Western New England Bancorp, Inc. - Quarter Report: 2022 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, 2022

☐

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

For the transition period from ___________ to ___________

Commission File Number: 001-16767

Western New England Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

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

(413) 568-1911

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

At May 2, 2022 the registrant had 22,642,038 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, 2022 and December 31, 2021	1

	Consolidated Statements of Net Income – Three Months Ended March 31, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2022 and 2021	3

	Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2022 and 2021	4

	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

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	45

Item 4.	Mine Safety Disclosure	45

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 any COVID-19 vaccines and treatment developments and their deployment, including public adoption rates of any COVID-19 vaccines;

●

the emergence of new COVID-19 variants, such as the Omicron variant, and the response thereto;

●

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

●

changes in the interest rate environment that reduce margins;

●

the effect on our operations of governmental legislation and regulation, including changes in accounting regulation or standards, the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (“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 per share data)

	March 31,			December 31,
	2022			2021
ASSETS
Cash and due from banks	$	16,983		$	15,233
Federal funds sold		2,456			4,901
Interest-bearing deposits and other short-term investments		43,459			83,322
Cash and cash equivalents		62,898			103,456

Available-for-sale securities, at fair value		173,910			194,352
Held-to-maturity securities, at amortized cost (Fair value of $220,279 and $219,748 at March 31, 2022 and December 31, 2021, respectively)		237,575			222,272
Marketable equity securities, at fair value		11,643			11,896
Federal Home Loan Bank of Boston stock and other restricted stock, at cost		2,594			2,594
Loans, net of allowance for loan losses of $19,308 at March, 31, 2022 and $19,787 at December 31, 2021		1,906,977			1,844,929
Premises and equipment, net		25,686			26,162
Accrued interest receivable		7,723			7,775
Bank-owned life insurance		73,343			72,895
Deferred tax asset, net		14,981			12,092
Goodwill		12,487			12,487
Core deposit intangible		2,469			2,563
Other assets		23,152			24,952
TOTAL ASSETS	$	2,555,438		$	2,538,425

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing	$	630,208		$	641,284
Interest-bearing		1,647,956			1,615,614
Total deposits		2,278,164			2,256,898

Federal Home Loan Bank advances		1,686			2,653
Subordinated debt		19,643			19,633
Securities pending settlement		146			—
Other liabilities		36,736			35,553
TOTAL LIABILITIES		2,336,375			2,314,737

SHAREHOLDERS' EQUITY:
Preferred stock - $0.01 par value, 5,000,000 shares authorized, none outstanding at March 31, 2022 and December 31, 2021		—			—
Common stock - $0.01 par value, 75,000,000 shares authorized, 22,742,189 shares issued and outstanding at March 31, 2022; 22,656,515 shares issued and outstanding at December 31, 2021		227			227
Additional paid-in capital		133,459			132,821
Unearned compensation – Employee Stock Ownership Plan		(3,307	)		(3,441	)
Unearned compensation - Equity Incentive Plan		(1,943	)		(981	)
Retained earnings		111,358			107,376
Accumulated other comprehensive loss		(20,731	)		(12,314	)
TOTAL SHAREHOLDERS’ EQUITY		219,063			223,688
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,555,438		$	2,538,425

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED

(Dollars in thousands, except per share data)


	Three Months
	Ended March 31,
	2022			2021
Interest and dividend income:
Residential and commercial real estate loans	$	15,343		$	14,509
Commercial and industrial loans		2,544			4,542
Consumer loans		60			69
Debt securities, taxable		1,923			824
Debt securities, tax-exempt		3			3
Marketable equity securities		24			27
Other investments		25			35
Short-term investments		21			24
Total interest and dividend income		19,943			20,033

Interest expense:
Deposits		992			1,734
Long-term debt		—			273
Subordinated debt		253			—
Total interest expense		1,245			2,007
Net interest and dividend income		18,698			18,026

(Credit) provision for loan losses		(425	)		75
Net interest and dividend income after (credit) provision for loan losses		19,123			17,951

Non-interest income:
Service charges and fees		2,174			1,883
Income from bank-owned life insurance		448			441
Loss on available-for-sale securities, net		(4	)		(62	)
Net unrealized loss on marketable equity securities		(276	)		(89	)
Gain on sale of mortgages		2			227
Gain on non-marketable equity investments		—			546
Other income		4			58
Total non-interest income		2,348			3,004

Non-interest expense:
Salaries and employees benefits		8,239			7,682
Occupancy		1,363			1,289
Furniture and equipment		543			490
Data processing		723			721
Professional fees		577			544
FDIC insurance assessment		286			298
Advertising		399			338
Other expenses		2,326			1,965
Total non-interest expense		14,456			13,327
Income before income taxes		7,015			7,628
Income tax provision		1,696			1,837
Net income	$	5,319		$	5,791

Earnings per common share:
Basic earnings per share	$	0.24		$	0.24
Weighted average shares outstanding		22,100,076			24,486,146
Diluted earnings per share	$	0.24		$	0.24
Weighted average diluted shares outstanding		22,172,909			24,543,554
Dividends per share	$	0.06		$	0.05

See accompanying notes to unaudited consolidated financial statements.

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) – UNAUDITED

(Dollars in thousands)


	Three Months Ended March 31,
	2022			2021

Net income	$	5,319		$	5,791

Other comprehensive income (loss):
Unrealized losses on available-for-sale securities:
Unrealized holding losses		(11,468	)		(4,469	)
Reclassification adjustment for net losses realized in income ⁽¹⁾		4			62
Unrealized losses		(11,464	)		(4,407	)
Tax effect		2,934			1,081
Net-of-tax amount		(8,530	)		(3,326	)

Cash flow hedges:
Reclassification adjustment for termination fee realized in interest expense		—			140
Tax effect		—			(39	)
Net-of-tax amount		—			101

Defined benefit pension plan:
Amortization of defined benefit plans actuarial loss		158			234
Tax effect		(45	)		(66	)
Net-of-tax amount		113			168

Other comprehensive loss		(8,417	)		(3,057	)

Comprehensive (loss) income	$	(3,098	)	$	2,734

(1)

Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income. The tax effects applicable to net realized gains and losses were $(1,000) and $(14,000) for the three months ended March 31, 2022 and 2021, 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, 2022 AND 2021

(Dollars in thousands, except per share data)


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

BALANCE AT DECEMBER 31, 2020		25,276,193		$	253		$	154,549		$	(3,997	)	$	(1,240	)	$	88,354		$	(11,279	)	$	226,640
Comprehensive income		—			—			—			—			—			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 (19,154 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

BALANCE AT DECEMBER 31, 2021		22,656,515		$	227		$	132,821		$	(3,441	)	$	(981	)	$	107,376		$	(12,314	)	$	223,688
Comprehensive income		—			—			—			—			—			5,319			(8,417	)		(3,098	)
Common stock held by ESOP committed to be released (78,526 shares)		—			—			45			134			—			—			—			179
Share-based compensation - equity incentive plan		—			—			—			—			301			—			—			301
Forfeited equity incentive plan shares (6,651 shares)		—			—			(57	)		—			57			—			—			—
Forfeited equity incentive plan shares reissued (7,289 shares)		—			—			71			—			(71	)		—			—			—
Common stock repurchased		(132,358	)		(2	)		(1,178	)		—			—			—			—			(1,180	)
Issuance of common stock in connection with stock option exercises		80,881			1			509			—			—			—			—			510
Issuance of common stock in connection with equity incentive plan		137,151			1			1,248			—			(1,249	)		—			—			—
Cash dividends declared and paid on common stock ($0.06 per share)		—			—			—			—			—			(1,337	)		—			(1,337	)
BALANCE AT MARCH 31, 2022		22,742,189		$	227		$	133,459		$	(3,307	)	$	(1,943	)	$	111,358		$	(20,731	)	$	219,063

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,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,319		$	5,791
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) provision for loan losses		(425	)		75
Depreciation and amortization of premises and equipment		584			584
(Accretion) amortization of purchase accounting adjustments, net		(29	)		55
Amortization of core deposit intangible		94			93
Net amortization of premiums and discounts on securities and mortgage loans		441			670
Net amortization of premiums on subordinated debt		10			—
Share-based compensation expense		301			231
ESOP expense		179			147
Gain on sale of mortgages		—			(227	)
Principal balance of loans originated for sale		(277	)		—
Principal balance of loans sold		277			—
Net loss on available-for-sale securities		4			62
Net change in unrealized loss on marketable equity securities		276			89
Income from bank-owned life insurance		(448	)		(441	)
Net change in:
Accrued interest receivable		52			(6	)
Other assets		(954	)		2,603
Other liabilities		1,661			1,276
Net cash provided by operating activities		7,065			11,002

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities		(20,627	)		(63,973	)
Proceeds from calls, maturities and principal collections of held-to-maturity securities		5,190			—
Purchases of available-for-sale securities		—			(15,821	)
Proceeds from sales and redemption of available-for-sale securities		20			14
Proceeds from calls, maturities, and principal collections of available-for-sale securities		8,630			17,163
Loan originations and principal payments, net		(61,603	)		(5,205	)
Redemption of Federal Home Loan Bank of Boston stock		—			668
Proceeds from sale of portfolio mortgages		—			7,801
Purchases of premises and equipment		(118	)		(907	)
Proceeds from payout on bank-owned life insurance		2,435			—
Net cash used in investing activities		(66,073	)		(60,260	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		21,275			116,012
Repayment of long-term debt		(964	)		(15,170	)
Cash dividends paid on common stock		(1,337	)		(1,232	)
Common stock repurchased		(1,034	)		(5,785	)
Issuance of common stock in connection with stock option exercises		510			113
Net cash provided by financing activities		18,450			93,938

NET CHANGE IN CASH AND CASH EQUIVALENTS:		(40,558	)		44,680
Beginning of period		103,456			87,444
End of period	$	62,898		$	132,124

Supplemental cash flow information:
Interest paid	$	1,267		$	2,046
Taxes paid		1,020			828
Net change in cash due to broker for common stock repurchased		146			(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, 2022

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 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. An estimate that is particularly susceptible to significant change in the near-term relates to the determination of the allowance for loan losses.

Basis of Presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of March 31, 2022, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations for the year ending December 31, 2022. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).

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

2. EARNINGS PER SHARE

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated Employee Stock Ownership Plan (“ESOP”) shares are not deemed outstanding for earnings per share calculations. There were no anti-dilutive shares outstanding during the three months ended March 31, 2022 and 2021.

Earnings per common share for the three months ended March 31, 2022 and 2021 have been computed based on the following:


	Three Months Ended
	March 31,
	2022			2021
	(In thousands, except per share data)

Net income applicable to common stock	$	5,319		$	5,791

Average number of common shares issued		22,705			25,118
Less: Average unallocated ESOP Shares		(445	)		(527	)
Less: Average unvested equity incentive plan shares		(160	)		(105	)

Average number of common shares outstanding used to calculate basic earnings per common share		22,100			24,486
Effect of dilutive equity incentive plan		41			28
Effect of dilutive stock options		32			30
Average number of common shares outstanding used to calculate diluted earnings per common share		22,173			24,544

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

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, 2022			December 31, 2021
	(In thousands)

Net unrealized losses on available-for-sale securities	$	(16,149	)	$	(4,685	)
Tax effect		4,094			1,160
Net-of-tax amount		(12,055	)		(3,525	)

Unrecognized actuarial loss on the defined benefit plan		(12,067	)		(12,225	)
Tax effect		3,391			3,436
Net-of-tax amount		(8,676	)		(8,789	)

Accumulated other comprehensive loss	$	(20,731	)	$	(12,314	)

4. INVESTMENT SECURITIES

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

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,904	$	—	$	(1,758	)	$	13,146
State and municipal bonds		405		1		—			406
Corporate bonds		3,022		—		(26	)		2,996
Total debt securities		18,331		1		(1,784	)		16,548

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		163,148		39		(13,489	)		149,698
U.S. government guaranteed mortgage-backed securities		8,580		—		(916	)		7,664
Total mortgage-backed securities		171,728		39		(14,405	)		157,362

Total available-for-sale		190,059		40		(16,189	)		173,910

Held-to-maturity securities:
Debt securities:
U.S. Treasury securities		9,981		—		(461	)		9,520
Total debt securities		9,981		—		(461	)		9,520

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		227,594		—		(16,835	)		210,759
Total mortgage-backed securities		227,594		—		(16,835	)		210,759

Total held-to-maturity		237,575		—		(17,296	)		220,279

Total	$	427,634	$	40	$	(33,485	)	$	394,189

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale securities:
Debt securities:
Government-sponsored enterprise obligations	$	14,902	$	—	$	(676	)	$	14,226
State and municipal bonds		405		1		—			406
Corporate bonds		3,026		86		—			3,112
Total debt securities		18,333		87		(676	)		17,744

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		171,011		427		(3,929	)		167,509
U.S. government guaranteed mortgage-backed securities		9,693		8		(602	)		9,099
Total mortgage-backed securities		180,704		435		(4,531	)		176,608

Total available-for-sale		199,037		522		(5,207	)		194,352

Held-to-maturity securities:
Debt securities:
U.S. Treasury securities		9,979		—		(6	)		9,973
Total debt securities		9,979		—		(6	)		9,973

Mortgage-backed securities:
Government-sponsored mortgage-backed securities		212,293		—		(2,518	)		209,775
Total mortgage-backed securities		212,293		—		(2,518	)		209,775

Total held-to-maturity		222,272		—		(2,524	)		219,748

Total	$	421,309	$	522	$	(7,731	)	$	414,100

At March 31, 2022, U.S. Treasury securities with a fair value of $4.7 million, government-sponsored enterprise obligations with a fair value of $8.8 million and mortgage-backed securities with a fair value of $55.4 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits.

The amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2022, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Debt securities:
Due after one year through five years	$	3,427	$	3,402	$	9,981	$	9,520
Due after five years through ten years		9,904		8,869		—		—
Due after ten years		5,000		4,277		—		—
Total debt securities		18,331		16,548		9,981		9,520
Mortgage-backed securities:
Due after five years through ten years		1,901		1,823		—		—
Due after ten years		169,827		155,539		227,594		210,759
Total mortgage-backed securities		171,728		157,362		227,594		210,759

Total securities	$	190,059	$	173,910	$	237,575	$	220,279

Gross realized gains and losses on sales of available-for-sale securities for the three months ended March 31, 2022 and 2021 are as follows:


	Three Months Ended
	March 31,
	2022			2021
	(In thousands)

Gross gains realized	$	—		$	—
Gross losses realized		(4	)		(62	)
Net loss realized	$	(4	)	$	(62	)

Proceeds from the sales and redemption of available-for-sale securities totaled $20,000 and $14,000 for the three months ended March 31, 2022 and 2021, respectively.

Information pertaining to securities with gross unrealized losses at March 31, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

	March 31, 2022
	Less Than Twelve Months									Over Twelve Months
	Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)			Number of Securities		Fair Value		Gross Unrealized Loss		Depreciation from Amortized Cost Basis (%)
	(Dollars in thousands)

Available-for-sale:
Government-sponsored mortgage-backed securities		39	$	74,897	$	5,877		7.3	%		27	$	70,790	$	7,612		9.7	%
U.S. government guaranteed mortgage-backed securities		2		1,093		55		4.8			7		6,571		861		11.6
Government-sponsored enterprise obligations		—		—		—		—			3		13,146		1,758		11.8
Corporate Bonds		1		2,996		26		0.9			—		—		—
Total available-for-sale		42		78,986		5,958					37		90,507		10,231

Held-to-maturity:
U.S. Treasury securities		2		9,520		461		4.6	%		—		—		—		—	%
Government-sponsored mortgage-backed securities		33		198,246		15,523		7.3			2		12,513		1,312		9.5
Total held-to-maturity		35		207,766		15,984					2		12,513		1,312

Total		77	$	286,752	$	21,942					39	$	103,020	$	11,543

	December 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		34	$	105,221	$	2,088		1.9	%		18	$	42,506	$	1,841		4.2	%
U.S. government guaranteed mortgage-backed securities		2		2,426		142		5.5			5		5,107		460		8.3
Government-sponsored enterprise obligations		—		—		—		—			3		14,226		676		4.5
Total available-for-sale		36		107,647		2,230					26		61,839		2,977

Held-to-maturity:
U.S. Treasury securities		2		9,973		6		0.1	%		—		—		—		—	%
Government-sponsored mortgage-backed securities		31		209,775		2,518		1.2			—		—		—		—
Total held-to-maturity		33		219,748		2,524					—		—		—

Total		69	$	327,395	$	4,754					26	$	61,839	$	2,977

During the three months ended March 31, 2022 and year ended December 31, 2021, 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. Management attributed the unrealized losses at March 31, 2022 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. At March 31, 2022, the Company's corporate and municipal bond portfolios did not contain any securities rated below investment grade, as reported by major credit rating agencies.

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	March 31,			December 31,
	2022			2021
	(In thousands)
Commercial real estate	$	1,039,487		$	979,969
Residential real estate:
Residential one-to-four family		564,339			552,332
Home equity		100,165			99,759
Total residential real estate		664,504			652,091

Commercial and industrial:
Paycheck Protection Program (“PPP”) loans		6,052			25,329
Commercial and industrial		209,890			201,340
Total commercial and industrial		215,942			226,669

Consumer		4,252			4,250
Total gross loans		1,924,185			1,862,979
Unamortized PPP loan fees		(255	)		(781	)
Unearned premiums and deferred loan fees and costs, net		2,355			2,518
Total loans, net		1,926,285			1,864,716
Allowance for loan losses		(19,308	)		(19,787	)
Net loans	$	1,906,977		$	1,844,929

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, 2022 and December 31, 2021, the Company was servicing commercial loans participated out to various other institutions totaling $78.3 million and $63.2 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, 2022, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model (122 PSA), weighted average internal rate of return (9.02%), weighted average servicing fee (0.25%), and average cost to service loans ($83.63 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, 2022 and 2021, the Company sold $277,000 and $7.6 million in residential real estate mortgages with servicing retained and recorded gains on the sale of mortgages of $2,000 and $227,000, respectively, within non-interest income.

At March 31, 2022 and December 31, 2021, the Company was servicing residential mortgage loans owned by investors totaling $85.5 million and $88.2 million, respectively. Servicing fee income of $53,000 and $24,000 was recorded for the three months ended March 31, 2022 and 2021, 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,
	2022			2021
	(In thousands)

Balance at the beginning of year:	$	693		$	153
Capitalized mortgage servicing rights		2			48
Amortization		(36	)		(15	)
Balance at the end of period	$	659		$	186
Fair value at the end of period	$	813		$	235

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, 2022. 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. Home equity loans are secured by first or second mortgages on one-to-four family owner occupied properties. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

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.

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, 2022 and 2021 is as follows:

	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Unallocated			Total
	(In thousands)
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

Balance at December 31, 2021	$	12,970		$	3,964		$	2,643		$	197		$	13		$	19,787
Provision (credit)		(639	)		90			89			27			8			(425	)
Charge-offs		(37	)		(16	)		(7	)		(45	)		—			(105	)
Recoveries		—			30			1			20			—			51
Balance at March 31, 2022	$	12,294		$	4,068		$	2,726		$	199		$	21		$	19,308

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, 2022
Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for non-impaired loans		12,294		4,068		2,726		199		21		19,308
Total allowance for loan losses	$	12,294	$	4,068	$	2,726	$	199	$	21	$	19,308

Impaired loans	$	9,527	$	2,976	$	620	$	—	$	—	$	13,123
Non-impaired loans		1,025,725		659,784		208,907		4,252		—		1,898,668
Impaired loans acquired with deteriorated credit quality		4,235		1,744		363		—		—		6,342
Total loans	$	1,039,487	$	664,504	$	209,890	$	4,252	$	—	$	1,918,133

December 31, 2021
Amount of allowance for impaired loans	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for non-impaired loans		12,970		3,964		2,643		197		13		19,787
Total allowance for loan losses	$	12,970	$	3,964	$	2,643	$	197	$	13	$	19,787

Impaired loans	$	9,601	$	3,223	$	699	$	22	$	—	$	13,545
Non-impaired loans		965,577		647,098		200,271		4,228		—		1,817,174
Impaired loans acquired with deteriorated credit quality		4,791		1,770		370		—		—		6,931
Total loans	$	979,969	$	652,091	$	201,340	$	4,250	$	—	$	1,837,650

Past Due and Nonaccrual 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		Nonaccrual Loans
	(In thousands)
March 31, 2022
Commercial real estate	$	301	$	—	$	436	$	737	$	1,038,750	$	1,039,487	$	660
Residential real estate:
Residential		561		270		853		1,684		562,655		564,339		2,846
Home equity		230		—		88		318		99,847		100,165		112
Commercial and industrial		42		—		24		66		209,824		209,890		370
Consumer		3		—		—		3		4,249		4,252		—
Total loans	$	1,137	$	270	$	1,401	$	2,808	$	1,915,325	$	1,918,133	$	3,988

December 31, 2021
Commercial real estate	$	139	$	—	$	436	$	575	$	979,394	$	979,969	$	1,224
Residential real estate:
Residential		787		41		507		1,335		550,997		552,332		3,214
Home equity		57		5		63		125		99,634		99,759		94
Commercial and industrial		58		10		22		90		201,250		201,340		410
Consumer		5		—		11		16		4,234		4,250		22
Total loans	$	1,046	$	56	$	1,039	$	2,141	$	1,835,509	$	1,837,650	$	4,964

Impaired Loans.

The following is a summary of impaired loans by class:

							Three Months Ended
	At March 31, 2022						March 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired Loans ⁽¹⁾
Commercial real estate	$	13,762	$	14,907	$	—	$	14,078	$	53
Residential real estate:
Residential real estate		4,590		5,422		—		4,735		16
Home equity		130		153		—		121		1
Commercial and industrial		983		3,748		—		1,026		15
Consumer		—		—		—		11		—
Total impaired loans	$	19,465	$	24,230	$	—	$	19,971	$	85

							Three Months Ended
	At December 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	$	14,392	$	15,563	$	—	$	17,403	$	108
Residential rea estate:
Residential real estate		4,881		5,381		—		6,357		104
Home equity		112		136		—		143		4
Commercial and industrial		1,069		3,850		—		4,827		62
Consumer		22		37		—		26		—
Total impaired loans	$	20,476	$	24,967	$	—	$	28,756	$	278

⁽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 nonaccrual balances; however, not every loan on nonaccrual 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 nonaccrual status are applied to principal. There was no interest income recognized on nonaccrual impaired loans during the three months ended March 31, 2022 and March 31, 2021. 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, 2022 and 2021, we had not committed to lend any additional funds for loans that are classified as impaired. 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, 2022 and 2021 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. Nonperforming TDRs are included in nonperforming loans.

There were no loan modifications classified as TDRs during the three months ended March 31, 2022 and 2021. During the three months ended March 31, 2022 and 2021, 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, 2022 or 2021.

Loans Acquired with Deteriorated Credit Quality.

The following is a summary of loans acquired with deteriorated credit quality in the Chicopee acquisition.

	Contractual Required Payments Receivable			Cash Expected To Be Collected			Non- Accretable Discount			Accretable Yield			Loans Receivable
	(In thousands)
Balance at December 31, 2021	$	12,134		$	9,430		$	2,704		$	2,499		$	6,931
Collections		(669	)		(639	)		(30	)		(50	)		(589	)
Dispositions		(58	)		(58	)		—			(58	)		—
Balance at March 31, 2022	$	11,407		$	8,733		$	2,674		$	2,391		$	6,342

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. Nonperforming 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 loan 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, 2022
Pass (Rated 1 – 4)	$	973,892	$	560,425	$	99,891	$	199,763	$	4,232	$	1,838,203
Special Mention (Rated 5)		47,729		—		—		7,464		—		55,193
Substandard (Rated 6)		17,866		3,914		274		8,715		20		30,789
Total	$	1,039,487	$	564,339	$	100,165	$	215,942	$	4,252	$	1,924,185


December 31, 2021
Pass (Rated 1 – 4)	$	913,063	$	547,980	$	99,503	$	215,605	$	4,228	$	1,780,379
Special Mention (Rated 5)		48,765		—		—		2,777		—		51,542
Substandard (Rated 6)		18,141		4,352		256		8,287		22		31,058
Total	$	979,969	$	552,332	$	99,759	$	226,669	$	4,250	$	1,862,979

6. GOODWILL AND OTHER INTANGIBLES

Goodwill.

At March 31, 2022 and December 31, 2021, 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, 2022 or the year ended December 31, 2021. 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 $94,000 for the three months ended March 31, 2022 and $93,000 for the three months ended March 31, 2021. At March 31, 2022, future amortization of the core deposit intangible totaled $375,000 for each of the next five years and $594,000 thereafter.

7. SHARE-BASED COMPENSATION

Stock Options.

A summary of stock option activity for the three months ended March 31, 2022 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)

Outstanding at December 31, 2021		177,881		$	6.57		0.81	$	388
Exercised		(80,881	)		6.29		0.43		211
Outstanding at March 31, 2022		97,000		$	6.80		0.81	$	206

Exercisable at March 31, 2022		97,000		$	6.80		0.81	$	206

Cash received for options exercised during the three months ended March 31, 2022 and 2021 was $510,000 and $113,000, respectively.

Restricted Stock Awards.

In May 2014, the Company’s shareholders approved the 2014 Omnibus Incentive Plan, a stock-based compensation plan (the “2014 RSA Plan”). Under the 2014 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 were available for future issuance under the 2014 RSA Plan.

On an annual basis, the Compensation Committee (the “Committee”) approves long-term incentive awards out of the 2014 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 February 2019, 108,718 shares were 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). As of December 31, 2021, the three-year performance period for the 2019 grants ended. The 2019 long term incentive plan included a “catch-up” provision allowing unearned performance-based shares from the 2019 and 2020 performance periods to be earned at the end of the three-year period based on the final year performance. Of the original 44,222 performance-based shares granted in 2019, 40,003 shares were eligible for vesting based on achieving target. Because of the “catch-up” provision within the plan, 60,009 performance-based shares vested and were issued to eligible recipients in February 2022 based on achieving stretch for each performance period.

In February 2020, 120,053 shares were 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-based shares vesting for each performance metric. The primary performance metrics for the 2020 grants are 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, 19,827 shares were granted to our directors, with a one-year vesting period. At December 31, 2021, there were no remaining shares available to grant under the 2014 RSA Plan.

In May 2021, the Company’s shareholders approved the 2021 Omnibus Incentive Plan, a stock-based compensation plan (the “2021 RSA Plan”). Under the 2021 RSA Plan, up to 700,000 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 the Company. Any shares that are not issued because vesting requirements are not met will be available for future issuance under the 2021 RSA Plan.

In May 2021, 122,362 shares were granted. Of the 122,362 shares, 61,181 shares were time-based, vesting ratably over a three-year period. The remaining 61,181 shares granted are performance-based and are subject to the achievement of the 2021 long-term incentive performance metrics, with 50% of the performance-based shares vesting for each performance metric. The primary performance metrics for the 2021 grants are 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 2021 grants are as follows:


	Return on Equity Metrics
Performance Period Ending	Threshold			Target			Stretch

December 31, 2021		5.63	%		6.25	%		7.50	%
December 31, 2022		5.85	%		6.50	%		7.80	%
December 31, 2023		6.08	%		6.75	%		8.10	%


	Earnings Per Share Metrics
Performance Period Ending	Threshold		Target		Stretch

Three-year Cumulative Diluted Earnings Per Share	$	1.58	$	1.97	$	2.36

In March 2022, 137,151 shares were granted. Of the 137,151 shares, 77,463 shares were time-based, with 17,775 vesting in one year and 59,688 vesting ratably over a three-year period. The remaining 59,688 shares granted are performance-based and are subject to the achievement of the 2022 long-term incentive performance metrics, with 50% of the performance-based shares vesting for each performance metric. The primary performance metrics for the 2022 grants are 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 2022 grants are as follows:


	Return on Equity Metrics
Performance Period Ending	Threshold			Target			Stretch

December 31, 2022		7.79	%		8.20	%		8.61	%
December 31, 2023		7.93	%		8.35	%		8.77	%
December 31, 2024		8.03	%		8.45	%		8.87	%


	Earnings Per Share Metrics
Performance Period Ending	Threshold		Target		Stretch

Three-year Cumulative Diluted Earnings Per Share	$	2.35	$	2.61	$	2.85

At March 31, 2022, there were 440,487 remaining shares available to grant under the 2021 RSA Plan.

A summary of the status of restricted stock awards at March 31, 2022 and 2021 is presented below:

	Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2021		213,381		$	8.91
Shares granted		144,440			9.14
Shares forfeited		(6,651	)		8.66
Shares vested		(60,009	)		9.77
Balance at March 31, 2022		291,161		$	8.85

	Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2020		178,766		$	9.63
Shares granted		19,827			8.17
Shares forfeited		(19,154	)		11.05
Shares vested		(27,727	)		9.81
Balance at March 31, 2021		151,712		$	9.23

We recorded total expense for restricted stock awards of $301,000 and $231,000 for the three months ended March 31, 2022 and 2021, 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, 2022, the Bank had $464.1 million in additional borrowing capacity from the FHLB.

The Company also has an available overnight Ideal Way line of credit with the FHLB of $9.5 million as of March 31, 2022. 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. As of March 31, 2022 and December 31, 2021, there were no advances outstanding under this line.

The Company has an available line of credit of $5.7 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, 2022 and December 31, 2021, 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. As of March 31, 2022 and December 31, 2021, there were 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, 2022, we had $1.7 million in long-term debt with the FHLB, compared to $2.7 million in long-term debt with the FHLB at December 31, 2021.

9. SUBORDINATED DEBT

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.

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 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.

The Notes are presented net of issuance costs of $357,000 as of March 31, 2022, which is being amortized into interest expense over the life of the Notes. Amortization of issuance costs into interest expense was $10,000 for the three months ended March 31, 2022.

10. 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 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 Plan’s actuaries. We have not yet determined how much we expect to contribute to the Plan in 2022. No contributions have been made to the Plan for the three months ended March 31, 2022. The Plan’s 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 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,
	2022			2021
	(In thousands)
Service cost	$	334		$	454
Interest cost		313			295
Expected return on assets		(427	)		(439	)
Amortization of actuarial loss		158			234
Net periodic pension cost	$	378		$	544

11. 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, 2022 and December 31, 2021:

March 31, 2022	Notional		Weighted Average		Weighted Average Rate						Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Non-hedging derivatives:
Loan-level swaps – dealer counterparties	$	15,951		10.9		2.13	%		3.76	%	$	449
Loan-level swaps – borrower counterparties		15,951		10.9		3.76	%		2.13	%		(449	)
Forward starting loan-level swaps - dealer counterparties		22,390		10.3								2,363
Forward starting loan-level swaps - borrower counterparties		22,390		10.3								(2,363	)
Total	$	76,682									$	0

December 31, 2021	Notional		Weighted Average		Weighted Average Rate						Fair
	Amount		Maturity		Receive			Pay			Value
	(In thousands)		(In years)								(In thousands)
Non-hedging derivatives:
Loan-level swaps – dealer counterparties	$	16,023		11.1		1.99	%		3.76	%	$	(662	)
Loan-level swaps – borrower counterparties		16,023		11.1		3.76	%		1.99	%		662
Forward starting loan-level swaps - dealer counterparties		22,390		10.5								1,030
Forward starting loan-level swaps - borrower counterparties		22,390		10.5								(1,030	)
Total	$	76,826									$	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 these objectives, 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 not designated as hedging instruments as well as our classification on the balance sheet as of March 31, 2022 and December 31, 2021.

March 31, 2022	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 borrower counterparties		$	0		$	2,812
Interest rate swap – with dealer counterparties			2,812			0
Total derivatives not designated as hedging instruments	Other Assets	$	2,812	Other Liabilities	$	2,812

December 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 borrower counterparties		$	662		$	1,030
Interest rate swap – with dealer counterparties			1,030			662
Total derivatives not designated as hedging instruments	Other Assets	$	1,692	Other Liabilities	$	1,692

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

There were gains or losses recognized in accumulated other comprehensive income during the three months ended March 31, 2021 or 2020.

Amounts reported in accumulated other comprehensive loss related to cash flow hedge 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,

	2022		2021

Interest rate swaps	$	0	$	140

As of December 31, 2021, the Company no longer has any outstanding cash flow hedges.

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, 2022, we had minimum collateral posting thresholds with certain of our derivative counterparties. As of March 31, 2022, we were not required to post collateral under these agreements because we did not have any derivatives in a liability position with those counterparties.

12. 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 and U.S. Treasury 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, 2022
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	173,910	$	—	$	173,910
Marketable equity securities		11,643		—		—		11,643
Interest rate swaps		—		2,812		—		2,812
Total assets	$	11,643	$	176,722	$	—	$	188,365

Liabilities:
Interest rate swaps	$	—	$	2,812	$	—	$	2,812


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Securities available-for-sale	$	—	$	194,352	$	—	$	194,352
Marketable equity securities		11,896		—		—		11,896
Interest rate swaps		—		1,692		—		1,692
Total assets	$	11,896	$	196,044	$	—	$	207,940

Liabilities:
Interest rate swaps	$	—	$	1,692	$	—	$	1,692

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, 2022 or 2021.

Summary of Fair Values of Financial Instruments.

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


	March 31, 2022
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	62,898	$	62,898	$	—	$	—	$	62,898
Securities held-to-maturity		237,575		9,520		210,759		—		220,279
Securities available-for-sale		173,910		—		173,910		—		173,910
Marketable equity securities		11,643		11,643		—		—		11,643
Federal Home Loan Bank of Boston and other restricted stock		2,594		—		—		2,594		2,594
Loans - net		1,906,977		—		—		1,882,419		1,882,419
Accrued interest receivable		7,723		—		—		7,723		7,723
Mortgage servicing rights		659		—		813		—		813
Derivative asset		2,812		—		2,812		—		2,812

Liabilities:
Deposits		2,278,164		—		—		2,275,572		2,275,572
Long-term debt		21,329		—		21,835		—		21,835
Accrued interest payable		168		—		—		168		168
Derivative liabilities		2,812		—		2,812		—		2,812


	December 31, 2021
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	103,456	$	103,456	$	—	$	—	$	103,456
Securities held-to-maturity		222,272		9,973		209,775		—		219,748
Securities available-for-sale		194,352		—		194,352		—		194,352
Marketable equity securities		11,896		11,896		—		—		11,896
Federal Home Loan Bank of Boston and other restricted stock		2,594		—		—		2,594		2,594
Loans - net		1,844,929		—		—		1,838,045		1,838,045
Accrued interest receivable		7,775		—		—		7,775		7,775
Mortgage servicing rights		693		—		739		—		739
Derivative asset		1,692		—		1,692		—		1,692

Liabilities:
Deposits		2,256,898		—		—		2,256,834		2,256,834
Long-term debt		22,286		—		23,099		—		23,099
Accrued interest payable		191		—		—		191		191
Derivative liabilities		1,692		—		1,692		—		1,692

13. 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.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview.

We strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. Historically, we have been a community-oriented provider of traditional banking products and services to business organizations and individuals, including products such as residential and commercial real estate loans, commercial and industrial loans, consumer loans and a variety of deposit products. We meet the needs of our local community through a community-based and service-oriented approach to banking.

We have adopted a growth-oriented strategy that continues to focus on increasing commercial lending and residential lending. Our strategy also calls for increasing deposit relationships, specifically core deposits, 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 book value and tangible book value per share, 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, 2022 in the context of this strategy.

●

Net income was $5.3 million, or $0.24 per diluted share, for the three months ended March 31, 2022, compared to $5.8 million, or $0.24 per diluted share, for the same period in 2021.

●

Net interest income increased $672,000, or 3.7%, to $18.7 million, for the three months ended March 31, 2022, from $18.0 million for the three months ended March 31, 2021. The increase in net interest income was due to a decrease in interest expense of $762,000, or 38.0%, primary due to a $742,000, or 42.8%, decrease in interest expense on deposits.

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, 2022. 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 2021 Annual Report.

RECENT DEVELOPMENTS: CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.

The Company continues to monitor COVID-19’s impact on its business and customers, however, the extent to which COVID-19 will continue to 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.

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, 2022, the Company received funding approval from the SBA for 2,146 applications totaling $302.2 million. As of March 31, 2022, the Company processed 2,093 PPP loan forgiveness applications totaling $296.1 million. Total PPP loans decreased $19.3 million, or 76.3%, from $25.3 million at December 31, 2021 to $6.1 million at March 31, 2022.

During the three months ended March 31, 2022, the Company recognized $562,000 in PPP income, compared to $2.4 million during the three months ended March 31, 2021. As of March 31, 2022, the Company had $255,000 in remaining deferred PPP loan processing fees.

The table below breaks out the PPP income recognized for the periods noted:

	For the Three Months Ended
	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
	($ in thousands)

PPP origination fee income	$	526	$	868	$	1,556	$	1,240	$	1,999
PPP interest income		36		105		201		387		412
Total PPP Income	$	562	$	973	$	1,757	$	1,627	$	2,411

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 60^th day after the end of the COVID-19 national emergency.

The Company implemented a modification deferral program under the CARES Act, which allowed residential, commercial and consumer borrowers who were adversely affected by the COVID-19 pandemic, to defer loan payments for a set period of time. As of March 31, 2022, the Company had two remaining commercial real estate loans, with an outstanding principal balance of $12.1 million, under CARES Act modification. The two borrowers were granted a principal deferral under the Company’s modification deferral program, but continue to make their interest and real estate tax payments. There were no outstanding deferrals related to residential and consumer loans under CARES modification as of March 31, 2022.

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. The ongoing COVID-19 pandemic could cause us to experience higher credit losses in our lending portfolio, reduce demand for our products and services and other negative impacts on our financial position, results of operations and prospects. As of March 31, 2022, the Company’s delinquency and nonperforming assets have not been materially impacted by the COVID-19 pandemic, and therefore, have not resulted in material credit losses within the lending portfolio.

The Company is continuing to monitor COVID-19’s impact on its business and its customers, however, the extent to which COVID-19 will further 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, 2022 AND DECEMBER 31, 2021

At March 31, 2022, total assets were $2.6 billion, an increase of $17.0 million, or 0.7%, from December 31, 2021. During the three months ended March 31, 2022, cash and cash equivalents decreased $40.6 million, or 39.2%, to $62.9 million, investment securities decreased $5.4 million, or 1.3%, to $423.1 million and total loans, excluding PPP loans, increased $80.8 million, or 4.4%, to $1.9 billion.

At March 31, 2022, the Company’s available-for-sale securities portfolio decreased $20.4 million, or 10.5%, from $194.4 million at December 31, 2021 to $173.9 million at March 31, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $15.3 million, or 6.9%, from $222.3 million at December 31, 2021 to $237.6 million at March 31, 2022. The Company allocated a portion of its excess liquidity to the investment portfolio as an alternative to cash and cash equivalents. This shift from overnight investments to held-to-maturity securities will assist the Company with managing the yield on interest-earning assets in the low interest rate environment that we are experiencing while providing ongoing cash flows from payments and pay downs. The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal.

At March 31, 2022, total loans were $1.9 billion, an increase of $61.6 million, or 3.3%, from December 31, 2021. Excluding PPP loans, total loans increased $80.8 million, or 4.4%, driven by an increase in commercial real estate loans of $59.5 million, or 6.1%, partially offset by a decrease in total commercial and industrial loans of $10.7 million, or 4.7%. Excluding a decrease of $19.3 million in PPP loans from December 31, 2021, commercial and industrial loans increased $8.6 million, or 4.2%, at March 31, 2022. Residential real estate loans, which include home equity loans, increased $12.4 million, or 1.9%. In accordance with the Company’s asset/liability management strategy, during the three months ended March 31, 2022, the Company sold $277,000 of fixed rate, low coupon residential real estate loans to the secondary market. As of March 31, 2022, the Company serviced $85.5 million in loans sold to the secondary market, compared to $88.2 million at December 31, 2021. Servicing rights will continue to be retained on all loans written and sold to the secondary market.

All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $60,000 and $80,000 for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, nonperforming loans totaled $4.0 million, or 0.21% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. At March 31, 2022, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets, was 0.16% at March 31, 2022, compared to 0.20% at December 31, 2021. The allowance for loan losses as a percentage of total loans, was 1.00% at March 31, 2022, compared to 1.06% at December 31, 2021. At March 31, 2022, the allowance for loan losses as a percentage of nonperforming loans was 484.2%, compared to 398.6%, at December 31, 2021. A summary of our past due and nonaccrual loans by class are listed in Note 5 of the accompanying unaudited consolidated financial statements.

At March 31, 2022, total deposits were $2.3 billion, an increase of $21.3 million, or 0.9%, from December 31, 2021, primarily due to an increase in core deposits of $44.2 million, or 2.4%. Core deposits, which the Company defines as all deposits except time deposits, increased to $1.9 billion and were 83.4% and 82.2% of total deposits at March 31, 2022 and December 31, 2021, respectively. Non-interest-bearing deposits decreased $11.1 million, or 1.7%, to $630.2 million, interest-bearing checking accounts decreased $6.4 million, or 4.4%, to $139.3 million, savings accounts increased $7.0 million, or 3.2%, to $224.6 million, and money market accounts increased $54.7 million, or 6.4%, to $905.1 million. Time deposits decreased $23.0 million, or 5.7%, from $402.0 million at December 31, 2021 to $379.0 million at March 31, 2022. The Company did not have any brokered deposits at March 31, 2022 or December 31, 2021.

At March 31, 2022, total borrowings decreased $1.0 million, or 4.5%, from $22.3 million at December 31, 2021, to $21.3 million. FHLB advances decreased $1.0 million, or 36.5%, to $1.7 million and subordinated debt outstanding totaled $19.6 million at March 31, 2022 and at December 31, 2021.

At March 31, 2022, shareholders’ equity was $219.1 million, or 8.6% of total assets, compared to $223.7 million, or 8.8% of total assets, at December 31, 2021. The decrease in shareholders’ equity reflects $1.2 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $1.3 million and an increase in accumulated other comprehensive loss of $8.4 million, partially offset by net income of $5.3 million. Total shares outstanding as of March 31, 2022 were 22,742,189.

The Company’s book value per share was $9.63 at March 31, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measurement, decreased $0.24, or 2.6%, from $9.21 at December 31, 2021 to $8.97 at March 31, 2022. AOCI reduced the tangible book value per common share by $0.37 as of March 31, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities. As of March 31, 2022, 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. See “Explanation of Use of Non-GAAP Financial Measurements” for more information regarding our uses of non-GAAP financial measurements.

The Company’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements and internal target minimal levels. At March 31, 2022, the Company’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 8.9%, 11.9%, and 14.0%, respectively, and the Bank’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.1%, 12.1%, and 13.1%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 6.5%, and 10.00%, respectively.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021

General.

Net income was $5.3 million, or $0.24 per diluted share, for the three months ended March 31, 2022, compared to $5.8 million, or $0.24 per diluted share, for the same period in 2021. Net interest income was $18.7 million and $18.0 million for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing annualized interest income by the average balance of interest-earning assets and annualized interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.

	Three Months Ended March 31,
	2022								2021
	Average					Average Yield/			Average					Average Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans⁽¹⁾⁽²⁾	$	1,894,870	$	18,067			3.87	%	$	1,923,477	$	19,220			4.05	%
Securities⁽²⁾		423,437		1,950			1.87			227,330		854			1.52
Other investments - at cost		10,595		25			0.96			9,663		35			1.47
Short-term investments⁽³⁾		57,030		21			0.15			95,004		24			0.10
Total interest-earning assets		2,385,932		20,063			3.41			2,255,474		20,133			3.62
Total non-interest-earning assets		143,635								144,588
Total assets	$	2,529,567							$	2,400,062

LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	132,192		95			0.29	%	$	90,503	$	105			0.47	%
Savings accounts		218,448		36			0.07			187,217		37			0.08
Money market accounts		878,393		521			0.24			675,662		653			0.39
Time deposits		389,063		340			0.35			567,102		939			0.67
Total interest-bearing deposits		1,618,096		992			0.25			1,520,484		1,734			0.46
Short-term borrowings and long-term debt		21,975		253			4.67			52,670		273			2.10
Interest-bearing liabilities		1,640,071		1,245			0.31			1,573,154		2,007			0.52
Non-interest-bearing deposits		633,082								561,581
Other non-interest-bearing liabilities		32,857								38,360
Total non-interest-bearing liabilities		665,939								599,941

Total liabilities		2,306,010								2,173,095
Total equity		223,557								226,967
Total liabilities and equity	$	2,529,567							$	2,400,062
Less: Tax-equivalent adjustment⁽²⁾				(120	)							(100	)
Net interest and dividend income			$	18,698							$	18,026
Net interest rate spread⁽⁴⁾							3.08	%							3.08	%
Net interest rate spread, on a tax equivalent basis⁽⁵⁾							3.10	%							3.10	%
Net interest margin⁽⁶⁾							3.18	%							3.24	%
Net interest margin, on a tax equivalent basis⁽⁷⁾							3.20	%							3.26	%
Ratio of average interest-earning assets to average interest-bearing liabilities							145.48	%							143.37	%

(1)

Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.

(2)

Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income.

(3)

Short-term investments include federal funds sold.

(4)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(5)

Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities.

(6)

Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets.

(7)

Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements”.

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, 2022 compared to Three Months Ended March 31, 2021
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(In thousands)
Loans ⁽¹⁾	$	(286	)	$	(867	)	$	(1,153	)
Securities ⁽¹⁾		737			359			1,096
Other investments - at cost		3			(13	)		(10	)
Short-term investments		(10	)		7			(3	)
Total interest-earning assets		444			(514	)		(70	)

Interest-bearing liabilities
Interest-bearing checking accounts		48			(58	)		(10	)
Savings accounts		6			(7	)		(1	)
Money market accounts		196			(328	)		(132	)
Time deposits		(295	)		(304	)		(599	)
Short-term borrowing and long-time debt		(159	)		139			(20	)
Total interest-bearing liabilities		(204	)		(558	)		(762	)
Change in net interest and dividend income ⁽¹⁾	$	648		$	44		$	692

(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 $672,000, or 3.7%, to $18.7 million for the three months ended March 31, 2022, from $18.0 million for the three months ended March 31, 2021. The increase in net interest income was due to a decrease in interest expense of $762,000, or 38.0%, primary due to a $742,000, or 42.8%, decrease in interest expense on deposits. Excluding PPP income, interest income increased $1.8 million, or 10.0%, from the three months ended March 31, 2021 to the three months ended March 31, 2022 primarily due to higher investment and loan income.

Net interest income for the three months ended March 31, 2022 included PPP income of $562,000, compared to $2.4 million for the three months ended March 31, 2021. During the three months ended March 31, 2022 interest income included $39,000 in positive purchase accounting adjustments, compared to $45,000 in negative purchase accounting adjustments during the three months ended March 31, 2021. Net interest income as adjusted for the preceding items increased $2.4 million, or 15.6%, from $15.7 million during the three months ended March 31, 2021, to $18.1 million during the three months ended March 31, 2022.

The net interest margin was 3.18% for the three months ended March 31, 2022, compared to 3.24%, for the three months ended March 31, 2021. The net interest margin, on a tax-equivalent basis, was 3.20% for the three months ended March 31, 2022, compared to 3.26% for the three months ended March 31, 2021. Excluding the adjustments discussed above, the net interest margin increased six basis points from 3.04% for the three months ended March 31, 2021 to 3.10% for the three months ended March 31, 2022. The Company’s net interest margin was positively impacted by higher average balances for loans and securities and a decrease in lower yielding interest-earning assets.

The loan yield decreased 19 basis points from 4.03% for the three months ended March 31, 2021 to 3.84% for the three months ended March 31, 2022. Excluding PPP loans and purchase accounting adjustments, the average loan yield decreased 13 basis points from 3.87% for the three months ended March 31, 2021 to 3.74% for the three months ended March 31, 2022. The average yield on interest-earning assets decreased 21 basis points from 3.60% for the three months ended March 31, 2021 to 3.39% for the three months ended March 31, 2022.

During the three months ended March 31, 2022, average interest-earning assets increased $130.5 million, or 5.8%, to $2.4 billion compared to the three months ended March 31, 2021. The increase was primarily due to an increase in average securities of $197.0 million, or 83.1%. Excluding the $151 million decrease in average PPP loans, average loans increased $122.9 million, or 7.0%, from the three months ended March 31, 2021 to the three months ended March 31, 2022. Total average loans, excluding average PPP loans, were 78.8% of total average interest-earning assets for the three months ended March 31, 2022, compared to 77.9% for the three months ended March 31, 2021.

During the three months ended March 31, 2022, the average cost of funds, including non-interest bearing demand accounts and borrowings, decreased 16 basis points, from 0.38% for the three months ended March 31, 2021 to 0.22% for the three months ended March 31, 2022. The average cost of core deposits, including non-interest bearing demand deposits, decreased 7 basis points from 0.21% for the three months ended March 31, 2021 to 0.14% for the three months ended March 31, 2022. The average cost of time deposits decreased 32 basis points from 0.67% for the three months ended March 31, 2021 to 0.35% for the three months ended March 31, 2022, while the average cost of borrowings increased from 2.10% for the three months ended March 31, 2021 to 4.67% for the three months ended March 31, 2022. Average demand deposits, an interest-free source of funds, increased $71.5 million, or 12.7%, from $561.6 million, or 27.0% of total average deposits, for the three months ended March 31, 2021 to $633.1 million, or 28.1%, of total average deposits, for the three months ended March 31, 2022.

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 $500,000, from a provision for loan losses of $75,000 for the three months ended March 31, 2021 to a credit for loan losses of $425,000 for the three months ended March 31, 2022. The Company recorded net charge-offs of $54,000 for the three months ended March 31, 2022, as compared to net charge-offs of $5,000 for the three months ended March 31, 2021. The decrease in the provision versus comparative periods reflected management’s current assessment of the impact of the COVID-19 pandemic on the Bank’s loan portfolio. Management continues to assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic, economic trends and their potential effect on asset quality. As of March 31, 2022, 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 decreased $656,000, or 21.8%, to $2.3 million for the three months ended March 31, 2022, from $3.0 million for the three months ended March 31, 2021. The three months ended March 31, 2021, included a gain on non-marketable equity investments of $546,000. Service charges and fees on deposits increased $291,000, or 15.5%, and income from bank-owned life insurance increased $7,000, or 1.6%, from $441,000 for the three months ended March 31, 2021 to $448,000, for the three months ended March 31, 2022. Income from mortgage banking activities decreased $225,000, or 99.1%, and other income decreased $54,000. During the three months ended March 31, 2022, unrealized losses on marketable equity securities were $276,000, compared to unrealized losses of $89,000 during the three months ended March 31, 2021. During the three months ended March 31, 2022, the Company reported realized losses on the sale of securities of $4,000, compared to realized losses of $62,000 during the three months ended March 31, 2021.

Non-Interest Expense.

For the three months ended March 31, 2022, non-interest expense increased $1.1 million, or 8.5%, to $14.5 million from $13.3 million, for the three months ended March 31, 2021. Salaries and employee benefits expense increased $638,000, or 8.4%, to $8.2 million, primarily due to annual merit increases and benefit costs. Other non-interest expense increased $280,000, or 13.7%, occupancy expense increased $74,000, or 5.7%, furniture and equipment increased $53,000, or 10.8%, professional fees increased $33,000, or 6.1%, advertising expenses increased $61,000, or 18.0%, and data processing related expenses increased $2,000, or 0.3%. FDIC insurance expense decreased $12,000, or 4.0%. The efficiency ratio was 68.7% for the three months ended March 31, 2022, compared to 63.4% for the three months ended March 31, 2021. The adjusted efficiency ratio, a non-GAAP financial measure, was 67.8% for the three months ended March 31, 2022, compared to 64.6% for the three months ended March 31, 2021. The adjusted efficiency ratio is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Taxes.

Income tax expense for the three months ended March 31, 2022 was $1.7 million, or an effective tax rate of 24.2%, compared to $1.8 million, or an effective tax rate of 24.1%, for the three months ended March 31, 2021.

Explanation of Use of Non-GAAP Financial Measurements.

We believe that it is common practice in the banking industry to present interest income and related yield information on tax-exempt loans and securities on a tax-equivalent basis, as well as presenting tangible book value per share and adjusted efficiency ratio, and that such information is useful to investors because it facilitates comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities to a tax-equivalent amount, as well as the presentation of tangible book value per share and adjusted efficiency ratio, may be considered to include financial information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.

	Three Months Ended
	March 31, 2022						December 31, 2021						March 31, 2021
	(Dollars in thousands)
				Average Yield						Average Yield						Average Yield
Loans (no tax adjustment)	$	17,947			3.84	%	$	18,089			3.88	%	$	19,120			4.03	%
Tax-equivalent adjustment ⁽¹⁾		120						108						100
Loans (tax-equivalent basis)	$	18,067			3.87	%	$	18,197			3.90	%	$	19,220			4.05	%

Securities (no tax adjustment)	$	1,950			1.87	%	$	1,763					$	854			1.52	%
Tax-equivalent adjustment ⁽¹⁾		—						1						—
Securities (tax-equivalent basis)	$	1,950			1.87	%	$	1,764			1.74	%	$	854			1.52	%

Net interest income (no tax adjustment)	$	18,698					$	18,582					$	18,026
Tax-equivalent adjustment ⁽¹⁾		120						109						100
Net interest income (tax-equivalent basis)	$	18,818					$	18,691					$	18,126

Interest rate spread (no tax adjustment)		3.08	%					2.97	%					3.08	%
Net interest margin (no tax adjustment)		3.18	%					3.08	%					3.24	%
Net interest margin (tax-equivalent)		3.20	%					3.10	%					3.26	%


Net interest income (no tax adjustment)	$	18,698					$	18,582					$	18,026
Less:
Purchase accounting adjustments		39						(31	)					(45	)
Prepayment penalties and fees		21						21						35
PPP fee income		562						973						2,411
Adjusted net interest income (non-GAAP)	$	18,076					$	17,619					$	15,625

Average interest-earning assets	$	2,385,932					$	2,394,397					$	2,255,474
Average interest-earnings asset, excluding average PPP loans	$	2,370,852					$	2,352,858					$	2,088,910

Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income, prepayment penalties and average PPP loans (non-GAAP)		3.10	%					2.97	%					3.04	%

Book Value per Share (GAAP)	$	9.63					$	9.87					$	9.07
Non-GAAP adjustments:
Goodwill		(0.55	)					(0.55	)					(0.51	)
Core deposit intangible		(0.11	)					(0.11	)					(0.12	)
Tangible Book Value per Share (non-GAAP)	$	8.97					$	9.21					$	8.44

Income Before Income Taxes (GAAP)	$	7,015					$	8,215					$	7,628
(Credit) provision for loan losses		(425	)					300						75
Income Before Taxes and Provision (non-GAAP)	$	6,590					$	8,515					$	7,703

	Three Months Ended
	March 31, 2022			December 31, 2021			March 31, 2021
	(Dollars in thousands)

Efficiency Ratio:
Non-interest Expense (GAAP)	$	14,456		$	13,923		$	13,327

Net Interest Income (GAAP)	$	18,698		$	18,582		$	18,026

Non-interest Income (GAAP)	$	2,348		$	3,856		$	3,004
Non-GAAP adjustments:
Bank-owned life insurance death benefit		—			(555	)		—
Loss on securities, net		4			—			62
Unrealized loss on marketable equity securities		276			96			89
Gain on non-marketable equity investments		—			(352	)		(546	)
Non-interest Income for Adjusted Efficiency Ratio (non-GAAP)	$	2,628		$	3,045		$	2,609
Total Revenue for Adjusted Efficiency Ratio (non-GAAP)	$	21,326		$	21,627		$	20,635

Efficiency Ratio (GAAP)		68.69	%		62.05	%		63.37	%
Adjusted Efficiency Ratio (Non-interest Expense (GAAP)/Total Revenue for Adjusted Efficiency Ratio (non-GAAP))		67.79	%		64.38	%		64.58	%

(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. Our material cash commitments include funding loan originations, fulfilling contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and satisfying repayment of our long-term debt obligations.

Primary Sources of Liquidity

At March 31, 2022 and December 31, 2021, outstanding borrowings from the FHLB were $1.7 million and $2.7 million, respectively. At March 31, 2022, we had $464.1 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, 2022 and December 31, 2021, we did not have an outstanding balance under either of these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral.

We also have outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.

Maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

The Company’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. During the three months ended March 31, 2022 and 2021, we originated $149.4 million and $108.3 million in loans, respectively. We purchased securities totaling $20.6 million for the three months ended March 31, 2022 and $79.8 million for the three months ended March 31, 2021. At March 31, 2022, the Company had approximately $206.8 million in loan commitments and letters of credit to borrowers and approximately $320.8 million in available home equity and other unadvanced lines of credit.

Deposit in flows and out flows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At March 31, 2022, time deposit accounts scheduled to mature within one year totaled $330.7 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.

Material Cash Commitments

The Company entered into a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of March 31, 2022 were estimated to be $13.1 million, with $4.5 million expected to be paid within one year and the remaining $8.6 million to be paid within the next five years. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to seventeen years, some of which include options to extend the leases for additional five-year terms up to fifteen years. Lease liabilities totaled $10.1 million as of March 31, 2022. Principal payments expected to be made on our lease liabilities during the twelve months ended March 31, 2023 are $1.4 million. The remaining lease liability payments totaled $8.7 million and are expected to be made after March 31, 2023.

In addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating rate subordinated Notes to certain qualified institutional buyers in a private placement transaction on April 20, 2021. Unless earlier redeemed, the Notes mature on May 1, 2031. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve.

We do not anticipate any material capital expenditures during the calendar year 2022, except in pursuance of the Company’s strategic initiatives. The Company does not have any balloon or other payments due on any long-term obligations or any off-balance sheet items other than the commitments and unused lines of credit noted above.

At March 31, 2022, we exceeded each of the applicable regulatory capital requirements. As of March 31, 2022, 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, 2022
Total Capital (to Risk Weighted Assets):
Consolidated	$	264,483		13.97	%	$	151,486		8.00	%		N/A		N/A
Bank		247,643		13.09			151,340		8.00		$	189,175		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		225,532		11.91			113,614		6.00			N/A		N/A
Bank		228,335		12.07			113,505		6.00			151,340		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated		225,532		11.91			85,211		4.50			N/A		N/A
Bank		228,335		12.07			85,129		4.50			122,964		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		225,532		8.94			100,931		4.00			N/A		N/A
Bank		228,335		9.07			100,720		4.00			125,900		5.00

December 31, 2021
Total Capital (to Risk Weighted Assets):
Consolidated	$	261,093		14.27	%	$	146,347		8.00	%		N/A		N/A
Bank		243,788		13.35			146,135		8.00		$	182,669		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		221,673		12.12			109,761		6.00			N/A		N/A
Bank		224,001		12.26			109,601		6.00			146,135		8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated		221,673		12.12			82,320		4.50			N/A		N/A
Bank		224,001		12.26			82,201		4.50			118,735		6.50
Tier 1 Leverage Ratio (to Adjusted Average Assets):
Consolidated		221,673		8.75			101,320		4.00			N/A		N/A
Bank		224,001		8.86			101,101		4.00			126,377		5.00

We also have outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows.

OFF-BALANCE SHEET ARRANGEMENTS.

The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that 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 our presentation in our 2021 Annual Report. Please refer to Item 7A of the 2021 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 2021 Annual Report. There are no material changes in the risk factors relevant to our operations since December 31, 2021.

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, 2022.

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, 2022		46,640		8.57		46,640		630,679
February 1 - 28, 2022		23,878		9.13		4,194		626,485
March 1 - 31, 2022		61,840		9.08		61,840		564,645
Total		132,358		8.91		112,674		564,645

(1)

On April 27, 2021, the Board of Directors authorized an additional stock repurchase plan under which the Company may purchase up to 2,400,000 shares, or 10%, of its outstanding common stock.

(2)

Repurchase of 19,684 shares related to tax obligations for shares of restricted stock that vested on February 24, 2022 under our 2019 LTI Recognition & Retention Plan. These repurchases were reported by each reporting person on February 28, 2022.

There were no sales by us of unregistered securities during the three months ended March 31, 2022.

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).

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, 2022, 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, 2022.

	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