Press Release

Western New England Bancorp, Inc. Reports Results for Three and Nine Months Ended September 30, 2018 and Declares Quarterly Cash Dividend

Company Release - 10/23/2018 4:00 PM ET

WESTFIELD, Mass., Oct. 23, 2018 (GLOBE NEWSWIRE) -- Western New England Bancorp, Inc. (the “Company” or “WNEB”) (NasdaqGS: WNEB), the holding company for Westfield Bank (the “Bank”), announced today the unaudited results of operations for the three and nine months ended September 30, 2018. For the three months ended September 30, 2018, the Company reported net income of $3.9 million, or $0.14 earnings per diluted share, compared to net income of $3.8 million, or $0.13 earnings per diluted share, for the three months ended September 30, 2017.  On a linked quarter basis, net income of $3.9 million decreased $1.2 million, or 23.9%, from net income of $5.1 million, or $0.18 earnings per diluted share, for the three months ended June 30, 2018.  For the nine months ended September 30, 2018, net income was $12.6 million, or $0.43 earnings per diluted share, compared to $12.7 million, or $0.42 earnings per diluted share, for the nine months ended September 30, 2017.

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.04 per share, payable on or about November 21, 2018 to shareholders of record on November 7, 2018.

“We are pleased with the organic loan and deposit growth during the quarter. We remain focused on growing loans while maintaining strong asset quality. Increasing core deposits continues to be a priority as they are particularly valuable as interest rates continue to rise,” stated Westfield Bank President and CEO James C. Hagan. “Although the net interest margin decreased from the second quarter, we continue to adjust the balance sheet to position the Company for a continued rise in interest rates. Over the last nine months, we decreased our average reliance on short-term borrowings by 55% and increased long-term borrowings by 70% in order to manage interest rate risk. We also decreased the low-yielding investment portfolio in order to fund loan growth and pay down high cost borrowings.”

Key Highlights:

  • Loans: Total loans as of September 30, 2018 were $1.7 billion, an increase of $23.7 million, or 1.4%, from June 30, 2018 and an increase of $61.9 million, or 5.1% on an annualized basis, from December 31, 2017.
     
  • Deposits: Total deposits increased $57.2 million from June 30, 2018 to September 30, 2018 and increased $102.9 million, or 6.8% on an annualized basis, from December 31, 2017.  Core deposits increased $26.8 million, while time deposits increased by $76.2 million from December 31, 2017 to September 30, 2018. The loan-to-deposit ratio decreased from 108.3% at December 31, 2017 to 105.2% at September 30, 2018.
     
  • Allowance for Loan Losses and Credit Quality: Allowance for loan losses was 0.72% of total loans and 95.7% of non-performing loans at September 30, 2018. Allowance for loan losses as a percentage of loans, excluding the loans acquired from Chicopee Bancorp, Inc., (“Chicopee”) was 1.01% at September 30, 2018. Non-performing loans to total loans and non-performing loans to total assets were 0.76% and 0.59%, respectively, at September 30, 2018.
     
  • Provision for Loan Losses: The provision for loan losses decreased $400,000, or 53.3%, from the three months ended June 30, 2018 to the three months ended September 30, 2018. The Company reported net charge-offs of $101,000, or 0.01%, of average loans during the three months ended September 30, 2018.
     
  • Net Interest Margin: The net interest margin, which is stated on a fully taxable equivalent basis throughout this release, was 2.96% for the three months ended September 30, 2018, compared to 3.27% for the three months ended June 30, 2018. Excluding the purchase accounting adjustments and prepayment penalties, the adjusted net interest margin was 2.97% for the three months ended September 30, 2018, compared to 3.03% for the three months ended June 30, 2018. The net interest margin for the nine months ended September 30, 2018 was 3.11% compared to 3.09% for the nine months ended September 30, 2017. Excluding purchase accounting adjustments and prepayment penalties, the adjusted net interest margin increased from 2.99% to 3.02% for the nine months ended September 30, 2017 to the nine months ended September 30, 2018, respectively.        
     
  • Non-Interest Expense: Non-interest expense increased $26,000, or 0.2%, from the three months ended June 30, 2018 to the three months ended September 30, 2018 and represented 2.18% of average assets as of September 30, 2018.
     
  • Repurchases: During the three months ended September 30, 2018, the Company repurchased 294,899 shares at an average price of $10.86 under its previously approved repurchase plan.  As of September 30, 2018, there were 1,302,693 shares available to repurchase under the plan.
     
  • Capital Management: Tangible book value per share was $7.64 at September 30, 2018, compared to $7.57 at December 31, 2017. The Company’s and Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

Net Income for the Three Months ended September 30, 2018 compared to the Three Months ended June 30, 2018
The Company reported net income of $3.9 million, or $0.14 earnings per diluted share, for the three months ended September 30, 2018, compared to net income of $5.1 million, or $0.18 earnings per diluted share, for the three months ended June 30, 2018. 

Adjusting for the bank-owned life insurance (“BOLI”) death benefits of $715,000, favorable purchase accounting adjustments of $909,000 and a prepayment penalty on a commercial payoff of $269,000 during the three months ended June 30, 2018 and the $62,000 negative purchase accounting adjustments and $10,000 prepayment penalty fees during the three months ended September 30, 2018, net income was $4.0 million, or $0.14 earnings per diluted share, for the three months ended September 30, 2018 compared to $3.2 million, or $0.11 earnings per diluted share, for the three months ended June 30, 2018.

Return on average assets and return on average equity were 0.74% and 6.42%, respectively, for the three months ended September 30, 2018, as compared to 0.98% and 8.63%, respectively, for the three months ended June 30, 2018.

Net Interest Income and Net Interest Margin
On a sequential quarter basis, net interest income decreased $1.3 million, or 7.9%, to $14.6 million for the three months ended September 30, 2018 from $15.9 million for the three months ended June 30, 2018.  The decrease in net interest income was due to a decrease in interest income of $859,000, or 4.2%, and an increase in interest expense of $401,000, or 8.7%. Net interest income for the three months ended June 30, 2018 included $909,000 in favorable purchase accounting adjustments primarily due to the full payoff of a purchase credit impaired loan from Chicopee and a prepayment penalty fee of $269,000, compared to $62,000 in negative purchase accounting adjustments and $10,000 in prepayment penalty fees reported during the three months ended September 30, 2018. Excluding these adjustments, interest income increased $334,000, or 1.7%, offset by the increase in interest expense of $364,000, or 7.7%, for the three months ended September 30, 2018. The increase in interest expense was primarily due to the $367,000, or 13.1%, increase in interest expense on deposits, while interest expense on borrowings decreased $3,000, or 0.2%.

The net interest margin for the three months ended September 30, 2018 was 2.96%, compared to 3.27% during the three months ended June 30, 2018. The decrease in net interest margin was largely due to the following: purchase accounting adjustments decreased from a favorable adjustment of $909,000 made during the three months ended June 30, 2018, compared to a negative adjustment of $62,000 made during the three months ended September 30, 2018. The result was a decrease of 20 basis points on the net interest margin; prepayment penalties decreased $259,000, from $269,000 during the three months ended June 30, 2018 to $10,000 during the three months ended September 30, 2018, which further decreased the net interest margin by five basis points. In addition, the Company also recognized $153,000 in premium amortization due to payoffs during the three months ended September 30, 2018, compared to $64,000 during the three months ended June 30, 2018, which negatively impacted the net interest margin during the three months ended September 30, 2018 by three basis points. After these adjustments, the adjusted net interest margin decreased from 3.04% during the three months ended June 30, 2018 to 3.00% during the three months ended September 30, 2018.

The average yield on interest-earning assets decreased 20 basis points from 4.20% for the three months ended June 30, 2018 to 4.00% for the three months ended September 30, 2018. Excluding the purchase accounting adjustments and the prepayment penalties mentioned above, the average yield on interest-earning assets increased five basis points from 3.98% for the three months ended June 30, 2018 to 4.03% for the three months ended September 30, 2018, respectively. During the three months ended September 30, 2018, the average cost of funds increased 12 basis points from 1.20% for the three months ended June 30, 2018 to 1.32% for the three months ended September 30, 2018. The average cost of time deposits increased 19 basis points from 1.46% for the three months ended June 30, 2018 to 1.65% for the three months ended September 30, 2018. The average cost of deposits increased 12 basis points from 0.88% for the three months ended June 30, 2018 to 1.00% for the three months ended September 30, 2018, while the average cost of borrowings increased 12 basis points during the same period. We anticipate that recent increases in the federal funds target rate may continue to place upward pressure on deposit and borrowing rates as competition for deposits increases.  For the three months ended September 30, 2018, average demand deposits of $328.7 million, an interest-free source of funds, represented 21.0% of average total deposits. During the three months ended September 30, 2018, average interest-earning assets increased $8.5 million, or 0.4%, to $2.0 billion. The increase in average interest-earning assets was due to an increase in average loans of $17.1 million, or 1.0%, partially offset by a decrease in average securities of $9.4 million, or 3.4%.

Provision for Loan Losses
The provision for loan losses decreased $400,000, or 53.3%, from $750,000 for the three months ended June 30, 2018, to $350,000 for the three months ended September 30, 2018. The Company recorded net charge-offs of $101,000 for the three months ended September 30, 2018, as compared to net charge-offs of $134,000 for the three months ended June 30, 2018.

Non-Interest Income
On a sequential quarter basis, non-interest income decreased $637,000, or 21.7%, to $2.3 million for the three months ended September 30, 2018, from $2.9 million for the three months ended June 30, 2018. During the three months ended June 30, 2018, non-interest income included the recognition of $715,000 in BOLI death benefits. Excluding the BOLI death benefit, non-interest income increased $78,000, or 3.5%, for the three months ended September 30, 2018 primarily due to an increase in service charges and fees of $198,000, or 11.7%, partially offset by a decrease in other income of $131,000. The third quarter typically includes seasonal non-interest income which was approximately $200,000 during the three months ended September 30, 2018.

Non-Interest Expense
For the three months ended September 30, 2018, non-interest expense increased $26,000 to $11.6 million from $11.5 million for the three months ended June 30, 2018.  The increase in non-interest expense was primarily due to an increase in professional fees of $86,000, or 12.6%, an increase in other expenses of $79,000, or 4.5%, an increase in furniture and equipment expense of $18,000, or 4.7%, and an increase in FDIC insurance expense of $11,000, or 7.5%.  These increases were partially offset by a decrease in salaries and benefits of $113,000, or 1.7%, a decrease in data processing of $36,000, or 5.3%, a decrease in occupancy expense of $15,000, or 1.6%, and a decrease in advertising expense of $4,000, or 1.1%. The increase in professional fees was due to $102,000 in legal fees associated with a previously charged-off loan from 2010 which resulted in the recovery of $300,000 during the three months ended September 30, 2018. The Company intends to continue to pursue legal remedies against the principals for recovery, but there can be no assurance that these efforts will result in significant recoveries.

For the three months ended September 30, 2018, the efficiency ratio was 68.3%, compared to 63.5% for the three months ended June 30, 2018. The increase in the efficiency ratio was primarily due to the decrease in purchase accounting adjustments of $971,000, or 106.8%, from the three months ended June 30, 2018 to the three months ended September 30, 2018.

Income Tax Provision
The Company’s effective tax rate was 21.0% for the three months ended June 30, 2018, compared to 21.5% for the three months ended September 30, 2018.

Net Income for the Three Months ended September 30, 2018 compared to the Three Months ended September 30, 2017
The Company reported net income of $3.9 million, or $0.14 earnings per diluted share, for the three months ended September 30, 2018, compared to net income of $3.8 million, or $0.13 earnings per diluted share, for the three months ended September 30, 2017. Net income, adjusting for negative purchase accounting adjustments of $62,000 during the three months ended September 30, 2018 and favorable purchase accounting adjustments of $448,000 during the three months ended September 30, 2017 was $4.0 million, or $0.14 earnings per diluted share and $3.4 million, or $0.11 earnings per diluted share, respectively, an increase of $604,000, or 17.9%.

Return on average assets and return on average equity were 0.74% and 6.42%, respectively, for the three months ended September 30, 2018, as compared to 0.73% and 5.98%, respectively, for the three months ended September 30, 2017.

Net Interest Income and Net Interest Margin
Net interest income decreased $191,000, or 1.3%, to $14.6 million for the three months ended September 30, 2018, from $14.8 million for the three months ended September 30, 2017.  The decrease in net interest income was due to an increase in interest expense of $1.3 million, or 34.4%, partially offset by an increase in interest income of $1.1 million, or 5.9% for the same period. Net interest income for the three months ended September 30, 2017 included favorable purchase accounting adjustments of $448,000, compared to $62,000 in negative purchase accounting adjustments during the three months ended September 30, 2018. Adjusting for the purchase accounting adjustments, net interest income increased $319,000, or 2.2%, from $14.3 million for the three months ended September 30, 2017 to $14.7 million for the three months ended September 30, 2018.

The net interest margin for the three months ended September 30, 2018 was 2.96%, compared to 3.09% during the three months ended September 30, 2017. The decrease in net interest margin was largely attributable to the decrease in purchase accounting adjustments, from a favorable adjustment of $448,000 for the three months ended September 30, 2017 to a negative adjustment of $62,000 for the three month ended September 30, 2018, which negatively impacted the margin by 10 basis points. Excluding the purchase accounting adjustments, the net interest margin was 2.97% for the three months ended September 30, 2018, compared to 3.00%, for the three months ended September 30, 2017. Also, negatively impacting the net interest margin was the reduction in the statutory federal income tax rate from 35% for the three months ended September 30, 2017 to 21% for three months ended September 30, 2018 which reduced the tax-equivalent adjustment and resulted in a three basis point decline in the fully tax equivalent net interest margin over the same period. The net interest margin continues to be impacted by the significant increase in the federal funds target rate along with the competitive pressure to increase deposit rates.

The average yield on interest-earning assets increased 11 basis points from 3.89% for the three months ended September 30, 2017 to 4.00% for the three months ended September 30, 2018. Excluding the purchase accounting adjustments in both periods and prepayment fees in the September 2018 period, the average yield on interest-earning assets increased 17 basis points from 3.86% for the three months ended September 30, 2017 to 4.03% for the three months ended September 30, 2018, respectively. During the three months ended September 30, 2018, the average cost of funds increased 33 basis points from 0.99% for the three months ended September 30, 2017 to 1.32% for the three months ended September 30, 2018. The average cost of time deposits increased 52 basis points from 1.13% for the three months ended September 30, 2017 to 1.65% for the three months ended September 30, 2018. The average cost of deposits increased 30 basis points from 0.70% for the three months ended September 30, 2017 to 1.00% for the three months ended September 30, 2018, while the average cost of borrowings increased 60 basis points during the same period. We anticipate that recent increases in the federal funds target rate may result in continued an upward pressure on deposit and borrowing rates as competition for deposits increases.  For the three months ended September 30, 2018, average demand deposits of $328.7 million, an interest-free source of funds, represented 21.0% of average total deposits and increased $27.9 million, or 9.3%, from the three months ended September 30, 2017.

During the three months ended September 30, 2018, average interest-earning assets increased $41.9 million, or 2.2%, to $2.0 billion. The increase in average interest-earning assets was due to an increase in average loans of $76.7 million, or 4.8%, partially offset by a decrease in average securities of $38.7 million, or 12.8%.

Average Federal Home Loan Bank (“FHLB”) borrowings decreased $8.4 million, or 2.9%, from $287.6 million for the three months ended September 30, 2017 to $279.2 million for the three months ended September 30, 2018. In order to manage interest rate risk, average long-term FHLB borrowings increased $101.1 million, or 87.0%, from $116.2 million during the three months ended September 30, 2017 to $217.3 million during the three months ended September 30, 2018, while short-term borrowings decreased $109.6 million, or 63.9%, during the same period.  Long-term borrowings were used to replace a portion of our short-term borrowings that matured during the quarter in order to manage funding costs in a rising rate environment.

Provision for Loan Losses
The provision for loan losses increased $150,000, or 75.0%, from $200,000 for the three months ended September 30, 2017 to $350,000 for the three months ended September 30, 2018. The Company recorded net charge-offs of $101,000 for the three months ended September 30, 2018 and $100,000 for the same period in 2017. 

Non-Interest Income
Non-interest income decreased $116,000, or 4.8%, to $2.3 million for the three months ended September 30, 2018, from $2.4 million for the three months ended September 30, 2017. The decrease of $116,000 in non-interest income was primarily due to the decrease in other income of $111,000, or 100%, the increase in unrealized losses on the Company’s marketable equity securities portfolio due to the adoption of ASU 2016-01 of $43,000, the decrease in gain on sale of securities of $70,000 and a decrease of $67,000 on the gain on sale of other real estate owned (“OREO”), partially offset by the increase in service charges and fees of $177,000, or 10.3%.

Non-Interest Expense
For the three months ended September 30, 2018, non-interest expense increased $416,000, or 3.7%, to $11.6 million, or 2.18% of average assets, from $11.2 million, or 2.14% of average assets, for the three months ended September 30, 2017.  The increase in non-interest expense was primarily due to an increase in other non-interest expense of $299,000, or 19.3%, an increase in professional fees of $125,000, or 19.5%, an increase in occupancy expense of $61,000, or 6.8%, and an increase in advertising expenses of $23,000, or 7.0%. These increases were partially offset by a decrease in salaries and benefits of $39,000, or 0.6%, a decrease in data processing of $38,000, or 5.6%, a decrease in furniture and equipment of $10,000, or 2.4%, and a decrease in FDIC insurance of $5,000, or 3.1%. The increase in professional fees of $125,000 was primarily due to $103,000 in legal fees associated with a previously charged-off loan from 2010 which resulted in the recovery of $300,000 during the three months ended September 30, 2018. The Company intends to continue to pursue legal remedies against the principals for recovery, but there can be no assurance that these efforts will result in significant recoveries.

For the three months ended September 30, 2018, the efficiency ratio was 68.3%, compared to 65.4% for the three months ended September 30, 2017.

Income Tax Provision
The Company’s effective tax rate decreased from 34.8% for the three months ended September 30, 2017 to 21.5% for the three months ended September 30, 2018 and reflects a reduction in the statutory federal income tax rate to 21% from 35% effective January 1, 2018 related to enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017.

Net Income for the Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
For the nine months ended September 30, 2018, the Company reported net income of $12.6 million, or $0.43 earnings per diluted share, compared to $12.7 million, or $0.42 earnings per diluted share, for the nine months ended September 30, 2017. The financial results for the nine months ended September 30, 2017 included $1.8 million in tax benefits recorded in connection with the reversal of a deferred tax valuation allowance and exercises of stock options, both favorably impacting the income tax provision for nine months ended September 30, 2017. Also, included in the nine months ended September 30, 2017 was $379,000, net of tax, of merger related costs associated with the acquisition of Chicopee.  Excluding these tax benefits and merger expenses for the 2017 period and $165,000 of tax benefits recorded for the nine months ended September 30, 2018, core net income was $11.2 million, or $0.37 earnings per diluted share for the nine months ended September 30, 2017, compared to $12.4 million, or $0.42 earnings per diluted share for the nine months ended September 30, 2018. Core net income is a non-GAAP financial measure.  Management believes core net income more accurately reflects the Company’s results of operations in the overall evaluation of its performance and believes it is useful to compare core net income to prior quarters.  A reconciliation of core net income is included in the accompanying financial tables.

Return on average assets and return on average equity were 0.80% and 6.95% for the nine months ended September 30, 2018, respectively, compared to 0.82% and 6.82% for the nine months ended September 30, 2017, respectively. Excluding tax benefits and merger related expenses, net of tax, return on average assets and return on average equity were 0.79% and 6.85% for the nine months ended September 30, 2018, compared to 0.73% and 6.05% for the nine months ended September 30, 2017, respectively.

Net Interest Income and Net Interest Margin
Net interest income increased $1.2 million, or 2.6%, from $44.0 million for the nine months ended September 30, 2017 to $45.2 million for the nine months ended September 30, 2018. The increase in net interest income was primarily due to an increase in interest and dividend income of $4.0 million, or 7.3%, partially offset by an increase in interest expense of $2.9 million, or 26.5%, from the nine months ended September 30, 2017. Excluding favorable purchase accounting adjustments of $1.1 million and prepayment penalties of $279,000 during the nine months ended September 30, 2018 and $1.4 million in favorable purchase accounting adjustments during the nine months ended September 30, 2017, net interest income increased $1.2 million, or 2.8%. After adjusting for the favorable purchase accounting adjustments and the prepayment penalties, interest income increased $3.5 million, or 6.5%, million primarily due to an increase in average loans of $68.7 million, or 4.3%, for the nine months ended September 30, 2018. The increase in interest expense of $2.9 million, or 26.5%, was due to an increase in interest expense on deposits of $2.0 million, or 32.2%, and an increase in interest expense on borrowings of $863,000, or 18.8%, for the nine months ended September 30, 2018.  Favorable purchase accounting adjustments on deposits decreased $526,000, or 69.9%, from $753,000 during the nine months ended September 30, 2017 to $227,000 during the nine months ended September 30, 2018. Excluding these adjustments, interest expense on deposits increased $1.5 million, or 21.1%, during the same period.

The net interest margin increased two basis points from 3.09% for the nine months ended September 30, 2017 to 3.11% for the nine months ended September 30, 2018. During the nine months ended September 30, 2018 and September 30, 2017, favorable purchase accounting adjustments related to the Chicopee acquisition increased net interest income by $1.1 million and $1.4 million, respectively. The nine months ended September 30, 2018 also included prepayment penalties of $279,000. Excluding these items, the adjusted net interest margin for the nine months ended September 30, 2018 was 3.02% compared to 2.99% for the nine months ended September 30, 2017. Also, negatively impacting the net interest margin was the reduction in the statutory federal income tax rate from 35% for the nine months ended September 30, 2017 to 21% for nine months ended September 30, 2018, thus reducing the tax-equivalent amount of each dollar of tax-exempt income and causing a two basis point decline in net interest margin over the same period.

The average asset yield decreased 20 basis points from 3.83% for the nine months ended September 30, 2017 to 4.03% for the nine months ended September 30, 2018. The average cost of funds increased 25 basis points from 0.95% for the nine months ended September 30, 2017 to 1.20% for the nine months ended September 30, 2018. The average cost of time deposits increased 38 basis points from 1.09% for the nine months ended September 30, 2017 to 1.47% for the nine months ended September 30, 2018. Excluding the favorable purchase account adjustments on time deposits of $227,000 and $753,000 during the nine months ended September 30, 2018 and September 30, 2017, respectively, and the cost of deposits increased 14 basis points from 0.77% during the nine months ended September 30, 2017 to 0.91% during the nine months ended September 30, 2018, respectively. The average cost of borrowings increased 54 basis points from 2.02% for the nine months ended September 30, 2017 to 2.56% for the nine months ended September 30, 2018.

Average interest-earning assets increased $20.0 million, or 1.0%, to $2.0 billion for the nine months ended September 30, 2018. The increase in average interest-earning assets was due to the increase in average loans of $68.7 million, or 4.3%, partially offset by the decrease in average investments of $32.3 million, or 10.6%, and a decrease in short-term investments of $16.2 million, or 67.5%.

Average FHLB borrowings decreased $4.7 million, or 1.7%, from $283.1 million for the nine months ended September 30, 2017 to $278.4 million for the nine months ended September 30, 2018. In order to manage interest rate risk, during the nine months ended September 30, 2018, average long-term FHLB borrowings of $205.0 million increased $84.3 million, or 69.8%, from $120.7 million for the nine months ended September 30, 2017, as short-term borrowings decreased $89.0 million, or 54.8%, during the same period. New long-term borrowings were used to replace a portion of our short-term borrowings that matured over the nine months in order to manage funding costs in a rising rate environment.

Provision for Loan Losses
The provision for loan losses of $1.6 million increased $750,000, or 88.2%, for the nine months ended September 30, 2018 compared to $850,000 for the nine months ended September 30, 2017. The Company recorded net charge-offs $196,000 for the nine months ended September 30, 2018, as compared to net charge-offs of $400,000 for the nine months ended September 30, 2017. Contributing to the increase in the general reserves was the increase in commercial real estate loans of $47.8 million, or 6.7%, from $716.9 million at September 30, 2017 to $764.7 million at September 30, 2018.

Non-Interest Income
For the nine months ended September 30, 2018, non-interest income of $7.0 million increased $491,000, or 7.5%, compared to $6.5 million for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, non-interest income included the recognition of $715,000 in BOLI death benefits. Excluding the BOLI death benefits, non-interest income decreased of $224,000, or 3.4%. The decrease was primarily due to the decrease of $302,000 in realized securities losses primarily due to the amortization of the remaining premium on a bond which was paid in full prior to its final maturity, an increase of $190,000 in unrealized losses on the Company’s marketable equity securities portfolio due to the adoption of ASU 2016-01, a decrease in other income of $96,000, or 42.3%, and a decrease of $19,000 on the gain on the sale of OREO, partially offset by an increase in service charges and fees of $378,000, or 7.9%, from $4.8 million for the nine months ended September 30, 2017 to $5.2 million for the nine months ended September 30, 2018.

Non-Interest Expense
For the nine months ended September 30, 2018, non-interest expense increased $1.1 million, or 3.4%, to $34.5 million, or 2.21% of average assets, compared to $33.4 million, or 2.15% of average assets for the nine months ended September 30, 2017. Excluding merger-related expenses of $526,000, non-interest expense increased $1.6 million, or 4.9%, from $32.9 million for the nine months ended September 30, 2017 to $34.5 million for the nine months ended September 30, 2018. The increase in non-interest expense was primarily due to the increase in salaries and benefits of $594,000, or 3.1%, an increase in data processing of $217,000, or 12.5%, an increase in professional fees of $188,000, or 9.8%, an increase in occupancy expense of $164,000, or 5.8%, an increase in advertising expense of $92,000, or 9.6%, and an increase in other expenses of $396,000, or 8.1%. The increase in professional fees of $188,000, or 9.8%, was primarily due to $254,000 in legal fees associated with a previously charged-off loan from 2010 which resulted in the recovery of $300,000 during the nine months ended September 30, 2018. The Company intends to continue to pursue legal remedies against the principals for recovery, but there can be no assurance that these efforts will result in significant recoveries.

For the nine months ended September 30, 2018, the efficiency ratio was 66.6%, compared to 65.2% for the nine months ended September 30, 2017.

Income Tax Provision
The effective tax rate for the nine months ended September 30, 2018 and September 30, 2017 was 21.7% and 22.1%, respectively. The comparable effective tax rate for the nine months ended September 30, 2017 was primarily due to the $1.8 million in tax benefits recorded as previously disclosed.

Balance Sheet
At September 30, 2018, total assets were $2.2 billion, an increase of $67.5 million, or 3.2%, from December 31, 2017, primarily due to an increase in loans of $61.9 million, or 3.8%, and an increase in cash and cash equivalents of $34.9 million, partially offset by a decrease in securities available-for-sale and marketable equity securities of $29.1 million, or 10.1%.

Loans
Total loans increased $61.9 million, or 3.8%, due to an increase in commercial real estate loans of $32.1 million, or 4.4%, an increase in residential real estate loans of $19.9 million, or 3.1%, and an increase in commercial and industrial loans of $9.4 million, or 3.9%. In order to reduce interest rate risk, the Company currently services $58.1 million in residential loans sold to the secondary market. The servicing rights will continue to be retained on all loans sold.  The following table is a summary of our outstanding loan balances as of the periods indicated:        

 September 30, 2018 December 31, 2017
 (Dollars in thousands)
  
Commercial real estate loans$  764,749 $   732,616
Commercial and industrial loans 247,869  238,502
Residential real estate loans 670,282  650,351
Consumer loans 5,105  4,478
Total gross loans   1,688,005    1,625,947
Unamortized premiums and net deferred loans fees and costs 4,563  4,734
Total loans$  1,692,568 $  1,630,681

Credit Quality
Net charge-offs for the nine months ended September 30, 2018 totaled $196,000, or 0.01% of annualized charge-offs to average loans, compared to net charge-offs $400,000, or 0.03% of annualized charge-offs to average loans for the nine months ended September 30, 2017.

At September 30, 2018, nonperforming loans totaled $12.8 million, or 0.76% of total loans, compared to $12.8 million, or 0.78% of total loans at December 31, 2017.  At September 30, 2018, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets was 0.59% at September 30, 2018 and 0.62% at December 31, 2017. The allowance for loan losses as a percentage of total loans was 0.72% at September 30, 2018, compared to 0.66% at December 31, 2017. At September 30, 2018, the allowance for loan losses as a percentage of nonperforming loans was 95.7%, compared to 84.9% at December 31, 2017. 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 1.01% at September 30, 2018 and at December 31, 2017.

Deposits
At September 30, 2018, total deposits were $1.6 billion, an increase of $102.9 million, or 6.8%, from December 31, 2017. Core deposits, which the Company defines as all deposits except time deposits, increased $26.8 million, or 2.8%, from $949.5 million, or 63.0% of total deposits, at December 31, 2017, to $976.3 million, or 60.7% of total deposits, at September 30, 2018. Non-interest-bearing deposits increased $45.9 million, or 14.7%, to $357.8 million, money market accounts decreased $5.2 million, or 1.3%, to $405.0 million, and interest-bearing checking accounts decreased $2.4 million, or 2.7%, to $85.0 million. Time deposits increased $76.2 million, or 13.7%, from $556.5 million at December 31, 2017 to $632.8 million at September 30, 2018.

FHLB Advances and Repurchase Agreements
FHLB advances decreased $18.5 million, or 6.2%, from $297.8 million at December 31, 2017 to $279.3 million at September 30, 2018, while customer repurchase agreements decreased $11.7 million. During the three months ended March 31, 2018, the Company eliminated customer repurchase agreements and balances were transferred to the customer’s respective core deposit account.

Capital
At September 30, 2018, shareholders’ equity was $241.3 million, or 11.2% of total assets, compared to $247.3 million, or 11.9% of total assets at December 31, 2017. The decrease in shareholders’ equity during the nine months ended September 30, 2018 reflects $4.3 million net increase in accumulated other comprehensive loss, $12.3 million for the repurchase of shares of the Company’s common stock and $3.5 million for payment of common stock dividends, partially offset by a net increase of $12.6 million in the Company's retained earnings reflective of current period net income and $1.6 million in share-based compensation. Total shares outstanding as of September 30, 2018 were 29,453,808.

The Company’s tangible book value per share increased by $0.07, or 0.9%, to $7.64 at September 30, 2018 from $7.57 at December 31, 2017. 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, 2018, there were 1,302,693 shares remaining to be purchased 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 22 banking offices throughout western Massachusetts and northern 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, 2017.  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,
  2018  2018  2018  2017  2017  2018  2017 
INTEREST AND DIVIDEND INCOME:       
Loans$  17,577 $  18,405 $  16,702 $  17,182 $  16,445 $  52,684 $  48,482 
Securities  1,766   1,829   1,808   1,862   1,888   5,403  5,715 
Other investments  228   202   201   177   172   631  501 
Short-term investments  34   28   21   18   11   83  102 
Total interest and dividend income  19,605   20,464   18,732   19,239   18,516   58,801  54,800 
        
INTEREST EXPENSE:       
Deposits  3,094   2,718   2,355   2,269   2,111   8,167  6,179 
Long-term debt  1,193   1,130   855   627   534   3,178  1,634 
Short-term borrowings  713   751   800   991   1,075   2,264  2,945 
Total interest expense  5,000   4,599   4,010   3,887   3,720   13,609  10,758 
        
Net interest and dividend income  14,605   15,865   14,722   15,352   14,796   45,192  44,042 
        
PROVISION FOR LOAN LOSSES  350   750   500   510   200   1,600  850 
        
Net interest and dividend income after provision for loan losses  14,255   15,115   14,222   14,842   14,596   43,592  43,192 
        
NON-INTEREST INCOME:       
Service charges and fees  1,891   1,693   1,583   1,600   1,714   5,167  4,789 
Income from bank-owned life insurance  448   484   442   455   450   1,374  1,369 
Bank-owned life insurance death benefit  -    715    -    -    -    715   
(Loss) gain on securities, net  -   (49)  (201)  -   70   (250) 52 
Gain (loss) on sale of OREO -  -  48  (58) 67  48  67 
Unrealized losses on equity securities (43) (41) (106) -  -  (190) - 
Other income -  131  -  -  111  131  227 
Total non-interest income 2,296  2,933   1,766   1,997   2,412   6,995  6,504 
        
NON-INTEREST EXPENSE:       
Salaries and employees benefits  6,451   6,564   6,533   6,477   6,490   19,548  18,954 
Occupancy  952   967   1,060   959   891   2,979  2,815 
Furniture and equipment 400  382  367  384  410  1,149  1,149 
Data processing  642   678   637   632   680   1,957  1,740 
Professional fees  767   681   659   640   642   2,107  1,919 
FDIC insurance  158   147   158   154   163   463  466 
Merger related expenses  -   -   -   -   -   -  526 
Advertising expense 351  355  347  335  328  1,053  961 
Other  1,851   1,772   1,665   1,783   1,552   5,288  4,892 
Total non-interest expense  11,572   11,546   11,426   11,364   11,156   34,544  33,422 
        
INCOME BEFORE INCOME TAXES  4,979   6,502   4,562   5,475   5,852  16,043  16,274 
        
INCOME TAX PROVISION  1,070   1,364   1,043   5,828   2,037   3,476  3,600 
NET INCOME (LOSS)$  3,909 $  5,138 $  3,519 $  (353)$  3,815 $  12,567 $  12,674 
        
Basic earnings (loss) per share$  0.14 $  0.18 $   0.12 $  (0.01)$  0.13 $  0.43 $  0.42 
Weighted average shares outstanding  28,789,132   29,035,895   29,484,824   29,750,267   30,103,095  29,100,735  29,895,621 
Diluted earnings (loss) per share$  0.14 $  0.18 $   0.12 $  (0.01)$  0.13 $  0.43 $  0.42 
Weighted average diluted shares outstanding  28,937,038   29,178,264   29,620,929   29,750,267   30,219,083  29,242,862  30,074,361 
        
Other Data:       
Return (loss) on average assets (1) 0.74% 0.98% 0.69% (0.07)% 0.73% 0.80% 0.82%
Return on average assets, exclusive of merger expenses, tax benefits and deferred tax asset adjustment for corporate rate change (1)(3) 0.74% 0.95% 0.69% 0.70% 0.73% 0.79% 0.73%
Return (loss) on average equity (1) 6.42% 8.63% 5.82% (0.56)% 5.98% 6.95% 6.82%
Return on average equity, exclusive of merger expenses, tax benefits and deferred tax asset adjustment for corporate rate change (1)(3) 6.42% 8.38% 5.79% 5.75% 5.98% 6.85% 6.09%
Efficiency ratio (2)(3) 68.30% 63.53% 68.23% 65.28% 65.35% 66.60% 65.23%
Net interest margin, on a fully tax equivalent basis 2.96% 3.27% 3.12% 3.19% 3.09% 3.11% 3.09%
(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 securities and sale of OREO, unrealized losses on equity securities and bank-owned life insurance death benefits.
(3) Please refer to the “Reconciliation of non-GAAP to GAAP Financial Measures” on pages 17 and 18 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,
  2018   2018   2018   2017   2017 
Cash and cash equivalents$   61,999  $  22,925  $  29,438  $  27,132  $  28,900 
Securities available for sale, at fair value 252,984   259,689   266,963   288,416   297,919 
Marketable equity securities, at fair value 6,319   6,324   6,327   -   - 
Federal Home Loan Bank of Boston and other  restricted stock - at cost 15,480   15,584   14,685   15,553   15,704 
          
Loans 1,692,568   1,668,875   1,646,990   1,630,681   1,618,773 
Allowance for loan losses (12,235)  (11,986)  (11,370)  (10,831)  (10,518)
Net loans 1,680,333   1,656,889   1,635,620   1,619,850   1,608,255 
          
Bank-owned life insurance 68,801   68,353   69,204   68,762   68,307 
Goodwill 12,487   12,487   12,487   12,487   12,487 
Core deposit intangible 3,781   3,875   3,969   4,063   4,156 
Other assets 48,341   49,470   46,838   46,807   50,650 
TOTAL ASSETS$  2,150,525  $  2,095,596  $  2,085,531  $  2,083,070  $  2,086,378 
          
Total deposits$  1,609,019  $  1,551,804  $  1,553,727  $  1,506,082  $  1,515,198 
Short-term borrowings 55,000   66,000   55,000   144,650   192,465 
Long-term debt 224,306   214,672   212,730   164,786   106,339 
Other liabilities 20,915   21,047   21,451   20,271   19,821 
TOTAL LIABILITIES 1,909,240   1,853,523   1,842,908   1,835,789   1,833,823 
          
TOTAL SHAREHOLDERS' EQUITY 241,285   242,073   242,623   247,281   252,555 
          
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$  2,150,525  $  2,095,596  $   2,085,531  $  2,083,070  $  2,086,378 
          


          
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,
  2018   2018   2018   2017   2017 
          
Other Data:         
          
Shares outstanding at end of period 29,453,808   29,746,707   30,138,083   30,487,309   30,816,813 
          
Book value per share$  8.19  $  8.14  $  8.05  $  8.11  $  8.20 
Tangible book value per share 7.64   7.59   7.50   7.57   7.66 
30-89 day delinquent loans 8,153   9,413   7,519   9,795   8,892 
30-89 day delinquent loans acquired from Chicopee, net of purchase accounting adjustments 3,328   3,285   3,229   4,527   4,567 
Total delinquent loans 10,960   11,917   9,837   12,247   11,064 
Total delinquent loans as a percentage of total loans 0.65%  0.71%  0.60%  0.75%  0.68%
Nonperforming loans 12,782   13,010   12,100   12,755   13,165 
Nonperforming loans acquired from Chicopee, net of purchase accounting adjustments 5,035   5,101   5,883   6,157   6,450 
Nonperforming loans as a percentage of total loans 0.76%  0.78%  0.73%  0.78%  0.81%
Nonperforming assets as a percentage of total assets 0.59%  0.62%  0.58%  0.62%  0.64%
Allowance for loan losses as a percentage of nonperforming loans 95.72%  92.13%  93.97%  84.92%  79.89%
Allowance for loan losses as a percentage of total loans 0.72%  0.72%  0.69%  0.66%  0.65%
Allowance for loan losses as a percentage of total loans, excluding loans acquired from Chicopee recorded at fair value with no corresponding allowance 1.01%  1.03%  1.02%  1.01%  1.02%

The following tables set forth the information relating to our average balances and net interest income for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017 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, 2018 June 30, 2018 September 30, 2017
 Average    Average Yield/ Average    Average Yield/ Average    Average  Yield/
 Balance Interest (6) Cost Balance Interest (6) Cost Balance Interest (6) Cost
 (Dollars in thousands)
ASSETS:                    
Interest-earning assets                    
Loans(1)(2)$  1,682,034 $17,690  4.21% $  1,664,903 $18,531  4.45% $  1,605,376 $16,681  4.16%
Securities(2)   263,378  1,772  2.69     272,809  1,835  2.69     302,030  1,901  2.52 
Other investments   17,747  228  5.14     17,601  202  4.59     17,748  172  3.88 
Short-term investments(3)   9,083  34  1.50     8,386  28  1.34     5,206  11  0.85 
Total interest-earning assets   1,972,242  19,724  4.00     1,963,699  20,596  4.20     1,930,360  18,765  3.89 
Total non-interest-earning assets   134,708         132,467         141,119     
Total assets$  2,106,950      $  2,096,166      $  2,071,479     
                     
LIABILITIES AND EQUITY:                    
Interest-bearing liabilities                    
Interest-bearing checking accounts$  86,615  94  0.43  $  98,493  87  0.35  $  82,164  81  0.39 
Savings accounts   138,112  40  0.12     142,991  48  0.13     148,433  43  0.12 
Money market accounts   415,416  489  0.47     419,604  476  0.45     400,400  386  0.39 
Time deposit accounts   600,333  2,471  1.65     578,860  2,107  1.46     568,578  1,601  1.13 
Total interest-bearing deposits   1,240,476  3,094  1.00     1,239,948  2,718  0.88     1,199,575  2,111  0.70 
Short-term borrowings and long-term debt   279,181  1,906  2.73     288,054  1,881  2.61     301,715  1,609  2.13 
Interest-bearing liabilities   1,519,657  5,000  1.32     1,528,002  4,599  1.20     1,501,290  3,720  0.99 
Non-interest-bearing deposits   328,735         312,754         300,757     
Other non-interest-bearing liabilities   16,917         16,566         16,147     
Total non-interest-bearing liabilities   345,652         329,320         316,904     
Total liabiliti