See accompanying notes to consolidated financial statements.
See accompanying
notes to consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2021, 2020 AND 2019
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations and Basis of Presentation. Western New England Bancorp, Inc. (“Western New England Bancorp,” “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 and Hampshire counties in western Massachusetts and Hartford and Tolland counties
in northern Connecticut, and its primary sources of revenue are interest income from loans as well as interest income from investment
securities. The Bank’s Huntington, Massachusetts branch opened on February 25, 2020 and its Bloomfield, Connecticut branch
opened on July 6, 2020. In addition, the Bank’s Financial Services Center in West Hartford, Connecticut, opened on July
21, 2020. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending,
Cash Management and a Mortgage Loan Officer. The Bank’s deposits are insured up to the maximum Federal Deposit Insurance
Corporation (“FDIC”) coverage limits.
Wholly-owned
Subsidiaries of the Bank. Elm Street Securities Corporation, WFD Securities, Inc. and CSB Colts, Inc., are Massachusetts chartered
securities corporations, formed for the primary purpose of holding qualified securities. WB Real Estate Holdings, LLC, is a Massachusetts-chartered
limited liability company that holds real property acquired as security for debts previously contracted by the Bank.
Principles
of Consolidation. The consolidated financial statements include the accounts of Western New England Bancorp, the Bank, CSB
Colts, Inc., Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities, Inc. All material intercompany
balances and transactions have been eliminated in consolidation.
Estimates.
The preparation of 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 loan losses.
Reclassifications.
Amounts in the prior year financial statements are reclassified when necessary to conform to the current year presentation.
Significant
Group Concentrations of Credit Risk. Most of the Company’s lending activities are with customers located within the
New England region of the country. The Company does not have any significant concentrations to any one industry or customer.
Cash
and Cash Equivalents. We define cash on hand, cash due from banks, federal funds sold and interest-bearing deposits having
an original maturity of 90 days or less as cash and cash equivalents.
Securities
and Mortgage-Backed Securities. Debt securities, including mortgage-backed securities, which management has the positive intent
and ability to hold until maturity are classified as held to maturity and are carried at amortized cost. Debt securities, including
mortgage-backed securities, which have been identified as assets for which there is not a positive intent to hold to maturity
are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of income taxes, reported
as a separate component of comprehensive income (loss). Marketable equity securities are measured at fair value with changes in
fair value reported on the Company’s consolidated statements of net income as a component of non-interest income, regardless
of whether such gains and losses are realized. We do not acquire securities and mortgage-backed securities for purposes of engaging
in trading activities.
Realized
gains and losses on sales of securities and mortgage-backed securities are computed using the specific identification method and
are included in non-interest income on the trade date. The amortization of premiums and accretion of discounts is determined by
using the level yield method to the maturity date.
Non-marketable
Equity Securities. Investments in equity securities without readily determinable fair values are measured at cost, less any
impairment, with re-measurement to fair value when there are observable price changes. Impairment is evaluated on such securities
based on a qualitative assessment that considers various potential impairment indicators. Upon determining that an impairment
exists, a loss is recognized for the amount by which the carrying value exceeds the fair value of the investment.
Derivatives.
We enter into interest rate swap agreements as part of our interest-rate risk management strategy for certain assets and liabilities
and not for speculative purposes. Based on our intended use for interest rate swaps, these are hedging instruments subject to
hedge accounting provisions. Cash flow hedges are recorded at fair value in other assets or other liabilities within our balance
sheets. Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income (loss)
and subsequently reclassified into earnings when the forecasted transaction affects earnings.
Other-than-Temporary
Impairment of Securities. On a quarterly basis, we review available-for-sale securities with a decline in fair value below
the amortized cost of the investment to determine whether the decline in fair value is temporary or other-than-temporary (“OTTI”).
In estimating OTTI losses for available-for-sale securities, impairment is required to be recognized if (1) we intend to sell
the security; (2) it is “more likely than not” that we will be required to sell the security before recovery of its
amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire
amortized cost basis. For all impaired debt securities that we intend to sell, or more likely than not will be required to sell,
the full amount of the other-than-temporary impairment is recognized through earnings. For all other impaired debt securities,
credit-related other-than-temporary impairment is recognized through earnings, while non-credit related other-than-temporary impairment
is recognized in other comprehensive income/loss, net of applicable taxes.
Fair
Value Hierarchy. We group our assets and liabilities measured at fair value in three levels, based on the markets in which
the assets and liabilities 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 and 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 and 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 and liabilities. 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.
Federal
Home Loan Bank of Boston Stock. The Bank, as a member of the Federal Home Loan Bank (“FHLB”) system, is required
to maintain an investment in capital stock of the FHLB of Boston. Based on the redemption provisions of the FHLB, the stock has
no quoted market value and is carried at cost. At its discretion, the FHLB may declare dividends on the stock. Management reviews
for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. As of December 31, 2021, no impairment
has been recognized.
Loans
Held for Sale. Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or
fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to non-interest income. Gains or losses on sales of mortgage
loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold
on the trade date and reported within non-interest income on the accompanying consolidated statements of net income.
Loans
Receivable. Loans are recorded at the principal amount outstanding, adjusted for charge-offs, the allowance for loan losses,
unearned premiums, discounts 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
collectible. 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 current period interest 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 when subsequent performance
reduces the concern as to the collectability of principal and interest. Loan fees, discounts and premiums on purchased loans,
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 Loan Losses. 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. Beginning in March 2020, the Bank added a new qualitative factor category to the allowance calculation
– “Economic Impact of COVID-19”. The allocation of additional reserves for the COVID-19 qualitative factor during
the year was based upon continued analysis of the loan portfolio that included identifying borrowers sensitive to the shutdown
(i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade) as well as a
general allocation for the negative economic outlook given the record number of unemployment benefits claims during the period.
In addition, on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24, 2016 from Chicopee
Bancorp, Inc. (“Chicopee”). The acquired portfolio was initially recorded at fair value without a related allowance
for loan losses. Due to the ongoing impacts and extended nature of the pandemic, during the year ended December 31, 2020, the
Company determined that it was prudent to provide an allowance for loan losses related to the acquired portfolio. Excluding the
COVID-19 qualitative factor category and the allowance for the acquired loan portfolio, there were no additional changes in our
policies or methodology pertaining to the general component of the allowance for loan losses during the periods presented for
disclosure.
The
qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant
to each loan portfolio segment are as follows:
Commercial
real estate loans. Loans in this segment are primarily income-producing investment properties and owner-occupied commercial
properties throughout New England. The underlying cash flows generated by the properties or operations can be adversely impacted
by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the
credit quality in this segment. Management obtains financial information annually and continually monitors the cash flows of these
loans.
Residential
real estate loans. Loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent
on the credit quality of the individual borrower. We require private mortgage insurance for all loans originated with a loan-to-value
ratio greater than 80% and we do not grant subprime loans. The overall health of the economy, including unemployment rates and
housing prices, will have an effect on the credit quality in this segment. Home equity loans are secured by first or second mortgages
on one-to-four family owner occupied properties.
Commercial
and industrial loans. Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment
is expected from the cash flows of the business. A weakened economy, decreased consumer spending, changes in technology and government
spending are examples of what will have an effect on the credit quality in this segment.
In
addition, as a Preferred Lender with the Small Business Administration (“SBA”), the Company offered Paycheck Protection
Program (“PPP”) loans through the March 27, 2020 $2.2 trillion fiscal stimulus bill known as the Coronavirus Aid,
Relief and Economic Security Act (the “CARES Act”) launched by the U.S. Department of Treasury (“Treasury”)
and the SBA. An eligible business was able to apply for a PPP loan up to the 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.
Consumer
loans. Loans in this segment are both secured and 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 nonperforming or subject to a troubled debt restructuring agreement.
A
loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered
by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal
and interest owed. The extent to which COVID-19 impacts our borrower’s ability to repay and therefore the classification
of a loan as impaired is highly uncertain and cannot be predicted with confidence as it is highly dependent upon the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic
effects of the pandemic and containment measures.
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”). All TDRs
are classified as impaired.
While
we use our best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety
of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the
view of the regulatory authorities toward loan classifications.
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 reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating allocated and general reserves in the portfolio.
Loans
Acquired with Deteriorated Credit Quality. Loans acquired in a transfer, including business combinations, where there is evidence
of credit deterioration since origination and it is probable at the date of acquisition the Company will not collect all contractually
required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired loans. This
guidance provides that the excess of the cash flows initially expected to be collected over the fair value of the loans at the
acquisition date (i.e., the accretable yield) is accreted into interest income over the estimated remaining life of the loans,
provided that the timing and amount of future cash flows is reasonably estimated. The difference between the contractually required
payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. Subsequent
to acquisition, probable decreases in expected cash flows are recognized through a provision for loan losses, resulting in an
increase to the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be
collected, the Company will first reverse any previously established allowance for loan losses and then increase interest income
as a prospective yield adjustment.
Bank-owned
Life Insurance. Bank-owned life insurance policies are reflected on the consolidated balance sheets at cash surrender value.
Changes in the net cash surrender value of the policies, as well as insurance proceeds received in excess of carrying value, are
reflected in non-interest income on the consolidated statements of net income and are not subject to income taxes.
Transfers
and Servicing of Financial Assets. Transfers of financial assets are accounted for as sales, when control over the assets
has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from
us, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) we do not maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity.
Premises
and Equipment. Land is carried at cost. Buildings, furniture and equipment are stated at cost, less accumulated depreciation
and amortization, computed on the straight-line method over the estimated useful lives of the assets, or the expected lease term,
if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.
The estimated useful lives of the assets are as follows:
The estimated useful lives of the assets are as follows:
|
Years |
|
|
Buildings |
39 |
Leasehold
Improvements |
5-20 |
Furniture
and Equipment |
3-7 |
The
cost of maintenance and repairs is charged to expense when incurred. Major expenditures for betterments are capitalized and depreciated.
Other
Real Estate Owned. Other real estate owned (“OREO”) represents property acquired through foreclosure or deeded
to us in lieu of foreclosure. OREO is initially recorded at the estimated fair value of the real estate acquired, net of estimated
selling costs, establishing a new cost basis. Initial write-downs are charged to the allowance for loan losses at the time the
loan is transferred to OREO. Subsequent valuations are periodically performed by management and the carrying value is adjusted
by a charge to expense to reflect any subsequent declines in the estimated fair value. Operating costs associated with OREO are
expensed as incurred.
Servicing.
The Company services mortgage loans for others. Mortgage servicing assets are recognized as separate assets at fair value when
rights are acquired through purchase or retained through the sale of financial assets. Fair value is based on a valuation model
that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that
market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial
earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Capitalized servicing rights
are reported in other assets and are amortized into service charges and fee income in proportion to, and over the period of, the
estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based
upon the fair value of the rights as compared to the amortized cost. Impairment is determined by stratifying rights by predominant
risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance
for an individual stratum, to the extent that the fair value is less than the capitalized amount for the stratum. Changes in the
valuation allowance are reported in service charges and fee income.
Servicing
fee income is recorded for fees earned for servicing loans, which is included in service charges and fee income. The fees are
based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.
Impairment
of Long-lived Assets. Long-lived assets, including premises and equipment and certain identifiable intangible assets that
are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the asset is determined to be impaired, it is written down to its estimated fair
value through a charge to earnings.
Goodwill
is measured as the excess of the cost of a business combination over the sum of the amounts assigned to identifiable intangible
assets acquired less liabilities assumed. Goodwill is not amortized but rather assessed for impairment annually or more frequently
if circumstances warrant.
Management
has the option of first assessing qualitative factors, such as events and circumstances, to determine whether it is more likely
than not, meaning a likelihood of more than 50%, the value of a reporting unit is less than its carrying amount. If, after considering
all relevant events and circumstances, management determines it is not more likely than not the fair value of a reporting unit
is less than its carrying amount, then performing an impairment test is unnecessary. For the year ended December 31, 2021, management
determined that it was not more likely than not the fair value of the reporting unit (the consolidated Company, in our case) was
less than its carrying amount. If management had determined otherwise, a fair value analysis would have been completed to determine
the impairment and necessary write-down of goodwill.
Retirement
Plans and Employee Benefits. We provide a defined benefit pension plan for eligible employees in conjunction with a third-party
provider. The plan was soft frozen on September 30, 2016, and therefore, no new participants are included in the Plan after such
effective date. The compensation cost of an employee’s pension benefit is recognized on the projected unit credit method
over the employee’s approximate service period. The aggregate cost method is utilized for funding purposes. Employees are
also eligible to participate in a 401(k) plan through a third-party provider. We make matching contributions to this plan at 50%
of up to 6% of the employees’ eligible compensation.
Share-based
Compensation Plans. We measure and recognize compensation cost relating to share-based payment transactions based on the grant-date
fair value of the equity instruments issued. Share-based compensation is recognized over the period the employee is required to
provide services for the award. Reductions in compensation expense associated with forfeited options are estimated at the date
of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience. We use a binomial option-pricing
model to determine the fair value of the stock options granted.
Employee
Stock Ownership Plan. Compensation expense for the Employee Stock Ownership Plan (“ESOP”) is recorded at an amount
equal to the shares allocated by the ESOP multiplied by the average fair market value of the shares during the period. We recognize
compensation expense ratably over the year based upon our estimate of the number of shares expected to be allocated by the ESOP.
Unearned compensation applicable to the ESOP is reflected as a reduction of shareholders’ equity in the consolidated balance
sheets. The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an
adjustment to additional paid-in capital.
Leases.
The Company determines if an arrangement is a lease at inception. Operating leases are included within other assets and other
liabilities in our consolidated balance sheets. Right-of-use (“ROU”) assets represent our right to use an underlying
asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating
lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease
term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available
at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a
straight-line basis over the lease term.
Advertising
Costs. Advertising costs are accounted for using the accrual basis of accounting.
Income
Taxes. We use the asset and liability method for income tax accounting, whereby, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance related to deferred tax assets is established when, in the judgment of management, it is more likely than
not that all or a portion of such deferred tax assets will not be realized based on the available evidence including historical
and projected taxable income. We do not have any uncertain tax positions at December 31, 2021 that require accrual or disclosure.
We record interest and penalties as part of income tax expense. No interest or penalties were recorded during the years ended
December 31, 2021, 2020, or 2019.
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 ESOP shares
are not deemed outstanding for earnings per share calculations. There were no anti-dilutive shares outstanding during the years
ended December 31, 2021 and 2019.
Earnings
per common share have been computed based on the following:
| |
|
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands, except per share data) | |
Net income applicable to common stock | |
$ | 23,699 | | |
$ | 11,215 | | |
$ | 13,349 | |
Average number of common shares issued | |
| 23,849 | | |
| 25,751 | | |
| 26,959 | |
Less: Average unallocated ESOP Shares | |
| (496 | ) | |
| (580 | ) | |
| (667 | ) |
Less: Average unvested equity incentive plan shares | |
| (129 | ) | |
| (124 | ) | |
| (107 | ) |
| |
| | | |
| | | |
| | |
Average number of common shares outstanding used to calculate basic earnings per common
share | |
| 23,224 | | |
| 25,047 | | |
| 26,185 | |
Effect of dilutive equity incentive plan | |
| 36 | | |
| — | | |
| 45 | |
Effect of dilutive stock options | |
| 41 | | |
| 15 | | |
| 73 | |
Average number of common shares
outstanding used to calculate diluted earnings per common share | |
| 23,301 | | |
| 25,062 | | |
| 26,303 | |
| |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 1.02 | | |
$ | 0.45 | | |
$ | 0.51 | |
| |
| | | |
| | | |
| | |
Diluted earnings per share | |
$ | 1.02 | | |
$ | 0.45 | | |
$ | 0.51 | |
| |
| | | |
| | | |
| | |
Anti-dilutive shares (1) | |
| — | | |
| 259 | | |
| — | |
| (1) | Shares
outstanding but not included because the impact of these shares would be anti-dilutive
to the earnings per share calculation for the period presented. |
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:
| |
December 31, 2021 | | |
December 31, 2020 | |
| |
(In thousands) | |
Net unrealized (losses) gains on available-for-sale securities | |
$ | (4,685 | ) | |
$ | 1,302 | |
Tax effect | |
| 1,160 | | |
| (339 | ) |
Net-of-tax amount | |
| (3,525 | ) | |
| 963 | |
| |
| | | |
| | |
Losses on terminated cash flow hedges | |
| — | | |
| (684 | ) |
Tax effect | |
| — | | |
| 192 | |
Net-of-tax amount | |
| — | | |
| (492 | ) |
| |
| | | |
| | |
Unrecognized actuarial loss on the defined benefit plan | |
| (12,225 | ) | |
| (16,344 | ) |
Tax effect | |
| 3,436 | | |
| 4,594 | |
Net-of-tax amount | |
| (8,789 | ) | |
| (11,750 | ) |
| |
| | | |
| | |
Accumulated other comprehensive loss | |
$ | (12,314 | ) | |
$ | (11,279 | ) |
Recent
Accounting Pronouncements.
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
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, 2022. The Company is in the process of implementing the standard. We have put together a project team that has begun
to identify appropriate loan segments along with related historical losses for each segment and potential models that would be
most appropriate for each individual segment. We have not quantified the effects of any models, but do expect the standard
to significantly change the approach to calculating our allowance for loan losses.
2. INVESTMENT
SECURITIES
Available-for-sale
and held-to-maturity investment securities at December 31, 2021 and 2020 are summarized as follows:
| |
December 31, 2021 | |
| |
Amortized Cost | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized
Losses | | |
Fair Value | |
| |
(In thousands) | |
Available-for-sale securities: | |
| | | |
| | | |
| | | |
| | |
Debt securities: | |
| | | |
| | | |
| | | |
| | |
Government-sponsored enterprise obligations | |
$ | | |
$ | | |
$ | ) | |
$ | |
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 | |
| | |
| | |
| ) | |
| |
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 | |
| | |
| — | | |
| ) | |
| |
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 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
December 31, 2020 | |
| |
Amortized
Cost | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized
Losses | | |
Fair Value | |
| |
(In thousands) | |
Available-for-sale securities: | |
| | | |
| | | |
| | | |
| | |
Debt securities: | |
| | | |
| | | |
| | | |
| | |
Government-sponsored enterprise obligations | |
$ | | |
$ | | |
$ | ) | |
$ | |
State and municipal bonds | |
| 405 | | |
| 1 | | |
| — | | |
| 406 | |
Corporate bonds | |
| 3,039 | | |
| 36 | | |
| — | | |
| 3,075 | |
Total debt securities | |
| 18,315 | | |
| 52 | | |
| (111 | ) | |
| 18,256 | |
| |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
Government-sponsored mortgage-backed securities | |
| | |
| | |
| ) | |
| |
U.S. government guaranteed mortgage-backed securities | |
| 20,973 | | |
| 108 | | |
| (186 | ) | |
| 20,895 | |
Total mortgage-backed securities | |
| 182,263 | | |
| 1,850 | | |
| (489 | ) | |
| 183,624 | |
| |
| | | |
| | | |
| | | |
| | |
Total available-for-sale | |
$ | 200,578 | | |
$ | 1,902 | | |
$ | (600 | ) | |
$ | 201,880 | |
At
December 31, 2021, government-sponsored enterprise obligations with a fair value of $ million and mortgage-backed securities
with a fair value of $53.7 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 and held-to-maturity securities at December 31, 2021, 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 after one year through five years | |
$ | 3,431 | | |
$ | 3,518 | | |
$ | 9,979 | | |
$ | 9,973 | |
Due after five years through ten years | |
| 9,902 | | |
| 9,544 | | |
| — | | |
| — | |
Due after ten years | |
| 5,000 | | |
| 4,682 | | |
| — | | |
| — | |
Total debt securities | |
| 18,333 | | |
| 17,744 | | |
| 9,979 | | |
| 9,973 | |
Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
Due after five years through ten years | |
| 1,966 | | |
| 1,953 | | |
| — | | |
| — | |
Due after ten years | |
| 178,738 | | |
| 174,655 | | |
| 212,293 | | |
| 209,775 | |
Total
mortgage-backed securities | |
| 180,704 | | |
| 176,608 | | |
| 212,293 | | |
| 209,775 | |
| |
| | | |
| | | |
| | | |
| | |
Total securities | |
$ | 199,037 | | |
$ | 194,352 | | |
$ | 222,272 | | |
$ | 219,748 | |
Gross
realized gains and losses on sales of available-for-sale securities for the years ended December 31, 2021, 2020 and 2019 are as
follows:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
Gross gains realized | |
$ | 12 | | |
$ | 2,188 | | |
$ | 160 | |
Gross losses realized | |
| (84 | ) | |
| (223 | ) | |
| (257 | ) |
Net (loss) gain realized | |
$ | (72 | ) | |
$ | 1,965 | | |
$ | (97 | ) |
Proceeds
from the sale and redemption of available-for-sale securities totaled $9.6 million, $96.3 million and $72.2 million for the years
ended December 31, 2021, 2020 and 2019, respectively.
Information
pertaining to securities with gross unrealized losses at December 31, 2021 and December 31, 2020, aggregated by investment category
and length of time that individual securities have been in a continuous loss position are as follows:
| |
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 | |
| | |
$ | | |
$ | 2,088 | | |
| % | |
| | |
$ | | |
$ | | |
| % |
U.S. government guaranteed mortgage-backed securities | |
| 2 | | |
| 2,426 | | |
| 142 | | |
| 6.2 | | |
| 5 | | |
| 5,107 | | |
| 460 | | |
| 9.9 | |
Government-sponsored enterprise obligations | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
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 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total held-to-maturity | |
| 33 | | |
| 219,748 | | |
| 2,524 | | |
| | | |
| — | | |
| — | | |
| — | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 69 | | |
$ | 327,395 | | |
$ | 4,754 | | |
| | | |
| 26 | | |
$ | 61,839 | | |
$ | 2,977 | | |
| | |
| |
December 31, 2020 | |
| |
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 | |
| | |
$ | | |
$ | | |
| % | |
| | |
$ | | |
$ | | |
| % |
U.S. government guaranteed mortgage-backed securities | |
| 3 | | |
| 10,458 | | |
| 75 | | |
| 0.7 | | |
| 2 | | |
| 2,393 | | |
| 111 | | |
| 4.4 | |
Government-sponsored enterprise obligations | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total | |
| | | |
$ | 47,417 | | |
$ | 411 | | |
| | | |
| | | |
$ | 4,208 | | |
$ | 189 | | |
| | |
During
the years ended December 31, 2021 and 2020, 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. At December 31,
2021, management attributes 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.
The
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 December 31, 2021, the Company's corporate and municipal bond portfolios
did not contain any securities below investment grade, as reported by major credit rating agencies.
3.
LOANS
Major
classifications of loans at the periods indicated were as follows:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Commercial real estate | |
$ | 979,969 | | |
$ | 833,949 | |
Residential real estate: | |
| | | |
| | |
Residential one-to-four family | |
| 552,332 | | |
| 604,719 | |
Home equity | |
| 99,759 | | |
| 103,905 | |
Total residential real estate | |
| 652,091 | | |
| 708,624 | |
| |
| | | |
| | |
Commercial and industrial: | |
| | | |
| | |
Paycheck protection program (“PPP”) loans | |
| 25,329 | | |
| 167,258 | |
Commercial and industrial | |
| 201,340 | | |
| 211,823 | |
Total commercial and industrial | |
| 226,669 | | |
| 379,081 | |
| |
| | | |
| | |
Consumer | |
| 4,250 | | |
| 5,192 | |
Total gross loans | |
| 1,862,979 | | |
| 1,926,846 | |
Unamortized PPP loan fees | |
| (781 | ) | |
| (3,050 | ) |
Unearned premiums and deferred loan fees and costs, net | |
| 2,518 | | |
| 3,587 | |
Total loans, net | |
| 1,864,716 | | |
| 1,927,383 | |
Allowance for loan losses | |
| (19,787 | ) | |
| (21,157 | ) |
Net loans | |
$ | 1,844,929 | | |
$ | 1,906,226 | |
Loan
Modifications/Troubled Debt Restructurings.
The
banking regulatory agencies, through an Interagency Statement dated April 7, 2020, 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 TDRs, 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 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 granted deferred loan payments for impacted commercial, residential and consumer customers who experienced financial hardship
due to COVID-19. The loan payment deferrals could be up to 90 days, depending upon the financial needs of each customer. Further
deferrals will be re-evaluated on a customer-by-customer basis upon the expiration of the existing deferral period. As of December
31, 2021, modifications granted under the CARES Act declined to nine loans in the amount of $42.5 million, or 2.3% of total loans,
excluding PPP loans. As of December 31, 2021, of the $42.5 million in remaining modifications granted under the CARES Act, eight
loans in the amount of $33.5 million, or 78.8% of the remaining modifications, were granted to the hotel industry, and one loan
in the amount of $9.0 million was granted to an assisted living facility. Of the $42.5 million in remaining outstanding modifications,
loans in the aggregate amount of $33.5 million, or 78.8%, have resumed interest only payments.
The
table below breaks out the remaining modifications granted under the CARES Act at December 31, 2021:
| |
| | | |
| | | |
| Remaining CARES Act Modifications | |
Loan Segment(1)(2) | |
| Total Loan
Segment
Balance at
December 31,
2021 | | |
| % of Total
Loans | | |
| Modification
Balance | | |
| # of Loans
Modified | | |
| %
of Loan
Segment Balance | |
($ in millions) | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate(3) | |
$ | 980.0 | | |
| 53.3 | % | |
$ | 41.9 | | |
| 7 | | |
| 4.3 | % |
Commercial and industrial | |
| 201.3 | | |
| 11.0 | % | |
| 0.6 | | |
| 2 | | |
| 0.3 | % |
Residential real estate | |
| 652.1 | | |
| 35.5 | % | |
| — | | |
| — | | |
| — | |
Consumer | |
| 4.3 | | |
| 0.2 | % | |
| — | | |
| — | | |
| — | |
Total | |
$ | 1,837.7 | | |
| 100.0 | % | |
$ | 42.5 | | |
| 9 | | |
| 2.3 | % |
| (1) | Excludes
PPP loans of $25.3 million and the related deferred fees. |
| (2) | Residential
includes home equity loans and lines of credit. |
| (3) | The
remaining modification balance includes $32.9 million, which resumed regular payments
in January of 2022. |
| (1) | Excludes
PPP loans of $25.3 million and the related deferred fees. |
| (2) | Residential
includes home equity loans and lines of credit. |
| (3) | The
remaining modification balance includes $32.9 million, which resumed regular payments
in January of 2022. |
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, on a pro-rated basis, with participating lenders any gains or losses
that may result from a borrower’s lack of compliance with contractual terms of the loan. At December 31, 2021 and December
31, 2020, the Company was servicing commercial loans participated out to various other institutions totaling $63.2 million and
$52.9 million, respectively.
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 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 December 31, 2021, include weighted average
prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (166 PSA), weighted average
internal rate of return (9.02%), weighted average servicing fee (0.25%), and net cost to service loans ($83.77 per loan). The
estimated fair value of capitalized servicing rights may vary significantly in subsequent periods primarily due to changing market
interest rates, and their effect on prepayment speeds and discount rates.
At
December 31, 2021 and 2020, the Company was servicing residential mortgage loans owned by investors totaling $88.2 million and
$38.1 million, respectively. Servicing fee income of $137,000, $110,000 and $133,000 was recorded for the years ended December
31, 2021, 2020 and 2019, respectively, and is included in service charges and fees on the consolidated statements of net income.
A
summary of the activity in the balances of mortgage servicing rights follows:
| |
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Balance at the beginning of year: | |
$ | 153 | | |
$ | 219 | |
Capitalized mortgage servicing rights | |
| 628 | | |
| — | |
Amortization | |
| (86 | ) | |
| (64 | ) |
Write-down of mortgage servicing asset to fair value | |
| (2 | ) | |
| (2 | ) |
Balance at the end of year | |
$ | 693 | | |
$ | 153 | |
Fair value at the end of year | |
$ | 739 | | |
$ | 157 | |
Allowance
for Loan Losses.
An
analysis of changes in the allowance for loan losses by segment for the years ended December 31, 2021, 2020 and 2019 is as follows:
| |
|
Commercial
Real Estate | | |
Residential
Real Estate | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
(In thousands) | |
Balance at December 31, 2018 | |
$ | 5,260 | | |
$ | 3,556 | | |
$ | 3,114 | | |
$ | 135 | | |
$ | (12 | ) | |
$ | 12,053 | |
Provision | |
| 1,343 | | |
| 618 | | |
| 509 | | |
| 204 | | |
| 1 | | |
| 2,675 | |
Charge-offs | |
| (669 | ) | |
| (320 | ) | |
| (514 | ) | |
| (197 | ) | |
| — | | |
| (1,700 | ) |
Recoveries | |
| 873 | | |
| 66 | | |
| 74 | | |
| 61 | | |
| — | | |
| 1,074 | |
Balance at December 31, 2019 | |
$ | 6,807 | | |
$ | 3,920 | | |
$ | 3,183 | | |
$ | 203 | | |
$ | (11 | ) | |
$ | 14,102 | |
Provision | |
| 6,262 | | |
| 408 | | |
| 939 | | |
| 129 | | |
| 37 | | |
| 7,775 | |
Charge-offs | |
| (107 | ) | |
| (177 | ) | |
| (543 | ) | |
| (136 | ) | |
| — | | |
| (963 | ) |
Recoveries | |
| 58 | | |
| 89 | | |
| 51 | | |
| 45 | | |
| — | | |
| 243 | |
Balance at December 31, 2020 | |
$ | 13,020 | | |
$ | 4,240 | | |
$ | 3,630 | | |
$ | 241 | | |
$ | 26 | | |
$ | 21,157 | |
Provision (credit) | |
| 46 | | |
| (349 | ) | |
| (644 | ) | |
| 35 | | |
| (13 | ) | |
| (925 | ) |
Charge-offs | |
| (103 | ) | |
| (44 | ) | |
| (370 | ) | |
| (128 | ) | |
| — | | |
| (645 | ) |
Recoveries | |
| 7 | | |
| 117 | | |
| 27 | | |
| 49 | | |
| — | | |
| 200 | |
Balance at December 31, 2021 | |
$ | 12,970 | | |
$ | 3,964 | | |
$ | 2,643 | | |
$ | 197 | | |
$ | 13 | | |
$ | 19,787 | |
The
following table presents information pertaining to the allowance for loan losses by segment, excluding PPP loans, for the
dates indicated:
| |
Commercial
Real Estate | | |
Residential
Real Estate | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
| |
(In thousands) | |
December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amount of allowance for impaired loans | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Amount of allowance for non-impaired loans | |
| 12,970 | | |
| 3,964 | | |
| 2,643 | | |
| 197 | | |
| 13 | | |
| 19,787 | |
Total allowance for loan losses | |
$ | 12,970 | | |
$ | 3,964 | | |
$ | 2,643 | | |
$ | 197 | | |
$ | 13 | | |
$ | 19,787 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
$ | 9,601 | | |
$ | 3,223 | | |
$ | 699 | | |
$ | 22 | | |
$ | — | | |
$ | 13,545 | |
Non-impaired loans | |
| 965,577 | | |
| 647,098 | | |
| 200,271 | | |
| 4,228 | | |
| — | | |
| 1,817,174 | |
Impaired loans acquired with deteriorated credit quality | |
| 4,791 | | |
| 1,770 | | |
| 370 | | |
| — | | |
| — | | |
| 6,931 | |
Total loans | |
$ | 979,969 | | |
$ | 652,091 | | |
$ | 201,340 | | |
$ | 4,250 | | |
$ | — | | |
$ | 1,837,650 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2020 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amount of allowance for impaired loans | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Amount of allowance for non-impaired loans | |
| 13,020 | | |
| 4,240 | | |
| 3,630 | | |
| 241 | | |
| 26 | | |
| 21,157 | |
Total allowance for loan losses | |
$ | 13,020 | | |
$ | 4,240 | | |
$ | 3,630 | | |
$ | 241 | | |
$ | 26 | | |
$ | 21,157 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
$ | 11,803 | | |
$ | 4,363 | | |
$ | 4,439 | | |
$ | 27 | | |
$ | — | | |
$ | 20,632 | |
Non-impaired loans | |
| 816,406 | | |
| 701,915 | | |
| 207,002 | | |
| 5,165 | | |
| — | | |
| 1,730,488 | |
Impaired loans acquired with deteriorated credit quality | |
| 5,740 | | |
| 2,346 | | |
| 382 | | |
| — | | |
| — | | |
| 8,468 | |
Total loans | |
$ | 833,949 | | |
$ | 708,624 | | |
$ | 211,823 | | |
$ | 5,192 | | |
$ | — | | |
$ | 1,759,588 | |
Past
Due and Nonaccrual loans.
The
following tables present an age analysis of past due loans, excluding PPP loans, as of the dates indicated:
| |
Balance at December 31, 2021 | |
| |
30 – 59 Days
Past Due | | |
60 – 89
Days Past
Due | | |
90 Days
or More
Past Due | | |
Total
Past Due
Loans | | |
Total
Current
Loans | | |
Total
Loans | | |
Nonaccrual
Loans | |
| |
(In thousands) | |
Commercial real estate | |
$ | 139 | | |
$ | — | | |
$ | 436 | | |
$ | 575 | | |
$ | 979,394 | | |
$ | 979,969 | | |
$ | 1,224 | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential one-to-four family | |
| 787 | | |
| 41 | | |
| 507 | | |
| 1,335 | | |
| 550,997 | | |
| 552,332 | | |
| 3,214 | |
Home equity | |
| 57 | | |
| 5 | | |
| 63 | | |
| 125 | | |
| 99,634 | | |
| 99,759 | | |
| 94 | |
Commercial and industrial | |
| 58 | | |
| 10 | | |
| 22 | | |
| 90 | | |
| 201,250 | | |
| 201,340 | | |
| 410 | |
Consumer | |
| 5 | | |
| — | | |
| 11 | | |
| 16 | | |
| 4,234 | | |
| 4,250 | | |
| 22 | |
Total loans | |
$ | 1,046 | | |
$ | 56 | | |
$ | 1,039 | | |
$ | 2,141 | | |
$ | 1,835,509 | | |
$ | 1,837,650 | | |
$ | 4,964 | |
| |
Balance at December 31, 2020 | |
| |
| |
| |
30 – 59 Days
Past Due | | |
60 – 89
Days Past
Due | | |
90 Days
or More
Past Due | | |
Total
Past Due
Loans | | |
Total
Current
Loans | | |
Total
Loans | | |
Nonaccrual
Loans | |
| |
(In thousands) | |
Commercial real estate | |
$ | 5,844 | | |
$ | 3,144 | | |
$ | 1,256 | | |
$ | 10,244 | | |
$ | 823,705 | | |
$ | 833,949 | | |
$ | 1,632 | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential one-to-four family | |
| 1,684 | | |
| 360 | | |
| 707 | | |
| 2,751 | | |
| 601,968 | | |
| 604,719 | | |
| 5,353 | |
Home equity | |
| 25 | | |
| — | | |
| — | | |
| 25 | | |
| 103,880 | | |
| 103,905 | | |
| 124 | |
Commercial and industrial | |
| 166 | | |
| 158 | | |
| 156 | | |
| 480 | | |
| 211,343 | | |
| 211,823 | | |
| 705 | |
Consumer | |
| 22 | | |
| — | | |
| — | | |
| 22 | | |
| 5,170 | | |
| 5,192 | | |
| 27 | |
Total loans | |
$ | 7,741 | | |
$ | 3,662 | | |
$ | 2,119 | | |
$ | 13,522 | | |
$ | 1,746,066 | | |
$ | 1,759,588 | | |
$ | 7,841 | |
At
December 31, 2021 and December 31, 2020, all loans past due 90 days or more were carried as nonaccrual. The ratio of nonaccrual
loans to total loans, excluding PPP loans, was 0.27% and 0.45% at December 31, 2021 and December 31, 2020, respectively.
Impaired
Loans.
The
following is a summary of impaired loans by class:
| |
| | |
| | |
| | |
Year Ended | |
| |
At December 31, 2021 | | |
December 31, 2021 | |
| |
| | |
| |
| |
Recorded
Investment | | |
Unpaid
Principal
Balance | | |
Related
Allowance | | |
Average
Recorded
Investment | | |
Interest
Income
Recognized | |
Impaired Loans (1) | |
(In thousands) | |
Commercial real estate | |
$ | 14,392 | | |
$ | 15,563 | | |
$ | — | | |
$ | 15,757 | | |
$ | 469 | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential one-to-four family | |
| 4,881 | | |
| 5,381 | | |
| — | | |
| 5,693 | | |
| 233 | |
Home equity | |
| 112 | | |
| 136 | | |
| — | | |
| 146 | | |
| 7 | |
Commercial and industrial | |
| 1,069 | | |
| 3,850 | | |
| — | | |
| 2,551 | | |
| 131 | |
Consumer | |
| 22 | | |
| 37 | | |
| — | | |
| 25 | | |
| 3 | |
Total impaired loans | |
$ | 20,476 | | |
$ | 24,967 | | |
$ | — | | |
$ | 24,172 | | |
$ | 843 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | |
| | |
Year Ended | |
| |
At December 31, 2020 | | |
December 31, 2020 | |
| |
| | |
| |
| |
Recorded
Investment | | |
Unpaid
Principal
Balance | | |
Related
Allowance | | |
Average
Recorded
Investment | | |
Interest
Income
Recognized | |
Impaired Loans: (1) | |
(In thousands) | |
Commercial real estate | |
$ | 17,543 | | |
$ | 18,590 | | |
$ | — | | |
$ | 18,284 | | |
$ | 516 | |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential one-to-four family | |
| 6,544 | | |
| 7,647 | | |
| — | | |
| 5,815 | | |
| 66 | |
Home equity | |
| 165 | | |
| 207 | | |
| — | | |
| 371 | | |
| 5 | |
Commercial and industrial | |
| 4,821 | | |
| 7,038 | | |
| — | | |
| 4,186 | | |
| 217 | |
Consumer | |
| 27 | | |
| 39 | | |
| — | | |
| 35 | | |
| — | |
Total impaired loans | |
$ | 29,100 | | |
$ | 33,521 | | |
$ | — | | |
$ | 28,691 | | |
$ | 804 | |
(1) | | Includes loans
acquired with deteriorated credit quality and performing troubled debt restructurings. |
The
majority of impaired loans are included within the nonaccrual balances; however, not every loan on nonaccrual status has been
designated as impaired. Impaired loans include loans that have been modified in a TDR.
Impaired
loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans
and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan
is amended in a TDR.
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 years ended December 31, 2021 and December 31, 2020. 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. As of December 31, 2021, we have 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.
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 may consist of a reduction in 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 Bank's position or significantly extends the note's maturity date, such that
the present value of cash flows to be received is materially less than those contractually established at the loan's origination.
All loans that are modified are reviewed by the Company to identify if a TDR has occurred. All TDR loans are classified as impaired.
When
we modify loans in a TDR, we measure impairment similar to other impaired loans based on the present value of expected future
cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral,
less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded
investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment
is recognized through a specific allowance or a charge-off to the allowance. Nonperforming TDRs are included in nonperforming
loans.
There
were no charge-offs on TDRs during the years ended December 31, 2021 and 2020. Loan modifications classified as TDRs during the
twelve months ended December 31, 2020 are included in the table below.
| |
Twelve Months Ended | |
| |
December 31, 2020 | |
| |
Number
of
Contracts | | |
Pre-
Modification
Outstanding
Recorded
Investment | | |
Post-
Modification
Outstanding
Recorded
Investment | |
Troubled Debt Restructurings | |
| | | |
| | | |
| | |
Commercial Real Estate | |
| 5 | | |
$ | 4,576 | | |
$ | 4,576 | |
Commercial and Industrial | |
| 9 | | |
| 3,806 | | |
| 3,806 | |
Total | |
| 14 | | |
$ | 8,382 | | |
$ | 8,382 | |
During
the years ended December 31, 2021 and 2020, no TDRs defaulted (defined as 30 days or more past due) within 12 months of restructuring.
Loans
Acquired with Deteriorated Credit Quality.
The
following is a summary of loans acquired with evidence of credit deterioration from Chicopee as of December 31, 2021.
| | |
Contractual
Required
Payments
Receivable | | |
Cash Expected
To Be Collected | | |
Non-
Accretable
Discount | | |
Accretable
Yield | | |
Loans
Receivable | |
| | |
(In thousands) | |
Balance at December 31, 2020 | | |
$ | 14,297 | | |
$ | 11,485 | | |
$ | 2,812 | | |
$ | 3,017 | | |
$ | 8,468 | |
Collections | | |
| (1,986 | ) | |
| (1,880 | ) | |
| (106 | ) | |
| (346 | ) | |
| (1,534 | ) |
Dispositions | | |
| (177 | ) | |
| (175 | ) | |
| (2 | ) | |
| (172 | ) | |
| (3 | ) |
Balance at December 31, 2021 | | |
$ | 12,134 | | |
$ | 9,430 | | |
$ | 2,704 | | |
$ | 2,499 | | |
$ | 6,931 | |
Credit
Quality Information.
The
Company utilizes an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans. Performing
residential real estate, home equity and consumer loans are grouped with “Pass” rated loans. Nonperforming residential
real estate, home equity and consumer loans are monitored individually for impairment and risk rated as “Substandard.”
Loans
rated 1 – 4: Loans rated 1-4 represent groups of loans that are not subject to adverse criticism as defined in regulatory
guidance. Loans in these groups exhibit characteristics that represent acceptable risk.
Loans
rated 5: Loans rated 5 are considered “Special Mention” that may exhibit potential credit weaknesses or downward
trends and are being monitored by 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.” Loans are classified as substandard if the borrower exhibits
a well-defined weakness and may be inadequately protected by the current net worth and cash flow capacity to pay the current debt.
Loans
rated 7: Loans rated 7 are considered “Doubtful.” Loans classified as doubtful have all the weaknesses inherent
in those classified substandard with the added characteristic that the weaknesses make collection or liquidation of the loan highly
questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may
work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact
status may be determined.
Loans
rated 8: Loans rated 8 are considered uncollectible. The loss classification does not mean that the asset has absolutely no
recovery or salvage value, but rather that it is not 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. In addition, management utilizes delinquency reports, the criticized report and other loan reports to monitor credit quality.
In addition, at least on an annual basis, the Company contracts with an external loan review company to review the internal credit
ratings assigned to loans in 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 their review, the third party examines a sample of loans, including new loans,
existing relationships over certain dollar amounts and classified assets.
The
following table presents our loans by risk rating for the periods indicated:
| |
Commercial
Real Estate | | |
Residential
One-to-Four
Family | | |
Home
Equity | | |
Commercial
and Industrial | | |
Consumer | | |
Total | |
| |
(In thousands) | |
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 | |
| |
| Commercial
Real Estate | | |
|
Residential
One-to-Four
Family | | |
| Home
Equity | | |
| Commercial
and Industrial | | |
| Consumer | | |
| Total | |
December 31, 2020 | |
| (In thousands) | |
Pass (Rated 1 – 4) | |
$ | 726,751 | | |
$ | 598,250 | | |
$ | 103,619 | | |
$ | 345,967 | | |
$ | 5,165 | | |
$ | 1,779,752 | |
Special Mention (Rated 5) | |
| 78,207 | | |
| — | | |
| — | | |
| 13,871 | | |
| — | | |
| 92,078 | |
Substandard (Rated 6) | |
| 28,991 | | |
| 6,469 | | |
| 286 | | |
| 19,243 | | |
| 27 | | |
| 55,016 | |
Total | |
$ | 833,949 | | |
$ | 604,719 | | |
$ | 103,905 | | |
$ | 379,081 | | |
$ | 5,192 | | |
$ | 1,926,846 | |
Premises
and equipment are summarized as follows:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Land | |
$ | 6,239 | | |
$ | 5,661 | |
Buildings | |
| 26,343 | | |
| 25,091 | |
Leasehold improvements | |
| 3,409 | | |
| 3,112 | |
Furniture and equipment | |
| 21,195 | | |
| 19,901 | |
Total | |
| 57,186 | | |
| 53,764 | |
| |
| | | |
| | |
Less: accumulated depreciation and amortization | |
| (31,024 | ) | |
| (28,661 | ) |
| |
| | | |
| | |
Premises and equipment, net | |
$ | 26,162 | | |
$ | 25,103 | |
Depreciation
and amortization expense for the years ended December 31, 2021, 2020 and 2019 amounted to $2.3 million, $2.1 million and $2.1
million, respectively.
5. GOODWILL
AND OTHER INTANGIBLES
At
December 31, 2021 and December 31, 2020, the Company’s goodwill was related to the acquisition of Chicopee in October 2016.
There was no goodwill impairment recorded during the years ended December 31, 2021 and 2020. Annually, or more frequently if events
or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment.
Core
Deposit Intangibles
In
connection with the acquisition of Chicopee, the Bank recorded a core deposit intangible of $4.5 million, which is amortized over
twelve years using the straight-line method. Amortization expense was $374,000, $375,000 and $376,000 for the years ended December
31, 2021, 2020 and 2019, respectively. At December 31, 2021, future amortization of the core deposit intangible totaled $375,000
for each of the next five years and $688,000 thereafter.
6. DEPOSITS
Deposit
accounts, by type, are summarized as follows for the periods indicated:
| |
|
|
|
|
|
| |
| |
At December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Demand and interest-bearing checking: | |
| | | |
| | |
Interest-bearing checking accounts | |
$ | 145,739 | | |
$ | 94,936 | |
Demand deposits | |
| 641,284 | | |
| 541,759 | |
Savings: | |
| | | |
| | |
Regular savings accounts | |
| 217,565 | | |
| 175,595 | |
Money market accounts | |
| 850,330 | | |
| 640,790 | |
Time deposits | |
| 401,980 | | |
| 590,336 | |
Total deposits | |
$ | 2,256,898 | | |
$ | 2,043,416 | |
Brokered
deposits, which are included within time deposits, totaled $55.3 million at December 31, 2020. There were no brokered deposits
at December 31, 2021.
Time
deposits of $250,000 or more totaled $65.9 million at December 31, 2021. Interest expense on time deposits of $250,000 or more
totaled $412,000 and $2.8 million for the years ended December 31, 2021 and 2020, respectively.
The
scheduled maturities of time deposits for the periods indicated are as follows:
| | |
|
|
|
|
|
| |
| | |
At December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In thousands) | |
| | |
| | |
| |
2021 | | |
$ | — | | |
$ | 503,187 | |
2022 | | |
| 363,290 | | |
| 68,920 | |
2023 | | |
| 24,500 | | |
| 12,927 | |
2024 | | |
| 7,911 | | |
| 3,203 | |
2025 | | |
| 4,892 | | |
| 2,099 | |
2026 | | |
| 1,387 | | |
| — | |
Total time deposits | | |
$ | 401,980 | | |
$ | 590,336 | |
Interest
expense on deposits for the years ended December 31, 2021, 2020 and 2019 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
Regular accounts | |
$ | 154 | | |
$ | 136 | | |
$ | 146 | |
Money market accounts | |
| 2,412 | | |
| 2,838 | | |
| 2,532 | |
Time deposits | |
| 2,543 | | |
| 10,139 | | |
| 14,152 | |
Interest-bearing checking accounts | |
| 399 | | |
| 387 | | |
| 377 | |
Total | |
$ | 5,508 | | |
$ | 13,500 | | |
$ | 17,207 | |
Cash
paid for interest on deposits totaled $5.5 million, $13.6 million and $17.2 million for years ended December 31, 2021, 2020 and
2019, respectively.
7. SHORT-TERM
BORROWINGS
Total
borrowing capacity includes borrowing arrangements at the FHLB, the Federal Reserve Bank (“FRB”), and borrowing arrangements
with correspondent banks.
The
Company is a member of the FHLB and uses borrowings as an additional source of funding to finance the Company’s lending
and investing activities and to provide liquidity for daily operations. FHLB advances also 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 December 31, 2021, the Bank had $480.5 million in additional borrowing
capacity from the FHLB.
The
Company also has an overnight Ideal Way line of credit with the FHLB for $9.5 million for the years ended December 31, 2021 and
2020. Interest on this line of credit is payable at a rate determined and reset by the FHLB on a daily basis. The outstanding
principal is due daily but the portion not repaid will be automatically renewed. There were no advances outstanding under this
line at December 31, 2021 and 2020.
The
Company has an available line of credit of $6.6 million with the FRB Discount Window at an interest rate determined and reset
on a daily basis. Borrowings from the FRB Discount Window are secured by certain securities from the Company’s investment
portfolio not otherwise pledged. As of December 31, 2021 and 2020, 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. At December 31, 2021 and 2020, we had no advances outstanding under these lines.
FHLB Advances. The following advances
are collateralized by a blanket lien on our residential real estate loans and certain eligible commercial real estate loans.
| | |
Amount | | |
Weighted Average Rate | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| | |
(In thousands) | | |
| | |
| |
Fixed-rate advances maturing: | | |
| | | |
| | | |
| | | |
| | |
2021 | | |
$ | — | | |
$ | 42,388 | | |
| — | % | |
| 1.5 | % |
2022 | | |
| 1,475 | | |
| 14,284 | | |
| 0.1 | | |
| 0.4 | |
2023 | | |
| 532 | | |
| 532 | | |
| — | | |
| — | |
2024 | | |
| 646 | | |
| 646 | | |
| — | | |
| — | |
Total long-term advances | | |
$ | 2,653 | | |
$ | 57,850 | | |
| 0.1 | % | |
| 1.2 | % |
Cash paid for interest on long-term FHLB
advances totaled $513,000, $3.6 million, and $4.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Subordinated Debt.
On April 20, 2021, the Company completed
an offering of $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 February 1 of each year,
beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal
to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination
date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year.
The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain
events, subject in each case to the approval of the 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.
The Notes are presented net of issuance
costs of $367,000 as of December 31, 2021, which are being amortized into interest expense over the life of the Notes. Amortization
of issuance costs into interest expense was $27,000 for the year ended December 31, 2021. Cash paid for interest on subordinated
debt totaled $545,000 for the year ended December 31, 2021.
| 9. | STOCK PLANS AND EMPLOYEE STOCK OWNERSHIP PLAN |
Stock Options. A summary of the
status of our stock options at December 31, 2021 is presented below:
| | |
Shares | | |
Weighted
Average
Exercise Price | | |
Weighted
Average Remaining Contractual Term (in
years) | | |
Aggregate
Intrinsic Value (in
thousands) | |
| | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2020 | | |
| 210,975 | | |
$ | 6.46 | | |
| 1.67 | | |
$ | 90 | |
Exercised | | |
| (33,094 | ) | |
| 5.85 | | |
| 0.46 | | |
| 90 | |
Outstanding at December 31, 2021 | | |
| 177,881 | | |
$ | 6.57 | | |
| 0.81 | | |
$ | 388 | |
Exercisable at December 31, 2021 | | |
| 177,881 | | |
$ | 6.57 | | |
| 0.81 | | |
$ | 388 | |
Cash received for options exercised during
the years ended December 31, 2021, 2020 and 2019 was $193,000, $43,000 and $106,000, respectively.
Restricted Stock Awards.
In May 2014, the Company’s shareholders
approved the 2014 Omnibus Incentive Plan, a stock-based compensation plan (the “2014 RSA Plan”). Under the 2014 RSA
Plan, up to 516,000 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 WNEB. Any shares that are not
issued because vesting requirements are not met were available for future issuance under the 2014 RSA Plan.
On an annual basis, the Compensation Committee
(the “Committee”) approves long-term incentive awards out of the 2014 RSA Plan, whereby shares will be granted to eligible
participants of the Company that are nominated by the Chief Executive Officer and approved by the Committee, with vesting over
a three-year term for employees and a one-year term for directors. Annual employee grants provide for a periodic award that is
both performance and time-based and is designed to recognize the executive’s responsibilities, reward performance and leadership
and as a retention tool. The objective of the award is to align compensation for the named executive officers and directors over
a multi-year period directly with the interests of our shareholders by motivating and rewarding creation and preservation of long-term
financial strength, shareholder value and relative shareholder return.
In February 2019, 108,718 shares were granted.
Of the 108,718 shares, 64,496 shares were time-based, with 20,262 vesting in one year and 44,234 vesting ratably over a three-year
period. The remaining 44,222 shares granted are performance-based and are subject to the achievement of the 2019 long-term incentive
performance metric. The primary performance metric for 2019 grants was return on equity. Performance shares will be earned based
upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to
a peer index) on an annual performance period, but will be distributed at the end of the three-year period.
The threshold, target and stretch metrics
under the 2019 grants are as follows:
| | |
|
|
|
|
|
|
|
|
| | |
| | |
Return on Equity Metrics | | |
Performance Period Ending | | |
Threshold | | |
Target | | |
Stretch | |
December 31, 2019 | | |
| 5.75 | % | |
| 6.13 | % | |
| 7.00 | % |
December 31, 2020 | | |
| 6.00 | % | |
| 6.75 | % | |
| 7.75 | % |
December 31, 2021 | | |
| 6.25 | % | |
| 7.00 | % | |
| 8.00 | % |
Eligible participants will be able to earn
between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).
In February 2020, 120,053 shares were granted.
Of the 120,053 shares, 69,898 shares were time-based, with 19,760 vesting in one year and 50,138 vesting ratably over a three-year
period. The remaining 50,155 shares granted are performance-based and are subject to the achievement of the 2020 long-term incentive
performance metrics, with 50% of the performance-shares vesting for each performance metric. The primary performance metrics for
the 2020 grants were return on equity and earnings per share. Performance shares will be earned based upon how the Company performs
relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance
period for return on equity metrics and for a three-year cumulative performance period for earnings per share, but will be distributed
at the end of the three-year period as earned.
The threshold, target and stretch metrics
under the 2020 grants are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Return on Equity Metrics | |
Performance Period Ending | |
Threshold | | |
Target | | |
Stretch | |
| |
| | | |
| | | |
| | |
December 31, 2020 | |
| 5.00 | % | |
| 5.48 | % | |
| 6.00 | % |
December 31, 2021 | |
| 5.62 | % | |
| 6.24 | % | |
| 6.86 | % |
December 31, 2022 | |
| 6.29 | % | |
| 6.99 | % | |
| 7.69 | % |
| |
|
|
|
|
|
|
|
|
|
| |
| |
Earnings Per Share Metrics | |
Performance Period Ending | |
Threshold | | |
Target | | |
Stretch | |
| |
| | |
| | |
| |
Three-year Cumulative Diluted Earnings Per Share | |
$ | 1.50 | | |
$ | 1.65 | | |
$ | 1.80 | |
Eligible participants will be able to earn
between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).
The fair market value of shares awarded
is based on the market price at the grant date, recorded as unearned compensation and amortized over the applicable vesting period.
Performance-based metrics are monitored on a quarterly basis in order to compare actual results to the performance metric, with
any necessary adjustments being recognized through share-based compensation expense and unearned compensation.
In February 2021, 19,827 shares were granted
to our directors, with a one-year vesting period. At December 31, 2021, there were no remaining shares available to grant under
the 2014 RSA Plan.
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 700,000 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, 122,362 shares were granted.
Of the 122,362 shares, 61,181 shares were time-based, vesting ratably over a three-year period. The remaining 61,181 shares granted
are performance-based and are subject to the achievement of the 2021 long-term incentive performance metrics, with 50% of the performance-shares
vesting for each performance metric. The primary performance metrics for the 2021 grants were return on equity and earnings per
share. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute
goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for
a three-year cumulative performance period for earnings per share, but will be distributed at the end of the three-year period
as earned.
The threshold, target and stretch metrics
under the 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 | |
| |
| | | |
| | | |
| | |
At December 31, 2021, there were 577,638 remaining shares available
to grant under the 2021 RSA Plan.
A summary of the status of restricted stock awards at December
31, 2021 and 2020 is presented below:
| | |
Shares | | |
Weighted Average
Grant Date Fair Value | |
Balance at December 31, 2020 | | |
| 178,766 | | |
$ | 9.63 | |
Shares granted | | |
| 154,906 | | |
| 8.44 | |
Shares forfeited | | |
| (24,506 | ) | |
| 10.59 | |
Shares vested | | |
| (95,785 | ) | |
| 9.05 | |
Balance at December 31, 2021 | | |
| 213,381 | | |
$ | 8.91 | |
| | |
Shares | | |
Weighted Average Grant Date Fair Value | |
Balance at December 31, 2019 | | |
| 172,866 | | |
$ | 10.07 | |
Shares granted | | |
| 145,980 | | |
| 8.69 | |
Shares forfeited | | |
| (30,193 | ) | |
| 9.96 | |
Shares vested | | |
| (109,887 | ) | |
| 9.00 | |
Balance at December 31, 2020 | | |
| 178,766 | | |
$ | 9.63 | |
We recorded total
expense for restricted stock awards of $1.3 million, $834,000 and $773,000 for the years ended December 31, 2021, 2020 and 2019,
respectively. The aggregate fair value of restricted stock vested during 2021 was $823,000. Tax (shortfall) benefits related to
equity incentive plan expense were $(5,000), $(23,000) and $21,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
Unrecognized compensation cost for stock awards was $1.2 million at December 31, 2021 with a remaining term of 1.7 years.
Employee Stock
Ownership Plan (“ESOP”). We established an ESOP for the benefit of each employee that has reached the age of 21
and has completed at least 1,000 hours of service in the previous 12-month period. In January 2002, as part of the initial stock
conversion, we provided a loan to the ESOP Trust which was used to purchase 8%, or 1,305,359 shares, of the common stock sold in
the initial public offering.
In January 2007, as
part of the second-step stock conversion, we provided an additional loan to the ESOP Trust which was used to purchase 4.0%, or
736,000 shares, of the 18,400,000 shares of common stock sold in the offering. The 2002 and 2007 loans bear an interest rate of
8.0% and provide for annual payments of interest and principal.
At December 31, 2021,
the remaining principal balances are payable as follows:
Years Ending | | |
| |
December 31, | | |
Amount | |
(In thousands) | |
| 2022 | | |
$ | 447 | |
| 2023 | | |
| 447 | |
| 2024 | | |
| 447 | |
| 2025 | | |
| 447 | |
| 2026 | | |
| 447 | |
| Thereafter | | |
| 2,121 | |
| Total | | |
$ | 4,356 | |
We have committed to make contributions
to the ESOP sufficient to support the debt service of the loans. The loans are secured by the shares purchased, which are held
in a suspense account for allocation among the participants as the loans are paid. Total compensation expense applicable to the
ESOP amounted to $682,000, $551,000 and $834,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
Shares held by the ESOP include the following
at December 31, 2021 and 2020:
| |
2021 | | |
2020 | |
Allocated | |
| 1,127,074 | | |
| 1,078,109 | |
Committed to be allocated | |
| 81,893 | | |
| 85,101 | |
Unallocated | |
| 445,013 | | |
| 526,906 | |
Total | |
| 1,653,980 | | |
| 1,690,116 | |
Cash dividends declared
and received on allocated shares are allocated to participants and charged to retained earnings. Cash dividends declared and received
on unallocated shares are held in suspense and are applied to repay the outstanding debt of the ESOP. The fair value of unallocated
shares was $3.9 million and $3.6 million at December 31, 2021 and 2020, respectively. ESOP shares are considered outstanding for
earnings per share calculations when they are committed to be allocated. Unallocated ESOP shares are excluded from earnings per
share calculations. The cost of unearned shares to be allocated to ESOP participants for future services not yet performed is reflected
as a reduction of shareholders’ equity.
| 10. | RETIREMENT PLANS AND EMPLOYEE BENEFITS |
Pension Plan. We provide a defined
benefit pension plan for eligible employees (the “Plan”). Employees must work a minimum of 1,000 hours per year to
be eligible for the Plan. Eligible employees become vested in the Plan after five years of service. The Plan assets are currently
invested in various pooled separate investment accounts offered by Principal Life Insurance Company, a division of Principal Financial
Group, who is the Custodian of the Plan (the “Custodian”). The Plan is administered by an officer of Westfield Bank
(the “Plan Administrator”). On September 30, 2016, we effected a soft freeze on the Plan and therefore no new participants
will be included in the Plan after such effective date.
The following table provides information
for the Plan at or for the years ended December 31:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
Change in benefit obligation: | |
| | | |
| | | |
| | |
Benefit obligation at beginning of year | |
$ | 47,592 | | |
$ | 36,158 | | |
$ | 27,309 | |
Service cost | |
| 1,842 | | |
| 1,396 | | |
| 1,095 | |
Interest | |
| 1,171 | | |
| 1,162 | | |
| 1,134 | |
Actuarial (gain) loss | |
| (3,028 | ) | |
| 9,690 | | |
| 7,074 | |
Benefits paid | |
| (2,488 | ) | |
| (814 | ) | |
| (454 | ) |
Benefit obligation at end of year | |
| 45,089 | | |
| 47,592 | | |
| 36,158 | |
| |
| | | |
| | | |
| | |
Change in plan assets: | |
| | | |
| | | |
| | |
Fair value of plan assets at beginning of year | |
| 26,264 | | |
| 22,787 | | |
| 18,393 | |
Actual return on plan assets | |
| 1,926 | | |
| 3,191 | | |
| 3,923 | |
Employer contribution | |
| 2,000 | | |
| 1,100 | | |
| 925 | |
Benefits paid | |
| (2,488 | ) | |
| (814 | ) | |
| (454 | ) |
Fair value of plan assets at end of year | |
| 27,702 | | |
| 26,264 | | |
| 22,787 | |
| |
| | | |
| | | |
| | |
Funded status and accrued benefit at end of year | |
$ | (17,387 | ) | |
$ | (21,328 | ) | |
$ | (13,371 | ) |
Accumulated benefit obligation at end of year | |
$ | 34,137 | | |
$ | 35,755 | | |
$ | 27,634 | |
The following actuarial assumptions were
used in determining the pension benefit obligation:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
Discount rate | |
| 2.85 | % | |
| 2.50 | % |
Rate of compensation increase | |
| 4.00 | | |
| 4.00 | |
The discount rate used to determine the
pension benefit obligation increased from 2.50% at December 31, 2020 to 2.85% at December 31, 2021, resulting in a decrease in
the Plan’s pension benefit obligation for the year ended December 31, 2021.
Net pension cost includes the following
components for the years ended December 31:
| |
| | |
| | |
| |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
Service cost | |
$ | 1,842 | | |
$ | 1,396 | | |
$ | 1,095 | |
Interest cost | |
| 1,171 | | |
| 1,162 | | |
| 1,134 | |
Expected return on assets | |
| (1,755 | ) | |
| (1,526 | ) | |
| (1,233 | ) |
Amortization of actuarial loss | |
| 910 | | |
| 421 | | |
| 133 | |
Net periodic pension cost | |
$ | 2,168 | | |
$ | 1,453 | | |
$ | 1,129 | |
| |
| | | |
| | | |
| | |
The following actuarial assumptions were
used in determining the net periodic pension cost for the years ended December 31:
| |
| | |
| | |
| |
| |
2021 | | |
2020 | | |
2019 | |
Discount rate | |
| 2.50 | % | |
| 3.25 | % | |
| 4.25 | % |
Expected return on plan assets | |
| 7.00 | | |
| 7.00 | | |
| 7.00 | |
Rate of compensation increase | |
| 4.00 | | |
| 4.00 | | |
| 4.00 | |
The following is a summary of the Plan’s investments for
the years ended December 31:
| |
| | |
| |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Pooled separate investment accounts: | |
| | | |
| | |
Fixed income | |
$ | 12,896 | | |
$ | 13,332 | |
Large U.S. equity | |
| 7,501 | | |
| 6,763 | |
International equity | |
| 4,251 | | |
| 3,960 | |
Small/mid U.S. equity | |
| 1,228 | | |
| 1,131 | |
Other | |
| 1,826 | | |
| 1,078 | |
Total | |
$ | 27,702 | | |
$ | 26,264 | |
Pooled separate accounts are valued at
the Net Asset Value (“NAV”) of units held by the Plan at year end. The NAV is used as a practical expedient to estimate
fair value. This practical expedient would not be used if it was determined to be probable that the funds will sell the underlying
investments for an amount different from the reported NAV. Participant transactions (purchases and sales) may occur daily. The
preceding method described may produce a fair value calculation that may not be indicative of net realizable value or reflective
of future fair values. Furthermore, although the Plan administrators believes the valuation methods are appropriate and consistent
with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
The following table summarizes the investments
for which fair value is measured using NAV per share as a practical expedient for the years ended December 31, 2021 and 2020. There
are no pertinent redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
| | |
Fair Value | | |
Unfunded
Commitments | |
Redemption
Frequency (if
Currently Eligible) | |
Redemption Notice
Period | |
| | |
(In thousands) | |
December 31, 2021 | | |
$ | 27,702 | | |
n/a | |
Daily | |
| 1 day | |
December 31, 2020 | | |
$ | 26,264 | | |
n/a | |
Daily | |
| 1 day | |
The defined benefit plan offers a mixture
of fixed income, equity and real assets as the underlying investment structure for its retirement structure for the pension plan.
The target allocation mix for the pension plan for 2021 was an equity-based investment deployment of 50% of total portfolio assets
based on advice received from an external advisory firm with confirmation by the Bank’s Investment Committee. The remainder
of the portfolio is allocated to fixed income at 50% of total assets. The investment objective is to diversify investments across
a spectrum of investment types to limit risks from large market swings and to provide anticipated stabilized investment returns.
Trustees of the Plan select investment managers for the portfolio and a second investment advisory firm is retained to provide
allocation analysis. The overall investment objective is to diversify equity investments across a spectrum of types, small cap,
large cap and international, along with investment styles such as growth and value.
We estimate that the benefits to be paid from
the pension plan for years ended December 31 are as follows:
Year | | |
Benefit Payments to Participants | |
|
|
|
(In thousands) | |
| | |
| | |
2022 | | |
$ | 1,944 | |
2023 | | |
| 2,153 | |
2024 | | |
| 2,277 | |
2025 | | |
| 5,547 | |
2026 | | |
| 6,015 | |
In aggregate for 2027 – 2031 | | |
| 12,511 | |
We have not yet determined the amount of
the contribution we expect to make to the plan during the fiscal year ending December 31, 2022.
401(k) Defined Contribution Plan.
The Company has a 401(k) defined contribution
employee benefit plan. The 401(k) plan allows eligible employees to contribute a percentage of their earnings to the plan. A portion
of the employee contribution, as determined by the Compensation Committee of the Board of Directors, is matched by the Company.
In 2021, 2020 and 2019, the Company’s percentage match was 50% up to the first 6% contributed by the employee.
The Company’s expense for the 401(k)
plan match was $476,000, $468,000 and $423,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
11. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives.
The Company is exposed to certain risks
arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business
and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity,
and credit risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative
financial instruments. Specifically, we entered into derivative financial instruments to manage exposures that arise from business
activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined
by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our
known or expected cash receipts and our known or expected cash payments principally related to certain variable rate loan assets
and variable rate borrowings.
The following table presents information
about interest rate swaps at December 31, 2021 and December 31, 2020:
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 | |
$ | 16,023 | | |
| 11.1 | | |
| 1.99 | % | |
| 3.76 | % | |
$ | (662 | ) |
Loan-level swaps – borrower | |
| 16,023 | | |
| 11.1 | | |
| 3.76 | % | |
| 1.99 | % | |
| 662 | |
Forward starting loan-level swaps - dealer | |
| 22,390 | | |
| 10.5 | | |
| | | |
| | | |
| 1,030 | |
Forward starting loan-level swaps - borrower | |
| 22,390 | | |
| 10.5 | | |
| | | |
| | | |
| (1,030 | ) |
Total | |
$ | 76,826 | | |
| | | |
| | | |
| | | |
$ | 0 | |
December 31, 2020 | |
Notional | | |
Weighted Average | | |
Weighted Average Rate | | |
Estimated Fair | |
| |
Amount | | |
Maturity | | |
Receive | | |
Pay | | |
Value | |
| |
(In thousands) | | |
(In years) | | |
| | |
| | |
(In thousands) | |
Non-hedging derivatives: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loan-level swaps – dealer | |
$ | 13,554 | | |
| 12.5 | | |
| 1.97 | % | |
| 3.74 | % | |
$ | (1,440 | ) |
Loan-level swaps – borrower | |
| 13,554 | | |
| 12.5 | | |
| 3.74 | % | |
| 1.97 | % | |
| 1,440 | |
Forward starting loan-level swaps - dealer | |
| 22,390 | | |
| 11.5 | | |
| | | |
| | | |
| 114 | |
Forward starting loan-level swaps - borrower | |
| 22,390 | | |
| 11.5 | | |
| | | |
| | | |
| (114 | ) |
Total | |
$ | 71,888 | | |
| | | |
| | | |
| | | |
$ | 0 | |
At December 31, 2021, the Company had $76.8
million in derivatives designated as non-hedging instruments and no derivatives designated as hedging instruments, compared to
$71.9 million in derivatives designated as non-hedging instruments and no derivatives designated as hedging instruments at December
31, 2020.
Cash Flow Hedges of Interest Rate Risk.
The Company’s objectives in using
interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements.
To accomplish this objective, 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.
For derivatives designated as cash flow
hedges, the 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. 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 its net risk exposure resulting from such transactions. The third-party
financial institution exchanges the customer's fixed-rate loan payments for floating-rate loan payments. As the interest-rate swap
agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly
in earnings.
Fair Values of Derivative Instruments
on the Balance Sheet.
The table below presents the fair value
of our derivative financial instruments not designated as hedging instruments as well as our classification on the balance sheet
as of December 31, 2021 and December 31, 2020.
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 | |
Other Assets | |
$ | 662 | | |
Other Liabilities | |
$ | 1,030 | |
Interest rate swap – with counterparties | |
| |
| 1,030 | | |
| |
| 662 | |
Total derivatives not designated as hedging instruments | |
| |
$ | 1,692 | | |
| |
$ | 1,692 | |
December
31, 2020 | |
Asset Derivatives | |
Liability Derivatives |
| |
Balance Sheet
Location | |
Fair Value | | |
Balance Sheet
Location | |
Fair Value | |
| |
(In thousands) |
Derivatives not designated as hedging instruments: | |
| |
| | |
| |
| |
Interest rate swap – with customers | |
Other Assets | |
$ | 1,440 | | |
Other Liabilities | |
$ | 114 | |
Interest rate swap – with counterparties | |
| |
| 114 | | |
| |
| 1,440 | |
Total derivatives not designated as hedging instruments | |
| |
$ | 1,554 | | |
| |
$ | 1,554 | |
Effect of Derivative Instruments in
the Consolidated Statements of Net Income and Changes in Shareholders’ Equity.
The table below presents the pre-tax net gains (losses) of our
cash flow hedges for the periods indicated:
| |
Amount of Gain (Loss) Recognized in OCI on Derivative | |
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
| |
| | |
| | |
| |
Interest rate swaps | |
$ | 0 | | |
$ | 1,099 | | |
$ | (900 | ) |
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
liabilities. The table below presents the amount reclassified from accumulated other comprehensive loss into net income for interest
rate swaps and termination fees:
| |
Amount of Gain Reclassified from OCI into Expense (Effective Portion) | |
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
| |
| | |
| | |
| |
Interest rate swaps | |
$ | 282 | | |
$ | 1,516 | | |
$ | 1,455 | |
As of December 31, 2021, the Company no
longer has any outstanding cash flow hedges.
Credit-risk-related Contingent Features
By using derivative financial instruments,
we expose ourselves to credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.
When the fair value of a derivative is negative, we owe the counterparty and, therefore, it does not possess credit risk. The credit
risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that we believe to be
creditworthy and by limiting the amount of exposure to each counterparty.
We have agreements with our derivative
counterparties that contain a provision where if we default on any of our indebtedness, including default where repayment of
the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.
We also have agreements with certain of our derivative counterparties that contain a provision where if we fail to maintain our
status as well capitalized, then the counterparty could terminate the derivative positions and we would be required to settle our
obligations under the agreements. Certain of our agreements with our derivative counterparties contain provisions where if a formal
administrative action by a federal or state regulatory agency occurs that materially changes our creditworthiness in an adverse
manner, we may be required to fully collateralize our obligations under the derivative instrument.
At December 31, 2021, we had a net asset
position of $368,000, and at December 31, 2020, a net liability position $1.3 million with our counterparties. As of December 31,
2021, we had minimum collateral posting thresholds with certain of our derivative counterparties and no collateral against our
obligations under these agreements. If we had breached any of these provisions at December 31, 2021, we could have been required
to settle our obligations under the agreements at the termination value.
12. LEASES
The Company determines if an arrangement
is a lease at inception. Operating leases are included within other assets and other liabilities in our consolidated balance sheets.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit
rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that
we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease
and non-lease components, which are generally accounted for separately. We have not elected the practical expedient to account
for lease and non-lease components as one lease component. Additionally, the Company has elected the practical expedient whereby
expired leases, existing operating lease classifications and initial direct costs will not be reassessed at inception. The Company
has operating leases for certain of our banking offices and ATMs. Our leases have remaining lease terms of less than one year to
seventeen years, some of which include options to extend the leases for additional five-year terms up to fifteen years.
The components of lease expense were as follows:
| |
|
|
|
|
|
| |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
| |
| | |
| |
Amortization of ROU assets | |
$ | 1,323 | | |
$ | 1,191 | |
Interest on lease liabilities | |
| 269 | | |
| 269 | |
Operating lease cost | |
$ | 1,592 | | |
$ | 1,460 | |
Supplemental cash flow information related to leases was as
follows:
| |
|
|
|
|
|
| |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
| |
| | |
| |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
Operating cash flows from operating leases | |
$ | 1,525 | | |
$ | 1,397 | |
ROU assets obtained in exchange for lease obligations: | |
| | | |
| | |
Operating leases | |
| 181 | | |
| 4,332 | |
Supplemental balance sheet information related to leases was
as follows:
| |
| | |
| |
| |
December 31, 2021 | | |
December 31, 2020 | |
| |
(In thousands) | |
| |
| | |
| |
Operating lease ROU assets | |
$ | 8,789 | | |
$ | 9,939 | |
Operating lease liabilities | |
$ | 8,964 | | |
$ | 10,047 | |
The weighted average remaining lease term for our operating
leases was 10.2 years with a weighted average discount rate of 2.81% at December 31, 2021. Maturities of the Company’s operating
lease liabilities were as follows (in thousands):
| | |
| |
Years Ending December 31, | | |
| |
2022 | | |
$ | 1,445 | |
2023 | | |
| 1,203 | |
2024 | | |
| 1,138 | |
2025 | | |
| 1,054 | |
2026 | | |
| 1,013 | |
Thereafter | | |
| 4,628 | |
Total lease payments | | |
| 10,481 | |
Less imputed interest | | |
| (1,517 | ) |
Total | | |
$ | 8,964 | |
The Company and the Bank are subject to
various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct
material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective
action provisions are not applicable to savings and loan holding companies.
Federal banking regulations require the
Company and the Bank to maintain minimum amounts and ratios of total, common equity Tier 1, Tier 1 and total capital to risk-weighted
assets and Tier 1 capital to average assets, as set forth in the table below. Additionally, community banking institutions must
maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets
to avoid being subject to limitations on capital distributions and discretionary bonuses.
At December 31, 2021, we exceeded each
of the applicable regulatory capital requirements including the capital conservation buffer. As of December 31, 2021, 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 December 31,
2021 and December 31, 2020 are also presented in the following table.
| |
Actual | | |
Minimum For Capital
Adequacy Purpose | | |
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions | |
| |
Amount | | |
Ratio | | |
Amount | | |
Ratio | | |
Amount | | |
Ratio | |
| |
(Dollars in thousands) | |
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 | |
December 31, 2020 | |
| | |
| | |
| | |
| | |
| | |
| |
Total Capital (to Risk Weighted Assets): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
$ | 244,158 | | |
| 14.65 | % | |
$ | 133,336 | | |
| 8.00 | % | |
| N/A | | |
| N/A | |
Bank | |
| 231,531 | | |
| 13.91 | | |
| 133,149 | | |
| 8.00 | | |
$ | 166,436 | | |
| 10.00 | % |
Tier 1 Capital (to Risk Weighted Assets): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 223,320 | | |
| 13.40 | | |
| 100,002 | | |
| 6.00 | | |
| N/A | | |
| N/A | |
Bank | |
| 210,722 | | |
| 12.66 | | |
| 99,862 | | |
| 6.00 | | |
| 133,149 | | |
| 8.00 | |
Common Equity Tier 1 Capital (to Risk Weighted Assets): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 223,320 | | |
| 13.40 | | |
| 75,002 | | |
| 4.50 | | |
| N/A | | |
| N/A | |
Bank | |
| 210,722 | | |
| 12.66 | | |
| 74,896 | | |
| 4.50 | | |
| 108,183 | | |
| 6.50 | |
Tier 1 Leverage Ratio (to Adjusted Average Assets): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consolidated | |
| 223,320 | | |
| 9.34 | | |
| 95,606 | | |
| 4.00 | | |
| N/A | | |
| N/A | |
Bank | |
| 210,722 | | |
| 8.83 | | |
| 95,409 | | |
| 4.00 | | |
| 119,261 | | |
| 5.00 | |
The following is a reconciliation of our GAAP capital to regulatory
Tier 1, Common Equity Tier 1 and total capital:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Consolidated GAAP capital | |
$ | 223,688 | | |
$ | 226,640 | |
Net unrealized losses (gains) on available-for-sale securities, net of tax | |
| 3,525 | | |
| (963 | ) |
Unrealized loss on defined benefit pension plan, net of tax | |
| 8,789 | | |
| 11,750 | |
Accumulated net loss on cash flow hedges, net of tax | |
| — | | |
| 492 | |
Goodwill | |
| (12,487 | ) | |
| (12,487 | ) |
Intangible assets, net of associated deferred tax liabilities | |
| (1,842 | ) | |
| (2,112 | ) |
Tier 1 and Common Equity Tier 1 capital | |
| 221,673 | | |
| 223,320 | |
Allowance for loan losses for regulatory capital | |
| 19,787 | | |
| 20,838 | |
Subordinated debt | |
| 19,633 | | |
| — | |
Total regulatory capital | |
$ | 261,093 | | |
$ | 244,158 | |
On October 27, 2020, the Company announced
that the Board of Directors authorized a stock repurchase plan (the “2020 Plan”) under which the Company was authorized
to purchase up to 1.3 million shares, or 5% of its outstanding common stock. On May 20, 2021, the Company announced the completion
of the 2020 Plan. On April 27, 2021, the Company announced that 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, or 10% of its outstanding
common stock. During the twelve months ended December 31, 2021, the Company repurchased 2,758,051 shares under both the 2020 Plan
and 2021 Plan at an average price of $8.33. At December 31, 2021, there were 677,319 shares available for repurchase under the
2021 Plan.
We are subject to dividend restrictions
imposed by various regulators, including a limitation on the total of all dividends that the Bank may pay to the Company in any
calendar year, to an amount that shall not exceed the Bank’s net income for the current year, plus its net income retained
for the two previous years, without regulatory approval. At December 31, 2021 and 2020, the Bank had no retained earnings available
for payment of dividends without prior regulatory approval. In addition, the Bank may not declare or pay dividends on, and we may
not repurchase, any of our shares of common stock if the effect thereof would cause shareholders’ equity to be reduced below
applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory
requirements. The Bank will be prohibited from paying cash dividends to the Company to the extent that any such payment would reduce
the Bank’s capital below required capital levels. Accordingly, $146.1 million and $133.1 million of our equity in the net
assets of the Bank was restricted at December 31, 2021 and 2020, respectively.
Income taxes consist of the following:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
| | |
(In thousands) | | |
| |
| |
| | |
| | |
| |
Current tax provision: | |
| | | |
| | | |
| | |
Federal | |
$ | 5,061 | | |
$ | 3,793 | | |
$ | 3,082 | |
State | |
| 2,320 | | |
| 1,579 | | |
| 1,450 | |
Total | |
| 7,381 | | |
| 5,372 | | |
| 4,532 | |
| |
| | | |
| | | |
| | |
Deferred tax provision (benefit): | |
| | | |
| | | |
| | |
Federal | |
| 462 | | |
| (1,639 | ) | |
| (348 | ) |
State | |
| 182 | | |
| (792 | ) | |
| (332 | ) |
Total | |
| 644 | | |
| (2,431 | ) | |
| (680 | ) |
Total tax provision | |
$ | 8,025 | | |
$ | 2,941 | | |
$ | 3,852 | |
The differences between the statutory federal income tax at
a rate of 21% and the effective tax are summarized below:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
| |
| | |
| | |
| |
Statutory federal income tax | |
$ | 6,662 | | |
$ | 2,973 | | |
$ | 3,612 | |
Increase (decrease) resulting from: | |
| | | |
| | | |
| | |
State taxes, net of federal tax benefit | |
| 1,977 | | |
| 622 | | |
| 883 | |
Tax exempt income | |
| (307 | ) | |
| (337 | ) | |
| (388 | ) |
Bank-owned life insurance (BOLI) | |
| (401 | ) | |
| (380 | ) | |
| (378 | ) |
BOLI death benefit | |
| (117 | ) | |
| — | | |
| — | |
Option exercise tax (benefit) shortfall | |
| (15 | ) | |
| 1 | | |
| (16 | ) |
Other, net | |
| 226 | | |
| 62 | | |
| 139 | |
Effective tax | |
$ | 8,025 | | |
$ | 2,941 | | |
$ | 3,852 | |
Cash paid for income taxes for the years ended December 31,
2021, 2020 and 2019 was $6.9 million, $5.8 million and $4.2 million, respectively.
The tax effects of each item that gives rise to deferred taxes
are as follows:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
| |
| | |
| |
Deferred tax assets: | |
| | | |
| | |
Allowance for loan losses | |
$ | 5,562 | | |
$ | 5,947 | |
Defined benefit plan | |
| 3,436 | | |
| 4,594 | |
Lease liability | |
| 2,520 | | |
| 2,824 | |
Employee benefit and share-based compensation plans | |
| 2,409 | | |
| 2,251 | |
Nonaccrual interest | |
| 196 | | |
| 224 | |
Net unrealized loss on derivative and hedging activity | |
| — | | |
| 192 | |
Net unrealized loss on available-for-sale securities | |
| 1,160 | | |
| — | |
Purchased mortgage servicing rights | |
| 140 | | |
| 191 | |
Other | |
| 891 | | |
| 619 | |
Gross deferred tax assets | |
| 16,314 | | |
| 16,842 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Lease right-of-use asset | |
| (2,471 | ) | |
| (2,794 | ) |
Fixed asset depreciation | |
| (677 | ) | |
| (502 | ) |
Purchase accounting adjustments, net | |
| (523 | ) | |
| (494 | ) |
Net unrealized gain on available-for-sale securities | |
| — | | |
| (339 | ) |
Deferred loan fees | |
| (539 | ) | |
| (121 | ) |
Other | |
| (12 | ) | |
| (4 | ) |
Gross deferred tax liabilities | |
| (4,222 | ) | |
| (4,254 | ) |
| |
| | | |
| | |
Net deferred tax asset | |
$ | 12,092 | | |
$ | 12,588 | |
| |
| | | |
| | |
The federal income tax reserve for loan
losses at the Bank’s base year is $9.4 million. If any portion of the reserve is used for purposes other than to absorb loan
losses, approximately 150% of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the
fiscal year in which used. As the Bank intends to use the reserve solely to absorb loan losses, a deferred tax liability of $2.6
million has not been provided.
We do not have any uncertain tax positions
at December 31, 2021 or 2020 which require accrual or disclosure. We record interest and penalties as part of income tax expense.
No interest was recorded for the years ended December 31, 2021 and 2020, and no penalties were recorded for the years ended December
31, 2021, 2020 and 2019.
Our income tax returns
are subject to review and examination by federal and state tax authorities. We are currently open to audit under the applicable
statutes of limitations by the Internal Revenue Service for the years ended December 31, 2018 through 2021. The years open to examination
by state taxing authorities vary by jurisdiction; however, no years prior to 2018 are open.
| 15. | TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS |
We have had, and expect
to have in the future, loans with our directors and executive officers including their affiliates. Such loans, in our opinion,
do not include more than the normal risk of collectability or other unfavorable features. Following is a summary of activity for
such loans:
| |
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
| |
| | |
| |
Balance at beginning of year | |
$ | 695 | | |
$ | 520 | |
Principal distributions | |
| 12 | | |
| 389 | |
Repayments of principal | |
| (104 | ) | |
| (214 | ) |
| |
| | | |
| | |
Balance at end of year | |
$ | 603 | | |
$ | 695 | |
| 16. | COMMITMENTS AND CONTINGENCIES |
Loan Commitments.
In the normal course of business, various
commitments and contingent liabilities are outstanding, such as standby letters of credit and commitments to extend credit with
off-balance-sheet risk that are not reflected in the consolidated financial statements. Financial instruments with off-balance-sheet
risk involve elements of credit, interest rate, liquidity and market risk.
We do not anticipate any significant losses
as a result of these transactions. The following summarizes these financial instruments and other commitments and contingent liabilities
at their contract amounts:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Commitments to extend credit: | |
| | | |
| | |
Unused lines of credit | |
$ | 326,017 | | |
$ | 325,567 | |
Loan commitments | |
| 138,765 | | |
| 69,966 | |
Existing construction loan agreements | |
| 48,235 | | |
| 44,088 | |
Standby letters of credit | |
| 30,160 | | |
| 20,821 | |
We use the same credit policies in making
commitments and conditional obligations as for on balance sheet instruments.
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit,
is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are written conditional
commitments issued by us that guarantee the performance of a customer to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
At December 31, 2021, outstanding commitments
to extend credit totaled $543.2 million, with $101.5 million in fixed rate commitments with interest rates ranging from 2.75% to
18.00% and $441.7 million in variable rate commitments. At December 31, 2020, outstanding commitments to extend credit totaled
$460.4 million, with $86.5 million in fixed rate commitments with interest rates ranging from 2.45% to 18.00% and $373.9 million
in variable rate commitments.
We also have risk participation agreements
(“RPAs”) with another financial institution. The RPAs are a guarantee to share credit risk associated with an interest
rate swap on participation loans in the event of counterparty default. As such, we accept a portion of the credit risk in order
to participate in the loans and we receive a one-time fee. The interest rate swap is collateralized (generally by real estate or
business assets) by us and the third party, which limits the credit risk associated with the RPAs. Per the terms of the RPAs, we
must pledge collateral equal to our exposure for the interest rate swap. We monitor overall collateral as part of our off-balance
sheet liability analysis, and at December 31, 2021, believe sufficient collateral is available to cover potential swap losses.
At December 31, 2021, we had no off-balance sheet exposure to RPAs.
In the ordinary course of business, we
are party to various legal proceedings, none of which, in our opinion, will have a material effect on our consolidated financial
position or results of operations.
Vendor Contract.
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 December 31, 2021 were estimated to be $14.2 million, with $4.5 million expected to be paid
within one year and the remaining $9.7 million to be paid within the next five years.
Investment Commitments.
The Bank is a limited partner in a Small
Business Investment Company (“SBIC”) and committed to contribute capital of $3.0 million to the partnership. At December
31, 2021, the SBIC currently has a book value of $2.7 million and is included in other assets. The unfunded commitment to the partnership
was $300,000 at December 31, 2021.
Employment and change of control agreements.
We have entered into employment and change
of control agreements with certain senior officers. The initial term of the employment agreements is for three years subject to
separate one-year extensions as approved by the Board of Directors at the end of each applicable fiscal year. Each employment agreement
provides for minimum annual salaries, discretionary cash bonuses and other fringe benefits as well as severance benefits upon certain
terminations of employment that are not for cause. The change of control agreements expire one year following a notice of non-extension
and only provide for severance benefits upon certain terminations of employment that are not for cause and that are related to
a change of control of the Company or the Bank.
| 17. | FAIR VALUE OF ASSETS AND LIABLITIES |
Determination of Fair Value.
We use fair value measurements to record
fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial
instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for our various financial instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates
may not be realized in an immediate settlement of the instrument.
Methods and assumptions
for valuing our financial instruments 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.
Securities. The securities measured
at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include marketable equity
securities. All other securities are measured at fair value in Level 2 and are based on pricing models that consider standard input
factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and
new issue data. These securities include government-sponsored enterprise obligations, state and municipal obligations, residential
mortgage-backed securities guaranteed and sponsored by the U.S. government or an agency thereof. Fair value measurements are obtained
from a third-party pricing service and are not adjusted by management.
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.
Assets and Liabilities Measured at Fair
Value on a Recurring Basis.
Assets and liabilities measured at fair
value on a recurring basis are summarized below:
| |
| | | |
| | | |
| | | |
| | |
| |
December 31, 2021 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
(In thousands) | |
Available-for-sale securities | |
$ | — | | |
$ | 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 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| |
December 31, 2020 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
(In thousands) | |
Available-for-sale securities | |
$ | — | | |
$ | 201,880 | | |
$ | — | | |
$ | 201,880 | |
Marketable equity securities | |
| 11,968 | | |
| — | | |
| — | | |
| 11,968 | |
Interest rate swaps | |
| — | | |
| 1,554 | | |
| — | | |
| 1,554 | |
Total assets | |
$ | 11,968 | | |
$ | 203,434 | | |
$ | — | | |
$ | 215,402 | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Interest rate swaps | |
$ | — | | |
$ | 1,554 | | |
$ | — | | |
$ | 1,554 | |
| |
| | | |
| | | |
| | | |
| | |
There were no transfers to or from Level
1 and 2 for assets measured at fair value on a recurring basis during the years ended December 31, 2021 and 2020.
Assets Measured at Fair Value on a Non-recurring
Basis.
We may also be required, from time to time,
to measure certain other financial assets at fair value on a nonrecurring basis in accordance with generally accepted accounting
principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs
of individual assets. The following table summarizes the fair value hierarchy used to determine the carrying values of the related
assets as of December 31, 2021 and 2020.
| |
| | |
Year Ended | |
| |
At December 31, 2021 | | |
December 31, 2021 | |
| |
| | |
| | |
| | |
Total | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Losses | |
| |
(In thousands) | | |
(In thousands) | |
Impaired Loans | |
$ | — | | |
$ | — | | |
$ | 437 | | |
$ | 436 | |
| |
| | |
Year Ended | |
| |
At December 31, 2020 | | |
December 31, 2020 | |
| |
| | |
| | |
| | |
Total | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Losses | |
| |
(In thousands) | | |
(In thousands) | |
Impaired Loans | |
$ | — | | |
$ | — | | |
$ | 150 | | |
$ | 13 | |
The amount of impaired loans represents
the carrying value, net of the related write-down or valuation allowance of impaired loans for which adjustments are based on the
estimated fair value of the underlying collateral. The fair value of impaired loans with specific allocations of the
allowance for loan losses is generally based on real estate appraisals performed by independent licensed or certified appraisers. These
appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments
are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income
data available. Management will discount appraisals as deemed necessary based on the date of the appraisal and new information
deemed relevant to the valuation. Such adjustments are typically significant and result in a Level 3 classification
of the inputs for determining fair value. The resulting losses were recognized in earnings through the provision for loan losses.
There were no liabilities measured at fair value on a non-recurring basis at December 31, 2021 and 2020.
Summary of Fair Values of Financial
Instruments.
The estimated fair values of our financial
instruments are as follows:
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
December 31, 2021 | |
| |
Carrying
Value | | |
Fair Value | |
| |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
(In thousands) | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 103,456 | | |
$ | 103,456 | | |
$ | — | | |
$ | — | | |
$ | 103,456 | |
Securities held-to-maturity | |
| 222,272 | | |
| — | | |
| 219,748 | | |
| — | | |
| 219,748 | |
Securities available-for-sale | |
| 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 | |
| 2,594 | | |
| — | | |
| — | | |
| 2,594 | | |
| 2,594 | |
Loans - net | |
| 1,844,929 | | |
| — | | |
| — | | |
| 1,838,045 | | |
| 1,838,045 | |
Accrued interest receivable | |
| 7,775 | | |
| — | | |
| — | | |
| 7,775 | | |
| 7,775 | |
Mortgage servicing rights | |
| 693 | | |
| — | | |
| 739 | | |
| — | | |
| 739 | |
Derivative asset | |
| 1,692 | | |
| — | | |
| 1,692 | | |
| — | | |
| 1,692 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 2,256,898 | | |
| — | | |
| — | | |
| 2,256,834 | | |
| 2,256,834 | |
Long-term debt | |
| 22,286 | | |
| — | | |
| 23,099 | | |
| — | | |
| 23,099 | |
Accrued interest payable | |
| 28 | | |
| — | | |
| — | | |
| 28 | | |
| 28 | |
Derivative liabilities | |
| 1,692 | | |
| — | | |
| 1,692 | | |
| — | | |
| 1,692 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
December 31, 2020 | |
| |
Carrying
Value | | |
Fair Value | |
| |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
(In thousands) | |
Assets: | |
| | |
| | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 87,444 | | |
$ | 87,444 | | |
$ | — | | |
$ | — | | |
$ | 87,444 | |
Securities available-for-sale | |
| 201,880 | | |
| — | | |
| 201,880 | | |
| — | | |
| 201,880 | |
Marketable equity securities | |
| 11,968 | | |
| 11,968 | | |
| — | | |
| — | | |
| 11,968 | |
Federal Home Loan Bank of Boston and other restricted stock | |
| 5,160 | | |
| — | | |
| — | | |
| 5,160 | | |
| 5,160 | |
Loans - net | |
| 1,906,226 | | |
| — | | |
| — | | |
| 1,900,750 | | |
| 1,900,750 | |
Accrued interest receivable | |
| 8,477 | | |
| — | | |
| — | | |
| 8,477 | | |
| 8,477 | |
Mortgage servicing rights | |
| 153 | | |
| — | | |
| 157 | | |
| — | | |
| 157 | |
Derivative asset | |
| 1,554 | | |
| — | | |
| 1,554 | | |
| — | | |
| 1,554 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 2,043,416 | | |
| — | | |
| — | | |
| 2,040,293 | | |
| 2,040,293 | |
Long-term debt | |
| 57,850 | | |
| — | | |
| 57,945 | | |
| — | | |
| 57,945 | |
Derivative liabilities | |
| 1,554 | | |
| — | | |
| 1,554 | | |
| — | | |
| 1,554 | |
Limitations. 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 Company, through its bank subsidiary,
provides a broad range of financial services to individuals and companies primarily in western Massachusetts and northern Connecticut.
These services include commercial lending, residential lending and consumer lending, checking, savings and time deposits, cash
management, and wealth management. Substantially all of the Company's revenues, profits, and assets are derived by the Bank from
banking products and services. The Company did not have any reportable segments for the years ended December 31, 2021, 2020 or
2019.
| 19. | CONDENSED PARENT COMPANY FINANCIAL STATEMENTS |
The condensed balance sheets
of the parent company are as follows:
| |
|
|
|
|
|
| |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
ASSETS: | |
| | |
| |
Cash equivalents | |
$ | 4,083 | | |
$ | 31 | |
Investment in subsidiaries | |
| 226,015 | | |
| 214,042 | |
ESOP loan receivable | |
| 4,356 | | |
| 5,030 | |
Other assets | |
| 13,819 | | |
| 13,002 | |
TOTAL ASSETS | |
$ | 248,273 | | |
$ | 232,105 | |
| |
| | | |
| | |
LIABILITIES: | |
| | | |
| | |
ESOP loan payable | |
$ | 4,356 | | |
$ | 5,030 | |
Other liabilities | |
| 20,229 | | |
| 435 | |
EQUITY | |
| 223,688 | | |
| 226,640 | |
TOTAL LIABILITIES AND EQUITY | |
$ | 248,273 | | |
$ | 232,105 | |
The condensed statements of net income for the parent company
are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
INCOME: | |
| | |
| | |
| |
Dividends from subsidiaries | |
$ | 13,024 | | |
$ | 15,812 | | |
$ | 25,063 | |
ESOP loan interest income | |
| 402 | | |
| 457 | | |
| 514 | |
Other income | |
| 1 | | |
| 1 | | |
| 1 | |
Total income | |
| 13,427 | | |
| 16,270 | | |
| 25,578 | |
| |
| | | |
| | | |
| | |
OPERATING EXPENSE: | |
| | | |
| | | |
| | |
Salaries and employee benefits | |
| 2,153 | | |
| 1,420 | | |
| 1,647 | |
ESOP interest | |
| 402 | | |
| 457 | | |
| 514 | |
Other expenses | |
| 998 | | |
| 406 | | |
| 352 | |
Total operating expense | |
| 3,553 | | |
| 2,283 | | |
| 2,513 | |
| |
| | | |
| | | |
| | |
Income before equity in undistributed income of subsidiaries and income taxes | |
| 9,874 | | |
| 13,987 | | |
| 23,065 | |
Equity in undistributed income (loss) of subsidiaries | |
| 13,009 | | |
| (3,123 | ) | |
| (10,203 | ) |
Income tax benefit | |
| (816 | ) | |
| (351 | ) | |
| (487 | ) |
Net income | |
$ | 23,699 | | |
$ | 11,215 | | |
$ | 13,349 | |
The condensed statements of cash flows of the parent company
are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
| |
Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
| |
(In thousands) | |
OPERATING ACTIVITIES: | |
| | | |
| | | |
| | |
Net income | |
$ | 23,699 | | |
$ | 11,215 | | |
$ | 13,349 | |
Equity in undistributed (income) loss of subsidiaries | |
| (13,009 | ) | |
| 3,123 | | |
| 10,203 | |
Net amortization of premiums on subordinated debt | |
| 27 | | |
| — | | |
| — | |
Change in other liabilities | |
| (353 | ) | |
| (672 | ) | |
| (668 | ) |
Change in other assets | |
| (142 | ) | |
| 335 | | |
| 216 | |
Other, net | |
| 1,989 | | |
| 1,385 | | |
| 1,607 | |
Net cash provided by operating activities | |
| 12,211 | | |
| 15,386 | | |
| 24,707 | |
| |
| | | |
| | | |
| | |
INVESTING
ACTIVITIES: | |
| | | |
| | | |
| | |
Purchase of securities | |
| ) | |
| ) | |
| ) |
Sales of securities | |
| 105 | | |
| 122 | | |
| 140 | |
Net cash provided by investing activities | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | |
FINANCING
ACTIVITIES: | |
| | | |
| | | |
| | |
Cash dividends paid | |
| (4,677 | ) | |
| (5,037 | ) | |
| (5,274 | ) |
Common stock repurchased | |
| (23,281 | ) | |
| (10,519 | ) | |
| (19,455 | ) |
Proceeds from issuance of subordinated debt | |
| 20,000 | | |
| — | | |
| — | |
Payment of subordinated debt issue costs | |
| (394 | ) | |
| — | | |
| — | |
Issuance of common stock in connection with stock option exercises | |
| 193 | | |
| 43 | | |
| 106 | |
Net cash used in financing activities | |
| (8,159 | ) | |
| (15,513 | ) | |
| (24,623 | ) |
| |
| | | |
| | | |
| | |
NET CHANGE IN CASH AND | |
| | | |
| | | |
| | |
CASH EQUIVALENTS | |
| 4,052 | | |
| (127 | ) | |
| 84 | |
| |
| | | |
| | | |
| | |
CASH AND CASH EQUIVALENTS | |
| | | |
| | | |
| | |
Beginning of year | |
| 31 | | |
| 158 | | |
| 74 | |
End of year | |
$ | 4,083 | | |
$ | 31 | | |
$ | 158 | |
Supplemental cash flow information: | |
| | | |
| | | |
| | |
Net change in due to broker for common stock repurchased | |
$ | (160 | ) | |
$ | 160 | | |
$ | (221 | ) |
| 20. | SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
The following tables
present a summary of our quarterly financial information for the periods indicated. The year-to-date totals may differ slightly
due to rounding. All unaudited interim financial statements furnished shall reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for interim periods presented and are of a normal and recurring nature,
unless otherwise noted.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
2021 | |
| |
First Quarter | | |
Second Quarter | | |
Third Quarter | | |
Fourth Quarter | |
| |
(Dollars in thousands, except per share amounts) | |
Interest and dividend income | |
$ | 20,033 | | |
$ | 19,652 | | |
$ | 20,238 | | |
$ | 19,926 | |
Interest expense | |
| 2,007 | | |
| 1,848 | | |
| 1,473 | | |
| 1,344 | |
| |
| | | |
| | | |
| | | |
| | |
Net interest and dividend income | |
| 18,026 | | |
| 17,804 | | |
| 18,765 | | |
| 18,582 | |
| |
| | | |
| | | |
| | | |
| | |
Provision (credit) for loan losses | |
| 75 | | |
| (1,200 | ) | |
| (100 | ) | |
| 300 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) gain on available-for-sale securities, net | |
| (62 | ) | |
| (12 | ) | |
| 2 | | |
| — | |
Unrealized (losses) gains on marketable equity securities, net | |
| (89 | ) | |
| 6 | | |
| 11 | | |
| (96 | ) |
Loss on interest rate swap termination | |
| — | | |
| (402 | ) | |
| — | | |
| — | |
Gain on non-marketable equity investments | |
| 546 | | |
| — | | |
| — | | |
| 352 | |
BOLI death benefit | |
| — | | |
| — | | |
| — | | |
| 555 | |
Gain on sale of mortgages | |
| 227 | | |
| 242 | | |
| 665 | | |
| 289 | |
Other non-interest income | |
| 2,382 | | |
| 2,575 | | |
| 2,617 | | |
| 2,756 | |
Non-interest income | |
| 3,004 | | |
| 2,409 | | |
| 3,295 | | |
| 3,856 | |
| |
| | | |
| | | |
| | | |
| | |
Non-interest expense | |
| 13,327 | | |
| 13,674 | | |
| 14,018 | | |
| 13,923 | |
| |
| | | |
| | | |
| | | |
| | |
Income tax provision | |
| 1,837 | | |
| 2,087 | | |
| 2,106 | | |
| 1,995 | |
Net income | |
$ | 5,791 | | |
$ | 5,652 | | |
$ | 6,036 | | |
$ | 6,220 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 0.24 | | |
$ | 0.24 | | |
$ | 0.27 | | |
$ | 0.28 | |
Diluted earnings per share | |
$ | 0.24 | | |
$ | 0.24 | | |
$ | 0.27 | | |
$ | 0.28 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
2020 | |
| |
First Quarter | | |
Second Quarter | | |
Third Quarter | | |
Fourth Quarter | |
| |
(Dollars in thousands, except per share amounts) | |
Interest and dividend income | |
$ | 20,390 | | |
$ | 20,330 | | |
$ | 20,447 | | |
$ | 21,708 | |
Interest expense (1) | |
| 5,837 | | |
| 5,238 | | |
| 4,457 | | |
| 2,913 | |
| |
| | | |
| | | |
| | | |
| | |
Net interest and dividend income | |
| 14,553 | | |
| 15,092 | | |
| 15,990 | | |
| 18,795 | |
| |
| | | |
| | | |
| | | |
| | |
Provision for loan losses | |
| 2,100 | | |
| 2,450 | | |
| 2,725 | | |
| 500 | |
| |
| | | |
| | | |
| | | |
| | |
Gain on available-for-sale securities, net | |
| 23 | | |
| 13 | | |
| 1,929 | | |
| — | |
Unrealized gains (losses) on marketable equity securities, net | |
| 102 | | |
| 35 | | |
| (4 | ) | |
| (24 | ) |
Loss on interest rate swap termination | |
| — | | |
| — | | |
| (2,353 | ) | |
| — | |
Other non-interest income | |
| 2,400 | | |
| 2,039 | | |
| 2,605 | | |
| 2,486 | |
Non-interest income | |
| 2,525 | | |
| 2,087 | | |
| 2,177 | | |
| 2,462 | |
| |
| | | |
| | | |
| | | |
| | |
Non-interest expense (2) | |
| 12,314 | | |
| 12,245 | | |
| 12,853 | | |
| 14,338 | |
| |
| | | |
| | | |
| | | |
| | |
Income tax provision | |
| 584 | | |
| 463 | | |
| 488 | | |
| 1,406 | |
Net income | |
$ | 2,080 | | |
$ | 2,021 | | |
$ | 2,101 | | |
$ | 5,013 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 0.08 | | |
$ | 0.08 | | |
$ | 0.08 | | |
$ | 0.20 | |
Diluted earnings per share | |
$ | 0.08 | | |
$ | 0.08 | | |
$ | 0.08 | | |
$ | 0.20 | |
| (1) | The decrease in interest expense for the three months ended December 31, 2020 was due to a decrease
of $933,000 in interest expense on deposits and $611,000 in interest expense on FHLB borrowings, both resulting from repricing
liabilities in the continued low-rate environment as well as the pay down of high-rate FHLB borrowings. |
| (2) | The increase in non-interest expense for the three months ended December 31, 2020 was primarily driven by a $987,000 expense
resulting from the early extinguishment of $50.0 million in FHLB borrowings. |
| (1) | The decrease in interest expense for the three months ended December 31, 2020 was due to a decrease
of $933,000 in interest expense on deposits and $611,000 in interest expense on FHLB borrowings, both resulting from repricing
liabilities in the continued low-rate environment as well as the pay down of high-rate FHLB borrowings. |
| (2) | The increase in non-interest expense for the three months ended December 31, 2020 was primarily driven by a $987,000 expense
resulting from the early extinguishment of $50.0 million in FHLB borrowings. |