UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended September 30, 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 October 31, 2022 the registrant had 22,176,019 shares of common stock, $0.01 par value, issued and outstanding.

TABLE OF CONTENTS

		Page

FORWARD-LOOKING STATEMENTS		i

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements of Western New England Bancorp, Inc. and Subsidiaries (Unaudited)

	Consolidated Balance Sheets – September 30, 2022 and December 31, 2021	1

	Consolidated Statements of Net Income – Three and Nine Months Ended September 30, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2022 and 2021	3

	Consolidated Statements of Changes in Shareholders’ Equity – Three and Nine Months Ended September 30, 2022 and 2021	4

	Consolidated Statements of Cash Flows – Nine Months Ended September 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	49

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, including booster shots and their deployment, including public adoption rates of any COVID-19 vaccines;

●

the emergence of COVID-19 variants 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, 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)

	September 30,			December 31,
	2022			2021
ASSETS
Cash and due from banks	$	22,440		$	15,233
Federal funds sold		1,852			4,901
Interest-bearing deposits and other short-term investments		2,821			83,322
Cash and cash equivalents		27,113			103,456

Available-for-sale securities, at fair value		148,716			194,352
Held-to-maturity securities, at amortized cost (Fair value of $193,115 and $219,748 at September 30, 2022 and December 31, 2021, respectively)		234,387			222,272
Marketable equity securities, at fair value		11,280			11,896
Federal Home Loan Bank of Boston stock and other restricted stock, at cost		2,234			2,594
Loans, net of allowance for loan losses of $20,208 at June 30, 2022 and $19,787 at December 31, 2021		1,987,464			1,844,929
Premises and equipment, net		24,974			26,162
Accrued interest receivable		7,522			7,775
Bank-owned life insurance		74,192			72,895
Deferred tax asset, net		19,430			12,092
Goodwill		12,487			12,487
Core deposit intangible		2,281			2,563
Other assets		26,745			24,952
TOTAL ASSETS	$	2,578,825		$	2,538,425

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing	$	669,649		$	641,284
Interest-bearing		1,618,105			1,615,614
Total deposits		2,287,754			2,256,898

Short-term borrowings		21,500			—
Long-term debt		1,178			2,653
Subordinated debt		19,663			19,633
Other liabilities		37,030			35,553
TOTAL LIABILITIES		2,367,125			2,314,737

SHAREHOLDERS’ EQUITY:
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2022 and December 31, 2021		—			—
Common stock - $0.01 par value, 75,000,000 shares authorized, 22,246,545 shares issued and outstanding at September 30, 2022; 22,656,515 shares issued and outstanding at December 31, 2021		222			227
Additional paid-in capital		129,234			132,821
Unearned compensation – Employee Stock Ownership Plan		(3,039	)		(3,441	)
Unearned compensation - Equity Incentive Plan		(1,280	)		(981	)
Retained earnings		120,248			107,376
Accumulated other comprehensive loss		(33,685	)		(12,314	)
TOTAL SHAREHOLDERS’ EQUITY		211,700			223,688
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,578,825		$	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						Nine Months
	Ended September 30,						Ended September 30,
	2022			2021			2022			2021
Interest and dividend income:
Residential and commercial real estate loans	$	16,942		$	14,766		$	48,388		$	43,732
Commercial and industrial loans		2,535			3,842			7,413			12,186
Consumer loans		66			62			189			193
Debt securities, taxable		2,039			1,474			5,992			3,548
Debt securities, tax-exempt		3			3			9			9
Marketable equity securities		62			23			121			74
Other investments		47			28			102			91
Short-term investments		60			40			129			90
Total interest and dividend income		21,754			20,238			62,343			59,923

Interest expense:
Deposits		1,164			1,217			3,146			4,417
Long-term debt		—			—			—			458
Subordinated debt		254			256			761			453
Short-term borrowings		48			—			58			—
Total interest expense		1,466			1,473			3,965			5,328
Net interest and dividend income		20,288			18,765			58,378			54,595

Provision (credit) for loan losses		675			(100	)		550			(1,225	)
Net interest and dividend income after provision (credit) for loan losses		19,613			18,865			57,828			55,820

Non-interest income:
Service charges and fees		2,223			2,132			6,743			6,090
Income from bank-owned life insurance		391			485			1,297			1,426
Gain (loss) on available-for-sale securities, net		—			2			(4	)		(72	)
Net unrealized (loss) gain on marketable equity securities		(235	)		11			(736	)		(72	)
Gain on sale of mortgages		—			665			2			1,134
Gain on non-marketable equity investments		211			—			352			546
Loss on interest rate swap terminations		—			—			—			(402	)
Other income		—			—			25			58
Total non-interest income		2,590			3,295			7,679			8,708

Non-interest expense:
Salaries and employees benefits		8,025			8,094			24,500			23,911
Occupancy		1,226			1,124			3,766			3,512
Furniture and equipment		465			533			1,547			1,536
Data processing		707			698			2,161			2,177
Professional fees		803			575			2,099			1,708
FDIC insurance assessment		273			273			793			796
Advertising		419			345			1,230			1,030
Loss on prepayment of borrowings		—			—			—			45
Other expenses		2,425			2,376			7,136			6,304
Total non-interest expense		14,343			14,018			43,232			41,019
Income before income taxes		7,860			8,142			22,275			23,509
Income tax provision		1,861			2,106			5,422			6,030
Net income	$	5,999		$	6,036		$	16,853		$	17,479

Earnings per common share:
Basic earnings per share	$	0.28		$	0.27		$	0.77		$	0.74
Weighted average basic shares outstanding		21,757,027			22,620,387			21,947,989			23,602,978
Diluted earnings per share	$	0.28		$	0.27		$	0.77		$	0.74
Weighted average diluted shares outstanding		21,810,036			22,714,429			22,001,371			23,670,347
Dividends per share	$	0.06		$	0.05		$	0.18		$	0.15

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						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

Net income	$	5,999		$	6,036		$	16,853		$	17,479

Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding losses		(9,500	)		(939	)		(29,188	)		(4,701	)
Reclassification adjustment for net (gains) losses realized in income ⁽¹⁾		—			(2	)		4			72
Unrealized losses		(9,500	)		(941	)		(29,184	)		(4,629	)
Tax effect		2,437			238			7,471			1,154
Net-of-tax amount		(7,063	)		(703	)		(21,713	)		(3,475	)

Cash flow hedges:
Reclassification adjustment for loss realized in income for interest rate swap termination⁽²⁾		—			—			—			402
Reclassification adjustment for termination fee realized in interest expense ⁽³⁾		—			—			—			282
Unrealized gains on cash flow hedges		—			—			—			684
Tax effect		—			—			—			(192	)
Net-of-tax amount		—			—			—			492

Defined benefit pension plan:
Amortization of defined benefit plan actuarial loss		158			234			475			701
Tax effect		(44	)		(66	)		(133	)		(197	)
Net-of-tax amount		114			168			342			504

Other comprehensive loss		(6,949	)		(535	)		(21,371	)		(2,479	)

Comprehensive (loss) income	$	(950	)	$	5,501		$	(4,518	)	$	15,000

(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 $1,000 for the three months ended September 30, 2021. The tax effects applicable to net realized gains and losses were $1,000 and $15,000 for the nine months ended September 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 nine months ended September 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 $79,000 for the nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 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
Comprehensive income (loss)		—			—			—			—			—			5,999			(6,949	)		(950	)
Common stock held by ESOP committed to be released (78,526 shares)		—			—			28			134			—			—			—			162
Share-based compensation - equity incentive plan		—			—			(4	)		—			215			—			—			211
Forfeited equity incentive plan shares (17,789 shares)		—			—			(156	)		—			156			—			—			—
Common stock repurchased		(236,302	)		(3	)		(1,853	)		—			—			—			—			(1,856	)
Issuance of common stock in connection with stock option exercises		16,856			—			115			—			—			—			—			115
Cash dividends declared and paid on common stock ($0.06 per share)		—			—			—			—			—			(1,312	)		—			(1,312	)
BALANCE AT SEPTEMBER 30, 2022		22,246,545		$	222		$	129,234		$	(3,039	)	$	(1,280	)	$	120,248		$	(33,685	)	$	211,700

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 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 (loss)		—			—			—			—			—			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
Comprehensive income (loss)		—			—			—			—			—			6,036			(535	)		5,501
Common stock held by ESOP committed to be released (81,893 shares)		—			—			35			139			—			—			—			174
Share-based compensation - equity incentive plan		—			—			—			—			362			—			—			362
Common stock repurchased		(1,221,618	)		(13	)		(10,205	)		—			—			—			—			(10,218	)
Issuance of common stock in connection with equity incentive plan (12,717 shares)		—			—			124			—			(124	)		—			—			—
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,148	)		—			(1,148	)
BALANCE AT SEPTEMBER 30, 2021		22,848,781		$	228		$	134,556		$	(3,580	)	$	(1,362	)	$	102,258		$	(13,758	)	$	218,342

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)


	Nine Months Ended September 30,
	2022			2021
OPERATING ACTIVITIES:
Net income	$	16,853		$	17,479
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses		550			(1,225	)
Depreciation and amortization of premises and equipment		1,742			1,739
(Accretion) amortization of purchase accounting adjustments, net		(57	)		53
Amortization of core deposit intangible		282			281
Net amortization of premiums and discounts on securities and mortgage loans		1,199			1,719
Amortization of subordinated debt issuance costs		30			17
Share-based compensation expense		804			973
ESOP expense		513			487
Gain on sale of portfolio mortgages		—			(227	)
Principal balance of loans originated for sale		(277	)		(32,383	)
Principal balance of loans sold		277			32,383
Net change in unrealized loss on marketable equity securities		736			72
Net loss on available-for-sale securities		4			72
Income from bank-owned life insurance		(1,297	)		(1,426	)
Net change in:
Accrued interest receivable		253			546
Other assets		(5,196	)		(5,277	)
Other liabilities		2,911			3,256
Net cash provided by operating activities		19,327			18,539

INVESTING ACTIVITIES:
Purchases of held-to-maturity securities		(28,030	)		(157,405	)
Proceeds from calls, maturities, and principal collections of held-to-maturity securities		15,540			2,832
Purchases of available-for-sale securities		(5,000	)		(65,291	)
Proceeds from redemptions and sales of available-for-sale securities		20			9,562
Proceeds from calls, maturities, and principal collections of available-for-sale securities		20,514			43,433
Loan originations and principal payments, net		(143,056	)		73,327
Redemption of Federal Home Loan Bank of Boston stock		360			2,462
Proceeds from sale of portfolio mortgages		—			7,801
Purchases of premises and equipment		(584	)		(1,623	)
Proceeds from payout on bank-owned life insurance		2,435			—
Net cash used in investing activities		(137,801	)		(84,902	)

FINANCING ACTIVITIES:
Net increase in deposits		30,881			186,738
Net change in short-term borrowings		21,500			—
Repayment of long-term debt		(1,472	)		(54,011	)
Proceeds from subordinated debt issuance		—			20,000
Payment of subordinated debt issuance costs		—			(394	)
Cash dividends paid		(3,981	)		(3,575	)
Common stock repurchased		(5,537	)		(21,456	)
Issuance of common stock in connection with stock option exercise		740			113
Net cash provided by financing activities		42,131			127,415

NET CHANGE IN CASH AND CASH EQUIVALENTS:		(76,343	)		61,052
Beginning of period		103,456			87,444
End of period	$	27,113		$	148,496

Supplemental cash flow information:
Net change in cash due to broker	$	9		$	(160	)
Interest paid		3,987			5,406
Taxes paid		5,568			5,476

See the accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 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 September 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 nine months ended September 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 represent 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 nine months ended September 30, 2022 and 2021 have been computed based on the following:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(In thousands, except per share data)

Net income applicable to common stock	$	5,999		$	6,036		$	16,853		$	17,479

Average number of common shares issued		22,317			23,255			22,531			24,232
Less: Average unallocated ESOP Shares		(406	)		(486	)		(425	)		(506	)
Less: Average unvested performance-based equity incentive plan shares		(154	)		(149	)		(158	)		(123	)

Average number of common shares outstanding used to calculate basic earnings per common share		21,757			22,620			21,948			23,603

Effect of dilutive performance-based equity incentive plan		40			52			33			30
Effect of dilutive stock options		13			42			20			37

Average number of common shares outstanding used to calculate diluted earnings per common share		21,810			22,714			22,001			23,670

Basic earnings per share	$	0.28		$	0.27		$	0.77		$	0.74
Diluted earnings per share	$	0.28		$	0.27		$	0.77		$	0.74

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:

	September 30, 2022			December 31, 2021
	(In thousands)

Net unrealized losses on available-for-sale securities	$	(33,869	)	$	(4,685	)
Tax effect		8,631			1,160
Net-of-tax amount		(25,238	)		(3,525	)

Unrecognized actuarial loss on the defined benefit plan		(11,750	)		(12,225	)
Tax effect		3,303			3,436
Net-of-tax amount		(8,447	)		(8,789	)

Accumulated other comprehensive loss	$	(33,685	)	$	(12,314	)

SECURITIES

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

	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,910	$	—	$	(3,470	)	$	11,440
State and municipal bonds		270		—		(2	)		268
Corporate bonds		8,016		—		(370	)		7,646
Total debt securities		23,196		—		(3,842	)		19,354

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		151,793		—		(28,471	)		123,322
U.S. government guaranteed mortgage-backed securities		7,596		—		(1,556	)		6,040
Total mortgage-backed securities		159,389		—		(30,027	)		129,362

Total available-for-sale		182,585		—		(33,869	)		148,716

Held-to-maturity securities:
Debt securities:
U.S. Treasury securities		9,985		—		(886	)		9,099
Total debt securities		9,985		—		(886	)		9,099

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		224,402		20		(40,405	)		184,016
Total mortgage-backed securities		224,402		20		(40,405	)		184,016

Total held-to-maturity		234,387		20		(41,291	)		193,115

Total	$	416,972	$	20	$	(75,160	)	$	341,831

	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 September 30, 2022, U.S. Treasury securities with a fair value of $4.5 million, government-sponsored enterprise obligations with a fair value of $7.5 million and mortgage-backed securities with a fair value of $45.6 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 September 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	$	3,286	$	3,171	$	9,985	$	9,099
Due after five years through ten years		14,910		12,606		—		—
Due after ten years		5,000		3,577		—		—
Total debt securities	$	23,196	$	19,354	$	9,985	$	9,099

	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	$	594	$	600	$	—	$	—
Due after five years through ten years		1,160		1,048		—		—
Due after ten years		157,635		127,754		224,402		184,016
Total mortgage-backed securities		159,389		129,362		224,402		184,016
Total securities	$	182,585	$	148,716	$	234,387	$	193,115

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022		2021			2022			2021
	(In thousands)

Gross gains realized	$	—	$	12		$	—		$	12
Gross losses realized		—		(10	)		(4	)		(84	)
Net (loss) gain realized	$	—	$	2		$	(4	)	$	(72	)

Proceeds from the redemption and sales of available-for-sale securities totaled $20,000 and $9.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Information pertaining to securities with gross unrealized losses at September 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:

	September 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		25	$	18,140	$	2,297		11.2	%		46	$	105,182	$	26,174		19.9	%
U.S. government guaranteed mortgage-backed securities		2		970		159		14.1			7		5,070		1,397		21.6
Government-sponsored enterprise obligations		—		—		—		—			3		11,440		3,470		23.3
Corporate bonds		3		7,645		370		4.6			—		—		—		—
State and municipal bonds		1		268		2		0.7			—		—		—		—
Total available-for-sale		31		27,023		2,828					56		121,692		31,041

Held-to-maturity:
U.S. Treasury securities		2		9,099		886		8.9	%		—		—		—		—	%
Government-sponsored mortgage-backed securities		15		77,765		15,468		16.6			22		101,361		24,937		19.7
Total held-to-maturity		17		86,864		16,354					22