Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NECB > SEC Filings for NECB > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for NORTHEAST COMMUNITY BANCORP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NORTHEAST COMMUNITY BANCORP INC


14-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, changes in real estate market values in the Company's market area, and changes in relevant accounting principles and guidelines. Additional factors that may affect the Company's results are discussed in the Company's Annual Report on Form 10-K under "Item 1A. Risk Factors." These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

CRITICAL ACCOUNTING POLICIES

We consider accounting policies involving significant judgments 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 the allowance for loan losses to be a critical accounting policy.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation.

Due to the conversion of the Bank to a New York State-chartered savings bank on June 29, 2012, the Federal Deposit Insurance Corporation ("FDIC") and the New York State Department of Financial Services ("NYS") are now the Bank's primary regulators. As such, the FDIC and NYS, as an integral part of their examination process, periodically review our allowance for loan losses. The FDIC and NYS could require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examinations. A large loss or a series of losses could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Table of Contents

Second Quarter Performance Highlights

The Company's earnings for the quarter ended June 30, 2013 increased by $116,000 compared to the same period in 2012 primarily due to a decrease in provision for loan losses, partially offset by a decrease in net interest income, a decrease in non-interest income, an increase in non-interest expenses, and an increase in the provision for income taxes. The decrease in provision for loan losses was due to a decrease in the loan portfolio of $931,000, or 0.3%, to $332.9 million at June 30, 2013 from $333.8 million at December 31, 2012 and a decrease in the balance of non-performing loans.

Non-performing loans decreased by $1.8 million, or 54.4%, to $2.2 million as of June 30, 2013 from $4.0 million as of December 31, 2012. Furthermore, non-performing loans decreased by $5.9 million, or 73.4%, to $2.2 million as of June 30, 2013 from $8.1 million as of June 30, 2012. The decrease in non-performing loans from June 30, 2012 to June 30, 2013 was due to the conversion from non-performing to performing status of three mortgage loans totaling $4.6 million, the charge-off of two mortgage loans totaling $1.9 million, and the satisfaction of two mortgage loans totaling $1.1 million, partially offset by the addition of four mortgage loans totaling $1.7 million. We will continue to monitor our loan portfolio closely and adjust the level of allowance for loan losses appropriately as updated information becomes available.

Our interest rate spread improved to 3.92% for the three months ended June 30, 2013 from 3.41% for the three months ended June 30, 2012 and our net interest margin improved to 4.16% for the three months ended June 30, 2013 from 3.65% for the three months ended June 30, 2012.

Comparison of Financial Condition at June 30, 2013 and December 31, 2012

Total assets decreased by $15.4 million, or 3.5%, to $428.9 million at June 30, 2013 from $444.2 million at December 31, 2012. The decrease in total assets was due to decreases of $10.1 million in cash and cash equivalents, $2.0 million in securities held-to-maturity, $931,000 in loans receivable, net, $828,000 in other assets, $481,000 in Federal Home Loan Bank of New York ("FHLB") stock, $450,000 in real estate owned, $367,000 in premises and equipment, $334,000 in goodwill, and $249,000 in certificates of deposits at other financial institutions, partially offset by an increase of $319,000 in bank owned life insurance. The decrease in total assets primarily resulted from decreases of $5.6 million in deposits, $10.0 million in FHLB advances, and $926,000 in advance payments by borrowers for taxes and insurance, partially offset by increases of $741,000 in accounts payable and accrued expenses and $460,000 in stockholders' equity.

Cash and cash equivalents decreased by $10.1 million, or 20.5%, to $39.1 million at June 30, 2013 from $49.2 million at December 31, 2012 due primarily to the above mentioned decreases in deposits, advance payments by borrowers for taxes and insurance, securities held-to-maturity, loans receivable, FHLB stock, and certificates of deposits at other financial institutions, and repayment of FHLB advances.

Securities held-to-maturity decreased by $2.0 million, or 16.5%, to $10.0 million at June 30, 2013 from $12.0 million at December 31, 2012 due primarily to repayments of $2.1 million. Certificates of deposits at other financial institutions decreased by $249,000, or 62.4%, to $150,000 at June 30, 2013 from $399,000 at December 31, 2012 due to the maturity and redemption of a certificate of deposit.

Loans receivable, net, decreased by $931,000, or 0.3%, to $332.9 million at June 30, 2013 from $333.8 million at December 31, 2012 due primarily to loan repayments and charge-offs totaling $26.1 million that exceeded loan originations totaling $25.1 million. FHLB stock decreased by $481,000, or 35.5%, to $874,000 at June 30, 2013 from $1.4 million at December 31, 2012 due primarily to a decrease in the amount of FHLB stock that we are required to hold as a result of decreases in FHLB advances and the mortgage loan portfolio.

Bank owned life insurance increased by $319,000, or 1.6%, to $20.2 million at June 30, 2013 from $19.9 million at December 31, 2012 due to accrued earnings during 2013. Real estate owned decreased by $450,000, or 10.5%, to $3.8 million at June 30, 2013 from $4.3 million at December 31, 2012 due to the sale of a foreclosed property. Premises and equipment decreased by $367,000, or 2.8%, to $12.5 million at June 30, 2013 from $12.9 million at December 31, 2012 due primarily to depreciation. Other assets decreased by $828,000, or 10.6%, to $7.0 million at June 30, 2013 from $7.8 million at December 31, 2012 due to a refund of the FDIC prepaid insurance and reductions in tax accruals and prepaid insurance.

Table of Contents

Deposits decreased by $5.6 million, or 1.8%, to $312.5 million at June 30, 2013 from $318.1 million at December 31, 2012. The decrease in deposits was primarily attributable to decreases of $2.0 million in non-interest bearing accounts, $1.6 million in regular savings accounts, $1.1 million in certificates of deposits, and $971,000 in NOW and money market accounts.

Advance payments by borrowers for taxes and insurance decreased by $926,000, or 26.3%, to $2.6 million at June 30, 2013 from $3.5 million at December 31, 2012 due primarily to remittances of taxes for our borrowers.

FHLB advances decreased by $10.0 million, or 66.7%, to $5.0 million at June 30, 2013 from $15.0 million at December 31, 2012 due primarily to the maturity and repayment of certain FHLB advances.

Stockholders' equity increased by $460,000 to $104.3 million at June 30, 2013, from $103.8 million at December 31, 2012. This increase was primarily the result of comprehensive income of $687,000 and the amortization of $75,000 for the ESOP for the period, partially offset by cash dividends declared of $302,000.

Comparison of Operating Results for the Three Months Ended June 30, 2013 and 2012

General.Net income increased by $116,000, or 43.8%, to $381,000 for the quarter ended June 30, 2013, from $265,000 for the quarter ended June 30, 2012. The increase was primarily the result of a decrease of $541,000 in provision for loan losses, offset by a decrease of $194,000 in net interest income, a decrease of $151,000 in non-interest income, an increase of $8,000 in non-interest expenses and an increase of $72,000 in the provision for income taxes.

Net Interest Income. Net interest income decreased by $194,000, or 4.6%, to $4.0 million for the three months ended June 30, 2013 from $4.2 million for the three months ended June 30, 2012. The decrease in net interest income resulted primarily from a decrease of $341,000 in interest income that exceeded a decrease of $147,000 in interest expense.

The net interest spread increased by 51 basis points to 3.92% for the three months ended June 30, 2013 from 3.41% for the three months ended June 30, 2012. The net interest margin increased by 51 basis points between these periods from 3.65% for the quarter ended June 30, 2012 to 4.16% for the quarter ended June 30, 2013. The increase in the interest rate spread and the net interest margin in the second quarter of 2013 compared to the same period in 2012 was due to an increase in the yield on our interest-earning assets that exceeded an increase in the cost of our interest-bearing liabilities.

The average yield on our interest-earning assets increased by 52 basis points to 4.97% for the three months ended June 30, 2013 from 4.45% for the three months ended June 30, 2012 and the cost of our interest-bearing liabilities increased by 1 basis points to 1.05% for the three months ended June 30, 2013 from 1.04% for the three months ended June 30, 2012. The increase in the yield on our interest-earning assets was due to a decrease in other interest-earning assets, resulting in a shift in the composition of interest-earning assets whereby higher yielding loans receivable represented a larger percentage of total interest-earning assets in the June 30, 2013 quarter compared to the June 30, 2012 quarter. The increase in the yield of our interest-earning assets was also due to a decrease in our non-performing assets by $6.4 million, or 78.8%, to $1.7 million as of June 30, 2013 from $8.1 million as of June 30, 2012. The increase in the cost of our interest-bearing liabilities was due to the offering of competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012 and, offset by the Company's decision to reduce our interest rates offered on our deposits during the second quarter of 2013.

Table of Contents

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2013 and 2012.

                                                                        Three Months Ended June 30,
                                                              2013                                      2012
                                                             Interest                                  Interest
                                               Average          and         Yield/       Average          and         Yield/
                                               Balance       Dividends       Cost        Balance       Dividends       Cost
                                                                          (Dollars in thousands)
Assets:
Interest-earning assets:
  Loans                                       $ 343,487     $     4,677        5.45 %   $ 356,024     $     4,969        5.58 %
  Securities (including FHLB stock)              11,720              84        2.87        16,187             126        3.11
  Other interest-earning assets                  28,476               2        0.03        86,665               9        0.04
   Total interest-earning assets                383,683           4,763        4.97       458,876           5,104        4.45
Allowance for loan losses                        (4,683 )                                  (6,667 )
Non-interest-earning assets                      50,110                                    38,696
   Total assets                               $ 429,110                                 $ 490,905

Liabilities and equity:
Interest-bearing liabilities:
  Interest-bearing demand                     $  61,107     $        52        0.34 %   $ 112,014     $       127        0.45 %
  Savings and club accounts                      82,049             110        0.54        91,808             131        0.57
  Certificates of deposit                       147,395             568        1.54       137,369             527        1.53
   Total interest-bearing deposits              290,551             730        1.00       341,191             785        0.92

Borrowings                                        5,000              45        3.60        15,000             137        3.65
   Total interest-bearing liabilities           295,551             775        1.05       356,191             922        1.04

Noninterest-bearing demand                       20,567                                    18,030
Other liabilities                                 8,572                                     8,988
   Total liabilities                            324,690                                   383,209

Stockholders' equity                            104,420                                   107,696
   Total liabilities and
      Stockholders' equity                    $ 429,110                                 $ 490,905
Net interest income                                         $     3,988                               $     4,182
Interest rate spread                                                           3.92 %                                    3.41 %
Net interest margin                                                            4.16 %                                    3.65 %
Net interest-earning assets                   $  88,132                                 $ 102,685
Interest-earning assets to interest-bearing
liabilities                                      129.82 %                                  128.83 %

Total interest income decreased by $341,000, or 6.7%, to $4.8 million for the three months ended June 30, 2013, from $5.1 million for the three months ended June 30, 2012. Interest income on loans decreased by $292,000, or 5.9%, to $4.7 million for the three months ended June 30, 2013 from $5.0 million for the three months ended June 30, 2012. The decrease was primarily the result of a decrease of 13 basis points in the average yield on loans to 5.45% for the three months ended June 30, 2013 from 5.58% for the three months ended June 30, 2012. The decrease in interest income and the average yield on loans was also due to the pay-off of numerous higher yielding mortgage loans and the refinancing and/or re-pricing to lower interest rates of numerous mortgage loans in our loan portfolio. The decrease in interest income was also due to a decrease of $12.5 million, or 3.5%, in the average balance of the loan portfolio to $343.5 million for the three months ended June 30, 2013 from $356.0 million for the three months ended June 30, 2012 as repayments outpaced originations and charge-offs, net of recoveries.

Interest income on securities decreased by $42,000, or 33.3%, to $84,000 for the three months ended June 30, 2013 from $126,000 for the three months ended June 30, 2012. The decrease was primarily due to a decrease of $4.5 million, or 27.6%, in the average balance of securities to $11.7 million for the three months ended June 30, 2013 from $16.2 million for the three months ended June 30, 2012. The decrease in the average balance was due to the principal repayments on investment securities and a decrease in FHLB New York stock. The decrease in interest income on securities was also due to a decrease of 24 basis points in the average yield on securities to 2.87% for the three months ended June 30, 2013 from 3.11% for the three months ended June 30, 2012. The decline in the yield was also due to the re-pricing of the yield of our adjustable rate investment securities and a decrease in FHLB stock yield from 4.5% at June 30, 2012 to 4.0% at June 30, 2013.

Table of Contents

Interest income on other interest-earning assets (consisting solely of interest-earning deposits) decreased by $7,000, or 77.8% to $2,000 for the three months ended June 30, 2013 from $9,000 for the three months ended June 30, 2012. The decrease was primarily due to a decrease of $58.2 million, or 67.1%, in the average balance of interest-earning assets to $28.5 million for the three months ended June 30, 2013 from $86.7 million for the three months ended June 30, 2012. The decrease was also due to a decrease of 1 basis point in the average yield on other interest-earning assets to 0.03% for the three months ended June 30, 2013 from 0.04% for the three months ended June 30, 2012.

The decrease in the average balance of other interest-earning assets was due to decreases in cash and cash equivalents and certificates of deposit at other financial institutions. The decline in the yield was due to the maturity of higher yielding certificates of deposits at other financial institutions.

Total interest expense decreased by $147,000, or 15.9%, to $775,000 for the three months ended June 30, 2013 from $922,000 for the three months ended June 30, 2012. Interest expense on deposits decreased by $55,000, or 7.0%, to $730,000 for the three months ended June 30, 2013 from $785,000 for the three months ended June 30, 2012. The decrease in the interest expense on deposits was a result of our decision to reduce our interest rates offered on our interest-bearing demand deposits and interest-bearing savings and club deposits in order to improve our net interest spread and net interest margin to increase profitability, offset by an increase in the average balance and average interest cost of our certificates of deposit as a result of offering competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in an increase of 8 basis points in the average interest cost of deposits to 1.00% for the three months ended June 30, 2013 from 0.92% for the three months ended June 30, 2012.

The decrease in interest expense on deposits was also due to a decrease of $50.6 million, or 14.8%, in the average balance of interest-bearing deposits to $290.6 million for the three months ended June 30, 2013 from $341.2 million for the three months ended June 30, 2012. The decrease in the average balance of interest-bearing deposits was due to decreases in the average balance of our interest-bearing demand deposits and interest-bearing savings and club accounts, offset by increases in the average balance of our interest-bearing certificates of deposits. The decrease in the average balances of our interest-bearing demand deposits and interest-bearing savings and club accounts was due to the Company's decision to reduce our interest rates offered on our deposits. The increase in the average balance of our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012.

The interest expense of our interest-bearing demand deposits decreased by $75,000, or 59.1%, to $52,000 for the three months ended June 30, 2013 from $127,000 for the three months ended June 30, 2012. The decrease in interest expense in our interest-bearing demand deposits was due to our decision to reduce our interest rates in interest-bearing demand deposits that resulted in an 11 basis point decrease in the average interest cost to 0.34% for the three months ended June 30, 2013 from 0.45% for the three months ended June 30, 2012. The decrease in interest expense on our interest-bearing demand deposits was also due to a decrease of $50.9 million, or 45.5%, in the average balance of our interest-bearing demand deposits to $61.1 million for the three months ended June 30, 2013 from $112.0 million for the three months ended June 30, 2012.

The interest expense of our interest-bearing savings and club deposits decreased by $21,000, or 16.0%, to $110,000 for the three months ended June 30, 2013 from $131,000 for the three months ended June 30, 2012. The decrease in interest expense in our interest-bearing savings and club deposits resulted from our decision to reduce our interest rates in interest-bearing savings and club deposits that resulted in a 3 basis point decrease in the average interest cost to 0.54% for the three months ended June 30, 2013 from 0.57% for the three months ended June 30, 2012. The decrease in interest expense on our interest-bearing savings and club deposits was also due to a decrease of $9.8 million, or 10.6%, in the average balance of our interest-bearing savings and club deposits to $82.0 million for the three months ended June 30, 2013 from $91.8 million for the three months ended June 30, 2012.

The interest expense of our interest-bearing certificates of deposit increased by $41,000, or 7.8%, to $568,000 for the three months ended June 30, 2013 from $527,000 for the three months ended June 30, 2012. The increase in interest expense in our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in an increase of $10.0 million, or 7.3%, in the average balance of our interest-bearing certificates of deposit to $147.4 million for the three months ended June 30, 2013 from $137.4 million for the three months ended June 30, 2012. The increase in interest expense of our interest-bearing certificates of deposit was also due to a 1 basis point increase in the average interest cost to 1.54% for the three months ended June 30, 2013 from 1.53% for the three months ended June 30, 2012.

Table of Contents

Interest expense on borrowings decreased by $92,000, or 67.2%, to $45,000 for the three months ended June 30, 2013 from $137,000 for the three months ended June 30, 2012. The decrease was primarily due to a decrease of $10.0 million, or 66.7%, in the average balance of borrowed money to $5.0 million for the three months ended June 30, 2013 from $15.0 million for the three months ended June 30, 2012. The decrease in interest expense on borrowings was also due to a decrease of 5 basis points in the cost of borrowed money to 3.60% for the three months ended June 30, 2013 from 3.65% for the three months ended June 30, 2012 due primarily to the maturity and repayment of higher costing FHLB advances from 2012 to 2013.

Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three months ended June 30, 2013 and 2012.

                                                                                     Three Months
                                                                                    Ended June 30,
                                                                                  2013             2012
                                                                                (Dollars in thousands)
Allowance at beginning of period                                              $      4,706       $  7,086
Provision for loan losses                                                             (423 )          117
Charge-offs                                                                            105          3,336
Recoveries                                                                              27              -
Net charge-offs                                                                         78          3,336
Allowance at end of period                                                    $      4,205       $  3,867

Allowance to nonperforming loans                                                    195.40 %        47.89 %
Allowance to total loans outstanding at the end of the period                         1.25 %         1.10 %
Net charge-offs (recoveries) to average loans outstanding during the period           0.02 %         0.94 %

The allowance to non-performing loans ratio increased to 195.40% at June 30, 2013 from 47.89% at June 30, 2012 due primarily to the decrease in non-performing loans to $2.2 million at June 30, 2013 from $8.1 million at June 30, 2012 coupled with an increase in the allowance for loan losses. The decrease in non-performing loans was due to the identification, monitoring and resolution of several non-performing loans that were paid-off or became performing as of June 30, 2013.

The allowance for loan losses was $4.21 million at June 30, 2013, $4.65 million at December 31, 2012, and $3.87 million at June 30, 2012. We recorded a credit provision for loan losses of ($423,000) for the three month period ended June 30, 2013 compared to provision for loan losses of $117,000 for the three month period ended June 30, 2012. The reduction in the provision for loan losses was due to a decrease in the loan portfolio of $931,000, or 0.3%, to $332.9 million at June 30, 2013 from $333.8 million at December 31, 2012 and a decrease in the amount of non-performing loans in the loan portfolio.

We charged-off $105,000 against two non-performing non-residential mortgage loans during the three months ended June 30, 2013 compared to charge-offs of $3.3 million against four non-performing multi-family mortgage loans, four non-performing non-residential mortgage loans, and one non-performing construction mortgage loan during the three months ended June 30, 2012. We recorded recoveries of $27,000 during the three months ended June 30, 2013 compared to no recoveries during the three months ended June 30, 2012.

. . .

  Add NECB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NECB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.