EX-99.1 2 ex99-1.htm PRESS RELEASE

 

Western New England Bancorp, Inc. 8-K

Exhibit 99.1 

 

  For further information contact:
  James C. Hagan, President and CEO
  Guida R. Sajdak, Executive Vice President and CFO
  Meghan Hibner, Vice President and Investor Relations Officer
  413-568-1911

 

WESTERN NEW ENGLAND BANCORP, INC. REPORTS RESULTS FOR THREE AND NINE MONTHS

ENDED SEPTEMBER 30, 2022 AND DECLARES QUARTERLY CASH DIVIDEND

 

Westfield, Massachusetts, October 25, 2022: Western New England Bancorp, Inc. (the “Company” or “WNEB”) (NasdaqGS: WNEB), the holding company for Westfield Bank (the “Bank”), announced today the unaudited results of operations for the three and nine months ended September 30, 2022. For the three months ended September 30, 2022, the Company reported net income of $6.0 million, or $0.28 per diluted share, compared to net income of $6.0 million, or $0.27 per diluted share, for the three months ended September 30, 2021. On a linked quarter basis, net income was $6.0 million, or $0.28 per diluted share, as compared to net income of $5.5 million, or $0.25 per diluted share, for the three months ended June 30, 2022. For the nine months ended September 30, 2022, net income was $16.9 million, or $0.77 per diluted share, compared to net income of $17.5 million, or $0.74 per diluted share, for the nine months ended September 30, 2021.

 

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock. The dividend will be payable on or about November 23, 2022 to shareholders of record on November 9, 2022.

 

“The Company continues to experience positive growth in key business areas along with strong quarterly earnings adding to the momentum from last year’s record profitability. We are pleased to report solid earnings for the third quarter of 2022 along with strong core deposit growth and loan growth across all loan segments. We remain focused on executing our strategy of driving commercial loan growth and core deposits, which have been key contributors to the Company’s ongoing profitability,” said James C. Hagan, President and Chief Executive Officer. “We remain optimistic about the Company’s growth opportunities in the fourth quarter of 2022 and into 2023.

 

We also saw strong organic core deposit growth of $89.6 million, or 4.8%, since year-end, which will be beneficial in a rising interest rate environment in order to fund continuing demand for commercial loans. We are pleased to report that our total loan portfolio increased $165.8 million, or 9.0% during the nine months ended September 30, 2022, excluding Paycheck Protection Program (“PPP”) loans that were forgiven by the Small Business Administration (“SBA”). As we continue to add new customer relationships throughout New England and in key strategic lending areas, we have seen the strongest growth from our commercial real estate lending portfolio, which increased $101.7 million, or 10.4%, and our commercial and industrial loan portfolio, which increased $28.7 million, or 14.3%, during the nine months ended September 30, 2022. We continue to be mindful of certain economic and business conditions, such as inflation, utilization of accumulated cash to fund operations, and supply chain issues that may affect some of our business customers, as well as the additional anticipated Federal Reserve interest rate increases, but remain optimistic about our business opportunities and loan portfolio growth and meeting the banking needs of our business and commercial customers.

 

The Company also saw positive increases in key metrics, notably in net interest income and net interest margin. Net interest income increased $1.7 million, from $18.6 million in the fourth quarter of 2021 to $20.3 million in the third quarter of 2022. The net interest margin increased from 3.08% in the fourth quarter of 2021 to 3.35% in the third quarter of 2022. Our disciplined approach to managing funding costs has helped to expand our net interest margin as we continue to deploy our excess liquidity and core deposits to fund loan growth. Our asset quality remains extremely solid, with nonperforming loans to total loans of 0.22%, and our capital position continues to remain strong.”

 

Hagan concluded, “We will continue to implement our various strategic initiatives in order to increase shareholder value which have resulted in solid earnings last year and through the first three quarters of this year and will continue our efforts to grow the Company and its profitability throughout the fourth quarter of 2022 and into 2023.”

 

 
 

Key Highlights:

 

Loans and Deposits. At September 30, 2022, total loans of $2.0 billion increased $143.0 million, or 7.7%, from December 31, 2021. During the same period, excluding PPP loans, total loans increased $165.8 million, or 9.0%, from $1.9 billion at December 31, 2021. The increase in total loans was due to an increase in commercial real estate loans of $101.7 million, or 10.4%, an increase in commercial and industrial loans of $28.7 million, or 14.3%, and an increase in residential real estate loans of $34.6 million, or 5.3%.

 

At September 30, 2022, total deposits were $2.3 billion, an increase of $30.9 million, or 1.4%, from December 31, 2021. Core deposits, which include non-interest bearing demand accounts, increased $89.6 million, or 4.8%, from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.9 billion, or 85.0% of total deposits at September 30, 2022. The loan to deposit ratio increased from 82.6% at December 31, 2021 to 87.8% at September 30, 2022.

 

Allowance for Loan Losses and Credit Quality. At September 30, 2022, the allowance for loan losses as a percentage of total loans and as a percentage of nonperforming loans was 1.01% and 456.0%, respectively. At September 30, 2022, nonperforming loans totaled $4.4 million, or 0.22% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. Total delinquency increased $1.2 million, or 54.1%, from $2.1 million, or 0.11% of total loans at December 31, 2021 to $3.3 million, or 0.16% of total loans at September 30, 2022.

 

Net Interest Margin. The net interest margin was 3.35% for the three months ended September 30, 2022 compared to 3.24% for the three months ended June 30, 2022. The net interest margin, on a tax-equivalent basis, was 3.37% for the three months ended September 30, 2022, compared to 3.26% for the three months ended June 30, 2022.

 

Repurchases. On April 27, 2021, the Board of Directors authorized a stock repurchase plan (the “2021 Plan”), pursuant to which the Company is authorized to repurchase up to 2.4 million shares, or 10% of its outstanding common stock, as of the date the 2021 Plan was adopted. During the three months ended September 30, 2022, the Company repurchased 236,302 shares of common stock under the 2021 Plan. During the nine months ended September 30, 2022, the Company repurchased 642,149 shares of common stock under the 2021 Plan. At September 30, 2022, there were 35,170 shares of common stock available for repurchase under the 2021 Plan. Following the end of the third quarter, the Company announced the completion of the 2021 Plan on October 13, 2022.

 

On July 26, 2022, the Board of Directors authorized a new stock repurchase plan (the “2022 Plan”), pursuant to which the Company may repurchase up to 1.1 million shares of common stock, which is approximately 5.0% of the Company’s outstanding shares as of the date the 2022 Plan was adopted. Repurchases under the 2022 Plan may commence now that the 2021 Plan has been completed.

 

The shares of common stock repurchased under the 2022 Plan will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, or otherwise, depending upon market conditions. There is no guarantee as to the exact number, or value, of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management determines additional repurchases are not warranted. The timing and amount of additional share repurchases under the 2022 Plan will depend on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements.

 

Capital Management. Book value per share was $9.52 at September 30, 2022, compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, decreased $0.36, or 3.9%, from $9.21 at December 31, 2021 to $8.85 at September 30, 2022. During the nine months ended September 30, 2022, the change in accumulated other comprehensive income/loss (“AOCI”) reduced the tangible book value per common share by $0.94 as of September 30, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities.  Tangible book value is a non-GAAP measure. See pages 18-21 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures. As of September 30, 2022, the Company’s and the Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

 

 
 

Net Income for the Three Months Ended September 30, 2022 Compared to the Three Months Ended June 30, 2022.

 

The Company reported net income of $6.0 million, or $0.28 per diluted share, for the three months ended September 30, 2022, compared to net income of $5.5 million, or $0.25 per diluted share, for the three months ended June 30, 2022. Net interest income increased $896,000, or 4.6%, non-interest income decreased $151,000, or 5.5%, and non-interest expense decreased $90,000, or 0.6%, while the provision for loan losses increased $375,000, or 125.0%, during the same period. Return on average assets and return on average equity were 0.93% and 10.90%, respectively, for the three months ended September 30, 2022, compared to 0.87% and 10.22%, respectively, for the three months ended June 30, 2022.

 

Net Interest Income and Net Interest Margin

 

On a sequential quarter basis, net interest income increased $896,000, or 4.6%, to $20.3 million for the three months ended September 30, 2022, from $19.4 million for the three months ended June 30, 2022. The increase in net interest income was primarily due to an increase in interest and dividend income of $1.1 million, or 5.4%. During the three months ended September 30, 2022 and the three months ended June 30, 2022, interest and dividend income included PPP interest and fee income (“PPP income”) of $19,000 and $129,000, respectively. During the three months ended September 30, 2022, the Company also recorded $16,000 in negative purchase accounting adjustments, compared to $64,000 in positive purchase accounting adjustments during the three months ended June 30, 2022.

 

The net interest margin was 3.35% for the three months ended September 30, 2022 compared to 3.24% for the three months ended June 30, 2022. The net interest margin, on a tax-equivalent basis, was 3.37% for the three months ended September 30, 2022, compared to 3.26% for the three months ended June 30, 2022. The average yield on interest-earning assets was 3.59% for the three months ended September 30, 2022, compared to 3.45% for the three months ended June 30, 2022. The average loan yield was 3.93% for the three months ended September 30, 2022, compared to 3.81% for the three months ended June 30, 2022.

 

During the three months ended September 30, 2022, average interest-earning assets increased $3.0 million, or 0.1%, to $2.4 billion, primarily due to an increase in average loans of $24.1 million, or 1.2%, partially offset by a decrease in short-term investments of $11.0 million, or 44.2%, and a decrease in average securities of $10.2 million, or 2.5%. Excluding PPP loans, average loans increased $24.6 million, or 1.3%, from the three months ended June 30, 2022 to the three months ended September 30, 2022.

 

The average cost of total funds, including non-interest bearing accounts and borrowings, increased three basis points from 0.22% for the three months ended June 30, 2022 to 0.25% for the three months ended September 30, 2022. The average cost of core deposits, including non-interest bearing demand deposits, increased four basis point to 19 basis points for the three months ended September 30, 2022, from 15 basis points for the three months ended June 30, 2022. The average cost of time deposits decreased two basis points from 0.32% for the three months ended June 30, 2022 to 0.30% for the three months ended September 30, 2022. The average cost of borrowings, including subordinated debt, increased two basis points from 4.10% for the three months ended June 30, 2022 to 4.12% for the three months ended September 30, 2022. Average demand deposits, an interest-free source of funds, increased $23.2 million, or 3.6%, from $635.7 million, or 28.0% of total average deposits, for the three months ended June 30, 2022, to $658.9 million, or 29.0% of total average deposits, for the three months ended September 30, 2022.

 

Provision for Loan Losses

 

During the three months ended September 30, 2022, the provision for loan losses increased $375,000, or 125.0%, from the three months ended June 30, 2022. The increase in the provision for loan losses was primarily due to strong loan growth during the quarter. Management continues to assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic, economic trends and their potential effect on asset quality. The Company has deferred the adoption of the Current Expected Credit Loss allowance methodology, as permitted by its classification as a Smaller Reporting Company under Securities and Exchange Commission rules. Management will continue to closely monitor portfolio conditions and re-evaluate the adequacy of the allowance.

 

 
 

The Company recorded net charge-offs of $27,000 for the three months ended September 30, 2022, as compared to net charge-offs of $48,000 for the three months ended June 30, 2022. At September 30, 2022, nonperforming loans totaled $4.4 million, or 0.22% of total loans, and total delinquency as a percentage of total loans was 0.16%.

 

Non-Interest Income

 

On a sequential quarter basis, non-interest income decreased $151,000, or 5.5%, to $2.6 million for the three months ended September 30, 2022, from $2.7 million for the three months ended June 30, 2022. Service charges and fees decreased $123,000, or 5.2%, from the three months ended June 30, 2022 to $2.2 million for the three months ended September 30, 2022. During the three months ended September 30, 2022, the Company reported unrealized losses on marketable equity securities of $235,000, compared to unrealized losses of $225,000 for the three months ended June 30, 2022. Income from bank-owned life insurance decreased $67,000, or 14.6%, from the three months ended June 30, 2022 to $391,000 for the three months ended September 30, 2022. During the three months ended September 30, 2022, the Company reported a gain of $211,000 on non-marketable equity investments, compared to a gain of $141,000 during the three months ended June 30, 2022. During the three months ended June 30, 2022, the Company reported $21,000 in other income from loan-level swap fees on commercial loans.

 

Non-Interest Expense

 

For the three months ended September 30, 2022, non-interest expense decreased $90,000, or 0.6%, to $14.3 million from the three months ended June 30, 2022. Salaries and employee benefits expense decreased $211,000, or 2.6%, to $8.0 million, furniture and equipment expense decreased $74,000, or 13.7%, and data processing expense decreased $24,000, or 3.3%. These decreases were partially offset by an increase in occupancy expense of $49,000, or 4.2%, an increase in professional fees expense of $84,000, or 11.7%, which is comprised of legal fees, audit and compliance fees, as well as other professional fees. FDIC insurance expense increased $39,000, or 16.7%, advertising expense increased $7,000, or 1.7%, other non-interest expense increased $40,000, or 1.7%. For the three months ended September 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 62.6%, compared to 65.0% for the three months ended June 30, 2022. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

Income Tax Provision

 

Income tax expense for the three months ended September 30, 2022 was $1.9 million, or an effective tax rate of 23.7%, compared to $1.9 million, or an effective tax rate of 25.2%, for three months ended June 30, 2022.

 

Net Income for the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021.

 

The Company reported net income of $6.0 million, or $0.28 per diluted share, for the three months ended September 30, 2022, compared to net income of $6.0 million, or $0.27 per diluted share, for the three months ended September 30, 2021. Return on average assets and return on average equity was 0.93% and 10.90%, respectively, for the three months ended September 30, 2022, as compared to 0.96% and 10.85%, respectively, for the three months ended September 30, 2021.

 

Net Interest Income and Net Interest Margin

 

Net interest income increased $1.5 million, or 8.1%, to $20.3 million, for the three months ended September 30, 2022, from $18.8 million for the three months ended September 30, 2021. The increase was due to an increase in interest and dividend income of $1.5 million, or 7.5%, and a decrease in interest expense of $7,000, or 0.5%. Interest expense on deposits decreased $53,000, or 4.4%, and interest expense on borrowings increased $46,000, or 18.0%. For the three months ended September 30, 2022, net interest income included $19,000 in PPP income, compared to $1.8 million for the three months ended September 30, 2021. Excluding PPP income, net interest income increased $3.3 million, or 19.2%.

 

 
 

The net interest margin was 3.35% for the three months ended September 30, 2022, compared to 3.18% for the three months ended September 30, 2021. The net interest margin, on a tax-equivalent basis, was 3.37% for the three months ended September 30, 2022, compared to 3.20% for the three months ended September 30, 2021. The increase in the net interest margin was due to an increase in average loans outstanding of $105.8 million, or 5.7%, and an increase in average securities of $50.3 million, or 14.2%, while average short-term investments, consisting of cash and cash equivalents, decreased $91.8 million, or 86.8%, from the three months ended September 30, 2021, compared to the three months ended September 30, 2022.

 

The average yield on interest-earning assets increased 16 basis points from 3.43% for the three months ended September 30, 2021 to 3.59% for the three months ended September 30, 2022. During the three months ended September 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased one basis point, from 0.26% for the three months ended September 30, 2021 to 0.25% for the three months ended September 30, 2022. The average cost of core deposits, which include non-interest-bearing demand accounts, increased three basis points, from 0.16% for the three months ended September 30, 2021 to 0.19% for the three months ended September 30, 2022. The average cost of time deposits decreased 17 basis points from 0.47% for the three months ended September 30, 2021 to 0.30% for the three months ended September 30, 2022. The average cost of borrowings decreased 13 basis points from the three months ended September 30, 2021 to the three months ended September 30, 2022. For the three months ended September 30, 2022, average demand deposits, an interest-free source of funds, increased $43.4 million, or 7.0%, to $658.9 million, or 29.0% of total average deposits, from $615.5 million, or 28.0% of total average deposits for the three months ended September 30, 2021.

 

During the three months ended September 30, 2022, average interest-earning assets increased $63.8 million, or 2.7%, to $2.4 billion compared to the three months ended September 30, 2021, primarily due to an increase in average securities of $50.3 million, or 14.2%, and an increase in average loans of $105.8 million, or 5.7%, partially offset by a decrease in short-term investments, consisting of cash and cash equivalents, of $91.8 million, or 86.8%. Excluding average PPP loans, average interest-earning assets increased $141.7 million, or 6.3%, and average loans increased $183.6 million, or 10.3%, from the three months ended September 30, 2021 to the three months ended September 30, 2022.

 

Provision for Loan Losses

 

The Company recorded a provision for loan losses of $675,000 for three months ended September 30, 2022, compared to a credit for loan losses of $100,000 for the three months ended September 30, 2021. The increase in the provision for loan losses was due to strong loan growth during the third quarter of 2022. The Company recorded net charge-offs of $27,000 for the three months ended September 30, 2022, as compared to net recoveries of $67,000 for the three months ended September 30, 2021. Management continues to assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic related factors, economic trends and their potential effect on asset quality.

 

Non-Interest Income

 

Non-interest income decreased $705,000, or 21.4%, to $2.6 million for the three months ended September 30, 2022, from $3.3 million for the three months ended September 30, 2021. During the three months ended September 30, 2022, service charges and fees on deposits increased $91,000, or 4.3%. During the same period, the Company reported a gain of $211,000 on non-marketable equity investments and an unrealized loss on marketable equity securities of $235,000, compared to unrealized gains on marketable equity securities of $11,000 during the three months ended September 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes. Income from bank-owned life insurance decreased $94,000, or 19.4%, from $485,000 for the three months ended September 30, 2021 to $391,000 for the three months ended September 30, 2022. During the three months ended September 30, 2021, mortgage banking income from the sale of fixed rate residential real estate loans totaled $665,000. The Company did not sell any loans to the secondary market during the three months ended September 30, 2022.

 

Non-Interest Expense

 

For the three months ended September 30, 2022, non-interest expense increased $325,000, or 2.3%, to $14.3 million from $14.0 million, for the three months ended September 30, 2021. The increase in non-interest expense was

 

 
 

partially due to an increase professional fees expense of $228,000, or 39.7%, which is comprised of legal fees, audit and compliance fees, as well as other professional fees. Occupancy expense increased $102,000, or 9.1%, advertising expense increased $74,000, or 21.4%, other non-interest expense increased $49,000, or 2.1%, and data processing expense increased $9,000, or 1.3%. These increases were partially offset by a decrease in salaries and benefits expense of $69,000, or 0.9%, and a decrease in furniture and equipment expense of $68,000, or 12.8%.

 

For the three months ended September 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 62.6%, compared to 63.6% for the three months ended September 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

Income Tax Provision

 

Income tax expense for the three months ended September 30, 2022 was $1.9 million, representing an effective tax rate of 23.7%, compared to $2.1 million, representing an effective tax rate of 25.9%, for three months ended September 30, 2021.

 

Net Income for the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

 

For the nine months ended September 30, 2022, the Company reported net income of $16.9 million, or $0.77 per diluted share, compared to $17.5 million, or $0.74 per diluted share, for the nine months ended September 30, 2021. Return on average assets and return on average equity were 0.88% and 10.26% for the nine months ended September 30, 2022, respectively, compared to 0.95% and 10.45% for the nine months ended September 30, 2021, respectively.

 

Net Interest Income and Net Interest Margin

 

During the nine months ended September 30, 2022, net interest income increased $3.8 million, or 6.9%, to $58.4 million, compared to $54.6 million for the nine months ended September 30, 2021. The increase in net interest income was due to an increase in interest and dividend income of $2.4 million, or 4.0%, and a decrease in interest expense of $1.4 million, or 25.6%. For the nine months ended September 30, 2022, interest and dividend income included $710,000 in PPP income, compared to $5.8 million during the nine months ended September 30, 2021. Excluding PPP income, net interest income increased $8.9 million, or 18.2% for the same period.

 

The net interest margin for the nine months ended September 30, 2022 was 3.26%, compared to 3.16% during the nine months ended September 30, 2021. The net interest margin, on a tax-equivalent basis, was 3.28% for the nine months ended September 30, 2022, compared to 3.18% for the nine months ended September 30, 2021. Excluding the PPP income, the net interest margin increased 23 basis points from 3.00% for the nine months ended September 30, 2021 to 3.23% for the nine months ended September 30, 2022.

 

The average yield on interest-earning assets increased one basis point from 3.47% for the nine months ended September 30, 2021 to 3.48% for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased nine basis points from 0.32% for the nine months ended September 30, 2021 to 0.23% for the nine months ended September 30, 2022. For the nine months ended September 30, 2022, the average cost of core deposits, including non-interest-bearing demand deposits, decreased two basis points from 0.18% for the nine months ended September 30, 2021 to 0.16% for the nine months ended September 30, 2022. The average cost of time deposits decreased 24 basis points from 0.57% for the nine months ended September 30, 2021 to 0.33% during the same period in 2022. The average cost of borrowings, which include FHLB advances and subordinated debt, increased 145 basis points from 2.79% for the nine months ended September 30, 2021 to 4.24% for the nine months ended September 30, 2022, primarily due to the issuance of subordinated debt in April 2021. For the nine months ended September 30, 2022, average demand deposits, an interest-free source of funds, increased $49.0 million, or 8.3%, from $593.6 million, or 27.6% of total average deposits, for the nine months ended September 30, 2021, to $642.6 million, or 28.4% of total average deposits.

 

 
 

During the nine months ended September 30, 2022, average interest-earning assets increased $87.3 million, or 3.8%, to $2.4 billion. The increase in average interest-earning assets was due to an increase in average loans of $38.9 million, or 2.0%, as well as an increase in average securities of $121.7 million, or 41.7%, partially offset by a decrease of $73.4 million, or 69.8%, in short-term investments, consisting of cash and cash equivalents. Excluding average PPP loans, average interest-earning assets increased $214.3 million, or 9.9%, and average loans increased $166.0 million, or 9.4%.

 

Provision for Loan Losses

 

For the nine months ended September 30, 2022, the provision for loan losses was $550,000, compared to a credit for loan losses of $1.2 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, the Company adjusted its qualitative factors related to the impact of the COVID-19 pandemic and other economic trends used in the Company’s allowance calculation, which resulted in a credit for loan losses of $1.2 million. The Company recorded net charge-offs of $129,000 for the nine months ended September 30, 2022, as compared to net charge-offs of $95,000 for the nine months ended September 30, 2021.

 

Non-Interest Income

 

For the nine months ended September 30, 2022, non-interest income was $7.7 million, compared to $8.7 million for the nine months ended September 30, 2021. During the same period, service charges and fees increased $653,000, or 10.7%. Mortgage banking income was $1.1 million for the nine months ended September 30, 2021 due to the sale of fixed rate residential real estate loans to the secondary market. During the nine months ended September 30, 2022, the Company sold $277,000 in fixed rate residential loans to the secondary market. Other income from loan-level swap fees on commercial loans decreased $33,000, or 56.9%, and income from bank-owned life insurance decreased $129,000, or 9.0%. During the nine months ended September 30, 2022, the Company reported unrealized losses on marketable equity securities of $736,000, compared to unrealized losses of $72,000 during the nine months ended September 30, 2021. During the nine months ended September 30, 2022, the Company also reported realized losses on the sale of securities of $4,000, compared to realized losses on the sale of securities of $72,000 during the nine months ended September 30, 2021. The Company reported a gain of $352,000 on non-marketable equity investments during the nine months ended September 30, 2022, compared to $546,000 during the nine months ended September 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes. During the nine months ended September 30, 2021, the Company recognized a loss on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swap on March 16, 2016.

 

Non-Interest Expense

 

For the nine months ended September 30, 2022, non-interest expense increased $2.2 million, or 5.4%, to $43.2 million, compared to $41.0 million for the nine months ended September 30, 2021. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits expense of $589,000, or 2.5%, due to normal annual salary increases as well as higher compensation incentive costs to support overall franchise growth. Other non-interest expense increased $832,000, or 13.2%, professional fees expense increased $391,000, or 22.9%, which is comprised of legal fees, audit and compliance fees, as well as other professional fees. Occupancy expense increased $254,000, or 7.2%, advertising expense increased $200,000, or 19.4%, furniture and equipment expense increased $11,000, or 0.7%, data processing expenses decreased $16,000, or 0.7%, and FDIC insurance expense decreased $3,000, or 0.4%. During the nine months ended September 30, 2021, the Company prepaid $32.5 million of FHLB borrowings resulting in a loss of $45,000. For the nine months ended September 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 65.1%, compared to 64.7% for the nine months ended September 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

 
 

Income Tax Provision

 

Income tax expense for the nine months ended September 30, 2022 was $5.4 million, representing an effective tax rate of 24.3%, compared to $6.0 million, representing an effective tax rate of 25.6%, for nine months ended September 30, 2021.

 

Balance Sheet

 

At September 30, 2022, total assets were $2.6 billion, an increase of $40.4 million, or 1.6%, from December 31, 2021. During the nine months ended September 30, 2022, cash and cash equivalents decreased $76.3 million, or 73.8%, to $27.1 million, investment securities decreased $34.1 million, or 8.0%, to $394.4 million and total loans increased $143.0 million, or 7.7%, to $2.0 billion.

 

Investments

 

At September 30, 2022, the Company’s available-for-sale securities portfolio decreased $45.7 million, or 23.5%, from $194.4 million at December 31, 2021 to $148.7 million at September 30, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $12.1 million, or 5.5%, from $222.3 million at December 31, 2021 to $234.4 million at September 30, 2022. The marketable equity securities portfolio decreased $616,000, or 5.2%, from $11.9 million at December 31, 2021 to $11.3 million at September 30, 2022. The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal.

 

Total Loans

 

At September 30, 2022, total loans were $2.0 billion, an increase of $143.0 million, or 7.7%, from December 31, 2021. Excluding PPP loans, total loans increased $165.8 million, or 9.0%, driven by an increase in commercial real estate loans of $101.7 million, or 10.4%, an increase in total commercial and industrial loans of $28.7 million, or 14.3%, an increase in residential real estate loans, which include home equity loans, of $34.6 million, or 5.3%, and a decrease in PPP loans of $22.9 million, or 90.3%, from December 31, 2021.

 

The following table is a summary of our outstanding loan balances for the periods indicated:

 

   September 30, 2022  December 31, 2021
   (Dollars in thousands)
Commercial real estate loans  $1,081,728   $979,969 
           
Residential real estate loans:          
    Residential   581,242    552,332 
    Home equity   105,470    99,759 
        Total residential real estate loans   686,712    652,091 
           
Commercial and industrial loans:          
     PPP loans   2,453    25,329 
     Commercial and industrial loans   229,996    201,340 
         Total commercial and industrial loans   232,449    226,669 
Consumer loans   4,652    4,250 
Total gross loans   2,005,541    1,862,979 
Unamortized PPP loan fees   (121)   (781)
Unamortized premiums and net deferred loans fees and costs   2,252    2,518 
Total loans  $2,007,672   $1,864,716 



 
 

Credit Quality

 

Management continues to remain attentive to any signs of deterioration in borrowers’ financial conditions and is proactive in taking the appropriate steps to mitigate risk. At September 30, 2022, nonperforming loans totaled $4.4 million, or 0.22% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. At September 30, 2022, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets, was 0.17% at September 30, 2022, compared to 0.20% at December 31, 2021. The allowance for loan losses as a percentage of total loans was 1.01% at September 30, 2022, compared to 1.06% at December 31, 2021. At September 30, 2022, the allowance for loan losses as a percentage of nonperforming loans was 456.0%, compared to 398.6%, at December 31, 2021.

 

Deposits

 

At September 30, 2022, total deposits were $2.3 billion, an increase of $30.9 million, or 1.4%, from December 31, 2021, primarily due to an increase in core deposits of $89.6 million, or 4.8%. Core deposits, which the Company defines as all deposits except time deposits, increased from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.9 billion, or 85.0% of total deposits, at September 30, 2022. Non-interest-bearing deposits increased $28.3 million, or 4.4%, to $669.6 million, interest-bearing checking accounts increased $7.8 million, or 5.4%, to $153.5 million, savings accounts increased $8.3 million, or 3.8%, to $225.9 million, and money market accounts increased $45.1 million, or 5.3%, to $895.4 million. Time deposits decreased $58.7 million, or 14.6%, from $402.0 million at December 31, 2021 to $343.3 million at September 30, 2022. The Company did not have any brokered deposits at September 30, 2022 or December 31, 2021.

 

Borrowings and Subordinated Debt

 

At September 30, 2022, total borrowings increased $20.0 million, or 90.0%, from $22.3 million at December 31, 2021, to $42.3 million. Other borrowings increased $20.0 million to $22.7 million and subordinated debt outstanding totaled $19.7 million at September 30, 2022 and $19.6 million at December 31, 2021.

 

Capital

 

At September 30, 2022, shareholders’ equity was $211.7 million, or 8.2% of total assets, compared to $223.7 million, or 8.8% of total assets, at December 31, 2021. The decrease in shareholders’ equity reflects $5.5 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $4.0 million and an increase in accumulated other comprehensive loss of $21.4 million, partially offset by net income of $16.9 million. Total shares outstanding as of September 30, 2022 were 22,246,545.

 

Capital Management

 

The Company’s book value per share was $9.52 at September 30, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, decreased $0.36, or 3.9%, from $9.21 at December 31, 2021 to $8.85 at September 30, 2022. The change in AOCI reduced the tangible book value per common share by $0.94 as of September 30, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities.  Tangible book value is a non-GAAP measure. See pages 18-21 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

The Company’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements and internal target minimal levels. At September 30, 2022, the Company’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.0%, 11.8%, and 13.8%, respectively, and the Bank’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.3%, 12.1%, and 13.1%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 6.5%, and 10.00%, respectively.

 

Dividends

 

Although the Company has historically paid quarterly dividends on its common stock and currently intends to continue to pay such dividends, the Company’s ability to pay such dividends depends on a number of factors,

 

 
 

including restrictions under federal laws and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance that dividends will continue to be paid in the future.

 

About Western New England Bancorp, Inc.

 

Western New England Bancorp, Inc. is a Massachusetts-chartered stock holding company and the parent company of Westfield Bank, CSB Colts, Inc., Elm Street Securities Corporation, WFD Securities, Inc. and WB Real Estate Holdings, LLC. Western New England Bancorp, Inc. and its subsidiaries are headquartered in Westfield, Massachusetts and operate 25 banking offices throughout western Massachusetts and northern Connecticut. To learn more, visit our website at www.westfieldbank.com.

 

Forward-Looking Statements

 

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the Company’s financial condition, liquidity, results of operations, future performance, business, measures being taken in response to the COVID-19 pandemic and the impact of the COVID-19 impact on the Company’s business. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.”  Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates.  These factors include, but are not limited to:

 

•the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19;
•actions governments, businesses and individuals take in response to the COVID-19 pandemic;
•the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines;
•the emergence of new COVID-19 variants, such as the Omicron variant, and the response thereto;
•the pace of recovery when the COVID-19 pandemic subsides;
•changes in the interest rate environment that reduce margins;
•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;
•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;
•the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions;
•changes in the securities markets which affect investment management revenues;
•increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments;
•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;
•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, except to the extent required by law.

 

 
 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Net Income and Other Data

(Dollars in thousands, except per share data)

(Unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  June 30,  March 31,  December 31,  September 30,  September 30,
   2022  2022  2022  2021  2021  2022  2021
INTEREST AND DIVIDEND INCOME:                                   
Loans  $19,543   $18,500   $17,947   $18,089   $18,670   $55,990   $56,111 
Securities   2,104    2,068    1,950    1,763    1,500    6,122    3,631 
Other investments   47    30    25    25    28    102    91 
Short-term investments   60    48    21    49    40    129    90 
Total interest and dividend income   21,754    20,646    19,943    19,926    20,238    62,343    59,923 
                                    
INTEREST EXPENSE:                                   
Deposits   1,164    990    992    1,091    1,217    3,146    4,417 
Short-term borrowings   48    10    —      —      —      58    —   
Long-term debt   —      —      —      —      —      —      458 
Subordinated debt   254    254    253    253    256    761    453 
Total interest expense   1,466    1,254    1,245    1,344    1,473    3,965    5,328 
                                    
Net interest and dividend income   20,288    19,392    18,698    18,582    18,765    58,378    54,595 
                                    
PROVISION (CREDIT) FOR LOAN LOSSES   675    300    (425)   300    (100)   550    (1,225)
                                    
Net interest and dividend income after provision (credit) for loan losses   19,613    19,092    19,123    18,282    18,865    57,828    55,820 
                                    
NON-INTEREST INCOME:                                   
Service charges and fees   2,223    2,346    2,174    2,270    2,132    6,743    6,090 
Income from bank-owned life insurance   391    458    448    486    485    1,297    1,426 
Bank-owned life insurance death benefits   —      —      —      555    —      —      —   
(Loss) gain on sales of securities, net   —      —      (4)   —      2    (4)   (72)
Unrealized (loss) gain on marketable equity securities   (235)   (225)   (276)   (96)   11    (736)   (72)
Gain on sale of mortgages   —      —      2    289    665    2    1,134 
Gain on non-marketable equity investments   211    141    —      352    —      352    546 
Loss on interest rate swap terminations   —      —      —      —      —      —      (402)
Other income   —      21    4    —      —      25    58 
Total non-interest income   2,590    2,741    2,348    3,856    3,295    7,679    8,708 
                                    
NON-INTEREST EXPENSE:                                   
Salaries and employees benefits   8,025    8,236    8,239    8,193    8,094    24,500    23,911 
Occupancy   1,226    1,177    1,363    1,144    1,124    3,766    3,512 
Furniture and equipment   465    539    543    548    533    1,547    1,536 
Data processing   707    731    723    726    698    2,161    2,177 
Professional fees   803    719    577    477    575    2,099    1,708 
FDIC insurance   273    234    286    202    273    793    796 
Advertising   419    412    399    262    345    1,230    1,030 
    Loss on prepayment of borrowings   —      —      —      —      —      —      45 
Other   2,425    2,385    2,326    2,371    2,376    7,136    6,304 
Total non-interest expense   14,343    14,433    14,456    13,923    14,018    43,232    41,019 
                                    
INCOME BEFORE INCOME TAXES   7,860    7,400    7,015    8,215    8,142    22,275    23,509 
                                    
INCOME TAX PROVISION   1,861    1,865    1,696    1,995    2,106    5,422    6,030 
NET INCOME  $5,999   $5,535   $5,319   $6,220   $6,036   $16,853   $17,479 
                                    
Basic earnings per share  $0.28   $0.25   $0.24   $0.28   $0.27   $0.77   $0.74 
Weighted average shares outstanding   21,757,027    21,991,383    22,100,076    22,097,968    22,620,387    21,947,989    23,602,978 
Diluted earnings per share  $0.28   $0.25   $0.24   $0.28   $0.27   $0.77   $0.74 
Weighted average diluted shares outstanding   21,810,036    22,025,687    22,172,909    22,203,876    22,714,429    22,001,371    23,670,347 
                                    
Other Data:                                   
Return on average assets (1)   0.93%   0.87%   0.85%   0.97%   0.96%   0.88%   0.95%
Return on average equity (1)   10.90%   10.22%   9.65%   11.22%   10.85%   10.26%   10.45%
Efficiency ratio (2)   62.63%   64.96%   67.79%   64.38%   63.58%   65.06%   64.73%
Net interest margin, on a fully tax-equivalent basis   3.37%   3.26%   3.20%   3.10%   3.20%   3.28%   3.18%
                                    

(1) Annualized.
(2) The efficiency ratio (non-GAAP) represents the ratio of operating expenses divided by the sum of net interest and dividend income and non-interest income, excluding realized and unrealized gains and losses on securities, bank-owned life insurance death benefits, gain on non-marketable equity investments, loss on interest rate swap termination and loss on prepayment of borrowings.

 

 
 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

 

   September 30,  June 30,  March 31,  December 31,  September 30,
   2022  2022  2022  2021  2021
Cash and cash equivalents  $27,113   $47,513   $62,898   $103,456   $148,496 
Available-for-sale securities, at fair value   148,716    160,925    173,910    194,352    208,030 
Held to maturity securities, at amortized cost   234,387    233,803    237,575    222,272    154,403 
Marketable equity securities, at fair value   11,280    11,453    11,643    11,896    11,970 
Federal Home Loan Bank of Boston and other  restricted stock - at cost   2,234    1,882    2,594    2,594    2,698 
                          
Loans   2,007,672    1,975,700    1,926,285    1,864,716    1,846,150 
Allowance for loan losses   (20,208)   (19,560)   (19,308)   (19,787)   (19,837)
Net loans   1,987,464    1,956,140    1,906,977    1,844,929    1,826,313 
                          
Bank-owned life insurance   74,192    73,801    73,343    72,895    74,286 
Goodwill   12,487    12,487    12,487    12,487    12,487 
Core deposit intangible   2,281    2,375    2,469    2,563    2,656 
Other assets   78,671    76,978    71,542    70,981    69,459 
TOTAL ASSETS  $2,578,825   $2,577,357   $2,555,438   $2,538,425   $2,510,798 
                          
Total deposits  $2,287,754   $2,301,972   $2,278,164   $2,256,898   $2,230,884 
Short-term borrowings   21,500    4,790    —      —      —   
Long-term debt   1,178    1,360    1,686    2,653    3,829 
Subordinated debt   19,663    19,653    19,643    19,633    19,623 
Securities pending settlement   9    —      146    —      —   
Other liabilities   37,021    34,252    36,736    35,553    38,120 
TOTAL LIABILITIES   2,367,125    2,362,027    2,336,375    2,314,737    2,292,456 
                          
TOTAL SHAREHOLDERS' EQUITY   211,700    215,330    219,063    223,688    218,342 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $2,578,825   $2,577,357   $2,555,438   $2,538,425   $2,510,798 
                          

 

 

 
 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

Other Data

(Dollars in thousands, except per share data)

(Unaudited)

 

   Three Months Ended
   September 30,  June 30,  March 31,  December 31,  September 30,
   2022  2022  2022  2021  2021
Shares outstanding at end of period   22,246,545    22,465,991    22,742,189    22,656,515    22,848,781 
                          
Operating results:                         
  Net interest income  $20,288   $19,392   $18,698   $18,582   $18,765 
  Provision (credit) for loan losses   675    300    (425)   300    (100)
  Non-interest income   2,590    2,741    2,348    3,856    3,295 
  Non-interest expense   14,343    14,433    14,456    13,923    14,018 
  Income before income provision for income taxes   7,860    7,400    7,015    8,215    8,142 
  Income tax provision   1,861    1,865    1,696    1,995    2,106 
  Net income   5,999    5,535    5,319    6,220    6,036 
                          
Performance Ratios:                         
  Net interest margin, on a fully tax-equivalent basis   3.37%   3.26%   3.20%   3.10%   3.20%
  Interest rate spread, on a fully tax-equivalent basis   3.26%   3.17%   3.10%   2.99%   3.09%
  Return on average assets   0.93%   0.87%   0.85%   0.97%   0.96%
  Return on average equity   10.90%   10.22%   9.65%   11.22%   10.85%
  Efficiency ratio (non-GAAP)   62.63%   64.96%   67.79%   64.38%   63.58%
                          
Per Common Share Data:                         
  Basic earnings per share  $0.28   $0.25   $0.24   $0.28   $0.27 
  Per diluted share   0.28    0.25    0.24    0.28    0.27 
  Cash dividend declared   0.06    0.06    0.06    0.05    0.05 
  Book value per share   9.52    9.58    9.63    9.87    9.56 
  Tangible book value per share (non-GAAP)   8.85    8.92    8.97    9.21    8.89 
                          
Asset Quality:                         
  30-89 day delinquent loans  $2,630   $1,063   $1,407   $1,102   $1,619 
  90 days or more delinquent loans   669    1,149    1,401    1,039    1,446 
  Total delinquent loans   3,299    2,212    2,808    2,141    3,065 
  Total delinquent loans as a percentage of total loans   0.16%   0.11%   0.15%   0.11%   0.17%
  Total delinquent loans as a percentage of total loans, excluding PPP   0.16%   0.11%   0.15%   0.12%   0.17%
Nonperforming loans  $4,432   $4,105   $3,988   $4,964   $5,632 
  Nonperforming loans as a percentage of total loans   0.22%   0.21%   0.21%   0.27%   0.31%
  Nonperforming loans as a percentage of total loans, excluding PPP   0.22%   0.21%   0.21%   0.27%   0.32%
  Nonperforming assets as a percentage of total assets   0.17%   0.16%   0.16%   0.20%   0.22%
  Nonperforming assets as a percentage of total assets, excluding PPP   0.17%   0.16%   0.16%   0.20%   0.23%
  Allowance for loan losses as a percentage of nonperforming loans   455.96%   476.49%   484.15%   398.61%   352.22%
  Allowance for loan losses as a percentage of total loans   1.01%   0.99%   1.00%   1.06%   1.07%
  Allowance for loan losses as a percentage of total loans, excluding PPP   1.01%   0.99%   1.01%   1.08%   1.11%
  Net loan charge-offs (recoveries)  $27   $48   $54   $350   $(67)
  Net loan charge-offs as a percentage of average assets   0.00%   0.00%   0.00%   0.01%   0.00%

 

 

 
 

 

The following tables set forth the information relating to our average balances and net interest income for the three months ended September 30, 2022, June 30, 2022, and September 30, 2021 and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 

   Three Months Ended
   September 30, 2022  June 30, 2022  September 30, 2021
   Average     Average Yield/  Average     Average Yield/  Average     Average  Yield/
   Balance  Interest(8)  Cost(9)  Balance  Interest(8)  Cost(9)  Balance  Interest(8)  Cost(9)
   (Dollars in thousands)
ASSETS:                           
Interest-earning assets                                             
Loans(1)(2)  $1,973,580   $19,665    3.95%  $1,949,464   $18,624    3.83%  $1,867,769   $18,776    3.99%
Securities(2)   404,005    2,105    2.07    414,226    2,068    2.00    353,690    1,501    1.68 
Other investments   10,037    47    1.86    9,892    30    1.22    10,525    28    1.06 
Short-term investments(3)   13,911    60    1.71    24,944    48    0.77    105,733    40    0.15 
Total interest-earning assets   2,401,533    21,877    3.61    2,398,526    20,770    3.47    2,337,717    20,345    3.45 
Total non-interest-earning assets   154,955              153,939              148,383           
     Total assets  $2,556,488             $2,552,465             $2,486,100           
                                              
LIABILITIES AND EQUITY:                                             
Interest-bearing liabilities                                             
Interest-bearing checking accounts  $139,678    123    0.35%  $137,984    105    0.31%  $115,091    96    0.33%
Savings accounts   224,112    38    0.07    224,487    48    0.09    212,711    35    0.07 
Money market accounts   911,282    743    0.32    910,801    549    0.24    813,528    562    0.27 
Time deposit accounts   339,614    260    0.30    365,383    288    0.32    445,379    524    0.47 
Total interest-bearing deposits   1,614,686    1,164    0.29    1,638,655    990    0.24    1,586,709    1,217    0.30 
Short-term borrowings and long-term debt   29,076    302    4.12    25,829    264    4.10    23,920    256    4.25 
    Total interest-bearing liabilities   1,643,762    1,466    0.35    1,664,484    1,254    0.30    1,610,629    1,473    0.36 
Non-interest-bearing deposits   658,853              635,678              615,468           
Other non-interest-bearing liabilities   35,558              35,076              39,381           
Total non-interest-bearing liabilities   694,411              670,754              654,849           
Total liabilities   2,338,173              2,335,238              2,265,478           
Total equity   218,315              217,227              220,622           
Total liabilities and equity  $2,556,488             $2,552,465             $2,486,100           
Less: Tax-equivalent adjustment (2)        (123)             (124)             (107)     
Net interest and dividend income       $20,288             $19,392             $18,765      
Net interest rate spread (4)             3.24%             3.15%             3.07%
Net interest rate spread, on a tax-equivalent basis (5)             3.26%             3.17%             3.09%
Net interest margin (6)             3.35%             3.24%             3.18%
Net interest margin, on a tax-equivalent basis (7)             3.37%             3.26%             3.20%
Ratio of average interest-earning                                             
assets to average interest-bearing liabilities             146.10%             144.10%             145.14%
                                              

 

 

 
 

 

The following tables set forth the information relating to our average balances and net interest income for the nine months ended September 30, 2022 and 2021 and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 

   Nine Months Ended September 30,
   2022  2021
  

Average

Balance

  Interest (8) 

Average Yield/

Cost(9)

 

Average

Balance

  Interest (8) 

Average Yield/

Cost(9)

   (Dollars in thousands)
ASSETS:                  
Interest-earning assets                              
Loans(1)(2)  $1,939,593   $56,354    3.88%  $1,900,652   $56,423    3.97%
Securities(2)   413,818    6,125    1.98    292,133    3,633    1.66 
Other investments   10,172    102    1.34    10,104    91    1.20 
Short-term investments(3)   31,804    129    0.54    105,246    90    0.11 
Total interest-earning assets   2,395,387    62,710    3.50    2,308,135    60,237    3.49 
Total non-interest-earning assets   150,885              146,180           
Total assets  $2,546,272             $2,454,315           
                               
LIABILITIES AND EQUITY:                              
Interest-bearing liabilities                              
Interest-bearing checking accounts  $136,645    324    0.32%  $102,106    293    0.38%
Savings accounts   222,370    122    0.07    202,170    119    0.08 
Money market accounts   900,280    1,812    0.27    752,361    1,865    0.33 
Time deposit accounts   364,506    888    0.33    499,618    2,140    0.57 
Total interest-bearing deposits   1,623,801    3,146    0.26    1,556,255    4,417    0.38 
Short-term borrowings and long-term debt   25,819    819    4.24    43,578    911    2.79 
Total interest-bearing liabilities   1,649,620    3,965    0.32    1,599,833    5,328    0.45 
Non-interest-bearing deposits   642,632              593,637           
Other non-interest-bearing liabilities   34,340              37,259           
Total non-interest-bearing liabilities   676,972              630,896           
                               
Total liabilities   2,326,592              2,230,729           
Total equity   219,680              223,586           
Total liabilities and equity  $2,546,272             $2,454,315           
Less: Tax-equivalent adjustment (2)        (367)             (314)     
Net interest and dividend income       $58,378             $54,595      
Net interest rate spread (4)             3.16%             3.03%
Net interest rate spread, on a tax-equivalent basis (5)             3.18%             3.04%
Net interest margin (6)             3.26%             3.16%
Net interest margin, on a tax-equivalent basis (7)             3.28%             3.18%
Ratio of average interest-earning                              
assets to average interest-bearing liabilities             145.21%             144.27%

 

 
(1)Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.
(2)Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income.
(3)Short-term investments include federal funds sold.
(4)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(5)Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities.
(6)Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets.
(7)Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets.
(8)Acquired loans, time deposits and borrowings are recorded at fair value at the time of acquisition. The fair value marks on the loans, time deposits and borrowings acquired accrete and amortize into net interest income over time. For the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings (decreased) increased net interest income $(16,000), $64,000 and $56,000, respectively, and for the nine months ended September 30, 2022 and September 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $87,000 and $(23,000), respectively. Excluding these items, net interest margin, on a tax-equivalent basis, for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021 was 3.37%, 3.25% and 3.19%, respectively, and the net interest margin, on a tax-equivalent basis, for the nine months ended September 30, 2022 and September 30, 2021 was 3.28% and 3.18%, respectively.
(9)Annualized.

 

 

 
 

 

Reconciliation of Non-GAAP to GAAP Financial Measures

 

The Company believes that certain non-GAAP financial measures provide information to investors that is useful in understanding its financial condition.  Because not all companies use the same calculation, this presentation may not be comparable to other similarly titled measures calculated by other companies.  A reconciliation of these non-GAAP financial measures is provided below.

 

   For the quarter ended
    9/30/2022    6/30/2022    3/31/2022    12/31/2021    9/30/2021 
              (In thousands)           
Loans (no tax adjustment)  $19,543   $18,500   $17,947   $18,089   $18,670 
Tax-equivalent adjustment   122    124    120    108    106 
   Loans (tax-equivalent basis)  $19,665   $18,624   $18,067   $18,197   $18,776 
                          
Securities (no tax adjustment)  $2,104   $2,068   $1,950   $1,763   $1,500 
Tax-equivalent adjustment   1    —      —      1    1 
   Securities (tax-equivalent basis)  $2,105   $2,068   $1,950   $1,764   $1,501 
                          
Net interest income (no tax adjustment)  $20,288   $19,392   $18,698   $18,582   $18,765 
Tax equivalent adjustment   123    124    120    109    107 
   Net interest income (tax-equivalent basis)  $20,411   $19,516   $18,818   $18,691   $18,872 
                          
Net interest income (no tax adjustment)  $20,288   $19,392   $18,698   $18,582   $18,765 
Less:                         
   Purchase accounting adjustments   (16)   64    39    (31)   56 
   Prepayment penalties and fees   99    26    21    21    8 
   PPP fee income   19    129    562    973    1,757 
Adjusted net interest income (non-GAAP)  $20,186   $19,173   $18,076   $17,619   $16,944 
                          
Average interest-earning assets  $2,401,533   $2,398,526   $2,385,932   $2,394,397   $2,337,717 
Average interest-earning assets, excluding average PPP loans  $2,398,998   $2,395,463   $2,370,852   $2,352,858   $2,257,346 
Net interest margin (no tax adjustment)   3.35%   3.24%   3.18%   3.08%   3.18%
Net interest margin, tax-equivalent   3.37%   3.26%   3.20%   3.10%   3.20%
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.34%   3.21%   3.10%   2.97%   2.98%

 

 

 
 

 

   For the quarter ended
    9/30/2022    6/30/2022    3/31/2022    12/31/2021    9/30/2021 
              (In thousands)           
Book Value per Share (GAAP)  $9.52   $9.58   $9.63   $9.87   $9.56 
Non-GAAP adjustments:                         
    Goodwill   (0.56)   (0.55)   (0.55)   (0.55)   (0.55)
    Core deposit intangible   (0.11)   (0.11)   (0.11)   (0.11)   (0.12)
Tangible Book Value per Share (non-GAAP)  $8.85   $8.92   $8.97   $9.21   $8.89 
                          
Income Before Income Taxes (GAAP)  $7,860   $7,400   $7,015   $8,215   $8,142 
Provision (credit) for loan losses   675    300    (425)   300    (100)
Income Before Taxes and Provision (non-GAAP)  $8,535   $7,700   $6,590   $8,515   $8,042 
                          
Efficiency Ratio:                         
Non-interest Expense (GAAP)  $14,343   $14,433   $14,456   $13,923   $14,018 
Non-interest Expense for Efficiency Ratio  $14,343   $14,433   $14,456   $13,923   $14,018 
                          
Net Interest Income (GAAP)  $20,288   $19,392   $18,698   $18,582   $18,765 
                          
Non-interest Income (GAAP)  $2,590   $2,741   $2,348   $3,856   $3,295 
Non-GAAP adjustments:                         
Bank-owned life insurance death benefit   —      —      —      (555)   —   
Loss (gain) on securities, net   —      —      4    —      (2)
Unrealized losses (gains) on marketable equity securities   235    225    276    96    (11)
Gain on non-marketable equity investments   (211)   (141)   —      (352)   —   
Non-interest Income for Efficiency Ratio (non-GAAP)_  $2,614   $2,825   $2,628   $3,045   $3,282 
Total Revenue for Efficiency Ratio (non-GAAP)  $22,902   $22,217   $21,326   $21,627   $22,047 
                          
Efficiency Ratio (GAAP)   62.69%   65.21%   68.69%   62.05%   63.54%
                          
Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   62.63%   64.96%   67.79%   64.38%   63.58%

 

 
 

 

   For the nine months ended
   9/30/2022  9/30/2021
   (In thousands)
Loans (no tax adjustment)  $55,990   $56,111 
Tax-equivalent adjustment   364    312 
   Loans (tax-equivalent basis)  $56,354   $56,423 
           
Securities (no tax adjustment)  $6,122   $3,631 
Tax-equivalent adjustment   3    2 
   Securities (tax-equivalent basis)  $6,125   $3,633 
           
Net interest income (no tax adjustment)  $58,378   $54,595 
Tax equivalent adjustment   367    314 
   Net interest income (tax-equivalent basis)  $58,745   $54,909 
           
Net interest income (no tax adjustment)  $58,378   $54,595 
Less:          
   Purchase accounting adjustments   87    (23)
   Prepayment penalties and fees   147    160 
   PPP fee income   710    5,795 
Adjusted net interest income (non-GAAP)  $57,434   $48,663 
           
Average interest-earning assets  $2,395,387   $2,308,135 
Average interest-earnings asset, excluding average PPP loans  $2,388,541   $2,174,274 
Net interest margin (no tax adjustment)   3.26%   3.16%
Net interest margin, tax-equivalent   3.28%   3.18%
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.22%   2.99%

 

 

 
 

 

   For the nine months ended
   9/30/2022  9/30/2021
   (In thousands)
Income Before Income Taxes (GAAP)  $22,275   $23,509 
Provision (credit) for loan losses   550    (1,225)
Income Before Taxes and Provision (non-GAAP)  $22,825   $22,284 
           
Efficiency Ratio:          
Non-interest Expense (GAAP)  $43,232   $41,019 
Non-GAAP adjustments:          
Loss on prepayment of borrowings   —      (45)
Non-interest Expense for Efficiency Ratio (non-GAAP)  $43,232   $40,974 
           
Net Interest Income (GAAP)  $58,378   $54,595 
           
Non-interest Income (GAAP)  $7,679   $8,708 
Non-GAAP adjustments:          
Loss on securities, net   4    72 
Unrealized losses on marketable equity securities   736    72 
Loss on interest rate swap termination   —      402 
Gain on non-marketable equity investments   (352)   (546)
Non-interest Income for Efficiency Ratio (non-GAAP)_  $8,067   $8,708 
Total Revenue for Efficiency Ratio (non-GAAP)  $66,445   $63,303 
           
Efficiency Ratio (GAAP)   65.45%   64.80%
           
Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   65.06%   64.73%