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 six months ended June 30, 2022. For the three months ended June 30, 2022, the Company reported net income of $5.5 million, or $0.25 per diluted share, compared to net income of $5.7 million, or $0.24 per diluted share, for the three months ended June 30, 2021. On a linked quarter basis, net income was $5.5 million, or $0.25 per diluted share, as compared to net income of $5.3 million, or $0.24 per diluted share, for the three months ended March 31, 2022. For the six months ended June 30, 2022, net income was $10.9 million, or $0.49 per diluted share, compared to net income of $11.4 million, or $0.47 per diluted share, for the six months ended June 30, 2021.

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock. The dividend will be payable on or about August 24, 2022 to shareholders of record on August 10, 2022. In addition, the Board of Directors authorized a stock repurchase plan (the “2022 Plan”), pursuant to which the Company may repurchase up to 1.1 million shares of the Company’s common stock, or approximately 5.0%, of the Company’s outstanding shares, of common stock as of the date the 2022 Plan was adopted. Repurchase under the 2022 Plan may begin after the Company has repurchased all of the shares of its common stock authorized for repurchase under the stock repurchase plan adopted in 2021 (the “2021 Plan”). The 2021 Plan was announced on April 27, 2021 and as of June 30, 2022, there were 271,472 shares of common stock available for purchase under the 2021 Plan.

“The Company continues to experience strong quarterly earnings adding to the momentum from last year’s record profitability. We are pleased to report solid earnings for the second quarter of 2022 along with strong overall loan growth. We remain focused on executing our strategy of driving commercial loan growth, which has been a key contributor to the Company’s ongoing profitability,” said James C. Hagan, President and Chief Executive Officer. “We remain optimistic about the Company’s growth opportunities in 2022 and we continue to be successful despite the current economic environment.

The Company continues to show strong loan growth in key loan categories funded by excess cash generated through increases in our core deposits. We saw strong organic core deposit grow of $96.7 million, or 5.2%, since year-end, which will be beneficial in a rising interest rate environment. We are pleased to report that our total loan portfolio increased $133.7 million, or 7.3% during the six months ended June 30, 2022, excluding Paycheck Protection Program (‘PPP’) loans that were forgiven by the Small Business Administration (‘SBA’). As we continue to add new customer relationships throughout New England and in key strategic lending areas, we have seen the strongest growth from our commercial real estate lending portfolio, which increased $94.9 million, or 9.7%, during the six months ended June 30, 2022. Commercial and industrial loans continue to be added to our loan portfolio and remain a strategic priority. We continue to be mindful of certain economic and business conditions, such as inflation, utilization of accumulated cash to fund operations, and supply chain issues that may affect some of our business customers, as well as the additional anticipated Federal Reserve interest rate increases, but remain optimistic about our loan portfolio growth and meeting the needs of our business and commercial customers.

We believe the balance sheet management steps we took in 2021 have had a positive impact on earnings and growth and have directly resulted in an increase in net interest income and the net interest margin, which increased from 3.08% in the fourth quarter of 2021 to 3.24% in the second quarter of 2022. Our disciplined approach to managing funding costs has helped to expand our net interest margin as we continue to deploy our excess liquidity and core deposits to fund loan growth. Our asset quality remains extremely solid, with historical lows for nonperforming loans to total loans of 0.21%, and our capital position continues to remain strong.”

Hagan concluded, “We will continue to implement our various strategic initiatives which have resulted in solid earnings last year and through the first two quarters of this year and will continue our efforts to grow the Company throughout the remaining quarters and increase overall shareholder value.”

Key Highlights:

Loans and Deposits. At June 30, 2022, total loans were $2.0 billion, an increase of $111.0 million, or 6.0%, from December 31, 2021. Excluding PPP loans, total loans increased $133.7 million, or 7.3%, from December 31, 2021, primarily due to a $94.9 million, or 9.7%, increase in commercial real estate loans from December 31, 2021 to June 30, 2022.

At June 30, 2022, total deposits were $2.3 billion, an increase of $45.1 million, or 2.0%, from December 31, 2021. Core deposits, which include non-interest bearing demand accounts, increased $96.7 million, or 5.2%, from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $2.0 billion, or 84.8% of total deposits at June 30, 2022. The loan to deposit ratio increased from 82.6% at December 31, 2021 to 85.8% at June 30, 2022.

Allowance for Loan Losses and Credit Quality. At June 30, 2022, the allowance for loan losses as a percentage of total loans and as a percentage of nonperforming loans was 0.99% and 476.5%, respectively. At June 30, 2022, nonperforming loans totaled $4.1 million, or 0.21% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. Total delinquency increased $71,000, or 3.3%, from $2.1 million, or 0.11% of total loans at December 31, 2021 to $2.2 million, or 0.11% of total loans at June 30, 2022.

Net Interest Margin. The net interest margin was 3.24% for the three months ended June 30, 2022 compared to 3.18% for the three months ended March 31, 2022. The net interest margin, on a tax-equivalent basis, was 3.26% for the three months ended June 30, 2022, compared to 3.20% for the three months ended March 31, 2022.

Repurchases. On April 27, 2021, the Board of Directors authorized the 2021 Plan, pursuant to which the Company is authorized to repurchase up to 2.4 million shares, or 10% of its outstanding common stock, as of the date the 2021 Plan was adopted. During the three months ended June 30, 2022, the Company repurchased 293,173 shares of common stock under the 2021 Plan. During the six months ended June 30, 2022, the Company repurchased 405,847 shares of common stock under the 2021 Plan. At June 30, 2022, there were 271,472 shares of common stock available for repurchase under the 2021 Plan.

On July 26, 2022, the Board of Directors authorized the 2022 Plan, pursuant to which the Company may repurchase up to 1.1 million shares of common stock, which is approximately 5.0% of the Company’s outstanding shares as of the date the 2022 Plan was adopted. Repurchases under the 2022 Plan may commence after the Company has repurchased all of the shares of common stock authorized for repurchase under the 2021 Plan.

The shares of common stock repurchased under the 2021 Plan and the 2022 Plan will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, or otherwise, depending upon market conditions. There is no guarantee as to the exact number, or value, of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management determines additional repurchases are not warranted. The timing and amount of additional share repurchases under the 2021 Plan and the 2022 Plan will depend on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements.

Capital Management. Book value per share was $9.58 at June 30, 2022, compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, decreased $0.29, or 3.1%, from $9.21 at December 31, 2021 to $8.92 at June 30, 2022. During the six months ended June 30, 2022, the change in accumulated other comprehensive income/loss (“AOCI”) reduced the tangible book value per common share by $0.64 as of June 30, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities. Tangible book value is a non-GAAP measure. See pages 18-21 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures. As of June 30, 2022, 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 June 30, 2022 Compared to the Three Months Ended March 31, 2022.

The Company reported net income of $5.5 million, or $0.25 per diluted share, for the three months ended June 30, 2022, compared to net income of $5.3 million, or $0.24 per diluted share, for the three months ended March 31, 2022. Net interest income increased $694,000, or 3.7%, non-interest income increased $393,000, or 16.7%, and non-interest expense decreased $23,000, or 0.2%, while the provision for loan losses increased $725,000, or 170.6%, during the same period. Return on average assets and return on average equity were 0.87% and 10.22%, respectively, for the three months ended June 30, 2022, compared to 0.85% and 9.65%, respectively, for the three months ended March 31, 2022.

Net Interest Income and Net Interest Margin

On a sequential quarter basis, net interest income increased $694,000, or 3.7%, to $19.4 million for the three months ended June 30, 2022, from $18.7 million for the three months ended March 31, 2022. The increase in net interest income was primarily due to an increase in interest and dividend income of $703,000, or 3.5%. During the three months ended June 30, 2022 and the three months ended March 31, 2022, interest and dividend income included PPP interest and fee income (“PPP income”) of $129,000 and $562,000, respectively. During the three months ended June 30, 2022, the Company recorded $64,000 in positive purchase accounting adjustments, compared to positive purchase accounting adjustments of $39,000 during the three months ended March 31, 2022. Excluding PPP income and purchase accounting adjustments, net interest income increased $1.1 million, or 6.1%, from the three months ended March 31, 2022 to the three months ended June 30, 2022.

The net interest margin was 3.24% for the three months ended June 30, 2022 compared to 3.18% for the three months ended March 31, 2022. The net interest margin, on a tax-equivalent basis, was 3.26% for the three months ended June 30, 2022, compared to 3.20% for the three months ended March 31, 2022. The average yield on interest-earning assets was 3.47% for the three months ended June 30, 2022, compared to 3.41% for the three months ended March 31, 2022. The average loan yield was 3.83% for the three months ended June 30, 2022, compared to 3.87% for the three months ended March 31, 2022. Excluding PPP income, the net interest margin was 3.23% for the three months ended June 30, 2022, compared to 3.10% for the three months ended March 31, 2022.

During the three months ended June 30, 2022, average interest-earning assets increased $12.6 million, or 0.5%, to $2.4 billion, primarily due to an increase in average loans of $54.6 million, or 2.9%, partially offset by a decrease in short-term investments of $32.1 million, or 56.3%, and a decrease in average securities of $9.9 million, or 2.3%. Excluding PPP loans, average loans increased $66.6 million, or 3.5%, from the three months ended March 31, 2022 to the three months ended June 30, 2022.

The average cost of total funds, including non-interest bearing accounts and borrowings, remained unchanged at 0.22% for the three months ended June 30, 2022, compared to the three months ended March 31, 2022. The average cost of core deposits, including non-interest bearing demand deposits, increased one basis point to 15 basis points for the three months ended June 30, 2022, from 14 basis points for the three months ended March 31, 2022. The average cost of time deposits decreased three basis points from 0.35% for the three months ended March 31, 2022 to 0.32% for the three months ended June 30, 2022. The average cost of borrowings, including subordinated debt, decreased 55 basis points from 4.65% for the three months ended March 31, 2022 to 4.10% for the three months ended June 30, 2022. Average demand deposits, an interest-free source of funds, increased $2.6 million, or 0.4%, from $633.1 million, or 28.1% of total average deposits, for the three months ended March 31, 2022, to $635.7 million, or 28.0% of total average deposits, for the three months ended June 30, 2022.

Provision for Loan Losses

During the three months ended June 30, 2022, the provision for loan losses increased $725,000, from a credit for loan losses of $425,000 for the three months ended March 31, 2022, to a provision for loan losses of $300,000. The increase in the provision for loan losses was due to strong organic loan growth during the quarter. Management continues to assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic, economic trends and their potential effect on asset quality. The Company has deferred the adoption of the Current Expected Credit Loss allowance methodology, as permitted by its classification as a Smaller Reporting Company under Securities and Exchange Commission rules. Management will continue to closely monitor portfolio conditions and re-evaluate the adequacy of the allowance.

The Company recorded net charge-offs of $48,000 for the three months ended June 30, 2022, as compared to net charge-offs of $54,000 for the three months ended March 31, 2022. At June 30, 2022, nonperforming loans totaled $4.1 million, or 0.21% of total loans, and total delinquency as a percentage of total loans was 0.11%.

Non-Interest Income

On a sequential quarter basis, non-interest income increased $393,000, or 16.7%, to $2.7 million for the three months ended June 30, 2022, from $2.3 million for the three months ended March 31, 2022. Service charges and fees increased $172,000, or 8.0%, from the three months ended March 31, 2022 to $2.3 million for the three months ended June 30, 2022. The Company reported unrealized losses on marketable equity securities of $225,000 for the three months ended June 30, 2022, compared to unrealized losses of $276,000 for the three months ended March 31, 2022. Income from bank-owned life insurance increased $10,000, or 2.2%, from the three months ended March 31, 2022 to $458,000, for the three months ended June 30, 2022. During the three months ended June 30, 2022, the Company reported $21,000 in other income from loan-level swap fees on commercial loans and a gain of $141,000 on non-marketable equity investments. During the three months ended March 31, 2022, the Company reported a net loss of $4,000 on securities sales. The Company did not sell any securities during the three months ended June 30, 2022.

Non-Interest Expense

For the three months ended June 30, 2022, non-interest expense decreased $23,000, or 0.2%, to $14.4 million from the three months ended March 31, 2022. Salaries and employee benefits decreased $3,000 to $8.2 million, occupancy expense decreased $186,000, or 13.6%, FDIC insurance expense decreased $52,000, or 18.2%, and furniture and equipment expenses decreased $4,000, or 0.7%. These decreases were partially offset by increases in professional fees of $142,000, or 24.6%, advertising expense of $13,000, or 3.3%, data processing expense of $8,000, or 1.1%, and other non-interest expense of $59,000, or 2.5%. For the three months ended June 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 65.0%, compared to 67.8% for the three months ended March 31, 2022. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision

Income tax expense for the three months ended June 30, 2022 was $1.9 million, or an effective tax rate of 25.2%, compared to $1.7 million, or an effective tax rate of 24.2%, for three months ended March 31, 2022. The increase in the effective tax rate reflects higher projected pre-tax income for the year ending December 31, 2022.

Net Income for the Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021.

The Company reported net income of $5.5 million, or $0.25 per diluted share, for the three months ended June 30, 2022, compared to net income of $5.7 million, or $0.24 per diluted share, for the three months ended June 30, 2021. Return on average assets and return on average equity was 0.87% and 10.22%, respectively, for the three months ended June 30, 2022, as compared to 0.92% and 10.16%, respectively, for the three months ended June 30, 2021.

Net Interest Income and Net Interest Margin

Net interest income increased $1.6 million, or 8.9%, to $19.4 million, for the three months ended June 30, 2022, from $17.8 million for the three months ended June 30, 2021. The increase was due to an increase in interest and dividend income of $994,000, or 5.1%, and a decrease in interest expense of $594,000, or 32.2%. Interest expense on deposits decreased $476,000, or 32.5%, and interest expense on borrowings decreased $118,000, or 30.9%. For the three months ended June 30, 2022, net interest income included $129,000 in PPP income, compared to $1.6 million for the three months ended June 30, 2021. Excluding PPP income, net interest income increased $3.1 million, or 19.1%, primarily due to an increase in interest and dividend income of $2.5 million, or 13.8%.

The net interest margin was 3.24% for the three months ended June 30, 2022, compared to 3.06% for the three months ended June 30, 2021. The net interest margin, on a tax-equivalent basis, was 3.26% for the three months ended June 30, 2022, compared to 3.08% for the three months ended June 30, 2021. The increase in the net interest margin was due to an increase in average loans outstanding of $38.1 million, or 2.0%, from the three months ended June 30, 2021, compared to the three months ended June 30, 2022.

The average yield on interest-earning assets increased seven basis points from 3.40% for the three months ended June 30, 2021 to 3.47% for the three months ended June 30, 2022. During the three months ended June 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased 11 basis points, from 0.33% for the three months ended June 30, 2021 to 0.22% for the three months ended June 30, 2022. The average cost of core deposits, which include non-interest-bearing demand accounts, decreased four basis points, from 0.19% for the three months ended June 30, 2021 to 0.15% for the three months ended June 30, 2022. The average cost of time deposits decreased 24 basis points from 0.56% for the three months ended June 30, 2021 to 0.32% for the three months ended June 30, 2022. The average cost of borrowings increased 129 basis points during the same period due to the full quarter impact of the $20.0 million in subordinated debt issued on April 19, 2021. For the three months ended June 30, 2022, average demand deposits, an interest-free source of funds, increased $32.4 million, or 5.4%, to $635.7 million, or 28.0% of total average deposits, from $603.3 million, or 27.9% of total average deposits for the three months ended June 30, 2021.

During the three months ended June 30, 2022, average interest-earning assets increased $68.2 million, or 2.9%, to $2.4 billion compared to the three months ended June 30, 2021, primarily due to an increase in average securities of $120.0 million, or 39.5%, and an increase in average loans of $38.1 million, or 2.0%, partially offset by a decrease in short-term investments of $89.9 million, or 78.3%. Excluding average PPP loans, average interest-earning assets increased $220.7 million, or 10.2%, and average loans increased $190.7 million, or 10.9%, from the three months ended June 30, 2021 to the three months ended June 30, 2022.

Provision for Loan Losses

The Company recorded a provision for loan losses of $300,000 for three months ended June 30, 2022, compared to a credit for loan losses of $1.2 million for the three months ended June 30, 2021. The increase in the provision for loan losses was due to strong organic loan growth during the second quarter of 2022. The Company recorded net charge-offs of $48,000 for the three months ended June 30, 2022, as compared to net charge-offs of $157,000 for the three months ended June 30, 2021. Management continues to assess the exposure of the Company’s loan portfolio to the COVID-19 pandemic related factors, economic trends and their potential effect on asset quality.

Non-Interest Income

Non-interest income increased $332,000, or 13.8%, to $2.7 million for the three months ended June 30, 2022, from $2.4 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, service charges and fees on deposits increased $271,000, or 13.1%, primarily due to the $177,000, or 19.1%, increase in ATM and debit card interchange income from increased card-based transaction usage across our checking account base. Other income from loan-level swap fees on commercial loans increased $21,000 from the three months ended June 30, 2021 to the three months ended June 30, 2022. Income from bank-owned life insurance decreased $42,000, or 8.4%, from the three months ended June 30, 2021 to the three months ended June 30, 2022. During the three months ended June 30, 2021, mortgage banking income from the sale of fixed rate residential real estate loans totaled $242,000. The Company did not sell any loans to the secondary market during the three months ended June 30, 2022. The Company reported a gain of $141,000 on non-marketable equity investments and reported an unrealized loss on marketable equity securities of $225,000, during the three months ended June 30, 2022, compared to unrealized gains on marketable equity securities of $6,000 during the three months ended June 30, 2021. The Company also reported realized losses on the sale of securities of $12,000 during the three months ended June 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes.

During the three months ended June 30, 2021, the Company recognized a loss on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swap on March 16, 2016. The unamortized portion of the loss was previously reported in accumulated other comprehensive income and amortized through interest expense, however, as the previously hedged item was discontinued, the Company accelerated the remaining unamortized loss.

Non-Interest Expense

For the three months ended June 30, 2022, non-interest expense increased $759,000, or 5.6%, to $14.4 million from $13.7 million, for the three months ended June 30, 2021. The increase in non-interest expense was partially due to an increase in salaries and benefits of $263,000, or 3.3%, due to normal annual salary increases. Other non-interest expense increased $260,000, or 12.2%, professional fees increased $130,000, or 22.1%, occupancy expense increased $78,000, or 7.1%, advertising expense increased $65,000, or 18.7%, furniture and equipment expense increased $26,000, or 5.1%, and FDIC insurance expense increased $9,000, or 4.0%. During the same period, data processing expense decreased $27,000, or 3.6%. During the three months ended June 30, 2021, the Company prepaid $32.5 million of FHLB borrowings resulting in a loss of $45,000. For the three months ended June 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 65.0%, compared to 66.1% for the three months ended June 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision

Income tax expense for the three months ended June 30, 2022 was $1.9 million, representing an effective tax rate of 25.2%, compared to $2.1 million, representing an effective tax rate of 27.0%, for three months ended June 30, 2021.

Net Income for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

For the six months ended June 30, 2022, the Company reported net income of $10.9 million, or $0.49 per diluted share, compared to $11.4 million, or $0.47 per diluted share, for the six months ended June 30, 2021. Return on average assets and return on average equity were 0.86% and 9.93% for the six months ended June 30, 2022, respectively, compared to 0.95% and 10.25% for the six months ended June 30, 2021, respectively.

Net Interest Income and Net Interest Margin

During the six months ended June 30, 2022, net interest income increased $2.3 million, or 6.3%, to $38.1 million, compared to $35.8 million for the six months ended June 30, 2021. The increase in net interest income was due to a decrease in interest expense of $1.4 million, or 35.2%, and an increase in interest and dividend income of $904,000, or 2.3%. The decrease in interest expense was due to a decrease in interest expense on deposits of $1.2 million, or 38.1%, and a decrease of $138,000, or 21.1%, in interest expense on borrowings. For the six months ended June 30, 2022, interest and dividend income included $691,000 in PPP income, compared to $4.0 million during the six months ended June 30, 2021. Excluding PPP income, net interest income increased $5.6 million, or 17.6% for the same period.

The net interest margin for the six months ended June 30, 2022 was 3.21%, compared to 3.15% during the six months ended June 30, 2021. The net interest margin, on a tax-equivalent basis, was 3.23% for the six months ended June 30, 2022, compared to 3.17% for the six months ended June 30, 2021. Excluding the PPP income, the net interest margin increased from 3.01% for the six months ended June 30, 2021 to 3.16% for the six months ended June 30, 2022.

The average yield on interest-earning assets decreased seven basis points from 3.51% for the six months ended June 30, 2021 to 3.44% for the six months ended June 30, 2022. During the six months ended June 30, 2022, the average cost of funds, including non-interest-bearing demand accounts and borrowings, decreased 14 basis points from 0.36% for the six months ended June 30, 2021 to 0.22% for the six months ended June 30, 2022. For the six months ended June 30, 2022, the average cost of core deposits, including non-interest-bearing demand deposits, decreased six basis points from 0.20% for the six months ended June 30, 2021 to 0.14% for the six months ended June 30, 2022. The average cost of time deposits decreased 28 basis points from 0.62% for the six months ended June 30, 2021 to 0.34% during the same period in 2022. The average cost of borrowings, which include FHLB advances and subordinated debt, increased 184 basis points from 2.47% for the six months ended June 30, 2021 to 4.31% for the six months ended June 20, 2022. For the six months ended June 30, 2022, average demand deposits, an interest-free source of funds, increased $51.8 million, or 8.9%, from $582.5 million, or 27.4% of total average deposits, for the six months ended June 30, 2021, to $634.4 million, or 28.0% of total average deposits.

During the six months ended June 30, 2022, average interest-earning assets increased $99.2 million, or 4.3%, to $2.4 billion. The increase in average interest-earning assets was due to an increase in average loans of $5.0 million, or 0.3%, as well as an increase in average securities of $158.3 million, or 58.5%. Both were partially offset by a decrease of $64.1 million, or 61.1%, in short-term investments. Excluding average PPP loans, average interest-earning assets increased $251.2 million, or 11.8%, and average loans increased $157.0 million, or 8.9%.

Provision for Loan Losses

For the six months ended June 30, 2022, the credit for loan losses decreased $1.0 million, or 88.9%, from $1.1 million for the six months ended June 30, 2021 to $125,000 for the six months ended June 30, 2022. During the six months ended June 30, 2021, the Company adjusted its qualitative factors related to the impact of the COVID-19 pandemic and other economic trends used in the Company’s allowance calculation which resulted in a credit for loan losses of $1.1 million. The Company recorded net charge-offs of $102,000 for the six months ended June 30, 2022, as compared to net charge-offs of $162,000 for the six months ended June 30, 2021.

Non-Interest Income

For the six months ended June 30, 2022, non-interest income was $5.1 million, compared to $5.4 million for the six months ended June 30, 2021. During the same period, service charges and fees increased $562,000, or 14.2%. Other income from loan-level swap fees on commercial loans decreased $37,000, or 63.8%, and income from bank-owned life insurance decreased $35,000, or 3.7%. Mortgage banking income was $469,000 for the six months ended June 30, 2021 due to the sale of fixed rate residential real estate loans to the secondary market. The Company sold $17.6 million of low coupon residential real estate loans to the secondary market during the six months ended June 30, 2021, compared to $277,000 during the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company reported unrealized losses on marketable equity securities of $501,000, compared to unrealized losses of $83,000 during the six months ended June 30, 2021. During the six months ended June 30, 2022, the Company also reported realized losses on the sale of securities of $4,000, compared to realized losses of $74,000 on the sale of securities during the six months ended June 30, 2021. The Company reported a gain of $141,000 on non-marketable equity investments during the six months ended June 30, 2022, compared to $546,000 during the six months ended June 30, 2021. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes.

During the six months ended June 30, 2021, the Company recognized a loss on interest rate swap termination of $402,000 representing the unamortized portion of a $3.4 million loss associated with the previous termination of a $32.5 million interest rate swap on March 16, 2016. The unamortized portion of the loss was previously reported in accumulated other comprehensive income and amortized through interest expense, however, as the previously hedged item was discontinued, the Company accelerated the remaining unamortized loss.

Non-Interest Expense

For the six months ended June 30, 2022, non-interest expense increased $1.9 million, or 7.0%, to $28.9 million, compared to $27.0 million for the six months ended June 30, 2021. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $739,000, or 4.7%, due to normal annual salary increases as well as higher compensation incentive costs to support overall franchise growth. The increase in salary related expenses was also partially due to a decrease of $279,000 in deferred direct origination costs associated with Round 3 of PPP loans. The origination costs were recorded against salary expense during the six months ended June 30, 2021.

Other non-interest expense increased $702,000, or 17.5%, professional fees increased $163,000, or 14.4%, occupancy expense increased $152,000, or 6.4%, advertising expense increased $126,000, or 18.4%, furniture and equipment expense increased $79,000, or 7.9%, data processing expenses decreased $25,000, or 1.7%, and FDIC insurance expense decreased $3,000, or 0.6%. During the six months ended June 30, 2021, the Company prepaid $32.5 million of FHLB borrowings resulting in a loss of $45,000. For the six months ended June 30, 2022, the adjusted efficiency ratio, a non-GAAP financial measure, was 66.4%, compared to 65.3% for the six months ended June 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See pages 18-21 for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision

Income tax expense for the six months ended June 30, 2022 was $3.6 million, representing an effective tax rate of 24.7%, compared to $3.9 million, representing an effective tax rate of 25.5%, for six months ended June 30, 2021.

Balance Sheet

At June 30, 2022, total assets were $2.6 billion, an increase of $38.9 million, or 1.5%, from December 31, 2021. During the six months ended June 30, 2022, cash and cash equivalents decreased $55.9 million, or 54.1%, to $47.5 million, investment securities decreased $22.3 million, or 5.2%, to $406.2 million and total loans increased $111.0 million, or 6.0%, to $2.0 billion.

Investments

At June 30, 2022, the Company’s available-for-sale securities portfolio decreased $33.4 million, or 17.2%, from $194.4 million at December 31, 2021 to $160.9 million at June 30, 2022. The held-to-maturity securities portfolio, recorded at amortized cost, increased $11.5 million, or 5.2%, from $222.3 million at December 31, 2021 to $233.8 million at June 30, 2022. The marketable equity securities portfolio decreased $443,000, or 3.7%, from $11.9 million at December 31, 2021 to $11.5 million at June 30, 2022. The primary objective of the investment portfolio is to provide liquidity and maximize income while preserving the safety of principal.

Total Loans

At June 30, 2022, total loans were $2.0 billion, an increase of $111.0 million, or 6.0%, from December 31, 2021. Excluding PPP loans, total loans increased $133.7 million, or 7.3%, driven by an increase in commercial real estate loans of $94.9 million, or 9.7%, partially offset by a decrease in total commercial and industrial loans of $8.8 million, or 3.9%. Excluding a decrease in PPP loans of $22.7 million, or 89.6%, from December 31, 2021, commercial and industrial loans increased $13.9 million, or 6.9%, at June 30, 2022. Residential real estate loans, which include home equity loans, increased $24.2 million, or 3.7%. In accordance with the Company’s asset/liability management strategy, at June 30, 2022, the Company serviced $82.5 million in loans sold to the secondary market, compared to $88.2 million at December 31, 2021. Servicing rights will continue to be retained on all loans written and sold to the secondary market.

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

  June 30, 2022   December 31, 2021
  (Dollars in thousands)
   
Commercial real estate loans $ 1,074,907     $ 979,969  
       
Residential real estate loans:      
Residential   572,700       552,332  
Home equity   103,623       99,759  
Total residential real estate loans   676,323       652,091  
       
Commercial and industrial loans:      
PPP loans   2,631       25,329  
Commercial and industrial loans   215,224       201,340  
Total commercial and industrial loans   217,855       226,669  
Consumer loans   4,457       4,250  
Total gross loans   1,973,542       1,862,979  
Unamortized PPP loan fees   (133 )     (781 )
Unamortized premiums and net deferred loans fees and costs   2,291       2,518  
Total loans $ 1,975,700     $ 1,864,716  
               

Credit Quality

Management continues to remain attentive to any signs of deterioration in borrowers’ financial conditions and is proactive in taking the appropriate steps to mitigate risk. At June 30, 2022, nonperforming loans totaled $4.1 million, or 0.21% of total loans, compared to $5.0 million, or 0.27% of total loans, at December 31, 2021. At June 30, 2022, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets, was 0.16% at June 30, 2022, compared to 0.20% at December 31, 2021. The allowance for loan losses as a percentage of total loans was 0.99% at June 30, 2022, compared to 1.06% at December 31, 2021. At June 30, 2022, the allowance for loan losses as a percentage of nonperforming loans was 476.5%, compared to 398.6%, at December 31, 2021.

Deposits

At June 30, 2022, total deposits were $2.3 billion, an increase of $45.1 million, or 2.0%, from December 31, 2021, primarily due to an increase in core deposits of $96.7 million, or 5.2%. Core deposits, which the Company defines as all deposits except time deposits, increased from $1.9 billion, or 82.2% of total deposits, at December 31, 2021, to $2.0 billion, or 84.8% of total deposits, at June 30, 2022. Non-interest-bearing deposits increased $6.3 million, or 1.0%, to $647.6 million, interest-bearing checking accounts increased $8.3 million, or 5.7%, to $154.0 million, savings accounts increased $9.1 million, or 4.2%, to $226.7 million, and money market accounts increased $72.9 million, or 8.6%, to $923.2 million. Time deposits decreased $51.6 million, or 12.8%, from $402.0 million at December 31, 2021 to $350.4 million at June 30, 2022. The Company did not have any brokered deposits at June 30, 2022 or December 31, 2021.

Borrowings and Subordinated Debt

At June 30, 2022, total borrowings increased $3.5 million, or 15.7%, from $22.3 million at December 31, 2021, to $25.8 million. Other borrowings increased $3.5 million, or 129.6%, to $6.2 million and subordinated debt outstanding totaled $19.7 million at June 30, 2022 and $19.6 million at December 31, 2021.

Capital

At June 30, 2022, shareholders’ equity was $215.3 million, or 8.4% of total assets, compared to $223.7 million, or 8.8% of total assets, at December 31, 2021. The decrease in shareholders’ equity reflects $3.7 million for the repurchase of the Company’s common stock, the payment of regular cash dividends of $2.7 million and an increase in accumulated other comprehensive loss of $14.4 million, partially offset by net income of $10.9 million. Total shares outstanding as of June 30, 2022 were 22,465,991.

Capital Management

The Company’s book value per share was $9.58 at June 30, 2022 compared to $9.87 at December 31, 2021, while tangible book value per share, a non-GAAP financial measure, decreased $0.29, or 3.1%, from $9.21 at December 31, 2021 to $8.92 at June 30, 2022. The change in AOCI reduced the tangible book value per common share by $0.64 as of June 30, 2022, primarily due to the impact of higher interest rates on the fair value of available-for-sale securities. Tangible book value is a non-GAAP measure. See pages 18-21 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures.

The Company’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements and internal target minimal levels. At June 30, 2022, the Company’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 8.9%, 11.7%, and 13.7%, respectively, and the Bank’s Tier 1 leverage, common equity tier 1 capital, and total risk-based capital ratios were 9.1%, 12.0%, and 13.0%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 6.5%, and 10.00%, respectively.

Dividends

Although the Company has historically paid quarterly dividends on its common stock and currently intends to continue to pay such dividends, the Company’s ability to pay such dividends depends on a number of factors, including restrictions under federal laws and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance that dividends will continue to be paid in the future.

About Western New England Bancorp, Inc.

Western New England Bancorp, Inc. is a Massachusetts-chartered stock holding company and the parent company of Westfield Bank, CSB Colts, Inc., Elm Street Securities Corporation, WFD Securities, Inc. and WB Real Estate Holdings, LLC. Western New England Bancorp, Inc. and its subsidiaries are headquartered in Westfield, Massachusetts and operate 25 banking offices throughout western Massachusetts and northern Connecticut. To learn more, visit our website at www.westfieldbank.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the Company’s financial condition, liquidity, results of operations, future performance, business, measures being taken in response to the COVID-19 pandemic and the impact of the COVID-19 impact on the Company’s business. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

  • the duration and scope of the COVID-19 pandemic and the local, national and global impact of COVID-19;
  • actions governments, businesses and individuals take in response to the COVID-19 pandemic;
  • the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines;
  • the emergence of new COVID-19 variants, such as the Omicron variant, and the response thereto;
  • the pace of recovery when the COVID-19 pandemic subsides;
  • changes in the interest rate environment that reduce margins;
  • the effect on our operations of governmental legislation and regulation, including changes in accounting regulation or standards, the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Basel guidelines, capital requirements and other applicable laws and regulations;
  • the highly competitive industry and market area in which we operate;
  • general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;
  • changes in business conditions and inflation;
  • changes in credit market conditions;
  • the inability to realize expected cost savings or achieve other anticipated benefits in connection with business combinations and other acquisitions;
  • changes in the securities markets which affect investment management revenues;
  • increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments;
  • changes in technology used in the banking business;
  • the soundness of other financial services institutions which may adversely affect our credit risk;
  • certain of our intangible assets may become impaired in the future;
  • our controls and procedures may fail or be circumvented;
  • new lines of business or new products and services, which may subject us to additional risks;
  • changes in key management personnel which may adversely impact our operations;
  • severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business; and
  • other factors detailed from time to time in our SEC filings.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except to the extent required by law.

For further information contact:James C. Hagan, President and CEOGuida R. Sajdak, Executive Vice President and CFOMeghan Hibner, Vice President and Investor Relations Officer413-568-1911

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 Six Months Ended
  June 30, March 31, December 31, September 30, June 30, June 30,
    2022     2022     2021     2021     2021     2022     2021  
INTEREST AND DIVIDEND INCOME:              
Loans $ 18,500   $ 17,947   $ 18,089   $ 18,670   $ 18,321   $ 36,447   $ 37,441  
Securities   2,068     1,950     1,763     1,500     1,277     4,018     2,131  
Other investments   30     25     25     28     28     55     63  
Short-term investments   48     21     49     40     26     69     50  
Total interest and dividend income   20,646     19,943     19,926     20,238     19,652     40,589     39,685  
               
INTEREST EXPENSE:              
Deposits   990     992     1,091     1,217     1,466     1,982     3.200  
Short-term borrowings   10     -     -     -     -     10     458  
Long-term debt   -     -     -     -     185     -     197  
Subordinated debt   254     253     253     256     197     507     -  
Total interest expense   1,254     1,245     1,344     1,473     1,848     2,499     3,855  
               
Net interest and dividend income   19,392     18,698     18,582     18,765     17,804     38,090     35,830  
               
PROVISION (CREDIT) FOR LOAN LOSSES   300     (425 )   300     (100 )   (1,200 )   (125 )   (1,125 )
               
Net interest and dividend income after provision              
(credit) for loan losses   19,092     19,123     18,282     18,865     19,004     38,215     36,955  
               
NON-INTEREST INCOME:              
Service charges and fees   2,346     2,174     2,270     2,132     2,075     4,520     3,958  
Income from bank-owned life insurance   458     448     486     485     500     906     941  
Bank-owned life insurance death benefits   -     -     555     -     -     -     -  
(Loss) gain on sales of securities, net   -     (4 )   -     2     (12 )   (4 )   (74 )
Unrealized (loss) gain on marketable equity securities   (225 )   (276 )   (96 )   11     6     (501 )   (83 )
Gain on sale of mortgages   -     2     289     665     242     2     469  
Gain on non-marketable equity investments   141     -     352     -     -     141     546  
Loss on interest rate swap terminations   -     -     -     -     (402 )   -     (402 )
Other income   21     4     -     -     -     25     58  
Total non-interest income   2,741     2,348     3,856     3,295     2,409     5,089     5,413  
               
NON-INTEREST EXPENSE:              
Salaries and employees benefits   8,236     8,239     8,193     8,175     7,973     16,475     15,736  
Occupancy   1,177     1,363     1,144     1,124     1,099     2,540     2,388  
Furniture and equipment   539     543     548     533     513     1,082     1,003  
Data processing   731     723     726     698     758     1,454     1,479  
Professional fees   719     577     477     575     589     1,296     1,133  
FDIC insurance   234     286     202     273     225     520     523  
Advertising   412     399     262     345     347     811     685  
Loss on prepayment of borrowings   -     -     -     -     45     -     45  
Other   2,385     2,326     2,371     2,295     2,125     4,711     4,009  
Total non-interest expense   14,433     14,456     13,923     14,018     13,674     28,889     27,001  
               
INCOME BEFORE INCOME TAXES   7,400     7,015     8,215     8,142     7,739     14,415     15,367  
               
INCOME TAX PROVISION   1,865     1,696     1,995     2,106     2,087     3,561     3,924  
NET INCOME $ 5,535   $ 5,319   $ 6,220   $ 6,036   $ 5,652   $ 10,854   $ 11,443  
               
Basic earnings per share $ 0.25   $ 0.24   $ 0.28   $ 0.27   $ 0.24   $ 0.49   $ 0.47  
Weighted average shares outstanding   21,991,383     22,100,076     22,097,968     22,620,387     23,722,903     22,045,052     24,102,416  
Diluted earnings per share $ 0.25   $ 0.24   $ 0.28   $ 0.27   $ 0.24   $ 0.49   $ 0.47  
Weighted average diluted shares outstanding   22,025,687     22,172,909     22,203,876     22,714,429     23,773,562     22,098,620     24,156,450  
               
Other Data:              
Return on average assets (1)   0.87 %   0.85 %   0.97 %   0.96 %   0.92 %   0.86 %   0.95 %
Return on average equity (1)   10.22 %   9.65 %   11.22 %   10.85 %   10.16 %   9.93 %   10.25 %
Efficiency ratio (2)   64.96 %   67.79 %   64.38 %   63.58 %   66.09 %   66.35 %   65.34 %
Net interest margin, on a fully tax-equivalent basis   3.26 %   3.20 %   3.10 %   3.20 %   3.08 %   3.23 %   3.17 %
(1) Annualized.          
(2) The efficiency ratio (non-GAAP) 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, bank-owned life insurance death benefits, gain on non-marketable equity investments, loss on interest rate swap termination and loss on prepayment of borrowings.
 

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands) (Unaudited)

  June 30,   March 31,   December 31,   September 30,   June 30,
    2022       2022       2021       2021       2021  
Cash and cash equivalents $ 47,513     $ 62,898     $ 103,456     $ 148,496     $ 105,494  
Available-for-sale securities, at fair value   160,925       173,910       194,352       208,030       231,166  
Held to maturity securities, at amortized cost   233,803       237,575       222,272       154,403       107,783  
Marketable equity securities, at fair value   11,453       11,643       11,896       11,970       11,936  
Federal Home Loan Bank of Boston and other restricted stock - at cost   1,882       2,594       2,594       2,698       4,036  
                   
Loans   1,975,700       1,926,285       1,864,716       1,846,150       1,876,988  
Allowance for loan losses   (19,560 )     (19,308 )     (19,787 )     (19,837 )     (19,870 )
Net loans   1,956,140       1,906,977       1,844,929       1,826,313       1,857,118  
                   
Bank-owned life insurance   73,801       73,343       72,895       74,286       73,801  
Goodwill   12,487       12,487       12,487       12,487       12,487  
Core deposit intangible   2,375       2,469       2,563       2,656       2,750  
Other assets   76,978       71,542       70,981       69,459       70,035  
TOTAL ASSETS $ 2,577,357     $ 2,555,438     $ 2,538,425     $ 2,510,798     $ 2,476,606  
                   
Total deposits $ 2,301,972     $ 2,278,164     $ 2,256,898     $ 2,230,884     $ 2,186,459  
Short-term borrowings   4,790       -       -       -       -  
Long-term debt   1,360       1,686       2,653       3,829       4,990  
Subordinated debt   19,653       19,643       19,633       19,623       19,614  
Securities pending settlement   -       146       -       -       461  
Other liabilities   34,252       36,736       35,553       38,120       41,411  
TOTAL LIABILITIES   2,362,027       2,336,375       2,314,737       2,292,456       2,252,935  
                   
TOTAL SHAREHOLDERS’ EQUITY   215,330       219,063       223,688       218,342       223,671  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 2,577,357     $ 2,555,438     $ 2,538,425     $ 2,510,798     $ 2,476,606  
                   

WESTERN NEW ENGLAND BANCORP, INC. AND SUBSIDIARIES Other Data (Dollars in thousands, except per share data) (Unaudited)

  Three Months Ended
    June 30,     March 31,     December 31,     September 30,     June 30,
    2022     2022     2021     2021     2021
Shares outstanding at end of period   22,465,991     22,742,189     22,656,515     22,848,781     24,070,399
                             
Operating results:                            
Net interest income $ 19,392   $ 18,698   $ 18,582   $ 18,765   $ 17,804
Provision (credit) for loan losses   300     (425)     300     (100)     (1,200)
Non-interest income   2,741     2,348     3,856     3,295     2,409
Non-interest expense   14,433     14,456     13,923     14,018     13,674
Income before income provision for income taxes   7,400     7,015     8,215     8,142     7,739
Income tax provision   1,865     1,696     1,995     2,106     2,087
Net income   5,535     5,319     6,220     6,036     5,652
                             
Performance Ratios:                            
Net interest margin, on a fully tax-equivalent basis   3.26%     3.20%     3.10%     3.20%     3.08%
Interest rate spread, on a fully tax-equivalent basis   3.17%     3.10%     2.99%     3.09%     2.94%
Return on average assets   0.87%     0.85%     0.97%     0.96%     0.92%
Return on average equity   10.22%     9.65%     11.22%     10.85%     10.16%
Efficiency ratio (non-GAAP)   64.96%     67.79%     64.38%     63.58%     66.09%
                             
Per Common Share Data:                            
Basic earnings per share $ 0.25   $ 0.24   $ 0.28   $ 0.27   $ 0.24
Per diluted share   0.25     0.24     0.28     0.27     0.24
Cash dividend declared   0.06     0.06     0.05     0.05     0.05
Book value per share   9.58     9.63     9.87     9.56     9.29
Tangible book value per share (non-GAAP)   8.92     8.97     9.21     8.89     8.66
                             
Asset Quality:                            
30-89 day delinquent loans $ 1,063   $ 1,407   $ 1,102   $ 1,619   $ 2,607
90 days or more delinquent loans   1,149     1,401     1,039     1,446     1,808
Total delinquent loans   2,212     2,808     2,141     3,065     4,415
Total delinquent loans as a percentage of total loans   0.11%     0.15%     0.11%     0.17%     0.24%
Total delinquent loans as a percentage of total loans, excluding PPP   0.11%     0.15%     0.12%     0.17%     0.25%
Nonperforming loans $ 4,105   $ 3,988   $ 4,964   $ 5,632   $ 5,989
Nonperforming loans as a percentage of total loans   0.21%     0.21%     0.27%     0.31%     0.32%
Nonperforming loans as a percentage of total loans, excluding PPP   0.21%     0.21%     0.27%     0.32%     0.34%
Nonperforming assets as a percentage of total assets   0.16%     0.16%     0.20%     0.22%     0.24%
Nonperforming assets as a percentage of total assets, excluding PPP   0.16%     0.16%     0.20%     0.23%     0.25%
Allowance for loan losses as a percentage of nonperforming loans   476.49%     484.15%     398.61%     352.22%     331.77%
Allowance for loan losses as a percentage of total loans   0.99%     1.00%     1.06%     1.07%     1.06%
Allowance for loan losses as a percentage of total loans, excluding PPP   0.99%     1.01%     1.08%     1.11%     1.12%
Net loan charge-offs (recoveries) $ 48   $ 54   $ 350   $ (67)   $ 157
Net loan charge-offs as a percentage of average assets   0.00%     0.00%     0.01%     0.00%     0.01%
                             

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

  Three Months Ended
  June 30, 2022   December 31, 2021   June 30, 2021
  Average       Average Yield/   Average       Average Yield/   Average       Average Yield/
  Balance   Interest(8)   Cost(9)   Balance   Interest(8)   Cost(9)   Balance   Interest(8)   Cost(9)
  (Dollars in thousands)
ASSETS:                                        
Interest-earning assets                                        
Loans(1)(2) $ 1,949,464   $ 18,624     3.83 %   $ 1,850,162   $ 18,197     3.90 %   $ 1,911,323   $ 18,425     3.87 %
Securities(2)   414,226     2,068     2.00       401,811     1,764     1.74       293,991     1,278     1.74  
Other investments   9,892     30     1.22       10,654     25     0.93       10,114     28     1.11  
Short-term investments(3)   24,944     48     0.77       131,770     49     0.15       114,883     26     0.09  
Total interest-earning assets   2,398,526     20,770     3.47       2,394,397     20,035     3.32       2,330,311     19,757     3.40  
Total non-interest-earning assets   153,939               149,151               147,545          
Total assets $ 2,552,465             $ 2,543,548             $ 2,477,856          
                                         
LIABILITIES AND EQUITY:                                        
Interest-bearing liabilities                                        
Interest-bearing checking accounts $ 137,984     105     0.31 %   $ 132,028     106     0.32 %   $ 100,455     92     0.37 %
Savings accounts   224,487     48     0.09       214,961     36     0.07       206,302     47     0.09  
Money market accounts   910,801     549     0.24       849,023     546     0.26       766,378     650     0.34  
Time deposit accounts   365,383     288     0.32       410,149     403     0.39       487,712     677     0.56  
Total interest-bearing deposits   1,638,655     990     0.24       1,606,161     1,091     0.27       1,560,847     1,466     0.38  
Short-term borrowings and long-term debt   25,829     264     4.10       22,614     253     4.44       54,459     382     2.81  
Total interest-bearing liabilities   1,664,484     1,254     0.30       1,628,775     1,344     0.33       1,615,306     1,848     0.46  
Non-interest-bearing deposits   635,678               654,334               603,270          
Other non-interest-bearing liabilities   35,076               40,428               36,043          
Total non-interest-bearing liabilities   670,754               694,762               639,313          
Total liabilities   2,335,238               2,323,537               2,254,619          
Total equity   217,227               220,011               223,237          
Total liabilities and equity $ 2,552,465             $ 2,543,548             $ 2,477,856          
Less: Tax-equivalent adjustment (2)       (124 )               (109 )               (105 )      
Net interest and dividend income     $ 19,392               $ 18,582               $ 17,804        
Net interest rate spread (4)         3.15 %           2.97 %           2.92 %
Net interest rate spread, on a tax-equivalent basis (5)         3.17 %           2.99 %           2.94 %
Net interest margin (6)         3.24 %           3.08 %           3.06 %
Net interest margin, on a tax-equivalent basis (7)         3.26 %           3.10 %           3.08 %
Ratio of average interest-earning                                        
assets to average interest-bearing liabilities         144.10 %           147.01 %           144.26 %
                                         

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

  Six Months Ended June 30,
  2022   2021
  Average Balance   Interest (8)   Average Yield/ Cost(9)   Average Balance   Interest (8)   Average Yield/ Cost(9)
 
  (Dollars in thousands)
ASSETS:                          
Interest-earning assets                          
Loans(1)(2) $ 1,922,318   $ 36,690     3.85 %   $ 1,917,366   $ 37,648     3.96 %
Securities(2)   418,806     4,019     1.94       260,845     2,131     1.65  
Other investments   10,241     55     1.08       9,889     63     1.28  
Short-term investments(3)   40,899     69     0.34       104,999     50     0.10  
Total interest-earning assets   2,392,264     40,833     3.44       2,293,099     39,892     3.51  
Total non-interest-earning assets   148,815               146,709          
Total assets $ 2,541,079             $ 2,439,808          
                           
LIABILITIES AND EQUITY:                          
Interest-bearing liabilities                          
Interest-bearing checking accounts $ 135,104     200     0.30 %   $ 95,507     198     0.42 %
Savings accounts   221,484     83     0.08       196,812     83     0.09  
Money market accounts   894,687     1,070     0.24       721,270     1,303     0.36  
Time deposit accounts   377,158     629     0.34       527,188     1,616     0.62  
Total interest-bearing deposits   1,628,433     1,982     0.25       1,540,777     3,200     0.42  
Short-term borrowings and long-term debt   24,164     517     4.31       53,569     655     2.47  
Total interest-bearing liabilities   1,652,597     2,499     0.30       1,594,346     3,855     0.49  
Non-interest-bearing deposits   634,387               582,541          
Other non-interest-bearing liabilities   33,721               37,829          
Total non-interest-bearing liabilities   668,108               620,370          
                           
Total liabilities   2,320,705               2,214,716          
Total equity   220,374               225,092          
Total liabilities and equity $ 2,541,079             $ 2,439,808          
Less: Tax-equivalent adjustment (2)       (244 )               (207 )      
Net interest and dividend income     $ 38,090               $ 35,830        
Net interest rate spread (4)         3.12 %           3.00 %
Net interest rate spread, on a tax-equivalent basis (5)         3.14 %           3.02 %
Net interest margin (6)         3.21 %           3.15 %
Net interest margin, on a tax-equivalent basis (7)         3.23 %           3.17 %
Ratio of average interest-earning                          
assets to average interest-bearing liabilities       144.76 %           143.83 %

(1)        Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds. (2)        Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income. (3)        Short-term investments include federal funds sold. (4)        Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. (5)        Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. (6)        Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets. (7)        Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. (8)        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 June 30, 2022, December 31, 2021 and June 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $64,000, ($31,000) and $(33,000), respectively, and for the six months ended June 30, 2022 and June 30, 2021, the loan accretion income and interest expense reduction on time deposits and borrowings increased (decreased) net interest income $103,000 and $(78,000), respectively. Excluding these items, net interest margin, on a tax-equivalent basis, for the three months ended June 30, 2022, December 31, 2021 and June 30, 2021 was 3.25%, 3.10% and 3.09%, respectively, and the net interest margin, on a tax-equivalent basis, for the six months ended June 30, 2022 and June 30, 2021 was 3.22% and 3.18%, respectively. (9)        Annualized.

Reconciliation of Non-GAAP to GAAP Financial Measures

The Company believes that certain non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided below.

  For the quarter ended
  6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
  (In thousands)
                   
Loans (no tax adjustment) $ 18,500     $ 17,947     $ 18,089     $ 18,670     $ 18,321  
Tax-equivalent adjustment   124       120       108       106       104  
Loans (tax-equivalent basis) $ 18,624     $ 18,067     $ 18,197     $ 18,776     $ 18,425  
                   
Securities (no tax adjustment) $ 2,068     $ 1,950     $ 1,763     $ 1,500     $ 1,277  
Tax-equivalent adjustment   -       -       1       1       1  
Securities (tax-equivalent basis) $ 2,068     $ 1,950     $ 1,764     $ 1,501     $ 1,278  
                   
Net interest income (no tax adjustment) $ 19,392     $ 18,698     $ 18,582     $ 18,765     $ 17,804  
Tax equivalent adjustment   124       120       109       107       105  
Net interest income (tax-equivalent basis) $ 19,516     $ 18,818     $ 18,691     $ 18,872     $ 17,909  
                   
Net interest income (no tax adjustment) $ 19,392     $ 18,698     $ 18,582     $ 18,765     $ 17,804  
Less:                  
Purchase accounting adjustments   64       39       (31 )     56       (33 )
Prepayment penalties and fees   26       21       21       8       117  
PPP fee income   129       562       973       1,757       1,627  
Adjusted net interest income (non-GAAP) $ 19,173     $ 18,076     $ 17,619     $ 16,944     $ 16,093  
                   
Average interest-earning assets $ 2,398,526     $ 2,385,932     $ 2,394,397     $ 2,337,717     $ 2,330,311  
Average interest-earnings asset, excluding average PPP loans $ 2,395,463     $ 2,370,852     $ 2,352,858     $ 2,257,346     $ 2,174,716  
Net interest margin (no tax adjustment)   3.24 %     3.18 %     3.08 %     3.18 %     3.06 %
Net interest margin, tax-equivalent   3.26 %     3.20 %     3.10 %     3.20 %     3.08 %
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.21 %     3.10 %     2.97 %     2.98 %     2.97 %
                                       
  For the quarter ended
  6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
  (In thousands)
                   
Book Value per Share (GAAP) $ 9.58     $ 9.63     $ 9.87     $ 9.56     $ 9.29  
Non-GAAP adjustments:                  
Goodwill   (0.55 )     (0.55 )     (0.55 )     (0.55 )     (0.52 )
Core deposit intangible   (0.11 )     (0.11 )     (0.11 )     (0.12 )     (0.11 )
Tangible Book Value per Share (non-GAAP) $ 8.92     $ 8.97     $ 9.21     $ 8.89     $ 8.66  
                   
Income Before Income Taxes (GAAP) $ 7,400     $ 7,015     $ 8,215     $ 8,142     $ 7,739  
Provision (credit) for loan losses   300       (425 )     300       (100 )     (1,200 )
Income Before Taxes and Provision (non-GAAP) $ 7,700     $ 6,590     $ 8,515     $ 8,042     $ 6,539  
                   
Efficiency Ratio:                  
Non-interest Expense (GAAP) $ 14,433     $ 14,456     $ 13,923     $ 14,018     $ 13,674  
Non-GAAP adjustments:                  
Loss on prepayment of borrowings   -       -       -       -       (45 )
Non-interest Expense for Efficiency Ratio (non-GAAP) $ 14,433     $ 14,456     $ 13,923     $ 14,018     $ 13,629  
                   
Net Interest Income (GAAP) $ 19,392     $ 18,698     $ 18,582     $ 18,765     $ 17,804  
                   
Non-interest Income (GAAP) $ 2,741     $ 2,348     $ 3,856     $ 3,295     $ 2,409  
Non-GAAP adjustments:                  
Bank-owned life insurance death benefit   -       -       (555 )     -       -  
Loss (gain) on securities, net   -       4       -       (2 )     12  
Unrealized losses (gains) on marketable equity securities   225       276       96       (11 )     (6 )
Loss on interest rate swap termination   -       -       -       -       402  
Gain on non-marketable equity investments   (141 )     -       (352 )     -       -  
Non-interest Income for Efficiency Ratio (non-GAAP)_ $ 2,825     $ 2,628     $ 3,045     $ 3,282     $ 2,817  
Total Revenue for Efficiency Ratio (non-GAAP) $ 22,217     $ 21,326     $ 21,627     $ 22,047     $ 20,621  
                   
Efficiency Ratio (GAAP)   65.21 %     68.69 %     62.05 %     63.54 %     67.65 %
                   
Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   64.96 %     67.79 %     64.38 %     63.58 %     66.09 %
                                       
  For the six months ended
  6/30/2022   6/30/2021
  (In thousands)
       
Loans (no tax adjustment) $ 36,447     $ 37,441  
Tax-equivalent adjustment   244       207  
Loans (tax-equivalent basis) $ 36,691     $ 37,648  
       
Securities (no tax adjustment) $ 4,018     $ 2,131  
Tax-equivalent adjustment   -       -  
Securities (tax-equivalent basis) $ 4,018     $ 2,131  
       
Net interest income (no tax adjustment) $ 38,090     $ 35,830  
Tax equivalent adjustment   244       207  
Net interest income (tax-equivalent basis) $ 38,334     $ 36,037  
       
Net interest income (no tax adjustment) $ 38,090     $ 35,830  
Less:      
Purchase accounting adjustments   103       (78 )
Prepayment penalties and fees   48       152  
PPP fee income   691       4,038  
Adjusted net interest income (non-GAAP) $ 37,248     $ 31,718  
       
Average interest-earning assets $ 2,392,264     $ 2,293,099  
Average interest-earnings asset, excluding average PPP loans $ 2,383,226     $ 2,132,050  
Net interest margin (no tax adjustment)   3.21 %     3.15 %
Net interest margin, tax-equivalent   3.23 %     3.17 %
Adjusted net interest margin, excluding purchase accounting adjustments, PPP fee income and prepayment penalties (non-GAAP)   3.16 %     2.99 %
               
  For the six months ended
  6/30/2022   6/30/2021
  (In thousands)
       
Book Value per Share (GAAP) $ 9.58     $ 9.29  
Non-GAAP adjustments:      
Goodwill   (0.55 )     (0.52 )
Core deposit intangible   (0.11 )     (0.11 )
Tangible Book Value per Share (non-GAAP) $ 8.92     $ 8.66  
       
Income Before Income Taxes (GAAP) $ 14,415     $ 15,367  
(Credit) provision for loan losses   (125 )     (1,125 )
Income Before Taxes and Provision (non-GAAP) $ 14,290     $ 14,242  
       
Efficiency Ratio:      
Non-interest Expense (GAAP) $ 28,889     $ 27,001  
Non-GAAP adjustments:      
Loss on prepayment of borrowings   -       (45 )
Non-interest Expense for Efficiency Ratio (non-GAAP) $ 28,889     $ 26,956  
       
Net Interest Income (GAAP) $ 38,090     $ 35,830  
       
Non-interest Income (GAAP) $ 5,089     $ 5,413  
Non-GAAP adjustments:      
Loss on securities, net   4       74  
Unrealized losses on marketable equity securities   501       83  
Loss on interest rate swap termination   -       402  
Gain on non-marketable equity investments   (141 )     (546 )
Non-interest Income for Efficiency Ratio (non-GAAP)_ $ 5,453     $ 5,426  
Total Revenue for Efficiency Ratio (non-GAAP) $ 43,543     $ 41,256  
       
Efficiency Ratio (GAAP)   66.91 %     65.47 %
       
Efficiency Ratio (Non-interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))   66.35 %     65.34 %
               
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