Northeast Community Bancorp Inc. (NASDAQ:NECB) is a leading community bank serving the financial needs of individuals and businesses in the Northeast region of the United States. With a strong focus on construction lending, commercial and industrial loans, and multifamily real estate, the bank has established itself as a trusted partner in its local markets.
Business Overview
Headquartered in White Plains, New York, Northeast Community Bancorp was founded in 1934 and has since grown to operate 11 branch offices and 3 loan production offices across New York and Massachusetts. The bank's primary business activities include originating construction loans, commercial and industrial loans, and multifamily and mixed-use residential real estate loans. Additionally, the bank offers a variety of retail deposit products to its customers in the surrounding areas.In 2023, the bank generated annual net income of $46.3 million on total revenue of $138.2 million, representing a net profit margin of 33.5%. The bank's strong financial performance was driven by a 9.4% increase in net interest income to $100.0 million, which offset a 50.3% decline in non-interest income to $35.9 million. The decrease in non-interest income was primarily due to a $307,000 increase in unrealized losses on the bank's equity securities portfolio and a $145,000 decrease in other loan fees and service charges, partially offset by a $117,000 decrease in investment advisory fees.
Quarterly Performance
For the first quarter of 2024, Northeast Community Bancorp reported net income of $11.4 million, up 1.2% from $11.2 million in the same period of 2023. This increase was driven by a $2.2 million, or 9.4%, rise in net interest income to $25.0 million, which was partially offset by a $561,000, or 50.3%, decline in non-interest income to $554,000. The bank also recorded a credit loss expense reduction of $165,000 in the first quarter of 2024, compared to a credit loss expense of $1,000 in the prior-year period.Loan Portfolio and Asset Quality
Northeast Community Bancorp's loan portfolio is primarily concentrated in construction loans, which accounted for $1.3 billion, or 78.2%, of the bank's total loans of $1.7 billion as of March 31, 2024. The bank's construction loan portfolio is primarily secured by the construction of multi-family properties in Massachusetts and by the construction of multi-family, residential condominium, and non-residential properties in New York.The bank's asset quality remains strong, with non-performing loans totaling $4.4 million, or 0.27% of total loans, as of March 31, 2024. The allowance for credit losses on loans was $4.9 million, or 0.30% of total loans, at the end of the first quarter of 2024, down from $5.1 million, or 0.32% of total loans, at the end of 2023. The decrease in the allowance for credit losses was primarily due to a credit loss expense reduction of $145,000 and net charge-offs of $21,000 during the quarter.
Liquidity and Capital
Northeast Community Bancorp maintains a strong liquidity position, with cash and cash equivalents of $107.4 million as of March 31, 2024, up from $68.7 million at the end of 2023. The bank's cash and cash equivalents represented 5.8% of its total assets at the end of the first quarter of 2024, up from 3.9% at the end of 2023.The bank's capital ratios also remain robust, with a total risk-based capital ratio of 13.78% and a Tier 1 leverage ratio of 14.65% as of March 31, 2024. These ratios exceed the regulatory requirements for a "well-capitalized" institution, providing the bank with ample flexibility to support its growth initiatives.
Guidance and Outlook
In its most recent earnings release, Northeast Community Bancorp provided guidance for the full year 2024. The bank expects to generate annual net income of $46.3 million and annual revenue of $135.9 million, which would represent no change in net income and a 1.7% decrease in revenue compared to 2023. The bank also anticipates annual operating cash flow of $42.8 million and annual free cash flow of $42.2 million, which would represent no change in both metrics compared to the prior year.Risks and Challenges
While Northeast Community Bancorp has demonstrated strong financial performance, the bank faces several risks and challenges that investors should consider. These include the bank's geographic concentration in the Northeast region, its reliance on construction lending, and the potential impact of rising interest rates on its net interest margin and loan portfolio.Additionally, the bank's investment advisory business, which was previously operated under the Harbor West Wealth Management Group division, was sold in January 2024, eliminating a source of non-interest income. The bank will need to find ways to offset this revenue loss going forward.
Conclusion
Northeast Community Bancorp is a well-capitalized and profitable community bank that has established a strong presence in its local markets. The bank's focus on construction lending, commercial and industrial loans, and multifamily real estate has driven its financial success, and its robust liquidity and capital positions provide a solid foundation for future growth.While the bank faces some risks and challenges, its experienced management team and strategic initiatives position it well to continue delivering value to its shareholders. With its strong financial performance, attractive valuation, and positive outlook, Northeast Community Bancorp appears to be an appealing investment opportunity for investors seeking exposure to the thriving community banking sector.