Financial Performance - The Company completed its second-step conversion on July 12, 2021, raising gross proceeds of $97.8 million by selling 9,784,077 shares at $10.00 per share[15]. - The Bank's revenues are primarily derived from interest on loans, with additional income from deposit fees, service charges, and investment advisory fees[18]. - The Company increased quarterly cash dividends to $0.10 per share on March 21, 2024, and $0.15 per share on September 19, 2024, up from $0.06 per share prior to 2024[200]. - The profitability of the company's branch expansion strategy will depend on whether income generated from new branches offsets the increased expenses associated with their establishment and operation[197]. Loan Portfolio - As of December 31, 2024, the construction loan portfolio consisted of 485 loans totaling $1.9 billion in committed amount, with outstanding disbursed balances of $1.4 billion and undisbursed loans in process of $398.4 million[39]. - At December 31, 2024, 89.2% of the loan portfolio, amounting to $1.6 billion, was secured by loans in the New York State/New York Metropolitan Area[30]. - The average committed amount in the construction loan portfolio was $5.4 million when combining land, construction, and development loans[41]. - The largest outstanding construction loan at December 31, 2024, had a committed amount of $27.2 million, secured by a 110 apartment unit multi-family building in the Bronx[42]. - As of December 31, 2024, the largest outstanding committed construction loan relationship totaled $45.9 million, with the company's committed portion reduced to $37.9 million after selling $8.0 million to other institutions[45]. - The average balance of loans in the commercial and industrial loan portfolio was $711,000 as of December 31, 2024[48]. - The largest outstanding commercial and industrial loan was an unsecured line of credit with a balance of $10.0 million, with additional loans totaling $16.0 million in construction loans[49]. - Multifamily and mixed-use real estate loans in the New York State/New York Metropolitan Area totaled $70.8 million as of December 31, 2024[54]. - In the Massachusetts/Boston Metropolitan Area, multifamily and mixed-use real estate loans amounted to $156.7 million as of December 31, 2024[55]. - The average debt-service coverage ratio for multifamily loans was 2.58x, while for mixed-use loans it was 2.98x, with an average loan-to-value ratio of 37.5% for both[59]. - The non-residential real estate loan portfolio totaled $29.4 million, representing 1.6% of total loans, with the largest loan at $13.9 million[71]. - The consumer loan portfolio was $1.6 million, or 0.09% of total loans, primarily consisting of overdrawn checking accounts[73]. - As of December 31, 2024, the company held $15.2 million in participation interests in construction loans originated by the bank[79]. - The average balance of non-residential loans was $1.1 million, based on 28 outstanding loans as of December 31, 2024[71]. - As of December 31, 2024, the Bank's loans-to-one-borrower limit was approximately $43.6 million, with no borrowers exceeding this amount[82]. - The multifamily, mixed-use, and non-residential real estate loans accounted for $262.6 million, or 14.5% of the total loan portfolio as of December 31, 2024[173]. - Construction loans represented 485% of the Bank's total risk-based capital at December 31, 2024, while multifamily, mixed-use, and non-residential real estate loans represented 90%[176]. - At December 31, 2024, $1.3 billion of the construction loan portfolio, or 92.3%, was concentrated in high absorption areas of New York[185]. Competition and Market Conditions - The Company faces significant competition from various financial institutions and non-depository financial service companies in attracting deposits and originating loans[28]. - Competition in the banking and financial services industry is intense, particularly in New York and Massachusetts markets, impacting growth and profitability[190]. - Economic conditions could lead to increased non-performing loans and reduced demand for products and services, adversely affecting financial results[189]. - The geographic concentration of loans makes the company vulnerable to downturns in the local economy and real estate markets[184]. Regulatory Environment - The Bank is subject to extensive regulation by the New York State Department of Financial Services and the FDIC, ensuring compliance with various financial standards[95]. - The Company is subject to the Sarbanes-Oxley Act of 2002, which aims to improve corporate responsibility and enhance penalties for accounting improprieties[156]. - The Bank's latest FDIC CRA rating was "Outstanding," reflecting its commitment to meet the credit needs of its community[130]. - The final rule amending CRA regulations will become effective on January 1, 2026, and includes a metrics-based approach to evaluating bank retail lending and community development financing[132]. - The FDIC has the authority to increase insurance assessments, which could adversely affect the Bank's operating expenses and results of operations[127]. - The Bank's privacy protection policy complies with FDIC regulations, requiring disclosure of its privacy policy to customers and allowing them to opt-out of sharing personal information[129]. - The Bank must submit a capital restoration plan if classified as undercapitalized, with guarantees required from the controlling company[118]. - The FDIC can terminate deposit insurance if the institution is found to be in unsafe or unsound condition, although no such conditions are currently known[128]. Risk Management - The company has implemented various risk management practices to monitor concentration limits in construction and real estate loans[178]. - The allowance for credit losses may need to be increased if actual loan losses exceed estimates, negatively impacting net income[182]. - The company requires borrowers to fund an interest reserve account in advance for construction loans to mitigate risks[172]. - The company faces significant operational risks due to reliance on high transaction volumes, which could lead to material financial loss from fraud, errors, or system failures[196]. - Changes in interest rates could adversely affect the company's profits and asset values, impacting net interest income and the ability to originate loans[201]. - The company is subject to regulatory scrutiny regarding compliance with the Bank Secrecy Act and anti-money laundering regulations, which could result in fines and operational restrictions if deficiencies are found[195]. Capital and Liquidity - The Bank's capital conservation buffer requirement was fully phased in at 2.5% as of December 31, 2024, exceeding the regulatory requirement[108]. - The Bank had no borrowings from the Federal Reserve Bank of New York as of December 31, 2024, with an available borrowing limit of $834.7 million[93]. - The Bank's investment portfolio primarily consisted of mutual funds, residential mortgage-backed securities, and municipal securities, with stated final maturities of 10 years or more[86]. - The company had uninsured deposits totaling $346.9 million and $115.0 million in available liquidity, including $78.3 million in cash[205]. - The company has $834.7 million in borrowing capacity at the FRBNY, sufficient to cover uninsured deposits as of December 31, 2024[205]. - The company’s ability to maintain adequate liquidity is critical, with a majority of liabilities being demand deposits, while a substantial majority of assets are loans that cannot be quickly liquidated[202]. Employee and Corporate Structure - The Company had 136 full-time employees and seven part-time employees as of December 31, 2024[163]. - The Company is classified as an emerging growth company and may take advantage of exemptions from various reporting requirements until it ceases to be classified as such[160]. - The Company will cease to be an emerging growth company upon reaching annual gross revenues of $1.235 billion or more, among other criteria[162]. - The Bank's only direct subsidiary is New England Commercial Properties LLC, which owns two foreclosed properties located in New York and Pennsylvania[164]. - The Company is required to notify the Federal Reserve Board prior to redeeming or repurchasing common stock if experiencing financial weaknesses[153]. - The Federal Reserve Board has the authority to prohibit dividends by savings and loan holding companies if deemed unsafe or unsound[153]. - The Company is required to maintain capital adequacy guidelines similar to those of the FDIC for the Bank, with a capital conservation buffer phased in between 2016 and 2019[150]. - The Bank was classified as "well capitalized" under FDIC regulations as of December 31, 2024, with a total risk-based capital ratio of 10.0% or greater[117].
NorthEast munity Bancorp(NECB) - 2024 Q4 - Annual Report