UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.D.C. 20549
FORM 10-Q
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172022
ORor
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to _____.___________
Commission file number File Number: 001-16767
Western New England Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts | 73-1627673 | |
(State or other jurisdiction of incorporation or organization) | ( |
141 Elm Street, Westfield, Massachusetts | 01086 | |
(Address of principal executive offices) | (Zip Code) | |
141 Elm Street, Westfield, Massachusetts 01086(413)568-1911
(Address of principal executive offices)
(Zip Code)
(413) 568-1911
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | WNEB | NASDAQ |
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☐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). Yes ☒ No ☐
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.
Large accelerated | Accelerated filer☒ | |
Non-accelerated filer☐ | Smaller reporting company ☒ | |
Emerging growth company ☐ | ||
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,July 29, 2022 the registrant had30,634,170 shares of common stock, $0.01 par value, issued and outstanding.
TABLE OF CONTENTS
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 operationoperations 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:
● | the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19; |
● | actions governments, businesses and individuals take in response to the COVID-19 pandemic; |
● | the speed and effectiveness of any COVID-19 vaccines and treatment developments and their deployment, including public adoption rates of any COVID-19 vaccines; |
● | the emergence of new COVID-19 variants, such as the Omicron variant, and the response thereto; |
● | the pace of recovery when the COVID-19 pandemic subsides; |
● | changes in the interest rate environment that reduce margins; |
● |
the effect on our operations of governmental legislation and regulation, including changes in accounting regulation or standards, the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Basel guidelines, capital requirements and other applicable laws and regulations; |
● | the highly competitive industry and market area in which we operate; |
● | general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality; |
● | changes in business conditions and inflation; |
● | changes in credit market conditions; |
● | the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions; |
● | changes in the securities markets which affect investment management revenues; |
● | increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments; |
● | changes in technology used in the banking business; |
● | the soundness of other financial services institutions which may adversely affect our credit risk; |
● | certain of our intangible assets may become impaired in the future; |
● | our controls and procedures may fail or be circumvented; |
● | new lines of business or new products and services, which may subject us to additional risks; |
● | changes in key management personnel which may adversely impact our operations; |
● | severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business; and |
● | other factors detailed from time to time in our SEC filings. |
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.
i
PART I – FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)STATEMENTS.
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollars in thousands, except share data)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 19,531 | $ | 15,233 | ||||
Federal funds sold | 1,508 | 4,901 | ||||||
Interest-bearing deposits and other short-term investments | 26,474 | 83,322 | ||||||
Cash and cash equivalents | 47,513 | 103,456 | ||||||
Available-for-sale securities, at fair value | 160,925 | 194,352 | ||||||
Held-to-maturity securities, at amortized cost (Fair value of $204,791 and $219,748 at June 30, 2022 and December 31, 2021, respectively) | 233,803 | 222,272 | ||||||
Marketable equity securities, at fair value | 11,453 | 11,896 | ||||||
Federal Home Loan Bank of Boston stock and other restricted stock, at cost | 1,882 | 2,594 | ||||||
Loans, net of allowance for loan losses of $19,560 at June 30, 2022 and $19,787 at December 31, 2021 | 1,956,140 | 1,844,929 | ||||||
Premises and equipment, net | 25,349 | 26,162 | ||||||
Accrued interest receivable | 7,869 | 7,775 | ||||||
Bank-owned life insurance | 73,801 | 72,895 | ||||||
Deferred tax asset, net | 17,038 | 12,092 | ||||||
Goodwill | 12,487 | 12,487 | ||||||
Core deposit intangible | 2,375 | 2,563 | ||||||
Other assets | 26,722 | 24,952 | ||||||
TOTAL ASSETS | $ | 2,577,357 | $ | 2,538,425 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Deposits: | ||||||||
Non-interest-bearing | $ | 647,571 | $ | 641,284 | ||||
Interest-bearing | 1,654,401 | 1,615,614 | ||||||
Total deposits | 2,301,972 | 2,256,898 | ||||||
Shot-term borrowings | 4,790 | — | ||||||
Long-term debt | 1,360 | 2,653 | ||||||
Subordinated debt | 19,653 | 19,633 | ||||||
Other liabilities | 34,252 | 35,553 | ||||||
TOTAL LIABILITIES | 2,362,027 | 2,314,737 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock - $ | par value, shares authorized, outstanding at June 30, 2022 and December 31, 2021— | — | ||||||
Common stock - $ | par value, shares authorized, shares issued and outstanding at June 30, 2022; shares issued and outstanding at December 31, 2021225 | 227 | ||||||
Additional paid-in capital | 131,104 | 132,821 | ||||||
Unearned compensation – Employee Stock Ownership Plan | (3,173 | ) | (3,441 | ) | ||||
Unearned compensation - Equity Incentive Plan | (1,651 | ) | (981 | ) | ||||
Retained earnings | 115,561 | 107,376 | ||||||
Accumulated other comprehensive loss | (26,736 | ) | (12,314 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 215,330 | 223,688 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,577,357 | $ | 2,538,425 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
CASH AND DUE FROM BANKS | $ | 25,108 | $ | 23,297 | ||||
FEDERAL FUNDS SOLD | 885 | 4,388 | ||||||
INTEREST-BEARING DEPOSITS AND OTHER SHORT-TERM INVESTMENTS | 2,907 | 42,549 | ||||||
CASH AND CASH EQUIVALENTS | 28,900 | 70,234 | ||||||
SECURITIES AVAILABLE-FOR-SALE – AT FAIR VALUE | 297,919 | 300,115 | ||||||
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER RESTRICTED STOCK - AT COST | 15,704 | 16,124 | ||||||
LOANS - Net of allowance for loan losses of $10,518 and $10,068 at September 30, 2017 and December 31, 2016, respectively | 1,608,255 | 1,556,416 | ||||||
PREMISES AND EQUIPMENT, Net | 23,440 | 20,885 | ||||||
ACCRUED INTEREST RECEIVABLE | 5,764 | 5,782 | ||||||
BANK-OWNED LIFE INSURANCE | 68,307 | 66,938 | ||||||
DEFERRED TAX ASSET, Net | 15,636 | 16,159 | ||||||
GOODWILL | 12,487 | 13,747 | ||||||
CORE DEPOSIT INTANGIBLE | 4,156 | 4,438 | ||||||
OTHER REAL ESTATE OWNED | 103 | 298 | ||||||
OTHER ASSETS | 5,707 | 4,882 | ||||||
TOTAL ASSETS | $ | 2,086,378 | $ | 2,076,018 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
DEPOSITS : | ||||||||
Non-interest-bearing | $ | 308,934 | $ | 303,993 | ||||
Interest-bearing | 1,206,264 | 1,214,078 | ||||||
Total deposits | 1,515,198 | 1,518,071 | ||||||
SHORT-TERM BORROWINGS | 192,465 | 172,351 | ||||||
LONG-TERM DEBT | 106,339 | 124,836 | ||||||
SECURITIES PENDING SETTLEMENT | 137 | 455 | ||||||
OTHER LIABILITIES | 19,684 | 21,909 | ||||||
TOTAL LIABILITIES | 1,833,823 | 1,837,622 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2017 and December 31, 2016 | — | — | ||||||
Common stock - $0.01 par value, 75,000,000 shares authorized, 30,816,813 shares issued and outstanding at September 30, 2017; 30,380,231 shares issued and outstanding at December 31, 2016 | 309 | 304 | ||||||
Additional paid-in capital | 206,914 | 205,996 | ||||||
Unearned compensation - ESOP | (5,946 | ) | (6,418 | ) | ||||
Unearned compensation - Equity Incentive Plan | (950 | ) | (536 | ) | ||||
Retained earnings | 61,695 | 51,711 | ||||||
Accumulated other comprehensive loss | (9,467 | ) | (12,661 | ) | ||||
Total shareholders’ equity | 252,555 | 238,396 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,086,378 | $ | 2,076,018 |
See accompanying notes to unaudited consolidated financial statements. |
See accompanying notes to unaudited consolidated financial statements.1
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED
(Dollars in thousands, except per share data)
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
INTEREST AND DIVIDEND INCOME: | ||||||||||||||||
Residential and commercial real estate loans | $ | 13,474 | $ | 7,367 | $ | 40,042 | $ | 20,803 | ||||||||
Commercial and industrial loans | 2,883 | 1,728 | 8,180 | 5,098 | ||||||||||||
Consumer loans | 88 | 43 | 260 | 126 | ||||||||||||
Debt securities, taxable | 1,828 | 1,618 | 5,529 | 5,723 | ||||||||||||
Debt securities, tax-exempt | 25 | 32 | 81 | 136 | ||||||||||||
Equity securities | 35 | 45 | 105 | 140 | ||||||||||||
Other investments | 172 | 130 | 501 | 398 | ||||||||||||
Federal funds sold, interest-bearing deposits and other short-term investments | 11 | 14 | 103 | 67 | ||||||||||||
Total interest and dividend income | 18,516 | 10,977 | 54,801 | 32,491 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Deposits | 2,111 | 1,582 | 6,180 | 4,589 | ||||||||||||
Long-term debt | 534 | 446 | 1,633 | 1,749 | ||||||||||||
Short-term borrowings | 1,075 | 621 | 2,946 | 1,580 | ||||||||||||
Total interest expense | 3,720 | 2,649 | 10,759 | 7,918 | ||||||||||||
Net interest and dividend income | 14,796 | 8,328 | 44,042 | 24,573 | ||||||||||||
PROVISION FOR LOAN LOSSES | 200 | 375 | 850 | 400 | ||||||||||||
Net interest and dividend income after provision for loan losses | 14,596 | 7,953 | 43,192 | 24,173 | ||||||||||||
NON-INTEREST INCOME (LOSS): | ||||||||||||||||
Service charges and fees | 1,714 | 953 | 4,789 | 2,696 | ||||||||||||
Income from bank-owned life insurance | 450 | 369 | 1,369 | 1,133 | ||||||||||||
Loss on prepayment of borrowings | — | — | — | (915 | ) | |||||||||||
Gain on sales of securities, net | 70 | 1 | 52 | 684 | ||||||||||||
Gain on sale of OREO | 67 | — | 67 | — | ||||||||||||
Other income | 111 | — | 227 | — | ||||||||||||
Total non-interest income | 2,412 | 1,323 | 6,504 | 3,598 | ||||||||||||
NON-INTEREST EXPENSE: | ||||||||||||||||
Salaries and employee benefits | 6,490 | 4,057 | 18,954 | 11,709 | ||||||||||||
Occupancy | 891 | 555 | 2,815 | 1,712 | ||||||||||||
Furniture and equipment | 410 | 242 | 1,149 | 723 | ||||||||||||
Data processing | 680 | 404 | 1,740 | 1,167 | ||||||||||||
Professional fees | 642 | 656 | 1,919 | 1,717 | ||||||||||||
FDIC insurance assessment | 163 | 214 | 466 | 594 | ||||||||||||
Merger related expenses | — | 830 | 626 | 1,913 | ||||||||||||
Advertising | 328 | 192 | 961 | 696 | ||||||||||||
Other | 1,552 | 1,075 | 4,792 | 3,064 | ||||||||||||
Total non-interest expense | 11,156 | 8,225 | 33,422 | 23,295 | ||||||||||||
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 | ||||||||
EARNINGS PER COMMON SHARE: | ||||||||||||||||
Basic earnings per share | $ | 0.13 | $ | 0.04 | $ | 0.42 | $ | 0.17 | ||||||||
Weighted average shares outstanding | 30,103,095 | 17,377,844 | 29,895,621 | 17,340,101 | ||||||||||||
Diluted earnings per share | $ | 0.13 | $ | 0.02 | $ | 0.42 | $ | 0.17 | ||||||||
Weighted average diluted shares outstanding | 30,219,083 | 17,377,844 | 30,074,361 | 17,340,101 |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Interest and dividend income: | ||||||||||||||||
Residential and commercial real estate loans | $ | 16,103 | $ | 14,457 | $ | 31,446 | $ | 28,966 | ||||||||
Commercial and industrial loans | 2,334 | 3,801 | 4,878 | 8,344 | ||||||||||||
Consumer loans | 63 | 63 | 123 | 131 | ||||||||||||
Debt securities, taxable | 2,029 | 1,250 | 3,952 | 2,074 | ||||||||||||
Debt securities, tax-exempt | 3 | 3 | 6 | 6 | ||||||||||||
Marketable equity securities | 36 | 24 | 60 | 51 | ||||||||||||
Other investments | 30 | 28 | 55 | 63 | ||||||||||||
Short-term investments | 48 | 26 | 69 | 50 | ||||||||||||
Total interest and dividend income | 20,646 | 19,652 | 40,589 | 39,685 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 990 | 1,466 | 1,982 | 3,200 | ||||||||||||
Long-term debt | — | 185 | — | 458 | ||||||||||||
Subordinated debt | 254 | 197 | 507 | 197 | ||||||||||||
Short-term borrowings | 10 | — | 10 | — | ||||||||||||
Total interest expense | 1,254 | 1,848 | 2,499 | 3,855 | ||||||||||||
Net interest and dividend income | 19,392 | 17,804 | 38,090 | 35,830 | ||||||||||||
Provision (credit) for loan losses | 300 | (1,200 | ) | (125 | ) | (1,125 | ) | |||||||||
Net interest and dividend income after provision (credit) for loan losses | 19,092 | 19,004 | 38,215 | 36,955 | ||||||||||||
Non-interest income: | ||||||||||||||||
Service charges and fees | 2,346 | 2,075 | 4,520 | 3,958 | ||||||||||||
Income from bank-owned life insurance | 458 | 500 | 906 | 941 | ||||||||||||
Loss on available-for-sale securities, net | — | (12 | ) | (4 | ) | (74 | ) | |||||||||
Net unrealized (loss) gain on marketable equity securities | (225 | ) | 6 | (501 | ) | (83 | ) | |||||||||
Gain on sale of mortgages | — | 242 | 2 | 469 | ||||||||||||
Gain on non-marketable equity investments | 141 | — | 141 | 546 | ||||||||||||
Loss on interest rate swap terminations | — | (402 | ) | — | (402 | ) | ||||||||||
Other income | 21 | — | 25 | 58 | ||||||||||||
Total non-interest income | 2,741 | 2,409 | 5,089 | 5,413 | ||||||||||||
Non-interest expense: | ||||||||||||||||
Salaries and employees benefits | 8,236 | 8,054 | 16,475 | 15,736 | ||||||||||||
Occupancy | 1,177 | 1,099 | 2,540 | 2,388 | ||||||||||||
Furniture and equipment | 539 | 513 | 1,082 | 1,003 | ||||||||||||
Data processing | 731 | 758 | 1,454 | 1,479 | ||||||||||||
Professional fees | 719 | 589 | 1,296 | 1,133 | ||||||||||||
FDIC insurance assessment | 234 | 225 | 520 | 523 | ||||||||||||
Advertising | 412 | 347 | 811 | 685 | ||||||||||||
Loss on prepayment of borrowings | — | 45 | — | 45 | ||||||||||||
Other expenses | 2,385 | 2,044 | 4,711 | 4,009 | ||||||||||||
Total non-interest expense | 14,433 | 13,674 | 28,889 | 27,001 | ||||||||||||
Income before income taxes | 7,400 | 7,739 | 14,415 | 15,367 | ||||||||||||
Income tax provision | 1,865 | 2,087 | 3,561 | 3,924 | ||||||||||||
Net income | $ | 5,535 | $ | 5,652 | $ | 10,854 | $ | 11,443 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic earnings per share | $ | 0.25 | $ | 0.24 | $ | 0.49 | $ | 0.47 | ||||||||
Weighted average basic shares outstanding | 21,991,383 | 23,722,903 | 22,045,052 | 24,102,416 | ||||||||||||
Diluted earnings per share | $ | 0.25 | $ | 0.24 | $ | 0.49 | $ | 0.47 | ||||||||
Weighted average diluted shares outstanding | 22,025,687 | 23,773,562 | 22,098,620 | 24,156,450 | ||||||||||||
Dividends per share | $ | 0.06 | $ | 0.05 | $ | 0.12 | $ | 0.10 |
See accompanying notes to unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements. |
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income | $ | 5,535 | $ | 5,652 | $ | 10,854 | $ | 11,443 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||||||
Unrealized holding (losses) gains | (8,220 | ) | 707 | (19,688 | ) | (3,762 | ) | |||||||||
Reclassification adjustment for net losses realized in income (1) | — | 12 | 4 | 74 | ||||||||||||
Unrealized (losses) gains | (8,220 | ) | 719 | (19,684 | ) | (3,688 | ) | |||||||||
Tax effect | 2,100 | (165 | ) | 5,034 | 916 | |||||||||||
Net-of-tax amount | (6,120 | ) | 554 | (14,650 | ) | (2,772 | ) | |||||||||
Cash flow hedges: | ||||||||||||||||
Reclassification adjustment for loss realized in income for interest rate swap termination(2) | — | 402 | — | 402 | ||||||||||||
Reclassification adjustment for termination fee realized in interest expense (3) | — | 142 | — | 282 | ||||||||||||
Unrealized gains on cash flow hedges | — | 544 | — | 684 | ||||||||||||
Tax effect | — | (153 | ) | — | (192 | ) | ||||||||||
Net-of-tax amount | — | 391 | — | 492 | ||||||||||||
Defined benefit pension plan: | ||||||||||||||||
Amortization of defined benefit plan actuarial loss | 159 | 233 | 317 | 467 | ||||||||||||
Tax effect | (44 | ) | (65 | ) | (89 | ) | (131 | ) | ||||||||
Net-of-tax amount | 115 | 168 | 228 | 336 | ||||||||||||
Other comprehensive (loss) income | (6,005 | ) | 1,113 | (14,422 | ) | (1,944 | ) | |||||||||
Comprehensive (loss) income | $ | (470 | ) | $ | 6,765 | $ | (3,568 | ) | $ | 9,499 |
(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 |
(2) | ||
(3) | ||
Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on | ||
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.
3
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED |
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 |
(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, 2021 | 22,656,515 | $ | 227 | $ | 132,821 | $ | (3,441 | ) | $ | (981 | ) | $ | 107,376 | $ | (12,314 | ) | $ | 223,688 | ||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | 5,319 | (8,417 | ) | (3,098 | ) | ||||||||||||||||||||||
Common stock held by ESOP committed to be released ( | shares)— | — | 45 | 134 | — | — | — | 179 | ||||||||||||||||||||||||
Share-based compensation - equity incentive plan | — | — | — | — | 301 | — | — | 301 | ||||||||||||||||||||||||
Forfeited equity incentive plan shares ( | shares)— | — | (57 | ) | — | 57 | — | — | — | |||||||||||||||||||||||
Forfeited equity incentive plan shares reissued ( | shares)— | — | 71 | — | (71 | ) | — | — | — | |||||||||||||||||||||||
Common stock repurchased | (132,358 | ) | (2 | ) | (1,178 | ) | — | — | — | — | (1,180 | ) | ||||||||||||||||||||
Issuance of common stock in connection with stock option exercises | 80,881 | 1 | 509 | — | — | — | — | 510 | ||||||||||||||||||||||||
Issuance of common stock in connection with equity incentive plan | 137,151 | 1 | 1,248 | — | (1,249 | ) | — | — | — | |||||||||||||||||||||||
Cash dividends declared and paid on common stock ($ | per share)— | — | — | — | — | (1,337 | ) | — | (1,337 | ) | ||||||||||||||||||||||
BALANCE AT MARCH 31, 2022 | 22,742,189 | $ | 227 | $ | 133,459 | $ | (3,307 | ) | $ | (1,943 | ) | $ | 111,358 | $ | (20,731 | ) | $ | 219,063 | ||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | 5,535 | (6,005 | ) | (470 | ) | ||||||||||||||||||||||
Common stock held by ESOP committed to be released ( | shares)— | — | 38 | 134 | — | — | — | 172 | ||||||||||||||||||||||||
Share-based compensation - equity incentive plan | — | — | — | — | 292 | — | — | 292 | ||||||||||||||||||||||||
Common stock repurchased | (293,173 | ) | (2 | ) | (2,508 | ) | — | — | — | — | (2,510 | ) | ||||||||||||||||||||
Issuance of common stock in connection with stock option exercises | 16,975 | — | 115 | — | — | — | — | 115 | ||||||||||||||||||||||||
Cash dividends declared and paid on common stock ($ | per share)— | — | — | — | — | (1,332 | ) | — | (1,332 | ) | ||||||||||||||||||||||
BALANCE AT JUNE 30, 2022 | 22,465,991 | $ | 225 | $ | 131,104 | $ | (3,173 | ) | $ | (1,651 | ) | $ | 115,561 | $ | (26,736 | ) | $ | 215,330 |
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 SIX MONTHS ENDED JUNE 30, 2022 AND 2021 |
(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, 2020 | 25,276,193 | $ | 253 | $ | 154,549 | $ | (3,997 | ) | $ | (1,240 | ) | $ | 88,354 | $ | (11,279 | ) | $ | 226,640 | ||||||||||||||
Comprehensive income | — | — | — | — | — | 5,791 | (3,057 | ) | 2,734 | |||||||||||||||||||||||
Common stock held by ESOP committed to be released ( | shares)— | — | 8 | 139 | — | — | — | 147 | ||||||||||||||||||||||||
Share-based compensation - equity incentive plan | — | — | — | — | 231 | — | — | 231 | ||||||||||||||||||||||||
Forfeited equity incentive plan shares reissued ( | shares)— | — | (212 | ) | — | 212 | — | — | — | |||||||||||||||||||||||
Common stock repurchased | (711,635 | ) | (7 | ) | (5,770 | ) | — | — | — | — | (5,777 | ) | ||||||||||||||||||||
Issuance of common stock in connection with stock option exercises | 19,400 | — | 113 | — | — | — | — | 113 | ||||||||||||||||||||||||
Issuance of common stock in connection with equity incentive plan ( | shares)— | — | 162 | — | (162 | ) | — | — | — | |||||||||||||||||||||||
Cash dividends declared and paid on common stock ($ | per share)— | — | — | — | — | (1,232 | ) | — | (1,232 | ) | ||||||||||||||||||||||
BALANCE AT MARCH 31, 2021 | 24,583,958 | $ | 246 | $ | 148,850 | $ | (3,858 | ) | $ | (959 | ) | $ | 92,913 | $ | (14,336 | ) | $ | 222,856 | ||||||||||||||
Comprehensive income | — | — | — | — | — | 5,652 | 1,113 | 6,765 | ||||||||||||||||||||||||
Common stock held by ESOP committed to be released ( | shares)— | — | 27 | 139 | — | — | — | 166 | ||||||||||||||||||||||||
Share-based compensation - equity incentive plan | — | — | — | — | 380 | — | — | 380 | ||||||||||||||||||||||||
Common stock repurchased | (635,921 | ) | (6 | ) | (5,295 | ) | — | — | — | — | (5,301 | ) | ||||||||||||||||||||
Issuance of common stock in connection with equity incentive plan | 122,362 | 1 | 1,020 | — | (1,021 | ) | — | — | — | |||||||||||||||||||||||
Cash dividends declared and paid on common stock ($ | per share)— | — | — | — | — | (1,195 | ) | — | (1,195 | ) | ||||||||||||||||||||||
BALANCE AT JUNE 30, 2021 | 24,070,399 | $ | 241 | $ | 144,602 | $ | (3,719 | ) | $ | (1,600 | ) | $ | 97,370 | $ | (13,223 | ) | $ | 223,671 |
See accompanying notes to unaudited consolidated financial statements. |
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED |
(Dollars in thousands) |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 10,854 | $ | 11,443 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Credit for loan losses | (125 | ) | (1,125 | ) | ||||
Depreciation and amortization of premises and equipment | 1,163 | 1,168 | ||||||
(Accretion) amortization of purchase accounting adjustments, net | (84 | ) | 89 | |||||
Amortization of core deposit intangible | 188 | 187 | ||||||
Net amortization of premiums and discounts on securities and mortgage loans | 827 | 1,170 | ||||||
Amortization of subordinated debt issuance costs | 20 | 8 | ||||||
Share-based compensation expense | 593 | 611 | ||||||
ESOP expense | 351 | 313 | ||||||
Gain on sale of portfolio mortgages | — | (227 | ) | |||||
Principal balance of loans originated for sale | (277 | ) | (9,991 | ) | ||||
Principal balance of loans sold | 277 | 9,991 | ||||||
Net change in unrealized loss on marketable equity securities | 501 | 83 | ||||||
Net loss on available-for-sale securities | 4 | 74 | ||||||
Income from bank-owned life insurance | (906 | ) | (941 | ) | ||||
Net change in: | ||||||||
Accrued interest receivable | (94 | ) | 410 | |||||
Other assets | (4,846 | ) | (5,473 | ) | ||||
Other liabilities | (344 | ) | 5,748 | |||||
Net cash provided by operating activities | 8,102 | 13,538 | ||||||
INVESTING ACTIVITIES: | ||||||||
Purchases of held-to-maturity securities | (21,808 | ) | (108,694 | ) | ||||
Proceeds from calls, maturities, and principal collections of held-to-maturity securities | 10,021 | 845 | ||||||
Purchases of available-for-sale securities | (3,000 | ) | (65,291 | ) | ||||
Proceeds from redemptions and sales of available-for-sale securities | 20 | 129 | ||||||
Proceeds from calls, maturities, and principal collections of available-for-sale securities | 16,107 | 31,083 | ||||||
Loan originations and principal payments, net | (111,020 | ) | 42,431 | |||||
Redemption of Federal Home Loan Bank of Boston stock | 712 | 1,124 | ||||||
Proceeds from sale of portfolio mortgages | — | 7,801 | ||||||
Purchases of premises and equipment | (370 | ) | (1,114 | ) | ||||
Proceeds from payout on bank-owned life insurance | 2,435 | — | ||||||
Net cash used in investing activities | (106,903 | ) | (91,686 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Net increase in deposits | 45,091 | 142,535 | ||||||
Net change in short-term borrowings | 4,790 | — | ||||||
Repayment of long-term debt | (1,289 | ) | (52,852 | ) | ||||
Proceeds from subordinated debt issuance | — | 20,000 | ||||||
Payment of subordinated debt issuance costs | — | (394 | ) | |||||
Cash dividends paid | (2,669 | ) | (2,427 | ) | ||||
Common stock repurchased | (3,690 | ) | (10,777 | ) | ||||
Issuance of common stock in connection with stock option exercise | 625 | 113 | ||||||
Net cash provided by financing activities | 42,858 | 96,198 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS: | (55,943 | ) | 18,050 | |||||
Beginning of period | 103,456 | 87,444 | ||||||
End of period | $ | 47,513 | $ | 105,494 | ||||
Supplemental cash flow information: | ||||||||
Net change in cash due to broker | $ | — | $ | 301 | ||||
Interest paid | 2,521 | 3,912 | ||||||
Taxes paid | 4,955 | 4,211 |
See the accompanying notes to unaudited consolidated financial statements. |
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(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 |
See accompanying notes to unaudited consolidated financial statements.
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 12,674 | $ | 2,981 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 850 | 400 | ||||||
Depreciation and amortization of premises and equipment | 1,468 | 969 | ||||||
Accretion of purchase accounting adjustments, net | (1,431 | ) | — | |||||
Amortization of core deposit intangible | 282 | — | ||||||
Net amortization of premiums and discounts on securities and mortgage loans | 2,577 | 2,758 | ||||||
Net amortization of premiums on modified debt | — | 60 | ||||||
Share-based compensation expense | 490 | 186 | ||||||
ESOP expense | 698 | 444 | ||||||
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 | ) | — | |||||
Income from bank-owned life insurance | (1,369 | ) | (1,133 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accrued interest receivable | 18 | 300 | ||||||
Other assets | (3,578 | ) | (1,468 | ) | ||||
Other liabilities | 1,995 | (2,184 | ) | |||||
Net cash provided by operating activities | 13,582 | 3,539 | ||||||
INVESTING ACTIVITIES: | ||||||||
Securities, held to maturity: | ||||||||
Proceeds from calls, maturities, and principal collections | — | 6,835 | ||||||
Securities, available for sale: | ||||||||
Purchases | (67,246 | ) | (59,595 | ) | ||||
Proceeds from sales | 22,453 | 136,825 | ||||||
Proceeds from calls, maturities, and principal collections | 46,576 | 46,639 | ||||||
Purchase of residential mortgages | (48,205 | ) | (107,632 | ) | ||||
Loan originations and principal payments, net | (4,133 | ) | (21,185 | ) | ||||
Redemption of Federal Home Loan Bank of Boston stock | 420 | 2,880 | ||||||
Proceeds from sale of other real estate owned | 365 | — | ||||||
Purchases of premises and equipment | (1,645 | ) | (565 | ) | ||||
Proceeds from sale of premises and equipment | — | 20 | ||||||
Net cash (used in) provided by investing activities | (51,415 | ) | 4,222 | |||||
FINANCING ACTIVITIES: | ||||||||
Net (decrease) increase in deposits | (2,120 | ) | 62,195 | |||||
Net change in short-term borrowings | 20,114 | 51,866 | ||||||
Repayment of long-term debt | (19,700 | ) | (84,333 | ) | ||||
Proceeds from long-term debt | 1,420 | 1,165 | ||||||
Cash dividends paid | (2,690 | ) | (1,559 | ) | ||||
Common stock repurchased | (5,990 | ) | — | |||||
Issuance of common stock in connection with stock option exercises | 5,465 | — | ||||||
Excess tax benefits in connection with equity incentive plan | — | 5 | ||||||
Net cash (used in) provided by financing activities | (3,501 | ) | 29,339 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS: | (41,334 | ) | 37,100 | |||||
Beginning of period | 70,234 | 13,703 | ||||||
End of period | $ | 28,900 | $ | 50,803 | ||||
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 | ) | — | |||||
Interest paid | 10,774 | 8,036 | ||||||
Taxes paid | 3,658 | 2,150 |
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
JUNE 30, 2022
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations – and Basis of Presentation. Western New England Bancorp, Inc. (“Western New England Bancorp,WNEB,” “WNEB,” the “Company,” “we”“we,” or “us”) is a Massachusetts-chartered stock holding company for Westfield Bank, a federally chartered stockfederally-chartered savings bank (the “Bank”(“Bank”).
The Bank’s deposits are insured to the limits specified by the Federal Deposit Insurance Corporation (“FDIC”). The Bank operates 2125 banking offices in Hampden County and Hampshire County in western Massachusetts and Hartford County and Tolland County in northern Connecticut, and its primary sources of revenue are earnings on loans to small and middle-market businesses and to residential property homeowners andinterest income from loans as well as interest income from investment securities. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending, Cash Management and a Mortgage Loan Officer. The Bank’s deposits are insured up to the maximum Federal Deposit Insurance Corporation (“FDIC”) coverage limits.
Wholly-OwnedWholly-owned Subsidiaries and Acquisitionof 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, Inc., 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 theand 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. EstimatesAn estimate that areis particularly susceptible to significant change in the near-term relaterelates to the determination of the allowance for loan losses, other-than-temporary impairment of securities, and the realizability of deferred tax assets.losses.
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 SeptemberJune 30, 2017,2022, 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 ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results of operations for the year ending December 31, 2017.2022. 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, 2016,2021, included in our Annual Report on Form 10-K for the year ended December 31, 20162021 (the “2016“2021 Annual Report”).
Reclassifications –. Amounts in the prior period financial statements are reclassified when necessary to conform to the current year presentation.
Basic earnings per share representrepresents income available to common shareholders divided by the weighted averageweighted-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 potentialPotential common shares werethat 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 Employee Stock Ownership Plan (“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 basicfor earnings per share.share calculations.
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | |||||||||||||||||||||||||||||||
Net income applicable to common stock | $ | 3,815 | $ | 628 | $ | 12,674 | $ | 2,981 | $ | 5,535 | $ | 5,652 | $ | 10,854 | $ | 11,443 | ||||||||||||||||
Average number of common shares issued | 31,001 | 18,330 | 30,799 | 18,298 | 22,576 | 24,345 | 22,640 | 24,729 | ||||||||||||||||||||||||
Less: Average unallocated ESOP Shares | (838 | ) | (926 | ) | (861 | ) | (945 | ) | (425 | ) | (506 | ) | (435 | ) | (516 | ) | ||||||||||||||||
Less: Average unvested equity incentive plan shares | (60 | ) | (26 | ) | (42 | ) | (13 | ) | ||||||||||||||||||||||||
Less: Average unvested performance-based equity incentive plan shares | (160 | ) | (116 | ) | (160 | ) | (110 | ) | ||||||||||||||||||||||||
Average number of common shares outstanding used to calculate basic earnings per common share | 30,103 | 17,378 | 29,896 | 17,340 | 21,991 | 23,723 | 22,045 | 24,103 | ||||||||||||||||||||||||
Effect of dilutive equity incentive plan | 26 | — | 12 | — | ||||||||||||||||||||||||||||
Effect of dilutive performance-based equity incentive plan | 17 | 10 | 29 | 19 | ||||||||||||||||||||||||||||
Effect of dilutive stock options | 90 | — | 166 | — | 17 | 40 | 24 | 35 | ||||||||||||||||||||||||
Average number of common shares outstanding used to calculate diluted earnings per common share | 30,219 | 17,378 | 30,074 | 17,340 | 22,025 | 23,773 | 22,098 | 24,157 | ||||||||||||||||||||||||
Basic earnings per share | $ | 0.13 | $ | 0.04 | $ | 0.42 | $ | 0.17 | $ | 0.25 | $ | 0.24 | $ | 0.49 | $ | 0.47 | ||||||||||||||||
Diluted earnings per share | $ | 0.13 | $ | 0.04 | $ | 0.42 | $ | 0.17 | $ | 0.25 | $ | 0.24 | $ | 0.49 | $ | 0.47 |
3. COMPREHENSIVE INCOME/LOSSINCOME (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, 2017 | December 31, 2016 | June 30, 2022 | December 31, 2021 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net unrealized losses on securities available-for-sale | $ | (3,782 | ) | $ | (5,863 | ) | ||||||||||
Net unrealized losses on available-for-sale securities | $ | (24,369 | ) | $ | (4,685 | ) | ||||||||||
Tax effect | 1,397 | 2,024 | 6,194 | 1,160 | ||||||||||||
Net-of-tax amount | (2,385 | ) | (3,839 | ) | (18,175 | ) | (3,525 | ) | ||||||||
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 | ) | ||||||||||||
Unrecognized actuarial loss on the defined benefit plan | (11,908 | ) | (12,225 | ) | ||||||||||||
Tax effect | 2,176 | 1,864 | 3,347 | 3,436 | ||||||||||||
Net-of-tax amount | (3,153 | ) | (3,618 | ) | (8,561 | ) | (8,789 | ) | ||||||||
Accumulated other comprehensive loss | $ | (9,467 | ) | $ | (12,661 | ) | $ | (26,736 | ) | $ | (12,314 | ) |
The following table presents changes in accumulated other comprehensive loss for the periods ended September 30, 2017 and 2016 by component:
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
4. | SECURITIES |
Available-for-sale and held-to-maturity investment securities at June 30, 2022 and December 31, 2021 are summarized as follows:
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 | June 30, 2022 | |||||||||||||||||||||||||||||||
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 | $ | 14,908 | $ | — | $ | (2,512 | ) | $ | 12,396 | |||||||||||||||||||||||
State and municipal bonds | 405 | — | — | 405 | ||||||||||||||||||||||||||||
Corporate bonds | 6,019 | 24 | (109 | ) | 5,934 | |||||||||||||||||||||||||||
Total debt securities | �� | 21,332 | 24 | (2,621 | ) | 18,735 | ||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
Government-sponsored mortgage-backed securities | $ | 184,127 | $ | 33 | $ | (4,024 | ) | $ | 180,136 | 156,160 | — | (20,606 | ) | 135,554 | ||||||||||||||||||
U.S. government guaranteed mortgage-backed securities | 17,753 | — | (403 | ) | 17,350 | 7,803 | — | (1,167 | ) | 6,636 | ||||||||||||||||||||||
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 | 163,963 | — | (21,773 | ) | 142,190 | |||||||||||||||||||||||||||
Total available-for-sale | 185,295 | 24 | (24,394 | ) | 160,925 | |||||||||||||||||||||||||||
Held-to-maturity securities: | ||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | 9,983 | — | (602 | ) | 9,381 | |||||||||||||||||||||||||||
Total debt securities | 9,983 | — | (602 | ) | 9,381 | |||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
Government-sponsored mortgage-backed securities | 223,820 | — | (28,410 | ) | 195,410 | |||||||||||||||||||||||||||
Total mortgage-backed securities | 223,820 | — | (28,410 | ) | 195,410 | |||||||||||||||||||||||||||
Total held-to-maturity | 233,803 | — | (29,012 | ) | 204,791 | |||||||||||||||||||||||||||
Total | $ | 419,098 | $ | 24 | $ | (53,406 | ) | $ | 365,716 |
December 31, 2021 | ||||||||||||||||
Amortized Cost | Gross Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Debt securities: | ||||||||||||||||
Government-sponsored enterprise obligations | $ | 14,902 | $ | — | $ | (676 | ) | $ | 14,226 | |||||||
State and municipal bonds | 405 | 1 | — | 406 | ||||||||||||
Corporate bonds | 3,026 | 86 | — | 3,112 | ||||||||||||
Total debt securities | 18,333 | 87 | (676 | ) | 17,744 | |||||||||||
Mortgage-backed securities: | ||||||||||||||||
Government-sponsored mortgage-backed securities | 171,011 | 427 | (3,929 | ) | 167,509 | |||||||||||
U.S. government guaranteed mortgage-backed securities | 9,693 | 8 | (602 | ) | 9,099 | |||||||||||
Total mortgage-backed securities | 180,704 | 435 | (4,531 | ) | 176,608 | |||||||||||
Total available-for-sale | 199,037 | 522 | (5,207 | ) | 194,352 | |||||||||||
Held-to-maturity securities: | ||||||||||||||||
Debt securities: | ||||||||||||||||
U.S. Treasury securities | 9,979 | — | (6 | ) | 9,973 | |||||||||||
Total debt securities | 9,979 | — | (6 | ) | 9,973 | |||||||||||
Mortgage-backed securities: | ||||||||||||||||
Government-sponsored mortgage-backed securities | 212,293 | — | (2,518 | ) | 209,775 | |||||||||||
Total mortgage-backed securities | 212,293 | — | (2,518 | ) | 209,775 | |||||||||||
Total held-to-maturity | 222,272 | — | (2,524 | ) | 219,748 | |||||||||||
Total | $ | 421,309 | $ | 522 | $ | (7,731 | ) | $ | 414,100 |
Our repurchase agreements are collateralized byAt June 30, 2022, U.S. Treasury securities with a fair value of $4.6 million, government-sponsored enterprise obligations with a fair value of $8.3 million and certain mortgage-backed securities (see Note 8).with a fair value of $50.2 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.
The amortized cost and fair value of available-for-sale debtand held-to-maturity securities at SeptemberJune 30, 2017,2022, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or repayprepay obligations. Also, because mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity summary.
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 |
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Debt securities: | ||||||||||||||||
Due after one year through five years | $ | 3,424 | $ | 3,316 | $ | — | $ | — | ||||||||
Due after five years through ten years | 9,908 | 8,390 | 9,983 | 9,381 | ||||||||||||
Due after ten years | 8,000 | 7,029 | — | — | ||||||||||||
Total debt securities | $ | 21,332 | $ | 18,735 | $ | 9,983 | $ | 9,381 |
Available-for-Sale | Held-to-Maturity | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Due after one year through five years | $ | 623 | $ | 604 | $ | — | $ | — | ||||||||
Due after five years through ten years | 1,194 | 1,115 | — | — | ||||||||||||
Due after ten years | 162,146 | 140,471 | 223,820 | 195,410 | ||||||||||||
Total mortgage-backed securities | 163,963 | 142,190 | 223,820 | 195,410 | ||||||||||||
Total securities | $ | 185,295 | $ | 160,925 | $ | 233,803 | $ | 204,791 |
Gross realized gains and losses on sales of available-for-sale securities available-for-sale for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 are as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Gross gains realized | $ | 71 | $ | 1 | $ | 117 | $ | 1,521 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Gross losses realized | (1 | ) | — | (65 | ) | (837 | ) | — | (12 | ) | (4 | ) | (74 | ) | ||||||||||||||||||
Net gain realized | $ | 70 | $ | 1 | $ | 52 | $ | 684 | ||||||||||||||||||||||||
Net (loss) gain realized | $ | — | $ | (12 | ) | $ | (4 | ) | $ | (74 | ) |
Proceeds from the saleredemption of available-for-sale securities available-for-sale amounted to $22.5 milliontotaled $20,000 and $136.8 million$129,000 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
Information pertaining to securities with gross unrealized losses at SeptemberJune 30, 20172022 and December 31, 2016,2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:
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, 2016 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Less Than 12 Months | Over 12 Months | Less Than Twelve Months | Over Twelve Months | |||||||||||||||||||||||||||||||||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | |||||||||||||||||||||||||||||||||||||
(In thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government-sponsored mortgage-backed securities | $ | 3,016 | $ | 147,691 | $ | 1,008 | $ | 27,303 | 42 | $ | 70,556 | $ | 9,339 | 11.7 | % | 29 | $ | 64,998 | $ | 11,267 | 14.8 | % | ||||||||||||||||||||||||||
U.S. government guaranteed mortgage-backed securities | 192 | 12,536 | 211 | 4,814 | 2 | 1,054 | 84 | 7.4 | 7 | 5,581 | 1,083 | 16.3 | ||||||||||||||||||||||||||||||||||||
Corporate bonds | 203 | 18,481 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
State and municipal bonds | 95 | 1,507 | 27 | 305 | ||||||||||||||||||||||||||||||||||||||||||||
Government-sponsored enterprise obligations | 1,132 | 42,008 | — | — | — | — | — | — | 3 | 12,395 | 2,512 | 16.9 | ||||||||||||||||||||||||||||||||||||
Mutual funds | 79 | 3,429 | 211 | 2,867 | ||||||||||||||||||||||||||||||||||||||||||||
Corporate Bonds | 1 | 2,910 | 109 | 3.6 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Total available-for-sale | $ | 4,717 | $ | 225,652 | $ | 1,457 | $ | 35,289 | 45 | 74,520 | 9,532 | 39 | 82,974 | 14,862 | ||||||||||||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | 2 | 9,381 | 602 | 6.0 | % | — | — | — | — | % | ||||||||||||||||||||||||||||||||||||||
Government-sponsored mortgage-backed securities | 34 | 183,882 | 26,411 | 12.6 | 2 | 11,528 | 1,999 | 14.8 | ||||||||||||||||||||||||||||||||||||||||
Total held-to-maturity | 36 | 193,263 | 27,013 | 2 | 11,528 | 1,999 | ||||||||||||||||||||||||||||||||||||||||||
Total | 81 | $ | 267,783 | $ | 36,545 | 41 | $ | 94,502 | $ | 16,861 |
11
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 |
December 31, 2021 | ||||||||||||||||||||||||||||||||
Less Than Twelve Months | Over Twelve Months | |||||||||||||||||||||||||||||||
Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||
Government-sponsored mortgage-backed securities | 34 | $ | 105,221 | $ | 2,088 | 1.9 | % | 18 | $ | 42,506 | $ | 1,841 | 4.2 | % | ||||||||||||||||||
U.S. government guaranteed mortgage-backed securities | 2 | 2,426 | 142 | 5.5 | 5 | 5,107 | 460 | 8.3 | ||||||||||||||||||||||||
Government-sponsored enterprise obligations | — | — | — | — | 3 | 14,226 | 676 | 4.5 | ||||||||||||||||||||||||
Total available-for-sale | 36 | 107,647 | 2,230 | 26 | 61,839 | 2,977 | ||||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | 2 | 9,973 | 6 | 0.1 | % | — | — | — | — | % | ||||||||||||||||||||||
Government-sponsored mortgage-backed securities | 31 | 209,775 | 2,518 | 1.2 | — | — | — | — | ||||||||||||||||||||||||
Total held-to-maturity | 33 | 219,748 | 2,524 | — | — | — | ||||||||||||||||||||||||||
Total | 69 | $ | 327,395 | $ | 4,754 | 26 | $ | 61,839 | $ | 2,977 |
During the ninesix months ended SeptemberJune 30, 20172022 and 2016, weyear ended December 31, 2021, the Company did not record any other-than-temporary impairment (“OTTI”) charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses. Management attributed the unrealized losses at June 30, 2022 to increases in current market yields compared to the yields at the time the investments were purchased residential real estate loans aggregating $48.2 millionby the Company and $107.6 million, respectively.not due to credit quality.
We haveThe process for assessing investments for OTTI may vary depending on the type of security. In assessing the Company’s investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise 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. At June 30, 2022, the Company’s corporate and municipal bond portfolios did not contain any securities rated below investment grade, as reported by major credit rating agencies.
5. | LOANS AND ALLOWANCE FOR LOAN LOSSES |
Major classifications of loans as of the dates indicated were as follows:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
(In thousands) | ||||||||
Commercial real estate | $ | 1,074,907 | $ | 979,969 | ||||
Residential real estate: | ||||||||
Residential one-to-four family | 572,700 | 552,332 | ||||||
Home equity | 103,623 | 99,759 | ||||||
Total residential real estate | 676,323 | 652,091 | ||||||
Commercial and industrial: | ||||||||
Paycheck Protection Program (“PPP”) loans | 2,631 | 25,329 | ||||||
Commercial and industrial | 215,224 | 201,340 | ||||||
Total commercial and industrial | 217,855 | 226,669 | ||||||
Consumer | 4,457 | 4,250 | ||||||
Total gross loans | 1,973,542 | 1,862,979 | ||||||
Unamortized PPP loan fees | (133 | ) | (781 | ) | ||||
Unearned premiums and deferred loan fees and costs, net | 2,291 | 2,518 | ||||||
Total loans, net | 1,975,700 | 1,864,716 | ||||||
Allowance for loan losses | (19,560 | ) | (19,787 | ) | ||||
Net loans | $ | 1,956,140 | $ | 1,844,929 |
Loans Serviced for Others.
The Company has transferred a portion of ourits 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 SeptemberJune 30, 20172022 and December 31, 2016, we serviced2021, the Company was servicing commercial loans for participants aggregating $32.4participated out to various other institutions totaling $80.5 million and $42.6$63.2 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 SeptemberJune 30, 2017,2022, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (203(113 PSA), weighted average internal rate of return (10.05%(9.01%), weighted average servicing fee (0.2501%(0.25%), and average net cost to service loans ($59.3284.02 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. For the six months ended June 30, 2022 and 2021, the Company sold $277,000 and $17.6 million in residential real estate mortgages with servicing retained and recorded gains on the sale of mortgages of $2,000 and $469,000, respectively, within non-interest income.
At June 30, 2022 and December 31, 2021, the Company was servicing residential mortgage loans owned by investors totaling $82.5 million and $88.2 million, respectively. Servicing fee income of $105,000 and $52,000 was recorded for the six months ended June 30, 2022 and 2021, 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 September 30, 2017 | Nine Months 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 |
Prior to the acquisition of Chicopee in 2016, mortgage servicing rights were not material to the consolidated financial statements, and therefore, were not recorded.
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | |||||||
(In thousands) | ||||||||
Balance at the beginning of period: | $ | 659 | $ | 693 | ||||
Capitalized mortgage servicing rights | — | 2 | ||||||
Amortization | (36 | ) | (72 | ) | ||||
Balance at the end of period | $ | 623 | $ | 623 | ||||
Fair value at the end of period | $ | 796 | $ | 796 |
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 were no changes in our policies or methodology pertaining to the general component ofCompany’s policies and procedures surrounding the allowance for loan losses during the periods presented for disclosure.six months ended June 30, 2022.
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. This portfolio segment consists of first mortgages, home equity loans, and home equity lines secured by one-to-four family residential properties. First mortgages may be underwritten to a maximum loan-to-value of 97% for owner-occupied homes, 90% for second homes and 85% for investment properties. Mortgages with loan-to-values greater than 80% require private mortgage insurance for all loans originated with a loan-to-value ratio greater than 80% and weinsurance. We do not grant subprime loans. AllHome equity loans in this segmentand lines are collateralizedsecured by first or second mortgages on one-to-four family owner-occupied residential real estate and repaymentproperties. Equity loans & lines are underwritten to a maximum combined loan-to-value of 85% of the appraised value of the property. Underwriting approval is dependent on the credit qualityreview of the individual borrower.borrower’s ability to repay and credit history in accordance with Westfield Bank’s policy. The overall health of the economy, including unemployment rates and housing prices,pricing, 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-producinginclude commercial real estate, multi-family dwellings, owner-occupied commercial real estate and income producing investment properties, and owner-occupiedas well as commercial propertiesconstruction loans for commercial development projects 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 businessesinclude commercial business loans and are generally secured by assignments of corporate assets and personal guarantees of the business.business owners. 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.
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 periodsthree and six months ended SeptemberJune 30, 20172022 and 20162021 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 March 31, 2021 | $ | 13,315 | $ | 4,113 | $ | 3,562 | $ | 223 | $ | 14 | $ | 21,227 | ||||||||||||||||||||||||||||||||||||
Provision (credit) | 62 | 189 | 83 | 43 | (2 | ) | 375 | (1,083 | ) | 29 | (149 | ) | 2 | 1 | (1,200 | ) | ||||||||||||||||||||||||||||||||
Charge-offs | — | (40 | ) | — | (46 | ) | — | (86 | ) | (103 | ) | (41 | ) | (25 | ) | (22 | ) | — | (191 | ) | ||||||||||||||||||||||||||||
Recoveries | 59 | — | — | 9 | — | 68 | — | 1 | 22 | 11 | — | 34 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2016 | $ | 4,077 | $ | 2,953 | $ | 2,880 | $ | 26 | $ | (9 | ) | $ | 9,927 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 12,129 | $ | 4,102 | $ | 3,410 | $ | 214 | $ | 15 | $ | 19,870 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2017 | $ | 4,472 | $ | 3,126 | $ | 2,754 | $ | 53 | $ | 13 | $ | 10,418 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | 12,294 | $ | 4,068 | $ | 2,726 | $ | 199 | $ | 21 | $ | 19,308 | ||||||||||||||||||||||||||||||||||||
Provision (credit) | (68 | ) | 146 | (109 | ) | 83 | 148 | 200 | 189 | 106 | (31 | ) | 40 | (4 | ) | 300 | ||||||||||||||||||||||||||||||||
Charge-offs | — | (107 | ) | — | (104 | ) | — | (211 | ) | — | (11 | ) | (16 | ) | (40 | ) | — | (67 | ) | |||||||||||||||||||||||||||||
Recoveries | — | 80 | 3 | 28 | — | 111 | — | 1 | 7 | 11 | — | 19 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2017 | $ | 4,404 | $ | 3,245 | $ | 2,648 | $ | 60 | $ | 161 | $ | 10,518 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | 12,483 | $ | 4,164 | $ | 2,686 | $ | 210 | $ | 17 | $ | 19,560 | ||||||||||||||||||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 | $ | 3,856 | $ | 2,431 | $ | 2,485 | $ | 22 | $ | 46 | $ | 8,840 | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 13,020 | $ | 4,240 | $ | 3,630 | $ | 241 | $ | 26 | $ | 21,157 | ||||||||||||||||||||||||||||||||||||
Provision (credit) | (614 | ) | 610 | 395 | 64 | (55 | ) | 400 | (788 | ) | (106 | ) | (209 | ) | (11 | ) | (11 | ) | (1,125 | ) | ||||||||||||||||||||||||||||
Charge-offs | (170 | ) | (90 | ) | — | (87 | ) | — | (347 | ) | (103 | ) | (41 | ) | (34 | ) | (46 | ) | — | (224 | ) | |||||||||||||||||||||||||||
Recoveries | 1,005 | 2 | — | 27 | — | 1,034 | — | 9 | 23 | 30 | — | 62 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2016 | $ | 4,077 | $ | 2,953 | $ | 2,880 | $ | 26 | $ | (9 | ) | $ | 9,927 | |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | 12,129 | $ | 4,102 | $ | 3,410 | $ | 214 | $ | 15 | $ | 19,870 | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | $ | 4,083 | $ | 2,862 | $ | 3,085 | $ | 38 | $ | — | $ | 10,068 | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 12,970 | $ | 3,964 | $ | 2,643 | $ | 197 | $ | 13 | $ | 19,787 | ||||||||||||||||||||||||||||||||||||
Provision (credit) | 239 | 427 | (180 | ) | 203 | 161 | 850 | (450 | ) | 197 | 57 | 67 | 4 | (125 | ) | |||||||||||||||||||||||||||||||||
Charge-offs | (36 | ) | (148 | ) | (285 | ) | (237 | ) | — | (706 | ) | (37 | ) | (28 | ) | (22 | ) | (85 | ) | — | (172 | ) | ||||||||||||||||||||||||||
Recoveries | 118 | 104 | 28 | 56 | — | 306 | — | 31 | 8 | 31 | — | 70 | ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2017 | $ | 4,404 | $ | 3,245 | $ | 2,648 | $ | 60 | $ | 161 | $ | 10,518 | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | 12,483 | $ | 4,164 | $ | 2,686 | $ | 210 | $ | 17 | $ | 19,560 |
FurtherThe following table presents information pertaining to the allowance for loan losses by segment, at September 30, 2017 and December 31, 2016 follows:excluding PPP loans, as of the dates indicated:
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) | |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
Amount of allowance for impaired loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Amount of allowance for non-impaired loans | 4,404 | 3,245 | 2,648 | 60 | 161 | 10,518 | 12,483 | 4,164 | 2,686 | 210 | 17 | 19,560 | ||||||||||||||||||||||||||||||||||||
Total allowance for loan losses | $ | 4,404 | $ | 3,245 | $ | 2,648 | $ | 60 | $ | 161 | $ | 10,518 | $ | 12,483 | $ | 4,164 | $ | 2,686 | $ | 210 | $ | 17 | $ | 19,560 | ||||||||||||||||||||||||
Impaired loans | $ | 3,993 | $ | 3,854 | $ | 2,869 | $ | 127 | $ | — | $ | 10,843 | $ | 9,416 | $ | 3,117 | $ | 523 | $ | — | $ | — | $ | 13,056 | ||||||||||||||||||||||||
Non-impaired loans | 699,945 | 640,622 | 240,421 | 4,340 | — | 1,585,328 | 1,061,476 | 671,487 | 214,344 | 4,457 | — | 1,951,764 | ||||||||||||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality | 12,952 | 3,651 | 1,084 | — | — | 17,687 | ||||||||||||||||||||||||||||||||||||||||||
Impaired loans acquired with deteriorated credit quality | 4,015 | 1,719 | 357 | — | — | 6,091 | ||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 716,890 | $ | 648,127 | $ | 244,374 | $ | 4,467 | $ | — | $ | 1,613,858 | $ | 1,074,907 | $ | 676,323 | $ | 215,224 | $ | 4,457 | $ | — | $ | 1,970,911 | ||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
Amount of allowance for impaired loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Amount of allowance for non-impaired loans | 4,083 | 2,862 | 3,085 | 38 | — | 10,068 | 12,970 | 3,964 | 2,643 | 197 | 13 | 19,787 | ||||||||||||||||||||||||||||||||||||
Total allowance for loan losses | 4,083 | 2,862 | 3,085 | 38 | — | 10,068 | $ | 12,970 | $ | 3,964 | $ | 2,643 | $ | 197 | $ | 13 | $ | 19,787 | ||||||||||||||||||||||||||||||
Impaired loans | $ | 3,335 | $ | 452 | $ | 3,042 | $ | — | $ | — | $ | 6,829 | $ | 9,601 | $ | 3,223 | $ | 699 | $ | 22 | $ | — | $ | 13,545 | ||||||||||||||||||||||||
Non-impaired loans | 701,766 | 609,107 | 217,972 | 4,424 | — | 1,533,269 | 965,577 | 647,098 | 200,271 | 4,228 | — | 1,817,174 | ||||||||||||||||||||||||||||||||||||
Loans acquired with deteriorated credit quality | 15,640 | 4,607 | 1,272 | — | — | 21,519 | ||||||||||||||||||||||||||||||||||||||||||
Impaired loans acquired with deteriorated credit quality | 4,791 | 1,770 | 370 | — | — | 6,931 | ||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 720,741 | $ | 614,166 | $ | 222,286 | $ | 4,424 | $ | — | $ | 1,561,617 | $ | 979,969 | $ | 652,091 | $ | 201,340 | $ | 4,250 | $ | — | $ | 1,837,650 | ||||||||||||||||||||||||
15Past Due and Nonaccrual Loans.
The following is a summarytables 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 | Total Current | Total Loans | Nonaccrual Loans | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | $ | 196 | $ | 295 | $ | 136 | $ | 627 | $ | — | $ | 2,181 | $ | 346 | $ | — | $ | 436 | $ | 782 | $ | 1,074,125 | $ | 1,074,907 | $ | 650 | ||||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential | 2,308 | 570 | 572 | 3,450 | — | 1,744 | 516 | 82 | 540 | 1,138 | 571,562 | 572,700 | 2,913 | |||||||||||||||||||||||||||||||||||||||
Home equity | 218 | 135 | 72 | 425 | — | 73 | 88 | — | 151 | 239 | 103,384 | 103,623 | 187 | |||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 472 | 59 | 108 | 639 | — | 2,700 | 25 | 2 | 22 | 49 | 215,175 | 215,224 | 355 | |||||||||||||||||||||||||||||||||||||||
Consumer | 54 | 18 | 5 | 77 | — | 17 | 4 | — | — | 4 | 4,453 | 4,457 | — | |||||||||||||||||||||||||||||||||||||||
Total legacy loans | 3,248 | 1,077 | 893 | 5,218 | — | 6,715 | ||||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 979 | $ | 84 | $ | 1,149 | $ | 2,212 | $ | 1,968,699 | $ | 1,970,911 | $ | 4,105 | ||||||||||||||||||||||||||||||||||||||
Loans acquired from Chicopee Savings Bank | 2,957 | 1,610 | 1,279 | 5,846 | — | 6,450 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 6,205 | $ | 2,687 | $ | 2,172 | $ | 11,064 | $ | — | $ | 13,165 | ||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | $ | 302 | $ | 555 | $ | 137 | $ | 994 | $ | — | $ | 2,740 | $ | 139 | $ | — | $ | 436 | $ | 575 | $ | 979,394 | $ | 979,969 | $ | 1,224 | ||||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential | 791 | 262 | 689 | 1,742 | — | 1,658 | 787 | 41 | 507 | 1,335 | 550,997 | 552,332 | 3,214 | |||||||||||||||||||||||||||||||||||||||
Home equity | 208 | 36 | — | 244 | — | 37 | 57 | 5 | 63 | 125 | 99,634 | 99,759 | 94 | |||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 326 | 32 | — | 358 | — | 3,214 | 58 | 10 | 22 | 90 | 201,250 | 201,340 | 410 | |||||||||||||||||||||||||||||||||||||||
Consumer | 27 | 9 | 7 | 43 | — | 14 | 5 | — | 11 | 16 | 4,234 | 4,250 | 22 | |||||||||||||||||||||||||||||||||||||||
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 | $ | 1,046 | $ | 56 | $ | 1,039 | $ | 2,141 | $ | 1,835,509 | $ | 1,837,650 | $ | 4,964 |
Impaired Loans.
The following is a summary of impaired loans by class at and for the dates and periods ended September 30, 2017 and December 31, 2016:indicated:
Impaired Loans(1)(2) | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | At June 30, 2022 | June 30, 2022 | June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | (In thousands) | ||||||||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
Impaired loans without a valuation allowance(2): | ||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Loans(1): | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate | $ | 16,945 | $ | 19,380 | $ | 17,731 | $ | 199 | $ | 18,788 | $ | 650 | $ | 13,431 | $ | 14,579 | $ | 13,597 | $ | 85 | $ | 13,837 | $ | 138 | ||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential real estate | 6,939 | 7,410 | 7,016 | 11 | 6,548 | 34 | ||||||||||||||||||||||||||||||||||||||||||
Residential one-to-four family | 4,633 | 5,479 | 4,612 | 14 | 4,673 | 30 | ||||||||||||||||||||||||||||||||||||||||||
Home equity | 566 | 590 | 407 | 1 | 260 | 3 | 203 | 221 | 166 | — | 143 | 1 | ||||||||||||||||||||||||||||||||||||
Commercial and industrial | 3,953 | 10,242 | 4,442 | 54 | 4,538 | 183 | 880 | 3,236 | 931 | 18 | 979 | 33 | ||||||||||||||||||||||||||||||||||||
Consumer | 127 | 131 | 122 | — | 83 | — | — | — | — | — | 5 | — | ||||||||||||||||||||||||||||||||||||
Total impaired loans | $ | 28,530 | $ | 37,753 | $ | 29,718 | $ | 265 | $ | 30,217 | $ | 870 | $ | 19,147 | $ | 23,515 | $ | 19,306 | $ | 117 | $ | 19,637 | $ | 202 |
17
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
At December 31, 2021 | June 30, 2021 | June 30, 2021 | ||||||||||||||||||||||
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 | $ | 14,392 | $ | 15,563 | $ | 16,186 | $ | 197 | $ | 16,795 | $ | 305 | ||||||||||||
Residential real estate: | ||||||||||||||||||||||||
Residential real estate | 4,881 | 5,381 | 5,947 | 63 | 6,152 | 167 | ||||||||||||||||||
Home equity | 112 | 136 | 136 | — | 139 | 4 | ||||||||||||||||||
Commercial and industrial | 1,069 | 3,850 | 3,036 | 28 | 3,932 | 90 | ||||||||||||||||||
Consumer | 22 | 37 | 24 | — | 25 | — | ||||||||||||||||||
Total impaired loans | $ | 20,476 | $ | 24,967 | $ | 25,329 | $ | 288 | $ | 27,043 | $ | 566 |
(1) | Includes loans acquired with deteriorated credit quality and performing troubled debt restructurings. |
(1) IncludesWith the exception of loans acquired with deteriorated credit quality, and performing troubled debt restructurings.
(2) Includes 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.
No interest income was recognized formajority of impaired loans are included within the nonaccrual balances; however, not every loan on a cash-basis method during the three and nine months ended September 30, 2017 or 2016. Interest income recognized on an accrual basis during the three and nine months ended September 30, 2017 related to performing purchase impairednonaccrual status has been designated as impaired. Impaired loans while activityinclude loans that have been modified in the comparable 2016 periods related to performing TDR loans.
We may periodically agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). TheseImpaired 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.
All payments received on impaired loans in nonaccrual status are applied to principal. There was no interest income recognized on nonaccrual impaired loans during the three and six months ended June 30, 2022 and June 30, 2021. 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 may not be made at the Company’s discretion. At June 30, 2022 and 2021, we had not committed to lend any additional funds for loans that are classified as impaired. Payments received on impaired loans in accrual status are recorded in accordance with the contractual terms of the loan. Interest income recognized on impaired loans during the three and six months ended June 30, 2022 and 2021 pertained to performing TDRs and purchased impaired loans.
Troubled Debt Restructurings.
Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Bank grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions could includemay 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, postponementBank’s position or forgivenesssignificantly extends the note’s maturity date, such that the present value of principal, forbearance or other actions intendedcash flows to maximize collection.be received is materially less than those contractually established at the loan’s origination. All TDRsloans 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 TDRs, including those that have payment defaults, for possible impairment and recognize impairment through the allowance.
Nonperforming TDRs are shown asincluded in nonperforming assets. loans.
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There were no loans modified inloan modifications classified as TDRs during the three and ninesix months ended SeptemberJune 30, 2017. A substandard impaired loan relationship in2022 and 2021. During the amount of $4.6 million was designated a TDR during the ninesix months ended SeptemberJune 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-accrual2022 and are current. The loans are measured for impairment quarterly and appropriate reserves/charge offs have been taken.
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 is2021, no TDRs defaulted (defined as 30 days or more past due. No TDRs defaulteddue) within twelve12 months of restructuring during the three and nine months ended September 30, 2017 or 2016.
restructuring. There were no charge-offs on TDRs during the three and ninesix months ended SeptemberJune 30, 2017 and 2016.2022 or 2021.
Loans Acquired with Deteriorated Credit QualityQuality.
The following is a summary of loans acquired fromin the Chicopee Bancorp, Inc. (“Chicopee”) acquisition with evidence of credit deterioration as of SeptemberJune 30, 2017.2022.
Contractual Required Payments Receivable | Cash Expected To Be Collected | Non- Accretable Discount | Accretable Yield | Loans Receivable | Contractual Required Payments Receivable | Cash Expected To Be Collected | Non- Accretable Discount | Accretable Yield | Loans Receivable | |||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | $ | 37,437 | $ | 29,040 | $ | 8,397 | $ | 7,521 | $ | 21,519 | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 12,134 | $ | 9,430 | $ | 2,704 | $ | 2,499 | $ | 6,931 | ||||||||||||||||||||||||||||||||
Collections | (3,860 | ) | (3,326 | ) | (534 | ) | (1,003 | ) | (2,323 | ) | (1,063 | ) | (950 | ) | (113 | ) | (110 | ) | (840 | ) | ||||||||||||||||||||||
Dispositions | (1,833 | ) | (1,503 | ) | (330 | ) | 6 | (1,509 | ) | (63 | ) | (61 | ) | (2 | ) | (61 | ) | — | ||||||||||||||||||||||||
Balance at September 30, 2017 | $ | 31,744 | $ | 24,211 | $ | 7,533 | $ | 6,524 | $ | 17,687 | ||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | 11,008 | $ | 8,419 | $ | 2,589 | $ | 2,328 | $ | 6,091 |
Credit Quality InformationInformation.
We utilizeThe 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 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.“Special Mention” These loansand 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.“Substandard.” Generally, aA loan is consideredclassified as substandard if the borrower exhibits a well-defined weakness thatand 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.“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, onof the basis of currently existing facts,loan highly questionable and improbableimprobable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and that a partialstrengthening 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 littleuncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that their continuance as loansit 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 listcriticized loan report and other loan reports to monitor credit qualityquality. 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.
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The following table presents our loans by risk rating at Septemberfor the periods indicated:
Commercial Real Estate | Residential 1-4 Family | Home Equity | Commercial and Industrial | Consumer | Total | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
June 30, 2022 | ||||||||||||||||||||||||
Pass (Rated 1 – 4) | $ | 1,023,912 | $ | 568,915 | $ | 103,308 | $ | 204,076 | $ | 4,438 | $ | 1,904,649 | ||||||||||||
Special Mention (Rated 5) | 33,505 | — | — | 6,837 | — | 40,342 | ||||||||||||||||||
Substandard (Rated 6) | 17,490 | 3,785 | 215 | 6,942 | 19 | 28,551 | ||||||||||||||||||
Total | $ | 1,074,907 | $ | 572,700 | $ | 103,623 | $ | 217,855 | $ | 4,457 | $ | 1,973,542 |
December 31, 2021 | ||||||||||||||||||||||||
Pass (Rated 1 – 4) | $ | 913,063 | $ | 547,980 | $ | 99,503 | $ | 215,605 | $ | 4,228 | $ | 1,780,379 | ||||||||||||
Special Mention (Rated 5) | 48,765 | — | — | 2,777 | — | 51,542 | ||||||||||||||||||
Substandard (Rated 6) | 18,141 | 4,352 | 256 | 8,287 | 22 | 31,058 | ||||||||||||||||||
Total | $ | 979,969 | $ | 552,332 | $ | 99,759 | $ | 226,669 | $ | 4,250 | $ | 1,862,979 |
6. | GOODWILL AND OTHER INTANGIBLES |
Goodwill.
At June 30, 20172022 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 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, 2016,2021, the Company’s goodwill was related to the acquisition of Chicopee in October 2016. There was no goodwill impairment recorded during the three and six months ended June 30, 2022 or the year ended December 31, 2021. 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 IntangiblesIntangibles.
In connection with the assumptionacquisition 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 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 $188,000 for the ninethree and six months ended SeptemberJune 30, 2017.2022, respectively. At SeptemberJune 30, 2017,2022, future amortization of the core deposit intangible totals $375,000totaled $375,000 for each of the next five years and $2.3 million$500,000 thereafter.
7. SHARE-BASED COMPENSATION
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 ninethree months ended SeptemberJune 30, 20172022 is presented below. No options were outstanding during the nine months ended September 30, 2016.below:
Shares | Weighted Average Exercise Price | Weighted (in years) | Aggregate (in thousands) | ||||||||||||||
Outstanding at December 31, 2021 | 177,881 | $ | 6.57 | 0.81 | $ | 388 | |||||||||||
Exercised | (97,856 | ) | 6.38 | 0.47 | 238 | ||||||||||||
Outstanding at June 30, 2022 | 80,025 | $ | 6.80 | 0.56 | $ | 51 | |||||||||||
Exercisable at June 30, 2022 | 80,025 | $ | 6.80 | 0.56 | $ | 51 |
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Shares | Weighted Average Exercise Price | Weighted (in years) | Aggregate (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 ninesix months ended SeptemberJune 30, 20172022 and 2021 was $5.5 million.$625,000 and $113,000, respectively.
Restricted Stock AwardsAwards.–
In May 2014, ourthe Company’s shareholders approved the 2014 Omnibus Incentive Plan, a stock-based compensation plan under which(the “2014 RSA Plan”). Under the 2014 RSA Plan, up to shares of ourthe 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 unissuedAny shares are issued to awardees upon vesting of such awards. Any sharesthat were not issued because vesting requirements arewere not met will again bewere available for future issuance under the plans.2014 RSA Plan.
In January 2015, 48,560 shares were granted under this plan and vest ratably over five years. The fair market value of shares awarded, based on the market price at the date of grant, was recorded as unearned compensation and is being amortized over the applicable vesting period.
In 2016,On an annual basis, the Compensation Committee (the “Committee”) approved theapproves long-term incentive program (the “LTI Plan”). The LTIawards out of the 2014 RSA Plan, provideswhereby 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 -year term for employees and a -year term for directors. Annual employee grants provide for a periodic award that is both performance and retention based in that ittime-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 Planaward 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, 62,740February 2020, shares were granted undergranted. Of the LTI Plan. Of this total, 36,543 shares, are retention-based, shares were time-based, with 10,352 vesting in and 26,191 vesting ratably over a -year period. The remaining 26,197 shares granted are performance basedperformance-based and are subject to the achievement of the 2016 LTI2020 long-term incentive performance metric beforemetrics, with % of the performance-based shares vesting is realized after a three year period. For thefor each performance shares, themetric. The primary performance metric for 2016 awards is return on equity. Performance shares will be earned based upon how the Company performs relative to threshold and target absolute goals (i.e. Company-specific, not relative to a peer index) over the three-year performance period. The threshold amountmetrics for the performance period will be a2020 grants are return on equity of 5.85% and a target amount of 6.32%. Participants will be able to earn between 50% (for threshold performance) and 100% of the target amount for the performance shares but will not earn additional shares if performance exceeds target performance.
In May 2017, 89,042 shares were granted under the LTI Plan. Of this total, 55,159 shares are retention-based, with 21,276 vesting in one year and 33,883 vesting ratably over a three year period. The remaining 33,883 shares granted are performance based and are subject to the achievement of the 2017 LTI performance metric before vesting is realized after a three year period. For the performance shares, the primary performance metric for 2017 awards is return on equity. Performanceearnings per share. Performance-based 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 -year cumulative performance period for earnings per share, but will be distributed at the end of the -year period as earned.
The threshold, target and maximum for the three year periodstretch metrics under the 2017 Plan is2020 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 | % |
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 | % | ||||||
Earnings Per Share Metrics | ||||||||||||
Performance Period Ending | Threshold | Target | Stretch | |||||||||
Three-year Cumulative Diluted Earnings Per Share | $ | 1.50 | $ | 1.65 | $ | 1.80 |
ParticipantsEligible participants will be able to earn between 50% (for threshold % (“threshold” performance), 100% (for target % (“target” performance) and 150% (for the maximum % (“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 conditionsPerformance-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.
In February 2021, September 30, 2017, an additional 315,658December 31, 2021, there were no remaining shares available to grant under the 2014 RSA Plan. shares were granted to our directors, with a -year vesting period. At
21
In May 2021, the Company’s shareholders approved the 2021 Omnibus Incentive Plan, a stock-based compensation plan (the “2021 RSA Plan”). Under the 2021 RSA Plan, up to shares of 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 the Company. Any shares that are not issued because vesting requirements are not met will be available for future issuance under the 2021 RSA Plan.
In May 2021, shares were granted. Of the shares, shares were time-based, vesting ratably over a -year period. The remaining shares granted are performance-based and are subject to the achievement of the 2021 long-term incentive performance metrics, with % of the performance-based shares vesting for each performance metric. The primary performance metrics for the 2021 grants are return on equity and earnings per share. Performance-based 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 -year cumulative performance period for earnings per share, but will be distributed at the end of the -year period as earned.
The threshold, target and stretch metrics under this plan.the 2021 grants are as follows:
Return on Equity Metrics | ||||||||||||
Performance Period Ending | Threshold | Target | Stretch | |||||||||
December 31, 2021 | 5.63 | % | 6.25 | % | 7.50 | % | ||||||
December 31, 2022 | 5.85 | % | 6.50 | % | 7.80 | % | ||||||
December 31, 2023 | 6.08 | % | 6.75 | % | 8.10 | % |
Earnings Per Share Metrics | ||||||||||||
Performance Period Ending | Threshold | Target | Stretch | |||||||||
Three-year Cumulative Diluted Earnings Per Share | $ | 1.58 | $ | 1.97 | $ | 2.36 |
In March 2022, shares were granted. Of the shares, shares were time-based, with vesting in and vesting ratably over a -year period. The remaining shares granted are performance-based and are subject to the achievement of the 2022 long-term incentive performance metrics, with % of the performance-based shares vesting for each performance metric. The primary performance metrics for the 2022 grants are return on equity and earnings per share. Performance-based 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 -year cumulative performance period for earnings per share, but will be distributed at the end of the -year period as earned.
The threshold, target and stretch metrics under the 2022 grants are as follows:
Return on Equity Metrics | ||||||||||||
Performance Period Ending | Threshold | Target | Stretch | |||||||||
December 31, 2022 | 7.79 | % | 8.20 | % | 8.61 | % | ||||||
December 31, 2023 | 7.93 | % | 8.35 | % | 8.77 | % | ||||||
December 31, 2024 | 8.03 | % | 8.45 | % | 8.87 | % |
Earnings Per Share Metrics | ||||||||||||
Performance Period Ending | Threshold | Target | Stretch | |||||||||
Three-year Cumulative Diluted Earnings Per Share | $ | 2.35 | $ | 2.61 | $ | 2.85 |
At June 30, 2022, there were
remaining shares available to grant under the 2021 RSA Plan.
22
Shares | Weighted Average Grant Date Fair Value | ||||||||
Balance at December 31, 2021 | 213,381 | $ | 8.91 | ||||||
Shares granted | 144,440 | 9.14 | |||||||
Shares forfeited | (6,651 | ) | 8.66 | ||||||
Shares vested | (60,009 | ) | 9.77 | ||||||
Balance at June 30, 2022 | 291,161 | $ | 8.86 | ||||||
Shares | Weighted Average Grant Date Fair Value | ||||||||
Balance at December 31, 2020 | 178,766 | $ | 9.63 | ||||||
Shares granted | 142,189 | 8.32 | |||||||
Shares forfeited | (19,154 | ) | �� | 11.05 | |||||
Shares vested | (27,727 | ) | 9.81 | ||||||
Balance at June 30, 2021 | 274,074 | $ | 8.83 |
Our stock award plan activity for the nine months ended September 30, 2017 and 2016 is summarized below:
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 thetotal expense for restricted stock awards of $490,000$593,000 and $186,000$377,000 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
We utilize short-term borrowings and long-term debt as an additional sourcesources of funds to finance our lending and investing activities and to provide liquidity for daily operations. Total borrowing capacity includes borrowing arrangements at the FHLB, the Federal Reserve Bank (“FRB”), and borrowing arrangements with correspondent banks.
Short-term borrowings are made upcan consist of FHLBBFHLB advances with an original maturity of less than one year, overnight Ideal Way line of credit advances and other borrowings held as collateral for customer swap arrangements. Other borrowings totaled $4.8 million at June 30, 2022. There were no other borrowings outstanding at December 31, 2021. In addition, there were no short-term borrowings issued by the FHLB at June 30, 2022 and at December 31, 2021.
FHLB advances provide more pricing and option alternatives for particular asset/liability needs. The FHLB provides a central credit facility primarily for member institutions. As an FHLB member, the Company is required to own capital stock of the FHLB, calculated periodically based primarily on its level of borrowings from the FHLB. FHLB borrowings are secured by certain securities from the Company’s investment portfolio not otherwise pledged as well as certain residential real estate and commercial real estate loans. Advances are made under several different credit programs with different lending standards, interest rates and range of maturities. This relationship is an integral component of the Company’s asset-liability management program. At June 30, 2022, the Bank had $473.2 million in additional borrowing capacity from the FHLB.
The Company also has an available overnight Ideal Way line of credit with the FHLBB and customer repurchase agreements, which mature daily. Short-term borrowings issued by the FHLBB were $174.0FHLB of $9.5 million at Septemberas of June 30, 2017 and $155.0 million at December 31, 2016. We have an “Ideal Way” line of credit with the FHLBB for $9.5 million at September 30, 2017 and December 31, 2016.2022. Interest on this line of credit is payable at a rate determined and reset by the FHLBBFHLB on a daily basis. The outstanding principal is due daily but the portion not repaid will be automatically renewed. ThereAs of June 30, 2022 and December 31, 2021, there were no advances outstanding on theunder this line.
The Company has an available line of credit as of September 30, 2017 or December 31, 2016. Customer repurchase agreements were $18.5$5.0 million 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 fromwith the customerFRB Discount Window at 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 basisbasis. Borrowings from the FRB Discount Window are secured by each respective bank. Therecertain securities from the Company’s investment portfolio not otherwise pledged. As of June 30, 2022 and December 31, 2021, there were no advances outstanding under this line.
The Company also has pre-established, non-collateralized overnight borrowing arrangements with large national and regional correspondent banks to provide additional overnight and short-term borrowing capacity for the Company. The Company has a $15.0 million line of credit with a correspondent bank and a $50.0 million line of credit with another correspondent bank, both at an interest rate determined and reset on a daily basis. As of June 30, 2022 and December 31, 2021, there were no advances outstanding under these lines of credit at September 30, 2017 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.lines.
23
Long-term debt consists of FHLBBFHLB advances with an original maturity of one year or more. At SeptemberJune 30, 2017,2022, we had $106.3$1.4 million in long-term debt with the FHLBB. This comparesFHLB, compared to $124.8$2.7 million in long-term debt with FHLBB advancesthe FHLB at December 31, 2016.2021.
Customer repurchase agreements are collateralized by government-sponsored enterprise obligations with fair value9. SUBORDINATED DEBT
On April 20, 2021, the Company completed an offering of $6.8$20 million in aggregate principal amount of its 4.875% fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction.
Unless earlier redeemed, the Notes mature on May 1, 2031. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and $24.6 million,February 1 of each year, beginning August 1, 2021, and mortgage backed securities with a fair value of $61.1 millionfrom and $57.6 million, at September 30, 2017 and December 31, 2016, respectively. The securities collateralizing repurchase agreements are subjectincluding May 1, 2026, but excluding the maturity date or earlier redemption date, equal to fluctuations in fair value. We monitor the fair valuebenchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the collateralapplicable interest period, payable quarterly in arrears on a periodic basis,May 1, August 1, November 1 and would pledge additional collateral if necessary basedFebruary 1 of each year. The Company may also redeem the Notes, in whole or in part, on changesor after May 1, 2026, and at any time upon the occurrence of certain events, subject in fair value of collateral oreach case to the balancesapproval of the repurchase agreements.Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital adequacy regulations.
All FHLBB advancesThe Notes are collateralized by a blanket lien on our owner occupied residential real estate loanspresented net of issuance costs of $347,000 as of June 30, 2022, which are being amortized into interest expense over the life of the Notes. Amortization of issuance costs into interest expense was $20,000 and certain eligible commercial real estate loans.$8,000 for the six months ended June 30, 2022 and 2021, respectively.
9. 10. PENSION BENEFITS
We maintainprovide a defined benefit pension plan for our eligible employees. On September 30, 2016, we effectedemployees (the “Plan”). Employees must work a soft freeze onminimum of 1,000 hours per year to be eligible for the Plan and therefore no new participants will be includedPlan. 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 contributed $2.1 million into the plan for the six months ended June 30, 2022. There were no contributions made to the Plan during the six months ended June 30, 2021. We have not yet determined how much we expect to contribute to our pension planthe Plan in 2017. No contributions have been made to the plan for the nine months ended September 30, 2017.2022. The pension planPlan assets are invested in group annuity contracts with thevarious 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 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:indicated:
Three Months Ended June 30, | Six Months Ended, June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(In thousands) | ||||||||||||||||
Service cost | $ | 334 | $ | 454 | $ | 668 | $ | 908 | ||||||||
Interest cost | 312 | 294 | 625 | 587 | ||||||||||||
Expected return on assets | (427 | ) | (439 | ) | (854 | ) | (878 | ) | ||||||||
Amortization of actuarial loss | 159 | 233 | 317 | 467 | ||||||||||||
Net periodic pension cost | $ | 378 | $ | 542 | $ | 756 | $ | 1,084 |
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. 11. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using DerivativesDerivatives.
We areThe 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.
23
Fair Values of Derivative Instruments on the Balance Sheet
The following table below presents the fair value of our derivative financial instruments designated as hedging instruments as well as our classification on the balance sheet as of Septemberinformation about interest rate swaps at June 30, 20172022 and December 31, 2016.2021:
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 |
June 30, 2022 | 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 counterparties | $ | 15,847 | 10.6 | 3.68 | % | 3.76 | % | $ | 1,270 | |||||||||||
Loan-level swaps – borrower counterparties | 15,847 | 10.6 | 3.76 | % | 3.68 | % | (1,270 | ) | ||||||||||||
Forward starting loan-level swaps – dealer counterparties | 22,390 | 10.0 | 3,346 | |||||||||||||||||
Forward starting loan-level swaps - borrower counterparties | 22,390 | 10.0 | (3,346 | ) | ||||||||||||||||
Total | $ | 76,474 | $ | 0 |
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 |
December 31, 2021 | 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 counterparties | $ | 16,023 | 11.1 | 1.99 | % | 3.76 | % | $ | (662 | ) | ||||||||||
Loan-level swaps – borrower counterparties | 16,023 | 11.1 | 3.76 | % | 1.99 | % | 662 | |||||||||||||
Forward starting loan-level swaps - dealer counterparties | 22,390 | 10.5 | 1,030 | |||||||||||||||||
Forward starting loan-level swaps - borrower counterparties | 22,390 | 10.5 | (1,030 | ) | ||||||||||||||||
Total | $ | 76,826 | $ | 0 |
Cash Flow Hedges of Interest Rate RiskRisk.
OurThe Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage ourits 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 pre-tax net lossesfair value of our cash flow hedges forderivative financial instruments designated as hedging and non-hedging instruments as well as our classification on the periods indicated.balance sheet as of June 30, 2022 and December 31, 2021.
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 | ) |
June 30, 2022 | 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 counterparties | $ | 0 | $ | 4,616 | ||||||||
Interest rate swap – with dealer counterparties | 4,616 | 0 | ||||||||||
Total derivatives not designated as hedging instruments | Other Assets | $ | 4,616 | Other Liabilities | $ | 4,616 |
December 31, 2021 | 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 counterparties | $ | 662 | $ | 1,030 | ||||||||
Interest rate swap – with dealer counterparties | 1,030 | 662 | ||||||||||
Total derivatives not designated as hedging instruments | Other Assets | $ | 1,692 | Other Liabilities | $ | 1,692 |
Effect of Derivative Instruments in the Consolidated Statements of Net Income and Changes in Shareholders’ Equity.
There were no gains or losses recognized in accumulated other comprehensive income during the three and six months ended June 30, 2022 and 2021.
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 incomeloss into net income as interest expense for interest rate swaps:
Amount of Loss Reclassified from OCI into Expense (Effective Portion) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(In thousands) | ||||||||||||||||
Interest rate swaps | $ | — | $ | 142 | $ | — | $ | 282 |
During the six months ended June 30, 2021, the Company terminated an interest rate swap designated as a cash flow hedge prior to its respective maturity date and recognized a loss. The net loss reclassified into earnings totaled $402,000for the effectivesix months ended June 30, 2021, representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swaps and termination feesswap. This loss was $497,000 and $397,000 duringimmediately recognized into earnings as the three months ended Septemberforecasted transaction will not occur. As of June 30, 2017 and 2016, respectively and $1.6 million and $1.0 million during2022, the nine months ended September 30, 2017 and 2016, respectively.Company no longer has any outstanding cash flow hedges. During the next 12 months, we estimate that $1.8 millionthere will be reclassified as anno reclassification of loss related to derivatives to 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 FeaturesFeatures.
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 June 30, 2022, we had minimum collateral posting thresholds with certain of our derivative counterparties. As of SeptemberJune 30, 2017, the termination value of2022, we were not required to post collateral under these agreements because we did not have any derivatives 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, we could have been required to settle our obligations under the agreements at the termination value.those counterparties.
11.
12. FAIR VALUE OF ASSETS AND LIABILITIES
Determination of Fair ValueValue.
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 –: 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 –: 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 –: 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 – The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.Securities Available-for-Sale.
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, corporate bonds, 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 basedValue 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:below for the dates indicated:
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 |
June 30, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | (In thousands) | |||||||||||||||
Securities available-for-sale | $ | — | $ | 160,925 | $ | — | $ | 160,925 | ||||||||
Marketable equity securities | 11,453 | — | — | 11,453 | ||||||||||||
Interest rate swaps | — | 4,616 | — | 4,616 | ||||||||||||
Total assets | $ | 11,453 | $ | 165,541 | $ | — | $ | 176,994 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | $ | — | $ | 4,616 | $ | — | $ | 4,616 |
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 |
December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | (In thousands) | |||||||||||||||
Securities available-for-sale | $ | — | $ | 194,352 | $ | — | $ | 194,352 | ||||||||
Marketable equity securities | 11,896 | — | — | 11,896 | ||||||||||||
Interest rate swaps | — | 1,692 | — | 1,692 | ||||||||||||
Total assets | $ | 11,896 | $ | 196,044 | $ | — | $ | 207,940 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps | $ | — | $ | 1,692 | $ | — | $ | 1,692 |
Also, weAssets Measured at Fair Value on a Non-recurring Basis.
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 SeptemberJune 30, 2017. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value2022 or 2021.
Summary of the related assets at September 30, 2016. Total losses represent the change in carrying value as a resultFair Values of fair value adjustments related to assets still held at September 30, 2016.
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 related write-down and 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.Financial Instruments.
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 at fair value on a non-recurring basis on the consolidated balance sheets.
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 holdings 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. The estimated fair values of our financial instruments are as follows:follows for the dates indicated:
September 30, 2017 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 28,900 | $ | 28,900 | $ | — | $ | — | $ | 28,900 | $ | 47,513 | $ | 47,513 | $ | — | $ | — | $ | 47,513 | ||||||||||||||||||||
Securities held-to-maturity | 233,803 | 9,381 | 195,410 | — | 204,791 | |||||||||||||||||||||||||||||||||||
Securities available-for-sale | 297,919 | 6,406 | 291,513 | — | 297,919 | 160,925 | — | 160,925 | — | 160,925 | ||||||||||||||||||||||||||||||
Marketable equity securities | 11,453 | 11,453 | — | — | 11,453 | |||||||||||||||||||||||||||||||||||
Federal Home Loan Bank of Boston and other restricted stock | 15,704 | — | — | 15,704 | 15,704 | 1,882 | — | — | 1,882 | 1,882 | ||||||||||||||||||||||||||||||
Loans - net | 1,608,255 | — | — | 1,577,309 | 1,577,309 | 1,956,140 | — | — | 1,911,600 | 1,911,600 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 5,764 | — | — | 5,764 | 5,764 | 7,869 | — | — | 7,869 | 7,869 | ||||||||||||||||||||||||||||||
Mortgage servicing rights | 380 | — | 380 | — | 380 | 623 | — | 796 | — | 796 | ||||||||||||||||||||||||||||||
Derivative assets | 1 | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||
Derivative asset | 4,616 | — | 4,616 | — | 4,616 | |||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | 1,515,198 | — | — | 1,514,641 | 1,514,641 | 2,301,972 | — | — | 2,296,204 | 2,296,204 | ||||||||||||||||||||||||||||||
Short-term borrowings | 192,465 | — | 192,482 | — | 192,482 | 4,790 | — | 4,790 | — | 4,790 | ||||||||||||||||||||||||||||||
Long-term debt | 106,339 | — | 106,517 | — | 106,517 | 1,360 | — | 1,294 | — | 1,294 | ||||||||||||||||||||||||||||||
Subordinated debt | 19,653 | — | 20,009 | — | 20,009 | |||||||||||||||||||||||||||||||||||
Accrued interest payable | 394 | — | — | 394 | 394 | 167 | — | — | 167 | 167 | ||||||||||||||||||||||||||||||
Derivative liabilities | 2,710 | — | 2,710 | — | 2,710 | 4,616 | — | 4,616 | — | 4,616 |
December 31, 2016 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 70,234 | $ | 70,234 | $ | — | $ | — | $ | 70,234 | $ | 103,456 | $ | 103,456 | $ | — | $ | — | $ | 103,456 | ||||||||||||||||||||
Securities held-to-maturity | 222,272 | 9,973 | 209,775 | — | 219,748 | |||||||||||||||||||||||||||||||||||
Securities available-for-sale | 300,115 | 6,296 | 293,819 | — | 300,115 | 194,352 | — | 194,352 | — | 194,352 | ||||||||||||||||||||||||||||||
Marketable equity securities | 11,896 | 11,896 | — | — | 11,896 | |||||||||||||||||||||||||||||||||||
Federal Home Loan Bank of Boston and other restricted stock | 16,124 | — | — | 16,124 | 16,124 | 2,594 | — | — | 2,594 | 2,594 | ||||||||||||||||||||||||||||||
Loans - net | 1,556,416 | — | — | 1,525,274 | 1,525,274 | 1,844,929 | — | — | 1,838,045 | 1,838,045 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 5,782 | — | — | 5,782 | 5,782 | 7,775 | — | — | 7,775 | 7,775 | ||||||||||||||||||||||||||||||
Mortgage servicing rights | 465 | — | 628 | — | 628 | 693 | — | 739 | — | 739 | ||||||||||||||||||||||||||||||
Derivative asset | 1,692 | — | 1,692 | — | 1,692 | |||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | 1,518,071 | — | — | 1,521,580 | 1,521,580 | 2,256,898 | — | — | 2,256,834 | 2,256,834 | ||||||||||||||||||||||||||||||
Short-term borrowings | 172,351 | — | 172,351 | — | 172,351 | |||||||||||||||||||||||||||||||||||
Long-term debt | 124,836 | — | 125,183 | — | 125,183 | 2,653 | — | 2,620 | — | 2,620 | ||||||||||||||||||||||||||||||
Subordinated debt | 19,633 | 20,479 | — | 20,479 | ||||||||||||||||||||||||||||||||||||
Accrued interest payable | 1,012 | — | — | 1,012 | 1,012 | 191 | — | — | 191 | 191 | ||||||||||||||||||||||||||||||
Derivative liabilities | 3,152 | — | 3,152 | — | 3,152 | 1,692 | — | 1,692 | — | 1,692 |
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 evaluatingimplementing 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, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230),Classification of Certain Cash Receipts and Cash Payments. This Update provides guidance on eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement 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. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We do 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.
OverviewOverview.
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:
● |
● |
● | Focus on expanding our retail banking deposit franchise and increase the number of households served within our designated market area; |
● |
● | Grow revenues, increase tangible book value per share, continue to pay competitive dividends to shareholders and utilize the |
● | Consider growth through acquisitions. We may pursue expansion opportunities in existing or adjacent strategic locations with companies that add complementary products to our existing business and at terms that add value to our existing shareholders. |
You should read the following financial results for the three and ninesix months ended SeptemberJune 30, 20172022 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 |
● | The provision for loan losses was |
● | Net interest income |
CRITICAL ACCOUNTING POLICIESPOLICIES.
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 ninesix months ended SeptemberJune 30, 2017.2022. 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 20162021 Annual Report.
RECENT DEVELOPMENTS: CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.
The Company continues to monitor COVID-19’s impact on its business and customers, however, the extent to which COVID-19 will continue to 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.
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 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.
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 the Treasury and the SBA. An eligible business was able to apply for a PPP loan up to the lesser 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 June 30, 2022, the Company received funding approval from the SBA for 2,146 applications totaling $302.2 million. As of June 30, 2022, the Company processed 2,128 PPP loan forgiveness applications totaling $299.6 million. Total PPP loans decreased $22.7 million, or 89.6%, from $25.3 million at December 31, 2021 to $2.6 million at June 30, 2022.
During the three months ended June 30, 2022, the Company recognized $129,000 in PPP loan origination fee income and PPP interest income (“PPP income”), compared to $1.6 million during the three months ended June 30, 2021. As of June 30, 2022, the Company had $133,000 in remaining deferred PPP loan processing fees.
The table below breaks out the PPP income recognized for the periods indicated:
For the Three Months Ended | ||||||||||||||||||||
June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
PPP origination fee income | $ | 122 | $ | 526 | $ | 868 | $ | 1,556 | $ | 1,240 | ||||||||||
PPP interest income | 7 | 36 | 105 | 201 | 387 | |||||||||||||||
Total PPP Income | $ | 129 | $ | 562 | $ | 973 | $ | 1,757 | $ | 1,627 |
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 January 1, 2022 or the 60th day after the end of the COVID-19 national emergency.
The Company implemented a modification deferral program under the CARES Act, which allowed residential, commercial and consumer borrowers who were adversely affected by the COVID-19 pandemic, to defer loan payments for a set period of time. As of June 30, 2022, the Company had one remaining commercial real estate loan, with an outstanding principal balance of $9.0 million, and one residential loan with an outstanding principal balance of $123,000, under CARES Act modification. The commercial real estate borrower was granted a principal deferral, while the residential borrower was granted full payment deferral under the Company’s modification deferral program.
Allowance for Loan Losses.
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. The ongoing COVID-19 pandemic could cause us to experience higher credit losses in our lending portfolio, reduce demand for our products and services and other negative impacts on our financial position, results of operations and prospects. As of June 30, 2022, the Company’s delinquency and nonperforming assets have not been materially impacted by the COVID-19 pandemic, and therefore, have not resulted in material credit losses within the lending portfolio.
The Company is continuing to monitor COVID-19’s impact on its business and its customers, however, the extent to which COVID-19 will further 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.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBERJUNE 30, 20172022 AND DECEMBER 31, 20162021
TotalAt June 30, 2022, total assets were $2.1$2.6 billion, at September 30, 2017 andan increase of $38.9 million, or 1.5%, from December 31, 2016. A slight increase in total assets of $10.42021. During the six months ended June 30, 2022, cash and cash equivalents decreased $55.9 million, or 0.5%54.1%, was primarily due to $47.5 million, investment securities decreased $22.3 million, or 5.2%, to $406.2 million and total loans increased $111.0 million, or 6.0%, to $2.0 billion.
At June 30, 2022, the Company’s available-for-sale securities portfolio decreased $33.4 million, or 17.2%, from $194.4 million at December 31, 2021 to $160.9 million at June 30, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $11.5 million, or 5.2%, from $222.3 million at December 31, 2021 to $233.8 million at June 30, 2022. The marketable equity securities portfolio decreased $443,000, or 3.7%, from $11.9 million at December 31, 2021 to $11.5 million at June 30, 2022. The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal.
At June 30, 2022, total loans were $2.0 billion, an increase of $111.0 million, or 6.0%, from December 31, 2021. Excluding PPP loans, total loans increased $133.7 million, or 7.3%, driven by an increase in totalcommercial real estate loans of $52.3$94.9 million, or 3.3%9.7%, partially offset by a decrease in cash and cash equivalents of $41.3 million, or 58.8%, and a decrease in investments of $2.6 million, or 0.8%.
Total loans of $1.6 billion increased $52.3 million, or 3.3%, at September 30, 2017, from $1.6 billion at December 31, 2016. The increase was due to a $33.9 million, or 5.5%, increase in residential loans, including home equity loans, an increase of $22.1 million, or 9.9%, intotal commercial and industrial loans partially offset byof $8.8 million, or 3.9%. Excluding a decrease in PPP loans of $3.9$22.7 million, or 0.5%89.6%, infrom December 31, 2021, commercial and industrial loans increased $13.9 million, or 6.9%, at June 30, 2022. Residential real estate loans. The decreaseloans, which include home equity loans, increased $24.2 million, or 3.7%. In accordance with the Company’s asset/liability management strategy, at June 30, 2022, the Company serviced $82.5 million in the commercial real estate portfolio was largely relatedloans sold to the expected payoff of a $7.5secondary market, compared to $88.2 million completed commercial real estate construction project during first quarter 2017.
at December 31, 2021. Servicing rights will continue to be retained on all loans written and sold to the secondary market. All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status. Nonperforming loans were $13.2 million at September 30, 2017 and $14.1 million at December 31, 2016. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $580,000$102,000 and $371,000$153,000 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
Management continues to remain attentive to any signs of deterioration in borrowers’ financial conditions and is proactive in taking the appropriate steps to mitigate risk. At SeptemberJune 30, 2017, we had $103,000 in other real estate owned (“OREO”). At September 30, 2017 and2022, nonperforming loans totaled $4.1 million, or 0.21% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2016, our nonperforming2021. At June 30, 2022, there were no loans to total loans were 0.81%90 or more days past due and 0.90%, respectively, while our nonperformingstill accruing interest. Nonperforming assets to total assets were 0.64% and 0.69%was 0.16% at June 30, 2022, compared to 0.20% at December 31, 2021. The allowance for loan losses as a percentage of total loans was 0.99% at June 30, 2022, compared to 1.06% at December 31, 2021. At June 30, 2022, the allowance for loan losses as a percentage of nonperforming loans was 476.5%, respectively. A summary of our nonaccrual and past due loans by class are listed in Note 5 of the accompanying unaudited consolidated financial statements.compared to 398.6%, at December 31, 2021
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 SeptemberAt June 30, 2017.
At September 30, 2017,2022, total deposits were $2.3 billion, an increase of $1.5 billion decreased $2.9$45.1 million, or 0.2%2.0%, from December 31, 2016. Savings accounts decreased $5.22021, primarily due to an increase in core deposits of $96.7 million, or 3.5%, 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 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.5.2%. Core deposits, definedwhich the Company defines as all deposits except time deposits, represented 62.6%increased from $1.9 billion, or 82.2% of total deposits, andat December 31, 2021, to $2.0 billion, or 84.8% of total deposits, at June 30, 2022. Non-interest-bearing deposits increased $3.4$6.3 million, or 0.4%1.0%, to $647.6 million, interest-bearing checking accounts increased $8.3 million, or 5.7%, to $154.0 million, savings accounts increased $9.1 million, or 4.2%, to $226.7 million, and money market accounts increased $72.9 million, or 8.6%, to $923.2 million. Time deposits decreased $51.6 million, or 12.8%, from $945.1$402.0 million at December 31, 20162021 to $948.5$350.4 million at SeptemberJune 30, 2017. Non-interest bearing2022. The Company did not have any brokered deposits at June 30, 2022 or December 31, 2021.
At June 30, 2022, total borrowings increased $4.9$3.5 million, or 1.6%15.7%, 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 million at September 30, 2017 from $297.2$22.3 million at December 31, 2016. Short-term2021, to $25.8 million. Other borrowings increased $20.1$3.5 million, or 11.7%129.6%, to $192.5$6.2 million and subordinated debt outstanding totaled $19.7 million at SeptemberJune 30, 2017 from $172.42022 and $19.6 million at December 31, 2016 due to an increase in short-term FHLBB funding. Long-term debt decreased $18.52021.
At June 30, 2022, shareholders’ equity was $215.3 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%8.4% of total assets, at September 30, 2017 and $238.4compared to $223.7 million, or 11.5%8.8% of total assets, at December 31, 2016.2021. The increasedecrease in shareholders’ equity during the nine months reflects net income of $12.7$3.7 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 million for the nine months ended Septemberand an increase in accumulated other comprehensive loss of $14.4 million, partially offset by net income of $10.9 million. Total shares outstanding as of June 30, 2017.2022 were 22,465,991.
The Company’s book value per share was $9.58 at June 30, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, decreased $0.29, or 3.1%, from $9.21 at December 31, 2021 to $8.92 at June 30, 2022. During the six months ended June 30, 2022, the change in AOCI reduced the tangible book value per share by $0.64 as of June 30, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities. Tangible book value is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures.
The Company’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements and internal target minimal levels. At June 30, 2022, the Company’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 8.9%, 11.7%, and 13.7%, respectively, and the Bank’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.1%, 12.0%, and 13.0%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 6.5%, and 10.00%, respectively.
On April 27, 2021, the Board of Directors authorized a stock repurchase plan (the “2021 Plan”) under which the Company is authorized to repurchase up to 2.4 million shares of common stock, or 10% of its outstanding common stock. During the three months ended June 30, 2022, the Company repurchased 293,173 shares of common stock under the 2021 Plan. During the six months ended June 30, 2022, the Company repurchased 405,847 shares of common stock under the 2021 Plan. At June 30, 2022, there were 271,472 shares of common stock available for repurchase under the 2021 Plan. On July 26, 2022, the Board of Directors authorized a stock repurchase plan (the “2022 Plan”), pursuant to which the Company may repurchase up to 1.1 million shares of common stock, or approximately 5.0%, of the Company’s outstanding shares of common stock, upon the completion of the 2021 Plan.
The shares repurchased under the 2021 and 2022 Plans 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, 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 additional share repurchases under the 2021 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 SEPTEMBERJUNE 30, 20172022 AND SEPTEMBERJUNE 30, 20162021
GeneralGeneral.
NetThe Company reported net income was $3.8of $5.5 million, or $0.13$0.25 per diluted share, for the three months ended SeptemberJune 30, 2017,2022, compared to $628,000,net income of $5.7 million, or $0.04$0.24 per diluted share, for the same period in 2016. Net interest incomethree months ended June 30, 2021. Return on average assets and return on average equity was $14.8 million0.87% and $8.3 million10.22%, respectively, for the three months ended SeptemberJune 30, 20172022, as compared to 0.92% and 2016, respectively.10.16%, respectively, for the three months ended June 30, 2021.
Net Interest and Dividend IncomeIncome.
The following tables set forth the information relating to our average balance and net interest income for the three months ended SeptemberJune 30, 20172022 and 2016,2021, 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.
35
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 June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | |||||||||||||||||||||
Balance | Interest(8) | Cost(9) | Balance | Interest(8) | Cost(9) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||
Loans(1)(2) | $ | 1,949,464 | $ | 18,624 | 3.83 | % | $ | 1,911,323 | $ | 18,425 | 3.87 | % | ||||||||||||
Securities(2) | 414,226 | 2,068 | 2.00 | 293,991 | 1,278 | 1.74 | ||||||||||||||||||
Other investments - at cost | 9,892 | 30 | 1.22 | 10,114 | 28 | 1.11 | ||||||||||||||||||
Short-term investments(3) | 24,944 | 48 | 0.77 | 114,883 | 26 | 0.09 | ||||||||||||||||||
Total interest-earning assets | 2,398,526 | 20,770 | 3.47 | 2,330,311 | 19,757 | 3.40 | ||||||||||||||||||
Total non-interest-earning assets | 153,939 | 147,545 | ||||||||||||||||||||||
Total assets | $ | 2,552,465 | $ | 2,477,856 | ||||||||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Interest-bearing checking accounts | $ | 137,984 | $ | 105 | 0.31 | % | $ | 100,455 | $ | 92 | 0.37 | % | ||||||||||||
Savings accounts | 224,487 | 48 | 0.09 | 206,302 | 47 | 0.09 | ||||||||||||||||||
Money market accounts | 910,801 | 549 | 0.24 | 766,378 | 650 | 0.34 | ||||||||||||||||||
Time deposit accounts | 365,383 | 288 | 0.32 | 487,712 | 677 | 0.56 | ||||||||||||||||||
Total interest-bearing deposits | 1,638,655 | 990 | 0.24 | 1,560,847 | 1,466 | 0.38 | ||||||||||||||||||
Short-term borrowings and long-term debt | 25,829 | 264 | 4.10 | 54,459 | 382 | 2.81 | ||||||||||||||||||
Interest-bearing liabilities | 1,664,484 | 1,254 | 0.30 | 1,615,306 | 1,848 | 0.46 | ||||||||||||||||||
Non-interest-bearing deposits | 635,678 | 603,270 | ||||||||||||||||||||||
Other non-interest-bearing liabilities | 35,076 | 36,043 | ||||||||||||||||||||||
Total non-interest-bearing liabilities | 670,754 | 639,313 | ||||||||||||||||||||||
Total liabilities | 2,335,238 | 2,254,619 | ||||||||||||||||||||||
Total equity | 217,227 | 223,237 | ||||||||||||||||||||||
Total liabilities and equity | $ | 2,552,465 | $ | 2,477,856 | ||||||||||||||||||||
Less: Tax-equivalent adjustment(2) | (124 | ) | (105 | ) | ||||||||||||||||||||
Net interest and dividend income | $ | 19,392 | $ | 17,804 | ||||||||||||||||||||
Net interest rate spread(4) | 3.15 | % | 2.92 | % | ||||||||||||||||||||
Net interest rate spread, on a tax equivalent basis(5) | 3.17 | % | 2.94 | % | ||||||||||||||||||||
Net interest margin(6) | 3.24 | % | 3.06 | % | ||||||||||||||||||||
Net interest margin, on a tax equivalent basis(7) | 3.26 | % | 3.08 | % | ||||||||||||||||||||
Ratio of average interest-earning | ||||||||||||||||||||||||
assets to average interest-bearing liabilities | 144.10 | % | 144.26 | % |
(1) | Loans, including |
(2) |
(3) | Short-term investments include federal funds sold. |
(4) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
(5) | Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. |
(6) | Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets. |
(7) | Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average |
(8) | Acquired loans, time deposits and borrowings are recorded at fair value at the time of acquisition. The fair value marks on the loans, time deposits and borrowings acquired accrete and amortize into net interest income over time. For the three months ended June 30, 2022 and June 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $64,000, and $(33,000), respectively. Excluding these items, net interest margin, on a tax-equivalent basis, for the three months ended June 30, 2022 and June 30, 2021 was 3.25%, and 3.09%, respectively. |
(9) | Annualized. |
36
Rate/Volume Analysis.
The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021 | ||||||||||||||||||||||||
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016 | Increase (Decrease) Due to | |||||||||||||||||||||||
Increase (Decrease) Due to | Volume | Rate | Net | |||||||||||||||||||||
Volume | Rate | Net | (In thousands) | |||||||||||||||||||||
Interest-earning assets | (In thousands) | |||||||||||||||||||||||
Loans(1) | $ | 6,622 | $ | 891 | $ | 7,513 | $ | 369 | $ | (170 | ) | $ | 199 | |||||||||||
Securities(1) | 32 | 160 | 192 | 523 | 267 | 790 | ||||||||||||||||||
Other investments | 51 | (9 | ) | 42 | ||||||||||||||||||||
Other investments - at cost | (1 | ) | 3 | 2 | ||||||||||||||||||||
Short-term investments | (10 | ) | 7 | (3 | ) | (20 | ) | 42 | 22 | |||||||||||||||
Total interest-earning assets | 6,695 | 1,049 | 7,744 | 871 | 142 | 1,013 | ||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Interest-bearing checking accounts | 39 | 18 | 57 | 34 | (21 | ) | 13 | |||||||||||||||||
Savings accounts | 19 | 4 | 23 | 4 | (3 | ) | 1 | |||||||||||||||||
Money market accounts | 129 | (36 | ) | 93 | 122 | (223 | ) | (101 | ) | |||||||||||||||
Time deposit accounts | 602 | (246 | ) | 356 | (170 | ) | (219 | ) | (389 | ) | ||||||||||||||
Short-term borrowing and long-time debt | 334 | 208 | 542 | (201 | ) | 83 | (118 | ) | ||||||||||||||||
Total interest-bearing liabilities | 1,123 | (52 | ) | 1,071 | (211 | ) | (383 | ) | (594 | ) | ||||||||||||||
Change in net interest and dividend income(1) | $ | 5,572 | $ | 1,101 | $ | 6,673 | $ | 1,082 | $ | 525 | $ | 1,607 |
(1) | Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of |
Net interest and dividend income increased $6.5$1.6 million, or 78.3%8.9%, to $14.8$19.4 million, for the three months ended SeptemberJune 30, 2017, compared to $8.32022, from $17.8 million for the three months ended SeptemberJune 30, 2016.2021. The increase reflected a $7.5 million, or 68.2%,was due to an increase in interest and dividend income as average interest-earning assets increased $671.7of $994,000, or 5.1%, and a decrease in interest expense of $594,000, or 32.2%. Interest expense on deposits decreased $476,000, or 32.5%, and interest expense on borrowings decreased $118,000, or 30.9%. For the three months ended June 30, 2022, net interest income included $129,000 in PPP income, compared to $1.6 million or 53.4%, primarily due to loan growth as a result of the merger. The yield on interest-earning assets increased 39 basis points from 3.50% for the three months ended SeptemberJune 30, 20162021. Excluding PPP income, net interest income increased $3.1 million, or 19.1%, primarily due to 3.89%an increase in interest and dividend income of $2.5 million, or 13.8%.
The net interest margin was 3.24% for the three months ended SeptemberJune 30, 2017.
For2022, compared to 3.06% for the three months ended SeptemberJune 30, 2017,2021. The net interest expense increased $1.1margin, on a tax-equivalent basis, was 3.26% for the three months ended June 30, 2022, compared to 3.08% for the three months ended June 30, 2021. The increase in the net interest margin was due to an increase in average loans outstanding of $38.1 million, or 42.3%2.0%, from the three months ended June 30, 2021, compared to the three months ended SeptemberJune 30, 2016. During the same period, interest-bearing liabilities2022.
The average yield on interest-earning assets increased $431.3 million, or 56.1%, while non-interest bearing liabilities, such as demand accounts, increased $123.0 million, or 69.2%. The net interest margin of 3.09% for the three months ending September 30, 2017 increased 44seven basis points compared to 2.65%from 3.40% for the three months ended SeptemberJune 30, 2016. The2021 to 3.47% for the three months ended SeptemberJune 30, 20172022. During the three months ended June 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased 11 basis points, from 0.33% for the three months ended June 30, 2021 to 0.22% for the three months ended June 30, 2022. The average cost of core deposits, which include amortizationnon-interest-bearing demand accounts, decreased four basis points, from 0.19% for the three months ended June 30, 2021 to 0.15% for the three months ended June 30, 2022. The average cost of purchase accounting adjustments relatedtime deposits decreased 24 basis points from 0.56% for the three months ended June 30, 2021 to 0.32% for the three months ended June 30, 2022. The average cost of borrowings increased 129 basis points during the same period due to the Chicopee acquisition, whichfull quarter impact of the $20.0 million in subordinated debt issued on April 19, 2021. For the three months ended June 30, 2022, average demand deposits, an interest-free source of funds, increased net interest income by $448,000. Excluding these items, net interest margin$32.4 million, or 5.4%, to $635.7 million, or 28.0% of total average deposits, from $603.3 million, or 27.9% of total average deposits for the third quarter of 2017 would have been 3.00%.three months ended June 30, 2021.
During the three months ended June 30, 2022, average interest-earning assets increased $68.2 million, or 2.9%, to $2.4 billion compared to the three months ended June 30, 2021, primarily due to an increase in average securities of $120.0 million, or 39.5%, and an increase in average loans of $38.1 million, or 2.0%, partially offset by a decrease in short-term investments of $89.9 million, or 78.3%. Excluding average PPP loans, average interest-earning assets increased $220.7 million, or 10.2%, and average loans increased $190.7 million, or 10.9%, from the three months ended June 30, 2021 to the three months ended June 30, 2022.
Provision for Loan LossesLosses.
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 SeptemberJune 30, 20172022 was based uponon the changes that occurred in the loan portfolio during that same period. 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, weCompany recorded a provision for loan losses of $200,000$300,000 for three months ended June 30, 2022, compared to a credit for loan losses of $1.2 million for the three months ended SeptemberJune 30, 2017, compared2021. The increase in the provision for loan losses was due to $375,000strong organic loan growth during the second quarter of 2022. The Company recorded net charge-offs of $48,000 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 SeptemberJune 30, 2017,2022, as compared to net charge-offs were $100,000. This was comprised of $211,000 in charge-offs, partially offset by recoveries of $111,000.
For$157,000 for the three months ended SeptemberJune 30, 2016, net charge-offs were $18,000. This was comprised2021. Management continues to assess the exposure of $86,000 in charge-offs, partially offset by recoveries of $68,000.the Company’s loan portfolio to the COVID-19 pandemic related factors, economic trends and their potential effect on asset quality.
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.
Non-interest income increased $332,000, or 13.8%, to $2.7 million for the three months ended June 30, 2022, from $2.4 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, service charges and fees on deposits increased $271,000, or 13.1%, primarily due to the $177,000, or 19.1%, increase in ATM and debit card interchange income from increased card-based transaction usage across our checking account base. Other income from loan-level swap fees on commercial loans increased $21,000 from the three months ended June 30, 2021 to the three months ended June 30, 2022. Income from bank-owned life insurance decreased $42,000, or 8.4%, from the three months ended June 30, 2021 to the three months ended June 30, 2022. During the three months ended June 30, 2021, mortgage banking income from the sale of fixed rate residential real estate loans totaled $242,000. The Company did not sell any loans to the secondary market during the three months ended June 30, 2022. The Company reported a gain of $141,000 on non-marketable equity investments and reported an unrealized loss on marketable equity securities of $225,000, during the three months ended June 30, 2022, compared to unrealized gains on marketable equity securities of $6,000 during the three months ended June 30, 2021. The Company also reported realized losses on the sale of securities of $12,000 during the three months ended June 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes.
During the three months ended June 30, 2021, the Company recognized a loss on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swap on March 16, 2016. The unamortized portion of the loss was previously reported in accumulated other comprehensive income and amortized through interest expense, however, as the previously hedged item was discontinued, the Company accelerated the remaining unamortized loss.
Non-interest Expense.
For the three months ended SeptemberJune 30, 2017,2022, non-interest income of $2.4expense increased $759,000, or 5.6%, to $14.4 million increased $1.1 million, or 84.6%, compared to $1.3from $13.7 million, for the three months ended SeptemberJune 30, 2016.2021. The increase in non-interest expense was primarilypartially due to the merger with Chicopee. The increase was primarily driven by an increase in service chargessalaries and fee incomebenefits of $761,000,$263,000, or 79.9%3.3%, an increasedue to normal annual salary increases. Other non-interest expense increased $260,000, or 12.2%, professional fees increased $130,000, or 22.1%, occupancy expense increased $78,000, or 7.1%, advertising expense increased $65,000, or 18.7%, furniture and equipment expense increased $26,000, or 5.1%, and FDIC insurance expense increased $9,000, or 4.0%. During the same period, data processing expense decreased $27,000, or 3.6%. During the three months ended June 30, 2021, the Company prepaid $32.5 million of FHLB borrowings resulting in other incomea loss of $111,000, an increase of $81,000, or 22.0%, in income from bank-owned life insurance and an increase of $48,000 in gains on sales of securities.
Non-interest Expense
$45,000. For the three months ended SeptemberJune 30, 2017, non-interest expense of $11.2 million increased $3.0 million, or 36.6%2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 65.0%, from $8.2 million,compared to 66.1% for the three months ended SeptemberJune 30, 2016.2021. The increase was primarily due to a $2.4 million, or 58.5%, increase in salaries and benefits due to the addition of the Chicopee staff and normal merit increases that typically occur during the first quarter of each year. Occupancy expense increased $336,000, or 60.5%, due to the acquisition of the Chicopee branches, and data processing expense increased $276,000, or 68.3%, while merger related expenses decreased $830,000. The increase to non-interest expense reflects generally higher level 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 theadjusted efficiency ratio from 76.6%,is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.
Income Taxes.
Income tax expense for the three months ended SeptemberJune 30, 2016,2022 was $1.9 million, representing an effective tax rate of 25.2%, compared to 65.4%$2.1 million, representing an effective tax rate of 27.0%, for the three months ended SeptemberJune 30, 2017.2021.
Income Taxes
For the three months ended September 30, 2017, we had a tax provision of $2.0 million as compared to $423,000 for the same period in 2016. The effective tax rate was 34.8% for the three months ended September 30, 2017 and 40.2% for the same period in 2016. The three months ended September 30, 2017 include higher levels of pre-tax income as a result of the merger, while the comparable 2016 period includes nondeductible merger expenses of $691,000.
COMPARISON OF OPERATING RESULTS FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND SEPTEMBERJUNE 30, 20162021
GeneralGeneral.
NetFor the six months ended June 30, 2022, the Company reported net income was $12.7of $10.9 million, or $0.42$0.49 per diluted share, compared to $11.4 million, or $0.47 per diluted share, for the ninesix months ended SeptemberJune 30, 2017,2021. Return on average assets and return on average equity were 0.86% and 9.93% for the six months ended June 30, 2022, respectively, compared to $3.0 million, or $0.17 per diluted share,0.95% and 10.25% for the same period in 2016. Net interest income was $44.0 million and $24.6 million for the ninesix months ended SeptemberJune 30, 2017 and 2016,2021, respectively.
Net Interest and Dividend IncomeIncome.
The following tables set forth the information relating to our average balance and net interest income for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, 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.
39
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 | % |
Six Months Ended June 30, | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Average | Average Yield/ | Average | Average Yield/ | |||||||||||||||||||||
Balance | Interest(8) | Cost(9) | Balance | Interest(8) | Cost(9) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||
Loans(1)(2) | $ | 1,922,318 | $ | 36,691 | �� | 3.85 | % | $ | 1,917,366 | $ | 37,648 | 3.96 | % | |||||||||||
Securities(2) | 418,806 | 4,018 | 1.94 | 260,845 | 2,131 | 1.65 | ||||||||||||||||||
Other investments - at cost | 10,241 | 55 | 1.08 | 9,889 | 63 | 1.28 | ||||||||||||||||||
Short-term investments(3) | 40,899 | 69 | 0.34 | 104,999 | 50 | 0.10 | ||||||||||||||||||
Total interest-earning assets | 2,392,264 | 40,833 | 3.44 | 2,293,099 | 39,892 | 3.51 | ||||||||||||||||||
Total non-interest-earning assets | 148,815 | 146,709 | ||||||||||||||||||||||
Total assets | $ | 2,541,079 | $ | 2,439,808 | ||||||||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Interest-bearing checking accounts | $ | 135,104 | 200 | 0.30 | $ | 95,507 | 198 | 0.42 | ||||||||||||||||
Savings accounts | 221,484 | 83 | 0.08 | 196,812 | 83 | 0.09 | ||||||||||||||||||
Money market accounts | 894,687 | 1,070 | 0.24 | 721,270 | 1,303 | 0.36 | ||||||||||||||||||
Time deposit accounts | 377,158 | 629 | 0.34 | 527,188 | 1,616 | 0.62 | ||||||||||||||||||
Total interest-bearing deposits | 1,628,433 | 1,982 | 0.25 | 1,540,777 | 3,200 | 0.42 | ||||||||||||||||||
Short-term borrowings and long-term debt | 24,164 | 517 | 4.31 | 53,569 | 655 | 2.47 | ||||||||||||||||||
Interest-bearing liabilities | 1,652,597 | 2,499 | 0.30 | 1,594,346 | 3,855 | 0.49 | ||||||||||||||||||
Non-interest-bearing deposits | 634,387 | 582,541 | ||||||||||||||||||||||
Other non-interest-bearing liabilities | 33,721 | 37,829 | ||||||||||||||||||||||
Total non-interest-bearing liabilities | 668,108 | 620,370 | ||||||||||||||||||||||
Total liabilities | 2,320,705 | 2,214,716 | ||||||||||||||||||||||
Total equity | 220,374 | 225,092 | ||||||||||||||||||||||
Total liabilities and equity | $ | 2,541,079 | $ | 2,439,808 | ||||||||||||||||||||
Less: Tax-equivalent adjustment(2) | (244 | ) | (207 | ) | ||||||||||||||||||||
Net interest and dividend income | $ | 38,090 | $ | 35,830 | ||||||||||||||||||||
Net interest rate spread(4) | 3.12 | % | 3.00 | % | ||||||||||||||||||||
Net interest rate spread, on a tax equivalent basis(5) | 3.14 | % | 3.02 | % | ||||||||||||||||||||
Net interest margin(6) | 3.21 | % | 3.15 | % | ||||||||||||||||||||
Net interest margin, on a tax equivalent basis(7) | 3.23 | % | 3.17 | % | ||||||||||||||||||||
Ratio of average interest-earning | ||||||||||||||||||||||||
assets to average interest-bearing liabilities | 144.76 | % | 143.83 | % |
(1) | Loans, including |
(2) |
(3) | Short-term investments include federal funds sold. |
(4) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
(5) | Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. |
(6) | Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets. |
(7) | Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. |
(8) | Acquired loans, time deposits and borrowings are recorded at fair value at the time of acquisition. The fair value marks on the loans, time deposits and borrowings acquired accrete and amortize into net interest income over time. For the six months ended June 30, 2022 and June 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $103,000 and $(78,000), respectively. Excluding these items, net interest margin, on a tax-equivalent basis, for the six months ended June 30, 2022 and June 30, 2021 was 3.22% and 3.18%, respectively. |
(9) | Annualized. |
Rate/Volume Analysis.
The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021 | ||||||||||||||||||||||||
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016 | Increase (Decrease) Due to | |||||||||||||||||||||||
Increase (Decrease) Due to | Volume | Rate | Net | |||||||||||||||||||||
Volume | Rate | Net | (In thousands) | |||||||||||||||||||||
Interest-earning assets | (In thousands) | |||||||||||||||||||||||
Loans(1) | $ | 21,307 | $ | 1,777 | $ | 23,084 | $ | 97 | $ | (1,055 | ) | $ | (958 | ) | ||||||||||
Securities(1) | (540 | ) | 239 | (301 | ) | 1,290 | 598 | 1,888 | ||||||||||||||||
Other investments | 80 | 23 | 103 | |||||||||||||||||||||
Other investments - at cost | 2 | (10 | ) | (8 | ) | |||||||||||||||||||
Short-term investments | (19 | ) | 54 | 35 | (31 | ) | 50 | 19 | ||||||||||||||||
Total interest-earning assets | 20,828 | 2,093 | 22,921 | 1,358 | (417 | ) | 941 | |||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Interest-bearing checking accounts | 113 | 72 | 185 | 82 | (80 | ) | 2 | |||||||||||||||||
Savings accounts | 62 | 12 | 74 | 10 | (10 | ) | — | |||||||||||||||||
Money market accounts | 398 | (33 | ) | 365 | 313 | (546 | ) | (233 | ) | |||||||||||||||
Time deposit accounts | 1,661 | (695 | ) | 966 | (460 | ) | (527 | ) | (987 | ) | ||||||||||||||
Short-term borrowing and long-term debt | 688 | 562 | 1,250 | (360 | ) | 222 | (138 | ) | ||||||||||||||||
Total interest-bearing liabilities | 2,922 | (82 | ) | 2,840 | (415 | ) | (941 | ) | (1,356 | ) | ||||||||||||||
Change in net interest and dividend income | $ | 17,906 | $ | 2,175 | $ | 20,081 | $ | 1,773 | $ | 524 | $ | 2,297 |
(1) | Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of |
NetDuring the six months ended June 30, 2022, net interest income was $44.0increased $2.3 million, or 6.3%, to $38.1 million, compared to $35.8 million for the ninesix months ended SeptemberJune 30, 2017 and $24.6 million for the nine months ended September 30, 2016.2021. The increase in net interest income was primarily due to thea decrease in interest expense of $1.4 million, or 35.2%, and an increase in interest and dividend income of $22.3 million,$904,000, or 68.7%, partially offset by the increase2.3%. The decrease in interest expense was due to a decrease in interest expense on deposits of $2.8$1.2 million, or 35.9%38.1%, fromand a decrease of $138,000, or 21.1%, in interest expense on borrowings. For the ninesix months ended SeptemberJune 30, 2016.2022, interest and dividend income included $691,000 in PPP income, compared to $4.0 million during the six months ended June 30, 2021. Excluding PPP income, net interest income increased $5.6 million, or 17.6%, for the same period.
The net interest margin for the six months ended June 30, 2022 was 3.21%, compared to 3.15% during the six months ended June 30, 2021. The net interest margin, on a tax-equivalent basis, was 3.09% and 2.62%3.23% for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.2022, compared to 3.17% for the six months ended June 30, 2021. Excluding the PPP income, the net interest margin increased from 3.01% for the six months ended June 30, 2021 to 3.16% for the six months ended June 30, 2022.
The average balance sheet comparisonyield on interest-earning assets decreased seven basis points from 3.51% for the ninesix months ended SeptemberJune 30, 20162021 to September3.44% for the six months ended June 30, 2017 largely reflects2022. During the merger with Chicopee. Averagesix months ended June 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased 14 basis points from 0.36% for the six months ended June 30, 2021 to 0.22% for the six months ended June 30, 2022. For the six months ended June 30, 2022, the average cost of core deposits, including non-interest-bearing demand deposits, decreased six basis points from 0.20% for the six months ended June 30, 2021 to 0.14% for the six months ended June 30, 2022. The average cost of time deposits decreased 28 basis points from 0.62% for the six months ended June 30, 2021 to 0.34% during the same period in 2022. The average cost of borrowings, which include FHLB advances and subordinated debt, increased 184 basis points from 2.47% for the six months ended June 30, 2021 to 4.31% for the six months ended June 30, 2022. For the six months ended June 30, 2022, average demand deposits, an interest-free source of funds, increased $51.8 million, or 8.9%, from $582.5 million, or 27.4% of total average deposits, for the six months ended June 30, 2021, to $634.4 million, or 28.0% of total average deposits.
During the six months ended June 30, 2022, average interest-earning assets increased $677.8$99.2 million, or 53.9%4.3%, from $1.3 billion for the nine months ended September 30, 2016 to $1.9 billion for the nine months ended September 30, 2017.$2.4 billion. The increase in average interest-earning assets was due to a $714.1 million, or 81.6%,an increase in average loans partially offset by a $29.8of $5.0 million, or 8.9%0.3%, decrease in average investments and a $9.4 million, or 28.2%, 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.
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 was 2.99%. The average asset yield increased from 3.46% for the nine months ended September 30, 2016 to 3.83% for the nine months ended September 30, 2017. The average cost of funds decreased 9 basis points from 1.04% for the nine months ended September 30, 2016 to 0.95% for the nine months ended September 30, 2017 primarily due to purchase accounting adjustments on time deposits and borrowings as well as the continuation of low market interest rates, which allowed us to renew or replace maturing time deposits at lower costs. The average cost of time deposits decreased 16 basis points, from 1.25% for the nine months ended September 30, 2016 to 1.09% for the nine months ended September 30, 2017. The average cost of borrowings increased 25 basis points, from 1.77% for the nine months ended September 30, 2016 to 2.02% for the nine months ended September 30, 2017. The increase in cost 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 portfolio 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 overaverage securities of $158.3 million, or 58.5%. Both were partially offset by a decrease of $64.1 million, or 61.1%, in short-term investments. Excluding average PPP loans, average interest-earning assets increased $251.2 million, or 11.8%, and average loans increased $157.0 million, or 8.9%.
Provision for Loan Losses.
For the comparable period. After evaluating thesesix months ended June 30, 2022, the credit for loan losses decreased $1.0 million, or 88.9%, from $1.1 million for the six months ended June 30, 2021 to $125,000 for the six months ended June 30, 2022. During the six months ended June 30, 2021, the Company adjusted its qualitative factors we recordedrelated to the impact of the COVID-19 pandemic and other economic trends used in the Company’s allowance calculation, which resulted in a provisioncredit for loan losses of $850,000$1.1 million. The Company recorded net charge-offs of $102,000 for the ninesix months ended SeptemberJune 30, 2017,2022, as compared to $400,000net charge-offs of $162,000 for the same period in 2016. The allowance was $10.5 million, or 0.65% of total loans, at September 30, 2017 and $10.1 million, or 0.64% of total loans, at December 31, 2016.
For the ninesix months ended SeptemberJune 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, partially offset by recoveries of $306,000.
For the nine months ended September 30, 2016, net recoveries were $687,000. This was comprised of recoveries of $1.0 million for the nine months ended September 30, 2016, partially offset by charge-offs of $347,000. During the nine months ended September 30, 2016, we received a partial recovery of $1.0 million related to a single commercial real estate loan previously charged-off in 2010.2021.
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 IncomeIncome.
For the ninesix months ended SeptemberJune 30, 2017,2022, non-interest income of $6.5was $5.1 million, increased $2.9 million, or 80.8%, compared to $3.6$5.4 million for the ninesix months ended SeptemberJune 30, 2016. The increase of $2.9 million was primarily due to an increase in2021. During the same period, service charges and fees of $2.1 million,increased $562,000, or 77.6%14.2%. Other income from loan-level swap fees on commercial loans decreased $37,000, or 63.8%, and an increase in income from bank-owned life insurance of $236,000,decreased $35,000, or 20.8%3.7%. The increase in non-interestMortgage banking income was primarily$469,000 for the six months ended June 30, 2021 due to the merger with Chicopee. Forsale of fixed rate residential real estate loans to the ninesecondary market. The Company sold $17.6 million of low coupon residential real estate loans to the secondary market during the six months ended SeptemberJune 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, 2017,2021, compared to $91.6 million at December 31, 2016 due$277,000 during the six months ended June 30, 2022.
During the six months ended June 30, 2022, the Company reported unrealized losses on marketable equity securities of $501,000, compared to positive market movements and additions from new and existing clients. Pre-taxunrealized losses of $83,000 during the six months ended June 30, 2021. During the six months ended June 30, 2022, the Company also reported realized gainslosses on the sale of securities decreased $632,000, or 92.4%. Additionally, there was a $915,000 decreaseof $4,000, compared to realized losses of $74,000 on the prepaymentsale of borrowings reportedsecurities during the ninesix months ended SeptemberJune 30, 20162021. The Company reported a gain of $141,000 on non-marketable equity investments during the six months ended June 30, 2022, compared to $546,000 during the six months ended June 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as there were no such prepayments in 2017.well as the related yield curve and valuation changes.
During the six months ended June 30, 2021, the Company recognized a loss on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swap on March 16, 2016. The unamortized portion of the loss was previously reported in accumulated other comprehensive income and amortized through interest expense, however, as the previously hedged item was discontinued, the Company accelerated the remaining unamortized loss.
Non-interest ExpenseExpense.
For the ninesix months ended SeptemberJune 30, 2017,2022, non-interest expense increased $10.1$1.9 million, or 43.5%7.0%, to $33.4$28.9 million, or 2.15% of average assets, compared to $23.3$27.0 million or 2.33% of average assets, for the ninesix months ended SeptemberJune 30, 2016.2021. 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 of the Chicopee staff and normal merit increases. Occupancy expense increased $1.1 million,$739,000, or 64.4%4.7%, due to normal annual salary increases as well as higher compensation incentive costs to support overall franchise growth. The increase in salary related expenses was also partially due to a decrease of $279,000 in deferred direct origination costs associated with Round 3 of PPP loans. The origination costs were recorded against salary expense during the acquisition of the Chicopee branches. Data processingsix months ended June 30, 2021.
Other non-interest expense increased $573,000,$702,000, or 49.1%, 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%17.5%, professional fees increased $202,000,$163,000, or 11.8%14.4%, occupancy expense increased $152,000, or 6.4%, advertising expense increased $126,000, or 18.4%, furniture and equipment expense increased $79,000, or 7.9%, data processing expenses decreased $25,000, or 1.7%, and other non-interestFDIC insurance expense increased $1.7decreased $3,000, or 0.6%. During the six months ended June 30, 2021, the Company prepaid $32.5 million or 56.4%. These increases were partially offset byof FHLB borrowings resulting in a $1.3loss of $45,000. For the six months ended June 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 66.4%, compared to 65.3% for the six months ended June 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.
Income Taxes.
Income tax expense for the six months ended June 30, 2022 was $3.6 million, or 67.3%representing an effective tax rate of 24.7%, decreasecompared to $3.9 million, representing an effective tax rate of 25.5%, for six months ended June 30, 2021.
Explanation of Use of Non-GAAP Financial Measurements.
We believe that it is common practice in mergerthe banking industry to present interest income and related expensesyield information on tax-exempt loans and securities on a tax-equivalent basis, as well as a decrease in FDIC insurance expense of $128,000, or 21.5%. 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,presenting tangible book value per share and professional services. The merger provided the opportunity to achieve greater economies of scale as reflected in the improvement in theadjusted efficiency ratio, and that such information is useful to investors because it facilitates comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities to a tax-equivalent amount, as well as the presentation of tangible book value per share and adjusted efficiency ratio, may be considered to include financial information that is not in compliance with GAAP. A reconciliation from 75.3% for the nine months ended September 30, 2016GAAP to 65.0% for the nine months ended September 30, 2017.non-GAAP is provided below.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
(In thousands) | ||||||||||||||||
Loans (no tax adjustment) | $ | 18,500 | $ | 18,321 | $ | 36,447 | $ | 37,441 | ||||||||
Tax-equivalent adjustment (1) | 124 | 104 | 244 | 207 | ||||||||||||
Loans (tax-equivalent basis) | $ | 18,624 | $ | 18,425 | $ | 36,691 | $ | 37,648 | ||||||||
Securities (no tax adjustment) | $ | 2,068 | $ | 1,277 | $ | 4,018 | $ | 2,131 | ||||||||
Tax-equivalent adjustment (1) | — | 1 | — | — | ||||||||||||
Securities (tax-equivalent basis) | $ | 2,068 | $ | 1,278 | $ | 4,018 | $ | 2,131 | ||||||||
Net interest income (no tax adjustment) | $ | 19,392 | $ | 17,804 | $ | 38,090 | $ | 35,830 | ||||||||
Tax-equivalent adjustment (1) | 124 | 105 | 244 | 207 | ||||||||||||
Net interest income (tax-equivalent basis) | $ | 19,516 | $ | 17,909 | $ | 38,334 | $ | 36,037 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
(In thousands) | ||||||||||||||||
Loans (no tax adjustment) | 3.81 | % | 3.84 | % | 3.82 | % | 3.94 | % | ||||||||
Loans (tax-equivalent basis) | 3.83 | % | 3.87 | % | 3.85 | % | 3.96 | % | ||||||||
Securities (no tax adjustment) | 2.00 | % | 1.74 | % | 1.94 | % | 1.65 | % | ||||||||
Securities (tax-equivalent basis) | 2.00 | % | 1.74 | % | 1.94 | % | 1.65 | % | ||||||||
Interest rate spread (no tax adjustment) | 3.15 | % | 2.92 | % | 3.12 | % | 3.00 | % | ||||||||
Net interest margin (no tax adjustment) | 3.24 | % | 3.06 | % | 3.21 | % | 3.15 | % | ||||||||
Net interest margin (tax-equivalent) | 3.26 | % | 3.08 | % | 3.23 | % | 3.17 | % | ||||||||
Net interest income (no tax adjustment) | $ | 19,392 | $ | 17,804 | $ | 38,090 | $ | 35,830 | ||||||||
Less: | ||||||||||||||||
Purchase accounting adjustments | 64 | (33 | ) | 103 | (78 | ) | ||||||||||
Prepayment penalties and fees | 26 | 117 | 48 | 152 | ||||||||||||
PPP fee income | 129 | 1,627 | 691 | 4,038 | ||||||||||||
Adjusted net interest income (non-GAAP) | $ | 19,173 | $ | 16,093 | $ | 37,248 | $ | 31,718 | ||||||||
Average interest-earning assets | $ | 2,398,526 | $ | 2,330,311 | $ | 2,392,264 | $ | 2,293,099 | ||||||||
Average interest-earnings asset, excluding average PPP loans | $ | 2,395,463 | $ | 2,174,716 | $ | 2,383,226 | $ | 2,132,050 | ||||||||
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income, prepayment penalties and average PPP loans (non-GAAP) | 3.21 | % | 2.97 | % | 3.16 | % | 2.99 | % | ||||||||
Book Value per Share (GAAP) | $ | 9.58 | $ | 9.29 | $ | 9.58 | $ | 9.29 | ||||||||
Non-GAAP adjustments: | ||||||||||||||||
Goodwill | (0.55 | ) | (0.52 | ) | (0.55 | ) | (0.52 | ) | ||||||||
Core deposit intangible | (0.11 | ) | (0.11 | ) | (0.11 | ) | (0.11 | ) | ||||||||
Tangible Book Value per Share (non-GAAP) | $ | 8.92 | $ | 8.66 | $ | 8.92 | $ | 8.66 | ||||||||
Income Before Income Taxes (GAAP) | $ | 7,400 | $ | 7,739 | $ | 14,415 | $ | 15,367 | ||||||||
Provision (credit) for loan losses | 300 | (1,200 | ) | (125 | ) | (1,125 | ) | |||||||||
Income Before Taxes and Provision (non-GAAP) | $ | 7,700 | $ | 6,539 | $ | 14,290 | $ | 14,242 | ||||||||
Non-interest Expense (GAAP) | $ | 14,433 | $ | 13,674 | $ | 28,889 | $ | 27,001 | ||||||||
Non-GAAP adjustments: | ||||||||||||||||
Loss on prepayment of borrowings | — | (45 | ) | — | (45 | ) | ||||||||||
Non-interest Expense for Efficiency Ratio (non-GAAP) | $ | 14,433 | $ | 13,629 | $ | 28,889 | $ | 26,956 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
(In thousands) | ||||||||||||||||
Net Interest Income (GAAP) | $ | 19,392 | $ | 17,804 | $ | 38,090 | $ | 35,830 | ||||||||
Non-interest Income (GAAP) | $ | 2,741 | $ | 2,409 | $ | 5,089 | $ | 5,413 | ||||||||
Non-GAAP adjustments: | ||||||||||||||||
Loss on securities, net | — | 12 | 4 | 74 | ||||||||||||
Unrealized loss (gain) on marketable equity securities | 225 | (6 | ) | 501 | 83 | |||||||||||
Loss on interest rate swap termination | — | 402 | — | 402 | ||||||||||||
Gain on non-marketable equity investments | (141 | ) | — | (141 | ) | (546 | ) | |||||||||
Non-interest Income for Adjusted Efficiency Ratio (non-GAAP) | $ | 2,825 | $ | 2,817 | $ | 5,453 | $ | 5,426 | ||||||||
Total Revenue for Adjusted Efficiency Ratio (non-GAAP) | $ | 22,217 | $ | 20,621 | $ | 43,543 | $ | 41,256 | ||||||||
Efficiency Ratio (GAAP) | 65.21 | % | 67.65 | % | 66.91 | % | 65.47 | % | ||||||||
Adjusted Efficiency Ratio (Non-interest Expense (GAAP)/Total Revenue for Adjusted Efficiency Ratio (non-GAAP)) | 64.96 | % | 66.09 | % | 66.35 | % | 65.34 | % |
Income Taxes
(1) | The tax equivalent adjustment is based upon a 21% tax rate. |
For the nine months ended September 30, 2017, we had a tax provision of $3.6 million as compared to $1.5 million for the same period in 2016. The effective tax rate was 22.1% for the nine months ended September 30, 2017Liquidity and 33.4% for the same period in 2016. The 2017 period includes $1.8 million in tax benefits recorded on the reversal of a deferred tax valuation allowance and stock option exercises.
LIQUIDITY AND CAPITAL RESOURCESCapital 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 FHLBBFHLB based on eligible collateral of loans and securities. Our maximum additionalmaterial cash commitments include funding loan originations, fulfilling contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and satisfying repayment of our long-term debt obligations.
Primary Sources of Liquidity
At June 30, 2022 and December 31, 2021, outstanding borrowings from the FHLB were $1.4 million and $2.7 million, respectively. At June 30, 2022, we had $473.2 million in available borrowing capacity fromwith 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 interestother correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank.
Liquidity management is both a daily and long-term function of business management. The measure of a company’s liquidity is its ability to meet its cash commitments 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 SeptemberJune 30, 2017, we exceeded each of the applicable regulatory capital requirements. As of September 30, 2017, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” 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 of September 30, 20172022 and December 31, 20162021, we did not have an outstanding balance under either of these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are also presented in the following table.agreements that allow us to borrow money using our securities as collateral.
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 | ||||||||||||||||||
We also have outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.
Maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.
The following table summarizesCompany’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. During the six months ended June 30, 2022 and 2021, we originated $207.2 million and $236.5 million in loans, respectively. We purchased securities totaling $24.8 million for the six months ended June 30, 2022 and $174.0 million for the six months ended June 30, 2021. At June 30, 2022, the Company had approximately $179.2 million in loan commitments and letters of credit to borrowers and approximately $323.3 million in available home equity and other unadvanced lines of credit.
Deposit in flows and out flows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At June 30, 2022, time deposit accounts scheduled to mature within one year totaled $296.0 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.
Material Cash Commitments
The Company entered into a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of June 30, 2022 were estimated to be $12.0 million, with $4.5 million expected to be paid within one year and credit commitments at Septemberthe remaining $7.5 million to be paid within the next five years. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to seventeen years, some of which include options to extend the leases for additional five-year terms up to fifteen years. Lease liabilities totaled $9.7 million as of June 30, 2017:2022. Principal payments expected to be made on our lease liabilities during the twelve months ended June 30, 2023 are $1.3 million. The remaining lease liability payments totaled $8.4 million and are expected to be made after June 30, 2023.
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 |
OFF-BALANCE SHEET ARRANGEMENTSIn addition, the Company completed an offering of $20 million in aggregate principal amount of its Notes to certain qualified institutional buyers in a private placement transaction on April 20, 2021. For more information on the Notes, refer to the information contained in Note 9 “Subordinated Debt” of the unaudited consolidated financial statements included above.
We do not anticipate any material capital expenditures during the rest of 2022, except in pursuance of the Company’s strategic initiatives. The Company does not have any balloon or other payments due on any long-term obligations or any off-balance sheet items other than the commitments and unused lines of credit noted above.
At June 30, 2022, we exceeded each of the applicable regulatory capital requirements. As of June 30, 2022, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” 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.
Actual | Minimum For Capital Adequacy Purpose | Minimum To Be Well Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
June 30, 2022 | ||||||||||||||||||||||||
Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
Consolidated | $ | 267,084 | 13.69 | % | $ | 156,026 | 8.00 | % | N/A | N/A | ||||||||||||||
Bank | 252,707 | 12.98 | 155,750 | 8.00 | $ | 194,687 | 10.00 | % | ||||||||||||||||
Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
Consolidated | 227,871 | 11.68 | 117,019 | 6.00 | N/A | N/A | ||||||||||||||||||
Bank | 233,147 | 11.98 | 116,812 | 6.00 | 155,750 | 8.00 | ||||||||||||||||||
Common Equity Tier 1 Capital (to Risk Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 227,871 | 11.68 | 87,764 | 4.50 | N/A | N/A | ||||||||||||||||||
Bank | 233,147 | 11.98 | 87,609 | 4.50 | 126,547 | 6.50 | ||||||||||||||||||
Tier 1 Leverage Ratio (to Adjusted Average Assets): | ||||||||||||||||||||||||
Consolidated | 227,871 | 8.91 | 102,350 | 4.00 | N/A | N/A | ||||||||||||||||||
Bank | 233,147 | 9.13 | 102,182 | 4.00 | 127,728 | 5.00 | ||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||
Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
Consolidated | $ | 261,093 | 14.27 | % | $ | 146,347 | 8.00 | % | N/A | N/A | ||||||||||||||
Bank | 243,788 | 13.35 | 146,135 | 8.00 | $ | 182,669 | 10.00 | |||||||||||||||||
Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
Consolidated | 221,673 | 12.12 | 109,761 | 6.00 | N/A | N/A | ||||||||||||||||||
Bank | 224,001 | 12.26 | 109,601 | 6.00 | 146,135 | 8.00 | ||||||||||||||||||
Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
Consolidated | 221,673 | 12.12 | 82,320 | 4.50 | N/A | N/A | ||||||||||||||||||
Bank | 224,001 | 12.26 | 82,201 | 4.50 | 118,735 | 6.50 | ||||||||||||||||||
Tier 1 Leverage Ratio (to Adjusted Average Assets): | ||||||||||||||||||||||||
Consolidated | 221,673 | 8.75 | 101,320 | 4.00 | N/A | N/A | ||||||||||||||||||
Bank | 224,001 | 8.86 | 101,101 | 4.00 | 126,377 | 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 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.
OFF-BALANCE SHEET ARRANGEMENTS.
The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, 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 itsour presentation in our 20162021 Annual Report. Please refer to Item 7A of the 20162021 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.
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 20162021 Annual Report. There are no material changes in the risk factors relevant to our operations.operations since December 31, 2021.
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 SeptemberJune 30, 2017.2022.
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 2021 Plan (1) | |||||||||||||
April 1 - 30, 2022 | 110,052 | 8.85 | 110,052 | 454,593 | |||||||||||||
May 1 - 31, 2022 | 121,340 | 8.40 | 121,340 | 333,253 | |||||||||||||
June 1 - 30, 2022 | 61,781 | 8.38 | 61,781 | 271,472 | |||||||||||||
Total | 293,173 | 8.56 | 293,173 | 271,472 |
(1) | On |
There were no sales by us of unregistered securities during the three months ended SeptemberJune 30, 2017.2022.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURE. |
Not applicable.
None.
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.
48
ITEM 5. | OTHER INFORMATION. |
EXHIBIT INDEXNone.
ITEM 6. | EXHIBITS. |
Exhibit Number | Exhibit Description | |
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 | |
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. |
49
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 August 5, 2022.
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 |