Northeast Bank (NASDAQ:NBN) Q3 2023 Earnings Call Transcript
Northeast Bank (NASDAQ:NBN) Q3 2023 Earnings Call Transcript April 25, 2023
Northeast Bank beats earnings expectations. Reported EPS is $1.69, expectations were $1.66.
Operator: Welcome to the Northeast Bank Third Quarter Fiscal Year 2023 Earnings Conference Call. My name is Olivia and I'll be your operator for today's call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer; JP Lapointe, Chief Financial Officer; and Pat Dignan, Executive Vice President and Chief Operating Officer. Yesterday, an investor presentation was uploaded to the bank's website which we will reference in this morning's call. The presentation can be accessed at the Investor Relations section of the northeastbank.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 replay purpose 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. 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. Northeast Bank does not understand any obligation to update any forward-looking statements. I will now turn the call over to Rick Wayne. Mr. Wayne, you may begin.
Rick Wayne: Thank you, Olivia. Good morning to all of you on the call. Before we talk about the specifics of our results for the quarter that just ended, I wanted to just make a few comments in light of the recent failures of Silicon Valley Bank and Signature Bank as kind of the main points that are out there. One, I want to talk about our deposits first. We have $2.13 billion of deposits at March 31 and this is important of which 92% are insured and 3% of our deposits relating to hold back accounts are in restricted accounts. So we only have 5% of our deposits that are uninsured and at risk, not that anything is going on with that but we're just uninsured and not in restricted accounts. As soon as the news broke around those 2 banks, we contacted all of our deposit customers in descending order based on balance to offer full insurance on the deposits through IntraPi which is formerly commentary.
And in some of our -- most of the customers either had or took us up on that. And then, if we look at the deposits quarter-to-quarter. Our deposits decreased by $106 million from 12/31 to March 31. But of that $100 million were broker deposits which we paid off. So really no change. There's no really no -- none of our customers are thinking about taking their deposits out now, something we are obviously pleased with and proud of. Second issue that I want to compare our bank with what happened to some of the other two. Those banks wound up having a mismatch between their deposits and their investment portfolio and investment in longer-duration treasury. So they didn't have credit risk but they had interest rate risk. In our case, we've had a different approach which is to only invest in 1-year or 2-year agencies, our investment portfolio has a weighted duration of 13 months.
And currently, the unrealized losses only $860,000 pretax with $620,000 after tax. So to sum up those points, our deposits have remained sticky and we do not have any meaningful losses only any at all in our investment portfolio. I don't want to compare us as I have. Second thing, I now want to go through some of the financial highlights on Page 3. And we have a very fulsome slide deck that we post another highlight certain pages and then, of course, answer any questions that you might have. First, is just some basic stats; it was really a great quarter. Our net income was $12.5 million which excluding those quarters in which we had sold PPP loans and had gains from those. That is a record quarter of net income for us. That's $1.69 fully diluted earnings per share, a return on equity of 18.5%.
It's a very big number, 18.5% and the comparable ROA of 1.8%. Our tangible book value at the end of the quarter was $37.02 growing a little bit less than $2 from the December 31 quarter. We also sold 160,000 shares of stock under our ATM at the market offering at an average price of $42.78. And finally, our low volume was purchased and originated $144.5 million. Turning to Slide 6. I do want to talk about what we saw for activity and volume in the quarter that just ended. First, with respect to purchase loans, we purchased $21.5 million of loans which is certainly much lower than the preceding quarter where we had very large purchases of around $1 billion. But the first calendar quarter March 31, third fiscal quarter, it is not -- is commonly a low volume quarter.
If you look at going back a year, we have that, it was $23.9 million a year ago. Now occasionally, it's higher. But we did see less volume in that quarter. And our originated loan book was -- we originated $117 million which was also lower combination of seeing less request and also being more selective, I say more so, I think, because we're all selective but just being even more so now. So you can see that -- of course, $144 million is still a very good number. It's not as strong as in the preceding quarters. If we go to Slide 7, you can see the distribution of our portfolio and I want to just point out that only 13% of the portfolio are loans that are more than $15 million and 9% are loans between $10.5 million which moves at 78% of our portfolio loans lost $10 million or less.
And again, we have a concentration in New York at 35%, 30% in California and 5% in Florida. So that's 70% in those 3 states. And then you can see on the chart, the rest of them, we're in 44 states. Sometimes this is just a contact in the last few states, so we're not in and it's all because we haven't had an opportunity but in case you were wondering, it's Hawaii, Montana, North and South Dakota, Tennessee and Vermont. Other than that, we are in all of the other states, excluding those. If we move to Slide 8, these are asset quality metrics and place is quite strong. You can see that at the end of the quarter, the ratio of nonperforming loans to total loans is only 58 basis points which if we go back to June 30, '21, it was 180 basis points.
So two things are occurring; the numbers are only up a little bit but on a much bigger balance sheet, so we're seeing the benefit of that. Turning to Slide 15 with a few comments about our deposit costs and our deposits on Slide 15 and 16. I think I want to highlight one, the average cost of deposits for the quarter was 3.23 and the spot rate, that is to say the rate on March 31 was 3.35 . And it's not on this slide but the spot rate at December 31 was 3.03 , so it's kind of 32 basis points in the quarter. On Slide 16, we break out of the source of the deposits by channel and the rates. First, I want to highlight that if we were to aggregate builds in the banking center which is $615 million, I'm doing some rounding to our national lending customers which is $61 million banking which was $35 million and the holdback which will primarily reserve accounts.
That is a total of $776 million out of $2.13 billion or 36%. I highlight these because these have lower rates a weighted average rate of 1.38 but the balance of the deposits, the 64% are in higher rate products and what we are focusing -- and I should say have a weighted average rate of 4.51% . I would point out that as those roll over; the increase won't be nearly as much as it has been in the past as we have added those in our funding. If we go to Slide 19 and we take a look at our revenue compared to our expenses, the revenue was $33.4 million for the quarter which increased $3.3 million from the -- from December 31 but expenses remain reasonably flat. They only went up $100,000 quarter-to-quarter. So that's obviously a good thing if we can grow revenue that much and manage our expenses.
If we go to Slide 21, you can see that we have a discount on the purchase loans of a shade under $190 million of which 166.5% is accretable which we've been through time and the non-accretable portion of $23 million, we recognized when a loan pays off. That's a lot of discount on our books, a lot of income that will be going in over time. And then if we go to Slide 24 and look at our net income for the quarter which was $12.5 17 million. I mentioned that, that was the highest amount of net income if we exclude those 3 quarters where we had gains from the sale of PPP. And if we go to Slide 25 and we look at first, the blue bar in the first -- on the left side of the page, you can see that our base net interest income was $29 million. So that doesn't include transactional income.
And that number all is higher than total net interest income for each of the preceding quarters. And so we're really seeing the benefit of a larger loan book as a result mostly from the purchases that we made in the fourth quarter that the income -- the impact that's happening on our state . Those are the comments that I have. I should mention that JP Lapointe, our Chief Financial Officer, is here with me and Pat Dignan, our Chief Operating Officer and Chief Credit Officer, he's double Chief. So we're all here to answer any questions that you might have.
Operator: And I'm showing Alex Twerdahl from Piper Sandler.
Alex Twerdahl: A couple of questions here for you guys. First off, just on that almost $190 million of discount. Can you talk a little bit about the sort of the life of the portfolio there and what you saw this quarter in terms of early pay downs and maybe talk about whether or not it was expected or unexpected would happen this quarter? And just I know it's incredibly hard to predict and very choppy the accelerated portion of those of that accretable income but any thoughts around whether or not this quarter was typical or if it was maybe light or heavy?
Rick Wayne: Well, this quarter, I'm still on in the second but first on the purchased portfolio -- were generally slower. The rates are -- a lot of the loans that we have purchased particularly in one of the pools list quarter was $700 million PPP and $600 million on the discount there, I would have described those as and were when originated were typically 5-year loans had a low by today's standard fixed rate over the first 5 years and then going to slowing after that which some of them already are floating and others are going in. But the paydowns were that is great as they had been, I would say, historically, those understandable reason, if you have a loan rate and you have still term left on it, that would be fixed, unless there was a life of it of some sort, selling the real estate or if it was owner occupied selling the business and the real estate or someone died or otherwise had to deal with that or they wanted to take on more money because they have very low LTVs on that in the low 30s, we wouldn't be as inclined to pay it off.
So I think there was lower than that and also lower in our -- I can put a number on that on Slide 5 now that I'm looking at the purchase runoff was $44 million kind of $1.5 billion loan book. I'll come back to the origination for a second. But your -- so the answer it more of your question, that -- those loans have a lot of them, have a long duration. Those going out 15 years in a lot of cases. And so we like to buy loans like that because you get a lot of discount not to the credit through the interest rate and if they do pay off, you pick up, out of income. It started off at a slow start; that really was surprising to us in the environmental about our expectation is that, that will pick up. In one of the previous calls, Alex, you had asked about what our yield on the return on the purchase book was under 8%.
We think it was going to wind up at that time. I said I thought it would be at least 8 for the year. And I suspect it will be pretty close to that. We'll see what happens in the fourth quarter. And with respect to the originated book, that also the pay down right, you have the numbers on the originated we originated 117, thank you. JP pointed it was right in front of me. So we originated 117. We had $86 million of one-off. So our while our origination amount of 117 was lower than previous quarters, it still grew that only both originated loan book as the paydowns were less. It cuts on a lot. Is it more than that ?
See also 25 Highest Paying Jobs in the World and Top 50 Perfume Brands in the World.
To continue reading the Q&A session, please click here.
