Loan Portfolio - As of December 31, 2023, the construction loan portfolio consisted of 322 loans totaling $1.7 billion in committed amount, with outstanding disbursed balances of $1.2 billion and undisbursed loans in process of $486.3 million[39]. - At December 31, 2023, 88.1% of the loan portfolio, amounting to $1.4 billion, was secured by loans in the New York State/New York Metropolitan Area[29]. - The average committed amount for construction loans was $5.4 million, with outstanding disbursed balances of $3.8 million and undisbursed loans in process of $1.5 million at December 31, 2023[41]. - The largest outstanding construction loan at December 31, 2023, had a committed amount of $28.0 million and was performing according to its terms[42]. - As of December 31, 2023, the average balance of loans in the commercial and industrial loan portfolio was $639,000[48]. - The largest outstanding commercial and industrial loan was an unsecured line of credit with an outstanding balance of $10.0 million[49]. - Multifamily and mixed-use real estate loans to borrowers in the New York State/New York Metropolitan Area totaled $71.3 million as of December 31, 2023[53]. - Multifamily and mixed-use real estate loans to borrowers in the Massachusetts/Boston Metropolitan Area totaled $151.2 million as of December 31, 2023[54]. - The average debt-service coverage ratio for multifamily loans is 2.91x, and the average loan-to-value ratio is 31.2%[58]. - The average balance of loans in the non-residential loan portfolio was $621,000 as of December 31, 2023[71]. - The largest outstanding non-residential real estate loan had an outstanding balance of $2.2 million[71]. - The portfolio of consumer loans was $1.2 million, or 0.08% of total loans, primarily from checking accounts with overdrawn balances[73]. - At December 31, 2023, the company held $14.1 million in participation interests in construction loans originated by the bank[79]. - The bank's loans-to-one-borrower limit was approximately $38.3 million as of December 31, 2023[82]. - As of December 31, 2023, the company had approximately $14.0 million in Federal Home Loan Bank advances outstanding and the ability to borrow an additional $29.7 million[92]. - The company had $50.0 million in borrowings from the Federal Reserve Bank of New York with an available borrowing limit of $865.1 million as of December 31, 2023[93]. - At December 31, 2023, the construction loan portfolio has increased to $1.2 billion, representing 76.9% of total loans, up from $251.0 million or 39.8% in 2016[172]. - At December 31, 2023, multifamily, mixed-use, and non-residential real estate loans accounted for $249.7 million, or 15.8% of the loan portfolio[174]. - Construction loans represented 478% of the Bank's total risk-based capital at December 31, 2023, while multifamily, mixed-use, and non-residential real estate loans represented 98%[179]. - The company requires borrowers to fund an interest reserve account in advance for construction loans originated[173]. Revenue and Income Sources - The Bank's revenues are primarily derived from interest on loans, with additional income from deposit fees, service charges, and investment advisory fees[17]. - The Bank completed the sale of its investment advisory and financial planning services in January 2024, ceasing to generate investment advisory fees[18]. Competition and Market Conditions - The Bank faces significant competition from various financial institutions and non-depository financial service companies in attracting deposits and originating loans[27]. - Competition for loans in the New York and Massachusetts markets is intense, affecting the company's growth and profitability[189]. - The geographic concentration of the loan portfolio makes the company vulnerable to downturns in the New York Metropolitan Area and Boston Metropolitan Area[186]. - Recent bank failures, including Silicon Valley Bank and Signature Bank, have raised concerns about depositor confidence, which could lead to destabilizing deposit outflows across the banking industry[202]. Capital and Regulatory Compliance - The company exceeded the fully phased-in regulatory requirement for the capital conservation buffer as of December 31, 2023[108]. - The company’s capital requirements include a common equity Tier 1 capital to risk-based assets ratio of 4.5% and a total capital to risk-based assets ratio of 8%[105]. - The Bank is classified as "well capitalized" under FDIC regulations as of December 31, 2023, with a total risk-based capital ratio of 10.0% or greater[119]. - The FDIC's risk-based assessment system assigns insured institutions to risk categories, with assessment rates for banks with less than $10 billion in assets ranging from 1.5 to 30 basis points of total assets less tangible capital[128]. - The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% to 1.35% of estimated insured deposits, which was exceeded by the FDIC in November 2018[129]. - The Bank's latest FDIC CRA rating was "Satisfactory," indicating compliance with the Community Reinvestment Act[135]. - The Bank's latest NYCRA rating was "Outstanding," reflecting strong performance in serving local credit needs[137]. - The FDIC requires institutions classified as undercapitalized to submit a capital restoration plan, which must be guaranteed by the controlling company[120]. - The Company is subject to capital adequacy guidelines similar to those of the FDIC, with a threshold for the "small bank holding company" exception raised to $3.0 billion[152]. Operational Risks and Management - The company faces significant operational risks due to the high volume of transactions processed, which includes potential fraud and compliance failures[196]. - The company relies heavily on its management team for strategy implementation, and the loss of key personnel could adversely affect operations and competitive positioning[205]. - The company must keep pace with technological advancements to remain competitive in the increasingly technology-driven financial services market[213]. - Cybersecurity threats pose significant risks to the company, as breaches could compromise sensitive data and adversely affect operations and reputation[211]. Liquidity Management - Effective liquidity management is critical for the company to meet customer loan requests and deposit withdrawals, with potential adverse effects if liquidity is not maintained[199]. - The company reported uninsured deposits totaling $344.8 million and available liquidity of $102.7 million, including $68.7 million in cash, as of December 31, 2023, which is sufficient to cover uninsured deposits[202]. - The company has a borrowing capacity of $865.1 million at the FRBNY, which could be utilized to manage liquidity needs[202]. Branch Operations and Expansion - The Bank operates through eleven branch offices and three loan production offices across New York and Massachusetts, focusing on community-oriented financial services[16]. - The company plans to expand its branch network from ten existing branches to capture growth opportunities in primary and adjacent markets, although this may negatively impact earnings due to initial costs and time required to generate revenue from new branches[197]. Investment Portfolio - The investment portfolio primarily consists of mutual funds, residential mortgage-backed securities, and municipal securities, with stated final maturities of 10 years or more for mortgage-backed securities[86]. - The company’s investment management policy aims to provide adequate liquidity to meet deposit outflows and anticipated increases in the loan portfolio[88]. - The company’s investment portfolio is designed to generate stable income and provide collateral for advances and repurchase agreements[88]. - The Bank's investment in the Federal Home Loan Bank of New York was $859,000 as of December 31, 2023, meeting compliance requirements[144]. Regulatory Changes and Compliance - The final rule amending CRA regulations will become effective on January 1, 2026, and includes a metrics-based approach to evaluating bank retail lending[136]. - The Bank is subject to federal consumer protection regulations that impose sanctions for non-compliance, including administrative fines and civil actions[138]. - The Federal Reserve Board has the authority to prohibit dividends if actions are deemed unsafe or unsound, emphasizing the need for sufficient net income to cover dividends[154]. - The Company is classified as an emerging growth company and may take advantage of exemptions from various reporting requirements until it exceeds $1.1 billion in annual gross revenues or other specified thresholds[161][162]. - The Company has terminated its license in Connecticut as of February 22, 2024, following the sale of all assets related to Harbor West Wealth Management Group[166]. - The Company is prohibited from acquiring more than 5% of voting stock in another savings association without prior approval from the Federal Reserve Board[147]. - The Company must submit a notice to the Federal Reserve Board for any acquisition of direct or indirect control of a savings and loan holding company[155].
NorthEast munity Bancorp(NECB) - 2023 Q4 - Annual Report