# NorthEast Community Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [NorthEast Community Bancorp, Inc.](/companies/necb.md) (CIK 1847398)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 10, 2023, 13:57 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014447
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1847398/000155837023014447/necb-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1847398/000155837023014447/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $7.7m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $13.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $4.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $9.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $11.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $22.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.75 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.75 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 14,731,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 14,361,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $17.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $217.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $1.9m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $14.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $119.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $1.62bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $1.35bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $269.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,591 characters.

### Forward-Looking Statements

Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.

The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, including higher inflation, either nationally or in our market area, that are worse than expected; (ii) changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products; (iii) increased competitive pressures among financial services companies; (iv) changes in consumer spending, borrowing and savings habits; (v) changes in the quality and composition of our loan or investment portfolios; (vi) changes in real estate market values in our market area; (vii) decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area; (viii) major catastrophes such as earthquakes, floods or other natural or human disasters and infectious disease outbreaks, including the recent coronavirus (COVID-19) pandemic, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; (ix) legislative or regulatory changes that adversely affect our business or changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; (x) technological changes that may be more difficult or expensive than expected; (xi) success or consummation of new business initiatives may be more difficult or expensive than expected; (xii) the inability to successfully integrate acquired businesses and financial institutions into our business operations; (xiii) adverse changes in the securities markets; (xiv) the inability of third party service providers to perform; and (xv) changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.

### Critical Accounting Policies

We consider accounting policies involving significant judgements and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our crucial accounting policies. The judgements and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgements and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

We consider the allowance for credit losses (“ACL”) to be a critical accounting policy. In connection with the Company’s adoption of Topic 326 effective January 1, 2023, the Company adopted the three applicable components of the ACL: an ACL related to loans, an ACL related to held-to-maturity (“HTM”) securities, and an ACL related to off-balance sheet credit exposures. See Note 1, Summary of Significant Accounting Policies, for additional information on the adoption of ASC 326.

### Balance Sheet Analysis

### General

Total assets increased by $190.7 million, or 13.4%, to $1.6 billion at June 30, 2023, from $1.4 billion at December 31, 2022. The increase in assets was primarily due to an increase in net loans of $175.2 million and an increase in cash and cash equivalents of $24.6 million, partially offset by a decrease in Federal Home Loan Bank advances of $7.0 million and a decrease in bank owned life insurance of $1.1 million.

Cash and cash equivalents increased by $24.6 million, or 25.8%, to $119.9 million at June 30, 2023 from $95.3 million at December 31, 2022. The increase in cash and cash equivalents was a result of increases in deposits of $193.9 million, partially offset by a reduction in FHLB advances of $7.0 million, and stock repurchases of $14.3 million.

Equity securities increased by $102,000, or 0.6%, to $18.1 million at June 30, 2023 from $18.0 million at December 31, 2022. The increase in equity securities was attributable to market appreciation of $102,000 due to market interest rate volatility during the six months ended June 30, 2023.

Securities held-to-maturity decreased by $10.6 million, or 40.2%, to $15.8 million at June 30, 2023 from $26.4 million at December 31, 2022 due to the maturity of $10.0 million in U.S. Treasury holdings, the establishment of $135,000 in an allowance for credit losses for held-to-maturity securities, and pay-downs of various investment securities.

The allowance for credit losses for held-to-maturity securities totaling $135,000 was established pursuant to the adoption of the current expected credit losses model (“CECL”) on held-to-maturity investment securities loss exposures. In this regard, we recognized a one-time credit of $132,000 due to the adoption of CECL at January 1, 2023 and credit loss expense totaling $3,000 during the six months ended June 30, 2023.

Loans, net of the allowance for credit losses, increased by $175.2 million, or 14.5%, to $1.4 billion at June 30, 2023 from $1.2 billion at December 31, 2022. The increase in loans, net of the allowance for loan losses, was primarily due to loan originations of $448.0 million during the six months ended June 30, 2023, consisting primarily of $405.6 million in construction loans with respect to which approximately 42.5% of the funds were disbursed at loan closings, with the remaining funds to be disbursed over the terms of the construction loans. In addition, we originated $20.9 million in commercial and industrial loans, $13.3 million in multi-family loans, and $8.2 million in mixed-use loans.

Loan originations resulted in a net increase of $168.1 million in construction loans, $7.0 million in mixed-use loans, $4.0 million in commercial and industrial loans, and $184,000 in consumer loans. The increase in our loan portfolio was partially offset by decreases in non-residential loans of $4.5 million, $409,000 in multi-family loans, and $116,000 in residential loans, coupled with normal pay-downs and principal reductions.

The allowance for credit losses related to loans decreased to $4.4 million as of June 30, 2023 from $5.5 million as of December 31, 2022. The decrease in the allowance for credit losses related to loans was due to a one-time decrease of $1.6 million due to the adoption of CECL at January 1, 2023 and charge-offs of $214,000, partially offset by provision for credit losses totaling $725,000.

Premises and equipment decreased by $417,000, or 1.6%, to $25.6 million at June 30, 2023 from $26.1 million at December 31, 2022 primarily due to depreciation of fixed assets.

Investments in Federal Home Loan Bank stock decreased by $309,000, or 25.0%, to $929,000 at June 30, 2023 from $1.2 million at December 31, 2022 due primarily to a reduction in mandatory Federal Home Loan Bank stock in connection with the maturity of $7.0 million in advances during the six months ended June 30, 2023.

Bank owned life insurance (“BOLI”) decreased by $1.1 million, or 4.3%, to $24.8 million at June 30, 2023 from $25.9 million at December 31, 2022 due to two death claims totaling $1.8 million on BOLI policies, partially offset by increases in the BOLI cash value.

Accrued interest receivable increased by $1.9 million, or 22.5%, to $10.5 million at June 30, 2023 from $8.6 million at December 31, 2022 due to an increase in the loan portfolio and three interest rate increases in 2023 that resulted in an increase in the interest rates on loans in our construction loan portfolio.

Foreclosed real estate was $1.5 million at June 30, 2023 and December 31, 2022.

Right of use assets — operating decreased by $257,000, or 11.1%, to $2.1 million at June 30, 2023 from $2.3 million at December 31, 2022, primarily due to amortization.

Other assets increased by $1.7 million, or 31.2%, to $7.0 million at June 30, 2023 from $5.3 million at December 31, 2022 due to an increase in tax assets of $2.0 million, partially offset by a decrease in suspense accounts of $320,000 and a decrease in prepaid expense of $6,000.

Total deposits increased by $193.9 million, or 17.3%, to $1.3 billion at June 30, 2023 from $1.1 billion at December 31, 2022. The increase was primarily due to an increase in certificates of deposit of $282.6 million, or 73.7%, partially offset by decreases in non-interest bearing demand deposits of $47.1 million, or 12.5 %, savings account balances of $32.0 million, or 11.7%, and NOW/money market accounts of $9.8 million, or 11.1%.

Federal Home Loan Bank advances decreased by $7.0 million, or 33.3%, to $14.0 million at June 30, 2023 from $21.0 million at December 31, 2022 due to maturity of borrowings.

Advance payments by borrowers for taxes and insurance decreased by $216,000, or 9.1%, to $2.2 million at June 30, 2023 from $2.4 million at December 31, 2022 due primarily to real estate tax payments remitted by the Bank on behalf of borrowers.

Lease liability – operating decreased by $254,000, or 10.7%, to $2.1 million at June 30, 2023 from $2.4 million at December 31, 2022, primarily due to repayments.

Accounts payable and accrued expenses decreased by $3.3 million, or 22.3%, to $11.5 million at June 30, 2023 from $14.8 million at December 31, 2022 due primarily to a decrease in suspense account for loan closings of $2.7 million and a decrease in accrued bonus expense of $2.2 million for employees, partially offset by an allowance for off-balance sheet commitments totaling $1.5 million.

The allowance for off-balance sheet commitments was $1.5 million at June 30, 2023 due to a one-time credit of $1.6 million resulting from the adoption of CECL at January 1, 2023, partially offset by a credit loss expense reduction totaling $117,000 during the six months ended June 30, 2023.

Stockholders’ equity increased by $7.6 million, or 2.9% to $269.6 million at June 30, 2023, from $262.0 million at December 31, 2022. The increase in stockholders’ equity was due to net income of $22.3 million for the six months ended June 30, 2023, $865,000 in the amortization of restricted stock and stock options granted in connection with the 2022 Equity Incentive Plan, a reduction of $435,000 in unearned employee stock ownership plan shares coupled with an increase of $185,000 in earned employee stock ownership plan shares, and $15,000 in other comprehensive income, partially offset by stock repurchases totaling $14.3 million, dividends paid and declared of $1.7 million, and a one-time adjustment to retained earnings of $99,000 due to the adoption of CECL.

### Results of Operations for the Three Months Ended June 30, 2023 and 2022

### Financial Highlights

Net income for the three months ended June 30, 2023 was $11.1 million compared to net income of $5.4 million for the three months ended June 30, 2022. The increase in net income of $5.7 million, or 105.6%, between periods was primarily due to an increase in net interest income and an increase in non-interest income, partially offset by an increase in provision for credit losses, an increase in non-interest expense, and an increase in income tax expense.

### Net Interest Income

Net interest income totaled $24.0 million for the three months ended June 30, 2023, as compared to $13.5 million for the three months ended June 30, 2022. The increase in net interest income of $10.5 million, or 77.4%, was primarily due to an increase in interest income offset by an increase in interest expense.

The increase in interest income was attributable to increases in loans and interest-bearing deposits, partially offset by a decrease in investment securities. The increase in interest income was also attributable to a rising interest rate environment due to the Federal Reserve’s interest rate increases in the past year.

The increase in market interest rates in the past year also caused an increase in our interest expense. As a result, the increase in interest expense for the three months ended June 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the cost of our borrowed money. The increase in interest expense was also due to an increase in the balances on our certificates of deposits and an increase in the balances on our savings and club deposits, offset by a decrease in the balances on our interest-bearing demand deposits and a decrease in the balances of our borrowed money.

Total interest and dividend income increased by $16.9 million, or 113.7%, to $31.7 million for the three months ended June 30, 2023 from $14.8 million for the three months ended June 30, 2022. The increase in interest and dividend income was due to an increase in the average balance of interest earning assets of $273.6 million, or 23.2%, to $1.5 billion for the three months ended June 30, 2023 from $1.2 billion for the three months ended June 30, 2022 and an increase in the yield on interest earning assets by 370 basis points from 5.02% for the three months ended June 30, 2022 to 8.72% for the three months ended June 30, 2023.

Interest expense increased by $6.4 million, or 493.8%, to $7.7 million for the three months ended June 30, 2023 from $1.3 million for the three months ended June 30, 2022. The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 248 basis points from 0.84% for the three months ended June 30, 2022 to 3.32% for the three months ended June 30, 2023 and an increase in average interest bearing liabilities of $314.3 million, or 51.2%, to $928.0 million for the three months ended June 30, 2023 from $613.6 million for the three months ended June 30, 2022.

Net interest margin increased by 202 basis points, or 44.1%, during the three months ended June 30, 2023 to 6.60% compared to 4.58% during the three months ended June 30, 2022.

### Provision for Credit Losses.

The Company recorded credit loss expenses totaling $610,000 for the three months ended June 30, 2023 compared to no credit loss expense for the three months ended June 30, 2023. The credit loss expense of $610,000 for the three months ended June 30, 2023 was comprised of credit loss expense for loans of $528,000 and credit loss expense for off-balance sheet commitments of $83,000, partially offset by for credit loss expense reduction held-to-maturity investment securities of $1,000.

We charged-off $194,000 during the three months ended June 30, 2023 as compared to charge-offs of $7,000 during the three months ended June 30, 2022. The charge-offs of $194,000 during the three months ended June 30, 2023 comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000. The remaining charge-offs of $35,000 were against various unpaid overdrafts in our demand deposit accounts. The charge-offs of $7,000 during the three months ended June 30, 2022 were against various unpaid overdrafts in our demand deposit accounts.

Based on a review at June 30, 2023 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

Management uses available information to establish the appropriate level of the three ACLs. Future additions or reductions to the three ACLs might be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our three ACLs might not be sufficient to cover actual credit losses, and future provisions for credit losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our three ACLs. Such agencies may require us to recognize adjustments to the three ACLs based on their judgments about information available to them at the time of their examination.

### Non-Interest Income

Non-interest income for the three months ended June 30, 2023 was $1.0 million compared to non-interest income of $536,000 for the three months ended June 30, 2022. The increase of $484,000, or 90.3%, in total non-interest income was primarily due to an increase of $403,000 in BOLI income, a decrease of $307,000 in unrealized loss on equity securities, and an increase of $7,000 in other non-interest income, partially offset by a decrease of $180,000 in other loan fees and service charges, a decrease of $46,000 in gain on sale of fixed assets, and a decrease of $7,000 in investment advisory fees.

The increase in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000 in the three months ended June 30, 2023. The decrease in unrealized loss on equity was due to an unrealized loss of $123,000 on equity securities during the three months ended June 30, 2023 compared to an unrealized loss of $430,000 on equity securities during the three months ended June 30, 2022. The unrealized loss of $123,000 on equity securities during the three months ended June 30, 2023 was due to market interest rate volatility during the quarter ended June 30, 2023.

The decrease of $180,000 in other loan fees and service charges was due to a decrease of $185,000 in other loan fees and loan servicing fees and a decrease of $4,000 in deposit fees, partially offset by an increase of $9,000 in ATM and debit card usage fees.

### Non-Interest Expense

Non-interest expense increased by $1.9 million, or 26.7%, to $8.9 million for the three months ended June 30, 2023 from $7.0 million for the three months ended June 30, 2022. The increase resulted primarily from increases of $1.2 million in salaries and employee benefits, $321,000 in other operating expense, $187,000 in advertising expense, $75,000 in outside data processing expense, $43,000 in occupancy expense, and $24,000 in equipment expense.

Salaries and employee benefits increased by $1.2 million, or 33.9%, to $4.8 million for the three months ended June 30, 2023 from $3.6 million for the three months ended June 30, 2022 primarily due to an increase in number of full time equivalent personnel due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $321,000, or 16.0%, to $2.3 million for the three months ended June 30, 2023 from $2.0 million for the three months ended June 30, 2022 due mainly to increases of $179,000 in miscellaneous other non-interest expense, $87,000 in service contracts expense, $84,000 in directors compensation, $30,000 in consulting fees, $11,000 in telephone expense, $10,000 in audit and accounting fees, $6,000 in expenses related to the hiring of personnel, $1,000 in insurance expense, and $2,000 in office supplies. These increases were partially offset by a decrease of $87,000 in legal fees and $2,000 in directors, officers, and employee expenses.

The increase of $179,000 in miscellaneous other non-interest expense was mainly due to an increase of $120,000 in regulatory insurance premiums and assessments due to an increase in our total assets, and increases of $37,000 in dues and subscriptions, $23,000 in public company expenses, $11,000 in miscellaneous expenses, and $2,000 in postage expenses. These increases were partially offset by decreases of $9,000 in check and correspondence bank charges, and $4,000 in miscellaneous charge-offs.

Service contracts expense increased by $87,000, or 32.1%, to $358,000 for the three months ended June 30, 2023 from $271,000 for the three months ended June 30, 2022 due to the increased cost to support the growth of the Company. Directors compensation increased by $84,000, or 59.2%, to $226,000 for the three months ended June 30, 2023 from $142,000 for the three months ended June 30, 2022 due to the amortization of expenses related to the 2022

Equity Incentive Plan awards of restricted stocks and options. Consultant fees increased by $30,000, or 15.0%, to $232,000 for the three months ended June 30, 2023 from $202,000 for the three months ended June 30, 2022 due to the retention of consultants to help implement CECL.

Advertising expense increased by $187,000, or 366.7%, to $238,000 for the three months ended June 30, 2023 from $51,000 for the three months ended June 30, 2022 due mainly to the resumption of advertising and promotional products to promote the opening of additional branch offices and to promote interest rates offered on our deposit products.

Outside data processing expense increased by $75,000, or 15.7%, to $554,000 for the three months ended June 30, 2023 from $479,000 for the three months ended June 30, 2022 due to the cost of operating an additional branch office and additional data processing services.

Occupancy expense increased by $43,000, or 7.7%, to $605,000 for the three months ended June 30, 2023 from $562,000 for the three months ended June 30, 2022 primarily as a result of the cost of operating an additional branch office space.

Equipment expense increased by $24,000, or 8.7%, to $300,000 for the three months ended June 30, 2023 from $276,000 for the three months ended June 30, 2022 due to the purchases of additional equipment to support the Company’s growth.

***Income Taxes.*** We recorded income tax expense of $4.5 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively. For the three months ended June 30, 2023, we had approximately $587,000 in tax exempt income, compared to approximately $185,000 in tax exempt income for the three months ended June 30, 2022. The increase in tax exempt income was due to two death claims totaling $1.8 million on BOLI policies. Our effective income tax rates were 28.7% and 23.7% for the three months ended June 30, 2023 and 2022, respectively.

### Results of Operations for the Six Months Ended June 30, 2023 and 2022

### Financial Highlights

Net income for the six months ended June 30, 2023 was $22.3 million compared to net income of $9.0 million for the six months ended June 30, 2022. The increase in net income of $13.3 million, or 147.1% for the six months ended June 30, 2023 compared to the same period in the prior year was due to increases in net interest income and non-interest income, partially offset by increases in provisions for credit losses, non-interest expense, and income tax expense.

### Net Interest Income

Net interest income totaled $46.9 million for the six months ended June 30, 2023, as compared to $25.5 million for the six months ended June 30, 2022. The increase in net interest income of $21.4 million, or 84.0%, was primarily due to an increase in interest income offset by an increase in interest expense.

The increase in interest income was attributable to increases in loans and interest-bearing deposits, partially offset by a decrease in investment securities. The increase in interest income was also attributable to a rising interest rate environment as a result of the Federal Reserve’s interest rate increases during 2023.

The increase in market interest rates in 2023 also caused an increase in our interest expense. As a result, the increase in interest expense for the six months ended June 30, 2023 was due to an increase in the cost of funds on our deposits, partially offset by a decrease in the cost of our borrowed money. The increase in interest expense was also due to an increase in our certificates of deposits and an increase in our savings and club deposits, offset by a decrease in our interest-bearing demand deposits and a decrease in our borrowed money.

Total interest and dividend income increased by $32.1 million, or 114.2%, to $60.2 million for the six months ended June 30, 2023 from $28.1 million for the six months ended June 30, 2022. The increase was due to an increase in the average balance of interest earning assets of $240.5 million, or 20.5%, to $1.4 billion for the six months ended June 30, 2023 from $1.2 billion for the six months ended June 30, 2022 and an increase in the yield on interest earning assets by 372 basis points from 4.78% for the six months ended June 30, 2022 to 8.50% for the six months ended June 30, 2023.

Interest expense increased by $10.7 million, or 405.7%, to $13.4 million for the six months ended June 30, 2023 from $2.6 million for the six months ended June 30, 2022. The increase in interest expense was due to an increase in the cost of interest bearing liabilities by 220 basis points from 0.85% for the six months ended June 30, 2022 to 3.05% for the six months ended June 30, 2023, and an increase in average interest bearing liabilities of $253.4 million, or 40.6%, to $877.8 million for the six months ended June 30, 2023 from $624.4 million for the six months ended June 30, 2022.

Net interest margin increased by 229 basis points, or 52.9%, during the six months ended June 30, 2023 to 6.62% compared to 4.33% during the six months ended June 30, 2022.

### Provision for Credit Losses

The Company recorded credit loss expenses totaling $611,000 for the six months ended June 30, 2023 compared to no credit loss expense for the six months ended June 30, 2022. The credit loss expense of $611,000 for the six months ended June 30, 2023 was comprised of credit loss expense for loans of $725,000 and credit loss expense for held-to-maturity investment securities of $3,000, partially offset by a credit loss expense reduction for off-balance sheet commitments of $117,000.

We charged-off $215,000 during the six months ended June 30, 2023 as compared to charge-offs of $17,000 during the six months ended June 30, 2022. The charge-offs of $214,000 during the six months ended June 30, 2023 comprised of a charge-off of $159,000 related to three performing construction loans on the same project whereby we sold the loans to a third-party subsequent to June 30, 2023 at a loss of $159,000. The remaining charge-offs of $56,000 were against various unpaid overdrafts in our demand deposit accounts. The charge-offs of $17,000 during the six months ended June 30, 2022 were against various unpaid overdrafts in our demand deposit accounts.

We recorded no recoveries from previously charged-off loans during the six months ended June 30, 2023 compared to recoveries of $242,000 during the six months ended June 30, 2022, which was comprised of $146,000 from a previously charged-off loan secured by a multi-family property, $53,000 from a previously charged-off loan secured by a non-residential property, and $43,000 regarding a previously charged-off loan secured by a mixed-use property.

Based on a review at June 30, 2023 of the loans that were in the loan portfolio, our off-balance sheet credit exposures, and our HTM investment securities, management believes that the allowances for these three components are maintained at a level that represents our best estimate of inherent losses in the loan portfolio, off-balance sheet credit exposures, and HTM investment securities that were both probable and reasonably estimable.

Management uses available information to establish the appropriate level of the three ACLs. Future additions or reductions to the three ACLs might be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our three ACLs might not be sufficient to cover actual credit losses, and future provisions for credit losses could materially adversely affect our operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our three ACLs. Such agencies may require us to recognize adjustments to the three ACLs based on their judgments about information available to them at the time of their examination.

### Non-Interest Income

Non-interest income for the six months ended June 30, 2023 was $2.1 million compared to non-interest income of $594,000 for the six months ended June 30, 2022. The increase in total non-interest income of $1.5 million, or 259.4%, was primarily due to an unrealized gain on equity securities of $102,000 during the six months ended June 30, 2023 compared to an unrealized loss of $1.1 million on equity securities during the six months ended June 30, 2022. The unrealized gain of $102,000 on equity securities during the 2023 period was due to market interest rate volatility as the Federal Reserve continued to increase interest rates, which impacted the value of the equity securities during the six months ended June 30, 2023.

The increase in total non-interest income was also due to increases of $407,000 in BOLI income, an increase of $36,000 in other loan fees and service charges, and an increase of $6,000 in other non-interest income, partially offset by a decrease of $46,000 in gain on sale of fixed assets and a decrease of $28,000 in investment advisory fees.

The increase in BOLI income was primarily due to two death claims totaling $1.8 million on BOLI policies that resulted in additional BOLI income of $404,000. The increase in other loan fees and service charges was due to an increase of $50,000 in ATM and debit card usage fees, partially offset by a decrease of $9,000 in deposit account fees and a decrease of $6,000 in other loan fees and loan servicing fees.

### Non-Interest Expense

Non-interest expense increased by $2.8 million, or 20.0%, to $17.1 million for the six months ended June 30, 2023 from $14.2 million for the six months ended June 30, 2022. The increase resulted primarily from increases of $1.9 million in salaries and employee benefits, $435,000 in other operating expense, $183,000 in advertising expense, $154,000 in outside data processing expense, $108,000 in occupancy expense, and $38,000 in equipment expense, partially offset by a decrease of $11,000 in real estate owned expense.

Salaries and employee benefits increased by $1.9 million, or 26.0%, to $9.4 million for the six months ended June 30, 2023 from $7.4 million for the six months ended June 30, 2022 primarily due to an increase in number of full time equivalent personnel due to the hiring of additional personnel to support the growth of the Company, the amortization of expenses related to the 2022 Equity Incentive Plan awards of restricted stocks and options, and a decrease in loan origination expenses related to loan origination fees due to a decrease in loan originations.

Other non-interest expense increased by $435,000, or 10.9%, to $4.4 million for the six months ended June 30, 2023 from $4.0 million for the six months ended June 30, 2022 due mainly to increases of $328,000 in miscellaneous other non-interest expense, $169,000 in directors compensation, $148,000 in service contracts expense, $28,000 in telephone expense, $14,000 in insurance expense, and $11,000 in office supplies. These increases were partially offset by decreases of $121,000 in legal fees, $83,000 in audit and accounting fees, $39,000 in consulting fees, and $20,000 in expenses related to the hiring of personnel.

The increase of $328,000 in miscellaneous other non-interest expense was mainly due to an increase of $176,000 in regulatory insurance premiums and assessments due to an increase in our total assets, an increase of $139,000 in dues and subscriptions, an increase of $28,000 in public company expense, an increase of $7,000 in check and correspondence bank charges, an increase of $5,000 in miscellaneous other non-interest expense, and an increase of $3,000 in postage expense, partially offset by a decrease of $30,000 in miscellaneous charge-offs.

The increase of $169,000 in directors compensation was due to the amortized expense in 2023 but none in 2022 regarding the restricted stocks and stocks options granted to directors in connection with the 2022 Equity Incentive Plan.

Advertising expense increased by $183,000, or 174.3%, to $288,000 for the six months ended June 30, 2023 from $105,000 for the six months ended June 30, 2022 due mainly to the resumption of advertising and promotional products to promote the opening of additional branch offices and to promote interest rates offered on our deposit products.

Outside data processing expense increased by $154,000, or 16.8%, to $1.1 million for the six months ended June 30, 2023 from $915,000 for the six months ended June 30, 2022 due to the cost of operating an additional branch office and additional data processing services.

Occupancy expense increased by $108,000, or 9.3%, to $1.3 million for the six months ended June 30, 2023 from $1.2 million for the six months ended June 30, 2022 primarily as a result of the cost of operating an additional branch office.

Equipment expense increased by $38,000, or 6.7%, to $604,000 for the six months ended June 30, 2023 from $566,000 for the six months ended June 30, 2022 due to the purchases of additional equipment to support the Company’s expansion.

Real estate owned expense decreased by $11,000, or 21.2%, to $41,000 for the six months ended June 30, 2023 from $52,000 for the six months ended June 30, 2022 due to reduction in operating expenses to maintain the one real estate owned property.

***Income Taxes.*** We recorded income tax expense of $9.0 million and $2.8 million for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, we had approximately $770,000 and $370,000, respectively, in tax exempt income. Our effective income tax rates were 28.7% and 23.6% for the six months ended June 30, 2023 and 2022, respectively.

### Average Balances and Yields

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans are included in the average balances only. In addition, yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Three Months Ended June 30, 2023 Average Balance ​ ​ ​ ​ | ​ ​ Interest and Dividends ​ ​ | ​ ​ ​ | ​ ​ ​ Yield/ Cost ​ ​ ​ | ​ ​ ​ 2022 Average Balance ​ ​ ​ ​ | ​ ​ Interest and Dividends ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Yield/ Cost ​ ​ ​ |
| --- | --- | ---: | --- | --- | ---: | ---: | --- | --- | ---: |
| Loans receivable | ​ | $1,341,597 ​ | $30,494 |  | 9.09% | $997,983 ​ | $14,412 |  | 5.78% |
| Securities | ​ | 39,967 ​ | ​ 198 |  | 1.98 ​ | 42,641 ​ | ​ 160 |  | 1.50 ​ |
| Federal Home Loan Bank stock | ​ | ​ 928 ​ | ​ 21 | ​ | 9.05 ​ | ​ 1,239 ​ | ​ 17 | ​ | 5.49 ​ |
| Other interest-earning assets | ​ | 72,991 ​ | ​ 1,001 |  | 5.49 ​ | 139,978 ​ | ​ 249 |  | 0.71 ​ |
| Total interest-earning assets | ​ | 1,455,483 ​ | ​ 31,714 |  | 8.27 ​ | 1,181,841 ​ | ​ 14,838 |  | 5.02 ​ |
| Allowance for credit losses | ​ | (4,070) ​ | ​ ​ |  | ​ ​ | (5,333) ​ | ​ ​ |  | ​ |
| Non-interest-earning assets | ​ | 83,521 ​ | ​ ​ |  | ​ ​ | 77,693 ​ | ​ ​ |  | ​ |
| Total assets | ​ | $1,534,934 ​ | ​ ​ | ​ | ​ ​ | $1,254,201 ​ | ​ ​ |  | ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ |
| Interest bearing demand | ​ | $85,919 ​ | $483 | ​ | 2.25% | $115,097 ​ | $190 |  | 0.66% |
| Savings and club accounts | ​ | 267,368 ​ | ​ 1,836 | ​ | 2.75 ​ | 214,840 ​ | ​ 354 |  | 0.66 ​ |
| Certificates of deposit | ​ | 560,702 ​ | ​ 5,290 | ​ | 3.77 ​ | 262,703 ​ | ​ 616 |  | 0.94 ​ |
| Interest-bearing deposits | ​ | 913,989 ​ | ​ 7,609 | ​ | 3.33 ​ | 592,640 ​ | ​ 1,160 |  | 0.78 ​ |
| Borrowed money | ​ | $14,000 ​ | ​ 87 | ​ | 2.49 ​ | 21,000 ​ | ​ 136 |  | 2.59 ​ |
| Interest-bearing liabilities | ​ | 927,989 ​ | ​ 7,696 | ​ | 3.32 ​ | 613,640 ​ | ​ 1,296 |  | 0.84 ​ |
| Non-interest-bearing demand | ​ | 322,722 ​ | ​ ​ | ​ | ​ ​ | 368,359 ​ | ​ ​ |  | ​ |
| Other non-interest-bearing liabilities | ​ | 17,224 ​ | ​ ​ | ​ | ​ ​ | 16,108 ​ | ​ ​ |  | ​ |
| Total liabilities | ​ | 1,267,935 ​ | ​ ​ | ​ | ​ ​ | 998,107 ​ | ​ ​ |  | ​ |
| Equity | ​ | 266,999 ​ | ​ ​ | ​ | ​ ​ | 256,094 ​ | ​ ​ |  | ​ |
| Total liabilities and equity | ​ | $1,534,934 ​ | ​ ​ | ​ | ​ ​ | $1,254,201 ​ | ​ ​ |  | ​ |
| Net interest income/interest spread | ​ | ​ ​ ​ | $24,018 | ​ | 5.40% | ​ ​ | $13,542 |  | 4.18% |
| Net interest margin | ​ | ​ ​ | ​ | ​ | 6.60% | ​ |  |  | 4.58% |
| Net interest-earning assets | ​ | $527,494 ​ | ​ ​ | ​ | ​ ​ | $568,201 ​ |  |  | ​ |
| Average interest-earning assets to interest-bearing liabilities | ​ | 156.84% | ​ | ​ | ​ ​ | 192.60% |  |  | ​ |

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Six Months Ended June 30, 2023 Average Balance ​ ​ ​ ​ | ​ ​ Interest and Dividends ​ ​ | ​ ​ ​ | ​ ​ ​ Yield/ Cost ​ ​ ​ | ​ ​ ​ 2022 Average Balance ​ ​ ​ ​ | ​ ​ Interest and Dividends ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Yield/ Cost ​ ​ ​ | ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | ---: | ---: | --- | --- | ---: | --- |
| Loans receivable | ​ | $1,305,922 ​ | $58,069 |  | 8.89% | $993,879 ​ | $27,473 |  | 5.53% | ​ |
| Securities | ​ | 42,232 ​ | ​ 409 |  | 1.94 ​ | 40,128 ​ | ​ 301 |  | 1.50 ​ | ​ |
| Federal Home Loan Bank stock | ​ | ​ 1,039 ​ | ​ 43 | ​ | 8.28 ​ | ​ 1,361 ​ | ​ 34 | ​ | 5.00 ​ | ​ |
| Other interest-earning assets | ​ | 67,269 ​ | ​ 1,705 |  | 5.07 ​ | 140,582 ​ | ​ 304 |  | 0.43 ​ | ​ |
| Total interest-earning assets | ​ | 1,416,462 ​ | ​ 60,226 |  | 8.50 ​ | 1,175,950 ​ | ​ 28,112 |  | 4.78 ​ | ​ |
| Allowance for credit losses | ​ | (4,760) ​ | ​ ​ |  | ​ ​ | (5,308) ​ | ​ ​ |  | ​ | ​ |
| Non-interest-earning assets | ​ | 82,217 ​ | ​ ​ |  | ​ ​ | 76,927 ​ | ​ ​ |  | ​ | ​ |
| Total assets | ​ | $1,493,919 ​ | ​ ​ | ​ | ​ ​ | $1,247,569 ​ | ​ ​ |  | ​ | ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ |
| Interest bearing demand | ​ | $88,047 ​ | $911 | ​ | 2.07% | $116,228 ​ | $359 |  | 0.62% | ​ |
| Savings and club accounts | ​ | 276,886 ​ | ​ 3,749 | ​ | 2.71 ​ | 209,080 ​ | ​ 681 |  | 0.65 ​ | ​ |
| Certificates of deposit | ​ | 496,338 ​ | ​ 8,501 | ​ | 3.43 ​ | 275,612 ​ | ​ 1,297 |  | 0.94 ​ | ​ |
| Interest-bearing deposits | ​ | 861,271 ​ | ​ 13,161 | ​ | 3.06 ​ | 600,920 ​ | ​ 2,337 |  | 0.78 ​ | ​ |
| Borrowed money | ​ | ​ 16,514 ​ | ​ 209 | ​ | 2.53 ​ | 23,514 ​ | ​ 307 |  | 2.61 ​ | ​ |
| Interest-bearing liabilities | ​ | 877,785 ​ | ​ 13,370 | ​ | 3.05 ​ | 624,434 ​ | ​ 2,644 |  | 0.85 ​ | ​ |
| Non-interest-bearing demand | ​ | 333,948 ​ | ​ ​ | ​ | ​ ​ | 352,689 ​ | ​ ​ |  | ​ | ​ |
| Other non-interest-bearing liabilities | ​ | 16,208 ​ | ​ ​ | ​ | ​ ​ | 15,352 ​ | ​ ​ |  | ​ | ​ |
| Total liabilities | ​ | 1,227,941 ​ | ​ ​ | ​ | ​ ​ | 992,475 ​ | ​ ​ |  | ​ | ​ |
| Equity | ​ | 265,978 ​ | ​ ​ | ​ | ​ ​ | 255,094 ​ | ​ ​ |  | ​ | ​ |
| Total liabilities and equity | ​ | $1,493,919 ​ | ​ ​ | ​ | ​ ​ | $1,247,569 ​ | ​ ​ |  | ​ | ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ ​ | ​ ​ | ​ | ​ ​ | ​ |
| Net interest income/interest spread | ​ | ​ ​ ​ | $46,856 | ​ | 5.46% | ​ ​ | $25,468 |  | 3.93% | ​ |
| Net interest margin | ​ | ​ ​ | ​ | ​ | 6.62% | ​ |  |  | 4.33% | ​ |
| Net interest-earning assets | ​ | $538,677 ​ | ​ ​ | ​ | ​ ​ | $551,516 ​ |  |  | ​ | ​ |
| Average interest-earning assets to interest-bearing liabilities | ​ | 161.37% | ​ | ​ | ​ ​ | 188.32% |  |  | ​ | ​ |

### Rate/Volume Analysis

The following tables set forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ ​ Interest income: | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended 6/30/2023 Compared to Three Months Ended 6/30/2022 Increase (Decrease) Due to Volume ​ | ​ | ​ ​ Rate ​ | ​ | ​ ​ Total ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loans receivable | ​ | $6,030 | ​ | $10,052 | ​ | $16,082 |
| Securities | ​ | (61) | ​ | 99 | ​ | 38 |
| Federal Home Loan Bank stock | ​ | ​ (24) | ​ | ​ 28 | ​ | ​ 4 |
| Other interest-earning assets | ​ | (840) | ​ | 1,592 | ​ | 752 |
| Total | ​ | $5,105 | ​ | $11,771 | ​ | $16,876 |
| **Interest expense:** | ​ |  | ​ |  | ​ |  |
| Interest bearing demand deposit | ​ | $(321) | ​ | $614 | ​ | $293 |
| Savings accounts | ​ | 106 | ​ | 1,376 | ​ | 1,482 |
| Certificates of deposits | ​ | 1,275 | ​ | 3,399 | ​ | 4,674 |
| Borrowed money | ​ | (44) | ​ | (5) | ​ | (49) |
| Total | ​ | 1,016 | ​ | 5,384 | ​ | 6,400 |
| Net change in net interest income | ​ | $4,089 | ​ | $6,387 | ​ | $10,476 |

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ ​ Interest income: | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Six Months Ended 6/30/2023 Compared to Six Months Ended 6/30/2022 Increase (Decrease) Due to Volume ​ | ​ | ​ ​ Rate ​ | ​ | ​ ​ Total ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loans receivable | ​ | $10,412 | ​ | $20,184 | ​ | $30,596 |
| Securities | ​ | 16 | ​ | 92 | ​ | 108 |
| Federal Home Loan Bank stock | ​ | ​ (21) | ​ | ​ 30 | ​ | ​ 9 |
| Other interest-earning assets | ​ | (540) | ​ | 1,941 | ​ | 1,401 |
| Total | ​ | $9,867 | ​ | $22,247 | ​ | $32,114 |
| **Interest expense:** | ​ |  | ​ |  | ​ |  |
| Interest bearing demand deposit | ​ | $(264) | ​ | $816 | ​ | $552 |
| Savings accounts | ​ | 286 | ​ | 2,782 | ​ | 3,068 |
| Certificates of deposits | ​ | 1,677 | ​ | 5,527 | ​ | 7,204 |
| Borrowed money | ​ | (89) | ​ | (9) | ​ | (98) |
| Total | ​ | 1,610 | ​ | 9,116 | ​ | 10,726 |
| Net change in net interest income | ​ | $8,257 | ​ | $13,131 | ​ | $21,388 |

### Asset Quality

The following table sets forth information with respect to our non-performing assets at the dates indicated.

*(Dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ | ​ ​ ​ June 30, ​ 2023 | ​ ​ ​ December 31, ​ 2022 ​ ​ | ​ |
| --- | --- | ---: | ---: | --- |
| Total non-accrual loans | ​ | $4,353 ​ | $— ​ | ​ |
| Total accruing loans past due 90 days or more | ​ | — ​ | — ​ | ​ |
| Total non-performing loans | ​ | 4,353 ​ | — ​ | ​ |
| Real estate owned | ​ | 1,456 ​ | 1,456 ​ | ​ |
| Total non-performing assets | ​ | $5,809 ​ | $1,456 ​ | ​ |
| Total non-performing loans to total loans | ​ | 0.31% | —% | ​ |
| Total non-performing assets to total assets | ​ | 0.36% | 0.10% | ​ |

Non-performing assets totaled $5.8 million at June 30, 2023 compared to $1.5 million at December 31, 2022. At June 30, 2023, we had two non-performing, non-accrual construction loans totaling $4.4 million secured by the same project located in the Bronx, New York. The other non-performing assets consisted of one foreclosed property at June 30, 2023 and December 31, 2022.

There were no nonaccrual loans at December 31, 2022. During the six months ended June 30, 2023, we did not collect any interest income from the loans that were in non-accrual status. We did not collect any interest income from loans that were in non-accrual status in 2022.

From time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms based on the economic or legal reasons related to the borrower’s financial difficulties. There were no new loan modifications during the six months ended June 30, 2023 or 2022 or during the year ended December 31, 2022. TDRs may be considered to be non-performing and if so are placed on non-accrual, except for those that have established a sufficient performance history (generally a minimum of six consecutive months of performance) under the terms of the restructured loan.

The two TDRs with an aggregate balance of $855,000 at December 31, 2022 were performing in accordance with their restructured terms (generally at least six consecutive months) and were sold to a third party on January 5, 2023 at a loss of $86,000.

The following table sets forth an analysis of the activity in the allowance for credit losses related to loans for the periods indicated:

*(Dollars In Thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ June 30 ​ 2023 | ​ ​ ​ December 31, ​ 2022 ​ ​ | ​ ​ ​ |
| --- | --- | ---: | ---: | --- |
| Allowance at beginning of period | ​ | $5,474 ​ | $5,242 ​ | ​ |
| Impact of adopting ASC 326 | ​ | ​ (1,584) ​ | ​ — ​ | ​ |
| Provision for credit losses | ​ | 725 ​ | 439 ​ | ​ |
| Net Charge-offs: | ​ | ​ ​ | ​ | ​ |
| Residential real estate loans: | ​ | ​ | ​ | ​ |
| One- to four-family | ​ | — ​ | — ​ | ​ |
| Multifamily | ​ | — ​ | — ​ | ​ |
| Mixed-use | ​ | — ​ | (103) ​ | ​ |
| Total residential real estate loans | ​ | — ​ | (103) ​ | ​ |
| Non-residential real estate loans | ​ | — ​ | (53) ​ | ​ |
| Construction loans | ​ | 159 ​ | 328 ​ | ​ |
| Commercial and industrial loans | ​ | — ​ | — ​ | ​ |
| Consumer loans | ​ | 56 ​ | 35 ​ | ​ |
| Total net charge-offs | ​ | 215 ​ | 207 ​ | ​ |
| Allowance at end of period | ​ | $4,400 ​ | $5,474 ​ | ​ |
| Total loans outstanding | ​ | $1,391,543 ​ | $1,217,321 ​ | ​ |
| Average loans outstanding | ​ | 1,341,597 ​ | 1,054,577 ​ | ​ |
| Ratio of allowance to non-performing loans | ​ | 1.01% | —% | ​ |
| Ratio of allowance to total loans | ​ | 0.32% | 0.45% | ​ |
| Ratio of net charge-offs to average loans | ​ | 0.02% | 0.02% | ​ |
| Non-performing loans | ​ | $4,353 ​ | $— ​ | ​ |

The Company’s allowance for credit losses related to loans totaled $4.4 million, or 0.32% of total loans as of June 30, 2023 compared to $5.5 million, or 0.45% of total loans as of December 31, 2022. In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaling $1.5 million and an allowance for credit losses related to held-to-maturity debt securities totaling $135,000 as of June 30, 2023 compared to none at December 31, 2022.

The allowance for credit losses related to loans decreased by $1.1 million to $4.4 million at June 30, 2023 from $5.5 million at December 31, 2022. The decrease in the allowances for credit losses was due primarily to the adoption of CECL which reduced the allowance by $1.6 million and charge-offs totaling $215,000 against various unpaid overdrafts in our demand deposit accounts and one construction loan, partially offset by provision for credit losses related to loans totaling $725,000 at June 30, 2023.

The allowance for credit losses related to off-balance sheet commitments of $1.4 million comprised of the adoption of CECL totaling $1.6 million, partially offset by a credit loss expense reduction of $117,000 at June 30, 2023.

The allowance for credit losses related to held-to-maturity of debt securities of $135,000 comprised of the adoption of CECL totaling $132,000 and credit loss expense of $3,000 at June 30, 2023.

### Liquidity and Capital Resources

We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. We established a liquidity ratio policy that identify three liquidity ratios consisting of (1) Cash/Deposits & Short Term Borrowings (“Cash Liquidity”), (2) Cash & Investments/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity”), and (3) Cash & Investments & Borrowing Capacity/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity & Borrowing Capacity”) to assist in the management of our liquidity. We also establish targets of 2.0% for the Cash Liquidity ratio, 8.0% for the On Balance Sheet Liquidity ratio, and 20.0% for the On Balance Sheet Liquidity & Borrowing Capacity ratio.

Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 7.2%, 10.6%, and 13.8%, respectively, for the six months ended June 30, 2023 compared to 11.2%, 15.5%, and 19.0%, respectively, for the year ended December 31, 2022. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our liquidity ratios cannot be calculated using amounts disclosed in our consolidated financial statements, as many of the calculations involve monthly, quarterly or annual averages. To calculate our liquidity ratios, the average liquidity base from the prior month is used as the denominator to calculate a daily liquidity ratio. The liquidity base consists of savings account balances, certificates of deposit balances, checking and money market balances, deposit loans and borrowings. The daily balances of these components are averaged to arrive at the liquidity base for the month, and the daily cash balances in selected general ledger accounts are used to derive our liquidity position. A daily liquidity ratio is calculated using the liquidity for the day divided by the prior month’s average liquidity base. At the end of each month, a monthly liquidity position is calculated using the average liquidity position for the month divided by the prior month’s average liquidity base. To calculate quarterly and annual liquidity ratios, we take the average liquidity for the three- or twelve-month period, respectively, and average it.

Our primary sources of liquidity are deposits, prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included with our Consolidated Financial Statements.

Our primary investing activities are the origination of construction loans, commercial and industrial loans, multifamily loans, and to a lesser extent, mixed-use real estate loans and other loans. For the six months ended June 30, 2023 and 2022, our loan originations totaled $448.0 million and $307.4 million, respectively. Cash received from the maturities and pay-downs on securities totaled $10.5 million and $737,000 for the six months ended June 30, 2023 and 2022, respectively. We did not purchase any securities during the six months ended June 30, 2023 compared to purchase of $10.0 million in investment securities during the six months ended June 30, 2022.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of New York to provide advances. As a member of the Federal Home Loan Bank of New York, we are required to own capital stock in the Federal Home Loan Bank of New York and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. We had an available borrowing limit of $32.6 million and $31.5 million from the Federal Home Loan Bank of New York as of June 30, 2023 and December 31, 2022, respectively. There were $14.0 million and $21.0 million in Federal Home Loan Bank advances at June 30, 2023 and December 31, 2022, respectively.

In addition, we are party to a loan agreement with ACBB under which we can borrow up to $8.0 million in short-term borrowings. There were no outstanding borrowings with ACBB at June 30, 2023 and December 31, 2022.

At June 30, 2023, we had unfunded commitments on construction loans of $513.7 million, outstanding commitments to originate loans of $164.2 million, unfunded commitments under lines of credit of $127.5 million, and unfunded standby letters of credit of $10.3 million. At June 30, 2023, certificates of deposit scheduled to mature in less than one year totaled $466.3 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, and/or Federal Home Loan Bank advances, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher or lower depending on market interest rates at the time of renewal.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders and for the repurchase, if any, of its shares of common stock. At June 30, 2023, the Company had liquid assets of $6.1 million and $12.2 million in loan participations originated by the Bank which are held by the Company.

### Off-Balance Sheet Arrangements

For the six months ended June 30, 2023, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.

### Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of NorthEast Community Bancorp have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

## Market risk

As filed, 7,826 characters.

Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.

Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).

Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results at June 30, 2023 indicate the level of risk within the parameters of our model. Our management believes that the June 30, 2023 results indicate a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.

***Model Simulation Analysis.*** We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.

These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of NorthEast Community Bank. Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.

We produce these simulation reports and discuss them at our Asset and Liability Committee meetings on at least a quarterly basis. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures.

If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at June 30, 2023. The income simulation analysis presented represents a one-year impact of the interest scenario assuming a static balance sheet. Various assumptions are made regarding the prepayment speed and optionality of loans, investment securities and deposits, which are based on analysis and market information. The assumptions regarding optionality, such as prepayments of loans and the effective lives and repricing of non-maturity deposit products, are documented periodically through evaluation of current market conditions and historical correlations to our specific asset and liability products under varying interest rate scenarios.

Because the prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities or agency issued collateralized obligations (secured by one- to four-family loans and multifamily loans). Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates and assumes a constant asset base. Management periodically reviews the rate assumptions based on existing and projected economic conditions and consults with industry experts to validate our model and simulation results.

The table below sets forth, as of June 30, 2023, NorthEast Community Bank’s net portfolio value, the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous parallel changes in market interest rates.

| ​ ​ ​ ​ Change in Interest Rates (Basis Points) | ​ ​ ​ ​ | ​ ​ Twelve Month ​ Net Interest Income ​ Percent ​ of Change | ​ ​ ​ ​ Net Portfolio Value ​ ​ Estimated NPV | ​ ​ ​ | ​ ​ ​ ​ ​ Percent of Change |
| ---: | --- | ---: | ---: | --- | ---: |
| +200 |  | 16.80% | $312,954 |  | 5.38% |
| +100 |  | 8.45 ​ | 306,097 |  | 3.08 ​ |
| 0 |  | — ​ | 296,965 |  | — ​ |
| -100 | ​ | (9.84) ​ | ​ 284,561 | ​ | (4.18) ​ |
| -200 |  | (19.67)% | 271,243 |  | (8.66)% |

As of June 30, 2023, based on the scenarios above, net interest income would increase by approximately 8.45% to 16.80%, over a one-year time horizon in a rising interest rate environment. One-year net interest income would decrease by approximately 9.84% to 19.67% in a declining interest rate environment over the same period.

Economic value at risk would be positively impacted by a rise in interest rates and negatively impacted by a decline in interest rates. We have established an interest rate floor of zero percent for measuring interest rate risk. The difference between the two results reflects the relatively long terms of a portion of our assets which is captured by the economic value at risk but has less impact on the one year net interest income sensitivity.

Overall, our June 30, 2023 results indicate that we are adequately positioned with an acceptable net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.

## Controls and procedures

As filed, 1,022 characters.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that they are alerted in a timely manner about material information relating to the Company required to be filed in its periodic Securities and Exchange Commission filings.

## Risk factors

As filed, 698 characters.

For information regarding the Company’s risk factors, refer to “*Item 1A: Risk* Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 30, 2023 and “*Part II, Item 1A: Risk* Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the Securities and Exchange Commission on May 23, 2023. As of June 30, 2023, the risk factors of the Company have not changed materially from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014447. Last ingested by Listed: Nov 3, 2026, 20:12 ET. No prices; not investment advice.