Western New England Bancorp(US:WNEB)2025-03-10 20:41Part I Item 1. Business Western New England Bancorp, Inc. is a community-focused holding company with $2.7 billion in assets, operating through Westfield Bank in Massachusetts and Connecticut | Metric | Value (as of Dec 31, 2024) | | :--- | :--- | | Consolidated Total Assets | $2.7 billion | | Total Net Loans | $2.1 billion | | Total Deposits | $2.3 billion | | Total Shareholders' Equity | $235.9 million | - The Company's primary business is conducted through its wholly-owned subsidiary, Westfield Bank, a federally-chartered savings bank established in 1853161719 - The Bank operates 25 branches and numerous ATMs across Hampden and Hampshire counties in Massachusetts, and Hartford and Tolland counties in Connecticut1721 - As of June 30, 2024, the company held the third-largest market share in Hampden County, with approximately 13.2% of total deposits26 Human Capital - As of December 31, 2024, the Bank employed 335 people (286 full-time and 49 part-time), with an average employee tenure of 8.8 years29 - The company invests in talent development through programs like the Corporate Leadership Development Program, which had 24 participants in 2024, and offers educational reimbursement for employees31 Lending Activities - The company's primary lending focus is on generating high-quality commercial loan relationships, including commercial real estate, construction, and commercial and industrial loans39 - The regulatory limit on loans to one borrower was $40.6 million as of December 31, 2024; the company's largest lending relationship had a total exposure of $22.8 million37 - During fiscal year 2024, the company sold $20.1 million in fixed-rate residential loans to the secondary market while retaining servicing rights, a strategy to manage interest rate risk57 Loan Portfolio Composition (as of Dec 31, 2024) | Loan Category | Amount (in thousands) | Percent of Total | | :--- | :--- | :--- | | Commercial Real Estate | $1,075,732 | 52.0% | | Non-owner occupied | $880,828 | 42.6% | | Owner occupied | $194,904 | 9.4% | | Residential Real Estate | $775,659 | 37.5% | | Residential one-to-four family | $653,802 | 31.6% | | Home equity | $121,857 | 5.9% | | Commercial and Industrial | $211,656 | 10.3% | | Consumer | $4,391 | 0.2% | | Total Gross Loans | $2,067,438 | 100.0% | Asset Quality - Total criticized loans (Special Mention and Substandard) remained stable at 1.9% of total loans, amounting to $38.4 million at year-end 2024 compared to $39.5 million at year-end 202377 - The company recorded net recoveries of $87,000 in 2024, a significant improvement from net charge-offs of $2.0 million in 202385 - The company recorded a reversal of credit losses of $665,000 for the year ended December 31, 2024, compared to a provision for credit losses of $872,000 in the prior year100 Key Asset Quality Ratios | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Nonperforming loans to total loans | 0.26% | 0.32% | | Allowance for credit losses to total loans | 0.94% | 1.00% | | Allowance for credit losses to nonperforming loans | 362.93% | 315.64% | Investment Activities - At year-end 2024, the available-for-sale portfolio had unrealized losses of $31.2 million, and the held-to-maturity portfolio had unrealized losses of $39.4 million, attributed to interest rate fluctuations113 Investment Securities Portfolio (as of Dec 31, 2024) | Security Type | Amortized Cost (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | | Available-for-sale | $191,940 | $160,704 | | Debt securities | $24,424 | $21,068 | | Mortgage-backed securities | $167,516 | $139,636 | | Held-to-maturity | $205,036 | $165,606 | | Debt securities | $6,066 | $5,788 | | Mortgage-backed securities | $198,970 | $159,818 | Deposits - Total deposits increased to $2.3 billion at year-end 2024 from $2.1 billion at year-end 2023114 - Core deposits represented 68.9% of total deposits at December 31, 2024, down from 71.5% at the end of 2023, indicating a shift towards higher-cost time deposits117 - Uninsured deposits increased to 28.4% of total deposits at year-end 2024 from 26.8% at year-end 2023116 Other Sources of Funds - Total borrowings decreased by 24.4% to $103.4 million at year-end 2024, driven by the repayment of $90.0 million borrowed under the Bank Term Funding Program (BTFP)132133134 - As of December 31, 2024, the company had significant available liquidity, including $464.1 million in borrowing capacity from the FHLB and $382.9 million from the FRB Discount Window134137138 - The company has $19.8 million in 4.875% fixed-to-floating rate subordinated notes outstanding, which qualify as Tier 2 capital140141 Supervision and Regulation - The company is a savings and loan holding company regulated by the Federal Reserve Board (FRB), while its subsidiary, Westfield Bank, is regulated by the Office of the Comptroller of the Currency (OCC)147148 - The company and the Bank are subject to Basel III capital rules, requiring minimum ratios for CET1 (7.0%), Tier 1 (8.5%), and Total capital (10.5%)164170 - As of December 31, 2024, the Bank was categorized as "well-capitalized" under the Prompt Corrective Action (PCA) framework172 Item 1A. Risk Factors The company faces significant risks from interest rate volatility, credit concentrations, competition, cybersecurity threats, and extensive government regulation - The company's earnings are highly sensitive to interest rate changes, as net interest income accounted for 82.3% of total revenues in 2024214215 - The loan portfolio's concentration in commercial real estate, commercial & industrial, and consumer loans may expose the company to greater credit risk than traditional residential mortgage lending217218 - The allowance for credit losses is based on significant management estimates (CECL model), and if these estimates prove inadequate, it could materially affect the company's financial condition220223225 - The company operates in a highly regulated environment, and changes in laws or regulations could increase costs and limit business opportunities248249 - Cybersecurity threats pose a significant risk that could disrupt operations, compromise confidential information, and result in financial loss and reputational damage257 Item 1C. Cybersecurity Cybersecurity risk is managed through a board-overseen framework that includes management committees, employee training, and third-party monitoring - The Board's Finance and Risk Management Committee has ultimate oversight of the company's enterprise risk management framework, including cybersecurity risks289 - The company utilizes a management-level Strategic Technology Oversight Committee (TOC) and an ISO Metrics Oversight Committee to manage and monitor cybersecurity threats281282 - The cybersecurity program includes regular employee training, social engineering tests, independent audits, penetration testing, and continuous monitoring by a third-party Security Operations Center283287288 Item 2. Properties The company operates from its main office and 25 banking locations with a net book value of $24.4 million in owned premises and equipment - The company operates through 25 banking offices and eight free-standing ATMs, supplemented by additional third-party serviced ATMs295 - The net book value of owned premises and equipment was $24.4 million as of December 31, 2024295 Item 3. Legal Proceedings The company settled two class-action lawsuits regarding overdraft fees for approximately $510,000, with the expense recorded in 2023 - The company settled two class-action lawsuits concerning overdraft and insufficient funds fees for approximately $510,000301303 - The settlement expense was recorded in non-interest expense for the year ended December 31, 2023, and the court granted final approval in January 2025303 Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's stock (NASDAQ: WNEB) has an active repurchase program, with 237,695 shares bought back in Q4 2024 - On May 21, 2024, the Board authorized a new stock repurchase plan for up to 1,000,000 shares of common stock311 - As of December 31, 2024, 472,318 shares remained available for repurchase under the current program311 Share Repurchases | Period (2024) | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | October | 95,000 | 8.76 | | November | 54,383 | 9.04 | | December | 88,312 | 9.26 | | Q4 Total | 237,695 | 9.01 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income declined to $11.7 million in 2024 due to net interest margin compression, despite asset growth and a reversal of credit losses - The company's growth-oriented strategy focuses on increasing commercial and residential lending, growing core deposits, and improving efficiency through technology investments320322 Key Financial Results | Metric | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Income | $11.7 million | $15.1 million | | Diluted EPS | $0.56 | $0.70 | | Net Interest Income | $59.8 million | $67.9 million | | (Reversal) Provision for Credit Losses | ($0.67 million) | $0.87 million | Comparison of Financial Condition - Total assets increased by $88.5 million (3.5%) to $2.7 billion at year-end 2024343 - Net loans grew by $42.9 million (2.1%) to $2.1 billion, led by a $53.5 million increase in residential real estate loans349 - Total deposits grew by $118.9 million (5.6%) to $2.3 billion, with time deposits increasing 15.1% while core deposits grew 1.7%386387 - Shareholders' equity decreased slightly to $235.9 million, while tangible book value per share increased to $10.63 from $10.30392393 Commercial Real Estate (CRE) Concentrations - The company holds a significant concentration in commercial real estate loans, which totaled $1.1 billion (52.0% of total loans) at year-end 2024353361 - Non-owner occupied CRE loans totaled $880.8 million, representing 325.2% of the bank's total risk-based capital353366 - Office-related CRE loans totaled $200.1 million (73.9% of total bank risk-based capital) as of December 31, 2024, down from $216.2 million in the prior year376379 CRE Portfolio by Property Type (Top 5) | CRE Property Type (Top 5) | Balance (in thousands) | % of CRE Portfolio | | :--- | :--- | :--- | | Office Portfolio | $200,115 | 18.6% | | Apartment | $179,874 | 16.7% | | Industrial | $168,281 | 15.6% | | Retail | $117,041 | 10.9% | | Mixed Use | $77,628 | 7.2% | Comparison of Operating Results - Net interest income decreased by $8.1 million (11.9%) in 2024 due to a $16.8 million increase in interest expense that outpaced an $8.7 million increase in interest income397 - The net interest margin compressed to 2.45% in 2024 from 2.82% in 2023, as the average cost of funds rose 70 basis points while the average yield on interest-earning assets rose only 30 basis points398399400 - Non-interest income increased by $2.0 million (18.4%) to $12.9 million, driven by higher gains on non-marketable equity investments and new income from loan-level swap fees407408 - Non-interest expense remained flat at $58.4 million, as increases in salaries and FDIC insurance were offset by a decrease in professional fees409410 Liquidity and Capital Resources - Primary sources of liquidity include deposits, loan repayments, and borrowings from the FHLB, and the company maintains sufficient liquidity to meet funding needs413414 - At December 31, 2024, the company had $464.1 million in available borrowing capacity with the FHLB and $382.9 million with the FRB Discount Window415416 - The company and the Bank exceeded all regulatory capital requirements to be considered "well-capitalized" as of December 31, 2024424 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, with net interest income projected to fall 4.4% in a +200 bps rate shock scenario - The company's interest rate management strategy aims to limit fluctuations in net interest income by coordinating asset and liability decisions and managing the duration of its portfolio431433 Net Interest Income Sensitivity Analysis | Interest Rate Scenario | Estimated Change in Net Interest Income (Year 1) | | :--- | :--- | | +200 basis points | -4.4% | | -200 basis points | +3.9% | Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal year 2024, which received an unqualified opinion from the auditor - The financial statements were prepared in conformity with U.S. GAAP and audited by Wolf & Company, P.C., who issued an unqualified opinion490491 - A critical audit matter identified was the Allowance for Credit Losses for loans evaluated on a pooled basis, due to the significant judgment and complexity involved in the CECL methodology497498499 Item 9A. Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal controls over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year450 - Management's assessment, based on the COSO framework, concluded that internal control over financial reporting was effective as of December 31, 2024451 - The independent auditor, Wolf & Company, P.C., issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting456 Part III Items 10-14 Details regarding governance, compensation, and security ownership are incorporated by reference from the 2025 Proxy Statement - Information for Part III (Items 10, 11, 12, 13, and 14) is incorporated by reference from the company's Proxy Statement for the 2025 Annual Meeting of Shareholders466467468469 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including material contracts and required certifications - This section provides an index of all exhibits filed with the Form 10-K, including organizational documents, descriptions of securities, material contracts, and various certifications474475476