10-Q 1 wneb-10q_093023.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 September 30, 2023

 

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 October 31, 2023 the registrant had 21,712,815 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 – September 30, 2023 and December 31, 2022 1
     
Consolidated Statements of Net Income – Three and Nine Months Ended September 30, 2023 and 2022 2
     
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and 2022 3
     
  Consolidated Statements of Changes in Shareholders’ Equity – Three and Nine Months Ended September 30, 2023 and 2022 4
     
  Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022 6
     
  Notes to Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 54
     
Item 4. Controls and Procedures 54
     
PART II – OTHER INFORMATION  
   
Item 1. Legal Proceedings 54
     
Item 1A. Risk Factors 54
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
     
Item 3. Defaults upon Senior Securities 55
     
Item 4. Mine Safety Disclosures 55
     
Item 5. Other Information 55
     
Item 6. Exhibits 55

 

 

 

 

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;

changes in 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 share data)

 

   September 30,   December 31, 
   2023   2022 
ASSETS          
Cash and due from banks  $21,756   $25,577 
Federal funds sold   9,056    1,652 
Interest-bearing deposits and other short-term investments   31,455    3,113 
Cash and cash equivalents   62,267    30,342 
           
Available-for-sale securities, at fair value   130,709    146,997 
Held-to-maturity securities, at amortized cost (Fair value of $176,861 and $190,950 at September 30, 2023 and December 31, 2022, respectively)   225,020    230,168 
Marketable equity securities, at fair value       6,237 
Federal Home Loan Bank of Boston stock and other restricted stock, at cost   3,063    3,352 
Loans, net of allowance for credit losses of $19,978 at September 30, 2023 and $19,931 at December 31, 2022   1,994,842    1,971,469 
Premises and equipment, net   24,766    24,953 
Accrued interest receivable   8,281    8,140 
Bank-owned life insurance   74,713    74,620 
Deferred tax asset, net   16,206    15,027 
Goodwill   12,487    12,487 
Core deposit intangible   1,906    2,188 
Other assets   30,745    27,170 
TOTAL ASSETS  $2,585,005   $2,553,150 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
LIABILITIES:          
Deposits:          
Non-interest-bearing  $593,602   $645,529 
Interest-bearing   1,582,701    1,583,914 
Total deposits   2,176,303    2,229,443 
           
Short-term borrowings   8,890    41,350 
Long-term debt   121,178    1,178 
Subordinated debt   19,702    19,673 
Securities pending settlement   2,253    133 
Other liabilities   25,765    33,230 
 TOTAL LIABILITIES   2,354,091    2,325,007 
           
SHAREHOLDERS' EQUITY:          
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at June 30, 2023 and December 31, 2022        
Common stock - $0.01 par value, 75,000,000 shares authorized, 21,927,242 shares issued and outstanding at September 30, 2023; 22,216,789 shares issued and outstanding at December 31, 2022   219    222 
Additional paid-in capital   127,376    128,899 
Unearned compensation – Employee Stock Ownership Plan   (2,522)   (2,906)
Unearned compensation - Equity Incentive Plan   (1,439)   (1,012)
Retained earnings   135,966    127,982 
Accumulated other comprehensive loss   (28,686)   (25,042)
TOTAL SHAREHOLDERS’ EQUITY   230,914    228,143 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $2,585,005   $2,553,150 

 

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, 
   2023   2022   2023   2022 
Interest and dividend income:                    
Residential and commercial real estate loans  $20,084   $16,942   $57,439   $48,388 
Commercial and industrial loans   3,279    2,535    9,545    7,413 
Consumer loans   88    66    246    189 
Debt securities, taxable   2,031    2,039    6,151    5,992 
Debt securities, tax-exempt   2    3    6    9 
Marketable equity securities       62    119    121 
Other investments   166    47    418    102 
Short-term investments   251    60    424    129 
Total interest and dividend income   25,901    21,754    74,348    62,343 
                     
Interest expense:                    
Deposits   7,704    1,164    17,876    3,146 
Short-term borrowings   117    48    1,466    58 
Long-term debt   1,444        2,513     
Subordinated debt   253    254    760    761 
Total interest expense   9,518    1,466    22,615    3,965 
Net interest and dividend income   16,383    20,288    51,733    58,378 
                     
Provision for credit losses   354    675    386    550 
Net interest and dividend income after provision for credit losses   16,029    19,613    51,347    57,828 
                     
Non-interest income:                    
Service charges and fees   2,145    2,223    6,573    6,743 
Income from bank-owned life insurance   454    391    1,388    1,297 
Loss on available-for-sale securities, net               (4)
Net unrealized loss on marketable equity securities       (235)       (736)
Loss on disposal of premises and equipment   (3)       (3)    
Gain on sale of mortgages               2 
Gain on non-marketable equity investments   238    211    590    352 
Loss on defined benefit plan termination           (1,143)    
Gain on bank-owned life insurance death benefit   778        778     
Other income               25 
Total non-interest income   3,612    2,590    8,183    7,679 
                     
Non-interest expense:                    
Salaries and employees benefits   7,955    8,025    24,475    24,500 
Occupancy   1,159    1,226    3,710    3,766 
Furniture and equipment   482    465    1,460    1,547 
Data processing   824    707    2,369    2,161 
Professional fees   643    803    2,203    2,099 
FDIC insurance assessment   341    273    983    793 
Advertising   362    419    1,118    1,230 
Other expenses   2,352    2,425    7,247    7,136 
Total non-interest expense   14,118    14,343    43,565    43,232 
Income before income taxes   5,523    7,860    15,965    22,275 
Income tax provision   1,033    1,861    3,408    5,422 
         Net income   $4,490   $5,999   $12,557   $16,853 
                     
Earnings per common share:                    
Basic earnings per share  $0.21   $0.28   $0.58   $0.77 
Weighted average basic shares outstanding   21,560,940    21,757,027    21,631,067    21,947,989 
Diluted earnings per share  $0.21   $0.28   $0.58   $0.77 
Weighted average diluted shares outstanding   21,680,113    21,810,036    21,681,251    22,001,371 
Dividends per share  $0.07   $0.06   $0.21   $0.18 

 

 See accompanying notes to unaudited consolidated financial statements.

 

2 

 

 

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, 
   2023   2022   2023   2022 
                 
Net income  $4,490   $5,999   $12,557   $16,853 
                     
Other comprehensive income (loss):                    
Unrealized losses on available-for-sale securities:                    
Unrealized holding losses   (7,314)   (9,500)   (6,329)   (29,188)
Reclassification adjustment for net losses realized in income (1)               4 
Unrealized losses    (7,314)   (9,500)   (6,329)   (29,184)
Tax effect   1,852    2,437    1,605    7,471 
Net-of-tax amount   (5,462)   (7,063)   (4,724)   (21,713)
                     
Defined benefit pension plan:                    
Gain arising during the period           358     
Reclassification adjustment:                    
Defined benefit plan termination loss realized in income (2)           1,143     
Amortization of defined benefit plan actuarial loss (3)       158        475 
Unrealized actuarial gain on defined benefit plan       158    1,501    475 
Tax effect       (44)   (421)   (133)
Net-of-tax amount       114    1,080    342 
                     
Other comprehensive loss   (5,462)   (6,949)   (3,644)   (21,371)
                     
Comprehensive income (loss)  $(972)  $(950)  $8,913   $(4,518)

 

             

(1)Realized losses on available-for-sale securities are recognized as a component of non-interest income. The tax effects applicable to net realized losses were $1,000 for the nine months ended September 30, 2022.

 

(2)Realized losses on defined benefit plan termination are recognized as a component of non-interest income in the consolidated statements of net income.  The tax effects associated with the reclassification adjustment were $321,000 for the nine months ended September 30, 2023.

 

(3)Amounts represent the reclassification of defined benefit plan amortization and have been recognized as a component of non-interest expense in the consolidated statements of net income.  Income tax effects associated with the reclassification adjustments were $44,000 for the three months ended September 30, 2022. Income tax effects associated with the reclassification adjustment were $133,000 for the nine months ended September 30, 2022.

 

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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(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, 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 
Comprehensive income (loss)                       2,763    (123)   2,640 
Common stock held by ESOP committed to be released (74,993 shares)           22    128                150 
Share-based compensation - equity incentive plan                   300            300 
Common stock repurchased   (126,944)   (1)   (785)                   (786)
Cash dividends declared and paid on common stock ($0.07 per share)                       (1,528)       (1,528)
BALANCE AT JUNE 30, 2023   22,082,403   $221   $128,393   $(2,650)  $(1,739)  $132,997   $(23,224)  $233,998 
Comprehensive income (loss)                       4,490    (5,462)   (972)
Common stock held by ESOP committed to be released (74,993 shares)           (10)   128                118 
Share-based compensation - equity incentive plan                   300            300 
Common stock repurchased   (155,161)   (2)   (1,007)                   (1,009)
Cash dividends declared and paid on common stock ($0.07 per share)                       (1,521)       (1,521)
BALANCE AT SEPTEMBER 30, 2023   21,927,242   $219   $127,376   $(2,522)  $(1,439)  $135,966   $(28,686)  $230,914 

 

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. Refer to Note 5, “Loans and Allowance for Credit Losses” within the Notes to the Consolidated Financial Statements on Form 10-Q beginning with the quarter ended March 31, 2023.

 

4 

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(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 (78,526 shares)           45    134                179 
Share-based compensation - equity incentive plan                   301            301 
Forfeited equity incentive plan shares (6,651 shares)           (57)       57             
Forfeited equity incentive plan shares reissued (7,289 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 ($0.06 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 (78,526 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 ($0.06 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 
Comprehensive income (loss)                       5,999    (6,949)   (950)
Common stock held by ESOP committed to be released (78,526 shares)           28    134                162 
Share-based compensation - equity incentive plan           (4)       215            211 
Forfeited equity incentive plan shares (17,789 shares)           (156)       156             
Common stock repurchased   (236,302)   (3)   (1,853)                   (1,856)
Issuance of common stock in connection with stock option exercises   16,856        115                    115 
Cash dividends declared and paid on common stock ($0.06 per share)                       (1,312)       (1,312)
BALANCE AT SEPTEMBER 30, 2022   22,246,545   $222   $129,234   $(3,039)  $(1,280)  $120,248   $(33,685)  $211,700 

 

See accompanying notes to unaudited consolidated financial statements.

 

5 

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)

 

         
   Nine Months Ended September 30, 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $12,557   $16,853 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for credit losses   386    550 
Depreciation and amortization of premises and equipment   1,645    1,742 
Amortization (accretion) of purchase accounting adjustments, net   88    (57)
Amortization of core deposit intangible   282    282 
Net amortization of premiums and discounts on securities and mortgage loans   962    1,199 
Net amortization of deferred costs on mortgage loans   367    537 
Net amortization of premiums on subordinated debt   29    30 
Share-based compensation expense   1,129    804 
ESOP expense   448    513 
Principal balance of loans originated for sale       (277)
Principal balance of loans sold       277 
Net change in unrealized loss on marketable equity securities       736 
Net loss on available-for-sale securities       4 
Loss on disposal of premises and equipment   3     
Gain on bank-owned life insurance death benefit   (778)    
Income from bank-owned life insurance   (1,388)   (1,297)
Net change in:          
Accrued interest receivable   (141)   253 
Other assets   (4,293)   (5,196)
Other liabilities   (5,385)   2,911 
Net cash provided by operating activities   5,911    19,864 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of held-to-maturity securities   (3,643)   (28,030)
Proceeds from calls, maturities, and principal collections of held-to-maturity securities   10,692    15,540 
Purchases of available-for-sale securities       (5,000)
Proceeds from redemptions and sales of available-for-sale securities       20 
Proceeds from calls, maturities, and principal collections of available-for-sale securities   9,326    20,514 
Proceeds from redemption and sales of marketable equity securities   6,237     
Loan originations and principal payments, net   (24,190)   (143,593)
Redemption of Federal Home Loan Bank of Boston stock   289    360 
Purchases of premises and equipment   (1,509)   (584)
Proceeds from sale of premises & equipment   18     
Proceeds from payout on bank-owned life insurance   2,079    2,435 
Net cash used in investing activities   (701)   (138,338)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net (decrease) increase in deposits   (53,140)   30,881 
Net change in short-term borrowings   (32,460)   21,500 
Repayment of long-term debt       (1,472)
Proceeds from issuance of long-term debt   120,000     
Cash dividends paid   (4,582)   (3,981)
Common stock repurchased   (3,103)   (5,537)
    Issuance of common stock in connection with stock option exercise       740 
Net cash provided by financing activities   26,715    42,131 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS:   31,925    (76,343)
Beginning of period   30,342    103,456 
End of period  $62,267   $27,113 
           
Supplemental cash flow information:          
Interest paid  $20,671   $3,987 
Taxes paid   3,717    5,568 
Net change in cash due to broker   2,253    9 

 

See the accompanying notes to unaudited consolidated financial statements.

 

6 

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

SEPTEMBER 30, 2023

 

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. An estimate that is particularly susceptible to significant change in the near-term relates to the determination of the allowance for credit 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 September 30, 2023, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations for the year ending December 31, 2023. 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 Accounting Standards Update (“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 (See Notes 4 and 5 to our unaudited consolidated financial statements for further information).

 

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, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

 

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

 

7 

 

 

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 and nine months ended September 30, 2023 and 2022, respectively.

 

Earnings per share for the three and nine months ended September 30, 2023 and 2022 have been computed based on the following:

 

                             
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
   (In thousands, except per share data) 
                 
Net income applicable to common stock  $4,490   $5,999   $12,557   $16,853 
                     
Average number of common shares issued   22,055    22,317    22,140    22,531 
Less: Average unallocated ESOP Shares   (329)   (406)   (347)   (425)
Less: Average unvested performance-based equity incentive plan shares   (166)   (154)   (162)   (158)
                     
Average number of common shares outstanding used to calculate basic earnings per common share   21,561    21,757    21,631    21,948 
                     
Effect of dilutive performance-based equity incentive plan   119    40    50    33 
Effect of dilutive stock options       13        20 
                     
Average number of common shares outstanding used to calculate diluted earnings per common share   21,680    21,810    21,681    22,001 
                     
Basic earnings per share  $0.21   $0.28   $0.58   $0.77 
Diluted earnings per share  $0.21   $0.28   $0.58   $0.77 

 

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).

 

8 

 

 

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

 

   September 30, 2023   December 31, 2022 
   (In thousands) 
         
Net unrealized losses on available-for-sale securities  $(38,488)  $(32,159)
Tax effect   9,802    8,197 
Net-of-tax amount   (28,686)   (23,962)
           
Unrecognized actuarial loss on the defined benefit plan       (1,501)
Tax effect       421 
Net-of-tax amount       (1,080)
           
Accumulated other comprehensive loss  $(28,686)  $(25,042)

 

4.INVESTMENT SECURITIES

 

Available-for-sale and held-to-maturity investment securities at September 30, 2023 and December 31, 2022 are summarized as follows:

 

   September 30, 2023 
   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
   (In thousands) 
Available-for-sale securities:                    
Debt securities:                    
Government-sponsored enterprise obligations  $14,921   $   $(3,758)  $11,163 
State and municipal bonds   135        (2)   133 
Corporate bonds   8,001        (1,160)   6,841 
Total debt securities   23,057        (4,920)   18,137 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   139,358        (31,959)   107,399 
U.S. government guaranteed mortgage-backed securities   6,782        (1,609)   5,173 
Total mortgage-backed securities   146,140        (33,568)   112,572 
                     
Total available-for-sale   169,197        (38,488)   130,709 
                     
Held-to-maturity securities:                    
Debt securities:                    
U.S. Treasury securities   9,993        (757)   9,236 
Total debt securities   9,993        (757)   9,236 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   215,027        (47,402)   167,625 
Total mortgage-backed securities   215,027        (47,402)   167,625 
                     
Total held-to-maturity   225,020        (48,159)   176,861 
                     
 Total  $394,217   $   $(86,647)  $307,570 

 

9 

 

 

   December 31, 2022 
   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Fair Value 
   (In thousands) 
Available-for-sale securities:                    
Debt securities:                    
Government-sponsored enterprise obligations  $14,913   $   $(3,345)  $11,568 
State and municipal bonds   270            270 
Corporate bonds   8,012        (519)   7,493 
Total debt securities   23,195        (3,864)   19,331 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   148,544        (26,826)   121,718 
U.S. government guaranteed mortgage-backed securities   7,417        (1,469)   5,948 
Total mortgage-backed securities   155,961        (28,295)   127,666 
                     
Total available-for-sale   179,156        (32,159)   146,997 
                     
Held-to-maturity securities:                    
Debt securities:                    
U.S. Treasury securities   9,987        (825)   9,162 
Total debt securities   9,987        (825)   9,162 
                     
Mortgage-backed securities:                    
Government-sponsored mortgage-backed securities   220,181    67    (38,460)   181,788 
Total mortgage-backed securities   220,181    67    (38,460)   181,788 
                     
Total held-to-maturity   230,168    67    (39,285)   190,950 
                     
 Total  $409,324   $67   $(71,444)  $337,947 

 

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

 

             
  

Nine Months Ended

September 30

 
   2023   2022 
   (In thousands) 
     
Net losses recognized during the period on marketable equity securities  $   $(736)
Unrealized losses recognized during the period on marketable equity securities still held at end of period  $   $(736)

 

During the second quarter of 2023, the remaining balance of $6.3 million in marketable equity securities was redeemed. As the marketable equity securities portfolio was marked to market through income monthly, the fund liquidation resulted in no gain or loss to the income statement. At September 30, 2023, the Company did not hold any marketable equity investments.

 

At September 30, 2023, U.S. Treasury securities with a fair value of $9.2 million, government-sponsored enterprise obligations with a fair value of $7.3 million and mortgage-backed securities with a fair value of $168.0 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.