10-Q 1 wneb-10q_033124.htm QUARTERLY REPORT
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

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: 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)   (IRS Employer Identification Number)

 

141 Elm Street, Westfield, Massachusetts   01086
(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 ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such 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.

 

Large accelerated filer ☐ 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.  ☐

 

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

 

At May 1, 2024 the registrant had 21,627,690 shares of common stock, $0.01 par value, issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
FORWARD-LOOKING STATEMENTS i
     
PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements of Western New England Bancorp, Inc. and Subsidiaries (Unaudited)  
     
  Consolidated Balance Sheets – March 31, 2024 and December 31, 2023 1
     
  Consolidated Statements of Net Income – Three Months Ended March 31, 2024 and 2023 2
     
  Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended March 31, 2024 and 2023 3
     
  Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2024 and 2023 4
     
  Consolidated Statements of Cash Flows – Three Months Ended March 31, 2024 and 2023 5
     
  Notes to Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 48
     
Item 4. Controls and Procedures 49
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 49
     
Item 1A. Risk Factors 49
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
     
Item 3. Defaults upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 50

 

 

 

FORWARD–LOOKING STATEMENTS

 

 

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 with respect to the Company’s financial condition, liquidity, results of operations, future performance, and business. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

 

unpredictable changes in general economic conditions, financial markets, fiscal, monetary and regulatory policies, including actual or potential stress in the banking industry;
the duration and scope of potential pandemics, including the emergence of new variants and the response thereto;
unstable political and economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits;
inflation and governmental responses to inflation, including recent and potential future increases in interest rates 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, Basel guidelines, capital requirements and other applicable laws and regulations;
significant changes in accounting, tax or regulatory practices or requirements;
new legal obligations or liabilities or unfavorable resolutions of litigation;
disruptive technologies in payment systems and other services traditionally provided by banks;
the highly competitive industry and market area in which we operate;
changes in business conditions and inflation;
operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud risks;
failure or circumvention of our internal controls or procedures;
changes in the securities markets which affect investment management revenues;
increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments;
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;
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 risk factors detailed from time to time in our SEC filings.

 

Investors should consider these risks, uncertainties, and other factors in addition to the factors under the heading “Risk Factors” included in this filing and our other filings with the SEC.

 

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, except to the extent required by law.

 

i

 

PART I – FINANCIAL INFORMATION

 

ITEM 1: FINANCIAL STATEMENTS.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands, except per share data)

 

   March 31,   December 31, 
   2024   2023 
ASSETS          
Cash and due from banks  $19,244   $20,784 
Federal funds sold   709    2,991 
Interest-bearing deposits and other short-term investments   2,660    5,065 
Cash and cash equivalents   22,613    28,840 
           
Available-for-sale securities, at fair value   138,362    137,115 
Held-to-maturity securities, at amortized cost (Fair value of $181,679 at March 31, 2024 and $187,692 at December 31, 2023)   221,242    223,370 
Marketable equity securities, at fair value   222    196 
Federal Home Loan Bank stock and other restricted stock, at cost   3,105    3,707 
Loans, net of allowance for credit losses of $19,884 at March 31, 2024 and $20,267 at December 31, 2023   2,005,682    2,007,050 
Premises and equipment, net   24,968    25,575 
Accrued interest receivable   8,622    8,528 
Bank-owned life insurance   75,598    75,145 
Deferred tax asset, net   14,278    13,636 
Goodwill   12,487    12,487 
Core deposit intangible   1,719    1,813 
Other assets   28,338    27,109 
TOTAL ASSETS  $2,557,236   $2,564,571 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
LIABILITIES:          
Deposits:          
Non-interest-bearing  $559,928   $579,594 
Interest-bearing   1,583,819    1,564,150 
Total deposits   2,143,747    2,143,744 
           
Short-term borrowings   11,470    16,100 
Long-term debt   120,646    120,646 
Subordinated debt   19,722    19,712 
Other liabilities   25,855    26,960 
 TOTAL LIABILITIES   2,321,440    2,327,162 
           
SHAREHOLDERS’ EQUITY:          
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at March 31, 2024 and December 31, 2023        
Common stock - $0.01 par value, 75,000,000 shares authorized, 21,627,690 shares issued and outstanding at March 31, 2024; 21,666,807 shares issued and outstanding at December 31, 2023   216    217 
Additional paid-in capital   125,213    125,448 
Unearned compensation – ESOP   (2,272)   (2,394)
Unearned compensation - Equity Incentive Plan   (2,174)   (1,111)
Retained earnings   138,450    136,993 
Accumulated other comprehensive loss   (23,637)   (21,744)
TOTAL SHAREHOLDERS’ EQUITY   235,796    237,409 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $2,557,236   $2,564,571 

 

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 
   Ended March 31, 
   2024   2023 
Interest and dividend income:          
Residential and commercial real estate loans  $20,953   $18,252 
Commercial and industrial loans   3,205    3,002 
Consumer loans   83    75 
Debt securities, taxable   2,112    2,076 
Debt securities, tax-exempt   1    2 
Marketable equity securities   1    71 
Other investments   136    106 
Short-term investments   113    54 
Total interest and dividend income   26,604    23,638 
           
Interest expense:          
Deposits   9,293    4,103 
Short-term borrowings   283    703 
Long-term debt   1,428    74 
Subordinated debt   254    254 
Total interest expense   11,258    5,134 
Net interest and dividend income   15,346    18,504 
           
Reversal of credit losses   (550)   (388)
Net interest and dividend income after reversal of credit losses   15,896    18,892 
           
Non-interest income:          
Service charges and fees   2,219    2,187 
Income from bank-owned life insurance   453    440 
Loss on disposal of premises and equipment   (6)    
Net unrealized gain on marketable equity securities   8     
Gain on non-marketable equity investments       352 
Total non-interest income   2,674    2,979 
           
Non-interest expense:          
Salaries and employee benefits   8,244    8,431 
Occupancy   1,363    1,348 
Furniture and equipment   484    486 
Data processing   862    753 
Software   699    514 
Net ATM network   552    490 
Professional fees   569    757 
FDIC insurance assessment   410    352 
Advertising   349    417 
Other expenses   1,250    1,348 
Total non-interest expense   14,782    14,896 
Income before income taxes   3,788    6,975 
Income tax provision   827    1,671 
Net income   $2,961   $5,304 
           
Earnings per common share:          
Basic earnings per share  $0.14   $0.24 
Weighted average shares outstanding   21,180,968    21,699,042 
Diluted earnings per share  $0.14   $0.24 
Weighted average diluted shares outstanding   21,271,323    21,716,869 
Dividends per share  $0.07   $0.07 

 

See accompanying notes to unaudited consolidated financial statements.

 

2

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) – UNAUDITED 

(Dollars in thousands)

 

             
   Three Months Ended March 31, 
   2024   2023 
         
Net income  $2,961   $5,304 
           
Other comprehensive income (loss):          
Unrealized gain (loss) on available-for-sale securities:          
Unrealized holding (loss) gain   (2,536)   2,616 
Net amount   (2,536)   2,616 
Tax effect   643    (675)
Net-of-tax amount   (1,893)   1,941 
           
Other comprehensive (loss) income   (1,893)   1,941 
           
Comprehensive income  $1,068   $7,245 

 

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 MONTHS ENDED MARCH 31, 2024 AND 2023

(Dollars in thousands, except per 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, 2022   22,216,789   $222   $128,899   $(2,906)  $(1,012)  $127,982   $(25,042)  $228,143 
Cumulative effect accounting adjustment(1)   —                              9          9 
Comprehensive income   —                              5,304    1,941    7,245 
Common stock held by ESOP committed to be released (74,993 shares)   —            52    128                      180 
Share-based compensation - equity incentive plan   —                        529                529 
Forfeited equity incentive plan shares reissued in connection with 2020 LTI performance share grant (19,761 shares)   —            180          (180)                  
Common stock repurchased   (143,896)   (1)   (1,350)                           (1,351)
Issuance of common stock in connection with equity incentive plan   136,454    1    1,348          (1,349)                  
Forfeited equity incentive plan shares reissued in connection with 2023 LTI grant (2,742 shares)   —            27          (27)                  
Cash dividends declared and paid on common stock ($0.07 per share)   —                              (1,533)         (1,533)
BALANCE AT MARCH 31, 2023   22,209,347   $222   $129,156   $(2,778)  $(2,039)  $131,762   $(23,101)  $233,222 
                                         
BALANCE AT DECEMBER 31, 2023   21,666,807   $217   $125,448   $(2,394)  $(1,111)  $136,993   $(21,744)  $237,409 
Comprehensive income   —                              2,961    (1,893)   1,068 
Common stock held by ESOP committed to be released (71,240 shares)   —            30    122                      152 
Share-based compensation - equity incentive plan   —                        505                505 
Forfeited equity incentive plan shares reissued in connection with 2021 LTI performance share grant (4,219 shares)   —            35          (35)                  
Common stock repurchased   (221,947)   (3)   (1,831)                           (1,834)
Issuance of common stock in connection with equity incentive plan   182,830    2    1,531          (1,533)                  
Cash dividends declared and paid on common stock ($0.07 per share)   —                              (1,504)         (1,504)
BALANCE AT MARCH 31, 2024   21,627,690   $216   $125,213   $(2,272)  $(2,174)  $138,450   $(23,637)  $235,796 

 

See accompanying notes to unaudited consolidated financial statements.

 

(1)Represents gross transition adjustment amount of $13,000, net of taxes of $4,000, to reflect the cumulative impact on retained earnings pursuant to the Company’s adoption of Accounting Standards Update (“ASU”) 2016-13 Financial Instruments-Credit Losses on Financial Instruments and relevant amendments.

 

4

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)

 

               
   Three Months Ended March 31, 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $2,961   $5,304 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Reversal of credit losses   (550)   (388)
Depreciation and amortization of premises and equipment   560    562 
Net (accretion) amortization of purchase accounting adjustments   (71)   72 
Amortization of core deposit intangible   94    94 
Net amortization of premiums and discounts on securities and mortgage loans   291    330 
Net amortization of deferred costs on loans   103    106 
Net amortization of premiums on subordinated debt   10    9 
Share-based compensation expense   505    529 
ESOP expense   152    180 
Net change in unrealized gain on marketable equity securities   (8)    
Loss on the disposal of premises and equipment   6     
Income from bank-owned life insurance   (453)   (440)
Net change in:          
Accrued interest receivable   (94)   131 
Other assets   (1,207)   (1,424)
Other liabilities   (1,127)   (11,043)
Net cash provided by (used in) operating activities   1,172    (5,978)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of held-to-maturity securities   (1,100)    
Proceeds from calls, maturities and principal collections of held-to-maturity securities   3,126    3,065 
Purchases of available-for-sale securities and marketable equity securities   (9,362)    
Proceeds from calls, maturities, and principal collections of available-for-sale securities   5,374    2,949 
Loan originations and principal payments, net   1,895    (15,770)
Redemption (purchase) of Federal Home Loan Bank of Boston stock   602    (3,821)
Purchases of premises and equipment   19    2 
Proceeds from disposal of premises and equipment   12     
Net cash provided by (used in) investing activities   566    (13,575)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net increase (decrease) in deposits   3    (72,315)
Net (decrease) increase in short-term borrowings   (4,630)   57,640 
Proceeds from issuance of long-term debt       30,000 
Cash dividends paid on common stock   (1,504)   (1,533)
Common stock repurchased   (1,834)   (1,351)
Net cash (used in) provided by financing activities   (7,965)   12,441 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS:   (6,227)   (7,112)
Beginning of period   28,840    30,342 
End of period  $22,613   $23,230 
           
Supplemental cash flow information:          
Interest paid  $10,153   $4,984 
Taxes paid   627    3,077 

 

See the accompanying notes to unaudited consolidated financial statements.

 

5

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

MARCH 31, 2024

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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

 

The Bank operates 25 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 interest 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-owned Subsidiaries. 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.

 

Principles of Consolidation. The 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 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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses for each. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses and goodwill impairment.

 

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 March 31, 2024, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations for the year ending December 31, 2024. 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.

 

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments, which requires the recognition of the allowance for credit losses be estimated using the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

 

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, 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

 

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

 

 

 6

 

 

2. EARNINGS PER SHARE

 

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated Employee Stock Ownership Plan (“ESOP”) shares are not deemed outstanding for earnings per share calculations. There were no anti-dilutive shares outstanding during the three months ended March 31, 2024 and 2023.

 

Earnings per common share for the three months ended March 31, 2024 and 2023 have been computed based on the following:

 

             
   Three Months Ended 
   March 31, 
   2024   2023 
   (In thousands, except per share data) 
Net income applicable to common stock  $2,961   $5,304 
           
Average number of common shares issued   21,640    22,220 
Less: Average unallocated ESOP Shares   (291)   (367)
Less: Average unvested performance-based equity incentive plan shares   (168)   (154)
           
Average number of common shares outstanding used to calculate basic earnings per common share   21,181    21,699 
           
Effect of dilutive performance-based equity incentive plan shares   90    18 
           
Average number of common shares outstanding used to calculate diluted earnings per common share   21,271    21,717 
Basic earnings per share  $0.14   $0.24 
Diluted earnings per share  $0.14   $0.24 

 

 

3. COMPREHENSIVE INCOME (LOSS)

 

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

 

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

 

   March 31, 2024   December 31, 2023 
   (In thousands) 
Net unrealized losses on available-for-sale securities  $(31,702)  $(29,166)
Tax effect   8,065    7,422 
 Net-of-tax amount   (23,637)   (21,744)
           
Accumulated other comprehensive loss  $(23,637)  $(21,744)

 

 

 7

 

 

4.     INVESTMENT SECURITIES

 

Available-for-sale and held-to-maturity investment securities at March 31, 2024 and December 31, 2023 are summarized as follows:

 

   March 31, 2024 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
   (In thousands) 
Available-for-sale securities:                    
Debt securities:                    
Government-sponsored enterprise obligations  $14,927   $   $(3,095)  $11,832 
State and municipal bonds   135        (1)   134 
Corporate bonds   5,000        (929)   4,071 
Total debt securities   20,062        (4,025)   16,037 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   143,410        (26,321)   117,089 
 U.S. government guaranteed mortgage-backed securities   6,592        (1,356)   5,236 
Total mortgage-backed securities   150,002        (27,677)   122,325 
                     
Total available-for-sale   170,064        (31,702)   138,362 
                     
Held-to-maturity securities:                    
Debt securities:                    
U.S. Treasury securities   9,997        (534)   9,463 
U.S. government guaranteed obligations   1,100    3        1,103 
Total debt securities   11,097    3    (534)   10,566 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   210,145    36    (39,068)   171,113 
Total mortgage-backed securities   210,145    36    (39,068)   171,113 
                     
 Total held-to-maturity   221,242    39    (39,602)   181,679 

Total

  $391,306   $39   $(71,304)  $320,041 

 

 8

 

 

   December 31, 2023 
   Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
   (In thousands) 
Available-for-sale securities:                    
Debt securities:                    
Government-sponsored enterprise obligations  $14,924   $   $(2,898)  $12,026 
State and municipal bonds   135            135 
Corporate bonds   8,000        (1,038)   6,962 
Total debt securities   23,059        (3,936)   19,123 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   136,533        (23,976)   112,557 
 U.S. government guaranteed mortgage-backed securities   6,689        (1,254)   5,435 
Total mortgage-backed securities   143,222        (25,230)   117,992 
                     
Total available-for-sale   166,281        (29,166)   137,115 
                     

Held-to-maturity securities:

                    
Debt securities:                    
U.S. Treasury securities   9,995        (545)   9,450 
Total debt securities   9,995        (545)   9,450 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   213,375    107    (35,240)   178,242 
Total mortgage-backed securities   213,375    107    (35,240)   178,242 
                     
 Total held-to-maturity   223,370    107    (35,785)   187,692 

Total

  $389,651   $107   $(64,951)  $324,807 

 

The following table presents the unrealized gains recognized on marketable equity securities for the periods indicated:

 

             
  

Three Months Ended

March 31

 
   2024   2023 
   (In thousands) 
Net gains recognized during the period on marketable equity securities  $8   $ 
Net losses recognized during the period on equity securities sold during the period        
Unrealized gains recognized during the period on marketable equity securities still held at end of period  $8   $ 

 

 

At March 31, 2024, U.S. Treasury securities with a fair value of $9.5 million, government-sponsored enterprise obligations with a fair value of $7.8 million and mortgage-backed securities with a fair value of $169.4 million were pledged to secure public deposits, the Bank Term Funding Program (“BTFP”) 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.

 

 9

 

 

The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2024, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations.

 

   Available-for-Sale   Held-to-Maturity 
   Amortized Cost   Fair Value   Amortized Cost   Fair Value 
   (In thousands) 
Debt securities:                    
Due in one year or less  $135   $134   $4,994   $4,864 
Due after one year through five years           5,003    4,599 
Due after five years through ten years   19,927    15,903         
Due after ten years           1,100    1,103 
Total debt securities  $20,062   $16,037   $11,097   $10,566 

 

Mortgage-backed securities:                
Due after one year through five years  $962   $916   $   $ 
Due after five years through ten years   844    767         
Due after ten years   148,196    120,642    210,145    171,113 
 Total mortgage-backed securities   150,002    122,325    210,145    171,113 
Total securities  $170,064   $138,362   $221,242   $181,679 

 

There were no sales of available-for-sale securities for the three months ended March 31, 2024 and 2023.

 

Allowance for Credit Losses – Available-for-Sale Securities

 

The Company measures expected credit losses on available-for-sale debt securities based upon the gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell the security before recovery of the Company’s amortized cost, the Company evaluates qualitative criteria to determine any expected loss. This includes among other items the financial health of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows of the security. Available-for-sale securities which are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. 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. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Accrued interest receivable on available-for-sale securities guaranteed by government agencies totaled $360,000 at March 31, 2024 and $333,000 at December 31, 2023, and is excluded from the estimate of credit losses. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses would be recorded, with a related charge to earnings, limited by the amount of the fair value of the security less its amortized cost. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company recognizes the entire difference between the amortized cost basis of the security and its fair value in earnings. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Accrued interest receivable on available-for-sale debt securities not guaranteed by government agencies totaled $51,000 at March 31, 2024 and $178,000 at December 31, 2023, and is excluded from the estimate of credit losses. There were no allowance for credit losses established on available-for-sale debt securities during the three months ended March 31, 2024.

 

 10

 

 

Allowance for Credit Losses – Held-to-Maturity Securities

 

The Company measures expected credit losses on held-to-maturity debt securities on a collective basis by security type and risk rating where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full to investors when a debt security reaches maturity. 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; FHLMC, FNMA, FFCB, or 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. The Company will evaluate this position no less than annually, however, certain items which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s implicit guarantee on such securities. Any expected credit losses on held-to-maturity securities would be presented as an allowance for credit loss. Accrued interest receivable on held-to-maturity securities totaled $482,000 at March 31, 2024 and $454,000 at December 31, 2023, and is excluded from the estimate of credit losses. There were no allowance for credit losses established on held-to-maturity securities during the three months ended March 31, 2024.

 

At March 31, 2024 and December 31, 2023, management attributed the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. There was no credit loss during the three months ended March 31, 2024 and March 31, 2023, respectively. At March 31, 2024, there was one available-for-sale corporate bond that was rated below investment grade by one or more ratings agencies, while at December 31, 2023, there were two available-for-sale corporate bonds that were rated below investment grade by one or more ratings agencies. At March 31, 2024, the Company reviewed the financial strength of the one available-for-sale corporate bond below investment grade and concluded that the amortized cost remains supported by the expected future cash flows of the security.

 

Information pertaining to investment securities with gross unrealized losses as of March 31, 2024 and December 31, 2023 for which the Company did not recognize a provision for credit losses under CECL, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

   March 31, 2024 
   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   2   $9,295   $13    0.1%   70   $107,794   $26,308    19.6%
U.S. government guaranteed mortgage-backed securities                   9    5,236    1,356    20.6 
Government-sponsored enterprise obligations                   3    11,832    3,095    20.7 
Corporate bonds                   2    4,071    929    18.6 
State and municipal bonds   1    134    1    0.7                 
Total available-for-sale   3    9,429    14         84    128,933    31,688      
                                         
Held-to-maturity:                                        
U.S. Treasury securities               %   2    9,463    534    5.3%
Government-sponsored mortgage-backed securities   3    5,711    80    1.4    37    159,059    38,988    19.7 
Total held-to-maturity   3    5,711    80         39    168,522    39,522      
                                         
Total   6   $15,140   $94         123   $297,455   $71,210      

 

 11

 

 

   December 31, 2023 
   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      $   $    %   70   $112,557   $23,976    17.6%
U.S. government guaranteed mortgage-backed securities                   9    5,435    1,254    18.7 
Government-sponsored enterprise obligations                   3    12,026    2,898    19.4 
Corporate bonds                   3    6,962    1,038    13.0 
Total available-for-sale                    85    136,980    29,166      
                                         
Held-to-maturity:                                        
U.S. Treasury securities               %   2    9,450    545    5.5%
Government-sponsored mortgage-backed securities   4    7,097    56    0.8    36    164,395    35,184    17.6 
Total held-to-maturity   4    7,097    56         38    173,845    35,729      
                                         
Total   4   $7,097   $56         123   $310,825   $64,895      

 

5.        LOANS AND ALLOWANCE FOR CREDIT LOSSES

 

Major classifications of loans at the periods indicated were as follows:

 

   March 31,   December 31, 
   2024   2023 
   (In thousands) 
Commercial real estate  $1,083,910   $1,079,751 
Residential real estate:          
Residential one-to-four family   615,277    612,315 
Home equity   111,488    109,839 
 Total residential real estate   726,765    722,154 
           
Commercial and industrial   207,307    217,447 
           
Consumer   4,998    5,472 
 Total gross loans   2,022,980    2,024,824 
Unearned premiums and deferred loan fees and costs, net   2,586    2,493 
Total loans, net   2,025,566    2,027,317 
Allowance for credit losses   (19,884)   (20,267)
Net loans  $2,005,682   $2,007,050 

 

Loans Serviced for Others.

 

The Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in our accompanying consolidated balance sheets. We continue to service the loans on behalf of the participating lenders. We share with participating lenders, on a pro-rata basis, any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. At March 31, 2024 and December 31, 2023, the Company was servicing commercial loans participated out to various other institutions totaling $59.1 million and $65.0 million, respectively.

 

Residential real estate mortgages are originated by the Company both for its portfolio and for sale into the secondary market. The Company may sell its loans to institutional investors such as the FHLMC. Under loan sale and servicing agreements with the investor, the Company generally continues to service the residential real estate mortgages. The Company pays the investor an agreed upon rate on the loan, which is less than the interest rate received from the borrower. The Company retains the difference as a fee for servicing the residential real estate mortgages. The Company 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 March 31, 2024, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (104 PSA), weighted average internal rate of return (10.01%), weighted average servicing fee (0.25%), and average cost to service loans ($83.38 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. There were no sales of residential real estate mortgages to the secondary market during the three months ended March 31, 2024.

 

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At March 31, 2024 and December 31, 2023, the Company was servicing residential mortgage loans owned by investors totaling $71.4 million and $72.3 million, respectively. Servicing fee income of $44,000 and $50,000 was recorded for the three months ended March 31, 2024 and 2023, respectively, and is included in service charges and fees on the consolidated statements of net income.

 

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

 

         
   Three Months Ended March 31, 
   2024   2023 
   (In thousands) 
Balance at the beginning of year:  $422   $550 
Capitalized mortgage servicing rights        
Amortization   (22)   (35)
Balance at the end of period  $400   $515 
Fair value at the end of period  $707   $779 

 

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 there are concerns regarding the collectability of the loan. 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.

 

Allowance for Credit Losses.

 

The allowance for credit losses is an estimate of expected losses inherent within the Company’s existing loans held for investment portfolio. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued interest receivable on loans held for investment was $7.6 million at March 31, 2024 and $7.5 million at December 31, 2023 and is excluded from the estimate of credit losses.

 

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

 

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Commercial real estate loans. Loans in this segment include commercial real estate, multi-family dwellings, owner-occupied commercial real estate and income producing investment properties, as well as commercial construction 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.

 

Residential real estate loans. 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. We do not grant subprime loans. Home equity loans and lines are secured by first or second mortgages on one-to-four family owner-