Northeast Bank

Welcome to the Northeast Bank second quarter fiscal year 2025 earnings call. My name is DeeDee 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, Richard Cohen, Chief Financial Officer, and Pat Dignan, 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 1-1 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 will now turn the call over to Rick Wayne. Mr. Wayne, you may begin.

Thank you very much, and good morning to all of you listening on this call. I'm going to start going over some of the financial highlights and other important matters during the quarter. And following my comments, Richard Cohen, our CFO, will then spend some time going over certain important financial matters. And following Richard's presentation, Pat Dignan, who is our chief operating officer and importantly, our chief credit officer, will discuss the loan activity in our various loan lines, including purchases and originations from our national lending group. and also SBA activity. And following all of that, we would be happy to answer any of your questions. Let me just start off by saying we think it was a really great quarter. You will hear in some of the matters I highlight on the financial highlights, which is page one of the investor deck, that there were many records broken in this quarter. And so with that, let me begin to point out that we had $361 million of loan volume, which included 14 million invested on approximately $15 million of UPV on purchase loans. And Pat will comment on the lumpiness of purchase activity and why we think we should look at that on an annual basis much more than quarter to quarter. Now you'll hear of a record on originations. We originated $246 million in the quarter. And again, Pat will provide some commentary about what the, what the pipeline looks like for us. We also had another record in SBA origination activity where we originated $100.3 million of SBA loans, of which 64.5 million were sold. I should point out that that was not necessarily production in the quarter, some of it related to originations in the prior quarter. But those loans sold generated a gain of $5.6 million. I want to also point out that our net income of $22.4 million was a record quarter for earnings, excluding the third quarter of fiscal 21, where we had significant income from the sale of Triple P loans. So, if you exclude that, 22.4 million was a record. Another record is our base net interest income, which was $45.6 million for the quarter. Another record, as I mentioned, tangible book value, for the quarter increased by $4.49 or 9% since September 30, that is since the link quarter, of which it was broken down $2.74 from basic earnings plus the benefit of stock sales, which were sold at a price higher tangible book value, which increased the tangible book value on a per share basis by $1.75. If we go back and we look to the increase in tangible book value from June 30th, which is our fiscal year end, or six months from the 1231 quarter, tangible book value increased by $5.95, or 13% over that six-month period. I guess, again, also a combination of earnings per share, which for that time period, the six months was 496, and also the benefit of selling stock. And at the end of the quarter, Richard will talk about this much more. Our loan capacity based on our capital was $856 million at the end of December, or as they say, a lot of dry powder. I'm not sure that's a good metaphor anymore, but $856 million of loan capacity. I want to spend a few minutes talking about asset quality, which of course is near and dear our hearts, I say our, those at the bank and you who are investors. And we had a few, on page seven, I'm looking at some information there. I'm not going to go through each of the four slides. I point out that the ratio of nonperforming assets to assets and nonperforming loans to loans have declined from the linked quarter nonperforming loans to total loans are 84 basis points down from 106 basis points. And to the chart to the right of that on the same page, classified commercial loans have declined from 31.1 million to 26.6 million. That is one point I wanted to make. If we go on to page eight, you can see that non-performing assets declined from $37 million to $31 million, a little rounding there, or a reduction of about $6 million, or roughly 16%. largely due to the payoff of two loans totaling $5.7 million. And then I want to go to page 12 and point out that we take a look at the weighted average seasoning of our loan portfolio. This is on our purchase portfolio is $5.2 million. 5.2 million years. That's a long time. 5.2 years. And you can see we've now added one more column to what you have seen previously where we divide up the years. We've added a breakdown. We used to be just everything from 2019 forward. Now we break that down to 2019 to 2021, and then 2022 and later. And you can see that only 17% of our purchase loan book was originated 2022 or later. And 83% was previous to 2021. And you can see it's broken up by the columns. And with that, I would ask Richard to begin. Thank you, Richard.

Thanks very much, Rick. So I'm gonna speak about two principle themes. I'm gonna speak about interest rates as well as the bank's growth capacity. As far as interest rates are concerned, we have mentioned on previous calls that we monitor our interest rate risk in an effort to remain relatively neutral if rates were to increase or decrease. What has happened is we have been slightly positively benefited from the fact that rates have decreased. In particular, as you'll see on slide 15, Our average cost of deposits for the second quarter was 4.15%. Contrast that with 4.34% in the prior quarter. In other words, the average cost decreased 19 basis points quarter on quarter. What we think is worth pointing out is that the spot cost of funding as at 1231 is 3.89%. That then is down a further 26 basis points. We have noted in the past and continue to see that as our liabilities reprice, they do so with a delay, but we are relatively well matched in a rates down environment and have seen that play through in our interest rates and our net interest margin. Turning now to the two key aspects that will enable the bank to grow responsibly should the opportunity arise to add quality assets at a favorable rate. Those two factors are liquidity and capital. Let me start with liquidity. Our liquidity position improved, which in turn enables scope for growth. As at December 31, 2024, our on-balance sheet liquidity was sat at $430 million. That's an increase compared to $379 million as at September. Importantly, our off-balance sheet capacity sits at over $1 billion, and that is up very significantly and in turn helps in the event that we have an opportunity to add loans, whether through purchase or origination. Turning now to the second piece, which is capital, our leverage ratio sat at 11.2% for the quarter, and our total capital ratio sat at 13.9% as at the end of the quarter. This was a healthy level of capital, which enabled us to gross significantly, particularly in light of the fact that at the end of September, we had a significant increase in our loan portfolio due to the material purchases that took place at that date. The reason for the healthy capital, notwithstanding the significant growth in the book, arises, as Rick had said before, from both the ATM at the money offering as well as our retained earnings. Speaking about that in particular, we have been approved for a further $75 million of ATM of which $69 million remains to be utilized as and when the opportunity comes forth. From a loan capacity perspective, Rick has already mentioned the $856 million, and that capacity increases as we retain earnings and continue to grow. In summary, should the opportunities present themselves, we're comfortable that our liquidity as well as our capital will enable us. Let me turn over now to Pat Dignan.