-08—~~~~Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)~~:~~Premium Amortization on Purchased Callable Debt Securities~~. This Update amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We do not expect the application of this guidance to have a material impact on our consolidated financial statements.

~~In August 2017, the FASB issued ASU 2017-12,~~~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~(ASU 2017-12). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company plans to adopt ASU 2017-12 on January 1, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we do not expect the application of this guidance to have a material impact on our consolidated financial statements.

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

~~Overview~~Overview.

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

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

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

●

~~grow our~~Grow the Company’s commercial loan portfolio and ~~industrial and~~related commercial ~~real estate loan portfolios~~deposits by targeting businesses in our primary market ~~areas~~area of Hampden County and Hampshire County in western Massachusetts and Hartford and Tolland Counties in northern Connecticut ~~as a means~~ to increase the ~~yield on~~net interest margin and ~~diversify our~~ loan ~~portfolio and build transactional deposit account relationships;~~income;

●

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

●

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

●

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

●

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

●

~~supplement the commercial focus, grow the residential loan portfolio~~Consider growth through acquisitions. We may pursue expansion opportunities in existing or adjacent strategic locations with companies that add complementary products to ~~diversify risk~~our existing business and ~~deepen customer relationships.~~at terms that add value to our existing shareholders.

You should read the following financial results for the three and nine months ended September 30, ~~2017~~2020 in the context of this strategy. The third quarter financial results for 2016 reflect the pre-merger operations of the Company. As a result, the Company’s 2017 third quarter may not be comparable to financial results for the third quarter of 2016.

●

Net income was ~~$3.8~~$2.1 million, or ~~$0.13~~$0.08 diluted earnings per ~~diluted~~ share, for the three months ended September 30, ~~2017,~~2020, compared to ~~$628,000,~~$3.2 million, or ~~$0.04~~$0.12 diluted earnings per ~~diluted~~ share, for the same period in ~~2016.~~2019. For the nine months ended September 30, ~~2017,~~2020, net income was ~~$12.7~~$6.2 million, or ~~$0.42~~$0.25 diluted earnings per ~~diluted~~ share, as compared to net income of ~~$3.0~~$9.9 million, or ~~$0.17~~$0.38 diluted earnings per ~~diluted~~ share, for the same period in ~~2016.~~2019. Both periods in 2020 were impacted by a higher provision for loan losses resulting from the COVID-19 pandemic mandated shutdowns and economic disruption that caused elevated unemployment levels and deterioration in household, business, economic and market conditions.

●

The provision for loan losses was $200,000 and $375,000 for the three months ended September 30, 2017 and 2016, respectively, and $850,000 and $400,000 for the nine months ended September 30, 2017 and 2016, respectively. The lower provision for the nine months ended September 30, 2016 was primarily the result of a $1.0 million partial recovery on a previously charged-off single commercial real estate loan during the first quarter of 2016.

●

~~Net interest income was $14.8~~$2.7 million and ~~$8.3~~$1.3 million for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and $7.3 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively.

●

Net interest income was $16.0 million and $14.5 million for the three months ended September 30, 2020 and 2019, respectively. The net interest margin was 2.81% for the three months ended September 30, 2020, compared to 2.88% for the same period in 2019. The net interest margin, on a tax-equivalent basis, was 2.83% for the three months ended September 30, 2020, compared to 2.91% for the same period in 2019. Net interest income was $45.6 million and $43.1 million for the nine months ended September 30, 2020 and 2019, respectively. The net interest margin was 2.80% and 2.90% for the nine months ended September 30, 2020 and 2019, respectively. The net interest margin, on a tax-equivalent basis, was ~~3.09% for the three months ended September 30, 2017, compared to 2.65% for the same period in 2016. Net interest income was $44.0 million~~2.82% and ~~$24.6 million~~2.93% for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~The net interest margin, on a tax-equivalent basis, was 3.09% and 2.62% for the nine months ended September 30, 2017 and 2016, respectively.~~

CRITICAL ACCOUNTING ~~POLICIES~~POLICIES.

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

Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. There have been no material changes to our critical accounting policies during the nine months ended September 30, ~~2017.~~2020. For additional information on our critical accounting policies, please refer to the information contained in Note 1 of the accompanying unaudited consolidated financial statements and Note 1 of the consolidated financial statements included in our ~~2016~~2019 Annual Report.

RECENT DEVELOPMENTS: CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.

Beginning in the first quarter of 2020, we responded to the ongoing COVID-19 pandemic while prioritizing the health and safety of our community. On March 23, 2020, the Governor of Massachusetts issued an emergency order requiring all businesses and organizations that do not provide COVID-19 “essential services” to close their physical workplaces and facilities to workers, customers and the public from March 24, 2020 until April 7, 2020, which was subsequently extended to May 18, 2020. Although Massachusetts began reopening non-essential businesses in June 2020, the order put significant pressure on the local business community.

As a consequence of the order, we closed our branches and started the transition to working remotely. Our drive-up windows and ATMs remained open while we continued to service our customers through scheduled appointments and online channels. On June 29, 2020, we re-opened our branch lobbies to customers under Massachusetts recommended social distancing, safety and sanitation guidelines, while still offering appointments and online channel transactions as a means of promoting social distancing where possible. On July 8, 2020, Massachusetts entered the first step of Phase 3 of the re-opening plan; however, on August 7, 2020, Massachusetts’ Governor Baker, indefinitely postponed the second step of Phase 3 of the plan. On September 29, 2020, Governor Baker announced that effective October 5, 2020, the Commonwealth of Massachusetts would transition to the second step of Phase 3 only in lower-risk communities. Lower-risk communities are defined as cities or towns that have not been a “red” community in any of the last three weekly Department of Public Health weekly reports. Under the final phase of the reopening plan, the “new normal,” businesses will not be allowed to resume normal operations until an effective treatment or vaccine is discovered.

Loan Portfolio:

The following table provides some insight into the composition of the Bank’s loan portfolio and remaining loan modifications, excluding PPP loans, as of September 30, 2020:

Commercial Real Estate	% of Total Loans (1)			% of Bank Risk-Based Capital			% of Balance Modified (2)
Apartment		8.8	%		63.8	%		0.3	%
Office		7.9	%		56.9	%		—
Industrial		6.6	%		44.7	%		—
Retail/Shopping		6.6	%		47.6	%		0.1	%
Hotel		3.1	%		22.3	%		81.3	%
Residential non-owner		2.7	%		19.8	%		—
Auto sales		2.1	%		15.1	%		—
Mixed-use		2.0	%		14.6	%		0.7	%
Adult care/Assisted living		2.1	%		15.3	%		20.2	%
College/school		1.4	%		10.4	%		—
Auto service		0.8	%		15.1	%		—
Gas station/convenience store		0.6	%		4.6	%		—
Restaurant		0.6	%		4.6	%		2.7	%
Other ⁽³⁾		0.9	%		6.6	%		6.4	%
Total commercial real estate		46.3	%					6.6	%

Commercial and Industrial Loans	% of Total Loans (1)			% of Bank Risk-Based Capital			% of Balance Modified (2)
Manufacturing		2.8	%		20.3	%		—
Wholesale trade		2.5	%		18.2	%		—
Specialty trade		0.9	%		6.4	%		—
Heavy and civil engineering construction		0.8	%		5.7	%		2.4	%
Educational services		0.6	%		4.5	%		0.5	%
Transportation and warehouse		0.6	%		4.5	%		53.8	%
Healthcare and social assistance		0.6	%		4.3	%		—
Auto sales		0.4	%		2.8	%		—
All other C&I ⁽¹⁾⁽³⁾		3.5	%		23.3	%		0.1	%
Total commercial and industrial loans		12.7	%					2.9	%

Residential and Consumer Loans	% of Total Loans (1)			% of Bank Risk-Based Capital			% of Balance Modified (2)
Residential real estate		40.7	%		294.3	%		0.9	%
Consumer loans		0.3	%		2.3	%		—
Total residential and consumer loans		41.0	%					0.9	%

Total Portfolio	% of Total Loans (1)			% of Bank Risk-Based Capital			% of Balance Modified (2)
Commercial real estate		46.3	%		335.4	%		6.6	%
Commercial and industrial		12.7	%		91.8	%		2.9	%
Residential real estate		40.7	%		294.3	%		0.9	%
Consumer loans		0.3	%		2.3	%		—
Total								3.8	%

(1)

Excludes PPP loans of $223.1 million as of September 30, 2020.

(2)

Modified balances as of September 30, 2020 (Commercial real estate loans $53.6 million; Commercial and industrial loans $6.4 million; and Residential loans $6.3 million).

(3)

Other consists of multiple industries.

Although the Bank’s loan portfolio contains impacted sectors and the commercial real estate and residential real estate sectors represent more than 100% of the Bank’s total risk-based capital, the concentration limits remain acceptable. The Company monitors lending exposure by industry classification to determine potential risk associated with industry concentrations, if any, that could lead to additional credit loss exposure. As stated above, as a result of the COVID-19 pandemic, the Company identified sectors that have been materially impacted including, but not limited to: hospitality, transportation, retail, and restaurants and food service. These sectors potentially carry a higher level of credit risk, as many of these borrowers have incurred a significant negative impact to their businesses resulting from the governmental stay-at-home orders as well as travel limitations.

Paycheck Protection Program.

As a Preferred Lender with the Small Business Administration (“SBA”), the Company was in a position to react quickly to the PPP component of the March 27, 2020 $2.2 trillion fiscal stimulus bill known as the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) launched by the U.S. Department of Treasury (“Treasury”) and the SBA. An eligible business was able to apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs,” or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity, subsequently extended to a five-year loan term maturity for loans granted on or after June 5, 2020 and (c) principal and interest payments deferred from six months to ten months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

As of September 30, 2020, the Company received funding approval from the SBA for over 1,386 applications totaling $223.1 million, with processing fees amounting to $7.1 million. On June 5, 2020, the Paycheck Protection Program Flexibility Act (“Flexibility Act”) was signed into law and extended the June 30, 2020 safe harbor date to December 31, 2020. If borrowers exercise the safe harbor option and return the PPP loan proceeds before December 31, 2020, we are required to return the processing fee to the SBA. On October 8, 2020, the SBA and Treasury released a simplified PPP loan forgiveness application for loans with balances of $50,000 or less. Since April 6, 2020, the Company has originated 799 PPP loans with balances of $50,000 or less totaling $15.4 million.

Loan Modifications/Troubled Debt Restructurings.

The banking regulatory agencies, through an Interagency Statement dated April 7, 2020, have encouraged financial institutions to work “prudently” with borrowers who request loan modifications or deferrals as a result of the economic impacts of COVID-19. Pursuant to Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Financial institutions can then suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting under U.S. GAAP. The Company has adopted this policy election to address COVID-19 loan modification requests that have been received from the earlier of either December 31, 2020 or the 60^th day after the end of the COVID-19 national emergency.

As a result of the COVID-19 pandemic, the Company granted deferred loan payments for impacted commercial, residential and consumer customers who have experienced financial hardship due to COVID-19. The loan payment deferrals can be up to 90 days, depending upon the financial needs of each customer. Further deferrals will be re-evaluated on a customer-by-customer basis upon the expiration of the existing deferral period. As of June 30, 2020, the deferred loan payment modifications totaled $261.0 million (525 loans), for which principal and interest payments were deferred and represented 15% of the total loan portfolio, excluding PPP loans. As of September 30, 2020, $187.3 million, or 463 loans resumed regular payments, representing a decrease of 75.0%, from 15% of total loans at June 30, 2020, to 3.8% of total loans at September 30, 2020. The remaining deferred loan payment modifications totaled $66.3 million, or 3.8% of total loans, excluding PPP loans.

The table below breaks out the modifications granted under the CARES Act:

						June 30, 2020							September 30, 2020
						CARES Act Modifications							CARES Act Modifications
Loan Segment⁽¹⁾⁽²⁾	Total Loan Segment Balance at September 30, 2020		% of Total Loans			Modification Balance		# of Loans Modified		% of Loan Segment Balance (3)			Modification Balance		# of Loans Modified		% of Total Loan Segment Balance (4)
(in millions)
Commercial real estate	$	812.1		46.3	%	$	200.0		131		24.0	%	$	53.6		19		6.6	%
Commercial and industrial		222.3		12.7	%		19.1		162		8.3	%		6.4		6		2.9	%
Residential real estate		712.4		40.7	%		41.7		219		5.9	%		6.3		25		0.9	%
Consumer		5.3		0.3	%		0.2		13		3.8	%		—		—		—
Total	$	1,752.3		100.0	%	$	261.0		525		14.7	%	$	66.3		50		3.8	%

The table below breaks out the status of the remaining modifications granted under the CARES Act as of September 30, 2020:

	Loans Under 1^st Modification							Loans Granted 2^nd Modification							Total CARES Act Modifications
Loan Segment⁽¹⁾⁽²⁾	Modification Balance		# of Loans		% of Loan Segment Balance (4)			Modification Balance		# of Loans		% of Loan Segment Balance (4)			Modification Balance		# of Loans		% of Loan Segment Balance (4)
(in millions)
Commercial real estate	$	17.6		9		2.2	%	$	36.0		10		4.4	%	$	53.6		19		6.6	%
Commercial and industrial		0.4		3		0.2	%		6.0		3		2.7	%		6.4		6		2.9	%
Residential real estate		1.2		5		0.2	%		5.1		20		0.7	%		6.3		25		0.9	%
Consumer		—		—		—			—		—		—			—		—		—
Total	$	19.2		17		1.1	%	$	47.1		33		2.7	%	$	66.3		50		3.8	%

(1)

Excludes PPP loans and deferred fees

(2)

Residential includes home equity loans and lines of credit

(3)

Percentage of loan balances as of June 30, 2020

(4)

Percentage of loan balances as of September 30, 2020

Commercial Real Estate Loans:

Through June 30, 2020, the Company granted 131 commercial real estate loan modifications under the CARES Act totaling $200.0 million, representing 24.0% of total commercial real estate loans. At September 30, 2020, $141.7 million, or 121 commercial real estate loans, returned to regular payments. There are $53.6 million, or 19 commercial real estate loans, under CARES Act modification that are complying with their modified terms. Of the $53.6 million under modification, $43.9 million, or 9 loans, are hotel loans. From June 30, 2020 to September 30, 2020, we granted 13 new modifications under the CARES Act totaling $19.6 million, of which, 6 loans totaling $2.4 million have resumed principal and interest payments. Since June 30, 2020, 4 commercial real estate loans modified under the CARES Act totaling $22.5 million were paid in full.

Commercial and Industrial Loans:

Through June 30, 2020, the Company granted 162 commercial and industrial loan modifications under the CARES Act totaling $19.1 million, representing 8.3% of total commercial and industrial loans. At September 30, 2020, $10.9 million, or 140 commercial and industrial loans, returned to regular payments. There are 6 commercial and industrial loans totaling $6.4 million under CARES Act modification that are complying with their modified terms. Since June 30, 2020, 16 commercial and industrial loans modified under the CARES Act totaling $558,000 were paid in full.

Residential Loans:

Through June 30, 2020, the Company granted 219 residential loan modifications under the CARES Act totaling $41.7 million, representing 5.9% of total residential loans. At September 30, 2020, $34.5 million, or 189 residential loans returned to regular payments. At September 30, 2020, there were 25 residential loans totaling $6.3 million under CARES Act modification, all of which are complying with their modified terms. From June 30, 2020 to September 30, 2020, we granted two new modifications under the CARES Act totaling $438,000. Since June 30, 2020, 7 residential loans modified under the CARES Act totaling $1.0 million were paid in full.

Allowance for Loan Losses.

The COVID-19 pandemic materially impacted the Company’s determination of the allowance for loan losses for the nine months ended September 30, 2020. In determining the allowance for loan losses, the Company considers quantitative loss factors and a number of qualitative factors, such as underwriting policies, current economic conditions, delinquency statistics, the adequacy of the underlying collateral and the financial strength of the borrower. Beginning at the end of March 2020, a record number of Americans filed for unemployment benefits. The global pandemic could cause the Company to experience higher credit losses in its lending portfolio, reduced demand for our products and services and other negative impacts on our financial position, results of operations and prospects.

To appropriately reserve for the impact of the COVID-19 pandemic on the Company’s loan portfolio, the Bank added a new qualitative factor category to the allowance calculation - “Economic Impact of COVID-19” at March 31, 2020. The allocation of additional reserves for the nine months ended September 30, 2020 was based upon an analysis of the Company’s loan portfolio that included identifying borrowers sensitive to the shutdown (i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade) as well as a general allocation for the negative economic outlook as described above. The Company’s provision for loan losses was $7.3 million for the nine months ended September 30, 2020. Of the total provision, $2.3 million was related to asset quality changes, $2.5 million was related to the inclusion of the acquired loan portfolio into the general reserves, and $1.9 million was related to the addition of the COVID-19 factor to the allowance. The total increase was based on management’s evaluation of certain qualitative factors included in the determination of the allowance, primarily a result of the abrupt slowdown in commercial economic activity resulting from actions announced by the State of Massachusetts to close all non-essential businesses in the state as well as the dramatic rise in the unemployment rate. Local unemployment rates continue to trail the national averages due to the slower reopening plan for Massachusetts relative to other states. Loans demonstrating cash flow declines and borrowers sensitive to the prolonged shutdown were identified and contributed to an overall increase in reserves for the nine months ended September 30, 2020. In addition, on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24, 2016 from Chicopee Bancorp, Inc. (“Chicopee”). The acquired portfolio was initially recorded at fair value without a related allowance for loan losses. Subsequent to acquisition, there have been no indications that there has been any subsequent deterioration to the acquired portfolio. Due to the ongoing impacts and extended nature of the pandemic, during the three months ended September 30, 2020, the Company determined that it was prudent to provide an allowance for loan losses related to the acquired portfolio, which increased the provision by $2.5 million. The Company is continuing to monitor COVID-19’s impact on its business and its customers, however, the extent to which COVID-19 will impact its results and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures.

Asset Quality.

Based upon an analysis of the portfolio to identify potentially impacted industries from the COVID-19 pandemic, including the downgrade of several lending relationships, specifically within the hotel portfolio, we allocated a total provision for loan losses of $7.3 million for the nine months ended September 30, 2020. Of the total provision, $2.3 million was related to asset quality changes, $2.5 million was related to the inclusion of the acquired loan portfolio into the general reserves, and $1.9 million was related to COVID-19 factors. Our allowance as a percentage of total loans, excluding PPP loans, was 1.18% at September 30, 2020 and 0.79% at December 31, 2019.

As mentioned above, due to the ongoing pandemic, the Company evaluated the loan portfolio acquired on October 24, 2016 from Chicopee for COVID-19 sensitive industries. The acquired portfolio was initially recorded at fair value without a related allowance for loan losses. During the three months ended September 30, 2020, the Company provided an allowance for loan losses related to the acquired portfolio, which increased the provision by $2.5 million for the nine months ended September 30, 2020. In addition, during the nine months ended September 30, 2020, special mention loans increased $68.8 million to $94.8 million at September 30, 2020, from $25.9 million at December 31, 2019. During the nine months ended September 30, 2020, we downgraded twenty lending relationships from pass-rated to special mention. Nine of these relationships, totaling $44.3 million, are in the hotel industry. The hotel industry has experienced disruption as a direct result of the negative economic impacts of the COVID-19 pandemic.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, ~~2017~~2020 AND DECEMBER 31, ~~2016~~2019

~~Total~~At September 30, 2020, total assets were ~~$2.1~~$2.5 billion, ~~at September 30, 2017 and~~an increase of $305.3 million, or 14.0%, from December 31, ~~2016. A slight increase in~~2019. During the same period, total ~~assets of $10.4~~loans increased $198.4 million, or ~~0.5%~~11.2%, ~~was primarily due to an increase in total loans of $52.3~~securities available-for-sale decreased $36.1 million, or ~~3.3%~~15.9%, ~~offset by a decrease in~~and cash and cash equivalents ~~of $41.3 million, or 58.8%, and a decrease in investments of $2.6 million, or 0.8%.~~increased $147.4 million.

Total loans ~~of $1.6 billion~~ increased ~~$52.3~~$198.4 million, or ~~3.3%~~11.2%, ~~at September 30, 2017, from $1.6 billion at December 31, 2016. The increase was~~primarily due to a ~~$33.9~~$196.5 million, or ~~5.5%~~78.9%, increase in commercial and industrial loans. Excluding PPP loans of $223.1 million, commercial and industrial loans decreased $26.6 million, or 10.7%, from December 31, 2019. Commercial real estate loans decreased $4.7 million, or 0.6%, and residential real estate loans, ~~including~~which include home equity loans, ~~an increase of $22.1~~increased $12.1 million, or ~~9.9%,~~1.7%. The decrease in commercial and industrial loans ~~partially offset by a decrease~~ of ~~$3.9~~$26.6 million, or ~~0.5%~~10.7%, ~~in commercial real estate loans. The decrease in the commercial real estate portfolio~~ was ~~largely related~~due to ~~the expected payoff~~pay downs on existing revolving lines of ~~a $7.5~~credit of approximately $28.0 million, ~~completed commercial real estate construction project during first quarter 2017.~~or 32.8%, from December 31, 2019 to September 30, 2020. Commercial line utilization decreased from 33% at December 31, 2019 to 20% at September 30, 2020.

All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on ~~nonaccrual~~non-accrual status. ~~Nonperforming loans were $13.2 million at September 30, 2017 and $14.1 million at December 31, 2016.~~ If all ~~nonaccrual~~non-accrual loans had been performing in accordance with their terms, we would have earned additional interest income of ~~$580,000~~$313,000 and ~~$371,000~~$826,000 for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

At September 30, ~~2017, we had $103,000 in other real estate owned (“OREO”). At~~2020, nonperforming loans totaled $9.2 million, or 0.53% of total loans, excluding PPP loans, compared to $9.9 million, or 0.56% of total loans at December 31, 2019 and $11.1 million, or 0.63% of total loans at September 30, ~~2017~~2019. There were no loans 90 or more days past due and ~~December 31, 2016, our nonperforming loans to total loans were 0.81% and 0.90%, respectively, while our nonperforming~~still accruing interest. Nonperforming assets to total assets, ~~were 0.64%~~excluding PPP loans, was 0.41% at September 30, 2020, 0.45% at December 31, 2019 and ~~0.69%~~0.51% at September 30, 2019. The allowance for loan losses as a percentage of total loans, excluding PPP loans, which do not require an allowance for loan losses, was 1.18% at September 30, 2020, compared to 0.79% at December 31, 2019. At September 30, 2020, the allowance for loan losses as a percentage of nonperforming loans was 224.7%, ~~respectively.~~compared to 142.7% at December 31, 2019. As previously mentioned, the increase in the allowance coverage ratio is due to the increased risks in the portfolio as a result of the ongoing COVID-19 pandemic. A summary of our ~~nonaccrual~~non-accrual and past due loans by class are listed in Note 5 of the accompanying unaudited consolidated financial statements.

During the three months ended March 31, 2017, management completed an evaluation of premises and equipment acquired from Chicopee, which resulted in a $2.4 million adjustment to the provisional fair values of bank premises acquired and a $1.4 million reduction to goodwill. The remaining adjustments to goodwill of $140,000 during the three months ended March 31, 2017 resulted from information obtain during the quarter about events and circumstances that existed as of the acquisition date. There were no adjustments to goodwill during the three months ended September 30, 2017.

At September 30, ~~2017,~~2020, total deposits were $2.0 billion, an increase of ~~$1.5 billion decreased $2.9~~$333.4 million, or ~~0.2%~~19.9%, from December 31, ~~2016. Savings accounts decreased $5.2~~2019, primarily due to a $337.8 million, or ~~3.5%~~32.9%, ~~to $144.3 million. Time deposits decreased $6.3 million, or 1.1%, from $572.9 million at December 31, 2016 to $566.7 million at September 30, 2017. The decrease~~increase in time deposits was due to non-relationship customers and brokered deposits seeking higher yields. We are focused on allowing high cost non-relationship deposits to mature and be replaced with low cost relationship-based core deposits. Core deposits, ~~defined~~which the Company defines as all deposits except time deposits, ~~represented 62.6%~~increased from $1.0 billion, or 61.1% of total deposits, ~~and~~at December 31, 2019, to $1.4 billion, or 67.8% of total deposits, at September 30, 2020. Non-interest-bearing deposits increased ~~$3.4~~$141.9 million, or ~~0.4%~~36.1%, to $535.2 million, interest-bearing checking accounts increased $27.9 million, or 39.7%, to $98.1 million, savings accounts increased $35.6 million, or 28.2%, to $162.0 million, and money market accounts increased $132.4 million, or 30.4%, to $567.7 million. The increase in core deposits of $337.8 million, or 32.9%, can be attributed to the government stimulus for individuals, and lower consumer spending over the last several months, and to some degree unused PPP loan funds that may not be fully utilized at September 30, 2020.

Time deposits decreased $4.4 million, or 0.7%, from ~~$945.1~~$652.6 million at December 31, ~~2016~~2019 to ~~$948.5~~$648.3 million at September 30, ~~2017. Non-interest bearing~~2020. Brokered deposits, increased $4.9 million, or 1.6%, to $308.9 million, money market accounts increased $3.4 million, or 0.8%, to $412.7 million, and interest-bearing checking accounts increased $228,000, or 0.3%, to $82.6 million.

~~Borrowings increased $1.6 million, or 0.5%, to $298.8~~which are included within time deposits, were $55.2 million at September 30, ~~2017 from $297.2~~2020 and $21.5 million at December 31, ~~2016. Short-term borrowings increased $20.1~~2019.

Federal Home Loan Bank (“FHLB”) advances decreased $89.3 million, or ~~11.7%~~37.1%, from $240.5 million at December 31, 2019, to ~~$192.5~~$151.3 million at September 30, ~~2017 from $172.4 million at December 31, 2016 due to an~~2020. The increase in low cost deposits in the second quarter provided funding for the PPP loan portfolio. The Company has access to the Paycheck Protection Program Liquidity Fund in the next two years to fund the PPP loan portfolio, if necessary. Our short-term ~~FHLBB funding. Long-term~~borrowings and long-term debt ~~decreased $18.5~~are discussed in Note 8 of the accompanying consolidated financial statements.

At September 30, 2020, shareholders’ equity was $230.2 million, or ~~14.8%, to $106.3 million at September 30, 2017 from $124.8 million at December 31, 2016.~~

~~Shareholders’ equity was $252.6 million, or 12.1%~~9.3% of total assets, ~~at September 30, 2017 and $238.4~~compared to $232.0 million, or ~~11.5%~~10.6% of total assets, at December 31, ~~2016.~~2019. The ~~increase~~decrease in shareholders’ equity ~~during the nine months~~ reflects ~~net income of $12.7~~$8.4 million ~~the exercise of stock options~~ for ~~$5.7 million and other comprehensive income of $3.2 million. These increases were offset by~~ the repurchase of the Company’s common stock ~~for $5.7 million~~ and the payment of regular cash dividends of ~~$2.7~~$3.8 million, ~~for~~both partially offset by net income of $6.2 million and a decrease of $3.1 million in accumulated other comprehensive loss. Total shares outstanding as of September 30, 2020 were 25,595,557.

The Company’s book value per share increased by $0.26, or 3.0%, to $8.99 at September 30, 2020, from $8.74 at December 31, 2019. The Company’s tangible book value per share increased by $0.25, or 3.0%, to $8.39 at September 30, 2020 from $8.14 at December 31, 2019. The Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

On January 29, 2019, the Board of Directors authorized the 2019 Plan under which the Company was authorized to purchase up to 2,814,200 shares, or 10% of its outstanding common stock. During the nine months ended September 30, ~~2017.~~2020, the Company repurchased 1,058,508 shares under the 2019 Plan. As of September 30, 2020, there were 68,358 shares remaining under the 2019 Plan and on October 19, 2020, the Company announced the completion of the 2019 Plan.

On October 27, 2020, the Board of Directors authorized the 2020 Plan under which the Company may purchase up to 1.3 million shares, or approximately 5% of its outstanding common stock. The shares purchased under the 2020 Plan will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, or otherwise, depending upon market conditions. There is no guarantee as to the exact number of or value of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management determines additional repurchases are not warranted. The timing and amount of share repurchases under the 2020 Plan will depend on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements.

Although the Company has historically paid quarterly dividends on its common stock and currently intends to continue to pay such dividends, the Company’s ability to pay such dividends depends on a number of factors, including restrictions under federal laws and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance that dividends will continue to be paid in the future.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, ~~2017~~2020 AND SEPTEMBER 30, ~~2016~~2019

~~General~~General.

Net Interest and Dividend ~~Income~~Income.

The following tables set forth the information relating to our average balance and net interest income for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes ~~fees earned from making changes in loan rates and terms and~~ fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.

Three Months Ended September 30,
2017 2016
Average Average
Yield/ Average Average
Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾ $ 1,605,376 $ 16,681 4.16 % $ 932,140 $ 9,168 3.93 %
Securities⁽²⁾ 302,030 1,901 2.52 296,406 1,709 2.31
Other investments 17,748 172 3.88 12,728 130 4.09
Short-term investments⁽³⁾ 5,206 11 0.85 17,380 14 0.32
Total interest-earning assets 1,930,360 18,765 3.89 1,258,654 11,021 3.50
Total non-interest-earning assets 141,119 79,032
Total assets $ 2,071,479 $ 1,337,686

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts $ 82,164 81 0.39 $ 31,194 24 0.31 %
Savings accounts 148,433 43 0.12 75,566 20 0.11
Money market accounts 400,400 386 0.39 278,257 293 0.42
Time deposit accounts 568,578 1,601 1.13 383,288 1,245 1.30
Total interest-bearing deposits 1,199,575 2,111 0.70 768,305 1,582 0.82
Short-term borrowings and long-term debt 301,715 1,609 2.13 229,718 1,067 1.86
Interest-bearing liabilities 1,501,290 3,720 0.99 998,023 2,649 1.06
Non-interest-bearing deposits 300,757 177,802
Other non-interest-bearing liabilities 16,147 16,261
Total Non-interest-bearing liabilities 316,904 194,063

Total liabilities 1,818,194 1,192,086
Total equity 253,285 145,601
Total liabilities and equity $ 2,071,479 $ 1,337,687
Less: Tax-equivalent adjustment⁽²⁾ (249 ) (44 )
Net interest and dividend income $ 14,796 $ 8,328
Net interest rate spread⁽⁴⁾ 2.90 % 2.44 %
Net interest margin⁽⁵⁾ 3.09 % 2.65 %
Ratio of average interest-earning assets to average interest-bearing liabilities 128.58 % 126.11 %

	Three Months Ended September 30,
	2020								2019
	Average					Average Yield/			Average					Average Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾	$	1,994,072	$	19,469			3.88	%	$	1,739,266	$	19,244			4.39	%
Securities⁽²⁾		217,911		958			1.75			238,961		1,470			2.44
Other investments - at cost		14,862		118			3.16			16,354		192			4.66
Short-term investments⁽³⁾		39,576		12			0.12			8,330		36			1.71
Total interest-earning assets		2,266,421		20,557			3.61			2,002,911		20,942			4.15
Total non-interest-earning assets		144,387								138,543
Total assets	$	2,410,808							$	2,141,454

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	92,603	$	108			0.46	%	$	70,719	$	105			0.59	%
Savings accounts		161,801		32			0.08			128,133		36			0.11
Money market accounts		541,923		700			0.51			402,716		641			0.63
Time deposit accounts		624,717		2,350			1.50			666,792		3,672			2.18
Total interest-bearing deposits		1,421,044		3,190			0.89			1,268,360		4,454			1.39
Short-term borrowings and long-term debt		194,021		1,267			2.60			249,109		1,822			2.90
Interest-bearing liabilities		1,615,065		4,457			1.10			1,517,469		6,276			1.64
Non-interest-bearing deposits		529,229								368,647
Other non-interest-bearing liabilities		34,930								24,099
Total non-interest-bearing liabilities		564,159								392,746

Total liabilities		2,179,224								1,910,215
Total equity		231,584								231,239
Total liabilities and equity	$	2,410,808							$	2,141,454
Less: Tax-equivalent adjustment⁽²⁾				(110	)							(138	)
Net interest and dividend income			$	15,990							$	14,528
Net interest rate spread							2.49	%							2.48	%
Net interest rate spread, on a tax equivalent basis⁽⁴⁾							2.51	%							2.51	%
Net interest margin							2.81	%							2.88	%
Net interest margin, on a tax equivalent basis⁽⁵⁾							2.83	%							2.91	%
Ratio of average interest-earning assets to average interest-bearing liabilities							140.33	%							131.99	%

(1)

Loans, including non-accrual loans, are net of deferred loan origination costs, unadvanced funds and ~~unadvanced funds.~~the allowance for loan losses.

(2)

Securities income, loan income and ~~loan~~net interest income are presented on a tax-equivalent basis using a tax rate of ~~35% for the 2017 period and 34% for the 2016 period.~~21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported in the ~~unaudited~~ consolidated statements of net income.

(3)

Short-term investments include federal funds sold.

(4)

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

(5)

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

Rate/Volume Analysis.

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

●

~~interest income changes attributable to changes in volume (changes in volume multiplied by prior rate);~~

●

~~interest income changes attributable to changes in rate (changes in rate multiplied by current volume); and the net change.~~

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

	Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016									Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
Interest-earning assets	(In thousands)									(In thousands)
Loans⁽¹⁾	$	6,622		$	891		$	7,513		$	2,812		$	(2,587	)	$	225
Securities⁽¹⁾		32			160			192			(129	)		(383	)		(512	)
Other investments		51			(9	)		42
Other investments - at cost											(17	)		(57	)		(74	)
Short-term investments		(10	)		7			(3	)		125			(149	)		(24	)
Total interest-earning assets		6,695			1,049			7,744			2,791			(3,176	)		(385	)

Interest-bearing liabilities
Interest-bearing checking accounts		39			18			57			33			(30	)		3
Savings accounts		19			4			23			9			(13	)		(4	)
Money market accounts		129			(36	)		93			221			(162	)		59
Time deposit accounts		602			(246	)		356			(231	)		(1,091	)		(1,322	)
Short-term borrowing and long-time debt		334			208			542			(402	)		(153	)		(555	)
Total interest-bearing liabilities		1,123			(52	)		1,071			(370	)		(1,449	)		(1,819	)
Change in net interest and dividend income⁽¹⁾	$	5,572		$	1,101		$	6,673		$	3,161		$	(1,727	)	$	1,434

(1)

Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of ~~35%~~21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest income.

Net interest ~~and dividend~~ income increased ~~$6.5~~$1.5 million, or ~~78.3%~~10.1%, to ~~$14.8~~$16.0 million, for the three months ended September 30, ~~2017, compared to $8.3~~2020, from $14.5 million for the three months ended September 30, ~~2016.~~2019. The increase ~~reflected a $7.5 million, or 68.2%, increase~~ in net interest income ~~as average interest-earning assets increased $671.7 million, or 53.4%,~~was primarily due to ~~loan growth as~~ a ~~result~~decrease in interest expense of ~~the merger. The yield~~$1.8 million, or 29.0%, partially offset by a decrease in interest and dividend income of $357,000, or 1.7%. Interest expense on ~~interest-earning assets increased 39 basis points from 3.50%~~deposits decreased $1.3 million, or 28.4%, and interest expense on FHLB borrowings decreased $555,000, or 30.5%. Net interest income for the three months ended September 30, ~~2016~~2020 includes interest income and origination fees from PPP loans of $1.3 million and prepayment penalties of $262,000. Excluding PPP income and prepayment penalties, net interest income decreased $102,000, or 0.7%, from $14.5 million during the three months ended September 30, 2019, compared to ~~3.89%~~$14.4 million during the three months ended September 30, 2020.

The net interest margin was 2.81% for the three months ended September 30, ~~2017.~~2020, compared to 2.88% for the three months ended September 30, 2019. The net interest margin, on a tax-equivalent basis, was 2.83% for the three months ended September 30, 2020, compared to 2.91% for the three months ended September 30, 2019. The decrease in the net interest margin was due to the continuing trend of market interest rates falling to historically low levels.

The average yield on interest-earning assets decreased 54 basis points from 4.15% for the three months ended September 30, 2019 to 3.61% for the three months ended September 30, 2020. During the three months ended September 30, 2020, the average cost of funds, including non-interest bearing demand accounts, decreased 49 basis points from 1.32% for the three months ended September 30, 2019 to 0.83% for the three months ended September 30, 2020. The average cost of core deposits, which include non-interest bearing demand accounts, decreased seven basis points from 0.32% for the three months ended September 30, 2019 to 0.25% for the three months ended September 30, 2020. The average cost of time deposits decreased 68 basis points from 2.18% for the three months ended September 30, 2019 to 1.50% for the three months ended September 30, 2020. The average cost of FHLB borrowings decreased 30 basis points during the same period. For the three months ended September 30, ~~2017, interest expense~~2020, average demand deposits, an interest-free source of funds, increased ~~$1.1~~$160.6 million, or ~~42.3%~~43.6%, to $529.2 million, or 27.1% of total average deposits, from $368.6 million, or 22.5% of total average deposits for the three months ended September 30, 2019.

During the three months ended September 30, 2020, average interest-earning assets increased $263.5 million, or 13.2%, to $2.3 billion compared to the three months ended September 30, ~~2016. During the same period, interest-bearing liabilities increased $431.3~~2019, primarily due to an increase in average loans of $254.8 million, or ~~56.1%, while non-interest bearing liabilities, such as demand accounts,~~14.7%. Excluding average PPP loans, average assets and average loans increased ~~$123.0~~$40.7 million, or ~~69.2%. The net interest margin of 3.09% for the three months ending September 30, 2017 increased 44 basis points, compared to 2.65% for~~2.0%, and $32.0 million, or 1.8%, respectively, from the three months ended September 30, ~~2016. The~~2019 to the three months ended September 30, 2017 include amortization of purchase accounting adjustments related to the Chicopee acquisition, which increased net interest income by $448,000. Excluding these items, net interest margin for the third quarter of 2017 would have been 3.00%.2020.

Provision for Loan ~~Losses~~Losses.

The provision for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio.

The amount of the provision for loan losses during the three months ended September 30, ~~2017~~2020 was based ~~upon~~on the changes that occurred in the loan portfolio during that same ~~period.~~period, which were discussed above. The ~~changes in the loan portfolio primarily includes an increase in residential loans and a higher level of net charge-offs. After evaluating all factors, we recorded a~~ provision for loan losses ~~of $200,000~~increased $1.4 million, or 113.7%, from $1.3 million for the three months ended September 30, ~~2017, compared~~2019 to ~~$375,000~~$2.7 million for ~~the same period in 2016. The allowance was $10.5 million, or 0.65% of total loans, and $10.1 million, or 0.64% of total loans, at September 30, 2017 and December 31, 2016, respectively.~~

~~For~~ the three months ended September 30, ~~2017,~~2020. The Company recorded net charge-offs ~~were $100,000. This was comprised~~ of ~~$211,000 in charge-offs, partially offset by recoveries of $111,000.~~

~~For~~$286,000 for the three months ended September 30, ~~2016,~~2020, as compared to net ~~charge-offs were $18,000. This~~charges-offs of $426,000 for the three months ended September 30, 2019. The increase in the provision for loan losses for the three months ended September 30, 2020 was ~~comprised~~primarily due to the impacts of ~~$86,000 in charge-offs, partially offset by recoveries of $68,000.~~the COVID-19 pandemic.

Although we believe that we have established and maintained the allowance for loan losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment. If the COVID-19 pandemic has an adverse effect on the ability of our borrowers to satisfy their obligations to us, the demand for our loans or our other products and services, other aspects of our business operations, or on financial markets, real estate markets, or economic growth, this could, depending on the extent of the loan defaults, materially and adversely affect our liquidity and financial condition and our results of operations could be materially and adversely affected.

Non-interest ~~Income~~Income.

~~For the three months ended September 30, 2017, non-interest~~Non-interest income ~~of $2.4 million increased $1.1 million,~~decreased $434,000, or ~~84.6%~~16.6%, ~~compared~~ to ~~$1.3~~$2.2 million for the three months ended September 30, 2016. The increase was primarily due to the merger with Chicopee. The increase was primarily driven by an increase in service charges and fee income of $761,000, or 79.9%, an increase in other income of $111,000, an increase of $81,000, or 22.0%, in income2020, from ~~bank-owned life insurance and an increase of $48,000 in gains on sales of securities.~~

~~Non-interest Expense~~

~~For the three months ended September 30, 2017, non-interest expense of $11.2 million increased $3.0 million, or 36.6%, from $8.2~~$2.6 million for the three months ended September 30, ~~2016.~~2019. Service charges and fees decreased $254,000, or 12.6%, and other non-interest income increased $342,000, or 621.8%, due to an increase in swap fees on commercial loans. The ~~increase~~decrease in service charges and fees of $254,000, or 12.6%, was ~~primarily~~ due to a ~~$2.4 million,~~$153,000, or ~~58.5%~~32.9%, ~~increase~~decrease in ~~salaries~~non-sufficient funds (“NSF”) and ~~benefits~~overdraft charges and a decrease of $44,000, or 4.4%, in debit card interchange and ATM surcharge income. During the three months ended September 30, 2019, we reported seasonal income in ATM surcharges of $180,000, which typically occurs each year in the third quarter. Due to the COVID-19 pandemic, the annual event did not occur this year. Transaction-based deposit account balances have increased significantly during the three months ended September 30, 2020 compared to the same quarter of 2019. The lack of deposit withdrawals resulting from a decline in normal consumer spending habits due to the ~~addition~~closure on non-essential businesses to mitigate the spread of the ~~Chicopee staff~~COVID-19 virus has reduced transaction activity and ~~normal merit increases that typically occur~~the occurrence of overdrafts on deposit accounts. During the three months ended September 30, 2020, the Company reported unrealized losses on marketable equity securities of $4,000 and realized gains on the sale of available-for-sale securities of $1.9 million, compared to unrealized gains on marketable equity securities of $45,000 and realized gains on the sale of available-for-sale securities of $49,000 during the ~~first quarter of each year. Occupancy~~three months ended September 30, 2019. As mentioned previously, the Company also incurred a non-recurring $2.4 million loss on a terminated interest rate swap during the three months ended September 30, 2020.

Non-interest Expense.

For the three months ended September 30, 2020, non-interest expense increased ~~$336,000,~~$1.2 million, or ~~60.5%~~9.5%, ~~due~~ to ~~the acquisition~~$12.9 million, or 2.12% of ~~the Chicopee branches, and data processing expense increased $276,000,~~average assets, from $11.7 million, or ~~68.3%, while merger related expenses decreased $830,000. The increase to non-interest expense reflects generally higher level~~2.18% of expenses associated with operating a larger financial institution, which include additional employees, increased costs for data processing, occupancy, and professional services. Although there are overall added expenses, the merger provided the opportunity to achieve greater economies of scale as reflected in the improvement in the efficiency ratio from 76.6%,average assets, for the three months ended September 30, ~~2016,~~2019. The increase in non-interest expense was primarily due to ~~65.4%~~an increase in salaries and benefits of $311,000, or 4.5%, and an increase in occupancy expenses of $145,000, or 14.9%, primarily due to the two new branches in Connecticut. FDIC expense increased $288,000, from $5,000 during the three months ended September 30, 2019 to $293,000 during the three months ended September 30, 2020. During the three months ended September 30, 2019, the FDIC applied small bank credits against the quarterly assessments. The Company fully utilized its small bank assessment credits during the three months ended March 31, 2020. Data processing related expenses increased $58,000, or 8.2%, professional fees increased $69,000, or 12.6%, and other non-interest expense increased $283,000, or 15.5%. The increase in other non-interest expense included $114,000 in swap fees paid to third parties during the three months ended September 30, 2020. These expenses were partially offset by a decrease in advertising related expenses of $38,000, or 10.4%, and a decrease in furniture and equipment of $3,000, or 0.7%. For the three months ended September 30, 2020, the efficiency ratio was 69.1%, compared to 68.9% for the three months ended September 30, ~~2017.~~2019.

Income ~~Taxes~~Taxes.

~~For the three months ended September 30, 2017, we had a~~Income tax ~~provision of $2.0 million as compared to $423,000 for the same period in 2016. The effective tax rate was 34.8%~~expense for the three months ended September 30, ~~2017 and 40.2%~~2020 was $488,000, or an effective tax rate of 18.8%, compared to $899,000, or an effective tax rate of 21.8%, for ~~the same period in 2016. The~~ three months ended September 30, ~~2017 include higher levels~~2019. The decrease in the Company’s effective tax rate was primarily due to the effect of lower projected pre-tax income ~~as a result of~~for the ~~merger, while the comparable 2016 period includes nondeductible merger expenses of $691,000.~~fiscal year-ended December 31, 2020.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2020 AND SEPTEMBER 30, ~~2016~~2019

~~General~~General.

Net income was ~~$12.7~~$6.2 million, or ~~$0.42~~$0.25 diluted earnings per ~~diluted~~ share, for the nine months ended September 30, ~~2017,~~2020, compared to ~~$3.0~~$9.9 million, or ~~$0.17~~$0.38 diluted earnings per ~~diluted~~ share, for the same period in ~~2016.~~2019. Net interest income was ~~$44.0~~$45.6 million and ~~$24.6~~$43.1 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Net Interest and Dividend ~~Income~~Income.

The following tables set forth the information relating to our average balance and net interest income for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes ~~fees earned from making changes in loan rates and terms and~~ fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.

Nine Months Ended September 30,
2017 2016
Average
Balance Interest Average Yield/
Cost Average
Balance Interest Average Yield/
Cost
(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾ $ 1,589,423 $ 49,202 4.13 % $ 875,325 $ 26,118 3.98 %
Securities⁽²⁾ 305,111 5,761 2.52 334,938 6,062 2.41
Other investments 17,665 501 3.78 14,703 398 3.61
Short-term investments⁽³⁾ 24,023 102 0.57 33,457 67 0.27
Total interest-earning assets 1,936,222 55,566 3.83 1,258,423 32,645 3.46
Total Non-interest-earning assets 137,775 77,626
Total assets $ 2,073,997 $ 1,336,049

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts $ 86,841 249 0.38 $ 31,353 64 0.27
Savings accounts 150,975 137 0.12 76,381 63 0.11
Money market accounts 398,400 1,150 0.38 264,354 785 0.40
Time deposit accounts 568,728 4,643 1.09 391,793 3,677 1.25
Total interest-bearing deposits 1,204,944 6,179 0.68 763,881 4,589 0.80
Short-term borrowings and long-term debt 302,254 4,579 2.02 250,462 3,329 1.77
Interest-bearing liabilities 1,507,198 10,758 0.95 1,014,343 7,918 1.04
Non-interest-bearing deposits 304,492 165,156
Other non-interest-bearing liabilities 13,774 15,273
Total non-interest-bearing liabilities 318,266 180,429

Total liabilities 1,825,464 1,194,772
Total equity 248,533 141,277
Total liabilities and equity $ 2,073,997 $ 1,336,049
Less: Tax-equivalent adjustment⁽²⁾ (766 ) (154 )
Net interest and dividend income $ 44,042 $ 24,573
Net interest rate spread⁽⁴⁾ 2.86 % 2.42 %
Net interest margin⁽⁵⁾ 3.09 % 2.62 %
Ratio of average interest-earning assets to average interest-bearing liabilities 128.47 % 124.06 %

	Nine Months Ended September 30,
	2020								2019
	Average					Average Yield/			Average					Average Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾	$	1,912,420	$	57,452			4.01	%	$	1,704,173	$	55,857			4.38	%
Securities⁽²⁾		220,544		3,533			2.14			249,009		4,801			2.58
Other investments - at cost		15,781		457			3.87			15,811		638			5.40
Short-term investments⁽³⁾		26,826		83			0.41			12,834		185			1.93
Total interest-earning assets		2,175,571		61,525			3.78			1,981,827		61,481			4.15
Total non-interest-earning assets		140,279								136,738
Total assets	$	2,315,850							$	2,118,565

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	82,091		269			0.44		$	71,416		280			0.52
Savings accounts		147,464		103			0.09			125,886		111			0.12
Money market accounts		494,973		2,173			0.59			398,189		1,798			0.60
Time deposit accounts		638,705		8,698			1.82			673,492		10,601			2.10
Total interest-bearing deposits		1,363,233		11,243			1.10			1,268,983		12,790			1.35
Short-term borrowings and long-term debt		215,610		4,289			2.66			238,837		5,234			2.93
Interest-bearing liabilities		1,578,843		15,532			1.31			1,507,820		18,024			1.60
Non-interest-bearing deposits		474,436								358,839
Other non-interest-bearing liabilities		31,881								22,574
Total non-interest-bearing liabilities		506,317								381,413

Total liabilities		2,085,160								1,889,233
Total equity		230,690								229,332
Total liabilities and equity	$	2,315,850							$	2,118,565
Less: Tax-equivalent adjustment⁽²⁾				(358	)							(402	)
Net interest and dividend income			$	45,635							$	43,055
Net interest rate spread							2.44	%							2.52	%
Net interest rate spread, on a tax equivalent basis⁽⁴⁾							2.46	%							2.55	%
Net interest margin							2.80	%							2.90	%
Net interest margin, on a tax equivalent basis⁽⁵⁾							2.82	%							2.93	%
Ratio of average interest-earning assets to average interest-bearing liabilities							137.80	%							131.44	%

(1)

Loans, including non-accrual loans, are net of deferred loan origination costs, unadvanced funds and ~~unadvanced funds.~~the allowance for loan losses.

(2)

(3)

Short-term investments include federal funds sold.

(4)

(5)

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

Rate/Volume Analysis.

●

~~interest income changes attributable to changes in volume (changes in volume multiplied by prior rate);~~

●

~~interest income changes attributable to changes in rate (changes in rate multiplied by current volume); and the net change.~~

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

	Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(In thousands)
Loans ⁽¹⁾	$	6,832		$	(5,237	)	$	1,595
Securities ⁽¹⁾		(549	)		(719	)		(1,268	)
Other investments - at cost		(1	)		(180	)		(181	)
Short-term investments		178			(280	)		(102	)
Total interest-earning assets		6,460			(6,416	)		44

Interest-bearing liabilities
Interest-bearing checking accounts		42			(53	)		(11	)
Savings accounts		19			(27	)		(8	)
Money market accounts		437			(62	)		375
Time deposit accounts		(548	)		(1,355	)		(1,903	)
Short-term borrowing and long-term debt		(509	)		(436	)		(945	)
Total interest-bearing liabilities		(559	)		(1,933	)		(2,492	)
Change in net interest and dividend income	$	7,019		$	(4,483	)	$	2,536

Nine Months Ended September 30, 2017 compared to
Nine Months Ended September 30, 2016
Increase (Decrease) Due to
Volume Rate Net
Interest-earning assets (In thousands)
Loans⁽¹⁾ $ 21,307 $ 1,777 $ 23,084
Securities⁽¹⁾ (540 ) 239 (301 )
Other investments 80 23 103
Short-term investments (19 ) 54 35
Total interest-earning assets 20,828 2,093 22,921

Interest-bearing liabilities
Interest-bearing checking accounts 113 72 185
Savings accounts 62 12 74
Money market accounts 398 (33 ) 365
Time deposit accounts 1,661 (695 ) 966
Short-term borrowing and long-term debt 688 562 1,250
Total interest-bearing liabilities 2,922 (82 ) 2,840
Change in net interest and dividend income $ 17,906 $ 2,175 $ 20,081

(1)

~~Net~~During the nine months ended September 30, 2020, net interest income ~~was $44.0~~increased $2.5 million, or 6.0%, to $45.6 million, compared to $43.1 million for the nine months ended September 30, ~~2017 and $24.6 million for the nine months ended September 30, 2016.~~2019. The increase in net interest income was ~~primarily~~ due to ~~the increase~~a decrease of $2.5 million, or 13.8%, in interest ~~and dividend income of $22.3 million, or 68.7%, partially offset by the increase in interest expense of $2.8 million, or 35.9%, from~~expense. For the nine months ended September 30, ~~2016. The~~2020, interest and dividend income included $2.6 million in interest income and origination fees from PPP loans. Excluding the income from PPP loans, net interest ~~margin, on a tax-equivalent basis, was 3.09% and 2.62% for~~income remained virtually unchanged from the ~~nine months ended September 30, 2017 and 2016, respectively.~~

same period in 2019. The ~~average balance sheet comparison for the nine months ended September 30, 2016 to September 30, 2017 largely reflects the merger with Chicopee. Average interest-earning assets increased $677.8~~decrease in interest expense of $2.5 million, or ~~53.9%~~13.8%, ~~from $1.3 billion for the nine months ended September 30, 2016 to $1.9 billion for the nine months ended September 30, 2017. The increase in average interest-earning assets~~ was due to a ~~$714.1~~$1.5 million, or ~~81.6%, increase in average loans, partially offset by a $29.8 million, or 8.9%~~12.1%, decrease in ~~average investments~~interest expense on deposits and a ~~$9.4 million,~~decrease of $945,000, or ~~28.2%~~18.1%, ~~decrease~~ in other interest-earning assets. The average balance of demand deposit accounts, an interest-free source of funds, increased $139.3 million, or 84.4%, for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.interest expense on FHLB borrowings.

The net interest margin increased 47 basis points, from 2.62% for the nine months ended September 30, 2016 to 3.09% for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, amortization of purchase accounting adjustments related to the Chicopee acquisition increased net interest income by $1.4 million. Excluding these items, net interest margin for the nine months ended September 30, ~~2017~~2020 was ~~2.99%.~~2.80%, compared to 2.90% during the nine months ended September 30, 2019. The ~~average asset yield increased from 3.46%~~net interest margin, on a tax-equivalent basis, was 2.82% for the nine months ended September 30, ~~2016~~2020, compared to ~~3.83%~~2.93% for the nine months ended September 30, ~~2017. The average cost of funds~~2019. Excluding $2.6 million in interest income and origination fees from PPP loans, the net interest margin decreased ~~9 basis points~~ from ~~1.04%~~2.90% for the nine months ended September 30, ~~2016~~2019 to ~~0.95%~~2.81% for the nine months ended September 30, ~~2017 primarily~~2020. The decrease in the net interest margin was due to ~~purchase accounting adjustments on time deposits and borrowings as well as~~ the ~~continuation~~continuing trend of ~~low~~ market interest rates ~~which allowed us~~falling to ~~renew or replace maturing time~~historically low levels.

The average yield on interest-earning assets decreased 37 basis points from 4.15% for the nine months ended September 30, 2019 to 3.78% for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the average cost of funds, including non-interest bearing demand accounts, decreased 29 basis points from 1.29% for the nine months ended September 30, 2019 to 1.00%. For the nine months ended September 30, 2020, the average cost of core deposits, ~~at lower costs.~~including noninterest-bearing demand deposits, decreased 3 basis points to 0.28%, from 0.31% for same period in 2019. The average cost of time deposits decreased 1628 basis points from ~~1.25%~~2.10% for the nine months ended September 30, ~~2016~~2019 to ~~1.09%~~1.82% during the same period in 2020. The average cost of borrowings decreased 27 basis points from 2.93% for the nine months ended September 30, ~~2017. The average cost of borrowings increased 25 basis points, from 1.77%~~2019 to 2.66% for the nine months ended September 30, ~~2016 to 2.02%~~2020. For the nine months ended September 30, 2020, average demand deposits, an interest-free source of funds, increased $115.6 million, or 32.2%, from $358.8 million, or 22.0% of total average deposits, for the nine months ended September 30, ~~2017. The increase in cost~~2019 to $474.4 million, or 25.8% of ~~funds in FHLB borrowings was primarily due to the increase in the Federal Funds target rate in December 2016, March 2017 and mid-June 2017.~~

~~Provision for Loan Losses~~

The amount that we provided for loan losses during the nine months ended September 30, 2017 was based upon the changes that occurred in the loan portfolio during that same period. The changes in the loan portfoliototal average deposits, for the nine months ended September 30, 2017, described in the comparison of financial condition, include increases in residential real estate loans and commercial and industrial loans as well as an increase in net charge-offs over the comparable period. After evaluating these factors, we recorded a provision for loan losses of $850,000 for2020. During the nine months ended September 30, ~~2017, compared to $400,000 for the same period in 2016. The allowance was $10.5~~2020, average interest-earning assets increased $193.7 million, or ~~0.65%~~9.8%, to $2.2 billion. The increase in average interest-earning assets was due to an increase in average loans of ~~total loans, at September 30, 2017 and $10.1~~$208.2 million, or ~~0.64% of total loans, at December 31, 2016.~~

~~For the nine months ended September 30, 2017, net charge-offs were $400,000. This was comprised of charge-offs of $706,000 for the nine months ended September 30, 2017,~~12.2%, partially offset by ~~recoveries~~a decrease in average securities of ~~$306,000.~~$28.5 million, or 11.4%. Excluding average PPP loans, average interest-earning assets and average loans increased $68.1 million, or 3.4%, and $82.6 million, or 4.8%, respectively.

~~For~~

Provision for Loan Losses.

On March 23, 2020, the ~~nine months ended~~Governor of Massachusetts issued an emergency order requiring all businesses and organizations that do not provide COVID-19 essential services to close their physical workplaces and facilities to workers, customers and the public from March 24, 2020 until April 7, 2020, which was subsequently extended to May 18, 2020. The order put significant pressure on the local business community. The Company’s market area implemented a four-phase reopening plan. State and local governments are closely monitoring key public health data as the situation continues to evolve. On July 8, 2020, Massachusetts entered the first step of Phase 3 of the re-opening plan; however, on August 7, 2020, Massachusetts’ Governor Baker, indefinitely postponed the second step of Phase 3 of the plan. On September ~~30, 2016, net recoveries were $687,000. This was comprised~~29, 2020, Governor Baker announced that effective October 5, 2020, the Commonwealth of ~~recoveries~~Massachusetts would transition to the second step of ~~$1.0~~Phase 3 only in lower-risk communities. Lower-risk communities are defined as cities or towns that have not been a “red” community in any of the last three weekly Department of Public Health weekly reports. Under the final phase of the reopening plan, the “new normal,” businesses will not be allowed to resume normal operations until an effective treatment or vaccine is discovered.

The Company increased the provision for loan losses by $5.6 million from $1.7 million for the nine months ended September 30, ~~2016, partially offset~~2019, to $7.3 million for the nine months ended September 30, 2019. Of the total provision, $2.3 million was related to asset quality changes, $2.5 million was related to the inclusion of the acquired loan portfolio into the general reserves, and $1.9 million was related to the addition of the COVID-19 factor to the allowance. The total increase was based upon management’s evaluation of certain qualitative factors included in the determination of the allowance, primarily a result of the abrupt slowdown in commercial economic activity resulting from actions announced by ~~charge-offs~~the State of ~~$347,000.~~Massachusetts to close all non-essential businesses in the state as well as the dramatic rise in the unemployment rate and trailing local unemployment. During the nine months ended September 30, 2020, special mention loans increased $68.8 million to $94.8 million at September 30, 2020, from $25.9 million at December 31, 2019. During the nine months ended September 30, 2020, we downgraded twenty lending relationships from pass-rated to special mention, which increased the provision by $2.3 million for the nine months ended September 30, 2020. Nine of these relationships, totaling $44.3 million, are in the hotel industry. The hotel industry has experienced disruption as a direct result of the negative economic impacts of the COVID-19 pandemic. In addition, as mentioned earlier, due to the ongoing pandemic, the Company evaluated the loan portfolio acquired on October 24, 2016 ~~we received~~from Chicopee for COVID-19 sensitive industries. The acquired portfolio was initially recorded at fair value without a related allowance for loan losses. During the three months ended September 30, 2020, the Company provided an allowance for loan losses related to the acquired portfolio, which increased the provision by $2.5 million for the nine months ended September 30, 2020.

The Company recorded net charge-offs of $685,000 for the nine months ended September 30, 2020, as compared to net charge-offs of $456,000 for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, the Company recorded charge-offs of $882,000, compared to $1.4 million during the same period in 2019. During the nine months ended September 30, 2020, the Company recorded recoveries of $197,000, compared to recoveries of $937,000 during the same period in 2019, which included a partial recovery of ~~$1.0 million~~$812,000 related to a single commercial real estate loan previously charged-off in 2010.

Non-interest ~~Income~~Income.

For the nine months ended September 30, ~~2017,~~2020, non-interest income of ~~$6.5~~$6.8 million ~~increased $2.9 million,~~decreased $511,000, or ~~80.8%~~7.0%, compared to ~~$3.6~~$7.3 million for the nine months ended September 30, ~~2016. The increase of $2.9 million was primarily~~2019, due to ~~an increase~~a $404,000, or 7.3%, decrease in service charges and fees, ~~of $2.1 million, or 77.6%, and~~partially offset by an increase of $312,000, or 115.6%, in other income from ~~bank-owned life insurance~~swap fees on commercial loans. During the nine months ended September 30, 2019, service charges and fees included $110,000 in non-recurring interchange fee income as well as seasonal income in ATM surcharges of ~~$236,000,~~$180,000, which typically occurs each year in the third quarter. Due to the pandemic, the annual event did not occur this year. During the nine months ended September 30, 2020, NSF fee income decreased $355,000, or ~~20.8%.~~27.8%, from the same period in 2019. Transaction-based deposit account balances have increased significantly during the nine months ended September 30, 2020 compared to the same period in 2019. The ~~increase~~lack of deposit withdrawals resulting from a decline in ~~non-interest income was primarily~~normal consumer spending habits due to the ~~merger with Chicopee.~~ closure of nonessential businesses to mitigate the spread of the COVID-19 virus has reduced transaction activity and the occurrence of overdrafts on deposit accounts.

During the nine months ended September 30, 2020, the Company reported unrealized gains on marketable equity securities of $133,000 and a realized gain on the sale of available-for-sale securities of $2.0 million, compared to unrealized gains on marketable equity securities of $194,000 and a realized loss on the sale of available-for-sale securities of $12,000 during the nine months ended September 30, 2019. As mentioned previously, the Company also incurred a non-recurring $2.4 million loss on a terminated interest rate swap during the nine months ended September 30, 2020.

Non-interest Expense.

For the nine months ended September 30, 2017, wealth management fees of $404,000 earned by Westfield Financial Management Services, the Company’s investment management subsidiary, were included in service charges and fee income. Total assets under management increased to $111.7 million at September 30, 2017, compared to $91.6 million at December 31, 2016 due to positive market movements and additions from new and existing clients. Pre-tax realized gains on the sale of securities decreased $632,000, or 92.4%. Additionally, there was a $915,000 decrease on the prepayment of borrowings reported during the nine months ended September 30, 2016 as there were no such prepayments in 2017.

~~Non-interest Expense~~

~~For the nine months ended September 30, 2017,~~2020, non-interest expense increased ~~$10.1~~$1.5 million, or ~~43.5%~~4.2%, to ~~$33.4~~$37.4 million, or ~~2.15%~~2.16% of average assets, compared to ~~$23.3~~$35.9 million, or ~~2.33%~~2.27% of average assets for the nine months ended September 30, ~~2016.~~2019. The increase in non-interest expense was primarily due to ~~a $7.2 million, or 61.9%,~~an increase in salaries and employee benefits ~~due to the addition~~expenses of ~~the Chicopee staff and normal merit increases. Occupancy expense increased $1.1 million,~~$994,000, or ~~64.4%~~4.8%, an increase in occupancy expenses of $215,000, or 6.8%, due to the ~~acquisition~~opening of ~~the Chicopee branches. Data~~three branches in 2020, an increase in data processing ~~expense increased $573,000,~~expenses of $113,000, or ~~49.1%~~5.4%, from $1.2 million for the nine months ended September 30, 2016 to $1.7 million for the nine months ended September 30, 2017. Furniture and equipment increased $426,000, or 58.9%, from $723,000 for the nine months ended September 30, 2016 to $1.1 million for the nine months ended September 30, 2017. Advertising expense increased $265,000, or 38.1%, professional fees increased $202,000, or 11.8%, andan increase in other non-interest expense ~~increased $1.7 million,~~of $261,000, or ~~56.4%~~4.7%, which included $114,000 in swap fees paid to third parties and an increase in FDIC insurance expense of $315,000, or 75.5%. These increases were partially offset by a ~~$1.3 million,~~decrease of $301,000, or ~~67.3%~~27.4%, in advertising expenses, a decrease of $81,000, or 6.4%, in ~~merger related expenses as well as~~furniture and equipment and a decrease in ~~FDIC insurance expense~~professional fees of ~~$128,000,~~$7,000, or ~~21.5%~~0.4%. The increase to non-interest expense reflects generally higher level of expenses associated with operating a larger financial institution, which includes additional employees, increased costs for data processing, occupancy, and professional services. The merger providedFor the ~~opportunity to achieve greater economies of scale as reflected in the improvement in~~nine months ended September 30, 2020, the efficiency ratio ~~from 75.3%~~was 71.0%, compared to 71.6% for the nine months ended September 30, ~~2016 to 65.0%~~2019.

Income Taxes.

Income tax expense for the nine months ended September 30, ~~2017.~~

~~Income Taxes~~

~~For the~~2020 was $1.5 million, or an effective tax rate of 19.8%, compared to $2.9 million, or an effective tax rate of 22.4%, for nine months ended September 30, ~~2017, we had a tax provision of $3.6 million as compared to $1.5 million for~~2019. The decrease in the ~~same period in 2016. The~~Company’s effective tax rate was ~~22.1%~~primarily due to the effect of lower projected pre-tax income for the ~~nine months ended September 30, 2017 and 33.4% for the same period in 2016. The 2017 period includes $1.8 million in tax benefits recorded on the reversal~~fiscal year-ended December 31, 2020.

Explanation of ~~a deferred tax valuation allowance and stock option exercises.~~Use of Non-GAAP Financial Measurements.

~~LIQUIDITY AND CAPITAL RESOURCES~~We believe that it is common practice in the banking industry to present interest income and related yield information on tax-exempt loans and securities on a tax-equivalent basis and that such information is useful to investors because it facilitates comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities to a tax-equivalent amount includes financial information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.

	Three Months Ended September 30,										Nine Months Ended September 30,
	2020					2019					2020					2019
	(Dollars in thousands)										(Dollars in thousands)
	Interest		Average Yield			Interest		Average Yield			Interest		Average Yield			Interest		Average Yield
Loans (no tax adjustment)	$	19,364		3.86	%	$	19,111		4.36	%	$	57,110		3.99	%	$	55,471		4.35	%
Tax-equivalent adjustment ⁽¹⁾		105					133					342					386
Loans (tax-equivalent basis)	$	19,469		3.88	%	$	19,244		4.39	%	$	57,452		4.01	%	$	55,857		4.38	%

Securities (no tax adjustment)	$	953		1.74	%	$	1,465		2.43	%	$	3,517		2.13	%	$	4,785		2.57	%
Tax-equivalent adjustment ⁽¹⁾		5					5					16					16
Securities (tax-equivalent basis)	$	958		1.75	%	$	1,470		2.44	%	$	3,533		2.14	%	$	4,801		2.58	%

Net interest income (no tax adjustment)	$	15,990				$	14,528				$	45,635				$	43,055
Tax-equivalent adjustment ⁽¹⁾		110					138					358					402
Net interest income (tax-equivalent basis)	$	16,100				$	14,666				$	45,993				$	43,457

Interest rate spread (no tax adjustment)				2.49	%				2.48	%				2.44	%				2.52	%
Net interest margin (no tax adjustment)				2.81	%				2.88	%				2.80	%				2.90	%

(1) The tax equivalent adjustment is based upon a 21% tax rate.

Liquidity and Capital Resources.

The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals ~~of deposits~~ and operating expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. We also can borrow funds from the ~~FHLBB~~FHLB and FRB based on eligible collateral of loans and securities. ~~Our maximum additional~~

At September 30, 2020 and December 31, 2019, outstanding borrowings from the FHLB were $151.3 million and $240.5 million, respectively. At September 30, 2020, we had $325.3 million in available borrowing capacity ~~from~~with the ~~FHLBB at September 30, 2017, was $132.0 million.~~FHLB. We have the ability to increase our borrowing capacity with the FHLB by pledging investment securities or additional loans. In addition, we have available lines of credit of ~~$4.0~~$15.0 million and $50.0 million with ~~Bankers Bank Northeast (“BBN”) and PNC Bank, respectively. The interest~~other correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank.

~~Liquidity management is both~~ The Bank also had a line of credit in the amount up to $15.0 million with a correspondent bank at an interest rate determined and reset on a daily ~~and long-term function of business management. The measure of a company’s liquidity is its ability to meet its cash commitments~~basis. There were no advances outstanding under this line at all times with available cash or by conversion of other assets to cash at a reasonable price. Loan repayments and maturing securities are a relatively predictable source of funds. However, deposit flow, calls of securities and repayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Management believes that we have sufficient liquidity to meet its current operating needs.

At September 30, ~~2017, we exceeded each~~2020 and 2019. The Bank also had a $50.0 million line of ~~the applicable regulatory capital requirements.~~credit with another correspondent bank at an interest rate determined and reset on a daily basis. There were no advances outstanding under this line at September 30, 2020 and 2019. As of September 30, ~~2017, the most recent notification from the Office of Comptroller of the Currency categorized~~2020, the Bank ~~as “well-capitalized”~~also has an available line of credit of $18.3 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. There were no advances outstanding under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category. Our actual capital ratios ofthis line at September 30, ~~2017 and~~2020 or December 31, ~~2016~~2019. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are ~~also presented in the following table.~~

Actual Minimum For Capital
Adequacy Purpose Minimum To Be Well
Capitalized
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
September 30, 2017
Total Capital(to Risk Weighted Assets):
Consolidated $ 257,936 15.76 % $ 130,935 8.00 % N/A N/A
Bank 247,801 15.18 130,610 8.00 $ 163,263 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 247,358 15.11 98,201 6.00 N/A N/A
Bank 237,223 14.53 97,958 6.00 130,610 8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated 247,358 15.11 73,651 4.50 N/A N/A
Bank 237,223 14.53 73,468 4.50 106,121 6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated 247,358 12.01 82,396 4.00 N/A N/A
Bank 237,223 11.53 82,313 4.00 102,891 5.00

December 31, 2016
Total Capital(to Risk Weighted Assets):
Consolidated $ 245,389 15.10 % $ 130,037 8.00 % N/A N/A
Bank 237,626 14.64 129,879 8.00 $ 162,349 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 235,261 14.47 97,528 6.00 N/A N/A
Bank 227,498 14.01 97,409 6.00 129,879 8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated 235,261 14.47 73,146 4.50 N/A N/A
Bank 227,498 14.01 73,057 4.50 105,527 6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated 235,261 12.19 77,187 4.00 N/A N/A
Bank 227,498 11.86 76,745 4.00 95,931 5.00

agreements that allow us to borrow money using our securities as collateral.

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

At September 30, 2020, we exceeded each of the applicable regulatory capital requirements. As of September 30, 2020, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” under the regulatory framework for ~~certain~~prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category.

	Actual					Minimum For Capital Adequacy Purpose					Minimum To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2020
Total Capital (to Risk Weighted Assets):
Consolidated	$	242,084		14.43	%	$	134,247		8.00	%		N/A		N/A
Bank		229,260		13.71			133,777		8.00		$	167,222		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		221,391		13.19			100,685		6.00			N/A		N/A
Bank		208,568		12.47			100,333		6.00			133,777		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		221,391		13.19			75,514		4.50			N/A		N/A
Bank		208,568		12.47			75,250		4.50			108,694		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		221,391		9.29			95,348		4.00			N/A		N/A
Bank		208,568		8.76			95,212		4.00			119,015		5.00

December 31, 2019
Total Capital (to Risk Weighted Assets):
Consolidated	$	240,226		13.93	%	$	137,934		8.00	%		N/A		N/A
Bank		227,678		13.22			137,773		8.00		$	172,217		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		226,124		13.11			103,451		6.00			N/A		N/A
Bank		213,576		12.40			103,330		6.00			137,773		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		226,124		13.11			77,588		4.50			N/A		N/A
Bank		213,576		12.40			77,498		4.50			111,941		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		226,124		10.45			86,593		4.00			N/A		N/A
Bank		213,576		9.88			86,500		4.00			108,125		5.00

We also have outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our ~~branches~~obligations. Because many commitments and ~~equipment.~~almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. The following table summarizes the contractual obligations and credit commitments at September 30, ~~2017:~~2020:

Within 1 Year After 1 Year But Within 3 Years After 3 Year But Within 5 Years After 5 Years Total
(In thousands)
Lease Obligations
Operating lease obligations⁽¹⁾ $ 1,110 $ 2,069 $ 1,716 $ 4,995 $ 9,890

Borrowings and Debt
Federal Home Loan Bank 223,938 45,502 10,138 761 280,339
Securities sold under agreements to repurchase 18,465 — — — 18,465
Total borrowings and debt 242,403 45,502 10,138 761 298,804

Credit Commitments
Available lines of credit 156,127 9 7 59,721 215,864
Other loan commitments 54,019 13,667 2,053 2,194 71,933
Letters of credit 7,058 392 — 255 7,705
Total credit commitments 217,204 14,068 2,060 62,170 295,502

Other Obligations
Vendor Contracts 2,644 5,288 5,288 6,390 19,610

Total Obligations $ 463,361 $ 66,927 $ 19,202 $ 74,316 $ 623,806

⁽¹⁾

~~Payments are for the lease of real property~~

	Amounts Due Within 1 Year		Amounts Due After 1 Year But Within 3 Years		Amounts Due After 3 Years But Within 5 Years		Amounts Due After 5 Years		Total
	(In thousands)
Lease Obligations
Operating lease obligations	$	1,467	$	2,620	$	2,122	$	5,879	$	12,088

Borrowings and Debt
Federal Home Loan Bank		104,465		44,119		2,674		—		151,258

Credit Commitments
Available lines of credit		239,597		—		—		85,367		324,964
Other loan commitments		73,503		41,029		2,791		—		117,323
Letters of credit		9,425		5,695		438		256		15,814
Total credit commitments		322,525		46,724		3,229		85,623		458,101

Other Obligations
Vendor Contracts		3,656		7,236		5,121		—		16,013

Total Obligations	$	432,113	$	100,699	$	13,146	$	91,502	$	637,460

OFF-BALANCE SHEET ~~ARRANGEMENTS~~ARRANGEMENTS.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our assessment of our sensitivity to market risk since ~~its~~our presentation in our ~~2016~~2019 Annual Report. Please refer to Item 7A7 of the ~~2016~~2019 Annual Report for additional information.

ITEM 4: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

We are subject to claims and legal actions in the ordinary course of business. We believe that all such claims and actions currently pending against us, if any, are either adequately covered by insurance or would not have a material adverse effect on us if decided in a manner unfavorable to us.

ITEM 1A.

RISK FACTORS.

For a summary of risk factors relevant to our operations, see Part 1, Item 1A, “Risk Factors” in our ~~2016~~2019 Annual Report. There was one material change in the risk factors relevant to our operations discussed in our 2019 Annual Report, as described below:

The recent COVID-19 pandemic is adversely impacting us and our customers, counterparties, employees and third-party service providers. Further, the COVID-19 pandemic could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which we operate and the adverse impacts on our business, financial position, results of operations and prospects could be significant.

Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. The COVID-19 global public health crisis and the resulting “stay-at-home” orders have resulted in widespread volatility, severe disruptions in the U.S. economy at large, and for small businesses in particular, deterioration in household, business, economic and market conditions. The extent of the impact of the COVID-19 pandemic and actions taken in response to the pandemic on our capital, liquidity and other financial positions and on our business, results of operations and prospects will depend on a number of evolving factors, including:

●

The duration, extent, and severity of the pandemic. COVID-19 does not yet appear to be contained and could affect significantly more households and businesses. The duration and severity of the pandemic continue to be impossible to predict.

●

The effects on our customers, counterparties, employees and third-party service providers. COVID-19 and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly. In the near-term if not longer, however, our credit, operational and other risks are generally expected to increase.

●

The effects on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional and local economies and markets could suffer disruptions that are lasting. In addition, governmental actions are meaningfully influencing the interest-rate environment, which could adversely affect our results of operations and financial condition.

Additionally, if the COVID-19 pandemic has an adverse effect on (i) customer deposits, (ii) the ability of our borrowers to satisfy their obligations to us, (iii) the demand for our loans or our other products and services, (iv) other aspects of our business operations, or (v) on financial markets, real estate markets, or economic growth, this could, depending on the extent of the decline in customer deposits or loan defaults, materially and adversely affect our liquidity and financial condition and our results of operations could be materially and adversely affected.

We are unable to estimate the impact of COVID-19 on our business and operations at this time. The global pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, further reduced demand for our products and services and other negative impacts on our financial position, results of operations and prospects. Sustained adverse effects may also prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements or result in downgrades in our credit ratings.

There are no additional material changes in the risk factors relevant to our ~~operations.~~operations since December 31, 2019.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth information with respect to purchases made by us of our common stock during the three months ended September 30, ~~2017.~~2020.

Period Total Number
of Shares
Purchased Average Price
Paid per
Share ($) Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Programs Maximum
Number of
Shares that May
Yet Be
Purchased
Under the
Program (1)
July 1 - 31, 2017 — — — 3,011,837
August 1 - 31, 2017 99,589 9.87 99,589 2,912,248
September 1 - 30, 2017 153,705 10.51 153,705 2,758,543
Total 253,294 10.26 253,294 2,758,543

Period	Total Number of Shares Purchased		Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
July 1 - 31, 2020		—		—		—		117,135
August 1 - 31, 2020		—		—		—		117,135
September 1 – 30, 2020		48,777		5.82		48,777		68,358
Total		48,777		5.82		48,777		68,358

(1)

On January ~~31, 2017,~~29, 2019, the Board of Directors authorized ~~an additional stock repurchase program~~the 2019 Plan under which the Company may purchase up to ~~3,047,000~~2,814,200 shares, or 10%, of its outstanding common stock. As of September 30, 2020, the Company has repurchased 2,745,842 shares under the 2019 Plan.

There were no sales by us of unregistered securities during the three months ended September 30, ~~2017.~~2020.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS.

~~The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.~~

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 7, 2017.

	~~Western New England Bancorp, Inc.~~

	~~By:~~	~~/s/ James C. Hagan~~
		~~James C. Hagan~~
		~~President and Chief Executive Officer~~

	~~By:~~	~~/s/ Guida R. Sajdak~~
		~~Guida R. Sajdak~~
		~~Executive Vice President and Chief Financial~~
		~~Officer~~

~~EXHIBIT INDEX~~

Exhibit Number		Exhibit Description
~~2.1~~3.2		Agreement and Plan of Merger, dated as of April 4, 2016, by and between Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) and Chicopee Bancorp, Inc. (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the Securities and Exchange Commission on April 7, 2016).

~~3.2~~		Restated Articles of Organization of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on October 26, 2016).

3.3		Amended and Restated Bylaws of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on February 2, 2017).

4.1		Form of Stock Certificate of Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 4.1 of the Registration Statement No. 333-137024 on Form S-1 filed with the Securities and Exchange Commission on August 31, 2006).

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		Financial statements from the quarterly report on Form 10-Q of Western New England Bancorp, Inc. for the quarter ended September 30, ~~2017,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Net Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

	Western New England Bancorp, Inc.

	By:	/s/ James C. Hagan
		James C. Hagan
		President and Chief Executive Officer

	By:	/s/ Guida R. Sajdak
		Guida R. Sajdak
		Executive Vice President and Chief Financial Officer

Massachusetts			73-1627673
~~(State~~ (State or other jurisdiction of incorporation or organization)			(~~I.R.S.~~IRS Employer Identification ~~No.)~~Number)

141 Elm Street , Westfield, Massachusetts		01086
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	WNEB	NASDAQ

Large accelerated ~~filer☐~~filer ☐	Accelerated ~~filer~~Filer☒	~~Non-accelerated filer~~☐
Non-accelerated filer ☐
Smaller reporting company☐☒
	Emerging growth company☐

		Page

FORWARD-LOOKING STATEMENTS		i

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements of Western New England Bancorp, Inc. and Subsidiaries (Unaudited)


	Consolidated Balance Sheets – September 30, ~~2017~~2020 and December 31, ~~2016~~2019	1

	Consolidated Statements of Net Income – Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	2

	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	3

	Consolidated Statements of Changes in Shareholders’ Equity – Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	4

	Consolidated Statements of Cash Flows – Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	56

	Notes to Consolidated Financial Statements	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3234

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4454

Item 4.	Controls and Procedures	4454

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4555

Item 1A.	Risk Factors	4555

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4556

Item 3.	Defaults upon Senior Securities	4556

Item 4.	Mine Safety Disclosures	4556

Item 5.	Other Information	4556

Item 6.	Exhibits	4657


	Three Months				Nine Months					Three Months					Nine Months
	Ended September 30,				Ended September 30,					Ended September 30,					Ended September 30,
	2017		2016		2017		2016			2020			2019		2020			2019
INTEREST AND DIVIDEND INCOME:
Interest and dividend income:
Residential and commercial real estate loans	$	13,474	$	7,367	$	40,042	$	20,803		$	15,503		$	15,831	$	46,290		$	45,948
Commercial and industrial loans		2,883		1,728		8,180		5,098			3,786			3,195		10,582			9,269
Consumer loans		88		43		260		126			75			85		238			254
Debt securities, taxable		1,828		1,618		5,529		5,723			909			1,406		3,371			4,606
Debt securities, tax-exempt		25		32		81		136			16			17		51			55
Equity securities		35		45		105		140
Marketable equity securities											28			42		95			124
Other investments		172		130		501		398			118			192		457			638
Federal funds sold, interest-bearing deposits and other short-term investments		11		14		103		67
Short-term investments											12			36		83			185
Total interest and dividend income		18,516		10,977		54,801		32,491			20,447			20,804		61,167			61,079

INTEREST EXPENSE:
Interest expense:
Deposits		2,111		1,582		6,180		4,589			3,190			4,454		11,243			12,790
Long-term debt		534		446		1,633		1,749			789			1,102		2,677			3,292
Short-term borrowings		1,075		621		2,946		1,580			478			720		1,612			1,942
Total interest expense		3,720		2,649		10,759		7,918			4,457			6,276		15,532			18,024
Net interest and dividend income		14,796		8,328		44,042		24,573			15,990			14,528		45,635			43,055
PROVISION FOR LOAN LOSSES		200		375		850		400

Provision for loan losses											2,725			1,275		7,275			1,675
Net interest and dividend income after provision for loan losses		14,596		7,953		43,192		24,173			13,265			13,253		38,360			41,380

NON-INTEREST INCOME (LOSS):
Non-interest income:
Service charges and fees		1,714		953		4,789		2,696			1,764			2,018		5,097			5,501
Income from bank-owned life insurance		450		369		1,369		1,133			444			444		1,365			1,347
Loss on prepayment of borrowings		—		—		—		(915	)
Gain on sales of securities, net		70		1		52		684
Gain on sale of OREO		67		—		67		—
Gain (loss) on available-for-sale securities, net											1,929			49		1,965			(12	)
Unrealized (loss) gain on marketable equity securities, net											(4	)		45		133			194
Loss on interest rate swap termination											(2,353	)		—		(2,353	)		—
Other income		111		—		227		—			397			55		582			270
Total non-interest income		2,412		1,323		6,504		3,598			2,177			2,611		6,789			7,300

NON-INTEREST EXPENSE:
Salaries and employee benefits		6,490		4,057		18,954		11,709
Non-interest expense:
Salaries and employees benefits											7,204			6,893		21,543			20,549
Occupancy		891		555		2,815		1,712			1,120			975		3,359			3,144
Furniture and equipment		410		242		1,149		723			421			424		1,175			1,256
Data processing		680		404		1,740		1,167			768			710		2,190			2,077
Professional fees		642		656		1,919		1,717			615			546		1,851			1,858
FDIC insurance assessment		163		214		466		594			293			5		732			417
Merger related expenses		—		830		626		1,913
Advertising		328		192		961		696			326			364		797			1,098
Other		1,552		1,075		4,792		3,064
Other expenses											2,106			1,823		5,765			5,504
Total non-interest expense		11,156		8,225		33,422		23,295			12,853			11,740		37,412			35,903
INCOME BEFORE INCOME TAXES		5,852		1,051		16,274		4,476
INCOME TAX PROVISION		2,037		423		3,600		1,495
NET INCOME	$	3,815	$	628	$	12,674	$	2,981
Income before income taxes											2,589			4,124		7,737			12,777
Income tax provision											488			899		1,535			2,864
Net income										$	2,101		$	3,225	$	6,202		$	9,913

EARNINGS PER COMMON SHARE:
Earnings per common share:
Basic earnings per share	$	0.13	$	0.04	$	0.42	$	0.17		$	0.08		$	0.12	$	0.25		$	0.38
Weighted average shares outstanding		30,103,095		17,377,844		29,895,621		17,340,101			24,945,670			25,854,040		25,145,411			26,308,580
Diluted earnings per share	$	0.13	$	0.02	$	0.42	$	0.17		$	0.08		$	0.12	$	0.25		$	0.38
Weighted average diluted shares outstanding		30,219,083		17,377,844		30,074,361		17,340,101			24,945,670			25,969,365		25,163,005			26,423,229

	Common Stock												Unearned						Accumulated
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Compensation- Equity Incentive Plan			Retained Earnings			Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2015		18,267,747		$	183		$	108,210		$	(6,952	)	$	(313	)	$	49,316		$	(10,978	)	$	139,466
Comprehensive income		—			—			—			—			—			2,981			3,700			6,681
Common stock held by ESOP committed to be released (74,430 shares)		—			—			62			382			—			—			—			444
Share-based compensation - equity incentive plan		—			—			—			—			186			—			—			186
Excess tax benefit from equity incentive plan		—			—			5			—			—			—			—			5
Issuance of common stock in connection with equity incentive plan		62,740			1			484			—			(485	)		—			—			—
Cash dividends declared and paid ($0.09 per share)		—			—			—			—			—			(1,559	)		—			(1,559	)
BALANCE AT SEPTEMBER 30, 2016		18,330,487		$	184		$	108,761		$	(6,570	)	$	(612	)	$	50,738		$	(7,278	)	$	145,223

BALANCE AT DECEMBER 31, 2016		30,380,231		$	304		$	205,996		$	(6,418	)	$	(536	)	$	51,711		$	(12,661	)	$	238,396
Comprehensive income		—			—			—			—			—			12,674			3,194			15,868
Common stock held by ESOP committed to be released (93,679 shares)		—			—			226			472			—			—			—			698
Share-based compensation - equity incentive plan		—			—			—			—			490			—			—			490
Common stock repurchased		(574,309	)		(5	)		(5,667	)		—			—			—			—			(5,672	)
Issuance of common stock in connection with stock option exercises		921,849			9			5,456			—			—			—			—			5,465
Issuance of common stock in connection with equity incentive plan		89,042			1			903			—			(904	)		—			—			—
Cash dividends declared and paid ($0.09 per share)		—			—			—			—			—			(2,690	)		—			(2,690	)
BALANCE AT SEPTEMBER 30, 2017		30,816,813		$	309		$	206,914		$	(5,946	)	$	(950	)	$	61,695		$	(9,467	)	$	252,555

	September 30, 2017			December 31, 2016
	(In thousands)

Net unrealized losses on securities available-for-sale	$	(3,782	)	$	(5,863	)
Tax effect		1,397			2,024
Net-of-tax amount		(2,385	)		(3,839	)

Fair value of derivatives used for cash flow hedges		(2,709	)		(3,152	)
Termination fees on forward starting interest rate swaps		(3,933	)		(4,733	)
Total derivatives		(6,642	)		(7,885	)
Tax effect		2,713			2,681
Net-of-tax amount		(3,929	)		(5,204	)

Unrecognized actuarial loss on defined benefit plan		(5,329	)		(5,482	)
Tax effect		2,176			1,864
Net-of-tax amount		(3,153	)		(3,618	)

Accumulated other comprehensive loss	$	(9,467	)	$	(12,661	)

	Securities			Derivatives			Defined Benefit Plans			Accumulated Other Comprehensive Loss
	(In thousands)
Balance at December 31, 2015	$	(3,046	)	$	(5,501	)	$	(2,431	)	$	(10,978	)
Current-period other comprehensive income (loss)		4,883			(1,230	)		47			3,700
Balance at September 30, 2016	$	1,837		$	(6,731	)	$	(2,384	)	$	(7,278	)

Balance at December 31, 2016	$	(3,839	)	$	(5,204	)	$	(3,618	)	$	(12,661	)
Current-period other comprehensive income		1,454			1,275			465			3,194
Balance at September 30, 2017	$	(2,385	)	$	(3,929	)	$	(3,153	)	$	(9,467	)

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
	(In thousands)

Balance at the beginning of period:	$	408		$	465
Capitalized mortgage servicing rights		—			—
Amortization		(28	)		(85	)
Balance at the end of period	$	380		$	380
Fair value at the end of period	$	538		$	538

	Impaired Loans⁽¹⁾⁽²⁾
					Three Months Ended				Nine Months Ended
	At September 30, 2017⁽¹⁾				September 30, 2017				September 30, 2017
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance⁽²⁾:
Commercial real estate	$	16,945	$	19,380	$	17,731	$	199	$	18,788	$	650
Residential real estate:
Residential real estate		6,939		7,410		7,016		11		6,548		34
Home equity		566		590		407		1		260		3
Commercial and industrial		3,953		10,242		4,442		54		4,538		183
Consumer		127		131		122		—		83		—

Total impaired loans	$	28,530	$	37,753	$	29,718	$	265	$	30,217	$	870

	Nine Months Ended
	September 30, 2016
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		1	$	1,940	$	1,940
Commercial and Industrial		3		2,681		2,681
Residential		2		161		161
Total		6	$	4,782	$	4,782

	Contractual Required Payments Receivable			Cash Expected To Be Collected			Non- Accretable Discount			Accretable Yield			Loans Receivable
	(In thousands)

Balance at December 31, 2016	$	37,437		$	29,040		$	8,397		$	7,521		$	21,519
Collections		(3,860	)		(3,326	)		(534	)		(1,003	)		(2,323	)
Dispositions		(1,833	)		(1,503	)		(330	)		6			(1,509	)
Balance at September 30, 2017	$	31,744		$	24,211		$	7,533		$	6,524		$	17,687

	Commercial Real Estate		Residential 1-4 Family		Home Equity		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2017
Loans rated 1 – 3	$	647,599	$	549,936	$	91,854	$	192,968	$	4,340	$	1,486,697
Loans rated 4		45,339		95		—		35,585		—		81,019
Loans rated 5		14,724		—		—		7,521		—		22,245
Loans rated 6		9,228		5,737		505		8,300		127		23,897
	$	716,890	$	555,768	$	92,359	$	244,374	$	4,467	$	1,613,858

December 31, 2016
Loans rated 1 – 3	$	673,957	$	516,339	$	91,964	$	180,675	$	4,391	$	1,467,326
Loans rated 4		24,207		—		—		16,621		6		40,834
Loans rated 5		14,068		—		—		6,727		—		20,795
Loans rated 6		6,604		5,744		119		15,379		27		27,873
Loans rated 7		1,905		—		—		2,884		—		4,789
	$	720,741	$	522,083	$	92,083	$	222,286	$	4,424	$	1,561,617

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)

Outstanding at December 31, 2016		1,178,899		$	6.01		1.98	$	3,930
Exercised		(921,849	)		5.93		0.91		3,675
Outstanding at September 30, 2017		257,050		$	6.31		4.66	$	1,175

Exercisable at September 30, 2017		257,050		$	6.31		4.66	$	1,175

	Return on Equity Targets

Performance Period Ending	Threshold		Target		Maximum

December 31, 2017	6.00	%	6.60	%	7.30	%
December 31, 2018	6.30	%	7.00	%	7.60	%
December 31, 2019	6.50	%	7.20	%	7.90	%

	Unvested Stock Awards Outstanding
	Shares			Weighted Average Grant Date Fair Value

Outstanding at December 31, 2016	91,371		$	7.51
Shares granted	89,042			10.15
Shares vested	(21,552	)		7.44
Outstanding at September 30, 2017	158,861		$	9.00

Outstanding at December 31, 2015	54,160		$	7.28
Shares granted	62,740			7.73
Shares vested	(11,200	)		7.18
Outstanding at September 30, 2016	105,700		$	7.56

	Three Months Ended September 30,						Nine Months Ended, September 30,
	2017			2016			2017			2016
	(In thousands)
Service cost	$	245		$	283		$	778		$	854
Interest cost		254			240			761			719
Expected return on assets		(298	)		(275	)		(895	)		(823	)
Amortization of actuarial losses		51			24			153			71
Net periodic pension cost	$	252		$	272		$	797		$	821

	Notional		Weighted Average		Weighted Average Rate						Estimated Fair
September 30, 2017	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Interest rate swaps on FHLBB borrowings	$	75,000		2.6		1.31	%		2.46	%	$	(2,709	)

	At September 30, 2016						Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
							Total		Total
	Level 1		Level 2		Level 3		Gains (Losses)		Gains (Losses)
	(In thousands)
Impaired Loans	$	—	$	—	$	2,059	$	—	$	(220	)

	Actual					Minimum For Capital Adequacy Purpose					Minimum To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2017
Total Capital(to Risk Weighted Assets):
Consolidated	$	257,936		15.76	%	$	130,935		8.00	%		N/A		N/A
Bank		247,801		15.18			130,610		8.00		$	163,263		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		247,358		15.11			98,201		6.00			N/A		N/A
Bank		237,223		14.53			97,958		6.00			130,610		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		247,358		15.11			73,651		4.50			N/A		N/A
Bank		237,223		14.53			73,468		4.50			106,121		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		247,358		12.01			82,396		4.00			N/A		N/A
Bank		237,223		11.53			82,313		4.00			102,891		5.00

December 31, 2016
Total Capital(to Risk Weighted Assets):
Consolidated	$	245,389		15.10	%	$	130,037		8.00	%		N/A		N/A
Bank		237,626		14.64			129,879		8.00		$	162,349		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		235,261		14.47			97,528		6.00			N/A		N/A
Bank		227,498		14.01			97,409		6.00			129,879		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		235,261		14.47			73,146		4.50			N/A		N/A
Bank		227,498		14.01			73,057		4.50			105,527		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		235,261		12.19			77,187		4.00			N/A		N/A
Bank		227,498		11.86			76,745		4.00			95,931		5.00

	Within 1 Year		After 1 Year But Within 3 Years		After 3 Year But Within 5 Years		After 5 Years		Total
	(In thousands)
Lease Obligations
Operating lease obligations⁽¹⁾	$	1,110	$	2,069	$	1,716	$	4,995	$	9,890

Borrowings and Debt
Federal Home Loan Bank		223,938		45,502		10,138		761		280,339
Securities sold under agreements to repurchase		18,465		—		—		—		18,465
Total borrowings and debt		242,403		45,502		10,138		761		298,804

Credit Commitments
Available lines of credit		156,127		9		7		59,721		215,864
Other loan commitments		54,019		13,667		2,053		2,194		71,933
Letters of credit		7,058		392		—		255		7,705
Total credit commitments		217,204		14,068		2,060		62,170		295,502

Other Obligations
Vendor Contracts		2,644		5,288		5,288		6,390		19,610

Total Obligations	$	463,361	$	66,927	$	19,202	$	74,316	$	623,806

Period	Total Number of Shares Purchased		Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
July 1 - 31, 2017		—		—		—		3,011,837
August 1 - 31, 2017		99,589		9.87		99,589		2,912,248
September 1 - 30, 2017		153,705		10.51		153,705		2,758,543
Total		253,294		10.26		253,294		2,758,543