Northeast Community Bancorp, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, compared with 2020. This is an annual filing; it does not provide a standalone fourth-quarter results summary. The company is a bank holding company whose principal subsidiary, NorthEast Community Bank, serves New York and Massachusetts, with lending concentrated in construction, commercial and industrial, and commercial real estate.
Key financial results
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total assets | $1.225 billion | $968.2 million | Up 26.5% |
| Loans, net | $968.1 million | $819.7 million | Up 18.1% |
| Total deposits | $927.2 million | $771.7 million | Up 20.1% |
| Net interest income | $43.3 million | $39.0 million | Up 11.0% |
| Net income | $11.9 million | $12.3 million | Down 3.4%; diluted EPS was $0.75 vs. $0.76 |
| Return on average assets / equity | 1.13% / 6.03% | 1.31% / 8.31% | Both declined |
| Net interest margin | 4.40% | 4.45% | Down 5 basis points |
| Provision for loan losses | $3.6 million | $0.8 million | Primarily reflected a $3.6 million charge-off |
| Non-interest income / expense | $2.4 million / $26.5 million | $2.5 million / $25.1 million | Income down 6.3%; expense up 5.5% |
| Cash and cash equivalents | $152.3 million | $69.2 million | Up $83.1 million |
| FHLB advances | $28.0 million | $28.0 million | Unchanged |
| Stockholders’ equity | $251.4 million | $153.8 million | Up $97.6 million, principally following conversion offering |
Cash flow, lending and liquidity
- Cash provided by operating activities was $21.6 million, versus $15.7 million in 2020. Investing activities used $178.9 million, largely reflecting loan growth; financing activities provided $240.4 million, including deposit growth and $95.4 million of net stock-offering proceeds.
- Construction loans were $683.8 million, or 70.3% of total loans, at year-end; their committed amount was about $1.2 billion, including $436.9 million undisbursed. Approximately 93.7% of the construction portfolio was in five New York counties identified as high-absorption markets.
- Deposits increased by $155.5 million. Non-interest-bearing deposits rose to $330.9 million from $221.4 million; certificates of deposit declined to $293.0 million from $347.7 million. The average cost of interest-bearing liabilities fell to 0.90% from 1.65%, helping lift net interest income despite lower asset yields.
- Year-end cash was $152.3 million; available FHLB borrowing capacity was $29.4 million, with an additional $8.0 million available from Atlantic Community Bankers Bank. Average liquidity ratios were 12.7% cash liquidity, 15.7% on-balance-sheet liquidity, and 21.7% including borrowing capacity.
- Uninsured deposits totaled $548.2 million, including $134.7 million of uninsured certificates of deposit. Certificates maturing within one year totaled $189.2 million.
- The Bank was classified as well capitalized. At December 31, 2021, total risk-based capital was 15.28%, common equity Tier 1 was 14.87%, and the leverage ratio was 16.79%.
Material changes and unusual items
- Net income declined $424,000 as the higher loan-loss provision, higher operating costs, lower non-interest income, and higher taxes more than offset the $4.3 million increase in net interest income.
- The main credit event was a $3.6 million non-cash charge-off on a non-residential bridge loan secured by property in Greenwich, Connecticut. An updated appraisal valued the property at zero due to a parking easement. The loan remains in foreclosure; the company is pursuing the personal guarantors, but recovery is uncertain and could take time.
- Year-end nonperforming loans were zero, compared with $3.6 million in 2020; nonperforming assets were $2.0 million, all real estate owned, versus $5.6 million. The allowance for loan losses was $5.2 million, or 0.54% of loans, compared with $5.1 million, or 0.62%.
- The July 12, 2021 second-step conversion and offering raised $97.8 million gross by selling 9.8 million shares at $10 per share. The company began Nasdaq trading in July 2021. The conversion contributed materially to the increase in equity and liquidity.
- The company reported a $389,000 unrealized loss on equity securities in 2021, compared with a $288,000 gain in 2020. Held-to-maturity securities had $327,000 of gross unrealized losses at year-end, which management considered temporary and attributed mainly to market rates and yields.
Outlook, risks and contingencies
- Management intends to continue growing construction lending and deposits, maintain asset quality, invest in staff and technology, and consider branch expansion. It expected to open a Sullivan County, New York branch in the second quarter of 2022. No numerical earnings or growth guidance is provided.
- The company stated an intention to continue quarterly cash dividends; post-conversion dividends declared were $0.06 per share per quarter. Future dividends are not assured and depend on financial condition, capital needs, and other factors.
- Key exposures include concentration in construction and commercial real estate lending, geographic concentration in the New York metropolitan area, borrower and collateral risk, competition, interest-rate changes, reliance in part on brokered/listing/military deposits, cybersecurity and third-party service risks, and the continuing potential effects of COVID-19.
- Management estimated that a parallel 200-basis-point rate increase would raise one-year net interest income 33.02% but reduce net portfolio value 7.89%; a 100-basis-point decrease would reduce one-year net interest income 4.55%. These are model estimates based on assumptions, not forecasts.
- CECL adoption was deferred to January 1, 2023. Management said the effect was not yet known and could materially affect the allowance, earnings, or financial condition.
- Routine legal proceedings were described as immaterial. The filing reports effective disclosure controls and no material internal-control changes, but, as a newly public company, it did not include management’s internal-control assessment or an auditor attestation. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether the construction-loan concentration and large undisbursed commitments remain supported by project progress, collateral values, borrower capacity, and local demand.
- Any recovery from guarantors on the charged-off Greenwich loan, and any resulting allowance or income recognition.
- Deposit stability, renewal pricing, uninsured-deposit levels, and liquidity capacity as certificates mature.
- Actual credit performance, allowance adequacy, and the effect of CECL implementation in 2023.
- Realized results versus the interest-rate sensitivity model, including effects on net interest income, securities values, and capital.
- Execution and costs of the planned branch expansion, dividend sustainability, and the company’s internal-control reporting as its transition period ends.