Western New England Bancorp, Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; the filing also provides unaudited quarterly results. WNEB is the parent of Westfield Bank, a community bank serving western Massachusetts and northern Connecticut. At year-end, the Company reported $2.553 billion in assets, $1.971 billion in net loans, $2.229 billion in deposits and $228.1 million in shareholders’ equity.
Financial performance and condition
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Net income | $25.9 million; diluted EPS $1.18 | $23.7 million; diluted EPS $1.02 |
| Net interest income | $79.2 million; net interest margin 3.31% | $73.2 million; net interest margin 3.14% |
| Non-interest income | $13.3 million | $12.6 million |
| Non-interest expense | $57.2 million | $54.9 million |
| Provision (credit) for loan losses | $0.7 million | $(0.9) million |
| Cash from operating activities | $36.1 million | $27.5 million |
| Cash and cash equivalents | $30.3 million | $103.5 million |
| Gross loans | $1.989 billion | $1.863 billion |
| Deposits | $2.229 billion | $2.257 billion |
| Total borrowings, including subordinated debt | $62.2 million | $22.3 million |
| Shareholders’ equity | $228.1 million | $223.7 million |
Cash flow and liquidity. Investing activities used $111.2 million and financing activities provided $2.0 million. Cash declined $73.1 million, primarily as cash on hand funded loan growth. The Bank had $407.4 million of additional FHLB borrowing capacity and unused correspondent-bank lines; no brokered deposits were reported. Management said available liquidity should meet funding commitments for the next 12 months and beyond.
Margins and efficiency. Net interest income rose 8.3%; excluding PPP income, it rose 18.2%. Tax-equivalent net interest margin increased to 3.33% from 3.16%. The GAAP efficiency ratio improved to 61.8% from 64.1%; adjusted efficiency ratio was 63.6% versus 64.6%.
Credit quality and capital. The allowance for loan losses was $19.9 million, or 1.00% of loans, versus 1.06% a year earlier. Nonaccrual loans were $5.7 million, 0.29% of loans, compared with $5.0 million, 0.27%. Criticized loans declined to $64.0 million, or 3.2% of loans, from $82.6 million, or 4.4%; adversely classified loans increased to $42.3 million from $31.1 million. Commercial real estate was 53.8% of gross loans. The Bank was categorized as well-capitalized; its year-end total risk-based capital ratio was 13.50% and Tier 1 leverage ratio was 9.49%.
Material changes versus the prior comparable period
- Net income increased 9.2%, while diluted EPS rose from $1.02 to $1.18; lower average share count contributed to per-share growth.
- Loan growth excluding PPP loans was 8.1%, led by commercial real estate and residential real estate. PPP loans fell 91.0% to $2.3 million.
- Deposits decreased 1.2%, including a $37.1 million decline in core deposits. Core deposits were 81.5% of deposits, down from 82.2%.
- Cash and cash equivalents fell 70.7%; short-term borrowings rose to $41.4 million. The available-for-sale portfolio’s fair value declined to $147.0 million from $194.4 million, and accumulated other comprehensive loss widened to $25.0 million from $12.3 million.
- The Company recorded a $2.8 million pension-plan curtailment gain in 2022. The plan termination also affected accumulated other comprehensive income. The Company completed $6.4 million of stock repurchases and paid $5.3 million in dividends; annual dividends per share rose to $0.24 from $0.20.
Outlook, commentary, risks and unusual items
Management provided no specific earnings or growth guidance. Its stated strategy is to expand commercial and residential lending and core deposits, invest in technology and people, and consider acquisitions. It expects to complete the defined benefit plan termination process after regulatory approval; an additional contribution may be required in 2023, with the amount dependent on settlements and market conditions.
Interest-rate and funding risk merit attention: the filing says Federal Reserve rate increases can raise deposit costs and affect asset values. The Company’s modeled net interest income sensitivity at December 31, 2022 showed a 3.9% decline under a +200-basis-point scenario for months 1–12, and a 0.2% increase for months 13–24. These are model estimates, not forecasts. At year-end, $590.2 million of core deposits and $96.4 million of time deposits were estimated to be uninsured.
Available-for-sale and held-to-maturity securities had combined gross unrealized losses of $71.4 million at year-end; management attributed them primarily to higher market yields, not credit deterioration, and reported no other-than-temporary impairment charges. The filing also identifies commercial real estate exposure, local economic conditions, credit losses, deposit competition, cybersecurity and third-party service providers, regulation, and the LIBOR-to-SOFR transition as risks. CECL became effective January 1, 2023; the reported transition adjustment to retained earnings was $9,000, net of tax.
The fourth quarter reported net income of $9.0 million and diluted EPS of $0.42, including the $2.8 million pension curtailment gain. The annual financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether deposit retention and pricing kept pace with market rates after year-end, particularly as $288.7 million of time deposits were due within one year and uninsured balances were material.
- Whether commercial real estate credit quality, classified loans and allowance levels remained sound as rates and economic conditions changed.
- The realized impact of securities marks on capital and tangible book value, including the distinction between available-for-sale and held-to-maturity securities.
- The final pension-plan funding requirement, regulatory approval and settlement timing.
- Actual post-adoption CECL allowance levels and any resulting earnings or capital effects.
- Whether reported earnings growth excluding PPP income is sustained without the pension curtailment gain and other variable or nonrecurring items.