Q3 2025 Northeast Bank Earnings Call
Okay.
Victor: Welcome to the Northeast Bank third quarter fiscal year 2025 earnings call. My name is Victor and I'll be your operator for today's call.
Welcome to the northeast Bank.
First of all yes.
Victor: 2025 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, Richard Cohen, Finance, Chief Financial Officer, and Pat Dignan Exec.
Victor: This call has been recorded with us today from the bank is Rick Wayne, President and Chief Executive Officer, Richard Cohen, Chief Financial Officer, and Pat Dignan. Executive Vice President and Chief Operating Officer.
Speaker Change: Executive Vice President and Chief operating officer prior to the call an investor presentation was uploaded to the bank's website, which we will reference in this morning's call.
Victor: Prior to the call, an investor presentation was uploaded to the bank's website, which we will reference in this morning's call. The presentation can be accessed at the investor relations section of northeastbank.com under events and presentations. You may find it helpful to download this investor presentation and follow along during the call.
Speaker Change: Presentation can be accessed at the Investor Relations section of northeast Bank Dot com.
Speaker Change: Under events and presentations may find it helpful to download this investor presentation and follow along during the call.
Victor: 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.
Speaker Change: Also this call will be available for rebroadcast on the website for future use.
Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question answer session. During the question answer session. If you have a question. Please press star one one to ask a question to remove yourself from the queue. Please press star one again.
Victor: Later, we will conduct a question and answer session. During this question and answer session, if you have a question, please press star 1-1 to ask a question. To remove yourself from the queue, please press star 1-1 again.
Victor: 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.
Speaker Change: As a reminder, this 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.
Victor: Northeast Bank does not undertake any obligation to update any forward-looking statements.
Speaker Change: Northeast Bank does not undertake any obligation to update any forward looking statements I will now turn the call over to Rick Wayne Mr. Wang you may begin.
Rick Wayne: I will now turn the call over to Rick Wayne. Mr. Wayne, you may begin. Thank you and good morning to all of you. I first want to make an observation about the quarter, which is, we think it was a very strong quarter. We did 400, and I'll do a little bit of rounding for this, $414 million of loan volume, of which $74.6 million was purchased, $218 million were originated loans, which was the second best quarter for commercial real estate loan originations that we have had. the highest being the preceding quarter. And the SBA volume was $121.3 million, which is up.
Rick Wang: Thank you and good morning to all of you.
Rick Wang: I first wanted to make an observation about the quarter, which is we think it was a very strong quarter.
Rick Wang: We did 400 and I'll do a little bit of rounding for this $414 million.
Rick Wang: One is volume.
Rick Wang: With 74.6 million was purchased 218 million were originated loans, which.
Rick Wang: What was the second best quarter for commercial real estate loan originations that we have had.
Rick Wang: The highest being the preceding quarter.
Rick Wang:
Rick Wang: The SBA volume was 121.3.
Rick Wang: 3 million.
Rick Wang: Which is up.
Rick Wayne: from about $100 million in the late quarter. I point out that our net income of $18.7 million is 4.8 million higher than the quarter a year ago. and $3.7 million lower. then the link quarter, which is December 31, 24. I'll refer to it as the link quarter sometimes. We had R.O.E. of 16.47 percent, R.O.E. of one point eight six percent. And our tangible book value grew to shade under fifty five dollars at fifty four eighty four. seems kind of.
Rick Wang: From about $100 million in the linked quarter.
I would point out that.
Rick Wang: Our net income of $18 $7 million.
Rick Wang: Is.
Rick Wang: 4.8 million higher than the quarter a year ago.
Rick Wang: And $3 7 million lower.
Rick Wang: The linked quarter, which is December 31, 24, I'll refer to as the linked quarter sometimes.
Rick Wang: We had our or we have a 16.47%.
Rick Wang: ROA of 186%.
Rick Wang: And our tangible book value grew to.
Rick Wang: Shade under $55.
Rick Wang: 50 484.
Rick Wang: Seems kind of.
Rick Wayne: It's funny that I would say that this was a really good quarter, given that we were $3.7 million less of income. compared to the link order. And I want to just point out some things that caused that to happen, which some of which, a lot of which are just. related to the quarter for reasons that you will hear as I go through this. First one is net interest income is down two and a half million dollars from the link quarter. Now, these are pre-tax numbers I'm talking about now, and there are really two reasons for it.
Rick Wang: Funny that I would say that this was a really good quarter, given that we were $3 $7 million less ink.
Rick Wang: Income.
Rick Wang: Compared to the linked quarter.
Rick Wang: And I wanted to just point out some things that caused that to happen.
Rick Wang: Which.
Rick Wang: Some of which a lot of which are just.
Rick Wang: Related to the quarter for reasons that you will hear as I go through this.
Rick Wang: First one.
Rick Wang: Net interest income was down two and a half million dollars from the <unk>.
Rick Wang: <unk> quarter.
Rick Wang: Pre tax numbers I'll talk a little about now.
Rick Wang: And there are really two reasons for one we had less accelerated income from loan payoffs on our purchased book that's lumpy that number could be.
Rick Wayne: One, we had less accelerated income from loan payoffs on our purchase loan book. That's lumpy. That number could be, you know, in any couple of quarters go up and go, what's never close there, but we go up or go up more or maybe not as much. But, you know, whatever doesn't get accelerated is income that we'll recognize as we hold the loans. And this is one you may not have thought of, but in the quarter that just ended, it was 90 days in the quarter as compared to 90. two days in the prior quarter, and that's a difference of about $800,000.
Rick Wang: A couple of quarters go up and go.
Rick Wang: Thereby they go up or go up more or maybe not as much.
Rick Wang: But whatever it doesn't get accelerated as.
Rick Wang: Income that we'll recognize.
Rick Wang: As we hold the loans and this is one you may not have thought of but in the quarter that just ended it was 90 days in the quarter as compared to 90.
Rick Wang: Two days.
Rick Wang: In the prior quarter.
Rick Wang: And that difference of about $800000.
Rick Wayne: So, I pointed out that net interest income is about $2.5 million, and we've identified $2.3 million of it. Non-interest income, was $6.6 million in the current quarter, or $700,000 higher than the late quarter, primarily due to SBA gains. The SBA business has been, the volume's increasing. I'll talk about it a little bit more in a few minutes. And on the non-interest expense side, for the third quarter, unlike the first and the second, we booked $1.3 million of Incentive Comp, Cash Incentive Comp. which you know we threw up and you know at this time so that was something in the third quarter that was not in the The link order offset to the positive by a few other items. I also want to take a look at the tax expense of which we had some charges this quarter that were not recurring our tax rate when.
Rick Wang: So I pointed out that net interest income was up $2 5 million and we've identified.
Rick Wang: $2 $3 million.
Rick Wang: Of it.
Rick Wang: Noninterest income.
Rick Wang: <unk>.
Rick Wang: Was $6 6 million in the current quarter.
Rick Wang: Or $700000 higher than the linked quarter, primarily due to SBA gauge the SBA business has been.
Rick Wang: The volumes increasing.
Rick Wang: Talk about it.
Rick Wang: A little bit more of it.
Rick Wang: In a few minutes and the noninterest expense side for the third quarter. Unlike the first and the second we booked a million three of.
Rick Wang: Okay.
Rick Wang: Incentive comp cash incentive comp.
Rick Wang:
Rick Wang: Which.
Rick Wang: We true up.
Rick Wang: At this time, so that was something in the third quarter there was not in.
Rick Wang: The linked quarter offset by the positive by a few other items.
Rick Wang: I also wanted to take a look at the tax expense.
Rick Wang: Of which we had some.
Rick Wang: Charges this quarter that were.
Rick Wang: No not recurring or our tax rate.
Rick Wayne: to 36.7%. compared to 33% in the prior quarter and probably year to date through December 31. There were a few items in there that are not recurring items. We booked $400,000 of expense due to the change in the Massachusetts tax law. We discussed this in previous calls, but once that's fully enacted, the Mass. Tax Law, it goes into effect July 1. The mayor's tax liability is going to go down, but in the meantime, this number gets adjusted. The other is, you know, we are in, we filed tax returns in 35 states. and we trued up the state tax liability later in the year in this quarter for it cost another $300,000.
Rick Wang: 36, 7%.
Rick Wang: Compared to 33%.
Rick Wang: In the prior quarter and probably a year to date through December 31, there were a few items in there that are not recurring items.
Rick Wang: We booked $400000 of.
Rick Wang: Expense due to the change in the Massachusetts tax law.
Rick Wang: Discussed this in previous calls.
Rick Wang: But yes.
Rick Wang: Once that's fully enacted the mass tax so it goes into effect July one.
Rick Wang: The <unk> tax liability is going to go down but in the meantime.
Rick Wang: This number gets adjusted.
Rick Wang: The other is we are in we file tax returns in 35 states.
Rick Wang: And we true it up the state tax liability later in the year in this quarter for a cost of another $300000.
Rick Wayne: And finally, there was because the incentive comp included some 162M and other items, there was another $250,000 for that.
Rick Wang: Yes.
Rick Wang: Finally, there was because the incentive comp included some 162 am and other items there is another $250000 for that.
Rick Wayne: That's a lot of numbers that I put out. So let me just put a headline on that. The income was down compared to the late quarter, but there's three or four reasons that none of which go to the quality of our core business. There are items that... to a large extent just occurred in the third quarter for the reasons that I described.
Rick Wang: A lot of numbers that I put out so let me just put up.
Rick Wang: The headline on that income was down compared to the linked quarter, but there's three or four reasons.
Rick Wang: None of which go to the quality of our core business.
Rick Wang: Items that.
Rick Wang: To a large extent just occurred in the third quarter for the reasons that I.
Rick Wayne: I do want to make a comment on our SBA business. You may recall, those of you that have heard these calls for a while, that when we started, we said, we're gonna build this. with Newity. We don't know whether there'll be customers that will be interested in this. And so we're not setting expectations.
Speaker Change: Hi, described I do want to make a comment.
Speaker Change: On our SBA business.
Speaker Change: You may recall those of you that have been the I've heard these calls for a.
Speaker Change: A while yes.
Speaker Change: We started we said we're going to build this.
Speaker Change: With new <unk>.
Speaker Change: We don't know whether there'll be customers that will be interested in this.
Speaker Change: So we're not setting expectations.
Rick Wayne: at all was our intention, and then it started to increase significantly. If we take a look at slide 14 in the deck. I am getting right now. Slide 14. This is a slide that shows the growth in various components of our SBA business going back one year. A year ago, Q3-24, we originated for the quarter 330 loans. And the quarter that just ended, we originated 1,069 loans. We are one of the highest, if not the highest. SBA lenders by units. I'm not saying by dollars, but 1069, I believe, makes us number one.
Speaker Change: At all.
Speaker Change: Tension and then.
Speaker Change: It started to.
Speaker Change: Increased significantly if we take a look at.
Speaker Change: 14.
Speaker Change: In the deck.
Speaker Change: I'm, sorry, I'm getting right now.
Speaker Change: Slide 14 is a slide that shows the growth in various components of our SBA business going back.
Speaker Change: One year, a year ago Q3 'twenty four.
Speaker Change: We originated for the quarter 330 loans in the quarter that just ended we originated 1069 loans.
Speaker Change: We are one of the highest if not the highest.
Speaker Change: SBA lenders by units and maintained by dollars, but 1069 I believe makes us number one it's not number one.
Rick Wayne: If it's not number one, I don't want to overstate here, it's really in the top few. And our volume at 121 million is also one of the leaders, not the number one, but I want to say within the top 10 or So, and the volume in dollars went from $29 million to $121 million, and the loans that we sold, you can see, went from, in dollars, $18.9 million to $73.6 million. So we have seen very, very substantial growth in that activity.
Speaker Change: I don't want to overstate here certainly in the top tier.
Speaker Change: And in our volume at $121 million is also.
Speaker Change: One of the leaders not the number one but I want to say within the top 10 or.
Speaker Change: So.
Speaker Change: And the volume of $1 $129 million to $121 million.
Speaker Change: And the loans that we sold you can see went from $10 $18 9 million to 73 6 million. So we have seen very very.
Speaker Change: Substantial growth in that activity.
Rick Wayne: In terms of our provision. We, um... A significant part of the $2.9 million was attributable to the SBA, where we increased the allowance. by 40 basis points compared to the link quarter. It was previously about 320, yeah. 3.2%. Now it's about 3.6%. So we provided some more cushion in there.
Speaker Change: In terms of our provision.
Speaker Change: We.
Speaker Change: A significant part of the $2.9 million was.
Speaker Change: Attributable to the SBA.
Speaker Change: We increased the allowance.
Speaker Change: By 40 basis points compared to the linked quarter was previously.
Speaker Change: 320.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Three 2% now it's about three 6%. So we provided some more cushion in there.
Rick Wayne: And for those reasons, you know, we think even though the, you know, the dollars are are less in terms of earnings, it was a very, very strong quarter that we will continue to build on.
Speaker Change: For those reasons, we think even though that.
Speaker Change: The dollars are less in terms of earnings it was a very very strong.
Speaker Change: Quarter that we will continue to build out and with that.
Pat Dignan: And with that, Pat has some great things to say about our loan book.
Speaker Change: Pat has some great things to say about our loan book Thanks, Greg.
Pat Dignan: Thanks, Rick. This was a very good quarter for lending, with solid purchase and origination volume, and another record for our SBA vertical. where, as Rick pointed out, we closed just over $121 million of loans up from $100 million in the late quarter. The SBA has recently revised their regulations returning to those in place prior to 2023. These changes include a cap for small balance loans of $350,000 rather than $500,000, increasing minimum credit scores, and adding new requirements for collateral and loan documentation. We view most of these changes as positive from a credit perspective, but recognize that they will require some adjustment on our annuities technology and process.
Pat: Good quarter for lending.
Pat: Solid purchased an origination volume another record for our SBA vertical.
Speaker Change: Where as Rick pointed out we closed just over $121 million of loans up from $100 million on a linked quarter.
Pat: The SBA has recently revised their regulations returning to those in place prior to 2023.
Pat: These changes include a cap for small balance loans of $3 50, rather than 500000, increasing minimum credit scores and adding new requirements for collateral inbound documentation.
Pat: We view most of these changes as positive from a credit perspective, but recognize that they will require some adjustment on our annuities technology and processes.
Pat Dignan: This could mean a bit of time for us to adjust, but we feel very strongly about the growth looking forward. We remain very positive about this line of business, both in the existing loan program. and with potential new small business loan products.
Pat: This could mean a bit of time for us to adjust but we feel very strongly about the growth looking forward.
Pat: We remain very positive about this line of business both in the existing loan program.
Pat: And with potential new small business loan products.
Pat Dignan: For purchase loans, we bought 52 loans in three transactions. with growth balances of $79 million. and a purchase price of $75 million or $0.94. The weighted average LTV on these loans is around 56% at our price, and we're mostly small balance. with a variety of collateral types and located along the East Coast. Beyond these purchases, we saw several opportunities that ultimately did not trade and a few others that did, but at very thin yields and to buyers moving them into securitization. We're hopeful that the current pause in the securitization markets, continued M&A activity, and liquidity among some banks will create opportunities for us over the next few months.
Pat: For purchase loans, we bought 52 loans in three transactions.
Pat: Gross balances of $79 million.
Pat: And the purchase price of $75 million ordinary 94 excuse me.
Pat: The weighted average LTV on these loans was around 56% at our price and we're mostly small balance.
Pat: With a variety of collateral types and located along the east coast.
Pat: Beyond these purchases we saw several opportunities that ultimately did not trade and a few others that did but at very thin yields and the buyers moving them into securitizations.
Pat: We're hopeful that the current pause in the securitization markets continued M&A activity and liquidity among some banks will create opportunities for us over the next few months.
Pat Dignan: But as we always say, this is a lumpy business and you never know.
Pat: But as we always say this is a lumpy business and you never know.
Pat Dignan: In our origination business, we closed $218 million for the quarter. These included 24 loans with an average balance of $9 million, secured with a variety of collateral types. LTV is just over 50%. and an average interest rate of eight and a quarter. Like last quarter, most of these loans were in our lender finance product, which continues to show strong demand from non-bank lenders. Looking forward, we have a full pipeline.
Pat: In our origination business, we closed $218 million for the quarter. These included 24 loans with an average balance of $9 million secured with a variety of collateral types.
Pat: Ltvs just over 50%.
Pat: And an average interest rate of eight in the quarter.
Pat: Like last quarter. Most of these loans were in our lender finance product, which continues to show strong demand from non bank lenders.
Pat: Looking forward, we have a full pipeline.
Pat Dignan: We are seeing some fear and cautious optimism in the real estate market. some investors on the sidelines and others viewing real estate as a good inflation hedge. We don't have any more insight than others about where the real estate or lending markets will be over the next few months. or how they will impact specific markets or collateral types, but we're patient investors and confident in our ability to source good loans, assess risk, and stick to real estate with low LTVs. Also, while we don't celebrate the current market uncertainty, we're aware that opportunities often present themselves in such times and we're prepared to take advantage of them in the event they do.
Pat: We are seeing some fear and cautious optimism in the real estate markets. Some investors on the sidelines and others viewing real estate is good inflation hedge.
Pat: We don't have any more insight than others.
The real estate or lending markets will be over the next few months.
Pat: Or how they will impact specific markets or collateral types, but we're patient investors and confident in our ability to source good loans assess risk and stick to real estate with low ltvs.
Pat: Also while we don't celebrate the current market uncertainty, we are aware that opportunities often present themselves in such times and we're prepared to take advantage of them in the event they do.
Rick Wayne: Rick? Pat, thank you. That was great.
Pat: Greg.
Greg: Thank you that was great.
Rick Wayne: Now we'd like to take any questions that you might have. Thank you.
Speaker Change: Now, we'd like to take any questions that you might have.
Speaker Change: Thank you.
Victor: We will now begin the question and answer session. If you have a question, please press star 1-1 on your touch tone 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 again.
Speaker Change: We will now begin the question and answer session. If we have a question. Please press star 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 again.
Victor: One moment for our first question.
Speaker Change: One moment for our first question.
Damon Delmonte: Our first question comes from the line of Damon DelMonte from KBW. Your line is open. Damon, your line is open.
Speaker Change: Our first question comes from the line of Damon Delmonte from <unk>. Your line is open.
Jamie: Jamie Your line is open.
Damon Delmonte: Hey, sorry about that, guys. I apparently didn't unmute myself. Good morning, and thanks for taking my questions. So, first question I had was in regards to the loan yields that we saw this quarter. It looks like the yield on the SBA portfolio was down pretty substantially from last quarter, as well as on the national-originated loans. Just wondering if you could talk a little bit about what you're seeing, particularly on the SBA side, and kind of what the outlook might look like for that, and kind of how that would figure into your margin going forward. Well, all of our SBA loans are priced currently at Prime 275.
Jamie: Hey, sorry about that guys on.
Speaker Change: On mute myself.
Speaker Change: Thanks, Good morning, and thanks for taking my questions.
Speaker Change: First question I had with regards to the loan yields that we saw this quarter it looks like.
Speaker Change: The yield on the SBA portfolio was down pretty substantially from last quarter.
Speaker Change: And as well as gundy national originated and purchased the National originated loans I was wondering if you could talk a little bit about what youre seeing.
Speaker Change: Particularly on the SBA side and kind of what the outlook might look like for that and kind of how that would figure into your margin going forward.
Speaker Change: All of our SBA loans are priced currently at Prime 275.
Rick Wayne: We're going to start taking a look at, you know, we were allowed to charge higher rates on some of the smaller loans, and we're going to take a look at doing some risk-based pricing on that. So maybe we can, Damon, which are the numbers exactly that you're talking about so we can be responsive to the change in the rate that you're describing? I think the yield on the SBA portfolio was like 9.93% this quarter versus 11.6% last quarter.
Speaker Change: Let's start taking a look at where we're allowed to charge higher rates on some of the smaller loans.
Speaker Change: And we're going to take a look at doing some risk based pricing.
Speaker Change: On that.
Speaker Change: So that maybe we can.
Speaker Change: Melissa the numbers exactly that youre talking about so we can be responsive.
Speaker Change: Sure, yes, great that youre describing.
Speaker Change: I think the yield on the SBA portfolio was like 993% this quarter versus.
Speaker Change: 11, 6% last quarter.
Rebecca Rand: The also in the group was not introduced by the operator is our Director of Accounting, Rebecca Rand, who will answer that question for you. Thank you. Thanks. Yep. So, as Rick mentioned, these loans are tied to prime and we saw rate cuts in September, November and December, totaling 100 basis points and these loans reset quarterly. So a lot of the impact of the rate cuts was not seen in Q2 from the. and we're seeing that more in Q3. Got it. OK, that's helpful.
Speaker Change: Also in the group was not introduced by the operator is our director of accounting <unk>.
Speaker Change: Iran, who will answer that question or Phil and thank you. Thanks, Yes, so as Rick mentioned.
Speaker Change: These loans are tied to prime and we saw rate cuts in September November and December totaling a 100 basis points and these loans reset quarterly.
Speaker Change: A lot of the impact of the rate cuts, we have not seen any Q2.
Speaker Change: And we're seeing that more in Q3.
Rick Wayne: And then as far as like expenses go. You know, was this quarter kind of a catch-up on the comp accruals, and should we expect a similar level, you know, north of $20 million kind of going forward here, or do you think that it's kind of a one-time catch-up and it will kind of go back to what we saw for the first couple quarters of your fiscal year? Well, we have the comp is a half of a catch up. We in the third, because this is all now on the incentive, the basic. The comp theory of the bank is we don't pay bonuses once the bank does well.
Got it okay. That's all.
Speaker Change: Paul.
Speaker Change: And then as far as like expenses go.
Speaker Change: Was this quarter kind of a catch up on the on the.
Speaker Change: The comp accruals and what should we expect a similar level.
Speaker Change: North of $20 million kind of going forward here or do you think that that's kind of a onetime catch up and it will kind of go back to what we saw for the first couple of quarters of your fiscal year.
Speaker Change: So the comp is that is.
Speaker Change: As a half of a catch up we.
Speaker Change: The third because this is all now on the incentive the basic.
Speaker Change: Comp theory of the of the bank.
Speaker Change: Don't pay bonuses was the bank does well and we need to see how the bank does.
Rick Wayne: And we need to see how the bank does and to figure out kind of what the bonus will be, the comp committee does. And so that million three was a catch up in the third quarter. And we would expect there will, which estimates roughly where we think 75% of the incentive. Comp will be, and then there'll be another one in the fourth quarter coming up. So, you know, those occur as they were in the past, Damon. They catch up in the third and the fourth. our third and fourth fiscal quarter. I wouldn't expect, you're probably not gonna see that in the.
Speaker Change: Figure out kind of what the bonus will be the comp committee does and so.
Speaker Change: So that million three was a catch up.
Speaker Change: In the third quarter, and we would expect there.
Speaker Change: Estimates roughly what we think 75% of the incentive.
Speaker Change: Comp will be and then there'll be another one in.
Speaker Change: The fourth quarter coming up.
Speaker Change: Those occur and as they were in the past payments.
Speaker Change: Hey.
Speaker Change: There is a catch up in the third and the fourth.
Speaker Change: Our third and fourth fiscal quarter.
Speaker Change: I wouldn't expect.
Speaker Change: It's probably not going to see that in the.
Damon Delmonte: for, you know, going into our next fiscal year. Got it. Okay.
Speaker Change: Going into our next fiscal year.
Damon Delmonte: And then I guess just lastly, on loan growth and kind of the outlook there, you know, it sounds like pipelines remain strong and obviously bulk purchases are, you know, kind of a wild card, can't really predict those. But as far as what your pipelines are showing, you know, you feel like you have good momentum going into the next quarter here and then, you know, through the summer months as well. You know, I've, you know, on the First on the purchase side, you know, there are some meaningful transactions out in the world. And so it's, you heard the forward-looking statement.
Speaker Change: Got it Okay and then.
Speaker Change: I guess, just lastly on loan growth and kind of the outlook there it sounds like pipelines remained strong and obviously.
Speaker Change: Bulk purchases or kind of a wildcard I can't really predict those but as far as what's your pipelines are showing.
Speaker Change: Do you feel like you have good momentum going into the <unk>.
Speaker Change: Next quarter here, and then through the summer months as well.
On the.
Speaker Change: First on the purchase side.
Speaker Change: There are some meaningful transactions out in the world.
Speaker Change: And so it's.
Speaker Change: Yes.
Speaker Change: You heard the forward looking statement and I'm not predicting anything on the large.
Rick Wayne: I'm not predicting anything on, you know, the large, you know, transaction. But that's certainly within the realm of possibility. And then on the origination side, I would say our pipeline is full. We'll have to see, as Pat mentioned at this point, what all of the uncertainty in the economy does to... The origination volume, we'll just have to see. So far, we've got a big pipeline, but there are so many unintended consequences. as a result of these tariff and other changes going on. We'll just have to see. You know, we're only interested, of course, this sounds, you probably hear this from every bank, but they're making, you know, good loans.
Speaker Change: Transactions, but that certainly within the realm of possibility.
Speaker Change: And then on the origination side.
Speaker Change: I would say our pipeline is full.
Speaker Change: Yes.
Speaker Change: We'll have to see as Pat mentioned at this point, where all of the uncertainty in the AR.
Speaker Change: Economy does.
Speaker Change: Two.
Speaker Change: The origination volume.
Speaker Change: We'll just have to say so far were the big pipeline, but.
Speaker Change: There are so many.
Speaker Change: Consequences.
Speaker Change: As a result of these paraffin other changes going on and we'll just have to see.
Speaker Change: Okay. We're only interested in of course, it sounds probably hear this from every bank making.
Rick Wayne: We're not going to, we won't feel under any pressure, zero, just to put loans on the balance sheet for the sake of volume. Right.
Speaker Change: Good loans, we're not going to.
Speaker Change: It will fill under any pressure zero just to put loans on the balance sheet for the sake of volume.
Rick Wayne: And the discount, I think you had said you paid 94 cents or 94% a par on these purchases this quarter, which is kind of up a little bit from what we've seen. Is that just a shift in the market dynamics and kind of what the level of opportunities are presenting themselves at? unique to this group. You know, the discount, you can't always compare. It's not apples to apples, but the discount, which, you know, very often is now is interest rate related. If you have a higher coupon, then you're going to have a lower discount and vice versa.
Speaker Change: Great.
Speaker Change: The discount I think you had said you paid 94 cents or.
Speaker Change: 94% of par on these purchases this quarter, which is kind of up a little bit from what we've seen is that just a shift in the market dynamics and kind of what.
Speaker Change: The level of the opportunities are presenting themselves out or is there something.
Speaker Change: Unique to this no.
Speaker Change: The discount you can't always compare it's not apples to apples as the discount which very often is now is interest rate related if you have a higher coupon than youre going to have a lower discount.
Damon Delmonte: So I wouldn't read anything into that at all. Got it. Okay, great. Well, thank you very much for taking my question. Thank you, Damon. Thanks. Again, that's star 1-1 for questions. One moment for next question.
Speaker Change: Vice versa, so I wouldn't read anything into that at all.
Speaker Change: Got it okay, great well, thank you very much for taking my questions.
David: Thank you David.
David: Thank you again Thats Star 101 for questions on moment for next question.
Mark Fitzgibbon: Our next question will come from Mark Fitzgibbon from Piper Sandler, your line is open. Hey, guys. Good morning. Happy Wednesday. And the same to you, Mark. Thank you. Just a real quick clarification. I think I may have missed this. Just to be clear, the 43 basis point drop in loan yields on a sequential quarter basis was primarily due to less accretion income, which you think will sort of flow back in, maybe normalize a bit in the next quarter. Is that fair? Well, I want to be, I want to be. explicit about it. The Becky, can you help me with this on the differences?
Speaker Change: Our next question comes from the line of Mark Fitzgibbon from Piper Sandler Your line is open.
Mark Fitzgibbon: Hey, guys good morning Happy Wednesday.
Speaker Change: Thank you Mark Thank you.
Mark Fitzgibbon: Thank you.
Mark Fitzgibbon: Just real quick clarification.
Mark Fitzgibbon: I think I may have missed this just to be clear the 43 basis point drop in loan yields on a sequential quarter basis was primarily due to less accretion income, which you you think will sort of flow back in maybe normalize a bit in the next quarter is that fair.
Mark Fitzgibbon: Well all of this I want to be.
Mark Fitzgibbon: Explicit about it.
Mark Fitzgibbon: The.
Mark Fitzgibbon: Can you help me with this on the.
Mark Fitzgibbon: The differences.
Mark Fitzgibbon: Yep. So, yep, we had about a million and a half lower of accelerated income compared to the linked quarter. And as Rick mentioned, that is lumpy and difficult to predict based on payoffs. So that's that's the primary driver. And then the other was the two fewer days in the quarter, which was about eight hundred thousand or so of the difference. And we had some lower rates and some lower rates. It wasn't the bigger driver. The biggest drivers are the ones that Becca just mentioned. But there was also some great reduction also. So when you're thinking about your margin going forward, you think it sort of comes back to.
Mark Fitzgibbon: Yes.
Mark Fitzgibbon: So, yes, we had about a million and half lower of accelerated income compared to the linked quarter and.
Rick Wang: As Rick mentioned that it's lumpy and difficult to predict based on payoffs.
Rick Wang: So that's the primary driver and then the other was the two fewer days in the quarter, which was about 800000 ourselves of the difference.
Rick Wang: And we had some.
Rick Wang: Lower rates and some lower rate it wasn't the bigger driver the biggest drivers are the ones that Becker.
Rick Wang: Just mentioned, but there was also some.
Rick Wang: Great reduction also.
Rick Wang: Okay.
Rick Wang: So when youre thinking about your margin going forward.
Rick Wang: You think it sort of comes back to you.
Rebecca Rand: to what in the next quarter? 480-ish? Would that be a good guess? I think that's, you know, I think that's probably a good number within, you know, obviously, give or take some. Yeah, I would I would think so. OK.
Rick Wang: To what in the next quarter 480 ish would that be a good guesstimate.
Rick Wang: Yeah.
Rick Wang: I think thats.
Rick Wang: Think that's probably a good number within.
Rick Wang: Obviously give or take some.
Rick Wang: Yes.
Rick Wang: I would think so.
Mark Fitzgibbon: And then next, I was curious if you could share with us what you feel like you have in terms of balance sheet capacity for, you know, loan pool purchases. We know that. How many investors are in the highlight section? $870 million. Thank you. $870 million. Yeah, 870 million through March 25. Okay, I'd point out that I was going to say, Mark, you know this, of course, but for some of the other listeners, that number gets bigger as we earn more money, and it could also get bigger, you know, if we wound up selling stock under the ATM as well.
Rick Wang: Okay.
Rick Wang: And then next I was curious if you could share with US what you feel like you have in terms of balance sheet capacity for loan pool purchases.
We know that.
Rick Wang: Is that when we invest in the highlight section $870 million. Thank you.
Rick Wang: Yes.
Rick Wang: 870 <unk>.
Yes $870 million.
Rick Wang: Through March 20.
Rick Wang: Five.
Rick Wang: Okay I've pointed out.
Rick Wang: I was just going to say mark.
Mark Fitzgibbon: This of course, but for some of the other listeners that number gets bigger as we earn more money and it could also get bigger.
The selling stock under the ATM as well.
Rick Wayne: So we feel like we're in pretty good shape for opportunities. Okay, great.
Mark Fitzgibbon: So we feel like we're pretty good shape for opportunities.
Mark Fitzgibbon: And Pat, I heard your comments about the SBA business. And now that it's humming on all eight cylinders, I know you'll have maybe a little short-term decline in origination volume because of the changes at the SBA. But longer term, how should we think about volume ramping up in this business? Is this the kind of thing that volumes could double a couple quarters out or triple? Or can you help us think about how much of that volume you think you can do? The market demand is massive. I don't think there's going to be any impact or much impact on the top of the funnel.
Mark Fitzgibbon: Okay great.
Mark Fitzgibbon: Pat I heard your comments about the SBA business and now it's humming on all eight cylinders I know youll have maybe a little short term decline in origination volume because of the changes that the SBA, but longer term how should we think about volume ramping up in this business is this the kind of thing that volumes could double.
Mark Fitzgibbon: A couple of quarters out or triple or can you help us think about sort of the how much of that volume you think you can do.
Mark Fitzgibbon: Well the market demand is massive.
Mark Fitzgibbon: I don't think theres going to be any impact on.
Mark Fitzgibbon: Much impact on the top of the funnel. It is just with more.
Rick Wayne: It's just with more documentation and more collateral requirements, it's going to take longer to close some of these loans than it's going to be. So there could be some period of time before we ramp back up to where we're currently at. And there are other other SBA products that we're looking into. So I think long term, we're very, very positive and bullish about this, about this program and, you know. The reason I point that out is we had $82 million in two quarters ago, then $100 million in $120 million, and I just want to point out that that would have been a trajectory we would have been comfortable with, but just wanted to point out that because of these rule changes, there could be a slight the lag in that growth.
More documentation and more collateral requirements is going to take longer to close.
Mark Fitzgibbon: Close some of these laws and it's going to be.
Mark Fitzgibbon: So there could be some some period of time before we ramp back up.
Mark Fitzgibbon: Two where we're currently at.
Mark Fitzgibbon:
Mark Fitzgibbon: And there are other other SBA products that we're looking into so I think long term, we're very very positive and bullish about this about this program.
Mark Fitzgibbon: Okay.
Mark Fitzgibbon: The reason I point that out as we had $82 million in two quarters ago, then 100 million 120, and I just wanted to point it out.
Mark Fitzgibbon: Bad debt.
Mark Fitzgibbon: Would have been a trajectory we would have.
Mark Fitzgibbon: So I'm comfortable with but.
Mark Fitzgibbon: Just wanted to point out that because of these rule changes there could be.
Mark Fitzgibbon: Right.
Mark Fitzgibbon: Lag in that.
Mark Fitzgibbon: The net growth.
Rick Wayne: We'd be reluctant to put out a number, Mark, because... Other than saying what Pat did, the market is enormous. And we have, with Newity, we have some advantages. Big head start on great technology to process. There haven't been a lot of banks that want to do these small balance loans, a lot of I's to dot and T's to cross to do it. And if you're not doing it in real volume, it's very hard to make money you know, doing a $25,000 7 ASBA loan. But in volume, of course you can. So I think without putting any number on it, it's possible that this could grow very significantly.
Mark Fitzgibbon: Okay.
Mark Fitzgibbon: And to put out a number mark because.
Mark Fitzgibbon: Other than saying what path is the market is enormous and we have with nudity.
Mark Fitzgibbon: We have some advantages big head start on great technology to <unk>.
Mark Fitzgibbon: Process.
Mark Fitzgibbon: Yes.
Speaker Change: A lot of banks I wanted to do the small balance loans a lot of eyes.
Speaker Change: Is that cross to do it and if youre not doing it in real volume, it's very hard to make money.
Speaker Change: Still at $25000.
Speaker Change: SBA loan.
Speaker Change: But in volume of course, you can.
Speaker Change: So.
Speaker Change: I think it's without putting any number on it.
Speaker Change: As possible that this could grow very significantly.
Rick Wayne: And I would point out, but if it doesn't, you know, we're now kind of on a run rate making 25 million bucks of fee income from this, which is pretty good from where we started. And we continue to refine the technology so every quarter. Some of this growth is not just market demand, but our increasing refinement of our processes and technology to be more efficient.
Speaker Change: And I would play out but if it doesn't.
Speaker Change: We're now kind of on a run rate, making 25 million Bucks of fee income from this which is pretty good from where we started.
Speaker Change: And we continue to refine the technology so every quarter.
Speaker Change: Some of this growth is not just market demand, but our increasing.
Speaker Change: Refinement of our processes and technology to be more efficient.
Mark Fitzgibbon: Okay.
Mark Fitzgibbon: And then my last question is, do you have an internal limit on broker deposits? I think it's 50% now of total deposits. Is there a limit you go? 50% of assets is our limit. Okay, great.
Speaker Change: Okay and then my last question is do you have an internal limit on brokerage deposits I think its 50% now of total deposits is there a limit you go to.
Speaker Change: 50% of assets.
Rick Wayne: Thank you. But, you know, Mark, before you go, Mark, just one point on that, related to that. One of the things we've been focusing on is having a lot more on and off balance sheet liquidity. So, you know, kind of in very round numbers, very round. We have about $400 million of cash and very liquid agency securities. And on top of that, We have about a How much capacity, Richard, with the or anyone with the But with the Federal Home Loan Bank, we have available capacity of 800, almost 900 million and with the Federal Reserve around 300.
Mark Fitzgibbon: Okay, great. Thank you Mark.
Speaker Change: You go Mark just one point on on on that related to that what are the things we've been focusing on is having a lot more on and off balance sheet liquidity, so kind of in very round numbers.
Speaker Change: Round about $400 million of cash in and very liquid.
Speaker Change: The agency Securities.
Speaker Change: And on top of that.
Speaker Change: We have.
Speaker Change: About.
Richard: How much capacity, Richard with the or anyone with the.
Richard: So with the federal home loan bank, we have available capacity of 800.
Richard: With $900 million and with the federal reserve around 300.
Rick Wayne: This is somewhere about $1.6 billion of on-balance sheet and off-balance sheet liquidity. So, and maybe just to add to that, Mark, we've spoken on a number of the other tools about the use of broker CDs. And we've been, as you would know from previous calls, we've been on a path of reducing our FHLB. So to increase the capacity there and bring in broker CDs, because, of course, we like the fact that we can term it out. And it gives us predictable, predictable financing. So we're quite conscious of not only staying within the limits on the broker CD, which we have a fair amount of still.
Richard: Okay.
Richard: Somewhere about $1 billion six of.
Richard: On balance sheet and off balance sheet liquidity.
Richard: So maybe just to add to that Mark we started on a number of the other tools about.
Richard: The use of brokered Cds.
Richard: And we've been as you would know from previous calls we've been on a part of.
Richard: Reducing our <unk>, so as to increase the capacity there.
And bringing brokered Cds because of course, we like the fact that we can turn that out.
Richard: And it gives us predictable predictable financing.
Richard: So we're quite conscious of not only staying within the limits on the broker team, which we have.
Richard: A fair amount of still but we're also trying to balance that as best as we can very deliberately to keep spare capacity.
Rick Wayne: But we're also trying to balance that as best as we can, very deliberately to keep spare capacity and to have available capacity to add to our broker CDs if and when we need to. So we're fairly comfortable from that perspective.
Richard: And to have available capacity to agile buckets, if and when we need to.
Richard: So we're fairly comfortable from that perspective.
Mark Fitzgibbon: Great, thank you.
Speaker Change: Great. Thank you.
Victor: Thank you, Mark. Thank you, and I'm not showing any further questions at this time.
Mark Fitzgibbon: Thank you Mark.
Speaker Change: Thank you and I'm not showing any further questions. At this time now I'll turn the call over to Rick Wayne for any closing remarks.
Rick Wayne: Now I'll turn the call over to Rick Wayne for any closing remarks. Thank you for dialing in. Thank you, Damon and Mark for some excellent questions. And we look forward to talking to you in July to discuss our quarter and year-end numbers and other things of interest.
Rick Wayne: Thank you for dialing in.
Speaker Change: Thank you Damon and Mark for some excellent questions.
Speaker Change: And we look forward to talking to you in July to discuss our quarter and year end.
Speaker Change: Numbers and other things of interest.
Rick Wayne: And with all of that, I would say goodbye to you.
Speaker Change: And with all of that I would say goodbye deal.
Victor: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Victor: Goodbye.
Speaker Change: Goodbye.
Speaker Change: Okay.
Speaker Change: [music].