Northeast Community Bancorp, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing reports full-year results, not standalone fourth-quarter results. The company is the holding company for a community bank operating in New York and Massachusetts, focused primarily on construction lending.
Financial performance and position
- Profitability: Net income was $24.8 million, versus $11.9 million in 2021; basic EPS was $1.61 versus $0.75. Return on average assets rose to 1.95% from 1.13%, and return on average equity to 9.60% from 6.03%.
- Net interest: Net interest income increased 47.5% to $63.9 million. Net interest margin was 5.32%, up from 4.40%; the average yield on interest-earning assets rose to 6.00% from 4.92%, while the average cost of interest-bearing liabilities increased to 1.26% from 0.90%.
- Credit costs and other income: Provision for loan losses fell to $439,000 from $3.6 million. Non-interest income declined to $1.7 million from $2.4 million, primarily reflecting a $1.6 million net loss on equity securities.
- Expenses and taxes: Non-interest expense rose 15.9% to $30.7 million. It included a $451,000 goodwill impairment and $623,000 of real-estate-owned expense, including a $540,000 property write-down. Income tax expense was $9.6 million; the effective tax rate increased to 27.8% from 23.6%.
- Growth and funding: Total assets increased 16.3% to $1.425 billion; net loans rose 25.2% to $1.212 billion, and deposits increased 21.0% to $1.122 billion. Stockholders’ equity was $262.0 million.
- Loan concentration: Construction loans were $930.6 million, or 76.4% of total loans, and were concentrated in the New York metropolitan area. The allowance for loan losses was $5.5 million, equal to 0.45% of year-end loans, versus 0.54% in 2021.
- Cash flow and liquidity: Operating activities provided $27.5 million; investing activities used $256.6 million; financing activities provided $172.1 million. Cash and cash equivalents fell $57.0 million to $95.3 million. FHLB advances were $21.0 million, with $31.5 million of additional FHLB borrowing capacity and $8.0 million available from ACBB.
- Capital: The Bank was classified as well capitalized. At year-end, its total risk-based capital ratio was 13.66%, common equity Tier 1 ratio 13.33%, and Tier 1 leverage ratio 16.50%.
Changes versus 2021
- Earnings increased substantially, mainly because higher rates and asset growth lifted interest income faster than funding costs; lower loan-loss provision also contributed.
- Loan growth was led by construction lending, while non-residential real estate and commercial and industrial balances declined. Construction loans increased to 76.4% of loans from 70.3%.
- Deposit balances grew, but their composition and pricing changed: savings balances and non-interest-bearing demand deposits increased, while NOW/money-market balances declined. Average interest-bearing deposit costs rose.
- Cash declined as funds supported loan growth and securities purchases. The company repurchased $9.3 million of shares and paid or declared $6.5 million in dividends during 2022, including a one-time $0.18-per-share special dividend.
Outlook, risks and notable items
- Management plans continued construction lending and branch expansion, and opened a Sullivan County, New York branch in 2022. The filing provides no specific earnings or growth guidance.
- Management identifies construction and commercial real estate concentrations, local real-estate conditions, borrower/project performance, interest-rate movements, competition, and deposit retention and pricing as material risks. Construction loans in five New York counties represented 70.1% of total loans.
- Uninsured deposits totaled $672.8 million, including $205.8 million of uninsured certificates of deposit. Brokered deposits were $114.2 million, or 10.2% of total deposits.
- At year-end, unfunded construction commitments were $637.4 million; additional loan commitments were $164.9 million, unused lines of credit $133.9 million, and standby letters of credit $12.5 million. Certificates of deposit of $258.9 million were scheduled to mature within one year.
- The company reported no non-performing loans, but had $946,000 of multifamily loans 60–89 days past due and $1.8 million of criticized loans. Two performing troubled-debt-restructured loans totaling $855,000 were sold in January 2023 at an $86,000 loss.
- The company adopted the expected-credit-loss (CECL) standard on January 1, 2023; management was finalizing its qualitative analysis and working with an outside consultant. The filing does not quantify the adoption impact.
- Rising rates also contributed to a $1.9 million unrealized loss on equity securities and write-downs of goodwill and foreclosed real estate. The filing’s interest-rate model estimated one-year net interest income would rise 9.98%–19.92% under +100 to +200 basis-point shocks and fall 10.75% under a −100 basis-point shock; management cautions that these are model estimates, not forecasts.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements but was not engaged to opine on internal-control effectiveness. Routine legal proceedings were described as immaterial.
Investor verification priorities
- Assess the concentration, underwriting, geography and undisbursed exposure of the construction portfolio, including the $637.4 million in loans in process.
- Review deposit stability and repricing, especially uninsured and brokered deposits and the $258.9 million of certificates maturing within one year.
- Verify CECL’s January 2023 transition impact on reserves, earnings and capital; the filing gives no clear quantified estimate.
- Track criticized and past-due loans, the January 2023 TDR loan sale, and the carrying value and disposition plan for the foreclosed property.
- Monitor net interest margin and actual rate sensitivity against the filing’s modeled scenarios, along with securities valuation changes.
- Consider the effect of share repurchases, dividends, equity awards and branch expansion on capital and per-share results.