Northeast Bank

Good day, everyone, and welcome to the Northeast Bank Fiscal Year 2022 First Quarter Earnings Results Conference Call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer, J.P. LaPointe, Chief Financial Officer, and Pat Digman, Executive Vice President and Chief Credit Officer. Last night, an investor presentation was uploaded to the bank's website, which we will reference in this morning's call. The presentation can be accessed at the investor relations section of northeast.com under events and presentations. You may find it helpful to download this investor presentation and follow along during the call. Also, this call will be available for rebroadcast on the website for future use. The question and answer session for this call will be conducted electronically following the presentation. Please note that this presentation contains forward-looking statements about Northeast Bank. Forward-looking statements are based upon the current expectations of Northeast Bank's management and are subject to risk and uncertainty. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bay does not undertake any obligation to update any forward-looking statements. At this time, I would like to turn the call over to Rick Wayne. Please go ahead, sir.

Thank you. And good morning and thank you to all of you for joining us today. As noted, I am Rick Wayne. the Chief Executive Officer of Northeast Bank. And with me on the call are J.P. LaPointe, our Chief Financial Officer, and Pat Dignan, our Chief Credit Officer and Executive Vice President. After my comments, J.P., Pat, and I would be happy to answer your questions. And I'd like to start with some comments on our financial highlights, which is on page three of the slide deck. First, I'll point out that we earned $9.9 million for the quarter, which was $1.20 per earnings per share. Our return on equity was 16.7%. And return on assets was 2.41%. Results we were very pleased with. If we take a look at our national, still on page three, at our national lending activity, for the quarter, we purchased 35.4% We invested $35.4 million on a $37 million of UPV. And we originated $94.5 million of loans with a weighted average rate of 5.87%. Now, as I've mentioned in previous calls, our originated loans are... very predominantly a floating rate tied to prime with floors baked into them and today's rate environment 587 on new originations was very strong and those factors contributed to we put a few different numbers around that interest margin one is kind of the typical one counting everything all in, which was 474. But if we take the triple P impact out of that and subject to the language input node 4, it's a 6% NIM, which kind of would be what would be standard if we didn't have the impact of the triple P activity in that account. Our purchase loan return was 9.19%, very, very strong, with a fair amount of discount that was accelerated because of prepayment. During the quarter, we repurchased 102,311 shares at $29.91. Finally, before I get into a little bit more detail, I want to comment on our joint marketing agreement with Nuiti. That's a name to you, Nuiti. It's substantively the successor to ACAP, who we originally entered into the agreement with them. The principles are the same. They started a new entity and changed the name. I don't really want to over-promise on this. It's got a lot of potential. On the other hand, it could turn out not to generate that much, so I don't want to provide any numbers until we have them. I can say that the platform is substantially... complete. They're going out to, as you may recall, annuity has subject to getting some approvals from some of the sellers of the loans to loan source about over 100,000 customers potentially that they can market to who already have PPP loans generating this kind of loan activity. The customer acquisition cost can be high and The case of what they have, it's going to be very, very small because they have access to all the customers already. The portal is going to open up over the next couple months of this calendar year with a soft opening to make sure it all works. The initial product is a $25,000 loan under the SBA 7A program. It's a product that doing all of the paperwork that you need to do under the SBA program is less. It carries within an 85% guarantee and you can get very good pricing on those loans and our expectation if we get some volume would be to you know, sell those loans, the 85% guarantee piece in the secondary market. So there's not a lot to report as to what has happened. I would expect that when we speak again in January, we'll be able to provide some more news on that. If we now turn to page four, which is provide some detail on our correspondent fee income, which of course has been a substantial portion of our income while this has been around, and it hasn't been around that long. If you look at the bottom of page four, you can see since the fourth quarter of 2020, through the first quarter of 2022. That's our fiscal quarter. Loan Source has purchased $11.2 billion of Triple P loans. And as of September 30th, this is in the last footnote, there's been $6.6 billion, there is $6.6 billion remaining at September 30th. And I will talk a little bit more on the next slide about what's happened in round one, what's happened in round two. Again, on the bottom you can see in the total line that the total income that was to be amortized was $19.46 million. And as of the end of September, $9.7 million remains. And if you look up at the top three numbers, the one I want to point out for a second is the amortization of purchased accrued interest. You know, our initial... The loans have paid off sooner than we had thought, so we... needed to accelerate $720,000 in this quarter so we had the right relationship between that purchase accrued interest and the outstanding balances. If we turn to the next page, you can see we've broken up on round one and round two. Round one which was $5 billion of purchases, is now $549 is only 11% remaining. In round two, there's 99% remaining of the $6.15 billion at the end of September, but they just recently opened up their portal. I won't bore you by reading the whole forward-looking statement again, but roughly speaking, we think most of this income from this arc Correspondent activity will be recognized by the end of this fiscal year for us, maybe a little bit into the following year, the following quarter of the next year. But that will give you some idea as to our view. Page six is a slide of our portfolio. You can see we have almost 2,100 loans for $1.74 billion. And what I do want to highlight on that, should I get to the page, is that our national lending division has almost a billion dollars in its portfolio, $990 million. And let me just see. I think we'll move to page nine, which provides some statistics on our national lending portfolio. The top one is size. You can see that only 11% of our portfolio has our loans greater than $9 million. We provide all of the breakdown of the collateral types and we are now in 45 states. It really is a national lending business. Going to the next slide on asset quality. You can see that the percentage of non-performing assets to total assets is 160, which is high compared to the link quarter. But the link quarter, as we talked about, the balance sheet was inflated because of all of the cash in the collection account. To highlight two other things, on the right side, the classified loans are $12.7 million, up a little bit from June 30th, but down from the preceding quarters, and charge-offs are three basis points. There were four basis points last quarter, and that's, you know, really, we think, a really good statistic when you think about the rates that we're earning. on our purchase unoriginated loan book. On slide 11, you can see that the deferral program is virtually done. We had 118.1 million of loans in our deferred where we gave P&I deferrals too. There are no parties under deferral anymore, and the delinquencies are pretty low on that. And on interest only out of the $40 million, only $4.5 million remain. And the performance of those loans is also excellent. On the next slide, we show kind of a rollover of our bridge, rather, I should say, on our non-performing assets. I'll just highlight in the case of loans, we added $5 million and $2.5 million came off. So there was a slight increase in there and in our REO The balances came down by about 880 grand compared to June 30th. There's a lot of information in the deck having to do with allowance and how much we have in each group. We provide that so you can look at that. We've done that in other quarters. I'm not going to do it now. And then also the loan-to-value in our national lending portfolio on page 4. I will not go through all of this by collateral types, but in summary, I would point out that the $990 million has a weighted average loan-to-value of 48%, which is really what we do is we try and loan where we have really high confidence in the collateral value. I'm going to, again, slip through the remaining slides, and I'm going to now ask JP to start in on page 20. JP.

JP, are you muted? Do you have yourself muted?