Western New England Bancorp, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act (i) is recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management including the Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting The management of Western New England Bancorp, Inc. and Subsidiaries (collectively, the “Company”), including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2021. There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting. 68 Report of Independent Registered Public Accounting Firm On Internal Control over Financial Reporting To the Shareholders and Board of Directors of Western New England Bancorp, Inc. Opinion on Internal Control over Financial Reporting We have audited Western New England Bancorp, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company and our report dated March 11, 2022 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 69 Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Wolf & Company, P.C. Boston, Massachusetts March 11, 2022 70 ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The following information included in the Proxy Statement is incorporated herein by reference: “Information About Our Board of Directors,” “Information About Our Executive Officers Who Are Not Directors,” and “Corporate Governance.” ITEM 11. EXECUTIVE COMPENSATION. The following information included in the Proxy Statement is incorporated herein by reference: “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation” and “Director Compensation.” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS. The following information included in the Proxy Statement is incorporated herein by reference: “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized For Issuance Under Equity Compensation Plans.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The following information included in the Proxy Statement is incorporated herein by reference: “Transactions with Related Persons” and “Board of Directors Independence.” ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The following information included in the Proxy Statement is incorporated herein by reference: “Independent Registered Public Accounting Firm Fees and Services.” Our independent registered public accounting firm is Wolf & Company, P.C. , Boston, Massachusetts , Auditor ID : 392 . PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) Financial Statements Reference is made to our consolidated financial statements and accompanying notes included in Item 8 of Part II hereof. (a)(2) Financial Statement Schedules Consolidated financial statement schedules have been omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedules, or because the required information is provided in the consolidated financial statements or notes thereto. 71 (a)(3) Exhibits EXHIBIT INDEX 3.1 Restated Articles of Organization of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on October 26, 2016). 3.3 Amended and Restated Bylaws of Western New England Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed with the SEC on February 2, 2017). 4.1 Form of Stock Certificate of Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-1 (No. 333-137024) filed with the SEC on August 31, 2006). 4.2† Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934. 10.1* Form of Director’s Deferred Compensation Plan (incorporated by reference to Exhibit 10.7 of the Form 8-K filed with the SEC on December 22, 2005). 10.2* Amended and Restated Benefit Restoration Plan of Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 10.5 of the Form 8-K filed with the SEC on October 29, 2007). 10.3* Amended and Restated Employment Agreement between James C. Hagan and Westfield Bank (incorporated by reference to Exhibit 10.9 of the Form 8-K filed with the SEC on January 5, 2009). 10.4* Amended and Restated Employment Agreement between James C. Hagan and Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 10.12 of the Form 8-K filed with the SEC on January 5, 2009). 10.5* Employment Agreement between Leo R. Sagan, Jr. and Westfield Bank (incorporated by reference to Exhibit 10.15 of the Form 8-K filed with the SEC on January 5, 2009). 10.6* Employment Agreement between Leo R. Sagan, Jr. and Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 10.16 of the Form 8-K filed with the SEC on January 5, 2009). 10.7* Employment Agreement between Allen J. Miles, III and Westfield Bank (incorporated by reference to Exhibit 10.19 of the Form 8-K filed with the SEC on January 5, 2009). 10.8* Employment Agreement between Allen J. Miles, III and Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 10.20 of the Form 8-K filed with the SEC on January 5, 2009). 10.9* Employment Agreement between Darlene M. Libiszewski and Western New England Bancorp, Inc. (f/k/a Westfield Financial, Inc.) (incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-4 (No. 333-212221) filed with the SEC on June 24, 2016). 10.10* Employment Agreement between Darlene M. Libiszewski and Westfield Bank (incorporated by reference to Exhibit 10.5 of the Registration Statement on Form S-4 (No. 333-212221) filed with the SEC on June 24, 2016). 10.11* Employment Agreement between Guida R. Sajdak and Western New England Bancorp (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the SEC on February 8, 2018). 10.12* Employment Agreement between Guida R. Sajdak and Westfield Bank (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the SEC on February 8, 2018). 10.13* Employment Agreement between Louis Gorman, III and Western New England Bancorp (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the SEC on March 23, 2018). 10.14* Employment Agreement between Louis Gorman, III and Westfield Bank (incorporated by reference to Exhibit 10.2 of the Form 8-K filed with the SEC on March 23, 2018). 10.15* Employment Agreement between Kevin C. O’Connor and Westfield Bank dated February 17, 2017 (incorporated by reference to Exhibit 10.20 of the Form 10-K filed with the SEC on March 11, 2021). 10.16* Employment Agreement between Kevin C. O’Connor and Western New England Bancorp, Inc. dated February 17, 2017 (incorporated by reference to Exhibit 10.21 of the Form 10-K filed with the SEC on March 11, 2021). 10.17* Change of Control Agreement between John Bonini and Western New England Bancorp, Inc. dated as of January 1, 2021 (incorporated by reference to Exhibit 10.22 of the Form 10-K filed with the SEC on March 11, 2021). 72 10.18* Change of Control Agreement between Christine Phillips and Western New England Bancorp, Inc. dated as of January 1, 2021(incorporated by reference to Exhibit 10.23 of the Form 10-K filed with the SEC on March 11, 2021). 10.19* 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on May 19, 2014). 10.20* Chicopee Bancorp, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-8 (No. 333-214261) filed with the SEC on October 26, 2016). 10.21* Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form S-8 filed with the SEC on May 19, 2021). 10.22* Form of Incentive Stock Option Agreement under the Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 of the Form S-8 filed with the SEC on May 19, 2021). 10.23* Form of Non-Qualified Stock Option Agreement under the Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 of the Form S-8 filed with the SEC on May 19, 2021). 10.24* Form of Director Incentive Award Agreement under the Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 of the Form S-8 filed with the SEC on May 19, 2021). 10.25* Form of Restricted Stock Award Agreement under the Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 of the Form S-8 filed with the SEC on May 19, 2021). 10.26* Form of Long-Term Incentive and Retention Equity Award Agreement under the Western New England Bancorp, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6 of the Form S-8 with the SEC on May 19, 2021). 21.1† Subsidiaries of Western New England Bancorp, Inc. 23.1† Consent of Wolf & Company, P.C. 31.1† Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2† Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1† Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2† Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101** Financial statements from the annual report on Form 10-K of Western New England Bancorp, Inc. for the year ended December 31, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Net Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) † Filed herewith. * Management contract or compensatory plan or arrangement. ** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. ITEM 16. FORM 10-K SUMMARY. None. 73 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 11, 2022. WESTERN NEW ENGLAND BANCORP, INC. By: /s/ James C. Hagan James C. Hagan Chief Executive Officer and President (Principal Executive Officer) By: /s/ Guida R. Sajdak Guida R. Sajdak Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints James C. Hagan and Guida R. Sajdak, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 11, 2022. Name Title /s/ James C. Hagan Chief Executive Officer, President and Director (Principal Executive Officer) James C. Hagan /s/ Guida R. Sajdak Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) Guida R. Sajdak /s/ Lisa G. McMahon Chairperson of the Board Lisa G. McMahon /s/ Laura Benoit Director Laura Benoit /s/ Donna J. Damon Director Donna J. Damon /s/ Gary G. Fitzgerald Director Gary G. Fitzgerald /s/ William D. Masse Director William D. Masse /s/ Gregg F. Orlen Director Gregg F. Orlen /s/ Paul C. Picknelly Director Paul C. Picknelly Name Title /s/ Steven G. Richter Director Steven G. Richter /s/ Philip R. Smith Director Philip R. Smith Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Western New England Bancorp, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying Consolidated Balance Sheets of Western New England Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related Consolidated Statements of Net Income, Comprehensive Income, Changes in Shareholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 11, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal controls over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F- 1 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Company’s Audit Committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description As described in Notes 1 and 3 to the financial statements, the Company has recorded an allowance for loan losses in the amount of $19.8 million as of December 31, 2021, representing management’s estimate of the probable losses inherent in the loan portfolio as of that date. The allowance is established as losses are estimated to have occurred through a provision (credit) for loan losses charged to earnings. The determination of the allowance for loan losses requires significant judgment by management including the identification of, and estimated reserves on, problem loans and the determination of qualitative adjustments to historical loss experience. How the Critical Audit Matter was addressed in the Audit Our principal audit procedures to evaluate management’s estimates of the allowance for loan losses included tests of the following: · Management’s identification of problem loans, including management’s loan review procedures and monitoring of internal loan reports, including delinquency, non-accrual, and watch list, to determine the completeness of impaired loans. · Management’s determination of specific reserves on impaired loans, including significant assumptions, such as the fair value of collateral for collateral dependent loans. · Management’s determination of general reserves, including determination of historical loss experience and qualitative adjustments to historical loss experience. · The accuracy of management’s calculation of the allowance for loan losses, including relevant internal controls. We have served as the Company's auditor since 2004. /s/ Wolf & Company, P.C. Boston, Massachusetts March 11, 2022 F- 2 WESTERN NEW ENGLAND BANCORP, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) December 31, December 31, 2021 2020 ASSETS Cash and due from banks $ 15,233 $ 17,399 Federal funds sold 4,901 2,987 Interest-bearing deposits and other short-term investments 83,322 67,058 Cash and cash equivalents 103,456 87,444 Available-for-sale securities, at fair value 194,352 201,880 Held-to-maturity securities, at amortized cost (Fair value of $ 219,748 at December 31, 2021) 222,272 — Marketable equity securities, at fair value 11,896 11,968 Federal Home Loan Bank stock and other restricted stock, at cost 2,594 5,160 Loans, net of allowance f or loan losses of $ 19,787 and $ 21,157 at December 31, 2021 and 2020, respectively 1,844,929 1,906,226 Premises and equipment, net 26,162 25,103 Accrued interest receivable 7,775 8,477 Bank-owned life insurance 72,895 72,860 Deferred tax asset, net 12,092 12,588 Goodwill 12,487 12,487 Core deposit intangible 2,563 2,937 Other assets 24,952 18,756 TOTAL ASSETS $ 2,538,425 $ 2,365,886 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits: Non-interest-bearing $ 641,284 $ 541,759 Interest-bearing 1,615,614 1,501,657 Total deposits 2,256,898 2,043,416 Long-term debt 2,653 57,850 Subordinated debt 19,633 — Securities pending settlement — 160 Other liabilities 35,553 37,820 Total liabilities 2,314,737 2,139,246 COMMITMENTS AND CONTINGENCIES (see Note 16) SHAREHOLDERS' EQUITY: Preferred stock - $ 0.01 par value, 5,000,000 shares authorized, none outstanding at December 31, 2021 and December 31, 2020 — — Common stock - $ 0.01 par value, 75,000,000 shares authorized, 22,656,515 shares issued and outstanding at December 31, 2021; 25,276,193 shares issued and outstanding at December 31, 2020 227 253 Additional paid-in capital 132,821 154,549 Unearned compensation - ESOP ( 3,441 ) ( 3,997 ) Unearned compensation - Equity Incentive Plan ( 981 ) ( 1,240 ) Retained earnings 107,376 88,354 Accumulated other comprehensive loss ( 12,314 ) ( 11,279 ) TOTAL SHAREHOLDERS’ EQUITY 223,688 226,640 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,538,425 $ 2,365,886 See accompanying notes to consolidated financial statements. F- 3 WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET INCOME (Dollars in thousands, except per share data) Years Ended December 31, 2021 2020 2019 Interest and dividend income: Residential and commercial real estate loans $ 58,682 $ 62,115 $ 62,240 Commercial and industrial loans 15,263 15,409 12,254 Consumer loans 255 313 343 Debt securities, taxable 5,286 4,163 5,981 Debt securities, tax-exempt 12 56 72 Marketable equity securities 96 123 163 Other investments 116 587 833 Short-term investments 139 109 230 Total interest and dividend income 79,849 82,875 82,116 Interest expense: Deposits 5,508 13,500 17,207 Long-term debt 458 3,333 4,361 Subordinated debt 706 — — Short-term borrowings — 1,612 2,569 Total interest expense 6,672 18,445 24,137 Net interest and dividend income 73,177 64,430 57,979 (Credit) provision for loan losses ( 925 ) 7,775 2,675 Net interest and dividend income after (credit) provision for loan losses 74,102 56,655 55,304 Non-interest income: Service charges and fees 8,360 7,067 7,364 Income from bank-owned life insurance 1,912 1,809 1,799 Bank-owned life insurance death benefit 555 — — (Loss) gain on available-for-sale securities, net ( 72 ) 1,965 ( 97 ) Gain on sale of mortgages 1,423 — — Net unrealized (losses) gains on marketable equity securities ( 168 ) 109 165 Gain on non-marketable equity investments 898 — — Loss on interest rate swap termination ( 402 ) ( 2,353 ) — Other income 58 654 474 Total non-interest income 12,564 9,251 9,705 Non-interest expense: Salaries and employees benefits 32,186 29,349 27,654 Occupancy 4,656 4,520 4,174 Furniture and equipment 2,084 1,537 1,673 Data processing 2,903 2,901 2,780 Professional fees 2,185 2,372 2,439 FDIC insurance assessment 998 1,032 430 Advertising 1,292 1,106 1,332 Loss on prepayment of borrowings 45 987 — Other expenses 8,593 7,946 7,326 Total non-interest expense 54,942 51,750 47,808 Income before income taxes 31,724 14,156 17,201 Income tax provision 8,025 2,941 3,852 Net income $ 23,699 $ 11,215 $ 13,349 Earnings per common share: Basic earnings per share $ 1.02 $ 0.45 $ 0.51 Weighted average shares outstanding 23,223,633 25,047,195 26,185,336 Diluted earnings per share $ 1.02 $ 0.45 $ 0.51 Weighted average diluted shares outstanding 23,300,637 25,062,476 26,303,140 Dividends per share $ 0.20 $ 0.20 $ 0.20 See accompanying notes to consolidated financial statements. F- 4 WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Years Ended December 31, 2021 2020 2019 Net income $ 23,699 $ 11,215 $ 13,349 Other comprehensive income (loss): Unrealized (losses) gains on available-for-sale securities: Unrealized holding (losses) gains ( 6,059 ) 3,660 9,394 Reclassification adjustment for net losses (gains) realized in income (1) 72 ( 1,965 ) 97 Unrealized (losses) gains ( 5,987 ) 1,695 9,491 Tax effect 1,499 ( 410 ) ( 2,420 ) Net-of-tax amount ( 4,488 ) 1,285 7,071 Cash flow hedges: Change in fair value of derivatives used for cash flow hedges — ( 1,254 ) ( 900 ) Reclassification adjustment for loss realized in income for interest rate swap termination (2) 402 2,353 — Reclassification adjustment for loss realized in interest expense (3) — 674 387 Reclassification adjustment for termination fee realized in interest expense (4) 282 842 1,068 Unrealized gains on cash flow hedges 684 2,615 555 Tax effect ( 192 ) ( 736 ) ( 156 ) Net-of-tax amount 492 1,879 399 Defined benefit pension plan: Gains (losses) arising during the period 3,209 ( 8,037 ) ( 4,349 ) Amortization of defined benefit plan actuarial loss (5) 910 421 137 Unrecognized actuarial gains (losses) on defined benefit plan 4,119 ( 7,616 ) ( 4,212 ) Tax effect ( 1,158 ) 2,141 1,183 Net-of-tax amount 2,961 ( 5,475 ) ( 3,029 ) Other comprehensive (loss) income ( 1,035 ) ( 2,311 ) 4,441 Comprehensive income $ 22,664 $ 8,904 $ 17,790 (1) Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income in the consolidated statements of net income. The tax effects associated with the reclassification adjustments were $ ( 15,000 ) , $ 502,000 and $ ( 37,000 ) for the years ended December 31, 2021, 2020 and 2019, respectively. (2) Loss realized in income on interest rate swap termination is recognized as a component of non-interest income. Income tax effects associated with the reclassification adjustments were $ 113,000 and $ 661,000 for the years ended December 31, 2021 and 2020. (3) Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $ 189,000 and $ 109,000 for the years ended December 31, 2020 and 2019, respectively. (4) Termination fee realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $ 79,000 , $ 237,000 and $ 300,000 for the years ended December 31, 2021, 2020 and 2019, respectively. (5) Amounts represent the reclassification of defined benefit plan amortization and have been recognized as a component of non-interest expense in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $ 256,000 , $ 118,000 and $ 38,000 for the years ended December 31, 2021, 2020 and 2019, respectively. (1) Realized gains and losses on available-for-sale securities are recognized as a component of non-interest income in the consolidated statements of net income. The tax effects associated with the reclassification adjustments were $(15,000), $502,000 and $(37,000) for the years ended December 31, 2021, 2020 and 2019, respectively. (2) Loss realized in income on interest rate swap termination is recognized as a component of non-interest income. Income tax effects associated with the reclassification adjustments were $113,000 and $661,000 for the years ended December 31, 2021 and 2020. (3) Loss realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $189,000 and $109,000 for the years ended December 31, 2020 and 2019, respectively. (4) Termination fee realized in interest expense on derivative instruments is recognized as a component of interest expense on long-term debt in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $79,000, $237,000 and $300,000 for the years ended December 31, 2021, 2020 and 2019, respectively. (5) Amounts represent the reclassification of defined benefit plan amortization and have been recognized as a component of non-interest expense in the consolidated statements of net income. Income tax effects associated with the reclassification adjustments were $256,000, $118,000 and $38,000 for the years ended December 31, 2021, 2020 and 2019, respectively. See accompanying notes to consolidated financial statements. F- 5 WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (Dollars in thousands, except share data) Common Stock Unearned Accumulated Shares Par Value Additional Paid-in Capital Unearned Compensation- ESOP Compensation- Equity Incentive Plan Retained Earnings Other Comprehensive Loss Total BALANCE AT DECEMBER 31, 2018 28,393,348 $ 284 $ 182,096 $ ( 5,171 ) $ ( 872 ) $ 74,108 $ ( 13,416 ) $ 237,029 Comprehensive income — — — — — 13,349 4,441 17,790 Cumulative-effect adjustment due to change in accounting principle (ASU 2017-08) — — — — — ( 7 ) 7 — Common stock held by ESOP committed to be released ( 88,117 shares) — — 237 597 — — — 834 Common stock repurchased ( 1,958,111 ) ( 19 ) ( 19,215 ) — — — — ( 19,234 ) Share-based compensation - equity incentive plan — — ( 45 ) — 818 — — 773 Issuance of common stock in connection with stock option exercises 19,861 — 106 — — — — 106 Issuance of common stock in connection with equity incentive plan 102,883 1 1,069 — ( 1,070 ) — — — Cash dividends declared and paid on common stock ($ 0.20 per share) — — — — — ( 5,274 ) — ( 5,274 ) BALANCE AT DECEMBER 31, 2019 26,557,981 $ 266 $ 164,248 $ ( 4,574 ) $ ( 1,124 ) $ 82,176 $ ( 8,968 ) $ 232,024 Comprehensive income (loss) — — — — — 11,215 ( 2,311 ) 8,904 Common stock held by ESOP committed to be released ( 85,101 shares) — — ( 26 ) 577 — — — 551 Forfeited equity incentive plan shares ( 30,193 shares) — — ( 319 ) — 319 — — — Common stock repurchased ( 1,416,362 ) ( 14 ) ( 10,665 ) — — — — ( 10,679 ) Share-based compensation - equity incentive plan — — — — 834 — — 834 Issuance of common stock in connection with stock option exercises 7,239 — 43 — — — — 43 Issuance of common stock in connection with equity incentive plan 127,335 1 1,268 — ( 1,269 ) — — — Cash dividends declared and paid on common stock ($ 0.20 per share) — — — — — ( 5,037 ) — ( 5,037 ) BALANCE AT DECEMBER 31, 2020 25,276,193 $ 253 $ 154,549 $ ( 3,997 ) $ ( 1,240 ) $ 88,354 $ ( 11,279 ) $ 226,640 Comprehensive income (loss) — — — — — 23,699 ( 1,035 ) 22,664 Common stock held by ESOP committed to be released ( 81,893 shares) — — 126 556 — — — 682 Forfeited equity incentive plan shares ( 24,506 shares) — — ( 259 ) — 259 — — — Common stock repurchased ( 2,775,134 ) ( 27 ) ( 23,094 ) — — — — ( 23,121 ) Share-based compensation - equity incentive plan — — — — 1,307 — — 1,307 Issuance of common stock in connection with stock option exercises 33,094 — 193 — — — — 193 Issuance of common stock in connection with equity incentive plan 122,362 1 1,020 — ( 1,021 ) — — — Forfeited equity incentive plan shares reissued ( 32,544 shares) — — 286 — ( 286 ) — — — Cash dividends declared and paid on common stock ($ 0.20 per share) — — — — — ( 4,677 ) — ( 4,677 ) BALANCE AT DECEMBER 31, 2021 22,656,515 $ 227 $ 132,821 $ ( 3,441 ) $ ( 981 ) $ 107,376 $ ( 12,314 ) $ 223,688 See accompanying notes to consolidated financial statements. F- 6 WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2021 2020 2019 OPERATING ACTIVITIES: Net income $ 23,699 $ 11,215 $ 13,349 Adjustments to reconcile net income to net cash provided by operating activities: (Credit) provision for loan losses ( 925 ) 7,775 2,675 Depreciation and amortization of premises and equipment 2,322 2,145 2,079 Net amortization (accretion) of purchase accounting adjustments 95 ( 946 ) 24 Amortization of core deposit intangible 374 375 376 Net amortization of premiums and discounts on securities and mortgage loans 2,251 2,540 2,371 Amortization of subordinated debt issuance costs 27 — — Share-based compensation expense 1,307 834 773 ESOP expense 682 551 834 Gain on sale of portfolio mortgages ( 227 ) — — Principal balance of loans originated for sale ( 52,130 ) — — Principal balance of loans sold 52,130 — — Change in unrealized loss (gain) on marketable equity securities 168 ( 109 ) ( 165 ) Net loss (gain) on sales of available-for-sale securities 72 ( 1,965 ) 97 Loss on prepayment of borrowings 45 987 — Gain on bank-owned life insurance death benefit ( 555 ) — — Deferred income tax provision (benefit) 644 ( 2,431 ) ( 680 ) Income from bank-owned life insurance ( 1,912 ) ( 1,809 ) ( 1,799 ) Net change in: Accrued interest receivable 702 ( 3,164 ) 339 Other assets ( 4,914 ) 5,182 ( 7,204 ) Other liabilities 3,687 3,887 2,310 Net cash provided by operating activities 27,542 25,067 15,379 INVESTING ACTIVITIES: Securities, held-to-maturity: Purchases ( 231,292 ) — — Proceeds from calls, maturities, and principal collections 8,714 — — Securities, available-for-sale: Purchases ( 65,291 ) ( 158,979 ) ( 74,508 ) Proceeds from sales and redemptions 9,562 96,320 72,156 Proceeds from calls, maturities, and principal collections 55,382 84,774 35,386 Loan originations and principal payments, net 54,322 ( 151,474 ) ( 80,074 ) Redemption of Federal Home Loan Bank of Boston stock, net 2,566 9,317 218 Proceeds from sale of portfolio mortgages 7,801 — — Purchases of premises and equipment ( 3,457 ) ( 3,581 ) ( 1,285 ) Proceeds from sale of premises and equipment 36 66 27 Net cash used in investing activities ( 161,657 ) ( 123,557 ) ( 48,080 ) FINANCING ACTIVITIES: Net increase in deposits 213,516 360,313 81,946 Net decrease in short-term borrowings — ( 35,000 ) ( 24,250 ) Repayment of long-term debt ( 55,230 ) ( 207,524 ) ( 84,763 ) Proceeds from subordinated debt issuance 20,000 — — Payment of subordinated debt issuance costs ( 394 ) — — Proceeds from long-term debt — 58,917 82,343 Cash dividends paid ( 4,677 ) ( 5,037 ) ( 5,274 ) Common stock repurchased ( 23,281 ) ( 10,519 ) ( 19,455 ) Issuance of common stock in connection with stock option exercises 193 43 106 Net cash provided by financing activities 150,127 161,193 30,653 NET CHANGE IN CASH AND CASH EQUIVALENTS: 16,012 62,703 ( 2,048 ) Beginning of year 87,444 24,741 26,789 End of year $ 103,456 $ 87,444 $ 24,741 Supplemental cash flow information: Net change in due to broker for common stock repurchased $ ( 160 ) $ 160 $ ( 221 ) See the accompanying notes to consolidated financial statements. F- 7 WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Basis of Presentation . Western New England Bancorp, Inc. (“Western New England Bancorp,” “WNEB,” “Company,” “we,” or “us”) is a Massachusetts-chartered stock holding company for Westfield Bank, a federally-chartered savings bank (“Bank”). The Bank operates 25 banking offices in Hampden and Hampshire counties in western Massachusetts and Hartford and Tolland counties in northern Connecticut, and its primary sources of revenue are interest income from loans as well as interest income from investment securities. The Bank’s Huntington, Massachusetts branch opened on February 25, 2020 and its Bloomfield, Connecticut branch opened on July 6, 2020. In addition, the Bank’s Financial Services Center in West Hartford, Connecticut, opened on July 21, 2020. The West Hartford Financial Services Center serves as the Company’s Connecticut hub, housing Commercial Lending, Cash Management and a Mortgage Loan Officer. The Bank’s deposits are insured up to the maximum Federal Deposit Insurance Corporation (“FDIC”) coverage limits. Wholly-owned Subsidiaries of the Ban k . Elm Street Securities Corporation, WFD Securities, Inc. and CSB Colts, Inc., are Massachusetts chartered securities corporations, formed for the primary purpose of holding qualified securities. WB Real Estate Holdings, LLC, is a Massachusetts-chartered limited liability company that holds real property acquired as security for debts previously contracted by the Bank. Principles of Consolidation . The consolidated financial statements include the accounts of Western New England Bancorp, the Bank, CSB Colts, Inc., Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities, Inc. All material intercompany balances and transactions have been eliminated in consolidation. Estimates . The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses for each. Actual results could differ from those estimates. An estimate that is particularly susceptible to significant change in the near-term relates to the determination of the allowance for loan losses. Reclassifications . Amounts in the prior year financial statements are reclassified when necessary to conform to the current year presentation. Significant Group Concentrations of Credit Risk . Most of the Company’s lending activities are with customers located within the New England region of the country. The Company does not have any significant concentrations to any one industry or customer. Cash and Cash Equivalents . We define cash on hand, cash due from banks, federal funds sold and interest-bearing deposits having an original maturity of 90 days or less as cash and cash equivalents. Securities and Mortgage-Backed Securities . Debt securities, including mortgage-backed securities, which management has the positive intent and ability to hold until maturity are classified as held to maturity and are carried at amortized cost. Debt securities, including mortgage-backed securities, which have been identified as assets for which there is not a positive intent to hold to maturity are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of income taxes, reported as a separate component of comprehensive income (loss). Marketable equity securities are measured at fair value with changes in fair value reported on the Company’s consolidated statements of net income as a component of non-interest income, regardless of whether such gains and losses are realized. We do not acquire securities and mortgage-backed securities for purposes of engaging in trading activities. F- 8 Realized gains and losses on sales of securities and mortgage-backed securities are computed using the specific identification method and are included in non-interest income on the trade date. The amortization of premiums and accretion of discounts is determined by using the level yield method to the maturity date. Non-marketable Equity Securities . Investments in equity securities without readily determinable fair values are measured at cost, less any impairment, with re-measurement to fair value when there are observable price changes. Impairment is evaluated on such securities based on a qualitative assessment that considers various potential impairment indicators. Upon determining that an impairment exists, a loss is recognized for the amount by which the carrying value exceeds the fair value of the investment. Derivatives . We enter into interest rate swap agreements as part of our interest-rate risk management strategy for certain assets and liabilities and not for speculative purposes. Based on our intended use for interest rate swaps, these are hedging instruments subject to hedge accounting provisions. Cash flow hedges are recorded at fair value in other assets or other liabilities within our balance sheets. Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Other-than-Temporary Impairment of Securities . On a quarterly basis, we review available-for-sale securities with a decline in fair value below the amortized cost of the investment to determine whether the decline in fair value is temporary or other-than-temporary (“OTTI”). In estimating OTTI losses for available-for-sale securities, impairment is required to be recognized if (1) we intend to sell the security; (2) it is “more likely than not” that we will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that we intend to sell, or more likely than not will be required to sell, the full amount of the other-than-temporary impairment is recognized through earnings. For all other impaired debt securities, credit-related other-than-temporary impairment is recognized through earnings, while non-credit related other-than-temporary impairment is recognized in other comprehensive income/loss, net of applicable taxes. Fair Value Hierarchy . We group our assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level 1: Valuation is based on quoted prices in active markets for identical assets. Level 1 assets generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets. Level 2: Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. Level 3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Federal Home Loan Bank of Boston Stock . The Bank, as a member of the Federal Home Loan Bank (“FHLB”) system, is required to maintain an investment in capital stock of the FHLB of Boston. Based on the redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. At its discretion, the FHLB may declare dividends on the stock. Management reviews for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. As of December 31, 2021, no impairment has been recognized. Loans Held for Sale . Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses, if any, are recognized through a valuation allowance by charges to non-interest income. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date and reported within non-interest income on the accompanying consolidated statements of net income. F- 9 Loans Receivable . Loans are recorded at the principal amount outstanding, adjusted for charge-offs, the allowance for loan losses, unearned premiums, discounts and deferred loan fees and costs. Interest on loans is calculated using the effective yield method on daily balances of the principal amount outstanding and is credited to income on the accrual basis to the extent it is deemed collectible. Our general policy is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more based on the contractual terms of the loan, or earlier if the loan is considered impaired. Any unpaid amounts previously accrued on these loans are reversed from current period interest income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgment of management, collection of the principal balance is not in question. Loans are returned to accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectability of principal and interest. Loan fees, discounts and premiums on purchased loans, and certain direct loan origination costs are deferred and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans. Allowance for Loan Losses . The allowance for loan losses is established through provisions for loan losses charged to expense. Loans are charged-off against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated and unallocated components, as further described below. General component The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate (includes one-to-four family and home equity), commercial real estate, commercial and industrial, and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: trends in delinquencies and nonperforming loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; and national and local economic trends and industry conditions. Beginning in March 2020, the Bank added a new qualitative factor category to the allowance calculation – “Economic Impact of COVID-19”. The allocation of additional reserves for the COVID-19 qualitative factor during the year was based upon continued analysis of the loan portfolio that included identifying borrowers sensitive to the shutdown (i.e. accommodation and food service, recreation, construction, manufacturing, and wholesale & retail trade) as well as a general allocation for the negative economic outlook given the record number of unemployment benefits claims during the period. In addition, on an ongoing basis, the Company has continually evaluated the loan portfolio acquired on October 24, 2016 from Chicopee Bancorp, Inc. (“Chicopee”). The acquired portfolio was initially recorded at fair value without a related allowance for loan losses. Due to the ongoing impacts and extended nature of the pandemic, during the year ended December 31, 2020, the Company determined that it was prudent to provide an allowance for loan losses related to the acquired portfolio. Excluding the COVID-19 qualitative factor category and the allowance for the acquired loan portfolio, there were no additional changes in our policies or methodology pertaining to the general component of the allowance for loan losses during the periods presented for disclosure. The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each loan portfolio segment are as follows: Commercial real estate loans . Loans in this segment are primarily income-producing investment properties and owner-occupied commercial properties throughout New England. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and continually monitors the cash flows of these loans. Residential real estate loans . Loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. We require private mortgage insurance for all loans originated with a loan-to-value ratio greater than 80 % and we do not grant subprime loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Home equity loans are secured by first or second mortgages on one-to-four family owner occupied properties. F- 10 Commercial and industrial loans . Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, decreased consumer spending, changes in technology and government spending are examples of what will have an effect on the credit quality in this segment. In addition, as a Preferred Lender with the Small Business Administration (“SBA”), the Company offered Paycheck Protection Program (“PPP”) loans through the March 27, 2020 $ 2.2 trillion fiscal stimulus bill known as the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) launched by the U.S. Department of Treasury (“Treasury”) and the SBA. An eligible business was able to apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs,” or (2) $ 10 .0 million. PPP loans have: (a) an interest rate of 1.0 %, (b) a two-year loan term to maturity, subsequently extended to a five-year loan term maturity for loans granted on or after June 5, 2020 and (c) principal and interest payments deferred from six months to ten months from the date of disbursement. The SBA will guarantee 100 % of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60 % of the loan proceeds are used for payroll expenses, with the remaining 40 % of the loan proceeds used for other qualifying expenses. Consumer loans . Loans in this segment are both secured and unsecured and repayment is dependent on the credit quality of the individual borrower. Allocated component The allocated component relates to loans that are classified as impaired. Impaired loans are identified by analysis of loan performance, internal credit ratings and watch list loans that management believes are subject to a higher risk of loss. Impairment is measured on a loan by loan basis for commercial real estate and commercial and industrial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are nonperforming or subject to a troubled debt restructuring agreement. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The extent to which COVID-19 impacts our borrower’s ability to repay and therefore the classification of a loan as impaired is highly uncertain and cannot be predicted with confidence as it is highly dependent upon the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures. We may periodically agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are classified as impaired. While we use our best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. F- 11 Unallocated component An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. Loans Acquired with Deteriorated Credit Quality . Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition the Company will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired loans. This guidance provides that the excess of the cash flows initially expected to be collected over the fair value of the loans at the acquisition date (i.e., the accretable yield) is accreted into interest income over the estimated remaining life of the loans, provided that the timing and amount of future cash flows is reasonably estimated. The difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. Subsequent to acquisition, probable decreases in expected cash flows are recognized through a provision for loan losses, resulting in an increase to the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be collected, the Company will first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment. Bank-owned Life Insurance . Bank-owned life insurance policies are reflected on the consolidated balance sheets at cash surrender value. Changes in the net cash surrender value of the policies, as well as insurance proceeds received in excess of carrying value, are reflected in non-interest income on the consolidated statements of net income and are not subject to income taxes. Transfers and Servicing of Financial Assets . Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from us, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Premises and Equipment . Land is carried at cost. Buildings, furniture and equipment are stated at cost, less accumulated depreciation and amortization, computed on the straight-line method over the estimated useful lives of the assets, or the expected lease term, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured. The estimated useful lives of the assets are as follows: The estimated useful lives of the assets are as follows: Years Buildings 39 Leasehold Improvements 5 - 20 Furniture and Equipment 3 - 7 The cost of maintenance and repairs is charged to expense when incurred. Major expenditures for betterments are capitalized and depreciated. Other Real Estate Owned . Other real estate owned (“OREO”) represents property acquired through foreclosure or deeded to us in lieu of foreclosure. OREO is initially recorded at the estimated fair value of the real estate acquired, net of estimated selling costs, establishing a new cost basis. Initial write-downs are charged to the allowance for loan losses at the time the loan is transferred to OREO. Subsequent valuations are periodically performed by management and the carrying value is adjusted by a charge to expense to reflect any subsequent declines in the estimated fair value. Operating costs associated with OREO are expensed as incurred. Servicing . The Company services mortgage loans for others. Mortgage servicing assets are recognized as separate assets at fair value when rights are acquired through purchase or retained through the sale of financial assets. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Capitalized servicing rights are reported in other assets and are amortized into service charges and fee income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the amortized cost. Impairment is determined by stratifying rights by predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that the fair value is less than the capitalized amount for the stratum. Changes in the valuation allowance are reported in service charges and fee income. F- 12 Servicing fee income is recorded for fees earned for servicing loans, which is included in service charges and fee income. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Impairment of Long-lived Assets . Long-lived assets, including premises and equipment and certain identifiable intangible assets that are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset is determined to be impaired, it is written down to its estimated fair value through a charge to earnings. Goodwill is measured as the excess of the cost of a business combination over the sum of the amounts assigned to identifiable intangible assets acquired less liabilities assumed. Goodwill is not amortized but rather assessed for impairment annually or more frequently if circumstances warrant. Management has the option of first assessing qualitative factors, such as events and circumstances, to determine whether it is more likely than not, meaning a likelihood of more than 50%, the value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, management determines it is not more likely than not the fair value of a reporting unit is less than its carrying amount, then performing an impairment test is unnecessary. For the year ended December 31, 2021, management determined that it was not more likely than not the fair value of the reporting unit (the consolidated Company, in our case) was less than its carrying amount. If management had determined otherwise, a fair value analysis would have been completed to determine the impairment and necessary write-down of goodwill. Retirement Plans and Employee Benefits . We provide a defined benefit pension plan for eligible employees in conjunction with a third-party provider. The plan was soft frozen on September 30, 2016, and therefore, no new participants are included in the Plan after such effective date. The compensation cost of an employee’s pension benefit is recognized on the projected unit credit method over the employee’s approximate service period. The aggregate cost method is utilized for funding purposes. Employees are also eligible to participate in a 401(k) plan through a third-party provider. We make matching contributions to this plan at 50 % of up to 6 % of the employees’ eligible compensation. Share-based Compensation Plans . We measure and recognize compensation cost relating to share-based payment transactions based on the grant-date fair value of the equity instruments issued. Share-based compensation is recognized over the period the employee is required to provide services for the award. Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience. We use a binomial option-pricing model to determine the fair value of the stock options granted. Employee Stock Ownership Plan . Compensation expense for the Employee Stock Ownership Plan (“ESOP”) is recorded at an amount equal to the shares allocated by the ESOP multiplied by the average fair market value of the shares during the period. We recognize compensation expense ratably over the year based upon our estimate of the number of shares expected to be allocated by the ESOP. Unearned compensation applicable to the ESOP is reflected as a reduction of shareholders’ equity in the consolidated balance sheets. The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in capital. Leases . The Company determines if an arrangement is a lease at inception. Operating leases are included within other assets and other liabilities in our consolidated balance sheets. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. F- 13 Advertising Costs . Advertising costs are accounted for using the accrual basis of accounting. Income Taxes . We use the asset and liability method for income tax accounting, whereby, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance related to deferred tax assets is established when, in the judgment of management, it is more likely than not that all or a portion of such deferred tax assets will not be realized based on the available evidence including historical and projected taxable income. We do not have any uncertain tax positions at December 31, 2021 that require accrual or disclosure. We record interest and penalties as part of income tax expense. No interest or penalties were recorded during the years ended December 31, 2021, 2020, or 2019. Earnings per Share . Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate to stock options and certain performance-based restricted stock awards and are determined using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. There were no anti-dilutive shares outstanding during the years ended December 31, 2021 and 2019. F- 14 Earnings per common share have been computed based on the following: Years Ended December 31, 2021 2020 2019 (In thousands, except per share data) Net income applicable to common stock $ 23,699 $ 11,215 $ 13,349 Average number of common shares issued 23,849 25,751 26,959 Less: Average unallocated ESOP Shares ( 496 ) ( 580 ) ( 667 ) Less: Average unvested equity incentive plan shares ( 129 ) ( 124 ) ( 107 ) Average number of common shares outstanding used to calculate basic earnings per common share 23,224 25,047 26,185 Effect of dilutive equity incentive plan 36 — 45 Effect of dilutive stock options 41 15 73 Average number of common shares outstanding used to calculate diluted earnings per common share 23,301 25,062 26,303 Basic earnings per share $ 1.02 $ 0.45 $ 0.51 Diluted earnings per share $ 1.02 $ 0.45 $ 0.51 Anti-dilutive shares (1) — 259 — (1) Shares outstanding but not included because the impact of these shares would be anti-dilutive to the earnings per share calculation for the period presented. Comprehensive Income (Loss) Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss). The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows: December 31, 2021 December 31, 2020 (In thousands) Net unrealized (losses) gains on available-for-sale securities $ ( 4,685 ) $ 1,302 Tax effect 1,160 ( 339 ) Net-of-tax amount ( 3,525 ) 963 Losses on terminated cash flow hedges — ( 684 ) Tax effect — 192 Net-of-tax amount — ( 492 ) Unrecognized actuarial loss on the defined benefit plan ( 12,225 ) ( 16,344 ) Tax effect 3,436 4,594 Net-of-tax amount ( 8,789 ) ( 11,750 ) Accumulated other comprehensive loss $ ( 12,314 ) $ ( 11,279 ) F- 15 Recent Accounting Pronouncements. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. This ASU, as amended, is effective for the Company in fiscal years beginning after December 15, 2022. The Company is in the process of implementing the standard. We have put together a project team that has begun to identify appropriate loan segments along with related historical losses for each segment and potential models that would be most appropriate for each individual segment. We have not quantified the effects of any models, but do expect the standard to significantly change the approach to calculating our allowance for loan losses. 2. INVESTMENT SECURITIES Available-for-sale and held-to-maturity investment securities at December 31, 2021 and 2020 are summarized as follows: December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (In thousands) Available-for-sale securities: Debt securities: Government-sponsored enterprise obligations $ 14,902 $ — $ ( 676 ) $ 14,226 State and municipal bonds 405 1 — 406 Corporate bonds 3,026 86 — 3,112 Total debt securities 18,333 87 ( 676 ) 17,744 Mortgage-backed securities: Government-sponsored mortgage-backed securities 171,011 427 ( 3,929 ) 167,509 U.S. government guaranteed mortgage-backed securities 9,693 8 ( 602 ) 9,099 Total mortgage-backed securities 180,704 435 ( 4,531 ) 176,608 Total available-for-sale 199,037 522 ( 5,207 ) 194,352 Held-to-maturity securities: Debt securities: U.S. Treasury securities 9,979 — ( 6 ) 9,973 Total debt securities 9,979 — ( 6 ) 9,973 Mortgage-backed securities: Government-sponsored mortgage-backed securities 212,293 — ( 2,518 ) 209,775 Total mortgage-backed securities 212,293 — ( 2,518 ) 209,775 Total held-to-maturity 222,272 — ( 2,524 ) 219,748 Total $ 421,309 $ 522 $ ( 7,731 ) $ 414,100 F- 16 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (In thousands) Available-for-sale securities: Debt securities: Government-sponsored enterprise obligations $ 14,871 $ 15 $ ( 111 ) $ 14,775 State and municipal bonds 405 1 — 406 Corporate bonds 3,039 36 — 3,075 Total debt securities 18,315 52 ( 111 ) 18,256 Mortgage-backed securities: Government-sponsored mortgage-backed securities 161,290 1,742 ( 303 ) 162,729 U.S. government guaranteed mortgage-backed securities 20,973 108 ( 186 ) 20,895 Total mortgage-backed securities 182,263 1,850 ( 489 ) 183,624 Total available-for-sale $ 200,578 $ 1,902 $ ( 600 ) $ 201,880 At December 31, 2021, government-sponsored enterprise obligations with a fair value of $ 9.5 million and mortgage-backed securities with a fair value of $ 53.7 million were pledged to secure public deposits and for other purposes as required or permitted by law. The securities collateralizing public deposits are subject to fluctuations in fair value. We monitor the fair value of the collateral on a periodic basis, and pledge additional collateral if necessary based on changes in fair value of collateral or the balances of such deposits. The amortized cost and fair value of available-for-sale and held-to-maturity securities at December 31, 2021, by final maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations. Available-for-Sale Held-to-Maturity Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Debt securities: Due after one year through five years $ 3,431 $ 3,518 $ 9,979 $ 9,973 Due after five years through ten years 9,902 9,544 — — Due after ten years 5,000 4,682 — — Total debt securities 18,333 17,744 9,979 9,973 Mortgage-backed securities: Due after five years through ten years 1,966 1,953 — — Due after ten years 178,738 174,655 212,293 209,775 Total mortgage-backed securities 180,704 176,608 212,293 209,775 Total securities $ 199,037 $ 194,352 $ 222,272 $ 219,748 Gross realized gains and losses on sales of available-for-sale securities for the years ended December 31, 2021, 2020 and 2019 are as follows: Years Ended December 31, 2021 2020 2019 (In thousands) Gross gains realized $ 12 $ 2,188 $ 160 Gross losses realized ( 84 ) ( 223 ) ( 257 ) Net (loss) gain realized $ ( 72 ) $ 1,965 $ ( 97 ) Proceeds from the sale and redemption of available-for-sale securities totaled $ 9.6 million, $ 96.3 million and $ 72.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. F- 17 Information pertaining to securities with gross unrealized losses at December 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows : December 31, 2021 Less Than Twelve Months Over Twelve Months Number of Securities Fair Value Gross Unrealized Loss Depreciation from Amortized Cost Basis (%) Number of Securities Fair Value Gross Unrealized Loss Depreciation from Amortized Cost Basis (%) (Dollars in thousands) Available-for-sale: Government-sponsored mortgage-backed securities 34 $ 105,221 $ 2,088 2.0 % 18 $ 42,506 $ 1,841 4.5 % U.S. government guaranteed mortgage-backed securities 2 2,426 142 6.2 5 5,107 460 9.9 Government-sponsored enterprise obligations — — — — 3 14,226 676 5.0 Total available-for-sale 36 107,647 2,230 26 61,839 2,977 Held-to-maturity: U.S. Treasury securities 2 9,973 6 0.1 % — — — — % Government-sponsored mortgage-backed securities 31 209,775 2,518 1.2 — — — — Total held-to-maturity 33 219,748 2,524 — — — Total 69 $ 327,395 $ 4,754 26 $ 61,839 $ 2,977 December 31, 2020 Less Than Twelve Months Over Twelve Months Number of Securities Fair Value Gross Unrealized Loss Depreciation from Amortized Cost Basis (%) Number of Securities Fair Value Gross Unrealized Loss Depreciation from Amortized Cost Basis (%) (Dollars in thousands) Available-for-sale: Government-sponsored mortgage-backed securities 16 $ 27,091 $ 225 0.8 % 2 $ 1,815 $ 78 4.1 % U.S. government guaranteed mortgage-backed securities 3 10,458 75 0.7 2 2,393 111 4.4 Government-sponsored enterprise obligations 2 9,868 111 1.1 — — — — Total $ 47,417 $ 411 $ 4,208 $ 189 During the years ended December 31, 2021 and 2020, the Company did not record any other-than-temporary impairment (“OTTI”) charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses. At December 31, 2021, management attributes the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company and not due to credit quality. The process for assessing investments for OTTI may vary depending on the type of security. In assessing the Company's investments in government-sponsored and U.S. government guaranteed mortgage-backed securities and government-sponsored enterprise obligations, the contractual cash flows of these investments are guaranteed by the respective government-sponsored enterprise; Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”), Federal Farm Credit Bank (“FFCB”), or Federal Home Loan Bank (“FHLB”). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company's investments. Management's assessment of other debt securities within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investments' materiality, and duration of the investments' unrealized loss position. At December 31, 2021, the Company's corporate and municipal bond portfolios did not contain any securities below investment grade, as reported by major credit rating agencies. F- 18 3. LOANS Major classifications of loans at the periods indicated were as follows: December 31, December 31, 2021 2020 (In thousands) Commercial real estate $ 979,969 $ 833,949 Residential real estate: Residential one-to-four family 552,332 604,719 Home equity 99,759 103,905 Total residential real estate 652,091 708,624 Commercial and industrial: Paycheck protection program (“PPP”) loans 25,329 167,258 Commercial and industrial 201,340 211,823 Total commercial and industrial 226,669 379,081 Consumer 4,250 5,192 Total gross loans 1,862,979 1,926,846 Unamortized PPP loan fees ( 781 ) ( 3,050 ) Unearned premiums and deferred loan fees and costs, net 2,518 3,587 Total loans, net 1,864,716 1,927,383 Allowance for loan losses ( 19,787 ) ( 21,157 ) Net loans $ 1,844,929 $ 1,906,226 Loan Modifications/Troubled Debt Restructurings . The banking regulatory agencies, through an Interagency Statement dated April 7, 2020, encouraged financial institutions to work “prudently” with borrowers who request loan modifications or deferrals as a result of the economic impacts of COVID-19. Pursuant to Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Financial institutions can then suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as TDRs, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting under U.S. GAAP. The Company adopted this policy election to address COVID-19 loan modification requests that have been received from the earlier of either January 1, 2022 or the 60 th day after the end of the COVID-19 national emergency. The Company granted deferred loan payments for impacted commercial, residential and consumer customers who experienced financial hardship due to COVID-19. The loan payment deferrals could be up to 90 days, depending upon the financial needs of each customer. Further deferrals will be re-evaluated on a customer-by-customer basis upon the expiration of the existing deferral period. As of December 31, 2021, modifications granted under the CARES Act declined to nine loans in the amount of $ 42.5 million, or 2.3 % of total loans, excluding PPP loans. As of December 31, 2021, of the $ 42.5 million in remaining modifications granted under the CARES Act, eight loans in the amount of $ 33.5 million, or 78.8 % of the remaining modifications, were granted to the hotel industry, and one loan in the amount of $ 9 .0 million was granted to an assisted living facility. Of the $ 42.5 million in remaining outstanding modifications, loans in the aggregate amount of $ 33.5 million, or 78.8 %, have resumed interest only payments. F- 19 The table below breaks out the remaining modifications granted under the CARES Act at December 31, 2021: Remaining CARES Act Modifications Loan Segment (1)(2) Total Loan Segment Balance at December 31, 2021 % of Total Loans Modification Balance # of Loans Modified % of Loan Segment Balance ($ in millions) Commercial real estate (3) $ 980.0 53.3 % $ 41.9 7 4.3 % Commercial and industrial 201.3 11.0 % 0.6 2 0.3 % Residential real estate 652.1 35.5 % — — — Consumer 4.3 0.2 % — — — Total $ 1,837.7 100.0 % $ 42.5 9 2.3 % (1) Excludes PPP loans of $ 25.3 million and the related deferred fees. (2) Residential includes home equity loans and lines of credit. (3) The remaining modification balance includes $ 32.9 million, which resumed regular payments in January of 2022. (1) Excludes PPP loans of $25.3 million and the related deferred fees. (2) Residential includes home equity loans and lines of credit. (3) The remaining modification balance includes $32.9 million, which resumed regular payments in January of 2022. Loans Serviced for Others. The Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in our accompanying consolidated balance sheets. We continue to service the loans on behalf of the participating lenders. We share, on a pro-rated basis, with participating lenders any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. At December 31, 2021 and December 31, 2020, the Company was servicing commercial loans participated out to various other institutions totaling $ 63.2 million and $ 52.9 million, respectively. Residential real estate mortgages are originated by the Bank both for its portfolio and for sale into the secondary market. The Bank may sell its loans to institutional investors such as the FHLMC. Under loan sale and servicing agreements with the investor, the Bank generally continues to service the residential real estate mortgages. The Bank pays the investor an agreed upon rate on the loan, which is less than the interest rate received from the borrower. The Bank retains the difference as a fee for servicing the residential real estate mortgages. The Bank capitalizes mortgage servicing rights at their fair value upon sale of the related loans, amortizes the asset over the estimated life of the serviced loan, and periodically assesses the asset for impairment. The significant assumptions used by a third party to estimate the fair value of capitalized servicing rights at December 31, 2021, include weighted average prepayment speed for the portfolio using the Public Securities Association Standard Prepayment Model ( 166 PSA), weighted average internal rate of return ( 9.02 %), weighted average servicing fee ( 0.25 %), and net cost to service loans ($ 83.77 per loan). The estimated fair value of capitalized servicing rights may vary significantly in subsequent periods primarily due to changing market interest rates, and their effect on prepayment speeds and discount rates. At December 31, 2021 and 2020, the Company was servicing residential mortgage loans owned by investors totaling $ 88.2 million and $ 38.1 million, respectively. Servicing fee income of $ 137,000 , $ 110,000 and $ 133,000 was recorded for the years ended December 31, 2021, 2020 and 2019, respectively, and is included in service charges and fees on the consolidated statements of net income. F- 20 A summary of the activity in the balances of mortgage servicing rights follows: Years Ended December 31, 2021 2020 (In thousands) Balance at the beginning of year: $ 153 $ 219 Capitalized mortgage servicing rights 628 — Amortization ( 86 ) ( 64 ) Write-down of mortgage servicing asset to fair value ( 2 ) ( 2 ) Balance at the end of year $ 693 $ 153 Fair value at the end of year $ 739 $ 157 Allowance for Loan Losses. An analysis of changes in the allowance for loan losses by segment for the years ended December 31, 2021, 2020 and 2019 is as follows: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer Unallocated Total (In thousands) Balance at December 31, 2018 $ 5,260 $ 3,556 $ 3,114 $ 135 $ ( 12 ) $ 12,053 Provision 1,343 618 509 204 1 2,675 Charge-offs ( 669 ) ( 320 ) ( 514 ) ( 197 ) — ( 1,700 ) Recoveries 873 66 74 61 — 1,074 Balance at December 31, 2019 $ 6,807 $ 3,920 $ 3,183 $ 203 $ ( 11 ) $ 14,102 Provision 6,262 408 939 129 37 7,775 Charge-offs ( 107 ) ( 177 ) ( 543 ) ( 136 ) — ( 963 ) Recoveries 58 89 51 45 — 243 Balance at December 31, 2020 $ 13,020 $ 4,240 $ 3,630 $ 241 $ 26 $ 21,157 Provision (credit) 46 ( 349 ) ( 644 ) 35 ( 13 ) ( 925 ) Charge-offs ( 103 ) ( 44 ) ( 370 ) ( 128 ) — ( 645 ) Recoveries 7 117 27 49 — 200 Balance at December 31, 2021 $ 12,970 $ 3,964 $ 2,643 $ 197 $ 13 $ 19,787 F- 21 The following table presents information pertaining to the allowance for loan losses by segment, excluding PPP loans, for the dates indicated: Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer Unallocated Total (In thousands) December 31, 2021 Amount of allowance for impaired loans $ — $ — $ — $ — $ — $ — Amount of allowance for non-impaired loans 12,970 3,964 2,643 197 13 19,787 Total allowance for loan losses $ 12,970 $ 3,964 $ 2,643 $ 197 $ 13 $ 19,787 Impaired loans $ 9,601 $ 3,223 $ 699 $ 22 $ — $ 13,545 Non-impaired loans 965,577 647,098 200,271 4,228 — 1,817,174 Impaired loans acquired with deteriorated credit quality 4,791 1,770 370 — — 6,931 Total loans $ 979,969 $ 652,091 $ 201,340 $ 4,250 $ — $ 1,837,650 December 31, 2020 Amount of allowance for impaired loans $ — $ — $ — $ — $ — $ — Amount of allowance for non-impaired loans 13,020 4,240 3,630 241 26 21,157 Total allowance for loan losses $ 13,020 $ 4,240 $ 3,630 $ 241 $ 26 $ 21,157 Impaired loans $ 11,803 $ 4,363 $ 4,439 $ 27 $ — $ 20,632 Non-impaired loans 816,406 701,915 207,002 5,165 — 1,730,488 Impaired loans acquired with deteriorated credit quality 5,740 2,346 382 — — 8,468 Total loans $ 833,949 $ 708,624 $ 211,823 $ 5,192 $ — $ 1,759,588 Past Due and Nonaccrual loans. The following tables present an age analysis of past due loans, excluding PPP loans, as of the dates indicated: Balance at December 31, 2021 30 – 59 Days Past Due 60 – 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Total Current Loans Total Loans Nonaccrual Loans (In thousands) Commercial real estate $ 139 $ — $ 436 $ 575 $ 979,394 $ 979,969 $ 1,224 Residential real estate: Residential one-to-four family 787 41 507 1,335 550,997 552,332 3,214 Home equity 57 5 63 125 99,634 99,759 94 Commercial and industrial 58 10 22 90 201,250 201,340 410 Consumer 5 — 11 16 4,234 4,250 22 Total loans $ 1,046 $ 56 $ 1,039 $ 2,141 $ 1,835,509 $ 1,837,650 $ 4,964 F- 22 Balance at December 31, 2020 30 – 59 Days Past Due 60 – 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Total Current Loans Total Loans Nonaccrual Loans (In thousands) Commercial real estate $ 5,844 $ 3,144 $ 1,256 $ 10,244 $ 823,705 $ 833,949 $ 1,632 Residential real estate: Residential one-to-four family 1,684 360 707 2,751 601,968 604,719 5,353 Home equity 25 — — 25 103,880 103,905 124 Commercial and industrial 166 158 156 480 211,343 211,823 705 Consumer 22 — — 22 5,170 5,192 27 Total loans $ 7,741 $ 3,662 $ 2,119 $ 13,522 $ 1,746,066 $ 1,759,588 $ 7,841 At December 31, 2021 and December 31, 2020, all loans past due 90 days or more were carried as nonaccrual. The ratio of nonaccrual loans to total loans, excluding PPP loans, was 0.27 % and 0.45 % at December 31, 2021 and December 31, 2020, respectively. Impaired Loans. The following is a summary of impaired loans by class: Year Ended At December 31, 2021 December 31, 2021 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Impaired Loans (1) (In thousands) Commercial real estate $ 14,392 $ 15,563 $ — $ 15,757 $ 469 Residential real estate: Residential one-to-four family 4,881 5,381 — 5,693 233 Home equity 112 136 — 146 7 Commercial and industrial 1,069 3,850 — 2,551 131 Consumer 22 37 — 25 3 Total impaired loans $ 20,476 $ 24,967 $ — $ 24,172 $ 843 Year Ended At December 31, 2020 December 31, 2020 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Impaired Loans: (1) (In thousands) Commercial real estate $ 17,543 $ 18,590 $ — $ 18,284 $ 516 Residential real estate: Residential one-to-four family 6,544 7,647 — 5,815 66 Home equity 165 207 — 371 5 Commercial and industrial 4,821 7,038 — 4,186 217 Consumer 27 39 — 35 — Total impaired loans $ 29,100 $ 33,521 $ — $ 28,691 $ 804 (1) Includes loans acquired with deteriorated credit quality and performing troubled debt restructurings. F- 23 The majority of impaired loans are included within the nonaccrual balances; however, not every loan on nonaccrual status has been designated as impaired. Impaired loans include loans that have been modified in a TDR. Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR. All payments received on impaired loans in nonaccrual status are applied to principal. There was no interest income recognized on nonaccrual impaired loans during the years ended December 31, 2021 and December 31, 2020. The Company's obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion. As of December 31, 2021, we have not committed to lend any additional funds for loans that are classified as impaired. Payments received on impaired loans in accrual status are recorded in accordance with the contractual terms of the loan. Troubled Debt Restructurings. Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Bank grants the borrower a concession on the terms, that would not otherwise be considered. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Bank's position or significantly extends the note's maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan's origination. All loans that are modified are reviewed by the Company to identify if a TDR has occurred. All TDR loans are classified as impaired. When we modify loans in a TDR, we measure impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a specific allowance or a charge-off to the allowance. Nonperforming TDRs are included in nonperforming loans. There were no charge-offs on TDRs during the years ended December 31, 2021 and 2020 . Loan modifications classified as TDRs during the twelve months ended December 31, 2020 are included in the table below. Twelve Months Ended December 31, 2020 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Troubled Debt Restructurings Commercial Real Estate 5 $ 4,576 $ 4,576 Commercial and Industrial 9 3,806 3,806 Total 14 $ 8,382 $ 8,382 F- 24 During the years ended December 31, 2021 and 2020, no TDRs defaulted (defined as 30 days or more past due) within 12 months of restructuring. Loans Acquired with Deteriorated Credit Quality. The following is a summary of loans acquired with evidence of credit deterioration from Chicopee as of December 31, 2021. Contractual Required Payments Receivable Cash Expected To Be Collected Non- Accretable Discount Accretable Yield Loans Receivable (In thousands) Balance at December 31, 2020 $ 14,297 $ 11,485 $ 2,812 $ 3,017 $ 8,468 Collections ( 1,986 ) ( 1,880 ) ( 106 ) ( 346 ) ( 1,534 ) Dispositions ( 177 ) ( 175 ) ( 2 ) ( 172 ) ( 3 ) Balance at December 31, 2021 $ 12,134 $ 9,430 $ 2,704 $ 2,499 $ 6,931 Credit Quality Information. The Company utilizes an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans. Performing residential real estate, home equity and consumer loans are grouped with “Pass” rated loans. Nonperforming residential real estate, home equity and consumer loans are monitored individually for impairment and risk rated as “Substandard.” Loans rated 1 – 4 : Loans rated 1-4 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent acceptable risk. Loans rated 5 : Loans rated 5 are considered “Special Mention” that may exhibit potential credit weaknesses or downward trends and are being monitored by management. Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification. Loans rated 6 : Loans rated 6 are considered “Substandard.” Loans are classified as substandard if the borrower exhibits a well-defined weakness and may be inadequately protected by the current net worth and cash flow capacity to pay the current debt. Loans rated 7 : Loans rated 7 are considered “Doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation of the loan highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Loans rated 8 : Loans rated 8 are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be affected in the future. On an annual basis, or more often if needed, we formally review the ratings on all commercial real estate and commercial and industrial loans. In addition, management utilizes delinquency reports, the criticized report and other loan reports to monitor credit quality. In addition, at least on an annual basis, the Company contracts with an external loan review company to review the internal credit ratings assigned to loans in the commercial loan portfolio on a pre-determined schedule, based on the type, size, rating, and overall risk of the loan. During the course of their review, the third party examines a sample of loans, including new loans, existing relationships over certain dollar amounts and classified assets. F- 25 The following table presents our loans by risk rating for the periods indicated: Commercial Real Estate Residential One-to-Four Family Home Equity Commercial and Industrial Consumer Total (In thousands) December 31, 2021 Pass (Rated 1 – 4) $ 913,063 $ 547,980 $ 99,503 $ 215,605 $ 4,228 $ 1,780,379 Special Mention (Rated 5) 48,765 — — 2,777 — 51,542 Substandard (Rated 6) 18,141 4,352 256 8,287 22 31,058 Total $ 979,969 $ 552,332 $ 99,759 $ 226,669 $ 4,250 $ 1,862,979 Commercial Real Estate Residential One-to-Four Family Home Equity Commercial and Industrial Consumer Total December 31, 2020 (In thousands) Pass (Rated 1 – 4) $ 726,751 $ 598,250 $ 103,619 $ 345,967 $ 5,165 $ 1,779,752 Special Mention (Rated 5) 78,207 — — 13,871 — 92,078 Substandard (Rated 6) 28,991 6,469 286 19,243 27 55,016 Total $ 833,949 $ 604,719 $ 103,905 $ 379,081 $ 5,192 $ 1,926,846 4. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows: December 31, 2021 2020 (In thousands) Land $ 6,239 $ 5,661 Buildings 26,343 25,091 Leasehold improvements 3,409 3,112 Furniture and equipment 21,195 19,901 Total 57,186 53,764 Less: accumulated depreciation and amortization ( 31,024 ) ( 28,661 ) Premises and equipment, net $ 26,162 $ 25,103 Depreciation and amortization expense for the years ended December 31, 2021, 2020 and 2019 amounted to $ 2.3 million, $ 2.1 million and $ 2.1 million, respectively. 5. GOODWILL AND OTHER INTANGIBLES At December 31, 2021 and December 31, 2020, the Company’s goodwill was related to the acquisition of Chicopee in October 2016. There was no goodwill impairment recorded during the years ended December 31, 2021 and 2020. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment. F- 26 Core Deposit Intangibles In connection with the acquisition of Chicopee, the Bank recorded a core deposit intangible of $ 4.5 million, which is amortized over twelve years using the straight-line method. Amortization expense was $ 374,000 , $ 375,000 and $ 376,000 for the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021, future amortization of the core deposit intangible totaled $ 375,000 for each of the next five years and $ 688,000 thereafter. 6. DEPOSITS Deposit accounts, by type, are summarized as follows for the periods indicated: At December 31, 2021 2020 (In thousands) Demand and interest-bearing checking: Interest-bearing checking accounts $ 145,739 $ 94,936 Demand deposits 641,284 541,759 Savings: Regular savings accounts 217,565 175,595 Money market accounts 850,330 640,790 Time deposits 401,980 590,336 Total deposits $ 2,256,898 $ 2,043,416 Brokered deposits, which are included within time deposits, totaled $ 55.3 million at December 31, 2020. There were no brokered deposits at December 31, 2021. Time deposits of $250,000 or more totaled $ 65.9 million at December 31, 2021. Interest expense on time deposits of $250,000 or more totaled $ 412,000 and $ 2.8 million for the years ended December 31, 2021 and 2020, respectively. The scheduled maturities of time deposits for the periods indicated are as follows: At December 31, 2021 2020 (In thousands) 2021 $ — $ 503,187 2022 363,290 68,920 2023 24,500 12,927 2024 7,911 3,203 2025 4,892 2,099 2026 1,387 — Total time deposits $ 401,980 $ 590,336 F- 27 Interest expense on deposits for the years ended December 31, 2021, 2020 and 2019 is summarized as follows: Years Ended December 31, 2021 2020 2019 (In thousands) Regular accounts $ 154 $ 136 $ 146 Money market accounts 2,412 2,838 2,532 Time deposits 2,543 10,139 14,152 Interest-bearing checking accounts 399 387 377 Total $ 5,508 $ 13,500 $ 17,207 Cash paid for interest on deposits totaled $ 5.5 million, $ 13.6 million and $ 17.2 million for years ended December 31, 2021, 2020 and 2019, respectively. 7. SHORT-TERM BORROWINGS Total borrowing capacity includes borrowing arrangements at the FHLB, the Federal Reserve Bank (“FRB”), and borrowing arrangements with correspondent banks. The Company is a member of the FHLB and uses borrowings as an additional source of funding to finance the Company’s lending and investing activities and to provide liquidity for daily operations. FHLB advances also provide more pricing and option alternatives for particular asset/liability needs. The FHLB provides a central credit facility primarily for member institutions. As an FHLB member, the Company is required to own capital stock of the FHLB, calculated periodically based primarily on its level of borrowings from the FHLB. FHLB borrowings are secured by certain securities from the Company’s investment portfolio not otherwise pledged as well as certain residential real estate and commercial real estate loans. Advances are made under several different credit programs with different lending standards, interest rates and range of maturities. This relationship is an integral component of the Company’s asset-liability management program. At December 31, 2021, the Bank had $ 480.5 million in additional borrowing capacity from the FHLB. The Company also has an overnight Ideal Way line of credit with the FHLB for $ 9.5 million for the years ended December 31, 2021 and 2020. Interest on this line of credit is payable at a rate determined and reset by the FHLB on a daily basis. The outstanding principal is due daily but the portion not repaid will be automatically renewed. There were no advances outstanding under this line at December 31, 2021 and 2020. The Company has an available line of credit of $ 6.6 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. Borrowings from the FRB Discount Window are secured by certain securities from the Company’s investment portfolio not otherwise pledged. As of December 31, 2021 and 2020, there were no advances outstanding under this line. The Company also has pre-established, non-collateralized overnight borrowing arrangements with large national and regional correspondent banks to provide additional overnight and short-term borrowing capacity for the Company. The Company has a $ 15 .0 million line of credit with a correspondent bank and a $ 50 .0 million line of credit with another correspondent bank, both at an interest rate determined and reset on a daily basis. At December 31, 2021 and 2020, we had no advances outstanding under these lines. F- 28 8. LONG-TERM DEBT FHLB Advances. The following advances are collateralized by a blanket lien on our residential real estate loans and certain eligible commercial real estate loans. Amount Weighted Average Rate 2021 2020 2021 2020 (In thousands) Fixed-rate advances maturing: 2021 $ — $ 42,388 — % 1.5 % 2022 1,475 14,284 0.1 0.4 2023 532 532 — — 2024 646 646 — — Total long-term advances $ 2,653 $ 57,850 0.1 % 1.2 % Cash paid for interest on long-term FHLB advances totaled $ 513,000 , $ 3.6 million, and $ 4.4 million for the years ended December 31, 2021, 2020, and 2019, respectively. Subordinated Debt. On April 20, 2021, the Company completed an offering of $ 20 million in aggregate principal amount of its 4.875 % fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction. Unless earlier redeemed, the Notes mature on May 1, 2031 . The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875 % per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate , plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026 , and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital adequacy regulations. The Notes are presented net of issuance costs of $ 367,000 as of December 31, 2021, which are being amortized into interest expense over the life of the Notes. Amortization of issuance costs into interest expense was $ 27,000 for the year ended December 31, 2021. Cash paid for interest on subordinated debt totaled $ 545,000 for the year ended December 31, 2021. 9. STOCK PLANS AND EMPLOYEE STOCK OWNERSHIP PLAN Stock Options. A summary of the status of our stock options at December 31, 2021 is presented below: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 210,975 $ 6.46 1.67 $ 90 Exercised ( 33,094 ) 5.85 0.46 90 Outstanding at December 31, 2021 177,881 $ 6.57 0.81 $ 388 Exercisable at December 31, 2021 177,881 $ 6.57 0.81 $ 388 F- 29 Cash received for options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 193,000 , $ 43,000 and $ 106,000 , respectively. Restricted Stock Awards. In May 2014, the Company’s shareholders approved the 2014 Omnibus Incentive Plan, a stock-based compensation plan (the “2014 RSA Plan”). Under the 2014 RSA Plan, up to 516,000 shares of the Company’s common stock were reserved for grants of stock awards, including stock options and restricted stock, which may be granted to any officer, key employee or non-employee director of WNEB. Any shares that are not issued because vesting requirements are not met were available for future issuance under the 2014 RSA Plan. On an annual basis, the Compensation Committee (the “Committee”) approves long-term incentive awards out of the 2014 RSA Plan, whereby shares will be granted to eligible participants of the Company that are nominated by the Chief Executive Officer and approved by the Committee, with vesting over a three -year term for employees and a one -year term for directors. Annual employee grants provide for a periodic award that is both performance and time-based and is designed to recognize the executive’s responsibilities, reward performance and leadership and as a retention tool. The objective of the award is to align compensation for the named executive officers and directors over a multi-year period directly with the interests of our shareholders by motivating and rewarding creation and preservation of long-term financial strength, shareholder value and relative shareholder return. In February 2019, 108,718 shares were granted. Of the 108,718 shares, 64,496 shares were time-based, with 20,262 vesting in one year and 44,234 vesting ratably over a three -year period. The remaining 44,222 shares granted are performance-based and are subject to the achievement of the 2019 long-term incentive performance metric. The primary performance metric for 2019 grants was return on equity. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period, but will be distributed at the end of the three-year period. The threshold, target and stretch metrics under the 2019 grants are as follows: Return on Equity Metrics Performance Period Ending Threshold Target Stretch December 31, 2019 5.75 % 6.13 % 7.00 % December 31, 2020 6.00 % 6.75 % 7.75 % December 31, 2021 6.25 % 7.00 % 8.00 % Eligible participants will be able to earn between 50 % (“threshold” performance), 100 % (“target” performance) and 150 % (“maximum” performance). In February 2020, 120,053 shares were granted. Of the 120,053 shares, 69,898 shares were time-based, with 19,760 vesting in one year and 50,138 vesting ratably over a three -year period. The remaining 50,155 shares granted are performance-based and are subject to the achievement of the 2020 long-term incentive performance metrics, with 50 % of the performance-shares vesting for each performance metric. The primary performance metrics for the 2020 grants were return on equity and earnings per share. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a three-year cumulative performance period for earnings per share, but will be distributed at the end of the three -year period as earned. F- 30 The threshold, target and stretch metrics under the 2020 grants are as follows: Return on Equity Metrics Performance Period Ending Threshold Target Stretch December 31, 2020 5.00 % 5.48 % 6.00 % December 31, 2021 5.62 % 6.24 % 6.86 % December 31, 2022 6.29 % 6.99 % 7.69 % Earnings Per Share Metrics Performance Period Ending Threshold Target Stretch Three-year Cumulative Diluted Earnings Per Share $ 1.50 $ 1.65 $ 1.80 Eligible participants will be able to earn between 50 % (“threshold” performance), 100 % (“target” performance) and 150 % (“maximum” performance). The fair market value of shares awarded is based on the market price at the grant date, recorded as unearned compensation and amortized over the applicable vesting period. Performance-based metrics are monitored on a quarterly basis in order to compare actual results to the performance metric, with any necessary adjustments being recognized through share-based compensation expense and unearned compensation. In February 2021, 19,827 shares were granted to our directors, with a one-year vesting period. At December 31, 2021, there were no remaining shares available to grant under the 2014 RSA Plan. In May 2021, the Company’s shareholders approved the 2021 Omnibus Incentive Plan, a stock-based compensation plan (the “2021 RSA Plan”). Under the 2021 RSA Plan, up to 700,000 shares of the Company’s common stock were reserved for grants of stock awards, including stock options and restricted stock, which may be granted to any officer, key employee or non-employee director of the Company. Any shares that are not issued because vesting requirements are not met will be available for future issuance under the 2021 RSA Plan. In May 2021, 122,362 shares were granted. Of the 122,362 shares, 61,181 shares were time-based, vesting ratably over a three -year period. The remaining 61,181 shares granted are performance-based and are subject to the achievement of the 2021 long-term incentive performance metrics, with 50 % of the performance-shares vesting for each performance metric. The primary performance metrics for the 2021 grants were return on equity and earnings per share. Performance shares will be earned based upon how the Company performs relative to threshold, target and maximum absolute goals (i.e. Company-specific, not relative to a peer index) on an annual performance period for return on equity metrics and for a three -year cumulative performance period for earnings per share, but will be distributed at the end of the three-year period as earned. The threshold, target and stretch metrics under the 2021 grants are as follows: Return on Equity Metrics Performance Period Ending Threshold Target Stretch December 31, 2021 5.63 % 6.25 % 7.50 % December 31, 2022 5.85 % 6.50 % 7.80 % December 31, 2023 6.08 % 6.75 % 8.10 % Earnings Per Share Metrics Performance Period Ending Threshold Target Stretch Three-year Cumulative Diluted Earnings Per Share $ 1.58 $ 1.97 $ 2.36 F- 31 At December 31, 2021, there were 577,638 remaining shares available to grant under the 2021 RSA Plan. A summary of the status of restricted stock awards at December 31, 2021 and 2020 is presented below: Shares Weighted Average Grant Date Fair Value Balance at December 31, 2020 178,766 $ 9.63 Shares granted 154,906 8.44 Shares forfeited ( 24,506 ) 10.59 Shares vested ( 95,785 ) 9.05 Balance at December 31, 2021 213,381 $ 8.91 Shares Weighted Average Grant Date Fair Value Balance at December 31, 2019 172,866 $ 10.07 Shares granted 145,980 8.69 Shares forfeited ( 30,193 ) 9.96 Shares vested ( 109,887 ) 9.00 Balance at December 31, 2020 178,766 $ 9.63 We recorded total expense for restricted stock awards of $ 1.3 million, $ 834,000 and $ 773,000 for the years ended December 31, 2021, 2020 and 2019, respectively. The aggregate fair value of restricted stock vested during 2021 was $ 823,000 . Tax (shortfall) benefits related to equity incentive plan expense were $ ( 5,000 ) , $ ( 23,000 ) and $ 21,000 for the years ended December 31, 2021, 2020 and 2019, respectively. Unrecognized compensation cost for stock awards was $ 1.2 million at December 31, 2021 with a remaining term of 1.7 years. Employee Stock Ownership Plan (“ESOP”). We established an ESOP for the benefit of each employee that has reached the age of 21 and has completed at least 1,000 hours of service in the previous 12-month period. In January 2002, as part of the initial stock conversion, we provided a loan to the ESOP Trust which was used to purchase 8 %, or 1,305,359 shares, of the common stock sold in the initial public offering. In January 2007, as part of the second-step stock conversion, we provided an additional loan to the ESOP Trust which was used to purchase 4.0 %, or 736,000 shares, of the 18,400,000 shares of common stock sold in the offering. The 2002 and 2007 loans bear an interest rate of 8.0 % and provide for annual payments of interest and principal. At December 31, 2021, the remaining principal balances are payable as follows: Years Ending December 31, Amount (In thousands) 2022 $ 447 2023 447 2024 447 2025 447 2026 447 Thereafter 2,121 Total $ 4,356 We have committed to make contributions to the ESOP sufficient to support the debt service of the loans. The loans are secured by the shares purchased, which are held in a suspense account for allocation among the participants as the loans are paid. Total compensation expense applicable to the ESOP amounted to $ 682,000 , $ 551,000 and $ 834,000 for the years ended December 31, 2021, 2020 and 2019, respectively. F- 32 Shares held by the ESOP include the following at December 31, 2021 and 2020: 2021 2020 Allocated 1,127,074 1,078,109 Committed to be allocated 81,893 85,101 Unallocated 445,013 526,906 Total 1,653,980 1,690,116 Cash dividends declared and received on allocated shares are allocated to participants and charged to retained earnings. Cash dividends declared and received on unallocated shares are held in suspense and are applied to repay the outstanding debt of the ESOP. The fair value of unallocated shares was $ 3.9 million and $ 3.6 million at December 31, 2021 and 2020, respectively. ESOP shares are considered outstanding for earnings per share calculations when they are committed to be allocated. Unallocated ESOP shares are excluded from earnings per share calculations. The cost of unearned shares to be allocated to ESOP participants for future services not yet performed is reflected as a reduction of shareholders’ equity. 10. RETIREMENT PLANS AND EMPLOYEE BENEFITS Pension Plan . We provide a defined benefit pension plan for eligible employees (the “Plan”). Employees must work a minimum of 1,000 hours per year to be eligible for the Plan. Eligible employees become vested in the Plan after five years of service. The Plan assets are currently invested in various pooled separate investment accounts offered by Principal Life Insurance Company, a division of Principal Financial Group, who is the Custodian of the Plan (the “Custodian”). The Plan is administered by an officer of Westfield Bank (the “Plan Administrator”). On September 30, 2016, we effected a soft freeze on the Plan and therefore no new participants will be included in the Plan after such effective date. The following table provides information for the Plan at or for the years ended December 31 : Years Ended December 31, 2021 2020 2019 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 47,592 $ 36,158 $ 27,309 Service cost 1,842 1,396 1,095 Interest 1,171 1,162 1,134 Actuarial (gain) loss ( 3,028 ) 9,690 7,074 Benefits paid ( 2,488 ) ( 814 ) ( 454 ) Benefit obligation at end of year 45,089 47,592 36,158 Change in plan assets: Fair value of plan assets at beginning of year 26,264 22,787 18,393 Actual return on plan assets 1,926 3,191 3,923 Employer contribution 2,000 1,100 925 Benefits paid ( 2,488 ) ( 814 ) ( 454 ) Fair value of plan assets at end of year 27,702 26,264 22,787 Funded status and accrued benefit at end of year $ ( 17,387 ) $ ( 21,328 ) $ ( 13,371 ) Accumulated benefit obligation at end of year $ 34,137 $ 35,755 $ 27,634 The following actuarial assumptions were used in determining the pension benefit obligation: December 31, 2021 2020 Discount rate 2.85 % 2.50 % Rate of compensation increase 4.00 4.00 F- 33 The discount rate used to determine the pension benefit obligation increased from 2.50 % at December 31, 2020 to 2.85 % at December 31, 2021, resulting in a decrease in the Plan’s pension benefit obligation for the year ended December 31, 2021. Net pension cost includes the following components for the years ended December 31: 2021 2020 2019 (In thousands) Service cost $ 1,842 $ 1,396 $ 1,095 Interest cost 1,171 1,162 1,134 Expected return on assets ( 1,755 ) ( 1,526 ) ( 1,233 ) Amortization of actuarial loss 910 421 133 Net periodic pension cost $ 2,168 $ 1,453 $ 1,129 The following actuarial assumptions were used in determining the net periodic pension cost for the years ended December 31: 2021 2020 2019 Discount rate 2.50 % 3.25 % 4.25 % Expected return on plan assets 7.00 7.00 7.00 Rate of compensation increase 4.00 4.00 4.00 The following is a summary of the Plan’s investments for the years ended December 31: 2021 2020 (In thousands) Pooled separate investment accounts: Fixed income $ 12,896 $ 13,332 Large U.S. equity 7,501 6,763 International equity 4,251 3,960 Small/mid U.S. equity 1,228 1,131 Other 1,826 1,078 Total $ 27,702 $ 26,264 Pooled separate accounts are valued at the Net Asset Value (“NAV”) of units held by the Plan at year end. The NAV is used as a practical expedient to estimate fair value. This practical expedient would not be used if it was determined to be probable that the funds will sell the underlying investments for an amount different from the reported NAV. Participant transactions (purchases and sales) may occur daily. The preceding method described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan administrators believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table summarizes the investments for which fair value is measured using NAV per share as a practical expedient for the years ended December 31, 2021 and 2020 . There are no pertinent redemption restrictions for these investments; the redemption notice period is applicable only to the Plan. Fair Value Unfunded Commitments Redemption Frequency (if Currently Eligible) Redemption Notice Period (In thousands) December 31, 2021 $ 27,702 n/a Daily 1 day December 31, 2020 $ 26,264 n/a Daily 1 day F- 34 The defined benefit plan offers a mixture of fixed income, equity and real assets as the underlying investment structure for its retirement structure for the pension plan. The target allocation mix for the pension plan for 2021 was an equity-based investment deployment of 50 % of total portfolio assets based on advice received from an external advisory firm with confirmation by the Bank’s Investment Committee. The remainder of the portfolio is allocated to fixed income at 50 % of total assets. The investment objective is to diversify investments across a spectrum of investment types to limit risks from large market swings and to provide anticipated stabilized investment returns. Trustees of the Plan select investment managers for the portfolio and a second investment advisory firm is retained to provide allocation analysis. The overall investment objective is to diversify equity investments across a spectrum of types, small cap, large cap and international, along with investment styles such as growth and value. We estimate that the benefits to be paid from the pension plan for years ended December 31 are as follows: Year Benefit Payments to Participants (In thousands) 2022 $ 1,944 2023 2,153 2024 2,277 2025 5,547 2026 6,015 In aggregate for 2027 – 2031 12,511 We have not yet determined the amount of the contribution we expect to make to the plan during the fiscal year ending December 31, 2022. 401(k) Defined Contribution Plan. The Company has a 401(k) defined contribution employee benefit plan. The 401(k) plan allows eligible employees to contribute a percentage of their earnings to the plan. A portion of the employee contribution, as determined by the Compensation Committee of the Board of Directors, is matched by the Company. In 2021, 2020 and 2019, the Company’s percentage match was 50 % up to the first 6 % contributed by the employee. The Company’s expense for the 401(k) plan match was $ 476,000 , $ 468,000 and $ 423,000 for the years ended December 31, 2021, 2020 and 2019, respectively. 11. DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings. F- 35 The following table presents information about interest rate swaps at December 31, 2021 and December 31, 2020: December 31, 2021 Notional Weighted Average Weighted Average Rate Estimated Fair Amount Maturity Receive Pay Value (In thousands) (In years) (In thousands) Non-hedging derivatives: Loan-level swaps – dealer $ 16,023 11.1 1.99 % 3.76 % $ ( 662 ) Loan-level swaps – borrower 16,023 11.1 3.76 % 1.99 % 662 Forward starting loan-level swaps - dealer 22,390 10.5 1,030 Forward starting loan-level swaps - borrower 22,390 10.5 ( 1,030 ) Total $ 76,826 $ 0 December 31, 2020 Notional Weighted Average Weighted Average Rate Estimated Fair Amount Maturity Receive Pay Value (In thousands) (In years) (In thousands) Non-hedging derivatives: Loan-level swaps – dealer $ 13,554 12.5 1.97 % 3.74 % $ ( 1,440 ) Loan-level swaps – borrower 13,554 12.5 3.74 % 1.97 % 1,440 Forward starting loan-level swaps - dealer 22,390 11.5 114 Forward starting loan-level swaps - borrower 22,390 11.5 ( 114 ) Total $ 71,888 $ 0 At December 31, 2021, the Company had $ 76.8 million in derivatives designated as non-hedging instruments and no derivatives designated as hedging instruments, compared to $ 71.9 million in derivatives designated as non-hedging instruments and no derivatives designated as hedging instruments at December 31, 2020. Cash Flow Hedges of Interest Rate Risk. The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, we entered into interest rate swaps as part of our interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for our making fixed payments. For derivatives designated as cash flow hedges, the changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of six years (excluding forecasted payment of variable interest on existing financial instruments). Non-hedging Derivatives. Derivatives not designated as hedges are not speculative but rather result from a service the Company provides to certain customers. The Company executes loan level derivative products such as interest-rate swap agreements with commercial banking customers to aid them in managing their interest-rate risk by converting floating-rate loan payments to fixed-rate loan payments. The Company concurrently enters into offsetting swaps with a third party financial institution, effectively minimizing its net risk exposure resulting from such transactions. The third-party financial institution exchanges the customer's fixed-rate loan payments for floating-rate loan payments. As the interest-rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings. F- 36 Fair Values of Derivative Instruments on the Balance Sheet. The table below presents the fair value of our derivative financial instruments not designated as hedging instruments as well as our classification on the balance sheet as of December 31, 2021 and December 31, 2020. December 31, 2021 Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair Value (In thousands) Derivatives not designated as hedging instruments: Interest rate swap – with customers Other Assets $ 662 Other Liabilities $ 1,030 Interest rate swap – with counterparties 1,030 662 Total derivatives not designated as hedging instruments $ 1,692 $ 1,692 December 31, 2020 Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair Value (In thousands) Derivatives not designated as hedging instruments: Interest rate swap – with customers Other Assets $ 1,440 Other Liabilities $ 114 Interest rate swap – with counterparties 114 1,440 Total derivatives not designated as hedging instruments $ 1,554 $ 1,554 Effect of Derivative Instruments in the Consolidated Statements of Net Income and Changes in Shareholders’ Equity. The table below presents the pre-tax net gains (losses) of our cash flow hedges for the periods indicated: Amount of Gain (Loss) Recognized in OCI on Derivative Twelve Months Ended December 31, 2021 2020 2019 (In thousands) Interest rate swaps $ 0 $ 1,099 $ ( 900 ) Amounts reported in accumulated other comprehensive loss related to these derivatives are reclassified to interest expense as interest payments are made on our designated rate sensitive liabilities. The table below presents the amount reclassified from accumulated other comprehensive loss into net income for interest rate swaps and termination fees: Amount of Gain Reclassified from OCI into Expense (Effective Portion) Twelve Months Ended December 31, 2021 2020 2019 (In thousands) Interest rate swaps $ 282 $ 1,516 $ 1,455 As of December 31, 2021, the Company no longer has any outstanding cash flow hedges. F- 37 Credit-risk-related Contingent Features By using derivative financial instruments, we expose ourselves to credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative is negative, we owe the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that we believe to be creditworthy and by limiting the amount of exposure to each counterparty. We have agreements with our derivative counterparties that contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. We also have agreements with certain of our derivative counterparties that contain a provision where if we fail to maintain our status as well capitalized, then the counterparty could terminate the derivative positions and we would be required to settle our obligations under the agreements. Certain of our agreements with our derivative counterparties contain provisions where if a formal administrative action by a federal or state regulatory agency occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument. At December 31, 2021, we had a net asset position of $ 368,000 , and at December 31, 2020, a net liability position $ 1.3 million with our counterparties. As of December 31, 2021, we had minimum collateral posting thresholds with certain of our derivative counterparties and no collateral against our obligations under these agreements. If we had breached any of these provisions at December 31, 2021, we could have been required to settle our obligations under the agreements at the termination value. 12. LEASES The Company determines if an arrangement is a lease at inception. Operating leases are included within other assets and other liabilities in our consolidated balance sheets. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. We have not elected the practical expedient to account for lease and non-lease components as one lease component. Additionally, the Company has elected the practical expedient whereby expired leases, existing operating lease classifications and initial direct costs will not be reassessed at inception. The Company has operating leases for certain of our banking offices and ATMs. Our leases have remaining lease terms of less than one year to seventeen years , some of which include options to extend the leases for additional five-year terms up to fifteen years . The components of lease expense were as follows: Year Ended December 31, 2021 2020 (In thousands) Amortization of ROU assets $ 1,323 $ 1,191 Interest on lease liabilities 269 269 Operating lease cost $ 1,592 $ 1,460 F- 38 Supplemental cash flow information related to leases was as follows: Year Ended December 31, 2021 2020 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,525 $ 1,397 ROU assets obtained in exchange for lease obligations: Operating leases 181 4,332 Supplemental balance sheet information related to leases was as follows: December 31, 2021 December 31, 2020 (In thousands) Operating lease ROU assets $ 8,789 $ 9,939 Operating lease liabilities $ 8,964 $ 10,047 The weighted average remaining lease term for our operating leases was 10.2 years with a weighted average discount rate of 2.81 % at December 31, 2021. Maturities of the Company’s operating lease liabilities were as follows (in thousands): Years Ending December 31, 2022 $ 1,445 2023 1,203 2024 1,138 2025 1,054 2026 1,013 Thereafter 4,628 Total lease payments 10,481 Less imputed interest ( 1,517 ) Total $ 8,964 13. REGULATORY CAPITAL The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to savings and loan holding companies. Federal banking regulations require the Company and the Bank to maintain minimum amounts and ratios of total, common equity Tier 1, Tier 1 and total capital to risk-weighted assets and Tier 1 capital to average assets, as set forth in the table below. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5 % of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. F- 39 At December 31, 2021, we exceeded each of the applicable regulatory capital requirements including the capital conservation buffer. As of December 31, 2021, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category. Our actual capital ratios of December 31, 2021 and December 31, 2020 are also presented in the following table . Actual Minimum For Capital Adequacy Purpose Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) December 31, 2021 Total Capital (to Risk Weighted Assets): Consolidated $ 261,093 14.27 % $ 146,347 8.00 % N/A N/A Bank 243,788 13.35 146,135 8.00 $ 182,669 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated 221,673 12.12 109,761 6.00 N/A N/A Bank 224,001 12.26 109,601 6.00 146,135 8.00 Common Equity Tier 1 Capital (to Risk Weighted Assets): Consolidated 221,673 12.12 82,320 4.50 N/A N/A Bank 224,001 12.26 82,201 4.50 118,735 6.50 Tier 1 Leverage Ratio (to Adjusted Average Assets): Consolidated 221,673 8.75 101,320 4.00 N/A N/A Bank 224,001 8.86 101,101 4.00 126,377 5.00 December 31, 2020 Total Capital (to Risk Weighted Assets): Consolidated $ 244,158 14.65 % $ 133,336 8.00 % N/A N/A Bank 231,531 13.91 133,149 8.00 $ 166,436 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated 223,320 13.40 100,002 6.00 N/A N/A Bank 210,722 12.66 99,862 6.00 133,149 8.00 Common Equity Tier 1 Capital (to Risk Weighted Assets): Consolidated 223,320 13.40 75,002 4.50 N/A N/A Bank 210,722 12.66 74,896 4.50 108,183 6.50 Tier 1 Leverage Ratio (to Adjusted Average Assets): Consolidated 223,320 9.34 95,606 4.00 N/A N/A Bank 210,722 8.83 95,409 4.00 119,261 5.00 The following is a reconciliation of our GAAP capital to regulatory Tier 1, Common Equity Tier 1 and total capital : December 31, 2021 2020 (In thousands) Consolidated GAAP capital $ 223,688 $ 226,640 Net unrealized losses (gains) on available-for-sale securities, net of tax 3,525 ( 963 ) Unrealized loss on defined benefit pension plan, net of tax 8,789 11,750 Accumulated net loss on cash flow hedges, net of tax — 492 Goodwill ( 12,487 ) ( 12,487 ) Intangible assets, net of associated deferred tax liabilities ( 1,842 ) ( 2,112 ) Tier 1 and Common Equity Tier 1 capital 221,673 223,320 Allowance for loan losses for regulatory capital 19,787 20,838 Subordinated debt 19,633 — Total regulatory capital $ 261,093 $ 244,158 F- 40 On October 27, 2020, the Company announced that the Board of Directors authorized a stock repurchase plan (the “2020 Plan”) under which the Company was authorized to purchase up to 1.3 million shares, or 5 % of its outstanding common stock. On May 20, 2021, the Company announced the completion of the 2020 Plan. On April 27, 2021, the Company announced that the Board of Directors authorized a stock repurchase plan (the “2021 Plan”) under which the Company is authorized to repurchase up to 2.4 million shares, or 10 % of its outstanding common stock. During the twelve months ended December 31, 2021, the Company repurchased 2,758,051 shares under both the 2020 Plan and 2021 Plan at an average price of $ 8.33 . At December 31, 2021, there were 677,319 shares available for repurchase under the 2021 Plan. We are subject to dividend restrictions imposed by various regulators, including a limitation on the total of all dividends that the Bank may pay to the Company in any calendar year, to an amount that shall not exceed the Bank’s net income for the current year, plus its net income retained for the two previous years, without regulatory approval. At December 31, 2021 and 2020, the Bank had no retained earnings available for payment of dividends without prior regulatory approval. In addition, the Bank may not declare or pay dividends on, and we may not repurchase, any of our shares of common stock if the effect thereof would cause shareholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements. The Bank will be prohibited from paying cash dividends to the Company to the extent that any such payment would reduce the Bank’s capital below required capital levels. Accordingly, $ 146.1 million and $ 133.1 million of our equity in the net assets of the Bank was restricted at December 31, 2021 and 2020, respectively. 14. INCOME TAXES Income taxes consist of the following: Years Ended December 31, 2021 2020 2019 (In thousands) Current tax provision: Federal $ 5,061 $ 3,793 $ 3,082 State 2,320 1,579 1,450 Total 7,381 5,372 4,532 Deferred tax provision (benefit): Federal 462 ( 1,639 ) ( 348 ) State 182 ( 792 ) ( 332 ) Total 644 ( 2,431 ) ( 680 ) Total tax provision $ 8,025 $ 2,941 $ 3,852 The differences between the statutory federal income tax at a rate of 21% and the effective tax are summarized below: Years Ended December 31, 2021 2020 2019 (In thousands) Statutory federal income tax $ 6,662 $ 2,973 $ 3,612 Increase (decrease) resulting from: State taxes, net of federal tax benefit 1,977 622 883 Tax exempt income ( 307 ) ( 337 ) ( 388 ) Bank-owned life insurance (BOLI) ( 401 ) ( 380 ) ( 378 ) BOLI death benefit ( 117 ) — — Option exercise tax (benefit) shortfall ( 15 ) 1 ( 16 ) Other, net 226 62 139 Effective tax $ 8,025 $ 2,941 $ 3,852 F- 41 Cash paid for income taxes for the years ended December 31, 2021, 2020 and 2019 was $ 6.9 million, $ 5.8 million and $ 4.2 million, respectively. The tax effects of each item that gives rise to deferred taxes are as follows: December 31, 2021 2020 (In thousands) Deferred tax assets: Allowance for loan losses $ 5,562 $ 5,947 Defined benefit plan 3,436 4,594 Lease liability 2,520 2,824 Employee benefit and share-based compensation plans 2,409 2,251 Nonaccrual interest 196 224 Net unrealized loss on derivative and hedging activity — 192 Net unrealized loss on available-for-sale securities 1,160 — Purchased mortgage servicing rights 140 191 Other 891 619 Gross deferred tax assets 16,314 16,842 Deferred tax liabilities: Lease right-of-use asset ( 2,471 ) ( 2,794 ) Fixed asset depreciation ( 677 ) ( 502 ) Purchase accounting adjustments, net ( 523 ) ( 494 ) Net unrealized gain on available-for-sale securities — ( 339 ) Deferred loan fees ( 539 ) ( 121 ) Other ( 12 ) ( 4 ) Gross deferred tax liabilities ( 4,222 ) ( 4,254 ) Net deferred tax asset $ 12,092 $ 12,588 The federal income tax reserve for loan losses at the Bank’s base year is $ 9.4 million. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150 % of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the fiscal year in which used. As the Bank intends to use the reserve solely to absorb loan losses, a deferred tax liability of $ 2.6 million has not been provided. We do not have any uncertain tax positions at December 31, 2021 or 2020 which require accrual or disclosure. We record interest and penalties as part of income tax expense. No interest was recorded for the years ended December 31, 2021 and 2020, and no penalties were recorded for the years ended December 31, 2021, 2020 and 2019. Our income tax returns are subject to review and examination by federal and state tax authorities. We are currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2018 through 2021. The years open to examination by state taxing authorities vary by jurisdiction; however, no years prior to 2018 are open. F- 42 15. TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS We have had, and expect to have in the future, loans with our directors and executive officers including their affiliates. Such loans, in our opinion, do not include more than the normal risk of collectability or other unfavorable features. Following is a summary of activity for such loans : Years Ended December 31, 2021 2020 (In thousands) Balance at beginning of year $ 695 $ 520 Principal distributions 12 389 Repayments of principal ( 104 ) ( 214 ) Balance at end of year $ 603 $ 695 16. COMMITMENTS AND CONTINGENCIES Loan Commitments. In the normal course of business, various commitments and contingent liabilities are outstanding, such as standby letters of credit and commitments to extend credit with off-balance-sheet risk that are not reflected in the consolidated financial statements. Financial instruments with off-balance-sheet risk involve elements of credit, interest rate, liquidity and market risk. We do not anticipate any significant losses as a result of these transactions. The following summarizes these financial instruments and other commitments and contingent liabilities at their contract amounts: December 31, 2021 2020 (In thousands) Commitments to extend credit: Unused lines of credit $ 326,017 $ 325,567 Loan commitments 138,765 69,966 Existing construction loan agreements 48,235 44,088 Standby letters of credit 30,160 20,821 We use the same credit policies in making commitments and conditional obligations as for on balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are written conditional commitments issued by us that guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. F- 43 At December 31, 2021, outstanding commitments to extend credit totaled $ 543.2 million, with $ 101.5 million in fixed rate commitments with interest rates ranging from 2.75 % to 18.00 % and $ 441.7 million in variable rate commitments. At December 31, 2020, outstanding commitments to extend credit totaled $ 460.4 million, with $ 86.5 million in fixed rate commitments with interest rates ranging from 2.45 % to 18.00 % and $ 373.9 million in variable rate commitments. We also have risk participation agreements (“RPAs”) with another financial institution. The RPAs are a guarantee to share credit risk associated with an interest rate swap on participation loans in the event of counterparty default. As such, we accept a portion of the credit risk in order to participate in the loans and we receive a one-time fee. The interest rate swap is collateralized (generally by real estate or business assets) by us and the third party, which limits the credit risk associated with the RPAs. Per the terms of the RPAs, we must pledge collateral equal to our exposure for the interest rate swap. We monitor overall collateral as part of our off-balance sheet liability analysis, and at December 31, 2021, believe sufficient collateral is available to cover potential swap losses. At December 31, 2021, we had no off-balance sheet exposure to RPAs. In the ordinary course of business, we are party to various legal proceedings, none of which, in our opinion, will have a material effect on our consolidated financial position or results of operations. Vendor Contract. The Company entered into a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of December 31, 2021 were estimated to be $ 14.2 million, with $ 4.5 million expected to be paid within one year and the remaining $ 9.7 million to be paid within the next five years. Investment Commitments. The Bank is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $ 3 .0 million to the partnership. At December 31, 2021, the SBIC currently has a book value of $ 2.7 million and is included in other assets. The unfunded commitment to the partnership was $ 300,000 at December 31, 2021. Employment and change of control agreements. We have entered into employment and change of control agreements with certain senior officers. The initial term of the employment agreements is for three years subject to separate one-year extensions as approved by the Board of Directors at the end of each applicable fiscal year. Each employment agreement provides for minimum annual salaries, discretionary cash bonuses and other fringe benefits as well as severance benefits upon certain terminations of employment that are not for cause. The change of control agreements expire one year following a notice of non-extension and only provide for severance benefits upon certain terminations of employment that are not for cause and that are related to a change of control of the Company or the Bank. 17. FAIR VALUE OF ASSETS AND LIABLITIES Determination of Fair Value. We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for our various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. F- 44 Methods and assumptions for valuing our financial instruments are set forth below. Estimated fair values are calculated based on the value without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications or estimated transaction cost. Securities. The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include marketable equity securities. All other securities are measured at fair value in Level 2 and are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. These securities include government-sponsored enterprise obligations, state and municipal obligations, residential mortgage-backed securities guaranteed and sponsored by the U.S. government or an agency thereof. Fair value measurements are obtained from a third-party pricing service and are not adjusted by management. Interest rate swaps. The valuation of our interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We have determined that the majority of the inputs used to value our interest rate derivatives fall within Level 2 of the fair value hierarchy. Assets and Liabilities Measured at Fair Value on a Recurring Basis. Assets and liabilities measured at fair value on a recurring basis are summarized below: December 31, 2021 Level 1 Level 2 Level 3 Total Assets: (In thousands) Available-for-sale securities $ — $ 194,352 $ — $ 194,352 Marketable equity securities 11,896 — — 11,896 Interest rate swaps — 1,692 — 1,692 Total assets $ 11,896 $ 196,044 $ — $ 207,940 Liabilities: Interest rate swaps $ — $ 1,692 $ — $ 1,692 December 31, 2020 Level 1 Level 2 Level 3 Total Assets: (In thousands) Available-for-sale securities $ — $ 201,880 $ — $ 201,880 Marketable equity securities 11,968 — — 11,968 Interest rate swaps — 1,554 — 1,554 Total assets $ 11,968 $ 203,434 $ — $ 215,402 Liabilities: Interest rate swaps $ — $ 1,554 $ — $ 1,554 There were no transfers to or from Level 1 and 2 for assets measured at fair value on a recurring basis during the years ended December 31, 2021 and 2020. Assets Measured at Fair Value on a Non-recurring Basis. We may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine the carrying values of the related assets as of December 31, 2021 and 2020. Year Ended At December 31, 2021 December 31, 2021 Total Level 1 Level 2 Level 3 Losses (In thousands) (In thousands) Impaired Loans $ — $ — $ 437 $ 436 F- 45 Year Ended At December 31, 2020 December 31, 2020 Total Level 1 Level 2 Level 3 Losses (In thousands) (In thousands) Impaired Loans $ — $ — $ 150 $ 13 The amount of impaired loans represents the carrying value, net of the related write-down or valuation allowance of impaired loans for which adjustments are based on the estimated fair value of the underlying collateral. The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on real estate appraisals performed by independent licensed or certified appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management will discount appraisals as deemed necessary based on the date of the appraisal and new information deemed relevant to the valuation. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The resulting losses were recognized in earnings through the provision for loan losses. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2021 and 2020. Summary of Fair Values of Financial Instruments. The estimated fair values of our financial instruments are as follows: December 31, 2021 Carrying Value Fair Value Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash and cash equivalents $ 103,456 $ 103,456 $ — $ — $ 103,456 Securities held-to-maturity 222,272 — 219,748 — 219,748 Securities available-for-sale 194,352 — 194,352 — 194,352 Marketable equity securities 11,896 11,896 — — 11,896 Federal Home Loan Bank of Boston and other restricted stock 2,594 — — 2,594 2,594 Loans - net 1,844,929 — — 1,838,045 1,838,045 Accrued interest receivable 7,775 — — 7,775 7,775 Mortgage servicing rights 693 — 739 — 739 Derivative asset 1,692 — 1,692 — 1,692 Liabilities: Deposits 2,256,898 — — 2,256,834 2,256,834 Long-term debt 22,286 — 23,099 — 23,099 Accrued interest payable 28 — — 28 28 Derivative liabilities 1,692 — 1,692 — 1,692 F- 46 December 31, 2020 Carrying Value Fair Value Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash and cash equivalents $ 87,444 $ 87,444 $ — $ — $ 87,444 Securities available-for-sale 201,880 — 201,880 — 201,880 Marketable equity securities 11,968 11,968 — — 11,968 Federal Home Loan Bank of Boston and other restricted stock 5,160 — — 5,160 5,160 Loans - net 1,906,226 — — 1,900,750 1,900,750 Accrued interest receivable 8,477 — — 8,477 8,477 Mortgage servicing rights 153 — 157 — 157 Derivative asset 1,554 — 1,554 — 1,554 Liabilities: Deposits 2,043,416 — — 2,040,293 2,040,293 Long-term debt 57,850 — 57,945 — 57,945 Accrued interest payable 124 — — 124 124 Derivative liabilities 1,554 — 1,554 — 1,554 Limitations . Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Where quoted market prices are not available, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the estimates. 18. SEGMENT The Company, through its bank subsidiary, provides a broad range of financial services to individuals and companies primarily in western Massachusetts and northern Connecticut. These services include commercial lending, residential lending and consumer lending, checking, savings and time deposits, cash management, and wealth management. Substantially all of the Company's revenues, profits, and assets are derived by the Bank from banking products and services. The Company did not have any reportable segments for the years ended December 31, 2021, 2020 or 2019. 19. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS The condensed balance sheets of the parent company are as follows : December 31, 2021 2020 (In thousands) ASSETS: Cash equivalents $ 4,083 $ 31 Investment in subsidiaries 226,015 214,042 ESOP loan receivable 4,356 5,030 Other assets 13,819 13,002 TOTAL ASSETS $ 248,273 $ 232,105 LIABILITIES: ESOP loan payable $ 4,356 $ 5,030 Other liabilities 20,229 435 EQUITY 223,688 226,640 TOTAL LIABILITIES AND EQUITY $ 248,273 $ 232,105 F- 47 The condensed statements of net income for the parent company are as follows: Years Ended December 31, 2021 2020 2019 (In thousands) INCOME: Dividends from subsidiaries $ 13,024 $ 15,812 $ 25,063 ESOP loan interest income 402 457 514 Other income 1 1 1 Total income 13,427 16,270 25,578 OPERATING EXPENSE: Salaries and employee benefits 2,153 1,420 1,647 ESOP interest 402 457 514 Other expenses 998 406 352 Total operating expense 3,553 2,283 2,513 Income before equity in undistributed income of subsidiaries and income taxes 9,874 13,987 23,065 Equity in undistributed income (loss) of subsidiaries 13,009 ( 3,123 ) ( 10,203 ) Net income before taxes 22,883 10,864 12,862 Income tax benefit ( 816 ) ( 351 ) ( 487 ) Net income $ 23,699 $ 11,215 $ 13,349 The condensed statements of cash flows of the parent company are as follows: Years Ended December 31, 2021 2020 2019 (In thousands) OPERATING ACTIVITIES: Net income $ 23,699 $ 11,215 $ 13,349 Equity in undistributed (income) loss of subsidiaries ( 13,009 ) 3,123 10,203 Net amortization of premiums on subordinated debt 27 — — Change in other liabilities ( 353 ) ( 672 ) ( 668 ) Change in other assets ( 142 ) 335 216 Other, net 1,989 1,385 1,607 Net cash provided by operating activities 12,211 15,386 24,707 INVESTING ACTIVITIES: Purchase of securities ( 105 ) ( 122 ) ( 140 ) Sales of securities 105 122 140 Net cash provided by investing activities — — — FINANCING ACTIVITIES: Cash dividends paid ( 4,677 ) ( 5,037 ) ( 5,274 ) Common stock repurchased ( 23,281 ) ( 10,519 ) ( 19,455 ) Proceeds from issuance of subordinated debt 20,000 — — Payment of subordinated debt issue costs ( 394 ) — — Issuance of common stock in connection with stock option exercises 193 43 106 Net cash used in financing activities ( 8,159 ) ( 15,513 ) ( 24,623 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 4,052 ( 127 ) 84 CASH AND CASH EQUIVALENTS Beginning of year 31 158 74 End of year $ 4,083 $ 31 $ 158 Supplemental cash flow information: Net change in due to broker for common stock repurchased $ ( 160 ) $ 160 $ ( 221 ) F- 48 20. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following tables present a summary of our quarterly financial information for the periods indicated. The year-to-date totals may differ slightly due to rounding. All unaudited interim financial statements furnished shall reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for interim periods presented and are of a normal and recurring nature, unless otherwise noted. 2021 First Quarter Second Quarter Third Quarter Fourth Quarter (Dollars in thousands, except per share amounts) Interest and dividend income $ 20,033 $ 19,652 $ 20,238 $ 19,926 Interest expense 2,007 1,848 1,473 1,344 Net interest and dividend income 18,026 17,804 18,765 18,582 Provision (credit) for loan losses 75 ( 1,200 ) ( 100 ) 300 (Loss) gain on available-for-sale securities, net ( 62 ) ( 12 ) 2 — Unrealized (losses) gains on marketable equity securities, net ( 89 ) 6 11 ( 96 ) Loss on interest rate swap termination — ( 402 ) — — Gain on non-marketable equity investments 546 — — 352 BOLI death benefit — — — 555 Gain on sale of mortgages 227 242 665 289 Other non-interest income 2,382 2,575 2,617 2,756 Non-interest income 3,004 2,409 3,295 3,856 Non-interest expense 13,327 13,674 14,018 13,923 Income before income taxes 7,628 7,739 8,142 8,215 Income tax provision 1,837 2,087 2,106 1,995 Net income $ 5,791 $ 5,652 $ 6,036 $ 6,220 Basic earnings per share $ 0.24 $ 0.24 $ 0.27 $ 0.28 Diluted earnings per share $ 0.24 $ 0.24 $ 0.27 $ 0.28 F- 49 2020 First Quarter Second Quarter Third Quarter Fourth Quarter (Dollars in thousands, except per share amounts) Interest and dividend income $ 20,390 $ 20,330 $ 20,447 $ 21,708 Interest expense (1) 5,837 5,238 4,457 2,913 Net interest and dividend income 14,553 15,092 15,990 18,795 Provision for loan losses 2,100 2,450 2,725 500 Gain on available-for-sale securities, net 23 13 1,929 — Unrealized gains (losses) on marketable equity securities, net 102 35 ( 4 ) ( 24 ) Loss on interest rate swap termination — — ( 2,353 ) — Other non-interest income 2,400 2,039 2,605 2,486 Non-interest income 2,525 2,087 2,177 2,462 Non-interest expense (2) 12,314 12,245 12,853 14,338 Income before income taxes 2,664 2,484 2,589 6,419 Income tax provision 584 463 488 1,406 Net income $ 2,080 $ 2,021 $ 2,101 $ 5,013 Basic earnings per share $ 0.08 $ 0.08 $ 0.08 $ 0.20 Diluted earnings per share $ 0.08 $ 0.08 $ 0.08 $ 0.20 (1) The decrease in interest expense for the three months ended December 31, 2020 was due to a decrease of $ 933,000 in interest expense on deposits and $ 611,000 in interest expense on FHLB borrowings, both resulting from repricing liabilities in the continued low-rate environment as well as the pay down of high-rate FHLB borrowings. (2) The increase in non-interest expense for the three months ended December 31, 2020 was primarily driven by a $ 987,000 expense resulting from the early extinguishment of $ 50 .0 million in FHLB borrowings. (1) The decrease in interest expense for the three months ended December 31, 2020 was due to a decrease of $933,000 in interest expense on deposits and $611,000 in interest expense on FHLB borrowings, both resulting from repricing liabilities in the continued low-rate environment as well as the pay down of high-rate FHLB borrowings. (2) The increase in non-interest expense for the three months ended December 31, 2020 was primarily driven by a $987,000 expense resulting from the early extinguishment of $50.0 million in FHLB borrowings. F- 50