Q2 2024 Northeast Bank Earnings Call
[music].
Yeah.
Right.
Welcome to the North to East, Inc. Second quarter fiscal year 2024 earnings call.
My name is Daniel and I'll be your operator for today's call.
This call is being recorded.
With us today from the bank.
Wayne President and Chief Executive Officer.
JP Lapointe Chief Financial Officer.
Pat Dignan.
Second Vice President and Chief operating Officer.
Yesterday, an investor presentation was uploaded to the bank's website, which we will reference in this earnings 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.
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.
As a reminder, the conference is being recorded.
Please note that this presentation contains forward looking statements about northeast bank.
Forward looking statements are based upon the current expectations of northeast Bank's management and are subject to risks and uncertainties.
Actual results may differ materially from those discussed in the forward looking statements.
Northeast Bank.
Does not undertake any obligations.
To update any forward looking statements.
I will now turn the call over to Rick Wayne Mr. Wang you may begin.
Thank you very much.
Good morning.
To those of you listening to the call.
This morning.
Wanted to go over.
Few of the.
Interesting and important.
Results during the quarter and I'm not going to go over line by line, what's already in the earnings release.
Because I am sure that you.
Read that or that you will read that but I just wanted to spend a little bit on page three of the slides.
First talking about the loan volume in the quarter.
The purchased loan.
Activity of $186 1 million invested $208 million of <unk>.
<unk> or an 89 five.
5% purchase price.
As our second strongest purchase quarter only behind.
Approximate $1 billion of loans purchased.
One year ago, so very very strong.
And on that topic on the purchased loan market, we're seeing a fair amount of fair amount of good very good supply in the marketplace and so we're looking at a lot.
Caution you that.
They are binary you bid and you win or you don't win but there seems to be a fair amount of supply in the marketplace.
On the origination slide perspective.
We originated $63 $5 million of loans.
It's not that it's a bad number, but it's kind of a low number consistent with that.
The trends over the prior quarters.
I can say that as we sit here today the origination volume is picking up.
Yeah and.
I would expect that we will have.
Higher numbers.
Current quarter than we had in the quarter that ended December 31.
The weighted average rate on our entire loan portfolio originated loan portfolio was 945% to nine 5%.
Which is very strong and then just to take a look at some of the.
Quick stats, our net income was $14 $1 million.
And that was after we charged off 957000 about almost.
The $1 billion of a deferred tax asset due to changes in the way.
Massachusetts.
It sets out there, we'll set out their apportionment factor so that the income was very strong.
And the EPS was $1 85 return on equity was 17 three five.
Turn on assets was 193.
Tangible book value has grown to just a few pennies under $42 at $41.97.
If we go now to slide.
Eight.
Which I am going to.
I wanted to make a few comments.
<unk>.
On asset quality.
First you can see that there was a.
Jump in nonperforming.
Loans.
In the quarter that just ended from the previous quarter.
That's principally due to three <unk>.
Operator: Welcome to the Northeast Bank second quarter fiscal year 2024 earnings call. My name is Daniel, and I will be your operator for today's call. This call is being recorded.
Loans that went on non accrual.
In the quarter.
Kind of the headline is.
We don't think that we're going to have on those and we think there'll be resolved without any principal loss.
Operator: With us today from the bank is Rick Wayne, President and Chief Executive Officer; J.P. LaPointe, Chief Financial Officer; and Pat Dignan, Executive Vice President and Chief Operating Officer.
A couple of them were kind of typical purchase loans.
<unk>.
Our typical loans and national lending where they go.
Operator: 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 in the Investor Relations section of NorthEastPaint.com under events and presentations. You may find it helpful to download this investor presentation and follow along during the call. Also, this call will be available for rebroadcast on the website for future use. At this time, all participants are in a listen-only mode.
They go late and then we resolve them plenty of collateral coverage and the first one for about $6 million of dispute.
Over lean position, our mortgage and others.
In the end.
The courts and in the event that we were to lose that we have title insurance.
Why I say I don't expect to have any principal loss.
From these wells that are now are non accrual.
Operator: We will conduct a question and answer session. During the question-and-answer session... If you have a question, please press Star 1-1 on your touch cell phone.
Also want to bring your attention to the.
Bottom right corner of this page eight where we take a look at net charge offs.
Operator: As a reminder, the conference is being recorded. Please note that this presentation contains forward-looking statements about Northeast Bank, which are forward-looking. Forward-looking statements are based upon the current expectations of Northeast Bank's management and are subject to risks and uncertainty. Consequently, actual results may differ materially from those discussed in the forward-looking statement. Northeast Spank 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.
Yeah.
Cecil has caused us to.
As required that we chase.
Change the treatment of purchased loans, which has an impact on how we report charged to us and I think the best way to.
This point is to give you an example.
And then a pool of loans, let's say there was a loan that had a.
$50000 customer balance.
When we bid for the loan along with a bunch of other loans.
Rick Wayne: Thank you very much. Good morning, to those of you listening to the call. This morning, I want to go over a few of the interesting and important results during the quarter. And I'm not going to go over line by line what's already in the earnings release, because I am sure that you have read that or that you will read that. But I just wanna spend a little bit on page three of the slide, first talking about the loan volume in the quarter. The purchased loan, activity of 186.1 million invested in 208 million dollars of UPB, or an 89.5 percent purchase price, is our second strongest purchase quarter only behind the approximately 1 billion dollars of loans purchased one year ago, so very, very strong, and on that topic, on the purchase loan market, we're seeing a fair amount of On the origination slide, we originated $63.5 million in loans, which isn't that it's a bad number, but it's kind of a low number consistent with, you know, the trend over the prior quarters. But, you know, I can say that as we sit here today, the origination volume is picking up.
Allocated zero dollars to it.
Not alone, but we didn't pay anything for it.
Under <unk>. So we would just carry that alone at zero, because we didn't pay anything for it.
But in the case of CSO and are required to carry that loans showed the loan at.
$50000.
With the corresponding allowance of $50000, so it nets to zero.
And at some point, if we charge off that loan.
Ben its shows that $50000 would show as a charge off.
Even though we didn't have any principal allocated to that so keeping in mind those new rules under <unk>. So you'll see that and there is a footnote on this in the case of quarters ending September 30, and also on December 31.
Out of the.
Point, <unk>, 7% at 930 or seven basis points six basis points of that was it.
A number attributable to the CSO, which as I described there was no loss of principle. It's just the way you have the reported for accounting. So there was only one basis of charge offs in September 30, and for December 31, the same point.
That we're showing a 11 basis points here or one 1%.
Out of that 11 basis points to nine basis points.
As a result of seasonal where there was really no loss of principal so.
We strip that out from those two numbers that charge offs.
For the quarter ending September 30th was one basis point.
On December 31 was two basis points.
Not much at all.
Its way in the in the weeds, but because it's a change I just wanted to try and explain that for you.
Rick Wayne: And, I would expect that we will have higher numbers in the current quarter than we had in the quarter that ended December 31. The weighted average rate on our entire loan portfolio, originated loan portfolio was 9.45%, which is very strong. And then just to take a look at some of the quick stats, our net income was $14.1 million, and that was after we charged off 957,000, about almost a million dollars of a deferred tax asset due to changes in the way Massachusetts will set out their apportionment factor. So the income was very strong, and the EPS was $185, return on equity was $17.35, return on assets was $1.93, and tangible book value has grown to just a few pennies under $42, at $41.97. If we go now to the slide, which I am going to.
If we now move onto slide nine.
This is a slide that shows the.
Change in the nonperforming loans from September 30 to December 30 <unk>.
September 30 to 23.
The September 30, 23, part sorry for that to December 31, 23, and you can see it's gone up from 17 point.
Around here.
5 million to $37 million and most of that are.
The three loans designated one two and three which I spoke about.
Just a couple of minutes ago, and then there is another one on.
Designated as number four for $1 1 million, which subsequent to quarter end was paid off in full which is my expectation for.
The other ones as well.
I do want to comment.
On page the deposit interest rates starting on page 15.
And you can see that.
For the quarter.
Our quarterly cost of deposits was four 6% and continuing the upward March of rates.
And the spot rate.
On the last day of the quarter was four 3%.
Rick Wayne: I want to make a few comments on asset quality. First, you can see that there was a jump in non-performing Worms in the quarter that just ended from the previous quarter. Um, that's principally due to three loans that went on non-accrual in the quarter. The headline is, we don't think that we're going to have any principal loss on those, and we think they'll be resolved without any principal loss. You know, a couple of them were kind of typical purchase loans that for typical loans and national lending where they go late, and then we resolve them with plenty of collateral coverage. And the first one for about $6 million is a dispute over a lien position, our mortgage, and others, in the courts, and in the event that we were to lose that, we have title insurance.
The good news around our funding is we're starting to see.
Our cost coming down.
And we have for example.
$700 million.
Brokered Cds maturing.
Over the next six months.
Today's rates.
Could replace at a 40 basis point savings, which is quite substantial.
And I also want to highlight on page 16.
Yes.
That looking at what's happening by channel and our deposits.
Over the last year and the main point I want to make is that in our <unk>.
Our banking centers.
Seven.
Our deposits in those banking centers have gone up by $216 million.
We're a 38%.
From the.
From a year ago, which were really.
Really happy about.
And we're continuing to build those core deposits and our branches as a way of replacing higher cost deposits and other categories.
Rick Wayne: That's why I say I don't expect to have any principal loss from these loans that are now non-accrual. I also want to bring your attention to the bottom right corner of page eight, where we take a look at net charge-offs. Cecil has caused us to, has required that we, change the treatment of purchased loans, which has an impact on how we are charged. And I think the best way to make this point is to give you an example.
Yeah.
Finally, I do want to comment on the expenses.
On page 19.
Yeah.
Have gone up.
From the linked quarter about $300000.
It's mostly in the compensation line in December.
We gave every employee in the bank I would say other than pad in may.
$1000 each.
For the year end of the year was about $200000.
Rick Wayne: If, in a pool of loans, let us say there was a loan that had a $50,000 Customer Balance, Well, when we bid for the loan, along with a bunch of other loans, we allocated zero dollars to it because we got the loan. But, you know, we didn't pay anything for it under pre-Cecil. We would just carry that loan at zero because we didn't pay anything for it. But in the case of Cecil, you're now required to carry that loan and show the lender it. $50,000, with a corresponding allowance of $50,000 so it nets to zero.
Well deserved by our great team and.
Bill morale.
Increase morale everyone was excited.
That and then also in this quarter we had.
A full quarter of stock compensation.
We make stock grants typically in August and.
So for the preceding quarter. It was only half a quarter that was reported of that expense and in the <unk>.
Current quarter ending December 31, it was a full quarter. So thats about $400000 of the difference and then we had some savings and some other.
Yeah.
Areas and.
I do want to say before we turn it over to any questions that.
Rick Wayne: And at some point, if we charge off that loan, then it shows that $50,000 would show as a charge-off, even though we didn't have any principle allocated to that. So keeping in mind those new rules under CECL, you'll see that in the, and there's a footnote on this, in the case of quarters ending September 30 and also on December 31, out of 0.07% of 930 or seven basis points, six basis points of that was a number attributable to Cecil, which, as I described, there was no loss of principal. It's just the way you have to report it for accounting. So there was only one basis for charge offs on September 30.
This is in some ways, it's a bittersweet day for us it's weak because we had another really great quarter.
It's.
Bidder because J P is.
Many of you have talked to and I know and like and respect that.
Is leaving our bank to take a position as a another bank.
After being with us six years.
He will be missed by everyone.
It's really built.
<unk> group, we have the.
Privilege of working with them day in and day out.
Is it really first rate person as a good father and a good husband his colleagues like and respect them and the quality of his work is extraordinary.
Rick Wayne: And for December 31, the same point that we're showing 11 basis points here is point one one percent. But out of that 11 basis points, nine basis points are as a result of Cecil, where there was really no loss of principal. So if you strip that out from those two numbers, the charge-offs for the quarter ending September 30th were one basis point, and on December 31 they were two basis points. Not much at all.
And so we will we will miss him.
It will be part of our alumni clubs and we will get to sale a lot I hope.
And so today is his last day has been totally professional he gave notice maybe six weeks ago seven weeks ago and has worked diligently every single day and so we all wish him every success I don't have to say the best of luck it doesn't need luck.
He will be successful in.
But he will be missed.
Rick Wayne: It's way out in the weeds, but because it's a change, I just wanted to try and explain that for you. If we now move on to slide nine, this is a slide that shows the change in the non-performing loans from September 30 to December 30, I mean from September 30, 23 to September 30, 23, pardon, sorry for that, to December 31, 23. And you can see it's gone up from 17 points around here, 5 million to 30.7 million. And most of that is the three loans designated one, two, and three, which I spoke about just a couple minutes ago. And then there's another one designated as number four for 1.1 million, which subsequent to quarter end was paid off in full, which is my expectation for the other ones as well. I do want to comment on page 15, on the deposits, on interest rates, starting on page 15. And you can see that for the quarter. Our quarterly cost of deposits was 4.16%, and continuing the upward march of rates, the spot rate on the last day of the quarter was 4.23%.
On that note.
I would like to turn it over and see if there are any questions at all.
Thank you we will now begin the question and answer session.
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Yes.
One moment for our first question.
And our first question comes from.
Alex.
Portal with Piper Sandler Your line is now live.
Good morning.
Good morning, Alex.
First off Rick you said in your prepared remarks that you are seeing a fair amount of good supply in the marketplace for purchases, which seems like an optimistic statement. However, I was hoping maybe you could give us a little bit more context in a little bit more color around what you're really seeing and maybe compare it to.
<unk> seen over the last couple of quarters.
Well.
The.
The last quarter was also a strong.
Quarter, a good quarter for purchases is not like this quarter. This was a much better one.
We're seeing loans coming to market.
From banks for.
The reason someone though some having to deal with.
Rick Wayne: The good news around our funding is that we're starting to see costs coming down. And we have, for example, $700 million of brokered CDs maturing over the next six months, which at today's rate, we could replace with a 40 basis point savings, which is quite substantial.
Sales that.
I don't want to be too specific here, but starting with some of the banks have failed.
Yes.
In the last year.
Those assets have been now coming to the market to be traded.
It's public information that.
The signature assets were sold and bought by.
Groups.
We're seeing banks.
Rick Wayne: And I also want to highlight on page 16 what's happened by channel in our deposits over the last year. And the main point I want to make is that in our banking centers, we have seven, our deposits in those banking centers have gone up by $216 million, or 38 percent, from a year ago, which we're really, really happy about.
Selling.
I want to shed some commercial real estate assets.
That's not unusual we tend to see that I'd say, we may be starting to see with some banks are a little bit smaller.
Selling loans as well I don't mean small banks.
Not not.
The national banks.
And we're seeing the kind of assets that we tend to like in this market which are.
No.
TB.
Where a lot of the discount is driven by interest rate so rates come down again.
Well when we're getting them just because the interest rate discount and at good prices.
Rick Wayne: And we're continuing to build those core deposits in our branches as a way of replacing higher-cost deposits and other categories. Finally, I do want to comment on the expenses on page 19 that have gone up, from the previous quarter, about $300,000. It's mostly in the compensation line. In December, we gave every employee in the bank, I would say, other than Pat and me, $1,000 each. The end of the year was about $200,000, well-deserved by our great team and building morale, increasing morale. Everyone was excited about that.
Clearly there is an opportunity for some upside in those.
Rates come down.
Some of those folks will refinance more easily.
Pat do you want to add anything to that.
In terms of the I think that's a good summary.
Last quarter in this quarter.
M&A is always a factor balanced.
Balance sheet repositioning.
And in some cases.
Our funds, who purchased mixed pools last year are trying to trade out of the higher.
Quality assets.
Now because of because of the yields on those.
Yes.
The Big reason, we're not really seeing much distress, yet except for the <unk>.
Signature stuff.
Yes.
In terms of the pools that you look at it but then you don't wind up buying I know, it's obviously binary you get it you don't but when youre, losing those pools is it because the buyers just not like in the price and keeping it or is it because other is there other competition out there thats thats winning those.
Rick Wayne: And also, in this quarter, we had a full quarter of stock compensation. We make stock grants typically in August. And so for the preceding quarter, it was only half a quarter that was reported for that expense. And in the current, at the quarter ending December 31, it was a full quarter. So that's about $400,000 of the difference. And then we had some savings in some other areas. And I do want to say before we turn it over to any questions that this is, in some ways, a bittersweet day for us. It's sweet because we had another really great quarter. It's bitter because JP, who many of you have talked to, I know and like and respect him, is leaving our bank to take a position at another bank after being with us six years. He will be missed by everyone. He's really built a great group.
I think.
Well Theres always competition out there and it's always good to know that Theres a market and we're not the only tire. So we can gauge our own pricing.
I would say that after that the two big factors are.
Sellers are sometimes find it hard to believe that that.
Performing loans.
Trade it that big of a discount and choose not to sell and another factor is that in some cases with loans that were underwritten at very very low cap rates in the real estate there is a disagreement around value and.
And Thats also a factor.
Yes.
Got it.
And then I'm just curious in a pretty big pullback in rates sort.
Sort of in the Middle section of the curve in the middle of the fourth quarter towards the end of the fourth quarter, how does that impact.
That's sort of the sales process and pricing.
Rick Wayne: We have the privilege of working with him day in and day out. He's really a first-rate person. He's a good father and a good husband, his colleagues like and respect him, and the quality of his work is extraordinary. And so we will miss him, but he will be part of our alumni club, and we will all get to see him a lot, I hope. And so today is his last day. He's been totally professional.
The same would be out of your question is because of that.
Rates declining in the fourth quarter did that impact the pricing of the loans.
Yes, yes.
I mean, I would assume it has the impact of pricing, but im just curious if there is.
If that would be an obstacle to having stuff closed in the fourth quarter, just given the rates are moving down and the volatility maybe it's not the front end of the market, but I don't know so I'm asking.
Yes, I don't think that in the fourth quarter, while we did that was such.
Rick Wayne: He gave notice maybe six weeks ago or seven weeks ago and has worked diligently every single day. And so, we all wish him every success. I don't have to say the best of luck. He doesn't need luck.
A big deal.
The rate change.
In the fourth quarter it.
Yes.
It would be longer if rates come down a lot then you would expect.
Operator: He will be successful, but he will be missed. And on that note, we'd like to turn it over and see if there are any questions at all. Thank you. We will now begin the question and answer session. 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 number.
That you will be buying loans at a lower yield.
We haven't seen that impact yet.
Yeah, I mean from the pricing pricing is always a little bit hard to sort of draw your conclusions from because we don't really know what the underlying loans look like but with the would it be fair to assume that.
Sort of a full on return on the purchased portfolio.
Based on what you are purchasing stays kind of within the range in which it has been in the last few quarters.
Well, we've made $89.05 this quarter.
Operator: Once again, if you have a question, please press star 1-1 on your touchtone phone. One moment for our first question. And our first question comes from Elko, with Piper Sandler, your lines know it.
For what we purchased.
It's kind of typical from what we bought.
Kind of low LTV.
Kind of what we our expectation is on yields about the same as we have been in the past.
There hasnt been there hasnt been a big overall in any given loan you can.
Buy something at a lower price and get paid off early and that can impact that but looking kind of portfolio wise on what we purchased I think it is pretty much as we have in the past.
Rick Wayne: Good morning. Good morning, Alan. First off, Rick, you said in your prepared remarks that you're seeing a fair amount of good supply in the marketplace for purchases, which seems like an optimistic statement. However, I was hoping maybe you could give us a little bit more context and a little bit more color around what you're really seeing and maybe compare it to, you know, what you've seen over the last couple quarters. Um, Well, the last quarter was also a strong quarter. A good quarter for purchases is not like this quarter. This was a much better choice.
You may recall of course Theres two components of course, so what year and what is the rate on the note and secondly, how much is the discount.
When does the loan pay off.
Ultimately generates.
Yield and going back.
A lot of years when we started this in 2010 is that very time that FDIC from banks at a close.
We're selling loans at 80.
And then.
Rick Wayne: You know, we're seeing loans coming to the market from banks for a reason. Some want to, some having to do with sales. I don't want to be too specific here, but it started with some of the banks that failed, you know, in the last year that some of those assets have been coming to the market to be traded. You know, it's public information that the signature assets were sold and bought by a few different groups.
Directionally correct over the next.
Call. It five six years or something we are buying loans between <unk>.
<unk> hundred 87, or 88, and then for a period of time.
We were buying them at.
92% 93.
And if you look back at the big purchases over the last year, the $1 billion was roughly at 87.
And what we purchased in this quarter, which is the second largest quarter was at 89 five cents.
Rick Wayne: You know, we're seeing banks selling who, you know, want to shed some commercial real estate assets, uh... and that's not usually you know we tend to see that i think we're maybe starting to see it with some banks are a little bit smaller uh... selling loans as well i don't mean small banks you know not the uh... not the national bank uh... and we're seeing you know the kind of assets that we tend to like in this market which are you know low LTV uh... where a lot of the discount is driven by interest rates so if rates come down again they will, well one we're getting them just because the interest rate discount at good prices but secondly there's an opportunity for some upside in those if rates come down uh... so some of those folks can refinance more easily uh... pad you want to add anything to that, I think that's a good summary. The last quarter and this quarter, M&A is always a factor, balance sheet repositioning and... Um, In some cases, funds who purchased mixed pools last year are trying to trade out of the higher quality assets, um you know now and because of because of the yields on those um yeah so those are the big the big reasons we're not really seeing much distress yet except for the signature stuff Yeah. In terms of the pools that you look at, but then you don't wind up buying, I know it's obviously binary, you get it, you don't, but when you're losing those pools, is it because the buyer is just not liking the price and keeping it? Or is it because other, is there other competition out there that's winning those?
Right right.
So switching gears to the originated portfolio.
You mentioned that the pipelines have picked up a little bit heading into the first quarter is that do you think that that portfolio will stabilize.
I know you're coming off a couple of huge origination years in 'twenty two and.
Seeing a little bit more amortization, maybe as a result of that but how do you think about sort of the overall size of that portfolio and whether or not production will be able to.
Fully off I think it will grow.
I think it will grow.
Over the last bunch of quarters, there was much less activity there was less.
Clarity on value.
Less deals being done we're seeing that activity pick up.
And during that time period, we saw a lot of things, but we said no a lot and we're seeing more now the kind of deals that we like to do.
And with a lot of.
A lot of volume coming in and I expect that will grow our and you may remember that before we had the big purchases a year ago.
We were mostly an origination shop, so going back make it say June $30 22.
So I'm off by either dollars or when.
When the year was I apologize, but I think generally we did like 550 of originations and $175 million of purchases something like that so that was 75% originations.
25% purchases.
Now kind of flipped, but I expect that we're hopeful that the purchase numbers will continue to be meaningful and significant but the origination numbers will pick up.
Yeah.
Okay. That's helpful and we get really good.
As this is Dan we get really good pricing on our originations kind of the same pricing were getting on our purchased book.
Rick Wayne: I think Well, there's always competition out there, and it's always good to know that there's a market and we're not the only buyers so that we can gauge our own pricing, but I'd say that after that, the two big factors are that sellers sometimes find it hard to believe that performing loans would trade at that big of a discount and choose not to sell. And another factor is that in some cases with loans that were underwritten at very, very low cap rates in real estate, there's a disagreement around value, and that's also a factor. And then I'm just curious, you know, pretty big pullback, and rates, you know, sort of in the middle section of the curve in the middle of the fourth quarter towards the end of the fourth quarter. How does that impact me?
Yes, I mean, maybe just kind of sticking on the pricing on the origination portfolio I know a lot of it's prime based.
And you have floors in place, but maybe just given that the outlook for rates now as maybe prime coming down at.
At least several times. This year is there any other considerations that we should have in the back of our mind with respect to the <unk>.
Trajectory of the yield of that portfolio.
So I think you said in your <unk>.
Preamble to that.
Which is they're either prime there are.
Floating either prime or sofa.
Most of the loans have.
Floors, and unusually set at the right when the loan closes but in some cases.
The floor is less than that.
No.
Rick Wayne: Uh... you know the sort of the sales process and price. You seem to be out. Your question is because of rates declining in the fourth quarter. Does that impact the pricing of the loans? I mean, I guess.
We have we have not 100% protection on our current rates, but a lot of protection on our on our current rates.
That.
Okay.
Great and then the final thing I wanted to ask about is it.
It looks like there was a pickup in the gain on sale of SBA loans and I know that there are some initiatives kind of with SBA Prada.
Rick Wayne: Yeah, I mean, my guess would be it has to impact the pricing. But I'm just curious, you know, if there's, you know, if that would be an obstacle to having stuff closed in the fourth quarter, just given that the rates are moving down and volatility maybe is not a friend of the market. But, you know, I don't know. So I'm asking.
Product.
Is that higher level of gain on sales is that indicative of maybe a little bit more success in that product or maybe talk through what youre seeing and kind of expectations. We should have from here.
Rick Wayne: Yeah, I don't think that in the fourth quarter and what we did, that was such a big deal of, you know, the rate change. In the fourth quarter, it would be longer if rates came down a lot than you would expect that you would be buying loans at a lower yield, but we haven't seen that impact yet. Yeah, I mean, pricing is always a little bit hard to sort of draw real conclusions from because we don't really know what the underlying loans look like. But would it be fair to assume that the sort of full return on the purchased portfolio, based on what you're purchasing, stays kind of within the range in which it has been in the last two quarters?
It has picked up.
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The volume for the quarter.
Was about $14 million.
Which is a lot more than it was.
A year ago.
It's got the potential.
To continue to grow.
And so that and so therefore, there where we're selling off.
The guaranteed portion.
And.
And so therefore.
The revenue has been going up.
How much more.
Yes.
This product even from the beginning I was.
I am now very reluctant to make a prediction on volume or.
Rick Wayne: Well, we paid eight and nine and a half cents this quarter for what we purchased. I think it's kind of typical for what we've bought. It's, you know, kind of low LTV, you know, kind of what our expectation is on yields about the same as we have been in the past. You know, you may recall, of course, there are two components, of course, to what you earn. What is the rate on the note? And secondly, how much is the discount? And when does the loan pay off?
Contribution to earnings from this.
Product.
Other than this reporting as it happens so you saw the numbers on what what again was.
And then part of the sale.
Of what we sold in the gain symbol was originated last quarter.
A bunch of it this quarter and then at the end of December we were holding on balance sheet. Some of the guaranteed portion that we hadn't sold in the quarter, but would have sold in January.
Okay.
Okay, Alright, I appreciate that's not a great day.
For you I know, Alex, but I don't want to.
I'd like to try to Lincoln say things are bad or good I'm, just saying, it's a little bit hard to predict and I don't want to.
A little too far on a limb, saying what that will be.
Rick Wayne: That's, you know, ultimately generates yield and going back a lot of years when we started this in 2010. At that very time, the FDIC from banks said it closed, were selling loans at 80 cents. And then, you know, this is directionally correct. Over the next, you know, call it five, six years or something, we were buying loans between, you know, 82 and 87. They're 88 now.
Yes.
We'll be happy to see the uptick in the quarters in which we see it.
Thanks for taking my questions JP best of luck in your future endeavors and.
And Thats it for me.
Thank you Alex Thank you Alex.
Thank you.
We have no further questions at this time now I will turn the call.
Rick Wayne: And then for a period of time, you know, we were buying them at ninety two or ninety three cents, and if you look back at that, you know the big purchases over the last year, the billion dollars, were roughly eighty seven cents, and what we purchased in this quarter, which is the second largest quarter, were at eighty nine and a half cents. Right, right. Switching gears to the Originate portfolio, I think you mentioned that the pipelines have picked up a little bit heading into the first quarter. Do you think that that portfolio will stabilize? I mean, I know you're coming off a couple of huge origination years, 22, and you've seen a little bit more amortization maybe as a result of that, but how do you think about sort of the overall size of that portfolio and whether or not production will be able to fully monetize it? I think it'll grow. It'll grow. I think it'll grow.
Back over to Rick Wayne for closing remarks.
Thank you.
All of you that are listening in and all of you that will listen when you go online to listen to this.
I appreciate your support and look forward to talking again.
In April.
Thank you we're all set operator, thank you.
Thank you ladies and gentlemen, this concludes today's conference.
Thank you for participating you may now disconnect.
Goodbye.
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Okay.
Okay.
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Rick Wayne: You know, over the last bunch of quarters, there was much less activity. There was less, um, clarity on value, you know, fewer deals being done. You know, we're seeing activity pick up, you know, and during that time period, we saw a lot of things, but we said no to a lot of things, and we're seeing more now, the kind of deals that we like to do, and with a lot of volume coming in, and I expect it will grow. And you may remember that before we had the big purchase a year ago, you know, we were mostly an origination shop So going back, I make it to say June 30, 22. If I'm off by either dollars or when the year was, I apologize, but I think, generally, we did about 550 originations and 175 million purchases, something like that.
Yes.
Yes.
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Yes.
Okay.
Rick Wayne: So that was 75% originations and 25% purchases, you know, now kind of flipped, but I expect that you were hopeful that the purchase numbers would continue to be meaningful and significant, but the origination numbers will pick up, because it's helpful and we get really good, I was just going to say, we get really good pricing on our originations. It's kind of the same pricing we're getting on our purchase book. Yeah, I mean, maybe just kind of stick with the pricing on the origination portfolio. I know a lot of its prime base is on that. So I think you said it in your preamble to that, which is that they're either prime, they're all very floating, either prime or SOFR. Most of the loans have floors in them, usually set at the rate when the loan closes, but in some cases, you know, the floor is less than that.
Rick Wayne: So, we don't have 100% protection on our current rates, but a lot of protection on our current rates on that. Great. And then the final thing I wanted to ask about is that it looks like there was a pickup in the gain on sale of SBA loans. And I know that there are some initiatives kind of with SBA products. Is that a higher level of gain on sales?
Rick Wayne: Is that indicative of maybe a little bit more success in that product, or maybe talk through, you know, what you're seeing and kind of expectations we should have from here. It has picked up the, The volume for the quarter, was about $14 million, is a lot more than it was, a year ago, and it's got the potential to continue to grow, uh... and for that and uh... so therefore there were you know what we're selling off always the guaranteed portion and uh... and so therefore the you know that the revenues were going up you know how much more I am with this with this product even from the beginning I was and I am now very reluctant to make a prediction on volume or contribution to earnings from this.
Rick Wayne: Um, product, other than just reporting as it happened. So, you know, you saw the numbers on what the game was. And then part of the sale of what we sold in the game, some of it originated last quarter, you know, a bunch of it this quarter. And then at the end of December, we were holding on the balance sheet some of the guaranteed portion that we hadn't sold in the quarter but would have sold in January.
Rick Wayne: Okay. Sorry, that's not a great answer for you, I know, Alex, but I don't want to... I'm not trying to blink and say things are bad or good. I'm just saying it's a little bit hard to predict, and I don't want to go too far on a limb saying what that will be. We'll be happy to see the uptick in the quarters in which we see it
Alexander Roberts Huxley Twerdahl: Thanks for taking my questions. J.P., best of luck in your future endeavors. And that's it for me.
Operator: Thank you, Alex. Thank you. We have no further questions at this time.
Rick Wayne: Now, I will turn the call back over to Rick Wayne for his closing remarks. Thank you. All of you that are listening and all of you that will listen when you go online to listen to this, I appreciate your support and look forward to talking to you again in April. Thank you. We're all set, operator. Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Goodbye. After the trip.