Market Overview

Western New England Bancorp, Inc. Reports Results for Three and Six Months Ended June 30, 2019 and Declares Quarterly Cash Dividend

Share:

WESTFIELD, Mass., July 23, 2019 (GLOBE NEWSWIRE) -- Western New England Bancorp, Inc. (the "Company" or "WNEB") (NASDAQ:WNEB), the holding company for Westfield Bank (the "Bank"), announced today the unaudited results of operations for the three and six months ended June 30, 2019. For the three months ended June 30, 2019, the Company reported net income of $3.3 million, or $0.12 diluted earnings per share, compared to net income of $5.1 million, or $0.18 diluted earnings per share, for the three months ended June 30, 2018.  On a linked quarter basis, net income was $3.3 million, or $0.12 diluted earnings per share, as compared to net income of $3.4 million, or $0.13 diluted earnings per share, for the three months ended March 31, 2019. For the six months ended June 30, 2019, net income was $6.7 million, or $0.25 diluted earnings per share, compared to net income of $8.7 million, or $0.29 diluted earnings per share, for the six months ended June 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 August 21, 2019 to shareholders of record on August 7, 2019.

"We are pleased to report strong loan growth and core deposit growth during the second quarter," stated James Hagan, President and CEO. "Total loans increased $42 million from the first quarter to the second quarter of 2019, with $65 million in new loan production. Core deposits increased $18 million, primarily due to a $31 million increase in demand accounts. Growing and managing our balance sheet in this interest rate environment is critical to our success, and we continue to make investments to promote long-term franchise value for the Company and our shareholders.  Although we experienced more than average loan payoffs during the first six months of 2019, which may continue during the second half of the year, our pipeline remains strong.  The net interest margin was under pressure during the first half of 2019, but our balance sheet is positioned to take advantage of an expected decrease in short-term interest rates as we go into the second half of 2019," Mr. Hagan added.               

Mr. Hagan concluded, "We believe our repurchase of 1.8 million shares during the first six 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 recently announced strategic expansion in the Connecticut marketplace."  

Net Income for the Three Months Ended June 30, 2019 Compared to the Three Months Ended March 31, 2019

The Company reported net income of $3.3 million, or $0.12 diluted earnings per share, for the three months ended June 30, 2019, compared to net income of $3.4 million, or $0.13 diluted earnings per share, for the three months ended March 31, 2019. Return on average assets and return on average equity were 0.62% and 5.76%, respectively, for the three months ended June 30, 2019, as compared to 0.66% and 6.05%, respectively, for the three months ended March 31, 2019.

Net Interest Income and Net Interest Margin

On a sequential quarter basis, net interest income decreased $125,000, or 0.9%, to $14.2 million for the three months ended June 30, 2019, from $14.3 million for the three months ended March 31, 2019.  The decrease in net interest income was due to an increase in interest expense of $280,000, or 4.9%, partially offset by an increase in interest and dividend income of $155,000, or 0.8%. The increase in interest expense was primarily due to an increase in interest expense on deposits of $398,000, or 10.0%, partially offset by a decrease in interest expense on Federal Home Loan Bank ("FHLB") borrowings of $118,000, or 6.7%.

The net interest margin was 2.89% for the three months ended June 30, 2019, compared to 2.94% for the three months ended March 31, 2019.  The net interest margin, on a tax-equivalent basis, was 2.92% for the three months ended June 30, 2019, compared to 2.97% for the three months ended March 31, 2019.  The amortization of purchase accounting adjustments related to the merger with Chicopee Bancorp, Inc. ("Chicopee") decreased net interest income by $79,000 during the three months ended June 30, 2019, compared to an increase of $22,000 during the three months ended March 31, 2019. Excluding the purchase accounting adjustments, the net interest margin was 2.94% for the three months ended June 30, 2019 and 2.96% for the three months ended March 31, 2019.

The average yield on interest-earning assets remained unchanged at 4.15% for the three months ended June 30, 2019 and the three months ended March 31, 2019. Excluding purchase accounting adjustments, the average yield on interest-earning assets increased one basis point from 4.16% for the three months ended March 31, 2019 to 4.17% for the three months ended June 30, 2019.

The average cost of funds increased eight basis points from 1.54% for the three months ended March 31, 2019 to 1.62% for the three months ended June 30, 2019. The average cost of core deposits, including non-interest bearing demand deposits, increased two basis points to 31 basis points for the three months ended June 30, 2019, from 29 basis points for the three months ended March 31, 2019. The average cost of time deposits increased 15 basis points from 1.99% for the three months ended March 31, 2019 to 2.14% for the three months ended June 30, 2019.  The average cost of borrowings increased 15 basis points from 2.87% for the three months ended March 31, 2019 to 3.02% for the three months ended June 30, 2019. Average demand deposits, an interest-free source of funds, increased $19.1 million, or 5.5%, from $344.3 million, or 21.4% of total average deposits, for the three months ended March 31, 2019, to $363.3 million, or 22.2% of total average deposits, for the three months ended June 30, 2019.

During the three months ended June 30, 2019, average interest-earning assets decreased $6.4 million, or 0.3%, to $2.0 billion. The decrease in average interest-earning assets was due to a decrease in average securities of $10.1 million, or 3.9%, partially offset by an increase in average loans of $4.5 million, or 0.3%.

Provision for Loan Losses

For the three months ended June 30, 2019, the provision for loan losses increased $300,000 to $350,000 for the three months ended June 30, 2019, from $50,000 for the three months ended March 31, 2019. The Company recorded net recoveries of $194,000 for the three months ended June 30, 2019, as compared to net charge-offs of $224,000 for the three months ended March 31, 2019. Contributing to the increase in the general reserves was an increase in commercial real estate loans and commercial and industrial loans of $32.0 million, or 4.2%, and $9.2 million, or 4.0%, respectively. During the three months ended June 30, 2019, the Company reported recoveries of $823,000, primarily due to a previously charged-off loan from 2010. The recovery was partially offset by charge-offs totaling $629,000, primarily due to a partial charge-off of $440,000 related to a commercial and industrial loan relationship previously reported as substandard.

Non-Interest Income

On a sequential quarter basis, non-interest income increased $346,000, or 15.9%, to $2.5 million for the three months ended June 30, 2019, from $2.2 million for the three months ended March 31, 2019. The increase in non-interest income was primarily due to an increase in service charges and fees of $217,000, or 13.3%, an increase in other income of $198,000 due to an increase in swap fees and an increase in income from bank-owned life insurance of $53,000, or 12.5%.  The increase in service charges and fees included $110,000 in non-recurring interchange fee income.  During the three months ended June 30, 2019, the Company reported unrealized gains on marketable equity securities of $79,000 and realized losses on the sale of securities of $96,000, compared to unrealized gains on marketable equity securities of $70,000 and realized gains on the sale of securities of $35,000 during the three months ended March 31, 2019.

Non-Interest Expense

For the three months ended June 30, 2019, non-interest expense increased $117,000, or 1.0%, to $12.1 million, or 2.31% of average assets, from $12.0 million, or 2.31% of average assets, for the three months ended March 31, 2019.  The increase in non-interest expense was primarily due to an increase in salaries and benefits of $96,000, or 1.4%, an increase in other expenses of $167,000, or 9.5%, an increase in data processing of $37,000, or 5.6%, an increase in furniture and equipment of $22,000, or 5.4%, an increase in FDIC insurance expense of $60,000, or 34.1%, and an increase in advertising related expenses of $6,000, or 1.6%. These expenses were partially offset by decreases in occupancy expense of $173,000, or 14.8%, due to a decrease in snow removal-related expenses and a decrease in professional fees of $98,000, or 13.9%. For the three months ended June 30, 2019, the efficiency ratio was 72.5%, compared to 73.4% for the three months ended March 31, 2019.

Income Tax Provision

The Company's effective tax rate increased from 22.5% for the three months ended March 31, 2019 to 23.0% for the three months ended June 30, 2019.

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

The Company reported net income of $3.3 million, or $0.12 diluted earnings per share, for the three months ended June 30, 2019, compared to net income of $5.1 million, or $0.18 diluted earnings per share, for the three months ended June 30, 2018. Return on average assets and return on average equity were 0.62% and 5.76%, respectively, for the three months ended June 30, 2019, as compared to 0.98% and 8.63%, respectively, for the three months ended June 30, 2018. Adjusting net income for gains on bank-owned life insurance ("BOLI") of $715,000, favorable purchase accounting adjustments of $909,000 and a prepayment penalty on a commercial payoff of $269,000, all reported during the three months ended June 30, 2018, and adjusting for the $79,000 negative purchase accounting adjustments and $21,000 in prepayment penalties reported during the three months ended June 30, 2019, net income was $3.3 million, or $0.13 diluted earnings per share, for the three months ended June 30, 2019 compared to net income of $3.2 million, or $0.11 diluted earnings per share, for the three months ended June 30, 2018.

Net Interest Income and Net Interest Margin

Net interest income decreased $1.7 million, or 10.5%, to $14.2 million, for the three months ended June 30, 2019, from $15.9 million for the three months ended June 30, 2018.  The decrease in net interest income was due to an increase in interest expense of $1.4 million, or 30.8%, and a decrease in interest and dividend income of $249,000, or 1.2%. The increase in interest expense was primarily due to a $1.6 million, or 60.7%, increase in interest expense on deposits, partially offset by a decrease of $234,000, or 12.4%, in interest expense on FHLB borrowings.

Net interest income for the three months ended June 30, 2018 included $909,000 in favorable purchase accounting adjustments and a prepayment penalty of $269,000, compared to $79,000 in negative purchase accounting adjustments and $21,000 in prepayment penalties reported during the three months ended June 30, 2019. Excluding these adjustments, net interest income decreased $428,000, or 2.9%, from $14.7 million during the three months ended June 30, 2018, compared to $14.3 million during the three months ended June 30, 2019. Interest and dividend income increased $887,000, or 4.6%, for the three months ended June 30, 2019, offset by an increase in interest expense of $1.3 million, or 27.8%.

The net interest margin was 2.89% for the three months ended June 30, 2019, compared to 3.24% for the three months ended June 30, 2018.  The net interest margin, on a tax-equivalent basis, was 2.92% for the three months ended June 30, 2019, compared to 3.27% for the three months ended June 30, 2018.

The decrease in the net interest margin was largely due to a decrease of $988,000 in purchase accounting adjustments from a favorable adjustment of $909,000 recorded during the three months ended June 30, 2018, compared to a negative adjustment of $79,000 recorded during the three months ended June 30, 2019. The decrease in purchase accounting adjustments reduced the net interest margin by 21 basis points. Prepayment penalties decreased $248,000 during the three months ended June 30, 2019, which further decreased the net interest margin by six basis points. After these adjustments, the adjusted net interest margin decreased from 3.00% during the three months ended June 30, 2018 to 2.91% during the three months ended June 30, 2019.

The average yield on interest-earning assets decreased six basis points from 4.21% for the three months ended June 30, 2018 to 4.15% for the three months ended June 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 3.99% for the three months ended June 30, 2018 to 4.17% for the three months ended June 30, 2019, respectively. During the three months ended June 30, 2019, the average cost of funds increased 41 basis points from 1.21% for the three months ended June 30, 2018 to 1.62% for the three months ended June 30, 2019. The average cost of core deposits, which include non-interest bearing demand accounts, increased six basis points from 0.25% for the three months ended June 30, 2018 to 0.31% for the three months ended June 30, 2019. The average cost of time deposits increased 68 basis points from 1.46% for the three months ended June 30, 2018 to 2.14% for the three months ended June 30, 2019. The average cost of FHLB borrowings increased 40 basis points during the same period. For the three months ended June 30, 2019, average demand deposits, an interest-free source of funds, increased $50.6 million, or 16.2%, to $363.3 million, or 22.2% of total average deposits, from $312.8 million, or 20.2% of total average deposits for the three months ended June 30, 2018.

During the three months ended June 30, 2019, average interest-earning assets increased $4.2 million, or 0.2%, to $2.0 billion compared to the three months ended June 30, 2018. The increase in average interest-earning assets was due to an increase in average loans of $23.7 million, or 1.4%, partially offset by a decrease in average securities of $23.7 million, or 8.7%.

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 June 30, 2019. The Company recorded net recoveries of $194,000 for the three months ended June 30, 2019, as compared to net charge-offs of $134,000 for the three months ended June 30, 2018.  During the three months ended June 30, 2019, the Company recorded charge-offs of $629,000, primarily due to an existing substandard commercial loan relationship, partially offset by recoveries of $823,000. The recovery was primarily due to a previously charged-off loan from 2010.

Non-Interest Income

Non-interest income decreased $416,000, or 14.2%, to $2.5 million for the three months ended June 30, 2019, from $2.9 million for the three months ended June 30, 2018. During the three months ended June 30, 2018, non-interest income included $715,000 in gains on BOLI. Excluding the gains on BOLI, non-interest income increased $299,000, or 13.5%, for the three months ended June 30, 2019 primarily due to an increase in service charges and fees of $157,000, or 9.3%, an increase in other non-interest income of $75,000, or 57.3%, primarily related to swap fee income, and $79,000 in unrealized gains on marketable equity securities for the three months ended June 30, 2019, as compared to $41,000 in unrealized losses on marketable equity securities for the three months ended June 30, 2018, partially offset by a $47,000 increase in realized losses on securities.  During the three months ended June 30, 2019, service charges and fees included $110,000 in non-recurring interchange fee income.

Non-Interest Expense

For the three months ended June 30, 2019, non-interest expense increased $594,000, or 5.1%, to $12.1 million, or 2.31% of average assets, from $11.5 million, or 2.21% of average assets, for the three months ended June 30, 2018.  The increase in non-interest expense was primarily due to an increase in salaries and benefits of $312,000, or 4.8%, an increase in other expense of $152,000, or 8.6%, an increase in FDIC insurance expense of $89,000, or 60.5%, an increase in furniture and equipment of $45,000, or 11.8%, an increase in data processing of $24,000, or 3.5%, an increase in advertising expense of $15,000, or 4.2%, and an increase in occupancy expense of $31,000, or 3.2%. These increases were partially offset by a decrease in professional fees of $74,000, or 10.9%. For the three months ended June 30, 2019, the efficiency ratio was 72.5%, compared to 63.5% for the three months ended June 30, 2018.

Income Tax Provision

The Company's effective tax rate increased from 21.0% for the three months ended June 30, 2018 to 23.0% for the three months ended June 30, 2019. The lower tax rate for the three months ended June 30, 2018 was primarily due to a gain on BOLI recognized during the period.

Net Income for the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

For the six months ended June 30, 2019, the Company reported net income of $6.7 million, or $0.25 diluted earnings per share, compared to $8.7 million, or $0.29 diluted earnings per share, for the six months ended June 30, 2018. Return on average assets and return on average equity were 0.64% and 5.90% for the six months ended June 30, 2019, compared to 0.84% and 7.21% for the six months ended June 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 $269,000 all reported during the six months ended June 30, 2018, and adjusting for the $58,000 of negative purchase accounting adjustments and $23,000 in prepayment penalties reported during the six months ended June 30, 2019, net income was $6.7 million, or $0.25 diluted earnings per share, for the six months ended June 30, 2019, compared to net income of $7.0 million, or $0.24 diluted earnings per share, for the six months ended June 30, 2018.

Net Interest Income and Net Interest Margin

During the six months ended June 30, 2019, net interest income decreased $2.1 million, or 6.7%, to $28.5 million, compared to $30.6 million for the six months ended June 30, 2018. The decrease in net interest income was due to a $3.1 million, or 36.5%, increase in interest expense, partially offset by a $1.1 million, or 2.8%, increase in interest and dividend income. The increase in interest expense was primarily due to a $3.3 million, or 64.3%, increase in interest expense on deposits, primarily time deposits, while interest expense on FHLB borrowings decreased $124,000, or 3.5%. Net interest income for the six months ended June 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 $58,000 in negative purchase accounting adjustments for the six months ended June 30, 2019. During the six months ended June 30, 2018, the Company also reported a prepayment penalty fee of $269,000, compared to $23,000 during the six months ended June 30, 2019. Excluding these adjustments, interest and dividend income increased $2.3 million, or 6.1%, offset by a $2.9 million, or 33.1%, increase in interest expense.

The net interest margin for the six months ended June 30, 2019 was 2.92%, compared to 3.17% during the six months ended June 30, 2018. The net interest margin, on a tax-equivalent basis, was 2.95% for the six months ended June 30, 2019, compared to 3.19% for the six months ended June 30, 2018.

The decrease in net interest margin was largely due to a decrease in purchase accounting adjustments from a favorable adjustment of $1.1 million during the six months ended June 30, 2018, compared to a negative adjustment of $58,000 during the six months ended June 30, 2019. The result was a decrease of 12 basis points on the net interest margin. Prepayment penalties decreased $246,000, from $269,000 during the six months ended June 30, 2018 to $23,000 during the six months ended June 30, 2019, which further decreased the net interest margin by three basis points. After these adjustments, the adjusted net interest margin decreased from 3.05% during the three months ended June 30, 2018 to 2.92% during the six months ended June 30, 2019.

The average yield on interest-earning assets increased seven basis points from 4.08% for the six months ended June 30, 2018 to 4.15% for the six months ended June 30, 2019. Excluding the purchase accounting adjustments and the prepayment penalties mentioned above, the average yield on interest-earning assets increased 19 basis points from 3.97% for the six months ended June 30, 2018 to 4.16% for the six months ended June 30, 2019, respectively. During the six months ended June 30, 2019, the average cost of funds increased 43 basis points from 1.15% for the six months ended June 30, 2018 to 1.58%. The average cost of core deposits, including noninterest-bearing demand deposits, increased six basis points from 0.24% for the six months ended June 30, 2018 to 0.30% for the six months ended June 30, 2019, while the average cost of time deposits increased 67 basis points from 1.39% for the six months ended June 30, 2018 to 2.06% during the same period in 2019. The average cost of borrowings increased 45 basis points from 2.50% for the six months ended June 30, 2018 to 2.95% for the six months ended June 20, 2019. For the six months ended June 30, 2019, average demand deposits, an interest-free source of funds, increased $42.4 million, or 13.6%, from $311.5 million, or 20.2% of total average deposits, for the six months ended June 30, 2018 to $353.9 million, or 21.8% of total average deposits, for the six months ended June 30, 2019. During the six months ended June 30, 2019, average interest-earning assets increased $23.0 million, or 1.2%, to $2.0 billion. The increase in average interest-earning assets was due to an increase in average loans of $40.4 million, or 2.5%, partially offset by a decrease in average securities of $23.5 million, or 8.5%.

Provision for Loan Losses

The provision for loan losses of $400,000 decreased $850,000, or 68.0%, for the six months ended June 30, 2019, compared to $1.3 million for the six months ended June 30, 2018. The Company recorded net charge-offs of $95,000 for the six months ended June 30, 2018, as compared to net charge-offs of $30,000 for the six months ended June 30, 2019.  During the six months ended June 30, 2019, the Company recorded charge-offs of $923,000, compared to $190,000 during the same period in 2018. The charge-offs recorded during the six months ended June 30, 2019 were primarily due to a partial charge-off of $440,000 related to one commercial and industrial loan relationship that was previously reported as substandard. During the six months ended June 30, 2019, the Company also recorded recoveries of $893,000, 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 six months ended June 30, 2019, non-interest income of $4.7 million decreased $11,000, or 0.2%, compared to $4.7 million for the six months ended June 30, 2018. Service charges and fees increased $207,000, or 6.3%, and other income increased $83,000, or 63.4%. During the six months ended June 30, 2019, service charges and fees included $110,000 in non-recurring interchange fee income. During the six months ended June 30, 2019, the Company reported unrealized gains on marketable equity securities of $149,000, compared to unrealized losses of $147,000 during the six months ended June 30, 2018 as well as a decrease in realized losses on securities of $189,000, or 75.6%, during the same period. During the six months ended June 30, 2018, the Company reported a $48,000 gain on the sale of OREO and a $715,000 net gain on BOLI. Excluding the net gain on BOLI and the realized and unrealized security losses discussed above, non-interest income increased $267,000, or 6.2%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Non-Interest Expense

For the six months ended June 30, 2019, non-interest expense increased $1.2 million, or 5.2%, to $24.2 million, or 2.31% of average assets, compared to $23.0 million, or 2.22% of average assets for the six months ended June 30, 2018. The increase in non-interest expense was primarily due to the increase in salaries and benefits of $559,000, or 4.3%, an increase in other non-interest expenses of $244,000, or 7.1%, an increase in occupancy expense of $142,000, or 7.0%, an increase in FDIC insurance expense of $107,000, or 35.1%, an increase in furniture and equipment of $83,000, or 11.1%, an increase of data processing of $52,000, or 4.0%, an increase in advertising expense of $32,000, or 4.6%, and a decrease in professional fees of $28,000, or 2.1%. For the six months ended June 30, 2019, the efficiency ratio was 72.9%, compared to 65.8% for the six months ended June 30, 2018. The adjusted efficiency ratio, excluding purchase account adjustments and prepayment penalties, was 72.9% for the six months ended June 30, 2019, compared to 68.7% for the six months ended June 30, 2018.

Income Tax Provision

The effective tax rate for the six months ended June 30, 2019 and June 30, 2018 was 22.7% and 21.8%, respectively.

Balance Sheet

At June 30, 2019, total assets were $2.1 billion, an increase of $8.3 million, or 0.4%, from December 31, 2018. During the same period, total loans increased $25.4 million, or 1.5%, securities available-for-sale decreased $18.7 million, or 7.4%, and cash and cash equivalents decreased $1.1 million, or 4.1%.

Loans

Total loans increased $25.4 million, or 1.5%, primarily due to an increase in commercial real estate loans of $33.9 million, or 4.4%, partially offset by a decrease in residential real estate loans, which include home equity loans, of $3.0 million, or 0.4%, and a decrease in commercial and industrial loans of $5.7 million, or 2.3%. In order to reduce interest rate risk, the Company currently services $53.3 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:

               

  June 30, 2019   December 31, 2018
  (Dollars in thousands)
   
Commercial real estate loans $ 802,765   $ 768,881
Commercial and industrial loans   237,928     243,493
Residential real estate loans   671,838     674,879
Consumer loans   5,337     5,203
Total gross loans   1,717,868     1,692,456
Unamortized premiums and net deferred loans fees and costs   4,293
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com