Northeast Bank

Good day and thank you for standing by. Welcome to the Northeast Bank fourth quarter fiscal year 2023 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today, Rick Wayne, CEO, please go ahead.

Good morning and thank you all for joining us today. 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. I'm going to reference in my comments the investor deck that was uploaded last night, starting with slide number three under the heading financial highlights. For the quarter, we purchased $48.8 million of loans with a UPV of $54.3 million. Make a few comments on that volume. Typically, the June 30 quarter is not the busiest in the year. And if you go back and look at all of the quarters from over the last five years, pretty close to the highest amount for that quarter. It was a $19 million increase over the March 31 quarter. And when we take a look at the activity, and so always back up, so that I think is a pretty good number. Absent the large transactions that we had in the fourth calendar quarter of 2022, it's more or less the runway we've been for many years. We did see during the quarter some big transactions that had come to market, and that is generally true. The bid-ask is pretty wide between sellers and buyers, and so it didn't meet our pricing expectations. Therefore, we didn't bid on those. We would expect, based on what we see in the market, that the gap between the bid and the ask will narrow and there'll be more opportunities to take a look at those. We originated $84.2 million in the quarter as well. Our originated loan book, which is, and was therefore, you know, our balances were fairly flat with the link quarter. But over the year, our originated loan book increased $229 million, or 30%, from the balance on June 30, 2022. What we're seeing is, I would say, general comment on the market. While 84 million is a good number, it's less than we have done in the earlier part of the fiscal year. You know, I just think there's less transactions in the marketplace right now. Again, a bid-ask gap in a different context. And, you know, we're also, well, we're always careful, as evidenced by the zero charge-offs to date in our originated loan book. We're being even more selective now as we're looking at potential transactions. Just some base numbers. The ROE was 16.7% for the quarter and 16.5% for the year. ROA was 1.7% for the quarter and 1.9% for the year. Our NIM was up 16 basis points from the linked quarter to 491, and we ended the year with tangible book value of $38.69. So all in all, we think it was an excellent quarter and year. Let me just drill down a little bit on asset quality, which is on slide eight. Delinquencies were only $13.1 million or $52 million. basis points on total loans and non-accrual loans were $15.7 million or 55% excuse me, non-accrual assets were $15.7 million or 55% of total assets, also very good. And you can see on slide nine, there was a movement in the non-performing asset category We had 4.3 million of resolutions, and then we put on an additional 5.5 million. So to the link quarter, it was up about a million dollars, but not meaningful in terms of the size of our balance sheet. And the numbers are solid with a low level of non-performing assets. On the funding side, the average cost of our deposits was up 36 basis points from the previous quarter. I should also point out on deposits, ours are 95% insured between a combination of having deposits under the $250,000 amount and also using Intrify and Reach and Tang with two-way sweeps to insure any of those that are over. So 95% insured, obviously a very good number. And we have seen almost no one-off of the normal course activity in our deposit accounts. On slide 21, the non-interest expense was $16.4 million. in the quarter, which is $2.6 million over the lean quarter. But $2 million of that was incentive comp booked in the fourth quarter, which is what we typically do when we see how the year was. We have, I think, a really instructive set of new slides in the book. You know, when we meet with investors and others, it's almost the first question that comes up is around our portfolio of office loans. And so we have in the slides, which Pat is going to walk through, a lot more color on those slides to help you get a sense as to the quality of those loans. And our plan is to do that over the next quarter or two for all of the major food groups of commercial real estate, including retail and hospitality, multifamily, industrial, et cetera. So you won't just be looking at one number, but you'll be understanding much better the nature of our portfolio. So with that, Pat,

Thanks, Rick. Recently, we've gone through and harvested a lot of data on our real estate portfolio, particularly in the office space, and broke the portfolio down by a number of different factors. We thought that the best way to illustrate the flavor of office collateral that we have was to illustrate by the number of floors. What we typically tell investors is that the vast majority of our office portfolio is comprised of low-rise buildings with local tenants. That is tenants serving a local neighborhood or community as opposed to more traditional office space that is in central business districts or office parks, that sort of thing. And so as you can see from the first table, the vast majority of our office portfolio is in buildings with less than five floors. 189 of the 247 loans are below $1 million with the remainder above and just 10 loans that are higher than $4 million. Four stories, actually. The other question that we get frequently from investors is concerning the maturity of those loans. Many articles recently have talked about the CMBS debt that's maturing over the next year or so, over a trillion dollars, and the potential inability of those loans to refinance. And as you can see from the table on slide 12, About 54% of our office portfolio is maturing in the next three years, but the current interest rates on those loans are such that they could refinance at today's rates. On slide 13, we've illustrated all of the loans secured with office space that are above $3 million or 1% of capital. This comprises most of the dollars. And as you can see from this slide, most loans are, again, low rise. There's geographic diversity, low dollars per square foot, and relatively high occupancy.