Northeast Bank

Welcome to the Northeast Bank Third Quarter Fusca Year 2023 Earnings Conference Call. My name is Livia and I'll 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 Dickman, Executive Vice President and Chief Operating Officer. Yesterday, an investment 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 the 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 reply calls on the website for future use. 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 star 11 on your touchtone phone. As a reminder, this 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 management and are subject to risk and 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 send the call over to Rick Wayne. Mr. Wayne, you may begin.

Thank you, Lydia. Good morning to all of you on the call. Before we talk about the specifics of our results for the quarter that just ended, I wanted to just make a few comments in light of the recent pandemic. of failures of silicon valley bank and signature bank and kind of the main points that are are out there um you know one i want to talk about our deposits first we have 2.13 billion dollars of deposits at march 31 and this is important of which 92 percent are insured and three percent of our deposits relating to hold back accounts are in restricted accounts. So we only have 5% of our deposits that are uninsured and at risk. Not that anything is going on with them, but we are just uninsured and not in restricted accounts. As soon as the news broke around those two banks, we contacted all of our deposit customers in descending order based on balance to offer full insurance on their deposits through IntraFi, which is formally promontory. And some of our, most of the customers, you know, either had it or took us up on that. And then if we look at the deposits quarter to quarter, our deposits decreased by $106 million from 12-31 to March 31. But of that, $100 million were broker deposits, which we paid off. So really, no change. Really, no. None of our customers are thinking about taking their deposits out now, something we are obviously pleased with and proud of. A second issue that I want to compare our bank with what happened to some of the other two. Those banks wound up having a mismatch between their deposits and their investment portfolio and invested in longer duration treasuries. So they didn't have credit risk, but they had interest rate risk. In our case, we've had a different approach which is to only invest in one- or two-year agencies. Our investment portfolio has a weighted duration of 13 months, and currently the unrealized loss is only $860,000 pre-tax with $620,000 after tax. So to sum up those points, Our deposits have remained sticky, and we do not have any meaningful losses, hardly any at all, in our investment portfolio. I did want to compare us, as I have. Second thing, I now want to go through some of the financial highlights on page three. And we have a very wholesome slide deck that we I'm only going to highlight certain pages and then, of course, answer any questions that you might have. First, just some basic stats. It was really a great quarter. Our net income was $12.5 million, which excluding those quarters in which we had sold Triple P loans and had gains from those that is our record quarter of net income for us. That's $1.69 fully diluted earnings per share, a return on equity of 18.5%, it's a very big number, 18.5%, and a comparable ROA of 1.8%. Our tangible book value at the end of the quarter was $37.02, growing a little bit less than $2 from the December 31 quarter. We also sold 160,000 shares of stock under our ATM at the market offering at an average price of $42.78. And finally, our loan volume was purchased and originated $144.5 million. Turning to slide six, I do want to talk about what we saw for activity and volume in the quarter that just ended. First, with respect to purchase loans, we purchased $21.5 million of loans, which is certainly much lower than the preceding quarter, where we had the very large purchases of around $1 billion. But the first calendar quarter, March 31, our third fiscal quarter, is commonly a low-volume quarter. If you look at going back a year, we had that. It was 23.9 million a year ago. Now, occasionally it's higher. But, you know, we did see less volume in that quarter. And our originated loan book was we originated 117 million, which was also lower combination of seeing less loan requests and also being more selective. I say more selective because we're all selective, but just being even more so now, so you can see that. Of course, 144 million is still a very good number. It's not as strong as it's been in the preceding quarters. If we go to slide seven, you can see the distribution of our portfolio And I want to just point out that only 13% of the portfolio are loans that are more than $15 million, and 9% are loans between $10.5 million, which means that 78% of our portfolio are loans less than $10 million or less. And again, we have a concentration in New York at 35%. 30% in California, and 5% in Florida. So that's 70% in those three states, and then you can see on the chart the rest of them were in 44 states. Sometimes, this is just a fun fact, people ask which states are we not in, and it's only because we haven't had an opportunity. But in case you were wondering, it's Hawaii, Montana, North and South Dakota, Tennessee, and Vermont. Other than that, we are in all of the other states excluding those. If we move to slide eight, these are asset quality metrics, and quite strong. You can see that at the end of the quarter, The ratio of non-perform loans to total loans is only 58 basis points, which if we go back to June 30, 21, it was 180 basis points. So two things are occurring. The numbers are only up a little bit, but on a much bigger balance sheet. So we're seeing the benefit of that. We move to slide 15. We have a few comments about our deposit costs and our deposits on slides 15 and 16. I think I want to highlight, one, the average cost of deposits for the quarter was 323, and the spot rate, that is to say the rate on March 31 was 335, and it's not on this slide, The spot rate at December 31 was 303, so it's kind of 32 basis points in the quarter. On slide 16, we break out the source of the deposits by channel and the rates. You know, first I want to highlight that if we were to aggregate those in the banking center, which is $615 million. I'm doing some rounding. To our national lending customers, which is $61 million. Able Banking, which is $35 million. And the holdback, which are primarily reserve accounts. That is a total of $776 million out of $2.13 billion, or 36%. I highlight these because these have lower rates, a weighted average rate of 138, but the balance of the deposits, the other 64% are in higher rate products and what we are focusing, and I should say have a weighted average rate of 451. You know, I would point out that as those roll over, you know, the increase will be nearly as much as it had been in the past as we have added those in our funding. If we go to slide 19 and we take a look at our revenue compared to our expenses, the revenue was $33.4 million for the quarter, which increased $3.3 million from December 31. But expenses remain reasonably flat. They only went up $100,000 quarter to quarter. So that's obviously a good thing. If we can grow revenue that much and manage our expenses. If we go to slide 21, you can see that We have discount on our purchase loans of a shade under $190 million, of which $166.5 million is accretable, which we bring in steadily over time. In the non-accretable portion of $23 million, we recognize when a loan pays off. That's a lot of discount on our books, a lot of income that we'll be bringing in over time. And then if we go to slide 24 and look at our net income for the quarter, which was 12.517 million, I mentioned that that was the highest amount of net income if we exclude those three quarters where we had gains from the sale of Triple P. And I believe if we go to slide 25, and we look at first the blue bar on the left side of the page, you can see that our base net interest income was $29 million. So that doesn't include transactional income. And that number alone is higher than total net interest income for each of the four preceding quarters. And so we're really seeing the benefit of a larger loan book as a result mostly from the purchases that we made in the fourth quarter that the impact that's having on our income statement. Those are the comments that I have. I should mention that JP LaPointe, our Chief Financial Officer, is here with me as Pat Dignan, our Chief Operating Officer and Chief Credit Officer. He's a double chief. So we're all here to answer any questions that you might have.

Ladies and gentlemen, We will now begin the question and answer session.