Press Release

Western New England Bancorp, Inc. Reports Results for Three and Nine Months Ended September 30, 2017 and Declares Quarterly Cash Dividend

Company Release - 10/24/2017 4:20 PM ET

WESTFIELD, Mass., Oct. 24, 2017 (GLOBE NEWSWIRE) -- Western New England Bancorp, Inc. (the “Company” or “WNEB”) (Nasdaq:WNEB), the holding company for Westfield Bank (the “Bank”), today announced results of operations for the three and nine months ended September 30, 2017.   The third quarter financial results for 2017 reflect a full quarter of combined operations following the completion of the merger of Chicopee Bancorp, Inc. (“Chicopee”) into WNEB on October 21, 2016.  The third quarter financial results for 2016 reflect the pre-merger operations of the Company, however does include nonrecurring merger-related charges. As a result, the Company’s 2017 third quarter may not be comparable to financial results for the third quarter of 2016.

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.03 per share, payable on or about November 22, 2017 to shareholders of record on November 8, 2017. 

James C. Hagan, President and CEO stated, “October 21, 2017 marked the one year anniversary of the merger between the Company and Chicopee Bancorp. We would like to thank our Board of Directors and employees for their commitment and hard work over the last year. Our staff never lost sight that the execution of the merger was essential for our overall success. We would also like to thank our customers and shareholders for their support. Our focus will continue to be on leveraging the merger to make a meaningful impact in our market area, grow the balance sheet, and improve our financial performance. We are confident that we will continue to provide a strong and increasing value proposition to our shareholders, customers and community.”

Financial Highlights(1):

  • The Company recorded net income of $3.8 million, or $0.13 per diluted share for the three months ended September 30, 2017, compared to $628,000, or $0.04 per diluted share for the comparable 2016 period.  Adjusting for nonrecurring merger related expenses and tax benefits, core earnings for the three months ended September 30, 2017 totaled $3.8 million, or $0.13 per diluted share, compared to $1.4 million, or $0.09 per diluted share for the three months ended September 30, 2016. For the nine months ended September 30, 2017, net income was $12.7 million, or $0.42 per diluted share, compared to $3.0 million, or $0.17 per diluted share for the comparable 2016 period.  Core earnings totaled $11.3 million, or $0.38 per diluted share, compared to $4.7 million, or $0.27 per diluted share, for the nine months ended September 30, 2016.

  • Return on average assets and return on average equity were 0.73% and 5.98%, respectively, for the three months ended September 30, 2017, as compared to 0.19% and 1.72%, respectively, for the three months ended September 30, 2016. On a core basis, return on average assets and return on average equity were 0.73% and 5.98%, respectively, for the three months ended September 30, 2017, as compared to 0.42% and 3.85%, respectively, for the three months ended September 30, 2016.

(1)    Please refer to the “Reconciliation of non-GAAP to GAAP Financial Measures” on page 14 for further details.

  • Loan growth continued favorably with total loans increasing $52.3 million, or 3.3%, during the nine months ended September 30, 2017, net of an expected $7.5 million payoff related to a completed commercial real estate construction project during the first quarter of 2017. Specifically, commercial and industrial loans increased $22.1 million, or 9.9%, from December 31, 2016 to September 30, 2017.

  • Deposits increased $19.9 million, or 1.3%, during the three months ended September 30, 2017 and decreased $2.9 million, or 0.2%, during the nine months ended September 30, 2017. These changes reflect both the cyclical nature of our commercial and municipal deposit balances, and our desire to reduce higher cost non-core deposits and focus on increasing lower cost, core deposit relationships.

  • Tangible book value per share was $7.66 at September 30, 2017, an increase of $0.41 per share, or 5.7%, from $7.25 at December 31, 2016.

Net Income for the Three Months Ended September 30, 2017

The Company reported net income for the three months ended September 30, 2017 of $3.8 million, or $0.13 per diluted share, compared to $3.8 million, or $0.12 per diluted share, for the three months ended June 30, 2017. The results for the three months ended June 30, 2017 include $174,000 in tax benefits in connection with the exercise of stock options, which favorably impacted the income tax provision. Also included in the three months ended June 30, 2017 were $149,000 in after-tax merger related costs. Excluding these tax benefits and merger related costs, net income was $3.7 million, or $0.12 per diluted share, for the three months ended June 30, 2017, compared to $3.8 million, or $0.13 per diluted share, for the three months ended September 30, 2017.

Net Interest Income and Net Interest Margin

On a sequential quarter basis, net interest income increased $53,000, or 0.4%, to $14.8 million, for the three months ended September 30, 2017, from $14.7 million, for the three months ended June 30, 2017. The increase in net interest income was due to an increase of $189,000 or 1.0%, in interest and dividend income, partially offset by an increase in interest expense of $136,000, or 3.8%. The increase in interest expense was primarily due to an increase in interest expense on borrowings as well as the average cost of time deposits. The overall average cost of interest-bearing liabilities increased three basis points. For the three months ended September 30, 2017, average demand deposits of $300.8 million, an interest free source of funds, represented 20.0% of average total deposits, compared to $308.3 million, or 20.4% of average total deposits, at June 30, 2017. 

Net interest margin was 3.09% for the three months ended September 30, 2017, down from 3.11%, for the three months ended June 30, 2017 and up from 2.65% for the three months ended September 30, 2016. The amortization of purchase accounting adjustments related to the merger increased net interest income by $448,000 during the three months ended September 30, 2017. Excluding the purchase accounting adjustments, the net interest margin was 3.00% for the three months ended September 30, 2017.

Provision for Loan Losses

The provision for loan losses decreased $150,000, or 42.9%, to $200,000, for the three months ended September 30, 2017, compared to $350,000 for the three months ended June 30, 2017. The Company recorded net charge-offs of $99,000 for the three months ended September 30, 2017 as compared to $159,000 for the three months ended June 30, 2017.

Non-Interest Income

On a sequential quarter basis, non-interest income increased $337,000, or 16.2%, to $2.4 million, or 0.46% of average assets, for the three months ended September 30, 2017 from $2.1 million, or 0.40% of average assets, for the three month ended June 30, 2017. The increase was primarily due to an increase in service charges and fees of $165,000, or 10.7%, a $67,000 gain on the sale of other real estate owned (“OREO”), an increase in other income of $111,000, and an increase of $24,000, or 52.2%, in pre-tax realized gains on the sale of securities. These increases were partially offset by a decrease of $30,000, or 6.3%, in income from bank owned life insurance (“BOLI”). The third quarter is typically a high seasonal non-interest income point for the Company. The three months ended September 30, 2017 includes approximately $139,000 in seasonal fee income.

Non-Interest Expense

For the three months ended September 30, 2017, non-interest expense decreased $140,000, or 1.2%, to $11.2 million, or 2.14% of average assets, from $11.3 million, or 2.18% of average assets, for the three months ended June 30, 2017. The decrease in non-interest expense was primarily due to a decrease of $216,000 in merger related expenses, an $85,000, or 5.2%, decrease in other non-interest expense, a decrease in advertising expense of $57,000, or 14.8%, a decrease in professional fees of $39,000, or 5.7%, a decrease in occupancy expense of $26,000, or 2.8%, and a decrease in FDIC insurance expense of $23,000, or 12.4%. These decreases were partially offset by an increase in salaries and benefits of $251,000, or 4.0%, primarily due to higher incentive compensation accruals recorded during the quarter, an increase in furniture and equipment expense of $44,000, or 12.0%, and an increase in data processing expense of $11,000, or 1.6%.

The efficiency ratio, excluding merger expenses, was 65.4% for the three months ended September 30, 2017, compared to 66.1% for the three months ended June 30, 2017 and 76.6% for the three months ended September 30, 2016.

Income Tax Provision

The effective tax rate for the three months ended September 30, 2017 was 34.8%, compared to 27.4% for the three months ended June 30, 2017 and 40.2% for the three months ended September 30, 2016. As previously mentioned, the three months ended June 30, 2017 includes tax benefits of $174,000 in connection with stock option exercises which favorably impacted the income tax provision.

Net Income for the Nine Months Ended September 30, 2017

For the nine months ended September 30, 2017, the Company reported net income of $12.7 million, or $0.42 per diluted share, compared to $3.0 million, or $0.17 per diluted share, for the nine months ended September 30, 2016. The financial results for the nine months ended September 30, 2017 reflect three full quarters of combined operations following the completion of the merger and also includes $1.8 million in tax benefits recorded in connection with the reversal of a deferred tax valuation allowance and the exercises of stock options, favorably impacting the income tax provision for the nine months ended September 30, 2017. Also, included in the nine months ended September 30, 2017 was $444,000, net of tax, of merger related costs associated with the acquisition of Chicopee.  Included in the nine months ended September 30, 2016 was $1.8 million, net of tax, of merger related costs.  Excluding these tax benefits and merger expenses, net income was $11.3 million, or $0.38 per diluted share, for the nine months ended September 30, 2017, compared to $4.7 million, or $0.27 per diluted share, for the nine months ended September 30, 2016.

Return on average assets and return on average equity, excluding tax benefits and merger expenses, net of tax, were 0.73% and 6.09%, for the nine months ended September 30, 2017, respectively, compared to 0.47% and 4.47%, for the nine months ended September 30, 2016, respectively.

Net Interest Income and Net Interest Margin

Net interest income increased $19.5 million, or 79.2%, from $24.6 million for the nine months ended September 30, 2016 to $44.0 million for the nine months ended September 30, 2017. The increase in net interest income was primarily due to an increase in interest and dividend income of $22.3 million, or 68.7%, partially offset by an increase in interest expense of $2.8 million, or 35.9%, from the nine months ended September 30, 2016. The increase in interest income of $22.3 million was primarily due to a $714.1 million, or 81.6%, increase in average loans outstanding to $1.6 billion primarily due to the Chicopee acquisition. The increase in interest expense of $2.8 million was due to an increase in interest expense on deposits of $1.6 million, or 34.6%, due to the increase in average interest-bearing deposits of $441.1 million, or 57.7%, due to the Chicopee acquisition, partially offset by a 12 basis point decrease in the cost of interest-bearing deposits. The increase in interest expense on borrowings of $1.3 million, or 37.5%, during the three months ended September 30, 2017 was primarily due to a 25 basis point increase in the cost of borrowings due to the increase in the Federal Funds target rate.

The net interest margin increased 47 basis points from 2.62% for the nine months ended September 30, 2016 to 3.09% for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, amortization of purchase accounting adjustments related to the Chicopee acquisition increased net interest income by $1.4 million. Excluding these items, net interest margin for the nine months ended September 30, 2017 was 2.99%. The average asset yield increased 37 basis points to 3.83% for the nine months ended September 30, 2017 from 3.46% for the nine months ended September 30, 2016. The average cost of funds decreased nine basis points to 0.95% for the nine months ended September 30, 2017 from 1.04%, for the nine months ended September 30, 2016, primarily due to purchase accounting adjustments on time deposits and borrowings as well as the continuation of low market interest rates which allowed the Company to renew or replace maturing time deposits at lower costs. The average cost of time deposits decreased 16 basis points to 1.09% for the nine months ended September 30, 2017 from 1.25% for the nine months ended September 30, 2016. The average cost of borrowings increased 25 basis points to 2.02% for the nine months ended September 30, 2017 from 1.77% for the nine months ended September 30, 2016. The increase in the cost of FHLB borrowings was primarily due to the increase in the Federal Funds target rate in December 2016, March 2017 and mid-September 2017.

The average balance sheet comparison for the nine months ended September 30, 2016 to September 30, 2017 largely reflects the merger with Chicopee. Average interest-earning assets increased $677.8 million, or 53.9%, to $1.9 billion for the nine months ended September 30, 2017 from $1.3 billion for the nine months ended September 30, 2016. The increase in average interest-earning assets was due to the increase in average loans of $714.1 million, or 81.6%, partially offset by the decrease of $29.8 million, or 8.9%, in average investments. The average balance of demand deposit accounts, an interest-free source of funds, increased $139.3 million, or 84.4%, for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.

Provision for Loan Losses

The provision for loan losses increased $450,000, or 112.5%, from $400,000 for the nine months ended September 30, 2016 to $850,000 for the nine months ended September 30, 2017. The $450,000, or 112.5%, increase in the provision was primarily due to a $1.0 million recovery reported during the nine months ended September 30, 2016 on a previously charged-off commercial real estate loan. The Company recorded net charge-offs of $400,000 for the nine months ended September 30, 2017, as compared to net recoveries of $687,000 for the nine months ended September 30, 2016.

Non-Interest Income

For the nine months ended September 30, 2017, non-interest income of $6.5 million, or 0.42% of average assets, increased $2.9 million, or 80.8%, compared to $3.6 million, or 0.36% of average assets, for the nine months ended September 30, 2016. The increase of $2.9 million was primarily due to an increase in service charges and fees of $2.1 million, or 77.6%, an increase in income from BOLI of $236,000, or 20.8%, an increase in other income of $227,000 and a gain on the sale of OREO of $67,000. These increases were partially offset by a decrease in pre-tax realized gains on the sale of securities of $632,000, or 92.4%, and a $915,000 decrease in the loss on prepayment of borrowings reported during the nine months ended September 30, 2016. Excluding the net gain on sales of securities and the loss on prepayment of borrowings, non-interest income increased $2.6 million, or 68.4%. For the nine months ended September 30, 2017, wealth management fees of $404,000 earned by Westfield Financial Management Services, the Company’s investment management subsidiary, were included in service charges and fee income. Total assets under management increased to $111.7 million at September 30, 2017, compared to $91.6 million at December 31, 2016 due to positive market movements and additions from new and existing clients.

Non-Interest Expense

For the nine months ended September 30, 2017, non-interest expense increased $10.1 million, or 43.5%, to $33.4 million, or 2.15% of average assets, compared to $23.3 million, or 2.33% of average assets, for the nine months ended September 30, 2016. Excluding merger-related expenses of $626,000 and $1.9 million during the nine months ended September 30, 2017 and September 30, 2016, respectively, non-interest expense was $32.8 million and $21.4 million, respectively. Non-interest expense excluding merger-related expenses is a non-GAAP financial measure.  Management believes total non-interest expense excluding merger-related expenses more accurately reflects the Company’s results of operations in the overall evaluation of its performance. 

The increase in non-interest expense of $10.1 million, or 43.5%, was primarily due to the $7.3 million, or 61.9%, increase in salaries and benefits due to the addition of the Chicopee staff, increase in the incentive compensation plan as well as normal merit increases. Occupancy expense increased $1.1 million, or 64.4%, due to the acquisition of the Chicopee branches. Furniture and equipment expense increased $426,000, or 58.9%, and data processing expense increased $573,000, or 49.1%. Professional fees increased $202,000, or 11.8%, advertising expense increased $265,000, or 38.1%, and other non-interest expense increased $1.7 million, or 56.4%. These increases were partially offset by a decrease of $1.3 million, or 67.3%, in merger-related expenses, and a decrease of $128,000, or 21.5%, in FDIC insurance expense. The overall increase to non-interest expense reflects generally higher level of expenses associated with operating a larger financial institution, which includes additional employees, increased costs for data processing, occupancy, and professional services.

The merger provided the opportunity to achieve greater economies of scale as reflected in the improvement in the efficiency ratio, excluding merger-related expenses, to 65.0% for the nine months ended September 30, 2017 from 75.3% for the nine months ended September 30, 2016.  See page 14 for a reconciliation of this non-GAAP financial measure.

Income Tax Provision

The effective tax rate for the nine months ended September 30, 2017 and September 30, 2016, was 22.1% and 33.4%, respectively. The decrease in the effective tax rate was primarily due to $1.8 million in tax benefits recorded during the nine months ended September 30, 2017 as previously discussed.

Balance Sheet

At both September 30, 2017 and December 31, 2016, total assets were $2.1 billion, increasing slightly by $10.4 million, or 0.5%. During the same period, total loans increased $52.3 million, or 3.3%, partially offset by a decrease in cash and cash equivalents of $41.3 million, or 58.8%, and a $2.6 million, or 0.8%, decrease in investments.

Loans

Total loans increased $52.3 million, or 3.3%, due to an increase in one- to four-family real estate loans of $33.9 million, or 5.5%, to $648.1 million, an increase in commercial and industrial loans of $22.1 million, or 9.9%, to $244.4 million, partially offset by a decrease in commercial real estate loans of $3.9 million, or 0.5%, to $716.9 million. The decrease in the commercial real estate portfolio was largely related to the expected payoff of a $7.5 million completed commercial real estate construction project during first quarter 2017. In order to reduce interest rate risk, the Company currently services $67.8 million in residential loans sold to the secondary market. The servicing rights will continue to be retained on all loans sold.     

Credit Quality

Maintaining strong asset quality remains a core objective for management. Annualized net charge-offs to average loans was 0.03% for the nine months ended September 30, 2017, compared to net recoveries of 0.08% for the nine months ended September 30, 2016. Net charge-offs for the nine months ended September 30, 2017 totaled $400,000, as a result of $706,000 in charge-offs and $306,000 in recoveries, compared to net recoveries of $687,000 for the nine months ended September 30, 2016, as a result of recoveries of $1.0 million, partially offset by charge-offs of $347,000. During the nine months ended September 30, 2016, the Company received a partial recovery of $1.0 million related to a single commercial real estate loan previously charged-off in 2010.

At September 30, 2017, nonperforming loans decreased $892,000, or 6.3%, to $13.2 million, or 0.81% of total loans, compared to $14.1 million, or 0.90% of total loans, at December 31, 2016.  At September 30, 2017, nonperforming assets to total assets of 0.64% decreased from 0.69% at December 31, 2016. At September 30, 2017, nonperforming assets consisted of $13.2 million in nonperforming loans and $103,000 of OREO. The allowance for loan losses as a percentage of total loans was 0.65% at September 30, 2017, compared to 0.65% at June 30, 2017 and 0.64% at December 31, 2016. At September 30, 2017, the allowance for loan losses as a percentage of nonperforming loans was 79.9% compared to 71.6% at December 31, 2016. The allowance for loan losses as a percentage of total loans, excluding loans acquired from Chicopee, which were recorded at fair value with no related allowance for loan losses, was 1.02% at September 30, 2017 and 1.05% at December 31, 2016.

Deposits

At September 30, 2017, total deposits of $1.5 billion decreased $2.9 million, or 0.2%, from December 31, 2016. Core deposits, which the Company defines as all deposits except time deposits, increased $3.4 million, or 0.4%, from $945.1 million, or 62.3% of total deposits, at December 31, 2016, to $948.5 million, or 62.6% of total deposits, at September 30, 2017. Non-interest bearing deposits increased $4.9 million, or 1.6%, to $308.9 million, money market accounts increased $3.4 million, or 0.8%, to $412.7 million, and interest-bearing checking accounts increased $228,000, or 0.3%, to $82.6 million, while savings accounts decreased $5.2 million, or 3.5%, to $144.3 million. Time deposits decreased $6.3 million, or 1.1%, from $572.9 million at December 31, 2016 to $566.7 million at September 30, 2017. The decrease in time deposits is due to non-relationship customers and brokered deposits seeking higher yields. We are focused on allowing high cost non-relationship deposits to mature and be replaced with low cost relationship-based core deposits. Due to the seasonal activity in core deposits, specifically in commercial and municipal accounts, core deposits increased $16.4 million, or 1.8%, from $932.1 million at June 30, 2017 to $948.5 million at September 30, 2017. Time deposits increased $3.5 million, or 0.6%, from $563.2 million at June 30, 2017 to $566.7 million at September 30, 2017.

FHLB Advances and Repurchase Agreements

FHLB advances increased $503,000, or 0.2%, from $279.8 million at December 31, 2016 to $280.3 million at September 30, 2017 and customer repurchase agreements increased $1.1 million, or 6.3%, from $17.4 million at December 31, 2016 to $18.5 million at September 30, 2017.

Capital

At September 30, 2017, shareholders’ equity was $252.6 million, or 12.1% of total assets, compared to $238.4 million, or 11.5% of total assets, at December 31, 2016. The increase in shareholders’ equity during the nine months ended September 30, 2017, reflects net income of $12.7 million, the exercise of 921,849 stock options of $5.5 million and other comprehensive income of $3.2 million. These increases were offset by a decrease of $5.7 million for the repurchase of 574,309 shares of the Company’s common stock at an average cost of $9.88 per share and the payment of regular dividends of $2.7 million during the nine months ended September 30, 2017. Total shares outstanding as of September 30, 2017 were 30,816,813. The Company’s tangible book value per share increased by $0.41, or 5.7%, to $7.66 at September 30, 2017 from $7.25 at December 31, 2016. The Company’s and Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

Share Repurchase

On January 31, 2017, the Board of Directors authorized a stock repurchase program under which the Company may purchase up to 3,047,000 shares, or 10% of its outstanding common stock.  As of September 30, 2017, there were 2,758,543 shares remaining under the plan.

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 21 banking offices located in Agawam, Chicopee, East Longmeadow, Feeding Hills, Holyoke, Ludlow, South Hadley, Southwick, Springfield, Ware, West Springfield and Westfield, Massachusetts, and Granby and Enfield, Connecticut.  To learn more, visit our website at www.westfieldbank.com.

Forward-Looking Statements
The Company wishes to caution readers not to place undue reliance on any such forward-looking statements contained in this press release, which speak only as of the date made. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.  The Company and the Bank do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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 EndedNine Months Ended
 September 30,June 30,March 31,December 31,September 30,September 30,
 2017201720172016201620172016
INTEREST AND DIVIDEND INCOME:       
Loans$  16,445 $  16,211 $  15,826 $  14,170 $  9,138 $  48,482 $  26,027 
Securities  1,888   1,931   1,896   1,737   1,695   5,715  5,999 
Other investments  172   166   163   152   130   501  398 
Federal funds sold, interest-bearing deposits
and other short-term investments
  11   19   72   48   14   102  67 
Total interest and dividend income  18,516   18,327   17,957   16,107   10,977   54,800  32,491 
        
INTEREST EXPENSE:       
Deposits  2,111   2,059   2,009   1,993   1,582   6,179  4,589 
Long-term debt  534   549   551   517   446   1,634  1,749 
Short-term borrowings  1,075   976   894   858   621   2,945  1,580 
Total interest expense  3,720   3,584   3,454   3,368   2,649   10,758  7,918 
        
Net interest and dividend income  14,796   14,743  14,503   12,739   8,328   44,042  24,573 
        
PROVISION FOR LOAN LOSSES  200   350   300   175   375   850  400 
        
Net interest and dividend income after
   provision for loan losses
  14,596   14,393   14,203   12,564   7,953   43,192  24,173 
        
NON-INTEREST INCOME:       
Service charges and fees  1,714   1,549   1,526   1,485   953   4,789  2,696 
Income from bank-owned life insurance  450   480   439   425   369   1,369  1,133 
Loss on prepayment of borrowings  -    -    -    -    -   -  (915)
Gain (loss) on sales of securities, net  70   46   (64)  455   1   52  684 
Gain on sale of OREO 67  -  -  -  -  67  - 
Other income 111  -  116  -  -  227  - 
Total non-interest income  2,412   2,075   2,017   2,365   1,323   6,504  3,598 
        
NON-INTEREST EXPENSE:       
Salaries and employees benefits  6,490   6,239   6,225   5,677   4,057   18,954  11,709 
Occupancy  891   917   1,007   867   555   2,815  1,712 
Furniture and equipment 410  366  373  361  242  1,149  723 
Data processing  680   669   391   530   404   1,740  1,167 
Professional fees  642   681   596   468   656   1,919  1,717 
FDIC insurance  163   186   117   122   214   466  594 
Merger related expenses  -   216   410   2,138   830   626  1,913 
Advertising expense 328  385  248  214  192  961  696 
Other  1,552   1,637   1,603   1,627   1,075   4,792  3,064 
Total non-interest expense  11,156   11,296   10,970   12,004   8,225   33,422  23,295 
        
INCOME BEFORE INCOME TAXES  5,852   5,172   5,250   2,925   1,051  16,274  4,476 
        
INCOME TAX PROVISION  2,037   1,416   147   1,073   423   3,600  1,495 
NET INCOME$  3,815 $  3,756 $  5,103 $  1,852 $  628 $  12,674 $  2,981 
        
Basic earnings per share$  0.13 $  0.13 $  0.17 $  0.07 $  0.04 $   0.42 $  0.17 
Weighted average shares outstanding  30,103,095   29,980,518   29,597,594   26,760,014   17,377,844  29,895,621  17,340,101 
Diluted earnings per share$  0.13 $  0.12 $  0.17 $  0.07 $  0.04 $  0.42 $  0.17 
Weighted average diluted shares outstanding  30,219,083   30,120,025   29,878,421   27,140,172   17,377,844  30,074,361  17,340,101 
        
Other Data:       
Return on average assets (1) 0.73% 0.73% 1.00% 0.38% 0.19% 0.82% 0.30%
Return on average assets, exclusive of merger
expenses and tax benefits (1)(3)
 0.73% 0.72% 0.74% 0.69% 0.42% 0.73% 0.47%
Return on average equity (1) 5.98% 6.05% 8.51% 3.18% 1.72% 6.82% 2.82%
Return on average equity, exclusive of merger
expenses and tax benefits (1)(3)
 5.98% 5.99% 6.28% 5.79% 3.85% 6.09% 4.47%
Efficiency ratio (2)(3) 65.35% 66.06% 63.68% 67.35% 76.63% 65.04% 75.28%
Net interest margin 3.09% 3.11% 3.08% 2.84% 2.65% 3.09% 2.62%
(1)   Annualized.     
(2)   The efficiency ratio represents the ratio of operating expenses excluding merger related charges divided by the sum of net interest and dividend income and
non-interest income, excluding gain and loss on sale of securities, income on bank-owned life insurance death benefit and loss on prepayment of borrowings.
(3)  Please refer to the “Reconciliation of non-GAAP to GAAP Financial Measures” on pages 14 and 15 for further details.

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
          
 September 30, June 30, March 31, December 31, September 30,
 2017 2017 2017 2016 2016
Cash and cash equivalents$  28,900  $  19,407  $  40,716  $  70,234  $   50,803 
Securities available for sale, at fair value    297,919   303,395   305,680   300,115   295,577 
Federal Home Loan Bank of Boston and
      other restricted stock - at cost
 15,704   16,075   16,124   16,124   12,194 
          
Loans 1,618,773   1,608,664   1,599,607   1,566,484   947,620 
Allowance for loan losses (10,518)  (10,418)  (10,227)  (10,068)  (9,927)
Net loans 1,608,255   1,598,246   1,589,380   1,556,416   937,693 
          
Bank-owned life insurance 68,307   67,858   67,377   66,938   51,363 
Goodwill 12,487   12,487   12,487   13,747   - 
Core deposit intangible 4,156   4,250   4,344   4,438   - 
Other assets 50,650   51,745   50,438   48,006   30,150 
TOTAL ASSETS$  2,086,378  $  2,073,463  $  2,086,546  $  2,076,018  $  1,377,780 
          
Total deposits$  1,515,198  $   1,495,337  $  1,521,219  $  1,518,071  $  962,558 
Short-term borrowings 192,465   191,008   176,883   172,351   180,273 
Long-term debt 106,339   117,704   123,668   124,836   71,165 
Other liabilities 19,821   18,213   18,972   22,364   18,561 
TOTAL LIABILITIES 1,833,823   1,822,262   1,840,742   1,837,622   1,232,557 
          
TOTAL SHAREHOLDERS' EQUITY 252,555   251,201   245,804   238,396   145,223 
          
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
$  2,086,378  $  2,073,463  $  2,086,546  $  2,076,018  $  1,377,780 
          

 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
Other Data
(Dollars in thousands, except per share data)
(Unaudited)
          
 September 30, June 30, March 31, December 31, September 30,
 2017 20172017 2016 2016
          
Other Data:         
          
Shares outstanding at end of period 30,816,813   31,070,107   30,778,690   30,380,231   18,330,487 
          
Book value per share$8.20  $8.08  $7.99  $7.85  $7.92 
Tangible book value per share 7.66   7.55   7.44   7.25   7.92 
30-89 day delinquent loans 8,892   5,207   7,402   8,309   1,391 
30-89 day delinquent loans acquired from
     Chicopee, net of purchase accounting
     adjustments
 4,567   3,417   5,504   5,761   - 
Delinquent loans as a percentage of total loans 0.55%  0.32%  0.46%  0.53%  0.15%
Nonperforming loans 13,165   13,992   14,753   14,057   7,275 
Nonperforming loans acquired from Chicopee,
     net of purchase accounting adjustments
 6,450   6,507   7,274   6,394   - 
Nonperforming loans as a percentage of total
     loans
 0.81%  0.87%  0.92%  0.90%  0.77%
Nonperforming assets as a percentage of total
     assets
 0.64%  0.67%  0.71%  0.69%  0.53%
Allowance for loan losses as a percentage of
     nonperforming loans
 79.89%  74.46%  69.32%  71.62%  136.45%
Allowance for loan losses as a percentage of total   
     loans
 0.65%  0.65%  0.64%  0.64%  1.05%
Allowance for loan losses as a percentage of total
     loans, excluding loans acquired from
     Chicopee recorded at fair value with no
     corresponding allowance
 1.02%  1.02%  1.02%  1.05%  1.05%

The following tables set forth the information relating to our average balances and net interest income for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016 and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 Three Months Ended
 September 30, 2017 June 30, 2017 September 30, 2016
 Average    Average
Yield/
 Average    Average
Yield/
 Average    Average
Yield/
 Balance Interest Cost Balance Interest Cost Balance Interest Cost
 (Dollars in thousands)
ASSETS:                    
Interest-earning assets                    
Loans(1)(2)$  1,605,376 $16,681  4.16% $  1,602,057 $16,472  4.11% $  932,140 $  9,168  3.93%
Securities(2)   302,030  1,901  2.52     305,457  1,945  2.55     296,406  1,709  2.31 
Other investments   17,748  172  3.88     17,734  166  3.74     12,728  130  4.09 
Short-term investments(3)   5,206  11  0.85     10,789  19  0.70     17,380  14  0.32 
Total interest-earning assets   1,930,360  18,765  3.89     1,936,037  18,602  3.84     1,258,654  11,021  3.50 
Total non-interest-earning assets   141,119         140,643         79,032     
                     
Total assets$  2,071,479      $  2,076,680      $  1,337,686     
                     
LIABILITIES AND EQUITY:                    
Interest-bearing liabilities                    
Interest-bearing checking accounts$  82,164  81  0.39  $  87,952  95  0.43  $  31,194  24  0.31 
Savings accounts   148,433  43  0.12     151,986  52  0.14     75,566  20  0.11 
Money market accounts   400,400  386  0.39     393,613  381  0.39     278,257  293  0.42 
Time deposit accounts(6)   568,578  1,601  1.13     565,789  1,531  1.08     383,288  1,245  1.30 
Total interest-bearing deposits   1,199,575  2,111  0.70     1,199,340  2,059  0.69     768,305  1,582  0.82 
Short-term borrowings and long-term debt   301,715  1,609  2.13     301,274  1,525  2.02     229,718  1,067  1.86 
Interest-bearing liabilities   1,501,290  3,720  0.99     1,500,614  3,584  0.96     998,023  2,649  1.06 
Non-interest-bearing deposits   300,757         308,310         177,802     
Other non-interest-bearing liabilities   16,147         18,737         16,261     
Total non-interest-bearing liabilities   316,904         327,047         194,063     
                     
Total liabilities   1,818,194         1,827,661         1,192,086     
Total equity   253,285         249,019         145,601     
Total liabilities and equity$  2,071,479      $  2,076,680      $  1,337,687     
Less: Tax-equivalent adjustment(2)    (249)        (275)        (44)   
Net interest and dividend income  $ 14,796       $ 14,743       $  8,328    
Net interest rate spread(4)    2.90%     2.88%     2.44%
Net interest margin(5)    3.09%     3.11%     2.65%
Ratio of average interest-earning                    
assets to average interest-bearing liabilities       128.58%     129.02%     126.11%

The following tables set forth the information relating to our average balances and net interest income for the nine months ended September 30, 2017 and 2016 and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.

 Nine Months Ended September 30,
  2017  2016
 Average    Average
Yield/
 Average    Average
Yield/
 Balance Interest Cost Balance Interest Cost
 (Dollars in thousands)
ASSETS:             
Interest-earning assets             
Loans(1)(2)(6)$1,589,423 $49,202  4.13% $875,325 $26,118  3.98%
Securities(2) 305,111  5,761  2.52   334,938  6,062  2.41 
Other investments 17,665  501  3.78   14,703  398  3.61 
Short-term investments(3) 24,023  102  0.57   33,457  67  0.27 
Total interest-earning assets 1,936,222  55,566  3.83   1,258,423  32,645  3.46 
Total non-interest-earning assets 137,775       77,626     
              
Total assets$2,073,997      $1,336,049     
              
LIABILITIES AND EQUITY:             
Interest-bearing liabilities             
Interest-bearing checking accounts$86,841  249  0.38  $31,353  64  0.27 
Savings accounts 150,975  137  0.12   76,381  63  0.11 
Money market accounts 398,400  1,150  0.38   264,354  785  0.40 
Time deposit accounts(6) 568,728  4,643  1.09   391,793  3,677  1.25 
Total interest-bearing deposits 1,204,944  6,179  0.68   763,881  4,589  0.80 
Short-term borrowings and long-term 
debt(6)
 302,254  4,579  2.02   250,462  3,329  1.77 
Interest-bearing liabilities 1,507,198  10,758  0.95   1,014,343  7,918  1.04 
Non-interest-bearing deposits 304,492       165,156     
Other non-interest-bearing liabilities 13,774       15,273     
Total non-interest-bearing liabilities 318,266       180,429     
              
Total liabilities 1,825,464       1,194,772     
Total equity 248,533       141,277     
Total liabilities and equity$2,073,997      $1,336,049     
Less: Tax-equivalent adjustment(2)   (766)       (154)   
Net interest and dividend income  $44,042       $24,573    
Net interest rate spread(4)    2.86%     2.42%
Net interest margin(5)    3.09%     2.62%
Ratio of average interest-earning             
assets to average interest-bearing liabilities   128.47%     124.06%


(1)  Loans, including non-accrual loans, are net of deferred loan origination costs and unadvanced funds.
(2)  Securities and loan income are presented on a tax-equivalent basis using a tax rate of 35% and 34% for the 2017 and 2016 periods, respectively.  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 margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets.
(6)  The accounting for the Chicopee acquisition required loans, time deposits and borrowings to be recorded at fair value.  The fair value marks on the loans, time deposits
and borrowings acquired accrete and amortize into net interest income over time.  For the three and nine months ended September 30, 2017 and the three months
ended June 30, 2017, the loan accretion income and interest expense reduction on time deposits and borrowings related to the Chicopee acquisition totaled $448,000,
$1.4 million and $341,000, respectively.  Excluding these items, net interest margin for the three and nine months ended September 30, 2017 was 3.00% and 2.99%
and the margin for the three months ended June 30, 2017 was 3.04%, respectively.

   

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.

 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31, September 30, September 30,
 2017 2017 2017 2016 2016 2017 2016
 (Dollars in thousands, except per share data)
Net Income:             
Net income, as
presented
$  3,815  $  3,756  $  5,103  $   1,852  $   628  $  12,674  $  2,981 
Merger related
expenses, net of tax
(1)
 -   149   293     1,523     782     444     1,750 
Tax benefit impact (2) -   (174)  (1,632)  -   -   (1,806)  - 
Core net income,
exclusive of merger
related expenses and
tax benefits impact
$  3,815  $  3,731  $  3,764  $  3,375  $  1,410  $  11,312  $  4,731 
              
Diluted EPS:             
Diluted EPS, as
presented
$  0.13  $  0.12  $  0.17  $  0.07  $  0.04  $  0.42  $  0.17 
Merger related
expense impact, net of
tax (1)
   -     0.01     0.01     0.05     0.05     0.02     0.10 
Tax benefits impact
(2)
 -   (0.01)  (0.05)  -   -   (0.06)  - 
Core diluted EPS,
exclusive of merger
related expense and
tax benefits impact
$  0.13  $  0.12  $  0.13  $  0.12  $  0.09  $  0.38  $  0.27 
              
Return on Average Assets:                
Return on average
assets, as presented
 0.73%  0.73%  1.00%  0.38%  0.19%  0.82%  0.30%
Merger related
expense impact, net of
tax (1)
 -   0.03   0.06   0.31   0.23   0.03   0.17 
Tax benefits impact
(2)
 -   (0.04)  (0.32)  -   -   (0.12)  - 
Core return on average
assets, exclusive of
merger related expense
and tax benefits
impact
 0.73%  0.72%  0.74%  0.69%  0.42%  0.73%  0.47%


 Three Months Ended Nine Months Ended
 September 30, June 30, March 31, December 31,  September 30, September
 2017 2017 2017 2016 2016 2017 2016
 (Dollars in thousands, except per share data)
              
Return on Average Equity:             
Return on average
equity, as presented
5.98% 6.05% 8.51% 3.18% 1.72% 6.82% 2.82%
Merger related
expense impact, net of
tax (1)
-  0.23  0.49  2.61  2.13  0.24  1.65 
Tax benefits impact
(2)
-  (0.29) (2.72) -  -  (0.97) - 
Core return on average
equity, exclusive of
merger related expense
and tax benefits
impact
5.98% 5.99% 6.28% 5.79% 3.85% 6.09% 4.47%
              
              
Efficiency Ratio:             
Efficiency ratio65.35% 67.35% 66.15% 81.94% 85.23% 66.28% 82.02%
Merger related
expense impact, net of
tax (1)
-  (1.29) (2.47) (14.59) (8.60) (1.24)   (6.74)
Core efficiency ratio,
exclusive of merger
related expense impact
65.35% 66.06% 63.68% 67.35% 76.63% 65.04% 75.28%
 
(1) Assumed tax rate for deductible expenses of 33.3%, 33.0% and 34.1% at September 30, June 30, and March 31, 2017, respectively, and 34.7% for all 2016 periods.
(2) Tax benefit impact of the reversal of a deferred tax valuation allowance and stock option exercises incurred during first and second quarter of 2017.

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

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Source: Westfield Bank