Q4 2022 Northeast Bank Earnings Call
You.
Yeah.
Welcome to the northeast back fourth quarter of fiscal year 2022 earnings call. My name is Danielle I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on your Touchtone phone.
Welcome to the Northeast Bank Fourth Quarter Fiscal Year 2022 Earnings Call. My name is Jenny. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 01 on your touchtone phone. As a reminder, the conference is being recorded. I will now turn the call over to Rick Wayne. You may begin. Rick Wayne, please. Rick Wayne, please. Rick Wayne, please.
As a reminder, the conference is being recorded I will now turn the call over to Rick Wayne you may begin.
Good morning, and thank you all for joining us today.
Good morning, and thank you all for joining us today. As mentioned, I am Rick Wayne, the Chief Executive Officer of Northeast Bank.
As mentioned I am Rick Wayne, the Chief Executive Officer of Northeast Bank and.
And with me on the call are JP Lapointe, our Chief Financial Officer, and Pat Dignan, Our Chief Credit Officer, and Executive Vice President.
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.
After my comments, JP, Pat and I will be happy to answer your questions.
Let me first turn to page three of the.
Let me first turn to page three of the...
Investor deck that was.
Uploaded on our website last night.
Investor deck that was uploaded on our website last night. I want to comment on a few items listed on page 3.
Want to comment on our two.
Two items listed on page three.
First for.
For the quarter, we reported $10 $3 million of net income or $1 35 per.
First, for the quarter, we reported $10.3 million of net income or $1.35 per diluted share. Our return on equity was 16.55% in our return on assets.
Per diluted share.
Return on equity was 16 five 5%.
Our return on assets.
Was 268%.
Yeah.
And a big driver.
I was 2.68%
Of our <unk>.
And a big driver of our...
Income.
For the quarter.
Our.
National lending loan volume and in particular.
income for the quarter were our national lending loan volume, and in particular, the activity and our originated add to the resources that have been used by ourshirt that have LeapF Menu available upon admission?
The activity on our originated.
Loans for the quarter.
We originated $172 $9 million of loans.
loans for the quarter.
we originated 172.9 million dollars of loans and for the year 587.8 million dollars of loans. That's a record for us both on the quarter and for the year, for the year in particular, by a substantial amount.
And for the year 587 $8 million of loans.
That's a record for us both quarter on the quarter and the.
And for the year.
For the year in particular by a substantial.
Now.
And I also want to point out on those loans that.
And I also want to point out on those loans that
93%, 94% of our originated loan loans are variable.
93 or 94% of our originated loans are variable.
Tied to prime.
And of course in a rising interest rate environment.
tied to prime. And of course, in a rising interest rate environment, that is helpful to have variable rate loans. I just want to comment on something about that which was a
That is helpful to have variable rate loans.
I just wanted to comment on something about that which was.
I think requires some explanation.
Because our yield.
I think requires some explanation because our yield
On our loan book.
Quarter on originated loans was 7%.
on our loan book for the quarter on originated loans was 7% and was 6.9% for the
<unk> was six 9% for the.
Prior quarter.
And so it only went up 10 basis points and one might wonder why.
prior quarter.
And so it only went up 10 basis points. And one mind wonder why in... In Buddhist faith, grandeur, love, pity, intuitive,
In.
With loans that are tied to prime where they only went up 10 basis points and I will answer that question for you.
with loans that are tied to prime, why they only went up 10 basis points. And I will answer that question for you. And that is that in the...
And that is that in the.
Our loans are structured so that if there is a halo outperformed maturity.
We, our loans are structured so that if there is a payoff for maturity, you know, each loan we negotiate a minimum amount of interest that the borrower has to pay. And we had more loans pay off early in the prior quarter.
Loan, we negotiate a minimum amount of interest that the borrower has to pay and we had more loans pay off early in the prior quarter.
Then we did in this quarter and to put some numbers to that.
That six 9% in the prior quarter included 70 basis points of minimum interest that.
than we did in this quarter. And to put some numbers to that,
That 6.9% in the prior quarter included 70 basis points of minimum interest that
Paid off loans that paid off early so net of that.
The yield was six two.
paid off, from loans that paid off early. So net of that.
As compared to the fourth quarter.
The yield was 6.2.
We only had 50 basis points of minimum interest so netting of that the yield was six 5%.
as compared to the fourth quarter where we only had 50 basis points of minimum interest. So netting of that, the yield was 6.5, which is a long way of making the point that ignoring minimum interest.
Which is a long way.
Making the point that.
Ignoring minimum interest the yield on our originated loan book went up 30 basis points from Q3 to Q4.
The yield on an originated loan book, one of 30 basis points from Q3 to Q4, reflecting changes and interest rates. The yield on an originated loan book, is in interest rates. The yield on an originated loan book, is in interest rates.
Reflecting changes in interest rates.
Yeah.
Since youre thinking of that I hope that clarifies that.
To the extent you're thinking of that, I hope that clarifies that.
One of these things one of the big things we've been working on is understanding that.
One of the big things we've been working on is understanding that our correspondent fee income
Correspondent.
Fee income.
Was going to go down each quarter.
And eventually go away just as a reminder.
was going to go down each quarter.
We have correspondent.
and eventually go away. Just as a reminder, we have correspondent
Fee income, resulting from.
Discount when the loans were purchased.
Fe income resulting from
And we also share in.
Discount when the loans were purchased.
The servicing income on the portfolio that.
And we also share in the servicing income on the portfolio that
<unk> has on the Triple P loans that they purchased.
For reference point.
loan source has on the Triple P loans that they purchased.
Let's take a look at.
Slide number four in the deck.
For reference point, let's take a look at...
And I will remind you that.
number four in the deck.
Starting in the fourth quarter of 2020.
And I will remind you that.
starting in the fourth quarter of 2020.
Through the first quarter of 2022.
Well tourists purchased 11.2.
through the first quarter of 2022.
$2 billion.
The loan source purchased 11.7 million dollars.
Triple T loans.
$2 billion.
And at the end of the.
of triple P loans.
June 32022.
And at the end of the...
There remains one point.
June 30, 2022.
$4 billion. So there was about nine $8 billion of loans that were.
They remain one point.
4 billion.
So there was about $9.8 billion of loans that were...
Either paid off or forgiven. The reason that's meaningful is that.
either paid off or forgiven. The reason that's meaningful is that a loan source earns...
That wont source earns <unk>.
65 basis points on the Triple P loans that they hold.
And as the portfolio gets.
65 basis points on the triple P loans that they hold, and as the portfolio
Pay down.
I should point out.
Sure half of that and as the portfolio pays down.
Get's paid down.
And why should point out when we share half of that and as the portfolio pays down our
Our.
The share of the income.
half of that and as the portfolio pays down our share of the income.
Those down.
<unk>.
So it.
Put some numbers to that for a second we turn to slide number 29.
goes down and
To put some numbers to that, if for a second we turn to slide number 29.
Trying to get to.
You can see that.
which I am trying to get to, you can see that
Looking at the.
Quarterly amount.
Of corresponds in fee income, which is in blue.
looking at the quarterly amount.
This is on the right.
of corresponding fiancum, which is in blue.
Side of the <unk>.
Investor deck on that page.
on the this is on the right.
That.
side of the investor deck on that page that correspond if the income if we compare where it was in
Corresponding fee income, if we compare where it wasn't.
Q4 of FY 'twenty one.
I'm, sorry, if we compare with Q1 of our fiscal 'twenty two.
Q4 of FY21.
I'm sorry if we compare with Q1 of our fiscal 22 with.
Q4, corresponding fee income went down by $4 $1 million, because the triple P loans were being either paid off or forgiven.
to four corresponding fee income down by $4.1 million.
And what.
because the triple P loans were being either paid off or forgiven. And what we investors know and we've talked about, what we need to do is increase our loan book to offset that. And now if we look at the base net interest income, which is in blue, on the...
Investors.
And we've talked about we need to do is increase our loan book to offset that and now if we look at the.
Base net interest income.
Which is in blue.
On the.
Chart next to the one I just described.
Can see that if we compare.
chart next to the one I just described, you can see that if we compare
Q4, which just ended with Q1.
That.
Q4, which just ended with Q1.
Base net interest income increased by $4 3 million Punch line is we're growing our loan book, we're generating more net interest income and we have more than offset the <unk>.
that based on that interest income increased by $4.3 million. Punchline is we're growing our loan book.
We're generating more net interest income, and we have more than offset the amount of reduction in corresponding fee income.
Reduction in correspondent fee income.
For the year, if we look at it for the year.
I have this number.
For the year, if we look at it for the year,
That net interest income if we compare FY 'twenty two with FY 'twenty, one net interest income increased by $16 million.
I have this number. That net interest income, if we compare FY22 with FY21, net interest income increased by $16 million.
No.
And.
And that is a result of that our loan book grew.
and, um,
Our.
And that's a result of that our loan book grew on our
Well national lending portfolio grew by $284 million or 30%.
The National Lending Portfolio grew by $284 million.
FY at the end of FY 'twenty, two compared to FY 'twenty, one and if we just look at the originated part of that it grew $236 million or 45% from the beginning of the.
or 30% FY, the end of FY 22 compared to FY 21. And if we just look at the originated part of that, it grew 236 million or 45% from the beginning of the...
Fiscal year.
And that is what we.
Our focused on is growing our national lending book.
So, fiscal year. That is what we, um,
And that is what we, um, um,
Just a few other comments.
focused on is growing our national lending book. Just a few other comments before we open it up for questions. On our
Before we open it up for questions.
Our noninterest expense.
Line a grew if you compare the fourth quarter that is June 30, with the third quarter September 30.
line, it grew, if you compare the fourth quarter, that is June 30th with the third quarter, September 30th, non-interest expense grew by $1.5 million. And that was, as is usually the case in the fourth quarter, where we take a look at the comp committee, take a look at how the bank is doing and if appropriate, it adds to the incentive comp.
Noninterest expense grew by.
$1 $5 million and that was <unk>.
As is usually the case in the fourth quarter, where we take a look at the comp Committee takes a look at how the bank is doing and if appropriate adds to the incentive comp and that $1 5 million was virtually all additional incentive comp in the fourth quarter.
And that 1.5 million was virtually all additional incentive comp in the fourth quarter.
And just for modeling purposes.
<unk>.
As we're growing going into this fiscal year FY 'twenty three.
This for modeling purposes, as we're growing going into this fiscal year, FY 23, adding more people, probably a good number for a quarter or not, interest expense is around $13 million for those that are doing the modeling.
Adding more people and probably a good number.
Per quarter noninterest expense is around $13 million for those that are doing the modeling.
Also we bought back.
During the quarter.
Also, we brought back...
I have that number that we can purchase JP, how much to 85 285000 shares in the quarter.
during the quarter.
I have that number. It refers to JP how much? 285,000 shares in the quarter.
And for the year, we bought back 821000 shares.
And for the year, we bought back 821,000 shares.
No just took a look at this this morning I thought someone might be interested since we started the repurchase program, we have repurchased three 8 million shares.
No, just took a look at this this morning. I thought someone might be interested. Since we started the Repurchase Program, we have repurchased 3.8 million shares.
At an average price of $16 93, which is about 34%.
at an average price of $16.93, which is about 34%.
Of the shares outstanding before we started a repurchase program.
of the shares outstanding before we started a repurchase program. Finally, just a few words on our 7A program with NOAADEE.
Finally, just a few words on our <unk> program with nobody.
This is again this is taking longer than we had expected.
This is, again, this is taking longer than we had expected. And these are not the biggest numbers in the world, but in the quarter, we close 26 loans for $600,000. And I shouldn't say. I shouldn't say.
And this is these are not the biggest numbers in the world, but in the quarter.
We closed 26 loans for $600000 I should say.
We closed 626 loans for $600000.
And.
We closed, yes, $626,000 for $600,000.
I don't want to promise more than we can deliver so we'll see what happens in the next quarters.
I don't want to promise more than we can deliver, so we'll see what happens in the next quarters. But the technology is working. We were able to close loans.
The technology is working we were able to close loans.
The marketing is continuing and I am hopeful that we will have.
Better numbers.
The marketing is continuing and I'm hopeful that we will have better numbers to report.
To report.
When we report at the end of our first fiscal quarter.
Quarter.
when we report at the end of our first fiscal.
But no promises on that score we will see when we will see.
quarter, but no promises on that square we will see. We will see.
Asset quality. These are things that are in the report so I will point out I know you can read them, but delinquencies were at a very low number at.
As I call in, these are things that are in the report. So I'll point out, I know you could read them, but the linkancies were at a very low number at... But the linkancies were at a very low number at...
Around $7 million.
And non accruals came down to about $13 million.
around $7 million. And none of the crules came down to about $13 million. $13 million.
Which are numbers that are levels that are much lower than we have been in some time and particularly impressive given the size of our.
which are numbers that are levels that are much lower than we have been in some time and particularly impressive given the size of our loan book now, which is about a billion three. And with that, I will turn it over to all of you to answer any questions that you might have. Thank you.
Loan book, now, which is about $1 three.
<unk>.
With that.
I'll turn it over to all of you to answer any questions that you might have thank you.
Thank you and we have a question. Please press <unk> one on your Touchtone phone, if you wish to be removed from the queue. Please press star zero to.
Thank you. If you have a question, please press 01 on your touchtone phone. If you wish to be removed from the queue, please press 02. If you're using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touchtone phone.
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Once again, if we have a question. Please press zero one on your Touchtone phone.
And our first question comes from Alexander <unk>. Please go ahead.
And our first question comes from Alexander Turtle. Please go ahead.
Hey, good morning, guys.
Jorge.
Hey, first off I was just wondering if you could give us a little bit of commentary on what youre seeing in the in the loan purchase market just given all the volatility and changes in interest rates.
How you want to guys?
Learning, learning.
First off, I was just wondering if you could give us a little bit of commentary on what you're seeing in the loan purchase market just given all the volatility and change in interest rates. If that market has changed at all and what your expectations are for later this year.
If that market has changed at all and what your expectations are for later this year.
But I don't I don't know if.
Our operator read the forward looking statements. So I will remind you that it's in the material.
I don't know if...
Our operator read the forward-looking statement, so I will remind you that it's in the material when I answer the question. We're seeing a lot of activity now in the pipeline.
When I answered the question, we have a we're seeing a lot of activity now in the pipeline.
We think that.
The higher interest rate environment.
We think that the higher interest rate environment.
And concerns about.
Credit quality for some banks in the real estate area I think we think we're expecting to see.
and concerns about
Real credit quality for some banks in the real estate area. I think we think we're expecting to see.
A fair amount of activity in this we've also seen somewhat.
<unk> previously would've bid against us.
A fair amount of activity in this. We've also seen some of the groups that previously would have bit against us. And previously would have bit against us.
And as we've also seen some of the groups that previously would have bit against us.
Out of the bidding.
And now becoming sellers of their portfolio I would remind everybody that I had.
out of the bidding and now becoming sellers of their portfolio. I would remind everybody that I was very optimistic about
I was very optimistic about.
The loan purchase possibilities when Covid started and we were wrong.
the loan purchase possibilities when COVID started and we were wrong. But hopefully we won't be wrong now. We think that
But.
Hopefully we won't be wrong now we think that.
There will be a lot of opportunities we see a lot in the pipeline now of course.
The results are always binary of winter you don't win.
There will be a lot of opportunities. We'll see a lot in the pipeline now. Of course, the results are always binary and winter, you don't win. And so it could turn out we don't buy as much as we are hoping for a path. You wanna add to that? Add any color to that question.
And so it could turn out we don't buy as much as we are hoping for Pat do you want to add to that add any color to that question.
Just to add onto what you said about that.
<unk>.
Rising rates.
Just to add on to what you said, but the...
Obviously.
Resulted in increased funding costs for a lot of our non bank.
rising rates have obviously...
Got it.
result of an increased funding costs for a lot of our non-bank competitors, which is good for us. On the seller side,
But for us.
On the solar side.
Fixed rate assets are becoming.
It looks like Theres, some some activity out there.
Fixed rate assets are becoming, you know, there's, there's, it looks like there's some, some activity out there with, with, um, thanks, um, trying to shed some of that, in anticipation of furthering increases, but also on the, on the credit side there's, that also on the, on the credit side there's,
Sure.
Thanks.
Trying to shed some of that.
In anticipation of further rate increases, but also on the <unk>.
<unk>.
That service coverage pressure as a result of rising rates all of those factors are our.
That's our pet service coverage pressure as a result of rising rates. All of those factors are are Causing the market there to be be ended
Causing the market there to be.
Some increase in activity and a lot of talk on the street of more to come.
We are hopeful, but there'll be some opportunities for us for sure.
some increase in activity and a lot of talk on the street of Mortad Bumstone. It's very helpful that there'll be some opportunity for us to share. What it is that there are not many banks that are in the business of buying loans nationally.
I'd add to that there are not many banks that are in the business of buying.
Loans nationally.
0.1, 0.2 is a bank with really low funding cost rising a little bit and will rise more.
0.1.2 as a bank with really low funding costs, they're rising a little bit and will rise more, but it gives us a competitive advantage against non-banks and it seems that some of the non-banks are with the rising rate interest rate are gonna be less competitive. Historically, their funding was through a securitization where the rates were quite low for them and that's not the case now. So we're optimistic, but as I said, the results are...
But it gives us a competitive advantage against non banks and it seems that some of the non banks with a rising rate interest rates are going.
Be less competitive historically their funding was through a securitization where the rates were quite low for them and thats not the case now.
We are optimistic but as I said results are binary of winter donlin.
I should also we have the resources human resources.
binary, you win or don't win. I should also, we have the resources, human resources.
Look at a lot of loans and we've been doing it as you know Alex and others do we've been doing this for a very long time.
you know, to, you know, look at a lot of loans and we've been doing it, as you know, Alex and others do. We've been doing this for a very long time. So hopefully our time has come.
Our time has come.
With that last point with respect to the human resources do you have the capacity to meaningfully increase the loan purchases as well as maintain that growth rates that we've been seeing.
With that last point, with respect to the human resources, do you have the capacity to meaningfully increase the loan purchases as well as maintain the growth rates that we've been seeing on the originated portfolios? What we've been seeing on the originated portfolios?
On the originated portfolios.
We do.
As part of our.
We do, you know, as part of our.
But I mentioned earlier about the projected costs going forward.
We have a fair number of slots to hire more people.
And I mentioned earlier about the projected costs going forward. We have an affair number of slots to hire more people. And...
And.
But we'll do what it takes to.
Yes.
Carefully.
But we'll do what it takes to...
<unk>.
Underwrite.
so carefully and...
The Pope both purchased and originated loans and not.
you know, underwrite.
We won't fund by any loan are originated the loan and less work.
the purchase and origina know, we won't fund by an any loan unless we're 100 the underwriting that we think we'll have a bandw we're seeing now and we w as you need them going in
100% comfortable in the underwriting that we have but I don't think we will have a bandwidth problem on what we're seeing now.
And we will hire more people as we need them going into the next year.
Great.
For this past quarter the volume that we saw was it was.
Great.
The supply just not there or are you losing business to others.
For this past quarter, the volume that we saw was it...
Or is the pricing not appropriate.
Was the supply just not there or were you losing bids to others?
What kind of drove the lower volumes based on based on your commentary I would have expected to see volumes a little bit higher.
Or is the pricing not appropriate? What kind of drove the lower volumes based on your commentary? I would have expected to see volumes a little bit higher.
I think we look we looked at a lot, but when we looked at what was available in the.
I think we looked at a lot. We looked at what was available in the market in our.
A market in our <unk>.
And our sweet spot.
There are a number of providers.
As I pointed out it's a lumpy business.
And our sweet spot and we bid on a fair number and that's what it's like because we're acquainted with the lumpy business. And I think we'll. And I think we'll. And I think we'll.
I think.
The market to supply the market last quarter was what I saw.
The market, the supply, the market last quarter was,
<unk>.
It started to pick up towards the end of the quarter.
supply the market last quarter was
Oh.
I don't think its indicative of anything.
It started to pick up toward the end of the quarter. So yeah, come.
Let me thank all of them.
<unk>.
I don't think it's indicative of anything other than that.
Okay.
The originated loans.
The yields on the new production just given the variable nature of those are those are those yields pretty similar to the book yield that you would have to.
Okay, on the originated loans, the yields on the new production, just given the variable nature of those, are those yields pretty similar to the book yield that you'd have to that kind of, I think you said, six and a half core yield? Is that where new loans would be coming on as well? No, they're coming on at...
So that kind of I think you said $6 five core yield is that where new loans will be coming on as well.
Coming on that.
Yes.
That range.
Anywhere between.
Yeah, I get it. Well, in that range, you know, anywhere between, you know, between
<unk>.
Prime one and a half and two five.
There is a range for those and then of course reflect the expected 75 basis points.
prime one and a half and two and a half so that there's a range.
for those and they don't, of course, reflect the expected 75 basis point increase in prime increase in prime will be announced, but that's about right.
Increase in prime.
That will be announced.
But that's about right.
Okay.
We work with the rate increases are Brian .
The point I'm, making.
It's going to go up with the rate of increases in prime is really the point I'm making.
Yes.
Can you give us some commentary on the cost of funds and I know, it's ticked up a little bit and you have the slide here that shows that it should probably pick up a little bit more on you've done a lot with respect to improving your deposit profile over the last couple of quarters.
Yeah.
Can you give us some commentary on the cost of funds? And I know it's ticked up a little bit, and you have this slide here that shows that it should probably take up a little bit more. And you've done a lot with respect to improving your deposit profile of the last couple quarters. But in terms of the pressures that you're seeing and the deposit costs where those are coming from. And the deposit costs where those are coming from.
But in terms of the pressures that youre seeing on deposit costs, where those are coming from.
Sure.
I think you made the point that we're starting in a better place than where we were two years ago. So being at 36 basis point cost of funds.
I think you made the point that we're starting in a better place than where we were two years ago, so being at a 36 basis point cost of funds for this quarter, obviously lower than where we had been. There's definitely some pressure upwards for customers who are asking us to repress your deposits and everything, but we're definitely not 100% beta. Thanks for watching.
For this quarter, obviously lower than where we had been there's definitely some pressure upwards for customers, who are asking us to reprice deposits and everything.
But we're definitely not a 100% beta.
So while we do expect rates to go up we expect our loans to move up.
Significantly more than our deposits, but I think it's kind of.
So, you know, while we do expect rates to go up, we expect our loans to move up significantly more than our deposits, but, you know, I think it's kind of a sign of the market and kind of based on what our competitors do also, you know, as competitors move, we have to be a little more agile and flexible to make sure that we can continue to fund the growth that we hope to see in the balance sheet by retaining our deposits continue to grow more. So, we do have.
End of the market and kind of based on what our competitors do also as competitors move we have to be a little more.
Agile and flexible to make sure that we can continue to fund the growth that we hope to see in the balance sheet by retaining our deposits continue to grow.
More so we do have.
Our projected uptick in the cost of deposits, but.
Nothing overly significant based.
projected uptake in the cost of deposits, but nothing overly significant based on where the projected rates are expected to go over the next, at least six months.
Based on where the projected rates are expected to grow over the next at least six months.
Okay.
And Rick I think you said in your prepared remarks that we should be modeling expenses in the coming quarters around $13 million per quarter, which is it seems kind of an uptick from where you were.
Okay.
And Rick, I think you said in your prepared remarks that we should be modeling expenses in the coming quarters around 13 million per quarter, which is seems kind of an uptick from where you were last quarter and kind of the non year end quarters. Can you maybe just talk a little bit about why that...
Last quarter and kind of the non year and quarters.
Can you, maybe just talk a little bit about why that.
Is it mostly as.
It's mostly comp.
It comes in.
Well I think there's three big buckets of that.
It's mostly comp, it comes in...
One or more head count.
Well, I think there's three big buckets of that, one are more headcount.
This year with inflation.
Base salaries went up because of.
You know, this year with inflation, you know, base salaries went up because of, you know, we gave out kind of the standard increase in base is higher than it had been in that past because of inflation. And we're also moving...
We gave out kind of the standard increase in base is higher than it had been in the past because of inflation.
And we're also.
Moving.
From our current office to another office for those that know Boston in the seaport.
from our current office to another office for those that know Boston and the Seaport. We needed more space.
We needed more space.
<unk>.
We signed this lease in.
2012.
And we signed this lease in...
And rents are higher so we have.
Kind of a rate volume, we're taking more space and it's more expensive. So those are the three major items that are accounting for the increase in.
2012 and rents are higher. So we have...
It's kind of rate volume. We're taking more space and it's more expensive. So those are the three major items that are accounting for the increase in...
Noninterest expense.
Okay.
non-interest expense.
And then just a couple more questions for me.
Okay.
When you guys will adopt Cecil on January one 2023 is that correct.
And then just a couple more questions for me. You guys will adopt CECL on January 1, 2023, is that correct?
That's correct Andy.
And do you have any sort of.
Early <unk>.
That's correct.
<unk> or color that you can help us kind of.
And you have any sort of...
Figure out where that ACL might shake out and kind of how.
early guidance or color that you can help us kind of...
Year loan portfolios, given sort of the purchase nature of a big chunk of it.
figure out where that ACL might shake in and kind of how your loan portfolio was given sort of the purchase nature of a big chunk of it. It was given sort of the purchase nature of a big chunk of it.
And then another big chunk that side of zero loss history.
Now see some might impact your various portfolios.
And then another big chunk that's had a zero loss history, like how CISO might impact your various portfolios.
Yes, it will.
Most likely reduce the majority of our portfolio our segments.
Yeah, it will most likely reduce the majority of our portfolio, our segments given the low LTVs and the minimal losses that we have in our originated portfolio. Where we see an increase in the residential real estate side, when you look at the life of those zones is much longer than the short term nature of what we have in the National Learning originated portfolio.
Even the low ltvs and the minimal losses that we have in our.
Originated portfolio.
Where we see increases in the residential real estate side when you look at the <unk>.
But those loans is much longer than the short term nature of what we have in the.
National lending originated portfolio.
One of the other factors is that we will have to begin reserving for purchased loans.
You know, one of the other factors is that we will have to begin reserving for purchase loans in the allowance for credit losses. So that'll come in also as a factor. You know, some of that what do we have right now is in purchase discounts. So some of that discounted sitting against the loan balance will actually migrate over to the allowance for loan losses when we adopt Cecil. So it'll just going to be a reclassification in the balance sheet and have no capital or earnings impact at that time.
Allowance for credit losses, So that'll come in also was a factor.
And some of that that we have right now is in <unk>.
<unk> discounts so some of that discount that's sitting against a loan balance will actually migrate over to the allowance for loan losses, when we adopt seasonal so it will just be a reclassification in the balance sheet.
And have no capital or earnings impact at that time.
So we expect the overall allowance probably won't change materially from where it is now but kind of how we get there there might be some components moving around.
So we expect the overall allowance, you know, probably won't change materially from where it is now, but kind of how we get there, then might be some...
On the balance sheet at that time.
Okay, and then that last piece of the purchase discount going into the reserve for purchased loans.
some components moving around on the balance sheet at that time.
Okay, and then that last piece of purchase discount going into the reserve for purchase loans. It post this sort of January one adoption date, if we look forward into some quarters for next year, does that mean that a larger quarter of purchases would result in a larger provision?
Post the sort of January one adoption date, if we look forward into some quarters for next year does that mean that a larger quarter of purchases would result in a larger provision.
That depends on where <unk> ends up there.
We're looking at still updating some of the seasonal guidance that will allow you to take.
That depends on where FASB ends up. They're looking at still updating some of the CISO guidance that will allow you to take some of that discount that you purchase on loans and move it over to the allowance at the time of purchase. But the way CISO is worded right now is that you would have to reserve for purchase loans through a provision in the aching statement. But FASB is looking at making an adjustment for purchase loans in the future. For purchase loans in the future.
Take some of that discount that you purchase on loans and move it over to the allowance at the time of purchase.
The way you see is worded right now is that you would have to reserve for purchased loans through our provision in the income statement buffet SBA is looking at making an adjustment or purchase loans.
In the future.
Okay and then just the final question Rick on the annuity 708 program I think you said you closed 26 loans.
Okay, and then just the final question, Rick, I think you said you close 26 loans. I think you said you close 26 loans.
It was $600000 of that's loan balances correct not income for you guys and can you just remind us how that might.
I think with $600,000 of that loan balance is correct, not income for you guys. And can you just remind us how that might...
Should those volumes pickup how that's going to actually impact the income statement.
should those volumes pick up, you know, how that's going to actually impact the income statement.
Are you seeing out there.
If the volume were to pick up how that would impact the earnings.
Are you saying Alex, if the volume were to pick up, how that would impact our earnings? Is that your question? Yeah, I know there's a gain on sale component and then there's also, if I remember correctly, a reserve as well. So if we were to sell those loans, they're now priced at prime $275,000 and they're now priced at prime $75,000.
Our earnings is that your question, yes, I know, there's a gain on sale component and then there is also if I remember correctly I can rich.
Our reserve as well.
If we wanted to.
So if we were to sell those loans are now priced at prime $2 75.
<unk>.
Currently if one were to sell.
Loans. These are 10 year loans that prime to 75, assuming they get the same.
Currently, if you have one word of cell, loans, these are 10-year loans that prime 275. And assuming they get the same pricing as... I assume they get the same pricing as...
Reising.
As.
Larger traditional <unk> loans.
Today, the premiums eight points come down a little bit it was a one time 10 or 11, maybe a little bit more of a currently I'd say it I think it will change as rates change over time. So if we were to sell those loans at a 90% guarantee on the loan. So if you sold off.
Large or traditional seven a-lones.
Today, the premiums, eight points, come down a little bit. It was at one time 10 or 11, maybe a little bit more, but currently it's eight. I think it'll change as rates change over time. So if we were to sell those loans, there's a 90% guarantee on the loan. So if you sold off, let's say it was to make the math easier, you had a million dollars of UPV on the loans, you could sell off.
Let's say it was to make the math easier you had $1 million of <unk>.
<unk> on the loans, you could sell up $900000 and the premium would be eight.
<unk>, 8% on that so there would be a gain of 72000.
$900,000 and the premium would be 8% on that so there would be a gain of $72,000.
We would split that.
With.
We would split that.
Nobody.
And so we get 36, they get 36, we would keep the 10% that we didn't sell on our books and earned prime $2 75 on that and I should have added that.
with
Nobody?
And so we get 36, they get 36. We would keep the 10% that we didn't sell on our books. We would keep the 10% that we didn't sell on our books.
and earn prime $275 on that. And I should have added that.
If there were any losses in that portfolio will split that with <unk> 50, 50, and we will withhold.
If there are any losses in that portfolio, we'll split that with Noody 5050, and we will withhold starting off, if we look at the, we expect the losses in the portfolio, over time will be 3%, so we would withhold a percent and a half.
Starting off if we look at the we expect the losses in the portfolio over time will be 3%. So we would withhold.
<unk> in the half.
Nobody's share of the.
Gain on it.
I should point out for the audience.
of Nuiti's share of the gain on it.
Only using that $1 billion to make the arithmetic easy.
I shouldn't point out for the audience if I'm only using that million dollars to make the arithmetic easy. You know, you get it's linear. And so if it was a much bigger number, obviously that would be much more interesting, which is our...
It's linear and so if it was a much bigger number obviously that would be much more interesting which is R.
That's what we're trying to accomplish that was going to say pulp, but that sounds suit candidate if thats, what we think will happen with more volume.
That's what we're trying to accomplish. I was going to say hope, but that sounds too tentative. That's what we think will happen with more volume.
Awesome, Thanks for taking all my questions.
As you are all excellent ones. Thank you Alex.
Awesome, thanks for taking all my questions.
As a reminder, if you have a question. Please press <unk> one on your Touchtone phone.
Those are all excellent ones. Thank you, Alex.
As a reminder, if you have a question, please press 0-1 on your touch-tone phone.
And we have no further questions at this time.
Well. Thank you. Thank you everybody for.
And we have no further questions at this time.
Listening in.
Well, thank you. Thank you everybody for...
And your continued support.
Listening in.
We look forward to.
your continued support.
Talking again.
The end of the current quarter.
We look forward to talking again.
We try and make our slide deck.
the end of the current quarter. We try and make our slide deck as helpful as possible. And the information we provide, if you have any suggestions, the standing offer, let us know. And if we can accommodate it, we will do that. And on that note, I will say thank you and goodbye. And on that note, I will say thank you and goodbye.
As helpful as possible and the information we provide if you have any suggestions.
So standing offer let us know if we can accommodate it we will do that.
And on that note I will say, thank you and goodbye.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
Okay.