Q2 2023 Northeast Bank Earnings Call
Speaker 1: with $320 million out of the $1.1 billion, retail of $312 million, and then you can see the detail there as other collateral types, really noteworthy that the weighted average loan to value.
Speaker 2: of the $1.1 billion of loans that we purchased was 33.5%. I should repeat that number, pretty low. 33.5% weighted average loan to value on our purchases, gorgeous, always focusing on.
Speaker 3: credit quality. We do that. And then on page five shows the geography of it. And you can see that the largest piece of it was in California with $570 million of UPB.
Speaker 4: And then next, New York 216 million, and Washington State of 89 million. And then you can see the rest of the UPP on that slide.
Speaker 5: If we go to slide 9...
Speaker 6: I'm gonna focus for a second on the investment side, thinking about concentration risk by dollars.
Speaker 7: Our total capital was 270 million.
Speaker 8: And so you can see that on the very largest size, we only have 12% of our portfolio with loans that are $15 million or greater.
Speaker 9: 10% between 10 and 15 million, and then you can see the rest. So we do not have a concentration limit on dollars. We're very careful about that. Below that you can see the collateral types. And then our portfolio now is the largest state in New York with 33% filed by California.
Speaker 10: the 31% of our portfolio is our national lending portfolio, of course, and then the rest in another 42 states.
Speaker 11: If we move now to slide 19.
Speaker 12: We'll talk about the cost of our deposits for a couple minutes. The average cost of deposits, which is what the green line depicts, is $2.5 million.
Speaker 13: increased by 141 basis points.
Speaker 14: from 87.
Speaker 15: .87 and Q1 to 2.28% at the end of December 31. That was primarily the result.
Speaker 16: funding for our loan.
Speaker 17: purchases where we funded that with a broker deposits.
Speaker 18: and some borrowings from the Federal Home Loan Bank. So we had a lot.
Speaker 19: of new dollars in terms of the rate on our existing deposits that went up by 30 basis points.
Speaker 20: So you can see most of it was a result of adding new deposits and expensive deposits, more expensive. And you can see our spot rate, which was 303 on the last day of December .
Speaker 21: was up from the spot rate on September 30, which is 146 basis points. And that again primarily is due to the funding of the...
Speaker 22: loans that we purchased and really primarily with brokered CDs. The brokered CD cost for all that was $443 and those CDs will mature.
Speaker 23: between June and December of this year. And we expect to replace that.
Speaker 24: with funding is about 4%. So that should come down.
Speaker 25: Next I want to move to slide 23.
Speaker 26: which takes a look at our non-interest expense. Many recall from prior calls, we said that we expected we would be about $52 million for the year. And you can see that we're higher in this quarter, but we were lower in the last quarter.
Speaker 27: For the six months, we're pretty close to that.
Speaker 28: pretty close to $26 million, which would be what you would expect for half a year. I will say, though, as we added a billion dollars of
Speaker 29: In our loan book, we will see an increase in expenses in the third fiscal quarter and fourth fiscal quarter as we're going to be adding more people to service the loan book.
Speaker 30: It'll still be a highly profitable net purchase, but we're going to have some increase in non-interest expense. On slide 25,
Speaker 31: You can see that our.
Speaker 32: The loan discount combined is now $189.6 million, which is an increase of $150 million from where we were. The loan discount combined is now $180 million from where we were.
at the end of September as a result of buying the loans at a good discount this quarter.
Finally, before we take.
I want to ask you to look at slide 31, which is the last slide. I just want to make a few points on that. You know, as I mentioned in the very beginning of this, one of our goals was to replace correspondence for income with more than that interest income.
And if we look at the net interest income, for the December 31 quarter was at 28.7 million.
which is the highest.
And that's up to $20 million one year ago.
And also, it's important to note that
a big chunk of the purchases. What we're reporting here is multiple pools, but the largest one we did not close until about December 23rd.
hearing
21st, thank you JP. So we only had 10 days of interest income from that. And then of course going forward we will have
That will be included.
all that will be included. I went through that reasonably quickly, but we provided all this information assuming that you have read it. And of course, if there's anything we can clarify, we will. And with that, I'll be happy to take questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star 11 on your touch tone phone. If you wish to be removed from the queue, please press star 11 again. If you're using a speakerphone, you may need to pick up the handset first before pressing any numbers.
Once again, if you have a question, please press star 1 1 on your touch tone phone. We'll pause for a moment while we compile our Q&A roster.
One moment for our first question.
Our first question comes from Alex Turdal with Piper Stanley, your line is open.
Hey, good morning guys.
Morning, Eric.
First off, you know, obviously a lot going on here. Can you give us a little bit more in terms of the characteristics or duration, I guess?
that we should be expecting for some of these purchase loans. Just trying to get a sense for, you know, what kind of amortization we might see on an annual basis, as well as trying to get a sense for how to think about the, I guess, the regularly scheduled or regularly accretable yields that we should be using or potentially could be using.
pools in the quarter, you know, what the WAC is, what the WAM is, you know, what we...
Next, we do report it, of course.
as we
when we look back at what happened in the quarter and the year where the report would happen for the overall portfolio. I think I can give you some.
helpful information on this on this these assets that we bought
One is that these are longer term assets.
Um, you know, um.
The wham on it could be.
more than 10 years.
And it had lower coupon rates.
But that's why we got the big discount that we did. It wasn't obviously a credit issue given how low the LTVs are. There's some things we know about this and others we don't. We would expect a general returns on this to look like other loans that we purchase. We really seemedot havingARD could ask any LTV fees available to buy LTVs for our items,
A little bit higher, but the really big variable is when the loans pay off as to how much discount we're going to recognize. And I'd say comfortably, we will earn more than eight on this, perhaps meaningfully more than that.
It depends on the prepayment speed on it.
Okay, so N8 is over the lifetime of these loans, right? That's not something that we'd expect to necessarily see immediately.
No, exactly right, because you know, I mean, it may happen. I don't think it's, you know, crazy. I think we're going to report more than an eighth currently and more.
I don't mean it more, I mean, but over time, with free payments and with what we call, shadow interest only, and some loans, you get quite the fault interest and late fees and things like that. But I think this will look generally like what we've bought in the past.
Okay.
And then can you talk a little bit about what drove the volume? Is this coming from several banks or is it a handful, you know, is it indication of the overall broad market and maybe just a little bit more and sort of the sort of the characteristics of what drove this opportunity.
These were.
I think with seven transactions in the quarter purchases, the ones that we're referring to here, a good chunk of them were in four of them or three of them maybe. And the biggest one came out of an M&A transaction.
that the seller needed to and wanted to sell loans.
Okay.
And.
Is this?
I mean, does this kind of keep your sort of hands full for the time being or, you know, I know you've talked about the market being pretty solid. Is there a possibility to continue seeing purchases over the next couple of quarters?
I think we will, you know, sort of generally, normally we.
by 100, excluding these big transactions, you know, then normally would buy 150 to $200 million.
A quarter.
No, I certainly at that level would expect that and it's entirely possible that we could see some larger ones or is it a quarter past thank you a year.
This is why everyone here, Alex, to help me with these.
But no, a year. And we don't know whether we're going to see another or big transactions, certainly within the realm of possibility. We don't know whether we're going to see another or big transactions.
But I'm not predicting that to be clear, I just had expectations.
Right, and then, you know, I know you get the ATM going on, but what sort of constraints would there be on the balance sheet with respect to funding or capital that would be considerations for thinking about future purchases?
Well, the um, I just want to find this.
So at 1231.
After we took our loan book, it worked at $2.5 billion at the end of December , which is obviously up a lot. At the end of December , our loan capacity, if you look at our capital ratios, was $150 million.
When that came back down from like a year ago, it was a billion dollars of capacity, it was 150 million. You know, as you know, Al, it's that how long capacity will increase as we earn money.
And we have the ATM, which if we need to sell more shares to raise capital, we can do that as well. That's all in place. That will give you publisher credit.
And in fact, I didn't note that in here, but it's in our earnings. How much did we sell?
34,000 shares. So we haven't done much of it yet. It was approved kind of late in December , but we, or not very late, maybe mid-December, but we sold those 33,000 shares. So we can sell more shares to raise more capital.
I don't see us as capital constrained if we have opportunity.
Which we're going to get on the balance sheet.
Great. And can you just walk through the, you talked about the some brokered CD is going from I thought you said 443.
and then maturing between June and December of this year and then finally going out of Forbes. Can you just walk through the amount of that again and the actual numbers?
Sure, Alex.
During the quarter.
Broker deposits went up about
a little over $500 million with the weighted average rate on that being about 443. That was more for immediate funding, not our long-term funding strategy of this. So our plan is to pledge the loans that we purchase from the FHLB and take out some longer-term advances to better match the FHLB.
the structure of the loans. And right now where rates are from the FHLB advances, we think we can borrow money around 4%, to match some of the maturity of the loan pool. So we do expect the funding costs to come down as we deploy that strategy as these perfect deposits.
mature. Okay and then you talked about the increase in expenses and you know can you give us maybe just a sense for
what, you know, how many people you might have to hire or, you know, an efficiency ratio or some sort of guideposts to sort of give us a good, like, some sort of sense for how much expenses might go up as a result of meaningfully increasing the size of the balance sheet.
I think we could give you a better answer when we reconvene at the next call. I'm not trying to dodge your question, although I don't want to put out a bad number. We'll have a much better idea then. But I did want to make it clear that we have a lot of operating leverage in the bank.
And it's going to be a relatively small number, relative to our expenses and the size of our loan book.
I rather put that out when we talk next time. We can give you a much tighter number.
Okay, no problem. I think that's all my questions for now. Thank you for.
for providing some clarification here.
Thank you. Thank you, Alex.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your touch tone phone.
We have no further questions at this time. I'd like to turn the call back over to Rick Wayne for any closing remarks.
Thank you.
Thank you very much for your participation. Alex, thank you for your questions.
Good ones, excellent ones.
We look forward to talking again at the end of the current quarter, where we can provide some insight, so you can continue to listen together while we think back a little bit afterwards memory
to the questions that Alex asked. And with all of that, I say thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Everyone have a wonderful day.
The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.