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Welcome to the Northeast Bank First Quarter Fiscal Year 2026 Earnings Call. My name is James, 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; Santino Delmolino, Corporate Controller; and Pat Dignan, Chief Operating Officer and Chief Credit 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. [Operator Instructions] 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, and good morning, everyone. As I go through this presentation, as we go through it, I want to just outline what the agenda will be for this morning. I'm going to first go over some highlights for the quarter and dig a little bit deeper in some of the material that we had put out yesterday. And after that, Pat will discuss the lending activity, and Santino will go over the financial results for the quarter. Finally, I want to make a few comments on Richard Cohen, who is moving on after tomorrow after almost 2 great years at the bank. So first, as to the highlights. We consider the quarter very strong. We had net income of $22.5 million, a NIM of 4.59%, return on equity of 17.64%, a return on assets of 2.13% and diluted earnings per share of $2.67. And finally, within a whisker, if that's a technical term, I don't think it is, actually, of $60 of tangible book value at $59.98. I want to comment first on loan activity. Purchases were strong. We bought loans with UPB of $152.7 million at an invested amount of $144.6 million. Now as you know, in our past, we have had 2 very large quarters where we purchased large transactions, the first in the second quarter of our fiscal year '23 and the second one in the first quarter of fiscal year '25. If you exclude those very large purchases, this would have been our second largest purchase quarter going back 3 years and probably longer. I just looked at the material for 3 years for this. One of the things that we are frequently asked in investor calls and otherwise is what does the purchase pipeline look like? And with all of the caveats in the forward-looking statements, specifically, we may buy a lot or we may not buy any. It's transactional. I would say that the purchase pipeline is as large now as we have seen in quite some time. A lot of it triggered by M&A activity and some balance sheet repositioning by other holders of commercial real estate loans. We have both the capital and the human resources to do the appropriate diligence on the amount that's out there, and we will look at every -- virtually every opportunity that is within our parameters. On originations, we did $134 million with a little rounding this quarter. I would point out that there is some seasonality to the origination business. We went back and looked 4 years ago, and we only had one first quarter in our fiscal year, which was in Q1 of '23 that had a higher amount of originations, $182 million. That meant, obviously, that for -- out of the last 4 years, 3 of the quarters, we did not do as much origination volume as we have done this quarter. And our origination pipeline is also quite robust. I now want to comment briefly on the SBA activity. This quarter, we funded $42 million, and we sold $53 million of loans that, of course, include some that were originated prior to this quarter. As we discussed in the July call, there were changes made to the SBA rules, which suggested and we indicated that we would have lower volumes in some number of quarters to come. Because we had less closings, we had less sales and because we had less sales, we had less gains. The gain in the linked quarter was $8.2 million compared to $4.1 million for the current quarter. And that difference of $4.1 million amounted to $0.34 diluted EPS. I think it's very helpful to understand that. We expect a few things to happen. Of course, one, at some point, the government will reopen. Pat may touch on the impact of that for us. And we now have -- absent the government closing, we have been seeing a ramping up of the volume that was temporarily diminished for the reasons that I described. Finally, a few comments on asset quality, which Santino will expand on relative to our balance sheet size. Overall, our loan book was pretty flat. Our purchased loan book increased by $31 million and our originated loan book decreased by $39 million. Because for purchases, the allowance comes out of the purchase price typically rather than booking a provision and because our originated loan book decreased, as I mentioned before, the amount of the allowance also decreased. And finally, I want to make a point on the timing of transactions. As I said, our loan book was mostly flat but our average loan balances were down $92 million compared to the linked quarter because much of the activity around purchasing and some originations occurred late in September. So that had an impact on interest income in the quarter. But for the reasons I described, it bodes well for the future because our average loan balances were higher. And with that, I will now ask Pat to talk about our loan activity. Pat?

Thanks, Rick. We had a solid loan activity this quarter, especially for the summer months, as Rick pointed out, the real estate and financing markets are very active. And while this is fueling more loan payoffs than we'd like, it's also creating a lot of opportunity. First, another note on the SBA business. The $42 million closed is comprised of 286 loans at an average rate of 11.7%. Although we saw increasing volume in each of the 3 months of the quarter and felt like we were making real progress toward our volume targets, the government shutdown essentially halted any new originations since October 1. We continue processing loans in the hopes of funding soon after the government is reopening. So we won't be wasting any time with that. But obviously, it's out of our control. Meanwhile, we're very optimistic about our new insured small business loan product with annuity, which is off to a great start since launching on October 1 with about $10 million closed since then. In our purchase business, we bought 522 loans in 7 transactions with $153 million of principal balance and a purchase price of $145 million or just under $0.95. These were mostly smaller balance loans with no real concentrations of note. Five of the 7 transactions were from loan funds, one from a small bank and one from a national insurance company. As Rick pointed out, over the last few weeks, we've seen a significant uptick in purchase opportunities, mostly from M&A activity, which is likely to continue for some time. This is a lumpy business and no guarantees will win at all or any of it, but the sheer volume of new opportunity is very encouraging for the next several quarters. In our origination business, we closed $134 million, which included 22 loans with an average balance of $6 million, LTVs just over 50% and an average interest rate of just under 8%. While lender finance product continues to dominate the origination business, direct loan opportunities have picked up significantly. The belief from borrowers that interest rates will come down over the next year is fueling new transactions and at the same time, creating an aversion to traditional debt, which typically includes significant prepayment protection. Our pipeline is as full as it's ever been, and we expect that we can remain disciplined in credit and still show strong growth going forward. Back to you, Rick.

Santino?

Thanks, Rick. As Rick mentioned, this was another good quarter for the bank. We had earnings of $22.5 million or $2.67 per diluted share. ROA was 2.1% and ROE 17.6%. Total assets ended the quarter at $4.17 billion, which is down slightly from $4.28 billion at June 30. Loans were flat as purchases of $145 million and originations of $134 million were offset largely by paydowns and payoffs. Much of these purchases and originations occurred at the tail end of the quarter, so you'll see our average balances are down quarter-over-quarter, partially -- which is partially impacting our lower NII for the quarter. The excess cash we carried on the balance sheet at June 30 was put to use during the quarter to pay down our brokered CDs. So you'll see some shrinkage in the deposit portfolio as well. Capital remains strong with Tier 1 leverage at 12.21% and tangible book value came in just under $60 a share. Switching focus to the P&L. NIM was strong this quarter, coming in at 4.6%, resulting in pre-provision net interest income of $48.2 million, down from NIM of 5.1% in the prior quarter and pre-provision net interest income of $59.4 million. Decrease here is largely a result of heightened transactional income that we saw in Q4 fiscal year '25. Additionally impacting that is the higher average cash balances we carried during the quarter, which while accretive to net interest income did compress NIM a little bit. Provision for loan losses was a credit this quarter of $435,000, as Rick mentioned, which is due to a few things: one being less loans put on the balance sheet that required a provision as well as a slight decrease in the allowance coverage ratio. This is largely a factor of our continued strong asset quality, particularly in the originated loan business. From an SBA front, we had gains on sales of $4.2 million on sales of $58 million compared to $8.2 million in gains on sales of $108 million last quarter. As Rick and Pat previously mentioned, this is largely due to rule changes at the SBA back in May, which we previously disclosed the projected impact on this -- on earnings. On the expense side, we continue to be disciplined while strategically investing in our people and in technology that set up the bank for long-term success. Rick, back to you.

Thank you, Santino. And now we would welcome any questions that you might have.

[Operator Instructions] Our first question comes from Mark Fitzgibbon from Piper Sandler.

Rick, I wondered if you could share with us. I noticed in the press release, you said there was a change in the cost structure arrangement with annuity, I assume over the SBA stuff. Could you share with us how that structure changed?

Yes. So we put out an 8-K on this back in last October. So beginning October 1 of last year, the cost structure changed where instead of a split in the gain on sale with annuity, they're charging us a flat fee on a per loan submitted basis. So that structure has been consistent for the past 4 quarters now. It's really just in comparing to the quarter end September 30, 2024, it was different.

And then just how do you think we should be thinking about gain on SBA loans for the fourth quarter? I mean, assuming the government opens up maybe halfway through the quarter, can you kind of get back on track and get to a volume level that looks something akin to what you had in the third quarter?

A little bit hard to say that, Mark, because there's a bunch of variables. I could say that starting in that we were seeing, and Pat mentioned this, we were seeing a ramp-up in SBA activity each month in the past quarter, which is what we expected to happen as both from a technology perspective and retraining those at annuity that are doing the first cut of underwriting and then our team as well. And I think if absent the government shutting down any of those things that happened, we probably would have been reasonably comfortable saying that by the end of this calendar year, we would have been up to where we were. But the reason there's less certainty about saying it now is what will the ramp up -- one, how long will the government be shut down? Because now it's essentially other than doing as much as we can do, there are critical things that we cannot do while the government shut down. We can't get an SBA number, and we can't get tax transcripts and we just can't get the loan to close. And how long that will -- that ramp-up will take, it's hard to say. I would say this reasonably comfortably that once the government is reopened over some number of months, let's say, 6 months. This is really an estimate because I don't know this for sure. We would expect we would get back. There's no reason to believe there won't continually -- continue to be large demand for that product. But there are a bunch of variables that would impact that.

Okay. Fair enough. And then it looked like there was a decent linked quarter increase in professional fees. Anything unique in there?

A couple of things impacting that. One is just some temporary employees for folks that we've had out on leave during the period. So that aspect of it shouldn't continue on a go-forward basis. We've also seen -- we had some heightened legal fees in relation to the new growth term loan product, the insured loan product as well as just general increases in professional fees period-over-period.

I want to just use that as a jumping off point, if I can, Mark, and others on the call because I want to comment about Richard before -- I don't want anyone to leave the Q&A before I've had a chance to say this. And the triggering thought to that was what Santino just said because we had hired a highly experienced auditor to come in and help us as we got through getting our financials. That's why that was more expensive. But as everyone knows, a while ago, we announced that Richard would be leaving the bank at the end of this month. This will be the last time you'll hear him in this room, I suspect he may, because he's still a stockholder, he may call up and be a really aggressive questioner, but we'll have to see about that. But I want to make a few points clear on this. One, Richard left on his own. I tried to talk him out of it almost every day, but unsuccessfully. Richard came to us. He moved his family boldly from South Africa. He was formerly a partner at KPMG. He came here without a job and not knowing much other than visiting from time to time the states, not knowing exactly what he would do. We were lucky that we were able -- first, we hired him as a consultant and then in this role, he's really done an extraordinary job for us. He grew a lot in the job. And this sounds like cliche because this is what people always say when someone leaves. In this case, it happens to be very true. He's really liked by everybody, he's respected by everybody. He added a lot of value to us, and he will be missed. I just want to add one other thing because 2 things can be true as I suggested to the Board yesterday, Richard can be all of those things, but we're lucky we have a deep enough bench, and Santino, who was our controller, could step right up. And Rebecca Jones now Rand, married name, sorry, Rebecca, who is our Director of Accounting, will be here, and we've hired a new controller. So we still continue to have a very, very -- and lots of other people in the accounting and finance roles. We have a very, very deep bench. But I just wanted to be clear about Richard that he's going out to start some business he's figuring out. And I suspect at some point, I would bet that he'll be wildly successful. I am not going to say bet, I'm not going to invest in it, but I believe he will be. Richard, do you want to say anything before we.

I really do. Thank you, Rick. I mean it's been a very difficult decision to leave the bank. I'm immensely privileged to have been part of this fantastic organization. I'm equally immensely grateful for the relationships that I have with all of you, the investors, with the Board, with the leadership of the bank, with my team and with the incredible staff here. I so thoroughly enjoyed the culture. It's an amazing place to work. The bank is solution-oriented. It's focused. It's a warm place to work, and it's a very open environment. Maybe the last thing I'd like to say is a very special thanks to Rick and to Pat and to the Board for their faith in me for the close relationship that I have with them personally, which will continue into the future. And my very best wishes to Tino and to my fantastic team in whom I have immense confidence. I leave you in very, very capable hands, and I intend to stay very close and in contact with the bank over here.

Thank you for that, Richard. We're clapping, you can't hear us. Thank you, Richard. Mark, I apologize for jumping off on that, but I wanted to make sure those things were said and heard.

Richard, congratulations and best of luck in your new role. And Tino, to give you an opportunity to swing to the fences here, can you tell us what the margin is going to look like next quarter?

Almost, almost. No, we generally don't give guidance on margin. The real challenge, as you know, is with the transactional income, it can be really lumpy just depending on which loans pay off during the period.

Here's a stat we don't mention often, but we have $207 million of discount on our purchased loan book. And what happened last -- for the linked quarter, we had more primarily, because of one big transaction. But -- and it's hard for us to know when there are going to be payoffs. And some loans have very significant discount. Most of all what I described is interest discount from loans that we bought at a discount because of interest rates, but that's always out there. So it's hard for us to say -- to predict what our margin will be because that's really the piece of it that is unpredictable and can be significant.

Our next question comes from Damon DelMonte from KBW.

Richard, good luck with your new endeavors. Just a quick question on the -- NDFI lending has become kind of a hot topic in the industry in the last couple of months, and you guys do a lot of similar financing in that regard. Just kind of curious how you're feeling about the quality of the people you're with and the underlying assets and if you're seeing any signs of stress or there's any concern from your seats?

I assume you're talking about that...

Well, yes, but like the lender financing you do in general. I mean the items in the news have been tied to subprime auto lending. But I think just overall, just kind of how do you feel about the health of your lender financing portfolio?

We've heard from a few investors concerned about that recent fraud issues that were in the news, specifically the case where a title policy was doctored to improve the lender's perception of a lien position, resulting in significant credit deterioration when the truth was revealed. And our approach is and has always been a trust but verify. In the lender finance business, obviously, our borrower is the lender, and they are collecting documents from their borrower. And so I think oftentimes, we're getting that documentation secondhand. And so we have developed over time -- there's no way to 100% protect yourself from fraud, but we've -- we believe we're doing all we can to prevent this type of issue from happening. We do complete third-party background checks on all borrowers, funds and principles. We do independent verification of lien position and title insurance. We hold all the original loan documents in custody. We do daily monitoring of all court and recording activity relating to our borrower, the underlying borrower and the underlying collateral. In fact, it's fairly frequent that we will know that there's been a lien or some judgment on the underlying collateral and these usually minor things before our borrower does because we monitor it so closely. And we have very robust monthly reporting from our borrowers that show all activity, loan payments and communications with the borrower. So I think the short answer is this is a business that you just got to stay very, very closely on top of, and I think we do.

In addition to what Pat just said, apart from potential fraud risk, it's not really the same business we're in. I know it's loan on loan and some people may consider that to be indirect financing and maybe that's true in some sense. But in another sense, it's totally different. We underwrite every single loan. So virtually all of our transactions are structured into bankruptcy, remote, special purpose entities with carve-out guarantees generally for any fraud or something that's specified in the documents, but it's a guidance line underscored. Meaning somebody comes in and they have a line with us and they want to take an advance under that line, we have to approve that advance, and we underwrite that loan right next to him. And so it's very different, totally different than some kind of a warehouse line where a borrower can borrow based on a borrowing base certificate without the lender focusing on the actual credit like we do, is totally different what we do. So to answer in a word, and we're very comfortable with our asset quality. And especially, as you know, from what we include in the material, the low LTVs throughout our whole book.

Right. Okay. That's great color. That's kind of what I was looking to hear. And then I guess just on the loan growth, obviously, pipelines for both purchased and originated sound like they're pretty healthy and you have some strong optimism to close out this calendar year and going into next year. Just wondering if you have any visibility on the payoffs thus far this quarter to kind of help give us some perspective as to what the net growth could be for loans outstanding for the quarter?

I'll just make a general comment. Let me ask Tino to fill in if he has the information, he's saying no. This quarter, we had, I would say, a larger amount of payoffs than we typically have. And kind of something that is surprising is usually when you have large payoffs, in the purchase space, you tend to have more transactional income. But in this quarter, we had larger payoffs and we didn't have as much transactional income as I would have estimated at the beginning of the quarter. We purchased $145 million. We can just think through this live and Tino or Rebecca will correct me when I go wrong here. We purchased -- invested $145 million in our loan portfolio on purchase did what -- what was the net change in it, Tino or Rebecca?

Net change. Purchase is up like 20 -- I don't have the number right in front of me, but on Slide 3...

So $24 million. So that would say we had $122 million of paydowns and amortization. That is high for that. And I think that in an interest rate environment that is declining, we would expect payoffs to increase. When somebody didn't have a better offer on the table, they wouldn't refinance just for the support of it. But historically, we've seen in lower interest rate environments, we have seen more payoffs. And so I would kind of -- I'm not saying it will be more than the $120 million we had this quarter. This quarter was particularly high, but we had some loans that we were -- sometimes when you have paydowns on the purchase in particular, it's a good thing because you have loans that we think are teetering. Teetering may be too strong, but loans we would be happier if they were out of our portfolio. And we made an effort, and it was either last call or the one before, we took a look and we provided detail on where we thought there was risk in the New York multifamily portfolio based on rent stabilization and the possibility of an administration change going forward. And we've made a concerted effort to reduce our exposure in the area of rent-stabilized or rent-controlled portfolio for that reason. So I think that was kind of a big chunk of why the purchase -- the payoff around purchase book was a result of that. And just on that topic, as it relates to originated loan, one thing we're seeing is we're seeing borrowers now negotiate much more strongly for getting rid of floors or having a floor that is -- typically what we like to have is the floor set at the rate when we originate a loan, but for borrowers, that's not market anymore. So we're seeing some lowering of the floor also. That sounds very pessimistic in terms of loan growth, but that's not my intention because we would expect both our originated loan book based on what we know that's in the pipeline. And with the caveat I said about purchase loans earlier, you win or you don't win, but there's an awful lot out there. We would expect -- I got to give another caveat, but I won't. You get the point that we would expect a fair amount of volume and opportunity in both of those spaces.

Got it. Okay. That's good color. I guess just lastly on the tax rate that came in lower this quarter. Is that just a function of taxable income? Or is there something -- I know there was like some state law changes. Does that like carry through for the next year?

Yes. A few things there that are impacting our tax rate this quarter. There were 2 state law changes that had pretty significant impact. One, Massachusetts, we're now paying very little taxes in the state of Mass because of their apportionment law changes. California also changed their apportionment laws, which has caused -- which offset the decrease in Massachusetts a little bit. We're paying more in California now. And the third piece is in Q1 of the fiscal year is when we have all of our stock vests and grants. So to the extent that tax -- the fair value of the vest exceeds what we booked for book expense on that restricted stock, we get a tax benefit for that. So with where the stock price was at the date of vesting this quarter, we saw a pretty good tax pickup on that front as well. That won't be recurring through the rest of the year. So on a go forward, we're expecting the effective tax rate for the rest of the year to be somewhere in the realm of 31% to 32%.

[Operator Instructions] Now I will turn the call over to Rick Wayne for closing remarks.

Thank you for those of you on the call -- I'm sorry, no. Thank you for those who are on the call for listening. Thank you, Damon and Mark, for very thoughtful questions. And again, thank you, Richard, for your work, your friendship, your professionalism, so much appreciated. And we will talk to you again at the end of January. Thank you all. With that note, we will say goodbye.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Hello, and welcome to the Northeast Bank Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce CEO, Rick Wayne.

Thank you, and good afternoon to all of you that are listening to this call. With me Pat Dignan, our Chief Operating Officer and Head of Commercial Credit for the Bank; and Richard Cohen, our CFO. After I make some comments, Pat will follow up a lively conversation about our loan book, both about commercial real estate loans and the SBA and some very helpful information about our multifamily portfolio in New York City. I think you'll find all of that quite interesting. And after Pat's comments, Richard, Pat and I are available for any questions that you might have. Let me start by looking at Page #1 of the investor deck that was uploaded yesterday. My opening comment and headline for the quarter, it was a great quarter. On all cylinders, it was a great quarter. I'm going to highlight a few things about the quarter and perhaps a few other items about the year because our fiscal year ended June 30. So it's a big quarter and also a year-end for the quarter. First, net income was $25.2 million. Now as indicated in the earnings release, if we exclude the quarter in which we had a large sale of PPP loans, this was a record $25.2 million, excluding the kind of onetime or 2 time it may have been during the year. Sale of this of PPP loans, $25.2 million was a record. It's something we're very, very proud of. If I take a look at the loan activity for the quarter, all originations and purchases totaled $362.6 million for the quarter and $2.1 billion for the fiscal year. The breakout of the loan volume for the quarter was $41.7 million invested in the purchase loan book purchases of $44.4 million of UPB at a purchase price of 93.8%. That's $41.7 million. On the originated side, very substantially, we had $216.6 million. The weighted average rate as of March 31, for the loan book was 7.99% or we can call that 8%. For the year, we originated $807.9 million. On the SBA front, very strong. We originated $107.3 million for the quarter or $408.5 million for the year. We sold $107.6 million for the quarter, which you may be asking how could that be if we originated $107.3 million or a slightly smaller number. And the answer to that is that some of the sales in Q4 related to loans that were originated in the preceding quarter. And the gain on the sale of those loans sold was $8.2 million. All in, counting everything, our net interest market -- margin was a very strong 5.1% and the return on our purchased loans was 8.76%. We did not issue any shares under the at-the-market offering, which had availability at the end of June of $65.4 million. And our loan capacity, something we pay a lot of attention to at the end of June was $1.1 million. Earnings per share basic was $3.06 and fully diluted was $3. Return on equity was a strong 20.73%. Return on assets was a very strong 2.38%, intangible book value per share at the end of June was $57.98 or $58 of tangible book value per share with a little bit of rounding. I now want to just talk about a few slides, which I hope that you will find interesting. First, on the asset quality metrics. The allowance for credit losses over gross loans was 1.28% at the end of June, which is up slightly from March 31 at 1.23% and up very substantially compared to 2 years ago at June 30, '23, when the allowance was 0.29%. On Page 20 is a slide that shows our revenue for the quarter our noninterest expense. And I would want to point out that total revenue includes net interest income before provision and noninterest income. So you can see in the group of bars at the far right in the quarter level Q4 FY '25, the revenue for the quarter was $62.7 million. And again, if we look back at preceding quarters and carve out the gain from the sale of PPP loans, that was also a record revenue and noninterest expense for the quarter was $21.5 million, which you can see on here is higher than in the preceding Q3, Q2, Q1 and Q4 of FY '24. The reason for that is that in the quarter, we had a true-up of our compensation expense, which had a big impact, but we're still growing pretax net interest income, which was $41.2 million, I should be more specific. Total revenue, as I've described, minus noninterest expense of $41.2 million. And again, excluding the quarter in which we had PPP was a record. If we now go to Slide 21, I want to point out that our NIM was 5.1%, substantially higher than the preceding quarter and primarily due to the fact that we generated a fair amount of transactional income in the quarter. And if you look to the charts on the right, you can see that our average loan balance for the June 30 quarter was $3.767 billion comparing favorably with the linked quarter at $3.650 billion. If we go to Slide 22, I just want to highlight that in the last quarter, we have $216 million of discount for the quarter ending June 30, of which $179.1 million is the interest rate mark and $36 million is the credit mark. I will remind you that we don't really suffer historically, have not separate many dollars in credit losses in this portfolio. And on Slide 25, we take a look at net income for the trailing 5 quarters. And you can see that at $25.2 million for the June 30 quarter, we are substantially ahead of the proceeding for trailing 5 quarters. And I think with that, I will ask Pat to talk to you about our real estate, our portfolio or SBA business. Pat?

Thanks, Rick. It was a strong finish to the year. The loan portfolio grew by 36% overall with purchased loan growth of 43%, originated growth of 27% and SBA growth at over 200%. For purchases this quarter, we bought 14 loans in 4 transactions, which brought purchased loan volume to $863 million for the year. There's a lot of purchase loan opportunities currently in the market, and we expect a lot more to come this year. There's also a lot more competition in the space, more capital, cheaper leverage and with larger pools being the most competitive. Having said that, the purchased loan market is large, and we will continue to look at every opportunity, be active but disciplined bidders and expect to win our share. In our origination business, we closed 24 loans with an average balance of $9 million secured with a variety of collateral types and LTVs just over 50%. Like last quarter, most of these loans were in our lender finance product, which continues to show strong demand from nonbank lenders who are being squeezed on yield with all new capital entering the market and then more and more desiring of leverage. We expect lender finance to continue dominating our origination business into next quarter as competition for direct opportunities continues to heat up. In the SBA business, we originated $107 million of loans compared with $121 million in the linked quarter. On last quarter's call, we discussed that the SBA had tightened their eligibility requirements effective June 1. So the impact from those changes on volume this quarter is somewhat muted. Recall, we anticipate a temporary dip in SBA lending volume over the next quarter or 2 due to a smaller strike zone at the top of the funnel and more required documentation and longer processing times for new loans. As we adjust to these changes, volume could dip as much as 50% this quarter. Fortunately, the market for small business loans is enormous, and we remain very positive about this line of business and believe we will continue to be a national leader in small business lending. Finally, a quick note on asset quality. We've been watching the New York City mayoral race and are aware of its potential impact on rent controlled and rent-stabilized multifamily properties. So we thought we'd share some detail on our multifamily exposure in New York City. Referencing Slide 11, we had $676 million of total multifamily exposure in New York City as of 6/30. Of that, $378 million has no rent controlled or rent-stabilized units. We've divided the remaining $297 million into 2 buckets. First, $214 million, where there is some exposure, but where we believe it could be very low risk, given the collateral's ability to continue demonstrating strong debt service coverage even in the event of a rent freeze. And second, $44 million, which excludes $39 million that paid off in early July, spread across 7 loans where our rent freeze could impact debt service coverage, if in place for an extended period of time. It's our view that our focus on low LTVs will provide a significant buffer against any headwinds from this issue. We also believe New York City will remain one of the strongest multifamily markets in the country and provide a lot of opportunity for us going forward. Back to you, Rick.

Thank you, Pat. That was excellent. Now if there are any questions, we would be happy to entertain them.

[Operator Instructions] And our first question comes from the line of Mark Fitzgibbon with Piper Sandler.

Just first, a couple of clarification questions. Pat, regarding your comments on the SBA declining by potentially as much as 50% in the third quarter. When does that snap back do you think? Is that a fourth quarter event? Or is it not until next year where you see SBA volumes come back and you sort of adjust to the new process?

It's hard to say exactly. I believe we will climb back both from -- in this particular product, and we're also looking at adding new verticals to our table. But there's a number of factors involved in the top of the funnel. First of all, the SBA has decreased the cap from $500,000 to $350,000. So that excludes a lot of borrowers right there. They also increased the credit -- minimum credit scores for borrowers, which excludes a lot of other borrowers and they've added -- and there's been some deterioration of credit generally in certain sectors due to the tariffs and other economic factors. So that's going to require us to change the annuity to change the marketing efforts at the top of the funnel to be more surgical about attracting the right kinds of business. Keep in mind that this market is enormous. And so we have no doubt that we'll be able to do this. It's just a question of how quickly we can set this up. And then on the processing side, there's new collateral requirements and new capital requirements, which requires a lot more documentation and information collection from borrowers and verification, and that's just going to take longer. So you've got some adjustment at the top of the funnel and not a longer processing period, and it will take some time before we catch up to that slowdown. So we don't want to overstate or understate what we'll be able to do. But again, this is an enormous market. And we -- the same issue is affecting every other lender, and we're pretty confident that we'll be able to navigate through it.

Okay. Great. And then secondly, I was curious if you could sort of size for us the pool of loans that you're looking at today for loan purchases. How does that maybe stack up versus this time last quarter?

There's a lot of activity out there. And we -- while we purchased $41 million. We bid on a lot more than that in the June 30 quarter. We saw a lot of action, and we see a lot of action now which is a good sign because a lot of times, the summer is a little lower. We also see more competition now on some of the larger transactions that are out there from some of the bigger banks that are buying -- these are big transactions I'm describing. They're buying in securitizing. In the field, we mostly play in, there's a lot for us to look at and underwrite and bid. And so we are optimistic about it. Maybe a little bit before your time, Mark, when Alex was at Piper Sandler. But for a lot of years, our purchase volume was in the range of $150 million to $2 million. And in fact, our origination business was greater. No guarantee on this. I won't bore you by reading the forward- looking statement. But we're expecting kind of the base business that I just described will continue. And if we're able to buy a large transaction sometimes referred to as a whale, then we'll -- it will look more like it did in the preceding years were in September of '24, we bought $700 million in December of '22, we bought $1 billion. And so we will wait and see. But that's a long answer to your question, which is there's a lot of volume, a lot of activity out there now.

Fair enough. And then, Rick, you had mentioned there was some transactional income in the net interest margin this quarter. Could you tell us how much that was, how much it impacted the margin?

I can tell you that. I'm now looking at Slide #11. And you can see there was a -- for originated loans, there was a total of $4.094 million of transactional income, which is pretty high for the originated book. It stem from a loan we had made 6 or 7 years ago that had been on nonaccrual for quite a while and we got paid in full on that loan, which generated a lot of interest income, which we're categorizing as transactional.

So if we were to back most of that out of next quarter's numbers, we'd be in the ballpark for what you'd expect the margin to look like?

Yes. Well, that was worth what I just described was worth 1.4% on the return. And so if that came out, it would be 8.55%. But I don't think it's the right way to think about it is going to 0 because we always have some. That just happened to be a loan that has been around for a while and shout out to our brilliant asset manager, Chris Hickey, resolved that credit really thoughtfully and creatively.

Okay. Great. And then thank you for the information on Page 11. It was really helpful. Just one question on those elevated loans, the $44 million. Should we read into that, that the loans that are either classified or may sort of migrate to nonaccrual or be potentially problematic or not necessarily?

Not necessarily. There are loans that given the -- they're in Northern Manhattan where rent increases have not kept up with expense increases. And all the $2.5 million of those are performing -- most of the $2.5 million is performing as a loan where it's really not a cash flow issue. It's the borrowers fighting with each other. But the -- right now, these loans are cash flowing and there's not an issue. I was simply pointing out that if there turns out to be a rent freeze on rent control or in stabilized units for more -- for an extended period of time, these are properties that are vulnerable to compression on cash flow, and we're going to keep an eye on it. But right now, there's nothing -- no concern at all.

Okay. And then just one last quick one. On the effective tax rate going forward, is it -- Richard, does it kind of migrate back to sort of 36.5% on a go-forward basis, would you say?

No, it's a good question. So there have been a few moving parts on the effective tax rate, mainly about state taxes, and there have been some changes in both California as well as Massachusetts. Massachusetts tax rate for us was favorable. The moving to one factor. And in California, the movement to one factor was increased our tax. Those 2 were relatively offset, we think as it stands, 33% to 34% seems expected.

[Operator Instructions] Our next question comes from the line of Matt Renck with KBW.

Matt Renck filling in for Damon DelMonte. Just as a follow-up to the SBA income. I was just wondering in the next couple of quarters, is there any offset on the expense side as volumes are lower? Or what you have to do on the back end of the new processes kind of outweigh any reduction in volume?

I'm happy to take that. So a fairly significant amount of the cost would be variable. In other words, if the income was to reduce. So as the cost -- so the loan expense would fall if the volume in SBA were to fall. I think that's the short answer to your question. We've obviously got some fixed costs that relate to the SBA business for example, in the payroll line, and that clearly would not change.

Okay. Great. And then just a follow-up. I mean, you guys are pretty efficiently run bank. Just kind of curious if you're investing in any new technologies, whether it be automation or different types of processes that you see driving additional efficiency gains over the coming years?

It's a timely question. We're going to do that and going to in the current year in a fairly major way.

Just as a follow-up, in a fairly major way, does that mean you expect a big uptick in expenses? Or do you think you'll be able to leverage it at all kind of work itself out in the efficiency ratio?

I think our expenses will increase. We just have made a very significant hire in the role of innovation chief or Chief of Innovation so that we're going to be able to take a look at the workflow in all areas of the bank. And I would expect that we'll have some more hires in that area as well as some investments in technology. As we have a better handle on what that might be, we will cover that in a subsequent call, not necessarily the next one, but we'll have disclosure around that.

And I'm showing no further questions. So with that, I'll hand the call back over to CEO, Rick Wayne, for any closing remarks.

Thank you, Mark and Matt, for your thoughtful questions and others for dialing in and those that listened to the call on our website after today, thank you as well. We look forward to talking again at our next meeting, which would be in October -- towards the end of October. And on that note, I wish you all stay cool. We're in New York City today. It's very warm. And I wish you a nice week and a nice weekend as when it approaches. Thank you very much. And operator, we are all set.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Welcome to the Northeast Bank Third Quarter Fiscal Year 2025 Earnings Call. My name is Victor, 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; 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 & 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. [Operator Instructions]. 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, and good morning to all of you. I first want to make an observation about the quarter, which is, we think it was a very strong quarter. We did $400 million and I'll do a little bit of rounding for this $414 million of loan volume, of which $74.6 million was purchased, $218 million were originated loans, which was the second-best quarter for commercial real estate loan originations that we have had, the highest being the preceding quarter. And the SBA volume was $121.3 million, which is up from about $100 million in the linked quarter. I'd point out that our net income of $18.7 million is $4.8 million higher than the quarter a year ago and $3.7 million lower than the linked quarter, which is December 31, '24. I'll refer to it as the linked quarter sometimes. We had ROE of 16.47%, ROA of 1.86%, and our tangible book value grew to shade under $55 at $54.84. Seems kind of funny that I would say that this was a really good quarter, given that we were $3.7 million less of income compared to the linked quarter. And I want to just point out some things that caused that to happen, which some of which, a lot of which are just related to the quarter for reasons that you will hear as I go through this. First one is net interest income is down $2.5 million from the linked quarter. These are pretax numbers I'm talking about now. And there are really two reasons for it. One, we had less accelerated income from loan payoffs on our purchased loan book. That's lumpy. That number could be in any couple of quarters go up and goes, it was never below zero, but it go up or go up more or maybe not as much. But whatever doesn't get accelerated is income that we'll recognize as we hold the loans. And this is one you may not have thought of, but in the quarter that just ended, it was 90 days in the quarter, as compared to 92 days in the prior quarter, and that's difference of about $800,000. So, I pointed out that net interest income was about $2.5 million, and we've identified $2.3 million of it. Non-interest income was $6.6 million in the current quarter, or $700,000 higher than the linked quarter, primarily due to SBA gains. The SBA business has been, the volume is increasing. I'll talk about it a little bit more in a few minutes. And on the non-interest expense side, for the third quarter, unlike the first and the second, we booked $1.3 million of incentive comp, cash incentive comp, which we true up at this time. So, that was something in the third quarter that was not in the linked quarter, offset by to the positive by a few other items. I also want to take a look at the tax expense, of which we had some charges this quarter that were not recurring. Our tax rate went to 36.7%, compared to 33% in the prior quarter and probably year-to-date through December 31. There were a few items in there that are not recurring items. We booked $400,000 of expense due to the change in the Massachusetts tax law. We discussed this in previous calls, but once that's fully enacted, the mass tax law, it goes in effect July 1, our mass tax liability is going to go down. But in the meantime, this number gets adjusted. The other is, we are in, we filed tax returns in 35 states, and we trued up the state tax liability later in the year in this quarter for a cost another $300,000. And finally, there was because the incentive comp included some 162 m and other items, there was another $250,000 for that. That's a lot of numbers that I put out, so let me just put a headline on that. The income was down compared to the linked quarter, but there's three or four reasons that none of which go to the quality of our core business. There are items that, to a large extent, just occurred in the third quarter for the reasons that I described. I do want to make a comment on our SBA business. You may recall those of you that have been, have heard these calls for a while that when we started, we said we're going to build this with annuity. We don't know whether there'll be customers that will be interested in this. And so, we're not setting expectations at all was our intention. And then, it started to increase significantly. If we take a look at Slide 14 in the deck, which I am getting right now. Slide 14, this is a slide that shows the growth in various components of our SBA business going back one year. A year ago, Q3 '24, we originated for the quarter 330 loans and the quarter that just ended, we originated 1,069 loans. We are one of the highest, if not the highest, SBA lenders by units. I'm not saying by dollars, but 1,069, I believe, makes us number one. If it's not number one, I don't want to overstate here, it's certainly in the top two. And our volume at $121 million is also one of the leaders, not the number one, but I want to say within the top 10 or so. And the volume in dollars went from $29 million to $121 million. And the loans that we sold, you can see, went from in $18.9 million to $73.6 million. So, we have seen very, very substantial growth in that activity. In terms of our provision, we a significant part of the $2.9 million was attributable to the SBA, where we increased the allowance by 40 basis points, compared to the linked quarter was previously about 3.20% -- 3.2%, now it's about 3.6%. So, we provided some more cushion in there. And for those reasons, we think even though the dollars are less, in terms of earnings, it was a very, very strong quarter that we will continue to build on. And with that, Pat has some great things to say about our loan book.

Thanks, Richard. This was a very good quarter for lending with solid purchase and origination volume and another record for our SBA vertical, whereas Rick pointed out, we closed just over $121 million of loans, up from $100 million in the linked quarter. The SBA has recently revised their regulations, returning to those in place prior to 2023. These changes include a cap for small balance loans of $350,000 rather than $500,000, increasing minimum credit scores and adding new requirements for collateral and loan documentation. We view most of these changes as positive from a credit perspective, but recognize that they will require some adjustment on our annuity’s technology and processes. This could mean a bit of time for us to adjust, but we feel very strongly about the growth looking forward. We remain very positive about this line of business, both in the existing loan program and with potential new small business loan products. For purchase loans, we bought 52 loans in three transactions with gross balances of $79 million and a purchase price of $75 million or $0.94 The weighted average LTV on these loans was around 56% at our price, and were mostly small balance with a variety of collateral types and located along the East Coast. Beyond these purchases, we saw several opportunities that ultimately did not trade and a few others that did, but at very thin yields and the buyers moving them into securitizations. We're hopeful that the current pause in the securitization markets, continued M&A activity and liquidity among some banks will create opportunities for us over the next few months. But as we always say, this is a lumpy business, and you never know. In our origination business, we closed $218 million for the quarter. These included 24 loans with an average balance of $9 million secured with a variety of collateral types, LTVs just over 50% and an average interest rate of 8.25%. Like last quarter, most of these loans were in our lender finance product, which continues to show strong demand from non-bank lenders. Looking forward, we have a full pipeline. We are seeing some fear and cautious optimism in the real estate markets, some investors on the sidelines and others viewing real estate as a good inflation hedge. We don't have any more insight than others about where the real estate or lending markets will be over the next few months or how they will impact specific markets or collateral types, but we're patient investors and confident in our ability to source good loans, assess risk and stick to real estate with low LTVs. Also, while we don't celebrate the current market uncertainty, we're aware that opportunities often present themselves in such times, and we're prepared to take advantage of them in the event they do. Rick?

Pat, thank you. That was great. Now, we'd like to take any questions that you might have.

Thank you. [Operator Instructions]. One moment for our first question. Our first question comes from the line of Damon DelMonte from KBW. Your line is open. Damon, your line is open.

Hey, sorry about that, guys. I apparently didn't unmute myself. Good morning, and thanks for taking my questions. So, first question I had was regards to the loan yields that we saw this quarter. It looks like the yield on the SBA portfolio was down pretty substantially from last quarter, as well as like on the national originated and purchased, the national originated loans. Just wondering if you could talk a little bit about what you're seeing, particularly on the SBA side and kind of what the outlook might look like for that and kind of how that would figure into your margin going forward?

Well, all of our SBA loans are priced currently at prime $2.75. At the point, we're going to start taking a look at we were allowed to charge higher rates on some of the smaller loans and we're going to take a look at doing some risk-based pricing on that. So, that, maybe we can, Damon, what are the numbers exactly that you're talking about, so we can be responding to the change in the rate that you're describing.

Yes. I think the yield on the SBA portfolio was like 9.93% this quarter versus 11.6% last quarter.

The, also in the group was not introduced by the operator is our Director of Accounting, Rebecca Rand, who will answer that question for you. Thank you.

Thanks. Yes, so as Rick mentioned, these loans are tied to Prime, and we saw rate cuts in September, November and December, totaling 100 basis points, and these loans reset quarterly. So, a lot of the impact of the rate cuts was not seen in Q2, and we're seeing that more in Q3.

Got it. Okay. That's helpful. And then, as far as like expenses go, was this quarter kind of a catch-up on the comp accruals? And should we expect a similar level, north of $20 million, kind of going forward here? Or do you think that it's kind of a one-time catch-up and it will kind of go back to what we saw for the first couple of quarters of your fiscal year?

Well, we had, the comp is a half of a catch-up. We, in the third, because this is all now on the incentive, the basic comp theory of the bank is we don't pay bonuses once the bank does well, and we need to see how the bank does and to figure out kind of what the bonus will be, the comp committee does. And so, that $1.3 million was a catch-up in the third quarter, and we would expect there, which estimates roughly what we think 75% of the incentive comp will be, and then there'll be another one in the fourth quarter coming up. So, those occur as they were in the past, Damon. They there's a catch-up in the third and the fourth, our third and fourth fiscal quarter. I wouldn't expect we're not, you're probably not going to see that in the going into our next fiscal year.

Got it. Okay. And then, I guess just lastly on loan growth and kind of the outlook there, it sounds like pipelines remain strong, and obviously, bulk purchases are kind of a wild card, can't really predict those. But as far as what your pipelines are showing, you feel like you have good momentum going into the next quarter here and then through the summer months as well?

On the first, on the purchase side, there are some meaningful transactions out in the world. And so, it's, you heard the forward-looking statement, I'm not predicting anything on the large transaction, but that's certainly within the realm of possibility. And then, on the origination side, I would say our pipeline is full. We'll have to see, as Pat mentioned at this point, where all of the uncertainty in the economy does to the origination volume, we'll just have to see. So far, we've got a big pipeline, but there are so many unintended consequences as a result of these tariff and other changes going on. We'll just have to see.

Okay.

We're only interested, of course, this sounds probably hear this from every bank, but they're making good loans. We're not going to -- we won't feel under any pressure, zero, just to put loans on the balance sheet for the sake of volume.

Great. And the discount, I think you had said you paid $0.94 or 94% of par on these purchases this quarter, which is kind of up a little bit from what we've seen. Is that just a shift in the market dynamics, and kind of what the level of opportunities are presenting themselves at? Or is there something unique to this question?

No. The discount, you can't always compare. It's not apples to apples. The discount, which very often is now is interest rate related, if you have a higher coupon, then you're going to have a lower discount and vice versa. So, I wouldn't read anything into that at all.

Got it. Okay. Great. Well, thank you very much for taking my questions.

Thank you, Damon.

Thank you. [Operator Instructions]. One moment for next question. Our next question comes from the line of Mark Fitzgibbon from Piper Sandler. Your line is open.

Hey guys, good morning. Happy Wednesday.

Thank you, Mark. Thank you.

Thank you. Just real quick clarification, I think I may have missed this. Just to be clear, the 43-basis point drop in loan yields on a sequential quarter basis was primarily due to less accretion income, which you think will sort of flow back in, maybe normalize a bit in the next quarter. Is that fair?

Well, I want to be explicit about it. Rick, can you help me with this on the differences?

Yes. So, yes, we had about $1.5 million lower of accelerated income compared to the linked quarter. And as Rick mentioned, that is lumpy and difficult to predict, based on payoffs. So, that's the primary driver. And then, the other was the two fewer days in the quarter, which was about $800,000 or so of the difference.

And we had some lower rates.

And some lower rates.

It wasn't the bigger driver. The biggest drivers are the ones that Becca just mentioned, but there was also some rate reduction also.

Okay. So, when you're thinking about your margin going forward, you think it sort of comes back to what in the next quarter, $4.80-ish? Would that be a good guesstimate?

I think that's probably a good number within, obviously, give or take some. Yes, I would think so.

Okay. And then, next, I was curious if you could share with us what you feel like you have, in terms of balance sheet capacity for loan pool purchases?

We know that. Is that in the investor presentation highlights section?

$807 million.

Thank you.

$807 million.

Yes.

Yes. $807 million through March '25.

Okay.

I'd point out that, I was just going to say, Mark, you know this, of course, but for some of the other listeners, that number gets bigger as we earn more money. And it could also get bigger, if we wound up selling stock under the ATM as well. So, we feel like we're in pretty good shape for opportunities.

Okay. Great. And Pat, I heard your comments about the SBA business and now that it's humming on all eight cylinders, I know you'll have maybe a little short-term decline in origination volume because of the changes at the SBA. But longer term, how should we think about volume ramping up in this business? Is this the kind of thing that volumes could double a couple of quarters out or triple? Or can you help us think about sort of the, how much of that volume you think you can do?

Look, the market demand is massive. I don't think there's going to be any impact on or much impact on the top of the funnel. It's just with more documentation and more collateral requirements, it's going to take longer to close some of these loans than it's going to be. So, there could be some period of time before we ramp back up to where we're currently at. But, and there are other SBA products that we're looking into. So, I think long-term, we're very, very positive and bullish about this program. And I just, the reason I point that out is we had $82 million in two quarters ago, then $100 million to $120 million. And I just want to point it out that that would have been a trajectory, we would have been comfortable with. But just wanted to point out that because of these rule changes, there could be a slight lag in that growth.

Okay.

We'd be reluctant to put out a number, Mark, because other than saying what Pat is, the market is enormous. And we have with annuity, we have some advantages, big head start on great technology to process. There have been a lot of banks that want to do these small balance loans, lot of I's to that and T's to cross to do it. And if you're not doing it in real volume, it's very hard to make money doing a $25,000, seven SBA loan. But in volume, of course, you can. So, I think it's, without putting any number on it, it's possible that this could grow very significantly. And I would point out, but if it doesn't, we're now kind of on a run rate making $25 million of fee income from this, which is pretty good from where we started.

Yes. And we continue to refine the technology. So, every quarter, some of this growth is not just market demand, but our increasing refinement of our processes technology to be more efficient.

Okay. And then, my last question is, do you have an internal limit on brokered deposits? I think it's 50% now of total deposits. Is there a limit you go to?

50% of our assets is our limit.

Okay. Great. Thank you.

Mark, before you go, Mark, just one point on that, related to that. One of the things we've been focusing on is having a lot more on and off-balance sheet liquidity. So, kind of in very round numbers, very round. We have about $400 million of cash and very liquid agency securities. And on top of that, we have about how much capacity, Richard, with the or anyone with the over the -- Federal Home Loan Bank, we have available capacity of $800 million, almost $900,000,000 and with the Federal Reserve around $300 million. So, somewhere about $1.6 billion of on balance sheet and off-balance sheet liquidity.

And maybe just to add to that, Mark, we've spoken on a number of the other tools about the use of broker CDs. And we've been, as you would know from previous calls, we've been on a path of reducing our FHLB, so as to increase the capacity there and bring in broker CDs because, of course, we like the fact that we can term it out and it gives us predictable financing. So, we're quite conscious of not only staying within the limits on the broker fees, which we have a fair amount of still, but we're also trying to balance that as best as we can, very deliberately to keep spare capacity and to have available capacity to add to our broker fees if and when we need to. So, we're fairly comfortable from those from that perspective.

Great. Thank you.

Thank you, Mark.

Thank you. And I'm not showing any further questions at this time. Now, I'll turn the call over to Rick Wayne for any closing remarks.

Thank you for dialing in. Thank you, Damon and Mark, for some excellent questions. And we look forward to talking to you in July to discuss our quarter and year-end numbers and other things of interest. And with all of that, I would say goodbye to you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day. Goodbye.

Welcome to the Northeast Bank Second Quarter Fiscal Year 2025 Earnings Call. My name is Didi, 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. [Operator Instructions] 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 1 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 UPB on purchase loans. And Pat will comment on the lumpiness 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 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 it was not necessarily the 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 2021, where we had significant income from the sale of PPP 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 linked quarter, of which it was broken down of $2.74 from basic earnings plus the benefit of stock sales, which were sold at a price higher than 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 30, which is our fiscal year-end for six months from the 12/31 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 $4.96 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 the 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 to our hearts, I say our, those at the bank and you who are investors. And we had – on Page 7, I'm looking at some information there. I'm not going to go through each of the four slides. I'd point out that the ratio of non-performing assets to assets and non-performing loans to loans have declined from the linked quarter, non-performing 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 8, 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 of the 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 purchased loan book was originated 2022 or later and 83% was previous to 2021, and you can see it broken up by the columns. And with that, I would ask Richard to begin. Thank you, Richard.

Thanks very much, Rick. So I'm going to speak about two principal themes. I'm going to 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. We think it's worth pointing out is that the spot cost of funding as 12/31 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 rate-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 of December 31, 2024, our on-balance sheet liquidity 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 of the end of the quarter. This was a healthy level of capital which enabled us to grow 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 are comfortable that our liquidity as well as our capital will enable us. Let me turn over now to Pat Dignan.

Thanks, Richard. As Rick pointed out, this was a good quarter for us with record volume in both our SBA and origination verticals. For purchase loans, we bought 70 loans in three transactions with gross balances of $14.8 million and at a purchase price of $14 million or $0.91. The weighted average loan to value of these loans was around 55% at our purchase price, and we're mostly small balance with a variety of collateral types and located in 25 states. Although purchase loan volumes were below average this quarter, it really should be looked at annually, as Rick pointed out, and it's not indicative of a diminished appetite on our part or of a slowing market. On the contrary, we saw a lot of purchase loan volume this quarter, including several sizable portfolios in our strike zone most of which were either pulled or delayed by the sellers. There were a couple of larger clean multifamily portfolios that did trade, but a very skinny yields and to groups with securitization exits. We'll see whether this represents a shift in market pricing for larger pools or a one-off for just the right deal at just the right time. In any event, there's a lot of volume out there. We remain optimistic that 2025 will be a good year for loan purchasing. Unlike loan purchasing, loan originations is less lumpy. In SBA lending, we closed just over $100 million of loans this quarter up from $82 million in the previous quarter. This includes 917 loans with an average size of $110,000 and weighted average interest rates 10.85%. Slide 14 illustrates the growth in this business over the past few quarters. And you may note here that loan sales remained roughly flat since last quarter despite a significant increase in loan volume. That's because we had $35 million of loan sales at the end of December that were held for sale. This should normalize over time. NEWITY, our lending service provider continues to refine its marketing and technology efforts and we believe that the current level of lending is sustainable going forward. A level that puts us near the top of SBA lenders national. We're very excited to see this business taking off and look forward to continued growth. In our national real estate lending program, we closed $246 million for the quarter. These included 28 loans with an average balance of $8.2 million. Collateral types included multifamily, hospitality, retail and industrial and generally located in New York, California and Florida. At origination, the weighted average LTV for these loans was just over 50% and average rates were approximately 8.5%. Of particular note is the net growth of the originated portfolio, as we discussed in the past, it's a bit of a treadmill given our higher rates and shorter loan terms, and we've grown the originated portfolio by over 10% in the past year due to both an increase in loan volume as well as a proactive effort by our asset managers to retain maturing loans. Looking forward, we're continuing to see a lot of confidence in the markets from both real estate investors and lenders and our loan pipeline is showing no indication of slowing. Back to you, Rick.

Pat, thank you. Richard, thank you. And now we would be happy to entertain any questions that any of you might have.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Mark Fitzgibbon of Piper Sandler in online with a question. Your line is open.

Hey, guys. Good morning.

Good morning.

Good morning.

A couple of questions. Maybe starting with you, Richard. It looks like you're letting cash balances build a bit, and I can only assume that that's to fund loan purchases in maybe the first half of the year. How do you think that will impact the net interest margin, say, the early part of 2025? And what other factors should we be thinking about as we model the market?

So I can answer part of that, Mark, thanks for the question. As far as cash balances are concerned, we watch that very closely because we clearly don't want to sit with excess cash, but it's important that we sit with sufficient cash on the balance sheet to make sure that we are liquid. So it's not so much that we're trying to accumulate excess cash, but to manage it to an appropriate level. In terms of the net interest margin, the cash balance should not act as much of a gain on that because that, of course, is primarily driven by, a, how the liabilities repriced and the composition of those liabilities as well as whether we fund longer term or shorter term and how much of that is variable versus fixed. On the income side of that, from the asset perspective, there clearly is a difference in the mix of the portfolio as we, for example, purchased lumpy books or put on originated loans, and they've got a different interest rate profile. So I think the summary of what I'm answering for you is we don't think there's a direct link between cash and the likely part of net interest margin. It will be driven by other factors, which are, of course, the composition of assets and liabilities, cash then being held at the appropriate levels.

Let me just add one thing to that. Normally, we run around 8% as our target for cash and short-term investments. And it's not always at 8%, sometimes – and particularly at the quarter end, where we have transactions that we are going to believe are going to close at the end of the quarter. And sometimes they roll over into the next quarter. So I would say the answer is normally at 8%. To the extent we were a little bit higher than that, it most likely had to do with transactions anticipated to close that did not, but we generally run right around 8%, of which we've done for a very long time. So that would be consistent in how the NIM is determined that weighting of the 8%.

Okay. And then secondly, you obviously had a very strong volume in the SBA business. And I know that might bump around a little bit from quarter-to-quarter. But I was curious how you're thinking about your volumes going forward, how much you're willing to grow that business, how much volume are you willing to sort of take on?

Well, subject to the forward-looking statement, which I won't bore you by reading again, we're very optimistic about that business. If you – there's a slide in here that shows the volume going back, I think we have five quarters on there. We were $100 million this quarter. I don't have it – over $88 million last quarter? $82 million last quarter, and then it was much lower in the preceding quarters. The pipeline or as we kind of referred to as the top of the funnel for what we're looking at with NEWITY is very large. Pat mentioned that their technology has continues to improve. And so we think there's lots of opportunity there. I say how much we want to hold, I would point out that from a cap – use of capital perspective, it's really self-sustaining because we generate more gains when we sell off loans only are required to have on the 18% or 20% that we retain. I say 18% or 20% because some loans have an 85% guarantee if they're under $150,000 and then over that 75%. So it's about 18% that we're holding on – and we're holding on to those loans with a good yield. They're generally a prime 2.75%, which is good. And we reserve roughly 3% on the unguaranteed portion that we hold, and there's lots of data from the FDA on these kinds of loans as to what you might expect for losses in the future. We're actually running better than that because our credit box is tighter than what the SBA would permit under their credit scoring requirements for smaller balance loans. Long-winded way of saying, we would – we expect the business is going to grow. We're happy to hold more of the unguaranteed portion on our balance sheet. And we think this will continue to be a meaningful revenue stream for us.

Okay. Great. And then I guess I was curious, what caused the large uptick in FDIC costs this quarter? What drove that?

Primarily balance sheet side, balance sheet growth.

Okay, super. And then, Richard, will you be able to share with us the average price on the 280,000 shares that you issued this quarter?

Yes. I'm just – we're just having a look, give us a second.

We have handlers with us that are providing us information there.

$98.36 is the average price.

It's on the highlight page, Mark, on the deck.

Got it. And then last question, can you help us think about the outlook for expenses? I know to some degree, it depends upon how successful you are with loan purchases and tools, et cetera. But any help there would be much appreciated.

This quarter, it was – what page is that on that was about $19 million for the quarter, which compared to when we get the exact number. So I think – thank you. I have it now. So from memory, not bad, it was $19.1 million this quarter, and the two preceding quarters were – the last one, $17.7 million, $17.1 million. And then prior to that, they were in the $16s million. There has to be a range on this because part of this reflects the extra comp and hiring more people. But I think somewhere between $18 million and $19 million would probably be a good range based on what we know now.

Super. Thank you. Great quarter.

Thank you, Mark, very much.

Thank you, Mark.

Thank you. Damon DelMonte from KBW is online with a question. Your line is open.

Hey, good morning, everyone. I hope you're all doing well today.

Thank you, Damon.

Great. Just to follow-up on the expense commentary. So the higher FDIC costs, I think, Richard noted was basically due to like the larger balance sheet. So should we kind of expect that kind of run rate going forward just given the growth this quarter and then continued growth? Or do you feel like this is kind of an aberration this quarter?

No. So I think it's roughly in the right side. It may come down a slight amount. But...

Okay. Great. And then could you just maybe talk a little bit about your thoughts on the opportunities for the larger loan purchases with the market disruption that we've seen and we've talked about in the past, kind of do you feel that you're kind of in the negotiating stages for some increased activity here in the upcoming quarter? Or do you think it kind of drags out for a little bit longer into the latter part of this calendar year?

It's hard to say. Rick and I have been and others here at the bank who have been in this business for a very long time. And all I could say is that the number of pools that are available that have been – that are out there is a lot. There seems to be a lot of M&A activity, a lot of the larger institutions are looking to reposition their balance sheet. For whatever reason, last quarter, there was a lot of – we looked at a lot, and there was just a bunch of them that just they decided not to sell them at that particular time, whether it's due to pricing or their own logistics. But all I can say is, we're looking at a lot. We're very optimistic given the volume that's out there, but it's hard to say whether or not what the competition or pricing will be when it comes to the day we make a bid.

I just want to amplify a little bit on Pat's comments. One is – and Damon, I'm sure and others, Mark, others, you must see this. There's a lot of talk of M&A activity out there. M&A activity is – typically generates opportunities to purchase loans. Secondly, and Pat mentioned that. And secondly, there's been a lot of equity being raised for banks, which is kind of a new phenomenon with the increased interest by investors in bank stocks and banks – some of the banks that are doing that are using it as an opportunity to reposition their balance sheet, including selling commercial real estate and some loans in some cases. And so we're seeing that. But I think we have to answer your question with some humility because we expect there's going to be a lot of volume. That's our expectation. I also expect that when right after COVID, there would be a great opportunity to buy loans as well. And there wasn't and the commercial real estate loan market held up pretty well. I think one of the things that is really important to understand about our opportunities is that when there are opportunities to buy, put a lot of volume on our balance sheet and single transactions, as you can do with the purchase loan business reminding you that we bought $1 billion in December of 2022 and roughly $800 million in September – late September of 2024. It's a cyclical business. It usually doesn't last forever in such great volume. But we're also building a large commercial real estate loan origination business with good rates, low LTVs and good asset quality. So it's really important to understand our business is not solely loan purchasing. And in fact, if we went back, I don't know, a couple of years, before December of 2022, our loan activity was more like 75% originations and 25 purchases. So we're going to take advantage of the opportunities wherever we find them.

Got it. Great. Appreciate that color. And then just lastly, given the national scope of the loan portfolios. Do you guys have any exposure to California in light of the massive amount of wildfires that are out there?

It's such a great question, and we have such a great answer. Pat?

We have around $1 billion of real estate in and around that area, and we looked at every single loan we had and not a single one of them damaged and all of them with insurance had they been damaged. And that's because if you look at where the fires were and mostly residential areas and also mostly on size of hills and canyons where the brittle vegetation caught fire so quickly. And a lot of the real estate we have is in the more urban areas of Los Angeles. So fortunately, we fared very well in this tragedy. But it's also along with flooding in Florida and other places is on our list of concerns as we look at new opportunities.

So one thing on the fire question, Damon. So we're not unique. It's why all banks do this, of course, when we make loans or buy loans. Our borrowers are required to have insurance for that casualty and we track all of that. And in the event that something slipped through the cracks, we have a mortgage impairment policy that gives the bank insurance protection for any of our borrowers that don't have fire insurance, for example. So it's a horrible tragedy, of course. But as Pat said, we haven't had those – we were fortunate, very fortunate, but if something happened, we have insurance covering all of that.

Got it. Okay. Well, good to hear that. Okay. That’s all I had for now. So, thank you very much for taking my questions.

Thank you, Damon.

Thank you. We have no further questions at this time. Now I will turn the call over to Rick Wayne for closing remarks.

Thank you for that. Thank you for those of you who have listened and those that who will listen when they go to our website to review this. And appreciate your good questions, Mark and Damon. And we always say this, we like to present as much and as helpful information as we can in our investor deck, we've gotten complemented on it frequently for all the transparency we provide. If there's something that you think would be helpful to you and other investors let us know. And if we agree and we can include that, we will. And on that note, wish all of you a good weekend. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.

Welcome to the Northeast Bank First Quarter FY 2025 Earnings Call. My name is Brie, 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. [Operator Instructions]. As a remainder, 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. Good morning. As indicated, I am Rick Wayne, the Chief Executive Officer of Northeast Bank. And with me are Pat Dignan, our Chief Operating Officer, and Richard Cohen, our Chief Financial Officer. This morning, I will cover some of the highlights on page three of the slide deck. I also want to focus on some points on our asset quality, which are on slides 8 through 10, and for the first time a more comprehensive discussion on our small balance SBA program, which is a slide on slide number 15. Included in the deck are the usual slides on our loan portfolio, including loan to value and other information. That's in the deck for you to review. Of course, it's updated for the quarter ending September 30th, but we won't cover that today unless someone has some questions. Pat will discuss the loan activity for the quarter and Richard will discuss our funding strategy, interest rate risk management, as well including the funding around the loan purchase we made in the quarter. Now, moving on to slide 3, without getting hyperbolic, I would say this was really one great quarter. Our loan production of $942 million was the second best quarter in the bank's history behind only the quarter in December 2022, when we purchased $1 billion of loans in a transaction that most of you are familiar with. This quarter, we had $733 million of purchased loans and $209 million of originated loans. From an earnings perspective, again, another really great quarter, we generated $17.1 million of net income. And except for the quarters in which we had PPP loans that we sold, and those were in Q3 and Q4 of our fiscal year 2021, this quarter was the highest level of net income in the bank's history. So broke a few records. A few other items I'd like to point out on the highlight page. We still have $23 million of availability under the at-the-market offering. Our loan capacity as of September 30th was $462 million. That's after the very large loan activity we had in the quarter. Earnings per share diluted were $2.11. Return on equity was 17.53%. Our return on assets was 2.09%. And tangible book value per share was $47.80. If we now turn to the slides on page 8, first of all, I want to point out that well we had an increase in our allowance of $27 million, which went from 0.97% of loans to 1.25% of loans. So we have a lot more coverage now in our allowance. And while non-performing loans increased by $9 million, it's a few number of loans and we estimate at least $7 million will be resolved in the next six months. So that is obviously good. And I do want to highlight in the bottom chart what happened with the charge-offs, which this quarter were 20 basis points. I'm not really focusing on the light green above that for this quarter or last quarter, because as you may recall from previous conversations, those are just balance sheet items. Those representing the green purchase loans where we had a credit mark. And that under a CECL, you're now required to increase the balance of the loan, set up the allowance, and this is the green mark was just simply charging off part of the balance which we did not pay for. But the blue bar below at 20 basis, that's a real number. And I want to point out of what that was because we don't have that many charge-offs. It was one loan out of a pool that we purchased, 194 loans. The total purchase was – had a UPB of $85 million with $4 million of discount. And of all of those $194 loans, of which only 159 remain because there've been some payoffs, only two loans are non-performing out of that total $85 million or 194 loans, including this one. So the whole pool did really well. And this is one loan that we had a charge of on. If we now go to slide 15. I first want to provide some context to this discussion on our small balance SBA loan activity. In August of 2021, we entered into a loan service provider agreement and a marketing agreement with NEWITY to serve as our loan service provider for 7(a) loans, small balance or not, now we're focused simply on small balance. And the reason we started with them, you may recall also that they were our small P partner in PPP lending in which we originated $3 billion and purchased an additional $8 billion from other banks in a transaction that generated significant income for the bank. And based on that, we thought there would be an opportunity to go market to those borrowers, small balance PPP – small balance 7(a) loans, I'm sorry. And when I say small balance, a lot of what we do is under $150,000 or even under $25,000. We do some that are higher than that, but not that many. And I was very cautious when I discussed this, not to over-promise, because we really did not know at all if there would be demand for this product, whether or not we could get the technology working, what our marketing spend would be and whether it would be a good business line. We're very interested in it working as a way to generate fee income uncorrelated to interest income, but we really didn't know. Well, it took a while to get there. When we started this in fiscal 2022, I mentioned it was August 21 that it started and we're June 30 year end, we did 48 loans total for $6.5 million. And in the following year FY 2023, we did 256 loans for $16 million. And for our last fiscal year 2024, we were starting to get some traction. That's for the whole year. We did 1,039 loans for $92.5 million. And now, and the reason, I'm really excited about it now for the quarter that just ended September 30, we did 766 loans for $82.4 million. And I do want to make sure we're giving appropriate credit, not only to our own team at Northeast Bank, but also to NEWITY as our loan service provider. And so, that has already picked up. We also extended our agreement with NEWITY, which previously was going to expire in August of 2026. It was a five-year contract subject to a lot of technical things that are – we have filed a 8-K where we have posted the two agreements that I'm discussing. But generally speaking, it's another five year contract with an automatic renewal for another five years, unless one party opts out. So we now have the basis of, we believe, a very solid business line platform to generate significant small balance SBA loans, as well as fee income on the portion of the guaranteed loans and the part that is unguaranteed, which for the last year or so has been only about 18% based on the mix of loans, those loans yield prime plus 275. So this is an exciting business and we will now continue to provide information on our SBA business each quarter. And with that, Pat?

This is a big quarter for us. We purchased 191 loans in seven transactions with gross balances of $808 million at a purchase price of $733 million or $0.91. These were mostly bank-originated term loans sold for a variety of reasons, but mainly liquidity. The loans are secured mostly with retail, industrial, and mixed-use collateral, and located primarily in New York, New Jersey, and California. The weighted average loan to value on these loans was around 55% at our purchase price, with no loans above 65%. Generally, these loans were purchased at credit and yield levels consistent with what you've seen from us previously. Looking forward, we think they'll continue to be purchase opportunities for us. M&A activity appears to be picking up, and historically that's been our biggest source of loan purchasing opportunity. In our real estate origination business, we closed $127 million for the quarter, a level we believe to be core. These included 17 loans, with an average balance of $7.5 million. Lateral types include multifamily, hospitality, retail, and industrial and generally located in New York, California, and Florida. At origination, the weighted average LTV for these loans was just over 50%, and average rates were just under 9%. Interestingly, about 40% of these loans were direct and 60% lender finance, which is a return to a more historically normal mix between these two loan products. Recall that in the last fiscal year, over 90% of our loan originations were lender finance. We think we became more competitive in the direct lending space as the year went on, because an increase in real estate transactions led to a more confidence around valuation. Others are sharing that confidence. While many banks remain on the sidelines with respect to commercial real estate lending, there's a lot of new capital in the non-bank lender space, and we're starting to see some very aggressive lending as they chase yield. Fortunately, there remains plenty of opportunity in our lending niche. And based on our current pipeline, we're optimistic we can maintain the current level of originations with loans that meet both our credit and yield requirements. Now I'll turn it over to Richard.

Thanks very much, Pat. So I want to just quickly recap what we discussed in the previous earnings call where we spoke about interest rate risk and what might happen to us and how we're positioned in a rates-down environment. I'm going to speak to you quickly as well about prepayments and to remind you of the position the bank is in from a prepayment perspective. I'll speak about how we funded the purchases that Pat just spoke about. I'll speak about our general approach to interest rate risk management, and then I'll speak about what happened in practice once rates fell. A recap on the Q4 investor call. I said at that stage that we would benefit from interest rates falling. And the reasons for those that I gave was because of the floors we have in place over our variable rate loans, the tendency of loans to prepay in a rates down environment, which I'll expand on in a short while, and the repricing of our liabilities, which to some extent is a lag factor. What I also said on that call is that we do not position ourselves for excessive exposure to changes in interest rates in either direction. Our analysis at that stage had said to us that with rates down, we would expect to initially have a compression of our net interest income, thereafter followed by an expansion, resulting on a net basis in a slightly positive effect over the year and in fact the subsequent two years in a rates down environment. One of the reasons that I've just spoken about is prepayment, and I'll speak quickly about that and then I'll tell you what in fact has happened. As you'll see if you look at slide number 22 is we have a $223.5 million rate mark discount. To remind you what that represents, the rate mark is the rate at which we have received a discount off the face value when we purchase the loans. And the reason we receive that is not for credit reasons. It's because the loan was originated at what is now a below market rate, and we purchased the loan such as to produce the return that we are targeting. That $223.5 million will enter our income statement in two different ways. The first way is as an accretion. In other words, with the passage of time, we bleed that discount into our interest income and we earn it over the period of the loan. On the assumption that these loans do not default, these loans would either accrete, or in the event that they prepay, we would take that discount in respect to the loan upfront. The reason why I'm focusing on that is that discount would be a benefit to us in a rates down environment because, everything else equal we expect when rates fall, prepayments increase. In our current approach, the way that we approach interest rate risk is as follows. We have a system in place which forecasts our balance sheet into the future, and it takes into account a number of different scenarios, both rates up and rates down by different amounts, and it also considers both a shock as well as a ramp. A shock being a sudden and significant change in rates and a ramp being a slow progression of rates either rising or falling. That system that we use and run scenarios through had told us that a rates down environment would be favorable to us, but only marginally, which is exactly what we want. If the results said that we would be significantly favorably affected by rates down, that implies we've taken an interest rate position, which we do not do. Our objective in funding is to make sure that we match the best of our ability, the asset side of the book, to make sure that when rates change, there's a commensurate change in the cost of funding. And it's also to ensure liquidity is managed. In other words, for the maturity of the liabilities to match as closely as possible, the maturity or the repricing of the assets. Turning to the purchases that Pat spoke about, that's exactly what we did. We looked at the repricing profile of the book that was purchased, and we matched that profile with brokered CDs and had a laddered approach taking out broken CDs with different maturities to approximately match that of the book. What is interesting for us is to then, in light of the fact that rates fell 50 basis points on the 18th of September, we ran an analysis to see what actually happened to our income and interest expense over that period of time and what that might imply for the remainder of the year. Recall, as I said a short while ago, we expected that initially negative impacts and for that to reverse over the subsequent three quarters. What in fact happened was a pleasant surprise, is that given the rate at which we were able to reprice our liabilities which was better than we had modeled, the net effect in the first 18 days plus the subsequent – the next 12 days plus the subsequent 18 was the quicker repricing of the liabilities. The net effect on net interest income just for that month was relatively flat. So I reiterate what I'd said in the previous earnings call that given the way that we are positioned, we would expect that NII would be positively affected by a rate down environment, but not significantly so due to our approach to interest rate risk. We are attempting wherever possible to be as neutral as possible and not to take a position wherever we can avoid it. I'll turn back to Rick.

Thank you, Richard. And I will turn it back to our listeners to see if there are any questions about what we have covered or otherwise.

[Operator Instructions]. Our first question comes from Mark Fitzgibbon of Piper Sandler, is on the line with a question.

First question I had, Richard, could you just follow up on the margin discussion a little bit? I heard your comments and they were helpful. Would you be able to share with us what the margin looked like for the month of October? Since we're, well, thus far for the month of October?

No, we don't have that information available for October yet.

But it sounds like on balance you expect the net interest margin to be down a little bit in the fourth quarter and then start to sort of flatten out. Is that a fair characterization?

Well, with respect to the large purchase, Pat had indicated that we would expect that to behave as like other purchases in the past. If we go back and look at other purchases, yield on our purchase loan book, in recent vintage, it's been between 8.5% and 9%, roughly. We would expect that to be the case with our loans that we purchased. We don't have a number out for the funding costs, but actually you could easily figure it out. It was about 420, 425 to fund those purchases. So I'm describing now a spread on that between probably 3.5% and 4%, I think is a reasonable number for the spread we would expect to earn on the large purchase volume. On our originated loans that we put on the balance sheet, our originated loan portfolio for – it is on page 3. It's almost 9%, 8.85% on what we originated. And you can do this same analysis with respect to the cost of funds on that.

Can I add one more thing there quickly, Mark? Turn to slide 16, that may also give you some insight in terms of your question. So slide 16 talks about the impact of the cost of funds for the first quarter being 4.34% and dropping to 4.18%, which is a point estimate at the end of the month. Remembering that 16 basis point drop does not reflect all the other liabilities that will be priced. So merely in those 12 days, there was a 16 basis point reduction in our cost of funding. As I said, that would take some time to come through with some lags and would not reflect the impact of brokered CDs as those roll and reprice.

Changing gears a little bit on the loan front, I guess I was curious, are you seeing a lot more loan pools today than you have in the past? Has the volume of that picked up? And in that same vein, I was curious if it's likely we'll see another big loan pool purchase, say, in the next couple quarters or do you think it's more likely that you'll sort of digest what you just put on?

Well, the volume of loans for purchase is quite typical. There've been periods going up, we've been at this for a long time. There are periods when there's a lot of activity and there's periods where there has not been. We're seeing a lot of activity in the market, but that's not to say we're necessarily going to have a lot more in our balance sheet. We're optimistic, but it's binary, as you know. You bid, you win, you don't win. But it's been pretty busy for quite a while. As to whether or not we could expect another very large purchase, very hard to say. There are certainly large pools out there. But whether we bid on them, whether we win on them, I don't want to provide a false hope we'll see. Certainly looking at a lot.

I would just add that the loan sale advisors that we speak with frequently are all slammed. They're very busy. Again, that doesn't necessarily mean it will translate to actual opportunities because there's a lot of tire kicking in this business. But they're as busy as they've ever been. And I'd say one thing that is new and interesting is the number of single loan. There seems to be a growing number of banks/non-banks selling single loans, which we haven't seen in a while, has been pooled for quite a while. This is interesting, in that it's a different kind of opportunity where we think we can be competitive on the size. So whether or not there's more whales out there, we hope so, but you never know.

In that same vein, I guess I'm curious what your thoughts are on adding to the ATM or doing sort of a spot capital raise to take advantage of some of these loan purchase opportunities and what you might be targeting for capital ratio.

That is a very good question. We have $23 million remaining in the existing ATM. It's a facility we like very much. I know you know this, Mark. But for other listeners, it has the benefit for us of being able to raise capital when we need it and not raising a lot of capital for working capital purposes and then not being able to use it. In 2012, we raised $55 million in a transaction that we thought there'd be a lot of loan purchasing opportunities and there were not. Kind of the good side, we wound up over time buying back a third of our bank stock at about 16 bucks as it turned out. And I digress, as they say. But with respect to the ATM we have now, that's why we put out the information. What is our loan capacity? And as we need the capital, we will sell stock out of the ATM to do it. And of course, where our stock is now trading, it's much more attractive to sell stock than when we were trading below tangible book. Now our tangible book is about 48 bucks and we're trading in the 90s now. As to whether we will do another one, to answer your question, the board will evaluate that and make a decision as to how much, although it's not – it's a relatively inexpensive way to raise capital. So there's no guarantee, but not be surprised if we wind up adding to the ATM and allowing ourselves more flexibility going into the future. I think it's a good sign for investors that we have confidence in the business when we're increasing the ATM.

One of the optics or metrics that stands out for you guys relative to a lot of other banks is that CRE concentration. And I think it was over 600%. And many banks are telling their investors that they're pushing down toward that 300% guidance that the regulators had given a while back. And I know you all feel differently about where you ought to sit on that. I wondered if you could just at a high level share with us a couple thoughts on why you think your company is different and justifies being able to have a much higher level than other banks.

Well, first of all, the only kind of lending we do is commercial real estate and, of course, the small balance SBA lending, which is – our balance sheet is 97%, I'm rounding here, commercial real estate. We've been doing this for quite a while. We're having a lot of controls in place. We have an excellent, experienced team. I'll remind listeners that Pat and I were doing this at Capital Crossing Bank, which was a bank my former partner and I started 30 years ago. We have a bunch of folks in the national lending business that came from Capital Crossing Bank and a bunch more that have joined us. We have an incredible record around asset quality. The charge-offs, really, really small. I think, overall, on a weighted average basis, the charge-offs on our purchase loan book have been 5 or 6 basis points with returns that have been, call it, 975 or so. And on the originated side, charge-offs have been really, really small. I'm probably over $4 billion of originations. Some of the things that we focus on, not only risk management, risk control, and all the things that one would expect, we have very low LTVs. In the low 50s overall on our loan book, and that gives us a lot of protection. We structure loans. If it's an originated loan into bankruptcy remote entities with the highest default rate permitted under state law, typically with advances in our lender finance that are cross collateralized, cross defaulted, often even with the LTV set up with interest reserves and, with – on our part, because – on the loan on loan, for example, so we have very good counterparts. And we've been successful at it for a very long time. And we have in place a protocol for how many real estate loans we could have in buckets relating to the risk rating. So that, for example, in the highest risk rating, what we would call one through three. we could have 850% of capital in those, but in the substandard loans, kind of rated eight and above, it's 30% in that bucket. And so, there's a relationship between how much we will have on our balance sheet and the quality of our loans, all structured to cause a level of very high quality commercial real estate loans. I could go on much longer on all the things that make us great, but I think that's a great answer. I'm bragging about the team, not me, but we have a great team.

I think that's a great answer. Sorry, just got two more quick ones. Are there any plans to grow sort of the core deposits with either new branches, products or anything to try to bring down that broker deposit number over time?

Yes, but growing deposit is kind of brick by brick. In some respects – well, this is a transaction. I'd say in Maine now, we have seven branches, and we have now $900 million of deposits in those branches, which for us is the highest number in quite some time. On top of that, we have government deposits in Maine for another $400 million. That's about $1.3 billion I've just described. And then of course, as you point out, we have a lot of broker deposits, which we actually like quite a bit. It was very efficient. We ordered up the money for that loan pool in a couple of weeks and brought in $750 million of deposits at good pricing. And with respect to growing it in a massive way in a transaction, of course, we see them from time to time and we're open to the idea, but so far, it's just that they have not been attractive in terms of the economics.

Just a couple of little modeling things. I assume professional expenses were a little bit elevated due to the loan purchases and we should see those start to come back down. Is that fair?

No, I don't think it was that. Becca Jones is – Becca Rand, just got married. Becca, do you want to answer that question?

Just general legal expenses, audit expenses as we grow, those just continue to increase slightly.

Lastly, the effective tax rate, you feel like that probably stays in that 32-ish percent range going forward?

Yes.

No, I was just going to say, we do think so.

Our next caller comes from David Minkoff of DCM Asset Management.

Congratulations on another nice quarter. Actually, the quarter was even nicer than it appeared because, as you pointed out, those loans were purchased at the high level were done late in the quarter and really didn't work its way into the quarterly numbers yet. And we'll see that in the ensuing quarters. So, the report was even better than it looks. The $805 million loan purchase, which was kind of outstanding, what would the normal loan purchases have been in the last couple of quarters? I don't have those numbers in front of me. How were they running?

We do have it. It's a slide on that which we could go over. Let's see. What page is that on?

Well, I'm not on the slide. I'm on the phone call in, so I don't have access to the slides at that moment.

No, I know. That was actually a question for ourselves to find it. On page 6, well, this is not just the – this is the total. Oh, we have both here. On the purchase side, this was significantly larger than the last four quarters. If we go back a year ago, we purchased $52 million. The following quarter was $186 million. The following quarter was zero. The following one, which was June 30th, was $143 million. And then this, of course, was $732 million.

So that's an incredible increase. Now, I'm assuming that those numbers and those purchases was done at the same stringency that you've used in the past. You haven't lowered your standards to get those numbers up to that number, correct?

Correct.

You may look at – to get $732 million in purchase loans, what do you look at, $7 billion perhaps or something to come up with that number?

No, it wasn't that because the $732 million, a big chunk of that was in one transaction, so we were pretty busy with that one transaction. So it wasn't $7 billion.

So it's somewhat of an aberration then because of that one large transaction, is that right?

Well, I have in front of me what our market funnel looks like. So for the quarter, we looked at total 20 pools for $2.7 billion. And then out of those – that means those are transactions that we came across. We took a more in-depth look on $2 billion, which means that was 11 pools that we looked at and we did a fair amount of work on those. And of those, we wound up bidding on $839 million. And we wound up closing on $807 million, which is a very high rate. It's not typically that high, the rate, but a lot of those were negotiated transactions. And so, the likelihood of closing was higher.

Understood. So it's a good number, and it should translate into better earnings, I guess, going forward. You first announced this. You pre-announced this, I guess you might say, on September 24th, when you came out and said you purchased $805 million, I think the number was. $805 million, right, that was the number. And the next day, on the 25th, Piper Sandler came out and increased your target price from $82 to $95 a share. So, that was a pretty happy increase. What was the earnings estimate that they have for the ensuing year, for the year ending June 2025 that gave them that $95 price target. I didn't see the report in depth.

Oh, for the fiscal year we're in now?

The fiscal year that just began. Yeah, that ends next in June 2025.

It's in the range of $10.

$10, okay.

I don't have it exactly in front of me, David, but give or take a little bit. It's in that range.

And as you mentioned, we did $211 million this quarter, and that does not include the spread on all of the loans that we've booked late in September. So, as you said, that's going to – you'll see that in the ensuing quarters.

Right. So, in other words – hypothetically, you might say that had you increase [Technical Difficulty] July 1st, the earnings for the quarter might have been in the $2.50 range or something like that, $2.60. And I would stand to reason when Piper has an estimate of $10 a share. So I think that's – okay, we'll see that as things go forward. You don't usually give projections, so I'm not going to ask you to comment on that. So, again, congratulations on a great quarter, and we're looking forward for this to continue.

David, before you go, I would say you were a legend for your comments on the last call.

Congratulations. It's been a great quarter and I'm glad to be a legend.

Our next caller is Adam Wilkie of Pacific Ridge Capital.

I think I was one of those folks that mentioned David's comments. Yeah, great job, guys. Happy to see the loan purchase. I was going to ask actually about the 7(a) business. How big would you like to grow that on your balance sheet? I know it's pretty small right now. And what should we expect the charge-off rate to be on the total originated loan balance on average through the cycle and then maybe at the peak?

Just to remind everyone else, you probably know that. So the guaranteed portion has been roughly – unguaranteed portion has been roughly 18%. And the reason for that is loans under $150,000 have an 85% guarantee. And over $150,000 is a 75% guarantee. We're doing a lot of small ones. And so, we have 18% on our – we wound up putting on our balance sheet. From the business perspective, it's very profitable because you can sell off the guaranteed portion for premiums now between 10.5% and 11%. Roughly, we think that – and so, therefore, I think we'll keep running with this on our balance sheet. Our balance sheet is getting much bigger, and it's not a lot that we're putting on. I think the real question as to that is how comfortable are we with the credit quality around these. And to answer part of your question, there's a lot of data from the SBA about charge-offs for these kinds of loans. And we think that – if you look at historically over a lot of information in this category, it would be about 3% on the unguaranteed portion. But so far, probably we may have a tighter credit box than those averages that we've been using. But everything we've booked, we've had something like $150,000 of charge-offs on a couple hundred million of originations. That's $100,000, not much, much less than 3%, but we now have a 3% reserve against our SBA loans. We increased it by about a million dollars or so this quarter, so now our unguaranteed SBA portfolio is a little bit less than $50 million. And we have 3% of that in the allowance, which we believe will be – is the appropriate coverage. As to your question, what are the peaks and the – it's knowable. I don't know that offhand, though.

All right, that's fine. And so, if I understand correctly, on the purchase business, a lot of potential opportunities right now. You could – you might do something, you might not. And if you do, the ATM is there to fund it and you would probably – sorry, the ATM is there for the capital, if necessary. And then, you would do probably again some sort of laddered activity to help fund it if those possibilities come through. Is that fair to say?

Yes. Well said.

That's all I have and keep up the great work.

Thank you. We have no further questions at this time. Now I will turn the call over to Rick Wayne for closing remarks.

Thank you. Thank you all for listening and those that asked questions – for your questions. It'd be interesting when we have our next call to see how some of these things play out that we've discussed today. If you have any suggestions on ways we can provide more relevant information on our slides and the information we provide, let us know. If we can do it, we will. And with that, I thank you and we will sign off now.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you.

Welcome to the Northeast Bank Fourth Quarter Fiscal Year 2024 Earnings Call. My name is Steven, 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. [Operator Instructions] As a remainder 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'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. 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 looked like. After I finished 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 of 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 7.46% 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 Page 3. 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% purchase price. On the origination side, we originated in the quarter, $114 million for the quarter and a shade under $400 million for the year at $399.1 million. 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 accrued normal accretion plus accelerated accretion and fees. First, starting with the purchase loans, the regularly scheduled interest and accretion was $8.43, and we picked up another 104 basis points from accelerated appreciation for a total of 9.47% on the purchased loans and on the originated loans, the regularly scheduled interest, not accretion on that was 9.65% and 3 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 of $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. We earned 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 16.6% for the quarter and 17.6% for the year. Interestingly, if we take a look at the first and that's a result. That difference is I should add a difference because we have a lot more capital now. For the quarter, we earned $15.2 million in the first quarter. And 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 PPP. And of course, we got questions about how we were going to deploy it, and we wound up buying $1 billion million of loans in the fourth calendar quarter of 2022. I'm not predicting that we're going to do that. But I -- and Pat will touch on this a little bit more, we are of the view there are a lot of opportunities to purchase loans. And without overpromising, 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 also in the highlight section, you can see that our tangible book is $46.34 and 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 -- virtually all of our loans are commercial real estate loans, which have been under some level of concern kind of across the board, you read about it in the paper almost every day. In our case, we have relatively low loan to values in the very low 50% range, and that has been very good for us. I just want to find a page on the asset quality at the sector. The other one. This is real live we're doing this, so I can, sorry for the page flipping as I'm getting there, but I will. Well, rather than taking a lot of your time here, well, I now have it thanks to [Becca]. You can see that on Page 9, the non-performing assets, we still get a fair number of resolutions. We started the quarter with $28 million and $3 million of non-performing assets were resolved. And then we added $4.6 million, so they come and they go, and that's what you would expect from our purchase loan book. And so those numbers remain to be strong for us. With that, I would ask Richard to follow?

Great. Thanks very much, Rick. Pat is going to pick up the section on the loans. So I'm going to focus primarily on the deposit side. In terms of the 2024 financial year, our deposits increased $402 million. 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 rate. 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 are very careful to focus on our interest rate risk in the banking book. We continue to monitor and manage that to make sure we're not excessively exposed to rates going up or down. We get a lot of questions about what will happen in a rate-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 floors 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 indicator on Slide 15. And then finally, there's a prepay 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 higher 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 would 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 1. 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 is, 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 $0.29 per share to our tangible book value. Let me hand over to Pat Dignan.

Thanks, Richard. There's not really a lot new this quarter over last quarter, except that there's a continued increase in real estate transactions, which provides more confidence on the investor side and also on the purchase side, banks have had the opportunity to write down some of their loans. And what we've seen is a real uptick in purchase loan opportunities. We think that the next quarter will be strong on the purchase side. Just in the general market, office and multifamily continue to be a concern. Beyond that we keep an eye on expenses. And again, more of the same. So we think there's a lot of opportunity, and we expect to be positioned well for it.

Pat, you want to comment for a little bit on the increase in the originated loans in this quarter over some of the preceding ones, what you're seeing aside from more activity but just looking at the numbers on us.

We've been very successful on the lender finance side. It's been -- we've increased the number of groups that we transact with. And there's been a growing for multiple reasons, a lot of migration toward non-bank lenders, and we benefited from that increasing of the number both of transactions and the number of counterparties we were able to really boost that business.

I just want to just describe that business for us. I think you Pat described that for a second. In the event there are some callers on that are -- have not been investors for a while and may not know exactly what that business means in our case because there's lots of ways people talk about portfolio finance or lender finance. We have a significant number of groups that are non-bank lenders that we leverage their lending by providing financing to them. They're typically structured as guidance lines where meaning that every advance that they want to lend money to their borrowers secured by commercial real estate, we underwrite at the same time, just as if we were going to make the loan. It's been a really strong part of our business. So because you have a couple of layers of protection in the capital stack. If you have the original property owner that borrows money from the non-bank lender, maybe with 30% equity and borrowing 70% from the non-bank lender, we then would lend -- if we wanted to advance on that alone, you might advance 70% or so to the non-bank lender, so that our loan 70 times 70 is 49% against the underlying commercial real estate loan. They're structured typically in bankruptcy-remote entities with all of the loans cross collateralized, all of the advances to be clear, cross-collateralized, cross-defaulted with the highest default rate permitted under law. In the case of New York, it's 24%. Our borrowers are experienced and very capable in the area of lending, even if the underlying borrower may be great at making widgets, so to speak, proverbial widgets, but they may not be as sharp in the financial area, but we have that party in between us. To date, we have done a lot of it. We have not lost 1 penny of principal on it. And it's a business line we like very much. Last quarter, out of the origination volume, 90% of those loans were portfolio finance loans. As Pat mentioned, we're looking to expand that business with more groups and our borrowers are very comfortable with us as their lender. And so we like it. I just wanted to expand on that in case someone who's not as familiar with it.

Another point is on that business is the LTVs are generally lower. And in the environment we've been in the last year with fewer real estate transactions and a little more subjectivity with respect to real estate valuations. We been not quite as competitive on the direct side. But as the new normal sets in, and there's more and more real estate trades, I feel will be -- in addition to growing this business also be more competitive on the direct lending space.

That's right. I just want to amplify another point Pat made on the purchase loan in the pipeline. You've heard the forward-looking statements, so I promise I won't read it to you again. But there seems to be a lot of transaction -- a lot of dollar transactions in the market now of the kind of assets that we like to buy, meaning performing loans secured by cash flow and collateral generally in liquid markets. And we have -- one of the things, of course, when you have a seller execution risk is an issue that they care about a lot when they want to sell, they want to make sure they have a counterpart, it's going to perform. We've been at this at a very long time, 14 years at northeast bank and 18 years before that it's capital crossing bank and we have developed and I'd say, humbly earned that reputation in doing that, and we're seeing a lot now and then I would just point out, as Pat did or just make sure it's clear. It doesn't mean we're going to win anything. The transactions you win or you lose, but of course, seeing a lot of activity there is much better than not seeing it. And so we will keep you informed around that as we have these calls. I think that's all that we have in our presentation, and I would ask if there are any questions out there . I would point out that our former analyst, Alex Twerdahl at Piper Sandler, who was really understood our bank and with typically the ones asking questions has left Pipers Sandler and temporarily they have suspended coverage of us until they can find a replacement for him, which is not -- I think they did that with all of the banks that the companies that Alex covered was not personal to what feels personal, but it wasn't. So we may not have as active questions, but I will see anyone have anything that they would like to ask us?

[Operator Instructions] It appears there are no questions at this time. I would now like to turn the call back over to Rick Wayne for closing remarks.

Well, there's two ways to take the lack of questions. I'm going to go with the most positive outlook that we did such a good job explaining what we're doing that we have answered any questions you might have. There might be another way to think about it, but I'm not going there. But all of you that listened and all of you that will listen to the call on our website, we thank you for your interest, continued support and look forward to talking to you again after the end of the following quarter. And with that, I wish you all a happy weekend soon and a really enjoyable summer. Thank you.

We did actually have -- it looks like we did have someone pop into the queue there. So I'll go ahead and promote him, and we will take that question. Our question comes from David Minkoff DCM Asset Management.

Congratulations to you Richard and Pat on another great quarter. So I do have one question. But before I ask the question, I've got to say that, Rick you and your team have done a phenomenal job with this company. I was with this company. I assembled the across it by accident actually 10 years ago, about a month after you went public. And so I've listened to 40 conference calls, and I haven't missed a one. And you deliver these consistent beautiful results quarter after quarter. And when you think about it, this is basically a seven branch bank located in Maine that nobody's ever heard of with the help of some loan acquisition and servicing and you've delivered phenomenal results time and time again. Now to put this in perspective, in 2020 when COVID hit, the stock got knocked down from 24% in 2019, down to 6% in 2020 due to COVID and as well as everything else that have gotten hit along with it. I mean it was almost an act of God type of situation. So the results from then, you've engineered the stock going from a low of 6% in COVID in March 2020 to 72% today. We call that a 12 bagger in Wall Street. The stock is up from the low of COVID, 1,200%, in four short years. This is totally miraculous. And you come out quarter after quarter, and I've listened to 40 of them. And I haven't missed a one. And you come out in a humble manner, giving us the results, no attitude, no arrogance, almost apologetic for these stupendous numbers quarter after quarter. Now I'll remember three, seven years ago, sox years ago, when your base earnings were $2 a share. You would come out with, let's say, $0.50 for the quarter and caution us to not annualize those numbers because the quarter-to-quarter numbers could be choppy and not to take -- not to assume that you're going to have another $0.50 quarter. Well, I'm listening to this for 40 quarters. I haven't seen one disappointment yet with a down quarter or something that caused any aggravation. I would -- if there were a Wall Street hall fame. I would nominate you for that, for entrance into that organization along with Jamie Dimon, who's done a good job, of course, with JPMorgan. But I -- but with the proviso, Jamie Dimod takes his watching orders from you. That's my comment. You called on me to ask a question, and I've given a long dissertation. I hope you don't need two pillows to your head tonight. But if you do, you deserve it. Here's the question. Can I ask the question now? What are you going to do for non-core? That's the question.

The best thing we can do with our capital, of course, is to be able to leverage it with high-quality, higher-yielding assets that's what we would hope and expect to do. We have a lot of capital now and a lot of loan capacity left. That's why I made the reference earlier to PPP when we had roughly $1 billion of loan capacity and patient investors, they were patient, but they wanted to know what we were going to do because we doubled our capital and sort of definitionally your ROE would go down when you have that much capital. And with the excess capital, we're hoping that we can leverage it with the kind of loans that we like. But of course, not going to be careless or reckless or put loans on the balance sheet just to have a lower loan book. And we would hope we would be able to do that. So I would point out, I know -- you know this, say, but for others that may not know that when we have excess capital over some number of years, we return it to shareholders in the period of around years maybe 13 through 16 roughly. We bought back roughly half of the stock in another 0.5/3 of the stock in the bank for an average price of somewhere $17 or $18. And on the other hand, we've recently been selling stock at a number that I'm talking about this quarter, we don't have anything to say about what we might do in the current quarter. But in the previous quarters, Richard mentioned, we bought back, sold stock rather at $50. So in terms of the non-core, as you say, that would be one thing. And I would also plan I think most of you know, we were unsuccessful on this but we tend to be opportunistic when things present themselves. We made a lot of money with PPP, which was not a lot-- we were not even in a related -- we didn't have even a related product, I should say, but we wound up originating $3 billion of that and purchasing another $8 billion and making 65 basis points along with annuity, which was a partner of ours in that activity. And then we also -- when there was an opportunity, we bid on buying Signature Bank and also what was previously Boston Private Bank part of Silicon Valley Bank. Unfortunately, we didn't win those. But -- so we look for -- and those are not predictable those kinds of opportunities, but we like to pay attention and if it's something makes sense to look at it. Finally, I think I really need to make a point and ask you to confirm this, David. What I call your name, it was not because I had any idea. We haven't spoken for a while that you were going to -- and I appreciate you're really kind words. I really do. And it's not just me, of course. It's a big team we have here that delivers these consistently good results. But this was not preplanned. It sounds like I called on David and then he gives me a compliment. I didn't know that was coming.

We haven't spoken to it probably a year or so, but I am on the conference calls every quarter, but you're right, I had no questions. Alex asked great questions every quarter and kudos to him for his good coverage of the company. Not only that, a quarter ago, when the stock was in the mid-50s, he had -- probably he brings his price target to 72%. So he wasn't surprised to see this. That was a great call on his thought. So you surround yourself in the company and your analysts with just high-quality people that are just getting the job done. And I just -- I don't know what -- I'm doing this for 40 years trying to find or finding good companies to invest in. And I can count on one hand the number of companies that have done as good as you have in 40 years that I'm doing this. So I'm on conference calls all the time. I've never had a discussion like this. I usually ask the question that's pertinent and that's all. I've never said this about any company, but it really has to be called out. And I'm thinking this and I felt the need to verbalize it. And I'm sure I'm speaking for everyone else on this call, there's nobody that could possibly have a loss in this company, whether you paid $8 a share or $68 a share. The stock hit a new had all-time high yesterday. So you're talking to everybody. That's a happy camper on this call. It's just phenomenal -- it's really remarkable and deserves to be - the words that I'm using aren't strong enough. I don't know. And I look for a manager like you to -- I look for companies that are managed by people like you that are qualified, no attitude, just deliver the good results and just in a transparent way, it's just a pleasure to have dealt with for 10 years. That's all I can tell you. I know I have no aggravation with this company and its actions in 10 years. And one other kind of aside here, when I turn on my screen every day, I have my stock that I own in different columns. The banks are in one column and industrials are another, drugs are in another and high tech are in another. The high tech may consist of Amazon, Nvidia, Microsoft, Meta, Apple. After this conference call, I'm going to remove Northeast Bank NBN from the banking column and put it in the high-tech column with the Meta and Nvidia and Amazon where it belongs. So it has some decent competition. So that's all I can tell you. It competes with those groups. I mean I'm almost thinking you're going to discover the cure cancer or something or it's just -- I'm don't know what to say. It's just really something to behold. And it's a pleasure to have made your acquaintance for 10 years. I just looked out, I guess by getting involved here. So I don't know what to say, but keep up the good work.

Thank you very much, David. Those are really kind comments and all the people work in the bank who listen to this, I'm sure we'll appreciate your words, it's not just me. It's a great thing. Let me just thank you, David. Anyone else have any compliments, no, I mean, any questions? Well, before when David was disconnected, I had thank you all and I won't repeat that again to you. But have a good weekend, everybody, and thank you very much. I think operator, we're all set.

All right. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Welcome to the Northeast Bank third quarter fiscal year 2024 earnings call. My name is Gigi, 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; Richard Cohen, Chief Financial Officer; 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. [Operator Instructions]. 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 North East 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. Good morning and thank you for joining our investor call. With me are Pat Dignan, our Chief Operating Officer, and Richard Cohen, our Chief Financial Officer. This morning, after I have my comments, Richard will discuss income and expense items as well as our at-the-market offering, and Pat will discuss in more detail our purchased and originated loan activity. After we have all presented, we would be happy to answer any questions. I'd like to first now turn to page 3 in the investor deck and highlight a few items. First of all, big picture, we thought was a very strong quarter. We had net income of $13.9 million or $1.83 of earnings per share. Our ROE was 16.45%, our ROA was 1.87%, and our NIM. was 5.01%. Finally, the tangible book value was at the end of the quarter, $44.11. First, I want to talk about loans. And as I said, when I'm finished, Pat will fill in a lot more details, but I want to provide an overview. For the quarter, we originated $153 million of loans and there were no purchased loans in the quarter. But with respect to the purchased loans, of course, there is a story behind this, which Pat will explain. It's not bad news, it's good news, but Pat will talk about that. The purchase volume I would point out is typically lower in the first quarter of each calendar year. For FY23, it was $21.5 million and for -- I'm comparing the same quarter, I should be clear on that because we're a June 30, year end. And for the same quarter, the first calendar quarter '22 was $23.9 million. So both of those are relatively small numbers. In part, there's not the same urgency for sellers in the first calendar quarter when there has been a lot of activity in the fourth calendar quarter, which was the case for us. I also want to talk about the originated loan book in a little bit more detail. Out of the $153 million of originations in the quarter, $143 million or 93% were in our lender finance program that is to leverage nonbank lenders in their lending, which we really like that part of our originated portfolio. They're all floating either tied to SOFR or prime. Most of them have floors. And the weighted average of that new production where rates are now is 9.3%, which is quite strong. The lender finance portfolio -- and now I want to talk about our whole portfolio at March 31, was $532 million of our originated loans representing a 63% advance rate against our borrower's loan balance and a weighted average loan to value of 44% against the underlying collateral. Obviously, quite strong with low LTV and low advance rate, we have the underlying borrower, we have our borrower, all on the collateral -- on the capital stack, providing protection to our loans. I also want to point out something that we don't talk about that often, but it's worth noting is that in our purchased loan business because we're buying at a discount generally because of interest rate adjustments and occasionally because of credit adjustments, we have a lot of discount on our books. At March 31, we have $174 million of accretable discount on our purchased loan book. Just to remind you, accretable discount, we bring into income over the life of the loan. And we have sent almost $18 million of allowance on the purchase loans, which to the extent we collect that, which typically we collect a fair amount of that will come into income through the allowance. And so that's -- the combined about that is about of accretable discount and allowance we have on our balance sheet, which bodes well for us. The other point is this is kind of good and bad. The very nature of our originated loan booking of book loan book and our activity is primarily bridge loans. They have a weighted average life at least historically of 1.6 years. So it's short. The benefits of that kind of lending are we get very premium pricing for it because there's not that much competition for banks doing the kind of bridge lending that we're doing. That's very good. Second benefit is because it pays off so early, we have a freshness to our existing loan book because it's turning and at the -- I'd some data on that for the fiscal year to date. So for nine months, we originated a total of $285 million of loans, and we had $297 million of paydowns. So that means a lot of that portfolio is paying off and we're replacing it with loans that have just been underwritten more recently. I would point out that normally our originated loan book grows. In this case since beginning of the year, it has decreased as I -- as you can see from the $285 million of originations versus $297 million of paydowns. That is not what we expect to happen longer-term. And Pat will talk about the originated loan activity to amplify that point. Finally, before I turn it over to Richard, I want to talk about asset quality. Our nonperforming loans in the quarter decreased from 118 basis points to 105 basis points, and the allowance to gross loans has decreased from 1.06% to 0.98%. The charge-offs in the quarter were a total of 20 basis points, but 15 basis points of that was just CECL related. When CECL was adopted, under the CECL rules, we needed to gross up some of our -- our purchased loans and then have an allowance for the amount that we gross set up. So for example, if we bought a loan that was, say, $50,000 loan, but we didn't pay anything for it in the pool bid pre-CECL, we would have carried at a zero. Post-CECL, we show the loan at $50,000 with a $50,000 allowance. So with respect to 15 basis points of charge-offs, they are, in my example, attributable to the gross-up of the loans and the allowance was set up. So the charge-offs, as you would normally think of it against our principle was 5 basis points. And I think with that, Richard?

Great, thank you very much, Rick. We're going to run through a few items as Rick mentioned, the net interest income, the cost of funds, the non-interest expense, and a discussion about the ATM offering. From a net interest income perspective, the Bank generated in the third quarter $36.5 million of NNI. That $36.5 million included $1.2 million of transactional income. In other words, if you exclude that transactional income, the base NII was $35.3 million, and that is higher than we've seen in historic quarters. The key reason for the NNI was the larger balances that generated that yield. The yield on the purchased book was 8.7%; on the originated book, it was 10.1%, giving us a weighted average yield on national lending of 9.22%. If we then take a look at the cost of funds, which then generated the net interest margin that you heard Rick speak about being 5.01%. The cost of funds was 4.23% on a weighted average basis. That is up 15 basis points compared to the second quarter. And you can refer to slide 15, if you want to get a sense of that. We had a change in the mix of deposits in the Bank in the third quarter. We had an increase in our term funding and a corresponding decrease in FHLB borrowings. Let me break that down quickly. Our brokered certificates of deposits, the BCDs were up $132 million, whereas the FHLB borrowing was down by $96 million. That was a deliberate efforts by us to increase our off-balance sheet capacity. Turning now to non-interest expense. The non-interest expense for the quarter was $16.4 million. There are two key components to that. The key change that was -- that you'll notice is there was a $1.05 million accrual for the incentive compensation. That was a true-up because of our expectation on the annual total and we accrued three quarters of the total annual expense. Ordinarily, we take that true-up in the fourth quarter. If you strip out that $1.05 million, you're left with noninterest expense of $15.4 million, which is the comparable noninterest expense in comparison with prior years. Turning now to the ATM offering, you will recall that that is the Bank selling shares in order to raise capital in the market. For the quarter, the Bank sold 180,000 shares that generated proceeds per share of $52.34. And the total dollar proceeds from the ATM in the third quarter was $9.4 million. The impact of that on our tangible book value was $0.31 per share. The reason for the ATM is that we believe there are significant opportunities to both originate and acquire loans, given the current level of activity in the markets. Both sort of transactions are typically lumpy, as has been mentioned before, and we see the ATM as one of the tools we have available to us to enable us to achieve our business objectives. I'll now turn over to Pat Dignan.

Thanks, Richard. Despite no loan purchases last quarter, there's really nothing unusual about the quarter as Rick pointed out, the first calendar quarter is generally slow on the purchase side as those sellers are really not focused on balance sheet repositioning that earlier year. Having said that, we did review several opportunities that are rolling into this quarter and we have confidence that there will be meaningful volume in the fourth quarter. And we're confident that if you look at the entire fiscal year, that we'll have a very strong year for purchased loans overall. Moreover, if interest rates remain at these levels, we expect purchase loan opportunities will increase in the second half of this year. On the originated side, the past two quarters were slower than normal due to less transaction volume generally, mostly due to large disagreements on value and also because of high interest rates. There's also a more conservative posture on our part, especially around cap rates. Transaction volume appears to have picked up as evidenced by increased volume and CMBS, most likely due to growing confidence in the market. There's a lot of new capital in the lender finance space, creating increased competition. The silver lining through this is that there's an increase in the need for bank leverage. Of our total originated volume this quarter, 90% was in the lender finance space. And the vast majority of this volume will continue to grow into the next quarter. Rick?

Thank you, Pat. Thank you, Richard. And now we will turn it over to you for any questions that you might have.

[Operator Instructions]. Our first question comes from the line of Alex Twerdahl from Piper Sandler.

First, Pat or Rick, on that last point Pat that you were making on the need for bank leverage, and I think you said something about as it related to pickup and CMBSs. Could you just go into that and explain exactly what you mean by the additional need for bank leverage there?

So it's just been a lot of capital being raised by nonbank lenders to get into the real estate space coupled with just fewer transactions overall. Those nonbank lenders need to be very, very competitive on rate. And so leverage helps them do that. And so that's been good for us.

All right. Thank you for spell that out for us. So I guess just starting on the originated activity this quarter. And I guess as I look at the yields, the yields overall were over 10%. I think Rick you mentioned the weighted average production was 9.3%. So is there something in there, some acceleration of interest that pushed those yields higher this quarter?

Will I gave the number for the 9.3% was for what we booked in the quarter. The overall number of that 10% is -- that includes our whole portfolio. So we have some loans that are that are higher. And for this quarter's production, we didn't have any transaction acceleration of any of that as we have. So if you look at on the slide in the book number 22, Alex, in the originated column, this is now our whole portfolio. So you can see that the regularly scheduled interest and accretion on the whole book is 9.66%. And so this is really back of the envelope math that we have. This quarter we did $153 million at 9.33% or 9.31%, rather. The other part of the legacy portfolio coming into the quarter was probably more like 9.70% or 9.80% because it was more of the portfolio and the rate was higher. But what we didn't have for the number I quoted was any accelerated accretion because we just booked it. And you can see that for the whole portfolio, there was 43 basis points, which took the 9.66% to 10.09%. For all the others that are listening, that's a lot of numbers I threw out. I think if you look at page 22 of our slide deck, that will be clear for you, hopefully.

Okay. Appreciate that. And then you talked -- you alluded to some opportunities out there for loan purchases in the coming quarters. Could you just remind us sort of what your appetite is in terms of loan sizes, loan pool sizes, both in terms of -- and then maybe kind of overall purchase capacity, both in terms of the capital and capital constraints, and then also just in terms of just the sort of the capacity with your current workforce to be able to manage through some of that stuff. I know that's a several part question, but I think there's been a lot more conversation about some big pools being potentially sold in the near term. And so just wanted to be able to make sure we're lining up what your appetite is with what other people are talking about as well.

So my next comments will be -- the numbers will be rounded. I don't have those exactly in front of me, although we have them. But so we have about $550 million or $600 million of loan capacity now, if we were to leverage our capital to a level that we were comfortable with. And that, of course, gets increased as we -- if we were to sell the stock under our at-the-market or the ATM offering that we have out there and of course, also increased by earnings every quarter as well. And so we're not -- so we have a lot of room to -- without raising a lot more capital outside of the ATM, for example, just kind of where -- to put a lot more purchase loans on our balance sheet. In terms of what we'd like, we're not sort of we're not limited particularly by pool sizes, subject to what I just described is our overall current limits, our overall loan capacity. But when we look at loan pools, it's more we look at them loan by loan. And we have both a legal lending limit in terms of the size of the loan under Maine law of 20% of total capital, but we never get that close. But with that, our house limit, it is more like 10% of that number, but our sweet spot on purchase loans are anywhere -- it's a big, sweet spot, call it $1 million to call it $10 or $12 million; occasionally, we have a larger one and sometimes we have smaller ones. And we have a slide in the book on page 7, that makes the point. Now, this is for all of our lending that shows that only 17% of our loan book are loans that are $15 million or more. And so I mean 83% of our loan book is less than $15 million and only $8 million -- or 8% is between $10 million and $15 million . So I'll say it another way, 75% of our loan book are loans that are less than $10 billion with a big chunk between $2 million and $6 million and an under $2 million. In terms of the kind of loans that we look at, we're looking for at performing loans, we're looking for loans that are generating sufficient cash flow. We have a preference for loans that are in liquid markets, so that if we ever have to take back the collateral, which is rare that there's a market for those. We generally stay away from and way away from construction loans or land loans or development loans or the things where there's historically been a lot of risk for that. Our portfolio is -- while we're in 44 states and we keep track of that, but don't ask which states we're not in place, but we do keep track of it. Our biggest concentrations in New York followed by California, followed by Florida and New Jersey, but then we're around in a lot of other states. And we also -- on purchase loans, we get whatever the interest rate and the structure of the loan is when we acquire it. That's a lot of information on your question. I hope it was relevant information that I have given you all that to what your question is. And you didn't ask exactly about this, but I wanted to just amplify a little bit Pat's comment about no volume in Q3, but there were transactions we were knee-deep into that have rolled into Q4. So we're expecting, of course, with the caveat, it is not done until it's done, we would expect meaningful volume in our fourth fiscal quarter or the one that we are currently in.

The last part of your question was on staffing and I just had to comments, that we're fully staffed on the lending side. We have capacity to absorb more volume if we can find it.

A lot of operational leverage on that. Thank you for pointing that out.

Yeah, I mean that was -- I guess if there was another $1 billion-plus purchase like we saw a couple of years ago, if that would be absorbable in the current staff, and it sounds like the answer is probably.

No, it's not probably. It's yes. Subject to adding maybe one or two people, but I don't want to have -- first of all, I'm not suggesting at all, I'm just responding to your question million-dollar-question -- billion-dollar-question that, as Pat said, we have a lot of people here already and maybe some -- and more entry-level folks to help with part of it. But now there's a lot of operating leverage. And this is what I was going to say, you can do the arithmetic. I don't want to say anything about that, Alex, but what that would mean to put $1 billion of loans on the books with moderate noninterest expense increases.

Yeah, understood. Back to the comments on the ATM and I think the comment of significant opportunities. Is the ATM and the amount that you raised was that kind of a specific amount in order to kind of be able to just sort of have that capital on hand? Or is that more testing the market to see how quickly you could bring it in, should you need it, or maybe just a little bit more of the thought process around utilizing that channel and the timing to use it?

Alex, I can speak to that. So there was no specific target. What we were trying to do was to utilize the ATM at sensible volumes over a sensible period of time. So we didn't set out to deliver a very specific target or to achieve a very specific price. It's a long-term program, utilize it when the opportunities seem appropriate to us.

I was just going back to the kind of a hypothetical you had suggested if there were $1 billion portfolio and our capacity is currently $600 million before we earn money each quarter and we wanted to do that, that would require us to go out after the , building up the capital slowly with the ATM to go out and raise capital for that transaction. Which we would prefer not to do with any urgency around that as opposed to gradually building up our capital. Our view is that we will utilize that capital. I'm not saying we're going to utilize it this quarter or next quarter, but we think it's -- when we're at stock prices today seems like a reasonable idea to do it in moderate amounts. We were approved for 50 million. And last quarter we purchased 9.4 million of it. And I want to say we had about 9 million before that. So we have about 32 million left. So we're doing it moderately. I should point out, I'm not saying we're going to spend it, sell stock this quarter. It really depends on a host of factors, but that was our thinking for -- in the last quarter.

Yeah, understood. And then going onto expenses and Richard, you mentioned about 1.05% I think you said true-up in accruals that normally would happen in the fourth fiscal quarter. So should we expect going forward to see a more, I guess, maybe like a steadier level of expenses? Normally, we see that fourth fiscal quarter like that pretty decent increase in salaries and then it kind of tick back down in the first fiscal quarter. Is that not going to happen this year?

Well, I think that we will have -- in the fourth quarter, there will be still money that we accrue. We accrue money for our incentive comp all year around. It's just that we get later into the quarters, we take a look at how well the Bank is doing. And whether we think -- when we look at those that are going to get incentive comp, which incidentally, we pay bonuses to everyone in the Bank, some more and maybe much more than others. But as we get closer to the end of the year -- so we were looking at what we thought we needed know in March. So that's nine months into the quarter. So we added to it for this quarter. I would expect that -- no guarantees on this, but it would not be -- we're not going to have the true-up in the fourth quarter, nearly as large as we've had in prior quarters. So let me just trying to put some numbers to make sense of all that for you. So normally, if you take out $1 million, the non-interest expenses is $15.4 million. All right? So that's the number that we had, I think in the preceding two quarters, more or less, same number. That's kind of our run rate currently before we put in more money for incentive comp. We don't know really how much we need until we move further along the year. I'm looking in the , it's $15.7 million in the last quarter and $15.4 million this quarter, and it was $15.4 million in our first fiscal quarter. So I would think about that as a number and then we'll see what the fourth quarter looks like, but we just thought it made sense to true-ups a meaningful portion of it in the third quarter.

Yeah. Okay. That makes sense. And then just final question for me. The SBA business seems like it's got the engine starting to rev up again in a nice growth rate in originations and sales volume there. Can you just talk a little bit more about expectations and outlook and thoughts around that segment?

But you're right, that it's revved up. We did about $30 million of originations in the March 31, quarter. And as you know, of course, this has been a very slow build. We started this about 2.5 years ago. And at that time, I said which I will repeat, I don't want to set expectations high on this, but it is building and we would expect it will continue to build. But I don't want to really put -- set any --. I'm sorry to do this to you Alex. I know you'd like a better numbers than this. It's probably reasonable to assume that the path that we're on now will continue and how much more it will be, we'll see. Sorry about that unclear answer .

No, I appreciate. It been online, it's been all over the place over the last 5 or 10 years, so I'm not going to hold you to anything, but we will include in our model. That's all my questions for now. Appreciate the time, and I'll get back in the queue.

Thank you, Alex.

Thank you. [Operator Instructions]. We have no further questions at this time. Now I will turn the call over to Rick Wayne for closing remarks.

Thank you. Thank all of you on the call and thank all of you will listen to the call after this, which you can find this on our website and we will talk again in July. Thank you all.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Welcome to the Northeast Bank Second Quarter Fiscal Year 2024 Earnings Call. My name is Daniel, 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 a question-and-answer session. [Operator Instructions] 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 obligations 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. Good morning to those of you listening to the call. This morning, I want to go over a few of the interesting and important results during the quarter, and I'm not going to go over line by line what's already in the earnings release because I'm sure that you have read that or that you will read that. But I just want to spend a little bit on Page 3 of the slides. First, talking about the loan volume in the quarter. The purchased loans activity of $186.1 million invested on $208 million of UPB or 89.5% purchase price is our second strongest purchase quarter only behind the approximate $1 billion of loans purchased one year ago, so very, very strong. And on that topic, on the purchase loan market, we’re seeing a fair amount of good, very good supply in the marketplace and so we're looking at a lot. I would caution you that they are binary, you bid and you win or you don't win, but there seems to be a fair amount of supply in the marketplace. On the origination slide perspective, we originated $63.5 million of loans, which is, it's not that it's a bad number, but it's kind of a loan number consistent with the trend over the prior quarters. I can say that as we sit here today, the origination volume is picking up and I would expect that we will have higher numbers in the current quarter than we had in the quarter that ended December 31. The weighted average rate on our entire loan portfolio, originated loan portfolio was 9.45%, which is very strong. And then just to take a look at some of the quick stats, our net income was $14.1 million. And that was after we charged off $957,000, about almost a $1 million of a deferred tax asset due to changes in the way Massachusetts sets out their – or will set out their apportionment factor. So the income was very strong and the EPS was $1.85, return on equity was 17.35%, return on assets was 1.93% and tangible book value has grown to just a few pennies under $42 at $41.97. If we go now to Slide 8, which I am going to, I want to make a few comments on asset quality. First, you can see that there was a jump in nonperforming loans in the quarter that just ended from the previous quarter. That's principally due to three loans that went on non-accrual in the quarter. Kind of the headline is we don't think that we're going to have on those. And do we think they'll be resolved without any principal loss? A couple of them were kind of typical purchase loans or typical loans in national lending where they go late and then we resolve them, plenty of collateral coverage. And the first one for about $6 million is a dispute over lien position, our mortgage and others. And it's in the courts and in the event that we were to lose that, we have title insurance. That's why I say I don't expect to have any principal loss from these loans that are now are non-accrual. I also want to bring your attention to the bottom right corner of Page 8, where we take a look at net charge-offs. CECL has caused us to – has required that we change the treatment of purchased loans, which has an impact on how we report charge-offs. And I think the best way to make this point is to give you an example. Given a pool of loans, let us say, there was a loan that had a $50,000 customer balance, but when we bid for the loan along with a bunch of other loans, we allocated $0 to it. We got the loan, but we didn't pay anything for it. Under pre-CECL, we would just carry that loan at zero because we didn't pay anything for it. But in the case of CECL, you're now required to carry that loan, show the loan at $50,000 with a corresponding allowance of $50,000. So it nets to zero. And at some point, if we charge-off that loan, then it shows that $50,000 would show as a charge-off, even though we didn't have any principal allocated to that. So keeping in mind, those new rules under CECL, you'll see that. And there's a footnote on this. In the case of quarters ending September 30 and also on December 31, out of the 0.7% of 930 or 7 basis points, 6 basis points of that was a number attributable to CECL, which as I described, there was no loss of principal. It's just the way you have to report it for accounting. So there was only one basis of charge offs in September 30. And for December 31, the same point that we're showing 11 basis points here or 0.11%, but out of that 11 basis points, 9 basis points are as a result of CECL, where there was really no loss of principal. So if you strip that out from those two numbers, the charge offs for the quarter ending September 30 was 1 basis point, and on December 31 was two basis points, not much at all. That's way in the weeds, but because it's a change, I just wanted to try and explain that for you. If we now move on to Slide 9, this is a slide that shows the change in the non-performing loans from September 30 to December 30 – I mean, from September 30, 2023 to – September 30, 2023, part, sorry for that, to December 31, 2023. And you can see, it's gone up from 17 point around here, $5 million to $30.7 million. And most of that are the three loans designated one, two, and three, which I spoke about just a couple of minutes ago. And then there's another one on designated as number four for $1.1 million, which subsequent to quarter end was paid off in full, which is my expectation for the other ones as well. I do want to comment on page – on the deposit on interest rates starting on Page 15. And you can see that for the quarter, our quarterly cost of deposits was 4.16% and continuing the upward march of rates and the spot rate on the last day of the quarter was 4.23%. The good news around our funding is we're starting to see our cost coming down. And we have, for example, $700 million brokered CDs maturing over the next six months, which at today's rates, we could replace at a 40 basis point savings, which is quite substantial. And I also want to highlight on Page 16, that looking at what's happened by channel in our deposits over the last year and the main point I want to make is that in our banking centers, we have seven that our deposits in those banking centers have gone up by $216 million. We're 38% from a year ago, which we're really happy about. And we're continuing to build those core deposits in our branches as a way of replacing higher cost deposits and other categories. Finally, I do want to comment on the expenses on Page 19 that have gone up from the linked quarter about $300,000. It's mostly in the compensation line. In December, we gave every employee in the bank, I would say, other than Pat and me, $1,000 each for the year – end of the year was about $200,000, well deserved by our great team and built morale, increased morale. Everyone was excited about that. And then also in this quarter, we had a full quarter of stock compensation, we make stock grants typically in August. And so for the preceding quarter, it was only half a quarter that was recorded of that expense. And in the current – the quarter ending December 31, it was a full quarter. So that's about $400,000 of the difference. And then we had some savings in some other areas. And I do want to say, before we turn it over to any questions that if they – this is in some ways it's a bittersweet day for us, it's sweet because we had another really great quarter. It's bitter because JP is some who many of you have talked to, I know and like and respected, is leaving our bank to take a position at another bank after being with us six years. He will be missed by everyone. He's really built a great group. We have the privilege of working with him day in and day out. He's really a first rate person. He's a good father and a good husband. His colleagues like and respect him and the quality of his work is extraordinary. And so we will miss him. But he will be part of our Alumni club and we will all get to see him a lot, I hope. And so today is his last day. He’s been totally professional. He gave notice maybe six weeks ago or seven weeks ago and has worked diligently every single day. And so we all wish him every success. I don’t have to say the best of luck. He doesn’t need luck. He will be successful, but he will be missed. And on that note, we’d like to turn it over and see if there are any questions at all.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Alex Twerdahl with Piper Sandler. Your line is now open.

Good morning.

Good morning, Alex.

First off, Rick, you said in your prepared remarks that you’re seeing a fair amount of good supply in the marketplace for purchases, which seems like an optimistic statement. However, I was hoping maybe you could give us a little bit more context and a little bit more color around what you’re really seeing and maybe compare it to what you had seen over the last couple of quarters.

Well, the last quarter was also a strong quarter, a good quarter for purchases, not like this quarter. This was a much better one. We’re seeing loans coming to market from banks for reasons, some having to do with sales that I don’t want to be too specific here, but started with some of the banks have failed in last year that some of those assets have been now coming to the market to be traded. It’s public information that the Signature assets were sold and bought by a few different groups. We’re seeing banks selling who want to shed some commercial real estate assets and that’s not unusual. We tend to see that. I’d say we’re maybe starting to see with some banks are a little bit smaller selling loans as well. I don’t mean small banks, not the national banks. And we’re seeing the kind of assets that we tend to like in this market, which are low LTV where a lot of the discount is driven by interest rates. So if rates come down again, they will – while we’re getting them just because the interest rate discount and at good prices. But secondly, there’s an opportunity for some upside in those if rates come down, so some of those folks can refinance more easily. Pat, do you want to add anything to that in terms of the...

Yes, I think that’s a good summary. Last quarter and this quarter, M&A is always a factor, balance sheet repositioning and in some cases, funds who purchased mixed pools last year are trying to trade out of the higher-quality assets now because of the yields on those. Yes. So those are the big reasons. And we’re not really seeing much distress yet, except for the signature stuff. Yes.

Yes. In terms of the pools that you look at, but then you don’t wind up buying. I know it’s obviously binary, you get it, you don’t. But when you’re losing those pools? Is it because the buyers just not like in the price and keeping it? Or is it because other – is there other competition out there that’s winning those?

I think – well, there’s always competition out there, and it’s always good to know that there’s a market and we’re not the only buyers so that we can gauge our own pricing. But I’d say that after that, the two big factors are that sellers are – sometimes find it hard to believe that performing loans would trade at that big of a discount and choose not to sell. And another factor is that in some cases, with loans that were underwritten at very, very low cap rates in the real estate, there’s a disagreement around value, and that’s also a factor.

Got it. And then I’m just curious, a pretty big pullback in rates sort of in the middle section of the curve, in the middle of the fourth quarter, towards the end of the fourth quarter, how does that impact the sort of the sales process and pricing?

The same, Alex [ph], your question is because of rates declining in the fourth quarter. Does that impact the pricing of the loans, I guess.

Yes, I mean, I would assume it has to impact the pricing, but I’m just curious if there’s – if that would be an obstacle to having stuff closed in the fourth quarter, just given that the rates are moving down and the volatility maybe is not the friend of the market, but I don’t know so I’m asking.

Yes. I don't think that in the fourth quarter, what we did that was such a big deal, the rate change in the fourth quarter, it would be longer if rates come down a lot, then you would expect that you would be buying loans at a lower yield. But we haven't seen that impact yet.

Yes. I mean, from the pricing, pricing is always a little bit hard to sort of draw real conclusions from because we don't really know what the underlying loans look like. But would it be fair to assume that the – sort of the full on return on the purchased portfolio, based on what you're purchasing, stays kind of within the range in which it has been in the last two quarters?

Well, we paid $0.895 this quarter for what we purchased. I think it's kind of typical from what we bought. It's kind of low LTV. Kind of what we – our expectation is on yields about the same as we have been in the past. There hasn't been a big. Overall on any given loan, you can buy something at a lower price and get paid off early and that can impact it. But looking kind of portfolio wise on what we purchased, I think it's pretty much as we have in the past. You may recall, of course, there's two components, of course, to what you earn. One is the rate on the note, and secondly, how much is the discount and when does the loan pay off? That's what ultimately generates the yield. And going back a lot of years, when we started this in 2010, at that very time, the FDIC from banks that had closed, we're selling loans at $0.80 and then directionally correct over the next, call it five, six years or something, we were buying loans between $0.82 and $0.87 or $0.88. And then for a period of time we were buying them at $0.92 or $0.93. And if you look back at the big purchases over the last year, the $1 billion was roughly at $0.87. And what we purchased in this quarter, which is the second largest quarter, was at $0.895.

Okay, right. Switching gears to the originate portfolio, just – I think you mentioned that the pipelines have picked up a little bit heading into the first quarter. Is that – do you think that portfolio will stabilize? I mean, I know you're coming off of a couple of huge origination years, 2022 and you've seen a little bit more amortization maybe as a result of that. But how do you think about sort of the overall size of that portfolio and whether not production will be able to fully...

I think it will grow.

It will grow?

I think it will grow. Over the last bunch of quarters, there was much less activity, there was less clarity on value, less deals being done. We're seeing that activity pick up. And during that time period, we saw a lot of things but we said no a lot, and we're seeing more now the kind of deals that we like to do and with a lot of volume coming in. And I expect that will grow our – and you may remember that before we had the big purchase a year ago, we were mostly an origination shop. So going back, I may say June 30, 2022 if I'm off by either dollars or when the year was, I apologize. But I think generally, we did like 550 [ph] of originations and $175 million of purchases, something like that, so that was 75% originations and 25% purchases, now kind of flipped. But I expect that – we're hopeful that the purchase numbers will continue to be meaningful and significant, but the origination numbers will pick up.

Okay. That's helpful.

And again really good – I was just saying, we get really good pricing on our originations. It's kind of the same pricing we're getting on our purchase book.

Yes. I mean maybe just kind of sticking on the pricing on the origination portfolio. I know a lot of it is Prime-based and you have floors in place. But maybe just given that the outlook for rates now is maybe Prime coming down at least several times this year, is there any other considerations that we have in the back of our mind with respect to the trajectory of the yield of that portfolio?

No, I think you said it in your preamble to that, which is they're either Prime – they're all floating, either Prime or SOFR. Most of the loans have floors and are usually set at the rate when the loan closes. But in some cases, the floor is less than that. So we have not 100% protection on our current rates, but a lot of protection on our current rates on that.

Great. And then the final thing I wanted to ask about is that it looks like there was a pickup in the gain on sale of SBA loans, and I know that there are some initiatives kind of with SBA product. Is that higher level of gain on sales? Is that indicative of maybe a little bit more success in that product? Or maybe talk through what you're seeing and kind of expectations we should have from here?

It has picked up the volume for the quarter was about $14 million, which is a lot more than it was a year ago, and it's got the potential to continue to grow. And so that – and so therefore, there were – we're selling off always the guaranteed portion. And so therefore, the revenue has been going up. How much more, with this product even from the beginning, I was – and I am now very reluctant to make a prediction on volume or contribution to earnings from this product other than just reporting as it happens. So you saw the numbers on what the gain was. And then part of the sale of what we sold in the gain some was originated last quarter a bunch of it this quarter. And then at the end of December, we were holding on balance sheet, some of the guaranteed portion that we hadn't sold in the quarter but would have sold in January.

Okay.

Sorry. That's not a great answer for you. I know, Alex, but I don't want to – I'm not trying to blink and say things are bad or good. I'm just saying it's a little bit hard to predict, and I don't want to go too far on a limp saying what that will be.

Yes. We'll be happy to see the uptick in the quarters in which we see it. Thanks for taking my questions, JP best of luck in your future endeavors and that's it for me.

Thank you, Alex.

Thank you, Alex.

Thank you. We have no further questions at this time. Now I will turn the call back over to Rick Wayne for closing remarks.

Thank you. All of you that are listening and all of you that will listen when you go online to listen to this; I appreciate your support and look forward to talking again in April. Thank you. We're all set, operator. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Welcome to the Northeast Bank First Quarter Fiscal Year 2024 Earnings Call. My name is Victor, 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 on a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] 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'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, and good morning, everyone. Here with me are Pat Dignan, our Chief Operating Officer; and JP Lapointe, our Chief Financial Officer. I want to go over this morning some of the financial highlights, as well as talk about our loan activity and our asset quality. JP will then talk about the impact of CECL on the bank, which was adopted on July 1. And then all three of us are available, look forward to answering any of your questions. First, let me start by saying that the quarter was really an excellent one in so many ways. We earned $15 million or $2.01 earnings per share diluted with a return on equity of 19.73%, a return on assets of 2.12% and getting very close to $40 per share of tangible book value at $39.96. During the quarter, we purchased $130 million -- excuse me, we put on the balance sheet $130.3 million of loans, of which $68 million were originated with a weighted average rate of 9.27%, and we purchased loans with a UPB of $63.7 million at a price and invested dollars of $52.4 million, which is an 82% purchase price. Finally, our NIM for the quarter was 5.30%, really all -- we think outstanding results for the quarter. With respect to loan activity, on the originated side, we have seen our volume over the last five quarters declining. I might say, almost intentionally, we're being -- continue to be very selective on what we're willing to commit to, and loans that we may have done 1.5 years ago or so are loans that we're not necessarily going to do now, plus there are less transactions in the marketplace. But I don't want to diminish $68 million of volume, that's still a lot of volume for us. On the purchase side, really right size both in the quarter and in front of us while we closed on $63.7 million. I mentioned in our press release that we signed an agreement to acquire an additional $74 million of loans, which closed in the beginning of October. With respect to what we see in the marketplace, we see lots of opportunities. I would point out it's binary, you win and you don't win. So I don't want to overpromise. But it seems to be -- and from what we hear from others in the market, a time where there ought to be a fair amount of supply of the kind of loans that we'd like to bid on, that is to say, loans that are performing secured by cash flow and collateral located in reasonably liquid markets. And so we will see what happens in this quarter that we're in now in the following quarters, but we are optimistic about our opportunities to purchase loans in this environment. In terms of asset quality, and of course there's a lot in the news about commercial real estate, our portfolio continues to perform very well. Our non-performing, I would say, assets, but it's really non-performing loans since we don't have any already in our portfolio, at the end of September was $17.5 million, which includes a $2.3 million mark on CECL. So excluding that, our non-performing loans were down by about $500,000 and they represent 69 basis points, our non-performing loans over our total loans. And with that, I would ask JP to talk about CECL. JP?

Thank you, Rick. On July 1 we adopted the CECL allowance for credit law standard. At June 30, our allowance amounted to $7.3 million. On July 1, when we adopted CECL, our allowance increased by $19.4 million to $26.7 million. The increase was a combination of $18.3 million of discount that was transferred from the carrying balance of purchased loans to the allowance for loan losses, and $1.2 million that was transferred from retained earnings, which amounted to $870,000 retained earnings impact net of taxes. At September 30, the allowance decreased to $25.3 million, and that decrease during the quarter was primarily due to charge-offs related to purchased loans that had been carried at zero. But after the CECL adoption, now had carrying balances and required the loan amount and the related reserves to be charged off. The allowance to total loans now sits at 1% and is more comparable to other institutions than what we had previously recorded in the reserves. Some of the changes that impact the bank's financials after the CECL adoption are: historically, some purchase loans had extensions modeled over into the projected cash flows, allowing the purchase discounts to be accreted over a period that extended beyond the contractual maturity. On the adoption of CECL, the accounting standards required at the purchase discounts are accreted over the contractual life of the loans and extensions are no longer modeled in, which has the impact of accretion being taken over a shorter period of time. This should also make interest income from purchase loans more consistent and may contribute less transactional income than we had historically recognized on its portfolio. While the bank has certainly had very low charge-offs, including zero charge-offs on the National Lending originated portfolio, under CECL purchases with credit marks are now reserved for in the allowance and then charged off through the allowance, which could give the appearance of increased charge-offs. However, many of these charge-offs, especially the ones during this quarter, were purchased loan discounts that previously offset the loan balances and have now moved into the allowance and did not impact the provision for credit losses. Additionally, as Rick indicated, upon the adoption of CECL, the bank transferred $18.3 million from the discount against the carrying balance of loans to the allowance. This had the impact of increasing the carrying balance of those loans. As you can see on slide nine, the adoption increased our non-performing loans by $2.3 million for the quarter by increasing the carrying balance and the related allowance for those loans. Absent CECL adoption, non-performing loans would have been approximately $500,000 less than the previous quarter. Thank you.

Excellent. Thank you, JP. And now we'll turn it back and see if there are any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from the line of Alex Twerdahl from Piper Sandler. Your line is open.

Hey, good morning, guys.

Good morning.

Good morning, Alex.

First off, Rick, you commented on seeing lots of opportunities in the purchase market and obviously binary, you either win or you don't. I was wondering if you could give us a little color on the ones you're not losing, if it's because the seller just decides to keep the product given the pricing or if the competition has changed in any way, or just a little bit more on, I guess, the competitive dynamics in the market as well.

The -- well, earlier in the year we were seeing sellers -- sometimes we have a pricing exercise. They're [Technical Difficulty] and ours were not close. We're seeing that get much closer now. And as you move towards the end of the calendar year, where sellers are more motivated to sell for various reasons, the obvious one is that their fiscal year is coming to an end, we're seeing more realistic expectations about pricing, and therefore, easier for us to buy loans than it had been previously. That's one point I would make. And the second one, I would make is that we are seeing more activity again on the kind of loans that we'd like to buy. And so -- and because, as I've mentioned in other calls, because rates are higher, in some cases, we're seeing less competition for that. Pat, do you want to add anything to that?

No, I think those are the two big highlights, the sellers that can't take a hit. And there's also a fair amount of disagreement on value that's still out there as some markets we target.

Got it. And then a lot of us have been paying attention to the loans that the FDIC is currently selling, the commercial real estate loans. I was wondering if you had any further thoughts on whether or not that's something you guys would bid on. And I assume that when you're talking about the market trends, it's sort of irrespective of that pool of loans.

Well, I wouldn't be able to say whether we were bidding or not bidding on the large pool that the FDIC is selling. It's obviously a big pool with awfully large loans in it. But I don't think I could really comment on more than that. I'd like to, but I cannot.

Got it. And then JP, just as we try to work through these -- the accounting shift from CECL into the model, specifically around how the purchase loans get accounted for, does it essentially just reclassify transactional income as regularly scheduled income? Or is it actually wind up pulling forward some of that transactional income, as well just because you can't recognize it over as long a period? And I guess, I think you commented in your prepared remarks that it should smooth out earnings, and I was just wanted to confirm that.

Yes. So what it does is the transactional income really arrive at when a loan pays off. So given the fact that now we have to take these over the contractual life and not some level of modeled extension, there's a possibility that there's going to be less discount available when a loan pays off since we're taking it over a shorter life on some of those loans where we had modeled extensions previously. So it should kind of move it from what would have been available for more transactional income historically into more regularly scheduled accretion over the contractual life of those loans.

And therefore, it will smooth out. It's just smooth out of earnings.

Got it. I was wondering if you can give us any thoughts on sort of where you think you are in terms of deposit cost pressures. It seems like the pace of increase in deposit cost is certainly slowing. If you had any sort of thoughts on where that might peak out, if we should expect betas to continue to move higher or what you're thinking there.

Yes. I think mostly, we've caught up. I think we have a little bit of brokered CDs that are maturing towards the end of the quarter that we're in now. So I think once those reprice, we'll kind of be mostly at the peak for where we should be barring any future potential rate hikes depending on what the Fed decides to do moving forward. But I think it's definitely slowing down from where we were over the past year. And I think after next quarter, we should kind of be at the peak.

Got it. And then just as we think through the right level of non-interest expenses, any help that you could provide? I think this quarter was a little bit impacted by stock-based compensation, if I'm not mistaken. If you could help us, sort of, figure out sort of the right run rate, I guess, over the next few quarters.

I think -- well, first, one point on the -- and additionally, you're right, it was a stock comp. But it was mostly because of the incentives, the equity that was granted at a higher stock price. There were some slight increase in the number of shares granted, but most of the increase was because the stock price was higher than when the previous ones were granted. But I think the number we have now, JP, we’re thinking that was about a good reasonable number for a run rate. Was there anything that you think unusual in this quarter, JP? Or is that a good number going forward?

I think that's a pretty good number going forward. I don't think we expect too much one way or the other in the next couple of quarters.

And now, you know this, Alex. So to the benefit of our listeners that are loan book has increased by almost $1 billion since December ‘22. And so therefore, higher operating expenses are not shocking.

Got it. And I guess just last question, back to the purchase market trends. Is it still safe to say that the bulk of what you're seeing is being driven by the change in interest rates? Or are you seeing anything that's being more -- coming to the market from a credit perspective?

I think there is the transactions that fit in our sweet spot are largely being driven by liquidity issues and M&A.

Great. Thank you for taking all my question.

Thank you, Alex.

Thank you. [Operator Instructions] And I'm not showing any further questions at this time. Now I'll turn the call over to Rick Wayne for closing remarks.

Thank you, and thank you those. Thank you, Alex, for your questions and others for listening in. And we look forward to another -- our next conversation, not for the weather in January, but to reading again to talk about our quarterly results. Thank you all and have a good day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

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 a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I will now like to 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 3, under the heading financial highlights. For the quarter, we purchased $48.8 million of loans with a UPB of $54.3 million. Make a few comments on that volume. It's a -- 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, it's 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 run rate we've been for many years. We did see during the quarter some big transactions that had come to market, but -- and that is generally true that the bid ask is pretty wide between sellers and buyers. And so it didn't meet our pricing expectations. And so 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 -- our balances were fairly flat with the linked 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, a 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. I just think there's less transactions in the marketplace right now. Again, a bid-ask gap in a different context and we're also -- while 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 4.91%, 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. We just drilled down a little bit on asset quality, which is on Slide 8. Delinquencies were only $13.1 million or 52 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 9, 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 linked quarter, it was up about $1 million, 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 [indiscernible] 95% insured between a combination of having deposits under the $250,000 amount and also using [indiscernible] with two-way sweeps to ensure any of those that are over. So 95% insured, obviously a very good number. And we have seen almost no one-off other than 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 linked 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. 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 a 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 four stories actually. The other question that we get frequently from investors is concerning the maturity of those loans. Many articles recently talked about the CMBS debt that's maturing over the next year or so, over $1 trillion. 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.

Thank you, Pat. We obviously, of course, would be happy to answer any questions on these office lines or otherwise. But I think, as I say, we go through the next couple of quarters, we'll have this information on all of our different collateral types. And with that, we'd be happy to answer any questions that you have.

[Operator Instructions] Our first question will come from the line of Alex Twerdahl from Piper Sandler. Your line is open.

Hey. Good morning, guys.

Good morning.

Good morning, Alex.

First off, Rick, you talked about some -- a larger amount of transaction volume that was coming to market in the second quarter. I'm just curious, is that comprised of several larger transactions or is there a number of more granular transactions or maybe just a little bit more on the complexion of actually what's coming to market?

You know what, we saw -- and this is by no means everything that comes to market, we saw $2.5 billion of transactions that were in 34 pools, some small. Pat, do you recall what was the largest one. I wouldn't say it was a $900 million mark.

It was a $900 million [indiscernible].

And one of those, Alex, was a $900 million pool. So there were some very large ones, and then there were some smaller ones. But there was a big chunk of those that almost 60% of what I'm describing. The yield, we just wanted there on the seller's expectation on price and then there were others that were -- we didn't bid on because it was undesirable collateral or we didn't agree with the collateral value. And so, we wound up bidding on $165 million of UPB and we wound up winning $54 million. So just to summarize your point, there were some large ones. There were smaller ones, and we got roughly one-third of what we bid on and there was a lot that we did not bid on because of the sellers' pricing expectations. As we mentioned in previous calls, it's a lot of cost and time to do the underwriting that we do on these and we're not going to get there on price. We don't do all of that work. Not that we're afraid of hard work. We work hard, but there's a purpose that goal that's attainable.

For the ones that look like good collateral that you just weren't around the price, were those loans, did they actually trade during the quarter or was the market just not there for them?

Some did not trade as I understand it. And that's -- Pat, you want to respond.

There was a couple of large pools that had a lot of office -- big office component, I think there were some banks trying to unload the office and once they saw the prices they were receiving, there were no trades.

Got it. And then can you just spend a couple of seconds or a couple of minutes talking about your appetite and capacity for some of those larger pools. Obviously, you did one in the fourth quarter, very large one relative to you. But to the extent that there are some larger pools like that $900 million pool or some even in the $1 billion range. In terms of your ability to actually do some of those deals or your appetite, I guess, maybe talk around what the constraints would be and how you might go about approaching something that's a little bit larger.

Well, the higher capacity, loan capacity now based on our existing capital is about $450 million. And to point out at the end of December, so as we entered our third fiscal quarter, it was about $100 million, and that capacity increased through a combination of earnings and we raised $8 million through our ATM offering. So I think that our capacity to do, we have a great interest in doing a big transaction. For example, the $1 billion that we bought in the fourth calendar quarter has given us such a base now that just our basic core earnings are up significantly and will be going forward because of that. And we would like to do more, how much more it would require us to -- depending on the timing of it, you have your own model, of course, as to what -- and we don't put those numbers out as to what we're going to earn, but you could take a look at what you project and figure out how much capacity we would have, which would be augmented by loan payoffs. And I'm not saying we're going to do this at all, but we can also raise more money through our ATM offering. Fortunately, our stock prices come back very nicely, and we're trading at a nice price now. And I would just add on what we're seeing and the stuff we like, which is what we bought in the fourth quarter, we're seeing now is really low LTV. And so we don't want to take any undue credit risk at all. So we'd like to say we're not in the business of losing principle here, but if we -- and we're seeing that with low LTV loans that are coming to market. So I hope that was helpful enough, but if you have any follow-up on that point, please.

That's good color. And I guess just my final question on the purchase market. For some of the transactions that are trading during the quarter. Is it other banks as the buyer or is it -- are you competing mostly against private equity and other specialty finance companies?

Well, we bought, as I mentioned, we bid on $165 and we bought $55 million or $54.3 million -- there, Pat, do you want to comment? Did you hold [indiscernible]

It's largely banks. There's also one or two funds that compete in our space that are -- have very cheap cost of funding that we often compete with. I know we lost to one of them and one of the bids, but that's largely banks.

Got it. Okay. And then, if I'm remembering correctly, this quarter, I guess, your first fiscal quarter of 2024, you guys adopt CECL, if I'm not mistaken. Can you maybe give us an update on what the expectations for that could be?

JP?

Yeah. The expectation there, Alex is, the allowance is going to go up significantly. As you see in our presentation on slide number here. We have a good amount of credit related discount, non-accretable discount about $23 million of non-accretable discount on Slide 23 at June 30. Almost all of that will move into the allowance from the discounts of the loan balance will go up and the allowance will go up accordingly. And then we'll probably be somewhere around where we are and what's in there now for the originated portfolio. So if you take what we have now and add in most of the non-accretable discount, that's approximately where we'll be with our CECL calculation upon adoption.

Okay. JP, -- just to summarize, you're saying then, we don't expect with the adoption of CECL to have any -- there won't be any meaningful income statement effect on the adoption.

Right. Correct.

And for those that are listening that may not be familiar with that, JP was saying that we will -- that the allowance -- the credit discount that we have, it's a geography that will become an allowance. And then the discount on our books relating to interest expense, we will just continue to treat as we have been.

Correct.

Okay. And does the $23 million, does that get reclassified from capital to the ACL?

No, just from the discount against the loan. So the loans get grossed up. So purchase loans will increase by $23 million and the allowance will increase by $23 million. No capital impact from that upon adoption.

Okay. And does anything change with CECL with the purchase model? Just remind us in terms of the accounting going forward, I guess, would we see higher levels of provisioning associated with some loan purchases because of that non-accretable piece?

I can answer that currently and prospectively. So currently, yes, based on how the CECL guidance is right now, when we purchased loans, you would have to provide for an allowance through the provision for loan losses. However, FASB has a standard that they are finalizing at the end of August that will allow purchasers of purchase financial assets to take some of the discount and move that into the allowance, so there is no provision for loan losses, and that can be applied retrospectively. So we figure by the time that is issued, it will have no impact on our financial statements, and we won't have to provide to the provision for loan losses for purchase credits unless there is no discount allocated to credit at purchase.

Okay. That's really very helpful. And then...

Sorry, one other point, Alex, is there will be a difference going forward also because right now, some of that accretion that we see in the total yield related to credit marks upon payoff that won't go through yield anymore, that will be a negative provision for loan losses upon the adoption of CECL. Again, geography on the income statement, but won't be in the yield anymore, but will be in the income statement, so.

Okay. Great. And then going back to expenses, I think you said $2 million of expense -- $2 million higher in expenses. So that kind of puts your run rate on expenses in the next quarter back closer to where it was in the first quarter or the first calendar quarter. Is that correct?

Yes. Both, yes.

Great. That’s pretty much all my questions for now. Appreciate you taking them.

Thank you, Alex.

Thank you. [Operator Instructions] I am not showing any further questions in the queue. I'd like to turn the conference back to Rick Wayne for closing remarks.

Thank you for that, and thank you all for listening. We try and make our -- the information in the investor deck as helpful as possible with as much information as we can provide. As always, if you have any thoughts about information, more information that would be helpful, please let us know and if we can do it, we will. And with that, well, usually, I wish you a nice weekend, but it's a little bit early for that. So have a nice day. Thank you all.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.