Western New England Bancorp, Inc. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

ACT OF 1934

For the quarterly period ended March 31, 2021

☐

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

ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-16767

Western New England Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

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

(413) 568-1911

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

At May 6, 2021 the registrant had 24,415,041 shares of common stock, $0.01 par value, issued and outstanding.

TABLE OF CONTENTS

		Page
FORWARD-LOOKING STATEMENTS		i
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements of Western New England Bancorp, Inc. and Subsidiaries(Unaudited)
	Consolidated Balance Sheets – March 31, 2021 and December 31, 2020	1
	Consolidated Statements of Net Income – Three Months Ended March 31, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2021 and 2020	3
	Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2021 and 2020	4
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	45
Item 6.	Exhibits	45

FORWARD–LOOKING STATEMENTS

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Quarterly Report on Form 10-Q contains “forward-looking statements” with respect to the Company’s financial condition, liquidity, results of operations, future performance, business, measures being taken in response to the coronavirus disease 2019 (“COVID-19") pandemic and the impact of COVID-19 on the Company’s business. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

•

the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19;

•

actions governments, businesses and individuals take in response to the COVID-19 pandemic;

•

the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines;

•

the pace of recovery when the COVID-19 pandemic subsides;

•

changes in the interest rate environment that reduce margins;

•

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

•

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

•

general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;

•

changes in business conditions and inflation;

•

changes in credit market conditions;

•

the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions;

•

changes in the securities markets which affect investment management revenues;

•

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

•

changes in technology used in the banking business;

•

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

•

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

•

our controls and procedures may fail or be circumvented;

•

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

•

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

•

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

•

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

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

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands, except share data)

	March 31,			December 31,
	2021			2020
ASSETS
Cash and due from banks	$	17,170		$	17,399
Federal funds sold		3,363			2,987
Interest-bearing deposits and other short-term investments		111,591			67,058
Cash and cash equivalents		132,124			87,444

Securities available-for-sale, at fair value		195,454			201,880
Securities held-to-maturity, at amortized cost (Fair value of $62,915 at March 31, 2021)		63,960			—
Marketable equity securities, at fair value		11,906			11,968
Federal Home Loan Bank of Boston stock and other restricted stock, at cost		4,492			5,160
Loans, net of allowance for loan losses of $21,227 and $21,157 at March 31, 2021 and December 31, 2020, respectively		1,903,641			1,906,226
Premises and equipment, net		25,416			25,103
Accrued interest receivable		8,483			8,477
Bank-owned life insurance		73,301			72,860
Deferred tax asset, net		13,564			12,588
Goodwill		12,487			12,487
Core deposit intangible		2,844			2,937
Other assets		15,857			18,756
Total Assets	$	2,463,529		$	2,365,886

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing	$	602,779		$	541,759
Interest-bearing		1,551,354			1,496,371
Total deposits		2,154,133			2,038,130

Long-term debt		42,676			57,850
Securities pending settlement		152			160
Other liabilities		43,712			43,106
Total Liabilities		2,240,673			2,139,246

SHAREHOLDERS' EQUITY:
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at March 31, 2021 and December 31, 2020		—			—
Common stock - $0.01 par value, 75,000,000 shares authorized, 24,583,958 shares issued and outstanding at March 31, 2021; 25,276,193 shares issued and outstanding at December 31, 2020		246			253
Additional paid-in capital		148,850			154,549
Unearned compensation - ESOP		(3,858	)		(3,997	)
Unearned compensation - Equity Incentive Plan		(959	)		(1,240	)
Retained earnings		92,913			88,354
Accumulated other comprehensive loss		(14,336	)		(11,279	)
Total Shareholders’ Equity		222,856			226,640
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,463,529		$	2,365,886

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED

(Dollars in thousands, except per share data)


	Three Months Ended
	March 31,
	2021			2020
Interest and dividend income:
Residential and commercial real estate loans	$	14,509		$	15,654
Commercial and industrial loans		4,542			3,006
Consumer loans		69			87
Debt securities, taxable		824			1,346
Debt securities, tax-exempt		3			17
Marketable equity securities		27			36
Other investments		35			182
Short-term investments		24			62
Total interest and dividend income		20,033			20,390

Interest expense:
Deposits		1,734			4,236
Long-term debt		273			1,014
Short-term borrowings		—			587
Total interest expense		2,007			5,837
Net interest and dividend income		18,026			14,553

Provision for loan losses		75			2,100
Net interest and dividend income after provision for loan losses		17,951			12,453

Non-interest income:
Service charges and fees		1,883			1,774
Income from bank-owned life insurance		441			441
Gain (loss) on available-for-sale securities, net		(62	)		23
Net unrealized (loss) gain on marketable equity securities		(89	)		102
Gain on sale of mortgages		227			—
Gain on non-marketable equity investments		546			—
Other income		58			185
Total non-interest income		3,004			2,525

Non-interest expense:
Salaries and employees benefits		7,682			7,172
Occupancy		1,289			1,167
Furniture and equipment		490			391
Data processing		721			715
Professional fees		544			599
FDIC insurance assessment		298			151
Advertising		338			252
Other expenses		1,965			1,867
Total non-interest expense		13,327			12,314
Income before income taxes		7,628			2,664
Income tax provision		1,837			584
Net income	$	5,791		$	2,080

Earnings per common share:
Basic earnings per share	$	0.24		$	0.08
Weighted average shares outstanding		24,486,146			25,565,138
Diluted earnings per share	$	0.24		$	0.08
Weighted average diluted shares outstanding		24,543,554			25,617,920

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollars in thousands)


	Three Months Ended March 31,
	2021			2020
Net income	$	5,791		$	2,080

Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding (losses) gains		(4,469	)		4,150
Reclassification adjustment for net losses (gains) realized in income⁽¹⁾		62			(23	)
Unrealized (losses) gains		(4,407	)		4,127
Tax effect		1,081			(999	)
Net-of-tax amount		(3,326	)		3,128

Cash flow hedges:
Change in fair value of derivatives used for cash flow hedges		—			(1,123	)
Reclassification adjustment for loss realized in interest expense⁽²⁾		—			163
Reclassification adjustment for termination fee realized in interest expense⁽³⁾		140			266
Unrealized gains (losses) on cash flow hedges		140			(694	)
Tax effect		(39	)		195
Net-of-tax amount		101			(499	)

Defined benefit pension plan:
Amortization of defined benefit plans actuarial loss⁽⁴⁾		234			99
Tax effect		(66	)		(28	)
Net-of-tax amount		168			71

Other comprehensive (loss) income		(3,057	)		2,700

Comprehensive income	$	2,734		$	4,780

____________________________

(1)

Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income. The tax effects applicable to net realized gains and losses were $14,000 and $5,000 for the three months ended March 31, 2021 and 2020, respectively.

(2)

Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt. Income tax effects associated with the reclassification adjustments were $46,000 for the three months ended March 31, 2020.

(3)

(4)

Amounts represent the reclassification of defined benefit plans amortization and have been recognized as a component of non-interest expense. Income tax effects associated with the reclassification adjustments were $66,000 and $28,000 for the three months ended March 31, 2021 and 2020, respectively.

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Dollars in thousands, except share data)


	Common Stock
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Loss			Total
BALANCE AT DECEMBER 31, 2019		26,557,981		$	266		$	164,248		$	(4,574	)	$	(1,124	)	$	82,176		$	(8,968	)	$	232,024
Comprehensive income		—			—			—			—			—			2,080			2,700			4,780
Common stock held by ESOP committed to be released (85,101 shares)		—			—			47			144			—			—			—			191
Share-based compensation - equity incentive plan		—			—			—			—			182			—			—			182
Forfeited equity incentive plan shares reissued (18,645 shares)		—			—			(186	)		—			186			—			—			—
Common stock repurchased		(1,015,055	)		(11	)		(8,069	)		—			—			—			—			(8,080	)
Issuance of common stock in connection with equity incentive plan		101,408			1			1,093			—			(1,094	)		—			—			—
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,288	)		—			(1,288	)
BALANCE AT MARCH 31, 2020		25,644,334		$	256		$	157,133		$	(4,430	)	$	(1,850	)	$	82,968		$	(6,268	)	$	227,809

BALANCE AT DECEMBER 31, 2020		25,276,193		$	253		$	154,549		$	(3,997	)	$	(1,240	)	$	88,354		$	(11,279	)	$	226,640
Comprehensive income		—			—			—			—			—			5,791			(3,057	)		2,734
Common stock held by ESOP committed to be released (81,893 shares)		—			—			8			139			—			—			—			147
Share-based compensation - equity incentive plan		—			—			—			—			231			—			—			231
Forfeited equity incentive plan shares reissued (19,086 shares)		—			—			(212	)		—			212			—			—			—
Common stock repurchased		(711,635	)		(7	)		(5,770	)		—			—			—			—			(5,777	)
Issuance of common stock in connection with stock option exercises		19,400			—			113			—			—			—			—			113
Issuance of common stock in connection with equity incentive plan (19,827 shares)		—			—			162			—			(162	)		—			—			—
Cash dividends declared and paid on common stock ($0.05 per share)		—			—			—			—			—			(1,232	)		—			(1,232	)
BALANCE AT MARCH 31, 2021		24,583,958		$	246		$	148,850		$	(3,858	)	$	(959	)	$	92,913		$	(14,336	)	$	222,856

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Dollars in thousands)


	Three Months Ended March 31,
	2021			2020
OPERATING ACTIVITIES:
Net income	$	5,791		$	2,080
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		75			2,100
Depreciation and amortization of premises and equipment		584			494
Amortization (accretion) of purchase accounting adjustments, net		55			(72	)
Amortization of core deposit intangible		93			93
Net amortization of premiums and discounts on securities and mortgage loans		670			589
Share-based compensation expense		231			182
ESOP expense		147			191
Gain on sale of mortgages		(227	)		—
Net loss (gain) on available-for-sale securities		62			(23	)
Net change in unrealized loss (gain) on marketable equity securities		89			(102	)
Income from bank-owned life insurance		(441	)		(441	)
Net change in:
Accrued interest receivable		(6	)		93
Other assets		2,603			4,114
Other liabilities		1,276			2,755
Net cash provided by operating activities		11,002			12,053

INVESTING ACTIVITIES:
Securities, held-to-maturity:
Purchases		(63,973	)		—
Securities, available-for-sale:
Purchases		(15,821	)		(22,345	)
Proceeds from sales and redemption		14			8,243
Proceeds from calls, maturities, and principal collections		17,163			30,263
Loan originations and principal payments, net		(5,205	)		(28,497	)
Redemption of Federal Home Loan Bank of Boston stock		668			2,483
Proceeds from sale of mortgages		7,801			—
Purchases of premises and equipment		(907	)		(888	)
Net cash used in investing activities		(60,260	)		(10,741	)

FINANCING ACTIVITIES:
Net increase in deposits		116,012			28,132
Net change in short-term borrowings		—			10,000
Repayment of long-term debt		(15,170	)		(28,142	)
Cash dividends paid		(1,232	)		(1,288	)
Common stock repurchased		(5,785	)		(8,080	)
Issuance of common stock in connection with stock option exercises		113			—
Net cash provided by financing activities		93,938			622

NET CHANGE IN CASH AND CASH EQUIVALENTS:		44,680			1,934
Beginning of period		87,444			24,741
End of period	$	132,124		$	26,675

Supplemental cash flow information:
Interest paid	$	2,046		$	5,790
Taxes paid		828			575
Net change in cash due to broker for common stock repurchased		(8	)		—

See the accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2021

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The Bank operates 25 banking offices in Hampden and Hampshire counties in western Massachusetts and Hartford and Tolland counties in northern Connecticut, and its primary sources of revenue are interest income from loans as well as interest income from investment securities. The Bank’s Huntington, Massachusetts branch opened on February 25, 2020 and its Bloomfield, Connecticut branch opened on July 6, 2020. In addition, the Bank’s Financial Services Center in West Hartford, Connecticut, opened on July 21, 2020. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending, Cash Management and a Mortgage Loan Officer. The Bank’s deposits are insured up to the maximum Federal Deposit Insurance Corporation (“FDIC”) coverage limits.

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

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

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

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, 2021, 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, 2021 are not necessarily indicative of the results of operations for the year ending December 31, 2021. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).

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

2. EARNINGS PER SHARE

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated 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, 2021 and 2020.

Earnings per common share have been computed based on the following:

	Three Months Ended
	March 31,
	2021			2020
	(In thousands, except per share data)
Net income applicable to common stock	$	5,791		$	2,080

Average number of common shares issued		25,118			26,293
Less: Average unallocated ESOP Shares		(527	)		(612	)
Less: Average unvested equity incentive plan shares		(105	)		(116	)

Average number of common shares outstanding used to calculate basic earnings per common share		24,486			25,565
Effect of dilutive equity incentive plan		28			—
Effect of dilutive stock options		30			53
Average number of common shares outstanding used to calculate diluted earnings per common share		24,544			25,618

Basic earnings per share	$	0.24		$	0.08
Diluted earnings per share	$	0.24		$	0.08

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, 2021			December 31, 2020
	(In thousands)
Net unrealized (losses) gains on securities available-for-sale	$	(3,105	)	$	1,302
Tax effect		742			(339	)
Net-of-tax amount		(2,363	)		963

Termination fee on cancelled cash flow hedges		(544	)		(684	)
Tax effect		153			192
Net-of-tax amount		(391	)		(492	)

Unrecognized actuarial loss on the defined benefit plan		(16,110	)		(16,344	)
Tax effect		4,528			4,594
Net-of-tax amount		(11,582	)		(11,750	)

Accumulated other comprehensive loss	$	(14,336	)	$	(11,279	)

4. SECURITIES

Available-for-sale and held-to-maturity investment securities are summarized as follows:


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,880	$	—	$	(919	)	$	13,961
State and municipal bonds		405		1		—			406
Corporate bonds		3,036		58		—			3,094
Total debt securities		18,321		59		(919	)		17,461

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		164,229		1,111		(3,030	)		162,310
U.S. government guaranteed mortgage-backed securities		16,009		54		(380	)		15,683
Total mortgage-backed securities		180,238		1,165		(3,410	)		177,993

Total available-for-sale		198,559		1,224		(4,329	)		195,454

Held-to-maturity securities:
Mortgage-backed securities:
Government-sponsored mortgage-backed securities	63,960	—	(1,045	)	62,915
Total held-to-maturity	63,960	—	(1,045	)	62,915

Total

262,519

1,224

(5,374

)

258,369


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,871	$	15	$	(111	)	$	14,775
State and municipal bonds		405		1		—			406
Corporate bonds		3,039		36		—			3,075
Total debt securities		18,315		52		(111	)		18,256

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		161,290		1,742		(303	)		162,729
U.S. government guaranteed mortgage-backed securities		20,973		108		(186	)		20,895
Total mortgage-backed securities		182,263		1,850		(489	)		183,624

Total available-for-sale	$	200,578	$	1,902	$	(600	)	$	201,880

At March 31, 2021, government-sponsored enterprise obligations with a fair value of $9.3 million and mortgage-backed securities with a fair value of $56.6 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.

The amortized cost and fair value of available-for-sale debt securities at March 31, 2021, 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 and held-to-maturity mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity summary.

	March 31, 2021
	Amortized Cost		Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities::
Due after one year through five years	$	3,441	$	3,500
Due after five years through ten years		9,894		9,376
Due after ten years		4,986		4,585
Total debt securities		18,321		17,461
Mortgage-backed securities		180,238		177,993
Total available-for-sale securities	$	198,559	$	195,454

	March 31, 2021
	Amortized Cost		Fair Value
	(In thousands)
Held-to-maturity securities:
Mortgage-backed securities	$	63,960	$	62,915
Total held-to-maturity securities	$	63,960	$	62,915

Gross realized gains and losses on available-for-sale securities for the three months ended March 31, 2021 and 2020 are as follows:

	Three Months Ended
	March 31,
	2021			2020
	(In thousands)
Gross gains realized	$	—		$	148
Gross losses realized		(62	)		(125	)
Net gains realized	$	(62	)	$	23

Proceeds from the sales and redemptions of available-for-sale securities amounted to $14,000 for the three months ended March 31, 2021, while proceeds from the sales and redemptions of available-for-sale securities amounted to $8.2 million for the three months ended March 31, 2020.

Information pertaining to securities with gross unrealized losses at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

	March 31, 2021
	Less Than Twelve Months									Over Twelve Months
	Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)			Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)
	(Dollars in thousands)
Available-for-sale:

Government-sponsored mortgage-backed securities		30	$	109,395	$	2,914		2.6	%		3	$	2,479	$	116		4.5	%
U.S. government guaranteed mortgage-backed securities		5		11,157		305		2.7			2		2,337		75		3.1
Government-sponsored enterprise obligations		3		13,961		919		6.2			—		—		—		—
Total available-for-sale		38		134,513		4,138					5		4,816		191

Held-to-maturity:

Government-sponsored mortgage-backed securities		8		62,915		1,045		1.6	%		—		—		—		—	%
Total held-to-maturity		8		62,915		1,045					—		—		—

Total		46	$	197,428	$	5,183					5	$	4,816	$	191

	December 31, 2020
	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)
Government-sponsored mortgage-backed securities		16	$	27,091	$	225		0.8	%		2	$	1,815	$	78		4.1	%
U.S. government guaranteed mortgage-backed securities		3		10,458		75		0.7			2		2,393		111		4.4
Government-sponsored enterprise obligations		2		9,868		111		1.1			—		—		—		—
		21	$	47,417	$	411					4	$	4,208	$	189

During the three months ended March 31, 2021 and year ended December 31, 2020, the Company did not record any other-than-temporary impairment (“OTTI”) charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses. At March 31, 2021, management attributes the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality.

The process for assessing investments for OTTI may vary depending on the type of security. In assessing the Company's investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise; Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Federal Farm Credit Bank (“FFCB”), or Federal Home Loan Bank (“FHLB”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company's investments. Management's assessment of other debt securities within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investments' materiality, and duration of the investments' unrealized loss position.

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans at the periods indicated were as follows:

	March 31,			December 31,
	2021			2020
	(In thousands)
Commercial real estate	$	861,418		$	833,949
Residential real estate:
Residential 1-4 family		581,308			604,719
Home equity		102,842			103,905
Commercial and industrial
Paycheck Protection Program (“PPP”) loans		170,079			167,258
Commercial and industrial		205,086			211,823
Consumer		4,785			5,192
Total gross loans		1,925,518			1,926,846
Unamortized PPP loan fees		(3,954	)		(3,050	)
Unearned premiums and deferred loan fees and costs, net		3,304			3,587
Allowance for loan losses		(21,227	)		(21,157	)
Net loans	$	1,903,641		$	1,906,226

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, 2021 and December 31, 2020, the Company was servicing commercial loans participated out to various other institutions totaling $54.4 million and $52.9 million, respectively.

Residential real estate mortgages are originated by the Bank both for its portfolio and for sale into the secondary market. The Bank may sell its loans to institutional investors such as the FHLMC. Under loan sale and servicing agreements with the investor, the Bank generally continues to service the residential real estate mortgages. The Bank pays the investor an agreed upon rate on the loan, which is less than the interest rate received from the borrower. The Bank retains the difference as a fee for servicing the residential real estate mortgages. The Bank 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, 2021, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (217 PSA), weighted average internal rate of return (9.04%), weighted average servicing fee (0.25%), and average cost to service loans ($83.94 per loan). The estimated fair value of capitalized servicing rights may vary significantly in subsequent periods primarily due to changing market interest rates, and their effect on prepayment speeds and discount rates. For the three months ended March 31, 2021, the Company sold $7.6 million in residential real estate mortgages with servicing retained and recorded gains on the sale of mortgages of $227,000 within non-interest income. There were no sales of mortgages during the three months ended March 31, 2020.

At March 31, 2021 and December 31, 2020, the Company serviced residential mortgage loans owned by investors totaling $43.4 million and $38.1 million, respectively. Net service fee income of $8,000 and $14,000 was recorded for the three months ended March 31, 2021 and 2020, respectively, and is included in service charges and fees on the consolidated statements of net income.

A summary of the activity in the balances of mortgage servicing rights follows:


	Three Months Ended March 31,
	2021			2020
	(In thousands)
Balance at the beginning of year:	$	153		$	219
Capitalized mortgage servicing rights		48			—
Amortization		(15	)		(16	)
Balance at the end of period	$	186		$	203
Fair value at the end of period	$	235		$	252

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 the loan is considered impaired. 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.

The allowance for loan losses is established through provisions for loan losses charged to expense. Loans are charged-off against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated, and unallocated components, as further described below.

General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate (includes one-to-four family and home equity), commercial real estate, commercial and industrial, and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: trends in delinquencies and nonperforming loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; and national and local economic trends and industry conditions. There were no changes to the Company’s policies and procedures surrounding the allowance for loan losses during the three months ended March 31, 2021. Beginning in March 2020, the Bank added a new qualitative factor category to the allowance calculation – “Economic Impact of COVID-19”. The allocation of additional reserves for the COVID-19 qualitative factor at March 31, 2020 was based upon an analysis of the loan portfolio that included identifying borrowers sensitive to the shutdown (i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade). In addition, during the year ended December 31, 2020, the Company determined that it was prudent to provide an allowance for loan losses related to the loan portfolio acquired on October 24, 2016 from Chicopee Bancorp, Inc. (“Chicopee”) due to the ongoing impacts and extended nature of the pandemic.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate. We require private mortgage insurance for all loans originated with a loan-to-value ratio greater than 80% and we do not grant subprime loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Home equity loans are secured by first or second mortgages on one-to-four family owner occupied properties.

Commercial real estate. Loans in this segment are primarily income-producing investment properties and owner-occupied commercial properties throughout New England. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and continually monitors the cash flows of these loans.

Commercial and industrial loans. Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Consumer loans. Loans in this segment are secured or unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired. Impaired loans are identified by analysis of loan performance, internal credit ratings and watch list loans that management believes are subject to a higher risk of loss. Impairment is measured on a loan by loan basis for commercial real estate and commercial and industrial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The extent to which COVID-19 impacts our borrower’s ability to repay and therefore the classification of a loan as impaired is highly uncertain and cannot be predicted with confidence as it is highly dependent upon the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

Unallocated component

An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance, if any, reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

An analysis of changes in the allowance for loan losses by segment for the three months ended March 31, 2021 and 2020 is as follows:

	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Unallocated			Total
	(In thousands)
Balance at December 31, 2019	$	6,807		$	3,920		$	3,183		$	203		$	(11	)	$	14,102
Provision		1,010			357			655			61			17			2,100
Charge-offs		(37	)		(106	)		(199	)		(37	)		—			(379	)
Recoveries		—			1			1			12			—			14
Balance at March 31, 2020	$	7,780		$	4,172		$	3,640		$	239		$	6		$	15,837

Balance at December 31, 2020	$	13,020		$	4,240		$	3,630		$	241		$	26		$	21,157
Provision (credit)		295			(135	)		(60	)		(13	)		(12	)		75
Charge-offs		—			—			(9	)		(24	)		—			(33	)
Recoveries		—			8			1			19			—			28
Balance at March 31, 2021	$	13,315		$	4,113		$	3,562		$	223		$	14		$	21,227

The following table presents information pertaining to the allowance for loan losses by segment, excluding PPP loans, for the dates indicated:

	Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
	(In thousands)
March 31, 2021
Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for non-impaired loans		13,315		4,113		3,562		223		14		21,227
Total allowance for loan losses	$	13,315	$	4,113	$	3,562	$	223	$	14	$	21,227

Impaired loans	$	11,751	$	3,989	$	4,454	$	25	$	—	$	20,219
Non-impaired loans		844,155		677,859		200,253		4,760		—		1,727,027
Impaired loans acquired with deteriorated credit quality		5,512		2,302		379		—		—		8,193
Total loans	$	861,418	$	684,150	$	205,086	$	4,785	$	—	$	1,755,439

December 31, 2020
Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for non-impaired loans		13,020		4,240		3,630		241		26		21,157
Total allowance for loan losses	$	13,020	$	4,240	$	3,630	$	241	$	26	$	21,157

Impaired loans	$	11,803	$	4,363	$	4,439	$	27	$	—	$	20,632
Non-impaired loans		816,406		701,915		207,002		5,165		—		1,730,488
Impaired loans acquired with deteriorated credit quality		5,740		2,346		382		—		—		8,468
Total loans	$	833,949	$	708,624	$	211,823	$	5,192	$	—	$	1,759,588

Past Due and Non-accrual Loans.

The following tables present an age analysis of past due loans, excluding PPP 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		Non-Accrual Loans
	(In thousands)
March 31, 2021
Commercial real estate	$	5,080	$	298	$	1,143	$	6,521	$	854,897	$	861,418	$	1,510
Residential real estate:
Residential		513		470		820		1,803		579,505		581,308		4,539
Home equity		—		34		4		38		102,804		102,842		80
Commercial and industrial		763		50		91		904		204,182		205,086		628
Consumer		9		—		—		9		4,776		4,785		25
Total loans	$	6,365	$	852	$	2,058	$	9,275	$	1,746,164	$	1,755,439	$	6,782

December 31, 2020
Commercial real estate	$	5,844	$	3,144	$	1,256	$	10,244	$	823,705	$	833,949	$	1,632
Residential real estate:
Residential		1,684		360		707		2,751		601,968		604,719		5,353
Home equity		25		—		—		25		103,880		103,905		124
Commercial and industrial		166		158		156		480		211,343		211,823		705
Consumer		22		—		—		22		5,170		5,192		27
Total loans	$	7,741	$	3,662	$	2,119	$	13,522	$	1,746,066	$	1,759,588	$	7,841

Impaired Loans.

The following is a summary of impaired loans by class:


							Three Months Ended
	At March 31, 2021						March 31, 2021
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired Loans⁽¹⁾
Commercial real estate	$	17,263	$	18,296	$	—	$	17,403	$	108
Residential real estate		6,171		6,971		—		6,357		104
Home equity		120		152		—		143		4
Commercial and industrial		4,833		7,366		—		4,827		62
Consumer		25		39		—		26		—
Total impaired loans	$	28,412	$	32,824	$	—	$	28,756	$	278

							Three Months Ended
	At December 31, 2020						March 31, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired Loans⁽¹⁾
Commercial real estate	$	17,543	$	18,590	$	—	$	15,443	$	110
Residential real estate		6,544		7,647		—		5,691		14
Home equity		165		207		—		434		3
Commercial and industrial		4,821		7,038		—		1,443		57
Consumer		27		39		—		40		—
Total impaired loans	$	29,100	$	33,521	$	—	$	23,051	$	184

⁽¹⁾

Includes loans acquired with deteriorated credit quality and performing troubled debt restructurings.

With the exception of loans acquired with deteriorated credit quality, the majority of impaired loans are included within the non-accrual balances; however, not every loan on non-accrual status has been designated as impaired. Impaired loans include loans that have been modified in a troubled debt restructuring (“TDR”). Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR.

All payments received on impaired loans in non-accrual status are applied to principal. There was no interest income recognized on non-accrual impaired loans during the three months ended March 31, 2021 and March 31, 2020. The Company's obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion. At March 31, 2021, we had not committed to lend any additional funds for loans that are classified as impaired. As of March 31, 2020, we have lent an additional $169,000 to a customer with a loan relationship already classified as impaired. The new loan was designated impaired and classified as a TDR at March 31, 2020, and is included in the table below. Payments received on impaired loans in accrual status are recorded in accordance with the contractual terms of the loan. Interest income recognized on impaired loans during the three months ended March 31, 2021 and 2020 pertained to performing TDRs and purchased impaired loans.

Troubled Debt Restructurings.

Loans are designated as a TDR 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 Bank 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 Bank'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. All loans that are modified are reviewed by the Company to identify if a TDR has occurred. All TDR loans are classified as impaired.

When we modify loans in a TDR, we measure impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a specific allowance or a charge-off to the allowance. Non-performing TDRs are included in non-performing loans.

Loans modifications classified as TDRs during the three months ended March 31, 2020 are included in the table below. There were no loan modifications classified as TDRs during the three months ended March 31, 2021. During the three months ended March 31, 2021 and 2020, no TDRs defaulted (defined as 30 days or more past due) within 12 months of restructuring. There were no charge-offs on TDRs during the three months ended March 31, 2021 or 2020.

	Three Months Ended
	March 31, 2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Commercial and Industrial		1	$	169	$	169
Total		1	$	169	$	169

Loans Acquired with Deteriorated Credit Quality.

The following is a summary of loans acquired in the Chicopee acquisition with evidence of credit deterioration as of March 31, 2021.

	Contractual Required Payments Receivable			Cash Expected To Be Collected			Non- Accretable Discount			Accretable Yield			Loans Receivable
	(In thousands)
Balance at December 31, 2020	$	14,297		$	11,485		$	2,812		$	3,017		$	8,468
Collections		(378	)		(356	)		(22	)		(81	)		(275	)
Dispositions		—			—			—			—			—
Balance at March 31, 2021	$	13,919		$	11,129		$	2,790		$	2,936		$	8,193

Credit Quality Information.

The Company utilizes an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans. Performing residential real estate, home equity and consumer loans are grouped with “Pass” rated loans. Non-performing residential real estate, home equity and consumer loans are monitored individually for impairment and risk rated as “substandard.”

Loans rated 1 – 4: Loans rated 1-4 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent acceptable risk.

Loans rated 5: Loans rated 5 are considered “Special Mention” and may exhibit potential credit weaknesses or downward trends and are being monitored by management. 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. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.

Loans rated 6: Loans rated 6 are considered “Substandard.” A loan is classified as substandard if the borrower exhibits a well-defined weakness and may be inadequately protected by the current net worth and cash flow capacity to pay the current debt.

Loans rated 7: Loans rated 7 are considered “Doubtful.” Loans classified as doubtful 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 considered uncollectible. 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, we formally review the ratings on all commercial real estate and commercial and industrial loans. In addition, management utilizes delinquency reports, the criticized report and other loan reports to monitor credit quality. In addition, at least on an annual basis, the Company contracts with an external loan review company to review the internal credit ratings assigned to loans in the commercial loan portfolio on a pre-determined schedule, based on the type, size, rating, and overall risk of the loan. During the course of its review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified assets.

The following table presents our loans by risk rating for the periods indicated:

	Commercial Real Estate		Residential 1-4 Family		Home Equity		Commercial and Industrial		Consumer		Total
	(In thousands)
March 31, 2021
Pass (Rated 1 – 4)	$	774,386	$	575,241	$	102,600	$	348,565	$	4,760	$	1,805,552
Special Mention (Rated 5)		65,414		—		—		11,551		—		76,965
Substandard (Rated 6)		21,618		6,067		242		15,049		25		43,001
Total	$	861,418	$	581,308	$	102,842	$	375,165	$	4,785	$	1,925,518

December 31, 2020
Pass (Rated 1 – 4)	$	726,751	$	598,250	$	103,619	$	345,967	$	5,165	$	1,779,752
Special Mention (Rated 5)		78,207		—		—		13,871		—		92,078
Substandard (Rated 6)		28,991		6,469		286		19,243		27		55,016
Total	$	833,949	$	604,719	$	103,905	$	379,081	$	5,192	$	1,926,846

6. GOODWILL AND OTHER INTANGIBLES

Goodwill.

At March 31, 2021 and December 31, 2020, the Company’s goodwill was related to the acquisition of Chicopee in October 2016. There was no goodwill impairment recorded during the three months ended March 31, 2021 or the year ended December 31, 2020. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment.

Core Deposit Intangible.

In connection with the acquisition of Chicopee, the Bank recorded a core deposit intangible of $4.5 million which is amortized over twelve years using the straight-line method. Amortization expense was $93,000 for each of the three months ended March 31, 2021 and March 31, 2020. At March 31, 2021, future amortization of the core deposit intangible totaled $375,000 for each of the next five years and $969,000 thereafter.

7. SHARE-BASED COMPENSATION

Stock Options.

A summary of stock option activity for the three months ended March 31, 2021 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020		210,975		$	6.46		1.67	$	90
Exercised		(19,400	)		5.85		0.67		43
Outstanding at March 31, 2021		191,575		$	6.52		1.51	$	364

Exercisable at March 31, 2021		191,575		$	6.52		1.51	$	364

Cash received for options exercised during the three months ended March 31, 2021 was $113,000. There were no options exercised during the three months ended March 31, 2020.

Restricted Stock Awards.

In May 2014, the Company’s shareholders approved the 2014 Omnibus Incentive Plan, a stock-based compensation plan (the “RSA Plan”). Under the RSA Plan, up to 516,000 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 WNEB. Any shares that are not issued because vesting requirements are not met, will be available for future issuance under the RSA Plan.

On an annual basis, the Compensation Committee (the “Committee”) approves long-term incentive awards out of the RSA 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 three-year term for employees and a one-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.

In January 2018, there were 83,812 shares granted. Of the 83,812 shares, 50,852 shares were time-based, with 17,908 vesting in one year and 32,944 vesting ratably over a three-year period. The remaining 32,960 shares granted are performance-based and are subject to the achievement of the 2018 performance metric. The primary performance metric for 2018 grants was return on equity. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period, but will be distributed at the end of the three-year period.

The threshold, target and stretch metrics under the 2018 grants are as follows:

	Return on Equity Metrics
Performance Period Ending		Threshold		Target		Stretch
December 31, 2018		6.30	%	6.80	%	7.20	%
December 31, 2019		6.85	%	7.35	%	7.75	%
December 31, 2020		7.40	%	7.90	%	8.30	%

Eligible participants will be able to earn between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance). As of December 31, 2020, the three-year performance period for the 2018 grants ended. Of the 32,960 performance-based shares granted in 2018, 9,943 performance-based shares vested in February 2021 and were issued to eligible recipients, while 23,017 shares were forfeited. Shares forfeited become available for reissuance under future grants.

In February 2019, there were 108,718 shares granted. Of the 108,718 shares, 64,496 shares were time-based, with 20,262 vesting in one year and 44,234 vesting ratably over a three-year period. The remaining 44,222 shares granted are performance-based and are subject to the achievement of the 2019 long-term incentive performance metric. The primary performance metric for 2019 grants was return on equity. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period, but will be distributed at the end of the three-year period.

The threshold, target and stretch metrics under the 2019 grants are as follows:

	Return on Equity Metrics
Performance Period Ending		Threshold		Target		Stretch
December 31, 2019		5.75	%	6.13	%	7.00	%
December 31, 2020		6.00	%	6.75	%	7.75	%
December 31, 2021		6.25	%	7.00	%	8.00	%

Eligible participants will be able to earn between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).

In February 2020, there were 120,053 shares granted. Of the 120,053 shares, 69,898 shares were time-based, with 19,760 vesting in one year and 50,138 vesting ratably over a three-year period. The remaining 50,155 shares granted are performance-based and are subject to the achievement of the 2020 long-term incentive performance metrics, with 50% of the performance-shares vesting for each performance metric. The primary performance metrics for the 2020 grants were return on equity and earnings per share. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a three-year cumulative performance period for earnings per share, but will be distributed at the end of the three-year period as earned. The threshold, target and stretch metrics under the 2020 grants are as follows:


	Return on Equity Metrics
Performance Period Ending		Threshold		Target		Stretch
December 31, 2020		5.00	%	5.48	%	6.00	%
December 31, 2021		5.62	%	6.24	%	6.86	%
December 31, 2022		6.29	%	6.99	%	7.69	%


	Earnings Per Share Metrics
Performance Period Ending		Threshold		Target		Stretch
Three-year Cumulative Diluted Earnings Per Share	$	1.50	$	1.65	$	1.80

Eligible participants will be able to earn between 50% (“threshold” performance), 100% (“target” performance) and 150% (“maximum” performance).

The fair market value of shares awarded is based on the market price at the grant date, recorded as unearned compensation and amortized over the applicable vesting period. Performance-based metrics are monitored on a quarterly basis in order to compare actual results to the performance metric, with any necessary adjustments being recognized through share-based compensation expense and unearned compensation.

In February 2021, there were 19,827 shares granted to our directors, with a one-year vesting period. At March 31, 2021, there were no remaining shares available to grant under the RSA Plan.

A summary of the status of restricted stock awards at March 31, 2021 and 2020 is presented below:

	Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2020		178,698		$	9.63
Shares granted		19,827			8.17
Shares forfeited		(19,086	)		11.05
Shares vested		(27,727	)		9.81
Balance at March 31, 2021		151,712		$	9.23

	Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2019	172,866		$	10.07
Shares granted	101,408			9.11
Shares forfeited	(16,803	)		10.15
Shares vested	(41,894	)		9.54
Shares reissued	18,645			9.11
Balance at March 31, 2020	234,222		$	9.67

We recorded total expense for restricted stock awards of $231,000 and $nn182,000 for the three months ended March 31, 2021 and 2020, respectively.

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Total borrowing capacity includes borrowing arrangements at the FHLB, the Federal Reserve Bank (“FRB”), and borrowing arrangements with correspondent banks.

The Company is a member of the FHLB and uses borrowings as an additional source of funding to finance the Company’s lending and investing activities and to provide liquidity for daily operations. FHLB advances also provide more pricing and option alternatives for particular asset/liability needs. The FHLB provides a central credit facility primarily for member institutions. 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. FHLB borrowings are secured by certain securities from the Company’s investment portfolio not otherwise pledged as well as certain residential real estate and commercial real estate loans. Advances are made under several different credit programs with different lending standards, interest rates and range of maturities. This relationship is an integral component of the Company’s asset-liability management program. At March 31, 2021, the Bank had $453.3 million in additional borrowing capacity from the FHLB.

The Company also has an overnight Ideal Way line of credit with the FHLB for $9.5 million for the three months ended March 31, 2021 and 2020. Interest on this line of credit is payable at a rate determined and reset by the FHLB on a daily basis. The outstanding principal is due daily but the portion not repaid will be automatically renewed. There were no advances outstanding under this line at March 31, 2021 and December 31, 2020, respectively.

The Company has an available line of credit of $13.1 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 securities from the Company’s investment portfolio not otherwise pledged. As of March 31, 2021 and December 31, 2020, there were no advances outstanding under this line.

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 $15.0 million line of credit with a correspondent bank and a $50.0 million line of credit with another correspondent bank, both at an interest rate determined and reset on a daily basis. At March 31, 2021 and December 31, 2020, we had no advances outstanding under these lines.

Long-term debt consists of FHLB advances with an original maturity of one year or more. At March 31, 2021, we had $42.7 million in long-term debt with the FHLB, compared to $57.9 million in long-term debt with the FHLB at December 31, 2020.

9. PENSION BENEFITS

We provide a defined benefit pension plan for eligible employees (the “Plan”). Employees must work a minimum of 1,000 hours per year to be eligible for the Plan. Eligible employees become vested in the Plan after five years of service. We plan to contribute to the pension plan the amount required to meet the minimum funding standards under Section 412 of the Internal Revenue Code of 1986, as amended. Additional contributions will be made as deemed appropriate by management in conjunction with the pension plan’s actuaries. We have not yet determined how much we expect to contribute to our pension plan in 2021. No contributions have been made to the plan for the three months ended March 31, 2021. The pension plan assets are invested in various pooled separate investment accounts offered by Principal Life Insurance Company, a division of Principal Financial Group, who is the Custodian of the Plan (the “Custodian”). The Plan is administered by an officer of Westfield Bank. On September 30, 2016, we effected a soft freeze on the Plan and therefore no new participants will be included in the Plan after such effective date.

The following table provides information regarding net pension benefit costs for the periods shown:


	Three Months Ended March 31,
	2021			2020
	(In thousands)
Service cost	$	454		$	356
Interest cost		295			293
Expected return on assets		(439	)		(382	)
Amortization of actuarial loss		234			99
Net periodic pension cost	$	544		$	366

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.

The following table presents information about interest rate swaps at March 31, 2021 and December 31, 2020:

March 31, 2021	Notional		Weighted Average		Weighted Average Rate						Estimated Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Non-hedging derivatives:
Loan-level swaps – dealer	$	16,232		12.5		2.01	%		3.76	%	$	(365	)
Loan-level swaps – borrower		16,232		12.5		3.76	%		2.01	%		365
Forward starting loan-level swaps - dealer		22,390		11.5								1,696
Forward starting loan-level swaps - borrower		22,390		11.5								(1,696	)
Total	$	71,244									$	0

December 31, 2020	Notional		Weighted Average		Weighted Average Rate						Estimated Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Non-hedging derivatives:
Loan-level swaps – dealer	$	13,554		12.5		1.97	%		3.74	%	$	(1,440	)
Loan-level swaps – borrower		13,554		12.5		3.74	%		1.97	%		1,440
Forward starting loan-level swaps - dealer		22,390		11.5								114
Forward starting loan-level swaps - borrower		22,390		11.5								(114	)
Total	$	71,888									$	0

Cash Flow Hedges of Interest Rate Risk.

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, we entered into interest rate swaps as part of our interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for our making fixed payments.

For derivatives designated as cash flow hedges, the changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of six years (excluding forecasted payment of variable interest on existing financial instruments).

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 its 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 table below presents the fair value of our derivative financial instruments designated as hedging instruments as well as our classification on the balance sheet as of March 31, 2021 and December 31, 2020.

March 31, 2021	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments:
Interest rate swap – with customers	Other Assets	$	365	Other Liabilities	$	1,696
Interest rate swap – with counterparties			1,696			365
Total derivatives not designated as hedging instruments		$	2,061		$	2,061

December 31, 2020	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments:
Interest rate swap – with customers	Other Assets	$	1,440	Other Liabilities	$	114
Interest rate swap – with counterparties			114			1,440
Total derivatives not designated as hedging instruments		$	1,554		$	1,554

Effect of Derivative Instruments in the Consolidated Statements of Net Income and Changes in Shareholders’ Equity.

The table below presents the pre-tax net losses of our cash flow hedges for the periods indicated:

	Amount of Loss Recognized in OCI on Derivative
	Three Months Ended March 31,
		2021		2020
Interest rate swaps	$	—	$	(1,123	)

Amounts reported in accumulated other comprehensive loss related to these derivatives are reclassified to interest expense as interest payments are made on our designated rate sensitive liabilities.

The table below presents the amount reclassified from accumulated other comprehensive loss into net income for interest rate swaps and termination fees:

	Amount of Loss Reclassified from OCI into Expense (Effective Portion)
	Three Months Ended March 31,
	2021			2020
Interest rate swaps	$	140	$	429

During the next 12 months, we estimate that $544,000 will be reclassified as an increase in interest expense.

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.

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, 2021, we had a net asset position of $1.3 million, compared to a net liability position of $1.5 million with our counterparties at December 31, 2020. We have minimum collateral posting thresholds under agreements with certain of our derivative counterparties. As of March 31, 2021, we had no collateral posted to our 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.

Fair Value Hierarchy.

We group our assets and liabilities that are measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1: Valuation is based on quoted prices in active markets for identical assets. Level 1 assets generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level 2: Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Methods and assumptions for valuing our financial instruments measured at fair value on a recurring basis 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 Available-for-Sale.

The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include marketable equity securities. 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, 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.

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, 2021
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	195,454	$	—	$	195,454
Marketable equity securities		11,906		—		—		11,906
Interest rate swaps		—		2,061		—		2,061
Total assets	$	11,906	$	197,515	$	—	$	209,421

Liabilities:
Interest rate swaps	$	—	$	2,061	$	—	$	2,061


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	201,880	$	—	$	201,880
Marketable equity securities		11,968		—		—		11,968
Interest rate swaps		—		1,554		—		1,554
Total assets	$	11,968	$	203,434	$	—	$	215,402

Liabilities:
Interest rate swaps	$	—	$	1,554	$	—	$	1,554

Assets Measured at Fair Value on a Non-recurring Basis.

We may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with U.S. GAAP. 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 assets measured at fair value on a non-recurring basis at March 31, 2021. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related assets at December 31, 2020. Total losses represent the change in carrying value as a result of fair value adjustments related to assets still held at the periods indicated.

	At December 31, 2020						March 31, 2020
							Total
	Level 1		Level 2		Level 3		Losses
	(In thousands)						(In thousands)
Impaired Loans	$	—	$	—	$	150	$	1,327

The amount of impaired loans represents the carrying value, and net of the related write-down or valuation allowance of impaired loans for which adjustments are based on the estimated fair value of the underlying collateral. The fair value of impaired 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. The resulting losses were recognized in earnings through the provision for loan losses.

There were no liabilities measured at fair value on a non-recurring basis at March 31, 2021 and December 31, 2020.

Summary of Fair Values of Financial Instruments.

The estimated fair values of our financial instruments are as follows:


	March 31, 2021
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	132,124	$	132,124	$	—	$	—	$	132,124
Securities available-for-sale		195,454		—		195,454		—		195,454
Securities held-to-maturity		63,960		—		62,915		—		62,915
Marketable equity securities		11,906		11,906		—		—		11,906
Federal Home Loan Bank of Boston and other restricted stock		4,492		—		—		4,492		4,492
Loans - net		1,903,641		—		—		1,905,574		1,905,574
Accrued interest receivable		8,483		—		—		8,483		8,483
Mortgage servicing rights		186		—		235		—		235
Derivative asset		2,061		—		2,061		—		2,061

Liabilities:
Deposits		2,154,133		—		—		2,155,667		2,155,667
Long-term debt		42,676		—		42,689		—		42,689
Accrued interest payable		84		—		—		84		84
Derivative liabilities		2,061		—		2,061		—		2,061


	December 31, 2020
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	87,444	$	87,444	$	—	$	—	$	87,444
Securities available-for-sale		201,880		—		201,880		—		201,880
Marketable equity securities		11,968		11,968		—		—		11,968
Federal Home Loan Bank of Boston and other restricted stock		5,160		—		—		5,160		5,160
Loans - net		1,906,226		—		—		1,900,750		1,900,750
Accrued interest receivable		8,477		—		—		8,477		8,477
Mortgage servicing rights		153		—		157		—		157
Derivative asset		1,554		—		1,554		—		1,554

Liabilities:
Deposits		2,038,130		—		—		2,040,293		2,040,293
Long-term debt		57,850		—		57,945		—		57,945
Accrued interest payable		124		—		—		124		124
Derivative liabilities		1,554		—		1,554		—		1,554

12. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, 2022. The Company is in the process of implementing the standard. We have put together a project team that has begun to identify appropriate loan segments along with related historical losses for each segment and potential models that would be most appropriate for each individual segment. We have not quantified the effects of any models, but do expect the standard to significantly change the approach to calculating our allowance for loan losses.

13. SUBSEQUENT EVENTS

On April 20, 2021, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction. The Company intends to use the net proceeds of the offering for general corporate purposes, including organic growth and repurchase of the Company’s common shares.

Unless earlier redeemed, the Notes mature on May 1, 2031. 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 (ii) 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 System (the “Federal Reserve”).

The Notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital adequacy regulations.

On April 27, 2021, the Board of Directors authorized a stock repurchase plan, pursuant to which the Company may repurchase up to 2.4 million shares, or approximately 10%, of the Company’s outstanding shares, upon the completion of the stock repurchase plan adopted in 2020. As of April 27, 2021, there were 158,019 shares available for purchase under the 2020 Plan.

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, 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, 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:

●

Grow the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area of Hampden County and Hampshire County in western Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase the net interest margin and loan income;

●

Supplement the commercial portfolio by growing the residential real estate portfolio to diversify the 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 tangible book value, continue to 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, 2021 in the context of this strategy.

●

Net income was $5.8 million, or $0.24 per diluted share, for the three months ended March 31, 2020, compared to $2.1 million, or $0.08 per diluted share, for the same period in 2020.

●

The provision for loan losses was $75,000 for the three months ended March 31, 2021, compared to $2.1 million for the same period in 2020. The provision during the 2020 period was impacted by the uncertainty surrounding the extent and duration of the COVID-19 pandemic. As of March 31, 2021, the Company’s delinquent and nonperforming assets had not been materially impacted by the COVID-19 pandemic.

●

Net interest income increased $3.5 million, or 23.9%, to $18.0 million, for the three months ended March 31, 2021, from $14.6 million, for the three months ended March 31, 2020. The increase in net interest income was due to a decrease of $3.8 million, or 65.6%, in interest expense, partially offset by an decrease in interest and dividend income of $357,000, or 1.8%. The decrease in interest expense was due to a decrease of $2.5 million, or 59.1%, in interest expense on deposits and a decrease of $1.3 million, or 82.9%, in interest expense on FHLB advances. Net interest income for the three months ended March 31, 2021 includes interest income and origination fees from PPP loans of $2.4 million.

CRITICAL ACCOUNTING POLICIES.

Our consolidated financial statements are prepared in accordance with U.S. 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, 2021. 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 2020 Annual Report.

RECENT DEVELOPMENTS: CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.

On March 18, 2021, the Governor of Massachusetts announced that beginning on March 22, 2021, the Commonwealth of Massachusetts would transition to Phase IV of its reopening plan, which also included the replacement of the Massachusetts Travel Order with a Travel Advisory. Phase IV will open a range of previously closed business sectors under tight capacity restrictions that are expected to be adjusted over time if favorable trends in the public health data continue. Gathering limits for event venues and in public settings will increase to 100 people indoors and 150 people outdoors. Outdoor gatherings at private residences and in private backyards will remain at a maximum of 25 people, with indoor house gatherings remaining at 10 people. In addition, large capacity sports and entertainment venues (indoor and outdoor stadiums, arenas, and ballparks) will be permitted to operate at a strict 12% capacity limit after submitting a plan to the Department of Public Health.

On April 27, 2021, the Governor of Massachusetts announced that the Face Coverings Order will be relaxed for some outdoor settings effective April 30, 2021. In addition, the Governor announced that beginning on May 10, 2021, certain Phase IV, Step 2 industries will reopen. Large capacity sports and entertainment venues (indoor and outdoor stadiums, arenas, and ballparks) currently open at 12% capacity limit will be permitted to increase capacity to 25%. Amusement parks, theme parks and outdoor water parks will be permitted to operate at 50% capacity after submitting safety plans to the Department of Health.

Effective May 29, 2021, gathering limits for indoor events will increase from 100 people to 200 people and outdoor gathering limits for events, public settings and private settings will increase from 150 people to 250 people subject to public health and vaccination data. Effective August 1, 2021, remaining industries will be permitted to open (nightclubs, indoor water parks, health clubs and other facilities), subject to public health and vaccination data, and that further, all industry restrictions will be lifted, capacity will increase to 100% for all industries, and gathering limits will be rescinded.

Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. The COVID-19 global public health crisis and the resulting “stay-at-home” orders resulted in widespread volatility, severe disruptions in the U.S. economy at large, and for small businesses in particular, deterioration in household, business, economic and market conditions.

Paycheck Protection Program.

As a Preferred Lender with the Small Business Administration (“SBA”), the Company was in a position to react quickly to the PPP component of the March 27, 2020 $2.2 trillion fiscal stimulus bill known as the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) launched by the U.S. Department of the Treasury and the SBA. An eligible business was able to apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs,” or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity, subsequently extended to a five-year loan term maturity for loans granted on or after June 5, 2020 and (c) principal and interest payments deferred from six months to ten months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. As of March 31, 2021, the Company received funding approval from the SBA for 2,046 applications totaling $294.7 million and has processed 1,046 loan forgiveness applications totaling $124.6 million.

The table below breaks out the PPP loans approved and funded and the outstanding balance as of March 31, 2021:

					March 31, 2021
	Original Loan Amount		Original # of Loans		Balance Outstanding		# of Loans Remaining
($ in millions)

Round 1 and 2	$	223.1		1,386	$	98.5		340
Round 3		71.6		660		71.6		660
Total	$	294.7		2,046	$	170.1		1,000

Loan Modifications/Troubled Debt Restructurings.

The banking regulatory agencies, through an Interagency Statement dated April 7, 2020, have encouraged financial institutions to work “prudently” with borrowers who request loan modifications or deferrals as a result of the economic impacts of COVID-19. Pursuant to Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Financial institutions can then suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting under U.S. GAAP. The Company has adopted this policy election to address COVID-19 loan modification requests that have been received from the earlier of either January 1, 2022 or the 60th day after the end of the COVID-19 national emergency.

As a result of the COVID-19 pandemic, the Company granted deferred loan payments for impacted commercial, residential and consumer customers who experienced financial hardship due to COVID-19. Further deferrals will be re-evaluated on a customer-by-customer basis upon the expiration of the existing deferral period. As of June 30, 2020, the deferred loan payment modifications totaled $261.0 million (525 loans), for which principal and interest payments were deferred, and represented 14.7% of the total loan portfolio, excluding PPP loans. As of March 31, 2021, deferred loan payment modifications granted under the CARES Act declined 74% to $66.9 million (29 loans), or 3.8% of total loans, excluding PPP loans.

The table below breaks out the remaining modifications granted under the CARES Act at March 31, 2021:

						March 31, 2021
						CARES Act Modifications
Loan Segment⁽¹⁾⁽²⁾	Total Loan Segment Balance at March 31, 2021		% of Total Loans			Modification Balance		# of Loans Modified of		% Loan Segment Balance
($ in millions)

Commercial real estate	$	861.4		49.1	%	$	57.0		16		6.6	%
Commercial and industrial		205.1		11.7	%		7.9		7		3.9	%
Residential real estate		684.2		39.0	%		2.0		6		0.3	%
Consumer		4.8		0.2	%		—		—		—
Total	$	1,755.5		100.0	%	$	66.9		29		3.8	%

_______________________________

(1)	Excludes PPP loans and deferred fees.

(2)	Residential includes home equity loans and lines of credit.

The following table provides some insight into the composition of the Bank’s loan portfolio and remaining loan modifications, excluding PPP loans, as of March 31, 2021:

Commercial Real Estate Loans	% of Total Loans⁽¹⁾			% of Bank Risk-Based Capital			% of Balance Modified⁽²⁾
Apartment		10.0	%		72.2	%		—
Office		8.5	%		61.0	%		—
Industrial		7.0	%		50.2	%		3.7	%
Retail/Shopping		6.3	%		45.6	%		—
Hotel		3.1	%		22.3	%		95.9	%
Residential non-owner		2.8	%		20.5	%		—
Auto sales		2.3	%		16.8	%		—
Mixed-use		2.1	%		14.9	%		—
Adult care/Assisted living		2.1	%		15.4	%		—
College/school		1.6	%		11.4	%		—
Other		1.5	%		10.5	%		1.1	%
Auto service		0.6	%		4.2	%		—
Gas station/convenience store		0.6	%		4.5	%		—
Restaurant		0.6	%		4.1	%		3.3	%
Total commercial real estate loans		49.1	%					6.6	%

Commercial and Industrial Loans	% of Total Loans⁽¹⁾			% of Bank Risk-Based Capital			% of Balance Modified⁽²⁾
Manufacturing		2.6	%		19.1	%		0.3	%
Wholesale trade		1.8	%		12.8	%		—
Specialty trade		0.7	%		4.7	%		—
Heavy and civil engineering construction		1.1	%		7.7	%		1.7	%
Educational services		0.6	%		4.3	%		—
Transportation and warehouse		0.7	%		4.8	%		57.2	%
Healthcare and social assistance		0.3	%		2.4	%		—
Auto sales		0.4	%		2.8	%		—
Hotel		0.2	%		1.2	%		25.1	%
All other C&I⁽³⁾		3.3	%		24.3	%		0.1	%
Total commercial and industrial loans		11.7	%					3.9	%

Residential and Consumer Loans	% of Total Loans⁽¹⁾			% of Bank Risk-Based Capital			% of Balance Modified⁽²⁾
Residential real estate		39.0	%		281.1	%		0.3	%
Consumer		0.2	%		2.0	%		—
Total residential and consumer loans		39.2	%					0.3	%

Total Loan Portfolio	% of Total Loans⁽¹⁾			% of Bank Risk-Based Capital			% of Balance Modified⁽²⁾
Commercial real estate		49.1	%		353.9	%		6.6	%
Commercial and industrial		11.7	%		84.3	%		3.9	%
Residential real estate		39.0	%		281.1	%		0.3	%
Consumer		0.2	%		2.0	%		—
Total		100.0	%					3.8	%

____________________________

(1)	Excludes PPP loans of $170.1 million as of March 31, 2021.

(2)	Modified balances as of March 31, 2021 (Commercial real estate loans $57.0 million; Commercial and industrial loans $7.9 million; and Residential loans $2.0 million).

(3)	Other consists of multiple industries.

Although the Bank’s loan portfolio contains impacted sectors and the commercial real estate and residential real estate sectors represent more than 100% of the Bank’s total risk-based capital, the concentration limits remain acceptable. The Company monitors lending exposure by industry classification to determine potential risk associated with industry concentrations, if any, that could lead to additional credit loss exposure. As stated above, as a result of the COVID-19 pandemic, the Company identified sectors that have been materially impacted including, but not limited to: hospitality, transportation, retail, and restaurants and food service. These sectors potentially carry a higher level of credit risk, as many of these borrowers have incurred a significant negative impact to their businesses resulting from the governmental stay-at-home orders as well as travel limitations.

Allowance for Loan Losses.

In determining the allowance for loan losses, the Company considers quantitative loss factors and a number of qualitative factors, such as underwriting policies, current economic conditions, delinquency statistics, the adequacy of the underlying collateral and the financial strength of the borrower. To appropriately reserve for the impact of the COVID-19 pandemic on the Company’s loan portfolio, the Bank added a new qualitative factor category to the allowance calculation, - “Economic Impact of COVID-19” at March 31, 2020. The allocation of additional reserves for the three months ended March 31, 2020 was based upon an analysis of the Company’s loan portfolio that included identifying borrowers sensitive to the shutdown (i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade). The Company’s provision for loan losses was $75,000 for the three months ended March 31, 2021, compared to $2.1 million for the three months ended March 31, 2020. The provision for the three months ended March 31, 2020 was impacted by the negative economic outlook given the unknown extent and duration of the COVID-19 pandemic. As of March 31, 2021, the Company’s delinquent and nonperforming assets had not been materially impacted by the COVID-19 pandemic.

The Company is continuing to monitor COVID-19’s impact on its business and its customers, however, the extent to which COVID-19 will impact its results and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2021 AND DECEMBER 31, 2020

At March 31, 2021, total assets were $2.5 billion, an increase of $97.6 million, or 4.1%, from December 31, 2020. During the three months ended March 31, 2021, cash and cash equivalents increased $44.7 million, or 51.1%, investment securities increased $57.5 million, or 26.9%; and total loans decreased $2.5 million, or 0.1%.

Total loans decreased $2.5 million, or 0.1%, from December 31, 2020, primarily due to a decrease in residential real estate loans of $24.5 million, or 3.5%, as well as a decrease in commercial and industrial loans of $3.9 million, or 1.0%. Excluding PPP loans of $170.1 million, commercial and industrial loans decreased $6.7 million, or 3.2%, from December 31, 2020. These decreases were partially offset by an increase in commercial real estate loans of $27.5 million, or 3.3%.

All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on non-accrual status. If all non-accrual loans had been performing in accordance with their terms, we would have earned additional interest income of $80,000 and $139,000 for the three months ended March 31, 2021 and 2020, respectively. At March 31, 2021, nonperforming loans totaled $6.8 million, or 0.39% of total loans, excluding PPP loans, compared to $7.8 million, or 0.45% of total loans, excluding PPP loans, at December 31, 2020. At March 31, 2021, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets, excluding PPP loans, was 0.30% at March 31, 2021, compared to 0.36% at December 31, 2020. The allowance for loan losses as a percentage of total loans, excluding PPP loans, which do not require an allowance for loan losses, was 1.21% at March 31, 2021, compared to 1.20% at December 31, 2020. At March 31, 2021, the allowance for loan losses as a percentage of nonperforming loans was 313.0%, compared to 269.8% at December 31, 2020. As previously mentioned, the increase in the allowance coverage ratio is due to the increased risks in the portfolio as a result of the ongoing COVID-19 pandemic. A summary of our non-accrual and past due loans by class are listed in Note 5 of the accompanying unaudited consolidated financial statements.

At March 31, 2021, total deposits were $2.2 billion, an increase of $116.0 million, or 5.7%, from December 31, 2020, primarily due to an increase in core deposits of $183.5 million, or 12.7%. Core deposits, which the Company defines as all deposits except time deposits, increased from $1.4 billion, or 71.0% of total deposits, at December 31, 2020, to $1.6 billion, or 75.7% of total deposits, at March 31, 2021. Non-interest-bearing deposits increased $61.0 million, or 11.3%, to $602.8 million, interest-bearing checking accounts increased $1.7 million, or 1.8%, to $96.6 million, savings accounts increased $28.3 million, or 16.6%, to $198.6 million, and money market accounts increased $92.5 million, or 14.4%, to $733.3 million. The increase in core deposits can be attributed to the government stimulus for individuals, lower consumer spending over the last several months, PPP loan proceeds deposited into borrower checking accounts, as well as the three new branches opened in 2020.

Time deposits decreased $67.5 million, or 11.4%, from $590.3 million at December 31, 2020 to $522.8 million at March 31, 2021. Brokered deposits, which are included within time deposits, were $40.3 million at March 31, 2021 and $55.3 million at December 31, 2020.

At March 31, 2021, FHLB advances were $42.7 million, a decrease of $15.2 million, or 26.2%, from $57.9 million at December 31, 2020.

At March 31, 2021, shareholders’ equity was $222.9 million, or 9.1% of total assets, compared to $226.6 million, or 9.6% of total assets, at December 31, 2020. The decrease in shareholders’ equity reflects $5.8 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $1.2 million and an increase in accumulated other comprehensive loss of $3.1 million, partially offset by net income of $5.8 million. Total shares outstanding as of March 31, 2021 were 24,583,958.

Although the Company has historically paid quarterly dividends on its common stock, the Company’s ability to pay such dividends depends on a number of factors, including restrictions under federal laws and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance that dividends will be paid in the future.

The Company’s book value per share was $9.07 at March 31, 2021, compared to $8.97 at December 31, 2020, while tangible book value per share increased $0.08, or 0.96%, from $8.36 at December 31, 2020 to $8.44 at March 31, 2021. As of March 31, 2021, the Company’s and the Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND MARCH 31, 2020

General.

Net income was $5.8 million, or $0.24 per diluted share, for the three months ended March 31, 2021, compared to $2.1 million, or $0.08 per diluted share, for the same period in 2020. Net interest income was $18.0 million and $14.6 million for the three months ended March 31, 2021 and 2020, respectively.

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, 2021 and 2020, 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 interest income by the average balance of interest-earning assets and 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.

	Three Months Ended March 31,
	2021								2020
	Average		Average Yield/			Average			Average Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾	$	1,923,477	$	19,220			4.05	%	$	1,782,500	$	18,876			4.26	%
Securities⁽²⁾		227,330		854			1.52			225,933		1,404			2.50
Other investments - at cost		9,663		35			1.47			16,762		182			4.37
Short-term investments⁽³⁾		95,004		24			0.10			17,557		62			1.42
Total interest-earning assets		2,255,474		20,133			3.62			2,042,752		20,524			4.04
Total non-interest-earning assets		144,588								137,665
Total assets	$	2,400,062							$	2,180,417

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	90,503	$	105			0.47	%	$	70,209	$	75			0.43	%
Savings accounts		187,217		37			0.08			131,868		34			0.10
Money market accounts		675,662		653			0.39			446,234		753			0.68
Time deposits		567,102		939			0.67			651,424		3,374			2.08
Total interest-bearing deposits		1,520,484		1,734			0.46			1,299,735		4,236			1.31
Short-term borrowings and long-term debt		52,670		273			2.10			231,989		1,601			2.78
Interest-bearing liabilities		1,573,154		2,007			0.52			1,531,724		5,837			1.53
Non-interest-bearing deposits		561,581								388,590
Other non-interest-bearing liabilities		38,360								29,466
Total non-interest-bearing liabilities		599,941								418,056

Total liabilities		2,173,095								1,949,780
Total equity		226,967								230,637
Total liabilities and equity	$	2,400,062							$	2,180,417
Less: Tax-equivalent adjustment⁽²⁾				(100	)							(134	)
Net interest and dividend income			$	18,026							$	14,553
Net interest rate spread⁽⁴⁾							3.08	%							2.48	%
Net interest rate spread, on a tax equivalent basis⁽⁵⁾							3.10	%							2.51	%
Net interest margin⁽⁶⁾							3.24	%							2.87	%
Net interest margin, on a tax equivalent basis⁽⁷⁾							3.26	%							2.89	%
Ratio of average interest-earning assets to average interest-bearing liabilities							143.37	%							133.36	%

________________________

(1)

Loans, including non-accrual 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.

(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, including non-accrual loans, are net of deferred loan origination costs, unadvanced funds and the allowance for loan losses. See “Explanation of Use of Non-GAAP Financial Measurements”.

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, 2021 compared to Three Months Ended March 31, 2020
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(In thousands)
Loans⁽¹⁾	$	1,381		$	(1,037	)	$	344
Securities⁽¹⁾		9			(559	)		(550	)
Other investments - at cost		(76	)		(71	)		(147	)
Short-term investments		271			(309	)		(38	)
Total interest-earning assets		1,585			(1,976	)		(391	)

Interest-bearing liabilities
Interest-bearing checking accounts		21			9			30
Savings accounts		14			(11	)		3
Money market accounts		384			(484	)		(100	)
Time deposits		(433	)		(2,002	)		(2,435	)
Short-term borrowing and long-time debt		(1,227	)		(101	)		(1,328	)
Total interest-bearing liabilities		(1,241	)		(2,589	)		(3,830	)
Change in net interest and dividend income⁽¹⁾	$	2,826		$	613		$	3,439

__________________________

(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.

Net interest income increased $3.5 million, or 23.9%, to $18.0 million, for the three months ended March 31, 2021, from $14.6 million for the three months ended March 31, 2020. The increase in net interest income was due to a decrease in interest expense of $3.8 million, or 65.6%, partially offset by a decrease in interest and dividend income of $357,000, or 1.8%. The decrease in interest expense was due to a decrease of $2.5 million, or 59.1%, in interest expense on deposits and a decrease of $1.3 million, or 82.9%, in interest expense on FHLB advances.

Net interest income for the three months ended March 31, 2021 includes interest income and origination fees from PPP loans of $2.4 million. During the three months ended March 31, 2021 and the three months ended March 31, 2020, the Company recognized prepayment penalties of $35,000 and $6,000, respectively. In addition, interest income for the three months ended March 31, 2021 included $45,000 in negative purchase accounting adjustments, compared to $82,000 in positive purchase accounting adjustments during the three months ended March 31, 2020. Excluding the adjustments above, net interest income increased $1.2 million, or 8.0%, from $14.5 million during the three months ended March 31, 2020, to $15.6 million during the three months ended March 31, 2021.

The net interest margin was 3.24% for the three months ended March 31, 2021, compared to 2.87%, for the three months ended March 31, 2020. The net interest margin, on a tax-equivalent basis, was 3.26% for the three months ended March 31, 2021, compared to 2.89% for the three months ended March 31, 2020. Excluding the adjustments discussed above, the net interest margin increased 18 basis points from 2.85% for the three months ended March 31, 2020 to 3.03% for the three months ended March 31, 2021. The increase in the net interest margin was primarily due to the continuing trend of lower deposit costs as interest rates continued to fall to historically low levels. The Company’s net interest margin was negatively impacted by higher average balances of cash and due from banks, interest-bearing deposits from banks and federal funds sold, which are lower yielding interest-earning assets. Average cash balances increased from 0.86% of total interest-earnings assets for the three months ended March 31, 2020 to 4.21% of total interest-earning assets during the three months ended March 31, 2021.

The average loan yield decreased 21 basis points from 4.26% for the three months ended March 31, 2020 to 4.05% for the three months ended March 31, 2021. Excluding PPP loans, purchase accounting adjustments and prepayment penalties, the average loan yield decreased 38 basis points from 4.26% for the three months ended March 31, 2020 to 3.88% for the three months ended March 31, 2021. The fully tax-equivalent average yield on interest-earning assets decreased 42 basis points from 4.04% for the three months ended March 31, 2020 to 3.62% for the three months ended March 31, 2021. The decrease in average yields was primarily due to pay-offs of higher yielding loans, repricing of variable rate loans, and lower average yields on new loan originations, including loans originated under the PPP as well as the increase in average cash and due from bank balances which are lower yielding interest-earning assets.

During the three months ended March 31, 2021, average interest-earning assets increased $212.7 million, or 10.4%, to $2.3 billion compared to the three months ended March 31, 2020. The increase was primarily due to an increase in average loans of $141.0 million, or 7.9%. Excluding average PPP loans of $166.6 million, average loans decreased $25.6 million, or 1.4%, from the three months ended March 31, 2020 to the three months ended March 31, 2021. Total average loans were 85.3% of total average interest-earning assets for the three months ended March 31, 2021, compared to 87.3% for the three months ended March 31, 2020.

During the three months ended March 31, 2021, the average cost of funds, including non-interest bearing demand accounts and FHLB advances, decreased 84 basis points, from 1.22% for the three months ended March 31, 2020 to 0.38% for the three months ended March 31, 2021. The average cost of core deposits, including non-interest bearing demand deposits, decreased 12 basis points from 0.33% for the three months ended March 31, 2020 to 0.21% for the three months ended March 31, 2021. The average cost of time deposits decreased 141 basis points from 2.08% for the three months ended March 31, 2020 to 0.67% for the three months ended March 31, 2021, while the average cost of borrowings decreased 68 basis points during the same period. For the three months ended March 31, 2021, average demand deposits of $561.6 million, an interest-free source of funds, represented 27.0% of average total deposits, and increased $173.0 million, or 44.5%, from the three months ended March 31, 2020.

Provision for Loan Losses.

The provision for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio.

The provision for loan losses decreased $2.0 million, or 96.4%, from $2.1 million for the three months ended March 31, 2020 to $75,000 for the three months ended March 31, 2021. The Company recorded net charge-offs of $5,000 for the three months ended March 31, 2021, as compared to net charges-offs of $365,000 for the three months ended March 31, 2020. The provision for loan losses during the three months ended March 31, 2021, as well as the allowance for loan losses as of March 31, 2021, represents management’s best estimate of the impact of the COVID-19 pandemic on the ability of the Company’s borrowers to repay their loans. Management continues to carefully assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic related factors, economic trends and their potential effect on asset quality. As of March 31, 2021, the Company’s delinquencies and nonperforming assets had not been materially impacted by the COVID-19 pandemic.

Although we believe that we have established and maintained the allowance for loan losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment. If the COVID-19 pandemic has an adverse effect on the ability of our borrowers to satisfy their obligations to us, the demand for our loans or our other products and services, other aspects of our business operations, or on financial markets, real estate markets, or economic growth, this could, depending on the extent of the loan defaults, materially and adversely affect our liquidity and financial condition and our results of operations could be materially and adversely affected.

Non-Interest Income.

Non-interest income increased $479,000, or 19.0%, to $3.0 million for the three months ended March 31, 2021, from $2.5 million for the three months ended March 31, 2020. The increase in non-interest income was due to a gain on non-marketable equity investments of $546,000, while service charges and fees on deposits increased $109,000, or 6.1%, and income from mortgage banking activities was $227,000 due to the sale of fixed rate residential loans during the three months ended March 31, 2021. Income from bank-owned life insurance of $441,000 remained unchanged from the three months ended March 31, 2020 to the three months ended March 31, 2021. During the three months ended March 31, 2021, unrealized losses on marketable equity securities were $89,000, compared to unrealized gains of $102,000 during the three months ended March 31, 2020. During the three months ended March 31, 2021, the Company reported realized losses on the sale of securities of $62,000, compared to realized gains of $23,000 during the three months ended March 31, 2020.

Non-Interest Expense.

For the three months ended March 31, 2021, non-interest expense increased $1.0 million, or 8.2%, to $13.3 million from $12.3 million, for the three months ended March 31, 2020. Salaries and employee benefits expense increased $510,000, or 7.1%, to $7.7 million, primarily due to new hires and the Company’s expansion into Connecticut and increases due to annual merit increases and benefit costs. FDIC expense increased $147,000, or 97.4%, from $151,000 during the three months ended March 31, 2020 to $298,000 during the three months ended March 31, 2021. During the three months ended March 31, 2020, the FDIC applied small bank credits against the quarterly assessments. The Company fully utilized its small bank assessment credits during the three months ended March 31, 2020. Occupancy expense increased $122,000, or 10.5%, primarily due to the opening of three new branches in 2020 and an increase of $65,000, or 81.3%, in snow removal. Furniture and equipment increased $99,000, or 25.3%, advertising expenses increased $86,000, or 34.1%, and data processing related expenses increased $6,000, or 0.8%. Other non-interest expense increased $98,000, or 5.2%. These expenses were partially offset by a decrease in professional fees of $55,000, or 9.2%. The efficiency ratio was 65.3% for the three months ended March 31, 2021, compared to 72.6% for the three months ended March 31, 2020.

Income Taxes.

Income tax expense for the three months ended March 31, 2021 was $1.8 million, or an effective tax rate of 24.1%, compared to $584,000, or an effective tax rate of 21.9%, for three months ended March 31, 2020. The increase in the effective tax rate is a result of higher pre-tax income.

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 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 may be considered to include financial information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.

	Three Months Ended March 31,
	2021						2020
	(Dollars in thousands)
	Interest		Average Yield			Interest		Average Yield
Loans (no tax adjustment)	$	19,120		4.03	%	$	18,747		4.23	%
Tax-equivalent adjustment⁽¹⁾		100					129
Loans (tax-equivalent basis)	$	19,220		4.05	%	$	18,876		4.26	%

Securities (no tax adjustment)	$	854		1.52	%	$	1,399		2.49	%
Tax-equivalent adjustment⁽¹⁾		—					5
Securities (tax-equivalent basis)	$	854		1.52	%	$	1,404		2.50	%

Net interest income (no tax adjustment)	$	18,026				$	14,553
Tax-equivalent adjustment⁽¹⁾		100					134
Net interest income (tax-equivalent basis)	$	18,126				$	14,687

Interest rate spread (no tax adjustment)				3.08	%				2.48	%
Net interest margin (no tax adjustment)				3.24	%				2.87	%

__________________________

(1)

The tax equivalent adjustment is based upon a 21% tax rate.

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 and the FRB Discount Window based on eligible collateral of securities.

At March 31, 2021 and December 31, 2020, outstanding borrowings from the FHLB were $42.7 million and $57.9 million, respectively. At March 31, 2021, we had $453.3 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.

In addition, we have available lines of credit of $15.0 million and $50.0 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, 2021 and December 31, 2020, we did not have an outstanding balance under either of these lines. We also have an available line of credit of $13.1 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. There were no advances outstanding under this line at March 31, 2021 or December 31, 2020. 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.

At March 31, 2021, we exceeded each of the applicable regulatory capital requirements. As of March 31, 2021, 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.

	Actual					Minimum For Capital Adequacy Purpose					Minimum To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
March 31, 2021
Total Capital (to Risk Weighted Assets):
Consolidated	$	243,452		14.64	%	$	133,029		8.00	%		N/A		N/A
Bank		230,741		13.85			133,233		8.00		$	166,541		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		222,661		13.39			99,772		6.00			N/A		N/A
Bank		209,918		12.60			99,925		6.00			133,233		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		222,661		13.39			74,829		4.50			N/A		N/A
Bank		209,918		12.60			74,944		4.50			108,252		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		222,661		9.33			95,413		4.00			N/A		N/A
Bank		209,918		8.81			95,359		4.00			119,198		5.00

December 31, 2020
Total Capital (to Risk Weighted Assets):
Consolidated	$	244,158		14.65	%	$	133,336		8.00	%		N/A		N/A
Bank		231,531		13.91			133,149		8.00		$	166,436		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		223,320		13.40			100,002		6.00			N/A		N/A
Bank		210,722		12.66			99,862		6.00			133,149		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated		223,320		13.40			75,002		4.50			N/A		N/A
Bank		210,722		12.66			74,896		4.50			108,183		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		223,320		9.34			95,606		4.00			N/A		N/A
Bank		210,722		8.83			95,409		4.00			119,261		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.

The following table summarizes the contractual obligations and credit commitments at March 31, 2021:

	Within 1 Year		After 1 Year But Within 3 Years		After 3 Years But Within 5 Years		After 5 Years		Total
	(In thousands)
Lease Obligations
Operating lease obligations	$	1,492	$	2,507	$	2,102	$	5,379	$	11,480

Borrowings and Debt
Federal Home Loan Bank		40,679		1,351		646		—		42,676

Credit Commitments
Available lines of credit		245,652		—		—		82,846		328,498
Other loan commitments		115,280		15,006		—		3,866		134,152
Letters of credit		19,745		626		452		200		21,023
Total credit commitments		380,677		15,632		452		86,912		483,673

Other Obligations
Vendor Contracts		3,961		7,868		3,606		—		15,435

Total Obligations	$	426,809	$	27,358	$	6,806	$	92,291	$	553,264

OFF-BALANCE SHEET ARRANGEMENTS.

We do not have any off-balance sheet arrangements 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 is 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 its presentation in our 2020 Annual Report. Please refer to Item 7A of the 2020 Annual Report for additional information.

ITEM 4: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

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.

We are subject to claims and legal actions 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 2020 Annual Report. There are no material changes in the risk factors relevant to our operations since December 31, 2020.

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, 2021.

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, 2021	106,476	6.79	106,476	928,894
February 1 - 28, 2021	52,616	8.13	52,616	876,278
March 1 - 31, 2021	552,543	8.37	549,342	326,936
Total	711,635	8.12	708,434	326,936

______________

(1)

On October 27, 2020, the Board of Directors authorized an additional stock repurchase plan under which the Company may purchase up to 1,300,000 shares, or 5%, of its outstanding common stock.

(2)

Repurchase of 3,201 shares related to tax obligations for shares of restricted stock that vested on February 25, 2021 under our 2018 LTI Recognition & Retention Plan. These repurchases were reported by each reporting person on March 1, 2021.

During the first quarter of 2021, we repurchased 708,434 shares at an average price per share of $8.12. As of March 31, 2021, there were 326,936 shares available for purchase under the plan. There were no sales by us of unregistered securities during the three months ended March 31, 2021.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS.

Exhibit Number		Exhibit Description
3.2		Restated Articles of Organization of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on October 26, 2016).
3.3		Amended and Restated Bylaws of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on February 2, 2017).
4.1		Form of Stock Certificate of Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 4.1 of the Registration Statement No. 333-137024 on Form S-1 filed with the Securities and Exchange Commission on August 31, 2006).
10.1		Change of Control Agreement between John Bonini and Western New England Bancorp, Inc. dated as of January 1, 2021 (incorporated by reference to Exhibit 10.22 of the Form 10-K filed with the SEC on March 11, 2021).
10.2		Change of Control Agreement between Christine Phillips and Western New England Bancorp, Inc. dated as of January 1, 2021 (incorporated by reference to Exhibit 10.23 of the Form 10-K filed with the SEC on March 11, 2021).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		Financial statements from the quarterly report on Form 10-Q of Western New England Bancorp, Inc. for the quarter ended March 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Net Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

________________________________

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.

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 6, 2021.

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