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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2022

 

or

 

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

For the transition period from ___________ to ___________

 

Commission File Number: 001-16767

 

Western New England Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Massachusetts   73-1627673
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification Number)

 

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

(413) 568-1911

(Registrant’s telephone number, including area code)

 

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

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

 

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

 

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

 

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

 

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

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

 

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

 

At July 29, 2022 the registrant had 22,307,876 shares of common stock, $0.01 par value, issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
FORWARD-LOOKING STATEMENTS i
     
PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements of Western New England Bancorp, Inc. and Subsidiaries (Unaudited)  
     
  Consolidated Balance Sheets – June 30, 2022 and December 31, 2021 1
     
  Consolidated Statements of Net Income – Three and Six Months Ended June 30, 2022 and 2021 2
     
  Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2022 and 2021 3
     
  Consolidated Statements of Changes in Shareholders’ Equity – Three and Six Months Ended June 30, 2022 and 2021 4
     
  Consolidated Statements of Cash Flows – Six Months Ended June 30, 2022 and 2021 6
     
  Notes to Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 47
     
Item 4. Controls and Procedures 47
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 48
     
Item 1A. Risk Factors 48
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
     
Item 3. Defaults upon Senior Securities 48
     
Item 4. Mine Safety Disclosures 48
     
Item 5. Other Information 49
     
Item 6. Exhibits 49

 

 

 

 

FORWARD–LOOKING STATEMENTS

 

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

 

the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19;

actions governments, businesses and individuals take in response to the COVID-19 pandemic;

the speed and effectiveness of any COVID-19 vaccines and treatment developments and their deployment, including public adoption rates of any COVID-19 vaccines;

the emergence of new COVID-19 variants, such as the Omicron variant, and the response thereto;

the pace of recovery when the COVID-19 pandemic subsides;

changes in the interest rate environment that reduce margins;

the effect on our operations of governmental legislation and regulation, including changes in accounting regulation or standards, the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Basel guidelines, capital requirements and other applicable laws and regulations;

the highly competitive industry and market area in which we operate;

general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;

changes in business conditions and inflation;

changes in credit market conditions;

the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions;

changes in the securities markets which affect investment management revenues;

increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments;

changes in technology used in the banking business;

the soundness of other financial services institutions which may adversely affect our credit risk;

certain of our intangible assets may become impaired in the future;

our controls and procedures may fail or be circumvented;

new lines of business or new products and services, which may subject us to additional risks;

changes in key management personnel which may adversely impact our operations;

severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business; and

other factors detailed from time to time in our SEC filings.

 

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

 

i  

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1: FINANCIAL STATEMENTS. 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands, except share data)

 

    June 30,     December 31,  
    2022     2021  
ASSETS                
Cash and due from banks   $ 19,531     $ 15,233  
Federal funds sold     1,508       4,901  
Interest-bearing deposits and other short-term investments     26,474       83,322  
Cash and cash equivalents     47,513       103,456  
                 
Available-for-sale securities, at fair value     160,925       194,352  
Held-to-maturity securities, at amortized cost (Fair value of $204,791 and $219,748 at June 30, 2022 and December 31, 2021, respectively)     233,803       222,272  
Marketable equity securities, at fair value     11,453       11,896  
Federal Home Loan Bank of Boston stock and other restricted stock, at cost     1,882       2,594  
Loans, net of allowance for loan losses of $19,560 at June 30, 2022 and $19,787 at December 31, 2021     1,956,140       1,844,929  
Premises and equipment, net     25,349       26,162  
Accrued interest receivable     7,869       7,775  
Bank-owned life insurance     73,801       72,895  
Deferred tax asset, net     17,038       12,092  
Goodwill     12,487       12,487  
Core deposit intangible     2,375       2,563  
Other assets     26,722       24,952  
TOTAL ASSETS   $ 2,577,357     $ 2,538,425  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
LIABILITIES:                
Deposits:                
Non-interest-bearing   $ 647,571     $ 641,284  
Interest-bearing     1,654,401       1,615,614  
Total deposits     2,301,972       2,256,898  
                 
Shot-term borrowings     4,790        
Long-term debt     1,360       2,653  
Subordinated debt     19,653       19,633  
Other liabilities     34,252       35,553  
 TOTAL LIABILITIES     2,362,027       2,314,737  
                 
SHAREHOLDERS’ EQUITY:                
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at June 30, 2022 and December 31, 2021            
Common stock - $0.01 par value, 75,000,000 shares authorized, 22,465,991 shares issued and outstanding at June 30, 2022; 22,656,515 shares issued and outstanding at December 31, 2021     225       227  
Additional paid-in capital     131,104       132,821  
Unearned compensation – Employee Stock Ownership Plan     (3,173 )     (3,441 )
Unearned compensation - Equity Incentive Plan     (1,651 )     (981 )
Retained earnings     115,561       107,376  
Accumulated other comprehensive loss     (26,736 )     (12,314 )
TOTAL SHAREHOLDERS’ EQUITY     215,330       223,688  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 2,577,357     $ 2,538,425  

 

See accompanying notes to unaudited consolidated financial statements.

 

1

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED

(Dollars in thousands, except per share data)

 

                         
    Three Months     Six Months  
    Ended June 30,     Ended June 30,  
    2022     2021     2022     2021  
Interest and dividend income:                                
Residential and commercial real estate loans   $ 16,103     $ 14,457     $ 31,446     $ 28,966  
Commercial and industrial loans     2,334       3,801       4,878       8,344  
Consumer loans     63       63       123       131  
Debt securities, taxable     2,029       1,250       3,952       2,074  
Debt securities, tax-exempt     3       3       6       6  
Marketable equity securities     36       24       60       51  
Other investments     30       28       55       63  
Short-term investments     48       26       69       50  
Total interest and dividend income     20,646       19,652       40,589       39,685  
                                 
Interest expense:                                
Deposits     990       1,466       1,982       3,200  
Long-term debt           185             458  
Subordinated debt     254       197       507       197  
Short-term borrowings     10             10        
Total interest expense     1,254       1,848       2,499       3,855  
Net interest and dividend income     19,392       17,804       38,090       35,830  
                                 
Provision (credit) for loan losses     300       (1,200 )     (125 )     (1,125 )
Net interest and dividend income after provision (credit) for loan losses     19,092       19,004       38,215       36,955  
                                 
Non-interest income:                                
Service charges and fees     2,346       2,075       4,520       3,958  
Income from bank-owned life insurance     458       500       906       941  
Loss on available-for-sale securities, net           (12 )     (4 )     (74 )
Net unrealized (loss) gain on marketable equity securities     (225 )     6       (501 )     (83 )
Gain on sale of mortgages           242       2       469  
Gain on non-marketable equity investments     141             141       546  
Loss on interest rate swap terminations           (402 )           (402 )
Other income     21             25       58  
Total non-interest income     2,741       2,409       5,089       5,413  
                                 
Non-interest expense:                                
Salaries and employees benefits     8,236       8,054       16,475       15,736  
Occupancy     1,177       1,099       2,540       2,388  
Furniture and equipment     539       513       1,082       1,003  
Data processing     731       758       1,454       1,479  
Professional fees     719       589       1,296       1,133  
FDIC insurance assessment     234       225       520       523  
Advertising     412       347       811       685  
Loss on prepayment of borrowings           45             45  
Other expenses     2,385       2,044       4,711       4,009  
Total non-interest expense     14,433       13,674       28,889       27,001  
Income before income taxes     7,400       7,739       14,415       15,367  
Income tax provision     1,865       2,087       3,561       3,924  
Net income   $ 5,535     $ 5,652     $ 10,854     $ 11,443  
                                 
Earnings per common share:                                
Basic earnings per share   $ 0.25     $ 0.24     $ 0.49     $ 0.47  
Weighted average basic shares outstanding     21,991,383       23,722,903       22,045,052       24,102,416  
Diluted earnings per share   $ 0.25     $ 0.24     $ 0.49     $ 0.47  
Weighted average diluted shares outstanding     22,025,687       23,773,562       22,098,620       24,156,450  
Dividends per share   $ 0.06     $ 0.05     $ 0.12     $ 0.10  

 

 See accompanying notes to unaudited consolidated financial statements.

 

2

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollars in thousands)

 

                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
                         
Net income   $ 5,535     $ 5,652     $ 10,854     $ 11,443  
                                 
Other comprehensive income (loss):                                
Unrealized gains (losses) on available-for-sale securities:                                
Unrealized holding (losses) gains     (8,220 )     707       (19,688 )     (3,762 )
Reclassification adjustment for net losses realized in income (1)           12       4       74  
Unrealized (losses) gains     (8,220 )     719       (19,684 )     (3,688 )
Tax effect     2,100       (165 )     5,034       916  
Net-of-tax amount     (6,120 )     554       (14,650 )     (2,772 )
                                 
Cash flow hedges:                                

Reclassification adjustment for loss realized in income for interest rate swap termination(2)

          402             402  
Reclassification adjustment for termination fee realized in interest expense (3)           142             282  
Unrealized gains on cash flow hedges           544             684  
Tax effect           (153 )           (192 )
Net-of-tax amount           391             492  
                                 
Defined benefit pension plan:                                
Amortization of defined benefit plan actuarial loss     159       233       317       467  
Tax effect     (44 )     (65 )     (89 )     (131 )
Net-of-tax amount     115       168       228       336  
                                 
Other comprehensive (loss) income     (6,005 )     1,113       (14,422 )     (1,944 )
                                 
Comprehensive (loss) income   $ (470 )   $ 6,765     $ (3,568 )   $ 9,499  

 

(1) Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income. The tax effects applicable to net realized gains and losses were $3,000 for the three months ended June 30, 2021.   The tax effects applicable to net realized gains and losses were $1,000 and $16,000 for the six months ended June 30, 2022 and 2021, respectively.
(2) Loss realized in income on interest rate swap termination is recognized as a component of non-interest income.  Income tax effects associated with the reclassification adjustments was $113,000 for the three months ended June 30, 2021.
(3) Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt.  Income tax effects associated with the reclassification adjustments were $40,000 for the three months ended June 30, 2021 and $79,000 for the six months ended June 30, 2021.

 

See accompanying notes to unaudited consolidated financial statements.

 

3

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Dollars in thousands, except share data)

 

                                                 
    Common Stock                                                  
    Shares     Par  Value     Additional Paid-in Capital     Unearned Compensation- ESOP     Unearned Compensation- Equity Incentive Plan     Retained Earnings     Accumulated Other Comprehensive Loss     Total  
                                                                 
BALANCE AT DECEMBER 31, 2021     22,656,515     $ 227     $ 132,821     $ (3,441 )   $ (981 )   $ 107,376     $ (12,314 )   $ 223,688  
Comprehensive income (loss)                                   5,319       (8,417 )     (3,098 )
Common stock held by ESOP committed to be released (78,526 shares)                 45       134                         179  
Share-based compensation - equity incentive plan                             301                   301  
Forfeited equity incentive plan shares (6,651 shares)                 (57 )           57                    
Forfeited equity incentive plan shares reissued (7,289 shares)                 71             (71 )                  
Common stock repurchased     (132,358 )     (2 )     (1,178 )                             (1,180 )
Issuance of common stock in connection with stock option exercises     80,881       1       509                               510  
Issuance of common stock in connection with equity incentive plan     137,151       1       1,248             (1,249 )                  
Cash dividends declared and paid on common stock ($0.06 per share)                                   (1,337 )           (1,337 )
BALANCE AT MARCH 31, 2022     22,742,189     $ 227     $ 133,459     $ (3,307 )   $ (1,943 )   $ 111,358     $ (20,731 )   $ 219,063  
Comprehensive income (loss)                                   5,535       (6,005 )     (470 )
Common stock held by ESOP committed to be released (78,526 shares)                 38       134                         172  
Share-based compensation - equity incentive plan                             292                   292  
Common stock repurchased     (293,173 )     (2 )     (2,508 )                             (2,510 )
Issuance of common stock in connection with stock option exercises     16,975             115                               115  
Cash dividends declared and paid on common stock ($0.06 per share)                                   (1,332 )           (1,332 )
BALANCE AT JUNE 30, 2022     22,465,991     $ 225     $ 131,104     $ (3,173 )   $ (1,651 )   $ 115,561     $ (26,736 )   $ 215,330  

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Dollars in thousands, except share data)

 

                                                 
    Common Stock                                                  
    Shares     Par  Value     Additional Paid-in Capital     Unearned Compensation- ESOP     Unearned Compensation- Equity Incentive Plan     Retained Earnings     Accumulated Other Comprehensive Loss     Total  
                                                                 
BALANCE AT DECEMBER 31, 2020     25,276,193     $ 253     $ 154,549     $ (3,997 )   $ (1,240 )   $ 88,354     $ (11,279 )   $ 226,640  
Comprehensive income                                   5,791       (3,057 )     2,734  
Common stock held by ESOP committed to be released (81,893 shares)                 8       139                         147  
Share-based compensation - equity incentive plan                             231                   231  
Forfeited equity incentive plan shares reissued (19,086 shares)                 (212 )           212                    
Common stock repurchased     (711,635 )     (7 )     (5,770 )                             (5,777 )
Issuance of common stock in connection with stock option exercises     19,400             113                               113  
Issuance of common stock in connection with equity incentive plan (19,827 shares)                 162             (162 )                  
Cash dividends declared and paid on common stock ($0.05 per share)                                   (1,232 )           (1,232 )
BALANCE AT MARCH 31, 2021     24,583,958     $ 246     $ 148,850     $ (3,858 )   $ (959 )   $ 92,913     $ (14,336 )   $ 222,856  
Comprehensive income                                   5,652       1,113       6,765  
Common stock held by ESOP committed to be released (81,893 shares)                 27       139                         166  
Share-based compensation - equity incentive plan                             380                   380  
Common stock repurchased     (635,921 )     (6 )     (5,295 )                             (5,301 )
Issuance of common stock in connection with equity incentive plan     122,362       1       1,020             (1,021 )                  
Cash dividends declared and paid on common stock ($0.05 per share)                                   (1,195 )           (1,195 )
BALANCE AT JUNE 30, 2021     24,070,399     $ 241     $ 144,602     $ (3,719 )   $ (1,600 )   $ 97,370     $ (13,223 )   $ 223,671  

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)

 

             
    Six Months Ended June 30,  
    2022     2021  
OPERATING ACTIVITIES:                
Net income   $ 10,854     $ 11,443  
Adjustments to reconcile net income to net cash provided by operating activities:                
Credit for loan losses     (125 )     (1,125 )
Depreciation and amortization of premises and equipment     1,163       1,168  
(Accretion) amortization of purchase accounting adjustments, net     (84 )     89  
Amortization of core deposit intangible     188       187  
Net amortization of premiums and discounts on securities and mortgage loans     827       1,170  
Amortization of subordinated debt issuance costs     20       8  
Share-based compensation expense     593       611  
ESOP expense     351       313  
Gain on sale of portfolio mortgages           (227 )
Principal balance of loans originated for sale     (277 )     (9,991 )
Principal balance of loans sold     277       9,991  
Net change in unrealized loss on marketable equity securities     501       83  
Net loss on available-for-sale securities     4       74  
Income from bank-owned life insurance     (906 )     (941 )
Net change in:                
Accrued interest receivable     (94 )     410  
Other assets     (4,846 )     (5,473 )
Other liabilities     (344 )     5,748  
Net cash provided by operating activities     8,102       13,538  
                 
INVESTING ACTIVITIES:                
Purchases of held-to-maturity securities     (21,808 )     (108,694 )
Proceeds from calls, maturities, and principal collections of held-to-maturity securities     10,021       845  
Purchases of available-for-sale securities     (3,000 )     (65,291 )
Proceeds from redemptions and sales of available-for-sale securities     20       129  
Proceeds from calls, maturities, and principal collections of available-for-sale securities     16,107       31,083  
Loan originations and principal payments, net     (111,020 )     42,431  
Redemption of Federal Home Loan Bank of Boston stock     712       1,124  
Proceeds from sale of portfolio mortgages           7,801  
Purchases of premises and equipment     (370 )     (1,114 )
Proceeds from payout on bank-owned life insurance     2,435        
Net cash used in investing activities     (106,903 )     (91,686 )
                 
FINANCING ACTIVITIES:                
Net increase in deposits     45,091       142,535  
Net change in short-term borrowings     4,790        
Repayment of long-term debt     (1,289 )     (52,852 )
Proceeds from subordinated debt issuance           20,000  
Payment of subordinated debt issuance costs           (394 )
Cash dividends paid     (2,669 )     (2,427 )
Common stock repurchased     (3,690 )     (10,777 )
    Issuance of common stock in connection with stock option exercise     625       113  
Net cash provided by financing activities     42,858       96,198  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS:     (55,943 )     18,050  
Beginning of period     103,456       87,444  
End of period   $ 47,513     $ 105,494  
                 
Supplemental cash flow information:                
Net change in cash due to broker   $     $ 301  
Interest paid     2,521       3,912  
Taxes paid     4,955       4,211  

 

See the accompanying notes to unaudited consolidated financial statements.

 

6

 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

JUNE 30, 2022

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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

 

The Bank operates 25 banking offices in Hampden County and Hampshire County in western Massachusetts and Hartford County and Tolland County in northern Connecticut, and its primary sources of revenue are interest income from loans as well as interest income from investment securities. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending, Cash Management and a Mortgage Loan Officer. The Bank’s deposits are insured up to the maximum Federal Deposit Insurance Corporation (“FDIC”) coverage limits.

 

Wholly-owned Subsidiaries 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, Inc., the Bank, CSB Colts, Inc., Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

 

Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses for each. Actual results could differ from those estimates. An estimate that is particularly susceptible to significant change in the near-term relates to the determination of the allowance for loan losses.

 

Basis of Presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of June 30, 2022, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations for the year ending December 31, 2022. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

 

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).

 

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

 

 

 

7

 

 

2. EARNINGS PER SHARE

 

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated Employee Stock Ownership Plan (“ESOP”) shares are not deemed outstanding for earnings per share calculations.

 

Earnings per share for the three and six months ended June 30, 2022 and 2021 have been computed based on the following:

 

                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
    (In thousands, except per share data)  
                         
Net income applicable to common stock   $ 5,535     $ 5,652     $ 10,854     $ 11,443  
                                 
Average number of common shares issued     22,576       24,345       22,640       24,729  
Less: Average unallocated ESOP Shares     (425 )     (506 )     (435 )     (516 )
Less: Average unvested performance-based equity incentive plan shares     (160 )     (116 )     (160 )     (110 )
                                 
Average number of common shares outstanding used to calculate basic earnings per common share     21,991       23,723       22,045       24,103  
                                 
Effect of dilutive performance-based equity incentive plan     17       10       29       19  
Effect of dilutive stock options     17       40       24       35  
                                 
Average number of common shares outstanding used to calculate diluted earnings per common share     22,025       23,773       22,098       24,157  
                                 
Basic earnings per share   $ 0.25     $ 0.24     $ 0.49     $ 0.47  
Diluted earnings per share   $ 0.25     $ 0.24     $ 0.49     $ 0.47  

 

 

3. COMPREHENSIVE INCOME (LOSS)

 

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

 

8

 

 

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

 

    June 30, 2022     December 31, 2021  
    (In thousands)  
             
Net unrealized losses on available-for-sale securities   $ (24,369 )   $ (4,685 )
Tax effect     6,194       1,160  
Net-of-tax amount     (18,175 )     (3,525 )
                 
Unrecognized actuarial loss on the defined benefit plan     (11,908 )     (12,225 )
Tax effect     3,347       3,436  
Net-of-tax amount     (8,561 )     (8,789 )
                 
Accumulated other comprehensive loss   $ (26,736 )   $ (12,314 )

 

 

 

4. SECURITIES

 

Available-for-sale and held-to-maturity investment securities at June 30, 2022 and December 31, 2021 are summarized as follows:

 

    June 30, 2022  
    Amortized Cost     Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair Value  
    (In thousands)  
Available-for-sale securities:                                
Debt securities:                                
Government-sponsored enterprise obligations   $ 14,908     $     $ (2,512 )   $ 12,396  
State and municipal bonds     405                   405  
Corporate bonds     6,019       24       (109 )     5,934  
Total debt securities     21,332       24       (2,621 )     18,735  
                                 
Mortgage-backed securities:                                
Government-sponsored mortgage-backed securities     156,160             (20,606 )     135,554  
U.S. government guaranteed mortgage-backed securities     7,803             (1,167 )     6,636  
Total mortgage-backed securities     163,963             (21,773 )     142,190  
                                 
Total available-for-sale     185,295       24       (24,394 )     160,925  
                                 
Held-to-maturity securities:                                
Debt securities:                                
U.S. Treasury securities     9,983             (602 )     9,381  
Total debt securities     9,983             (602 )     9,381  
                                 
Mortgage-backed securities:                                
Government-sponsored mortgage-backed securities     223,820             (28,410 )     195,410  
Total mortgage-backed securities     223,820             (28,410 )     195,410  
                                 
Total held-to-maturity     233,803             (29,012 )     204,791  
                                 
Total   $ 419,098     $ 24     $ (53,406 )   $ 365,716  

 

9

 

 

    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   $ 14,902     $     $ (676 )   $ 14,226  
State and municipal bonds     405       1             406  
Corporate bonds     3,026       86             3,112  
Total debt securities     18,333       87       (676 )     17,744  
                                 
Mortgage-backed securities:                                
Government-sponsored mortgage-backed securities     171,011       427       (3,929 )     167,509  
U.S. government guaranteed mortgage-backed securities     9,693       8       (602 )     9,099  
Total mortgage-backed securities     180,704       435       (4,531 )     176,608  
                                 
Total available-for-sale     199,037       522       (5,207 )     194,352  
                                 
Held-to-maturity securities:                                
Debt securities:                                
U.S. Treasury securities     9,979             (6 )     9,973  
Total debt securities     9,979             (6 )     9,973  
                                 
Mortgage-backed securities:                                
Government-sponsored mortgage-backed securities     212,293             (2,518 )     209,775  
Total mortgage-backed securities     212,293             (2,518 )     209,775  
                                 
   Total held-to-maturity     222,272             (2,524 )     219,748  
                                 
Total   $ 421,309     $ 522     $ (7,731 )   $ 414,100  

 

At June 30, 2022, U.S. Treasury securities with a fair value of $4.6 million, government-sponsored enterprise obligations with a fair value of $8.3 million and mortgage-backed securities with a fair value of $50.2 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.

 

The amortized cost and fair value of available-for-sale and held-to-maturity securities at June 30, 2022, 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   $ 3,424     $ 3,316     $     $  
Due after five years through ten years     9,908       8,390       9,983       9,381  
Due after ten years     8,000       7,029              
Total debt securities   $ 21,332     $ 18,735     $ 9,983     $ 9,381  

 

10

 

 

    Available-for-Sale     Held-to-Maturity  
    Amortized Cost     Fair Value     Amortized Cost     Fair Value  
    (In thousands)  
Mortgage-backed securities:                                
Due after one year through five years   $ 623     $ 604     $     $  
Due after five years through ten years     1,194       1,115              
Due after ten years     162,146       140,471       223,820       195,410  
Total mortgage-backed securities     163,963       142,190       223,820       195,410  
Total securities   $ 185,295     $ 160,925     $ 233,803     $ 204,791  

 

Gross realized gains and losses on sales of available-for-sale securities for the three and six months ended June 30, 2022 and 2021 are as follows:

 

                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2022     2021     2022     2021  
    (In thousands)  
                         
Gross gains realized   $     $     $     $  
Gross losses realized           (12 )     (4 )     (74 )
Net (loss) gain realized   $     $ (12 )   $ (4 )   $ (74 )

 

Proceeds from the redemption of available-for-sale securities totaled $20,000 and $129,000 for the six months ended June 30, 2022 and 2021, respectively.

 

Information pertaining to securities with gross unrealized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

 

    June 30, 2022  
    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     42     $ 70,556     $ 9,339       11.7 %     29     $ 64,998     $ 11,267       14.8 %
U.S. government guaranteed mortgage-backed securities     2       1,054       84       7.4       7       5,581       1,083       16.3  
Government-sponsored enterprise obligations                             3       12,395       2,512       16.9  
Corporate Bonds     1       2,910       109       3.6                            
Total available-for-sale     45       74,520       9,532               39       82,974       14,862          
                                                                 
Held-to-maturity:                                                                
U.S. Treasury securities     2       9,381       602       6.0 %                       %
Government-sponsored mortgage-backed securities     34       183,882       26,411       12.6       2       11,528       1,999       14.8  
Total held-to-maturity     36       193,263       27,013               2       11,528       1,999          
                                                                 
Total     81     $ 267,783     $ 36,545               41     $ 94,502     $ 16,861          

 

11

 

    December 31, 2021  
    Less Than Twelve Months     Over Twelve Months  
    Number of Securities     Fair Value     Gross Unrealized Loss     Depreciation from Amortized Cost Basis (%)     Number of Securities     Fair Value     Gross Unrealized Loss     Depreciation from Amortized Cost Basis (%)  
    (Dollars in thousands)  
                                                 
Available-for-sale:                                                                
Government-sponsored mortgage-backed securities     34     $ 105,221     $ 2,088       1.9 %     18     $ 42,506     $ 1,841       4.2 %
U.S. government guaranteed mortgage-backed securities     2       2,426       142       5.5       5       5,107       460       8.3  
Government-sponsored enterprise obligations                             3       14,226       676       4.5  
Total available-for-sale     36       107,647       2,230               26       61,839       2,977          
                                                                 
Held-to-maturity:                                                                
U.S. Treasury securities     2       9,973       6       0.1 %                       %
Government-sponsored mortgage-backed securities     31       209,775       2,518       1.2                          
Total held-to-maturity     33       219,748       2,524                                    
                                                                 
Total     69     $ 327,395     $ 4,754               26     $ 61,839     $ 2,977          

 

During the six months ended June 30, 2022 and year ended December 31, 2021, the Company did not record any other-than-temporary impairment (“OTTI”) charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses. Management attributed the unrealized losses at June 30, 2022 to increases in current market yields compared to the yields at the time the investments were purchased 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 June 30, 2022, the Company’s corporate and municipal bond portfolios did not contain any securities rated below investment grade, as reported by major credit rating agencies.

 

 

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Major classifications of loans as of the dates indicated were as follows:

 

    June 30,     December 31,  
    2022     2021  
    (In thousands)  
Commercial real estate   $ 1,074,907     $ 979,969  
Residential real estate:                
Residential one-to-four family     572,700       552,332  
Home equity     103,623       99,759  
Total residential real estate     676,323       652,091  
                 
Commercial and industrial:                
Paycheck Protection Program (“PPP”) loans     2,631       25,329  
Commercial and industrial     215,224       201,340  
Total commercial and industrial     217,855       226,669  
                 
Consumer     4,457       4,250  
Total gross loans     1,973,542       1,862,979  
Unamortized PPP loan fees     (133 )     (781 )
Unearned premiums and deferred loan fees and costs, net     2,291       2,518  
Total loans, net     1,975,700       1,864,716  
Allowance for loan losses     (19,560 )     (19,787 )
Net loans   $ 1,956,140     $ 1,844,929  

 

12

 

 

Loans Serviced for Others.

 

The Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in our accompanying consolidated balance sheets. We continue to service the loans on behalf of the participating lenders. We share with participating lenders, on a pro-rata basis, any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. At June 30, 2022 and December 31, 2021, the Company was servicing commercial loans participated out to various other institutions totaling $80.5 million and $63.2 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 June 30, 2022, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (113 PSA), weighted average internal rate of return (9.01%), weighted average servicing fee (0.25%), and average cost to service loans ($84.02 per loan). The estimated fair value of capitalized servicing rights may vary significantly in subsequent periods primarily due to changing market interest rates, and their effect on prepayment speeds and discount rates. For the six months ended June 30, 2022 and 2021, the Company sold $277,000 and $17.6 million in residential real estate mortgages with servicing retained and recorded gains on the sale of mortgages of $2,000 and $469,000, respectively, within non-interest income.

 

At June 30, 2022 and December 31, 2021, the Company was servicing residential mortgage loans owned by investors totaling $82.5 million and $88.2 million, respectively. Servicing fee income of $105,000 and $52,000 was recorded for the six months ended June 30, 2022 and 2021, respectively, and is included in service charges and fees on the consolidated statements of net income.

 

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

 

   

Three Months Ended

June 30, 2022

   

Six Months Ended

June 30, 2022

 
    (In thousands)  
             
Balance at the beginning of period:   $ 659     $ 693  
Capitalized mortgage servicing rights           2  
Amortization     (36 )     (72 )
Balance at the end of period   $ 623     $ 623  
Fair value at the end of period   $ 796     $ 796  

 

13

 

 

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

 

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

 

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

 

General component

 

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate (includes one-to-four family and home equity), commercial real estate, commercial and industrial, and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: trends in delinquencies and nonperforming loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; and national and local economic trends and industry conditions. There were no changes to the Company’s policies and procedures surrounding the allowance for loan losses during the six months ended June 30, 2022.

 

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

 

Residential real estate. This portfolio segment consists of first mortgages, home equity loans, and home equity lines secured by one-to-four family residential properties. First mortgages may be underwritten to a maximum loan-to-value of 97% for owner-occupied homes, 90% for second homes and 85% for investment properties. Mortgages with loan-to-values greater than 80% require private mortgage insurance. We do not grant subprime loans. Home equity loans and lines are secured by first or second mortgages on one-to-four family owner-occupied properties. Equity loans & lines are underwritten to a maximum combined loan-to-value of 85% of the appraised value of the property. Underwriting approval is dependent on review of the borrower’s ability to repay and credit history in accordance with Westfield Bank’s policy. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment.

Commercial real estate. Loans in this segment include commercial real estate, multi-family dwellings, owner-occupied commercial real estate and income producing investment properties, as well as commercial construction loans for commercial development projects throughout New England. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and continually monitors the cash flows of these loans.

 

14

 

 

Commercial and industrial loans. Loans in this segment include commercial business loans and are generally secured by assignments of corporate assets and personal guarantees of the business owners. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

 

Consumer loans. Loans in this segment are secured or unsecured and repayment is dependent on the credit quality of the individual borrower.

 

Allocated component

 

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

 

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

 

Unallocated component

 

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

 

An analysis of changes in the allowance for loan losses by segment for the three and six months ended June 30, 2022 and 2021 is as follows:

 

    Commercial
Real Estate
    Residential
Real Estate
    Commercial
and Industrial
    Consumer     Unallocated     Total  
    (In thousands)  
       
Balance at March 31, 2021   $ 13,315     $ 4,113     $ 3,562     $ 223     $ 14     $ 21,227  
Provision (credit)     (1,083 )     29       (149 )     2       1       (1,200 )
Charge-offs     (103 )     (41 )     (25 )     (22 )           (191 )
Recoveries           1       22       11             34  
Balance at June 30, 2021   $ 12,129     $ 4,102     $ 3,410     $ 214     $ 15     $ 19,870  
                                                 
Balance at March 31, 2022   $ 12,294     $ 4,068     $ 2,726     $ 199     $ 21     $ 19,308  
Provision (credit)     189       106       (31 )     40       (4 )     300  
Charge-offs           (11 )     (16 )     (40 )           (67 )
Recoveries           1       7       11             19  
Balance at June 30, 2022   $ 12,483     $ 4,164     $ 2,686     $ 210     $ 17     $ 19,560  
                                                 
Balance at December 31, 2020   $ 13,020     $ 4,240     $ 3,630     $ 241     $ 26     $ 21,157  
Provision (credit)     (788 )     (106 )     (209 )     (11 )     (11 )     (1,125 )
Charge-offs     (103 )     (41 )     (34 )     (46 )           (224 )
Recoveries           9       23       30             62  
Balance at June 30, 2021   $ 12,129     $ 4,102     $ 3,410     $ 214     $ 15     $ 19,870  
                                                 
Balance at December 31, 2021   $ 12,970     $ 3,964     $ 2,643     $ 197     $ 13     $ 19,787  
Provision (credit)     (450 )     197       57       67       4       (125 )
Charge-offs     (37 )     (28 )     (22 )     (85 )           (172 )
Recoveries           31       8       31             70  
Balance at June 30, 2022   $ 12,483     $ 4,164     $ 2,686     $ 210     $ 17     $ 19,560  

 

15

 

 

The following table presents information pertaining to the allowance for loan losses by segment, excluding PPP loans, as of the dates indicated:

 

    Commercial
Real Estate
    Residential
Real Estate
    Commercial
and
Industrial
    Consumer     Unallocated     Total  
    (In thousands)  
June 30, 2022                                    
Amount of allowance for impaired loans   $     $     $     $     $     $  
Amount of allowance for non-impaired loans     12,483       4,164       2,686       210       17       19,560  
Total allowance for loan losses   $ 12,483     $ 4,164     $ 2,686     $ 210     $ 17     $ 19,560  
                                                 
Impaired loans   $ 9,416     $ 3,117     $ 523     $     $     $ 13,056  
Non-impaired loans     1,061,476       671,487       214,344       4,457             1,951,764  
Impaired loans acquired with deteriorated credit quality     4,015       1,719       357                   6,091  
Total loans   $ 1,074,907     $ 676,323     $ 215,224     $ 4,457     $     $ 1,970,911  
                                                 
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  

 

16

 

 

Past Due and Nonaccrual Loans.

 

The following tables present an age analysis of past due loans, excluding PPP loans, as of the dates indicated:

 

    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)  
June 30, 2022                                          
Commercial real estate   $ 346     $     $ 436     $ 782     $ 1,074,125     $ 1,074,907     $ 650  
Residential real estate:                                                        
Residential     516       82       540       1,138       571,562       572,700       2,913  
Home equity     88             151       239       103,384       103,623       187  
Commercial and industrial     25       2       22       49       215,175       215,224       355  
Consumer     4                   4       4,453       4,457        
Total loans   $ 979     $ 84     $ 1,149     $ 2,212     $ 1,968,699     $ 1,970,911     $ 4,105  
                                                         
December 31, 2021                                                        
Commercial real estate   $ 139     $     $ 436     $ 575     $ 979,394     $ 979,969     $ 1,224  
Residential real estate:                                                        
Residential     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  

 

Impaired Loans.

 

The following is a summary of impaired loans by class for the dates and periods indicated:

 

                Three Months Ended     Six Months Ended  
    At June 30, 2022     June 30, 2022     June 30, 2022  
    Recorded
Investment
    Unpaid
Principal
Balance
    Average
Recorded
Investment
    Interest
Income
Recognized
    Average
Recorded Investment
    Interest
Income
Recognized
 
    (In thousands)  
Impaired Loans(1):                                                
Commercial real estate   $ 13,431     $ 14,579     $ 13,597     $ 85     $ 13,837     $ 138  
Residential one-to-four family     4,633       5,479       4,612       14       4,673       30  
Home equity     203       221       166             143       1  
Commercial and industrial     880       3,236       931       18       979       33  
Consumer                             5        
Total impaired loans   $ 19,147     $ 23,515     $ 19,306     $ 117     $ 19,637     $ 202  

 

17

 

 

                Three Months Ended     Six Months Ended  
    At December 31, 2021     June 30, 2021     June 30, 2021  
    Recorded
Investment
    Unpaid
Principal
Balance
    Average
Recorded
Investment
    Interest
Income
Recognized
    Average
Recorded
Investment
    Interest
Income
Recognized
 
    (In thousands)  
Impaired Loans(1):                                                
Commercial real estate   $ 14,392     $ 15,563     $ 16,186     $ 197     $ 16,795     $ 305  
Residential real estate:                                                
Residential real estate     4,881       5,381       5,947       63       6,152       167  
Home equity     112       136       136             139       4  
Commercial and industrial     1,069       3,850       3,036       28       3,932       90  
Consumer     22       37       24             25        
 Total impaired loans   $ 20,476     $ 24,967     $ 25,329     $ 288     $ 27,043     $ 566  

 

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

 

With the exception of loans acquired with deteriorated credit quality, 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 troubled debt restructuring (“TDR”). Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR.

 

All payments received on impaired loans in nonaccrual status are applied to principal. There was no interest income recognized on nonaccrual impaired loans during the three and six months ended June 30, 2022 and June 30, 2021. The Company’s obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower’s compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company’s discretion. At June 30, 2022 and 2021, we had not committed to lend any additional funds for loans that are classified as impaired. Payments received on impaired loans in accrual status are recorded in accordance with the contractual terms of the loan. Interest income recognized on impaired loans during the three and six months ended June 30, 2022 and 2021 pertained to performing TDRs and purchased impaired loans.

 

Troubled Debt Restructurings.

 

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Bank grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions 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.

 

18

 

 

There were no loan modifications classified as TDRs during the three and six months ended June 30, 2022 and 2021. During the six months ended June 30, 2022 and 2021, no TDRs defaulted (defined as 30 days or more past due) within 12 months of restructuring. There were no charge-offs on TDRs during the six months ended June 30, 2022 or 2021.

 

Loans Acquired with Deteriorated Credit Quality.

 

The following is a summary of loans acquired in the Chicopee Bancorp, Inc. (“Chicopee”) acquisition with evidence of credit deterioration as of June 30, 2022.

 

      Contractual
Required
Payments
Receivable
    Cash Expected
To Be
Collected
    Non-
Accretable
Discount
    Accretable
Yield
    Loans
Receivable
 
      (In thousands)  
Balance at December 31, 2021     $ 12,134     $ 9,430     $ 2,704     $ 2,499     $ 6,931  
Collections       (1,063 )     (950 )     (113 )     (110 )     (840 )
Dispositions       (63 )     (61 )     (2 )     (61 )      
Balance at June 30, 2022     $ 11,008     $ 8,419     $ 2,589     $ 2,328     $ 6,091  

 

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” and 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.” A loan is 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 loan 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 its review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified assets.

 

19

 

 

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

 

    Commercial Real
Estate
    Residential
1-4 Family
    Home
Equity
    Commercial
and Industrial
    Consumer     Total  
    (In thousands)  
June 30, 2022                                    
Pass (Rated 1 – 4)   $ 1,023,912     $ 568,915     $ 103,308     $ 204,076     $ 4,438     $ 1,904,649  
Special Mention (Rated 5)     33,505                   6,837             40,342  
Substandard (Rated 6)     17,490       3,785       215       6,942       19       28,551  
Total   $ 1,074,907     $ 572,700     $ 103,623     $ 217,855     $ 4,457     $ 1,973,542  
                                                 
December 31, 2021                                                
Pass (Rated 1 – 4)   $ 913,063     $ 547,980     $ 99,503     $ 215,605     $ 4,228     $ 1,780,379  
Special Mention (Rated 5)     48,765                   2,777             51,542  
Substandard (Rated 6)     18,141       4,352       256       8,287       22       31,058  
Total   $ 979,969     $ 552,332     $ 99,759     $ 226,669     $ 4,250     $ 1,862,979  

 

 

 

6. GOODWILL AND OTHER INTANGIBLES

 

Goodwill.

 

At June 30, 2022 and December 31, 2021, the Company’s goodwill was related to the acquisition of Chicopee in October 2016. There was no goodwill impairment recorded during the three and six months ended June 30, 2022 or the year ended December 31, 2021. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment.

 

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 $94,000 and $188,000 for the three and six months ended June 30, 2022, respectively. At June 30, 2022, future amortization of the core deposit intangible totaled $375,000 for each of the next five years and $500,000 thereafter.

 

 

 

7. SHARE-BASED COMPENSATION

 

Stock Options.

 

A summary of stock option activity for the three months ended June 30, 2022 is presented below:

 

      Shares     Weighted
Average
Exercise
Price
   

Weighted
Average
Remaining
Contractual

Term 

(in years) 

   

Aggregate
Intrinsic
Value 

(in thousands) 

 
                           
Outstanding at December 31, 2021       177,881     $ 6.57       0.81     $ 388  
Exercised       (97,856 )     6.38       0.47       238  
Outstanding at June 30, 2022       80,025     $ 6.80       0.56     $ 51  
                                   
Exercisable at June 30, 2022       80,025     $ 6.80       0.56     $ 51  

 

20

 

 

Cash received for options exercised during the six months ended June 30, 2022 and 2021 was $625,000 and $113,000, 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 were not issued because vesting requirements were 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 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-based shares vesting for each performance metric. The primary performance metrics for the 2020 grants are return on equity and earnings per share. Performance-based shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a 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.

 

21

 

 

In May 2021, the Company’s shareholders approved the 2021 Omnibus Incentive Plan, a stock-based compensation plan (the “2021 RSA Plan”). Under the 2021 RSA Plan, up to 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-based shares vesting for each performance metric. The primary performance metrics for the 2021 grants are return on equity and earnings per share. Performance-based shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a 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  

 

In March 2022, 137,151 shares were granted. Of the 137,151 shares, 77,463 shares were time-based, with 17,775 vesting in one year and 59,688 vesting ratably over a three-year period. The remaining 59,688 shares granted are performance-based and are subject to the achievement of the 2022 long-term incentive performance metrics, with 50% of the performance-based shares vesting for each performance metric. The primary performance metrics for the 2022 grants are return on equity and earnings per share. Performance-based shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a 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 2022 grants are as follows:

 

                         
      Return on Equity Metrics  
Performance Period Ending     Threshold       Target       Stretch  
                         
December 31, 2022     7.79 %     8.20 %     8.61 %
December 31, 2023     7.93 %     8.35 %     8.77 %
December 31, 2024     8.03 %     8.45 %     8.87 %

 

                         
    Earnings Per Share Metrics  
Performance Period Ending     Threshold       Target       Stretch  
                         
Three-year Cumulative Diluted Earnings Per Share   $ 2.35     $ 2.61     $ 2.85  

 

At June 30, 2022, there were 440,487 remaining shares available to grant under the 2021 RSA Plan.

 

22

 

 

A summary of the status of restricted stock awards at June 30, 2022 and 2021 is presented below:

 

      Shares     Weighted Average Grant Date Fair Value  
Balance at December 31, 2021       213,381     $ 8.91  
 Shares granted       144,440       9.14  
 Shares forfeited       (6,651 )     8.66  
 Shares vested       (60,009 )     9.77  
Balance at June 30, 2022       291,161     $ 8.86  
                   

 

      Shares     Weighted Average Grant Date Fair Value  
Balance at December 31, 2020       178,766     $ 9.63  
Shares granted       142,189       8.32  
Shares forfeited       (19,154 )     11.05  
Shares vested       (27,727 )     9.81  
Balance at June 30, 2021       274,074     $ 8.83  

 

We recorded total expense for restricted stock awards of $593,000 and $377,000 for the six months ended June 30, 2022 and 2021, respectively.

 

 8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

 

We utilize short-term borrowings and long-term debt as additional sources of funds to finance our lending and investing activities and to provide liquidity for daily operations. Total borrowing capacity includes borrowing arrangements at the FHLB, the Federal Reserve Bank (“FRB”), and borrowing arrangements with correspondent banks.

 

Short-term borrowings can consist of FHLB advances with an original maturity of less than one year, overnight Ideal Way line of credit advances and other borrowings held as collateral for customer swap arrangements. Other borrowings totaled $4.8 million at June 30, 2022. There were no other borrowings outstanding at December 31, 2021. In addition, there were no short-term borrowings issued by the FHLB at June 30, 2022 and at December 31, 2021.

 

FHLB advances provide more pricing and option alternatives for particular asset/liability needs. The FHLB provides a central credit facility primarily for member institutions. As an FHLB member, the Company is required to own capital stock of the FHLB, calculated periodically based primarily on its level of borrowings from the FHLB. FHLB borrowings are secured by certain securities from the Company’s investment portfolio not otherwise pledged as well as certain residential real estate and commercial real estate loans. Advances are made under several different credit programs with different lending standards, interest rates and range of maturities. This relationship is an integral component of the Company’s asset-liability management program. At June 30, 2022, the Bank had $473.2 million in additional borrowing capacity from the FHLB.

 

The Company also has an available overnight Ideal Way line of credit with the FHLB of $9.5 million as of June 30, 2022. 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. As of June 30, 2022 and December 31, 2021, there were no advances outstanding under this line.

 

The Company has an available line of credit of $5.0 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 June 30, 2022 and December 31, 2021, there were no advances outstanding under this line.

 

The Company also has pre-established, non-collateralized overnight borrowing arrangements with large national and regional correspondent banks to provide additional overnight and short-term borrowing capacity for the Company. The Company has a $15.0 million line of credit with a correspondent bank and a $50.0 million line of credit with another correspondent bank, both at an interest rate determined and reset on a daily basis. As of June 30, 2022 and December 31, 2021, there were no advances outstanding under these lines.

 

23

 

 

Long-term debt consists of FHLB advances with an original maturity of one year or more. At June 30, 2022, we had $1.4 million in long-term debt with the FHLB, compared to $2.7 million in long-term debt with the FHLB at December 31, 2021.

 

9.  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 $347,000 as of June 30, 2022, which are being amortized into interest expense over the life of the Notes. Amortization of issuance costs into interest expense was $20,000 and $8,000 for the six months ended June 30, 2022 and 2021, respectively.

 

10. PENSION BENEFITS

 

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. We plan to contribute to the pension plan the amount required to meet the minimum funding standards under Section 412 of the Internal Revenue Code of 1986, as amended. Additional contributions will be made as deemed appropriate by management in conjunction with the pension plan’s actuaries. We contributed $2.1 million into the plan for the six months ended June 30, 2022. There were no contributions made to the Plan during the six months ended June 30, 2021. We have not yet determined how much we expect to contribute to the Plan in 2022. The Plan assets are 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 Plan is administered by an officer of Westfield Bank. 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 regarding net pension benefit costs for the periods indicated:

 

                                 
   

Three Months Ended  

June 30, 

   

Six Months Ended, 

June 30, 

 
    2022     2021     2022     2021  
    (In thousands)  
Service cost   $ 334     $ 454     $ 668     $ 908  
Interest cost     312       294       625       587  
Expected return on assets     (427 )     (439 )     (854 )     (878 )
Amortization of actuarial loss     159       233       317       467  
 Net periodic pension cost   $ 378     $ 542     $ 756     $ 1,084  

 

 

24

 

 

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 June 30, 2022 and December 31, 2021:

 

June 30, 2022   Notional     Weighted Average     Weighted Average Rate     Estimated Fair  
    Amount     Maturity     Receive     Pay     Value  
    (In thousands)     (In years)                 (In thousands)  
Non-hedging derivatives:                                        
Loan-level swaps – dealer counterparties   $ 15,847       10.6       3.68 %     3.76 %   $ 1,270  
Loan-level swaps – borrower counterparties     15,847       10.6       3.76 %     3.68 %     (1,270 )
Forward starting loan-level swaps – dealer counterparties     22,390       10.0                       3,346  
Forward starting loan-level swaps - borrower counterparties     22,390       10.0                       (3,346 )
 Total   $ 76,474                             $ 0  

 

December 31, 2021   Notional     Weighted Average     Weighted Average Rate     Estimated Fair  
    Amount     Maturity     Receive     Pay     Value  
    (In thousands)     (In years)                 (In thousands)  
Non-hedging derivatives: