UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended September 30, 2023

☐

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

For the transition period from ___________ to ___________

Commission File Number: 001-16767

Western New England Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

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

(413) 568-1911

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

At October 31, 2023 the registrant had 21,712,815 shares of common stock, $0.01 par value, issued and outstanding.

TABLE OF CONTENTS

Page

FORWARD-LOOKING STATEMENTS		i

PART I – FINANCIAL INFORMATION

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

	Consolidated Balance Sheets – September 30, 2023 and December 31, 2022	1

	Consolidated Statements of Net Income – Three and Nine Months Ended September 30, 2023 and 2022	2

	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and 2022	3

	Consolidated Statements of Changes in Shareholders’ Equity – Three and Nine Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	54

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

FORWARD–LOOKING STATEMENTS

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, liquidity, results of operations, future performance, and business. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

●

unpredictable changes in general economic conditions, financial markets, fiscal, monetary and regulatory policies, including actual or potential stress in the banking industry;

●

the duration and scope of potential pandemics, including the emergence of new variants and the response thereto;

●

changes in economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits;

●

inflation and governmental responses to inflation, including recent and potential future increases in interest rates that reduce margins;

●

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

●

significant changes in accounting, tax or regulatory practices or requirements;

●

new legal obligations or liabilities or unfavorable resolutions of litigation;

●

disruptive technologies in payment systems and other services traditionally provided by banks;

●

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

●

changes in business conditions and inflation;

●

operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud risks;

●

failure or circumvention of our internal controls or procedures;

●

changes in the securities markets which affect investment management revenues;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

Investors should consider these risks, uncertainties, and other factors in addition to the factors under the heading “Risk Factors” included in this filing and our other filings with the SEC.

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

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands, except share data)

	September 30,			December 31,
	2023			2022
ASSETS
Cash and due from banks	$	21,756		$	25,577
Federal funds sold		9,056			1,652
Interest-bearing deposits and other short-term investments		31,455			3,113
Cash and cash equivalents		62,267			30,342

Available-for-sale securities, at fair value		130,709			146,997
Held-to-maturity securities, at amortized cost (Fair value of $176,861 and $190,950 at September 30, 2023 and December 31, 2022, respectively)		225,020			230,168
Marketable equity securities, at fair value		—			6,237
Federal Home Loan Bank of Boston stock and other restricted stock, at cost		3,063			3,352
Loans, net of allowance for credit losses of $19,978 at September 30, 2023 and $19,931 at December 31, 2022		1,994,842			1,971,469
Premises and equipment, net		24,766			24,953
Accrued interest receivable		8,281			8,140
Bank-owned life insurance		74,713			74,620
Deferred tax asset, net		16,206			15,027
Goodwill		12,487			12,487
Core deposit intangible		1,906			2,188
Other assets		30,745			27,170
TOTAL ASSETS	$	2,585,005		$	2,553,150

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing	$	593,602		$	645,529
Interest-bearing		1,582,701			1,583,914
Total deposits		2,176,303			2,229,443

Short-term borrowings		8,890			41,350
Long-term debt		121,178			1,178
Subordinated debt		19,702			19,673
Securities pending settlement		2,253			133
Other liabilities		25,765			33,230
TOTAL LIABILITIES		2,354,091			2,325,007

SHAREHOLDERS' EQUITY:
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at June 30, 2023 and December 31, 2022		—			—
Common stock - $0.01 par value, 75,000,000 shares authorized, 21,927,242 shares issued and outstanding at September 30, 2023; 22,216,789 shares issued and outstanding at December 31, 2022		219			222
Additional paid-in capital		127,376			128,899
Unearned compensation – Employee Stock Ownership Plan		(2,522	)		(2,906	)
Unearned compensation - Equity Incentive Plan		(1,439	)		(1,012	)
Retained earnings		135,966			127,982
Accumulated other comprehensive loss		(28,686	)		(25,042	)
TOTAL SHAREHOLDERS’ EQUITY		230,914			228,143
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,585,005		$	2,553,150

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED

(Dollars in thousands, except per share data)


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2023			2022			2023			2022
Interest and dividend income:
Residential and commercial real estate loans	$	20,084		$	16,942		$	57,439		$	48,388
Commercial and industrial loans		3,279			2,535			9,545			7,413
Consumer loans		88			66			246			189
Debt securities, taxable		2,031			2,039			6,151			5,992
Debt securities, tax-exempt		2			3			6			9
Marketable equity securities		—			62			119			121
Other investments		166			47			418			102
Short-term investments		251			60			424			129
Total interest and dividend income		25,901			21,754			74,348			62,343

Interest expense:
Deposits		7,704			1,164			17,876			3,146
Short-term borrowings		117			48			1,466			58
Long-term debt		1,444			—			2,513			—
Subordinated debt		253			254			760			761
Total interest expense		9,518			1,466			22,615			3,965
Net interest and dividend income		16,383			20,288			51,733			58,378

Provision for credit losses		354			675			386			550
Net interest and dividend income after provision for credit losses		16,029			19,613			51,347			57,828

Non-interest income:
Service charges and fees		2,145			2,223			6,573			6,743
Income from bank-owned life insurance		454			391			1,388			1,297
Loss on available-for-sale securities, net		—			—			—			(4	)
Net unrealized loss on marketable equity securities		—			(235	)		—			(736	)
Loss on disposal of premises and equipment		(3	)		—			(3	)		—
Gain on sale of mortgages		—			—			—			2
Gain on non-marketable equity investments		238			211			590			352
Loss on defined benefit plan termination		—			—			(1,143	)		—
Gain on bank-owned life insurance death benefit		778			—			778			—
Other income		—			—			—			25
Total non-interest income		3,612			2,590			8,183			7,679

Non-interest expense:
Salaries and employees benefits		7,955			8,025			24,475			24,500
Occupancy		1,159			1,226			3,710			3,766
Furniture and equipment		482			465			1,460			1,547
Data processing		824			707			2,369			2,161
Professional fees		643			803			2,203			2,099
FDIC insurance assessment		341			273			983			793
Advertising		362			419			1,118			1,230
Other expenses		2,352			2,425			7,247			7,136
Total non-interest expense		14,118			14,343			43,565			43,232
Income before income taxes		5,523			7,860			15,965			22,275
Income tax provision		1,033			1,861			3,408			5,422
Net income	$	4,490		$	5,999		$	12,557		$	16,853

Earnings per common share:
Basic earnings per share	$	0.21		$	0.28		$	0.58		$	0.77
Weighted average basic shares outstanding		21,560,940			21,757,027			21,631,067			21,947,989
Diluted earnings per share	$	0.21		$	0.28		$	0.58		$	0.77
Weighted average diluted shares outstanding		21,680,113			21,810,036			21,681,251			22,001,371
Dividends per share	$	0.07		$	0.06		$	0.21		$	0.18

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollars in thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022

Net income	$	4,490		$	5,999		$	12,557		$	16,853

Other comprehensive income (loss):
Unrealized losses on available-for-sale securities:
Unrealized holding losses		(7,314	)		(9,500	)		(6,329	)		(29,188	)
Reclassification adjustment for net losses realized in income ⁽¹⁾		—			—			—			4
Unrealized losses		(7,314	)		(9,500	)		(6,329	)		(29,184	)
Tax effect		1,852			2,437			1,605			7,471
Net-of-tax amount		(5,462	)		(7,063	)		(4,724	)		(21,713	)

Defined benefit pension plan:
Gain arising during the period		—			—			358			—
Reclassification adjustment:
Defined benefit plan termination loss realized in income ⁽²⁾		—			—			1,143			—
Amortization of defined benefit plan actuarial loss ⁽³⁾		—			158			—			475
Unrealized actuarial gain on defined benefit plan		—			158			1,501			475
Tax effect		—			(44	)		(421	)		(133	)
Net-of-tax amount		—			114			1,080			342

Other comprehensive loss		(5,462	)		(6,949	)		(3,644	)		(21,371	)

Comprehensive income (loss)	$	(972	)	$	(950	)	$	8,913		$	(4,518	)

(1)

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

(2)

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

(3)

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

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands, except share data)


	Common Stock
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2022		22,216,789		$	222		$	128,899		$	(2,906	)	$	(1,012	)	$	127,982		$	(25,042	)	$	228,143
Cumulative effect accounting adjustment⁽¹⁾		—			—			—			—			—			9			—			9
Comprehensive income		—			—			—			—			—			5,304			1,941			7,245
Common stock held by ESOP committed to be released (74,993 shares)		—			—			52			128			—			—			—			180
Share-based compensation - equity incentive plan		—			—			—			—			529			—			—			529
Forfeited equity incentive plan shares reissued in connection with 2020 LTI performance share grant (19,761 shares)		—			—			180			—			(180	)		—			—			—
Common stock repurchased		(143,896	)		(1	)		(1,350	)		—			—			—			—			(1,351	)
Issuance of common stock in connection with equity incentive plan		136,454			1			1,348			—			(1,349	)		—			—			—
Forfeited equity incentive plan shares reissued in connection with 2023 LTI grant (2,742 shares)		—			—			27			—			(27	)		—			—			—
Cash dividends declared and paid on common stock ($0.07 per share)		—			—			—			—			—			(1,533	)		—			(1,533	)
BALANCE AT MARCH 31, 2023		22,209,347		$	222		$	129,156		$	(2,778	)	$	(2,039	)	$	131,762		$	(23,101	)	$	233,222
Comprehensive income (loss)		—			—			—			—			—			2,763			(123	)		2,640
Common stock held by ESOP committed to be released (74,993 shares)		—			—			22			128			—			—			—			150
Share-based compensation - equity incentive plan		—			—			—			—			300			—			—			300
Common stock repurchased		(126,944	)		(1	)		(785	)		—			—			—			—			(786	)
Cash dividends declared and paid on common stock ($0.07 per share)		—			—			—			—			—			(1,528	)		—			(1,528	)
BALANCE AT JUNE 30, 2023		22,082,403		$	221		$	128,393		$	(2,650	)	$	(1,739	)	$	132,997		$	(23,224	)	$	233,998
Comprehensive income (loss)		—			—			—			—			—			4,490			(5,462	)		(972	)
Common stock held by ESOP committed to be released (74,993 shares)		—			—			(10	)		128			—			—			—			118
Share-based compensation - equity incentive plan		—			—			—			—			300			—			—			300
Common stock repurchased		(155,161	)		(2	)		(1,007	)		—			—			—			—			(1,009	)
Cash dividends declared and paid on common stock ($0.07 per share)		—			—			—			—			—			(1,521	)		—			(1,521	)
BALANCE AT SEPTEMBER 30, 2023		21,927,242		$	219		$	127,376		$	(2,522	)	$	(1,439	)	$	135,966		$	(28,686	)	$	230,914

See accompanying notes to unaudited consolidated financial statements.

(1)

Represents gross transition adjustment amount of $13,000, net of taxes of $4,000, to reflect the cumulative impact on retained earnings pursuant to the Company’s adoption of Accounting Standards Update (“ASU”) 2016-13 Financial Instruments-Credit Losses on Financial Instruments and relevant amendments. Refer to Note 5, “Loans and Allowance for Credit Losses” within the Notes to the Consolidated Financial Statements on Form 10-Q beginning with the quarter ended March 31, 2023.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands, except share data)


	Common Stock
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2021		22,656,515		$	227		$	132,821		$	(3,441	)	$	(981	)	$	107,376		$	(12,314	)	$	223,688
Comprehensive income (loss)		—			—			—			—			—			5,319			(8,417	)		(3,098	)
Common stock held by ESOP committed to be released (78,526 shares)		—			—			45			134			—			—			—			179
Share-based compensation - equity incentive plan		—			—			—			—			301			—			—			301
Forfeited equity incentive plan shares (6,651 shares)		—			—			(57	)		—			57			—			—			—
Forfeited equity incentive plan shares reissued (7,289 shares)		—			—			71			—			(71	)		—			—			—
Common stock repurchased		(132,358	)		(2	)		(1,178	)		—			—			—			—			(1,180	)
Issuance of common stock in connection with stock option exercises		80,881			1			509			—			—			—			—			510
Issuance of common stock in connection with equity incentive plan		137,151			1			1,248			—			(1,249	)		—			—			—
Cash dividends declared and paid on common stock ($0.06 per share)		—			—			—			—			—			(1,337	)		—			(1,337	)
BALANCE AT MARCH 31, 2022		22,742,189		$	227		$	133,459		$	(3,307	)	$	(1,943	)	$	111,358		$	(20,731	)	$	219,063
Comprehensive income (loss)		—			—			—			—			—			5,535			(6,005	)		(470	)
Common stock held by ESOP committed to be released (78,526 shares)		—			—			38			134			—			—			—			172
Share-based compensation - equity incentive plan		—			—			—			—			292			—			—			292
Common stock repurchased		(293,173	)		(2	)		(2,508	)		—			—			—			—			(2,510	)
Issuance of common stock in connection with stock option exercises		16,975			—			115			—			—			—			—			115
Cash dividends declared and paid on common stock ($0.06 per share)		—			—			—			—			—			(1,332	)		—			(1,332	)
BALANCE AT JUNE 30, 2022		22,465,991		$	225		$	131,104		$	(3,173	)	$	(1,651	)	$	115,561		$	(26,736	)	$	215,330
Comprehensive income (loss)		—			—			—			—			—			5,999			(6,949	)		(950	)
Common stock held by ESOP committed to be released (78,526 shares)		—			—			28			134			—			—			—			162
Share-based compensation - equity incentive plan		—			—			(4	)		—			215			—			—			211
Forfeited equity incentive plan shares (17,789 shares)		—			—			(156	)		—			156			—			—			—
Common stock repurchased		(236,302	)		(3	)		(1,853	)		—			—			—			—			(1,856	)
Issuance of common stock in connection with stock option exercises		16,856			—			115			—			—			—			—			115
Cash dividends declared and paid on common stock ($0.06 per share)		—			—			—			—			—			(1,312	)		—			(1,312	)
BALANCE AT SEPTEMBER 30, 2022		22,246,545		$	222		$	129,234		$	(3,039	)	$	(1,280	)	$	120,248		$	(33,685	)	$	211,700

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)


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

NET CHANGE IN CASH AND CASH EQUIVALENTS:		31,925			(76,343	)
Beginning of period		30,342			103,456
End of period	$	62,267		$	27,113

Supplemental cash flow information:
Interest paid	$	20,671		$	3,987
Taxes paid		3,717			5,568
Net change in cash due to broker		2,253			9

See the accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2023

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Wholly-owned Subsidiaries. Elm Street Securities Corporation, WFD Securities, Inc. and CSB Colts, Inc., are Massachusetts-chartered securities corporations, formed for the primary purpose of holding qualified securities. WB Real Estate Holdings, LLC is a Massachusetts-chartered limited liability company that holds real property acquired as security for debts previously contracted by the Bank.

Principles of Consolidation. The consolidated financial statements include the accounts of Western New England Bancorp, Inc., the Bank, CSB Colts, Inc., Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

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

Basis of Presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of September 30, 2023, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations for the year ending December 31, 2023. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments, which requires the recognition of the allowance for credit losses be estimated using the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases (See Notes 4 and 5 to our unaudited consolidated financial statements for further information).

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

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

2. EARNINGS PER SHARE

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated Employee Stock Ownership Plan (“ESOP”) shares are not deemed outstanding for earnings per share calculations. There were no anti-dilutive shares outstanding during the three and nine months ended September 30, 2023 and 2022, respectively.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
	(In thousands, except per share data)

Net income applicable to common stock	$	4,490		$	5,999		$	12,557		$	16,853

Average number of common shares issued		22,055			22,317			22,140			22,531
Less: Average unallocated ESOP Shares		(329	)		(406	)		(347	)		(425	)
Less: Average unvested performance-based equity incentive plan shares		(166	)		(154	)		(162	)		(158	)

Average number of common shares outstanding used to calculate basic earnings per common share		21,561			21,757			21,631			21,948

Effect of dilutive performance-based equity incentive plan		119			40			50			33
Effect of dilutive stock options		—			13			—			20

Average number of common shares outstanding used to calculate diluted earnings per common share		21,680			21,810			21,681			22,001

Basic earnings per share	$	0.21		$	0.28		$	0.58		$	0.77
Diluted earnings per share	$	0.21		$	0.28		$	0.58		$	0.77

3. COMPREHENSIVE INCOME (LOSS)

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

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

	September 30, 2023			December 31, 2022
	(In thousands)

Net unrealized losses on available-for-sale securities	$	(38,488	)	$	(32,159	)
Tax effect		9,802			8,197
Net-of-tax amount		(28,686	)		(23,962	)

Unrecognized actuarial loss on the defined benefit plan		—			(1,501	)
Tax effect		—			421
Net-of-tax amount		—			(1,080	)

Accumulated other comprehensive loss	$	(28,686	)	$	(25,042	)

INVESTMENT SECURITIES

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

	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,921	$	—	$	(3,758	)	$	11,163
State and municipal bonds		135		—		(2	)		133
Corporate bonds		8,001		—		(1,160	)		6,841
Total debt securities		23,057		—		(4,920	)		18,137

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		139,358		—		(31,959	)		107,399
U.S. government guaranteed mortgage-backed securities		6,782		—		(1,609	)		5,173
Total mortgage-backed securities		146,140		—		(33,568	)		112,572

Total available-for-sale		169,197		—		(38,488	)		130,709

Held-to-maturity securities:
Debt securities:
U.S. Treasury securities		9,993		—		(757	)		9,236
Total debt securities		9,993		—		(757	)		9,236

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		215,027		—		(47,402	)		167,625
Total mortgage-backed securities		215,027		—		(47,402	)		167,625

Total held-to-maturity		225,020		—		(48,159	)		176,861

Total	$	394,217	$	—	$	(86,647	)	$	307,570

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,913	$	—	$	(3,345	)	$	11,568
State and municipal bonds		270		—		—			270
Corporate bonds		8,012		—		(519	)		7,493
Total debt securities		23,195		—		(3,864	)		19,331

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		148,544		—		(26,826	)		121,718
U.S. government guaranteed mortgage-backed securities		7,417		—		(1,469	)		5,948
Total mortgage-backed securities		155,961		—		(28,295	)		127,666

Total available-for-sale		179,156		—		(32,159	)		146,997

Held-to-maturity securities:
Debt securities:
U.S. Treasury securities		9,987		—		(825	)		9,162
Total debt securities		9,987		—		(825	)		9,162

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		220,181		67		(38,460	)		181,788
Total mortgage-backed securities		220,181		67		(38,460	)		181,788

Total held-to-maturity		230,168		67		(39,285	)		190,950

Total	$	409,324	$	67	$	(71,444	)	$	337,947

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


	Nine Months Ended September 30
	2023		2022
	(In thousands)

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

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

At September 30, 2023, U.S. Treasury securities with a fair value of $9.2 million, government-sponsored enterprise obligations with a fair value of $7.3 million and mortgage-backed securities with a fair value of $168.0 million were pledged to secure public deposits, the Bank Term Funding Program (“BTFP”) and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities at September 30, 2023, 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 in one year or less	$	3,136	$	3,098	$	—	$	—
Due after one year through five years		—		—		9,993		9,236
Due after five years through ten years		19,921		15,039		—		—
Due after ten years		—		—		—		—
Total debt securities		23,057		18,137		9,993		9,236

Mortgage-backed securities:
Due after one year through five years		475		445		—		—
Due after five years through ten years		1,505