Western New England Bancorp, Inc. — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are against December 31, 2023. Western New England Bancorp is the holding company for Westfield Bank, a community bank operating 25 offices in western Massachusetts and northern Connecticut. Unless noted otherwise, dollar amounts below are in millions.
Financial performance and condition
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Interest and dividend income | $26.6 | $23.6 in Q1 2023 |
| Interest expense | $11.3 | $5.1 in Q1 2023 |
| Net interest income | $15.3 | $18.5 in Q1 2023; down 17.1% |
| Net income; diluted EPS | $3.0; $0.14 | $5.3; $0.24 in Q1 2023 |
| Net interest margin | 2.57% | 3.14% in Q1 2023 |
| Non-interest income / expense | $2.7 / $14.8 | $3.0 / $14.9 in Q1 2023 |
| Efficiency ratio | 82.0% | 69.3% in Q1 2023 |
| Total assets | $2,557.2 | $2,564.6 at December 31, 2023 |
| Total deposits | $2,143.7 | $2,143.7 at December 31, 2023 |
| Loans, net of allowance | $2,005.7 | $2,007.1 at December 31, 2023 |
| Shareholders’ equity | $235.8; 9.2% of assets | $237.4; 9.3% at December 31, 2023 |
| Cash and cash equivalents | $22.6 | $28.8 at December 31, 2023 |
Operating cash flow was $1.2 million, compared with an outflow of $6.0 million in Q1 2023. Investing activities provided $0.6 million, while financing activities used $8.0 million; cash and equivalents decreased $6.2 million during the quarter. The company paid a $0.07-per-share dividend and repurchased $1.8 million of common stock.
Material changes and credit quality
- Net interest income contracted as funding costs rose faster than asset yields. Interest expense more than doubled year over year, while interest and dividend income rose 12.5%. Management attributed pressure to higher deposit pricing and a shift from core deposits to higher-cost time deposits.
- At quarter-end, core deposits were $1.50 billion, 70.0% of total deposits, versus 71.5% at year-end. Time deposits rose $31.8 million to $643.2 million. Uninsured deposits were 26.0% of deposits, down from 26.8%.
- Total borrowings were $151.8 million: $11.5 million short-term, $120.6 million long-term, and $19.7 million subordinated debt. The long-term balance included $90.0 million borrowed under the Federal Reserve Bank Term Funding Program; the company reported no remaining BTFP borrowing capacity.
- The allowance for credit losses was $19.9 million, or 0.98% of loans, versus $20.3 million, or 1.00%, at year-end. The quarter included a $0.55 million reversal of credit losses and $0.07 million of net recoveries. Past-due loans were 0.23% of total loans; nonaccrual loans were $5.8 million, or 0.29% of loans.
- Available-for-sale securities had $31.7 million of gross unrealized losses and held-to-maturity securities had $39.6 million, primarily attributed by management to market interest rates rather than credit deterioration. No securities credit-loss allowance was recorded.
- Regulatory capital remained above well-capitalized thresholds. The Bank’s total risk-based capital ratio was 13.96%, Tier 1 leverage ratio 9.77%, and tangible common equity to tangible assets ratio 8.85%.
Outlook, risks, and notable items
The filing provides no quantified earnings, margin, or loan-growth guidance. Management said it expects liquidity to be sufficient for funding commitments over the next 12 months and beyond, anticipates a significant portion of $615.7 million in time deposits maturing within one year will remain, and considers the allowance appropriate for current conditions and its forecast period. It continues to monitor higher rates, inflation, and recession concerns. The bank relies significantly on FHLB funding; the filing reports substantial available FHLB capacity, though figures vary by description: $508.1 million of additional capacity in one note and $517.7 million including the Ideal Way line in the liquidity discussion.
The main earnings risk disclosed is continued deposit-cost and funding-mix pressure on net interest margin. Other stated risks include economic and market conditions, credit deterioration, interest-rate changes, regulatory changes, cybersecurity and operational risks, competition, and disruption at financial institutions. Commitments included approximately $95.9 million of loan commitments and letters of credit and $350.7 million of available home-equity and other unadvanced lines. Management reported no material change in risk factors, no material pending litigation beyond ordinary-course matters, and effective disclosure controls. A $352,000 non-marketable equity investment gain in Q1 2023 did not recur; Q1 2024 also included a $6,000 premises disposal loss and an $8,000 unrealized equity-security gain.
Important facts for investors to verify
- Whether deposit pricing and migration into time deposits continue to compress net interest margin and profitability.
- Deposit retention and liquidity as $615.7 million of time deposits mature within one year, including uninsured-deposit exposure and actual available borrowing capacity.
- Commercial real estate and commercial-and-industrial portfolio trends, criticized loans, nonaccruals, and whether the credit-loss allowance remains adequate.
- The effect of the securities portfolio’s substantial unrealized losses on capital, liquidity flexibility, and results if securities must be sold.
- Whether capital ratios, the dividend, and share repurchases remain supportable if earnings or funding conditions weaken.