Western New England Bancorp, Inc. Fair Value Disclosure

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.

 

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. 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, corporate bonds, 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, 2025
		Level 1				Level 2				Level 3				Total
		(Dollars in thousands)
Assets:
Securities available-for-sale		$	—			$	175,800			$	—			$	175,800
Marketable equity securities			632				—				—				632
Interest rate swaps			—				4,963				—				4,963
Total assets		$	632			$	180,763			$	—			$	181,395
Liabilities:
Interest rate swaps		$	—			$	4,963			$	—			$	4,963

 

		December 31, 2024
		Level 1				Level 2				Level 3				Total
		(Dollars in thousands)
Assets:
Securities available-for-sale		$	—			$	160,704			$	—			$	160,704
Marketable equity securities			397				—				—				397
Interest rate swaps			—				5,883				—				5,883
Total assets		$	397			$	166,587			$	—			$	166,984
Liabilities:
Interest rate swaps		$	—			$	5,883			$	—			$	5,883

 

There were no transfers to or from Level 3 for assets measured at fair value on a recurring basis during the years ended December 31, 2025 and December 31, 2024.

 

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, 2025 and December 31, 2024.

 

		At												Year Ended
		December 31, 2025												December 31, 2025
														Total
		Level 1				Level 2				Level 3				Losses
		(Dollars in thousands)												(Dollars in thousands)
Collateral dependent loans		$	—			$	—			$	1			$	33

 

														Year Ended
		At December 31, 2024												December 31, 2024
														Total
		Level 1				Level 2				Level 3				Losses
		(Dollars in thousands)												(Dollars in thousands)
Collateral dependent loans		$	—			$	—			$	325			$	182

 

The amount of impaired loans represents the carrying value, net of the related write-down or valuation allowance of collateral dependent loans for which adjustments are based on the estimated fair value of the underlying collateral.  The fair value of collateral dependent 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.

 

Summary of Fair Values of Financial Instruments.

 

The estimated fair values of our financial instruments are as follows:

 

		December 31, 2025
		Carrying Value				Fair Value
						Level 1				Level 2				Level 3				Total
		(Dollars in thousands)
Assets:
Cash and cash equivalents		$	40,381			$	40,381			$	—			$	—			$	40,381
Securities held-to-maturity			188,800				4,898				153,606				—				158,504
Securities available-for-sale			175,800				—				175,800				—				175,800
Marketable equity securities			632				632				—				—				632
FHLB and other restricted stock			5,359				—				—				5,359				5,359
Loans - net			2,163,295				—				—				2,061,147				2,061,147
Accrued interest receivable			8,783				—				—				8,783				8,783
Mortgage servicing rights			318				—				673				—				673
Derivative asset			4,963				—				4,963				—				4,963
Liabilities:
Deposits			2,360,908				—				—				2,359,790				2,359,790
Short-term borrowings			13,270				—				13,286				—				13,286
Long-term debt			73,000				—				73,601				—				73,601
Subordinated debt			19,790				—				15,796				—				15,796
Accrued interest payable			752				—				—				752				752
Derivative liabilities			4,963				—				4,963				—				4,963

 

		December 31, 2024
		Carrying Value				Fair Value
						Level 1				Level 2				Level 3				Total
		(Dollars in thousands)
Assets:
Cash and cash equivalents		$	66,450			$	66,450			$	—			$	—			$	66,450
Securities held-to-maturity			205,036				4,727				160,879				—				165,606
Securities available-for-sale			160,704				—				160,704				—				160,704
Marketable equity securities			397				397				—				—				397
FHLB and other restricted stock			5,818				—				—				5,818				5,818
Loans - net			2,050,660				—				—				1,894,621				1,894,621
Accrued interest receivable			8,468				—				—				8,468				8,468
Mortgage servicing rights			436				—				826				—				826
Derivative asset			5,883				—				5,883				—				5,883
Liabilities:
Deposits			2,262,647				—				—				2,261,666				2,261,666
Short-term borrowings			5,390				—				5,390				—				5,390
Long-term debt			98,000				—				98,835				—				98,835
Subordinated debt			19,751				—				15,876				—				15,876
Accrued interest payable			903				—				—				903				903
Derivative liabilities			5,883				—				5,883				—				5,883

 

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.