UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(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 |
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.
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).
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 ☐ | |
| 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 ☐
At May 1, 2024 the registrant had shares of common stock, $0.01 par value, issued and outstanding.
TABLE OF CONTENTS
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; |
| ● | unstable political and 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.
i
PART I – FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS.
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollars in thousands, except per share data)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Federal funds sold | ||||||||
| Interest-bearing deposits and other short-term investments | ||||||||
| Cash and cash equivalents | ||||||||
| Available-for-sale securities, at fair value | ||||||||
| Held-to-maturity securities, at amortized cost (Fair value of $ | ||||||||
| Marketable equity securities, at fair value | ||||||||
| Federal Home Loan Bank stock and other restricted stock, at cost | ||||||||
| Loans, net of allowance for credit losses of $ | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Bank-owned life insurance | ||||||||
| Deferred tax asset, net | ||||||||
| Goodwill | ||||||||
| Core deposit intangible | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES: | ||||||||
| Deposits: | ||||||||
| Non-interest-bearing | $ | $ | ||||||
| Interest-bearing | ||||||||
| Total deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term debt | ||||||||
| Subordinated debt | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock - $ par value, shares authorized, outstanding at March 31, 2024 and December 31, 2023 | ||||||||
| Common stock - $ par value, shares authorized, shares issued and outstanding at March 31, 2024; shares issued and outstanding at December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Unearned compensation – ESOP | ( | ) | ( | ) | ||||
| Unearned compensation - Equity Incentive Plan | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
1
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED
(Dollars in thousands, except per share data)
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Interest and dividend income: | ||||||||
| Residential and commercial real estate loans | $ | $ | ||||||
| Commercial and industrial loans | ||||||||
| Consumer loans | ||||||||
| Debt securities, taxable | ||||||||
| Debt securities, tax-exempt | ||||||||
| Marketable equity securities | ||||||||
| Other investments | ||||||||
| Short-term investments | ||||||||
| Total interest and dividend income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term debt | ||||||||
| Subordinated debt | ||||||||
| Total interest expense | ||||||||
| Net interest and dividend income | ||||||||
| Reversal of credit losses | ( | ) | ( | ) | ||||
| Net interest and dividend income after reversal of credit losses | ||||||||
| Non-interest income: | ||||||||
| Service charges and fees | ||||||||
| Income from bank-owned life insurance | ||||||||
| Loss on disposal of premises and equipment | ( | ) | ||||||
| Net unrealized gain on marketable equity securities | ||||||||
| Gain on non-marketable equity investments | ||||||||
| Total non-interest income | ||||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy | ||||||||
| Furniture and equipment | ||||||||
| Data processing | ||||||||
| Software | ||||||||
| Net ATM network | ||||||||
| Professional fees | ||||||||
| FDIC insurance assessment | ||||||||
| Advertising | ||||||||
| Other expenses | ||||||||
| Total non-interest expense | ||||||||
| Income before income taxes | ||||||||
| Income tax provision | ||||||||
| Net income | $ | $ | ||||||
| Earnings per common share: | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Weighted average shares outstanding | ||||||||
| Diluted earnings per share | $ | $ | ||||||
| Weighted average diluted shares outstanding | ||||||||
| Dividends per share | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
2
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) – UNAUDITED
(Dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Unrealized gain (loss) on available-for-sale securities: | ||||||||
| Unrealized holding (loss) gain | ( | ) | ||||||
| Net amount | ( | ) | ||||||
| Tax effect | ( | ) | ||||||
| Net-of-tax amount | ( | ) | ||||||
| Other comprehensive (loss) income | ( | ) | ||||||
| Comprehensive income | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
3
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED
THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Dollars in thousands, except per 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Cumulative effect accounting adjustment(1) | — | |||||||||||||||||||||||||||||||
| Comprehensive income | — | |||||||||||||||||||||||||||||||
| Common stock held by ESOP committed to be released ( shares) | — | |||||||||||||||||||||||||||||||
| Share-based compensation - equity incentive plan | — | |||||||||||||||||||||||||||||||
| Forfeited equity incentive plan shares reissued in connection with 2020 LTI performance share grant ( shares) | — | ( | ) | |||||||||||||||||||||||||||||
| Common stock repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plan | ( | ) | ||||||||||||||||||||||||||||||
| Forfeited equity incentive plan shares reissued in connection with 2023 LTI grant ( shares) | — | ( | ) | |||||||||||||||||||||||||||||
| Cash dividends declared and paid on common stock ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Comprehensive income | — | ( | ) | |||||||||||||||||||||||||||||
| Common stock held by ESOP committed to be released ( shares) | — | |||||||||||||||||||||||||||||||
| Share-based compensation - equity incentive plan | — | |||||||||||||||||||||||||||||||
| Forfeited equity incentive plan shares reissued in connection with 2021 LTI performance share grant ( shares) | — | ( | ) | |||||||||||||||||||||||||||||
| Common stock repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plan | ( | ) | ||||||||||||||||||||||||||||||
| Cash dividends declared and paid on common stock ( per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| (1) |
4
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Reversal of credit losses | ( | ) | ( | ) | ||||
| Depreciation and amortization of premises and equipment | ||||||||
| Net (accretion) amortization of purchase accounting adjustments | ( | ) | ||||||
| Amortization of core deposit intangible | ||||||||
| Net amortization of premiums and discounts on securities and mortgage loans | ||||||||
| Net amortization of deferred costs on loans | ||||||||
| Net amortization of premiums on subordinated debt | ||||||||
| Share-based compensation expense | ||||||||
| ESOP expense | ||||||||
| Net change in unrealized gain on marketable equity securities | ( | ) | ||||||
| Loss on the disposal of premises and equipment | ||||||||
| Income from bank-owned life insurance | ( | ) | ( | ) | ||||
| Net change in: | ||||||||
| Accrued interest receivable | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of held-to-maturity securities | ( | ) | ||||||
| Proceeds from calls, maturities and principal collections of held-to-maturity securities | ||||||||
| Purchases of available-for-sale securities and marketable equity securities | ( | ) | ||||||
| Proceeds from calls, maturities, and principal collections of available-for-sale securities | ||||||||
| Loan originations and principal payments, net | ( | ) | ||||||
| Redemption (purchase) of Federal Home Loan Bank of Boston stock | ( | ) | ||||||
| Purchases of premises and equipment | ||||||||
| Proceeds from disposal of premises and equipment | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net increase (decrease) in deposits | ( | ) | ||||||
| Net (decrease) increase in short-term borrowings | ( | ) | ||||||
| Proceeds from issuance of long-term debt | ||||||||
| Cash dividends paid on common stock | ( | ) | ( | ) | ||||
| Common stock repurchased | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS: | ( | ) | ( | ) | ||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | ||||||||
See the accompanying notes to unaudited consolidated financial statements.
5
WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2024
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
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. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses and goodwill impairment.
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 March 31, 2024, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations for the year ending December 31, 2024. 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 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.
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, 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).
Reclassifications. Amounts in the prior period financial statements are reclassified when necessary to conform to the current year presentation.
6
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 months ended March 31, 2024 and 2023.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands, except per share data) | ||||||||
| Net income applicable to common stock | $ | $ | ||||||
| Average number of common shares issued | ||||||||
| Less: Average unallocated ESOP Shares | ( | ) | ( | ) | ||||
| Less: Average unvested performance-based equity incentive plan shares | ( | ) | ( | ) | ||||
| Average number of common shares outstanding used to calculate basic earnings per common share | ||||||||
| Effect of dilutive performance-based equity incentive plan shares | ||||||||
| Average number of common shares outstanding used to calculate diluted earnings per common share | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
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:
| March 31, 2024 | December 31, 2023 | |||||||
| (In thousands) | ||||||||
| Net unrealized losses on available-for-sale securities | $ | ( | ) | $ | ( | ) | ||
| Tax effect | ||||||||
| Net-of-tax amount | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
7
4. INVESTMENT SECURITIES
Available-for-sale and held-to-maturity investment securities at March 31, 2024 and December 31, 2023 are summarized as follows:
| March 31, 2024 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Government-sponsored enterprise obligations | $ | $ | $ | ( | ) | $ | ||||||||||
| State and municipal bonds | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total debt securities | ( | ) | ||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||
| Government-sponsored mortgage-backed securities | ( | ) | ||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ( | ) | ||||||||||||||
| Total mortgage-backed securities | ( | ) | ||||||||||||||
| Total available-for-sale | ( | ) | ||||||||||||||
| Held-to-maturity securities: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| U.S. Treasury securities | ( | ) | ||||||||||||||
| U.S. government guaranteed obligations | ||||||||||||||||
| Total debt securities | ( | ) | ||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||
| Government-sponsored mortgage-backed securities | ( | ) | ||||||||||||||
| Total mortgage-backed securities | ( | ) | ||||||||||||||
| Total held-to-maturity | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
8
| December 31, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Government-sponsored enterprise obligations | $ | $ | $ | ( | ) | $ | ||||||||||
| State and municipal bonds | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total debt securities | ( | ) | ||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||
| Government-sponsored mortgage-backed securities | ( | ) | ||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ( | ) | ||||||||||||||
| Total mortgage-backed securities | ( | ) | ||||||||||||||
| Total available-for-sale | ( | ) | ||||||||||||||
Held-to-maturity securities: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| U.S. Treasury securities | ( | ) | ||||||||||||||
| Total debt securities | ( | ) | ||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||
| Government-sponsored mortgage-backed securities | ( | ) | ||||||||||||||
| Total mortgage-backed securities | ( | ) | ||||||||||||||
| Total held-to-maturity | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
The following table presents the unrealized gains recognized on marketable equity securities for the periods indicated:
Three Months Ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Net gains recognized during the period on marketable equity securities | $ | $ | ||||||
| Net losses recognized during the period on equity securities sold during the period | ||||||||
| Unrealized gains recognized during the period on marketable equity securities still held at end of period | $ | $ | ||||||
At
March 31, 2024, U.S. Treasury securities with a fair value of $
9
The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2024, 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 | $ | $ | $ | $ | ||||||||||||
| Due after one year through five years | ||||||||||||||||
| Due after five years through ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Total debt securities | $ | $ | $ | $ | ||||||||||||
| Mortgage-backed securities: | ||||||||||||||||
| Due after one year through five years | $ | $ | $ | $ | ||||||||||||
| Due after five years through ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Total mortgage-backed securities | ||||||||||||||||
| Total securities | $ | $ | $ | $ | ||||||||||||
There were no sales of available-for-sale securities for the three months ended March 31, 2024 and 2023.
Allowance for Credit Losses – Available-for-Sale Securities
The
Company measures expected credit losses on available-for-sale debt securities based upon the gain or loss position of the security.
For available-for-sale debt securities in an unrealized loss position which the Company does not intend to sell, and it is not
more likely than not that the Company will be required to sell the security before recovery of the Company’s amortized cost,
the Company evaluates qualitative criteria to determine any expected loss. This includes among other items the financial health
of, and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security.
The Company also evaluates quantitative criteria including determining whether there has been an adverse change in expected future
cash flows of the security. Available-for-sale securities which are guaranteed by government agencies do not currently have an
allowance for credit loss as the Company determined these securities are either backed by the full faith and credit of the U.S.
government and/or there is an unconditional commitment to make interest payments and to return the principal investment in full
to investors when a debt security reaches maturity. 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. The Company will evaluate this position no less than annually, however, certain items which
may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s
ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s
implicit guarantee on such securities. Accrued interest receivable on available-for-sale securities guaranteed by government agencies
totaled $
10
Allowance for Credit Losses – Held-to-Maturity Securities
The
Company measures expected credit losses on held-to-maturity debt securities on a collective basis by security type and risk rating
where available. The reserve for each pool is calculated based on a Probability of Default/Loss Given Default basis taking into
consideration the expected life of each security. Held-to-maturity securities which are issued by the United States Treasury or
are guaranteed by government agencies do not currently have an allowance for credit loss as the Company determined these securities
are either backed by the full faith and credit of the U.S. government and/or there is an unconditional commitment to make interest
payments and to return the principal investment in full to investors when a debt security reaches maturity. 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;
FHLMC, FNMA, FFCB, or 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. The Company will evaluate this position no less than annually, however, certain items
which may cause the Company to change this methodology include legislative changes that remove a government-sponsored enterprise’s
ability to draw funds from the U.S. government, or legislative changes to housing policy that reduce or eliminate the U.S. government’s
implicit guarantee on such securities. Any expected credit losses on held-to-maturity securities would be presented as an allowance
for credit loss. Accrued interest receivable on held-to-maturity securities totaled $
At March 31, 2024 and December 31, 2023, management attributed the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. There was no credit loss during the three months ended March 31, 2024 and March 31, 2023, respectively. At March 31, 2024, there was one available-for-sale corporate bond that was rated below investment grade by one or more ratings agencies, while at December 31, 2023, there were two available-for-sale corporate bonds that were rated below investment grade by one or more ratings agencies. At March 31, 2024, the Company reviewed the financial strength of the one available-for-sale corporate bond below investment grade and concluded that the amortized cost remains supported by the expected future cash flows of the security.
Information pertaining to investment securities with gross unrealized losses as of March 31, 2024 and December 31, 2023 for which the Company did not recognize a provision for credit losses under CECL, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
| March 31, 2024 | ||||||||||||||||||||||||||||||||
| Less Than Twelve Months | Over Twelve Months | |||||||||||||||||||||||||||||||
| Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | $ | $ | % | $ | $ | % | ||||||||||||||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Government-sponsored enterprise obligations | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| State and municipal bonds | ||||||||||||||||||||||||||||||||
| Total available-for-sale | ||||||||||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||
| U.S. Treasury securities | % | % | ||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Total held-to-maturity | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
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| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Less Than Twelve Months | Over Twelve Months | |||||||||||||||||||||||||||||||
| Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | Number of Securities | Fair Value | Gross Unrealized Loss | Depreciation from Amortized Cost Basis (%) | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | $ | $ | % | $ | $ | % | ||||||||||||||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Government-sponsored enterprise obligations | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Total available-for-sale | ||||||||||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||
| U.S. Treasury securities | % | % | ||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Total held-to-maturity | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Major classifications of loans at the periods indicated were as follows:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Commercial real estate | $ | $ | ||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | ||||||||
| Home equity | ||||||||
| Total residential real estate | ||||||||
| Commercial and industrial | ||||||||
| Consumer | ||||||||
| Total gross loans | ||||||||
| Unearned premiums and deferred loan fees and costs, net | ||||||||
| Total loans, net | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | $ | $ | ||||||
Loans Serviced for Others.
The
Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been
accounted for as sales and are therefore not included in our accompanying consolidated balance sheets. We continue to service
the loans on behalf of the participating lenders. We share with participating lenders, on a pro-rata basis, any gains or losses
that may result from a borrower’s lack of compliance with contractual terms of the loan. At March 31, 2024 and December
31, 2023, the Company was servicing commercial loans participated out to various other institutions totaling $
Residential
real estate mortgages are originated by the Company both for its portfolio and for sale into the secondary market. The Company
may sell its loans to institutional investors such as the FHLMC. Under loan sale and servicing agreements with the investor, the
Company generally continues to service the residential real estate mortgages. The Company pays the investor an agreed upon rate
on the loan, which is less than the interest rate received from the borrower. The Company retains the difference as a fee for
servicing the residential real estate mortgages. The Company capitalizes mortgage servicing rights at their fair value upon sale
of the related loans, amortizes the asset over the estimated life of the serviced loan, and periodically assesses the asset for
impairment. The significant assumptions used by a third party to estimate the fair value of capitalized servicing rights at March
31, 2024, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment
Model (
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At
March 31, 2024 and December 31, 2023, the Company was servicing residential mortgage loans owned by investors totaling $
A summary of the activity in the balances of mortgage servicing rights follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Balance at the beginning of year: | $ | $ | ||||||
| Capitalized mortgage servicing rights | ||||||||
| Amortization | ( | ) | ( | ) | ||||
| Balance at the end of period | $ | $ | ||||||
| Fair value at the end of period | $ | $ | ||||||
Loans are recorded at the principal amount outstanding, adjusted for charge-offs, unearned premiums and deferred loan fees and costs. Interest on loans is calculated using the effective yield method on daily balances of the principal amount outstanding and is credited to income on the accrual basis to the extent it is deemed collectable. Our general policy is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more based on the contractual terms of the loan, or earlier if there are concerns regarding the collectability of the loan. Any unpaid amounts previously accrued on these loans are reversed from income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgment of management, collection of the principal balance is not in question. Loans are returned to accrual status when they become current as to both principal and interest and perform in accordance with contractual terms for a period of at least six months, reducing the concern as to the collectability of principal and interest. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans.
Allowance for Credit Losses.
The
allowance for credit losses is an estimate of expected losses inherent within the Company’s existing loans held for investment
portfolio. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted
by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Accrued
interest receivable on loans held for investment was $
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, residential real estate loans, commercial and industrial loans, and consumer loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considering historical experience, current conditions, and future expectations for pools of loans over a reasonable and supportable forecast period. The historical information either experienced by the Company or by a selection of peer banks, when appropriate, is derived from a combination of recessionary and non-recessionary performance periods for which data is available.
13
Commercial real estate loans. Loans in this segment include commercial real estate, multi-family dwellings, owner-occupied commercial real estate and income producing investment properties, as well as commercial construction loans for commercial development projects throughout New England. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and continually monitors the cash flows of these loans.
Residential
real estate loans. This portfolio segment consists of first mortgages, home equity loans, and home equity lines secured by
one-to-four family residential properties. First mortgages may be underwritten to a maximum loan-to-value of
Commercial and industrial loans. Loans in this segment include commercial business loans and are generally secured by assignments of corporate assets and personal guarantees of the business owners. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.
Consumer loans. Loans in this segment are both secured and unsecured and repayment is dependent on the credit quality of the individual borrower.
Discounted cash flow method (“DCF”)
In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and purpose. This model calculates an expected loss percentage for each loan class by considering the probability of default, using life-of-loan analysis periods for all loan segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio; (3) the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due and adversely classified loans and the volume of nonaccrual loans; (6) the quality of our loan review system and (7) the value of underlying collateral for collateralized loans. Additional factors include the existence and effect of any concentrations of credit, and changes in the level of such concentrations and the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. Such factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the economic variables.
14
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
Individually evaluated financial assets
For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.
Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments
The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company, such as undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. Categories of off-balance sheet credit exposures correspond to the loan portfolio segments described above. Management evaluates the need for a reserve on unfunded loan commitments in a manner consistent with loans held for investment.
An analysis of changes in the allowance for credit losses by segment for the three months ended March 31, 2024 and March 31, 2023 is as follows:
| Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision (reversal) for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||