Northeast Community Bancorp, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. This is an annual filing, not a standalone fourth-quarter report. The company is a community bank holding company operating through NorthEast Community Bank, with branches and lending activity primarily in New York and Massachusetts.
Financial performance and position
| Metric | FY2023 / year-end | FY2022 / comparison |
|---|---|---|
| Total assets | $1.764 billion at year-end | $1.425 billion; up 23.8% |
| Net interest income | $97.2 million | $63.9 million; up 52.2% |
| Net income | $46.3 million | $24.8 million; up 86.3% |
| Diluted earnings per share | $3.32 | $1.58 |
| Net interest margin | 6.41% | 5.32% |
| Return on average assets / equity | 2.90% / 17.09% | 1.95% / 9.60% |
| Net loans | $1.582 billion; up 30.5% | $1.212 billion |
| Deposits | $1.400 billion; up 24.8% | $1.122 billion |
| Stockholders’ equity | $279.3 million | $262.0 million |
- Revenue and margins: Interest income increased 84.0% to $132.5 million, reflecting loan growth and higher yields. Interest expense rose to $35.3 million from $8.1 million as funding costs increased; the average cost of interest-bearing liabilities rose to 3.58% from 1.26%. Net interest income benefited from both volume and rates.
- Credit costs and expenses: Provision for credit losses was $972,000, versus $439,000. Non-interest income was $3.7 million, up from $1.7 million, including a swing from an equity-securities loss in 2022 to a gain in 2023. Non-interest expense rose 14.8% to $35.2 million, led by salaries, operating costs, and regulatory insurance premiums. Effective tax rate was 28.5%, versus 27.8%.
- Cash flow: Operating cash flow was $42.8 million; investing cash outflow was $357.8 million, largely reflecting net loan growth; financing cash inflow was $288.4 million, mainly from deposit growth and $50.0 million of Federal Reserve borrowing. Cash and cash equivalents decreased $26.6 million to $68.7 million.
- Funding and liquidity: Total borrowings were $64.0 million at year-end: $14.0 million of FHLB advances and $50.0 million borrowed from the Federal Reserve discount window. The company reported $865.1 million of FRBNY borrowing capacity and $29.7 million of additional FHLB capacity. Uninsured deposits were $344.8 million; $596.1 million of certificates of deposit mature within one year.
- Capital: The Bank was categorized as well-capitalized. Its year-end total risk-based capital ratio was 13.43%, Tier 1 risk-based ratio 13.10%, and leverage ratio 14.43%.
Material changes and business developments
- Construction loans grew to $1.219 billion, or 76.9% of total loans, from $930.6 million, or 76.5%, a year earlier. Multifamily loans rose to $198.9 million from $123.4 million. Loan originations totaled $815.8 million.
- Certificates of deposit increased substantially, while savings and non-interest-bearing demand balances declined. Brokered deposits were $311.2 million, or 22.2% of deposits; brokered, military, and listing-service deposits together totaled $361.4 million, or 25.8%.
- The company repurchased $28.7 million of stock in 2023 and declared regular dividends of $0.24 per share. The board’s second repurchase authorization allowed purchases of up to an additional 10% of then-outstanding shares; 573,298 shares remained authorized at year-end.
- The Bank agreed in December 2023 to sell Harbor West Wealth Management Group assets; the sale closed in January 2024. The company recorded a $138,000 disposition loss in 2023, and expects no ongoing investment-advisory fees following the sale.
- Adoption of CECL on January 1, 2023 reduced retained earnings by $99,000 net of tax. The filing reports a $1.6 million reduction to the loan allowance and a $1.6 million increase to the off-balance-sheet allowance at adoption.
Outlook, risks, and unusual items
- Outlook: Management intends to continue emphasizing construction lending in high-demand New York communities, maintain asset-quality controls, pursue deposit growth, and consider branch expansion. The filing provides no numerical earnings, loan-growth, or margin guidance.
- Concentration and credit risk: The loan book is heavily concentrated in construction lending and in the New York metropolitan area. The company identifies risks from construction costs, project completion and sales, real-estate values, borrower concentration, and economic or market deterioration. Construction exposure was 478% of Bank risk-based capital, which may attract heightened regulatory scrutiny.
- Asset quality: Two non-performing construction loans totaling $4.4 million, secured by the same Bronx project, were in foreclosure at year-end. Non-performing assets were $5.8 million, or 0.33% of assets, compared with $1.5 million, or 0.10%, in 2022. One foreclosed property, valued at $1.5 million, remained on the books.
- Interest-rate and funding risk: Management’s model estimates one-year net interest income would rise 6.39%–18.68% in rising-rate scenarios and fall 8.07%–24.50% in declining-rate scenarios. These are model estimates, not forecasts, and depend on assumptions. Deposit competition, elevated funding costs, uninsured deposits, and reliance on rate-sensitive or non-core funding are risks.
- Other risks and contingencies: The filing cites cybersecurity and third-party service risks, regulatory change, competition, local economic conditions, and operational risks. Routine legal proceedings were considered immaterial by management. The auditor issued an unqualified opinion on the financial statements; management reported effective internal control, but the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Track construction-loan concentration, geographic exposure, unfunded commitments, project completion, and the status and collateral recovery prospects of the two Bronx non-performing loans.
- Assess deposit stability and pricing: brokered and other sourced deposits, uninsured balances, deposit maturities, and the cost of renewing certificates of deposit.
- Confirm liquidity capacity and funding terms, including the maturity and repayment or renewal of the $50.0 million FRBNY borrowing due March 20, 2024, and availability of reported borrowing facilities.
- Review loan-loss allowance adequacy and CECL estimates, including the distinction between adoption adjustments and subsequent credit-loss provisions.
- Evaluate the sustainability of the 2023 margin and earnings improvement as deposit costs reprice, and account for the completed Harbor West sale and related loss of advisory-fee income.
- Note that the filing’s non-performing-loan ratios are not consistent across sections: one table reports 0.37% of total loans, while another reports 0.28%. The filing text does not provide a clear reconciliation.