0001387131-22-008443.txt : 20220805 0001387131-22-008443.hdr.sgml : 20220805 20220805163343 ACCESSION NUMBER: 0001387131-22-008443 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220805 DATE AS OF CHANGE: 20220805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Western New England Bancorp, Inc. CENTRAL INDEX KEY: 0001157647 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 731627673 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16767 FILM NUMBER: 221141356 BUSINESS ADDRESS: STREET 1: 141 ELM STREET CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 413-568-1911 MAIL ADDRESS: STREET 1: 141 ELM STREET CITY: WESTFIELD STATE: MA ZIP: 01085 FORMER COMPANY: FORMER CONFORMED NAME: WESTFIELD FINANCIAL INC DATE OF NAME CHANGE: 20010816 10-Q 1 wneb-10q_063022.htm QUARTERLY REPORT

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

☐

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.

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.

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.

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.

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.

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.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)


	Six Months Ended June 30,
	2022			2021
OPERATING ACTIVITIES:
Net income	$	10,854		$	11,443
Adjustments to reconcile net income to net cash provided by operating activities:
Credit for loan losses		(125	)		(1,125	)
Depreciation and amortization of premises and equipment		1,163			1,168
(Accretion) amortization of purchase accounting adjustments, net		(84	)		89
Amortization of core deposit intangible		188			187
Net amortization of premiums and discounts on securities and mortgage loans		827			1,170
Amortization of subordinated debt issuance costs		20			8
Share-based compensation expense		593			611
ESOP expense		351			313
Gain on sale of portfolio mortgages		—			(227	)
Principal balance of loans originated for sale		(277	)		(9,991	)
Principal balance of loans sold		277			9,991
Net change in unrealized loss on marketable equity securities		501			83
Net loss on available-for-sale securities		4			74
Income from bank-owned life insurance		(906	)		(941	)
Net change in:
Accrued interest receivable		(94	)		410
Other assets		(4,846	)		(5,473	)
Other liabilities		(344	)		5,748
Net cash provided by operating activities		8,102			13,538

INVESTING ACTIVITIES:
Purchases of held-to-maturity securities		(21,808	)		(108,694	)
Proceeds from calls, maturities, and principal collections of held-to-maturity securities		10,021			845
Purchases of available-for-sale securities		(3,000	)		(65,291	)
Proceeds from redemptions and sales of available-for-sale securities		20			129
Proceeds from calls, maturities, and principal collections of available-for-sale securities		16,107			31,083
Loan originations and principal payments, net		(111,020	)		42,431
Redemption of Federal Home Loan Bank of Boston stock		712			1,124
Proceeds from sale of portfolio mortgages		—			7,801
Purchases of premises and equipment		(370	)		(1,114	)
Proceeds from payout on bank-owned life insurance		2,435			—
Net cash used in investing activities		(106,903	)		(91,686	)

FINANCING ACTIVITIES:
Net increase in deposits		45,091			142,535
Net change in short-term borrowings		4,790			—
Repayment of long-term debt		(1,289	)		(52,852	)
Proceeds from subordinated debt issuance		—			20,000
Payment of subordinated debt issuance costs		—			(394	)
Cash dividends paid		(2,669	)		(2,427	)
Common stock repurchased		(3,690	)		(10,777	)
Issuance of common stock in connection with stock option exercise		625			113
Net cash provided by financing activities		42,858			96,198

NET CHANGE IN CASH AND CASH EQUIVALENTS:		(55,943	)		18,050
Beginning of period		103,456			87,444
End of period	$	47,513		$	105,494

Supplemental cash flow information:
Net change in cash due to broker	$	—		$	301
Interest paid		2,521			3,912
Taxes paid		4,955			4,211

See the accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

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.

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).

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	)

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

	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

	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

	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.

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	<