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What changed in Western New England Bancorp, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Western New England Bancorp, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+455 added−372 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-10)

Top changes in Western New England Bancorp, Inc.'s 2023 10-K

455 paragraphs added · 372 removed · 268 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

123 edited+104 added−49 removed145 unchanged
Biggest changeYears Ended December 31, 2022 2021 (Dollars in thousands) Allowance for loan losses to total loans outstanding 1.00 % 1.06 % Allowance for loan losses $ 19,931 $ 19,787 Total loans outstanding $ 1,991,400 $ 1,864,716 Nonaccrual loans to total loans outstanding 0.29 % 0.27 % Nonaccrual loans $ 5,694 $ 4,964 Total loans outstanding $ 1,991,400 $ 1,864,716 Allowance for loan losses to nonaccrual loans 350.04 % 398.61 % Allowance for loan losses $ 19,931 $ 19,787 Nonaccrual loans $ 5,694 $ 4,964 Net charge-offs (recoveries) during the period to daily average loans outstanding: Residential one-to-four family recoveries to daily average loans outstanding (0.01 )% (0.01 )% Net recoveries during the period $ (30 ) $ (64 ) Average amount outstanding $ 576,502 $ 583,225 Commercial real estate charge-offs to daily average loans outstanding 0.03 % 0.01 % Net charge-offs during the period $ 337 $ 96 Average amount outstanding $ 1,052,345 $ 886,259 Commercial and industrial charge-offs to daily average loans outstanding 0.03 % 0.11 % Net charge-offs during the period $ 69 $ 343 Average amount outstanding $ 216,547 $ 312,000 Home equity charge-offs (recoveries) to daily average loans outstanding 0.03 % (0.01 )% Net charge-offs (recoveries) during the period $ 26 $ (9 ) Average amount outstanding $ 103,565 $ 101,697 Consumer charge-offs to daily average loans outstanding 3.37 % 1.66 % Net charge-offs during the period $ 154 $ 79 Average amount outstanding $ 4,568 $ 4,745 Total Loan Charge-offs to Daily Average Loans Outstanding 0.03 % 0.02 % Net charge-offs during the period $ 556 $ 445 Average amount outstanding $ 1,953,527 $ 1,887,926 13 Allowance for Loan Losses .
Biggest changeYears Ended December 31, 2023 2022 (1) (Dollars in thousands) Allowance for credit losses to total loans outstanding 1.00 % 1.00 % Allowance for credit losses $ 20,267 $ 19,931 Total loans outstanding $ 2,027,317 $ 1,991,400 Nonaccrual loans to total loans outstanding 0.32 % 0.29 % Nonaccrual loans $ 6,421 $ 5,694 Total loans outstanding $ 2,027,317 $ 1,991,400 Allowance for credit losses to nonaccrual loans 315.64 % 350.04 % Allowance for credit losses $ 20,267 $ 19,931 Nonaccrual loans $ 6,421 $ 5,694 Net charge-offs (recoveries) during the period to daily average loans outstanding: Residential one-to-four family recoveries to daily average loans outstanding 0.00 % (0.01 )% Net recoveries during the period $ (23 ) $ (30 ) Average amount outstanding $ 601,843 $ 576,502 Commercial real estate charge-offs to daily average loans outstanding 0.07 % 0.03 % Net charge-offs during the period $ 755 $ 337 Average amount outstanding $ 1,076,523 $ 1,052,345 Commercial and industrial charge-offs to daily average loans outstanding 0.57 % 0.03 % Net charge-offs during the period $ 1,213 $ 69 Average amount outstanding $ 213,903 $ 216,547 Home equity (recoveries) charge-offs to daily average loans outstanding 0.00 % 0.03 % Net (recoveries) charge-offs during the period $ (3 ) $ 26 Average amount outstanding $ 108,057 $ 103,565 Consumer charge-offs to daily average loans outstanding 1.66 % 3.37 % Net charge-offs during the period $ 97 $ 154 Average amount outstanding $ 5,840 $ 4,568 Total Loan Charge-offs to Daily Average Loans Outstanding 0.10 % 0.03 % Net charge-offs during the period $ 2,039 $ 556 Average amount outstanding $ 2,006,166 $ 1,953,527 (1) The Company adopted ASU 2016-13 on January 1, 2023 with a modified retrospective approach.
The Bank operates twenty-five banking offices in Agawam, Chicopee, Feeding Hills, East Longmeadow, Holyoke, Huntington, Ludlow, South Hadley, Southwick, Springfield, Ware, West Springfield and Westfield, Massachusetts and Bloomfield, Enfield, Granby and West Hartford, Connecticut. We operate full-service ATMs at our branch locations and have ten freestanding ATM locations in Chicopee, Holyoke, Ludlow, Southwick, Springfield, West Springfield and Westfield, Massachusetts.
The Bank operates twenty-five banking offices in Agawam, Chicopee, Feeding Hills, East Longmeadow, Holyoke, Huntington, Ludlow, South Hadley, Southwick, Springfield, Ware, West Springfield and Westfield, Massachusetts and Bloomfield, Enfield, Granby and West Hartford, Connecticut. We operate full-service ATMs at our branch locations and have ten freestanding ATM locations in Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts.
The risk matrix utilizes different risk categories which are distinguished by capital levels and supervisory ratings. As a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible equity. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed. 27 Depositor Preference.
The risk matrix utilizes different risk categories which are distinguished by capital levels and supervisory ratings. As a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible equity. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed. Depositor Preference.
Other legislation may be introduced in Congress, which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the financial regulatory framework. It is not possible to predict whether any such proposals will be enacted into law or, if enacted, the effect which they may have on our business and earnings. Available Information.
Other legislation may be introduced in Congress, which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the financial regulatory framework. It is not possible to predict whether any such proposals will be enacted into law or, if enacted, the effect which they may have on our business and earnings. 34 Available Information.
As Western New England Bancorp has less than $10 billion in total consolidated assets, the OCC continues to exercise primary examination authority over the Bank with regard to compliance with federal consumer financial laws and regulations. Under the Dodd-Frank Act, state attorneys general are empowered to enforce rules issued by the CFPB.
As Western New England Bancorp has less than $10 billion in total consolidated assets, the OCC continues to exercise primary examination authority over the Bank with regard to compliance with federal consumer financial laws and regulations. Under the Dodd-Frank Act, state attorneys general are also empowered to enforce rules issued by the CFPB.
In addition, certain assets are includable as “qualified thrift investments” in an amount up to 20% of portfolio assets, including certain consumer loans and loans in “credit-needy” areas. The Bank may also satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code.
In addition, certain assets are includable as “qualified thrift investments” in an amount up to 20% of portfolio assets, including certain consumer loans and loans in “credit-needy” areas. 30 The Bank may also satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code.
Westfield Investment Services representatives provide a broad range of wealth management, investment, insurance, financial planning and strategic asset management services, helping clients meet all of their financial needs. Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates.
Westfield Investment Services representatives provide a broad range of wealth management, investment, insurance, financial planning and strategic asset management services, helping clients meet all of their financial needs. 25 Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates.
During the course of their review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified assets. The Company’s internal residential origination and underwriting staff originate residential loans and are responsible for compliance with residential lending regulations, consumer protection and internal policy guidelines.
During the course of their review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified loans. The Company’s internal residential origination and underwriting staff originate residential loans and are responsible for compliance with residential lending regulations, consumer protection and internal policy guidelines.
Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without an OFAC license. Failure to comply with these sanctions could have legal and reputational consequences. Home Mortgage Disclosure Act (“HMDA”).
Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without an OFAC license. Failure to comply with these sanctions could have legal and reputational consequences. 33 Home Mortgage Disclosure Act (“HMDA”).
Such statutes, regulations, and policies are subject to ongoing review by Congress and state legislatures and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable to Western New England Bancorp and its subsidiaries could have a material effect on the results of the Company. 21 Overview.
Such statutes, regulations, and policies are subject to ongoing review by Congress and state legislatures and federal and state regulatory agencies. A change in any of the statutes, regulations, or regulatory policies applicable to Western New England Bancorp and its subsidiaries could have a material effect on the results of the Company. Overview.
These laws include, among others, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, various state law counterparts, and the Consumer Financial Protection Act of 2010. 26 Transactions with Affiliates and Loans to Insiders.
These laws include, among others, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, various state law counterparts, and the Consumer Financial Protection Act of 2010. Transactions with Affiliates and Loans to Insiders.
In general, these enforcement actions may be initiated in response to unsafe or unsound practices, and any violation of laws and regulations. Standards for Safety and Soundness. The Bank is subject to certain standards designed to maintain the safety and soundness of individual insured depository institutions and the banking system.
In general, these enforcement actions may be initiated in response to unsafe or unsound practices, and any violation of laws and regulations. 31 Standards for Safety and Soundness. The Bank is subject to certain standards designed to maintain the safety and soundness of individual insured depository institutions and the banking system.
A broad selection of competitive retail deposit products are also offered, including interest-bearing and noninterest-bearing checking, money market and savings accounts, as well as certificates of deposit and individual retirement accounts, with terms on time deposits ranging from three months to sixty months.
A broad selection of competitive retail deposit products are also offered, including interest-bearing and noninterest-bearing checking, money market and savings accounts, as well as time deposits and individual retirement accounts, with terms on time deposits ranging from three months to sixty months.
A change in any statute, regulation or policy applicable to Western New England Bancorp may have a material effect on the results of Western New England Bancorp and its subsidiaries. Federal Savings and Loan Holding Company Regulation. Western New England Bancorp is a savings and loan holding company as defined by the HOLA.
A change in any statute, regulation or policy applicable to Western New England Bancorp may have a material effect on the results of Western New England Bancorp and its subsidiaries. 26 Federal Savings and Loan Holding Company Regulation. Western New England Bancorp is a savings and loan holding company as defined by the HOLA.
At the 2012 and 2017 Annual Meeting of Shareholders, Western New England Bancorp’s shareholders voted on a non-binding, advisory basis to hold a non-binding, advisory vote on the compensation of named executive officers of Western New England Bancorp annually. In light of the results, the Western New England Bancorp Board of Directors determined to hold the vote annually.
At the 2012, 2017, and 2023 Annual Meeting of Shareholders, Western New England Bancorp’s shareholders voted on a non-binding, advisory basis to hold a non-binding, advisory vote on the compensation of named executive officers of Western New England Bancorp annually. In light of the results, the Western New England Bancorp Board of Directors determined to hold the vote annually.
The Company and the Bank evaluated the simplified Capital Rules to determine our adoption status for the applicable filings periods beginning in 2020 and decided not to opt in to the community bank leverage ratio framework. 24 Prompt Corrective Action.
The Company and the Bank evaluated the simplified Capital Rules to determine our adoption status for the applicable filings periods beginning in 2020 and decided not to opt in to the community bank leverage ratio framework. Prompt Corrective Action.
Our Hampden County market also enjoys a strong tourism business with attractions such as the Eastern States Exposition, which operates The Big E, the largest fair in the northeast, the Basketball Hall of Fame, MGM Springfield and Six Flags New England. Competition. The Bank faces significant competition to attract and retain customers within existing and neighboring geographic markets.
Our Hampden County market also enjoys a strong tourism business with attractions such as the Eastern States Exposition, which operates The Big E, the largest fair in the northeast, the Basketball Hall of Fame, MGM Springfield and Six Flags New England. Competition. The Company faces significant competition to attract and retain customers within existing and neighboring geographic markets.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2022, we were in compliance with these limitations on loans to one borrower. Concentrated Commercial Real Estate Lending Regulations.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2023, we were in compliance with these limitations on loans to one borrower. Concentrated Commercial Real Estate Lending Regulations.
In September 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC adopted a final rule that is intended to further simplify the Capital Rules for depository institutions and their holding companies that have less than $10 billion in total consolidated assets, such as us, if such institutions meet certain qualifying criteria.
In September 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC adopted a final rule that was intended to further simplify the Capital Rules for depository institutions and their holding companies that have less than $10 billion in total consolidated assets, such as us, if such institutions meet certain qualifying criteria.
The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans.
The following tables set forth the allowance for credit losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans.
The Company also has an overnight Ideal Way line of credit with the FHLB for $9.5 million. 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.
The Company also has an available overnight Ideal Way line of credit with the FHLB of $9.5 million. 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.
The Company’s internal investment policy sets limits as a percentage of the total portfolio, identifies acceptable and unacceptable investment practices, and denotes approved security dealers. The effect of changes in interest rates, market values, timing of principal payments and credit risk are considered when purchasing securities.
The Bank’s internal investment policy sets limits as a percentage of the total portfolio, identifies acceptable and unacceptable investment practices, and denotes approved security dealers. The effect of changes in interest rates, market values, timing of principal payments and credit risk are considered when purchasing securities.
The implementation of the Capital Rules did not have a material impact on the Company’s or the Bank’s consolidated capital levels. The Bank is subject to the Capital Rules as well. The Company and the Bank are each in compliance with the targeted capital ratios under the Capital Rules at December 31, 2022.
The implementation of the Capital Rules did not have a material impact on the Company’s or the Bank’s consolidated capital levels. The Bank is subject to the Capital Rules as well. The Company and the Bank are each in compliance with the targeted capital ratios under the Capital Rules at December 31, 2023.
The following table shows the repricing dates or contractual maturity dates of our loans as of December 31, 2022. The table does not reflect prepayments or scheduled principal amortization. Demand loans, loans having no stated maturity, and overdrafts are shown as due in within one year.
The following table shows the repricing dates or contractual maturity dates of our loans as of December 31, 2023. The table does not reflect prepayments or scheduled principal amortization. Demand loans, loans having no stated maturity, and overdrafts are shown as due in within one year.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Interest and Dividend Income” for information relating to the average balances and costs of our deposit accounts for the years ended December 31, 2022, 2021 and 2020. Cash Management Services.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Interest and Dividend Income” for information relating to the average balances and costs of our deposit accounts for the years ended December 31, 2023, 2022 and 2021. Cash Management Services.
The economies of our primary markets have benefited from the presence of large employers such as Baystate Medical Center, Big Y World Class Markets, Center for Human Development, Holyoke Medical Center, MassMutual Financial Group, Mercy Medical Center/Trinity Health of New England, Mestek, Inc., MGM Springfield, Verizon and Westover Air Reserve Base in Massachusetts, and Aetna, Inc., Air National Guard, Collins Aerospace, Connecticut Children’s Medical Center, Hartford Financial Services Group, Hartford Hospital, Kaman Aerospace Corporation, Lego Systems Inc., Stanadyne LLC, Talcott Resolution Life Insurance Company and Travelers Indemnity Company in Connecticut.
The economies of our primary markets have benefited from the presence of large employers such as Baystate Medical Center, Big Y World Class Markets, Center for Human Development, Holyoke Medical Center, MassMutual Financial Group, Mercy Medical Center/Trinity Health of New England, Mestek, Inc., MGM Springfield, Verizon and Westover Air Reserve Base in Massachusetts, and Aetna, Inc., Air National Guard, Collins Aerospace, Connecticut Children’s Medical Center, Hartford Financial Services Group, Hartford Hospital, Institute of Living, Kaman Aerospace Corporation, Lego Systems Inc., Talcott Resolution Life Insurance Company and Travelers Indemnity Company in Connecticut.
The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB. Required percentages of stock ownership are subject to change by the FHLB, and the Bank was in compliance with this requirement with an investment in FHLB capital stock at December 31, 2022.
The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB. Required percentages of stock ownership are subject to change by the FHLB, and the Bank was in compliance with this requirement with an investment in FHLB capital stock at December 31, 2023.
The Bank also conducts business through an additional fourteen freestanding and thirty-one seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
The Bank also conducts business through an additional fourteen freestanding and thirty-three seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
In addition, under the current general risk-based capital rules, the effects of accumulated other comprehensive income or loss (“AOCI”) items included in shareholders’ equity (for example, marks-to-market of securities held in the available-for-sale portfolio) under generally accepted accounting principles in the United States of America (“GAAP”) are reversed for the purposes of determining regulatory capital ratios.
In addition, under the current general risk-based capital rules, the effects of accumulated other comprehensive income or loss (“AOCI”) items included in shareholders’ equity (for example, marks-to-market of securities held in the AFS portfolio) under generally accepted accounting principles in the United States of America (“GAAP”) are reversed for the purposes of determining regulatory capital ratios.
The Company contracts with an external loan review company to review the internal risk 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.
The Company contracts with an external third-party loan review company to review the internal risk 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.
The information found on our website or the website of the SEC is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. 30
The information found on our website or the website of the SEC is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. 35
Generally, a federal savings bank may not make a loan or extend credit to a single borrower or related group of borrowers in excess of 15% of unimpaired capital and surplus.
Loans to One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single borrower or related group of borrowers in excess of 15% of unimpaired capital and surplus.
As of December 31, 2022, the Bank had twenty-five branches and ten freestanding automated teller machines (“ATMs”). The Bank also conducts business through an additional fourteen freestanding and thirty-one seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
As of December 31, 2023, the Bank had twenty-five branches and ten freestanding automated teller machines (“ATMs”). The Bank also conducts business through an additional fourteen freestanding and thirty-three seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
If vault cash does not fully satisfy the required reserves, they may be satisfied in the form of a balance maintained with the Federal Reserve Bank of Boston. Currently, there is no reserve requirement because the Federal Reserve Board reduced the reserve requirement to zero percent. Financial Privacy and Data Security.
If vault cash does not fully satisfy the required reserves, they may be satisfied in the form of a balance maintained with the FRB. Currently, there is no reserve requirement because the Federal Reserve Board reduced the reserve requirement to zero percent. 32 Financial Privacy and Data Security.
If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $257,000, $262,000 and $275,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $373,000, $257,000 and $262,000 for the years ended December 31, 2023, 2022 and 2021, respectively.
“Qualified thrift investments” include certain assets that are includable without limit, such as residential and manufactured housing loans, home equity loans, education loans, small business loans, credit card loans, mortgage backed securities, Federal Home Loan Bank stock and certain U.S. government obligations.
“Qualified thrift investments” include certain assets that are includable without limit, such as residential and manufactured housing loans, home equity loans, education loans, small business loans, credit card loans, mortgage backed securities, FHLB stock and certain U.S. government obligations.
Generally at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year amortization schedule. 9 Consumer Loans. At December 31, 2022 and December 31, 2021, consumer loans totaled $5.0 million, or 0.3%, of total loans and $4.3 million, or 0.2%, of total loans, respectively.
Generally at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year amortization schedule. Consumer Loans. At December 31, 2023 and December 31, 2022, consumer loans totaled $5.5 million, or 0.3%, of total loans and $5.0 million, or 0.3%, of total loans, respectively.
Western New England Bancorp is traded on the NASDAQ under the ticker symbol “WNEB” and is subject to the NASDAQ stock market rules. At December 31, 2022, WNEB had consolidated total assets of $2.6 billion, total net loans of $2.0 billion, total deposits of $2.2 billion and total shareholders’ equity of $228.1 million.
Western New England Bancorp is traded on the NASDAQ under the ticker symbol “WNEB” and is subject to the NASDAQ stock market rules. At December 31, 2023, WNEB had consolidated total assets of $2.6 billion, total net loans of $2.0 billion, total deposits of $2.1 billion and total shareholders’ equity of $237.4 million.
During 2022, fifty employees were nominated to participate in the program and successfully completed the program. In addition, the Company offers educational reimbursement programs to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to the financial services industry.
During 2023, twenty-seven employees were nominated to participate in the program and successfully completed the program. In addition, the Company offers educational reimbursement programs to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to the financial services industry.
At December 31, 2022 and December 31, 2021, the Company serviced $79.3 million and $88.2 million, respectively, in residential loans sold to the secondary market. The servicing rights will likely continue to be retained on all loans sold over the life of the loan.
At December 31, 2023 and December 31, 2022, the Company serviced $72.7 million and $79.3 million, respectively, in residential loans sold to the secondary market. The servicing rights will likely continue to be retained on all loans sold over the life of the loan.
The Company’s internal compliance department monitors the residential loan origination activity for regulatory compliance. The Executive Committee of the Company’s Board of Directors (the “Board”) approves loan relationships exceeding certain prescribed dollar limits as outlined in the Company’s lending policy. At December 31, 2022, our general regulatory limit on loans to one borrower was $39.7 million.
The Company’s internal compliance department monitors the residential loan origination activity for regulatory compliance. The Executive Committee of the Company’s Board of Directors (the “Board”) approves loan relationships exceeding certain prescribed dollar limits as outlined in the Bank’s loan policies. At December 31, 2023, our general regulatory limit on loans to one borrower was $40.7 million.
Adversely classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become nonperforming loans totaled $36.6 million, or 1.8% of total loans, at December 31, 2022 and $26.4 million, or 1.4% of total loans, at December 31, 2021.
Classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become nonperforming loans totaled $27.7 million, or 1.4% of total loans, at December 31, 2023 and $36.6 million, or 1.8% of total loans, at December 31, 2022.
Changes in federal laws permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. 5 At June 30, 2022, which is the most recent date for which data is available from the FDIC, we held approximately 13.7% of the deposits in Hampden County, which was the second largest market share out of the 16 banks and thrifts with offices in Hampden County.
Changes in federal laws permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. 5 At June 30, 2023, which is the most recent date for which data is available from the FDIC, we held approximately 14.0% of the deposits in Hampden County, which was the third largest market share out of the seventeen banks and thrifts with offices in Hampden County.
The Company’s policy requires that management continuously monitor the status of the loan portfolio and report to the Board of Directors on a monthly basis.
The Company’s loan policies require that management continuously monitor the status of the loan portfolio and report to the Board of Directors on a monthly basis.
Residential Real Estate Loans. At December 31, 2022 and December 31, 2021, the residential real estate loan portfolio totaled $589.5 million, or 29.6% of total loans, and $552.3 million, or 29.6%, of total loans, respectively.
Residential Real Estate Loans. At December 31, 2023 and December 31, 2022, the residential real estate loan portfolio totaled $612.3 million, or 30.3% of total loans, and $589.5 million, or 29.6%, of total loans, respectively.
The largest owner-occupied residential real estate loan was $1.9 million and was performing according to its original terms as of December 31, 2022. Home Equity Loans. At December 31, 2022 and December 31, 2021, home equity loans totaled $105.6 million, or 5.3% of total loans, and $99.8 million, or 5.4% of total loans, respectively.
The largest owner-occupied residential real estate loan was $2.0 million and was performing according to its original terms as of December 31, 2023. Home Equity Loans. At December 31, 2023 and December 31, 2022, home equity loans totaled $109.8 million, or 5.4% of total loans, and $105.6 million, or 5.3% of total loans, respectively.
The Capital Rules became effective on January 1, 2015, subject to phase-in periods for certain components and other provisions. 23 The Capital Rules: (i) require a capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to existing regulations.
The Capital Rules: (i) require a capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to existing regulations.
At December 31, 2022 and December 31, 2021, time deposits with remaining terms to maturity of less than one year amounted to $288.7 million and $363.3 million, respectively.
At December 31, 2023, time deposits with remaining terms to maturity of less than one year amounted to $596.3 million and $288.7 million, respectively.
Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit facilities than the individual bank might be willing or able to offer independently.
The Company participates with other banks in the financing of certain commercial projects. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit facilities than the individual bank might be willing or able to offer independently.
At December 31, 2022, our employees were representative of our commitment to recruit, develop, and retain diverse individuals, wherein approximately 66% of our employees were women and 18% of our employees were ethnic minorities, veterans or persons with disabilities.
At December 31, 2023, our employees were representative of our commitment to recruit, develop, and retain diverse individuals, wherein approximately 64% of our employees were women and 24% of our employees were ethnic minorities, veterans or persons with disabilities.
The remaining balance of adversely classified loans were nonaccrual loans totaling $5.7 million, or 0.3% of total loans, at December 31, 2022 and $4.7 million, or 0.3% of total loans, at December 31, 2021.
The remaining balance of classified loans were nonaccrual loans totaling $6.0 million, or 0.3% of total loans, at December 31, 2023 and $5.7 million, or 0.3% of total loans, at December 31, 2022.
At December 31, 2022, 2021 and 2020, the Company carried no other real estate owned (“OREO”) balances. 12 The following table presents, for the years indicated, an analysis of the allowance for loan losses and other related data.
At December 31, 2023 and 2022, the Company carried no other real estate owned (“OREO”) balances. 13 The following table presents, for the years indicated, an analysis of the allowance for credit losses and other related data.
Our largest lending exposure was a $32.2 million commercial lending relationship, of which $21.1 million was outstanding at December 31, 2022. The relationship is primarily secured by business assets and commercial real estate located in Agawam, Massachusetts. At December 31, 2022, this relationship was performing in accordance with its original terms.
Our largest lending exposure was a $24.9 million commercial lending relationship, of which $9.9 million was outstanding at December 31, 2023. This relationship is primarily secured by business assets and commercial real estate located in Agawam, Massachusetts. At December 31, 2023, this relationship was performing in accordance with its original terms.
All loans risk rated “Special Mention (5)”, “Substandard (6)”, “Doubtful (7)” and “Loss (8)” are listed on the Company’s criticized report and are reviewed by management not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure.
All loans risk rated special mention (5), substandard (6), Doubtful (7) and Loss (8) are listed on the Company’s criticized report and are reviewed not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure.
Individual rates offered are dependent on the associated degree of credit risk, term, underwriting and servicing costs, loan amount, and the extent of other banking relationships maintained with the borrower, and may be subject to interest rate floors. Rates are also subject to competitive pressures, the current interest rate environment, availability of funds, and government regulations.
Individual rates offered are dependent on the associated degree of credit risk, term, underwriting and servicing costs, loan amount, and the extent of other banking relationships maintained with the borrower, and may be subject to interest rate floors.
Loans originated by other banks in which the Company is a participating institution amounted to $132.6 million at December 31, 2022 and $121.7 million at December 31, 2021. The Company was servicing commercial loans originated by the Company and participated out to various other institutions totaling $70.5 million and $63.2 million at December 31, 2022 and December 31, 2021, respectively.
Loans originated by other banks in which the Company is a participating institution amounted to $129.9 million at December 31, 2023 and $132.6 million at December 31, 2022. The Company was servicing commercial loans originated by the Company and participated out to various other institutions totaling $65.0 million and $70.5 million at December 31, 2023 and December 31, 2022, respectively.
Human Capital. Diversity, Equity and Inclusion We understand that our human capital is the most valuable asset we have and we are committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion.
Human Capital. Diversity, Equity and Inclusion We understand that our human capital is one of our most valuable assets and a key to our success. We are committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion.
The Company maintains a comprehensive employee benefit program providing, among other benefits, group medical, dental and vision insurance, life insurance and disability insurance, a 401(k) Safe Harbor Plan, an employee stock ownership plan (“ESOP”), short-term and long-term incentive programs, paid time off including vacation days, personal days and paid holidays.
The Company maintains a comprehensive employee benefit program providing, among other benefits, group medical, dental and vision insurance, health savings accounts and flexible spending accounts, life insurance and disability insurance, a 401(k) Safe Harbor Plan with a competitive company match, an employee stock ownership plan (“ESOP”), short-term and long-term incentive compensation programs, tuition reimbursement, paid time off, including vacation days and paid holidays, and wellness and employee assistance programs.
At December 31, 2022 and 2021, the Company held $423,000 of Atlantic Community Bankers Bank stock. The stock is restricted and carried in other assets at cost. The stock is evaluated for impairment based on an estimate of the ultimate recovery to the par value. No impairment losses have been recorded through December 31, 2022. 16 Securities Portfolio Maturities .
At December 31, 2023 and December 31, 2022, the Company held $423,000 of Atlantic Community Bankers Bank stock. The stock is restricted and carried in other assets at cost. The stock is evaluated for impairment based on an estimate of the ultimate recovery to the par value.
The Board also approves the Company’s ongoing investment strategy. Restricted Equity Securities . At December 31, 2022 and 2021, the Company held $2.9 million and $2.2 million, respectively, of FHLB stock. This stock is classified as a restricted investment and carried at cost which management believes approximates the fair value.
At December 31, 2023 and December 31, 2022, the Company held $3.3 million and $2.9 million, respectively, of FHLB stock. This stock is classified as a restricted investment and carried at cost which management believes approximates the fair value.
Borrowings from the FRB Discount Window are secured by certain securities from the Company’s investment portfolio not otherwise pledged. At December 31, 2022 and December 31, 2021, there were no advances outstanding under this line.
Borrowings from the FRB Discount Window are secured by certain securities from the Company’s investment portfolio not otherwise pledged. As of December 31, 2023 and December 31, 2022, there were no advances outstanding under either of these lines.
Loans identified as containing a loss are partially charged-off or fully charged-off. In addition, the Company closely monitors the classified loans for signs of deterioration to mitigate the growth in nonaccrual loans, including performing additional due diligence, updating valuations and requiring additional financial reporting from the borrower.
In addition, the Company closely monitors classified loans, defined as substandard, doubtful, and loss for signs of deterioration to mitigate the growth in nonaccrual loans, including performing additional due diligence, updating valuations and requiring additional financial reporting from the borrower.
Commercial Real Estate Loans and Commercial and Industrial Loans . At December 31, 2022, commercial real estate loans totaled $1.1 billion, or 53.8% of total loans, compared to $980.0 million, or 52.6% of total loans, at December 31, 2021.
Commercial Real Estate Loans and Commercial and Industrial Loans . At December 31, 2023, commercial real estate loans totaled $1.1 billion, or 53.3% of total loans, compared to $1.1 billion, or 53.8% of total loans, at December 31, 2022.
The following table sets forth the Company’s average deposit balances and weighted average rates for the periods presented: For the Years Ended December 31, 2022 2021 2020 Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates (Dollars in thousands) Demand deposits $ 647,971 28.6 % — % $ 608,936 28.0 % — % $ 489,602 26.0 % — % Interest-bearing checking accounts 139,993 6.2 0.38 109,648 5.0 0.36 86,086 4.6 0.45 Regular savings accounts 222,267 9.8 0.07 205,394 9.4 0.07 153,073 8.1 0.09 Money market accounts 890,763 39.4 0.36 776,725 35.7 0.31 521,692 27.7 0.54 Total core deposit accounts 1,900,994 84.0 0.20 1,700,703 78.1 0.17 1,250,453 66.4 0.27 Time deposit accounts 363,258 16.0 0.41 477,067 21.9 0.53 634,111 33.6 1.60 Total deposits $ 2,264,252 100.0 % 0.24 % $ 2,177,770 100.0 % 0.25 % $ 1,884,564 100.0 % 0.72 % 18 The following table sets forth the maturity of time deposits at the dates indicated: At December 31, 2022 2021 2020 Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates (Dollars in thousands) Due within the year $ 288,697 70.1 % 0.69 % $ 363,290 90.3 % 0.34 % $ 503,187 85.2 % 0.75 % Over 1 year through 3 years 119,117 28.9 2.91 32,411 8.1 0.85 81,847 13.9 0.86 Over 3 years 3,876 1.0 0.14 6,279 1.6 0.31 5,302 0.9 0.84 Total certificated accounts $ 411,690 100.0 % 1.33 % $ 401,980 100.0 % 0.38 % $ 590,336 100.0 % 0.77 % The following table sets forth the uninsured portion of our core deposit accounts, by account type, at the dates indicated.
The following table sets forth the Company’s average deposit balances and weighted average rates for the periods presented: For the Years Ended December 31, 2023 2022 2021 Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates (Dollars in thousands) Demand deposits $ 602,652 27.8 % — % $ 647,971 28.6 % — % $ 608,936 28.0 % — % Interest-bearing checking 142,005 6.5 0.73 139,993 6.2 0.38 109,648 5.0 0.36 Regular savings 202,354 9.3 0.09 222,267 9.8 0.07 205,394 9.4 0.07 Money market 697,621 32.2 1.37 890,763 39.4 0.36 776,725 35.7 0.31 Total core deposits 1,644,632 75.8 0.65 1,900,994 84.0 0.20 1,700,703 78.1 0.17 Time deposits 524,827 24.2 3.03 363,258 16.0 0.41 477,067 21.9 0.53 Total deposits $ 2,169,459 100.0 % 1.23 % $ 2,264,252 100.0 % 0.24 % $ 2,177,770 100.0 % 0.25 % The following table sets forth the maturity of time deposits at the dates indicated: At December 31, 2023 2022 2021 Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates Amount Percent Weighted Average Rates (Dollars in thousands) Due within the year $ 596,292 97.5 % 3.81 % $ 288,697 70.1 % 0.69 % $ 363,290 90.3 % 0.34 % Over 1 year through 3 years 12,472 2.1 0.85 119,117 28.9 2.91 32,411 8.1 0.85 Over 3 years 2,588 0.4 0.05 3,876 1.0 0.14 6,279 1.6 0.31 Total time deposits $ 611,352 100.0 % 3.73 % $ 411,690 100.0 % 1.33 % $ 401,980 100.0 % 0.38 % 22 The following table sets forth the uninsured portion of our core deposit accounts, by account type, at the dates indicated.
The Company employs a seasoned commercial lending staff, with commercial lenders supporting the Company’s loan growth strategy. 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.
The Company contracts with an external third-party loan review company to review the internal credit ratings assigned to loan relationships in the commercial loan portfolio on a pre-determined schedule, based on the type, size, rating, and overall risk of the loan.
At December 31, 2022 2021 2020 (Dollars in thousands) Core deposit accounts: (1) Demand deposits $ 177,464 $ 194,735 $ 150,588 Interest-bearing checking accounts 105,644 104,985 61,334 Regular savings accounts 3,218 76,753 65,971 Money market accounts 303,898 309,739 205,471 Total core deposit accounts $ 590,224 $ 686,212 $ 483,364 The following table sets forth the uninsured portion of our time deposits, by remaining maturity.
At December 31, 2023 2022 2021 (Dollars in thousands) Core deposits: (1) Demand deposits $ 156,646 $ 177,464 $ 194,735 Interest-bearing checking 64,097 105,644 104,985 Regular savings 2,243 3,218 76,753 Money market 226,536 303,898 309,739 Total core deposits $ 449,522 $ 590,224 $ 686,212 The following table sets forth the uninsured portion of our time deposits, by remaining maturity.
In addition to the deposit products discussed above, commercial banking and municipal customers may take advantage of cash management services including remote deposit capture, Automated Clearing House credit and debit origination, check payment fraud prevention, international and domestic wire transfers and corporate credit cards. Deposit Distribution and Weighted Average Rates.
In addition to the deposit products discussed above, commercial and municipal customers may take advantage of cash management services including remote deposit capture, Automated Clearing House credit and debit origination, check payment fraud prevention, international and domestic wire transfers and corporate credit cards. IntraFi/CDARS . We participate in the IntraFi Network which provides depositors with FDIC pass-through insurance.
A summary of time deposits totaling $250,000 or more by maturity is as follows: December 31, 2022 December 31, 2021 Amount Weighted Average Rate Amount Weighted Average Rate (In thousands) 3 months or less $ 9,809 0.21 % $ 19,243 0.43 % Over 3 months through 6 months 11,021 0.37 23,304 0.43 Over 6 months through 12 months 35,820 1.60 18,353 0.46 Over 12 months 75,087 3.61 4,960 0.90 Total: $ 131,737 2.54 % $ 65,860 0.47 % Other Sources of Funds.
A summary of time deposits totaling $250,000 or more by maturity is as follows: December 31, 2023 December 31, 2022 Amount Weighted Average Rate Amount Weighted Average Rate (In thousands) 3 months or less $ 110,400 3.96 % $ 9,809 0.21 % Over 3 months through 6 months 55,540 4.31 11,021 0.37 Over 6 months through 12 months 30,357 4.51 35,820 1.60 Over 12 months 2,294 0.72 75,087 3.61 Total: $ 198,591 4.10 % $ 131,737 2.54 % 23 Other Sources of Funds.
Under the Change in Bank Control Act, no person, including a company, may acquire, directly or indirectly, control of an insured depository institution without providing 60 days’ prior notice and receiving a non-objection from the appropriate federal banking agency. 22 Under the Bank Merger Act, the prior approval of the OCC is required for a federal savings association to merge with another insured depository institution, where the resulting institution is a federal savings association, or to purchase the assets or assume the deposits of another insured depository institution.
Under the Change in Bank Control Act, no person, including a company, may acquire, directly or indirectly, control of an insured depository institution without providing 60 days’ prior notice and receiving a non-objection from the appropriate federal banking agency.
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.
On April 20, 2021, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction. The Company intends to use the net proceeds of the offering for general corporate purposes, including organic growth and repurchase of the Company’s common shares.
Variable interest rate loans in the commercial real estate loan portfolio have a variety of adjustment terms and underlying interest rate indices, and are generally fixed for an initial period before periodic rate adjustments begin. 7 Commercial construction loans may include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land.
Variable interest rate loans in the commercial real estate loan portfolio have a variety of adjustment terms and underlying interest rate indices, and are generally fixed for an initial period before periodic rate adjustments begin.
Depending on the current interest rate environment, management may elect to sell those fixed and adjustable rate residential mortgage loans which are eligible for sale in the secondary market, or hold some or all of this residential loan production for the Company’s portfolio. The Company may retain or sell the servicing when selling the loans.
The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. 9 Depending on the current interest rate environment, management may elect to sell those fixed and adjustable rate residential mortgage loans which are eligible for sale in the secondary market, or hold some or all of this residential loan production for the Company’s portfolio.
For information on our methodology for assessing the appropriateness of the allowance for loan losses please see Footnote 1 – “ Summary of Significant Accounting Policies ” of our notes to consolidated financial statements. The allowance for loan losses is established through a provision for loan losses, which is a direct charge to earnings.
For information on our methodology for assessing the appropriateness of the allowance for credit losses please see Footnote 1 – “ Summary of Significant Accounting Policies ” of our notes to consolidated financial statements. Commercial real estate loans .
Weighted average yield is calculated using the amortized cost and yield to maturity of securities divided by the total amortized cost of the segment, and does not adjust for tax-equivalent basis for any tax-exempt obligations.
Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or redemptions that may occur. Weighted average yield is calculated using the amortized cost and yield to maturity of securities divided by the total amortized cost of the segment, and does not adjust for tax-equivalent basis for any tax-exempt obligations.
At December 31, 2022 (Dollars in thousands) Time deposit accounts: (1) 3 months or less $ 574 Over 3 months through 6 months 1,623 Over 6 months through 12 months 23 Over 12 months 94,146 Total time deposit accounts $ 96,366 (1) Uninsured deposits for the periods indicated have been estimated using the same methodologies and assumptions used for the Bank’s regulatory reporting requirements. 19 Time Deposit Maturities.
At December 31, 2023 (Dollars in thousands) Time deposits: (1) 3 months or less $ 46,151 Over 3 months through 6 months 71,554 Over 6 months through 12 months 7,482 Over 12 months 232 Total time deposits $ 125,419 _______________ (1) Uninsured deposits for the periods indicated have been estimated using the same methodologies and assumptions used for the Bank’s regulatory reporting requirements.
There were no advances outstanding under this line at December 31, 2022 and December 31, 2021, respectively. The Company has an available line of credit of $4.4 million with the FRB Discount Window at an interest rate determined and reset on a daily basis.
At December 31, 2023 and 2022, the Company did not have any outstanding advances under the facility. 24 In addition, the Company has an available line of credit of $48.6 million with the FRB Discount Window at an interest rate determined and reset on a daily basis.
The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage. Loans to One Borrower.
Permissible investments include, but are not limited to, mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and certain other assets. The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage.
The Company’s adversely classified loans totaled $42.3 million, or 2.1% of total loans, at December 31, 2022 and $31.1 million, or 1.7%, of total loans, at December 31, 2021.
At December 31, 2023, the Company’s criticized loans totaled $39.5 million, or 1.9% of total loans, compared to $64.0 million, or 3.2% of total loans, at December 31, 2022. The Company’s classified loans totaled $33.7 million, or 1.7% of total loans, at December 31, 2023 and $42.3 million, or 2.1%, of total loans, at December 31, 2022.
If the regulations are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured. 29 The Dodd-Frank Act also gives the SEC authority to prohibit broker discretionary voting on elections of directors, executive compensation matters and any other significant matter.
The Dodd-Frank Act also gives the SEC authority to prohibit broker discretionary voting on elections of directors, executive compensation matters and any other significant matter.
In addition, section 10(f) of the HOLA requires a subsidiary savings association of a savings and loan holding company, such as the Bank, to file a notice with the Federal Reserve prior to declaring certain types of dividends.
In addition, section 10(f) of the HOLA requires a subsidiary savings association of a savings and loan holding company, such as the Bank, to file a notice with the Federal Reserve prior to declaring certain types of dividends. 27 Western New England Bancorp and the Bank are also subject to other regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCompliance with such regulation may increase its costs and limit its ability to pursue business opportunities. ● Lowered consumer and business confidence levels that could result in declines in credit usage, adverse changes in payment patterns and increases in loan delinquencies and default rates, which management expects would adversely impact the Bank’s charge-offs and provision for loan losses. ● Market developments may adversely affect the Bank’s securities portfolio by causing other-than-temporary-impairments, prompting write-downs and securities losses. ● Competition in banking and financial services industry could intensify as a result of the increase consolidation of financial services companies in connection with current market conditions or otherwise. ● The Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage, and underwrite its customers become less predictive of future behaviors. ● The Company could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with the Company. ● The value of loans and other assets or collateral securing loans may decrease. 31 As economic conditions relating to the COVID-19 pandemic have improved, the Federal Reserve has shifted its focus to limiting inflationary and other potentially adverse effects of the extensive pandemic-related government stimulus, which signals the potential for a continued period of economic uncertainty even though the pandemic has subsided.
Biggest changeThe regulators of the Company and the Bank are increasingly focused on liquidity and other risks after the bank failures of 2023. ● Lowered consumer and business confidence levels that could result in declines in credit usage, adverse changes in payment patterns and increases in loan delinquencies and default rates, which management expects would adversely impact the Bank’s charge-offs and provision for loan losses. ● Market developments may adversely affect the Bank’s securities portfolio by causing other-than-temporary-impairments, prompting write-downs and securities losses. 36 ● Competition in banking and financial services industry could intensify as a result of the increase consolidation of financial services companies in connection with current market conditions or otherwise. ● The Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage, and underwrite its customers become less predictive of future behaviors. ● The Company could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with the Company. ● The value of loans and other assets or collateral securing loans may decrease.
While we have policies and procedures designed to prevent such violations, there can be no assurance that violations will not occur. See the section titled, “Supervision and Regulation” in ITEM 1. Business. 37 Since the 2008 global financial crisis, financial institutions have been subject to increased scrutiny from Congress, state legislatures and federal and state financial regulatory agencies.
While we have policies and procedures designed to prevent such violations, there can be no assurance that violations will not occur. See the section titled, “Supervision and Regulation” in ITEM 1. Business. Since the 2008 global financial crisis, financial institutions have been subject to increased scrutiny from Congress, state legislatures and federal and state financial regulatory agencies.
Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective. In the normal course of business, we collect and retain certain personal information provided by our customers, employees and vendors. We also rely extensively on computer systems to process transactions and manage our business.
Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective. 44 In the normal course of business, we collect and retain certain personal information provided by our customers, employees and vendors. We also rely extensively on computer systems to process transactions and manage our business.
In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Climate Change or Government Action and Societal Responses to Climate Change Could Adversely Affect Our Results of Operations.
In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. 40 Climate Change or Government Action and Societal Responses to Climate Change Could Adversely Affect Our Results of Operations.
These risks may prevent us from fully realizing the anticipated benefits of an acquisition or cause the realization of such benefits to take longer than expected. The Company Relies on Third-Party Service Providers. The Company relies on independent firms to provide critical services necessary to conducting its business.
These risks may prevent us from fully realizing the anticipated benefits of an acquisition or cause the realization of such benefits to take longer than expected. 41 The Company Relies on Third-Party Service Providers. The Company relies on independent firms to provide critical services necessary to conducting its business.
The Company expects that the market price of its common stock will continue to fluctuate, and the Company cannot give you any assurances regarding any trends in the market prices for its common stock. 41 The Company’s stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond its control.
The Company expects that the market price of its common stock will continue to fluctuate, and the Company cannot give you any assurances regarding any trends in the market prices for its common stock. The Company’s stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond its control.
Any financial liability or reputation damage could have a material adverse effect on the Company's business, which in turn, could have a material adverse effect on the Company's financial condition and results of operations. The Company’s Insurance Coverage May Not be Adequate to Prevent Additional Liabilities or Expenses.
Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which in turn, could have a material adverse effect on the Company’s financial condition and results of operations. 46 The Company’s Insurance Coverage May Not be Adequate to Prevent Additional Liabilities or Expenses.
In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments that differ from those of the Company’s management.
In addition, bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments that differ from those of the Company’s management.
In addition, commercial real estate and commercial and industrial loans may also involve relatively large loan balances to individual borrowers or groups of borrowers. These loans also have greater credit risk than residential real estate for the following reasons: ● Commercial Real Estate Loans.
In addition, commercial real estate and commercial and industrial loans may also involve relatively large loan balances to individual borrowers or groups of borrowers. 37 These loans also have greater credit risk than residential real estate for the following reasons: ● Commercial Real Estate Loans.
The Company’s Allowance for Loan Losses May Not be Adequate to Cover Loan Losses, Which Could Have a Material Adverse Effect on the Company’s Business, Financial Condition and Results of Operations.
The Company’s Allowance for Credit Losses May Not be Adequate to Cover Loan Losses, Which Could Have a Material Adverse Effect on the Company’s Business, Financial Condition and Results of Operations.
As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates and be adversely affected should the assumptions and estimates used be incorrect, or change over time due to changes in circumstances. 42 business, financial condition, results of operations and the market price of the Company’s common stock.
As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates and be adversely affected should the assumptions and estimates used be incorrect, or change over time due to changes in circumstances. 48 business, financial condition, results of operations and the market price of the Company’s common stock.
The Company and the Bank are subject to the capital adequacy guidelines of the FRB and the OCC, respectively. Failure to meet applicable minimum capital ratio requirements (including the capital conservation "buffer" imposed by Basel III) may subject the Company and/or the Bank to various enforcement actions and restrictions.
The Company and the Bank are subject to the capital adequacy guidelines of the FRB and the OCC, respectively. Failure to meet applicable minimum capital ratio requirements (including the capital conservation “buffer” imposed by Basel III) may subject the Company and/or the Bank to various enforcement actions and restrictions.
Any failure or circumvention of the Company’s internal controls and procedures, or failure to comply with regulations related to controls and procedures, or a physical theft or robbery, whether by employees, management, directors, or external elements, or any illegal activity conducted by a Bank customer, could result in loss of assets, regulatory actions against the Company, financial loss, damage the Company’s reputation, cause a loss of customer business, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, results of operations and financial condition. 40 Damage to the Company’s Reputation Could Affect the Company’s Profitability and Shareholders' Value.
Any failure or circumvention of the Company’s internal controls and procedures, or failure to comply with regulations related to controls and procedures, or a physical theft or robbery, whether by employees, management, directors, or external elements, or any illegal activity conducted by a Bank customer, could result in loss of assets, regulatory actions against the Company, financial loss, damage the Company’s reputation, cause a loss of customer business, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company's failure to remain "adequately-capitalized" for bank regulatory purposes could affect customer confidence, restrict the Company's ability to grow (both assets and branching activity), increase the Company's costs of funds and FDIC insurance costs, prohibit the Company's ability to pay dividends on common shares, and its ability to make acquisitions, and have a negative impact on the Company's business, results of operation and financial conditions, generally.
The Company’s failure to remain “adequately-capitalized” for bank regulatory purposes could affect customer confidence, restrict the Company’s ability to grow (both assets and branching activity), increase the Company’s costs of funds and FDIC insurance costs, prohibit the Company’s ability to pay dividends on common shares, and its ability to make acquisitions, and have a negative impact on the Company’s business, results of operation and financial conditions, generally.
If the Bank ceases to be a "well-capitalized" institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that it pays may be restricted. 38 Changes in Tax Policies at Both the Federal and State Levels Could Impact the Company's Financial Condition and Results of Operations.
If the Bank ceases to be a “well-capitalized” institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that it pays may be restricted. Changes in Tax Policies at Both the Federal and State Levels Could Impact the Company’s Financial Condition and Results of Operations.
These factors include, but are not limited to, the Company’s: ● past and future dividend practice; ● financial condition, performance, creditworthiness and prospects; ● quarterly variations in the Company’s operating results or the quality of the Company’s assets; ● operating results that vary from the expectations of management, securities analysts and investors; ● c hanges in expectations as to the Company’s future financial performance; ● announcements of innovations, new products, strategic developments, significant contracts, acquisitions and other material events by the Company or its competitors; ● the operating and securities price performance of other companies that investors believe are comparable to the Company’s; ● future sales of the Company’s equity or equity-related securities; ● the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; ● catastrophic events, including natural disasters, and public health crises; and ● instability in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, budget deficits or sovereign debt level concerns and other geopolitical, regulatory or judicial events .
These factors include, but are not limited to, the Company’s: ● past and future dividend practice; ● financial condition, performance, creditworthiness and prospects; ● quarterly variations in the Company’s operating results or the quality of the Company’s assets; ● operating results that vary from the expectations of management, securities analysts and investors; ● c hanges in expectations as to the Company’s future financial performance; ● announcements of innovations, new products, strategic developments, significant contracts, acquisitions and other material events by the Company or its competitors; ● the operating and securities price performance of other companies that investors believe are comparable to the Company’s; ● future sales of the Company’s equity or equity-related securities; ● the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; ● catastrophic events, including natural disasters, and public health crises; and ● instability in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, budget deficits or sovereign debt level concerns and other geopolitical, regulatory or judicial events . 47 In addition, the banking industry may be more affected than other industries by certain economic, credit, regulatory or information security issues.
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and trends, all of which may undergo material changes.
The allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and trends, all of which may undergo material changes.
Although the Company may acquire any real estate or other assets that secure defaulted loans through foreclosures or other similar remedies, the amounts owed under the defaulted loans may exceed the value of the assets acquired. 33 The Company maintains an allowance for loan losses, which is established through a provision for loan losses charged to earnings, that represents management’s estimate of probable losses inherent within the existing portfolio of loans.
Although the Company may acquire any real estate or other assets that secure defaulted loans through foreclosures or other similar remedies, the amounts owed under the defaulted loans may exceed the value of the assets acquired. 38 The Company maintains an allowance for credit losses, which is established through a provision for credit losses charged to earnings that represents management’s estimate of expected losses inherent within the Company’s existing loans held for investment portfolio.
The Company is dependent on its reputation within its market area, as a trusted and responsible financial company, for all aspects of its business with customers, employees, vendors, third-party service providers, and others, with whom the Company conducts business or potential future business.
Damage to the Company’s Reputation Could Affect the Company’s Profitability and Shareholders’ Value. The Company is dependent on its reputation within its market area, as a trusted and responsible financial company, for all aspects of its business with customers, employees, vendors, third-party service providers, and others, with whom the Company conducts business or potential future business.
Any damage to the Company’s reputation could affect its ability to retain and develop the business relationships necessary to conduct business which in turn could negatively impact the Company’s profitability and shareholders’ value. The Company is Exposed to Legal Claims and Litigation.
Any damage to the Company’s reputation could affect its ability to retain and develop the business relationships necessary to conduct business which in turn could negatively impact the Company’s profitability and shareholders’ value.
Federal banking agencies have significant discretion regarding the supervision, regulation and enforcement of banking laws and regulations. Financial laws, regulations and policies are subject to amendment by Congress, state legislatures and federal and state regulatory agencies. Changes to statutes, regulations or policies, including changes in the interpretation of regulations or policies, could materially impact our business.
Financial laws, regulations and policies are subject to amendment by Congress, state legislatures and federal and state regulatory agencies. Changes to statutes, regulations or policies, including changes in the interpretation of regulations or policies, could materially impact our business.
Any such increase in funding costs or restrictions could have a negative impact on the Company’s net interest income and, consequently, on its results of operations and financial condition.
In particular, regulators are increasingly focused on liquidity risk after the bank failures of 2023. Any such increase in funding costs or restrictions could have a negative impact on the Company’s net interest income and, consequently, on its results of operations and financial condition.
Any downturn in the real estate market or local economy could adversely affect the value of the properties securing the loans or revenues from the borrowers’ businesses thereby increasing the risk of nonperforming loans.
Any downturn in the real estate market or local economy could adversely affect the value of the properties securing the loans or revenues from the borrowers’ businesses thereby increasing the risk of nonperforming loans. Inflation Can Have an Adverse Impact on the Company’s Business and its Customers.
If a concentration is determined to exist, the Company may incur additional operating expenses in order to comply with additional risk management practices and increased capital requirements which could have a material adverse effect on the Company’s financial condition and results of operations. 36 Replacement of the London Interbank Offered Rate Could Adversely Affect Our Business, Financial Condition, and Results of Operations .
If a concentration is determined to exist, the Company may incur additional operating expenses in order to comply with additional risk management practices and increased capital requirements which could have a material adverse effect on the Company’s financial condition and results of operations. 42 Sources of External Funding Could Become Restricted and Impact the Company’s Liquidity.
Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities, and the average duration of our assets. 32 The Company’s earnings and cash flows are largely dependent upon its net interest income, meaning the difference between interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities.
Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities, and the average duration of our assets.
Net interest income is the most significant component of our net income, accounting for approximately 85.5% of total revenues in 2022. Changes in market interest rates, in the shape of the yield curve or in spreads between different market interest rates can have a material effect on our net interest margin.
Changes in market interest rates, in the shape of the yield curve or in spreads between different market interest rates can have a material effect on our net interest margin.
If we were unable to comply with future regulatory directives, or if we were unable to comply with the terms of any future supervisory requirements to which we may become subject, then we could become subject to a variety of supervisory actions and orders, including cease and desist orders, prompt corrective actions, memoranda of understanding, and other regulatory enforcement actions.
The CFPB also has authority to take enforcement actions, including cease-and-desist orders or civil monetary penalties, if it finds that we offer consumer financial products and services in violation of federal consumer financial protection laws. 43 If we were unable to comply with future regulatory directives, or if we were unable to comply with the terms of any future supervisory requirements to which we may become subject, then we could become subject to a variety of supervisory actions and orders, including cease and desist orders, prompt corrective actions, memoranda of understanding, and other regulatory enforcement actions.
Increases in the Company's Nonperforming Assets Could Adversely Affect the Company's Results of Operations and Financial Condition in the Future. Nonperforming assets adversely affect net income in various ways.
The adoption of this ASU did not have a material adverse effect on the Company’s financial condition and results of operation. Increases in the Company’s Nonperforming Assets Could Adversely Affect the Company’s Results of Operations and Financial Condition in the Future. Nonperforming assets adversely affect net income in various ways.
Any such increased reliance on wholesale funding, or increases in funding rates in general could have a negative impact on the Company’s net interest income and, consequently, on its results of operations and financial condition. 35 The Company, as Part of its Strategic Plans, Periodically Considers Potential Acquisitions.
Any such increased reliance on wholesale funding, or increases in funding rates in general could have a negative impact on the Company’s net interest income and, consequently, on its results of operations and financial condition. The Bank’s Reliance on Brokered and Reciprocal Deposits Could Adversely Affect its Liquidity and Operating Results.
In addition, the banking industry may be more affected than other industries by certain economic, credit, regulatory or information security issues. Although the Company itself may or may not be directly impacted by such issues, the Company’s stock price may vary due to the influence, both real and perceived, of these issues, among others, on the banking industry in general.
Although the Company itself may or may not be directly impacted by such issues, the Company’s stock price may vary due to the influence, both real and perceived, of these issues, among others, on the banking industry in general. Investment in the Company’s stock is not insured against loss by the FDIC, or any other public or private entity.
The Company’s success depends principally on the general economic conditions of the primary market areas in which the Company operates.
General Risk Factors Changes in the Local Economy May Affect our Future Growth Possibilities. The Company’s success depends principally on the general economic conditions of the primary market areas in which the Company operates.
The Company’s Investments are Subject to Interest Rate Risks, Credit Risk and Liquidity Risk and Declines in Value in its Investments May Require the Company to Record OTTI Charges That Could Have a Material Adverse Effect on the Company’s Results of Operations and Financial Condition.
As a result of any of these factors, the value of collateral backing a loan may be less than estimated at the time of assessment, and if a default occurs the Company may not recover the outstanding balance of the loan. 39 The Company’s Investments are Subject to Interest Rate Risks, Credit Risk and Liquidity Risk and Declines in Value in its Investments May Require the Company to Record Impairment Charges That Could Have a Material Adverse Effect on the Company’s Results of Operations and Financial Condition.
Investment in the Company's stock is not insured against loss by the FDIC, or any other public or private entity. As a result, and for the other reasons described in this "Risk Factors" section and elsewhere in this report, if you acquire our common stock, you may lose some or all of your investment.
As a result, and for the other reasons described in this “Risk Factors” section and elsewhere in this report, if you acquire our common stock, you may lose some or all of your investment. Shareholder Dilution Could Occur if Additional Stock is Issued in the Future.
These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. The Company is subject to extensive federal and state supervision and regulation that govern nearly all aspects of our operations and can have a material impact on our business.
The Company is subject to extensive federal and state supervision and regulation that govern nearly all aspects of our operations and can have a material impact on our business. Federal banking agencies have significant discretion regarding the supervision, regulation and enforcement of banking laws and regulations.
Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. 39 General Risk Factors Changes in the Local Economy May Affect our Future Growth Possibilities.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to customers. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Acts of terrorism, war, civil unrest, violence or human error could cause disruptions to our business or the economy as a whole. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Acts of terrorism, war, civil unrest, violence or human error could cause disruptions to our business or the economy as a whole.
The Company May Not be Able to Attract, Retain or Develop Key Personnel. The Company’s success depends, in large part, on its ability to attract, retain and develop key personnel.
While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. 45 The Company May Not be Able to Attract, Retain or Develop Key Personnel. The Company’s success depends, in large part, on its ability to attract, retain and develop key personnel.
Any increases in the allowance for loan losses subsequent to adoption will result in a decrease in net income and, depending upon the magnitude of the changes, could have a material adverse effect on the Company’s financial condition and results of operations.
Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Any impairment charges, depending upon the magnitude of the charges, could have a material adverse effect on the Company’s financial condition and results of operations. We Depend Primarily on Net Interest Income for our Earnings Rather Than Fee Income.
Any OTTI charges, depending upon the magnitude of the charges, could have a material adverse effect on the Company’s financial condition and results of operations. 34 The Company is Subject to Environmental Risks Associated with Real Estate Held as Collateral or Occupied.
A public health crisis such as the COVID-19 pandemic is no exception, and its adverse health and economic effects may adversely impact our business and financial condition. The Company is Subject to Environmental Risks Associated with Real Estate Held as Collateral or Occupied.
Removed
The Continuing COVID-19 Pandemic Could Adversely Affect Our Businesses and Our Customers, Counterparties, Employees, and Third-Party Service Providers. The pandemic has adversely affected, and may continue to adversely affect, our customers and other businesses in our market area, as well as counterparties and third party vendors.
Added
Compliance with such regulation may increase its costs and limit its ability to pursue business opportunities.
Removed
Although many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may continue to persist. The growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications and/or disruptions, has also contributed to rising inflationary pressures.
Added
The Company’s earnings and cash flows are largely dependent upon its net interest income, meaning the difference between interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities. Net interest income is the most significant component of our net income, accounting for approximately 86.2% of total revenues in 2023.
Removed
The final outcome and/or potential duration of the economic disruption that resulted from the onset and subsequent recovery from COVID-19 remains uncertain at this time as the financial markets continue to be impacted. Our business and operations have not been materially impacted by COVID-19 as of December 31, 2022.
Added
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Inflation continued at elevated levels in 2023 and inflationary pressures may remain elevated in 2024. Additionally, the Federal Reserve has raised certain benchmark interest rates in response to this elevated inflation.
Removed
However, the ongoing pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, reduced demand for our products and services and other negative impacts on our financial position, results of operations and prospects.
Added
As discussed above, changes in interest rates could hurt our profits, as inflation increases and market interest rates rise, the value of the Company’s investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.
Removed
Sustained adverse effects may also prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements or result in downgrades in our credit ratings.
Added
In addition, inflation generally increases the cost of goods and services the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase the Company’s non-interest expenses.
Removed
As a result, the full extent of the resulting adverse impacts on our business, financial condition, liquidity and results of operations remains inestimable at this time, and will depend on a number of evolving factors and future developments beyond our control and that we are unable to predict.
Added
Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company.
Removed
On January 1, 2023, FASB-announced changes to accounting standards that impact the way banking organizations estimate their allowance for loan losses became effective for the Company. These changes or any others to accounting rules governing credit impairment estimates and recognition may increase the level of the allowance for loan losses.
Added
Sustained higher interest rates by the Federal Reserve Board to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity.
Removed
As a result of any of these factors, the value of collateral backing a loan may be less than estimated at the time of assessment, and if a default occurs the Company may not recover the outstanding balance of the loan.
Added
A deterioration in economic conditions in the United States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn, would adversely affect the Company’s business, financial condition and results of operations.
Removed
If an investment’s value is deemed other than temporarily impaired, then the Company is required to write down the carrying value of the investment which may involve a charge to earnings.
Added
The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.
Removed
The determination of the level of OTTI involves a high degree of judgment and requires the Company to make significant estimates of current market risks and future trends, all of which may undergo material changes.
Added
The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, residential real estate loans, commercial and industrial loans, and consumer loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored.
Removed
In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced that the FCA intends to stop persuading or compelling banks to submit the rates required to calculate LIBOR after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.
Added
For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.
Removed
The U.S. bank regulators issued a Statement on LIBOR Transition on November 30, 2020 and subsequent guidance encouraging banks to transition away from U.S. Dollar (USD) LIBOR by December 31, 2021 at the latest for new contracts. LIBOR is currently anticipated to be fully phased out by June 30, 2023.
Added
The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses.
Removed
The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.
Added
This process includes estimates which involve modeling loss projections attributable to existing loan balances, and considering historical experience, current conditions, and future expectations for pools of loans over a reasonable and supportable forecast period.
Removed
ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR . Management is monitoring ARRC publications for best practices as the Company transitions legacy LIBOR loans by the June 30, 2023 deadline.
Added
The historical information either experienced by the Company or by a selection of peer banks, when appropriate, is derived from a combination of recessionary and non-recessionary performance periods for which data is available.
Removed
The Company adopted SOFR as its preferred benchmark as an alternative to LIBOR for use in new and legacy contracts beginning on January 1, 2022. We have certain loans, derivative contracts, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.
Added
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses ( Topic 326 ): Measurement of Credit Losses on Financial Instruments , which replaced the incurred loss methodology with an expected loss methodology that is referred to as CECL methodology.
Removed
The transition from LIBOR, or any changes or reforms to the determination or supervision of LIBOR, could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us, could create considerable costs and additional risk and could have an adverse impact on our overall financial condition or results of operations.
Added
If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses would be recorded, with a related charge to earnings, limited by the amount of the fair value of the security less its amortized cost.
Removed
Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Added
If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company recognizes the entire difference between the amortized cost basis of the security and its fair value in earnings.
Removed
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations. Sources of External Funding Could Become Restricted and Impact the Company’s Liquidity.
Added
Net interest income is the most significant component of our operating income. We have less reliance on traditional sources of fee income utilized by some community banks, such as fees from sales of insurance, securities, or investment advisory products or services.
Removed
The CFPB also has authority to take enforcement actions, including cease-and-desist orders or civil monetary penalties, if it finds that we offer consumer financial products and services in violation of federal consumer financial protection laws.
Added
For the years ended December 31, 2023, 2022 and 2021, our net interest income was $67.9 million, $79.2 million, and $73.2 million, respectively. The amount of our net interest income is influenced by the overall interest rate environment, competition, and the amount of our interest-earning assets relative to the amount of our interest-bearing liabilities.
Removed
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to customers.
Added
In the event that one or more of these factors were to result in a decrease in our net interest income, we do not have significant sources of fee income to make up for decreases in net interest income. Events Similar to the COVID-19 Pandemic Could Adversely Affect our Business Activities, Financial Condition, and Results of Operations.
Removed
Shareholder Dilution Could Occur if Additional Stock is Issued in the Future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease expires in 2023 and the Company intends to renew the lease. (2) Thirty-one of the Bank’s ATMs are seasonal and not listed individually above. Thirty of the seasonal ATMs are located on the Big E grounds during events and one additional ATM is located in Westfield.
Biggest changeThe lease expires in 2028. (2) Thirty-three of the Bank’s ATMs are seasonal and not listed individually above. Thirty-two of the seasonal ATMs are located on the Big E grounds during events and one additional ATM is located in Westfield.
Location Ownership Year Opened Year of Lease or License Expiration Main Office: 141 Elm Street Westfield, MA Owned 1964 N/A Technology Center: 9-13 Chapel Street Westfield, MA Leased 2015 2028 Retail Lending: 136 Elm Street Westfield, MA Owned 2011 N/A Commercial Lending & Middle Market: 1500 Main Street Springfield, MA Leased 2014 2024 Commercial Lending/Credit Admin and Training Center: 219/229 Exchange Street Chicopee, MA Owned 2009/1998 N/A Branch Offices: 206 Park Street West Springfield, MA Owned 1957 N/A 655 Main Street Agawam, MA Owned 1968 N/A 26 Arnold Street Westfield, MA Owned 1976 N/A 300 Southampton Road Westfield, MA Owned 1987 N/A 462 College Highway Southwick, MA Owned 1990 N/A 382 North Main Street East Longmeadow, MA Leased 1997 2027 1500 Main Street Springfield, MA Leased 2006 2023 43 Location Ownership Year Opened Year of Lease or License Expiration 1650 Northampton Street Holyoke, MA Owned 2001 N/A 560 East Main Street Westfield, MA Owned 2007 N/A 237 South Westfield Street Feeding Hills, MA Leased 2009 2023 12 East Granby Road Granby, CT Owned 2021 N/A 47 Palomba Drive Enfield, CT Leased 2014 2024 39 Morgan Road West Springfield, MA Owned 2005 N/A 1342 Liberty Street (1) Springfield, MA Owned 2008 N/A 70 Center Street Chicopee, MA Owned 1973 N/A 569 East Street Chicopee, MA Owned 1976 N/A 599 Memorial Drive Chicopee, MA Leased 1977 2027 435 Burnett Road Chicopee, MA Owned 1990 N/A 477A Center Street Ludlow, MA Leased 2002 2032 350 Palmer Road Ware, MA Leased 2009 2027 32 Willamansett Street South Hadley, MA Leased 2008 2027 14 Russell Road Huntington, MA Owned 2020 N/A 337 Cottage Grove Road Bloomfield, CT Leased 2020 2035 977 Farmington Avenue West Hartford, CT Leased 2020 2030 44 Location Ownership Year Opened Year of Lease or License Expiration ATMs (2) : 516 Carew Street Springfield, MA Leased 2002 2023 1000 State Street Springfield, MA Leased 2003 2023 788 Memorial Avenue West Springfield, MA Leased 2006 2025 2620 Westfield Street West Springfield, MA Tenant at will 2006 N/A 98 Southwick Road Westfield, MA Leased 2006 2026 115 West Silver Street Westfield, MA Tenant at will 2005 N/A 98 Lower Westfield Road Holyoke, MA Leased 2010 2025 Westfield State University 577 Western Avenue Westfield, MA Ely Hall Tenant at will 2010 N/A Wilson Hall Tenant at will 2010 N/A 208 College Highway Southwick, MA Leased 2010 2025 110 Cherry Street Holyoke, MA Tenant at will 2018 N/A 291 Springfield Street Chicopee, MA Tenant at will 2015 N/A Springfield Visitors Center 1319 Main Street Springfield, MA Leased 2018 2023 Union Station 55 Frank B.
Location Ownership Year Opened Year of Lease or License Expiration Main Office: 141 Elm Street Westfield, MA Owned 1964 N/A Technology Center: 9-13 Chapel Street Westfield, MA Leased 2015 2028 Retail Lending: 136 Elm Street Westfield, MA Owned 2011 N/A Commercial Lending & Middle Market: 1500 Main Street Springfield, MA Leased 2014 2024 Commercial Lending/Credit Admin and Training Center: 219/229 Exchange Street Chicopee, MA Owned 2009/1998 N/A Branch Offices: 206 Park Street West Springfield, MA Owned 1957 N/A 655 Main Street Agawam, MA Owned 1968 N/A 26 Arnold Street Westfield, MA Owned 1976 N/A 300 Southampton Road Westfield, MA Owned 1987 N/A 462 College Highway Southwick, MA Owned 1990 N/A 382 North Main Street East Longmeadow, MA Leased 1997 2027 1500 Main Street Springfield, MA Leased 2006 2028 51 Location Ownership Year Opened Year of Lease or License Expiration 1650 Northampton Street Holyoke, MA Owned 2001 N/A 560 East Main Street Westfield, MA Owned 2007 N/A 237 South Westfield Street Feeding Hills, MA Leased 2009 2028 12 East Granby Road Granby, CT Owned 2021 N/A 47 Palomba Drive Enfield, CT Leased 2014 2024 39 Morgan Road West Springfield, MA Owned 2005 N/A 1342 Liberty Street (1) Springfield, MA Owned 2008 N/A 70 Center Street Chicopee, MA Owned 1973 N/A 569 East Street Chicopee, MA Owned 1976 N/A 599 Memorial Drive Chicopee, MA Leased 1977 2027 435 Burnett Road Chicopee, MA Owned 1990 N/A 477A Center Street Ludlow, MA Leased 2002 2032 350 Palmer Road Ware, MA Leased 2009 2027 32 Willamansett Street South Hadley, MA Leased 2008 2027 14 Russell Road Huntington, MA Owned 2020 N/A 337 Cottage Grove Road Bloomfield, CT Leased 2020 2035 977 Farmington Avenue West Hartford, CT Leased 2020 2030 52 Location Ownership Year Opened Year of Lease or License Expiration ATMs (2) : 516 Carew Street Springfield, MA Leased 2002 2024 1000 State Street Springfield, MA Leased 2003 2024 788 Memorial Avenue West Springfield, MA Leased 2006 2025 2620 Westfield Street West Springfield, MA Tenant at will 2006 N/A 98 Southwick Road Westfield, MA Leased 2006 2026 115 West Silver Street Westfield, MA Tenant at will 2005 N/A 98 Lower Westfield Road Holyoke, MA Leased 2010 2025 Westfield State University 577 Western Avenue Westfield, MA Ely Hall Tenant at will 2010 N/A Wilson Hall Tenant at will 2010 N/A 208 College Highway Southwick, MA Leased 2010 2025 110 Cherry Street Holyoke, MA Tenant at will 2018 N/A 291 Springfield Street Chicopee, MA Tenant at will 2015 N/A Springfield Visitors Center 1319 Main Street Springfield, MA Leased 2018 2026 Union Station 55 Frank B.
ITEM 2. PROPERTIES. The Company currently conducts business through our twenty-five banking offices, ten free-standing ATMs and an additional fourteen free-standing and thirty-one seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
ITEM 2. PROPERTIES. The Company currently conducts business through our twenty-five banking offices, ten free-standing ATMs and an additional fourteen free-standing and thirty-three seasonal or temporary ATMs that are owned and serviced by a third party, whereby the Bank pays a rental fee and shares in the surcharge revenue.
Murray Street Springfield, MA Leased 2018 2023 701 Center Street Chicopee, MA Tenant at will 2015 N/A 627 Randall Road Ludlow, MA Tenant at will 2015 N/A 26 Central Street West Springfield, MA Tenant at will 2021 N/A 1144 Southampton Road Westfield, MA Leased 2022 2027 45 Location Ownership Year Opened Year of Lease or License Expiration Big E ATMs: 1305 Memorial Avenue West Springfield, MA Better Living Center Leased 2011 2026 Better Living Center Leased 2011 2026 Better Living Center (Door 6) Leased 2011 2026 Big E Coliseum Leased 2015 2026 Big E Young Building Leased 2011 2026 Big E Mallary Complex Leased 2011 2026 (1) The parking lot on this property is leased.
Murray Street Springfield, MA Leased 2018 2028 701 Center Street Chicopee, MA Tenant at will 2015 N/A 627 Randall Road Ludlow, MA Tenant at will 2015 N/A 26 Central Street West Springfield, MA Tenant at will 2021 N/A 1144 Southampton Road Westfield, MA Leased 2022 2027 53 Location Ownership Year Opened Year of Lease or License Expiration Big E ATMs: 1305 Memorial Avenue West Springfield, MA Better Living Center Leased 2011 2026 Better Living Center Leased 2011 2026 Better Living Center (Door 6) Leased 2011 2026 Big E Coliseum Leased 2015 2026 Big E Young Building Leased 2011 2026 Big E Mallary Complex Leased 2011 2026 _____________________________ (1) The parking lot on this property is leased.
The following table sets forth certain information regarding our properties as of December 31, 2022. As of this date, the premises and equipment, net of depreciation, owned by us had an aggregate net book value of $25.0 million. We believe that our existing facilities are sufficient for our current needs.
The following table sets forth certain information regarding our properties as of December 31, 2023. As of this date, the premises and equipment, net of depreciation, owned by us had an aggregate net book value of $25.6 million. We believe that our existing facilities are sufficient for our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject, other than routine legal proceedings occurring in the ordinary course of business.
Biggest changeITEM 3. LEGAL PROCEEDINGS. During the fiscal year ended December 31, 2023, except as set forth below, the Company was not involved in any material pending legal proceedings as a plaintiff or as a defendant, other than routine legal proceedings occurring in the ordinary course of business.
Removed
Management does not believe resolution of any present litigation will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company.
Added
Management believes that those routine legal proceedings involve, in the aggregate, amounts that are immaterial to the Company’s financial condition and results of operations financial condition or results of operations.
Added
In the fourth quarter of 2023, the Company reached an agreement to settle two (2) purported class action lawsuits concerning the Company’s deposit products and related disclosures, specifically involving overdraft fees and insufficient funds fees.
Added
The matters, which asserted claims for breach of contract including the covenant of good faith and fair dealing against the Company, were filed in the Massachusetts Superior Court, County of Suffolk, on June 10, 2022 and July 29, 2022, respectively.
Added
Also in March 2022, the Company received from the named plaintiff in one of the putative class action lawsuits a demand letter pursuant to the Massachusetts Consumer Protection Act, M.G.L Ch. 93A (“Chapter 93A”).
Added
The demand letter sought restitution and debt forgiveness for the named plaintiff and the putative class, plus double or treble damages and reasonable attorneys’ fees, as may be allowed under Chapter 93A.
Added
The Bank retained outside litigation counsel in these matters, and discussions to find a mutually acceptable resolution, including an arms-length mediation before a neutral mediator, proceeded between the parties.
Added
On January 5, 2024, the cases were refiled as a single action in federal court in Massachusetts, where the plaintiffs have moved for preliminarily approval of a class settlement, under which the Bank expects to pay damages of approximately $510,000 in exchange for the dismissal with prejudice and release of all claims that were or could have been asserted in the putative class action lawsuits on behalf of the plaintiffs and all putative settlement class members.
Added
The proposed settlement remains subject to preliminary court approval, notice to class members, and final court approval. The $510,000 in settlement expense was included in non-interest expense in the Company’s Consolidated Statements of Net Income for the year ended December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+2 added−2 removed3 unchanged
Biggest changeThese repurchases were reported by each reporting person on January 4, 2023. 47 Stock Performance Graph. The following graph compares our total cumulative shareholder return (which assumes the reinvestment of all dividends) by an investor who invested $100.00 on December 31, 2017 to December 31, 2022, to the total return by an investor who invested $100.00 in the S&P U.S.
Biggest changeThe following graph compares our total cumulative shareholder return (which assumes the reinvestment of all dividends) by an investor who invested $100.00 on December 31, 2018 to December 31, 2023, to the total return by an investor who invested $100.00 in the S&P U.S. Banks Index $1 Billion - $5 Billion, the S&P U.S.
Banks Index $1 Billion - $5 Billion, the S&P U.S. BMI Banks New England Region Index and the NASDAQ Bank Index. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Western New England Bancorp, Inc., the S&P U.S. Banks Index $1 Billion - $5 Billion, the S&P U.S.
BMI Banks New England Region Index and the NASDAQ Bank Index. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Western New England Bancorp, Inc., the S&P U.S. Banks Index $1 Billion - $5 Billion, the S&P U.S.
Recent Sales of Unregistered Securities. There were no sales by the Company of unregistered securities during the year ended December 31, 2022. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table sets forth information with respect to purchases made by the Company during the three months ended December 31, 2022.
Recent Sales of Unregistered Securities. There were no sales by the Company of unregistered securities during the year ended December 31, 2023. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table sets forth information with respect to purchases made by the Company during the three months ended December 31, 2023.
Such number of shareholders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees. Dividend Policy. The Company maintains a dividend reinvestment and direct stock purchase plan (the “DRSPP”).
Such number of shareholders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees. Dividend Policy. The Company maintains a dividend reinvestment and direct stock purchase plan (the "DRSPP").
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information. The Company’s common stock is currently listed on NASDAQ under the trading symbol “WNEB.” As of December 31, 2022, there were 22,216,789 shares of the Company’s common stock outstanding by approximately 1,973 shareholders, as obtained through our transfer agent.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information. The Company’s common stock is currently listed on NASDAQ under the trading symbol “WNEB.” As of December 31, 2023, there were 21,666,807 shares of the Company’s common stock outstanding by approximately 1,921 shareholders, as obtained through our transfer agent.
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)(3) October 1 - 31, 2022 78,826 8.54 78,826 1,056,344 November 1 - 30, 2022 — — — 1,056,344 December 1 - 31, 2022 14,099 9.42 — 1,056,344 Total 92,925 8.67 78,826 1,056,344 ___________________________ (1) On April 27, 2021, the Board of Directors approved an additional stock repurchase plan authorizing the Company to purchase up to 2,400,000 shares, or 10%, of its outstanding common stock.
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) October 1 - 31, 2023 228,427 7.08 228,427 423,012 November 1 - 30, 2023 16,412 7.31 16,412 406,600 December 1 - 31, 2023 (2) 15,596 8.95 — 406,600 Total 260,435 7.20 244,839 406,600 ___________________________ (1) On July 26, 2022, the Board of Directors approved an additional stock repurchase plan authorizing the Company to purchase up to 1,100,000 shares, or 5%, of its outstanding common stock.
BMI Banks New England Region Index and the NASDAQ Bank Index Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Western New England Bancorp, Inc. 100.00 93.11 91.22 67.50 87.88 97.53 S&P U.S. Banks $1 Billion - $5 Billion 100.00 83.20 103.71 93.89 127.16 114.69 S&P U.S.
BMI Banks New England Region Index and the NASDAQ Bank Index Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Western New England Bancorp, Inc. 100.00 97.97 72.50 94.38 104.75 103.62 S&P U.S. Banks $1 Billion - $5 Billion 100.00 124.65 112.84 152.84 137.84 139.95 S&P U.S.
Removed
(2) On July 26, 2022, the Board of Directors approved an additional stock repurchase plan authorizing the Company to purchase up to 1,100,000 shares, or 5%, of its outstanding common stock. (3) Repurchase of 14,099 shares related to tax obligations for shares of restricted stock that vested on December 31, 2022 under our 2014 Omnibus Incentive Plan.
Added
(2) Repurchase of 15,596 shares related to tax obligations for shares of restricted stock that vested on December 31, 2023 under our 2014 Omnibus Incentive Plan. These repurchases were reported by each reporting person on January 4, 2024. 55 Stock Performance Graph.
Removed
BMI Banks New England Region Index 100.00 73.26 87.15 75.48 105.35 96.49 NASDAQ Bank Index 100.00 83.36 104.19 96.44 137.82 115.38 48
Added
BMI Banks New England Region Index 100.00 118.96 103.03 143.80 131.71 121.68 NASDAQ Bank Index 100.00 124.38 115.04 164.44 137.65 132.92 56

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+43 added−31 removed38 unchanged
Biggest changeFor the twelve months ended 12/31/2022 12/31/2021 12/31/2020 (In thousands) Loans (no tax adjustment) $ 77,264 $ 74,200 $ 77,837 Tax-equivalent adjustment (1) 494 420 447 Loans (tax-equivalent basis) $ 77,758 $ 74,620 $ 78,284 Securities (no tax adjustment) $ 8,296 $ 5,394 $ 4,342 Tax-equivalent adjustment (1) 3 4 18 Securities (tax-equivalent basis) $ 8,299 $ 5,398 $ 4,360 Net interest income (no tax adjustment) $ 79,232 $ 73,177 $ 64,430 Tax equivalent adjustment (1) 497 424 465 Net interest income (tax-equivalent basis) $ 79,729 $ 73,601 $ 64,895 Net interest income (no tax adjustment) $ 79,232 $ 73,177 $ 64,430 Less: Purchase accounting adjustments 175 (55 ) 976 Prepayment penalties and fees 281 181 409 PPP fee income 728 6,769 4,842 Adjusted net interest income (non-GAAP) $ 78,048 $ 66,282 $ 58,203 Average interest-earning assets $ 2,396,972 $ 2,329,877 $ 2,197,692 Average interest-earnings asset, excluding average PPP loans $ 2,391,252 $ 2,219,286 $ 2,052,188 Net interest margin (no tax adjustment) 3.31 % 3.14 % 2.93 % Net interest margin, tax-equivalent 3.33 % 3.16 % 2.95 % Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP) 3.26 % 2.99 % 2.84 % 54 For the twelve months ended 12/31/2022 12/31/2021 12/31/2020 (In thousands) Income Before Income Taxes (GAAP) $ 34,629 $ 31,724 $ 14,156 Provision (credit) for loan losses 700 (925 ) 7,775 PPP income (728 ) (6,769 ) (4,842 ) Gain on defined benefit plan curtailment (2,807 ) — — Income Before Taxes, Provision, PPP Income and Defined Benefit Curtailment (non-GAAP) $ 31,794 $ 24,030 $ 17,089 Adjusted Efficiency Ratio: Non-interest Expense (GAAP) $ 57,235 $ 54,942 $ 51,750 Non-GAAP adjustments: Loss on prepayment of borrowings — (45 ) (987 ) Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP) $ 57,235 $ 54,897 $ 50,763 Net Interest Income (GAAP) $ 79,232 $ 73,177 $ 64,430 Non-interest Income (GAAP) $ 13,332 $ 12,564 $ 9,251 Non-GAAP adjustments: Loss (gain) on securities, net 4 72 (1,965 ) Unrealized losses (gain) on marketable equity securities 717 168 (109 ) Loss on interest rate swap termination — 402 2,353 Gain on non-marketable equity investments (422 ) (898 ) — Gain on defined benefit plan curtailment (2,807 ) — — Non-interest Income for Adjusted Efficiency Ratio (non-GAAP) $ 10,824 $ 12,308 $ 9,530 Total Revenue for Adjusted Efficiency Ratio (non-GAAP) $ 90,056 $ 85,485 $ 73,960 Efficiency Ratio (GAAP) 61.83 % 64.08 % 70.24 % Adjusted Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP)) 63.55 % 64.64 % 69.97 % (1) The tax equivalent adjustment is based upon a 21% tax rate for 2022, 2021 and 2020. 55 Comparison of Financial Condition at December 31, 2022 and December 31, 2021.
Biggest changeFor the twelve months ended 12/31/2023 12/31/2022 12/31/2021 (In thousands) Loans (no tax adjustment) $ 91,169 $ 77,264 $ 74,200 Tax-equivalent adjustment (1) 471 494 420 Loans (tax-equivalent basis) $ 91,640 $ 77,758 $ 74,620 Securities (no tax adjustment) $ 8,370 $ 8,296 $ 5,394 Tax-equivalent adjustment (1) 1 3 4 Securities (tax-equivalent basis) $ 8,371 $ 8,299 $ 5,398 Net interest income (no tax adjustment) $ 67,909 $ 79,232 $ 73,177 Tax equivalent adjustment (1) 472 497 424 Net interest income (tax-equivalent basis) $ 68,381 $ 79,729 $ 73,601 Net interest income (no tax adjustment) $ 67,909 $ 79,232 $ 73,177 Less: Purchase accounting adjustments (50 ) 175 (55 ) Prepayment penalties and fees 64 281 181 PPP fee income 99 728 6,769 Adjusted net interest income (non-GAAP) $ 67,796 $ 78,048 $ 66,282 Average interest-earning assets $ 2,407,251 $ 2,396,972 $ 2,329,877 Average interest-earnings asset, excluding average PPP loans $ 2,405,525 $ 2,391,252 $ 2,219,286 Net interest margin (no tax adjustment) 2.82 % 3.31 % 3.14 % Net interest margin, tax-equivalent 2.84 % 3.33 % 3.16 % Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP) 2.82 % 3.26 % 2.99 % 63 At or for the twelve months ended 12/31/2023 12/31/2022 12/31/2021 (In thousands) Book Value per Share (GAAP) $ 10.96 $ 10.27 $ 9.87 Non-GAAP adjustments: Goodwill (0.58 ) (0.56 ) (0.55 ) Core deposit intangible (0.08 ) (0.10 ) (0.11 ) Tangible Book Value per Share (non-GAAP) $ 10.30 $ 9.61 $ 9.21 Income Before Income Taxes (GAAP) $ 19,584 $ 34,629 $ 31,724 Non-GAAP adjustments: Provision for (reversal of) credit losses 872 700 (925 ) PPP Income (99 ) (728 ) (6,769 ) Gain on bank-owned life insurance death benefit (778 ) - — Loss (gain) on defined benefit plan termination 1,143 (2,807 ) — Income Before Taxes, Provision, PPP Income, Bank-Owned Life Insurance Death Benefit and Defined Benefit Termination (non-GAAP) $ 20,722 $ 31,794 $ 24,030 Adjusted Efficiency Ratio: Non-interest Expense (GAAP) $ 58,350 $ 57,235 $ 54,942 Non-GAAP adjustments: Loss on prepayment of borrowings — — (45 ) Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP) $ 58,350 $ 57,235 $ 54,897 Net Interest Income (GAAP) $ 67,909 $ 79,232 $ 73,177 Non-interest Income (GAAP) $ 10,897 $ 13,332 $ 12,564 Non-GAAP adjustments: Loss on disposal of premises and equipment 3 — — Loss on securities, net — 4 72 Unrealized losses on marketable equity securities 1 717 168 Loss on interest rate swap termination — — 402 Gain on bank-owned life insurance death benefit (778 ) — — Gain on non-marketable equity investments (590 ) (422 ) (898 ) Loss (gain) on defined benefit plan termination 1,143 (2,807 ) — Non-interest Income for Adjusted Efficiency Ratio (non-GAAP) $ 10,676 $ 10,824 $ 12,308 Total Revenue for Adjusted Efficiency Ratio (non-GAAP) $ 78,585 $ 90,056 $ 85,485 Efficiency Ratio (GAAP) 74.04 % 61.83 % 64.08 % Adjusted Efficiency Ratio (Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP)/Total Revenue for Adjusted Efficiency Ratio (non-GAAP)) 74.25 % 63.55 % 64.64 % (1) The tax equivalent adjustment is based upon a 21% tax rate for 2023, 2022 and 2021. 64 Comparison of Financial Condition at December 31, 2023 and December 31, 2022.
This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two-year horizon, assuming no balance sheet growth. 62 The repricing and/or new rates of assets and liabilities moved in tandem with market rates.
This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two-year horizon, assuming no balance sheet growth. The repricing and/or new rates of assets and liabilities moved in tandem with market rates.
We monitor interest rate sensitivity so that we can adjust our asset and liability mix in a timely manner and minimize the negative effects of changing rates. The Company’s liquidity sources are vulnerable to various uncertainties beyond our control.
We monitor interest rate sensitivity so that we can adjust our asset and liability mix in a timely manner and minimize the negative effects of changing rates. 71 The Company’s liquidity sources are vulnerable to various uncertainties beyond our control.
Fluctuations in interest rates will also affect the market value of all interest-earning assets and interest-bearing liabilities. 61 The Company’s interest rate management strategy is to limit fluctuations in net interest income as interest rates vary up or down and control variations in the market value of assets, liabilities and net worth as interest rates vary.
Fluctuations in interest rates will also affect the market value of all interest-earning assets and interest-bearing liabilities. The Company’s interest rate management strategy is to limit fluctuations in net interest income as interest rates vary up or down and control variations in the market value of assets, liabilities and net worth as interest rates vary.
Balances in cash and cash equivalents will fluctuate due primarily to the timing of net deposit flows, borrowing and loan inflows and outflows, investment purchases and maturities, calls and sales proceeds, and the immediate liquidity needs of the Company.
Balances in cash and cash equivalents will fluctuate due primarily to the timing of net deposit flows, borrowing and loan inflows and outflows, investment purchases and maturities, calls and sales proceeds, and the immediate liquidity needs of the Company. Investments.
(2) Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21% for 2022, 2021 and 2020. 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. See “Explanation of Use of Non-GAAP Financial Measurements”.
(2) Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21% for 2023, 2022 and 2021. 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. See “Explanation of Use of Non-GAAP Financial Measurements”.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto, each appearing elsewhere in this Annual Report on Form 10-K. Management’s discussion focuses on 2022 results compared to 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto, each appearing elsewhere in this Annual Report on Form 10-K. Management’s discussion focuses on 2023 results compared to 2022.
(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”. 52 Rate/Volume Analysis .
(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”. 61 Rate/Volume Analysis .
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.
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.
At December 31, 2022, the Company and the Bank exceeded each of the applicable regulatory capital requirements (See Note 13, Regulatory Capital , to our consolidated financial statements for further information on our regulatory requirements).
At December 31, 2023, the Company and the Bank exceeded each of the applicable regulatory capital requirements (See Note 13, Regulatory Capital , to our consolidated financial statements for further information on our regulatory requirements).
In connection with our overall growth strategy, we seek to: ● Grow the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area of Hampden County and Hampshire County in western Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase the net interest margin and loan income; ● Supplement the commercial portfolio by growing the residential real estate portfolio to diversify the loan portfolio and deepen customer relationships; ● Focus on expanding our retail banking deposit franchise and increase the number of households served within our designated market area; ● Invest in people, systems and technology to grow revenue, improve efficiency and enhance the overall customer experience; ● Grow revenues, increase tangible book value, continue to pay competitive dividends to shareholders and utilize the Company’s stock repurchase plan to leverage our capital and enhance franchise value; and ● Consider growth through acquisitions.
In connection with our overall growth strategy, we seek to: ● Increase market share and achieve scale to improve the Company’s profitability and efficiency and return value to shareholders; ● Grow the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area of Hampden 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 per share and tangible book value, 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.
Principal payments expected to be made on our lease liabilities during the twelve months ended December 31, 2023 were $1.4 million. The remaining lease liability payments totaled $9.8 million and are expected to be made after December 31, 2023 (See Note 12, Leases , to our consolidated financial statements for further information on our lease obligations).
Principal payments expected to be made on our lease liabilities during the twelve months ended December 31, 2024 were $1.5 million. The remaining lease liability payments totaled $8.4 million and are expected to be made after December 31, 2024 (See Note 12, Leases , to our consolidated financial statements for further information on our lease obligations).
For a discussion of 2021 results compared to 2020, refer to Part II, Item 7 of our Annual Report filed on Form 10-K, which was filed with the SEC on March 11, 2022. Overview.
For a discussion of 2022 results compared to 2021, refer to Part II, Item 7 of our Annual Report filed on Form 10-K, which was filed with the SEC on March 10, 2023. Overview.
Interest-bearing liabilities consist primarily of certificates of deposit and money market accounts, demand deposit accounts and savings account deposits and borrowings from the FHLB. The consolidated results of operations also depend on the provision for loan losses, non-interest income, and non-interest expense.
Interest-bearing liabilities consist primarily of time deposits and money market accounts, demand deposits, savings accounts and borrowings from the FHLB. The consolidated results of operations also depend on the provision for loan losses, non-interest income, and non-interest expense.
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 year ended December 31, 2022, we originated $447.4 million in loans, compared to $611.4 million in 2021.
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 year ended December 31, 2023, we originated $225.6 million in loans, compared to $447.4 million in 2022.
In 2022, cash flows from deposit inflows were used to fund loan growth and purchase held-to-maturity and available-for-sale securities. The Company continues its emphasis on growing commercial loans, which typically have variable interest rates and shorter maturities than residential loans. The actual amount of time before loans are repaid can be significantly affected by changes in market interest rates.
In 2022, cash flows from deposit inflows were used to fund loan growth and purchase HTM and AFS securities. The Company continues its emphasis on growing commercial loans, which typically have variable interest rates and shorter maturities than residential loans. The actual amount of time before loans are repaid can be significantly affected by changes in market interest rates.
The tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements”. 53 Explanation of Use of Non-GAAP Financial Measurements.
The tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements.” 62 Explanation of Use of Non-GAAP Financial Measurements.
At December 31, 2022, time deposit accounts scheduled to mature within one year totaled $288.7 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.
At December 31, 2023, time deposit accounts scheduled to mature within one year totaled $596.3 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit.
Cash and cash equivalents is comprised of cash on hand and amounts due from banks, interest-earning deposits in other financial institutions and federal funds sold. Cash and cash equivalents totaled $30.3 million, or 1.2% of total assets, at December 31, 2022 and $103.5 million, or 4.1% of total assets, at December 31, 2021.
Cash and cash equivalents is comprised of cash on hand and amounts due from banks, interest-earning deposits in other financial institutions and federal funds sold. Cash and cash equivalents totaled $28.8 million, or 1.1% of total assets, at December 31, 2023 and $30.3 million, or 1.2% of total assets, at December 31, 2022.
For more information regarding the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.” As of December 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. Pension Plan.
Tangible book value is a Non-GAAP measure. For more information regarding the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.” As of December 31, 2023, 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. Pension Plan.
At December 31, 2022, total assets were $2.6 billion, an increase of $14.7 million, or 0.6%, from December 31, 2021. The balance sheet composition and changes since December 31, 2021 are discussed below. Cash and Cash Equivalents.
At December 31, 2023, total assets were $2.6 billion, an increase of $11.4 million, or 0.4%, from December 31, 2022. The balance sheet composition and changes since December 31, 2022 are discussed below. Cash and Cash Equivalents.
Non-interest income includes service fees and charges, income on bank-owned life insurance, gains on sales of mortgages, gains on non-marketable equity investments and gains (losses) on securities. Non-interest expense includes salaries and employee benefits, occupancy expenses, data processing, advertising expense, FDIC insurance assessment, professional fees and other general and administrative expenses. Loan Modifications/Troubled Debt Restructurings .
Non-interest income includes service fees and charges, income on bank-owned life insurance, gains on sales of mortgages, gains on non-marketable equity investments and gains (losses) on securities. Non-interest expense includes salaries and employee benefits, occupancy expenses, data processing, advertising expense, FDIC insurance assessment, professional fees and other general and administrative expenses. Critical Accounting Policies.
Total remaining contractual obligations outstanding with this vendor as of December 31, 2022 were estimated to be $10.7 million, with $4.9 million expected to be paid within one year and the remaining $5.8 million to be paid within the next three years. Further, the Company has operating leases for certain of its banking offices and ATMs.
Total remaining contractual obligations outstanding with this vendor as of December 31, 2023 were estimated to be $11.6 million, with $5.4 million expected to be paid within one year and the remaining $6.2 million to be paid within the next three 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 sixteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $11.2 million as of December 31, 2022.
Our leases have remaining lease terms of less than one year to fifteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $9.9 million as of December 31, 2023.
For the twelve months ended December 31, 2022, the average cost of core deposits, including non-interest-bearing demand deposits, increased three basis points from 0.17% for the twelve months ended December 31, 2021 to 0.20% for the twelve months ended December 31, 2022.
For the twelve months ended December 31, 2023, the average cost of core deposits, including non-interest-bearing demand deposits, increased 45 basis points from 0.20% for the twelve months ended December 31, 2022 to 0.65% for the twelve months ended December 31, 2023.
At December 31, 2022, the Company reversed $7.3 million in net unrealized losses recorded in accumulated other comprehensive income attributed to both the DB plan curtailment resulting from the termination of the DB Plan as well as changes in discount rates. In addition, the Company recorded a gain on curtailment of $2.8 million through non-interest income.
At December 31, 2022, the Company reversed $7.3 million in net unrealized losses recorded in accumulated other comprehensive income attributed to both the DB Plan curtailment resulting from the termination of the DB Plan as well as changes in discount rates.
These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows.
They should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows.
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.
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.
At December 31, 2022, the Company had approximately $176.7 million in loan commitments and letters of credit to borrowers and approximately $328.8 million in available home equity and other unadvanced lines of credit. 60 Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors.
At December 31, 2023, the Company had approximately $92.0 million in loan commitments and letters of credit to borrowers and approximately $352.5 million in available home equity and other unadvanced lines of credit. Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors.
The net interest margin for the twelve months ended December 31, 2022 was 3.31%, compared to 3.14% during the twelve months ended December 31, 2021. The net interest margin, on a tax-equivalent basis, was 3.33% for the twelve months ended December 31, 2022, compared to 3.16% for the twelve months ended December 31, 2021.
The net interest margin, on a tax-equivalent basis, was 2.84% for the twelve months ended December 31, 2023, compared to 3.33% for the twelve months ended December 31, 2022.
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 (See Note 8, Long-Term Debt , to our consolidated financial statements for further information on our long-term debt).
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 (See Note 8, Long-Term Debt , to our consolidated financial statements for further information on our long-term debt). 70 We do not anticipate any material capital expenditures during the calendar year 2024, except in pursuance of the Company’s strategic initiatives.
The average cost of time deposits decreased 12 basis points from 0.53% for the twelve months ended December 31, 2021 to 0.41% during the same period in 2022.
The average cost of time deposits increased 262 basis points from 0.41% for the twelve months ended December 31, 2022 to 3.03% during the same period in 2023.
During the twelve months ended December 31, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased one basis point from 0.30% for the twelve months ended December 31, 2021 to 0.29% for the twelve months ended December 31, 2022.
During the twelve months ended December 31, 2023, the average cost of funds, including non-interest-bearing demand accounts and borrowings, increased 115 basis points from 0.29% for the twelve months ended December 31, 2022 to 1.44%.
Core deposits, which the Company defines as all deposits except time deposits, decreased from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.8 billion, or 81.5% of total deposits, at December 31, 2022.
Core deposits, which the Company defines as all deposits except time deposits, decreased $285.4 million, or 15.7%, from $1.8 billion, or 81.5% of total deposits, at December 31, 2022, to $1.5 billion, or 71.5% of total deposits, at December 31, 2023.
For the twelve months ended December 31, 2022, the Company reported net income of $25.9 million, or $1.18 per diluted share, compared to $23.7 million, or $1.02 per diluted share, for the twelve months ended December 31, 2021. Net Interest Income and Net Interest Margin.
For the twelve months ended December 31, 2023, the Company reported net income of $15.1 million, or $0.70 per diluted share, compared to $25.9 million, or $1.18 per diluted share, for the twelve months ended December 31, 2022.
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.
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.
On October 31, 2022, the Board of Director’s previously approved termination of the Westfield Bank Defined Benefit Pension Plan (“DB Plan”) became effective, subject to regulatory approvals.
The Board of Directors previously announced the termination of the Westfield Bank Defined Benefit Plan (the “DB Plan”) on October 31, 2022, subject to required regulatory approval.
The average cost of borrowings, which include FHLB advances and subordinated debt, increased 122 basis points from 3.04% for the twelve months ended December 31, 2021 to 4.26% for the twelve months ended December 31, 2022, due to the issuance of $20.0 million in subordinated debt in April 2021.
The average cost of borrowings, which include FHLB advances and subordinated debt, increased 58 basis points from 4.26% for the twelve months ended December 31, 2022 to 4.84% for the twelve months ended December 31, 2023.
GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature.
The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations.
We do not anticipate any material capital expenditures during the calendar year 2023, 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. Off-Balance Sheet Arrangements.
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. Off-Balance Sheet Arrangements.
For the Years Ended December 31, 2022 2021 2020 Average Average Yield/ Average Average Yield/ Average Average Yield/ Balance Interest Cost Balance Interest Cost Balance Interest Cost (Dollars in thousands) ASSETS: Interest-earning assets Loans(1)(2) $ 1,953,527 $ 77,758 3.98 % $ 1,887,926 $ 74,620 3.95 % $ 1,922,607 $ 78,284 4.07 % Securities(2) 407,444 8,299 2.04 319,778 5,398 1.69 214,312 4,360 2.03 Other investments - at cost 10,289 177 1.72 10,242 115 1.12 14,915 587 3.94 Short-term investments(3) 25,712 191 0.74 111,931 139 0.12 45,858 109 0.24 Total interest-earning assets 2,396,972 86,425 3.61 2,329,877 80,272 3.45 2,197,692 83,340 3.79 Total non-interest-earning assets 152,941 147,980 140,725 Total assets $ 2,549,913 $ 2,477,857 $ 2,338,417 LIABILITIES AND EQUITY: Interest-bearing liabilities Interest-bearing checking accounts $ 139,993 530 0.38 $ 109,648 399 0.36 $ 86,086 387 0.45 Savings accounts 222,267 161 0.07 205,394 154 0.07 153,073 136 0.09 Money market accounts 890,763 3,187 0.36 776,725 2,412 0.31 521,692 2,838 0.54 Time deposits 363,258 1,474 0.41 477,067 2,543 0.53 634,111 10,139 1.60 Total interest-bearing deposits 1,616,281 5,352 0.33 1,568,834 5,508 0.35 1,394,962 13,500 0.97 Short-term borrowings and long-term debt 31,556 1,344 4.26 38,294 1,164 3.04 190,752 4,945 2.59 Interest-bearing liabilities 1,647,837 6,696 0.41 1,607,128 6,672 0.42 1,585,714 18,445 1.16 Non-interest-bearing deposits 647,971 608,936 489,602 Other non-interest-bearing liabilities 35,615 39,108 32,251 Total non-interest-bearing liabilities 683,586 648,044 521,853 Total liabilities 2,331,423 2,255,172 2,107,567 Total equity 218,490 222,685 230,850 Total liabilities and equity $ 2,549,913 $ 2,477,857 $ 2,338,417 Less: Tax-equivalent adjustment(2) (497 ) (424 ) (465 ) Net interest and dividend income $ 79,232 $ 73,177 $ 64,430 Net interest rate spread(4) 3.18 % 3.01 % 2.61 % Net interest rate spread, on a tax-equivalent basis(5) 3.20 % 3.03 % 2.63 % Net interest margin(6) 3.31 % 3.14 % 2.93 % Net interest margin, on a tax-equivalent basis(7) 3.33 % 3.16 % 2.95 % Ratio of average interest-earning assets to average interest-bearing liabilities 145.46 % 144.97 % 138.59 % (1) Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.
Loan interest and yield data does not include any accrued interest from non-accruing loans. 59 For the Years Ended December 31, 2023 2022 2021 Average Average Yield/ Average Average Yield/ Average Average Yield/ Balance Interest Cost Balance Interest Cost Balance Interest Cost (Dollars in thousands) ASSETS: Interest-earning assets Loans(1)(2) $ 2,006,166 $ 91,640 4.57 % $ 1,953,527 $ 77,758 3.98 % $ 1,887,926 $ 74,620 3.95 % Securities(2) 368,201 8,371 2.27 407,444 8,299 2.04 319,778 5,398 1.69 Other investments - at cost 12,425 558 4.49 10,289 177 1.72 10,242 115 1.12 Short-term investments(3) 20,459 1,021 4.99 25,712 191 0.74 111,931 139 0.12 Total interest-earning assets 2,407,251 101,590 4.22 2,396,972 86,425 3.61 2,329,877 80,272 3.45 Total non-interest-earning assets 155,511 152,941 147,980 Total assets $ 2,562,762 $ 2,549,913 $ 2,477,857 LIABILITIES AND EQUITY: Interest-bearing liabilities Interest-bearing checking accounts $ 142,005 1,041 0.73 $ 139,993 530 0.38 $ 109,648 399 0.36 Savings accounts 202,354 181 0.09 222,267 161 0.07 205,394 154 0.07 Money market accounts 697,621 9,529 1.37 890,763 3,187 0.36 776,725 2,412 0.31 Time deposits 524,827 15,898 3.03 363,258 1,474 0.41 477,067 2,543 0.53 Total interest-bearing deposits 1,566,807 26,649 1.70 1,616,281 5,352 0.33 1,568,834 5,508 0.35 Short-term borrowings and long-term debt 135,532 6,560 4.84 31,556 1,344 4.26 38,294 1,164 3.04 Interest-bearing liabilities 1,702,339 33,209 1.95 1,647,837 6,696 0.41 1,607,128 6,672 0.42 Non-interest-bearing deposits 602,652 647,971 608,936 Other non-interest-bearing liabilities 24,885 35,615 39,108 Total non-interest-bearing liabilities 627,537 683,586 648,044 Total liabilities 2,329,876 2,331,423 2,255,172 Total equity 232,886 218,490 222,685 Total liabilities and equity $ 2,562,762 $ 2,549,913 $ 2,477,857 Less: Tax-equivalent adjustment(2) (472 ) (497 ) (424 ) Net interest and dividend income $ 67,909 $ 79,232 $ 73,177 Net interest rate spread(4) 2.25 % 3.18 % 3.01 % Net interest rate spread, on a tax-equivalent basis(5) 2.27 % 3.20 % 3.03 % Net interest margin(6) 2.82 % 3.31 % 3.14 % Net interest margin, on a tax-equivalent basis(7) 2.84 % 3.33 % 3.16 % Ratio of average interest-earning assets to average interest-bearing liabilities 141.41 % 145.46 % 144.97 % 60 (1) Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.
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 December 31, 2022 and 2021, we did not have an outstanding balance under either of these lines of credit.
Interest rates on these lines are determined and reset on a daily basis by each respective bank. At December 31, 2023 and 2022, 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.
The increase in net interest income was due to an increase in interest and dividend income of $6.1 million, or 7.6%, partially offset by an increase in interest expense of $24,000, or 0.4%.
The decrease in net interest income was due to an increase in interest expense of $26.5 million, partially offset by an increase in interest and dividend income of $15.2 million, or 17.7%.
Investment assets under management decreased $35.6 million, or 18.9%, from $188.1 million for the year ended December 31, 2021, to $152.5 million for the year ended December 31, 2022. 57 Comparison of Operating Results for Years Ended December 31, 2022 and 2021. General.
Investment assets under management increased $19.6 million, or 12.9%, to $172.1 million as of December 31, 2023, from $152.5 million as of December 31, 2022. 66 Comparison of Operating Results for Years Ended December 31, 2023 and 2022. General.
Income tax expense for the twelve months ended December 31, 2022 was $8.7 million, representing an effective tax rate of 25.2%, compared to $8.0 million, representing an effective tax rate of 25.3%, for twelve months ended December 31, 2021. Liquidity and Capital Resources.
Income tax expense for the twelve months ended December 31, 2023 was $4.5 million, with an effective tax rate of 23.1%, compared to $8.7 million, with an effective tax rate of 25.2%, for twelve months ended December 31, 2022.
For the twelve months ended December 31, 2022, average demand deposits, an interest-free source of funds, increased $39.0 million, or 6.4%, from $609.0 million, or 28.0% of total average deposits, for the twelve months ended December 31, 2021, to $648.0 million, or 28.6% of total average deposits, for the twelve months ended December 31, 2022.
For the twelve months ended December 31, 2023, average demand deposits, an interest-free source of funds, decreased $45.3 million, or 7.0%, from $648.0 million, or 28.6% of total average deposits, for the twelve months ended December 31, 2022, to $602.7 million, or 27.8% of total average deposits. Provision for Credit Losses.
During the twelve months ended December 31, 2022, the Company reported unrealized losses on marketable equity securities of $717,000, compared to unrealized losses of $168,000 during the twelve months ended December 31, 2021.
The Company did not have comparable activity during the same period in 2022. During the twelve months ended December 31, 2022, the Company also reported unrealized losses on marketable equity securities of $717,000, compared to unrealized losses on marketable equity securities of $1,000 during the twelve months ended December 31, 2023.
During the twelve months ended December 31, 2022, net interest income increased $6.0 million, or 8.3%, to $79.2 million, compared to $73.2 million for the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2023, net interest income decreased $11.3 million, or 14.3%, to $67.9 million, compared to $79.2 million for the twelve months ended December 31, 2022.
As a result, changes in market interest rates have a greater impact on performance than do the effects of inflation. 63
Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than do the effects of inflation.
Although management believes it has established and maintained the allowance for loan losses at adequate levels, if management’s assumptions and judgments prove to be incorrect due to continued deterioration in economic, real estate and other conditions, and the allowance for loan losses is not adequate to absorb inherent losses, our earnings and capital could be significantly and adversely affected.
Although management believes it has established and maintained the allowance for credit losses at adequate levels for the current economic environment and supportable forecast period, if management’s assumptions and judgments prove to be incorrect due to changes in the economic environment and related adjustments to the quantitative components of the CECL methodology, and the allowance for credit losses is not adequate to absorb forecasted losses, our earnings and capital could be significantly and adversely affected.
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 year ended December 31, 2022 in the context of this strategy.
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.
The following table sets forth information relating to the Company for the years ended December 31, 2022, 2021 and 2020. The average yields and costs are derived by dividing interest income or interest expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances are derived from average daily balances.
The average yields and costs are derived by dividing interest income or interest expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include fees which are considered adjustments to yields.
Given our current business strategy and asset/liability structure, the more critical policy is the allowance for loan losses and provision for loan losses.
Our accounting policies are disclosed in Note 1 to our consolidated financial statements. Given our current business strategy and asset/liability structure, the more critical policy is the allowance for credit losses and provision for credit losses.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Increase (Decrease) Due to Increase (Decrease) Due to Volume Rate Net Volume Rate Net Interest-earning assets (In thousands) (In thousands) Loans (1) $ 2,593 $ 545 $ 3,138 $ (1,428 ) $ (2,236 ) $ (3,664 ) Investment securities (1) 1,480 1,421 2,901 2,136 (1,098 ) 1,038 Other investments - at cost 1 60 61 (184 ) (287 ) (471 ) Short-term investments (107 ) 159 52 160 (130 ) 30 Total interest-earning assets 3,967 2,185 6,152 684 (3,751 ) (3,067 ) Interest-bearing liabilities Interest-bearing checking accounts 110 21 131 106 (94 ) 12 Savings accounts 13 (6 ) 7 48 (30 ) 18 Money market accounts 354 421 775 1,367 (1,793 ) (426 ) Time deposits (607 ) (462 ) (1,069 ) (2,510 ) (5,086 ) (7,596 ) Short-term borrowing and long-term debt (205 ) 385 180 (3,951 ) 170 (3,781 ) Total interest-bearing liabilities (335 ) 359 24 (4,940 ) (6,833 ) (11,773 ) Change in net interest and dividend income $ 4,302 $ 1,826 $ 6,128 $ 5,624 $ 3,082 $ 8,706 (1) Securities and loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 21% for 2022, 2021 and 2020.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Increase (Decrease) Due to Increase (Decrease) Due to Volume Rate Net Volume Rate Net Interest-earning assets (In thousands) (In thousands) Loans (1) $ 2,095 $ 11,787 $ 13,882 $ 2,593 $ 545 $ 3,138 Investment securities (1) (799 ) 871 72 1,480 1,421 2,901 Other investments - at cost 37 344 381 1 60 61 Short-term investments (39 ) 869 830 (107 ) 159 52 Total interest-earning assets 1,294 13,871 15,165 3,967 2,185 6,152 Interest-bearing liabilities Interest-bearing checking accounts 8 503 511 110 21 131 Savings accounts (14 ) 34 20 13 (6 ) 7 Money market accounts (691 ) 7,033 6,342 354 421 775 Time deposits 656 13,768 14,424 (607 ) (462 ) (1,069 ) Short-term borrowing and long-term debt 4,428 788 5,216 (205 ) 385 180 Total interest-bearing liabilities 4,387 22,126 26,513 (335 ) 359 24 Change in net interest and dividend income $ (3,093 ) $ (8,255 ) $ (11,348 ) $ 4,302 $ 1,826 $ 6,128 (1) Securities and loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 21% for 2023, 2022 and 2021.
The average yield on interest-earning assets increased 15 basis point from 3.43% for the twelve months ended December 31, 2021 to 3.58% for the twelve months ended December 31, 2022.
The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, increased 62 basis points from 3.58% for the twelve months ended December 31, 2022 to 4.20% for the twelve months ended December 31, 2023.
In addition to the informational disclosure in the notes to the consolidated financial statements, our policy on this accounting policy is described in detail in the applicable sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Senior management has discussed the development and selection of this accounting policy and the related disclosures with the Audit Committee of our Board of Directors. 50 The process of evaluating the loan portfolio, classifying loans and determining the allowance and provision is described in detail in Part I under “Business – Lending Activities - Allowance for Loan Losses.” This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.
In addition to the informational disclosure in the notes to the consolidated financial statements, our policy on this accounting policy is described in detail in the applicable sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Senior management has discussed the development and selection of this accounting policy and the related disclosures with the Audit Committee of our Board of Directors.
For the twelve months ended December 31, 2022, non-interest expense increased $2.3 million, or 4.2%, to $57.2 million, compared to $54.9 million for the twelve months ended December 31, 2021.
For the twelve months ended December 31, 2023, non-interest income decreased $2.4 million, or 18.3%, from $13.3 million for the twelve months ended December 31, 2022 to $10.9 million for the twelve months ended December 31, 2023.
At December 31, 2022, the allowance for loan losses as a percentage of nonperforming loans was 350.0%, compared to 398.6%, at December 31, 2021. Although management believes it has established and maintained the allowance for loan losses at appropriate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.
Although management believes it has established and maintained the allowance for credit losses at appropriate levels for the current economic environment and supportable forecast period, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment. Non-Interest Income.
The Company’s book value per share was $10.27 at December 31, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, increased $0.40, or 4.3%, from $9.21 at December 31, 2021 to $9.61 at December 31, 2022.
The Company’s book value per share was $10.96 at December 31, 2023 compared to $10.27 at December 31, 2022, while tangible book value per share, a non-GAAP financial measure, increased $0.69, or 7.2%, from $9.61 at December 31, 2022 to $10.30 at December 31, 2023. The Company had no incurred credit losses in its investment portfolio in 2023 or 2022.
Primary Sources of Liquidity At December 31, 2022 and December 31, 2021, outstanding borrowings from the FHLB were $36.2 million and $2.7 million, respectively. At December 31, 2022, we had $407.4 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.
At December 31, 2023, we had $535.6 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.
For the twelve months ended December 31, 2022, the provision for loan losses was $700,000, compared to a credit for loan losses of $925,000 for the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2023, the Company recorded a provision for credit losses of $872,000 under the CECL model, compared to a provision for credit losses of $700,000 during the twelve months ended December 31, 2022 under the incurred loss model.
The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal. The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB. The stock is classified as a restricted investment and carried at cost which management believes approximates fair value.
The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB. The stock is classified as a restricted investment and carried at cost which management believes approximates fair value. The Company’s investment in FHLB capital stock amounted to $3.2 million and $2.9 million at December 31, 2023 and December 31, 2022, respectively.
For the twelve months ended December 31, 2022, net income was $25.9 million, or $1.18 diluted earnings per share, compared to net income of $23.7 million, or $1.02 diluted earnings per share, for the twelve months ended December 31, 2021.
You should read the following financial results for the year ended December 31, 2023 in the context of this strategy. 57 For the twelve months ended December 31, 2023, net income was $15.1 million, or $0.70 diluted earnings per share, compared to net income of $25.9 million, or $1.18 diluted earnings per share, for the twelve months ended December 31, 2022.
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. We did not have any interest rate swap agreements designated as cash flow hedges at December 31, 2022 or 2021. Recent Accounting Pronouncements.
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. Recent Accounting Pronouncements. Refer to Note 1 to our consolidated financial statements for a summary of the recent accounting pronouncements. Impact of Inflation and Changing Prices.
Servicing rights will likely continue to be retained on all loans written and sold to the secondary market. Bank-Owned Life Insurance (“BOLI”). The Company indirectly utilizes the earnings on BOLI to offset the cost of the Company’s benefit plans. The cash surrender value of BOLI was $74.6 million and $72.9 million at December 31, 2022 and 2021, respectively. Deposits.
The Company indirectly utilizes the earnings on BOLI to offset the cost of the Company’s benefit plans. The cash surrender value of BOLI was $75.1 million and $74.6 million at December 31, 2023 and 2022, respectively. Deposits.
There were no changes to the Company’s allowance for loan losses methodology during the year ended December 31, 2022. Analysis of Net Interest Income. The Company’s earnings are largely dependent on its net interest income, which is the difference between interest earned on loans and investments and the cost of funding (primarily deposits and borrowings).
Analysis of Net Interest Income. The Company’s earnings are largely dependent on its net interest income, which is the difference between interest earned on loans and investments and the cost of funding (primarily deposits and borrowings). Net interest income expressed as a percentage of average interest-earning assets is referred to as net interest margin.
During the twelve months ended December 31, 2022, the Company recorded a curtailment gain related to the DB Plan termination of $2.8 million through non-interest income. Excluding the defined benefit curtailment gain as a result of the termination of the DB Plan and BOLI death benefits, non-interest income decreased $1.5 million, or 12.5%.
During the twelve months ended December 31, 2023, the Company recorded a $1.1 million final termination expense related to the DB Plan termination, compared to a curtailment gain related to the DB Plan termination of $2.8 million, during the twelve months ended December 31, 2022.
The increase in average interest-earning assets was due to an increase in average loans of $65.6 million, or 3.5%, as well as an increase in average securities of $87.7 million, or 27.4%, partially offset by a decrease of $86.2 million, or 77.0%, in short-term investments, which consists of cash and cash equivalents.
During the twelve months ended December 31, 2023, average interest-earning assets increased $10.3 million, or 0.4%, to $2.4 billion compared to the twelve months ended December 31, 2022, primarily due to an increase in average loans of $52.6 million, or 2.7%, and an increase in average other investments of $2.1 million, or 20.8%, partially offset by a decrease in average securities of $39.2 million, or 9.6%, and a decrease in average short-term investments, consisting of cash and cash equivalents, of $5.3 million, or 20.4%.
The Company’s investment in FHLB capital stock amounted to $2.9 million and $2.2 million at December 31, 2022 and December 31, 2021, respectively. At December 31, 2022 and 2021, the Company held $423,000 of Atlantic Community Bankers Bank stock. The stock is restricted and carried in other assets at cost.
At December 31, 2023 and 2022, the Company held $423,000 of Atlantic Community Bankers Bank stock. The stock is restricted and carried in other assets at cost. The stock is evaluated for impairment based on an estimate of the ultimate recovery to the par value. Loans.
For the twelve months ended December 31, 2022, the efficiency ratio was 61.8%, compared to 64.1% for the twelve months ended December 31, 2021. For the twelve months ended December 31, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 63.6%, compared to 64.6% for the twelve months ended December 31, 2021.
For the twelve months ended December 31, 2023, the adjusted efficiency ratio, a non-GAAP financial measure, was 74.3%, compared to 63.6% for the twelve months ended December 31, 2022. For more information regarding the Company’s use of Non-GAAP financial measures see “Explanation of Use of Non-GAAP Financial Measurements.” Income Taxes.
At December 31, 2022, the Company’s available-for-sale securities portfolio decreased $47.4 million, or 24.4%, from $194.4 million at December 31, 2021 to $147.0 million at December 31, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $7.9 million, or 3.6%, from $222.3 million at December 31, 2021 to $230.2 million at December 31, 2022.
The HTM securities portfolio, recorded at amortized cost, decreased $6.8 million, or 3.0%, from $230.2 million at December 31, 2022 to $223.4 million at December 31, 2023. The marketable equity securities portfolio decreased $6.0 million, or 96.9%, from $6.2 million at December 31, 2022 to $196,000 at December 31, 2023.
The increase in shareholders’ equity reflects net income of $25.9 million, partially offset by $6.4 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $5.3 million and an increase in accumulated other comprehensive loss of $12.7 million. Total shares outstanding as of December 31, 2022 were 22,216,789.
The increase was primarily attributable to net income of $15.1 million, partially offset by a decrease in accumulated other comprehensive loss of $3.3 million, $5.0 million for the repurchase of common stock and cash dividends paid of $6.1 million. At December 31, 2023, total shares outstanding were 21,666,807.
During the twelve months ended December 31, 2022, the Company also reported realized losses on the sale of securities of $4,000, compared to realized losses on the sale of securities of $72,000 during the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2022, the Company reported realized losses on the sale of securities of $4,000. The Company did not have a comparable gain or loss during the same period in 2023. Non-Interest Expense.
In 2021, the Company sold $59.7 million in fixed rate residential real estate loans to the secondary market, compared to $277,000 in sales during the twelve months ended December 31, 2022. Other income from loan-level swap fees on commercial loans decreased $33,000, or 56.9%, and income from BOLI decreased $187,000, or 9.8%.
Income from BOLI increased $95,000, or 5.5%, from $1.7 million for the twelve months ended December 31, 2022 to $1.8 million for the twelve months ended December 31, 2023. Other income from loan-level swap fees on commercial loans decreased $25,000 for the twelve months ended December 31, 2023.
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.
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.
During the twelve months ended December 31, 2022, average interest-earning assets increased $67.1 million, or 2.9%, to $2.4 billion.
During the twelve months ended December 31, 2023, net interest income decreased $11.3 million, or 14.3%, to $67.9 million, compared to $79.2 million for the twelve months ended December 31, 2022.
Short-term borrowings and long-term debt increased $39.9 million to $42.5 million and subordinated debt outstanding totaled $19.7 million at December 31, 2022 and $19.6 million at December 31, 2021. Shareholders’ Equity. At December 31, 2022, shareholders’ equity was $228.1 million, or 8.9% of total assets, compared to $223.7 million, or 8.8% of total assets, at December 31, 2021.
At December 31, 2023, borrowings also consisted of $19.7 million in fixed-to-floating rate subordinated notes. Shareholders’ Equity. At December 31, 2023, shareholders’ equity was $237.4 million, or 9.3% of total assets, compared to $228.1 million, or 8.9% of total assets, at December 31, 2022.
The improvement in book value and tangible book value for the three months ended December 31, 2022 were primarily related to the termination of the DB Plan. Assets under Management. Total assets under management include loans serviced for others and investment assets under management.
During the twelve months ended December 31, 2023, the Company recognized the final termination expense of $1.1 million related to the DB Plan termination, which was recorded through non-interest income. Assets under Management. Total assets under management include loans serviced for others and investment assets under management.
Non-interest-bearing deposits increased $4.2 million, or 0.7%, to $645.5 million, interest-bearing checking accounts increased $3.0 million, or 2.1%, to $148.7 million, savings accounts increased $4.8 million, or 2.2%, to $222.4 million, and money market accounts decreased $49.3 million, or 5.8%, to $801.1 million.
Money market accounts decreased $166.7 million, or 20.8%, to $634.4 million, non-interest-bearing deposits decreased $65.9 million, or 10.2%, to $579.6 million, savings accounts decreased $35.0 million, or 15.7%, to $187.4 million and interest-bearing checking accounts decreased $17.7 million, or 11.9%, to $131.0 million.
In addition, the Company reported a gain of $422,000 on non-marketable equity investments during the twelve months ended December 31, 2022, compared to $898,000 during the twelve months ended December 31, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes.
During the twelve months ended December 31, 2023, the Company reported a gain of $590,000 on non-marketable equity investments compared to a gain of $422,000 during the twelve months ended December 31, 2022. During the twelve months ended December 31, 2023, the Company reported a loss on the disposal of premises and equipment of $3,000.

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