WNEB - Western New England Bancorp Inc. Reports Results for Three Months and Year Ended December 31 2023 and Declares Quarterly Cash Dividend | Benzinga

WESTFIELD, Mass., Jan. 23, 2024 (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 twelve months ended December 31, 2023. For the three months ended December 31, 2023, the Company reported net income of $2.5 million, or $0.12 per diluted share, compared to net income of $9.0 million, or $0.42 per diluted share, for the three months ended December 31, 2022. On a linked quarter basis, net income was $2.5 million, or $0.12 per diluted share, as compared to net income of $4.5 million, or $0.21 per diluted share, for the three months ended September 30, 2023. For the twelve months ended December 31, 2023, net income was $15.1 million, or $0.70 per diluted share, compared to net income of $25.9 million, or $1.18 per diluted share, for the twelve months ended December 31, 2022.

The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.07 per share on the Company's common stock. The dividend will be payable on or about February 21, 2024 to shareholders of record on February 7, 2024.

James C. Hagan, President and Chief Executive Officer, commented, "We are pleased with our fourth quarter results, showing loan growth with increasing loan yields. Total loans increased $35.9 million, or 1.8%, since December 31, 2022, while classified assets decreased 38.3% from December 31, 2022. The Company also maintained a strong liquidity position, covering approximately 146% of uninsured deposits as of December 31, 2023.

Additionally, during the twelve months ended December 31, 2023, we repurchased 649,744 shares of our common stock at an average price per share of $7.20. We believe that share repurchases represent a prudent use of capital, especially when they are accretive to book value. Management has and will continue to remain focused on increasing shareholder value through various capital management strategies."

Hagan concluded, "Our team remains committed to our community and to our existing and new customers. We continue to be focused on true relationship banking, while providing continued access to local decision makers in order to meet the financial needs of all our customers. We believe our various growth, customer and expense initiatives are creating positive impacts to our performance and are positioning the Company for future growth and increased profitability."

Key Highlights:

Loans and Deposits
At December 31, 2023, total loans of $2.0 billion increased $35.9 million, or 1.8%, from December 31, 2022. The increase in total loans was due to an increase in commercial real estate loans of $10.4 million, or 1.0%, and an increase in residential real estate loans, including home equity loans, of $27.1 million, or 3.9%, partially offset by a decrease in commercial and industrial loans of $2.4 million, or 1.1%.

At December 31, 2023, total deposits were $2.1 billion, a decrease of $85.7 million, or 3.8%, from December 31, 2022. Core deposits, which the Company defines as all deposits except time deposits, decreased $285.4 million, or 15.7%, from $1.8 billion, or 81.5% of total deposits, at December 31, 2022, to $1.5 billion, or 71.5% of total deposits at December 31, 2023. The loan to deposit ratio increased from 89.3% at December 31, 2022 to 94.6% at December 31, 2023.

Liquidity
The Company's liquidity position remains strong with solid core deposit relationships, cash, unencumbered securities, a diversified deposit base and access to diversified borrowing sources. At December 31, 2023, the Company had $839.1 million in immediate liquidity compared to $574.9 million in uninsured deposits, or 26.8% of total deposits, representing a coverage ratio of 146%. Uninsured deposits of the Bank's customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep (ICS) account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $250.0 million per customer of pass-through FDIC insurance, which would more than cover each of the Bank's deposit customers if such customer desired to have such pass-through insurance.

Allowance for Credit Losses and Credit Quality
At December 31, 2023, the allowance for credit losses was $20.3 million, or 1.00% of total loans and 315.6% of nonperforming loans compared to $19.9 million, or 1.00% of total loans and 350.0% of nonperforming loans at December 31, 2022. At December 31, 2023, nonperforming loans totaled $6.4 million, or 0.32% of total loans, compared to $5.7 million, or 0.29% of total loans, at December 31, 2022. Total delinquent loans increased $1.5 million, or 34.3%, from $4.5 million, or 0.22% of total loans, at December 31, 2022 to $6.0 million, or 0.30% of total loans, at December 31, 2023. At December 31, 2023 and December 31, 2022, the Company did not have any other real estate owned.

Net Interest Margin
The net interest margin was 2.64% for the three months ended December 31, 2023 compared to 3.44% for the three months ended December 31, 2022 and 2.70% for the three months ended September 30, 2023. The net interest margin, on a tax-equivalent basis, was 2.66% for the three months ended December 31, 2023, compared to 3.47% for the three months ended December 31, 2022 and 2.72% for the three months ended September 30, 2023.

Stock Repurchase Program
On July 26, 2022, the Board of Directors authorized a stock repurchase plan (the "2022 Plan"), pursuant to which the Company is authorized to repurchase up to 1.1 million shares, representing approximately 5.0% of the Company's outstanding common stock as of the time the 2022 Plan was announced. During the three months ended December 31, 2023, the Company repurchased 244,839 shares of common stock under the 2022 Plan, with an average price per share of $7.09. During the twelve months ended December 31, 2023, the Company repurchased 649,744 shares of common stock under the 2022 Plan, with an average price per share of $7.20. As of December 31, 2023, there were 406,600 shares of common stock available for repurchase under the 2022 Plan.

The repurchase of shares under the stock repurchase program is administered through an independent broker. The shares of common stock repurchased under the 2022 Plan are 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 the Company's management ("Management") determines additional repurchases are not warranted. The timing and amount of additional share repurchases under 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.

Book Value and Tangible Book Value
The Company's book value per share was $10.96 at December 31, 2023 compared to $10.27 at December 31, 2022, while tangible book value per share, a non-GAAP financial measure, increased $0.69, or 7.2%, from $9.61 at December 31, 2022 to $10.30 at December 31, 2023. See pages 20-24 for the related tangible book value calculation and a reconciliation of GAAP to non-GAAP financial measures.

Westfield Bank Defined Benefit Pension Plan
The Board of Directors previously announced the termination of the Westfield Bank Defined Benefit Plan (the "DB Plan") on October 31, 2022, subject to required regulatory approval. At December 31, 2022, the Company reversed $7.3 million in net unrealized losses recorded in accumulated other comprehensive income attributed to both the DB Plan curtailment resulting from the termination of the DB Plan as well as changes in discount rates. In addition, during the three months ended December 31, 2022, the Company recorded a gain on curtailment of $2.8 million through non-interest income. During the twelve months ended December 31, 2023, the Company made an additional cash contribution of $1.3 million in order to fully fund the DB Plan on a plan termination basis. In addition, for those participants who did not opt for a one-time lump sum payment, the Company funded $6.3 million to purchase a group annuity contract to transfer its remaining liabilities under the DB Plan. During the twelve months ended December 31, 2023, the Company recognized the final termination expense of $1.1 million related to the DB Plan termination, which was recorded through non-interest income.

Net Income for the Three Months Ended December 31, 2023 Compared to the Three Months Ended September 30, 2023
The Company reported net income of $2.5 million, or $0.12 per diluted share, for the three months ended December 31, 2023, compared to net income of $4.5 million, or $0.21 per diluted share, for the three months ended September 30, 2023. Net interest income decreased $207,000, or 1.3%, non-interest income decreased $898,000, or 24.9%, non-interest expense increased $667,000, or 4.7%, and the provision for credit losses increased $132,000, or 37.3%, during the same period. Return on average assets and return on average equity were 0.39% and 4.31%, respectively, for the three months ended December 31, 2023, compared to 0.70% and 7.60%, respectively, for the three months ended September 30, 2023.

Net Interest Income and Net Interest Margin
On a sequential quarter basis, net interest income, our primary source of revenues, decreased $207,000, or 1.3%, for the three months ended December 31, 2023, from $16.4 million for the three months ended September 30, 2023 to $16.2 million. The decrease in net interest income was primarily due to an increase in interest expense of $1.1 million, or 11.3%, partially offset by an increase in interest and dividend income of $869,000, or 3.4%. The increase in interest expense was a result of competitive pricing on deposits due to the continued high interest rate environment and the shift in the deposit mix from low cost core deposits to high cost time deposits.

The net interest margin was 2.64% for the three months ended December 31, 2023 compared to 2.70% for the three months ended September 30, 2023. The net interest margin, on a tax-equivalent basis, was 2.66% for the three months ended December 31, 2023, compared to 2.72% for the three months ended September 30, 2023. The decrease in the net interest margin was primarily due to an increase in the average cost of interest-bearing liabilities, which was partially offset with an increase in the average yield on interest-earning assets.

The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, was 4.38% for the three months ended December 31, 2023, compared to 4.28% for the three months ended September 30, 2023. The average loan yield, without the impact of tax-equivalent adjustments, was 4.71% for the three months ended December 31, 2023, compared to 4.64% for the three months ended September 30, 2023. During the three months ended December 31, 2023, average interest-earning assets increased $24.1 million, or 1.0% to $2.4 billion, primarily due to an increase in average short-term investments, consisting of cash and cash equivalents, of $20.5 million, or 91.6%, and an increase in average loans of $9.8 million, or 0.5%, both partially offset by a decrease in average securities of $6.1 million, or 1.7%.

The average cost of total funds, including non-interest bearing accounts and borrowings, increased 17 basis points from 1.64% for the three months ended September 30, 2023 to 1.81% for the three months ended December 31, 2023. The average cost of core deposits, which the Company defines as all deposits except time deposits, increased 6 basis points to 0.76% for the three months ended December 31, 2023, from 0.70% for the three months ended September 30, 2023. The average cost of time deposits increased 32 basis points from 3.46% for the three months ended September 30, 2023 to 3.78% for the three months ended December 31, 2023. The average cost of borrowings, including subordinated debt, increased 2 basis points from 4.81% for the three months ended September 30, 2023 to 4.83% for the three months ended December 31, 2023. For the three months ended December 31, 2023, average demand deposits, an interest-free source of funds, decreased $3.2 million, or 0.5%, to $588.7 million, or 27.0% of total average deposits, from $591.9 million, or 27.5% of total average deposits for the three months ended September 30, 2023.

Provision for Credit Losses
During the three months ended December 31, 2023, the Company recorded a provision for credit losses of $486,000, compared to a provision for credit losses of $354,000 during the three months ended September 30, 2023. The provision for credit losses includes a $61,000 provision for unfunded commitments primarily due to changes in the loss driver analysis for construction loans, offset by the impact of a decrease in unfunded loan commitments. Total unfunded loan commitments decreased $10.6 million, or 6.1%, to $162.3 million at December 31, 2023 from $172.9 million at September 30, 2023. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company's loan portfolio, changes in the loan portfolio mix and management's consideration of existing economic conditions and the economic outlook from the Federal Reserve's actions to control inflation. The Company also increased the qualitative reserve to consider the potential losses resulting from future recessionary pressures. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment and supportable forecast period.

During the three months ended December 31, 2023, the Company recorded net charge-offs of $136,000, compared to net charge-offs of $78,000 for the three months ended September 30, 2023.

Non-Interest Income
On a sequential quarter basis, non-interest income decreased $898,000, or 24.9%, to $2.7 million for the three months ended December 31, 2023, from $3.6 million for the three months ended September 30, 2023. Service charges and fees increased $138,000, or 6.4%, from the three months ended September 30, 2023 to $2.3 million for the three months ended December 31, 2023. Income from bank-owned life insurance ("BOLI") decreased $22,000, or 4.8%, from the three months ended September 30, 2023 to $432,000 for the three months ended December 31, 2023.

During the three months ended September 30, 2023, non-interest income included a non-taxable gain of $778,000 in BOLI death benefits. During the three months ended December 31, 2023, the Company did not have comparable non-taxable BOLI death benefits. During the three months ended September 30, 2023, the Company reported a gain on non-marketable equity investments of $238,000. The Company did not have comparable non-interest income during the three months ended December 31, 2023. During the three months ended September 30, 2023, the Company reported a loss on the disposal of premises and equipment of $3,000. The Company did not have a comparable loss during the three months ended December 31, 2023. Excluding the BOLI death benefits of $778,000 and the gain on non-marketable equity investments of $238,000, non-interest income increased $118,000, or 4.5%, from the three months ended September 30, 2023 to the three months ended December 31, 2023.

Non-Interest Expense
For the three months ended December 31, 2023, non-interest expense increased $667,000, or 4.7%, from $14.1 million for the three months ended September 30, 2023 to $14.8 million. Other expenses increased $825,000, or 35.1%, for the three months ended December 31, 2023, as a result of a $510,000 legal settlement accrual. During the three months ended December 31, 2023, the Company reached an agreement-in-principle to settle purported class action lawsuits concerning the Company's deposit products and related disclosures, specifically involving overdraft fees and insufficient funds fees. This agreement-in-principle reflects our business decision to avoid the costs, uncertainties and distractions of further litigation. Excluding the legal settlement accrual, non-interest expense increased $157,000, or 1.1%, from the three months ended September 30, 2023 to $14.3 million for the three months ended December 31, 2023.

During the three months ended December 31, 2023, occupancy expense increased $39,000, or 3.4%, from the three months ended September 30, 2023, professional fees increased $31,000, or 4.8%, advertising expense increased $15,000, or 4.1%, and furniture and equipment expense increased $12,000, or 2.5%. These increases were partially offset by a decrease in salaries and employee benefits of $216,000, or 2.7%, primarily due to lower incentive compensation expense, data processing decreased $36,000, or 4.4%, and FDIC insurance expense decreased $3,000, or 0.9%.

For the three months ended December 31, 2023, the efficiency ratio was 78.3% compared to 70.6% for the three months ended September 30, 2023. For the three months ended December 31, 2023, the adjusted efficiency ratio, a non-GAAP financial measure, was 78.3% compared to 74.4% for the three months ended September 30, 2023. See pages 20-24 for the related efficiency ratio calculations and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision
Income tax expense for the three months ended December 31, 2023 was $1.1 million with an effective tax rate of 30.6%, compared to income tax expense of $1.0 million with an effective tax rate of 18.7%, for the three months ended September 30, 2023. The effective tax rate for the three months ended December 31, 2023 was negatively impacted by discrete items totaling $285,000, while the lower effective tax rate for September 30, 2023 was primarily due to the non-taxable gain of $778,000 in BOLI death benefits.

Net Income for the Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022
The Company reported net income of $2.5 million, or $0.12 per diluted share, for the three months ended December 31, 2023, compared to net income of $9.0 million, or $0.42 per diluted share, for the three months ended December 31, 2022. Net interest income decreased $4.7 million, or 22.4%, non-interest income decreased $2.9 million, or 52.0%, non-interest expense increased $782,000, or 5.6%, and the provision for credit losses increased $336,000, or 224.0%, during the same period. Return on average assets and return on average equity were 0.39% and 4.31%, respectively, for the three months ended December 31, 2023, compared to 1.40% and 16.67%, respectively, for the three months ended December 31, 2022.

Net Interest Income and Net Interest Margin
Net interest income decreased $4.7 million, or 22.4%, to $16.2 million, for the three months ended December 31, 2023, from $20.9 million for the three months ended December 31, 2022. The decrease in net interest income was due to an increase in interest expense of $7.9 million, partially offset by an increase in interest and dividend income of $3.2 million, or 13.5%. Interest expense on deposits increased $6.6 million and interest expense on borrowings increased $1.3 million. The increase in interest expense was a result of competitive pricing on deposits due to the continued higher interest rate environment and the shift in the deposit mix from low cost core deposits to high cost time deposits.

The net interest margin was 2.64% for the three months ended December 31, 2023, compared to 3.44% for the three months ended December 31, 2022. The net interest margin, on a tax-equivalent basis, was 2.66% for the three months ended December 31, 2023, compared to 3.47% for the three months ended December 31, 2022. The decrease in the net interest margin was primarily due to an increase in the average cost of interest-bearing liabilities, which was partially offset with an increase in the average yield on interest-earning assets.

The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, increased 48 basis points from 3.90% for the three months ended December 31, 2022 to 4.38% for the three months ended December 31, 2023. During the three months ended December 31, 2023, average interest-earning assets increased $25.4 million, or 1.1%, to $2.4 billion compared to the three months ended December 31, 2022, primarily due to an increase in average loans of $22.2 million, or 1.1%, an increase in average short-term investments, consisting of cash and cash equivalents, of $35.2 million, or 460.9%, and an increase in other average investments of $1.5 million, or 13.9%, partially offset by a decrease in average securities of $33.5 million, or 8.6%.

The average cost of funds, including non-interest-bearing demand accounts and borrowings, increased 134 basis points, from 0.47% for the three months ended December 31, 2022 to 1.81% for the three months ended December 31, 2023.

The average cost of core deposits, which the Company defines as all deposits except time deposits and which include non-interest-bearing demand accounts, increased 42 basis points, from 0.34% for the three months ended December 31, 2022 to 0.76% for the three months ended December 31, 2023. The average cost of time deposits increased 313 basis points from 0.65% for the three months ended December 31, 2022 to 3.78% for the three months ended December 31, 2023. The average cost of borrowings, including subordinated debt, increased 54 basis points from 4.29% for the three months ended December 31, 2022 to 4.83% for the three months ended December 31, 2023. For the three months ended December 31, 2023, average demand deposits, an interest-free source of funds, decreased $75.1 million, or 11.3%, to $588.7 million, or 27.0% of total average deposits, from $663.8 million, or 29.4% of total average deposits for the three months ended December 31, 2022.

Provision for Credit Losses
During the three months ended December 31, 2023, the Company recorded a provision for credit losses of $486,000 under CECL, compared to a provision for credit losses of $150,000 during the three months ended December 31, 2022 under the incurred loss model. The increase in the provision for credit losses was primarily due to changes in the economic environment and related adjustments to the quantitative components of the CECL methodology. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company's loan portfolio, changes in the loan portfolio mix and management's consideration of existing economic conditions and the economic outlook from the Federal Reserve's actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately provisioned for the current economic environment and supportable forecast period. The Company recorded net charge-offs of $136,000 for the three months ended December 31, 2023, as compared to net charge-offs of $426,000 for the three months ended December 31, 2022.

Non-Interest Income
Non-interest income decreased $2.9 million, or 52.0%, to $2.7 million for the three months ended December 31, 2023, from $5.7 million for the three months ended December 31, 2022. During the three months ended December 31, 2022, the Company recorded a curtailment gain related to the DB Plan termination of $2.8 million through non-interest income. Excluding the DB Plan termination curtailment gain, non-interest income decreased $132,000, or 4.6%.

During the three months ended December 31, 2023, service charges and fees on deposits decreased $46,000, or 2.0%, primarily due to changes in the Company's overdraft program that were implemented in the first quarter of 2023. Income from BOLI increased $4,000, or 0.9%, from $428,000 for the three months ended December 31, 2022 to $432,000 for the three months ended December 31, 2023. During the three months ended December 31, 2022, the Company reported a gain on non-marketable equity investments of $70,000. The Company did not have comparable income during the three months ended December 31, 2023. In addition, the Company reported unrealized gains on marketable equity securities of $19,000 during the three months ended December 31, 2022, compared to unrealized losses on marketable equity securities of $1,000 during the three months ended December 31, 2023. 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.

Non-Interest Expense
For the three months ended December 31, 2023, non-interest expense increased $782,000, or 5.6%, from $14.0 million for the three months ended December 31, 2022 to $14.8 million. During the same period, other expenses increased $842,000, or 36.1%, as a result of a $510,000 legal settlement accrual. During the three months ended December 31, 2023, the Company reached an agreement-in-principle to settle purported class action lawsuits concerning the Company's deposit products and related disclosures, specifically involving overdraft fees and insufficient funds fees. This agreement-in-principle reflects our business decision to avoid the costs, uncertainties and distractions of further litigation. Excluding the legal settlement accrual, non-interest expense increased $272,000, or 1.9%, from $14.0 million, for the three months ended December 31, 2022 to $14.3 million for the three months ended December 31, 2023.

For the three months ended December 31, 2023, compared to the three months ended December 31, 2022, advertising expense increased $199,000, or 111.8%, due to timing of promotions in 2022. FDIC insurance expense increased $83,000, or 32.5%, data processing increased $64,000, or 8.8%, professional fees increased $57,000, or 9.2%, and furniture and equipment expense increased $15,000, or 3.1%. These increases were partially offset by a decrease in salaries and employee benefits of $458,000, or 5.6%, primarily due to lower incentive compensation expense, and a decrease in occupancy expense of $20,000, or 1.6%.

For the three months ended December 31, 2023, the efficiency ratio was 78.3% compared to 52.8% for the three months ended December 31, 2022, primarily due to a $4.7 million, or 22.4% decrease in net interest income during the three months ended December 31, 2023. For the three months ended December 31, 2023, the adjusted efficiency ratio, a non-GAAP financial measure, was 78.3% compared to 59.3% for the three months ended December 31, 2022. See pages 20-24 for the related efficiency ratio calculations and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision
Income tax expense for the three months ended December 31, 2023 was $1.1 million with an effective tax rate of 30.6%, compared to $3.3 million with an effective tax rate of 26.9% for three months ended December 31, 2022. The effective tax rate for the three months ended December 31, 2023 was negatively impacted by discrete items totaling $285,000.

Net Income for the Twelve Months Ended December 31, 2023 Compared to the Twelve Months Ended December 31, 2022
For the twelve months ended December 31, 2023, the Company reported net income of $15.1 million, or $0.70 per diluted share, compared to $25.9 million, or $1.18 per diluted share, for the twelve months ended December 31, 2022. Return on average assets and return on average equity were 0.59% and 6.47% for the twelve months ended December 31, 2023, respectively, compared to 1.02% and 11.85% for the twelve months ended December 31, 2022, respectively.

Net Interest Income and Net Interest Margin
During the twelve months ended December 31, 2023, net interest income decreased $11.3 million, or 14.3%, to $67.9 million, compared to $79.2 million for the twelve months ended December 31, 2022. The decrease in net interest income was due to an increase in interest expense of $26.5 million, partially offset by an increase in interest and dividend income of $15.2 million, or 17.7%.

The net interest margin for the twelve months ended December 31, 2023 was 2.82%, compared to 3.31% during the twelve months ended December 31, 2022. The net interest margin, on a tax-equivalent basis, was 2.84% for the twelve months ended December 31, 2023, compared to 3.33% for the twelve months ended December 31, 2022.

The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, increased 62 basis points from 3.58% for the twelve months ended December 31, 2022 to 4.20% for the twelve months ended December 31, 2023. During the twelve months ended December 31, 2023, average interest-earning assets increased $10.3 million, or 0.4%, to $2.4 billion compared to the twelve months ended December 31, 2022, primarily due to an increase in average loans of $52.6 million, or 2.7%, and an increase in average other investments of $2.1 million, or 20.8%, partially offset by a decrease in average securities of $39.2 million, or 9.6%, and a decrease in average short-term investments, consisting of cash and cash equivalents, of $5.3 million, or 20.4%.

During the twelve months ended December 31, 2023, the average cost of funds, including non-interest-bearing demand accounts and borrowings, increased 115 basis points from 0.29% for the twelve months ended December 31, 2022 to 1.44%. For the twelve months ended December 31, 2023, the average cost of core deposits, including non-interest-bearing demand deposits, increased 45 basis points from 0.20% for the twelve months ended December 31, 2022 to 0.65% for the twelve months ended December 31, 2023. The average cost of time deposits increased 262 basis points from 0.41% for the twelve months ended December 31, 2022 to 3.03% during the same period in 2023. The average cost of borrowings, which include Federal Home Loan Bank ("FHLB") advances and subordinated debt, increased 58 basis points from 4.26% for the twelve months ended December 31, 2022 to 4.84% for the twelve months ended December 31, 2023.

For the twelve months ended December 31, 2023, average demand deposits, an interest-free source of funds, decreased $45.3 million, or 7.0%, from $648.0 million, or 28.6% of total average deposits, for the twelve months ended December 31, 2022, to $602.7 million, or 27.8% of total average deposits.

Provision for Credit Losses
During the twelve months ended December 31, 2023, the Company recorded a provision for credit losses of $872,000 under the CECL model, compared to a provision for credit losses of $700,000 during the twelve months ended December 31, 2022 under the incurred loss model. The increase in reserves was primarily due to changes in the economic environment and related adjustments to the quantitative components of the CECL methodology. The Company recorded net charge-offs of $2.0 million for the twelve months ended December 31, 2023, as compared to net charge-offs of $556,000 for the twelve months ended December 31, 2022. The charge-offs for the twelve months ended December 31, 2023 were related to one commercial relationship acquired on October 21, 2016 from Chicopee Bancorp, Inc., which was placed on nonaccrual status during the first quarter of 2023. The Company recorded a $1.9 million charge-off on the relationship, which represented the non-accretable credit mark that was required to be grossed-up to the loan's amortized cost basis with a corresponding increase to the allowance for credit losses under CECL implementation. At December 31, 2023, the Company had charged-off 61% of the total relationship and the remaining exposure of $940,000 is collateralized at this time.

Non-Interest Income
For the twelve months ended December 31, 2023, non-interest income decreased $2.4 million, or 18.3%, from $13.3 million for the twelve months ended December 31, 2022 to $10.9 million for the twelve months ended December 31, 2023. During the twelve months ended December 31, 2023, the Company recorded a $1.1 million final termination expense related to the DB Plan termination, compared to a curtailment gain related to the DB Plan termination of $2.8 million, during the twelve months ended December 31, 2022. The Company also recorded a non-taxable gain of $778,000 on BOLI death benefits during the twelve months ended December 31, 2023. The Company did not have comparable income during the twelve months ended December 31, 2022. Excluding the termination expense and the curtailment gain related to the DB Plan termination and the BOLI death benefit, non-interest income increased $737,000, or 7.0%.

During the twelve months ended December 31, 2023, service charges and fees decreased $216,000, or 2.4%, primarily due to changes in the Company's overdraft program that were implemented in 2023. Income from BOLI increased $95,000, or 5.5%, from $1.7 million for the twelve months ended December 31, 2022 to $1.8 million for the twelve months ended December 31, 2023. Other income from loan-level swap fees on commercial loans decreased $25,000 for the twelve months ended December 31, 2023. During the twelve months ended December 31, 2023, the Company reported a gain of $590,000 on non-marketable equity investments compared to a gain of $422,000 during the twelve months ended December 31, 2022. During the twelve months ended December 31, 2023, the Company reported a loss on the disposal of premises and equipment of $3,000. The Company did not have comparable activity during the same period in 2022. During the twelve months ended December 31, 2022, the Company also reported unrealized losses on marketable equity securities of $717,000, compared to unrealized losses on marketable equity securities of $1,000 during the twelve months ended December 31, 2023. During the twelve months ended December 31, 2022, the Company reported realized losses on the sale of securities of $4,000. The Company did not have a comparable gain or loss during the same period in 2023.

Non-Interest Expense
For the twelve months ended December 31, 2023, non-interest expense increased $1.1 million, or 1.9%, to $58.4 million, compared to $57.2 million for the twelve months ended December 31, 2022. The increase in non-interest expense was primarily due to an increase in other expense of $953,000, or 10.1%, as a result of a $510,000 legal settlement accrual. During the three months ended December 31, 2023, the Company reached an agreement-in-principle to settle purported class action lawsuits concerning the Company's deposit products and related disclosures, specifically involving overdraft fees and insufficient funds fees. This agreement-in-principle reflects our business decision to avoid the costs, uncertainties and distractions of further litigation. Excluding the legal settlement accrual, non-interest expense increased $605,000, or 1.1%, from $57.2 million, for the twelve months ended December 31, 2022 to $57.8 million for the twelve months ended December 31, 2023.

During the same period, FDIC insurance expense increased $273,000, or 26.0%, data processing increased $272,000, or 9.4%, professional fees, which is comprised of legal fees, audit and professional fees, increased $161,000, or 5.9%, due to the recent settlement of litigation, and advertising expense increased $87,000, or 6.2%. These increases were partially offset by a decrease in salaries and employee benefits of $483,000, or 1.5%, due to lower incentive compensation costs, occupancy expense decreased $76,000, or 1.5%, and furniture and equipment expense decreased $72,000, or 3.6%.

For the twelve months ended December 31, 2023, the efficiency ratio was 74.0%, compared to 61.8% for the twelve months ended December 31, 2022. For the twelve months ended December 31, 2023, the adjusted efficiency ratio, a non-GAAP financial measure, was 74.3%, compared to 63.6% for the twelve months ended December 31, 2022. See pages 20-24 for the related efficiency ratio calculations and a reconciliation of GAAP to non-GAAP financial measures.

Income Tax Provision
Income tax expense for the twelve months ended December 31, 2023 was $4.5 million, with an effective tax rate of 23.1%, compared to $8.7 million, with an effective tax rate of 25.2%, for twelve months ended December 31, 2022. The decrease in income tax expense for the twelve months ended December 31, 2023 compared to the twelve months December 31, 2022 was due to lower income before income taxes in 2023.

Balance Sheet
At December 31, 2023, total assets were $2.6 billion and increased $11.4 million, or 0.4%, from December 31, 2022. The increase in total assets was mainly related to an increase in total loans of $35.9 million, or 1.8%, partially offset by a decrease in investment securities of $22.7 million, or 5.9%, to $360.7 million, and a decrease in cash and cash equivalents of $1.5 million, or 5.0%, to $28.8 million.

Investments
At December 31, 2023, the available-for-sale ("AFS") and held-to-maturity ("HTM") securities portfolio represented 14.1% of total assets compared to 14.8% at December 31, 2022. At December 31, 2023, the Company's AFS securities portfolio, recorded at fair market value, decreased $9.9 million, or 6.7%, from $147.0 million at December 31, 2022 to $137.1 million. The HTM securities portfolio, recorded at amortized cost, decreased $6.8 million, or 3.0%, from $230.2 million at December 31, 2022 to $223.4 million at December 31, 2023. The marketable equity securities portfolio decreased $6.0 million, or 96.9%, from $6.2 million at December 31, 2022 to $196,000 at December 31, 2023. The decrease in the AFS and HTM securities portfolios was primarily due to amortization and payoffs recorded during the twelve months ended December 31, 2023.

At December 31, 2023, the Company reported unrealized losses on the AFS securities portfolio of $29.2 million, or 17.5% of the amortized cost basis of the AFS securities portfolio, compared to unrealized losses of $32.2 million, or 18.0% of the amortized cost basis of the AFS securities at December 31, 2022. At December 31, 2023, the Company reported unrealized losses on the HTM securities portfolio of $35.7 million, or 16.0%, of the amortized cost basis of the HTM securities portfolio, compared to $39.2 million, or 17.0% of the amortized cost basis of the HTM securities portfolio at December 31, 2022.

The securities in which the Company may invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt instruments and marketable equity securities. The securities, with the exception of $7.0 million in corporate bonds, are issued by the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases, price improvement in future periods will be realized as the issuances approach maturity.

Management regularly reviews the portfolio for securities in an unrealized loss position. At December 31, 2023 and December 31, 2022, the Company did not record any impairment charges on its securities portfolio and attributed the unrealized losses primarily due to fluctuations in general interest rates or changes in expected prepayments and not due to credit quality. The primary objective of the Company's investment portfolio is to provide liquidity and to secure municipal deposit accounts while preserving the safety of principal. The Company expects to strategically redeploy available cash flows from the securities portfolio to fund loan growth and deposit outflows.

Total Loans
At December 31, 2023, total loans increased $35.9 million, or 1.8%, to $2.0 billion from December 31, 2022. Residential real estate loans, including home equity loans, increased $27.1 million, or 3.9%, commercial real estate loans increased $10.4 million, or 1.0%, and commercial and industrial loans decreased $2.4 million, or 1.1%.

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

Credit Quality
Credit quality remains sound and our loan portfolio continues to perform well. Total delinquency was 0.30% of total loans at December 31, 2023, compared to 0.22% of total loans at December 31, 2022. At December 31, 2023, nonperforming loans totaled $6.4 million, or 0.32% of total loans, compared to $5.7 million, or 0.29% of total loans, at December 31, 2022. At December 31, 2023, there were no loans 90 or more days past due and still accruing interest. Nonperforming assets to total assets was 0.25% at December 31, 2023 and 0.22% at December 31, 2022. At December 31, 2023 and at December 31, 2022, the Company did not have any other real estate owned. The allowance for credit losses as a percentage of total loans was 1.00% at December 31, 2023 and at December 31, 2022. At December 31, 2023, the allowance for credit losses as a percentage of nonperforming loans was 315.6%, compared to 350.0% at December 31, 2022. Total classified loans, defined as special mention and substandard loans, decreased $24.5 million, or 38.3%, from $64.0 million, or 3.2% of total loans, at December 31, 2022 to $39.5 million, or 1.9%, of total loans at December 31, 2023. We continue to maintain diversity among property types and within our geographic footprint. More details on the diversification of the loan portfolio are available in the supplementary earnings presentation. Management will continue to remain attentive to any signs of deterioration in borrowers' financial conditions and is proactive in taking the appropriate steps to mitigate risk.

Deposits
Total deposits decreased $85.7 million, or 3.8%, from December 31, 2022, to $2.1 billion at December 31, 2023, due to industry-wide pressures and a competitive market for deposits. Core deposits, which the Company defines as all deposits except time deposits, decreased $285.4 million, or 15.7%, from $1.8 billion, or 81.5% of total deposits, at December 31, 2022, to $1.5 billion, or 71.5% of total deposits, at December 31, 2023. Money market accounts decreased $166.7 million, or 20.8%, to $634.4 million, non-interest-bearing deposits decreased $65.9 million, or 10.2%, to $579.6 million, savings accounts decreased $35.0 million, or 15.7%, to $187.4 million and interest-bearing checking accounts decreased $17.7 million, or 11.9%, to $131.0 million. Time deposits increased $199.7 million, or 48.5%, from $411.7 million at December 31, 2022 to $611.4 million at December 31, 2023. Brokered time deposits, which are included in time deposits, totaled $1.7 million at December 31, 2023. The Company did not have any brokered deposits at December 31, 2022.

The table below is a summary of our deposit balances for the periods noted:

During the twelve months ended December 31, 2023, the Company experienced a higher level of competition not only from local competitors but also from money market funds and Treasury notes that were offering higher returns. In addition, the Company also saw a challenging shift in deposit mix from low cost core deposits to high cost time deposits as customers migrated to higher yields.

The Company continues to focus on the maintenance, development, and expansion of its core deposit base to meet funding requirements and liquidity needs, with an emphasis on retaining a long-term customer relationship base by efficiently competing for and retaining deposits in our local market. At December 31, 2023, the Bank's uninsured deposits represented 26.8% of total deposits, compared to 30.8% at December 31, 2022.

Borrowings
At December 31, 2023, total borrowings increased $94.3 million, or 151.5%, from $62.2 million at December 31, 2022 to $156.5 million. Short-term borrowings decreased $25.3 million, or 61.1%, to $16.1 million, compared to $41.4 million at December 31, 2022. Long-term borrowings increased $119.5 million, from $1.2 million at December 31, 2022, to $120.6 million at December 31, 2023, to replace deposit attrition. Long-term borrowings consisted of $30.6 million outstanding with the FHLB and $90.0 million outstanding under the Federal Reserve Bank's Bank Term Funding Program ("BTFP"). At December 31, 2023, borrowings also consisted of $19.7 million in fixed-to-floating rate subordinated notes.

Liquidity
The Company's liquidity position remains strong with solid core deposit relationships, cash, unencumbered securities, a diversified deposit base and access to diversified borrowing sources. On March 12, 2023, the Federal Reserve made available the BTFP, which enhances the ability of banks to borrow greater amounts against certain high-quality, unencumbered investments at par value.

During the twelve months ended December 31, 2023, the Company participated in the BTFP, which enabled the Company to pay off higher rate FHLB advances. With the BTFP, the Company has the ability to pay off the BTFP advance prior to maturity without incurring a penalty or termination fee. The Company advanced $90.0 million under the BTFP during the twelve months ended December 31, 2023 and had $23.6 million in availability under the BTFP as of December 31, 2023.

At December 31, 2023, the Company had available borrowing capacity with the FHLB of $535.6 million, including its overnight Ideal Way Line of Credit. In addition, at December 31, 2023, the Company had available borrowing capacity of $48.6 million from the Federal Reserve Discount Window, with no outstanding borrowings. At December 31, 2023, the Company also had available borrowing capacity of $25.0 million from two unsecured credit lines with correspondent banks, with no outstanding borrowings. At December 31, 2023, the Company has $632.8 million in total available borrowing capacity, excluding cash and unencumbered securities.

Hedging Program
During the twelve months ended December 31, 2023, the Company executed a $200 million fair value hedge on fixed-rate assets with maturities up to 18 months, where the Company exchanged, or swapped, fixed rate payments for floating rate payments. The Company's hedging program aims to reduce the Company's sensitivity to interest rates by locking in a spread.

Capital
At December 31, 2023, shareholders' equity was $237.4 million, or 9.3% of total assets, compared to $228.1 million, or 8.9% of total assets, at December 31, 2022. The increase was primarily attributable to net income of $15.1 million, partially offset by a decrease in accumulated other comprehensive loss of $3.3 million, $5.0 million for the repurchase of common stock and cash dividends paid of $6.1 million. At December 31, 2023, total shares outstanding were 21,666,807.

The Company's regulatory capital ratios continue to be strong and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company targets. Total Risk-Based Capital Ratio at December 31, 2023 was 14.7%, compared to 14.2% at December 31, 2022.  The Bank's Tier 1 Leverage Ratio to adjusted average assets was 9.62% at December 31, 2023 and 9.49% at December 31, 2022. The Bank's tangible common equity ("TCE") to tangible assets ratio, a non-GAAP financial measure, was 8.78% at December 31, 2023, compared to 8.52% at December 31, 2022.  Fluctuations in the TCE ratio were driven by the changes in the unrealized loss on available-for-sale securities. TCE is a non-GAAP measure. See pages 20-24 for the related TCE to tangible assets ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

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, and 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:

• unpredictable changes in general economic conditions, financial markets, fiscal, monetary and regulatory policies, including actual or potential stress in the banking industry;
• the duration and scope of potential pandemics, including the emergence of new variants and the response thereto;
• changes in economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits;
• inflation and governmental responses to inflation, including recent and potential future increases in interest rates 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, Basel guidelines, capital requirements and other applicable laws and regulations;
• significant changes in accounting, tax or regulatory practices or requirements;
• new legal obligations or liabilities or unfavorable resolutions of litigation;
• disruptive technologies in payment systems and other services traditionally provided by banks;
• the highly competitive industry and market area in which we operate;
• changes in business conditions and inflation;
• operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud risks;
• failure or circumvention of our internal controls or procedures;
• changes in the securities markets which affect investment management revenues;
• increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments;
• 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;
• 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 risk 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.

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