
Part I Business The company, a New York-chartered savings bank holding company, primarily originates construction loans, operates through eleven branches, and is subject to extensive regulation General Overview - Northeast Community Bancorp, Inc. is the Maryland-incorporated successor holding company for NorthEast Community Bank, following a second-step conversion completed on July 12, 202115 - The Bank's principal business involves originating construction loans, commercial and industrial loans, and various real estate loans. It funds these activities through retail deposits and borrowings, with revenues primarily from loan interest18 - The Bank operates eleven branch offices across New York (Bronx, Orange, Rockland, Sullivan counties) and Massachusetts (Essex, Middlesex, Norfolk counties), along with three loan production offices17 Lending Activities - The largest segment of the loan portfolio is construction loans, followed by multi-family real estate loans. As of December 31, 2022, 89.4% of the loan portfolio was secured by properties in the New York State/Metropolitan Area3032 Construction Loan Portfolio (as of Dec 31, 2022) | Metric | Value (in millions) | | :--- | :--- | | Total Committed Amount | $1,600 | | Outstanding Disbursed Balance | $930.6 | | Undisbursed Loans in Process | $637.4 | | Number of Loans (by project) | 350 | | Average Loan Size (by project) | $4.6 (committed) / $2.7 (disbursed) | - The bank has de-emphasized multifamily, mixed-use, and non-residential real estate lending in recent years to focus more on construction lending, particularly in high-absorption, homogeneous communities in New York5264 - The bank's loans-to-one-borrower limit was approximately $33.4 million as of December 31, 2022, with no borrowers exceeding this limit80 Investment Activities - The investment portfolio is primarily viewed as a source of liquidity and consists mainly of mutual funds, residential mortgage-backed securities (from Fannie Mae, Freddie Mac, Ginnie Mae), and municipal securities8586 - The investment policy is designed to provide liquidity, ensure safety of principal, generate stable income, and serve as a counter-cyclical balance to loan demand86 Deposit Activities and Other Sources of Funds - Major sources of funds include deposits, borrowings, and loan repayments. The bank offers a broad selection of deposit instruments, including checking, money market, and savings accounts8790 - The bank utilizes brokered, listing service, and military deposits as a cost-effective strategy to match the maturity of deposits with the term of its construction loans91 - The bank uses advances from the Federal Home Loan Bank of New York as a supplemental source of funds. As of December 31, 2022, it had $21.0 million in FHLB advances outstanding and the ability to borrow an additional $31.5 million92 Regulation and Supervision - The Bank is a New York-chartered savings bank regulated by the New York State Department of Financial Services and the FDIC. The Company, as a savings and loan holding company, is regulated by the Federal Reserve Board9497 - The Bank must adhere to federal minimum capital standards, including ratios for common equity Tier 1, Tier 1, and total capital. As of December 31, 2022, the Bank was classified as a "well capitalized" institution103117 - The Bank is subject to the Community Reinvestment Act (CRA), with its latest FDIC rating being "Satisfactory" and its latest New York State CRA rating being "Outstanding"132133 - The Company is subject to Federal Reserve Board capital adequacy guidelines. However, due to the "small bank holding company" exception (threshold increased to $3.0 billion), the Company is not subject to these capital requirements until its consolidated assets exceed this amount145 Emerging Growth Company Status - The Company is classified as an "emerging growth company," which allows it to take advantage of certain exemptions from reporting requirements, such as reduced executive compensation disclosure and an exemption from the auditor attestation requirement for internal controls over financial reporting (Sarbanes-Oxley Act Section 404(b))155 - The Company has elected to use the extended transition period for adopting new or revised accounting standards, which may result in its financial statements not being comparable to other public companies155 Risk Factors The company faces significant risks from its high concentration in construction loans, geographic concentration, brokered deposit reliance, and interest rate fluctuations - Lending Risks: The company's primary risk stems from its high concentration in construction loans, which increased to $930.6 million (76.4% of total loans) at Dec 31, 2022. These loans are considered riskier than residential mortgages due to uncertainties in project completion and value168169 - Concentration Risk: The loan portfolio is heavily concentrated in the New York and Boston metropolitan areas, making the company vulnerable to local economic downturns. At Dec 31, 2022, 70.1% of the total loan portfolio was in high-absorption areas of five New York counties183184 - Regulatory Scrutiny: The bank's construction loans represented 417% of its total risk-based capital at Dec 31, 2022, exceeding the 300% threshold in regulatory guidance that could trigger increased supervisory scrutiny175 - Funding and Liquidity Risk: The company relies on brokered deposits, military deposits, and listing service deposits, which totaled $150.0 million (13.4% of total deposits) at Dec 31, 2022. These funding sources may be less stable than traditional retail deposits189 - Accounting Standard Change: The upcoming adoption of the Current Expected Credit Loss (CECL) model on January 1, 2023, is expected to require earlier recognition of credit losses and may increase the allowance for credit losses, potentially affecting financial condition and results195 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None219 Properties As of December 31, 2022, the company conducts business from its administrative headquarters in White Plains, NY, eleven branch offices in New York and Massachusetts, three loan production offices, and a wealth management office in Connecticut. Six of these offices are leased, and the total net book value of all properties and equipment was $26.1 million - The company operates from its headquarters in White Plains, NY, eleven branch offices, three loan production offices, and one wealth management office220 - At December 31, 2022, the net book value of land, buildings, furniture, fixtures, and equipment was $26.1 million220 Legal Proceedings The company is involved in routine legal proceedings in the ordinary course of business, which management believes are immaterial to its financial condition, results of operations, and cash flows as of December 31, 2022 - Routine legal proceedings are considered immaterial in aggregate to the company's financial condition221 Mine Safety Disclosures Not applicable. The company has no mine safety disclosures - None222 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Capital Market under the symbol "NECB". During 2022, the company paid regular quarterly cash dividends of $0.06 per share and a special cash dividend of $0.18 per share. A stock repurchase program was authorized in July 2022 to acquire up to 10% of outstanding shares, with 430,231 shares repurchased in the fourth quarter of 2022 - The company's common stock is traded on the Nasdaq Capital Market under the ticker symbol "NECB"225 - In 2022, the company paid quarterly dividends of $0.06 per share and a one-time special dividend of $0.18 per share226 Q4 2022 Share Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2022 | 63,004 | $12.80 | | Nov 2022 | 116,300 | $14.01 | | Dec 2022 | 250,927 | $14.64 | | Total Q4 | 430,231 | - | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations 2022 financial performance saw significant growth in net interest income and net income, driven by loan expansion and rising rates Business Strategy - Continue focusing on originating construction loans in high-demand, high-absorption areas of the New York Metropolitan Area233 - Maintain strong asset quality through a conservative credit culture and active credit risk management234 - Expand the franchise through de novo branching or branch acquisitions in growing communities238 - Implement a stockholder-focused capital management strategy, including dividends and stock repurchases, supported by a strong capital position240 Balance Sheet Analysis - Total assets increased by $200.0 million (16.3%) to $1.4 billion at Dec 31, 2022, from $1.2 billion at Dec 31, 2021252 - Net loans grew by $244.1 million (25.2%) to $1.2 billion, driven by $700.1 million in loan originations, primarily construction loans257 - Total deposits increased by $194.8 million (21.0%) to $1.1 billion, led by growth in certificates of deposit, savings accounts, and non-interest bearing demand deposits265 - Stockholders' equity increased by $10.6 million (4.2%) to $262.0 million, reflecting net income of $24.8 million, partially offset by $9.3 million in stock repurchases and $6.5 million in dividends269 Loan Portfolio Composition (Dec 31, 2022 vs 2021) | Loan Type | 2022 Amount ($M) | 2022 Percent | 2021 Amount ($M) | 2021 Percent | | :--- | :--- | :--- | :--- | :--- | | Construction loans | $930.6 | 76.45% | $683.8 | 70.29% | | Commercial and industrial | $110.1 | 9.04% | $118.4 | 12.17% | | Multifamily | $123.4 | 10.14% | $84.4 | 8.68% | | Mixed-use | $21.9 | 1.80% | $28.7 | 2.95% | | Non-residential real estate | $25.3 | 2.08% | $50.0 | 5.14% | | Other | $6.0 | 0.49% | $7.5 | 0.77% | | Total Loans | $1,217.3 | 100.00% | $972.9 | 100.00% | Results of Operations Financial Highlights (Year Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $24.8 million | $11.9 million | | Net Interest Income | $63.9 million | $43.3 million | | Provision for Loan Losses | $0.4 million | $3.6 million | | Return on Average Assets | 1.95% | 1.13% | | Return on Average Equity | 9.60% | 6.03% | - Net interest income increased by $20.6 million (47.5%) in 2022, driven by a 107 basis point increase in the yield on interest-earning assets, which outpaced the 36 basis point increase in the cost of interest-bearing liabilities289291293 - The provision for loan losses decreased significantly to $439,000 in 2022 from $3.6 million in 2021. The 2021 provision was primarily due to a single $3.6 million charge-off on a non-residential bridge loan297298 - Non-interest income decreased to $1.7 million from $2.4 million, mainly due to a $1.6 million net unrealized loss on equity securities in 2022304 - Non-interest expense increased by $4.2 million (15.9%) to $30.7 million, driven by higher operating expenses, salaries, real estate owned expenses, and a $451,000 goodwill impairment charge307 Risk Management - The company's most prominent risks are credit risk, interest rate risk, and market risk. Credit risk management focuses on conservatism, knowledge of local communities, and active monitoring319320 Non-Performing Assets (as of Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Non-performing loans | $0 | $0 | | Real estate owned | $1.5 million | $2.0 million | | Total non-performing assets | $1.5 million | $2.0 million | | NPA / Total Assets | 0.10% | 0.16% | - The allowance for loan losses increased slightly to $5.5 million at Dec 31, 2022, from $5.2 million at Dec 31, 2021. The allowance as a percentage of total loans decreased to 0.45% from 0.54%344345 Interest Rate Sensitivity Analysis (as of Dec 31, 2022) | Change in Interest Rates | Change in Net Interest Income (12-month) | Change in Net Portfolio Value | | :--- | :--- | :--- | | +200 bps | +19.92% | +5.00% | | +100 bps | +9.98% | +3.00% | | -100 bps | -10.75% | -3.91% | Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the information provided under "Item 7: Management's Discussion and Analysis of Results of Operations and Financial Condition" - Information required by this item is incorporated by reference from Item 7380 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and supplementary data, which begin on page F-1 of the report - The required financial statements are included beginning on page F-1 of the report381 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None383 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022. Management also assessed internal control over financial reporting using the COSO framework and concluded it was effective. There were no material changes to internal controls during the fourth quarter of 2022 - Management concluded that disclosure controls and procedures were effective as of the end of the period384 - Based on an assessment using the COSO framework, management believes the company's internal control over financial reporting was effective as of December 31, 2022387 Other Information The company reports no other information - None389 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. The company has no disclosures regarding foreign jurisdictions that prevent inspections - None390 Part III Directors, Executive Officers and Corporate Governance The information required for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information is incorporated by reference from the Proxy Statement393 Executive Compensation The information required for this item regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information is incorporated by reference from the Proxy Statement396 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item regarding security ownership is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information is incorporated by reference from the Proxy Statement397 Certain Relationships and Related Transactions, and Director Independence The information required for this item regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information is incorporated by reference from the Proxy Statement398 Principal Accountant Fees and Services The information required for this item regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of stockholders - Information is incorporated by reference from the Proxy Statement399 Part IV Exhibits and Financial Statement Schedules This section lists the exhibits filed as part of the Form 10-K, including articles of incorporation, bylaws, employment agreements, benefit plans, and various certifications. It notes that financial statements are incorporated by reference from Item 8 and all financial statement schedules are omitted as they are not required or applicable - This item lists all exhibits filed with the Form 10-K, including corporate documents, material contracts, and certifications402403 Form 10-K Summary This item is not applicable - Not applicable404 Financial Statements and Notes Consolidated Statements of Financial Condition Total assets grew to $1.42 billion in 2022, driven by increased net loans, with liabilities and equity also rising Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Total Assets | $1,425.0 | $1,225.1 | | Cash and cash equivalents | $95.3 | $152.3 | | Net loans | $1,212.2 | $968.1 | | Total Liabilities | $1,163.0 | $973.7 | | Total deposits | $1,122.0 | $927.2 | | Federal Home Loan Bank advances | $21.0 | $28.0 | | Total Stockholders' Equity | $262.0 | $251.4 | Consolidated Statements of Income Net income significantly increased to $24.8 million in 2022, driven by higher net interest income and lower loan loss provisions Consolidated Income Statement Highlights (Year Ended Dec 31) | Account | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Net Interest Income | $63.9 | $43.3 | | Provision for loan loss | $0.4 | $3.6 | | Non-Interest Income | $1.7 | $2.4 | | Non-Interest Expenses | $30.7 | $26.5 | | Net Income | $24.8 | $11.9 | | EPS - Basic | $1.61 | $0.75 | Notes to Consolidated Financial Statements The notes detail accounting policies, allowance for loan losses, regulatory capital, CECL adoption, well-capitalized status, and off-balance-sheet commitments - Allowance for Loan Losses: The allowance is based on past experience, portfolio risks, collateral values, and economic conditions. The methodology uses a general reserve, and if an impairment is identified, the impaired portion is charged off immediately450451456 - Regulatory Capital: As of December 31, 2022, the Bank was categorized as well-capitalized, with a Total capital to risk-weighted assets ratio of 13.66% (minimum required is 8.00%) and a Tier 1 leverage ratio of 16.50% (minimum required is 4.00%)504507 - Off-Balance Sheet Risk: The company had significant off-balance-sheet commitments at December 31, 2022, including $637.4 million in undisbursed construction loans and $133.8 million in unfunded commercial and industrial lines of credit510 - Recent Accounting Pronouncements: The company adopted the Current Expected Credit Losses (CECL) model effective January 1, 2023, which replaces the incurred loss model with an expected loss model603604