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 5, 2025 the registrant had shares of common stock, $0.01 par value, issued and outstanding.
TABLE OF CONTENTS
Page
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 or political conditions, financial markets, fiscal, monetary and regulatory policies, including actual or potential stress in the banking industry; |
| ● | unstable political and economic conditions, including changes in tariff policies, which could materially impact credit quality trends and the ability to generate loans and gather deposits; |
| ● | inflation and governmental responses to inflation, including recent sustained increases 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 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; |
| ● | 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; |
| ● | the duration and scope of potential pandemics, including the emergence of new variants and the response thereto; |
| ● | 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, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Federal funds sold | ||||||||
| Interest-bearing deposits and other short-term investments | ||||||||
| Total cash and cash equivalents | ||||||||
| Securities available-for-sale, at fair value | ||||||||
| Securities held-to-maturity, at amortized cost (Fair value of $ | ||||||||
| Marketable equity securities, at fair value | ||||||||
| Total investment securities | ||||||||
| Federal Home Loan Bank stock and other restricted stock, at amortized cost | ||||||||
| Total Loans | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| 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 | ||||||||
| Deposits: | ||||||||
| Non-interest-bearing deposits | $ | $ | ||||||
| Interest-bearing deposits | ||||||||
| Total deposits | ||||||||
| Borrowings: | ||||||||
| Short-term borrowings | ||||||||
| Long-term debt | ||||||||
| Subordinated debt | ||||||||
| Total borrowings | ||||||||
| Securities pending settlement | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| SHAREHOLDERS' EQUITY: | ||||||||
| Preferred stock - $ par value, shares authorized, outstanding at March 31, 2025 and December 31, 2024 | ||||||||
| Common stock - $ par value, shares authorized, shares issued and outstanding at March 31, 2025; shares issued and outstanding at December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Unearned compensation – Employee Stock Ownership Plan (“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, | ||||||||
| 2025 | 2024 | |||||||
| Interest and dividend income: | ||||||||
| Residential and commercial real estate loans | $ | $ | ||||||
| Commercial and industrial loans | ||||||||
| Consumer loans | ||||||||
| Total interest income from loans | ||||||||
| Investment securities, taxable | ||||||||
| Investment securities, tax-exempt | ||||||||
| Marketable equity securities | ||||||||
| Total interest and dividend income from investment securities | ||||||||
| Other investments | ||||||||
| Short-term investments | ||||||||
| Total interest income from cash and cash equivalents | ||||||||
| Total interest and dividend income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term debt | ||||||||
| Subordinated debt | ||||||||
| Total interest expense | ||||||||
| Net interest and dividend income | ||||||||
| Provision for (reversal of) credit losses | ( | ) | ||||||
| Net interest and dividend income after provision for (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 (loss) gain on marketable equity securities | ( | ) | ||||||
| Gain on sale of mortgages | ||||||||
| Total non-interest income | ||||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy | ||||||||
| Furniture and equipment | ||||||||
| Data processing | ||||||||
| Software | ||||||||
| Debit card and ATM processing expense | ||||||||
| 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 basic 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, | ||||||||
| 2025 | 2024 | |||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Securities available-for-sale: | ||||||||
| Unrealized holding gain (loss) | ( | ) | ||||||
| Tax effect | ( | ) | ||||||
| Net-of-tax amount | ( | ) | ||||||
| Other comprehensive income (loss) | ( | ) | ||||||
| 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, 2025 AND 2024 |
| (Dollars in thousands, except per share data) |
| Common Stock | Unearned | Accumulated | ||||||||||||||||||||||||||||||
| Shares | Par Value | Additional Paid-in Capital | Unearned Compensation- ESOP | Compensation- Equity Incentive Plan | Retained Earnings | Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| BALANCE AT DECEMBER 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Comprehensive income | — | |||||||||||||||||||||||||||||||
| Common stock held by ESOP committed to be released ( shares) | — | |||||||||||||||||||||||||||||||
| Share-based compensation - equity incentive plan | — | |||||||||||||||||||||||||||||||
| Forfeited equity incentive plan shares ( shares) | — | ( | ) | |||||||||||||||||||||||||||||
| Forfeited equity incentive plan shares reissued ( 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, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| See accompanying notes to unaudited consolidated financial statements. |
4
| WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED |
| (Dollars in thousands) |
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Provision for (reversal of) credit losses | ( | ) | ||||||
| Depreciation and amortization of premises and equipment | ||||||||
| Net amortization (accretion) 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 mortgage loans | ||||||||
| Net amortization of premiums on subordinated debt | ||||||||
| Share-based compensation expense | ||||||||
| ESOP expense | ||||||||
| Gain on sale of mortgages | ( | ) | ||||||
| Net change in unrealized (loss) 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 (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of securities held-to-maturity | ( | ) | ||||||
| Proceeds from calls, maturities, and principal collections of securities held-to-maturity | ||||||||
| Purchases of securities available-for-sale | ( | ) | ( | ) | ||||
| Proceeds from calls, maturities, and principal collections of securities available-for-sale | ||||||||
| Purchases of marketable equity securities | ( | ) | ( | ) | ||||
| Net loan originations and principal payments | ( | ) | ||||||
| Redemption of Federal Home Loan Bank of Boston stock | ||||||||
| Purchases of premises and equipment | ||||||||
| Proceeds from disposal of premises and equipment | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net increase in deposits | ||||||||
| Decrease in short-term borrowings | ( | ) | ( | ) | ||||
| Cash dividends paid on common stock | ( | ) | ( | ) | ||||
| Repurchase of common stock | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS: | ( | ) | ||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Net change in cash due for available-for-sale securities purchases pending settlement | $ | ( | ) | $ | ||||
| Net change in due to broker for common stock repurchased | ( | ) | ||||||
| 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, 2025
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 (“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 March 31, 2025, 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, 2025 are not necessarily indicative of the results of operations for the year ending December 31, 2025. Certain information and disclosures normally included in financial statements prepared in accordance with 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, 2024, included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”).
Reclassifications. Amounts in the prior period financial statements are reclassified when necessary to conform to the current year presentation.
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 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, 2025 and 2024.
6
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars and shares in thousands) | ||||||||
| 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 | ||||||||
| Net income 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, 2025 | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Net unrealized losses on securities available-for-sale | $ | ( | ) | $ | ( | ) | ||
| Tax effect | ||||||||
| Net-of-tax amount | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
7
4. INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2025 and December 31, 2024, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss on securities available-for-sale. The Company did not record an allowance for credit losses on its securities held-to-maturity portfolio as of March 31, 2025 and December 31, 2024.
| March 31, 2025 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Government-sponsored enterprise obligations | $ | $ | $ | ( | ) | $ | ||||||||||
| 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 securities available-for-sale | ( | ) | ||||||||||||||
Securities held-to-maturity: | ||||||||||||||||
| 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 securities held-to-maturity | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2024 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Government-sponsored enterprise obligations | $ | $ | $ | ( | ) | $ | ||||||||||
| 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 securities available-for-sale | ( | ) | ||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||
| 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 securities held-to-maturity | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
8
The following table presents the unrealized gains recognized on marketable equity securities for the periods indicated:
Three Months Ended
March 31 | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Net (losses) gains recognized during the period on marketable equity securities | $ | ( | ) | $ | ||||
| Net losses recognized during the period on equity securities sold during the period | ||||||||
| Unrealized (losses) gains recognized during the period on marketable equity securities still held at end of period | $ | ( | ) | $ | ||||
At
March 31, 2025, U.S. Treasury securities with a fair value of $
The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2025, 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 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Due after one year through five years | $ | $ | $ | $ | ||||||||||||
| Due after five years through ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Total debt securities | $ | $ | $ | $ | ||||||||||||
9
| Available-for-Sale | Held-to-Maturity | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| 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 gross realized gains or losses on sales of securities available-for-sale for the three months ended March 31, 2025 and 2024. There were no sales of available-for-sale securities for the three months ended March 31, 2025 and 2024.
Allowance for Credit Losses – Securities Available-for-Sale
The
Company measures expected credit losses on debt securities available-for-sale based upon the gain or loss position of the security.
For debt securities available-for-sale 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. Securities available-for-sale 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 securities available-for-sale guaranteed by government agencies
totaled $
Allowance for Credit Losses – Securities Held-to-Maturity
The
Company measures expected credit losses on debt securities held-to-maturity 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 securities held-to-maturity would be presented as an allowance
for credit loss. Accrued interest receivable on securities held-to-maturity totaled $
10
At March 31, 2025 and December 31, 2024, there was one available-for-sale corporate bond that was rated below investment grade by one or more ratings agencies. The Company reviewed the financial strength of the corporate bond rated below investment grade at March 31, 2025 and has concluded that the amortized cost remains supported by the expected future cash flows of the securities.
The following tables summarize the gross unrealized losses and fair value of the Company's securities available-for-sale and held-to-maturity, segregated by the duration of their continuous unrealized loss positions at March 31, 2025 and December 31, 2024:
| March 31, 2025 | ||||||||||||||||||||||||||||||||
| 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) | ||||||||||||||||||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | $ | $ | % | $ | $ | % | ||||||||||||||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Government-sponsored enterprise obligations | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Total securities available-for-sale | ||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||||||||||||||||||
| U.S. Treasury securities | % | % | ||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | ||||||||||||||||||||||||||||||||
| Total securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||
11
| December 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) | ||||||||||||||||||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | $ | $ | % | $ | $ | % | ||||||||||||||||||||||||||
| U.S. government guaranteed mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Government-sponsored enterprise obligations | ||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||
| Total securities available-for-sale | ||||||||||||||||||||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||||||||||||||||||
| U.S. Treasury securities | — | — | — | — | % | % | ||||||||||||||||||||||||||
| U.S. government guaranteed obligations | — | — | — | — | ||||||||||||||||||||||||||||
| Government-sponsored mortgage-backed securities | ||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | ||||||||||||||||||||||||||||||||
| Total securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The Company expects to recover its amortized cost basis on all securities in its available-for-sale and held-to-maturity portfolios. Furthermore, the Company does not intend to sell, nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2025, prior to this anticipated recovery. The decline in fair value on its available-for-sale and held-to-maturity portfolios is largely due to changes in interest rates and other market conditions and not due to credit quality issues. The issuers continue to make timely principal and interest payments on the securities and the fair value is expected to recover as the securities approach maturity. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s stable capital and liquidity positions as well as its historically low portfolio turnover. The following description provides the number of investment positions in an unrealized loss position:
At
March 31, 2025, the Company reported gross unrealized losses on the securities available-for-sale portfolio of $
At
March 31, 2025, the Company reported gross unrealized losses on the securities held-to-maturity portfolio of $
12
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table presents the summary of the loan portfolio by the major classification of the loan at the periods indicated:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | $ | ||||||
| Owner occupied | ||||||||
| Total commercial real estate | ||||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | ||||||||
| Home equity | ||||||||
| Total residential real estate | ||||||||
| Commercial and industrial | ||||||||
| Consumer | ||||||||
| Total gross loans | ||||||||
| Plus: Unearned premiums and deferred loan fees and costs, net | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Net loans | $ | $ | ||||||
Lending activities primarily consist of commercial real estate loans, commercial and industrial loans, residential real estate loans, and to a lesser degree, consumer loans.
Loans Pledged as Collateral.
At
March 31, 2025 and December 31, 2024, the carrying value of eligible loans pledged as collateral to support borrowing capacity
at the FHLB was $
At
March 31, 2025 and December 31, 2024, the carrying value of eligible loans pledged as collateral to support borrowing capacity
with the Federal Reserve Bank Discount Window (“FRB”) was $
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, 2025 and December
31, 2024, 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, 2025, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment
Model (
13
At
March 31, 2025 and December 31, 2024, 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, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Balance at the beginning of year: | $ | $ | ||||||
| Amortization | ( | ) | ( | ) | ||||
| Balance at the end of year | $ | $ | ||||||
| Fair value at the end of year | $ | $ | ||||||
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 (“ACL”).
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. 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. For commercial real estate loans, residential real estate loans, and commercial and industrial loans, 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. The expected loss estimates for the consumer loan segment are based on historical loss rates using the weighted average remaining maturity (“WARM”) method.
14
Commercial real estate loans. Loans in this segment include owner occupied and non-owner occupied commercial real estate, multi-family dwellings, and income producing investment properties, as well as commercial construction loans for commercial development projects throughout New England. Typically, commercial real estate loans are secured by office buildings, apartment buildings, industrial properties, warehouses, retail facilities, hotels, assisted living facilities, and educational facilities. Collateral values are established by independent third-party appraisals and evaluations. Primary repayment sources for commercial real estate loans include operating income and cash flow generated by the real estate, sale of the real estate and, funds from any liquidation of the collateral. Under its lending guidelines, the Company generally requires a corporate or personal guarantee from individuals that hold material ownership in the borrowing entity. 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. The Company’s management (“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 secured by one-to-four family residential properties
and home equity loans and home equity lines secured by first or second mortgage on one-to-four family owner occupied properties.
First mortgages may be underwritten to a maximum loan-to-value of
Commercial and industrial loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results and cash flows consistent with those projected at loan origination. Collateral frequently consists of a first lien position on business assets including, but not limited to, accounts receivable, inventory, and equipment. The primary repayment source is operating cash flow, followed by liquidation of assets. Under its lending guidelines, the Company generally requires a corporate or personal guarantee from individuals that hold material ownership in the borrowing entity. 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.
Allowance for Credit Losses Methodology
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.
The discounted cash flow (“DCF”) model calculates an expected loss percentage for each loan class by considering the probability of default, using life-of-loan analysis periods for the commercial and industrial, commercial real estate, residential real estate loan segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. The expected loss estimates for the consumer loan segment are based on historical loss rates using the remaining life method. 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.
15
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.
The Company uses a WARM method to estimate the ACL for the consumer loan segment. Under this method, the historical average annual charge-off rate is applied to the weighted average remaining maturity of the loan portfolio, currently calculated at 2.5 years. This calculation is adjusted based on additional factors that include (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.
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 outstanding off-balance-sheet credit exposures that are unconditionally cancellable by the Company. 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.
16
An analysis of changes in the allowance for credit losses by segment for the three months ended March 31, 2025 and March 31, 2024 is as follows:
| Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Allowance for credit losses for loans | ||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision for (reversal of) for credit losses | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision (reversal) for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Allowance for credit losses for off-balance sheet exposures | ||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision (reversal) for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision (reversal) for credit losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
During
the three months ended March 31, 2025, the Company recorded a provision for credit losses of $
During the three months ended March 31, 2024, the Company recorded a reversal of credit losses of $, comprised of a $ reversal of credit losses for loan losses and a $ reversal of reserves on unfunded loan commitments primarily related to the impact of lower unfunded loan commitments.
The provision for or reversal of credit losses was determined by a number of factors: the continued stable credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment and supportable forecast period.
17
Past Due Loans.
The following tables present an age analysis of past due loans as of the dates indicated:
| 30 – 59 Days Past Due | 60 – 89 Days Past Due | 90 Days or More Past Due | Total Past Due Loans | Total Current Loans | Total Loans | Nonaccrual Loans | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Non-owner occupied | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Residential real estate: | ||||||||||||||||||||||||||||
| Residential one-to-four family | ||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 30 – 59 Days Past Due | 60 – 89 Days Past Due | 90 Days or More Past Due | Total Past Due Loans | Total Current Loans | Total Loans | Nonaccrual Loans | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Non-owner occupied | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Residential real estate: | ||||||||||||||||||||||||||||
| Residential one-to-four family | ||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
At
March 31, 2025 and December 31, 2024, total past due loans totaled $ million, or
.0 million, or
Nonaccrual Loans.
Accrual of interest on loans is generally discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six consecutive months of performance has been achieved.
18
The following table is a summary of the Company’s nonaccrual loans by major categories at March 31, 2025 and December 31, 2024:
| As of March 31, 2025 | For the Three Months Ended March 31, 2025 | |||||||||||||||
| Nonaccrual Loans with Allowance for Credit Loss | Nonaccrual Loans Without Allowance for Credit Loss | Total Nonaccrual Loans | Accrued Interest Receivable Reversed from Income | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Commercial real estate: | ||||||||||||||||
| Non-owner occupied | $ | $ | $ | $ | ||||||||||||
| Owner occupied | ||||||||||||||||
| Total | ||||||||||||||||
| Residential real estate: | ||||||||||||||||
| Residential one-to-four family | ||||||||||||||||
| Home equity | ||||||||||||||||
| Total | ||||||||||||||||
| Commercial and industrial | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total loans | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2024 | For the Year Ended December 31, 2024 | |||||||||||||||
| Nonperforming Loans with Allowance for Credit Loss | Nonperforming Loans Without Allowance for Credit Loss | Total Nonperforming Loans | Accrued Interest Receivable Reversed from Income | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Commercial real estate: | ||||||||||||||||
| Non-owner occupied | $ | $ | $ | $ | ||||||||||||
| Owner occupied | ||||||||||||||||
| Total | ||||||||||||||||
| Residential real estate: | ||||||||||||||||
| Residential one-to-four family | ||||||||||||||||
| Home equity | ||||||||||||||||
| Total | ||||||||||||||||
| Commercial and industrial | ||||||||||||||||
| Consumer | ||||||||||||||||
| Total loans | $ | $ | $ | $ | ||||||||||||
At
March 31, 2025 and December 31, 2024, nonaccrual loans totaled $ million, or
19
Individually Evaluated Collateral Dependent Loans.
Loans
that do not share similar risk characteristics with loans that are pooled into portfolio segments are individually evaluated.
A loan is considered collateral dependent when, based on current information and events, the borrower is experiencing financial
difficulty and repayment, both principal and interest, is expected to be provided substantially through the operation or sale
of the collateral. Loans that are rated Substandard, have a loan-to-value above
The following table summarizes the Company’s individually evaluated collateral dependent loans by class as of the dates indicated:
| As of March 31, 2025 | ||||||||
| Recorded Investment | Related Allowance | |||||||
| (Dollars in thousands) | ||||||||
| With no related allowance recorded: | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | $ | — | |||||
| Owner occupied | — | |||||||
| Total | — | |||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | — | |||||||
| Home equity | — | |||||||
| Total | ||||||||
| Commercial and industrial | — | |||||||
| Consumer | — | — | ||||||
| Loans with no related allowance recorded | $ | $ | — | |||||
| With an allowance recorded: | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | — | $ | — | ||||
| Owner occupied | — | — | ||||||
| Total | — | — | ||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | — | — | ||||||
| Home equity | — | — | ||||||
| Total | — | — | ||||||
| Commercial and industrial | ||||||||
| Consumer | — | — | ||||||
| Loans with an allowance recorded | $ | $ | ||||||
| Total individually evaluated loans | $ | $ | ||||||
20
| As of December 31, 2024 | ||||||||
| Recorded Investment | Related Allowance | |||||||
| (Dollars in thousands) | ||||||||
| With no related allowance recorded: | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | $ | — | |||||
| Owner occupied | — | |||||||
| Total | — | |||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | — | |||||||
| Home equity | — | |||||||
| Total | ||||||||
| Commercial and industrial | — | |||||||
| Consumer | — | |||||||
| Loans with no related allowance recorded | $ | $ | — | |||||
| With an allowance recorded: | ||||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | — | $ | — | ||||
| Owner occupied | — | — | ||||||
| Total | — | — | ||||||
| Residential real estate: | ||||||||
| Residential one-to-four family | — | — | ||||||
| Home equity | — | — | ||||||
| Total | — | — | ||||||
| Commercial and industrial | ||||||||
| Consumer | — | — | ||||||
| Loans with an allowance recorded | $ | $ | ||||||
| Total individually evaluated loans | $ | $ | ||||||
Modified Loans to Borrowers Experiencing Financial Difficulty.
The Company will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss and comply with regulations regarding bankruptcy and discharge situations. Loans are designated as modified when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company's position or significantly extends the note's maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan's origination.
There were no loan modifications granted based on borrower financial difficulty during the three months ended March 31, 2025 or for the year ended December 31, 2024. During the three months ended March 31, 2025 and 2024, no modified loans defaulted (defined as 30 days or more past due) within 12 months of restructuring. There were no charge-offs on modified loans during the three months ended March 31, 2025 or 2024.
Credit Quality Information.
The Company monitors the credit quality of its loan portfolio by using internal risk ratings that are based on regulatory guidance. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company utilizes an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans.
21
The grades assigned and definitions are as follows: loans graded excellent, above average, good are classified as “Pass” for grading purposes (risk ratings 1-4). All loans risk rated Special Mention (5), Substandard (6), Doubtful (7) and Loss (8) are listed on the Company’s criticized report and are reviewed not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. In addition, the Company closely monitors classified loans, defined as Substandard, Doubtful, and Loss for signs of deterioration to mitigate the growth in nonaccrual loans, including performing additional due diligence, updating valuations and requiring additional financial reporting from the borrower. Loans identified as containing a loss are partially charged-off or fully charged-off. Performing residential real estate, home equity and consumer loans are grouped with “Pass” rated loans. Nonaccrual residential real estate, home equity and consumer loans are risk rated as “Substandard” and individually evaluated.
Loans rated 1 – 4: Loans rated 1-4 are classified as “Pass” and have quality metrics to support that the loan will be repaid according to the terms established and are not subject to adverse criticism as defined in regulatory guidance. Pass loans exhibit characteristics that represent acceptable risk and are not considered problem loans.
Loans rated 5: Loans rated 5 are classified as “Special Mention” and have potential weaknesses that deserve management’s close attention. Special mention loans are currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency. Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. Special Mention loans do not sufficiently expose the Company to warrant adverse classification.
Loans rated 6: Loans rated 6 are classified as “Substandard” and have an identified definitive weakness which may make full collection of contractual cash flows questionable and/or jeopardize the liquidation of the debt.
Loans rated 7: Loans rated 7 are classified as “Doubtful” and have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation of the loan highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
Loans rated 8: Loans rated 8 are classified a “Loss” and are considered uncollectible and are charged to the allowance for credit losses. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be affected in the future.
On
an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate loans over $
The following tables summarize the amortized cost basis by aggregate Pass and criticized categories of Special Mention and Substandard within the Company’s internal risk rating system by year of origination as of March 31, 2025 and December 31, 2024. The tables also summarize gross charge-offs by year of origination for the three months ended March 31, 2025 and for the year ended December 31, 2024.
22
| Term Loan Origination by Year | Revolving Loans | |||||||||||||||||||||||||||||||||||
| Year-to-Date March 31, 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||||||||||||||
| Pass (Rated 1- 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (Rated 5) | ||||||||||||||||||||||||||||||||||||
| Substandard (Rated 6) | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
| Residential One-to-Four Family: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total residential one-to-four family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
| Home Equity: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total home equity loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
23
| Term Loans Originated by Year | Revolving Loans | |||||||||||||||||||||||||||||||||||
| Year-to-Date March 31, 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial and Industrial: | ||||||||||||||||||||||||||||||||||||
| Pass (Rated 1- 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (Rated 5) | ||||||||||||||||||||||||||||||||||||
| Substandard (Rated 6) | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | |||||||||||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
24
| As of and Year Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Term Loan Origination by Year | Revolving Loans | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||||||||||||||
| Pass (Rated 1- 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (Rated 5) | ||||||||||||||||||||||||||||||||||||
| Substandard (Rated 6) | ||||||||||||||||||||||||||||||||||||
| Total commercial real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | — | $ | — | $ | ||||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Residential One-to-Four Family: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total residential one-to-four family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | — | $ | — | $ | ||||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Home Equity: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total home equity loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | 20 | $ | — | $ | — | $ | 7 | $ | — | $ | 99 | $ | 126 | ||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
25
| As of and Year Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Term Loans Originated by Year | Revolving Loans | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial and Industrial: | ||||||||||||||||||||||||||||||||||||
| Pass (Rated 1- 4) | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention (Rated 5) | ||||||||||||||||||||||||||||||||||||
| Substandard (Rated 6) | ||||||||||||||||||||||||||||||||||||
| Total commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | — | $ | $ | |||||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||
| Payment Performance: | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||||||||||||
26
The following table summarizes information about total loans rated Special Mention, Substandard, Doubtful or Loss for the periods noted.
| March 31, 2025 | December 31, 2024 | |||||||
| (Dollar in thousands) | ||||||||
| Criticized loans: | ||||||||
| Special Mention | $ | $ | ||||||
| Substandard | ||||||||
| Total criticized loans | $ | $ | ||||||
| Total criticized loans as a percentage of total loans | % | % | ||||||
At March 31, 2025 and December 31, 2024, the Company did not have any loans rated Doubtful or Loss.
6. GOODWILL AND OTHER INTANGIBLES
Goodwill
At March 31, 2025 and December 31, 2024, the carrying value of the Company’s goodwill was $ million. Goodwill is measured as the excess of the cost of a business combination over the sum of the amounts assigned to identifiable intangible assets acquired less liabilities assumed. Goodwill is not amortized but rather assessed for impairment annually or more frequently if circumstances warrant. Management has the option of first assessing qualitative factors, such as events and circumstances, to determine whether it is more likely than not, meaning a likelihood of more than 50%, the value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, management determines it is not more likely than not the fair value of a reporting unit is less than its carrying amount, then performing an impairment test is unnecessary. At March 31, 2025 and December 31, 2024, the Company’s goodwill was related to the acquisition of Chicopee Bancorp, Inc. in October 2016. For the three months ended March 31, 2025, management determined that it was not more likely than not the fair value of the reporting unit was less than its carrying amount. If management had determined otherwise, a fair value analysis would have been completed to determine the impairment and necessary write-down of goodwill.
Core Deposit Intangibles
In
connection with the acquisition of Chicopee Bancorp, Inc., the Company recorded a core deposit intangible of $
Restricted Stock Awards.
In May 2021, the Company’s shareholders approved the 2021 Omnibus Incentive Plan, a share-based compensation plan (the “2021 Omnibus Plan”). Under the 2021 Omnibus Plan, up to shares of the Company’s common stock were reserved for grants of stock awards, including stock options and restricted stock, which may be granted to any officer, key employee or non-employee director of the Company. Any shares that are not issued because vesting requirements are not met will be available for future issuance under the 2021 Omnibus Plan.
On an annual basis, the Compensation Committee (the “Committee”) approves long-term incentive awards out of the 2021 Omnibus Plan, whereby shares will be granted to eligible participants of the Company that are nominated by the Chief Executive Officer and approved by the Committee, with vesting over a -year term for employees and a -year term for directors. Annual employee grants provide for a periodic award that is both performance and time-based and is designed to recognize the executive’s responsibilities, reward performance and leadership and as a retention tool. The objective of the award is to align compensation for the named executive officers and directors over a multi-year period directly with the interests of our shareholders by motivating and rewarding creation and preservation of long-term financial strength, shareholder value and relative shareholder return.
27
2022 Long-Term Incentive Plan.
In March 2022, the Committee granted shares under the 2022 Long-Term LTI Plan (the “2022 LTI Plan”). Of the shares granted, shares, or % of the shares granted, were time-based restricted shares that are scheduled to vest ratably over a period. The remaining shares, or % of the shares granted, were performance-based restricted shares that are subject to the achievement of the 2022 LTI Plan performance metrics.
The Committee selected Return on Equity (“ROE”) and Earnings per Share (“EPS”) as the primary performance metrics for the 2022 LTI Plan. Each of these two measures were independently assigned a % weight for determining future performance against goals. Performance-based restricted shares will be earned based upon the Company’s performance relative to Threshold, Target and Stretch absolute goals on an annual performance period for ROE metrics and for a three-year cumulative performance period for EPS. For each performance-based goal, achieving Threshold performance pays at % of Target value, while achieving Stretch performance pays at % of Target value. The performance-based restricted shares will be certified by the Committee and distributed at the end of the three-year period as earned.
The Threshold, Target and Stretch metrics under the 2022 LTI Plan are as follows:
| ROE Metrics | ||||||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | Actual | ||||||||||||
| December 31, 2022 | % | % | % | % | ||||||||||||
| December 31, 2023 | % | % | % | % | ||||||||||||
| December 31, 2024 | % | % | % | % | ||||||||||||
| EPS Metrics | ||||||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||||||
| Three-Year Cumulative Diluted EPS | $ | $ | $ | $ | ||||||||||||
At December 31, 2024, the three-year performance period for the 2022 LTI Plan ended. Of the performance-based shares granted in 2022, based on achieving % of target, performance-based shares vested on March 7, 2025, and were eligible to be issued to recipients.
2022 Annual Equity Retainer.
In March 2022, under the Company’s 2021 Omnibus Plan, each non-employee director received an annual equity retainer of time-based restricted shares of WNEB common stock. In total, shares were granted and fully vested on December 31, 2022.
2023 Long-Term Incentive Plan.
In March 2023, the Committee granted shares under the 2023 Long-Term LTI Plan (the “2023 LTI Plan”). Of the shares granted, shares, or % of the shares granted, were time-based restricted shares and vest ratably over a period. The remaining shares, or % of the shares granted, were performance-based restricted shares that are subject to the achievement of the 2023 LTI Plan performance metrics.
The Committee selected ROE and EPS as the primary performance metrics for the 2023 LTI Plan. Each of these two measures were independently assigned a % weight for determining future performance against goals. Performance-based restricted shares will be earned based upon the Company’s performance relative to Threshold, Target and Stretch absolute goals on an annual performance period for ROE metrics and for a three-year cumulative performance period for EPS. For each performance-based goal, achieving Threshold performance pays at % of Target value, while achieving Stretch performance pays at % of Target value. The performance-based restricted shares will be certified by the Committee and distributed at the end of the three-year period as earned.
28
The Threshold, Target and Stretch metrics under the 2023 LTI Plan are as follows:
| ROE Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| December 31, 2023 | % | % | % | |||||||||
| December 31, 2024 | % | % | % | |||||||||
| December 31, 2025 | % | % | % | |||||||||
| EPS Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| Three-Year Cumulative Diluted EPS | $ | $ | $ | |||||||||
2023 Annual Equity Retainer.
In March 2023, under the Company’s 2021 Omnibus Plan, each non-employee director received an annual equity retainer of time-based restricted shares of WNEB common stock. In total, shares were granted and fully vested on December 31, 2023.
2024 Long-Term Incentive Plan.
In March 2024, the Committee granted shares under the 2024 Long-Term LTI Plan (the “2024 LTI Plan”). Of the shares granted, shares, or % of the shares granted, were time-based restricted shares that are scheduled to vest ratably over a period. The remaining shares, or % of the share granted, were performance-based restricted shares that are subject to the achievement of the 2024 LTI Plan performance metrics.
The Committee selected ROE and EPS as the primary performance metrics for the 2024 LTI Plan. Each of these two measures were independently assigned a % weight for determining future performance against goals. Performance-based restricted shares will be earned based upon the Company’s performance relative to Threshold, Target and Stretch absolute goals on an annual performance period for ROE metrics and for a three-year cumulative performance period for EPS. For each performance-based goal, achieving Threshold performance pays at % of Target value, while achieving Stretch performance pays at % of Target value. The performance-based restricted shares will be certified by the Committee and distributed at the end of the three-year period as earned.
The Threshold, Target and Stretch metrics under the 2024 LTI Plan are as follows:
| ROE Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| December 31, 2024 | % | % | % | |||||||||
| December 31, 2025 | % | % | % | |||||||||
| December 31, 2026 | % | % | % | |||||||||
EPS Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| Three-Year Cumulative Diluted EPS | $ | $ | $ | |||||||||
2024 Annual Equity Retainer.
In March 2024, under the Company’s 2021 Omnibus Plan, each non-employee director received an annual equity retainer of time-based restricted shares of WNEB common stock. In total, shares were granted and there were shares that fully vested on December 31, 2024.
29
2025 Long-Term Incentive Plan.
In March 2025, the Committee granted shares under the 2025 Long-Term LTI Plan (the “2025 LTI Plan”). Of the shares granted, shares, or % of the shares granted, were time-based restricted shares that are scheduled to vest ratably over a period. The remaining shares, or % of the share granted, were performance-based restricted shares that are subject to the achievement of the 2025 LTI Plan performance metrics.
The Committee selected ROE and EPS as the primary performance metrics for the 2025 LTI Plan. Each of these two measures were independently assigned a % weight for determining future performance against goals. Performance-based restricted shares will be earned based upon the Company’s performance relative to Threshold, Target and Stretch absolute goals on an annual performance period for ROE metrics and for a three-year cumulative performance period for EPS. For each performance-based goal, achieving Threshold performance pays at % of Target value, while achieving Stretch performance pays at % of Target value. The performance-based restricted shares will be certified by the Committee and distributed at the end of the three-year period as earned.
The Threshold, Target and Stretch metrics under the 2025 LTI Plan are as follows:
| ROE Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| December 31, 2025 | % | % | % | |||||||||
| December 31, 2026 | % | % | % | |||||||||
| December 31, 2027 | % | % | % | |||||||||
EPS Metrics | ||||||||||||
| Performance Period Ending | Threshold | Target | Stretch | |||||||||
| Three-Year Cumulative Diluted EPS | $ | $ | $ | |||||||||
At March 31, 2025, there were remaining shares available to grant under the 2021 Omnibus Plan.
| Shares | Weighted
Average Grant ($) | ||||||||
| Balance at December 31, 2024 | |||||||||
| Shares granted | |||||||||
| Forfeited shares reissued | |||||||||
| Shares forfeited | ( | ) | |||||||
| Shares vested | ( | ) | |||||||
| Balance at March 31, 2025 | |||||||||
| Shares | Weighted
Average Grant ($) | ||||||||
| Balance at December 31, 2023 | |||||||||
| Shares granted | |||||||||
| Shares vested | ( | ) | |||||||
| Balance at March 31, 2024 | |||||||||
We recorded total
expense for restricted stock awards of $
30
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
On a long-term basis, the Company intends
to continue to increase its core deposits to fund loan growth. The Company also uses FHLB borrowings as part of the Company’s
overall strategy to manage interest rate risk and liquidity risk. FHLB advances are secured by a blanket security agreement which
requires the Company to maintain certain qualifying assets as collateral, principally certain residential real estate loans and
commercial real estate loans and securities, not otherwise pledged. The maximum amount that the FHLB will advance to member institutions,
including the Company, fluctuates from time to time in accordance with the policies of the FHLB. As an FHLB member, the Company
is required to own capital stock of the FHLB, calculated periodically based primarily on its level of borrowings from the FHLB.
Advances are made under several different credit programs with different lending standards, interest rates and range of maturities.
The Company’s relationship with the FHLB is an integral component of the Company’s asset-liability management program.
At March 31, 2025, the Company pledged $
There were no short-term FHLB advances
outstanding at March 31, 2025 and December 31, 2024. The Company also has a standing available overnight Ideal Way line of credit
with the FHLB of $
Other borrowings, held as collateral for
customer swap arrangements, totaled $
As a member of the FRB, the Company may
also borrow from the Federal Reserve Bank Discount Window (the “Discount Window”). At March 31, 2025 and December 31,
2024, the Company had an available line of credit of $
The Company also has pre-established, non-collateralized
overnight borrowing arrangements with large national and regional correspondent banks to provide additional overnight and short-term
borrowing capacity for the Company. The Company has a $
Long-term debt consists of FHLB and FRB
advances with an original maturity of one year or more. At March 31, 2025 and December 31, 2024, long-term debt consisted of $
9. SUBORDINATED DEBT
On April 20, 2021, the Company completed
an offering of $
Unless earlier redeemed, the Notes mature
on
31
The Notes are presented net of issuance
costs of $
10. DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives.
The Company is exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings.
Fair Value Hedges of Interest Rate Risk.
The Company is exposed to changes in the fair value of certain pools of fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. The Company’s interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
In October of 2024, $
Non-hedging Derivatives.
Derivatives not designated as hedges are not speculative, but rather result from a service the Company provides to certain customers. The Company executes loan-level derivative products such as interest-rate swap agreements with commercial banking customers to aid them in managing their interest-rate risk by converting floating-rate loan payments to fixed-rate loan payments. The Company concurrently enters into offsetting swaps with a third-party financial institution, effectively minimizing the Company’s net risk exposure resulting from such transactions. The third-party financial institution exchanges the customer’s fixed-rate loan payments for floating-rate loan payments. As the interest-rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings.
Fair Values of Derivative Instruments on the Balance Sheet.
The tables below present the fair value of our derivative financial instruments designated as hedging and non-hedging instruments as well as our classification on the balance sheet as of March 31, 2025 and December 31, 2024.
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| March 31, 2025 | Asset Derivatives | Liability Derivatives | ||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
| (Dollars in thousands) | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Interest rate swap – with customer counterparties | $ | $ | ||||||||||
| Interest rate swap – with dealer counterparties | ||||||||||||
| Total derivatives | $ | $ | ||||||||||
| December 31, 2024 | Asset Derivatives | Liability Derivatives | ||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
| (Dollars in thousands) | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Interest rate swap – with customer counterparties | $ | |||||||||||
| Interest rate swap – with dealer counterparties | ||||||||||||
| Total derivatives | $ | $ | ||||||||||
Effect of Derivative Instruments in the Consolidated Statements of Net Income.
The table below presents the effect of the Company’s derivative financial instruments on the statements of net income for the three months ended March 31, 2025 and 2024.
| Location and Amount of Gain (Loss) Recognized in Income on Fair Value Hedging Relationships | ||||||||
Three
Months | Three
Months | |||||||
| (Dollars in thousands) | ||||||||
| Interest Income | Interest Income | |||||||
| Total amounts of income line items presented in the statements of net income in which the effects of fair value hedges are recorded | $ | $ | ||||||
| Gain (loss) on fair value hedging relationships | ||||||||
| Interest rate contracts: | ||||||||
| Hedged items | $ | $ | ( | ) | ||||
| Derivatives designated as hedging instruments | ||||||||
There were no gains or losses recognized in accumulated other comprehensive income related to derivative financial instruments during the three months ended March 31, 2025 and 2024, respectively.
Credit-risk-related Contingent Features
By using derivative financial instruments, we expose ourselves to credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative is negative, we owe the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that we believe to be creditworthy and by limiting the amount of exposure to each counterparty.
33
We have agreements with our derivative counterparties that contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. We also have agreements with certain of our derivative counterparties that contain a provision where if we fail to maintain our status as well capitalized, then the counterparty could terminate the derivative positions and we would be required to settle our obligations under the agreements. Certain of our agreements with our derivative counterparties contain provisions where if a formal administrative action by a federal or state regulatory agency occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.
At March 31, 2025, we had minimum collateral posting thresholds with certain of our derivative counterparties. As of March 31, 2025, we were not required to post collateral under these agreements because we did not have any derivatives in a liability position with those counterparties.
11. FAIR VALUE OF ASSETS AND LIABILITIES
Determination of Fair Value.
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for our various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Methods and assumptions for valuing our financial instruments are set forth below. Estimated fair values are calculated based on the value without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications or estimated transaction cost.
Securities. The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. All other securities are measured at fair value in Level 2 and are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. These securities include government-sponsored enterprise obligations, state and municipal obligations, corporate bonds, residential mortgage-backed securities guaranteed and sponsored by the U.S. government or an agency thereof. Fair value measurements are obtained from a third-party pricing service and are not adjusted by management.
Interest rate swaps. The valuation of our interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We have determined that the majority of the inputs used to value our interest rate derivatives fall within Level 2 of the fair value hierarchy.
34
Assets and Liabilities Measured at Fair Value on a Recurring Basis.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| March 31, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Securities available-for-sale | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities | ||||||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Securities available-for-sale | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities | ||||||||||||||||
| Interest rate swaps | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | ||||||||||||
There were no transfers to or from Level 1 and 2 for assets measured at fair value on a recurring basis at March 31, 2025 and December 31, 2024.
Assets Measured at Fair Value on a Non-recurring Basis.
We may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There were no collateral dependent loans measured at fair value on a nonrecurring basis as of March 31, 2025. The following table summarize the fair value hierarchy used to determine the carrying values of the related assets as of December 31, 2024.
| Three Months Ended | ||||||||||||||||
| At December 31, 2024 | March 31, 2024 | |||||||||||||||
| Total | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Losses | |||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
| Collateral dependent loans | $ | — | $ | — | $ | $ | ||||||||||
The amount of impaired loans represents the carrying value, net of the related write-down or valuation allowance of collateral dependent loans for which adjustments are based on the estimated fair value of the underlying collateral. The fair value of collateral dependent loans with specific allocations of the allowance for loan losses is generally based on real estate appraisals performed by independent licensed or certified appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management will discount appraisals as deemed necessary based on the date of the appraisal and new information deemed relevant to the valuation. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
35
Summary of Fair Values of Financial Instruments.
The estimated fair values of our financial instruments are as follows:
March 31, 2025 | ||||||||||||||||||||
| Carrying Value | Fair Value | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||
| Marketable equity securities | ||||||||||||||||||||
| FHLB and other restricted stock | ||||||||||||||||||||
| Loans - net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Derivative asset | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Derivative liabilities | ||||||||||||||||||||
December 31, 2024 | ||||||||||||||||||||
| Carrying Value | Fair Value | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||
| Marketable equity securities | ||||||||||||||||||||
| FHLB and other restricted stock | ||||||||||||||||||||
| Loans - net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Derivative asset | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| Derivative liabilities | ||||||||||||||||||||
36
12. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures (Topic 280), which expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis. It also requires companies to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This ASU, as amended, became effective for the Company in the consolidated financial statements for the year ended December 31, 2024 (see Note 13 – Segment) and did not have a material impact on the Company’s consolidated financial statements. In addition, this ASU, as amended, will be effective for interim periods beginning in 2025 and did not have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which requires entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. On an annual basis, entities must disclose: (1) the amount of income taxes paid, net of refunds, disaggregated by federal, state, and foreign; and (2) the amount of income taxes paid, net of refunds, disaggregated by individual jurisdictions in which income taxes paid, net of refunds received, for amounts equal to or greater than 5% of total income taxes paid. Further, the amendments also require entities to disclose: (1) income or loss from continued operations before income tax expense (or benefit) disaggregated between domestic and foreign sources; and (2) income or loss from continued operations disaggregated by federal, state, and foreign sources. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, 2024 and is not expected to have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures – Disaggregation of Income Statement Expenses (Subtopic 220-40). ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 requires new financial statement disclosures in tabular form, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. This ASU is effective for the Company, on a prospective basis, for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027 and is not expected to have a material impact on the Company’s consolidated financial statements.
13. SEGMENT
The Company operates as a reportable segment under ASC 280, as the Chief Operating Decision Maker (“CODM”) reviews financial performance and allocates resources based on the consolidated results of the Company as a whole. The Company, through its bank subsidiary, provides banking services to individuals and companies primarily in Hampden County and Hampshire County in western Massachusetts and Hartford County and Tolland County in northern Connecticut. These services include commercial lending, residential lending and consumer lending, checking, savings, time deposits, cash management, and wealth management. The CODM primarily evaluates performance using net interest income and net income as reported in the consolidated statement of income. The Company’s primary measure of profitability is net interest and dividend income. Net interest and dividend income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities. Interest-earning assets consist primarily of commercial real estate loans, commercial and industrial loans, residential real estate loans and securities. Interest-bearing liabilities consist primarily of time deposits and money market accounts, demand deposits, savings accounts and borrowings from the FHLB. The consolidated results of operations also depend on the provision for credit losses, non-interest income, and non-interest expense. In addition, the CODM considers net income as a key measure of overall financial performance. The Company’s CODM consists of members of the Senior Management team, including the Chief Executive Officer, the Chief Financial Officer, the Chief Banking Officer and the Chief Lending Officer.
37
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview.
We strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. Historically, we have been a community-oriented provider of traditional banking products and services to business organizations and individuals, including products such as residential and commercial real estate loans, commercial and industrial loans, consumer loans and a variety of deposit products. We meet the needs of our local community through a community-based and service-oriented approach to banking.
We have adopted a growth-oriented strategy that continues to focus on increasing commercial lending and residential lending. Our strategy also calls for increasing deposit relationships, specifically core deposits (defined below), and broadening our product lines and services. We believe that this business strategy is best for our long-term success and viability, and complements our existing commitment to high-quality customer service.
In connection with our overall growth strategy, we seek to:
| ● | Increase market share and achieve scale to improve the Company’s profitability and efficiency and return value to shareholders; |
| ● | Grow the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area of Hampden and Hampshire Counties in western Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase the net interest margin and loan income; |
| ● | Supplement the Company’s commercial portfolio by growing the Company’s residential real estate portfolio to diversify the Company’s loan portfolio and deepen customer relationships; |
| ● | Focus on expanding our retail banking deposit franchise and increase the number of households served within our designated market area; |
| ● | Invest in people, systems and technology to grow revenue, improve efficiency and enhance the overall customer experience; |
| ● | Grow revenues, increase book value per share and tangible book value per share (a non-GAAP financial measure), pay competitive dividends to shareholders and utilize the Company’s stock repurchase plan to leverage our capital and enhance franchise value; and |
| ● | Consider growth through acquisitions. We may pursue expansion opportunities in existing or adjacent strategic locations with companies that add complementary products to our existing business and at terms that add value to our existing shareholders. |
You should read the following financial results for the three months ended March 31, 2025 in the context of this strategy.
| ● | Net income was $2.3 million, or $0.11 per diluted share, for the three months ended March 31, 2025, compared to net income of $3.0 million, or $0.14 per diluted share, for the three months ended March 31, 2024. |
| ● | During the three months ended March 31, 2025, the Company recorded a provision for credit losses of $142,000, compared to a reversal of credit losses of $550,000 during the three months ended March 31, 2024. The increase was primarily due to changes in the most recent macroeconomic forecast. |
38
| ● | Net interest income increased $188,000, or 1.2%, to $15.5 million, for the three months ended March 31, 2025, from $15.3 million for the three months ended March 31, 2024. The increase in net interest income was due to an increase in interest and dividend income of $1.8 million, or 6.9%, partially offset by an increase in interest expense of $1.6 million, or 14.6%. The increase in interest expense was primarily due to an increase in average interest-bearing deposits of $156.1 million, or 9.9%, and an increase in the average cost of interest-bearing deposit accounts of 29 basis points from the three months ended March 31, 2024 to the three months ended March 31, 2025. |
CRITICAL ACCOUNTING POLICIES.
Our consolidated financial statements are prepared in accordance with GAAP and practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.
Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.
There have been no material changes to our critical accounting policies during the three months ended March 31, 2025. For additional information on our critical accounting policies, please refer to the information contained in Note 1 of the accompanying unaudited consolidated financial statements and Note 1 of the consolidated financial statements included in our 2024 Annual Report.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2025 AND DECEMBER 31, 2024
At March 31, 2025, total assets were $2.7 billion, an increase of $56.2 million, or 2.1%, from December 31, 2024. The increase in total assets was primarily due to an increase in total gross loans of $9.3 million, or 0.5%, an increase in cash and cash equivalents of $44.1 million, or 66.4%, and an increase in investment securities of $3.6 million, or 1.0%.
At March 31, 2025, the investment securities portfolio totaled $369.8 million, or 13.6% of total assets, compared to $366.1 million, or 13.8% of total assets, at December 31, 2024. At March 31, 2025, the Company’s available-for-sale securities portfolio, recorded at fair market value, increased $7.1 million, or 4.4%, from $160.7 million at December 31, 2024 to $167.8 million. The held-to-maturity securities portfolio, recorded at amortized cost, decreased $3.4 million, or 1.7%, from $205.0 million at December 31, 2024 to $201.6 million at March 31, 2025.
At March 31, 2025, the Company reported unrealized losses on the available-for-sale securities portfolio of $27.8 million, or 14.2% of the amortized cost basis of the available-for-sale securities portfolio, compared to unrealized losses of $31.2 million, or 16.2% of the amortized cost basis of the available-for-sale securities at December 31, 2024. At March 31, 2025, the Company reported unrealized losses on the held-to-maturity securities portfolio of $35.8 million, or 17.8% of the amortized cost basis of the held-to-maturity securities portfolio, compared to $39.4 million, or 19.2% of the amortized cost basis of the held-to-maturity securities portfolio at December 31, 2024.
The securities in which the Company may invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt instruments and marketable equity securities. The securities, with the exception of $8.7 million in corporate bonds, are issued by the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases, price improvement in future periods will be realized as the issuances approach maturity.
39
Management regularly reviews the portfolio for securities in an unrealized loss position. At March 31, 2025 and December 31, 2024, the Company did not record any credit impairment charges on its securities portfolio and attributed the unrealized losses primarily due to fluctuations in general interest rates or changes in expected prepayments and not due to credit quality. The primary objective of the Company’s investment portfolio is to provide liquidity and to secure municipal deposit accounts while preserving the safety of principal. The available-for-sale and held-to-maturity portfolios are both eligible for pledging to the FHLB as collateral for borrowings. The portfolios are comprised of high-credit quality investments and both portfolios generated cash flows monthly from interest, principal amortization and payoffs, which support’s the Bank’s objective to provide liquidity.
Total gross loans increased $9.3 million, or 0.5%, from $2.1 billion, or 77.9% of total assets, at December 31, 2024 to $2.1 billion, or 76.7% of total assets, at March 31, 2025. The increase in total gross loans was primarily driven by an increase in residential real estate loans, including home equity loans, of $8.1 million, or 1.0%, and an increase in commercial and industrial loans of $4.7 million, or 2.2%. These increases were partially offset by a decrease in commercial real estate loans of $3.0 million, or 0.3%, and a decrease in consumer loans of $526,000, or 12.0%.
Total delinquency was $4.5 million, or 0.22% of total loans, at March 31, 2025, compared to $5.0 million, or 0.24% of total loans at December 31, 2024. At March 31, 2025, nonaccrual loans totaled $6.0 million, or 0.29% of total loans, compared to $5.4 million, or 0.26% of total loans, at December 31, 2024. At March 31, 2025 and December 31, 2024, there were no loans 90 or more days past due and still accruing interest. Total nonaccrual assets totaled $6.0 million, or 0.22% of total assets, at March 31, 2025, compared to $5.4 million, or 0.20% of total assets, at December 31, 2024. At March 31, 2025 and December 31, 2024, the Company did not have any other real estate owned. We continue to maintain diversity among property types and within our geographic footprint. A summary of our past due and nonaccrual loans by class is listed in Note 5 of the accompanying unaudited consolidated financial statements.
At March 31, 2025, the allowance for credit losses was $19.7 million, or 0.95% of total loans and 327.1% of nonaccrual loans, compared to $19.5 million, or 0.94% of total loans and 362.9% of nonaccrual loans, at December 31, 2024. Total criticized loans, defined as special mention and substandard loans, decreased $2.1 million, or 5.5%, from $38.4 million, or 1.9% of total loans, at December 31, 2024 to $36.3 million, or 1.7% of total loans, at March 31, 2025.
Our commercial real estate portfolio is comprised of diversified property types and primarily within our geographic footprint. At March 31, 2025, the commercial real estate portfolio totaled $1.1 billion, and represented 51.7% of total loans. Of the $1.1 billion, $881.1 million, or 82.1%, was categorized as non-owner occupied commercial real estate and represented 325.8% of the Bank’s total risk-based capital.
CRE Concentrations.
The OCC, the FRB, and the FDIC (“Agencies”) issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (“CRE”) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction.
Institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cashflow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
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As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk:
1. Total reported loans for construction, land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or
2. Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution’s total risk-based capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.
The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.
The Company holds a concentration in commercial real estate loans. As of March 31, 2025, construction, land development and other land loans represented 35.3% of consolidated bank risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio of 8.6%.
The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Company’s Board of Directors (the “Board”) has established internal maximum limits on CRE as an asset class overall as well as sub limits within CRE by property class, to better manage and control the exposure to property classes during periods of changing economic conditions. The Board also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.
Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by the Company’s Credit Department that is independent of the originating lender(s).
The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of March 31, 2025:
| Property Type | Non-Owner Occupied | Owner Occupied | Total | % of CRE Portfolio | % of Total Loans | % of Total Bank Risk- Based Capital (1) | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Office Portfolio | $ | 175,798 | $ | 22,212 | $ | 198,010 | 18.5 | % | 9.5 | % | 73.2 | % | ||||||||||||
| Apartment | 177,907 | — | 177,907 | 16.6 | % | 8.6 | % | 65.8 | % | |||||||||||||||
| Industrial | 118,765 | 51,029 | 169,794 | 15.8 | % | 8.2 | % | 62.8 | % | |||||||||||||||
| Retail | 108,909 | 6,986 | 115,895 | 10.8 | % | 5.6 | % | 42.8 | % | |||||||||||||||
| Other | 36,208 | 30,448 | 66,656 | 6.2 | % | 3.2 | % | 24.6 | % | |||||||||||||||
| Mixed Use | 70,654 | 6,272 | 76,926 | 7.2 | % | 3.7 | % | 28.4 | % | |||||||||||||||
| Hotel/Hospitality | 42,735 | — | 42,735 | 4.0 | % | 2.1 | % | 15.8 | % | |||||||||||||||
| Automotive Sales | 2,668 | 36,016 | 38,684 | 3.6 | % | 1.9 | % | 14.3 | % | |||||||||||||||
| Adult Care/Assisted Living | 31,414 | 6,119 | 37,533 | 3.5 | % | 1.8 | % | 13.9 | % | |||||||||||||||
| Self-Storage | 36,281 | 313 | 36,594 | 3.4 | % | 1.8 | % | 13.5 | % | |||||||||||||||
| Student Housing | 21,926 | — | 21,926 | 2.0 | % | 1.0 | % | 8.1 | % | |||||||||||||||
| Warehouse | 24,041 | 9,891 | 33,932 | 3.2 | % | 1.6 | % | 12.6 | % | |||||||||||||||
| Shopping Center | 22,660 | 6,758 | 29,418 | 2.7 | % | 1.4 | % | 10.9 | % | |||||||||||||||
| School/Higher Education | 11,139 | 15,538 | 26,677 | 2.5 | % | 1.3 | % | 9.9 | % | |||||||||||||||
| Total commercial real estate | $ | 881,105 | $ | 191,582 | $ | 1,072,687 | 100.0 | % | 51.7 | % | 396.6 | % | ||||||||||||
| % of Total Bank Risk-Based Capital (1) | 325.8 | % | 70.8 | % | 396.6 | % | ||||||||||||||||||
| % of Total CRE loans | 82.1 | % | 17.9 | % | ||||||||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
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At March 31, 2025, of the $1.1 billion in commercial real estate loans, $881.1 million, or 82.1% of total commercial real estate loans, were categorized as non-owner occupied and represented 325.8% of total bank risk-based capital.
The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of December 31, 2024:
| Property Type | Non-Owner Occupied | Owner Occupied | Total | % of CRE Portfolio | % of Total Loans | % of Total Bank Risk- Based Capital (1) | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Office Portfolio | $ | 177,102 | $ | 23,013 | $ | 200,115 | 18.6 | % | 9.7 | % | 73.9 | % | ||||||||||||
| Apartment | 179,874 | — | 179,874 | 16.7 | % | 8.7 | % | 66.4 | % | |||||||||||||||
| Industrial | 116,663 | 51,618 | 168,281 | 15.6 | % | 8.1 | % | 62.1 | % | |||||||||||||||
| Retail | 109,936 | 7,105 | 117,041 | 10.9 | % | 5.7 | % | 43.2 | % | |||||||||||||||
| Other | 37,231 | 30,471 | 67,702 | 6.3 | % | 3.3 | % | 25.0 | % | |||||||||||||||
| Mixed Use | 71,226 | 6,402 | 77,628 | 7.2 | % | 3.8 | % | 28.7 | % | |||||||||||||||
| Hotel/Hospitality | 43,133 | — | 43,133 | 4.0 | % | 2.1 | % | 15.9 | % | |||||||||||||||
| Automotive Sales | 2,705 | 36,554 | 39,259 | 3.6 | % | 1.9 | % | 14.5 | % | |||||||||||||||
| Adult Care/Assisted Living | 31,635 | 6,119 | 37,754 | 3.5 | % | 1.8 | % | 13.9 | % | |||||||||||||||
| Self-Storage | 33,765 | 329 | 34,094 | 3.2 | % | 1.6 | % | 12.6 | % | |||||||||||||||
| Student Housing | 22,047 | — | 22,047 | 2.0 | % | 1.1 | % | 8.1 | % | |||||||||||||||
| Warehouse | 20,942 | 10,045 | 30,987 | 2.9 | % | 1.5 | % | 11.4 | % | |||||||||||||||
| Shopping Center | 23,193 | 7,518 | 30,711 | 2.9 | % | 1.5 | % | 11.3 | % | |||||||||||||||
| School/Higher Education | 11,376 | 15,730 | 27,106 | 2.5 | % | 1.3 | % | 10.0 | % | |||||||||||||||
| Total commercial real estate | $ | 880,828 | $ | 194,904 | $ | 1,075,732 | 100.0 | % | 52.0 | % | 397.1 | % | ||||||||||||
| % of Total Bank Risk-Based Capital (1) | 325.2 | % | 71.9 | % | 397.1 | % | ||||||||||||||||||
| % of Total CRE loans | 81.9 | % | 18.1 | % | ||||||||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
At December 31, 2024, of the $1.1 billion in commercial real estate loans, $880.8 million, or 81.9% of total commercial real estate loans, were categorized as non-owner occupied and represented 325.2% of total bank risk-based capital.
The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average loan-to-value (“LTV”) as of March 31, 2025:
| Property Type | MA | CT | NH | RI | ME | Other | Total | % of Total Bank Risk-Based Capital (1) | Weighted Average LTV (2) | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Apartment | $ | 112,213 | $ | 39,024 | $ | — | $ | 26,670 | $ | — | $ | — | $ | 177,907 | 65.8 | % | 54.6 | % | ||||||||||||||||||
| Office | 62,005 | 62,462 | 39,977 | — | 11,354 | — | 175,798 | 65.0 | % | 63.8 | % | |||||||||||||||||||||||||
| Industrial | 65,547 | 33,728 | — | 14,983 | — | 4,507 | 118,765 | 43.9 | % | 57.9 | % | |||||||||||||||||||||||||
| Retail | 54,843 | 23,291 | 13,657 | 6,182 | 10,936 | — | 108,909 | 40.3 | % | 53.4 | % | |||||||||||||||||||||||||
| Mixed Use | 31,528 | 21,433 | — | 12,998 | — | 4,695 | 70,654 | 26.1 | % | 57.3 | % | |||||||||||||||||||||||||
| Other | 29,523 | 5,861 | 700 | — | 124 | — | 36,208 | 13.4 | % | 55.6 | % | |||||||||||||||||||||||||
| Hotel/Hospitality | 20,621 | 22,114 | — | — | — | — | 42,735 | 15.8 | % | 52.6 | % | |||||||||||||||||||||||||
| Adult Care/Assisted Living | 14,932 | 16,482 | — | — | — | — | 31,414 | 11.6 | % | 58.4 | % | |||||||||||||||||||||||||
| Self-Storage | 26,500 | 9,001 | 780 | — | — | — | 36,281 | 13.4 | % | 63.3 | % | |||||||||||||||||||||||||
| Student Housing | 3,695 | 15,226 | 2,660 | — | — | 345 | 21,926 | 8.1 | % | 61.9 | % | |||||||||||||||||||||||||
| Shopping Center | 6,834 | 15,826 | — | — | — | — | 22,660 | 8.4 | % | 50.6 | % | |||||||||||||||||||||||||
| Warehouse | 17,360 | 4,973 | — | — | — | 1,708 | 24,041 | 8.9 | % | 42.2 | % | |||||||||||||||||||||||||
| School/Higher Education | 11,139 | — | — | — | — | — | 11,139 | 4.1 | % | 44.6 | % | |||||||||||||||||||||||||
| Automotive Sales | 2,668 | — | — | — | — | — | 2,668 | 1.0 | % | 38.9 | % | |||||||||||||||||||||||||
| Total Non-Owner CRE | $ | 459,408 | $ | 269,421 | $ | 57,774 | $ | 60,833 | $ | 22,414 | $ | 11,255 | $ | 881,105 | 325.8 | % | 57.0 | % | ||||||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
| (2) | Weighted average LTV is based on the original appraisal and the current loan exposure. |
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The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average LTV as of December 31, 2024:
| Property Type | MA | CT | NH | RI | ME | Other | Total | % of Total Bank Risk-Based Capital (1) | Weighted Average LTV (2) | |||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Apartment | $ | 114,922 | $ | 37,212 | $ | — | $ | 27,740 | $ | — | $ | — | $ | 179,874 | 66.4 | % | 54.7 | % | ||||||||||||||||||
| Office | 62,554 | 62,906 | 40,237 | — | 11,405 | — | 177,102 | 65.4 | % | 64.4 | % | |||||||||||||||||||||||||
| Industrial | 60,192 | 35,438 | — | 14,992 | — | 6,041 | 116,663 | 43.1 | % | 56.0 | % | |||||||||||||||||||||||||
| Retail | 55,555 | 23,551 | 13,752 | 6,219 | 10,859 | — | 109,936 | 40.6 | % | 55.4 | % | |||||||||||||||||||||||||
| Mixed Use | 31,899 | 21,552 | — | 13,062 | — | 4,713 | 71,226 | 26.3 | % | 57.7 | % | |||||||||||||||||||||||||
| Other | 30,449 | 5,949 | 707 | — | 126 | — | 37,231 | 13.7 | % | 55.3 | % | |||||||||||||||||||||||||
| Hotel/Hospitality | 20,813 | 22,320 | — | — | — | — | 43,133 | 15.9 | % | 51.8 | % | |||||||||||||||||||||||||
| Adult Care/Assisted Living | 15,089 | 16,546 | — | — | — | — | 31,635 | 11.7 | % | 58.6 | % | |||||||||||||||||||||||||
| Self-Storage | 24,433 | 8,548 | 784 | — | — | — | 33,765 | 12.5 | % | 63.0 | % | |||||||||||||||||||||||||
| Student Housing | 3,717 | 15,323 | 2,660 | — | — | 347 | 22,047 | 8.1 | % | 72.4 | % | |||||||||||||||||||||||||
| Shopping Center | 7,176 | 16,017 | — | — | — | — | 23,193 | 8.6 | % | 50.9 | % | |||||||||||||||||||||||||
| Warehouse | 17,406 | 3,319 | — | — | — | 217 | 20,942 | 7.7 | % | 44.5 | % | |||||||||||||||||||||||||
| School/Higher Education | 11,376 | — | — | — | — | — | 11,376 | 4.2 | % | 45.0 | % | |||||||||||||||||||||||||
| Automotive Sales | 2,705 | — | — | — | — | — | 2,705 | 1.0 | % | 39.5 | % | |||||||||||||||||||||||||
| Total Non-Owner CRE | $ | 458,286 | $ | 268,681 | $ | 58,140 | $ | 62,013 | $ | 22,390 | $ | 11,318 | $ | 880,828 | 325.2 | % | 57.2 | % | ||||||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
| (2) | Weighted average LTV is based on the original appraisal and the current loan exposure. |
The Company also underwrites and originates owner occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
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The table below depicts a well-diversified portfolio of owner occupied commercial real estate portfolio as of March 31, 2025:
| Property Type | MA | CT | NH | Other | Total | % of Total Bank Risk-Based Capital (1) | Weighted Average LTV (2) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| Owner Occupied CRE | ||||||||||||||||||||||||||||
| Adult Care/Assisted Living | $ | — | $ | — | $ | 6,119 | $ | — | $ | 6,119 | 2.3 | % | 57.2 | % | ||||||||||||||
| Automotive Sales | 29,389 | 6,627 | — | — | 36,016 | 13.3 | % | 59.2 | % | |||||||||||||||||||
| School/Higher Education | 15,538 | — | — | — | 15,538 | 5.7 | % | 66.1 | % | |||||||||||||||||||
| Industrial | 42,077 | 8,391 | — | 561 | 51,029 | 18.9 | % | 52.1 | % | |||||||||||||||||||
| Mixed Use | 5,697 | 575 | — | — | 6,272 | 2.3 | % | 52.6 | % | |||||||||||||||||||
| Office | 19,720 | 2,492 | — | — | 22,212 | 8.2 | % | 57.0 | % | |||||||||||||||||||
| Retail | 6,986 | — | — | — | 6,986 | 2.6 | % | 52.5 | % | |||||||||||||||||||
| Shopping Center | 4,616 | 2,142 | — | — | 6,758 | 2.5 | % | 56.8 | % | |||||||||||||||||||
| Self-Storage | 313 | — | — | — | 313 | 0.1 | % | 20.1 | % | |||||||||||||||||||
| Warehouse | 9,525 | 366 | — | — | 9,891 | 3.7 | % | 62.9 | % | |||||||||||||||||||
| Other | 21,305 | 8,238 | 905 | — | 30,448 | 11.3 | % | 49.5 | % | |||||||||||||||||||
| Total Owner Occupied CRE | $ | 155,166 | $ | 28,831 | $ | 7,024 | $ | 561 | $ | 191,582 | 70.8 | % | 55.6 | % | ||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
| (2) | Weighted average LTV is based on the original appraisal and the current loan exposure. |
The table below depicts a well-diversified portfolio of owner occupied commercial real estate portfolio as of December 31, 2024:
| Property Type | MA | CT | NH | Other | Total | % of Total Bank Risk-Based Capital (1) | Weighted Average LTV (2) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| Owner Occupied CRE | ||||||||||||||||||||||||||||
| Adult Care/Assisted Living | $ | — | $ | — | $ | 6,119 | $ | — | $ | 6,119 | 2.3 | % | 58.1 | % | ||||||||||||||
| Automotive Sales | 29,858 | 6,696 | — | — | 36,554 | 13.5 | % | 59.8 | % | |||||||||||||||||||
| School/Higher Education | 15,730 | — | — | — | 15,730 | 5.8 | % | 66.8 | % | |||||||||||||||||||
| Industrial | 42,456 | 8,594 | — | 568 | 51,618 | 19.1 | % | 52.7 | % | |||||||||||||||||||
| Mixed Use | 5,820 | 582 | — | — | 6,402 | 2.4 | % | 53.0 | % | |||||||||||||||||||
| Office | 20,477 | 2,536 | — | — | 23,013 | 8.5 | % | 57.2 | % | |||||||||||||||||||
| Retail | 7,105 | — | — | — | 7,105 | 2.6 | % | 53.4 | % | |||||||||||||||||||
| Shopping Center | 5,358 | 2,160 | — | — | 7,518 | 2.8 | % | 56.5 | % | |||||||||||||||||||
| Self-Storage | 329 | — | — | — | 329 | 0.1 | % | 20.5 | % | |||||||||||||||||||
| Warehouse | 9,671 | 374 | — | — | 10,045 | 3.7 | % | 63.2 | % | |||||||||||||||||||
| Other | 21,773 | 7,782 | 916 | — | 30,471 | 11.2 | % | 49.4 | % | |||||||||||||||||||
| Total Owner Occupied CRE | $ | 158,577 | $ | 28,724 | $ | 7,035 | $ | 568 | $ | 194,904 | 72.0 | % | 56.0 | % | ||||||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
| (2) | Weighted average LTV is based on the original appraisal and the current loan exposure. |
Commercial Real Estate Office Exposure.
Our total office-related commercial real estate loans (which is comprised of loans within our commercial real estate portfolio that are secured by office space, medical office space, and mixed-use where rental income is primarily from office space) totaled $198.0 million, or 73.2% of total bank risk-based capital and $200.1 million, or 73.9% of total bank risk-based capital, as of March 31, 2025 and December 31, 2024, respectively.
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The table below breaks the office-related commercial real estate loans by collateral type for the periods noted:
| March 31, 2025 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Collateral Type: | ||||||||||||||||||||
| Office/Medical | $ | 106,116 | $ | 10,542 | $ | 116,658 | 58.9 | % | 43.2 | % | ||||||||||
| Office/Professional Metro | 3,664 | 8,075 | 11,739 | 5.9 | % | 4.3 | % | |||||||||||||
| Office/Professional Suburban | 38,747 | 3,291 | 42,038 | 21.2 | % | 15.5 | % | |||||||||||||
| Office/Professional Urban | 27,271 | 304 | 27,575 | 13.9 | % | 10.2 | % | |||||||||||||
| Total Office Portfolio | $ | 175,798 | $ | 22,212 | $ | 198,010 | 100.0 | % | 73.2 | % | ||||||||||
| December 31, 2024 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Collateral Type: | ||||||||||||||||||||
| Office/Medical | $ | 106,884 | $ | 10,760 | $ | 117,644 | 58.8 | % | 43.4 | % | ||||||||||
| Office/Professional Metro | 3,693 | 8,259 | 11,952 | 6.0 | % | 4.4 | % | |||||||||||||
| Office/Professional Suburban | 39,336 | 3,681 | 43,017 | 21.5 | % | 15.9 | % | |||||||||||||
| Office/Professional Urban | 27,189 | 313 | 27,502 | 13.7 | % | 10.2 | % | |||||||||||||
| Total Office Portfolio | $ | 177,102 | $ | 23,013 | $ | 200,115 | 100.0 | % | 73.9 | % | ||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
Office-related CRE loans are primarily concentrated in Massachusetts, where approximately 41.3% at March 31, 2025 and 41.5%, at December 31, 2024, of the total balance of office-related CRE loans are located. The Company does not have office CRE loans secured by real estate in greater Boston or New York.
| March 31, 2025 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| By State: | ||||||||||||||||||||
| Massachusetts | $ | 62,005 | $ | 19,720 | $ | 81,725 | 41.3 | % | 30.2 | % | ||||||||||
| Connecticut | 62,462 | 2,492 | 64,954 | 32.8 | % | 24.0 | % | |||||||||||||
| New Hampshire | 39,977 | — | 39,977 | 20.2 | % | 14.8 | % | |||||||||||||
| Other | 11,354 | — | 11,354 | 5.7 | % | 4.2 | % | |||||||||||||
| Total Office Portfolio | $ | 175,798 | $ | 22,212 | $ | 198,010 | 100.0 | % | 73.2 | % | ||||||||||
| December 31, 2024 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| By State: | ||||||||||||||||||||
| Massachusetts | $ | 62,554 | $ | 20,477 | $ | 83,031 | 41.5 | % | 30.7 | % | ||||||||||
| Connecticut | 62,906 | 2,536 | 65,442 | 32.7 | % | 24.2 | % | |||||||||||||
| New Hampshire | 40,237 | — | 40,237 | 20.1 | % | 14.9 | % | |||||||||||||
| Other | 11,405 | — | 11,405 | 5.7 | % | 4.2 | % | |||||||||||||
| Total Office Portfolio | $ | 177,102 | $ | 23,013 | $ | 200,115 | 100.0 | % | 73.9 | % | ||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
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The following table sets forth the office-related CRE loans for non-owner occupied and owner occupied CRE and their credit quality indicators as of the dates indicated:
| March 31, 2025 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| By Risk Rating: | ||||||||||||||||||||
| Pass | $ | 167,873 | $ | 21,204 | $ | 189,077 | 95.5 | % | 69.9 | % | ||||||||||
| Special Mention | 7,925 | 703 | 8,628 | 4.4 | % | 3.2 | % | |||||||||||||
| Substandard | — | 305 | 305 | 0.1 | % | 0.1 | % | |||||||||||||
| Total Office Portfolio | $ | 175,798 | $ | 22,212 | $ | 198,010 | 100.0 | % | 73.2 | % | ||||||||||
| December 31, 2024 | Non-Owner Occupied | Owner Occupied | Total | % of Office Portfolio | % of Total Bank Risk-Based Capital (1) | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| By Risk Rating: | ||||||||||||||||||||
| Pass | $ | 169,177 | $ | 21,632 | $ | 190,809 | 95.4 | % | 70.5 | % | ||||||||||
| Special Mention | 7,925 | 724 | 8,649 | 4.3 | % | 3.2 | % | |||||||||||||
| Substandard | — | 657 | 657 | 0.3 | % | 0.2 | % | |||||||||||||
| Total Office Portfolio | $ | 177,102 | $ | 23,013 | $ | 200,115 | 100.0 | % | 73.9 | % | ||||||||||
| (1) | Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report. |
Given prevailing market conditions such as recent sustained increases in interest rates, reduced occupancy as a result of the increase in hybrid work arrangements post-COVID, and lower commercial real estate valuations, we carefully monitor these loans for signs of deterioration in credit quality and other risks. Such heightened monitoring includes incremental risk management strategies undertaken by management, including more frequent portfolio reviews, ongoing monitoring of market conditions, and additional portfolio analysis, which may include monitoring concentration limitations, including concentrations by loan type, property type, geographic area and with participants, where applicable, and risk diversification, tracking aggregated policy and underwriting exceptions and stress testing the loan portfolios.
Deposits.
At March 31, 2025, total deposits were $2.3 billion and increased $66.0 million, or 2.9%, from December 31, 2024. Core deposits, which the Company defines as all deposits except time deposits, increased $70.2 million, or 4.5%, from $1.6 billion, or 68.9% of total deposits, at December 31, 2024, to $1.6 billion, or 70.0% of total deposits, at March 31, 2025. Non-interest-bearing deposits increased $24.4 million, or 4.3%, to $590.0 million, and represent 25.3% of total deposits, money market accounts increased $45.7 million, or 6.9%, to $707.2 million, savings accounts increased $9.8 million, or 5.4%, to $191.4 million and interest-bearing checking accounts decreased $9.6 million, or 6.4%, to $140.8 million.
Time deposits decreased $4.3 million, or 0.6%, from $703.6 million at December 31, 2024 to $699.3 million at March 31, 2025. Brokered time deposits, which are included in time deposits, totaled $1.7 million at March 31, 2025 and at December 31, 2024. The Company has experienced growth and movement in both money market accounts and non-interest-bearing deposits as a result of seasonal customer behaviors, relationship pricing, and the current interest rate environment, as opposed to time deposit specials or interest rate adjustments. We continue our disciplined and focused approach to core relationship management and customer outreach to meet funding requirements and liquidity needs, with an emphasis on retaining a long-term core customer relationship base by competing for and retaining deposits in our local market. At March 31, 2025, the Bank’s uninsured deposits totaled $665.6 million, or 28.6% of total deposits, compared to $643.6 million, or 28.4% of total deposits, at December 31, 2024.
46
The table below is a summary of our deposit balances for the periods noted:
| March 31, 2025 | December 31, 2024 | March 31, 2024 | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Core Deposits: | ||||||||||||
| Demand accounts | $ | 589,996 | $ | 565,620 | $ | 559,928 | ||||||
| Interest-bearing accounts | 140,769 | 150,348 | 125,377 | |||||||||
| Savings accounts | 191,398 | 181,618 | 190,732 | |||||||||
| Money market accounts | 707,153 | 661,478 | 624,474 | |||||||||
| Total Core Deposits | $ | 1,629,316 | $ | 1,559,064 | $ | 1,500,511 | ||||||
| Time Deposits: | 699,277 | 703,583 | 643,236 | |||||||||
| Total Deposits: | $ | 2,328,593 | $ | 2,262,647 | $ | 2,143,747 | ||||||
At March 31, 2025, total borrowings decreased $860,000, or 0.7%, from $123.1 million at December 31, 2024 to $122.3 million. At March 31, 2025, short-term borrowings decreased $870,000, or 16.1%, to $4.5 million, compared to $5.4 million at December 31, 2024. Long-term borrowings were $98.0 million at March 31, 2025 and December 31, 2024. At March 31, 2025 and December 31, 2024, borrowings also consisted of $19.8 million in fixed-to-floating rate subordinated notes. As of March 31, 2025, the Company had $447.5 million of additional borrowing capacity at the FHLB, $378.5 million of additional borrowing capacity under the Federal Reserve Bank Discount Window and $25.0 million of other unsecured lines of credit with correspondent banks.
At March 31, 2025, shareholders’ equity was $237.7 million, or 8.8% of total assets, compared to $235.9 million, or 8.9% of total assets, at December 31, 2024. The change was primarily attributable to a decrease in accumulated other comprehensive loss of $2.6 million, cash dividends paid of $1.4 million, repurchase of shares at a cost of $2.0 million, partially offset by net income of $2.3 million. At March 31, 2025, total shares outstanding were 20,774,319. The Company’s regulatory capital ratios continue to be strong and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company targets.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND MARCH 31, 2024
General.
Net income was $2.3 million, or $0.11 per diluted share, for the three months ended March 31, 2025, compared to net income of $3.0 million, or $0.14 per diluted share, for the three months ended March 31, 2024. Net interest income, our primary driver of revenues, increased $188,000, or 1.2%, to $15.5 million for the three months ended March 31, 2025, from $15.3 million for the three months ended March 31, 2024.
Net Interest and Dividend Income.
The following tables set forth the information relating to our average balance and net interest income for the three months ended March 31, 2025 and 2024, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing annualized interest income by the average balance of interest-earning assets and annualized interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.
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| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| Average | Average Yield/ | Average | Average Yield/ | |||||||||||||||||||||
| Balance | Interest | Cost(8) | Balance | Interest | Cost(8) | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||
| Interest-earning assets | ||||||||||||||||||||||||
| Loans(1)(2) | $ | 2,073,486 | $ | 25,105 | 4.91 | % | $ | 2,021,713 | $ | 24,351 | 4.84 | % | ||||||||||||
| Securities(2) | 365,371 | 2,422 | 2.69 | 359,493 | 2,114 | 2.37 | ||||||||||||||||||
| Other investments - at cost | 14,819 | 191 | 5.23 | 12,494 | 136 | 4.38 | ||||||||||||||||||
| Short-term investments(3) | 76,039 | 840 | 4.48 | 9,386 | 113 | 4.84 | ||||||||||||||||||
| Total interest-earning assets | 2,529,715 | 28,558 | 4.58 | 2,403,086 | 26,714 | 4.47 | ||||||||||||||||||
| Total non-interest-earning assets | 156,733 | 154,410 | ||||||||||||||||||||||
| Total assets | $ | 2,686,448 | $ | 2,557,496 | ||||||||||||||||||||
| LIABILITIES AND EQUITY: | ||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||
| Interest-bearing checking accounts | $ | 140,960 | $ | 250 | 0.72 | % | $ | 135,559 | $ | 234 | 0.69 | % | ||||||||||||
| Savings accounts | 183,869 | 40 | 0.09 | 186,125 | 39 | 0.08 | ||||||||||||||||||
| Money market accounts | 704,215 | 3,968 | 2.29 | 626,267 | 2,587 | 1.66 | ||||||||||||||||||
| Time deposits | 702,748 | 7,118 | 4.11 | 627,699 | 6,433 | 4.12 | ||||||||||||||||||
| Total interest-bearing deposits | 1,731,792 | 11,376 | 2.66 | 1,575,650 | 9,293 | 2.37 | ||||||||||||||||||
| Short-term borrowings and long-term debt | 122,786 | 1,527 | 5.04 | 160,802 | 1,965 | 4.91 | ||||||||||||||||||
| Interest-bearing liabilities | 1,854,578 | 12,903 | 2.82 | 1,736,452 | 11,258 | 2.61 | ||||||||||||||||||
| Non-interest-bearing deposits | 569,638 | 557,711 | ||||||||||||||||||||||
| Other non-interest-bearing liabilities | 25,464 | 27,078 | ||||||||||||||||||||||
| Total non-interest-bearing liabilities | 595,102 | 584,789 | ||||||||||||||||||||||
| Total liabilities | 2,449,680 | 2,321,241 | ||||||||||||||||||||||
| Total equity | 236,768 | 236,255 | ||||||||||||||||||||||
| Total liabilities and equity | $ | 2,686,448 | $ | 2,557,496 | ||||||||||||||||||||
| Less: Tax-equivalent adjustment(2) | (121 | ) | (110 | ) | ||||||||||||||||||||
| Net interest and dividend income | $ | 15,534 | $ | 15,346 | ||||||||||||||||||||
| Net interest rate spread(4) | 1.74 | % | 1.85 | % | ||||||||||||||||||||
| Net interest rate spread, on a tax equivalent basis(5) | 1.76 | % | 1.86 | % | ||||||||||||||||||||
| Net interest margin(6) | 2.49 | % | 2.57 | % | ||||||||||||||||||||
| Net interest margin, on a tax equivalent basis(7) | 2.51 | % | 2.59 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 136.40 | % | 138.39 | % | ||||||||||||||||||||
| (1) | Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds. |
| (2) | Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income. |
| (3) | Short-term investments include federal funds sold. |
| (4) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
| (5) | Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. See “Explanation of Use of Non-GAAP Financial Measurements”. |
| (6) | Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets. |
| (7) | Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements”. |
| (8) | Annualized. |
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Rate/Volume Analysis.
The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
| Three Months Ended March 31, 2025 compared to Three Months Ended March 31, 2024 | ||||||||||||
| Increase (Decrease) Due to | ||||||||||||
| Volume | Rate | Net | ||||||||||
| Interest-earning assets | (In thousands) | |||||||||||
| Loans (1) | $ | 518 | $ | 236 | $ | 754 | ||||||
| Investment securities (1) | 26 | 282 | 308 | |||||||||
| Other investments - at cost | 24 | 31 | 55 | |||||||||
| Short-term investments | 795 | (68 | ) | 727 | ||||||||
| Total interest-earning assets | 1,363 | 481 | 1,844 | |||||||||
| Interest-bearing liabilities | ||||||||||||
| Interest-bearing checking accounts | 8 | 8 | 16 | |||||||||
| Savings accounts | (1 | ) | 2 | 1 | ||||||||
| Money market accounts | 309 | 1,072 | 1,381 | |||||||||
| Time deposits | 737 | (52 | ) | 685 | ||||||||
| Short-term borrowing and long-term debt | (469 | ) | 31 | (438 | ) | |||||||
| Total interest-bearing liabilities | 584 | 1,061 | 1,645 | |||||||||
| Change in net interest and dividend income (1) | $ | 779 | $ | (580 | ) | $ | 199 | |||||
| (1) | Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements”. |
Net interest income increased $188,000, or 1.2%, to $15.5 million, for the three months ended March 31, 2025, from $15.3 million for the three months ended March 31, 2024. The increase in net interest income was due to an increase in interest and dividend income of $1.8 million, or 6.9%, partially offset by an increase in interest expense of $1.6 million, or 14.6%. The increase in interest expense was primarily due to an increase in average interest-bearing deposits of $156.1 million, or 9.9%, and an increase in the average cost of interest-bearing deposit accounts of 29 basis points from the three months ended March 31, 2024 to the three months ended March 31, 2025. As a result, the net interest margin decreased from 2.57% for the three months ended March 31, 2024, to 2.49% for the three months ended March 31, 2025. The net interest margin, on a tax-equivalent basis, was 2.51% for the three months ended March 31, 2025, compared to 2.59% for the three months ended March 31, 2024.
The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, increased 11 basis points from 4.45% for the three months ended March 31, 2024 to 4.56% for the three months ended March 31, 2025. The average loan yield, without the impact of tax-equivalent adjustments, was 4.89% for the three months ended March 31, 2025, compared to 4.82% for the three months ended March 31, 2024. During the three months ended March 31, 2025, average interest-earning assets increased $126.6 million, or 5.3%, to $2.5 billion, primarily due to an increase in average loans of $51.8 million, or 2.6%, an increase in average short-term investments, consisting of cash and cash equivalents, of $66.7 million, an increase in average securities of $5.9 million, or 1.6%, and an increase in average other investments of $2.3 million, or 18.6%.
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The average cost of total funds, including non-interest bearing accounts and borrowings, increased 19 basis points from 1.97% for the three months ended March 31, 2024, to 2.16% for the three months ended March 31, 2025. The average cost of core deposits, which the Company defines as all deposits except time deposits, increased 32 basis points from 0.76% for the three months ended March 31, 2024 to 1.08% for the three months ended March 31, 2025. The average cost of time deposits decreased one basis point from 4.12% for the three months ended March 31, 2024 to 4.11% for the three months ended March 31, 2025. The average cost of borrowings, including subordinated debt, increased 13 basis points from 4.91% for the three months ended March 31, 2024 to 5.04% for the three months ended March 31, 2025. Average demand deposits, an interest-free source of funds, increased $11.9 million, or 2.1%, from $557.7 million, or 26.1% of total average deposits, for the three months ended March 31, 2024, to $569.6 million, or 24.8% of total average deposits, for the three months ended March 31, 2025.
Provision for (Reversal of) Credit Losses.
The provision for credit losses is reviewed by management based upon our evaluation of economic and business conditions affecting our key lending areas and other conditions, such as new loan products, credit quality trends (including trends in nonaccrual loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions using reasonable and supportable forecasts and the impact that such conditions were believed to have had on the collectability of the loan portfolio.
During the three months ended March 31, 2025, the Company recorded a provision for credit losses of $142,000, compared to a reversal of credit losses of $550,000 during the three months ended March 31, 2024. The increase was primarily due to changes in the most recent macroeconomic forecast. The provision for credit losses was also determined by a number of factors: the continued stable credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions. Management will continue to monitor macroeconomic variables related to the interest rate environment, the continued discussion on tariffs and the concerns of an economic downturn. Management believes it is appropriately reserved for the current economic environment.
During the three months ended March 31, 2025, the Company recorded net charge-offs of $29,000, compared to net recoveries of $67,000 for the three months ended March 31, 2024. Although we believe that we have established and maintained the allowance for credit losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.
Non-Interest Income.
Non-interest income increased $85,000, or 3.2%, from $2.7 million, for the three months ended March 31, 2024 to $2.8 million for the three months ended March 31, 2025, primarily due to a $65,000, or 2.9%, increase in service charges and fees and an increase in income from BOLI of $20,000, or 4.4%.
Non-Interest Expense.
Non-interest expense increased $402,000, or 2.7%, from $14.8 million for the three months ended March 31, 2024 to $15.2 million for the three months ended March 31, 2025. Salaries and benefits increased $169,000, or 2.0%, advertising expense increased $80,000, or 22.9%, occupancy expense increased $49,000, or 3.6%, debit card processing and ATM network costs increased $25,000, or 4.5%, FDIC insurance expense increased $21,000, or 5.1%, data processing expense increased $20,000, or 2.3%, furniture and equipment expense increased $3,000, or 0.6%, and other non-interest expense increased $98,000, or 7.8%. These increases were partially offset by decrease in software related expenses of $40,000, or 5.7%, and a decrease in professional fees of $23,000, or 4.0%.
For the three months ended March 31, 2025 and the three months ended March 31, 2024, the efficiency ratio was 83.0% and 82.0%, respectively. For the three months ended March 31, 2025, the adjusted efficiency ratio, a non-GAAP financial measure, was 83.0% compared to 82.0% for the three months ended March 31, 2024. The increases in the efficiency ratio and the adjusted efficiency ratio were driven by higher expenses during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.
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Income Taxes.
For the three months ended March 31, 2025, income tax expense was $664,000, with an effective tax rate of 22.4%, compared to $827,000, with an effective tax rate of 21.8%, for the three months ended March 31, 2024.
Explanation of Use of Non-GAAP Financial Measurements.
We believe that it is common practice in the banking industry to present interest income and related yield information on tax-exempt loans and securities on a tax-equivalent basis, as well as presenting tangible book value per share and adjusted efficiency ratio, and that such information is useful to investors because it facilitates comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities to a tax-equivalent amount, as well as the presentation of tangible book value per share and adjusted efficiency ratio, may be considered to include financial information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.
| For the three months ended | ||||||||
| 3/31/2025 | 3/31/2024 | |||||||
| (Dollars in thousands) | ||||||||
| Loans (no tax adjustment) | $ | 24,984 | $ | 24,241 | ||||
| Tax-equivalent adjustment (1) | 121 | 110 | ||||||
| Loans (tax-equivalent basis) | $ | 25,105 | $ | 24,351 | ||||
| Net interest income (no tax adjustment) | $ | 15,534 | $ | 15,346 | ||||
| Tax equivalent adjustment (1) | 121 | 110 | ||||||
| Net interest income (tax-equivalent basis) | $ | 15,655 | $ | 15,456 | ||||
| Average interest-earning assets | $ | 2,529,715 | $ | 2,403,086 | ||||
| Net interest margin (no tax adjustment) | 2.49 | % | 2.57 | % | ||||
| Net interest margin, tax-equivalent | 2.51 | % | 2.59 | % | ||||
| Adjusted Efficiency Ratio: | ||||||||
| Non-interest Expense (GAAP) | $ | 15,184 | $ | 14,782 | ||||
| Net Interest Income (GAAP) | $ | 15,534 | $ | 15,346 | ||||
| Non-interest Income (GAAP) | $ | 2,759 | $ | 2,674 | ||||
| Non-GAAP adjustments: | ||||||||
| Loss on disposal of premises and equipment | — | 6 | ||||||
| Unrealized loss (gain) on marketable equity securities | 5 | (8 | ) | |||||
| Non-interest Income for Adjusted Efficiency Ratio (non-GAAP) | $ | 2,764 | $ | 2,672 | ||||
| Total Revenue for Adjusted Efficiency Ratio (non-GAAP) | $ | 18,298 | $ | 18,018 | ||||
| Efficiency Ratio (GAAP) | 83.00 | % | 82.03 | % | ||||
| Adjusted Efficiency Ratio (Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP)/Total Revenue for Adjusted Efficiency Ratio (non-GAAP)) | 82.98 | % | 82.04 | % | ||||
| (1) | The
tax equivalent adjustment is based upon a 21% tax rate for all periods presented. |
51
Liquidity and Capital Resources.
The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals and operating expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. We also can borrow funds from the FHLB based on eligible collateral of loans and securities. Our material cash commitments include funding loan originations, fulfilling contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and satisfying repayment of our long-term debt obligations.
Primary Sources of Liquidity
The Company, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies, and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, the Company stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closing and investment purchases. The Company does not anticipate engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity. However, an economic recession could negatively impact the Company’s liquidity. The Bank relies heavily on FHLB as a source of funds, particularly with its overnight line of credit. In past economic recessions, some FHLB branches have suspended dividends, cut dividend payments, and not bought back excess FHLB stock that members hold in an effort to conserve capital. FHLB has stated that it expects to be able to continue to pay dividends, redeem excess capital stock, and provide competitively priced advances in the future.
At March 31, 2025 and December 31, 2024, outstanding borrowings from the FHLB were $98.0 million. At March 31, 2025, we had $447.5 million in available borrowing capacity with the FHLB. We have the ability to increase our borrowing capacity with the FHLB by pledging investment securities or additional loans.
The Company has an available line of credit of $378.5 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. Borrowings from the FRB Discount Window are secured by certain eligible loan collateral and securities from the Company’s investment portfolio not otherwise pledged. As of March 31, 2025 and December 31, 2024, there were no advances outstanding under the FRB Discount Window.
In addition, we have available lines of credit of $15.0 million and $10.0 million with other correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank. At March 31, 2025 and December 31, 2024, we did not have an outstanding balance under either of these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral.
We also have outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.
Maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.
The Company’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. At March 31, 2025, the Company had approximately $173.4 million in loan commitments and letters of credit to borrowers and approximately $358.5 million in available home equity and other unadvanced lines of credit.
Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At March 31, 2025, time deposit accounts scheduled to mature within one year totaled $668.3 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.
52
Material Cash Commitments
The Company entered into a long-term contractual obligation with a vendor for use of its banking software system provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of March 31, 2025 were estimated to be $5.5 million, with the total amount of $5.5 million expected to be paid within one year. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to thirteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $8.7 million as of March 31, 2025. Principal payments expected to be made on our lease liabilities during the twelve months ended March 31, 2026 were $1.5 million. The remaining lease liability payments totaled $7.2 million and are expected to be made after March 31, 2026.
In addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% Notes to certain qualified institutional buyers in a private placement transaction on April 20, 2021. Unless earlier redeemed, the Notes mature on May 1, 2031. At March 31, 2025, $19.8 million aggregate principal amount of the Notes was outstanding. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve.
At March 31, 2025, we exceeded each of the applicable regulatory capital requirements. As of March 31, 2025, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category.
53
Our actual capital ratios of March 31, 2025 and December 31, 2024 are also presented in the following table.
| Actual | Minimum For Capital Adequacy Purpose | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | $ | 284,924 | 14.28 | % | $ | 159,668 | 8.00 | % | N/A | N/A | ||||||||||||||
| Bank | 270,469 | 13.56 | 159,543 | 8.00 | $ | 199,428 | 10.00 | % | ||||||||||||||||
| Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | 244,911 | 12.27 | 119,751 | 6.00 | N/A | N/A | ||||||||||||||||||
| Bank | 250,217 | 12.55 | 119,657 | 6.00 | 159,543 | 8.00 | ||||||||||||||||||
| Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | 244,911 | 12.27 | 89,813 | 4.50 | N/A | N/A | ||||||||||||||||||
| Bank | 250,217 | 12.55 | 89,743 | 4.50 | 129,628 | 6.50 | ||||||||||||||||||
| Tier 1 Leverage Ratio (to Adjusted Average Assets): | ||||||||||||||||||||||||
| Consolidated | 244,911 | 9.06 | 108,110 | 4.00 | N/A | N/A | ||||||||||||||||||
| Bank | 250,217 | 9.26 | 108,048 | 4.00 | 135,061 | 5.00 | ||||||||||||||||||
| Actual | Minimum For Capital Adequacy Purpose | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | $ | 285,545 | 14.38 | % | $ | 158,884 | 8.00 | % | N/A | N/A | ||||||||||||||
| Bank | 270,879 | 13.65 | 158,744 | 8.00 | $ | 198,430 | 10.00 | % | ||||||||||||||||
| Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | 245,663 | 12.37 | 119,163 | 6.00 | N/A | N/A | ||||||||||||||||||
| Bank | 250,748 | 12.64 | 119,058 | 6.00 | 158,744 | 8.00 | ||||||||||||||||||
| Common Equity Tier 1 Capital (to Risk Weighted Assets): | ||||||||||||||||||||||||
| Consolidated | 245,663 | 12.37 | 89,372 | 4.50 | N/A | N/A | ||||||||||||||||||
| Bank | 250,748 | 12.64 | 89,293 | 4.50 | 128,979 | 6.50 | ||||||||||||||||||
| Tier 1 Leverage Ratio (to Adjusted Average Assets): | ||||||||||||||||||||||||
| Consolidated | 245,663 | 9.14 | 107,461 | 4.00 | N/A | N/A | ||||||||||||||||||
| Bank | 250,748 | 9.34 | 107,390 | 4.00 | 134,237 | 5.00 | ||||||||||||||||||
We also have outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows.
OFF-BALANCE SHEET ARRANGEMENTS.
The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our assessment of our sensitivity to market risk since our presentation in our 2024 Annual Report. Please refer to Item 7A of the 2024 Annual Report for additional information.
ITEM 4: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
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Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
Except as set forth in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2024, the Company was not involved in any material pending legal proceedings as a plaintiff or as a defendant, other than routine legal proceedings occurring in the ordinary course of business. We believe that all such claims and actions currently pending against us, if any, are either adequately covered by insurance or would not have a material adverse effect on us if decided in a manner unfavorable to us.
| ITEM 1A. | RISK FACTORS. |
For a summary of risk factors relevant to our operations, see Part 1, Item 1A, “Risk Factors” in our 2024 Annual Report. There are no additional material changes in the risk factors relevant to our operations since December 31, 2024.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
The following table sets forth information with respect to purchases made by us of our common stock during the three months ended March 31, 2025.
| Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Number of Shares that May Yet Be Purchased Under the Program (1)(2) | |||||||||||||
| January 1 - 31, 2025 | 100,000 | 8.85 | 100,000 | 372,318 | |||||||||||||
| February 1 – 28, 2025 | 27,215 | 9.51 | 27,215 | 345,103 | |||||||||||||
| March 1 - 31, 2025 | 90,003 | 9.32 | 79,494 | 265,609 | |||||||||||||
| Total | 217,218 | 9.13 | 206,709 | 265,609 | |||||||||||||
| (1) | On May 21, 2024, the Board authorized an additional stock repurchase plan (the “2024 Plan”) under which the Company may purchase up to 1,000,000 shares of common stock, or 4.6%, of its outstanding common stock, as of the date the 2024 Plan was adopted. The 2024 Plan commenced upon the completion of the prior existing repurchase plan on June 6, 2024. |
| (2) | Repurchase of 10,509 shares related to tax obligations for shares of restricted stock that vested on March 5, 2025 under our 2021 LTI Recognition & Retention Plan. These repurchases were reported by each reporting person on March 7, 2025. |
There were no sales by us of unregistered securities during the three months ended March 31, 2025.
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| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
| ITEM 4. | MINE SAFETY DISCLOSURE. |
Not applicable.
| ITEM 5. | OTHER INFORMATION. |
During
the quarter ended March 31, 2025, no director or officer of the Company
| ITEM 6. | EXHIBITS. |
| * | Filed herewith. |
| ** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 9, 2025.
| Western New England Bancorp, Inc. | |||
| By: | /s/ James C. Hagan | ||
| James C. Hagan | |||
| President and Chief Executive Officer | |||
| By: | /s/ Guida R. Sajdak | ||
| Guida R. Sajdak | |||
| Executive Vice President and Chief Financial Officer |