NorthEast Community Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Financial amounts below are in U.S. dollars; “million” and “billion” are used for readability. The company operates a community bank focused principally on construction lending in New York and Massachusetts.
Key financial results
- Net income: $11.4 million, up 1.2% from $11.2 million in Q1 2023. Diluted EPS was $0.86 versus $0.77; the lower weighted-average share count contributed to the per-share increase.
- Interest earnings: Interest income rose 33.7% to $38.1 million, while interest expense increased 131.5% to $13.1 million. Net interest income grew 9.4% to $25.0 million.
- Margins: Net interest margin contracted to 5.75% from 6.63%; the cost of interest-bearing liabilities rose to 4.29% from 2.74%, outpacing the increase in asset yield to 8.77% from 8.28%.
- Credit costs: The company recorded a $165,000 credit-loss reversal, compared with $1,000 of expense a year earlier. The loan allowance was $4.9 million, or 0.30% of loans, versus $5.1 million, or 0.32%, at year-end.
- Noninterest items: Noninterest income fell 50.3% to $554,000, including the absence of investment-advisory fees after the January sale of Harbor West Wealth Management Group and an $82,000 unrealized loss on equity securities. Noninterest expense rose 18.2% to $9.7 million, driven mainly by personnel, other operating costs, and data processing.
- Cash flows: Operating activities provided $12.9 million; investing activities used $67.3 million, primarily reflecting loan growth; financing activities provided $93.2 million, largely from deposit growth. Cash and cash equivalents increased $38.8 million to $107.4 million.
Financial position and funding
- Total assets increased 5.8% to $1.87 billion. Net loans rose 4.3% to $1.65 billion; construction loans were $1.29 billion, approximately 78% of total loans.
- Deposits grew 8.0% to $1.51 billion. Growth in certificates of deposit and NOW/money-market accounts was partly offset by declines in savings and noninterest-bearing deposits.
- Borrowings declined to $47.0 million from $64.0 million: $40.0 million from the Federal Reserve, bearing 5.5% and maturing in June 2024, and $7.0 million of FHLB advances. The company reported $928.8 million of available FRBNY borrowing capacity and $32.1 million of available FHLB capacity.
- Stockholders’ equity was $288.9 million. The company repurchased 80,060 shares for $1.25 million and declared a $0.10-per-share dividend during the quarter.
- The Bank met regulatory capital requirements and was categorized as well capitalized. Its March 31, 2024 total risk-based capital ratio was 13.78%.
Changes, outlook, and risks
- Loan originations totaled $180.5 million, including $170.9 million of construction loans; the remaining construction-loan funds are generally disbursed over the loan terms. Management attributed loan growth partly to originations and described improved economic conditions as a factor in the credit-loss reversal.
- Two construction loans totaling $4.4 million, secured by the same Bronx project, were nonaccrual at quarter-end, with no interest income recognized. Two construction loans past due more than 60 days at March 31 were reported brought current in April. Nonperforming assets were $5.8 million, including one foreclosed property.
- Credit and concentration risks merit attention: lending is heavily weighted to construction projects and specific New York locations. Management’s allowance estimates are judgmental and could change with economic conditions, collateral values, or regulatory review.
- Management provided no specific earnings or growth guidance. It said a significant portion of certificates of deposit maturing within one year—$692.9 million—was expected to remain, but gave no assurance. Renewal costs and retention depend on market rates and competition.
- Interest-rate simulations estimated one-year net interest income increases of 7.06% to 14.01% under rising-rate scenarios and decreases of 8.68% to 17.68% under falling-rate scenarios. Management said modeled exposures were within policy limits; results depend on assumptions and do not predict actual outcomes.
- Other disclosed risks include economic and real-estate conditions, deposit competition, interest-rate changes, cyber and operational disruptions, third-party service-provider failures, and regulatory changes. Management said risk factors had not materially changed from the 2023 Form 10-K. Routine legal proceedings were not expected to have a material adverse effect.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit growth and retention remain adequate as $692.9 million of certificates mature within one year, and how funding costs affect margins.
- Whether the $40 million FRBNY borrowing is repaid or refinanced by its June 2024 maturity.
- Performance, delinquencies, and collateral values in the construction portfolio, especially the Bronx project loans and the bank’s geographic concentrations.
- Whether allowance levels remain appropriate as loans grow and economic or real-estate conditions change.
- How the loss of Harbor West advisory fees, rising operating expenses, and continued share repurchases affect future earnings and capital.