Q1 2024 Northeast Bank Earnings Call
Speaker 1: Welcome to the Northeast Bank first quarter, fiscal year 2024 earnings call. My name is Victor and I'll be your operator for today's call. This call is being recorded. What this today from the bank is Rick Wayne, President and Chief Executive Officer, JP LePoine.
Welcome to the North East Bank first quarter fiscal.
Fiscal year 2024 earnings call. My name is Victor and I will be your.
Operator for today's call. This call is being recorded with US today from the bank is Rick Wayne.
President and Chief Executive Officer JP Lapointe.
Speaker 1: Chief Financial Officer and Pat Dignan, Executive Vice President and Chief Operating Officer.
<unk> financial Officer, and Pat Dignan, Executive Vice President and Chief operating Officer, Yes.
Speaker 1: Yesterday, an investor presentation was uploaded to the bank's website, which we'll reference in this morning's call.
Yesterday, and an investor presentation was uploaded to the bank's website, which we'll 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 may find it helpful to download this investor presentation and follow along during the call.
Speaker 1: The presentation can be accessed at the Investor Relations section of NortheastBank.com.
Speaker 1: under events and presentations. You may find it helpful to download this investor presentation and follow along during the call.
Speaker 1: Also this cover will be available for re-broadcast on the website for future use.
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 session. You will have a if you have a question. Please press star one on your Touchtone phone as a reminder, this conference is being recorded.
Speaker 1: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the session,
Speaker 1: You will have a, if you have a question, please press star 11 on your touchtone phone. As a reminder, this conference is being recorded.
Speaker 1: Please note that this presentation contains forward-looking statements about Northeast Bank. Forward-looking statements are based upon the current expectations of Northeast Bank's management and are subject to risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank does not undertake any obligation to update any forward-looking statements. I will now turn the call over to Rick Wayne. Mr. Wayne, you may begin. Thank you.
Please note that this presentation contains forward looking statements about north East 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.
The obligation.
Any forward looking statements I will now turn the call over to Rick Wayne Mr. Wayne You may begin.
Thank you.
Hey, everyone.
Speaker 2: Here with me are Pat Dignan, our Chief Operating Officer, and J.P. LaPointe, our Chief Financial Officer.
Here with me.
Pat Dignan, our Chief operating officer, and JP Lapointe, our Chief Financial Officer.
Speaker 2: I want to go over, this morning, some of the financial highlights.
This morning, some of the financial.
Highlights.
Speaker 2: as well as talk about our loan activity and our asset quality.
As well as talk about our loan activity.
Our asset quality.
Speaker 2: Jay P. will then talk about the impact of CECL on the bank, which was
J P will then talk about the impact.
So on the bank for choice.
Speaker 2: adopted on July 1, and then all three of us are available in LaPorte to answering any of your questions.
Adopted.
On July one.
And then all three of us there.
Available and look forward to answering any of your.
James.
Speaker 2: First, let me start by saying that the quarter was really an excellent one in so many ways. We earned $15 million.
First let me start off by saying that the quarter was really an excellent one in so many ways.
We earned $15 million.
$2 and a penny.
Speaker 2: per share diluted with the return on equity of 19.73%.
Earnings per share diluted.
With a return on equity of 19.73%.
Speaker 2: return on assets of 2.12% and getting very close to $40 per share of tangible book value at $39.96.
Our return on assets of $2 one 2%.
Very close to $40 per share.
That's 39 96.
Speaker 2: During the quarter, we purchased $130 million, excuse me.
During the quarter, we purchased $130 million excuse me.
Speaker 2: put on the balance she know 130.3 million dollars.
Put on the balance sheet of $133 million.
Speaker 2: of loans, of which 68 million were originated with an average, a weighted average.
Loans of which 68 million were.
Originally it was.
The average weighted average.
Speaker 2: rate of 9.27%
922, 7%.
Speaker 2: and we purchased loans with a UPV of $63.7 million.
We purchased <unk>.
<unk> <unk> with D.
We have 63.7.
$7 million.
Speaker 2: at a price, an invested dollars of $52.4 billion, which is an 82% purchase price.
At a price.
Absolute dollars.
$2 4 million, which is an 82% purchase price.
Speaker 2: Finally, our NIM for the quarter was 5.30. Really all, we think, outstanding results for the quarter.
Finally, our NIM for the quarter was part 0.3.
<unk>.
So really all we think outstanding.
Results for the quarter.
Speaker 2: with respect to Walnut Kennedy on the originated side. We have seen our volume over the last five quarters.
With respect to.
All of that entity.
The originated side, we haven't seen our volume over the last five quarters.
Speaker 2: declining, I might say almost intentionally, we're being, continue to be very selective on what we're willing to commit to.
Declining.
I might say.
Almost intentionally were being continue to be.
Very selective on what we're willing to commit to.
Speaker 2: And loans that we may have done a year and a half ago or so are loans that we're not necessarily going to do now, plus there are less transactions in the marketplace.
And loans that we may have done a.
A year and a half ago or so.
We're not necessarily going to do now plus or less transactions in the marketplace.
Speaker 2: But I don't want to diminish $68 million of volume, that's still a lot of volume for us.
But I don't want to diminish $68 million the volume that's still a lot of volume for us.
Speaker 2: On the purchase side, really, we're really bright skies, both in the quarter and in front of us while we close on 63.7 million.
On the purchase side really really great skies bulk in the quarter and in front of us while we've.
Closed on $63 7 million.
Speaker 2: I mentioned in our press release that we
I mentioned.
In our press release.
Speaker 2: signed an agreement to acquire an additional $74 million of loans which closed in the beginning of October .
<unk>.
So I think that agreement to acquire acquire an additional $74 million of loans.
<unk> closed in the beginning of October .
Speaker 2: With respect to what we see in the marketplace, we see
With respect to what we see in the marketplace, we see.
Speaker 2: Lots of opportunities, you know, I would point out, you know, it's binary, you know, you win or you don't win, so I don't want to overpromise. But it seems to be, and from what we hear from others in the market, a time where there ought to be a fair amount of supply of the kind of loans that we'd like to bid on, that is to say loans that are performing secured by cash flow and collateral.
Lots of opportunities.
I would point out.
Binary you win or you don't win so I don't want to over promise.
It seems to be.
And from what we hear from others in the market.
Time was there ought to be a fair amount of supply of the kind of loans that we'd like to update on that is to say loans that are performing.
Third by cash flow and collateral.
Speaker 2: located in reasonably liquid markets. And so we will see what happens, you know, in this quarter that we're in now and the following quarters, but we are optimistic about our opportunities to purchase.
Located in reasonably liquid <unk>.
Markets and so we.
We will see what happens.
This quarter that we're in now in the following quarters.
We are optimistic about our opportunities.
Purchase loans.
Okay.
Speaker 2: In terms of asset quality, and of course there's a lot in the news about commercial real estate, our portfolio continues to perform very well. Our non-performing, I would say assets, but it's really not performing well since we don't have any OREO in our portfolio, at the end of September was $17.5 million.
In terms of asset quality and of course, there's a lot in the news about commercial real estate.
Our portfolio continues to perform very well.
Nonperforming.
I would say assets really nonperforming loans since we don't have any oreo on our portfolio.
The end of September was $17 $5 million.
Speaker 2: which includes a $2.3 million mark from CECL. So excluding that, our non-performing loans are down by about $500,000.
Which includes a $2 3 million dollar mark from seasonal so excluding that.
Our nonperforming loans were down by about $500000.
Speaker 2: and they represent 69 basis points are not performing loans over.
They represent 69 basis points, our nonperforming loans.
Over.
Our total loans.
Speaker 2: With that, I would ask JP to talk about CECL.
With that I would ask J P.
Talk about seasonal J P. Thank you Rick on July 1st we adopted the T cell allowance for credit loss standard at June 30, our allowance amounted to $7 3 billion.
Speaker 3: Thank you Rick. On July 1st we adopted the CISO of Allowance for Credit Law standard. At 230th our allowance amount is to $7.3 million.
Speaker 3: On July 1st, when we adopted FESAL, our allowance increased by $19.4 million to $26.7 million. The increase was a combination of $18.3 million of discounts that was transferred from the carrying balance of purchase loans to the allowance for loan losses, and $1.2 million that was transferred from retained earnings, which amounted to $870,000 retained earnings impact net attached.
July 1st when we adopted <unk>, so our loans increased by $19 4 million to.
The $26 7 million.
The increase was a combination of $18 $3 million a discount that was transferred from the carrying balance of purchase.
Allowance for loan loss.
And $1 $2 million that was transferred from retained earnings which amounted to $870000 received this earnings impact net of taxes.
Speaker 3: September 30th the allowance to decrease the $25.3 million. And that decrease during the quarter was primarily due to charge loss. Related to purchase loans that had been carrying a zero. But after the fee slow adoption, now had carrying balances and required the loan amount in related reserves to be charged off.
At September 30, the allowance a decrease of $25 3 million.
And that decrease during the quarter was primarily due to charge offs related to the purchase of the had been carried at zero, but after the seasonal adoption now head carrying balances.
Acquired the loan amount and related reserves to be charged off.
Speaker 3: The allowance of total loans now sits at 1% and is more comparable to other institutions than what we had previously recorded in the reserve.
The allowance to total loans now sits at 1% a more comparable to other institutions and what we had previously recorded in the reserves and some.
Speaker 3: Some of the changes that impact the bank financials after the CECL adoption are, historically, some purchase loans had extensions modeled over into the projected cash flows, allowing the purchase discounts to be accreted over a period that extended beyond the contractual maturity. Upon the adoption of CECL, the accounting standards require that the purchase discounts are accreted over the contractual life of the loan, and extensions are no longer modeled in, which has the impact of accretion being taken over a shorter period of time.
Some of the changes that impact the bank financials. After the seasonal adoption are historically the purchased loans had extensions models over into the projected cash flows, allowing the purchase discounts, we accrete created over a periods of activity beyond the contractual maturity pardon.
Pardon me industrious he saw the accounting standards require that the purchase discount.
Accreted over the contractual life of the loan and expenses are no longer model debt, which has the impact of accretion being taken over a shorter period of time.
Speaker 3: This should also make interest income from purchase loans more consistent and may contribute less transactional income than it has historically recognized on its portfolio.
This should also make interest income from purchase loans more consistent and may contribute about transactional income that we have.
We recognize this portfolio.
Speaker 3: While the bank has historically had very low charge-offs, including zero charge-offs on the National Lending Originator portfolio, under CECL purchase loans with credit marks are now reserved for in the allowance and then charged off through the allowance, which could give the appearance of increased charge-offs. However, many of these charge-offs, especially the ones during this quarter, were purchase loan discounts that had previously offset the loan balances and have now moved into the allowance and did not impact the provision for credit.
While the bank is it certainly had very low charge offs, including zero charge offs on the NASA lending originated portfolio.
<unk> purchase of credit marks are now reserved for in the allowance and then charged off through the allowance, which could give the appearance of increased charge offs. However, many of these charge offs, especially the ones. During this quarter with purchase loan discount previously offset the loan balances that have now moved that to the allowance does not impact the provision for credit losses.
Speaker 3: Additionally, as Rick indicated, upon the adoption of FESAL, the bank transferred $18.3 million from the discount against the carrying balance of loans to the allowance. This has the impact of increasing the carrying balance of both loans. As you can see on slide nine, the adoption increase our non-performing loans by $2.3 million for the quarter.
Additionally, as Rick indicated upon reduction of seasonal the big transfer of $18 3 million from the discount I guess, the carrying balance of both to the allowance.
This had the effect of increasing the carrying balance of performance.
As you can see on slide nine the adoption increase our nonperforming loans by $2 3 million for the quarter.
Speaker 3: by increasing the carrying balance in the related allowance for those loans. That's it, C-SLO's option, not performing loans with a benefit of approximately $500,000 plus.
Increasingly carrying balance and the related allowance for those loans absent seasonal adoption nonperforming loans would have been approximately $500000 in the previous quarter.
Thank you.
Speaker 2: So thank you, JP. And now we turn it back and see if there are any...
Thank you JP.
And.
Now ill.
Turn it back and see if there are any questions.
Speaker 1: Thank you. We will now begin the question and answer session. If you have a question, please press star 1 1 on your touchtone phone. If you wish to be removed from the queue, please press star 1 1 again. 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 1 1 on your touchtone phone. One moment.
Thank you we will now begin the question and answer session. If you have a question. Please press star one one on your Touchtone phone if you wish to be removed from the queue. Please press star one again, if youre 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 on your touch.
Thompson.
One moment for our first question.
Speaker 1: Our first question will come from the line of Alex Ferdal from Piper Sandler. Your line is open.
Our first question comes from the line of Alex for at all from Piper Sandler Your line is open.
Hey, good morning, guys.
Good morning.
Speaker 4: Hey, first off, Rick, you commented on seeing lots of opportunities in the purchase market and obviously binary, you either win or you don't. I was wondering if you could give us a little color on the ones you're not losing, if it's because the seller just decides to keep the product, you know, given the pricing or if the competition has changed in any way or just, you know, a little bit more on, I guess, the competitive dynamics in the market as well.
Hey, first off Rick you commented on seeing lots of opportunities in the purchase market and obviously binary you either win or you don't I was wondering if you could give us a little color on the ones youre not losing if it's because the seller just decided to keep the product given the pricing or the competition has changed.
The way or just a little bit more on I guess, the competitive dynamics in the market as well.
Speaker 2: The earlier in the year we were seeing sellers, it was sometimes more of a pricing exercise, you know, they're,
Well earlier in the year, we were seeing.
Sellers.
That's one of a pricing exercise.
Sure.
Yeah.
Speaker 2: and ours were not close, we're seeing that get much closer now and as you move towards the end of the calendar year where sellers are more motivated to sell for various reasons, the obvious one is
James and Arris, we're not close we're seeing that yet.
How much closer now and as you move towards the end of the calendar year.
Sellers.
We're motivated to sell for.
Various reasons.
One is that there.
Speaker 2: the fiscal year is coming to an end, we're seeing more realistic expectations about pricing and therefore easier for us to buy loans than it had been.
Their fiscal year is coming to an end, we're seeing more realistic expectations about pricing and therefore.
Easier for us to.
By loans than it had been.
Previously.
Speaker 2: That's one point I would make, and the second one I would make is that
That's one point I would make it the second one I would make is that.
Speaker 2: We are seeing more activity, again, on the kind of loans that we like to buy.
We can.
We are seeing more activity again on the kind of loans that we like to buy.
And so.
Speaker 2: And because as I've mentioned in other calls because rates are higher.
And because as I've mentioned in other calls because rates are higher.
Speaker 5: some cases were seeing less complication for that. At, do you want to add anything to that? I think those are two big highlights that you saw as we can't take a hit.
In some cases were seeing less competition for that do you want to add anything to that.
Those are the two big highlights.
Okay.
So a fair amount of this agreement on value.
Thats still out there.
In some markets.
Okay.
Speaker 4: Got it. And then, you know, a lot of us have been paying attention to the loans that the FDIC is currently selling, the commercial real estate loans. I was wondering if you had any further thoughts on whether or not that's something you guys would bid on. And, you know, I assume that when you're talking about the market trends, it's sort of irrespective of that pool alone.
Got it and then.
A lot of us have been paying attention to the loans that the FDIC is currently selling in the commercial real estate loans I was wondering if you had any further thoughts on whether or not that's something you guys would bid on and I assume that when youre talking about the market trends that sort of irrespective of that pool of loans.
Speaker 6: Well, you know, I wouldn't be able to say whether we were bidding or not bidding on the large pool at the
Well I wouldn't be able to say, whether we were bidding or not bidding on the large pool at the.
FDIC is set.
Selling.
Speaker 2: It's an awfully big pool with awfully large swallows.
It's an awfully big pool with awfully large loans.
Speaker 6: in it. But I don't think I can really comment on more than that. I'd like to, but I can't.
Yes.
But I don't think I can really comment on more than that.
But I cannot.
Speaker 4: Got it. And then, JP, just as we try to work through the accounting shift from CECL into the model, specifically around how the purchase loans get accounted for, does it essentially just reclassify transactional income as regularly scheduled income? Or does it actually wind up pulling forward some of that transactional income as well, just because you can't recognize it over as long a period? And I guess...
Got it.
And then JP just as we try to work through these the accounting shift from seasonal into the model.
Typically around how the.
Purchase loans get accounted for.
Does it essentially just reclassified transactional income as regularly scheduled income.
Or is it actually wind up pulling forward some of that transactional income as well just because you can't recognize it over a longer period I guess.
Speaker 4: I think you commented in your prepared remarks that it should smooth out earnings, and I was just, I just wanted to confirm that.
I think you commented in your prepared remarks that.
Then it should smooth out earnings and I was just I just wanted to confirm that.
Speaker 3: Yeah, so what it does is the transactional income really arises when a loan pays off.
Yes, so what it does the.
Excellent really arises when a loan pays off.
<unk>.
Speaker 3: So given the fact that, you know, now we have to take these over the contractual life, you know, and not some level of modeled extension, there's a possibility that, you know, there's going to be less discount available when a loan pays off. Since we're taking it over, you know, a shorter life on on some of those songs where we had modeled.
So given the fact that now we have to take these over the contractual life.
And not some level of modeled extension.
Possibility that theres going to be less discount available when a loan pays off.
We're taking it over.
A shorter Wi Fi on some of those software we had modeled and expenses previously so it should kind of move it from.
Speaker 3: So it should kind of move it from, you know, what would have been available for more transactional income historically into more regularly scheduled accretion over the contractual life of those long.
What would have been available from our transactional income historically.
More regularly scheduled accretion.
The contractual life of those loans.
Speaker 2: And therefore, it will smooth out, it should smooth out.
And therefore.
It will smooth that it should it should smooth out of earnings.
Speaker 4: Got it. I was wondering if you can give us any thoughts on sort of where you think you are in terms of deposit cost pressures. You know, it seems like the pace of increase in deposit cost is certainly slowing. You know, if you had any sort of thoughts on where that might peak out, if we should expect betas to continue to move higher or what you're thinking there.
Got it.
I was wondering if you can give us any thoughts on sort of where you think you are in terms of deposit cost pressures.
It seems like the pace of increase in deposit cost is certainly slowing.
If you had any sort of thoughts on where that might peak out if we should expect betas to continue to move higher or what youre thinking there.
Speaker 3: Yeah, I think mostly we've caught up. I think we have a little bit of broker CDs that are maturing towards the end of the quarter that we're in now. So I think once those reprice, we'll kind of be mostly at the peak for where we should be, barring any future potential rate hikes, depending on what the Fed decides to do moving forward. But I think it's definitely slowing down from where we were over the past year. And I think after next quarter.
Yes, I think mostly though.
Caught up I think we have a little bit of brokered Cds that are maturing towards the end of <unk>.
Or is that we're at now so I think once those reprice will kind of be.
Mostly at the peak for where we should be barring any in the.
Future potential rate hikes, depending on what the fed decides to do going forward, but I think it definitely slowed down from where we were over the past year and I think after next quarter, we should kind of be at the peak.
Speaker 4: Got it. And then just as we think through the right level of non-interest expenses, any help that you could provide? I think this quarter was a little bit impacted by stock based compensation, if I'm not mistaken. If you could help us sort of figure out the right run rate, I guess, over the next few quarters.
Got it.
And then just as we think through the right level of noninterest expenses.
Any help you can provide I think this quarter was a little bit impacted by stock based compensation, if im not mistaken. If you can help us sort of figure out sort of the right run rate I guess over.
Over the next few quarters.
Okay.
Speaker 2: Well, first one point on the additional, you're right, it was a stock comp, but it was mostly because the, the, the, the equity that was granted.
Well first one point on the additional Youre right. It was the stock comp, but it was mostly because the incentives the equity that was granted.
Speaker 3: that was granted at a higher stock price. There were some, you know, slight increase in the number of shares granted, but most of the increase was because the stock price was higher than when the previous ones were granted. But I think the number we have now, JP, we're thinking of that now, is about a good reasonable number for a run rate. Is there anything that you think unusual in this quarter, JP, or is that a pretty good number going forward? I think that's a pretty good number going forward. I don't think we expect too much one way or the other.
That was granted at a higher stock price there were some.
Victor: Welcome to the North East Bank First Quarter, Fiscal Year 2024 earnings call. My name is Victor and I will be your operator for today's call. This call is being recorded.
Slight increase in the number of shares granted.
Most of the increase was because the stock price was higher than when the previous ones were granted.
Operator: What does today from the bank is Rick Wayne, President and Chief Executive Officer, J.P. LePonet, Chief Financial Officer, and Pat Dignan, Executive Vice President and Chief Operating Officer.
I think the number we have now.
And that was about a good reasonable number for a run rate or is there anything unusual in this quarter.
Or is that a pretty good number going forward I mean, thats a pretty good number going forward I don't think we expect too much one way or the other in the next couple of quarters and I know you know this sounds will put the benefit of our listeners.
Operator: Yesterday, an investor presentation was uploaded to the bank's website, which will reference in this morning's call. The presentation can be accessed at the Investor Relations section of North East Bank dot com under events and presentations. You may find it helpful to download this investor presentation and follow along during the call.
Speaker 2: And I know you know this, Alex, but the benefit of our listeners that, you know, our loan book has increased by almost a billion dollars, you know, since December .
Alright.
Loan book has increased by almost $1 billion.
Since December 22.
Speaker 2: So therefore, your higher operating expenses are not shut.
So therefore higher operating expenses are not shocking.
Operator: Also, this call will be available for re-broadcasts on the website for future use. At this time, all participants aren't going to listen only mode. Later, we will conduct a question and answer session. During the session, you will have a, if you have a question, please press star 11 on your touch telephone.
Speaker 4: Got it. And I guess just last question back to the purchase market trends. Is it still safe to say that the bulk of of what you're seeing is being driven by the change in interest rates? Are you seeing anything that's being more coming to the market from a credit perspective?
Got it and I guess, just last question back to the purchase market trends.
Is it still safe to say that the bulk of what Youre seeing is being driven by the change in interest rates or are you seeing anything thats being more coming to the market from a credit perspective.
Operator: As a reminder, this conference is being recorded.
Operator: Please note that this presentation contains forward-looking statements about North East Bank. Forward-looking statements are based upon the current expectations of North East Bank management and are subject to risk and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. North East Bank does not undertake any obligation to update any forward-looking statements.
Yes.
I think that there is.
Speaker 5: transaction but fit in our sweet spot are largely being driven by liquidity issues and M&A.
So transactions that fit in our sweet spot are largely being driven by liquidity issues and M&A.
Great. Thank you for taking my questions.
Thank you thank you Alex.
Speaker 1: Thank you and as a reminder that star 11 for questions star 11 one moment for any
Thank you.
101 for questions starting 101.
Rick Wayne: I want to turn the call over to Rick Wayne.
One moment for any further questions.
Rick Wayne: Mr. Wayne, you may begin. Thank you, and good morning, everyone. Here with me are Pat Dignan, our Chief Operating Officer and J.P. LaPoi, our Chief Financial Officer. I want to go over this morning some of the financial highlights, as well as talk about our loan activity and our asset quality. J.P.
Rick Wayne: will then talk about the impact of Cecil on the bank, which was adopted on July 1. And then all three of us are available in the court. They're answering any of your questions.
Speaker 2: And I'm not showing any further questions at this time. Now, I'll turn the call over to Rick Wayne for closing remarks. Thank you, and thank you, those. Thank you, Alex, for your questions and others for listening in. We look forward to another, our next conversation, not to the weather in January , but to meeting again.
And I'm not showing any further questions at this time now I'll turn the call over to Rick Wayne for closing remarks.
And thank you those thank you Alex for your questions and others for listening in.
We look forward to.
Another of our next conversation after the weather in January but too.
Meaning again to talk about our.
Speaker 2: quarterly results then. Thank you all and have a good day.
Quarterly results.
You all and have a good day.
Speaker 1: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
Okay.
Rick Wayne: First on the historic by saying that the quarter was really an excellent one in so many ways. We earned $15 million or $2 and a penny earned for share diluted with the return on equity of 19.7 3% a return on assets of 2.12% and getting very close to $40 per share of 10 in the book value at $39.96. During the quarter, we purchased $130 million, excuse me, we put on the balance, in $130.3 million of loans of which $68 million were originated with an average, a weighted average rate of 9.27% and we purchased loans with the U.P.V, of $6 million. $3.7 million at a price, and invest the dollars of $52.4 million, which is an 82% purchase price.
Okay.
[music].
Yes.
Okay.
Rick Wayne: Finally, our name for the quarter was 5.30, really all we think outstanding results for the quarter. With respect to loan activity on the originated side, we have seen our volume over the last five quarters declining. I might say almost intentionally we're being continued to be very selective on what we're willing to commit to. And loans that we may have done a year and a half ago or so are loans that we cannot necessarily do now plus there are less transactions in the marketplace. But I don't want to diminish $68 million of volume. That's still a lot of volume for us.
Rick Wayne: On the purchase side, really, really bright skies, both in the quarter and in front of us while we close on 63.7 million. I mentioned in our press release that we signed an agreement to acquire an additional $74 million of loans, which closed in the beginning of October. With respect to what we see in the marketplace, we see lots of opportunities. I would point out it's binary, you know, you win and you don't win.
Rick Wayne: So I don't want to over promise what it seems to be. And from what we hear from others in the market, I'm with there ought to be a fair amount of supply of the kind of loans that we like to bid on. And that is to say loans that are performing secured by cash flow and collateral located in reasonably liquid markets. And so we will see what happens in this quarter that we're in now and the following quarters, but we are optimistic about our opportunities to purchase loans in this environment.
Rick Wayne: In terms of asset quality and of course, there's a lot in the news about commercial real estate, our portfolio continues to perform very well, are not performing. I would say assets, but it's really not performing well since we don't have any Oreo on our portfolio. At the end of September was 17 and a half million dollars, which includes a $2.3 million mark from Cecil. So excluding that are not performing loans down by about $500,000 and they represent 69 basis points are not performing loans over our total loans.
J.P. LePonet: And with that, I would ask JP to talk about Cecil JP. Thank you, Rick. On July 1st, we adopted the Cecil of Allowance or Credit Law standard. At $2.30, our allowance amounts to $7.3 million. On July 1st, when we adopted Cecil, our allowance increased by $19.4 million to $26.7 million. The increase of the combination of $18.3 million of discount that was transferred from the carrying balance of purchase loans to the allowance from the law firm. And $1.2 million that was transferred from retained earnings, which amounts to $870,000 retained its earnings impact net attack.
J.P. LePonet: Act. September 30th, the allowance to decrease the $25.3 million, and that decrease during the quarter was primarily due to charge loss, related to purchase loans that had been carrying a zero. But after the seasonal adoption, now had carrying balances and required the loan amount in the related reserves to be charged off. The allowance to total loans now sits at 1% in more comparable to other institutions than what we had previously recorded in the reserves.
J.P. LePonet: Some of the changes that impact the bank financials after the seasonal adoption are. Historically, some purchase loans had extensions modeled into the projected cash flow, allowing the purchase discount to be accreted over a period that extended beyond the contract from maturity. On the adoption of the seasonal, the account included requires that the purchase discount are accreted over the contractual lives of the loan, and extensions are no longer modeled in, which has the impact of accretion being taken over a shorter period of time.
J.P. LePonet: This should also make interesting income from purchase loans more persisted, and make it contribute less transactional income than we have had historically recognized on its portfolio. While the bank has certainly had very low charge off, including zero charge off on the national lending originated portfolio, under sea sold, purchase loans with credit marks are now reserved for in the allowance, and then charged off through the allowance, which could give the appearance of increased charge off.
J.P. LePonet: However, many of these charge off, especially the ones during this quarter, were purchased loan discount that previously offset the loan balances, and it now moved into the allowance and did not impact the provision for credit losses. Additionally, as Rick indicated, upon the adoption of sea sold, the bank transferred the $18.3 million from the discount against the carrying balance of loans to the allowance. This has the impact of increasing the carrying balance of both loans.
J.P. LePonet: If you can see on slide 9, the adoption increase are not performing loans by $2.3 million for the quarter, by increasing the carrying balance in the related allowance for those loans. That's it, sea sold adoption, not performing loans would have been approximately $500,000 from the previous quarter.
J.P. LePonet: Thank you.
J.P. LePonet: Excellent, thank you, J.P.
Rick Wayne: And now we turn it back and see if there are any questions. Thank you.
Operator: We will now begin the question and answer session. If you have a question, please press start 1-1 on your touchstone phone. If you wish to remove from the queue, please press start 1-1 again. If you are using a speaker phone, you may need to pick up the hands at first before pressing the numbers. Once again, if you have a question, please press start 1-1 on your touchstone phone. One moment for our first question.
Alex Ferdal: Our first question from the line of Alex Ferdal from Piper Sandler. Your line is open. Hey, good morning, guys. Hey, first off, Rick, you commented on seeing lots of opportunities in the purchase market and obviously binary, either one or you don't. I was wondering if you could give us a little color on the ones you're not losing, if it's because the seller just decides to keep the product, given the pricing or if the competition has changed in any way or just a little bit more on, I guess, the competitive dynamics in the market as well.
Alex Ferdal: Earlier in the year, we were seeing sellers who are sometimes more of a pricing exercise, and Harris were not close. We're seeing that get much closer now and as you move towards the end of the calendar year, we're sellers are more motivated to sell for the various reasons. The obvious one is that they're fiscal years coming to an end. We're seeing more realistic expectations about pricing and therefore easier for us to buy loans and it had been previously.
Alex Ferdal: That's one point I would make. The second one I would make is that we're noticing more activity again on the kind of loans that we like to buy. Because as I mentioned in other calls because rates are higher in some cases we're seeing less competition for that. Pat, do you want to add anything to that? I think those are two big highlights. The sellers that can't take a hit and there's also a fair amount of disagreement on value that's still out there as some markets will be targeted. Got it.
Rick Wayne: And then, you know, a lot of us have been paying attention to the loans that the FDIC is currently selling the commercial real estate loans. I was wondering if you had any further thoughts on whether or not that's something you guys would bid on and I assume that when you're talking about the market trends, it's sort of irrespective of that pool loans. Well, I wouldn't be able to say whether we were bidding or not bidding on the large pool that the FDIC is selling. It's obviously pooled with awfully large loans in it but I don't think I can really comment on more than that.
Rick Wayne: I like to but I cannot. Got it.
Alex Ferdal: And then JP, just as we try to work through these the accounting shift from Cecil into the model specifically around how the purchase loans get accounted for. Does it essentially just reclassified transactional income as regularly scheduled income or is it actually wind up pulling forward some of that transactional income as well just because you can't recognize it over as long a period.
J.P. LePonet: And I guess I think you commented in your prepared remarks that that it should smooth out earnings and I was just I just want to confirm that. Yeah, so what it does is it's actually come really arrives at what alone pays off. So given the fact that you know now we have to take these over the contractual life. You know, and not some level of modeled extension, there's a possibility that you know there's going to be less discount available one alone pays off since we're taking it over, you know, a shorter life on some of those ones where we had modeled an extension previously.
J.P. LePonet: So it should kind of move it from, you know, what would have been available for more transactional income historically into more regularly scheduled accretion over the contractual life of those loans. And therefore it will smooth that it's just it's just move out of earnings. Got it.
Alex Ferdal: I was wondering if you can give us any thoughts on sort of where you think you are in terms of deposit cost pressures, you know, it seems like the pace of increase in deposit costs is certainly slowing. You know, if you had any sort of thoughts on on where that might peak out, if we should expect that is to continue to to move higher or what you're thinking there. Yeah, I think mostly, you know, we've caught up.
Alex Ferdal: I think we have a little bit of broker's CD that are maturing towards the end of the quarter that we're in now. So I think once those reprised, we'll kind of be, you know, mostly at the peak, for where we should be, you know, barring any future potential rate heights, you know, depending on what the threat is decided to do moving forward.
J.P. LePonet: But I think, you know, it definitely flowing down from where we were over the past year and I think, you know, after next quarter, we should kind of be at the peak. Got it.
Alex Ferdal: And then just as we think through the right level of non-interest expenses, any help that you could provide, I think this quarter was a little bit impacted by stock-based compensation if I'm not mistaken. You know, if you can help us sort of figure out the right run rate, I guess, you know, over the next few quarters. I think, well, first one point on the additional, you're right, it was stock comp, but it was mostly because the incentives, the equity that was granted at a higher stock price, there were some, you know, slight increase in the number of shares granted, but most of the increase was because the stock price was higher than when the previous ones were granted. But I think the number we have now, Jake, we're thinking how that was about a good reasonable number for a run rate.
J.P. LePonet: Is there anything that you think unusual in this quarter? Three-three or is that a pretty good number going forward? I think that's a pretty good number going forward. I don't think we expect too much one way or the other in the next couple of quarters. I know you know this, Alex, but the benefit of our listeners that, you know, our long book is increased by almost a billion dollars, you know, since December 22. So therefore, you know, higher operating expenses are not shocking. Got it.
Alex Ferdal: And I guess just last question back to the purchase market trends.
Rick Wayne: Is it still safe to say that the bulk of what you're seeing is being driven by the change in interest rates, or are you seeing anything that's being more, it comes to the market from a credit perspective? I think that there is the transactions that fit in our sweet spot are largely being driven by liquidity issues.
Alex Ferdal: Great.
Alex Ferdal: Thank you for taking on my questions. Thank you. Thank you, Alex. Thank you.
Operator: And as a reminder, let's start one-on-one for questions. Start one-on-one. One moment for any further questions. And I'm not sure any further questions at this time.
Rick Wayne: Now I'll turn the call over to Rick Wayne for closer remarks. Thank you. And thank you, Alex, for your questions and others for listening in. We look forward to another or next conversation, not to the weather in January, but to reading again to talk about our quarterly results. Thank you all and have a good day. Thank you, ladies and gentlemen.
Operator: This concludes today's conference call. Thank you for participating. You may not disconnect everyone. Have a great day. [inaudible]