Q1 2023 Northeast Bank Earnings Call

November 1, 2022

[music].

Yeah.

Welcome to the northeast Bank first quarter fiscal year 2023 earnings call.

My name is Shannon 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 northeast Bank Dot com under events and presentations you.

You may find it helpful to download this investor presentation and follow along during the call.

Also this call will be available for rebroadcast on the website for future use.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star one one are you touched on phone as.

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. Wang you may begin.

Yeah.

Good morning.

Thank you all for joining us today.

With me.

Our JP Lapointe, our chief Financial Officer.

Pat Dignan, our Chief operating officer, and Chief Credit Officer.

After my comments JP.

And I will be happy to answer your questions.

During my comments I'm going to refer to the in some cases to the slide deck.

That is.

On our website.

And I'm only going to focus on.

Meaningful highlights to try and provide some more detail into what has already been.

Well.

First I wanted to just mentioned some.

Financial highlights for the quarter.

Sure and I'll refer to slide number three.

For the quarter net income was $8 $3 million.

EPS was $1 12 diluted.

<unk> was 13.07%.

<unk> was two point or 3%.

Tangible book value was $33.57.

And during the quarter, we repurchased 108000 shares at an average price of $37 88.

Let me just add.

A higher level.

Compare.

The quarter that just ended with the linked quarter.

To make the point that.

The current quarter was actually quite strong.

Even though the income was lower than the linked quarter. So the linked quarter was the current quarter was $8 $3 million.

Which is down $2 million from the linked quarter, meaning June 30th.

Which had net income of $10 $3 million.

This difference is really attributable to two.

Factors.

One.

Correspondent income was down $2 $3 million compared to the linked quarter.

And that provision.

One $7 million difference from the linked quarter and the current quarter, we had a provision for 850000.

And in the linked quarter, we had a credit to our provision to the allowance for $880000. So if you take a look at these two items.

One 7 million in 234.

$4 million.

On an after tax basis is $2 $8 million.

As I mentioned, we were down $2 million so.

But for those two.

Our income would've been higher in this quarter and I will as we go through this presentation.

Talk about those two why they were there.

Okay.

I'd like to also talk about.

Quarterly loan activity.

Information.

As on slide seven eight and 26.

First.

We had record originations of $181 $7 million.

With a yield of 785% on our originated.

The loan portfolio.

National loan portfolio.

Which benefited from both increases in the prime rate.

And.

Increased interest and fees collected upfront.

Some loans, so that was 785% on the originated yield.

We have purchases of 77 point.

$5 million.

And the yield on that the return on that was seven 1%, which was meaningfully lower than in the linked quarter.

The linked quarter.

That number was.

Nine over 9%.

Exactly here, but over 9%.

In the.

June 30 quarter.

And then the difference of that which is substantial 210 basis points.

This is due to a lower level of income.

From accelerated accretion and fees in the current quarter and accelerated accretion and fees were 86 basis points and it was just a little bit less than 3% in the linked quarter and so why is that well. So why is it part is because we had less payoffs.

In the current quarter.

Which in a lot of respects is a good thing.

Because.

It's kind of good and bad so if you get an early payoff you'd generate more accelerated income and so your return is higher.

On the other hand, the loan pays off and then you don't have that loans that generate interest income and the following quarter.

<unk>.

And so thats the good and the bad news.

But it did have the impact of the effect of having the transaction or the accelerated accretion fees lower by 210 basis points on the question around the point on loan payoffs.

This was our lowest level of payoffs in 14 quarters if.

If you measure.

The amount of pay offs.

<unk> to the total purchase.

Our portfolio now talking about the purchase loan book.

For this quarter that ratio was 5% during some rounding.

And if we go back and look at the average for the prior 14 quarters.

It's about 8% so we had substantially less.

Less payoffs, which generated as I've explained less transactional income.

But our loan book is growing because those loans were paid off.

In terms of the loan portfolio nationalizing portfolio growth.

If we look at the linked quarter and our national loan portfolio.

It increased $167 million or 13, 5% increase from June 32022.

If we go back and look a year ago.

Loans increased international loan portfolio by $412 million or a 41, 6% increase in our loan book over the last year, that's quite substantial.

Loan increase and so.

Im going to segue into the corresponding fee income.

And how we are replacing that reduction in income with net interest income.

Refer to slide 29 of these comments.

First.

Our net interest income and by that I mean, our interest income before any.

What we call transactional income or accelerated accretion or are those things.

<unk> was for the quarter $22 $6 million.

Compared with $20 1 million for the linked quarter.

Our base net interest income.

This quarter increased by $2 5 million or 12% because our loan portfolio is growing and we're benefiting from a higher rate interest environment.

Then if we look at the corresponding fee.

That's been declining every quarter.

In the current quarter was $1 4 million.

Impaired with three 7 million for the linked quarter, so it decreased by $2 $3 million.

Just to compare those two numbers are net interest income increased by $2 $5 million and our corresponding fee income.

Decreased by $2 $3 million and so.

This answers the question that investors raised when we generated so much capital.

From the Triple P activity.

Okay.

And knowing that the Triple T income ahead of us.

Shelf life.

When that goes away can you replace that by growing your balance sheet and we are doing that as evidenced by the numbers that I've just.

Described.

On.

Asset quality.

Slide 10.

<unk> strong.

England's fees were $14 million.

Or a little bit less than 1% of total loans.

And non accrual loans were $13 7 million and that was 93 basis points.

2093% I should say of total loans.

Those are given our lines of business very strong numbers and then finally.

I think the biggest news to come out of all of this.

Occurred in September .

We.

We disclosed that in the month of.

<unk>.

We purchased.

And multiple transactions, a total of $303 $6 million of <unk> loans.

Which will increase obviously increase our.

Our loan book.

<unk>.

From October one at the end of October we just recently closed on it going forward.

Which will be a benefit.

Subsequent quarters.

And with that.

That ends the <unk>.

Form a part of our presentation and we will.

We are here to answer any questions that you might have.

Thank you we will now begin the question and answer session.

If you have a question. Please press star one one or your Touchtone phone.

If you are 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 star one one on your Touchtone phone.

Alex <unk> from Piper Sandler is on the line with a question.

Yes.

Thank you good morning, guys.

Good morning.

First off Rick or Pat I was hoping you could comment on this.

This volume in October and I guess to a lesser extent during the quarter in the purchase market is obviously, a big pickup relative to what we've seen recently and I know you've talked a lot about some of the dynamics.

That are driving that I'm, just wondering if some.

Some of these pools pools.

The.

If the available loans are being driven by the rate environment being driven by the credit potential credit changes.

Or if it's really or something else that we should be thinking of and just kind of curious what's driving the higher volumes.

Pat you want to.

Sure.

Right.

Certainly.

Our rate driven anytime there is space there is movement in the market like this.

Balance sheet repositioning on the part of.

Oh.

Sellers.

Yes.

Marketing for.

It's about expecting to see an increase in the <unk>.

Out of the funnel with respect to loan sales and we're starting to see that.

So.

Good portion of it is driven by interest.

Interest rates.

Liquidity on the part of the sellers.

I would add to that.

I would add to that and we've talked in prior calls we are so well situated to take advantage of these opportunities in the marketplace. I know you know this point if there is anyone on the call it doesn't.

A lot of the folks that work here in amount of capital crossing.

Which all we did was purchased loans. So we have opportunities to look at pools coming in we have first the expertise to be able to underwrite all of these loans and service them and we have the capital.

To be able to buy them and so it's a.

Really a great way to.

Grow our our loan book.

To do that and sellers like to deal with us because we have.

Expectation for being able to execute.

Feel very good counterparty for them and.

You did hear a forward looking statement, which I won't bore you with again, but we're seeing a lot in the pipeline now.

Auto loans coming to market.

Pointed out that doesn't mean, we're going to buy a lot more because it's been on them one at a time, but we're seeing more volume now than I think we've ever seen it definitely more volume and there is some there is some portion of the.

Availability of credit driven more and more than more than in the past few years.

Again, the stuff that we're focused on is primarily.

Terrific.

Alright.

Not a lot of big credit issues.

Yeah.

Good luck.

Successful purchases.

Do you have any.

Any thoughts you can share with us on sort of how you balance the volume versus the pricing on there certainly with the volume increasing you would expect the pricing to improve or pricing for you to improve.

Just given.

Obviously, the dynamics of supply and demand I'm, just curious without necessarily giving away all of the.

All the secret sauce, how you think about bringing on additional volume in any given quarter versus making sure you get the best pricing possible.

Well.

One we have with the capital we have a lot of capacity to grow our loan.

Loan book.

Secondly.

Somebody has got to do it three or four things that we think about when we bought without.

The secret sauce.

When we look at loans, we're obviously mindful of credit quality first point, making sure that we're bidding at a level that we're comfortable that we are with the.

LTV.

What we are buying.

And when we think about pricing, we paid to generally through a certain yield mindful that.

You need to be competitive of course, we're not the only ones bidding on loans.

Partly driven by what the marketplace requires.

For a bit.

And the thing we have.

We know and even more so in recent times is that when we buy loans, we do much better than just what we think is the yield to maturity based on the price that we bid because one of course, you get early payoffs, which enhance the yield and secondly, we find that a bunch of these loans.

Sometimes there is.

While we call Shadow interest, where there may have been in default at one time and the customer balances more than.

And the.

The original <unk> or what we pay and so thats I don't want to put numbers out there because that would be related to the secret sauce, but we.

We know we're going to do better than just what the math tells us on the yield to maturity.

For those reasons.

I won't say exactly responsive but.

Yes.

The.

Going back to the pricing question, it's what it doesn't show up on our disclosures.

So much larger numbers of loans that we look at it.

Okay.

Yes.

EMEA had previewed this is really directional I don't have the numbers exactly in front of me.

But at one point when we went through kind of the funnel in a particular quarter not this quarter.

But we may wind up buying something like.

15% to 20% of the stuff, we look at or less.

A lot of loans that come over the transom so to speak.

We don't bid on and then there was a previous there was a lot.

There's definitely some deals out there now where sellers are sharp.

Pricing.

Sure.

Thank you Alex.

I'm trying to ask is.

We had predicted this after cope with what we were wrong, but right now theres a lot of opportunity to buy loans.

Sure.

Better pricing as you mentioned in your <unk>.

Last year.

And so we're trying to grow our balance sheet.

In addition to the originated activity, which was a record breaking quarter.

The purchase volume.

Got it thanks for all that color.

Onto the transactional income and I appreciate your comments on sort of where that shook out this quarter relative to the previous 14 quarters.

How should we think about that because it strikes me that when rates moved up back in 2017, 18, 19 time period, we didn't see necessarily that transactional income fall off a cliff, but then again that was a much different increasing cycle.

As you look forward and I know obviously there is a forward looking statement.

Do you think we're going to see lower levels of that of early payoffs relative.

To history.

Maybe give us a little bit of thought around how how do you think maybe somebody would think about that over maybe not necessarily over a quarter, but over a year.

Two comments that once part of the retention as we are a deliberate effort by our asset managers to repaying loans.

Because it was previously.

We would have a customer who will be a good long the customer paying all the time, the low LTV would be lower and we would.

Try and encourage the customer to stay pointing out to the customer that really easy they don't need a new appraisal they don't need the legal documentation.

Mostly at the sign to bridge extension agreement and so very.

Very low friction costs.

And then we would offer them what would be we would think would be a good rate.

And this is one way before rates went up to say we would offer them.

505, because rates were so low but we had the loan then we added capacity and they would still leave us because they would get an offer.

Four.

Hey, Mark.

So borrowers that are with us.

There are opportunities to refinance us out.

Les and Theyre more expensive.

Until it's easier for us to keep that loan and we were and we are trying to.

When you think about.

The purchase.

The return on our purchased loans.

It really depends going forward on the level of prepayments.

If I were to estimate I think this quarter.

Was unusually low.

No I would not expect us I mean, it could happen if we don't get the payoffs.

But again, we're building a loan book, but I think what we got what we had this quarter was unusually low.

I would expect it to be at least over eight.

Going forward.

Again subject to any given quarter it depends on the payoffs so that's that.

Number but directionally.

I would think it would be higher.

And also.

Purchase loans generally.

We're not variable I mean, there are some that are and some that reprice different intervals, but it's not like our originated book.

Tied to the prime mostly all of it.

Our sulfur now.

Right. Okay. That's helpful. And then just on the other side of the balance sheet and funding costs I know you did some things too.

To improve the funding profile going into this but given all the growth that we're seeing maybe talk about any strategies or updated strategies.

On funding and the incremental growth that we should be thinking about.

Yes, Thanks, Alex.

We have some strategies primarily in the in the community bank in our national lending in corporate and institutional deposits.

Included in there is municipal and the community Bank.

To continue to grow the balance sheet to fund the growth.

Obviously with the lower level of Paydowns, we required more funding to bring on the balance sheet to fund the growth.

Because usually we see more funds coming in from the loans paying off early.

We didn't have that this quarter, so required us to go out and bring in more.

Incremental deposits.

Which.

Can sometimes be a little more expensive than your existing deposits already.

So we do have some strategies that were.

Still looking to roll out and bring in funding is needed and then obviously, we can supplement with other funding sources as needed if we have an opportunity.

Sure.

Big portfolio to purchase.

Yes.

Okay. Thanks.

And then can you talk a little bit Rick about the pipeline on the originated national loans, and obviously that growth has been huge for now over a year.

Yes.

The original.

Hello.

Right.

On the originated side, yes, I mentioned earlier, we had record.

The amount of volume in the quarter that preceded the pipeline.

Both.

Judge by looking closing, where we have term sheets out that have been signed that return with the deposits.

We have.

Term sheets that are out that we're waiting to get back.

The pipeline is very large.

But.

That's a very general statement to that question.

Do you want to.

Narrowed down at all.

The previous quarters.

The lack of fixed rate.

Alternative or at least without long lock outs.

And the.

Yeah.

Increasing funding costs for non bank lenders.

So the benefit of us.

Our cost of funds.

R R.

Restructures and Lockdowns.

We're pretty a pretty attractive alternative relative to previous years.

So we are able to be.

Not only more volume, but what pickier with respect to the assets.

Yes.

Sure.

You had mentioned in your.

Preliminary right Alex about business development officers now they've been with us for a while but now they're really.

And in stride in terms of value and plus there is a lot of.

Organic growth too.

Existing customers.

We're just calling in for.

Refinancing needs.

<unk>.

And.

The number of in the case of portfolio finance a number of those borrowers.

Leveraging nonbank lenders those numbers are increasing.

We're doing a fair amount to improve.

Prove our brand in the marketplace.

Digital advertising and events with borrowers.

On behalf of the year conferences, and those kind of things so.

We're very optimistic about the volume we can do on the originated side.

With higher volumes on the loan portfolio and the loan growth should we expect.

Little bit of a tick up in expenses in coming quarters.

So I think the number I gave out earlier I mentioned $52 million for the year I think.

It's a pretty good number.

And if it went up.

They can go up a little bit.

Crazy I think.

That's a reasonable number for the year.

To the extent, we see any meaningful changes in that we can update that.

And one of our next calls, but I think thats, a reasonable assumption for the bank.

That's for the fiscal year correct.

Yes.

Okay.

Just two more questions from me one is just given the growth and <unk>.

Managing excess capital I'm, just curious how if buybacks don't make as much sense today as they did a couple of quarters ago.

Well there are two.

When we think about.

Buybacks, we think obviously about use of capital.

And what price you to ask the buyback so I mentioned in the prior quarter was back then.

The current quarter September 108.

We changed that currently one of the things that's happening now is because we've increased our loan book so much.

We factor in.

Purchase loans that we've described.

Our earnings release.

It used to be our long capacity based on our capital was something like $100 million.

Yes.

The $1 billion J P as planned.

<unk> is that correct.

But I'd make a small area he doesn't mentioned, but the $1 billion. That's a big thank you.

And now.

We're like $500 million of capacity. So we think about capital differently now based on the amount of opportunity in front of us.

And the stock price.

Where it is.

And so I think that's all I would say on that point.

Okay, and then just a final question I saw during the quarter that the annuity relationship looks like it went live in sometime in September I'm wondering if you can give us any sort of update on anything there.

We can.

I would say.

They're starting to <unk> loans.

J P. Do you have a number.

Yes.

Through September so not a lot.

So they booked around $2 million.

They're actively doing it there it seems to be some changes.

With the SBA.

Around.

The processing of the <unk> loans, which might improve but theyre at it we'll see what we will see what happens, but it's not a lot yet.

Yeah.

And I'll remind everybody when we started all of this said.

Set the expectation that we don't really we didnt know than what they were going to do whether it was going to be a little or it was going to be a lot.

It's currently a small amount.

But.

It could be much more I want to factor it a big number in your analysis.

So far it has not been the case.

Great. Thanks for taking all my questions.

Those are very good ones that a lot of them. Thank you Alex.

Thank you.

As a reminder, if you have a question. Please press star one one or you touched on phone one moment. Please.

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

Thank you very much. Thank you to those that are listening to this call.

I appreciate your support and hope you found that interesting.

If there are things that you'd like us to cover in future calls.

Let us know if we can we will.

And with that again, thank you.

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

Yeah.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Hi.

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Morning.

Okay.

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Okay.

Yes.

Welcome to the northeast Bank first quarter fiscal year 2023 earnings call.

My name is Shannon and I will be your operator for today's call.

This call is being recorded with US today from the Bank is Rick Wang President and Chief Executive Officer, JP, Lapointe, Chief Financial Officer, and Pat Dignan, Executive Vice President and Chief operating Officer.

You may find it helpful to download this investor presentation and follow along during the call.

Also this call will be available for rebroadcast on the website for future use.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star one one on your Touchtone phone.

Reminder, the conference is being recorded please.

Please note that this presentation contains forward looking statements about northeast bank forward looking.

Mr based upon the current expectations of northeast banks management and are subject to risks and uncertainties.

Good morning.

Thank you all for joining us today.

With me.

Our JP Lapointe, our Chief Financial Officer, and Pat Dignan, Our Chief operating Officer, and Chief Credit Officer.

After my comments JP Pat.

And I will be happy to answer your questions during.

During my comments I'm going to refer to the in some cases to the slide deck.

That is on our.

On our website.

And and I'm only going to focus on.

Some.

Meaningful highlights to try and provide some more detail into what has already been.

Well.

First I wanted to just mentioned some financial highlights for the quarter.

Sure and I'll refer to slide number three.

For the quarter.

Net income was $8 $3 million.

EPS was $1 12 diluted.

ROE was 13.07%.

ROA was two 3%.

Tangible book value was $33 57.

And during the quarter, we repurchased 108000 shares at an average price of $37 88.

Let me just at a higher level.

Per.

The quarter that just ended with the linked quarter.

Could make the point that.

The current quarter was actually quite strong.

Even though the income was lower than the linked quarter. So the linked quarter was the current quarter was $8 $3 million.

Which is down $2 million from.

The linked quarter, meaning June 30th.

Which had net income of $10 $3 million.

This difference is really attributable to two.

Factors.

One the corresponding income was down $2 $3 million compared to the linked quarter.

And the provision was $1 $7 million difference from the linked quarter and the current quarter, we had a provision for 850000.

In the linked quarter, we had a credit to our provision to the allowance for $880000. So if you take a look at these two items.

$1 7 million in two three.

$4 million.

On an after tax basis is $2 $8 million.

As I mentioned, we were down $2 million so.

But for those two.

Our income would have been higher in this quarter and I will as we go through this presentation.

Talk about those two why they were there.

Okay.

I'd like to also talk about.

Quarterly loan activity and this information.

As on slide seven eight and 26.

First.

We had record originations of $181 $7 million.

With a yield of 785% on our originated.

The loan portfolio.

National loan portfolio.

Which benefited from both increases in the prime rate.

And <unk>.

Increased interest and fees collected on upon payoff book.

Some loans, so that was 785% on the originated yield.

We have purchases of.

77.5.

$5 million.

And the yield on that the return on that was seven 1%, which was meaningfully lower than in the linked quarter.

The linked quarter.

That number was.

Nine.

9%.

And what exactly here, but over 9%.

In the.

June 30 quarter.

And then the difference of that which is substantial 210 basis points.

This is due to a lower level of income.

From accelerated accretion.

Fees in the current quarter and accelerated accretion and fees were 86 basis points and it was just a little bit less than 3% in the linked quarter and so why is that well. The why is it part is because we had less payoffs.

In the current quarter.

Which in a lot of respect is a good thing because.

It's kind of good and bad so if you get an early pay off you generate more accelerated income until your return is higher.

On the other hand, the loan pays off and then you don't have that loans to generate interest income and the following.

<unk>.

And so thats the good and the bad news.

But it did have the impact of the effect of having the transaction or the accelerated accretion sees lower by 210 basis points on the question around the point on loan payoffs.

This was our lowest level of payoffs in 14 quarters, if you measure.

The amount of pay offs.

Compared to the total purchase.

The portfolio now talking about the purchase loan book.

The.

For this quarter that ratio was 5% during some rounding.

And if we go back and look at the average for the prior 14 quarters there.

It was about 8% so we had substantially less.

Less payoffs.

<unk> generated as I've explained less transactional income, but our loan book is growing because those loans were paid off.

In terms of the loan portfolio national lending portfolio growth.

If we look at the linked quarter and our national loan portfolio at <unk>.

<unk> $167 million or 13, 5% increase from June 32022.

If we go back and look a year ago.

<unk> increased international loan portfolio by $412 million or a 41, 6% increase in our loan book over the last year, that's quite substantial.

Loan increase.

So now I'm going to segue into the corresponding fee income.

And how we are replacing that reduction in income with net interest income.

Refer to slide 29 of these comments.

First.

Our base net interest income and by that I mean, our interest income before any <unk>.

We call transactional income or accelerated accretion or are those things.

For the quarter $22 $6 million.

Compared with $20 1 million for the linked quarter. So.

Base net interest income.

Quarter to quarter increased by $2 $5 million or 12%.

Cause our loan portfolio is growing and we're benefiting from a higher rate interest environment.

Then if we look at the corresponding fee.

That's been declining every quarter.

In the current quarter, it was $1 4 million compared with $3 7 million for the linked quarter.

It decreased by $2 3 million.

Just to compare those two numbers are net interest income increased by $2 $5 million and our corresponding fee income.

Decreased by $2 $3 million and so.

This answers the question that investors raised when we generated so much capital.

From the Triple P activity.

Okay.

And knowing that the Triple T income ahead of shelf life.

When that goes away can you replace that by growing your balance sheet and we are doing that as evidenced by the numbers that I've just described.

Described.

On.

Asset quality.

Slide 10.

<unk> remains strong.

Delinquencies were $14 million.

Or a little bit less than 1% of total loans.

And nonaccrual loans.

$13 7 million and that was 93 basis points.

93% I should say a total loans.

So those are given our lines of business very strong numbers and then finally.

I think the biggest news to come out of all of this which occurred in September .

Are we.

We disclosed that in the month of.

Kober.

We purchased.

And multiple transactions, a total of $303 $6 million of <unk> loans.

Which will increase obviously increase R. R.

Our loan book.

From October one at the end of October we just recently closed on it going forward.

Which will be a benefit.

Subsequent quarters.

And with that.

That ends the formal part of our presentation and we would.

We are here to answer any questions that you might have.

Thank you we will now begin the question and answer session.

Do you have a question. Please press star one one or your Touchtone phone.

If you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one why are you touched on spine.

Alex <unk> from Piper Sandler is on the line with a question.

Yes.

Thank you good morning, guys.

Good morning.

First off Rick or Pat I was hoping you could comment on this.

That are driving that I'm just wondering if.

Some of these pools pools.

Sure.

If the available loans are being driven by the rate environment being driven by the credit potential credit changes.

Or if it's really something else that we should be thinking of and just kind of curious what's driving the higher volumes.

Pat you want to enrich for sure.

Certainly.

Our rate driven anytime there is but there is movement in the market like this.

Balance sheet repositioning on the part of.

Oh.

And we have been.

Parking for.

That's about expecting to see an increase in.

The top of the funnel with respect to <unk>.

Loan sales and we are starting to see that.

So.

Good portion of it is driven by.

Interest rates.

Liquidity on the part of the sellers.

I would add to that.

I would add to that and as we've talked in prior calls we are so well situated to take advantage of these opportunities in the marketplace. I know you know this quarter. If there is anyone on the call it doesn't.

A lot of the folks who work here came out of capital crossing.

To be able to buy them and it's really a great way to.

Grow our our loan book.

And sellers like the deal with us because we have.

Mutation or being able to execute.

Okay.

Feel very good counterparty for them and.

You did hear a forward looking statement, which I won't bore you with again, but we're seeing a lot in the pipeline now.

Auto loans coming to market, obviously pointed out that doesn't mean, we're going to buy a lot more because it's been on them one at a time, but we're seeing more volume now than I think we've ever seen but <unk> definitely more volume and there is some there is some portion of the.

Availability, that's credit driven more more than more than in the past few years.

Again, the stuff that we're focused on is primarily.

Great terrific.

Alright.

Not a lot of big credit issues.

Yeah.

Okay.

Successful purchases.

Do you have any.

Just given.

Obviously, the dynamics of supply and demand I'm just curious.

Without necessarily giving away all of the.

All the secret sauce, and how you think about bringing on additional volume in any given quarter versus making sure you get the best pricing possible.

Well.

One we have with the capital we have a lot of.

Capacity to grow our loan.

Loan book.

Secondly.

Suddenly you're supposed to do with three or four things that we think about when we bought without.

Really the secret sauce.

When we look at loans, we're obviously mindful of credit quality first point, making sure that we're bidding at a level that we're comfortable that we are with the.

LTV.

What we are buying.

So when we think about pricing, we paid to generally through a certain yield mindful that.

You need to be competitive of course, we're not the only ones bidding on loans.

Partly driven by what the marketplace requires.

For a bit.

The thing we have.

We know and even more so in recent times is that when we buy loans, we do much better than just what we think is the yield to maturity based on the price that we bid because one of course, you get early pay offs, which enhance the yield and secondly, we find that a bunch of these loans.

Sometimes there is.

While we call Shadow interest, where there may have been in default at one time and the customer balances more than.

And the.

The original <unk> or what we pay and so thats I don't want to put numbers out there because that would be related to the secret sauce, but we.

We know we're going to do better than just what the math tells us on the yield to maturity.

For those reasons.

I won't say exactly responsive.

Okay.

The.

Going back to the pricing question, it's what it doesn't show up on our disclosures.

So much larger numbers of loans that we look at it.

Okay.

Theyre all those.

<unk> previewed this is really directional I don't have the numbers exactly in front of me.

But at one point when we went through kind of the funnel in a particular quarter not this quarter.

But we may wind up buying something like.

15% to 20% of the stuff, we look at or less.

There is a lot of loans that come over the transom so to speak.

Debt.

And then theres the previous there was a lot.

There's definitely some deals out there now where sellers are sharp.

The pricing.

Thank you.

Hey, Gal, it's kind of I'm trying to ask.

We had predicted this after COVID-19, we were wrong, but right now theres a lot of opportunity to buy loans.

Sure.

Better pricing as you mentioned in your.

Question.

And so we're trying to grow our balance sheet.

In addition to the originated activity, which was a record breaking quarter.

With the purchase.

Got it thanks for all that color.

Onto the transactional income and I appreciate your comments on sort of where that shook out this quarter relative to the previous 2014 quarters.

Greasing cycle.

As you look forward and I know obviously there is a forward looking statement.

Do you think we're going to see lower levels of that of early payoffs relative.

To history.

Maybe give us a little bit of thought around how.

How do you think maybe somebody would think about that over maybe not necessarily over a quarter, but over a year.

Well two comments that I want part of the retention as we are a deliberate effort by our asset managers to retained loans.

Because it was previously.

We would have a customer who would be a good long the customer paying all the time, the low LTV would be lower and we would training.

Trying to encourage the customer to stay pointing out to the customer that really easy they don't need a new appraisal they only the legal documentation.

Mostly at the signed deal to bridge extension agreement and so very.

Very low friction costs.

And then we would offer them what would be we would think would be a good rate.

And this is one way before rates went up to say we would offer them.

505, because rates were so low but we had the loan then we added capacity and they would still leave us because they will get an offer.

Four.

Hey, Mark.

So borrowers that are with us.

There are opportunities to refinance us out.

Les and Theyre more expensive.

Until it's easier for us to keep that loan and we were and we are trying to.

When you think about.

The purchase.

The return on our purchased loans.

It really depends going forward on the level of prepayments.

If I were to estimate I think this quarter.

Was unusually low.

No I would not expect us I mean, it could happen if we don't get the payoffs.

But again, we are building our loan book.

What we got what we had this quarter was unusually low.

I would expect it to be at least over eight.

Going forward.

Again subject to any given quarter it depends on the payoffs so that that number but directionally.

I think it will be higher this field.

Also.

The purchased loans generally.

Are not variable.

Some that are and some that reprice different intervals, but it's not like our originated book.

Tied to the prime mostly all of it.

Our sulfur now.

Right. Okay. That's helpful. And then just on the other side of the balance sheet and funding costs I know you did some things too.

To improve the funding profile going into this but given all the growth that we're seeing maybe talk about any strategies or updated strategies.

On funding and the incremental growth that we should be thinking about.

Yes, Thanks, Alex.

We have some of the strategies primarily in the in the community bank in our national lending in corporate or institutional deposits.

Included in there is municipal and the community Bank.

To continue to grow the balance sheet to fund the growth.

Obviously with the lower level of Paydowns, we required more funding to bring on the balance sheet to fund the growth.

We certainly see more funds coming in from the loans paying off early.

You didn't have that this quarter, so required us to go out and bring in more.

Incremental deposits.

<unk>.

Can sometimes be a little more expensive than.

Shifting deposits already.

So we do have some strategies that were.

Still looking to rollout and bring in funding is needed and then obviously, we can supplement with other.

Ending sources as needed if we have an opportunity.

Sure.

Big portfolio to purchase.

Yes.

Okay. Thanks.

And then can you talk a little bit Rick about the pipeline on the originated national loans, and obviously that growth has been huge for now over a year.

Okay.

Yes.

<unk>.

The original.

Hello.

Thanks.

On the originated side, yes, I mentioned earlier, we had record.

The amount of volume in the quarter that preceded the pipeline.

Boston.

Judge by.

Whats in closing, where we have term sheets out that have been signed that return with a deposit where we have.

Term sheets that are out that we're waiting to get back.

The pipeline is very large.

But.

That's a very general statement to that question.

Pat do you want to.

There was that at all.

The previous quarters.

The lack of fixed rate.

Alternative or at least.

Without long lock outs.

The <unk>.

Okay.

Increasing funding costs for non bank lenders.

For the benefit of us with our cost of funds.

Sure.

Ah restructures and walk them through.

We're pretty a pretty attractive alternative relative to previous years.

So we're able to.

Not only more volume, but pickier with respect to the asset.

Yes.

Sure.

You had mentioned in your.

Preliminary right Alex about our business development officers now they've been with us for a while but now they're really.

And in stride in terms of value and plus there is a lot of.

Organic growth too.

Existing customers.

We're just calling in for <unk>.

Refinancing needs.

Needs.

And.

The number of in the case of portfolio finance a number of those borrowers.

Leveraging non bank lenders those numbers are increasing.

We're doing a fair amount to be.

Prove our brand in the marketplace.

To digital advertising.

Hence with borrowers.

On behalf of the year conferences, and those kind of things so.

We're very optimistic about the volume we can do on the originated.

Originated side.

With higher volumes on the loan portfolio and the loan growth should we expect.

A little bit of a tick up in expenses in coming quarters.

Well I think the number I gave out earlier I mentioned 52 million Bucks for the year I think.

That's a pretty good number I mean, if it went up.

Thank you.

Talk a little bit.

Crazy I think.

That's a reasonable number for the year.

To the extent, we see any meaningful changes in that we can update that.

And one of our next calls, but I think that's a reasonable assumption for the bank.

That's for the fiscal year correct.

Yes.

Okay.

Just two more questions from me one is just given the growth and <unk>.

Managing excess capital I'm, just curious how if buybacks don't make as much sense today as I did a couple of quarters ago.

Well there are two.

When we think about.

Buybacks, we think obviously that use of capital.

And what price you'd have to buyback so I mentioned in the prior quarter, we backup.

The current quarter September 108.

I'm curious what that currently.

One of the things that's happening now is because we've increased our loan book, so much but what would factor in.

Okay.

Purchase loans that we described.

Our earnings release.

Well it used to be our loan capacity based on our capital was something like $100 million.

Okay.

William J P J.

J P is it correct.

But I will make a small area you guys have mentioned, but 1 billion. That's a big thank you.

And now.

More like $500 million of capacity. So we think about capital differently now based on the amount of opportunity in front of us.

And the stock price.

Where it is.

And so I think.

That's all I would say on that point.

We can.

I would say.

Starting with <unk> loans.

J P. Do you have a number.

They have done through.

Through September a lot.

So they booked around $2 million.

They're actively doing it there it seemed to be some changes.

With the SBA.

Around.

The processing of the <unk> loans, which might improve but theyre at it we'll see what that yes, we will see what happens, but it's not a lot yet.

Yeah.

And I'll remind everybody when we started all of this.

Set the expectation that we don't really we didnt know than what they were going to do whether it was going to be a little or it was going to be a lot.

It is currently a small amount.

But.

It.

Could be much more I wanted to factor it a big number in your analysis.

So far it has not been the case.

Great. Thanks for taking all my questions.

Those are very good ones that a lot of them. Thank you Alex.

Thank you.

As a reminder, if you have a question. Please press star one one on your Touchtone phone.

Please.

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

Thank you very much. Thank you those that are listening to this call.

Appreciate your support and I hope you found that interesting.

If there are things that you'd like us to cover in future calls.

Let us know if we can we will.

And with that again, thank you.

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

Q1 2023 Northeast Bank Earnings Call

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