Northeast Bank

welcome to the northeast bank fourth quarter fiscal year 2024 earnings call my name is stephen 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 exec executive officer richard cohen chief financial officer and pat dignan exit executive vice president and chief operating officer Prior to the call, 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 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, 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 risks 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'll now turn the call over to Rick Wayne. Mr. Wayne, you may begin.

Thank you. Good morning, everyone. Thank you for joining us on the call. During the call, I'm going to first give some, go over some highlights for the quarter and the year. our view of what the year has looked like. After I finish my comments, Richard Cohen is going to talk about funding and our ATM. And then Pat is going to talk about loan activity and share some thoughts on what we see in the market. And then, as you've just heard, we'd be happy to answer any questions. First, just some thoughts on the quarter and the year. We think it was a really strong year and a strong quarter. Almost in all the metrics one would look at, our loan volume was very strong. Our margins, our NIM was very strong. Asset quality held up really well. And of course, Our return on equity at 17.46% for the year is impressive, as is the ROA at just a little bit under 2%, 199 for the quarter and 198 for the year. Let me just highlight a few things that I'm now referring to on page three. With respect to our national lending, the purchase loans were 160.6 million of UPB at a purchase price of 89.4% for an investment of 143.6 million. And for the year, 382 million invested with upb of 432.4 million at an 88.4 percent purchase price on the origination side we originated in the quarter 114 million and for the quarter and the shade under 400 million for the year at 399.1 million the um I want to just talk for a second about rates and move to page 22 in the slide deck, which takes a look at what we earned in the rates in the quarter. And this is a slide that shows what is both regularly scheduled interest and then plus normal accretion plus accelerated accretion and fees. First, starting with the purchase loans, The regularly scheduled interest and accretion was 843, and we picked up another 104 basis points from accelerated accretion for a total of 9.47% on the purchase loans. And on the originated loans, the regularly scheduled interest, not accretion on that was 9.65% and three basis points for fees. So overall, we earned on our loan book for the quarter 9.55%, which is, we think, an excellent number, generating a NIM for the quarter of 5.13%, which is consistent with what we did during the year, which was 5.16%. Richard will talk about the ATM, as I mentioned. We earned in the quarter $15.1 million and $58.2 million for the year, which is pretty even income each quarter. One of the prior quarters was a little bit lower as a result of some incentive comp that we accrued earlier than we normally do, and we discussed at the last call. on a per share basis, fully diluted $1.91 for the quarter and $7.58 for the year. I did mention the ROA. The ROA was $16.56 for the quarter and $17.46 for the year. You know, interestingly, if we take a look at the first And that's a result, that difference is, I should add, is a difference because we have a lot more capital now. For the quarter, we earned $15.2 million in the first quarter. In this quarter, we earned $15.1 million, so virtually the same amount of money. But our capital was $312 million in the first quarter, and now it's $377 million. And so with same dollars on more capital, I would just remind those that have been investing with us for a while, this excess capital sounds reminiscent of all the capital that we had after the triple P. And of course, we got questions about how we were going to deploy it. And we wound up buying a billion dollars a quarter, a million dollars of loans in the fourth calendar quarter of um 2022. um i'm not predicting that we're going to do that um but i um and pat will touch on this a little bit more we are of the view there are a lot of opportunities to purchase loans um and without over promising of course they're binary transactions you win or you don't win and so we'll see what happens but we are optimistic about what we see in the marketplace. And and also in the highlight section, you can see that our tangible book is $46.34. I do want to comment on asset quality as well. Our asset quality remains strong, which I think is particularly impressive in light of that, you know, virtually all of our loans are commercial real estate loans, which have been under some level of concern, you know, kind of across the board. You read about it in the paper almost every day. You know, in our case, we have relatively low loan to values, you know, in the very low 50 percent range. And that has It's been very good for us. I just want to find a page on the essay quality at the back. Becca, you have the other one. This is real live. We're doing this, so I can try for the page flipping as I'm getting there. But I will. Thanks. Well, rather than taking a lot of your I'm here while I now have it. Thanks, Rebecca. You can see that on page nine, the nonperforming assets, we still get a fair number of resolutions. We started the quarter with 28 million and $3 million of nonperforming assets were resolved. And then we added 4.6 million so they come and they go and that's what you would expect you know from our purchase loan book and so um you know those numbers uh remain to be strong for us um with that i would ask richard to um follow great thanks very much rick um pat's going to pick up the section on the loan so i'm going to focus primarily on the deposit side in terms of the 2024 financial year our deposits increased 402 million dollars

That is an increase up to $2.34 billion from its previous level of $1.94 billion. The most significant trend on the deposit side is our deliberate substitution between borrowings and increasing our brokered CDs. I referred to this on our previous call, and we continue to do so. So for the financial year, our brokered CDs are up by $241 million to a level of $871 million. whereas our borrowings are down $217 million to a level of $345 million. The reason that we're doing that, to reiterate, is we want to increase our capacity for off-balance sheet funding. Our community bank, to close off the picture on the deposit side, the community bank is up $219 million to a level of $1.4 billion. Taking a look at the cost of our funding, you can refer to slide 15, which refers to the quarterly costs. It shows you the rates for each of the quarters historically, as well as the current spot rates. I think what's worth pointing out over there is that the cost of deposits you will have seen rising steadily from the 2023 financial year right through to the end of 2024. What's noteworthy, though, is that the spot interest rate at the end of our financial year decreased to 4.26%, from its average for the fourth quarter of 4.36. That's an indication, of course, that rates are coming down, and I'll speak about that next. We're very careful to focus on our interest rate risk in the banking book. We continually monitor and manage that to make sure that we're not excessively exposed to rates going up or down. We get a lot of questions about what will happen in a rates down environment, and the answer that we give is that we are likely to benefit from a decrease in interest rates, There are a few reasons for that. The first one is that we have certain flaws on our originated loans. Secondly, of course, our deposits will reprice and therefore reduce the cost of funding. In other words, you'll see us move in the opposite direction to that indicated in slide 15. And then finally, there's a prepaid benefit. As rates go up, prepayments may increase. If that does happen, that will accrue to income. And Rick has referred to some of the uplift we get in terms of our revenue from that perspective. Having said all of that, we do not deliberately position ourselves to take excessive exposure in either direction because we're conscious that rates cannot perfectly be predicted. I refer you also to slide 19, which you may find interesting. That speaks about revenue and non-interest expense. I think what's most noteworthy about that, if you look at the chart, is it's a very useful visual way to see that our revenue is growing faster than our operating expenses. expressing that differently you will have seen that we regularly report our efficiency ratio and you will have noticed a trend on that which is for that to improve over time i'm going to turn quickly to the atm you'll recall and as i mentioned in the previous quarter the atm is where we sell shares in the open market and we do so in order to raise additional capital so as to increase our common equity tier one the reason we do that is as pat will refer to we see opportunities in the market And we see the ATM as one of the tools that we can use to raise capital to allow us to take advantage of those opportunities without putting undue stress on our capital adequacy. Speaking quickly of the ATM, the ATM, when we initially commenced it, we had a $50 million capacity. $27 million of that has been utilized to date in both the current and prior financial years. We therefore have $23 million left in the ATM. To speak about the activity in the fourth quarter, we sold 150,000 shares at an average of $55.13 on a net basis per share. That added $8.3 million to our capital for the quarter. Speaking quickly about the year, the ATM for the year added 29 cents per share to our tangible book value. Let me hand over to Pat Dignan. Thanks, Richard.