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 THE THREE MONTHS AND

YEAR ENDED DECEMBER 31, 2022 AND ANNOUNCES 17% INCREASE IN QUARTERLY CASH DIVIDEND

 

Westfield, Massachusetts, January 24, 2023: 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 twelve months ended December 31, 2022. For the three months ended December 31, 2022, the Company reported net income of $9.0 million, or $0.42 per diluted share, compared to net income of $6.2 million, or $0.28 per diluted share, for the three months ended December 31, 2021. On a linked quarter basis, net income was $9.0 million, or $0.42 per diluted share, as compared to net income of $6.0 million, or $0.28 per diluted share, for the three months ended September 30, 2022. For the twelve months ended December 31, 2022, net income was $25.9 million, or $1.18 per diluted share, compared to net income of $23.7 million, or $1.02 per diluted share, for the twelve months ended December 31, 2021.

 

The Company also announced today that the Board of Directors declared a quarterly cash dividend of $0.07 per share on its common stock, representing an increase of $0.01 per share, or 17%, as compared to the prior quarter. The dividend will be payable on or about February 22, 2023 to shareholders of record on February 8, 2023.

 

James Hagan, President and Chief Executive Officer, commented, “We are very pleased to report that the Company delivered record earnings for the fourth quarter along with concrete earnings for 2022, with an increasing net interest margin, strong revenue and a lower efficiency ratio derived from solid loan growth across all loan segments. As a Company, we have continued to focus on expanding and attracting new loan and core deposit relationships in our existing and expanded markets, which resulted in loan growth coming in ahead of internal targets on a quarterly and annual basis. As a result of these continuing efforts, for the year-ended December 31, 2022, average non-interest bearing demand deposits represented 28.6% of total average deposits. With our strong balance sheet, combined with rising interest rates, and with the deployment of excess liquidity to fund our loan growth, we are pleased to report a higher net interest margin of 3.44% for the fourth quarter 2022 as compared to September 30, 2022. As the Paycheck Protection Program (“PPP”) comes to an end, the Company generated year-over-year net interest income growth of 8.3%, overcoming a $6.0 million, or 89.2%, decrease in PPP interest and fee income, by increasing total loans, excluding PPP loans, by $149.7 million, or 8.1%, from December 31, 2021.”

 

Hagan concluded, “We continue to see opportunities to add to our earnings and remain committed to continued growth while managing the risks associated with inflationary pressures and potential disruption in financial markets. We will continue to remain focused on increasing efficiencies, maintaining our strong asset quality, prudently growing our loan portfolio and managing funding costs in a competitive environment.

 

This was a remarkable year for our Company as we once again continued to achieve solid annual earnings, net interest income expansion and increasing loan growth. We could not be more proud of our team who executed and delivered to achieve these excellent 2022 results. We remain optimistic about the Company’s future as we enter 2023.”

 

Key Highlights:

 

Loans and Deposits. At December 31, 2022, total loans of $2.0 billion increased $126.7 million, or 6.8%, from December 31, 2021. During the same period, excluding PPP loans, total loans increased $149.7 million, or 8.1%, from $1.9 billion at December 31, 2021. The increase in total loans was due to an increase in commercial real estate loans of $89.4 million, or 9.1%, an increase in commercial and industrial loans of $16.2 million, or 8.1%, and an increase in residential real estate loans, including home equity loans, of $43.0 million, or 6.6%.

 

1 

 

 

At December 31, 2022, total deposits were $2.2 billion, a decrease of $27.5 million, or 1.2%, from December 31, 2021. Core deposits, which the Company defines as all deposits except time deposits, decreased $37.1 million, or 2.0%, from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.8 billion, or 81.5% of total deposits at December 31, 2022. The loan to deposit ratio increased from 82.6% at December 31, 2021 to 89.3% at December 31, 2022.

 

Allowance for Loan Losses and Credit Quality. At December 31, 2022, the allowance for loan losses as a percentage of total loans and as a percentage of nonperforming loans was 1.00% and 350.0%, respectively. At December 31, 2022, nonperforming loans totaled $5.7 million, or 0.29% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. Total delinquency increased $2.3 million, or 108.8%, from $2.1 million, or 0.11% of total loans, at December 31, 2021 to $4.5 million, or 0.22% of total loans, at December 31, 2022.

 

Net Interest Margin. The net interest margin was 3.44% for the three months ended December 31, 2022 compared to 3.08% for the three months ended December 31, 2021 and 3.35% for the three months ended September 30, 2022. The net interest margin, on a tax-equivalent basis, was 3.47% for the three months ended December 31, 2022, compared to 3.10% for the three months ended December 31, 2021 and 3.37% for the three months ended September 30, 2022.

 

Repurchases. On October 13, 2022, the Company announced the completion of its previously authorized stock repurchase plan (the “2021 Plan”) pursuant to which the Company was 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. On July 26, 2022, the Board of Directors authorized a new stock repurchase plan (the “2022 Plan”), pursuant to which the Company is authorized to repurchase up to 1.1 million shares, which is approximately 5.0% of the Company’s outstanding common stock as of the date the 2022 Plan was adopted. During the three months ended December 31, 2022, the Company repurchased 78,826 shares of common stock under the 2022 Plan and during the twelve months ended December 31, 2022, the Company repurchased 720,975 shares of common stock under both the 2021 and 2022 Plans. As of December 31, 2022, there were 1,056,344 shares of common stock available for repurchase under the 2022 Plan.

 

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. The Company’s book value per share was $10.27 at December 31, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, increased $0.40, or 4.3%, from $9.21 at December 31, 2021 to $9.61 at December 31, 2022. Reflected in the book value and tangible book value changes during the year ended December 31, 2022 are the Federal Reserve’s 425 basis points interest rate increases, which resulted in significant changes in unrealized gains and losses on investment securities. Such unrealized gains and losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available-for-sale. The Company had no other-than-temporary impairment charges in its investment portfolio in 2022 or 2021. Tangible book value is a non-GAAP measure. See pages 17-20 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

Pension Plan. On October 31, 2022, the Board of Director’s previously approved termination of the Westfield Bank Defined Benefit Pension Plan (“DB Plan”) became effective, subject to regulatory approvals. Once the Company has received regulatory approval to terminate the DB Plan, which is expected in the first quarter of 2023, the Company will make an additional cash contribution during the second quarter of 2023, if necessary, in order to fully fund the DB Plan on a plan termination basis, followed by the purchase of annuity contracts to transfer its remaining liabilities under the DB Plan, for those participants who do not opt for a one-time lump sum payment. The actual amount of this cash contribution, if any, will depend upon the nature and timing of participant settlements, as well as prevailing market conditions. At December 31, 2022, the Company reversed $7.3 million in net unrealized losses recorded in accumulated other comprehensive income attributed to both the DB plan curtailment resulting from the termination of the DB Plan as well as changes in discount rates. In addition, the Company recorded a gain on curtailment of $2.8 million through non-interest income. The improvement in book value and tangible book value for the three months ended December 31, 2022 were primarily related to the termination of the DB Plan.

 

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Net Income for the Three Months Ended December 31, 2022 Compared to the Three Months Ended September 30, 2022.

 

The Company reported net income of $9.0 million, or $0.42 per diluted share, for the three months ended December 31, 2022, compared to net income of $6.0 million, or $0.28 per diluted share, for the three months ended September 30, 2022. Net interest income increased $566,000, or 2.8%, non-interest income increased $3.1 million, or 118.3%, and non-interest expense decreased $340,000, or 2.4%, while the provision for loan losses decreased $525,000, or 77.8%, during the same period. Return on average assets and return on average equity were 1.40% and 16.67%, respectively, for the three months ended December 31, 2022, compared to 0.93% and 10.90%, respectively, for the three months ended September 30, 2022.

 

Net Interest Income and Net Interest Margin

 

On a sequential quarter basis, net interest income increased $566,000, or 2.8%, to $20.9 million for the three months ended December 31, 2022, from $20.3 million for the three months ended September 30, 2022. The increase in net interest income was primarily due to an increase in interest and dividend income of $1.8 million, or 8.4%, partially offset by an increase in interest expense of $1.3 million, or 86.3%. During the three months ended December 31, 2022 and the three months ended September 30, 2022, interest and dividend income included PPP interest and fee income (“PPP income”) of $18,000 and $19,000, respectively. During the three months ended December 31, 2022 and the three months ended September 30, 2022, the Company recognized prepayment penalties of $134,000 and $99,000, respectively. During the three months ended December 31, 2022, the Company also recorded $87,000 in positive purchase accounting adjustments, compared to $16,000 in negative purchase accounting adjustments during the three months ended September 30, 2022.

 

The net interest margin was 3.44% for the three months ended December 31, 2022 compared to 3.35% for the three months ended September 30, 2022. The net interest margin, on a tax-equivalent basis, was 3.47% for the three months ended December 31, 2022, compared to 3.37% for the three months ended September 30, 2022. The average yield on interest-earning assets was 3.90% for the three months ended December 31, 2022, compared to 3.59% for the three months ended September 30, 2022. The average loan yield was 4.23% for the three months ended December 31, 2022, compared to 3.93% for the three months ended September 30, 2022.

 

During the three months ended December 31, 2022, average interest-earning assets increased $143,000 to $2.4 billion, primarily due to an increase in average loans of $21.3 million, or 1.1%, partially offset by a decrease in short-term investments of $6.3 million, or 45.3%, and a decrease in average securities of $15.5 million, or 3.8%.

 

The average cost of total funds, including non-interest bearing accounts and borrowings, increased 22 basis points from 0.25% for the three months ended September 30, 2022 to 0.47% for the three months ended December 31, 2022. The average cost of core deposits, including non-interest bearing demand deposits, increased 15 basis point to 0.34% for the three months ended December 31, 2022, from 0.19% for the three months ended September 30, 2022. The average cost of time deposits increased 35 basis points from 0.30% for the three months ended September 30, 2022 to 0.65% for the three months ended December 31, 2022. The rising interest rate environment has affected costs for both money market accounts and time deposits.

 

The average cost of borrowings, including subordinated debt, increased 17 basis points from 4.12% for the three months ended September 30, 2022 to 4.29% for the three months ended December 31, 2022. Average demand deposits, an interest-free source of funds, increased $5.0 million, or 0.8%, from $658.9 million, or 29.0% of total average deposits, for the three months ended September 30, 2022, to $663.8 million, or 29.4% of total average deposits, for the three months ended December 31, 2022.

 

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Provision for Loan Losses 

During the three months ended December 31, 2022, the provision for loan losses decreased $525,000, or 77.8%, from the three months ended September 30, 2022. 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 adoption of the Current Expected Credit Loss allowance methodology became effective for the Company on January 1, 2023. Management will continue to closely monitor portfolio conditions and re-evaluate the adequacy of the allowance.

 

The Company recorded net charge-offs of $426,000 for the three months ended December 31, 2022, as compared to net charge-offs of $27,000 for the three months ended September 30, 2022. At December 31, 2022, nonperforming loans totaled $5.7 million, or 0.29% of total loans, and total delinquency as a percentage of total loans was 0.22%.

 

Non-Interest Income 

On a sequential quarter basis, non-interest income increased $3.1 million, or 118.3%, to $5.7 million for the three months ended December 31, 2022, from $2.6 million for the three months ended September 30, 2022. Service charges and fees increased $106,000, or 4.8%, from the three months ended September 30, 2022 to $2.3 million for the three months ended December 31, 2022. Income from bank-owned life insurance increased $37,000, or 9.5%, from the three months ended September 30, 2022 to $428,000 for the three months ended December 31, 2022.

 

The termination of the DB Plan became effective October 31, 2022, subject to regulatory approvals, with final settlement occurring in the second quarter of 2023. During the three months ended December 31, 2022, the Company recorded a curtailment gain related to the DB Plan termination of $2.8 million through non-interest income. During the three months ended December 31, 2022, the Company reported unrealized gains on marketable equity securities of $19,000, compared to unrealized losses of $235,000 for the three months ended September 30, 2022. During the three months ended December 31, 2022, the Company also reported a gain of $70,000 on non-marketable equity investments, compared to a gain of $211,000 during the three months ended September 30, 2022. 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.

 

Non-Interest Expense 

For the three months ended December 31, 2022, non-interest expense decreased $340,000, or 2.4%, to $14.0 million from the three months ended September 30, 2022. Salaries and employee benefits increased $172,000, or 2.1%, to $8.2 million, primarily related to higher incentive compensation accruals, data processing expense increased $17,000, or 2.4%, and furniture and equipment expense increased $14,000, or 3.0%. These increases were partially offset by a decrease in advertising expense of $241,000, or 57.5%, a decrease in professional fees of $186,000, or 23.2%, a decrease in FDIC insurance expense of $18,000, or 6.6%, a decrease in occupancy expense of $8,000, or 0.7%, and a decrease in other non-interest expense of $90,000, or 3.7%. For the three months ended December 31, 2022, the efficiency ratio was 52.8%, compared to 62.7% for September 30, 2022. For the three months ended December 31, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 59.3%, compared to 62.6% for the three months ended September 30, 2022. See pages 17-20 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 December 31, 2022 was $3.3 million, or an effective tax rate of 26.9%, compared to $1.9 million, or an effective tax rate of 23.7%, for the three months ended September 30, 2022.

 

Net Income for the Three Months Ended December 31, 2022 Compared to the Three Months Ended December 31, 2021. 

The Company reported net income of $9.0 million, or $0.42 per diluted share, for the three months ended December 31, 2022, compared to net income of $6.2 million, or $0.28 per diluted share, for the three months ended December 31, 2021. Return on average assets and return on average equity were 1.40% and 16.67%, respectively, for the three months ended December 31, 2022, as compared to 0.97% and 11.22%, respectively, for the three months ended December 31, 2021.

 

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Net Interest Income and Net Interest Margin 

Net interest income increased $2.3 million, or 12.2%, to $20.9 million, for the three months ended December 31, 2022, from $18.6 million for the three months ended December 31, 2021. The increase in net interest income was due to an increase in interest and dividend income of $3.7 million, or 18.4%, partially offset by an increase in interest expense of $1.4 million, or 103.2%. Interest expense on deposits increased $1.1 million, or 102.2%, and interest expense on borrowings increased $272,000. Net interest income for the three months ended December 31, 2022 includes PPP income of $18,000, compared to $973,000 during the three months ended December 31, 2021. During the same period, excluding PPP income, net interest income increased $3.2 million, or 18.3%. During the three months ended December 31, 2022 and the three months ended December 31, 2021, the Company recognized prepayment penalties of $134,000 and $21,000, respectively. In addition, interest income for the three months ended December 31, 2022 includes $87,000 in positive purchase accounting adjustments, compared to $31,000 in negative accounting adjustments for the three months ended December 31, 2021.

 

The net interest margin was 3.44% for the three months ended December 31, 2022, compared to 3.08%, for the three months ended December 31, 2021. The net interest margin, on a tax-equivalent basis, was 3.47% for the three months ended December 31, 2022, compared to 3.10% for the three months ended December 31, 2021. The increase in the net interest margin was due to an increase in average loans outstanding of $144.7 million, or 7.8%, a decrease in average securities of $13.3 million, or 3.3%, and a decrease in average short-term investments, consisting of cash and cash equivalents, of $124.1 million, or 94.2%, from the three months ended December 31, 2021, compared to the three months ended December 31, 2022.

 

The average yield on interest-earning assets increased 60 basis points from 3.30% for the three months ended December 31, 2021 to 3.90% for the three months ended December 31, 2022. During the three months ended December 31, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, increased 24 basis points, from 0.23% for the three months ended December 31, 2021 to 0.47% for the three months ended December 31, 2022. The average cost of core deposits, which include non-interest-bearing demand accounts, increased 19 basis points, from 0.15% for the three months ended December 31, 2021 to 0.34% for the three months ended December 31, 2022. The average cost of time deposits increased 26 basis points from 0.39% for the three months ended December 31, 2021 to 0.65% for the three months ended December 31, 2022. The average cost of borrowings, including subordinated debt, decreased 15 basis points from 4.44% for the three months ended December 31, 2021 to 4.29% for the three months ended December 31, 2022. For the three months ended December 31, 2022, average demand deposits, an interest-free source of funds, increased $9.5 million, or 1.4%, to $663.8 million, or 29.4% of total average deposits, from $654.3 million, or 29.0% of total average deposits for the three months ended December 31, 2021.

 

During the three months ended December 31, 2022, average interest-earning assets increased $7.3 million, or 0.3%, to $2.4 billion compared to the three months ended December 31, 2021, primarily due to an increase in average loans of $144.7 million, or 7.8%, offset by a decrease in average short-term investments, consisting of cash and cash equivalents, of $124.1 million, or 94.2%, and a decrease in average securities of $13.3 million, or 3.3%. Excluding average PPP loans, average interest-earning assets increased $48.8 million, or 2.1%, and average loans increased $183.9 million, or 10.2%, from the three months ended December 31, 2021 to the three months ended December 31, 2022.

 

Provision for Loan Losses 

The Company recorded a provision for loan losses of $150,000 for three months ended December 31, 2022, compared to a provision for loan losses of $300,000 for the three months ended December 31, 2021. The decrease in the provision for loan losses was primarily due to a reduction of qualitative adjustment factors that had previously been increased in the allowance for credit losses related to the COVID-19 pandemic and the uncertainty in the economic environment. The Company recorded net charge-offs of $426,000 for the three months ended December 31, 2022, as compared to net charge-offs of $350,000 for the three months ended December 31, 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.

 

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Non-Interest Income 

Non-interest income increased $1.8 million, or 46.6%, to $5.7 million for the three months ended December 31, 2022, from $3.9 million for the three months ended December 31, 2021. During the three months ended December 31, 2021, non-interest income included the recognition of $555,000 in bank-owned life insurance (“BOLI”) death benefits. During the three months ended December 31, 2022, service charges and fees on deposits increased $59,000, or 2.6%, and income from BOLI decreased $58,000, or 11.9%, from $486,000 for the three months ended December 31, 2021 to $428,000 for the three months ended December 31, 2022. During the three months ended December 31, 2021, the Company reported $289,000 in mortgage banking income from the sale of fixed rate residential real estate loans. The Company did not sell any loans to the secondary market during the three months ended December 31, 2022.

 

On October 31, 2022, the termination of the DB Plan became effective, subject to regulatory approvals, with final settlement occurring in the second quarter of 2023. During the three months ended December 31, 2022, the Company recorded a curtailment gain related to the DB Plan termination of $2.8 million through non-interest income. Excluding the DB Plan termination curtailment gain and BOLI death benefits, non-interest income decreased $455,000, or 13.8%. During the three months ended December 31, 2022, the Company reported a gain on non-marketable equity investments of $70,000, compared to a gain of $352,000 during the three months ended December 31, 2021. In addition, the Company reported an unrealized gain on marketable equity securities of $19,000 during the three months ended December 31, 2022, compared to an unrealized loss on marketable equity securities of $96,000 during the three months ended December 31, 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.

 

Non-Interest Expense 

For the three months ended December 31, 2022, non-interest expense increased $80,000, or 0.6%, to $14.0 million, from $13.9 million for the three months ended December 31, 2021. The increase in non-interest expense was due to an increase in salaries and benefits expense of $4,000, an increase in professional fees of $140,000, or 29.4%, an increase in occupancy expense of $74,000, or 6.5%, and an increase in FDIC insurance expense of $53,000, or 26.2%. These increases were partially offset by a decrease in advertising expense of $84,000, or 32.1%, a decrease in furniture and equipment expense of $69,000, or 12.6%, a decrease in data processing expense of $2,000, or 0.3%, and a decrease in other non-interest expense of $36,000, or 1.5%.

 

For the three months ended December 31, 2022, the efficiency ratio was 52.8%, compared to 62.1% for the three months ended December 31, 2021. For the three months ended December 31, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 59.3%, compared to 64.4% for the three months ended December 31, 2021. See pages 17-20 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 December 31, 2022 was $3.3 million, representing an effective tax rate of 26.9%, compared to $2.0 million, representing an effective tax rate of 24.3%, for three months ended December 31, 2021.

 

Net Income for the Twelve Months Ended December 31, 2022 Compared to the Twelve Months Ended December 31, 2021 

For the twelve months ended December 31, 2022, the Company reported net income of $25.9 million, or $1.18 per diluted share, compared to $23.7 million, or $1.02 per diluted share, for the twelve months ended December 31, 2021. Return on average assets and return on average equity were 1.02% and 11.85% for the twelve months ended December 31, 2022, respectively, compared to 0.96% and 10.64% for the twelve months ended December 31, 2021, respectively. Excluding PPP income and the gain on defined benefit curtailment as a result of the termination of the DB Plan, income before provision and taxes increased $7.8 million, or 32.5%, from $24.0 million for the twelve months ended December 31, 2021 to $31.8 million for the twelve months ended December 31, 2022.

 

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Net Interest Income and Net Interest Margin 

During the twelve months ended December 31, 2022, net interest income increased $6.0 million, or 8.3%, to $79.2 million, compared to $73.2 million for the twelve months ended December 31, 2021. The increase in net interest income was due to an increase in interest and dividend income of $6.1 million, or 7.6%, partially offset by an increase in interest expense of $24,000, or 0.4%. For the twelve months ended December 31, 2022, the Company generated net interest income growth of 8.3%, overcoming a $6.0 million, or 89.2%, decrease in PPP income as the PPP program comes to a close. Excluding PPP income of $728,000 and $6.8 million for the twelve months ended December 31, 2022 and the twelve months ended December 31, 2021, respectively, net interest income increased $12.1 million, or 18.2% for the same period.

 

The net interest margin for the twelve months ended December 31, 2022 was 3.31%, compared to 3.14% during the twelve months ended December 31, 2021. The net interest margin, on a tax-equivalent basis, was 3.33% for the twelve months ended December 31, 2022, compared to 3.16% for the twelve months ended December 31, 2021. Excluding the PPP income, the net interest margin increased 29 basis points from 2.99% for the twelve months ended December 31, 2021 to 3.28% for the twelve months ended December 31, 2022.

 

The average yield on interest-earning assets increased 15 basis point from 3.43% for the twelve months ended December 31, 2021 to 3.58% for the twelve months ended December 31, 2022. During the twelve months ended December 31, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased one basis point from 0.30% for the twelve months ended December 31, 2021 to 0.29% for the twelve months ended December 31, 2022. For the twelve months ended December 31, 2022, the average cost of core deposits, including non-interest-bearing demand deposits, increased three basis points from 0.17% for the twelve months ended December 31, 2021 to 0.20% for the twelve months ended December 31, 2022. The average cost of time deposits decreased 12 basis points from 0.53% for the twelve months ended December 31, 2021 to 0.41% during the same period in 2022. The average cost of borrowings, which include FHLB advances and subordinated debt, increased 122 basis points from 3.04% for the twelve months ended December 31, 2021 to 4.26% for the twelve months ended December 31, 2022, due to the issuance of $20.0 million in subordinated debt in April 2021.

 

For the twelve months ended December 31, 2022, average demand deposits, an interest-free source of funds, increased $39.0 million, or 6.4%, from $609.0 million, or 28.0% of total average deposits, for the twelve months ended December 31, 2021, to $648.0 million, or 28.6% of total average deposits, for the twelve months ended December 31, 2022.

 

During the twelve months ended December 31, 2022, average interest-earning assets increased $67.1 million, or 2.9%, to $2.4 billion. The increase in average interest-earning assets was due to an increase in average loans of $65.6 million, or 3.5%, as well as an increase in average securities of $87.7 million, or 27.4%, partially offset by a decrease of $86.2 million, or 77.0%, in short-term investments, which consists of cash and cash equivalents. Excluding average PPP loans, average loans increased $170.5 million, or 9.6%, and average interest-earnings assets increased $172.0 million, or 7.7%.

 

Provision for Loan Losses 

For the twelve months ended December 31, 2022, the provision for loan losses was $700,000, compared to a credit for loan losses of $925,000 for the twelve months ended December 31, 2021. The Company recorded net charge-offs of $556,000 for the twelve months ended December 31, 2022, as compared to net charge-offs of $445,000 for the twelve months ended December 31, 2021.

 

Non-Interest Income 

For the twelve months ended December 31, 2022, non-interest income increased $768,000, or 6.1%, from $12.6 million for the twelve months ended December 31, 2021 to $13.3 million for the twelve months ended December 31, 2022. During the twelve months ended December 31, 2021, non-interest income included the recognition of $555,000 in BOLI death benefits. During the twelve months ended December 31, 2022, service charges and fees increased $712,000, or 8.5%, and mortgage banking income decreased $1.4 million from the twelve months ended December 31, 2021 to the twelve months ended December 31, 2022. In 2021, the Company sold $59.7 million in fixed rate residential real estate loans to the secondary market, compared to $277,000 in sales during the twelve months ended December 31, 2022. Other income from loan-level swap fees on commercial loans decreased $33,000, or 56.9%, and income from BOLI decreased $187,000, or 9.8%.

 

7 

 

 

On October 31, 2022, the termination of the DB Plan became effective, subject to regulatory approvals, with final settlement occurring in the second quarter of 2023. During the twelve months ended December 31, 2022, the Company recorded a curtailment gain related to the DB Plan termination of $2.8 million through non-interest income. Excluding the defined benefit curtailment gain as a result of the termination of the DB Plan and BOLI death benefits, non-interest income decreased $1.5 million, or 12.5%. During the twelve months ended December 31, 2022, the Company reported unrealized losses on marketable equity securities of $717,000, compared to unrealized losses of $168,000 during the twelve months ended December 31, 2021. During the twelve months ended December 31, 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 twelve months ended December 31, 2021. In addition, the Company reported a gain of $422,000 on non-marketable equity investments during the twelve months ended December 31, 2022, compared to $898,000 during the twelve months ended December 31, 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 twelve months ended December 31, 2021, the Company also 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 twelve months ended December 31, 2022, non-interest expense increased $2.3 million, or 4.2%, to $57.2 million, compared to $54.9 million for the twelve months ended December 31, 2021. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits expense of $511,000, or 1.6%, due to normal annual salary increases as well as higher incentive compensation costs. Other non-interest expense increased $878,000, or 10.2%, professional fees increased $531,000, or 24.3%, which is comprised of legal fees, audit and compliance fees, as well as other professional fees. Occupancy expense increased $328,000, or 7.0%, advertising expense increased $116,000, or 9.0%, and FDIC insurance expense increased $50,000, or 5.0%. These increases were partially offset by a decrease in furniture and equipment expense of $58,000, or 2.8%, and a decrease in data processing expense of $18,000, or 0.6%. During the twelve months ended December 31, 2021, the Company prepaid $32.5 million of FHLB borrowings resulting in a loss of $45,000. For the twelve months ended December 31, 2022, the efficiency ratio was 61.8%, compared to 64.1% for the twelve months ended December 31, 2021. For the twelve months ended December 31, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 63.6%, compared to 64.6% for the twelve months ended December 31, 2021. See pages 17-20 for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

 

Income Tax Provision 

Income tax expense for the twelve months ended December 31, 2022 was $8.7 million, representing an effective tax rate of 25.2%, compared to $8.0 million, representing an effective tax rate of 25.3%, for twelve months ended December 31, 2021.

 

Balance Sheet 

At December 31, 2022, total assets were $2.6 billion, an increase of $14.7 million, or 0.6%, from December 31, 2021. During the twelve months ended December 31, 2022, cash and cash equivalents decreased $73.1 million, or 70.7%, to $30.3 million, investment securities decreased $45.1 million, or 10.5%, to $383.4 million and total loans increased $126.7 million, or 6.8%, to $2.0 billion.

 

Investments  

At December 31, 2022, the Company’s available-for-sale securities portfolio decreased $47.4 million, or 24.4%, from $194.4 million at December 31, 2021 to $147.0 million at December 31, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $7.9 million, or 3.6%, from $222.3 million at December 31, 2021 to $230.2 million at December 31, 2022. The marketable equity securities portfolio decreased $5.7 million, or 47.6%, from $11.9 million at December 31, 2021 to $6.2 million at December 31, 2022. The decreases were due to principal pay downs and redemptions, as well as an increase in unrealized loss on securities available-for-sale. The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal.

 

8 

 

 

Total Loans 

At December 31, 2022, total loans were $2.0 billion, an increase of $126.7 million, or 6.8%, from December 31, 2021. Excluding PPP loans, total loans increased $149.7 million, or 8.1%, driven by an increase in commercial real estate loans of $89.4 million, or 9.1%, an increase in total commercial and industrial loans of $16.2 million, or 8.1%, an increase in residential real estate loans, which include home equity loans, of $43.0 million, or 6.6%, and a decrease in PPP loans of $23.1 million, or 91.0%, from December 31, 2021.

 

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

 

   December 31, 2022   December 31, 2021 
   (Dollars in thousands) 
     
Commercial real estate loans  $1,069,323   $979,969 
           
Residential real estate loans:          
    Residential   589,503    552,332 
    Home equity   105,557    99,759 
        Total residential real estate loans   695,060    652,091 
           
Commercial and industrial loans:          
     PPP loans   2,274    25,329 
     Commercial and industrial loans   217,574    201,340 
         Total commercial and industrial loans   219,848    226,669 
           
Consumer loans   5,045    4,250 
Total gross loans   1,989,276    1,862,979 
Unamortized PPP loan fees   (109)   (781)
Unamortized premiums and net deferred loans fees and costs   2,233    2,518 
Total loans  $1,991,400   $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 December 31, 2022, nonperforming loans totaled $5.7 million, or 0.29% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. At December 31, 2022, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets, was 0.22% at December 31, 2022, compared to 0.20% at December 31, 2021. The allowance for loan losses as a percentage of total loans was 1.00% at December 31, 2022, compared to 1.06% at December 31, 2021. At December 31, 2022, the allowance for loan losses as a percentage of nonperforming loans was 350.0%, compared to 398.6%, at December 31, 2021.

 

Deposits 

At December 31, 2022, total deposits were $2.2 billion, a decrease of $27.5 million, or 1.2%, from December 31, 2021, primarily due to a decrease in core deposits of $37.1 million, or 2.0%. Core deposits, which the Company defines as all deposits except time deposits, decreased from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $1.8 billion, or 81.5% of total deposits, at December 31, 2022. Non-interest-bearing deposits increased $4.2 million, or 0.7%, to $645.5 million, interest-bearing checking accounts increased $3.0 million, or 2.1%, to $148.7 million, savings accounts increased $4.8 million, or 2.2%, to $222.4 million, and money market accounts decreased $49.3 million, or 5.8%, to $801.1 million. Time deposits increased $9.7 million, or 2.4%, from $402.0 million at December 31, 2021 to $411.7 million at December 31, 2022.

 

9 

 

 

Borrowings and Subordinated Debt 

At December 31, 2022, total borrowings increased $39.9 million, or 178.9%, from $22.3 million at December 31, 2021, to $62.2 million. Short-term borrowings and long-term debt increased $39.9 million to $42.5 million and subordinated debt outstanding totaled $19.7 million at December 31, 2022 and $19.6 million at December 31, 2021.

 

Capital 

At December 31, 2022, shareholders’ equity was $228.1 million, or 8.9% of total assets, compared to $223.7 million, or 8.8% of total assets, at December 31, 2021. The increase in shareholders’ equity reflects net income of $25.9 million, partially offset by $6.4 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $5.3 million and an increase in accumulated other comprehensive loss of $12.7 million. Total shares outstanding as of December 31, 2022 were 22,216,789.

 

Capital Management  

The Company’s book value per share was $10.27 at December 31, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, increased $0.40, or 4.3%, from $9.21 at December 31, 2021 to $9.61 at December 31, 2022. Reflected in the book value and tangible book value changes during the year ended December 31, 2022 are the Federal Reserve’s 425 basis points interest rate increases, which resulted in significant changes in unrealized gains and losses on investment securities. Such unrealized gains and losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available-for-sale. The Company had no other-than-temporary impairment charges in its investment portfolio in 2022 or 2021. Tangible book value is a non-GAAP measure. See pages 17-20 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 December 31, 2022, the Company’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.3%, 12.2%, and 14.2%, respectively, and the Bank’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.5%, 12.5%, and 13.5%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 6.50%, 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;
   

10 

 

•the emergence of new COVID-19 variants and the response thereto;
•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.

 

11 

 

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   Twelve Months Ended 
   December 31,   September 30,   June 30,   March 31,   December 31,   December 31, 
   2022   2022   2022   2022   2021   2022   2021 
INTEREST AND DIVIDEND INCOME:                                   
Loans  $21,274   $19,543   $18,500   $17,947   $18,089   $77,264   $74,200 
Securities   2,174    2,104    2,068    1,950    1,763    8,296    5,394 
Other investments   75    47    30    25    25    177    116 
Short-term investments   62    60    48    21    49    191    139 
Total interest and dividend income   23,585    21,754    20,646    19,943    19,926    85,928    79,849 
                                    
INTEREST EXPENSE:                                   
Deposits   2,206    1,164    990    992    1,091    5,352    5,508 
Short-term borrowings   272    48    10    —    —    330    — 
Long-term debt   —    —    —    —    —    —    458 
Subordinated debt   253    254    254    253    253    1,014    706 
Total interest expense   2,731    1,466    1,254    1,245    1,344    6,696    6,672 
                                    
Net interest and dividend income   20,854    20,288    19,392    18,698    18,582    79,232    73,177 
                                    
PROVISION (CREDIT) FOR LOAN LOSSES   150    675    300    (425)   300    700    (925)
                                    
Net interest and dividend income after provision (credit) for loan losses   20,704    19,613    19,092    19,123    18,282    78,532    74,102 
                                    
NON-INTEREST INCOME:                                   
Service charges and fees   2,329    2,223    2,346    2,174    2,270    9,072    8,360 
Income from bank-owned life insurance   428    391    458    448    486    1,725    1,912 
Bank-owned life insurance death benefits   —    —    —    —    555    —    555 
Loss on sales of securities, net   —    —    —    (4)   —    (4)   (72)
Unrealized gain (loss) on marketable equity securities   19    (235)   (225)   (276)   (96)   (717)   (168)
Gain on sale of mortgages   —    —    —    2    289    2    1,423 
Gain on non-marketable equity investments   70    211    141    —    352    422    898 
Loss on interest rate swap terminations   —    —    —    —    —    —    (402)
Gain on defined benefit plan curtailment   2,807    —    —    —    —    2,807    — 
Other income   —    —    21    4    —    25    58 
Total non-interest income   5,653    2,590    2,741    2,348    3,856    13,332    12,564 
                                    
NON-INTEREST EXPENSE:                                   
Salaries and employees benefits   8,197    8,025    8,236    8,239    8,193    32,697    32,186 
Occupancy   1,218    1,226    1,177    1,363    1,144    4,984    4,656 
Furniture and equipment   479    465    539    543    548    2,026    2,084 
Data processing   724    707    731    723    726    2,885    2,903 
Professional fees   617    803    719    577    477    2,716    2,185 
FDIC insurance   255    273    234    286    202    1,048    998 
Advertising   178    419    412    399    262    1,408    1,292 
    Loss on prepayment of borrowings   —    —    —    —    —    —    45 
Other   2,335    2,425    2,385    2,326    2,371    9,471    8,593 
Total non-interest expense   14,003    14,343    14,433    14,456    13,923    57,235    54,942 
                                    
INCOME BEFORE INCOME TAXES   12,354    7,860    7,400    7,015    8,215    34,629    31,724 
                                    
INCOME TAX PROVISION   3,320    1,861    1,865    1,696    1,995    8,742    8,025 
NET INCOME  $9,034   $5,999   $5,535   $5,319   $6,220   $25,887   $23,699 
                                    
Basic earnings per share  $0.42   $0.28   $0.25   $0.24   $0.28   $1.18   $1.02 
Weighted average shares outstanding   21,676,892    21,757,027    21,991,383    22,100,076    22,097,968    21,879,657    23,223,633 
Diluted earnings per share  $0.42   $0.28   $0.25   $0.24   $0.28   $1.18   $1.02 
Weighted average diluted shares outstanding   21,751,409    21,810,036    22,025,687    22,172,909    22,203,876    21,938,323    23,300,637 
                                    
Other Data:                                   
Return on average assets (1)   1.40%   0.93%   0.87%   0.85%   0.97%   1.02%   0.96%
Return on average equity (1)   16.67%   10.90%   10.22%   9.65%   11.22%   11.85%   10.64%
Efficiency ratio   52.83%   62.69%   65.21%   68.69%   62.05%   61.83%   64.08%
Adjusted efficiency ratio (2)   59.31%   62.63%   64.96%   67.79%   64.38%   63.55%   64.64%
Net interest margin   3.44%   3.35%   3.24%   3.18%   3.08%   3.31%   3.14%
Net interest margin, on a fully tax-equivalent basis   3.47%   3.37%   3.26%   3.20%   3.10%   3.33%   3.16%

 

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

12 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets  

(Dollars in thousands) 

(Unaudited)

 

   December 31,   September 30,   June 30,   March 31,   December 31, 
   2022   2022   2022   2022   2021 
Cash and cash equivalents  $30,342   $27,113   $47,513   $62,898   $103,456 
Available-for-sale securities, at fair value   146,997    148,716    160,925    173,910    194,352 
Held to maturity securities, at amortized cost   230,168    234,387    233,803    237,575    222,272 
Marketable equity securities, at fair value   6,237    11,280    11,453    11,643    11,896 
Federal Home Loan Bank of Boston and other  restricted stock - at cost   3,352    2,234    1,882    2,594    2,594 
                          
Loans   1,991,400    2,007,672    1,975,700    1,926,285    1,864,716 
Allowance for loan losses   (19,931)   (20,208)   (19,560)   (19,308)   (19,787)
Net loans   1,971,469    1,987,464    1,956,140    1,906,977    1,844,929 
                          
Bank-owned life insurance   74,620    74,192    73,801    73,343    72,895 
Goodwill   12,487    12,487    12,487    12,487    12,487 
Core deposit intangible   2,188    2,281    2,375    2,469    2,563 
Other assets   75,290    78,671    76,978    71,542    70,981 
TOTAL ASSETS  $2,553,150   $2,578,825   $2,577,357   $2,555,438   $2,538,425 
                          
Total deposits  $2,229,443   $2,287,754   $2,301,972   $2,278,164   $2,256,898 
Short-term borrowings   41,350    21,500    4,790    —    — 
Long-term debt   1,178    1,178    1,360    1,686    2,653 
Subordinated debt   19,673    19,663    19,653    19,643    19,633 
Securities pending settlement   133    9    —    146    — 
Other liabilities   33,230    37,021    34,252    36,736    35,553 
TOTAL LIABILITIES   2,325,007    2,367,125    2,362,027    2,336,375    2,314,737 
                          
TOTAL SHAREHOLDERS’ EQUITY   228,143    211,700    215,330    219,063    223,688 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $2,553,150   $2,578,825   $2,577,357   $2,555,438   $2,538,425 

13 

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES

Other Data 

(Dollars in thousands, except per share data) 

(Unaudited)

 

   Three Months Ended 
   December 31,   September 30,   June 30,   March 31,   December 31, 
   2022   2022   2022   2022   2021 
Shares outstanding at end of period   22,216,789    22,246,545    22,465,991    22,742,189    22,656,515 
                          
Operating results:                         
  Net interest income  $20,854   $20,288   $19,392   $18,698   $18,582 
  Provision (credit) for loan losses   150    675    300    (425)   300 
  Non-interest income   5,653    2,590    2,741    2,348    3,856 
  Non-interest expense   14,003    14,343    14,433    14,456    13,923 
  Income before income provision for income taxes   12,354    7,860    7,400    7,015    8,215 
  Income tax provision   3,320    1,861    1,865    1,696    1,995 
  Net income   9,034    5,999    5,535    5,319    6,220 
                          
Performance Ratios:                         
  Net interest margin, on a fully tax-equivalent basis   3.47%   3.37%   3.26%   3.20%   3.10%
  Interest rate spread, on a fully tax-equivalent basis   3.26%   3.26%   3.17%   3.10%   2.99%
  Return on average assets   1.40%   0.93%   0.87%   0.85%   0.97%
  Return on average equity   16.67%   10.90%   10.22%   9.65%   11.22%
  Adjusted efficiency ratio (non-GAAP) (1)   59.31%   62.63%   64.96%   67.79%   64.38%
                          
Per Common Share Data:                         
  Basic earnings per share  $0.42   $0.28   $0.25   $0.24   $0.28 
  Per diluted share   0.42    0.28    0.25    0.24    0.28 
  Cash dividend declared   0.06    0.06    0.06    0.06    0.05 
  Book value per share   10.27    9.52    9.58    9.63    9.87 
  Tangible book value per share (non-GAAP)   9.61    8.85    8.92    8.97    9.21 
                          
Asset Quality:                         
  30-89 day delinquent loans  $2,578   $2,630   $1,063   $1,407   $1,102 
  90 days or more delinquent loans   1,891    669    1,149    1,401    1,039 
  Total delinquent loans   4,469    3,299    2,212    2,808    2,141 
  Total delinquent loans as a percentage of total loans   0.22%   0.16%   0.11%   0.15%   0.11%
  Total delinquent loans as a percentage of total loans, excluding PPP   0.22%   0.16%   0.11%   0.15%   0.12%
Nonperforming loans  $5,694   $4,432   $4,105   $3,988   $4,964 
  Nonperforming loans as a percentage of total loans   0.29%   0.22%   0.21%   0.21%   0.27%
  Nonperforming loans as a percentage of total loans, excluding PPP   0.29%   0.22%   0.21%   0.21%   0.27%
  Nonperforming assets as a percentage of total assets   0.22%   0.17%   0.16%   0.16%   0.20%
  Nonperforming assets as a percentage of total assets, excluding PPP   0.22%   0.17%   0.16%   0.16%   0.20%
  Allowance for loan losses as a percentage of nonperforming loans   350.04%   455.96%   476.49%   484.15%   398.61%
  Allowance for loan losses as a percentage of total loans   1.00%   1.01%   0.99%   1.00%   1.06%
  Allowance for loan losses as a percentage of total loans, excluding PPP   1.00%   1.01%   0.99%   1.01%   1.08%
  Net loan charge-offs   $426   $27   $48   $54   $350 
  Net loan charge-offs as a percentage of average loans   0.02%   0.00%   0.00%   0.00%   0.02%

 

 

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

14 

 

The following tables set forth the information relating to our average balances and net interest income for the three months ended December 31, 2022, September 30, 2022, and December 31, 2021 and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 

   Three Months Ended 
   December 31, 2022   September 30, 2022   December 31, 2021 
   Average
Balance		   Interest   Average Yield/
Cost(8)		   Average
Balance		   Interest   Average Yield/
Cost(8)		   Average
Balance		   Interest   Average  
Yield/
Cost(8)		 
   (Dollars in thousands) 
ASSETS:                                    
Interest-earning assets                                             
Loans(1)(2)  $1,994,874   $21,403    4.26%  $1,973,580   $19,665    3.95%  $1,850,162   $18,197    3.90%
Securities(2)   388,529    2,175    2.22    404,005    2,105    2.07%   401,811    1,764    1.74 
Other investments   10,638    75    2.80    10,037    47    1.86%   10,654    25    0.93 
Short-term investments(3)   7,635    62    3.22    13,911    60    1.71%   131,770    49    0.15 
Total interest-earning assets   2,401,676    23,715    3.92    2,401,533    21,877    3.61%   2,394,397    20,035    3.32 
Total non-interest-earning assets   159,042              154,955              149,151           
Total assets  $2,560,718             $2,556,488             $2,543,548           
                                              
LIABILITIES AND EQUITY:                                             
Interest-bearing liabilities                                             
Interest-bearing checking accounts  $149,928    206    0.55%  $139,678    123    0.35%  $132,028    106    0.32%
Savings accounts   221,964    39    0.07    224,112    38    0.07%   214,961    36    0.07 
Money market accounts   862,523    1,375    0.63    911,282    743    0.32%   849,023    546    0.26 
Time deposit accounts   359,555    586    0.65    339,614    260    0.30%   410,149    403    0.39 
Total interest-bearing deposits   1,593,970    2,206    0.55    1,614,686    1,164    0.29%   1,606,161    1,091    0.27 
Short-term borrowings and long-term debt   48,579    525    4.29    29,076    302    4.12%   22,614    253    4.44 
Total interest-bearing liabilities   1,642,549    2,731    0.66    1,643,762    1,466    0.35%   1,628,775    1,344    0.33 
Non-interest-bearing deposits   663,814              658,853              654,334           
Other non-interest-bearing liabilities   39,399              35,558              40,428           
Total non-interest-bearing liabilities   703,213              694,411              694,762           
Total liabilities   2,345,762              2,338,173              2,323,537           
Total equity   214,956              218,315              220,011           
Total liabilities and equity  $2,560,718             $2,556,488             $2,543,548           
Less: Tax-equivalent adjustment (2)        (130)             (123)             (109)     
Net interest and dividend income       $20,854             $20,288             $18,582      
Net interest rate spread (4)             3.24%             3.24%             2.97%
Net interest rate spread, on a tax-equivalent basis (5)             3.26%             3.26%             2.99%
Net interest margin (6)             3.44%             3.35%             3.08%
Net interest margin, on a tax-equivalent basis (7)             3.47%             3.37%             3.10%
Ratio of average interest-earning assets to average interest-bearing liabilities             146.22%             146.10%             147.01%

15

 

The following tables set forth the information relating to our average balances and net interest income for the twelve months ended December 31, 2022 and 2021 and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 

   Twelve Months Ended December 31,
   2022  2021 
  

Average 

Balance

   Interest  

Average Yield/

Cost

  

Average

Balance

   Interest  

Average Yield/

Cost

 
   (Dollars in thousands) 
ASSETS:                              
Interest-earning assets                              
Loans(1)(2)  $1,953,527   $77,758    3.98%  $1,887,926   $74,620    3.95%
Securities(2)   407,444    8,299    2.04    319,778    5,398    1.69 
Other investments   10,289    177    1.72    10,242    115    1.12 
Short-term investments(3)   25,712    191    0.74    111,931    139    0.12 
Total interest-earning assets   2,396,972    86,425    3.61    2,329,877    80,272    3.45 
Total non-interest-earning assets   152,941              147,980           
Total assets  $2,549,913             $2,477,857           
                               
LIABILITIES AND EQUITY:                              
Interest-bearing liabilities                              
Interest-bearing checking accounts  $139,993    530    0.38%  $109,648    399    0.36%
Savings accounts   222,267    161    0.07    205,394    154    0.07 
Money market accounts   890,763    3,187    0.36    776,725    2,412    0.31 
Time deposit accounts   363,258    1,474    0.41    477,067    2,543    0.53 
Total interest-bearing deposits   1,616,281    5,352    0.33    1,568,834    5,508    0.35 
Short-term borrowings and long-term debt   31,556    1,344    4.26    38,294    1,164    3.04 
Total interest-bearing liabilities   1,647,837    6,696    0.41    1,607,128    6,672    0.42 
Non-interest-bearing deposits   647,971              608,936           
Other non-interest-bearing liabilities   35,615              39,108           
Total non-interest-bearing liabilities   683,586              648,044           
                               
Total liabilities   2,331,423              2,255,172           
Total equity   218,490              222,685           
Total liabilities and equity  $2,549,913             $2,477,857           
Less: Tax-equivalent adjustment (2)        (497)             (423)     
Net interest and dividend income       $79,232             $73,177      
Net interest rate spread (4)             3.18%             3.01%
Net interest rate spread, on a tax-equivalent basis (5)             3.20%             3.03%
Net interest margin (6)             3.31%             3.14%
Net interest margin, on a tax-equivalent basis (7)             3.33%             3.16%
Ratio of average interest-earning assets to average interest-bearing liabilities             145.46%             144.97%

 

 

(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)Annualized.

 

16

 

 

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 
   12/31/2022   9/30/2022   6/30/2022   3/31/2022   12/31/2021 
   (In thousands) 
Loans (no tax adjustment)  $21,274   $19,543   $18,500   $17,947   $18,089 
Tax-equivalent adjustment   129    122    124    120    108 
Loans (tax-equivalent basis)  $21,403   $19,665   $18,624   $18,067   $18,197 
                          
Securities (no tax adjustment)  $2,174   $2,104   $2,068   $1,950   $1,763 
Tax-equivalent adjustment   1    1    —    —    1 
Securities (tax-equivalent basis)  $2,175   $2,105   $2,068   $1,950   $1,764 
                          
Net interest income (no tax adjustment)  $20,854   $20,288   $19,392   $18,698   $18,582 
Tax equivalent adjustment   130    123    124    120    109 
Net interest income (tax-equivalent basis)  $20,984   $20,411   $19,516   $18,818   $18,691 
                          
Net interest income (no tax adjustment)  $20,854   $20,288   $19,392   $18,698   $18,582 
Less:                         
Purchase accounting adjustments   87    (16)   64    39    (31)
Prepayment penalties and fees   134    99    26    21    21 
PPP fee income   18    19    129    562    973 
Adjusted net interest income (non-GAAP)  $20,615   $20,186   $19,173   $18,076   $17,619 
                          
Average interest-earning assets  $2,401,676   $2,401,533   $2,398,526   $2,385,932   $2,394,397 
Average interest-earning assets, excluding average PPP loans  $2,399,297   $2,398,998   $2,395,463   $2,370,852   $2,352,858 
Net interest margin (no tax adjustment)   3.44%   3.35%   3.24%   3.18%   3.08%
Net interest margin, tax-equivalent   3.47%   3.37%   3.26%   3.20%   3.10%
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.41%   3.34%   3.21%   3.10%   2.97%

 

17

 
   For the quarter ended 
   12/31/2022   9/30/2022   6/30/2022   3/31/2022   12/31/2021 
   (In thousands) 
                     
Book Value per Share (GAAP)  $10.27   $9.52   $9.58   $9.63   $9.87 
Non-GAAP adjustments:                         
Goodwill   (0.56)   (0.56)   (0.55)   (0.55)   (0.55)
Core deposit intangible   (0.10)   (0.11)   (0.11)   (0.11)   (0.11)
Tangible Book Value per Share (non-GAAP)  $9.61   $8.85   $8.92   $8.97   $9.21 
                          
Income Before Income Taxes (GAAP)  $12,354   $7,860   $7,400   $7,015   $8,215 
Provision (credit) for loan losses   150    675    300    (425)   300 
PPP income   (18)   (19)   (129)   (562)   (973)
Gain on defined benefit plan curtailment   (2,807)   —    —    —    — 
Income Before Taxes, Provision, PPP Income and Defined Benefit Curtailment (non-GAAP)  $9,679   $8,516   $7,571   $6,028   $7,542 
                          
Efficiency Ratio:                         
Non-interest Expense (GAAP)  $14,003   $14,343   $14,433   $14,456   $13,923 
Non-interest Expense for Adjusted Efficiency Ratio  $14,003   $14,343   $14,433   $14,456   $13,923 
                          
Net Interest Income (GAAP)  $20,854   $20,288   $19,392   $18,698   $18,582 
                          
Non-interest Income (GAAP)  $5,653   $2,590   $2,741   $2,348   $3,856 
Non-GAAP adjustments:                         
Bank-owned life insurance death benefit   —    —    —    —    (555)
Loss (gain) on securities, net   —    —    —    4    — 
Unrealized (gains) losses on marketable equity securities   (19)   235    225    276    96 
Gain on non-marketable equity investments   (70)   (211)   (141)   —    (352)
Gain on defined benefit plan curtailment   (2,807)   —    —    —    — 
Non-interest Income for Adjusted Efficiency Ratio (non-GAAP)  $2,757   $2,614   $2,825   $2,628   $3,045 
Total Revenue for Adjusted Efficiency Ratio (non-GAAP)  $23,611   $22,902   $22,217   $21,326   $21,627 
                          
Efficiency Ratio (GAAP)   52.83%   62.69%   65.21%   68.69%   62.05%
                          
Adjusted Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   59.31%   62.63%   64.96%   67.79%   64.38%

18

 
   For the twelve months ended 
   12/31/2022   12/31/2021 
   (In thousands) 
Loans (no tax adjustment)  $77,264   $74,200 
Tax-equivalent adjustment   494    420 
Loans (tax-equivalent basis)  $77,758   $74,620 
           
Securities (no tax adjustment)  $8,296   $5,394 
Tax-equivalent adjustment   3    4 
Securities (tax-equivalent basis)  $8,299   $5,398 
           
Net interest income (no tax adjustment)  $79,232   $73,177 
Tax equivalent adjustment   497    424 
Net interest income (tax-equivalent basis)  $79,729   $73,601 
           
Net interest income (no tax adjustment)  $79,232   $73,177 
Less:          
Purchase accounting adjustments   175    (55)
Prepayment penalties and fees   281    181 
PPP fee income   728    6,769 
Adjusted net interest income (non-GAAP)  $78,048   $66,282 
           
Average interest-earning assets  $2,396,972   $2,329,877 
Average interest-earnings asset, excluding average PPP loans  $2,391,252   $2,219,286 
Net interest margin (no tax adjustment)   3.31%   3.14%
Net interest margin, tax-equivalent   3.33%   3.16%
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.26%   2.99%

19

 
   For the twelve months ended 
   12/31/2022   12/31/2021 
   (In thousands) 
Income Before Income Taxes (GAAP)  $34,629   $31,724 
Provision (credit) for loan losses   700    (925)
PPP income   (728)   (6,769)
Gain on defined benefit plan curtailment   (2,807)   — 
Income Before Taxes, Provision, PPP Income and Defined Benefit Curtailment (non-GAAP)  $31,794   $24,030 
           
Adjusted Efficiency Ratio:          
Non-interest Expense (GAAP)  $57,235   $54,942 
Non-GAAP adjustments:          
Loss on prepayment of borrowings   —    (45)
Non-interest Expense for Adjusted Efficiency Ratio (non-GAAP)  $57,235   $54,897 
           
Net Interest Income (GAAP)  $79,232   $73,177 
           
Non-interest Income (GAAP)  $13,332   $12,564 
Non-GAAP adjustments:          
Loss on securities, net   4    72 
Unrealized losses on marketable equity securities   717    168 
Loss on interest rate swap termination   —    402 
Gain on non-marketable equity investments   (422)   (898)
Gain on defined benefit plan curtailment   (2,807)   — 
Non-interest Income for Adjusted Efficiency Ratio (non-GAAP)  $10,824   $12,308 
Total Revenue for Adjusted Efficiency Ratio (non-GAAP)  $90,056   $85,485 
           
Efficiency Ratio (GAAP)   61.83%   64.08%
           
Adjusted Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   63.55%   64.64%

20