WESTFIELD, Mass., Oct. 22, 2019 (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, 2019. For the three months ended September 30, 2019, the Company reported net income of $3.2 million, or $0.12 diluted earnings per share, compared to net income of $3.9 million, or $0.14 diluted earnings per share, for the three months ended September 30, 2018.  On a linked quarter basis, net income was $3.2 million, or $0.12 diluted earnings per share, as compared to net income of $3.3 million, or $0.12 diluted earnings per share, for the three months ended June 30, 2019. For the nine months ended September 30, 2019, net income was $9.9 million, or $0.38 diluted earnings per share, compared to net income of $12.6 million, or $0.43 diluted earnings per share, for the nine months ended September 30, 2018.

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.05 per share, payable on or about November 20, 2019 to shareholders of record on November 6, 2019.

“We are pleased to report continued strong loan growth and core deposit growth during the third quarter of 2019,” stated James Hagan, President and CEO. “Growing and managing our balance sheet in this interest rate environment is a driving factor to our success, and we continue to make investments to promote long-term franchise value for the Company and our shareholders.  The net interest margin was under pressure during the first nine months of 2019, however, our balance sheet is positioned to take advantage of an expected decrease in short-term interest rates as we go into the last quarter of 2019,” Mr. Hagan added.           

Mr. Hagan concluded, “We continue to believe our repurchase of 1.9 million shares during the first nine months of 2019 and our ongoing quarterly dividend enhances shareholder value. We are also working to further enhance our profitability through continued prudent loan and core deposit growth along with our previously announced strategic expansion in the Connecticut marketplace.”  

Key Highlights:

• Loans: Total loans as of September 30, 2019 were $1.8 billion, an increase of $54.7 million, or 3.2%, from December 31, 2018. Average loans increased $50.7 million, or 3.0%, from the three months ended June 30, 2019 to the three months ended September 30, 2019.
   
• Deposits: Total deposits increased $73.5 million, or 4.6%, from December 31, 2018 to September 30, 2019. 
   
• Core Deposits: Core deposits increased $46.7 million, or 4.8%, from June 30, 2019, and increased $77.4 million, or 8.3%, from December 31, 2018. At September 30, 2019, non-interest bearing deposit accounts represented 23% of total deposits. Although there is seasonal fluctuation typically experienced in the third quarter of each year, average core deposits increased $12.9 million, or 1.3%, from the three months ended June 30, 2019 to the three months ended September 30, 2019, after increasing $22.3 million, or 2.4%, from the three months ended March 31, 2019 to the three months ended June 30, 2019. The loan-to-deposit ratio decreased from 106.3% at December 31, 2018 to 104.9% at September 30, 2019.
   
• Allowance for Loan Losses and Credit Quality: Allowance for loan losses as a percentage of total loans was 0.76% and 0.71% at September 30, 2019 and December 31, 2018, respectively.  Non-performing loans decreased from $13.5 million, or 0.79% of total loans, at December 31, 2018 to $11.1 million, or 0.63% of total loans, at September 30, 2019.

• Net Interest Margin: The net interest margin was 2.88% for the three months ended September 30, 2019, compared to 2.89% for the three months ended June 30, 2019.  The net interest margin, on a tax-equivalent basis, was 2.91% for the three months ended September 30, 2019, compared to 2.92% for the three months ended June 30, 2019. Consistent with the rest of the banking industry, we continue to address funding cost headwinds and are focused on acquiring the most cost effective funding sources to fund our loan growth momentum. In order to address the margin compression, we intend to continue focusing on attracting lower cost core deposits, which typically also generate fee income for the Company.
   
• Non-interest Expense: Non-interest expense decreased $400,000, or 3.3%, from the three months ended June 30, 2019 to the three months ended September 30, 2019 and represented 2.18% of average assets as of September 30, 2019. Non-interest expense has remained relatively flat over the last three quarters. We have maintained these levels as we continue to invest in our Company in order to generate and handle the significant growth in loans and deposits realized over the last two quarters.
   
• Repurchases: During the nine months ended September 30, 2019, the Company repurchased approximately 1.9 million shares under its previously approved repurchase plan.  As of September 30, 2019, there were 1,126,866 shares available to repurchase under the plan.
   
• Capital Management: Book value per share was $8.73 at September 30, 2019, compared to $8.35 at December 31, 2018, while tangible book value per share increased $0.36, or 4.6%, from $7.78 at December 31, 2018 to $8.14 at September 30, 2019.  As of September 30, 2019, the Company’s and the Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations.

Net Income for the Three Months Ended September 30, 2019 Compared to the Three Months Ended June 30, 2019

The Company reported net income of $3.2 million, or $0.12 diluted earnings per share, for the three months ended September 30, 2019, compared to net income of $3.3 million, or $0.12 diluted earnings per share, for the three months ended June 30, 2019. Return on average assets and return on average equity were 0.60% and 5.53% respectively, for the three months ended September 30, 2019, as compared to 0.62% and 5.76%, respectively, for the three months ended June 30, 2019.

Net Interest Income and Net Interest Margin

On a sequential quarter basis, net interest income increased $327,000, or 2.3%, to $14.5 million for the three months ended September 30, 2019, from $14.2 million for the three months ended June 30, 2019.  The increase in net interest income was due to an increase in interest and dividend income of $589,000, or 2.9%, partially offset by an increase in interest expense of $262,000, or 4.4%. The increase in interest expense was due to an increase in interest expense on Federal Home Loan Bank (“FHLB”) borrowings of $175,000, or 10.6%, and an increase in interest expense on deposits of $87,000, or 2.0%.

The net interest margin was 2.88% for the three months ended September 30, 2019, compared to 2.89% for the three months ended June 30, 2019.  The net interest margin, on a tax-equivalent basis, was 2.91% for the three months ended September 30, 2019, compared to 2.92% for the three months ended June 30, 2019.  The amortization of purchase accounting adjustments related to the merger with Chicopee Bancorp, Inc. (“Chicopee”) increased net interest income by $154,000 during the three months ended September 30, 2019, compared to a decrease in net interest income of $79,000 during the three months ended June 30, 2019. Excluding purchase accounting adjustments, the net interest margin was 2.85% for the three months ended September 30, 2019 and 2.91% for the three months ended June 30, 2019.

The average yield on interest-earning assets remained unchanged at 4.15% for the three months ended September 30, 2019 and the three months ended June 30, 2019. Excluding purchase accounting adjustments, the average yield on interest-earning assets decreased five basis point from 4.17% for the three months ended June 30, 2019 to 4.12% for the three months ended September 30, 2019.

The average cost of funds increased two basis points from 1.62% for the three months ended June 30, 2019 to 1.64% for the three months ended September 30, 2019. The average cost of core deposits, including non-interest bearing demand deposits, increased one basis point to 32 basis points for the three months ended September 30, 2019, from 31 basis points for the three months ended June 30, 2019. The average cost of time deposits increased four basis points from 2.14% for the three months ended June 30, 2019 to 2.18% for the three months ended September 30, 2019.  The average cost of borrowings decreased 12 basis points from 3.02% for the three months ended June 30, 2019 to 2.90% for the three months ended September 30, 2019. Average demand deposits, an interest-free source of funds, increased $5.3 million, or 1.5%, from $363.3 million, or 22.2% of total average deposits, for the three months ended June 30, 2019, to $368.6 million, or 22.5% of total average deposits, for the three months ended September 30, 2019.

During the three months ended September 30, 2019, average interest-earning assets increased $35.0 million, or 1.8%, to $2.0 billion. The increase in average interest-earning assets was primarily due to an increase in average loans of $50.7 million, or 3.0%, partially offset by a decrease in average securities of $10.1 million, or 4.1%.

Provision for Loan Losses

The provision for loan losses increased $925,000 to $1.3 million for the three months ended September 30, 2019 from $350,000 for the three months ended June 30, 2019. The Company recorded net charge-offs of $426,000 for the three months ended September 30, 2019, as compared to net recoveries of $194,000 for the three months ended June 30, 2019. Also contributing to the increase in the general reserves was an increase in total loans of $29.4 million, or 1.7%. During the three months ended September 30, 2019, the Company reported charge-offs of $470,000, offset partially by recoveries totaling $44,000. 

Non-Interest Income

On a sequential quarter basis, non-interest income increased $94,000, or 3.7%, to $2.6 million for the three months ended September 30, 2019, from $2.5 million for the three months ended June 30, 2019. The increase in non-interest income was primarily due to an increase in service charges and fees of $168,000, or 9.1%. For the three months ended June 30, 2019, service charges and fees included $110,000 in non-recurring interchange fee income. In addition, non-interest income for the three months ended September 30, 2019 included approximately $180,000 in seasonal non-interest income. The increase in service charges and fees was partially offset by a decrease in other income of $151,000, or 73.3%, due to a decrease in swap fees and a decrease in income from bank-owned life insurance (“BOLI”) of $34,000, or 7.1%. During the three months ended September 30, 2019, the Company reported unrealized gains on marketable equity securities of $45,000 and realized gains on the sale of securities of $49,000, compared to unrealized gains on marketable equity securities of $79,000 and realized losses on the sale of securities of $96,000 during the three months ended June 30, 2019.

Non-Interest Expense

For the three months ended September 30, 2019, non-interest expense decreased $400,000, or 3.3%, to $11.7 million, or 2.18% of average assets, from $12.1 million, or 2.31% of average assets, for the three months ended June 30, 2019.  The decrease in non-interest expense was primarily due to a decrease in Federal Deposit Insurance Corporation (“FDIC”) insurance expense of $231,000, or 97.9%, and a decrease in other non-interest expense of $101,000, or 5.2%, along with a decrease in professional fees of $61,000, or 10.0%, a decrease in occupancy expense of $23,000, or 2.3%, a decrease in advertising expense of $6,000, or 1.6%, and a decrease in furniture and equipment of $3,000, or 0.7%. The decrease in the FDIC insurance expense was due to the small bank credit applied to quarterly assessments by the FDIC in the third quarter of 2019. Small bank credits will automatically be applied each quarter that the reserve ratio is at least 1.38%, up to the full amount of a small bank's credit or assessment, whichever is less. These decreases were partially offset by an increase in salaries and benefits of $17,000, or 0.2%, and an increase in data processing of $8,000, or 1.1%. For the three months ended September 30, 2019, the efficiency ratio was 68.9%, compared to 72.5% for the three months ended June 30, 2019.

Income Tax Provision

The Company’s effective tax rate decreased to 21.8% for the three months ended September 30, 2019, from 23.0% for the three months ended June 30, 2019.

Net Income for the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

The Company reported net income of $3.2 million, or $0.12 diluted earnings per share, for the three months ended September 30, 2019, compared to net income of $3.9 million, or $0.14 diluted earnings per share, for the three months ended September 30, 2018. Return on average assets and return on average equity were 0.60% and 5.53%, respectively, for the three months ended September 30, 2019, as compared to 0.74% and 6.42%, respectively, for the three months ended September 30, 2018.

Net Interest Income and Net Interest Margin

Net interest income decreased $77,000, or 0.5%, to $14.5 million, for the three months ended September 30, 2019, from $14.6 million for the three months ended September 30, 2018.  The decrease in net interest income was due to an increase in interest expense of $1.3 million, or 25.5%, partially offset by an increase in interest and dividend income of $1.2 million, or 6.1%.  The increase in interest expense was primarily due to a $1.4 million, or 44.0%, increase in interest expense on deposits, partially offset by a decrease of $84,000, or 4.4%, in interest expense on FHLB borrowings.

Net interest income for the three months ended September 30, 2018 included $62,000 in negative purchase accounting adjustments, compared to $154,000 in positive purchase accounting adjustments during the three months ended September 30, 2019. Excluding these adjustments, net interest income decreased $293,000, or 2.0%, from $14.7 million during the three months ended September 30, 2018, compared to $14.4 million during the three months ended September 30, 2019.

The net interest margin was 2.88% for the three months ended September 30, 2019, compared to 2.94% for the three months ended September 30, 2018.  The net interest margin, on a tax-equivalent basis, was 2.91% for the three months ended September 30, 2019, compared to 2.96% for the three months ended September 30, 2018. The amortization of purchase accounting adjustments related to the merger with Chicopee decreased net interest income by $62,000 during the three months ended September 30, 2018, compared to an increase of $154,000 during the three months ended September 30, 2019. Excluding the purchase accounting adjustments, the net interest margin was 2.85% for the three months ended September 30, 2019 and 2.95% for the three months ended September 30, 2018.

The average yield on interest-earning assets increased 18 basis points from 3.97% for the three months ended September 30, 2018 to 4.15% for the three months ended September 30, 2019. Excluding the purchase accounting adjustments, the average yield on interest-earning assets increased 12 basis points from 4.00% for the three months ended September 30, 2018 to 4.12% for the three months ended September 30, 2019, respectively. During the three months ended September 30, 2019, the average cost of funds increased 33 basis points from 1.31% for the three months ended September 30, 2018 to 1.64% for the three months ended September 30, 2019. The average cost of core deposits, which include non-interest bearing demand accounts, increased six basis points from 0.26% for the three months ended September 30, 2018 to 0.32% for the three months ended September 30, 2019. The average cost of time deposits increased 55 basis points from 1.63% for the three months ended September 30, 2018 to 2.18% for the three months ended September 30, 2019. The average cost of FHLB borrowings increased 19 basis points during the same period. For the three months ended September 30, 2019, average demand deposits, an interest-free source of funds, increased $39.9 million, or 12.1%, to $368.6 million, or 22.5% of total average deposits, from $328.7 million, or 20.9% of total average deposits for the three months ended September 30, 2018.

During the three months ended September 30, 2019, average interest-earning assets increased $30.7 million, or 1.6%, to $2.0 billion compared to the three months ended September 30, 2018. The increase in average interest-earning assets was due to an increase in average loans of $57.2 million, or 3.4%, partially offset by a decrease in average securities of $24.4 million, or 9.3%.

Provision for Loan Losses

The provision for loan losses increased $925,000, from $350,000 for the three months ended September 30, 2018 to $1.3 million for the three months ended September 30, 2019. The Company recorded net charge-offs of $426,000 for the three months ended September 30, 2019, as compared to net charge-offs of $101,000 for the three months ended September 30, 2018.  During the three months ended September 30, 2019, the Company recorded charge-offs of $470,000, primarily due to an existing substandard commercial loan relationship, partially offset by recoveries of $44,000.

Non-Interest Income

Non-interest income increased $315,000, or 13.7%, to $2.6 million for the three months ended September 30, 2019, from $2.3 million for the three months ended September 30, 2018, primarily due to an increase in service charges and fees of $127,000, or 6.7%, an increase in other non-interest income of $55,000 primarily related to swap fee income, and a gain on the sale of securities of $49,000. During the three months ended September 30, 2019, the Company reported $45,000 in unrealized gains on marketable equity securities, compared to unrealized losses on marketable equity securities of $43,000 for the three months ended September 30, 2018.

Non-Interest Expense

For the three months ended September 30, 2019, non-interest expense increased $168,000, or 1.5%, to $11.7 million, or 2.18% of average assets, from $11.6 million, or 2.18% of average assets, for the three months ended September 30, 2018. The increase in non-interest expense was primarily due to an increase in salaries and benefits of $442,000, or 6.9%, an increase in data processing of $68,000, or 10.6%, an increase in furniture and equipment of $24,000, or 6.0%, an increase in occupancy expense of $23,000, or 2.4%, and an increase in advertising expense of $13,000, or 3.7%.  These increases were partially offset by a decrease in professional fees of $221,000, or 28.8%, and a decrease in FDIC insurance expense of $153,000, or 96.8%, due to the small bank credit applied to quarterly assessments by the FDIC in the third quarter of 2019. Small bank credits will automatically be applied each quarter that the reserve ratio is at least 1.38%, up to the full amount of a small bank's credit or assessment, whichever is less.  For the three months ended September 30, 2019, the efficiency ratio was 68.9%, compared to 68.3% for the three months ended September 30, 2018.

Income Tax Provision

The Company’s effective tax rate increased from 21.5% for the three months ended September 30, 2018 to 21.8% for the three months ended September 30, 2019.

Net Income for the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

For the nine months ended September 30, 2019, the Company reported net income of $9.9 million, or $0.38 diluted earnings per share, compared to $12.6 million, or $0.43 diluted earnings per share, for the nine months ended September 30, 2018. Return on average assets and return on average equity were 0.63% and 5.78% for the nine months ended September 30, 2019, compared to 0.80% and 6.95% for the nine months ended September 30, 2018, respectively. Adjusting net income for gains on BOLI of $715,000, favorable purchase accounting adjustments of $1.1 million and a prepayment penalty of $279,000 all reported during the nine months ended September 30, 2018, and adjusting for the $97,000 of positive purchase accounting adjustments and $67,000 in prepayment penalties reported during the nine months ended September 30, 2019, net income was $9.8 million, or $0.37 diluted earnings per share, for the nine months ended September 30, 2019, compared to net income of $10.9 million, or $0.37 diluted earnings per share, for the nine months ended September 30, 2018.

Net Interest Income and Net Interest Margin

During the nine months ended September 30, 2019, net interest income decreased $2.1 million, or 4.7%, to $43.1 million, compared to $45.2 million for the nine months ended September 30, 2018. The decrease in net interest income was due to an increase in interest expense of $4.4 million, or 32.4%, partially offset by an increase of $2.3 million, or 3.9%, in interest and dividend income. The increase in interest expense was primarily due to the increase in interest expense on deposits of $4.6 million, or 56.6%, primarily time deposits, while interest expense on FHLB borrowings decreased $208,000, or 3.8%. Net interest income for the nine months ended September 30, 2018 included $1.1 million in favorable purchase accounting adjustments primarily due to the full payoff of a purchase credit impaired loan from Chicopee, compared to $97,000 in positive purchase accounting adjustments for the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company also reported a prepayment penalty fee of $279,000, compared to $67,000 during the nine months ended September 30, 2019. Excluding these adjustments, interest and dividend income increased $3.2 million, or 5.5%, offset by a $4.2 million, or 30.0%, increase in interest expense.

The net interest margin for the nine months ended September 30, 2019 was 2.90%, compared to 3.09% during the nine months ended September 30, 2018. The net interest margin, on a tax-equivalent basis, was 2.93% for the nine months ended September 30, 2019, compared to 3.11% for the nine months ended September 30, 2018.

The decrease in net interest margin was largely due to a decrease in purchase accounting adjustments from a positive adjustment of $1.1 million during the nine months ended September 30, 2018, compared to a positive adjustment of $97,000 during the nine months ended September 30, 2019. The result was a decrease of 12 basis points on the net interest margin. Prepayment penalties decreased $212,000, from $279,000 during the nine months ended September 30, 2018 to $67,000 during the nine months ended September 30, 2019, which further decreased the net interest margin by two basis points. After these adjustments, the adjusted net interest margin decreased from 3.00% during the three months ended September 30, 2018 to 2.89% during the nine months ended September 30, 2019.

The average yield on interest-earning assets increased 11 basis points from 4.04% for the nine months ended September 30, 2018 to 4.15% for the nine months ended September 30, 2019. Excluding the purchase accounting adjustments and the prepayment penalties mentioned above, the average yield on interest-earning assets increased 17 basis points from 3.98% for the nine months ended September 30, 2018 to 4.15% for the nine months ended September 30, 2019, respectively. During the nine months ended September 30, 2019, the average cost of funds increased 40 basis points from 1.20% for the nine months ended September 30, 2018 to 1.60% for the nine months ended September 30, 2019. The average cost of core deposits, including non-interest-bearing demand deposits, increased seven basis points from 0.24% for the nine months ended September 30, 2018 to 0.31% for the nine months ended September 30, 2019, while the average cost of time deposits increased 63 basis points from 1.47% for the nine months ended September 30, 2018 to 2.10% during the same period in 2019. The average cost of borrowings increased 36 basis points from 2.57% for the nine months ended September 30, 2018 to 2.93% for the nine months ended September 20, 2019. For the nine months ended September 30, 2019, average demand deposits, an interest-free source of funds, increased $41.5 million, or 13.1%, from $317.3 million, or 20.5% of total average deposits, for the nine months ended September 30, 2018 to $358.8 million, or 22.0% of total average deposits, for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, average interest-earning assets increased $25.6 million, or 1.3%, to $2.0 billion. The increase in average interest-earning assets was due to an increase in average loans of $46.1 million, or 2.8%, partially offset by a decrease in average securities of $23.8 million, or 8.7%.

Provision for Loan Losses

The provision for loan losses of $1.7 million increased $75,000, or 4.7%, for the nine months ended September 30, 2019, compared to $1.6 million for the nine months ended September 30, 2018. The Company recorded net charge-offs of $456,000 for the nine months ended September 30, 2019, as compared to net charge-offs of $196,000 for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company recorded charge-offs of $1.4 million, compared to $653,000 during the same period in 2018.  During the nine months ended September 30, 2019, the Company also recorded recoveries of $937,000, primarily due to a partial recovery of $812,000 related to a single commercial real estate loan previously charged-off in 2010.

Non-Interest Income

For the nine months ended September 30, 2019, non-interest income of $7.3 million increased $305,000, or 4.4%, compared to $7.0 million for the nine months ended September 30, 2018. Service charges and fees increased $334,000, or 6.5%, and other income increased $139,000, or 106.1%, primarily due to swap fees on commercial real estate loans. During the nine months ended September 30, 2019, service charges and fees included $110,000 in non-recurring interchange fee income. During the nine months ended September 30, 2019, the Company reported unrealized gains on marketable equity securities of $194,000, compared to unrealized losses of $190,000 during the nine months ended September 30, 2018 as well as a decrease in realized losses on the sale of securities of $238,000, or 95.2%, during the same period. During the nine months ended September 30, 2018, the Company reported a $48,000 gain on the sale of other real estate owned (“OREO”) and a $715,000 net gain on BOLI. Excluding the net gain on BOLI, OREO and the realized and unrealized security losses discussed above, non-interest income increased $446,000, or 6.7%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Non-Interest Expense

For the nine months ended September 30, 2019, non-interest expense increased $1.4 million, or 3.9%, to $35.9 million, or 2.27% of average assets, compared to $34.5 million, or 2.21% of average assets for the nine months ended September 30, 2018. The increase in non-interest expense was primarily due to an increase in salaries and benefits of $1.0 million, or 5.1%, an increase in other non-interest expenses of $216,000, or 4.1%, an increase in occupancy expense of $165,000, or 5.5%, an increase in data processing of $120,000, or 6.1%, an increase in an increase in furniture and equipment of $107,000, or 9.3%, and an increase in advertising expense of $45,000, or 4.3%. These increases were partially offset by a decrease in FDIC insurance expense of $46,000, or 9.9%, and a decrease in professional fees of $249,000, or 11.8%. For the nine months ended September 30, 2019, the efficiency ratio was 71.6%, compared to 66.6% for the nine months ended September 30, 2018. The adjusted efficiency ratio, excluding purchase account adjustments and prepayment penalties, was 71.8% for the nine months ended September 30, 2019, compared to 68.4% for the nine months ended September 30, 2018.

Income Tax Provision

The effective tax rate for the nine months ended September 30, 2019 and September 30, 2018 was 22.4% and 21.7%, respectively.

Balance Sheet

At September 30, 2019, total assets were $2.2 billion, an increase of $54.9 million, or 2.6%, from December 31, 2018. During the same period, total loans increased $54.7 million, or 3.2%, securities available-for-sale and marketable equity securities available-for-sale decreased $22.2 million, or 8.5%, and cash and cash equivalents decreased $18.6 million, or 69.5%.

Loans

Total loans increased $54.7 million, or 3.2%, from December 31, 2018, primarily due to an increase in commercial real estate loans of $52.4 million, or 6.8%, an increase in residential real estate loans of $3.7 million, or 0.6%, and an increase in consumer loans of $467,000, or 9.0%, partially offset by a decrease in commercial and industrial loans of $1.8 million, or 0.7%. In order to reduce interest rate risk, the Company currently services $50.7 million in residential loans sold to the secondary market. The servicing rights will continue to be retained on all loans sold. For the three months ended September 30, 2019, the loan portfolio represents 86.8% of average interest-earning assets and is comprised of 60.7% commercial related credits.

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

               

	September 30, 2019			December 31, 2018
	(Dollars in thousands)
Commercial real estate loans	$	821,321		$	768,881
Commercial and industrial loans		241,732			243,493
Residential real estate loans		678,601			674,879
Consumer loans		5,670			5,203
Total gross loans		1,747,324			1,692,456
Unamortized premiums and net deferred loans fees and costs		4,258			4,401
Total loans	$	1,751,582		$	1,696,857

Credit Quality

Management continues to remain attentive to any signs of deterioration in borrowers’ financial conditions and is proactive in taking the appropriate steps to mitigate risk and reduce nonperforming loans. At September 30, 2019, nonperforming loans totaled $11.1 million, or 0.63% of total loans, compared to $13.5 million, or 0.79% of total loans at December 31, 2018.  There were no loans 90 or more days past due and still accruing interest at September 30, 2019. Nonperforming assets to total assets was 0.51% and 0.64% at September 30, 2019 and December 31, 2018, respectively. The allowance for loan losses as a percentage of total loans was 0.76% at September 30, 2019, compared to 0.71% at December 31, 2018. At September 30, 2019, the allowance for loan losses as a percentage of nonperforming loans was 120.0%, compared to 89.4% at December 31, 2018. 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 0.99% at September 30, 2019 and 0.98% at December 31, 2018.

Total delinquent loans past due 30-89 days increased $2.0 million, or 28.1%, to $9.2 million, or 0.52% of total loans, at September 30, 2019, from $7.2 million, or 0.42% of total loans, at December 31, 2018.  The increase in the 30-89 days past due category was primarily due to an existing $3.0 million substandard non-accrual commercial loan relationship that was in the process of workout at September 30, 2019 and was subsequently resolved during the month of October 2019.

Deposits

At September 30, 2019, total deposits were $1.7 billion, an increase of $73.5 million, or 4.6%, from December 31, 2018. Core deposits, which the Company defines as all deposits except time deposits, increased $77.4 million, or 8.3%, from $935.9 million, or 58.6% of total deposits, at December 31, 2018, to $1.0 billion, or 60.7% of total deposits, at September 30, 2019. Non-interest-bearing deposits increased $27.1 million, or 7.6%, to $382.5 million, interest-bearing checking accounts increased $18.7 million, or 29.4%, to $82.3 million, savings accounts increased $6.5 million, or 5.4%, to $125.0 million, and money market accounts increased $25.2 million, or 6.3%, to $423.5 million. The increase in these core deposits is a result of management’s continued sales efforts along with customer preferences for competitively priced short-term deposits. Time deposits, which include brokered deposits, represented 39.3% of total deposits, and decreased $3.8 million, or 0.6%, from $660.0 million at December 31, 2018 to $656.2 million at September 30, 2019. Brokered deposits, decreased $2.6 million, or 10.9% to $21.2 million at September 30, 2019, from $23.8 million at December 31, 2018.

FHLB Advances

FHLB advances decreased $26.6 million, or 10.0%, from $267.3 million at December 31, 2018, to $240.7 million at September 30, 2019. The Company utilized the increase in deposit balances during the year to pay down FHLB borrowings and to fund loan growth.

Capital

At September 30, 2019, shareholders’ equity was $232.0 million, or 10.7% of total assets, compared to $237.0 million, or 11.2% of total assets, at December 31, 2018. The decrease in shareholders’ equity reflects $19.1 million for the repurchase of the Company’s shares and the payment of regular cash dividends of $4.0 million, both partially offset by net income of $9.9 million and a decrease in accumulated other comprehensive loss of $6.9 million. Total shares outstanding as of September 30, 2019 were 26,561,742. 

The Company’s book value per share increased by $0.38, or 4.6%, to $8.73 at September 30, 2019, from $8.35 at December 31, 2018.  The Company’s tangible book value per share increased by $0.36, or 4.6%, to $8.14 at September 30, 2019 from $7.78 at December 31, 2018. As of September 30, 2019, the Company’s and the Bank’s regulatory capital ratios continued to exceed the levels required to be considered “well-capitalized” under federal banking regulations. 

Share Repurchase

On March 1, 2019, the Company announced the completion of its 2017 Repurchase Plan (the “2017 Plan”), under which the Company repurchased a total of 3,047,000 shares. On January 29, 2019, the Board of Directors authorized the 2019 Repurchase Plan (the “2019 Plan”) under which the Company may purchase up to 2,814,200 shares, or 10% of its outstanding common stock.  The 2019 Plan commenced upon the completion of the 2017 Plan.  During the three months ended September 30, 2019, the Company repurchased 141,726 shares under the 2019 Plan. For the nine months ended September 30, 2019, the Company repurchased 1,938,667 shares under both the 2017 Plan and the 2019 Plan. As of September 30, 2019, there were 1,126,866 shares remaining under the 2019 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, 2018.  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.

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

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Net Income and Other Data
(Dollars in thousands, except per share data)
(Unaudited) 

	Three Months Ended															Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,
		2019			2019			2019			2018			2018			2019			2018
INTEREST AND DIVIDEND INCOME:
Loans	$	19,111		$	18,302		$	18,058		$	18,111		$	17,577		$	55,471		$	52,684
Securities		1,465			1,630			1,690			1,754			1,766			4,785			5,403
Other investments		192			210			236			232			228			638			631
Short-term investments		36			73			76			92			34			185			83
Total interest and dividend income		20,804			20,215			20,060			20,189			19,605			61,079			58,801
INTEREST EXPENSE:
Deposits		4,454			4,367			3,969			3,516			3,094			12,790			8,167
Long-term debt		1,102			1,051			1,139			1,202			1,193			3,292			3,178
Short-term borrowings		720			596			626			651			713			1,942			2,264
Total interest expense		6,276			6,014			5,734			5,369			5,000			18,024			13,609
Net interest and dividend income		14,528			14,201			14,326			14,820			14,605			43,055			45,192
PROVISION FOR LOAN LOSSES		1,275			350			50			300			350			1,675			1,600
Net interest and dividend income after provision for loan losses		13,253			13,851			14,276			14,520			14,255			41,380			43,592
NON-INTEREST INCOME:
Service charges and fees		2,018			1,850			1,633			1,770			1,891			5,501			5,167
Income from bank-owned life insurance		444			478			425			451			448			1,347			1,374
Gain on bank-owned life insurance death benefit		-			-			-			-			-			-			715
Gain (loss) on sales of securities, net		49			(96	)		35			(31	)		-			(12	)		(250	)
Gain on sale of OREO		-			-			-			-			-			-			48
Unrealized gain (loss) on equity securities		45			79			70			48			(43	)		194			(190	)
Other income		55			206			8			-			-			270			131
Total non-interest income		2,611			2,517			2,171			2,238			2,296			7,300			6,995
NON-INTEREST EXPENSE:
Salaries and employees benefits		6,893			6,876			6,780			6,434			6,451			20,549			19,548
Occupancy		975			998			1,171			995			952			3,144			2,979
Furniture and equipment		424			427			405			412			400			1,256			1,149
Data processing		710			702			665			681			642			2,077			1,957
Professional fees		546			607			705			703			767			1,858			2,107
FDIC insurance		5			236			176			140			158			417			463
Advertising expense		364			370			364			342			351			1,098			1,053
Other		1,823			1,924			1,757			1,986			1,851			5,504			5,288
Total non-interest expense		11,740			12,140			12,023			11,693			11,572			35,903			34,544
INCOME BEFORE INCOME TAXES		4,124			4,228			4,424			5,065			4,979			12,777			16,043
INCOME TAX PROVISION		899			971			994			1,223			1,070			2,864			3,476
NET INCOME	$	3,225		$	3,257		$	3,430		$	3,842		$	3,909		$	9,913		$	12,567
Basic earnings per share	$	0.12		$	0.13		$	0.13		$	0.14		$	0.14		$	0.38		$	0.43
Weighted average shares outstanding		25,854,040			26,047,187			27,037,520			28,252,383			28,789,132			26,308,580			29,100,735
Diluted earnings per share	$	0.12		$	0.12		$	0.13		$	0.14		$	0.14		$	0.38		$	0.43
Weighted average diluted shares outstanding		25,969,365			26,160,169			27,153,160			28,395,964			28,937,038			26,423,229			29,242,862
Other Data:
Return on average assets (1)		0.60	%		0.62	%		0.66	%		0.72	%		0.74	%		0.63	%		0.80	%
Return on average assets, exclusive of tax benefits (1)(3)		0.60	%		0.62	%		0.66	%		0.72	%		0.74	%		0.63	%		0.79	%
Return on average equity (1)		5.53	%		5.76	%		6.05	%		6.43	%		6.42	%		5.78	%		6.95	%
Return on average equity, exclusive of tax benefits (1)(3)		5.53	%		5.76	%		6.01	%		6.43	%		6.42	%		5.78	%		6.85	%
Efficiency ratio (2)(3)		68.88	%		72.54	%		73.35	%		68.62	%		68.30	%		71.56	%		66.60	%
Net interest margin, on a fully tax-equivalent basis		2.91	%		2.92	%		2.97	%		2.99	%		2.96	%		2.93	%		3.11	%
(1)  Annualized.
(2)  The efficiency ratio represents the ratio of operating expenses divided by the sum of net interest and dividend income and non-interest income, excluding realized and unrealized gains and losses on securities and OREO and gain on bank-owned life insurance.
(3)  Please refer to the “Reconciliation of non-GAAP to GAAP Financial Measures” on page 16 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,
		2019				2019				2019				2018				2018
Cash and cash equivalents	$	45,399			$	25,688			$	44,482			$	26,789			$	61,999
Securities available-for-sale, at fair value		231,258				234,999				244,878				253,748				252,984
Marketable equity securities, at fair value		6,726				6,639				6,518				6,408				6,319
Federal Home Loan Bank of Boston and other restricted stock - at cost		13,064				11,756				12,407				14,695				15,480
Loans		1,751,582				1,722,161				1,680,666				1,696,857				1,692,568
Allowance for loan losses		(13,272	)			(12,423	)			(11,879	)			(12,053	)			(12,235	)
Net loans		1,738,310				1,709,738				1,668,787				1,684,804				1,680,333
Bank-owned life insurance		70,599				70,155				69,677				69,252				68,801
Goodwill		12,487				12,487				12,487				12,487				12,487
Core deposit intangible		3,406				3,500				3,594				3,688				3,781
Other assets		52,435				52,182				52,867				46,951				48,341
TOTAL ASSETS	$	2,173,684			$	2,127,144			$	2,115,697			$	2,118,822			$	2,150,525
Total deposits	$	1,669,515			$	1,644,551			$	1,629,834			$	1,595,993			$	1,609,019
Short-term borrowings		35,000				50,000				35,000				59,250				55,000
Long-term debt		205,681				175,683				196,039				208,018				224,306
Other liabilities		31,507				27,194				27,507				18,532				20,915
TOTAL LIABILITIES		1,941,703				1,897,428				1,888,380				1,881,793				1,909,240
TOTAL SHAREHOLDERS' EQUITY		231,981				229,716				227,317				237,029				241,285
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,173,684			$	2,127,144			$	2,115,697			$	2,118,822			$	2,150,525

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,
	2019				2019				2019				2018				2018
Other Data:
Shares outstanding at end of period		26,561,742				26,703,468				26,953,429				28,393,348				29,453,808
Book value per share	$	8.73			$	8.60			$	8.43			$	8.35			$	8.19
Tangible book value per share		8.14				8.00				7.84				7.78				7.64
30-89 day delinquent loans		9,176				7,165				8,513				7,183				8,153
30-89 day delinquent loans acquired from Chicopee, net of purchase accounting adjustments		3,270				3,160				2,751				2,763				3,328
Total delinquent loans		13,435				14,712				15,103				12,495				10,960
Total delinquent loans as a percentage of total loans		0.77	%			0.85	%			0.90	%			0.74	%			0.65	%
Nonperforming loans		11,058				14,920				15,312				13,484				12,782
Nonperforming loans acquired from Chicopee, net of purchase accounting adjustments		4,122				3,938				4,032				4,894				5,035
Nonperforming loans as a percentage of total loans		0.63	%			0.87	%			0.91	%			0.79	%			0.76	%
Nonperforming assets as a percentage of total assets		0.51	%			0.70	%			0.72	%			0.64	%			0.59	%
Allowance for loan losses as a percentage of nonperforming loans		120.02	%			83.26	%			77.58	%			89.39	%			95.72	%
Allowance for loan losses as a percentage of total loans		0.76	%			0.72	%			0.71	%			0.71	%			0.72	%
Allowance for loan losses as a percentage of total loans, excluding loans acquired from Chicopee recorded at fair value with no corresponding allowance		0.99	%			0.96	%			0.96	%			0.98	%			1.01	%

 

The following tables set forth the information relating to our average balances and net interest income for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018 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, 2019											June 30, 2019										September 30, 2018
	Average								Average Yield/			Average							Average Yield/			Average							Average  Yield/
	Balance			Interest(8)					Cost			Balance			Interest(8)				Cost			Balance			Interest(8)				Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2)	$	1,739,266			$	19,244			4.39	%		$	1,688,553		$	18,434			4.38	%		$	1,682,034		$	17,690			4.17	%
Securities(2)		238,961				1,470			2.44				249,110			1,635			2.63				263,378			1,772			2.67
Other investments		16,354				192			4.66				15,131			210			5.57				17,747			228			5.10
Short-term investments(3)		8,330				36			1.71				15,134			73			1.93				9,083			34			1.49
Total interest-earning assets		2,002,911				20,942			4.15				1,967,928			20,352			4.15				1,972,242			19,724			3.97
Total non-interest-earning assets		138,543											137,749										134,708
Total assets	$	2,141,454										$	2,105,677									$	2,106,950
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	70,719				105			0.59			$	70,619			94			0.53			$	86,615			94			0.43
Savings accounts		128,133				36			0.11				126,855			42			0.13				138,112			40			0.11
Money market accounts		402,716				641			0.63				396,555			601			0.61				415,416			489			0.47
Time deposit accounts		666,792				3,672			2.18				679,909			3,630			2.14				600,333			2,471			1.63
Total interest-bearing deposits		1,268,360				4,454			1.39				1,273,938			4,367			1.37				1,240,476			3,094			0.99
Short-term borrowings and long-term debt		249,109				1,822			2.90				218,419			1,647			3.02				279,181			1,906			2.71
Total interest-bearing liabilities		1,517,469				6,276			1.64				1,492,357			6,014			1.62				1,519,657			5,000			1.31
Non-interest-bearing deposits		368,647											363,329										328,735
Other non-interest-bearing liabilities		24,099											23,210										16,917
Total non-interest-bearing liabilities		392,746											386,539										345,652
Total liabilities		1,910,215											1,878,896										1,865,309
Total equity		231,239											226,781										241,641
Total liabilities and equity	$	2,141,454										$	2,105,677									$	2,106,950
Less: Tax-equivalent adjustment(2)						(138	)									(137	)									(119	)
Net interest and dividend income					$	14,528									$	14,201									$	14,605
Net interest rate spread(4)									2.48	%									2.50	%									2.64	%
Net interest rate spread, on a tax-equivalent basis(5)									2.51	%									2.53	%									2.66	%
Net interest margin(6)									2.88	%									2.89	%									2.94	%
Net interest margin, on a tax-equivalent basis(7)									2.91	%									2.92	%									2.96	%
Ratio of average interest-earning
assets to average interest-bearing liabilities									131.99	%									131.87	%									129.78	%

The following tables set forth the information relating to our average balances and net interest income for the nine months ended September 30, 2019 and 2018 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,
	2019										2018
	Average							Average Yield/			Average							Average Yield/
	Balance			Interest (8)				Cost			Balance			Interest (8)				Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2)	$	1,704,173		$	55,857			4.38	%		$	1,658,094		$	53,047			4.28	%
Securities(2)		249,009			4,801			2.58				272,844			5,422			2.66
Other investments		15,811			638			5.40				17,489			631			4.82
Short-term investments(3)		12,834			185			1.93				7,817			83			1.42
Total interest-earning assets		1,981,827			61,481			4.15				1,956,244			59,183			4.04
Total non-interest-earning assets		136,738										134,722
Total assets	$	2,118,565									$	2,090,966
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking accounts	$	71,416			280			0.52			$	92,718			261			0.38
Savings accounts		125,886			111			0.12				141,314			129			0.12
Money market accounts		398,189			1,798			0.60				417,724			1,383			0.44
Time deposit accounts		673,492			10,601			2.10				580,243			6,394			1.47
Total interest-bearing deposits		1,268,983			12,790			1.35				1,231,999			8,167			0.89
Short-term borrowings and long-term debt		238,837			5,234			2.93				283,302			5,442			2.57
Total interest-bearing liabilities		1,507,820			18,024			1.60				1,515,301			13,609			1.20
Non-interest-bearing deposits		358,839										317,296
Other non-interest-bearing liabilities		22,574										16,460
Total non-interest-bearing liabilities		381,413										333,756
Total liabilities		1,889,233										1,849,057
Total equity		229,332										241,909
Total liabilities and equity	$	2,118,565									$	2,090,966
Less: Tax-equivalent adjustment(2)					(402	)									(382	)
Net interest and dividend income				$	43,055									$	45,192
Net interest rate spread(4)								2.52	%									2.82	%
Net interest rate spread, on a tax-equivalent basis(5)								2.55	%									2.84	%
Net interest margin(6)								2.90	%									3.09	%
Net interest margin, on a tax-equivalent basis(7)								2.93	%									3.11	%
Ratio of average interest-earning
assets to average interest-bearing liabilities								131.44	%									129.10	%

____________________________________________________

(1) Loans, including non-accrual loans, are net of deferred loan origination costs and unadvanced funds.
(2) Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%.  The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income.
(3) Short-term investments include federal funds sold.
(4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. 
(5) Net interest rate spread, on a tax-equivalent basis, represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets.
(7) Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets.
(8) Acquired loans, time deposits and borrowings are recorded at fair value at the time of acquisition.  The fair value marks on the loans, time deposits and borrowings acquired accrete and amortize into net interest income over time.  For the three months ended September 30, 2019, June 30, 2019 and September 30, 2018, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $154,000, $(79,000) and $62,000, respectively, and for the nine months ended September 30, 2019 and 2018, the loan accretion income and interest expense reduction on time deposits and borrowings increased net interest income $97,000 and $1.1 million, respectively. Excluding these items, net interest margin, on a tax-equivalent basis, for the three months ended September 30, 2019, June 30, 2019 and September 30, 2018 was 2.88%, 2.94% and 2.97% and the net interest margin, on a tax-equivalent basis, for the nine months ended September 30, 2019 and 2018 was 2.92% and 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,
	2019				2019							2019						2018						2018						2019						2018
	(Dollars in thousands, except per share data)
Net Income:
Net income, as presented	$	3,225				$	3,257					$	3,430					$	3,842					$	3,909					$	9,913					$	12,567
Tax benefit impact (1)		-					-						(24		)				-						-						(24		)				(165			)
Core net income, exclusive of tax benefits impact	$	3,225				$	3,257					$	3,406					$	3,842					$	3,909					$	9,889					$	12,402
Diluted EPS:
Diluted earnings per share, as presented	$	0.12				$	0.12					$	0.13					$	0.14					$	0.14					$	0.38					$	0.43
Tax benefits impact (1)		-					-						-						-						-						-						(0.01			)
Core diluted EPS, exclusive of tax benefits impact	$	0.12				$	0.12					$	0.13					$	0.14					$	0.14					$	0.38					$	0.42
Return on Average Assets:
Return on average assets, as presented		0.60	%				0.62		%				0.66		%				0.72		%				0.74		%				0.63		%				0.80			%
Tax benefit impact (1)		-					-						-						-						-						-						(0.01			)
Core return on average assets, exclusive of tax benefits impact		0.60	%				0.62		%				0.66		%				0.72		%				0.74		%				0.63		%				0.79			%
Return on Average Equity:
Return on average equity, as presented		5.53	%				5.76		%				6.05		%				6.43		%				6.42		%				5.78		%				6.95			%
Tax benefits impact (1)		-					-						(0.04		)				-						-						-						(0.10			)
Core return on average equity, exclusive of tax benefits impact		5.53	%				5.76		%				6.01		%				6.43		%				6.42		%				5.78		%				6.85			%
(1) Impact of stock option exercises and bank-owned life insurance death benefits.