Northeast Bank

Welcome to the Northeast Bank first quarter fiscal year 2023 earnings call. My name is Shannon, and I will be your operator for today's call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer, JP LaPointe, Chief Financial Officer, and Pat Dignan, Executive Vice President and Chief Operating Officer. Yesterday, 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 northeastbank.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. At this time, all participants are in a listen only mode. Later, we will conduct the question and answer session. During the question and answer session, if you have a question, please press star 11 on your touch tone phone. As a reminder, the conference is being recorded. 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 uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank does not undertake any obligation to update any forward-looking statements. I will now turn the call over to Rick Wayne. Mr. Wayne, you may begin.

Good morning. And thank you all for joining us today. With me are JP LaPointe, our Chief Financial Officer, and Pat Dignan, our Chief Operating Officer and Chief Credit Officer. After my comments, JP, Pat, and I will be happy to answer your questions. During my comments, I'm going to refer to the, in some cases, to the slide deck. that is on our website. And I'm only going to focus on some meaningful highlights to try and provide some more detail into what has already been filed. First, I want to just mention some financial highlights for the quarter, which are, and I'll refer to slide number three. For the quarter, net income was $8.3 million. EPS was $1.12 diluted. ROE was 13.07%. ROA was 2.03%. Tangible book value was $33.57. And during the quarter, we repurchased 108,000 shares at an average price of $37.88. Let me just, at a higher level, compare the quarter that just ended with the linked quarter to make the point that the current quarter was actually quite strong, even though the income was lower than the linked quarter. So the linked quarter was, the current quarter was $8.3 million, which is down $2 million from the link quarter, meaning June 30th, which had net income of $10.3 million. This difference is really attributable to two factors. One, the corresponding income was down $2.3 million compared to the link quarter. And the provision was $1.7 million difference from the link quarter. In the current quarter, we had a provision for 850,000. And in the lean quarter, we had a credit to our provision to our allowance for $880,000. So if you take a look at these two items, 1.7 million and 2.3, that's $4 million, which on an after-tax basis is $2.8 million. And as I mentioned, we were down 2 million. So, you know, but for those two, our income would have been higher in this quarter. And I will, as we go through this presentation, I will talk about those two, why they were down. I'd like to also talk about the quarterly loan activity. And this information is on slide seven, eight, and 26. First, we had record originations of $181.7 million. with a yield of 7.85% on our originated loan portfolio, originated national loan portfolio, which benefited from both increases in the prime rate and increased interest in fees collected upon payoff of some loans. So that was 7.85% on the originated yield. We had purchases of $77.5 million, and the yield on that, or the return on that, was 7.1%, which was meaningfully lower than in the link quarter. The link quarter, that number was over 9%. I don't have it exactly here, but over 9% in the June 30 quarter. And the difference of that, which is substantial, 210 basis points, is due to a lower level of income from accelerated accretion and fees. In the current quarter, that accelerated accretion and fees were 86 basis points, and it was just a little bit less than 3% in the linked quarter. And so why is that? The why is it part is because we had less payoffs in the current quarter, which in a lot of respects is a good thing, because it's kind of good and bad. So if you get an early payoff, you generate more accelerated income, and so your return is higher. But on the other hand, the loan pays off, and then you don't have that loan to generate interest income in the following quarters. And so that's the good and the bad news. But it did have the impact of the effect of having the transactional or the accelerated accretion fees lowered by 210 basis points. On the point on loan payoffs, this was our lowest level of payoffs in 14 quarters. If you measure the amount of payoffs compared to the total purchase, I'm now talking about the purchase loan book. For this quarter, that ratio was 5% doing some rounding. And if we go back and look at the average for the prior 14 quarters, it was about 8%. So we had substantially less payoffs, which generated, as I've explained, less transactional income. But our loan book is growing because those loans weren't paid off. In terms of the loan portfolio, national lending portfolio growth, if we look at the link quarter in our national loan portfolio, it increased $167 million, or 13.5% increase from June 30th, 2022. If we go back and look a year ago, loans increased in our national loan portfolio by $412 million, or a 41.6% increase in our loan book over the last year. That's quite substantial, a loan increase. And so now I'm going to segue into the corresponding fee income and how we're replacing that reduction in income with net interest income. And I'm going to refer to slide 29 in these comments. First, Our base net interest income, and by that I mean our interest income before any what we call transactional income or accelerated accretion or those things, was for the quarter $22.6 million compared with $20.1 million for the linked quarter. So our base net interest income quarter to quarter increased by $2.5 million or 12%. because our loan portfolio is growing and we're benefiting from a higher rate interest environment. You know, then if we look at the corresponding fee, that's been declining, you know, every quarter. In the current quarter, it was 1.4 million compared with 3.7 million for the linked quarter. So it decreased by $2.3 million. So just to compare those two numbers, Our net interest income increased by $2.5 million, and our correspondent fee income decreased by $2.3 million. And so this answers the question that investors raised when we generated so much capital from the Triple P activity. And knowing that the Triple P income had a shelf life, When that goes away, can you replace that by growing your balance sheet? And we are doing that as evidenced by the numbers that I just described. On asset quality, slide 10 remains strong. Delinquencies were $14 million or a little bit less than 1% of total loans and non-accrual loans. were $13.7 million, and that was 93 basis points, or 0.93%, I should say, of total loans. So those are, given our line of business, very strong numbers. And then finally, I think the biggest news to come out of all of this, which occurred in September, where we disclosed that in the month of October, we purchased in multiple transactions a total of $303.6 million of UPB of loans, which will increase, obviously increase our loan book from October going to the end of October. We just recently closed on it going forward, which will be a benefit in subsequent quarters. And with that, that ends the formal part of our presentation, and we are here to answer any questions that you might have.

Thank you. We will now begin the question and answer session. If you have a question, please press star 11 on your touchtone phone. If you are 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 star 11 on your touch tone phone.