Northeast Bank

Welcome to the Northeast Bank fourth quarter fiscal year 2022 earnings call. My name is Jenny. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touchtone phone. As a reminder, the conference is being recorded. I will now turn the call over to Rick Wayne. You may begin.

Good morning, and thank you all for joining us today. As mentioned, I am Rick Wayne, the Chief Executive Officer of Northeast Bank, and with me on the call are JP LaPointe, our Chief Financial Officer, and Pat Dignan, our Chief Credit Officer and Executive Vice President. After my comments, JP, Pat, and I will be happy to answer your questions. Let me first turn to page three of the investor deck that was uploaded on our website last night. I want to comment on a few items listed on page three. First, for the quarter, we reported $10.3 million of net income or $1.35 per diluted share. Our return on equity was 16.55%, and our return on assets was 2.68%. And a big driver of our income for the quarter were our national lending loan volume, and in particular, The activity or an originated loans for the quarter. We originated a 172.9 million dollars of loans and for the year 587.8 million dollars of loans. You know that's a that's a record for us both quarter on the quarter and the end for the year. by a for the year in particular by a substantial amount. You and I also want to point out on those loans that 93 or 94% of our originated loan loans are variable. Tied to prime. And of course in a rising interest rate environment. That is helpful to have variable rate loans. I just want to comment on something about that, which I think requires some explanation, because our yield on our loan book for the quarter on originated loans was 7% and was 6.9% for the prior quarter. And so it only went up 10 basis points. And one might wonder why, with loans that are tied to prime, why they only went up 10 basis points. And I will answer that question for you. And that is that our loans are structured so that if there is a payoff for maturity, each loan we negotiate a minimum amount of interest that the borrower has to pay. And we had more loans. pay off early in the prior quarter than we did in this quarter. And to put some numbers to that, that 6.9% in the prior quarter included 70 basis points of minimum interest that paid off from loans that paid off early. So net of that, the yield was 6.2. As compared to the fourth quarter, where we only had 50 basis points of minimum interest so netting of that the yield was 6.5 which is a long way of making the point that ignoring minimum interest. The yield originated long book one of 30 basis points from Q 3 to Q 4 reflecting changes in interest rates. It takes and you're thinking of that I hope that clarifies that. One of the big things we've been working on is understanding that our correspondent fee income was going to go down each quarter and eventually go away. Just as a reminder, we have correspondent fee income resulting from discount when the loans were purchased. And we also share in the servicing income on the portfolio that Loan Source has on the Triple P loans that they purchased. For reference point, let's take a look at slide number four in the deck. And I will remind you that starting in The 4th quarter of 2020. Through the first quarter of 2022. Loan source purchased 11 point. 2 billion dollars. Triple P loans. And at the end of the. June 30, 2022. There remain 1 point. 4 billion. So there was about $9.8 billion of loans that were either paid off or forgiven. The reason that's meaningful is that a loan source earns 65 basis points on the PPP loans that they hold. And as the portfolio gets paid down, and I should point out, and we share half of that, and as the portfolio pays down, share of the income goes down and so it and the put some numbers to that it for a second we turn to us slide number 29. Trying to get to you can see that looking at the quarterly amount of correspondent fee income which is in blue on the this is on the right side of the investor deck on that page that correspond to the income we compare where it was in Q 4 of FY 21. I'm sorry we compare with Q 1 of our fiscal 22 with Q 4 Correspondent fee income went down by $4.1 million because the triple P loans were being either paid off or forgiven. And what we investors know, and we've talked about, what we need to do is increase our loan book to offset that. And now if we look at the base net interest income, which is in blue on the chart next to the one I just described, You can see that if we compare Q4, which just ended with Q1, that base net interest income increased by $4.3 million. Punchline is we're growing our loan book, we're generating more net interest income, and we have more than offset the amount of reduction in correspondent fee income. for the year, if we look at it for the year, I have this number, that net interest income, if we compare FY22 with FY21, net interest income increased by $16 million. And that's a result of that our loan book grew on our, The national lending portfolio grew by $284 million, or 30%, at the end of FY22 compared to FY21. And if we just look at the originated part of that, it grew $236 million, or 45%, from the beginning of the fiscal year. And that is what we... Our focus on is growing our national lending book. Just a few other comments before we open it up for questions. On our non-interest expense line, it grew, if you compare the fourth quarter, that is June 30th, with the third quarter, September 30th, non-interest expense grew by $1.5 million. And that was, as is usually the case in the fourth quarter, where we take a look at the comp committee, takes a look at how the bank is doing and, if appropriate, adds to the incentive comp. And that $1.5 million was virtually all additional incentive comp in the fourth quarter. And just for modeling purposes, you know, as we're going into this fiscal year, FY23, adding more people, probably a good number for per quarter not interest expense is around 13 million dollars for those that are doing the modeling. Also we bought back. During the quarter. I have that number for JP how much to 85 285,000 shares in the quarter. And for the year, we bought back 821,000 shares. Just took a look at this this morning. I thought someone might be interested. Since we started the repurchase program, we have repurchased 3.8 million shares at an average price of $16.93, which is about 34% of the shares outstanding before we started a repurchase program. Just a few words on our 7 a program with no it. This is again this is taking longer than we had expected. And this is these are not the biggest numbers in the world but in the quarter. We close 26 loans for $600,000 I should say. You know we close yet 626 long for $600,000. And I don't want to promise more than we can deliver, so we'll see what happens in the next quarters. But the technology is working. We're able to close loans. The marketing is continuing, and I'm hopeful that we will have better numbers to report when we report at the end of our first fiscal quarter. But no promises on that score. We will see when we will see. Asset quality, these are things that are in the report, so I'll point out I know you can read them, but delinquencies were at a very low number at around $7 million and non-accruals came down to about $13 million, which are numbers that are levels that are much lower than we have been in some time and particularly impressive given the size of our loan book now, which is about $1.3 billion. And with that, I will turn it over to all of you to answer any questions that you might have. Thank you.

Thank you. If you have a question, please press 01 on your touchtone phone. If you wish to be removed from the queue, please press 02. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touchtone phone. And our first question comes from Alexander Turtle. Please go ahead.