UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2025
Commission
File No.: 001-16767
Western
New England Bancorp, Inc.
(Exact
name of registrant as specified in its charter)
141
Elm Street, Westfield, Massachusetts01085
(Address
of principal executive offices, including zip code)
(413)568-1911
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share WNEB The NASDAQ Global Select Market
Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.☒
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).
☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The
aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2025, was $189,164,244. This
amount was based on the closing price as of June 30, 2025 on the NASDAQ Global Select Market (“NASDAQ”) for a share
of the registrant’s common stock, which was $9.23 on June 30, 2025.
As
of March 3, 2026, the registrant had 20,260,598shares of common stock, $0.01 par value, issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions
of the Proxy Statement for the 2026 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.
ITEM PART I PAGE
1 Business 6
1A Risk Factors 37
1B Unresolved Staff Comments 50
1C Cybersecurity 50
3 Legal Proceedings 55
4 Mine Safety Disclosures 55
PART II
7A Quantitative and Qualitative Disclosures About Market Risk 81
8 Financial Statements and Supplementary Data 81
9A Controls and Procedures 81
9B Other Information 85
9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 85
PART III
10 Directors, Executive Officers and Corporate Governance 85
11 Executive Compensation 85
13 Certain Relationships and Related Transactions and Director Independence 85
14 Principal Accounting Fees and Services 85
PART IV
15 Exhibits and Financial Statement Schedules 86
FORWARD-LOOKING
STATEMENTS
We
may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the
“SEC”), our reports to shareholders and in other communications by us. This Annual Report on Form 10-K contains “forward-looking
statements” with respect to the Company’s financial condition, liquidity, results
of operations, future performance, and business. Forward-looking statements may be identified by the use of such words
as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,”
and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to
our financial condition, results of operations and business that are subject to various factors which could cause actual results
to differ materially from these estimates. These factors include, but are not limited to:
● new legal obligations or liabilities or unfavorable resolutions of litigation;
● the highly competitive industry and market area in which we operate;
● failure or circumvention of our internal controls or procedures;
● changes in the securities markets which affect investment management revenues;
● certain of our intangible assets may become impaired in the future;
● changes in key management personnel which may adversely impact our operations;
● other risk factors detailed from time to time in our SEC filings.
Investors
should consider these risks, uncertainties, and other factors in addition to the factors under the heading “Risk Factors”
included in this filing and our other filings with the SEC.
Although
we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially
from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We do not undertake any obligation to republish revised forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except to the extent
required by law.
4
Unless
the context indicates otherwise, all references in this prospectus to “Western New England Bancorp,” “WNEB,”
“we,” “us,” “our company,” and “our” refer to Western New England Bancorp, Inc.
and its subsidiaries (including Westfield Bank, CSB Colts, Inc., Elm Street Securities Corporation, WFD Securities, Inc. and WB
Real Estate Holdings, LLC).
5
PART
I
ITEM 1. BUSINESS.
General.
Western
New England Bancorp, Inc. (“WNEB” or “Company”) (f/k/a “Westfield Financial, Inc.”) headquartered
in Westfield, Massachusetts, is a Massachusetts-chartered stock holding company and is registered as a savings and loan holding
company with the Federal Reserve Board under the Home Owners’ Loan Act, as amended (the “HOLA”). In 2001, the
Company reorganized from a Massachusetts-chartered savings bank holding company to a Massachusetts-chartered stock corporation
with the second step conversion being completed in 2007. WNEB is the parent company and owns all of the capital stock of Westfield
Bank (“Westfield” or “Bank”). The Company is also subject to the jurisdiction of the SEC and is subject
to the disclosure and other regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, as administered by the SEC. 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, 2025, WNEB had consolidated total assets of $2.7 billion, total
net loans of $2.2 billion, total deposits of $2.4 billion and total shareholders’ equity of $247.6 million.
Westfield
Bank, headquartered in Westfield, Massachusetts, is a federally-chartered savings bank organized in 1853 and is regulated by the
Office of the Comptroller of the Currency (“OCC”). The Bank is a full-service, community oriented financial institution
offering a full range of commercial and retail products and services as well as wealth management financial products. As of December
31, 2025, the Bank had twenty-five branches and seven 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. All branch and ATM locations serve Hampden
County and Hampshire County in western Massachusetts and the Capital Region in Connecticut. The Bank also provides a
variety of banking services including telephone and online banking, remote deposit capture, cash management services, overdraft
facilities, night deposit services, and safe deposit facilities. As a member of the Federal Deposit Insurance Corporation (“FDIC”),
the Bank’s deposits are insured up to the maximum FDIC insurance coverage limits. The Bank is also a member of the Federal
Home Loan Bank of Boston (“FHLB”).
On
October 21, 2016, the Company acquired Chicopee Bancorp, Inc. (“Chicopee”), the holding company for Chicopee Savings
Bank and in conjunction with the acquisition, the name of the Company was changed to Western New England Bancorp, Inc. The transaction
qualified as a tax-free reorganization for federal income tax purposes.
Subsidiary
Activities.
Western
New England Bancorp, Inc. has two subsidiaries that are included in the Company’s consolidated financial statements:
Westfield
Bank has three wholly owned subsidiaries that are included in the Company’s consolidated financial statements:
6
Market
Area.
Westfield
Bank’s headquarters are located at 141 Elm Street in Westfield, Massachusetts. The Bank’s primary lending and deposit
market areas include all of Hampden County and Hampshire County in western Massachusetts and the Capital Region in Connecticut.
The Bank operates twenty-five banking offices in Agawam, Chicopee, East Longmeadow, Feeding Hills, 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 seven freestanding ATM locations in
Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts. 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, we provide online banking services, including online deposit
account opening and residential mortgage and consumer loan applications through our website at www.westfieldbank.com.
The
markets served by our branches are primarily suburban markets located in western Massachusetts and in Connecticut. Westfield,
Massachusetts, is located near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. Our middle market
and commercial real estate lending team is located in Springfield, the Pioneer Valley’s primary urban market. The Pioneer
Valley of western Massachusetts encompasses the sixth largest metropolitan area in New England. The Springfield metropolitan area
covers a relatively diverse area ranging from densely populated urban areas, such as Springfield, to outlying rural areas. Our
Financial Services Center in West Hartford serves as our Connecticut hub, housing employees across all commercial and retail lines
of business. Our markets fall within New England’s Knowledge Corridor, an interstate partnership of regional economic development,
planning, business, tourism and educational institutions that work together to advance the region’s economic progress.
A
diversified mix of industry groups are concentrated in western Massachusetts and Connecticut, including manufacturing,
health care, higher education, wholesale and retail trade and service. The economies of our primary markets have benefited from
the presence of large employers such as Baystate Medical Center/Baystate Health, Big Y Foods, Center for Human Development, Holyoke
Medical Center, MassMutual Financial Group, Mercy Medical Center/Trinity Health of New England, Mestek, MGM Springfield, Verizon
and Westover Air Reserve Base in Massachusetts, and Aetna, Air National Guard, Collins Aerospace/RTX, Connecticut Children’s
Medical Center, The Hartford Financial Services Group, Hartford Hospital/Hartford HealthCare, Kaman Corporation, LEGO Systems,
Talcott Financial Group and The Travelers Indemnity Company in Connecticut. Other employment and economic activity is provided
by financial institutions, colleges and universities, hospitals, and a variety of wholesale and retail trade business. 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. The
Company competes actively with local, regional, and national financial institutions, as well as credit unions which have a large
presence in the region. Competition for loans, deposits and cash management services, and investment advisory assets also comes
from other businesses that provide financial services, including consumer finance companies, mortgage brokers and lenders, private
lenders, insurance companies, securities brokerage firms, institutional mutual funds, registered investment advisors, non-bank
electronic payment and funding channels, internet-based banks and other financial intermediaries.
We
expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing
trend of consolidation in the financial services industry. Technological advances, for example, have lowered the barriers to market
entry, allowed banks and other lenders to expand their geographic reach by providing services over the internet and made it possible
for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal
laws permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the
financial services industry.
7
At
June 30, 2025, which is the most recent date for which data is available from the FDIC, we held approximately 13.5% of the deposits
in Hampden County, which was the third largest market share out of the eighteen banks and thrifts with offices in Hampden County.
Human
Capital.
We
understand that our human capital is one of our most valuable assets and a key to our success. The Company is an equal opportunity
employer and maintains hiring practices and policies that foster and promote a diverse and inclusive workforce. We strive to create
a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment, rewarding and
recognizing our employees based on their individual results and performance as well as that of their department and the Company
overall. We are dedicated to recruiting, developing and promoting a diverse workforce to meet the current and future demands of
our business.
Talent
Management
We
have been successful in attracting, developing and retaining qualified and competent staff. The Company believes that it has had
and continues to have strong employee relations. Our talent management strategy ensures we leverage the talent needed, not just
for today, but also for our future. Our employees are the foundation of our success and are responsible for upholding our guiding
principles of integrity, trust, empathy, collaboration, strong work ethic, loyalty, inclusion and a professional and positive
attitude.
As
of December 31, 2025, the Bank employed 334 total employees, with 292 employed full-time and 42 employed part-time. Employee retention
helps the Company operate efficiently and effectively. As of December 31, 2025, our average employee tenure was eight years.
There
are many factors that contribute to the success of the Company. We actively encourage and support the growth and development of
our employees. Whenever practical, management generally seeks to fill positions by promotion and transfer opportunities from within
the organization. Career development is advanced through ongoing mentoring and professional development programs, as well as internally
and externally developed training programs.
Employee
Compensation and Benefits
Management
promotes its core values through prioritizing concern for employees’ well-being, supporting employees’ career goals,
offering competitive wages, and providing valuable fringe benefits. 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, 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. In addition, on an annual basis, the Company may make a discretionary
profit share contribution to each participant.
Workplace
Health and Safety
The
safety, health and wellness of our employees is considered a top priority. On an ongoing basis, the Company promotes the health
and wellness of its employees and strives to keep the employee portion of health care premiums competitive with local competition.
We communicate to our employees on a monthly basis through email and the Company’s intranet, sharing articles and best practices
on mental, emotional and physical well-being, health savings account and flexible spending account use, resources to find cheaper
prescriptions and other related topics. Our employees also have access to a platform that gives them the ability to participate
in interactive activities for wellness classes, stress management, mindfulness, healthy eating and health plan literacy.
8
Lending
Activities.
Loan
Approval Procedures and Authority.
Our
lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by the
Company’s Board of Directors (the “Board”) and Management. On an annual basis, the Board approves the Bank’s
Loan Policy (the “Loan Policy”). The Loan Policy governs the conditions under which loans are made, addresses the
lending authority of loan officers, documentation requirements, appraisal policy, charge-off policies and desired portfolio mix.
The Executive Committee of the Board approves loan relationships exceeding certain prescribed dollar limits as outlined in the
Loan Policy.
Loans
to One Borrower Limit.
The
Bank may not make a loan or extend credit to a single borrower or related group of borrowers if the aggregate of all loans or
extensions of credit to that single borrower or related group of borrowers would be in excess of 15% of the Bank’s unimpaired
capital and surplus. At December 31, 2025, the Bank’s regulatory limit on loans to one borrower was $41.5 million. Our internal
loan to one borrower limit is $39.1 million. At December 31, 2025, our largest lending relationship, secured by a 57-unit residential
condominium building in Connecticut, had a total loan exposure of $22.6 million, with no outstanding balance at December 31, 2025.
At December 31, 2025, our second largest lending relationship, secured by an industrial property in Massachusetts, had a total
loan exposure of $19.2 million, of which $18.1 million was outstanding. At December 31, 2025, our top ten largest lending relationships
have an average exposure of $18.2 million, or 6.6% of total bank risk-based capital, with a range in exposure from $15.1 million,
or 5.5% of total bank risk-based capital, to $22.6 million, or 8.2% or total bank risk-based capital. The Bank continually monitors
its loan portfolio to review compliance with new and existing regulations.
The
Bank offers a variety of loan products to its customers, including residential and commercial real estate loans, commercial loans,
and installment loans. The Bank primarily extends loans to customers located within the Company’s footprint. In 2025 and
2024, interest income on loans represented 80.4% and 80.6% of the total revenues of the Company, respectively. At December 31,
2025, the Bank’s loan portfolio totaled $2.2 billion, or 79.7% of total assets, compared to $2.1 billion, or 78.0% of total
assets, at December 31, 2024.
The
Company’s primary lending focus is to generate high quality commercial loan relationships achieved through active business
development efforts, long-term relationships with established commercial developers, community involvement, and focused marketing
strategies. Loans made to businesses, non-profits, and professional practices may include commercial real estate loans, construction
and land development loans, commercial and industrial loans, including lines of credit and letters of credit. Loans made to individuals
may include conventional residential real estate loans, home equity loans and lines of credit, residential construction loans
on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company
manages its loan portfolio to avoid concentration by industry, property type, relationship size, and source of repayment to lessen
its credit risk exposure.
Interest
rates on loans may be fixed or variable and variable rate loans may have a fixed initial period before periodic rate adjustments
begin. 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.
The
Company employs a seasoned commercial lending staff, with commercial lenders to support the Company’s loan growth strategy.
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. 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. The Company’s internal compliance department monitors the residential loan origination activity for regulatory
compliance.
9
Commercial
Real Estate Loans.
At
December 31, 2025, commercial real estate loans, including commercial construction loans, totaled $1.1 billion, or 50.4% of total
loans, and consisted of $406.4 million of fixed-rate loans and $692.6 million of adjustable-rate loans. At December 31, 2025,
the largest commercial real estate loan, a 57-unit residential condominium building in Connecticut, had total exposure of $22.6
million and no outstanding balance at December 31, 2025. Our second largest commercial real estate loan, an industrial property
in Massachusetts, had an outstanding balance of $18.1 million, and represented 0.8% of total loans and 6.5% of total bank risk-based
capital. This loan was performing in accordance with the original repayment terms at December 31, 2025. For more information relating
to the Company’s commercial real estate portfolio as of December 31, 2025 and December 31, 2024, see “Item 7 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations – CRE Concentrations.”
The
Company originates commercial real estate loans throughout its market area for the purpose of acquiring, developing, and refinancing
commercial real estate where the property is the primary collateral securing the loan. These loans are typically secured by a
variety of commercial and industrial property types, including one-to-four and multi-family apartment buildings, office, industrial,
or mixed-use facilities, or other commercial properties, and are generally guaranteed by the principals of the borrower. Commercial
real estate loans generally have repayment periods of approximately fifteen to thirty years. 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.
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. These loans are secured in whole or in part
by underlying real estate collateral and are generally guaranteed by the principals of the borrowers. Construction lenders work
to cultivate long-term relationships with established developers. The Company limits the amount of financing provided to any single
developer for the construction of properties built on a speculative basis. Funds for construction projects are disbursed as pre-specified
stages of construction are completed. Regular site inspections are performed, prior to advancing additional funds, at each construction
phase, either by experienced construction lenders on staff or by independent outside inspection companies. Commercial construction
loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms
of one to three years. At December 31, 2025 and December 31, 2024, there was $77.3 million and $94.8 million, respectively, in
commercial construction loans included within commercial real estate loans.
Commercial
and Industrial Loans.
At
December 31, 2025, our total commercial and industrial loan portfolio totaled $221.8 million, or 10.2% of total loans, compared
to $211.7 million, or 10.3% of total loans, at December 31, 2024. At December 31, 2025, the largest commercial and industrial
loan, with an outstanding balance of $15.6 million and total loan exposure of $21.0 million, was to a commercial borrower, located
in Westfield, Massachusetts. Total exposure represented 1.0% of total loans and 7.6% of total bank risk-based capital at December
31, 2025. This loan was performing in accordance with its original repayment terms at December 31, 2025.
Commercial
and industrial loans include revolving lines of credit, working capital loans, equipment financing and term loans. Commercial
and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by
real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally
guaranteed by the principals of the borrower. Variable rate loans and lines in this portfolio have interest rates that are periodically
adjusted, with term loans generally having fixed initial periods. Commercial and industrial loans have average repayment periods
of one to seven years.
Commercial
letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a
customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial
loan, with the same criteria associated with similar commercial loans.
10
At
December 31, 2025, our largest concentration of commercial loans was to new car dealerships, which comprised approximately 2.3%
of total loans and 18.1% of total bank risk-based capital.
Participation
Loans.
The
Company cultivates relationships with other financial institutions to mitigate the risk of our lending activities by participating
either as the lead bank or as a participant in various loan transactions. Participating in loans with other institutions provides
the Company with the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank,
while providing the customer with larger credit facilities than the Company might be willing to, or able to, offer independently.
The Company purchases participation interests in larger balance loans from other financial institutions generally in our market
area. Such participations are evaluated with the same level of due diligence and care as loans originated internally. The participations
are underwritten, reviewed for compliance, and approved in accordance with the Company’s underwriting policies and criteria.
The performance of participation loans is actively monitored and updated financial statements of the borrower are received periodically
from the participant in accordance with loan reporting requirements and covenant testing. These loans are reviewed annually in
accordance with the Company’s Loan Policy and graded based on credit risk. Loan grades assigned are also tested by the Company’s
external loan review firm in accordance with the Company’s loan review policy.
The
Company participated in commercial real estate loans with outstanding balances of $107.2 million, commercial construction loans
with outstanding balances of $14.4 million, and commercial and industrial loans with outstanding balances of $14.7 million at
December 31, 2025. At December 31, 2024, we participated in commercial real estate loans with outstanding balances of $116.2 million,
commercial construction loans with outstanding balances of $14.0 million, and commercial and industrial loans with outstanding
balances of $2.4 million.
The
Company sells loan participations in the ordinary course of business when a loan originated by the Company exceeds our legal lending
limit or we otherwise deem it prudent to share the risk with another lending institution. At December 31, 2025, the Company was
the lead bank in commercial real estate loans of $88.4 million, commercial construction loans of $2.1 million, and commercial
and industrial loans of $20.7 million, with participation balances sold that totaled $54.4 million for commercial real estate
loans, $1.4 million for commercial construction loans and $11.1 million for commercial and industrial loans, respectively.
At
December 31, 2024, the Company was the lead bank in commercial real estate loans of $80.9 million, commercial construction loans
of $1.5 million, and commercial and industrial loans of $22.8 million, with participation balances sold that totaled $52.0 million
for commercial real estate loans, $1.5 million for commercial construction loans and $12.2 million for commercial and industrial
loans, respectively.
One-to-Four
Family Residential Real Estate Loans.
At
December 31, 2025 and December 31, 2024, the one-to-four family residential real estate loan portfolio totaled $719.1 million,
or 33.0% of total loans, and $653.8 million, or 31.6% of total loans, respectively, and consisted of $639.7 million of fixed rate
loans and $79.4 million in adjustable rate loans. The Company originates and funds residential real estate loans, including first
mortgages, home equity loans, and home equity lines of credit, secured by one-to-four family residential properties primarily
located in western Massachusetts and Connecticut. At December 31, 2025, the largest residential real estate loan was
$2.0 million. The loan was secured by the borrower’s secondary residence located in New Hampshire and was performing according
to its original terms as of December 31, 2025.
These
residential properties may serve as the borrower’s primary residence, or as vacation homes or investment properties. First
mortgages may be underwritten in amounts up to 97% of the lesser of the appraised value or purchase price of the property for
owner-occupied homes, 90% for second homes and 85% for investment properties. Private mortgage insurance is required on all loans
with a loan-to-value ratio greater than 80%. We do not grant subprime loans. In addition, financing is provided for the construction
of owner-occupied primary and secondary residences. Residential mortgage loans may have terms of up to 30 years at either fixed
or adjustable rates of interest. Fixed and adjustable rate residential mortgage loans are generally originated using secondary
market underwriting and documentation standards. Home equity loans and lines of credit are secured by first or second mortgages
on one-to-four family owner-occupied properties. Home equity loans and lines of credit are underwritten by a maximum combined
loan-to-value of 85% of the appraised value of the property. Underwriting approval is dependent on review of the borrower’s
ability to repay and credit history in accordance with the Bank’s loan policies. The overall health of the economy, including
unemployment rates and housing pricing, will have an effect on the credit quality in this segment.
11
Depending
on the current interest rate environment, management may elect to sell eligible fixed and adjustable rate residential loans to
the secondary market, or hold some or all of its residential loan production in the Company’s portfolio. The Company may
retain or sell the servicing when selling the loans to the secondary market. The Company is an approved servicer with Fannie Mae,
an approved seller and servicer with Freddie Mac and the FHLB, and an approved Mass Housing lender. At December 31, 2025 and December
31, 2024, the Company serviced $77.1 million and $84.8 million, respectively, in residential loans previously sold to the secondary
market. The servicing rights will likely continue to be retained on all loans sold over the life of the loan.
Home
Equity Loans and Lines of Credit.
At
December 31, 2025 and December 31, 2024, home equity loans and lines of credit totaled $137.8 million, or 6.3% of total loans,
and $121.9 million, or 5.9% of total loans, respectively. The Company originates home equity revolving loans and lines of credit
for one-to-four family residential properties with maximum original loan-to-value ratios generally up to 85%. Home equity lines
generally have interest rates that adjust monthly based on changes in the Wall Street Journal Prime Rate, although minimum rates
may be applicable. Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment
schedule for home equity lines require interest only payments for the first ten years of the lines. 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, 2025 and December 31, 2024, consumer loans totaled $2.9 million, or 0.1%, of total loans and $4.4 million, or 0.2%,
of total loans, respectively. Consumer loans are generally originated at higher interest rates than residential and commercial
real estate loans, but they also generally tend to have a higher credit risk than residential real estate loans because they are
usually unsecured or secured by rapidly depreciable assets. Management, however, believes that offering consumer loan products
helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and
providing cross-marketing opportunities. We offer a variety of consumer loans to retail customers in the communities we serve.
Examples of our consumer loans include automobile loans, spa and pool loans, collateral loans and personal lines of credit tied
to deposit accounts to provide overdraft protection.
The
following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at
the dates indicated.
At December 31,
Percent of Percent of
Amount Total Amount Total
(Dollars in thousands)
Real estate loans:
Commercial real estate:
Residential real estate:
Plus: Unamortized premiums and net deferred loan fees and costs 2,939 2,751
Less: Allowance for credit losses (20,297 ) (19,529 )
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Loan
Maturity and Repricing.
The
following table shows the repricing dates or contractual maturity dates of our loans as of December 31, 2025. The table does not
reflect prepayments or scheduled principal amortization. Demand loans, loans having no stated maturity, and overdrafts are shown
as due within one year.
(Dollars in thousands)
Amount due:
After one year:
The
following table presents, as of December 31, 2025, the dollar amount of all loans contractually due or scheduled to reprice after
December 31, 2026, and whether such loans have fixed interest rates or adjustable interest rates.
13
Fixed Adjustable Total
(Dollars in thousands)
Real estate loans:
Other loans:
Asset
Quality.
Maintaining
a high level of asset quality continues to be one of the Company’s key objectives. Credit administration reports directly
to the Chief Credit Officer and is responsible for the completion of independent credit analyses for all loans above a specific
threshold.
The
Company’s Loan Policy requires that management continuously monitor the status of the loan portfolio and report to the Board
on a monthly basis. These reports include information on concentration levels, delinquent loans, nonperforming loans, criticized
loans and foreclosed real estate, as well as our actions and plans to cure the nonperforming status of the loans and to dispose
of the foreclosed property.
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. 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 findings are reported to the Chief Credit Officer and the full report is then presented
to the Audit Committee.
Potential
Problem Loans.
The
Bank’s Loan Policy contain an internal rating system which evaluates the overall risk of a problem loan. The Company performs
an internal analysis of the loan portfolio in order to identify and quantify loans with higher than normal risk. Loans having
a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan.
Criticized
and Classified Loans.
The
Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.
The grades assigned and definitions are as follows, and loans graded excellent, above average, good (risk ratings 1-4) are treated
as “pass” for grading purposes. All loans risk rated special mention (5), substandard (6), Doubtful (7) and Loss (8)
are listed on the Company’s criticized report and are reviewed not less than on a quarterly basis to assess the level of
risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. In addition, the Company closely
monitors classified loans, defined as substandard, doubtful, and loss for signs of deterioration to mitigate the growth in nonperforming
loans, including performing additional due diligence, updating valuations and requiring additional financial reporting from the
borrower. Loans identified as containing a loss are partially charged-off or fully charged-off.
14
The
“criticized” risk rating (5) and the “classified” risk ratings (6-8) are detailed below:
5
– Special Mention- Loans rated 5 are considered “Special Mention” and may exhibit potential credit
weaknesses or downward trends and are being monitored by management. Loans in this category are currently protected based on collateral
and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration
of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s
financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
6
– Substandard- Loans rated 6 are considered “Substandard.” A loan is classified as substandard if
the borrower exhibits a well-defined weakness and may be inadequately protected by the current net worth and cash flow capacity
to pay the current debt.
7
– Doubtful- Loans rated 7 are considered “Doubtful.” Loans classified as doubtful have all the weaknesses
inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation of the
loan highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors
that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more
exact status may be determined.
8
– Loss- Loans rated 8 are considered uncollectible. The loss classification does not mean that the asset has absolutely
no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery
and collection time may be affected in the future.
The
grades are determined through the use of qualitative and quantitative matrices that consider various characteristics of the loan
such as payment performance, quality of management, principals’/guarantors’ character, balance sheet strength, collateral
quality, cash flow coverage, position within the industry, loan structure and documentation.
At
December 31, 2025, the Company’s criticized loan portfolio totaled $39.7 million, or 1.8% of total loans, compared to $38.4
million, or 1.9% of total loans, at December 31, 2024. The Company’s special mention loans totaled $17.2 million, or 0.8%
of total loans, at December 31, 2025 and $11.4 million, or 0.6%, of total loans, at December 31, 2024. Classified loans totaled
$22.5 million, or 1.0% of total loans, at December 31, 2025 and $27.0 million, or 1.3% of total loans, at December 31, 2024. Classified
loans that were performing but possessed potential weaknesses and, as a result, could ultimately become nonaccrual loans totaled
$17.4 million, or 0.8% of total loans, at December 31, 2025 and $21.6 million, or 1.0% of total loans, at December 31, 2024. The
remaining balance of classified loans were nonaccrual loans totaling $5.1 million, or 0.2% of total loans, at December 31, 2025
and $5.4 million, or 0.3% of total loans, at December 31, 2024.
Total
individually evaluated loans totaled $5.9 million, or 0.3% of total loans, at December 31, 2025, while individually evaluated
loans totaled $14.3 million, or 0.7% of total loans, at December 31, 2024. Total accruing individually evaluated loans totaled
$726,000 at December 31, 2025, while accruing individually evaluated loans totaled $8.9 million at December 31, 2024. Nonaccrual
individually evaluated loans totaled $5.2 million as of December 31, 2025, while nonaccrual individually evaluated loans totaled
$5.4 million as of December 31, 2024.
At
December 31, 2025, commercial and industrial individually evaluated loans with a recorded investment of $464,000 carried a related
reserve amount of $122,000. At December 31, 2024, commercial and industrial individually evaluated loans with a recorded investment
of $494,000 carried a related reserve amount of $156,000. Management closely monitors these relationships for collateral or credit
deterioration. In management’s opinion, all remaining individually evaluated loan balances at December 31, 2025 and December
31, 2024, were supported by expected future cash flows or, for those collateral dependent loans, the net realizable value of the
underlying collateral.
Total
nonaccrual loans totaled $5.2 million, or 0.24% of total loans, at December 31, 2025, and $5.4 million, or 0.26% of total loans,
at December 31, 2024. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional
interest income of $284,000, $373,000 and $373,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
15
OREO.
Assets
acquired through, or in lieu of, loan foreclosures are held for sale and are initially recorded at fair value less cost to sell
at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to development
and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. At December 31, 2025
and December 31, 2024, the Company carried no OREO balances.
The
following table presents, for the years indicated, an analysis of the allowance for credit losses and other related data.
Years Ended December 31,
(Dollars in thousands)
Allowance for credit losses to total loans outstanding 0.93 % 0.94 %
Nonaccrual loans to total loans outstanding 0.24 % 0.26 %
Allowance for credit losses to nonaccrual loans 393.20 % 362.93 %
Net charge-offs during the period $ 15 $ 32
Commercial real estate recoveries to daily average loans outstanding -% (0.02 )%
Net recoveries during the period $ (22 ) $ (206 )
Net recoveries during the period $ (599 ) $ (152 )
Home equity charge-offs to daily average loans outstanding 0.02 % 0.10 %
Net charge-offs during the period $ 23 $ 121
Consumer charge-offs to daily average loans outstanding 3.11 % 2.43 %