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EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - Western New England Bancorp, Inc.ex31-1.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Western New England Bancorp, Inc.ex32-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Western New England Bancorp, Inc.ex32-1.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - Western New England Bancorp, Inc.ex31-2.htm
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Western New England Bancorp, Inc.ex23-1.htm
EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - Western New England Bancorp, Inc.ex21-1.htm
 

 

Securities and Exchange Commission 

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2016

 

Commission File No.: 001-16767

 

Western New England Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Massachusetts 73-1627673
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

141 Elm Street, Westfield, Massachusetts 01085 

(Address of principal executive offices, including zip code)

 

(413) 568-1911

(Registrant’s telephone number, including area code)

 

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

 

  Common Stock, $0.01 par value per share     The NASDAQ Global Select Market  
(Title of each class) (Name of each exchange on which registered)

 

Securities registered pursuant to Section 12(g) of the Act:  None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

Yes ☐  No ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filed). Yes ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

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

 

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

 

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2016, was $141,144,750. This amount was based on the closing price as of June 30, 2016 on The NASDAQ Global Select Market for a share of the registrant’s common stock, which was $7.70 on June 30, 2016.

 

As of March 9, 2017, the registrant had 30,691,762 shares of common stock, $0.01 per value, issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Portions of the Proxy Statement for the 2017 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

 

  

 

 

 

 

WESTERN NEW ENGLAND BANCORP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2016

 

TABLE OF CONTENTS 

 

 

ITEM PART I PAGE  
       
1 BUSINESS 2
1A RISK FACTORS 29
1B UNRESOLVED STAFF COMMENTS 33
2 PROPERTIES 33
3 LEGAL PROCEEDINGS 36
4 MINE SAFETY DISCLOSURES 36
     
  PART II  
     
5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 37
6 SELECTED FINANCIAL DATA   40
7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 57
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 57
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 57
9A CONTROLS AND PROCEDURES 57
9B OTHER INFORMATION 59
     
  PART III  
     
10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 59
11 EXECUTIVE COMPENSATION   59
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS 59
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   59
14 PRINCIPAL ACCOUNTING FEES AND SERVICES 59
       
  PART IV  
     
15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 59

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Annual Report on Form 10-K contains “forward-looking statements” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operation and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

 

changes in the interest rate environment that reduce margins;

 

changes in the regulatory environment;

 

the highly competitive industry and market area in which we operate;

 

general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;

 

changes in business conditions and inflation;

 

changes in credit market conditions;

 

changes in the securities markets which affect investment management revenues;

 

increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments could adversely affect our financial condition;

 

changes in technology used in the banking business;

 

the soundness of other financial services institutions which may adversely affect our credit risk;

 

certain of our intangible assets may become impaired in the future;

 

our controls and procedures may fail or be circumvented;

 

new lines of business or new products and services, which may subject us to additional risks;

 

changes in key management personnel which may adversely impact our operations;

 

the effect on our operations of governmental legislation and regulation, including changes in accounting regulation or standards, the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010, Basel guidelines, capital requirements and other applicable laws and regulations;

 

severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business; and

 

other factors detailed from time to time in our SEC filings.

 

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

Unless the context indicates otherwise, all references in this prospectus to “Western New England Bancorp,” “WNEB” “we,” “us,” “our company,” and “our” refer to Western New England Bancorp, Inc. and its subsidiaries (including Westfield Bank, CSB Colts, Inc., Elm Street Securities Corporation, WFD Securities, Inc. and WB Real Estate Holdings, LLC).

 

1 

 

 

PART I

 

ITEM 1. BUSINESS

 

General. Western New England Bancorp, Inc. (“WNEB”) (f/k/a “Westfield Financial, Inc.”) is a Massachusetts-chartered stock holding company and the parent company of Westfield Bank (the “Bank”). On October 21, 2016, the Company acquired Chicopee Bancorp, Inc. (“Chicopee”), the holding company for Chicopee Savings Bank, whereby Chicopee merged with and into Western New England Bancorp, with Western New England Bancorp surviving, and Chicopee Savings Bank merged with and into Westfield Bank (the “Bank”), with the Bank surviving, and in conjunction with the acquisition, the name of the holding company was changed to Western New England Bancorp, Inc. The transaction qualified as a tax-free reorganization for federal income tax purposes. Under the terms of the merger agreement, each outstanding share of Chicopee common stock was converted into the right to receive 2.425 shares of WNEB common stock. The consideration paid in the transaction to shareholders of Chicopee consisted of 11,919,412 shares of our common stock. Based upon the per share closing price of $7.90 on October 21, 2016, the transaction was valued at approximately $98.8 million. As a result of this transaction, we added eight branches, $716.6 million in assets, $640.9 million in loans and $545.7 million in deposits to our franchise. Western New England Bancorp was formed in 2001 in connection with its reorganization from a federally-chartered mutual holding company to a Massachusetts-chartered stock holding company with the second step conversion being completed in 2007. The Bank was formed in 1853 and is a federally chartered savings bank regulated by the Office of Comptroller of the Currency (“OCC”). As a community bank, we focus on servicing commercial customers, including commercial and industrial lending and commercial deposit relationships. We believe that this business focus is best for our long-term success and viability, and complements our existing commitment to high quality customer service.

 

Elm Street Securities Corporation, a Massachusetts-chartered corporation, was formed by us for the primary purpose of holding qualified securities. In February 2007, we formed WFD Securities, Inc., a Massachusetts-chartered corporation, for the primary purpose of holding qualified securities. In October 2009, we formed WB Real Estate Holdings, LLC, a Massachusetts-chartered limited liability company, for the primary purpose of holding real property acquired as security for debts previously contracted by the Bank. On October 21, 2016, in conjunction with the acquisition of Chicopee, we acquired CSB Colts, Inc., a Massachusetts-chartered corporation, formed for the primary purpose of holding qualified securities.

 

Market Area. We operate 21 banking offices in Agawam, Chicopee, Feeding Hills, East Longmeadow, Holyoke, Ludlow, South Hadley, Southwick, Springfield, Ware, West Springfield and Westfield, Massachusetts and Granby and Enfield, Connecticut. Our banking offices in Granby and Enfield, Connecticut, which we opened in June 2013 and November 2014, respectively, are our first locations outside of western Massachusetts. In 2014, we relocated our middle market and commercial real estate lending team to offices in Springfield, Massachusetts. We also have 23 free-standing ATM locations in Chicopee, Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts and 22 traveling/seasonal ATMs. Our primary deposit gathering area is concentrated in the communities surrounding these locations and our primary lending area includes all of Hampden County and Hampshire County in western Massachusetts and Hartford and Tolland Counties in northern Connecticut. In addition, we provide online banking services through our website located at www.westfieldbank.com.

 

The markets served by our branches are primarily suburban in character, as we operate only one banking office and headquarter our middle market commercial lending team in Springfield, the Pioneer Valley’s primary urban market. Westfield, Massachusetts, is located in the Pioneer Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. The Pioneer Valley of western Massachusetts encompasses the sixth largest metropolitan area in New England. The Springfield Metropolitan area covers a relatively diverse area ranging from densely populated urban areas, such as Springfield, to outlying rural areas.

 

Competition. We face intense competition both in making loans and attracting deposits. Our competition for loans comes principally from commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms. Historically, our most direct competition for deposits has come from savings and commercial banks. We face additional competition for deposits from internet-based institutions, credit unions, brokerage firms and insurance companies.

 

2 

 

 

Personnel. As of December 31, 2016, we had 256 full-time employees and 54 part-time employees. The employees are not represented by a collective bargaining unit, and we consider our relationship with our employees to be excellent.

 

Lending Activities

 

Loan Portfolio Composition. Our loan portfolio primarily consists of commercial real estate loans, commercial and industrial loans, residential real estate loans, home equity loans and consumer loans. At December 31, 2016, we had total loans of $1.6 billion, of which 60.6% were adjustable rate loans and 39.4% were fixed rate loans. Commercial real estate loans and commercial and industrial loans totaled $720.7 million and $222.3 million, respectively. The remainder of our loans at December 31, 2016 consisted of residential real estate loans, home equity loans and consumer loans. Residential real estate and home equity loans outstanding at December 31, 2016 totaled $614.2 million. Consumer loans outstanding at December 31, 2016 were $4.4 million.

 

3 

 

 

The interest rates we charge on loans are affected principally by the demand for loans, the supply of money available for lending purposes and the interest rates offered by our competitors. These factors are, in turn, affected by general and local economic conditions, monetary policies of the federal government, including the Federal Reserve Board, legislative tax policies and governmental budgetary matters.

 

The following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at the dates indicated.

 

    At December 31,  
    2016     2015     2014     2013     2012  
          Percent of           Percent of           Percent of           Percent of           Percent of  
    Amount     Total     Amount     Total     Amount     Total     Amount     Total     Amount     Total  
    (Dollars in thousands)  
Real estate loans:                                                                                
Commercial   $ 720,741       46.15 %   $ 303,036       37.21 %   $ 278,405       38.49 %   $ 264,476       41.54 %   $ 245,764       41.38 %
Residential     522,083       33.43       298,052       36.60       237,436       32.82       198,686       31.21       185,345       31.21  
Home equity     92,083       5.90       43,512       5.34       40,305       5.57       35,371       5.56       34,352       5.78  
Total real estate loans     1,334,907       85.48       644,600       79.15       556,146       76.88       498,533       78.31       465,461       78.37  
                                                                                 
Other loans                                                                                
Commercial and industrial     222,286       14.23       168,256       20.66       165,728       22.91       135,555       21.29       126,052       21.22  
Consumer, other     4,424       0.28       1,534       0.19       1,542       0.21       2,572       0.40       2,431       0.41  
Total other loans     226,710       14.52       169,790       20.85       167,270       23.12       138,127       21.69       128,483       21.63  
                                                                                 
Total loans     1,561,617       100.00 %     814,390       100.00 %     723,416       100.00 %     636,660       100.00 %     593,944       100.00 %
                                                                                 
Unearned premiums and net deferred loan fees and costs, net     4,867               3,823               1,270               767               974          
Allowance for loan losses     (10,068 )             (8,840 )             (7,948 )             (7,459 )             (7,794 )        
Total loans, net   $ 1,556,416             $ 809,373             $ 716,738             $ 629,968             $ 587,124          

  

4 

 

 

Loan Maturity and Repricing. The following table shows the repricing dates or contractual maturity dates as of December 31, 2016. The table does not reflect prepayments or scheduled principal amortization. Demand loans, loans having no stated maturity, and overdrafts are shown as due in within one year.

 

At December 31, 2016
    Commercial Real Estate     Residential     Home
Equity
    Commercial
and
Industrial
    Consumer     Unallocated     Totals  
(In thousands)
Amount due:                                                        
Within one year   $ 113,924     $ 33,987     $ 68,671     $ 111,998     $ 640     $     $ 329,220  
                                                         
After one year:                                                        
One to three years     111,076       50,452       561       27,772       693             190,554  
Three to five years     222,805       47,679       2,406       43,791       881             317,562  
Five to ten years     244,762       84,602       8,615       36,530       238             374,747  
Ten to twenty years     20,929       54,468       11,681       1,040       1,034             89,152  
Over twenty years     7,245       250,895       149       1,155       938             260,382  
Total due after one year     606,817       488,096       23,412       110,288       3,784             1,232,397  
                                                         
Total amount due:     720,741       522,083       92,083       222,286       4,424             1,561,617  
                                                         
Net deferred loan origination fees and costs and unearned premiums     (165 )     4,266       323       406       37             4,867  
Allowance for loan losses     (4,083 )     (2,433 )     (429 )     (3,085 )     (38 )           (10,068 )
                                                         
Loans, net   $ 716,493     $ 523,916     $ 91,977     $ 219,607     $ 4,423     $     $ 1,556,416  

 

The following table presents, as of December 31, 2016, the dollar amount of all loans contractually due or scheduled to reprice after December 31, 2017, and whether such loans have fixed interest rates or adjustable interest rates.

 

    Due After December 31, 2017  
    Fixed     Adjustable     Total  
    (In thousands)  
                   
Real estate loans:                        
Residential   $ 324,697     $ 163,399     $ 488,096  
Home equity     23,412             23,412  
Commercial real estate     131,466       475,351       606,817  
Total real estate loans     479,575       638,750       1,118,325  
                         
Other loans:                        
Commercial and industrial     104,145       6,143       110,288  
Consumer     3,760       24       3,784  
Total other loans     107,905       6,167       114,072  
                         
Total loans   $ 587,480     $ 644,917     $ 1,232,397  

 

5 

 

 

The following table presents our loan originations, purchases and principal payments for the years indicated:

 

    For the Years Ended December 31,  
    2016     2015     2014  
    (In thousands)  
Loans:                  
Balance outstanding at beginning of year   $ 814,390     $ 723,416     $ 636,660  
                         
Originations:                        
Real estate loans:                        
Residential     3,522       240       4,880  
Home equity     23,093       15,189       15,089  
Commercial     78,396       79,734       37,399  
Total mortgage originations     105,011       95,163       57,368  
                         
Commercial and industrial loans     75,034       51,063       105,438  
Consumer loans     871       1,404       1,491  
Total originations     180,916       147,630       164,297  
Purchase of one-to-four family mortgage loans     108,448       90,743       53,272  
      289,364       238,373       217,569  
                         
Loans acquired from Chicopee Savings Bank at fair value     640,892              
                         
Less:                        
Principal repayments, unadvanced funds and other, net     183,384       147,016       129,727  
Loan charge-offs (recoveries), net     (653 )     383       1,086  
Loans transferred to other real estate owned     298              
Total deductions     183,029       147,399       130,813  
Ending balance   $ 1,561,617     $ 814,390     $ 723,416  

 

Commercial and Industrial Loans. We offer commercial and industrial loan products and services that are designed to give business owners borrowing opportunities for modernization, inventory, equipment, construction, consolidation, real estate, working capital, vehicle purchases and the financing of existing corporate debt. We offer business installment loans, vehicle and equipment financing, lines of credit, and other commercial loans. At December 31, 2016, our commercial and industrial loan portfolio consisted of 1,868 loans, totaling $222.3 million, or 14.2% of our total loans. Our commercial loan team includes thirteen commercial loan officers, six credit analysts and two portfolio managers. We may hire additional commercial loan officers on an as needed basis.

 

As part of our strategy of increasing our emphasis on commercial lending, we seek to attract our business customers’ entire banking relationship. Most commercial borrowers also maintain commercial deposits. We provide complementary commercial products and services, a variety of commercial deposit accounts, cash management services, internet banking, sweep accounts, a broad ATM network and night deposit services. We offer a remote deposit capture product whereby commercial customers can receive credit for check deposits by electronically transmitting check images from their own locations. Commercial loan officers are based in our main and branch offices, and we view our branch network as a means of facilitating these commercial relationships. We intend to continue to expand the volume of our commercial business products and services within our current underwriting standards.

 

6 

 

 

Our commercial and industrial loan portfolio does not have any significant loan concentration by type of property or borrower. The largest concentration of commercial and industrial loans to an industry was to retail trade which comprised approximately 14.2% of the commercial and industrial loan portfolio inclusive of commercial and industrial owner occupied real estate loans as of December 31, 2016. At December 31, 2016, our largest commercial and industrial loan relationship was $17.1 million to a college. The loan relationship is secured by business assets and owner occupied real estate. The loans to this borrower have performed to contractual terms.

 

Commercial and industrial loans generally have terms of seven years or less, however, on an occasional basis, may have terms of up to ten years. Among the $222.3 million we have in our commercial and industrial loan portfolio as of December 31, 2016, $101.0 million have adjustable interest rates and $121.3 million have fixed interest rates. Whenever possible, we seek to originate adjustable rate commercial and industrial loans. Borrower activity and market conditions, however, may influence whether we are able to originate adjustable rate loans rather than fixed rate loans. We generally require the personal guarantee of the business owner. Interest rates on commercial and industrial loans generally have higher yields than residential or commercial real estate loans.

 

Commercial and industrial loans are generally considered to involve a higher degree of risk than residential or commercial real estate loans because the collateral may be in the form of intangible assets and/or inventory subject to market obsolescence. Please see “Risk Factors – Our loan portfolio includes loans with a higher risk of loss.” Commercial and industrial loans may also involve relatively large loan balances to single borrowers or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation and income stream of the borrower. These risks can be significantly affected by economic conditions. In addition, business lending generally requires substantially greater oversight efforts by our staff compared to residential or commercial real estate lending, including obtaining and analyzing periodic financial statements of the borrowers. In order to mitigate this risk, we monitor our loan concentration and our loan policies generally to limit the amount of loans to a single borrower or group of borrowers. We also utilize the services of an outside consultant to conduct credit quality reviews of the commercial and industrial loan portfolio.

 

Commercial Real Estate Loans. We originate commercial real estate loans to finance the purchase of real property, which generally consists of apartment buildings, business properties, multi-family investment properties and construction loans to developers of commercial and residential properties. In underwriting commercial real estate loans, consideration is given to the property’s historic cash flow, current and projected occupancy, location and physical condition. At December 31, 2016, our commercial real estate loan portfolio consisted of 1,024 loans, totaling $720.7 million, or 46.2% of total loans. Since 2012, commercial real estate loans have grown by $475.0 million, or 193.3%, from $245.8 million at December 31, 2012 to $720.7 million at December 31, 2016. Organic commercial real estate loan growth since 2012 was $116.9 million, or 47.6%.

 

The majority of the commercial real estate portfolio consists of loans which are collateralized by properties in the Pioneer Valley of Massachusetts and northern Connecticut. Our commercial real estate loan portfolio is diverse, and does not have any significant loan concentration by type of property or borrower. We generally lend up to a loan-to-value ratio of 80% on commercial properties. We, however, will lend up to a maximum of 85% loan-to-value ratio and will generally require a minimum debt coverage ratio of 1.15. Our largest non-owner occupied commercial real estate loan relationship was $14.6 million at December 31, 2016, which is secured by a commercial property located in Rhode Island.  The loans to this borrower are performing.   

 

We also offer construction loans to finance the construction of commercial properties located in our primary market area. At December 31, 2016, we had $88.9 million in commercial construction loans and commitments that are committed to refinance into permanent mortgages at the end of the construction period and $27.9 in commercial construction loans and commitments that are not committed to permanent financing at the end of the construction period.

 

Commercial real estate lending involves additional risks compared with one-to-four family residential lending. Payments on loans secured by commercial real estate properties often depend on the successful management of the properties, on the amount of rent from the properties, or on the level of expenses needed to maintain the properties. Repayment of such loans may therefore be adversely affected by conditions in the real estate market or the general economy. Also, commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers. In order to mitigate this risk, we obtain and analyze periodic financial statements of the borrowers as well as monitor our loan concentration risk on a quarterly basis and our loan policies generally limit the amount of loans to a single borrower or group of borrowers.

 

7 

 

 

Because of increased risks associated with commercial real estate loans, our commercial real estate loans generally have higher rates than residential real estate loans. Please see “Risk Factors – Our loan portfolio includes loans with a higher risk of loss.” Commercial real estate loans generally have adjustable rates with repricing dates of five years or less; however, occasionally repricing dates may be as long as 10 years. Whenever possible, we seek to originate adjustable rate commercial real estate loans. Borrower activity and market conditions, however, may influence whether we are able to originate adjustable rate loans rather than fixed rate loans.

 

Residential Real Estate Loans and Originations. Prior to the acquisition of Chicopee in 2016, Westfield Bank referred our residential real estate borrowers to a third-party mortgage company and substantially all of our residential real estate loans were underwritten, originated and serviced by a third-party mortgage company. Subsequent to the acquisition of Chicopee, Westfield Bank began to process and underwrite substantially all of our originations internally through our Loan Center located in Westfield, MA. Residential real estate borrowers submit applications to us and the loan is closed in Westfield Bank’s name and is booked directly into our portfolio. Loans can either be held in portfolio or, if eligible, can be sold on the secondary market for a fee. Westfield Bank retains the servicing rights to these loans. Some other mortgage types such as government-insured loans are brokered through a third-party mortgage company. The third-party mortgage company approves and closes the loan in their name. They keep the servicing rights to these loans and Westfield Bank retains no residual ownership interest. Westfield Bank receives a fee for each loan brokered to the third-party mortgage company.

 

In 2016, we purchased $108.4 million in residential loans from two New England-based banks as a means of supplementing our loan growth. While management has used residential loan growth to supplement the loan portfolio, the long-term strategy remains focused on commercial lending. At December 31, 2016, loans on one-to-four family residential properties, including home equity lines, accounted for $614.2 million, or 39.3% of our total loan portfolio.

 

Our residential adjustable rate mortgage loans generally are fully amortizing loans with contractual maturities of up to 30 years, payments due monthly. Our adjustable rate mortgage loans generally provide for specified minimum and maximum interest rates, with a lifetime cap and floor, and a periodic adjustment on the interest rate over the rate in effect on the date of origination. As a consequence of using caps, the interest rates on these loans are not generally as rate sensitive as our cost of funds. The adjustable rate mortgage loans that we originate generally are not convertible into fixed rate loans.

 

Adjustable rate mortgage loans generally pose different credit risks than fixed rate loans, primarily because as interest rates rise, the borrower’s payments rise, increasing the potential for default. To date, we have not experienced difficulty with payments for these loans. At December 31, 2016, our residential real estate included $196.4 million in adjustable rate loans, or 12.6% of our total loan portfolio, and $325.7 million in fixed rate loans, or 20.9% of our total loan portfolio.

 

Our home equity loans totaled $92.1 million, or 5.9% of total loans at December 31, 2016. Home equity loans include $23.5 million in fixed rate loans, or 1.5% of total loans, and $68.6 million in adjustable rate loans, or 4.4% of total loans. These loans may be originated in amounts up to 85% current loan to value (CLTV) of the appraised value of the property securing the loan. The term to maturity on our home equity and home improvement loans may be up to 20 years.

 

Consumer Loans. Consumer loans are generally originated at higher interest rates than residential and commercial real estate loans, but they also generally tend to have a higher credit risk than residential real estate loans because they are usually unsecured or secured by rapidly depreciable assets. Management, however, believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

 

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We offer a variety of consumer loans to retail customers in the communities we serve. Examples of our consumer loans include automobile loans, secured passbook loans, credit lines tied to deposit accounts to provide overdraft protection, and unsecured personal loans. At December 31, 2016, the consumer loan portfolio totaled $4.4 million, or 0.3% of total loans. Our consumer lending will allow us to diversify our loan portfolio while continuing to meet the needs of the individuals and businesses that we serve.

 

Loans collateralized by rapidly depreciable assets such as automobiles or that are unsecured entail greater risks than residential real estate loans. In such cases, repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance, since there is a greater likelihood of damage, loss or depreciation of the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. Further, collections on these loans are dependent on the borrower’s continuing financial stability and, therefore, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. There was no repossessed collateral relating to consumer loans at December 31, 2016. Finally, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans if a borrower defaults.

 

Loan Approval Procedures and Authority. Individuals authorized to make loans on our behalf are designated by our Senior Lending Officer and approved by the Board of Directors. Each designated loan officer has loan approval authority up to prescribed limits that depend upon the officer’s level of experience.

 

Upon receipt of a completed loan application from a prospective borrower, we order a credit report and verify other information. If necessary, we obtain additional financial or credit related information. We also require an appraisal for all commercial real estate loans greater than $250,000, which is performed by licensed or certified third-party appraisal firms and reviewed by our credit administration department.

 

For loans that are $250,000 or under, an assessment of valuation will be performed by a qualified individual. The individual performing the assessment of valuation is independent from the loan production and will validate the evaluation methodology by supporting criteria. If the valuation assessment is over 70% loan to value (LTV) a full appraisal will be ordered by a licensed appraiser. For loan amounts over $250,000 a full appraisal is required by a licensed appraiser.

 

Commercial and Industrial Loans and Commercial Real Estate Loans. We lend up to a maximum loan-to-value ratio of 85% on commercial properties and the majority of these loans require a minimum debt coverage ratio of 1.15. Commercial real estate lending involves additional risks compared with one-to-four-family residential lending. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, and/or the collateral value of the commercial real estate securing the loan, repayment of such loans may be subject, to a greater extent, to adverse conditions in the real estate market or the economy. Also, commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers. Our loan policies limit the amounts of loans to a single borrower or group of borrowers to reduce this risk.

 

Our lending policies permit our lending and underwriting departments to review and approve commercial and industrial loans and commercial real estate loans up to $2.0 million. Any commercial and industrial or commercial real estate loan application that exceeds $2.0 million or that would result in the borrower’s total credit exposure with us to exceed $2.0 million, or whose approval requires an exception to our standard loan approval procedures, requires approval of the Executive Committee of the Board of Directors. An example of an exception to our standard loan approval procedures would be if a borrower was located outside our primary lending area. For loans requiring Board approval, management is responsible for presenting to the Board information about the creditworthiness of a borrower and the estimated value of the subject equipment or property. Generally, these determinations are based on financial statements, corporate and personal tax returns, as well as any other necessary information, including real estate and or equipment appraisals.

 

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Residential Real Estate Loans. We originate and fund residential real estate loans secured by one-to-four family residential real estate primarily located in western Massachusetts and northern Connecticut. Loans are originated in amounts up to 97% of the lesser of the appraised value or purchase price of the property. Private mortgage insurance is required on all loans with a loan-to-value ratio in excess of 80%. Fixed-rate mortgages are generally originated for terms ranging in years from five to thirty years. Fixed-rate residential mortgage loans are underwritten to secondary market underwriting guidelines including FICO standards and debt-to-income ratio requirements. We are an approved seller and servicer with Fannie Mae, Freddie Mac and the FHLBB, an approved Mass Housing lender, and an approved broker for government insured loans such as FHA, VA and USRD.

 

Home Equity Loans. We originate and fund home equity loans secured by owner-occupied one-to-four family residences. These loans may be originated in amounts up to 85% (CLTV) of the current value of the property. Our underwriting standards include a review of the borrower’s credit history, an assessment of the borrower’s ability to repay and an evaluation of the value of the collateral securing the loan. Originated home equity loans may be offered with fixed-rates of interest and with terms up to twenty years; a fifteen year draw period and a fifteen year amortization period; or indexed to prime rate as reported in the Wall Street Journal. Our lending and underwriting department may approve home equity loans up to $250,000. Home equity loans in amounts greater than $250,000 and up to $350,000 may be approved by certain officers who have been approved by the Board of Directors. Home equity loans over $350,000, or approval requiring an exception to our standard approval procedures, are reviewed and approved by the Executive Committee of the Board of Directors.

 

Asset Quality

 

One of our key operating objectives has been and continues to be the achievement of a high level of asset quality. We maintain a large proportion of loans secured by residential and commercial properties, set sound credit standards for new loan originations and follow careful loan administration procedures. We also utilize the services of an outside consultant to conduct credit quality reviews of our commercial and industrial and commercial real estate loan portfolio on at least an annual basis.

 

Nonaccrual Loans and Foreclosed Assets. Our policies require that management continuously monitor the status of the loan portfolio and report to the Board of Directors on a monthly basis. These reports include information on nonaccrual loans and foreclosed real estate, as well as our actions and plans to cure the nonaccrual status of the loans and to dispose of the foreclosed property.

 

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The following table presents information regarding nonperforming mortgage, consumer and other loans, and foreclosed real estate as of the dates indicated. All loans where the payment is 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status unless the loan is well secured and in the process of collection. At December 31, 2016, 2015 and 2014, nonperforming loans totaled $14.1 million, $8.1 million, and $8.8 million, respectively. In 2016, we acquired $6.4 million in nonperforming loans from Chicopee. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $535,000, $406,000 and $221,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

 

    At December 31,  
    2016     2015     2014     2013     2012  
    (Dollars in thousands)  
Nonaccrual real estate loans:                                        
Residential   $ 5,744     $ 1,470     $ 1,323     $ 712     $ 939  
Home equity     119             1       38       103  
Commercial real estate     4,453       3,237       3,257       1,449       1,558  
Total nonaccrual real estate loans     10,316       4,707       4,581       2,199       2,600  
Other loans:                                        
Commercial and industrial     3,714       3,363       4,233       386       409  
Consumer     27       10       16       1        
Total nonaccrual other loans     3,741       3,373       4,249       387       409  
Total nonperforming loans     14,057       8,080       8,830       2,586       3,009  
Foreclosed real estate, net     298                         964  
Total nonperforming assets (1)   $ 14,355     $ 8,080     $ 8,830     $ 2,586     $ 3,973  
Nonperforming loans to total loans     0.90 %     0.99 %     1.22 %     0.41 %     0.51 %
Nonperforming assets to total assets     0.69       0.60       0.67       0.20       0.31  

 

(1) TDRs on accrual status not included above totaled $2.1 million, $495,000, $50,000, $14.5 million and $14.8 million at December 31, 2016, 2015, 2014, 2013, and 2012, respectively.

 

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Allowance for Loan Losses. The following table presents the activity in our allowance for loan losses and other ratios at or for the dates indicated.

 

    At or for Years Ended December 31,  
    2016     2015     2014     2013     2012  
    (Dollars in thousands)  
Balance at beginning of year   $ 8,840     $ 7,948     $ 7,459     $ 7,794     $ 7,764  
                                         
Charge-offs:                                        
Residential     (115 )     (24 )     (31 )     (80 )      
Commercial real estate     (170 )           (350 )     (20 )     (195 )
Home equity loans     (42 )     (34 )                 (155 )
Commercial and industrial           (345 )     (787 )     (208 )     (391 )
Consumer     (159 )     (73 )     (55 )     (33 )     (27 )
Total charge-offs     (486 )     (476 )     (1,223 )     (341 )     (768 )
                                         
Recoveries:                                        
Residential     9       4       1       1       3  
Commercial real estate     1,065                   155       78  
Home equity loans           4                   2  
Commercial and industrial     25       51       121       84       7  
Consumer     40       34       15       22       10  
Total recoveries     1,139       93       137       262       100  
                                         
Net recoveries (charge-offs)     653       (383 )     (1,086 )     (79 )     (668 )
                                         
Provision (credit) for loan losses     575       1,275       1,575       (256 )     698  
                                         
Balance at end of year   $ 10,068     $ 8,840     $ 7,948     $ 7,459     $ 7,794  
                                         
Total loans receivable (1)   $ 1,561,617     $ 814,390     $ 723,416     $ 636,660     $ 593,944  
                                         
Average loans outstanding   $ 1,013,611     $ 766,548     $ 683,064     $ 604,732     $ 573,642  
                                       
Allowance for loan losses as a percent of total loans receivable     0.64 %     1.09 %     1.10 %     1.17 %     1.31 %
                                       
Net loans charged-off as a percent of average loans outstanding     (0.06 )     0.05       0.16       0.01       0.12  

 

 

(1) Does not include unearned premiums, deferred costs and fees, or allowance for loan losses.

 

We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. Our methodology for assessing the appropriateness of the allowance consists of a review of the components, which include a specific valuation allowance for impaired loans and a general allowance for non-impaired loans. The specific valuation allowance incorporates the results of measuring impairment for specifically identified non-homogenous problem loans and, as applicable, troubled debt restructurings (“TDRs”). The specific allowance reduces the carrying amount of the impaired loans to their estimated fair value, less costs to sell, if collateral dependent. A loan is recognized as impaired when it is probable that principal and/or interest are not collectible in accordance with the loan’s contractual terms. The general allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. As part of this analysis, each quarter we prepare an allowance for loan losses worksheet which categorizes the loan portfolio by risk characteristics such as loan type and loan grade. The general allowance is inherently subjective as it requires material estimates that may be susceptible to significant change. There are a number of factors that are considered when evaluating the appropriate level of the allowance. These factors include current economic and business conditions that affect our key lending areas, new loan products, collateral values, loan volumes and concentrations, credit quality trends such as nonperforming loans, delinquency and loan losses, and specific industry concentrations within the portfolio segments that may impact the collectability of the loan portfolio. For information on our methodology for assessing the appropriateness of the allowance for loan losses please see Footnote 1 – “Summary of Significant Accounting Policies” of our notes to consolidated financial statements.

 

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In addition, management employs an independent third party to perform a semi-annual review of a sample of our commercial and industrial loans and commercial real estate loans. 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.

 

Our methodologies include several factors that are intended to reduce the difference between estimated and actual losses; however, because these are management’s best estimates based on information known at the time, estimates may differ from actual losses incurred. The loss factors that are used to establish the allowance for pass graded loans are designated to be self-correcting by taking into account changes in loan classification, loan concentrations and loan volumes and by permitting adjustments based on management’s judgments of qualitative factors as of the evaluation date. Similarly, by basing the pass graded loan loss factors on loss experience over the prior six years, the methodology is designed to take loss experience into account.

 

Our allowance methodology has been applied on a consistent basis. Based on this methodology, we believe that we have established and maintained the allowance for loan losses at appropriate levels. Future adjustments to the allowance for loan losses, however, may be necessary if economic, real estate and other conditions differ substantially from the current operating environment resulting in estimated and actual losses differing substantially. Adjustments to the allowance for loan losses are charged to income through the provision for loan losses.

 

A summary of the components of the allowance for loan losses is as follows:

 

    December 31, 2016     December 31, 2015     December 31, 2014  
    Specific     General     Total     Specific     General     Total     Specific     General     Total  
    (In thousands)  
Commercial real estate   $     $ 4,083     $ 4,083     $     $ 3,856     $ 3,856     $     $ 3,705     $ 3,705  
Residential real estate:                                                                        
Residential           2,433       2,433             2,122       2,122             1,755       1,755  
Home Equity           429       429             309       309             298       298  
Commercial and industrial           3,085       3,085             2,485       2,485             2,174       2,174  
Consumer           38       38             22       22             15       15  
Unallocated                             46       46             1       1  
Total   $     $ 10,068     $ 10,068     $     $ 8,840     $ 8,840     $     $ 7,948     $ 7,948  

 

    December 31, 2013     December 31, 2012    
    Specific     General     Total     Specific     General     Total    
    (In thousands)  

 

 

Commercial real estate   $ 82     $ 3,468     $ 3,550     $ 377     $ 3,029     $ 3,406    
Residential real estate:                                                  
Residential           1,454       1,454       57       1,425       1,482    
Home Equity           253       253             264       264    
Commercial and industrial     15       2,176       2,191       104       2,063       2,167    
Consumer           13       13             13       13    
Unallocated           (2 )     (2 )           462       462    
Total   $ 97     $ 7,362     $ 7,459     $ 538     $ 7,256     $ 7,794    

 

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In addition, the OCC, as an integral part of its examination process, periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The OCC may require us to adjust the allowance for loan losses or the valuation allowance for foreclosed real estate based on their judgment of information available to them at the time of their examination, thereby adversely affecting our results of operations. There were no adjustments recommended during 2016 or 2015.

 

For the year ended December 31, 2016, we recorded a provision of $575,000 to the allowance for loan losses based on our evaluation of the items discussed above. We believe that the allowance for loan losses adequately reflects the level of incurred losses in the current loan portfolio as of December 31, 2016.

 

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans.

 

    December 31, 2016     December 31, 2015     December 31, 2014  
Loan Category   Amount of Allowance for Loan Losses     Loan Balances by Category     Percent of Loans in Each Category to Total Loans     Amount of Allowance for Loan Losses     Loan Balances by Category     Percent of Loans in Each Category to Total Loans     Amount of Allowance for Loan Losses     Loan Balances by Category     Percent of Loans in Each Category to Total Loans  
    (In thousands)  
Commercial real estate   $ 4,083     $ 720,741       46.15 %   $ 3,856     $ 303,036       37.21 %   $ 3,705     $ 278,405       38.49 %
Real estate mortgage:                                                                        
Residential     2,433       522,083       33.43       2,122       298,052       36.60       1,755       237,436       32.82  
Home equity     429       92,083       5.90       309       43,512       5.34       298       40,305       5.57  
Commercial loans     3,085       222,286       14.24       2,485       168,256       20.66       2,174       165,728       22.91  
Consumer loans     38       4,424       0.28       22       1,534       0.19       15       1,542       0.21  
Unallocated                 0.00       46             0.00       1             0.00  
Total allowances for loan losses   $ 10,068     $ 1,561,617       100.00 %   $ 8,840     $ 814,390       100.00 %   $ 7,948     $ 723,416       100.00 %

 

    December 31, 2013     December 31, 2012    
    Amount of Allowance for Loan Losses     Loan Balances by Category     Percent of Loans in Each Category to Total Loans     Amount of Allowance for Loan Losses     Loan Balances by Category     Percent of Loans in Each Category to Total Loans    
    (In thousands)    
Commercial real estate   $ 3,550     $ 264,476       41.54 %   $ 3,406     $ 245,764       41.38 %  
Real estate mortgage:                                                  
Residential     1,454       198,686       31.21       1,482       185,345       31.21    
Home equity     253       35,371       5.56       264       34,352       5.78    
Commercial loans     2,191       135,555       21.29       2,167       126,052       21.22    
Consumer loans     13       2,572       0.40       13       2,431       0.41    
Unallocated     (2 )           0.00       462             0.00    
Total allowances for loan losses   $ 7,459     $ 636,660       100.00 %   $ 7,794     $ 593,944       100.00 %  

 

Potential Problem Loans. We have no potential problem loans not reported as impaired at December 31, 2016.

 

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.

 

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Investment Activities. The Board of Directors reviews and approves our investment policy on an annual basis. The Chief Executive Officer and Chief Financial Officer, as authorized by the Board of Directors, implement this policy based on the established guidelines within the written policy.

 

Our investment policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity within the range established by policy. In determining our investment strategies, we consider our interest rate sensitivity, yield, credit risk factors, maturity and amortization schedules, and other characteristics of the securities to be held.

 

Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks and corporate debt instruments.

 

Securities Portfolio. We invest in government-sponsored enterprise debt securities which consist of bonds issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. We also invest in municipal bonds primarily issued by cities and towns in Massachusetts that are rated as investment grade by Moody’s, Standard and Poor’s, or Fitch, the majority of which are also independently insured. These securities have maturities that do not exceed 15 years; however, many have earlier call dates. In addition, we have investments in Federal Home Loan Bank stock and mutual funds that invest only in securities allowed by the OCC.

 

Our mortgage-backed securities, the majority of which are directly or indirectly insured or guaranteed by Freddie Mac, Ginnie Mae or Fannie Mae, consist primarily of fixed rate securities.

 

The following table sets forth the composition of our securities portfolio at the dates indicated.

 

    At December 31,  
    2016     2015     2014  
    Amortized     Fair     Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value     Cost     Value  
Available-for-sale:                                                
Debt Securities:                                                
Government-sponsored enterprise obligations   $ 43,140     $ 42,008     $ 4,000     $ 3,951     $ 24,066     $ 23,979  
State and municipal bonds     4,117       4,008       2,794       2,801       16,472       17,034  
Corporate bonds     50,255       50,317       21,176       21,136       25,711       26,223  
Total debt securities     97,512       96,333       27,970       27,888       66,249       67,236  
                                                 
Mortgage-backed securities:                                                
Government-sponsored mortgage-backed securities     184,127       180,136       138,186       135,959       139,637       139,213  
U.S. government guaranteed mortgage-backed securities     17,753       17,350       11,030       10,903       1,591       1,586  
Total mortgage-backed securities     201,880       197,486       149,216       146,862       141,228       140,799  
                                                 
Marketable equity securities:                                                
Mutual funds     6,586       6,296       6,438       6,247       6,296       6,176  
Common and preferred stock                 1,309       1,593       1,309       1,539  
Total marketable equity securities     6,586       6,296       7,747       7,840       7,605       7,715  
                                                 
Total available-for-sale securities   $ 305,978     $ 300,115     $ 184,933     $ 182,590     $ 215,082     $ 215,750  
                                                 
Held-to-maturity:                                                
Debt Securities:                                                
Government-sponsored enterprise obligations   $     $     $ 30,146     $ 29,928     $ 43,477     $ 42,882  
State and municipal bonds                 6,845       6,811       7,285       7,250  
Corporate bonds                 23,969       23,717       24,751       24,579  
Total debt securities                 60,960       60,456       75,513       74,711  
                                                 
Mortgage-backed securities:                                                
Government-sponsored mortgage-backed securities                 148,085       147,889       164,001       164,932  
U.S. government guaranteed mortgage-backed securities                 29,174       29,274       38,566       37,993  
Total mortgage-backed securities                 177,259       177,163       202,567       202,925  
                                                 
Total held-to-maturity securities   $     $     $ 238,219     $ 237,619     $ 278,080     $ 277,636  

 

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Mortgage-Backed Securities. The following table sets forth the amortized cost and fair value of our mortgage-backed securities, which are classified as available-for-sale or held-to-maturity at the dates indicated.

 

    At December 31,  
    2016     2015     2014  
    Amortized     Percent of     Fair     Amortized     Percent of     Fair     Amortized     Percent of     Fair  
    Cost     Total     Value     Cost     Total     Value     Cost     Total     Value  
    (In thousands)  
Available-for-sale:                                                                        
Government-sponsored residential mortgage-backed   $ 184,127       91.21 %   $ 180,136     $ 138,186       42.32 %   $ 135,959     $ 139,637       40.62 %   $ 139,213  
U.S. government guaranteed residential mortgage-backed     17,753       8.79       17,350       11,030       3.38       10,903       1,591       0.46       1,586  
Total available for sale     201,880       100.00       197,486       149,216       45.70       146,862       141,228       41.08       140,799  
                                                                         
Held-to-maturity:                                                                        
Government-sponsored residential mortgage-backed                       148,085       45.36       147,889       164,001       47.70       164,932  
U.S. government guaranteed residential mortgage-backed                       29,174       8.94       29,274       38,566       11.22       37,993  
                                                                         
Total held-to-maturity                       177,259       54.30       177,163       202,567       58.92       202,925  
                                                                         
Total   $ 201,880       100.00 %   $ 197,486     $ 326,475       100.00 %   $ 324,025     $ 343,795       100.00 %   $ 343,724  

 

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Securities Portfolio Maturities. The composition and maturities of the debt securities portfolio and the mortgage-backed securities portfolio at December 31, 2016 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or redemptions that may occur.

 

                More than One Year     More than Five Years                                
    One Year or Less     through Five Years     through Ten Years     More than Ten Years     Total Securities  
          Weighted           Weighted           Weighted           Weighted                 Weighted  
    Amortized     Average     Amortized     Average     Amortized     Average     Amortized     Average     Amortized     Fair     Average  
    Cost     Yield     Cost     Yield     Cost     Yield     Cost     Yield     Cost     Value     Yield  
    (Dollars in thousands)  
Debt securities available-for-sale:                                                                                        
Government-sponsored enterprise obligations   $ 17,990       0.38 %   $ 1,500       1.44 %   $ 18,500       2.23 %   $ 5,150       3.00 %   $ 43,140     $ 42,008       1.52 %
State and municipal bonds     280       3.75       725       3.76       1,510       3.86       1,602       2.91       4,117       4,008       3.46  
Corporate bonds                 24,505       2.72       25,750       3.08                   50,255       50,317       2.91  
Total debt securities available-for-sale     18,270       0.43       26,730       2.68       45,760       2.76       6,752       2.98       97,512       96,333       2.32  
                                                                                         
Mortgage-backed securities available for sale:                                                                                        
Government-sponsored residential mortgage-backed                 21,877       1.00       17,415       1.00       144,835       2.40       184,127       180,136       2.36  
U.S. government guaranteed residential mortgage-backed                                         17,753       2.27       17,753       17,350       2.27  
                                                                                         
Total mortgage-backed securities available-for-sale                 21,877       1.00       17,415       1.00       162,588       2.38       201,880       197,486       2.35  
                                                                                         
Total available-for-sale   $ 18,270       0.43 %   $ 48,607       1.92 %   $ 63,175       2.28 %   $ 169,340       2.41 %   $ 299,392     $ 293,819       2.34 %

 

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Sources of Funds

 

General. Deposits, short-term borrowings, long-term debt, scheduled amortization and prepayments of loan principal, maturities and calls of securities and funds provided by operations are our primary sources of funds for use in lending, investing and for other general purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

 

Deposits. We offer a variety of deposit accounts having a range of interest rates and terms. We currently offer regular savings deposits (consisting of passbook and statement savings accounts), interest-bearing demand accounts, noninterest-bearing demand accounts, money market accounts and time deposits. We have expanded the types of deposit products that we offer to include online and mobile banking services, tiered money market accounts and customer repurchase agreements to complement our increased emphasis on attracting commercial banking relationships.

 

Deposit flows are influenced significantly by general and local economic conditions, changes in prevailing interest rates, pricing of deposits and competition. Our deposits are primarily obtained from areas surrounding our offices. We rely primarily on paying competitive rates, service and long-standing relationships with customers to attract and retain these deposits.

 

When we determine our deposit rates, we consider local competition, U.S. Treasury securities offerings and the rates charged on other sources of funds. Core deposits (defined as regular accounts, money market accounts, and interest-bearing and noninterest-bearing demand accounts) represented 62.3% of total deposits on December 31, 2016 and 56.1% on December 31, 2015. At December 31, 2016 and December 31, 2015, time deposits with remaining terms to maturity of less than one year amounted to $321.1 million and $240.7 million, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Interest and Dividend Income” for information relating to the average balances and costs of our deposit accounts for the years ended December 31, 2016, 2015 and 2014.

 

Deposit Distribution and Weighted Average Rates. The following table sets forth the distribution of our deposit accounts, by account type, at the dates indicated.

 

    At December 31,  
    2016     2015     2014  
    Amount     Percent     Weighted Average Rates     Amount     Percent     Weighted Average Rates     Amount     Percent     Weighted Average Rates  
    (Dollars in thousands)  
                                                       
Demand deposits   $ 303,993       20.03 %     %   $ 157,844       17.54 %     %   $ 136,186       16.33 %     %
Interest-bearing checking accounts     82,406       5.43       0.46       28,913       3.21       0.30       37,983       4.55       0.24  
Regular accounts     121,262       7.99       0.11       75,225       8.35       0.11       74,970       8.99       0.10  
Money market accounts     437,467       28.82       0.40       242,647       26.95       0.34       227,330       27.25       0.37  
Total non-certificated accounts     945,128       62.26       0.24       504,629       56.05       0.20       476,469       57.12       0.21  
                                                                         
Time certificates of deposit:                                                                        
Due within the year     321,078       21.15       1.13       240,662       26.73       1.02       198,972       23.85       1.02  
Over 1 year through 3 years     199,309       13.13       1.42       92,650       10.29       1.27       110,214       13.21       1.27  
Over 3 years     52,556       3.46       1.64       62,422       6.93       1.81       48,563       5.82       1.72  
Total certificated accounts     572,943       37.74       1.28       395,734       43.95       1.20       357,749       42.88       1.19  
                                                                         
Total   $