Apr 26, 2022
Operator
Welcome to the Northeast Bank Third Quarter Fiscal Year 2022 Earnings call. My name is Richard and I'll be your operator for today's call.
This call is being recorded. With us today from the bank is Mr.
Rick Wayne, President and Chief Executive Officer, JP Lapointe, Chief Financial Officer, and Pat Dignan, Executive Vice President and Chief Credit Officer. Last night, 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.
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, [Operator Instructions].
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 obligation to update any forward-looking statements. I'd now turn the call over to Mr.
Rick Wayne. Mr.
Wayne, you may begin
Rick Wayne
Thank you. Good morning and thank all of you for joining the call today.
I am Rick Wayne, the Chief Executive Officer of Northeast Bank. And with me on the call are JP Lapointe, our Chief Financial Officer, and Pat Dignan, our Chief Credit Officer and Executive Vice President.
After my comments, JP, Pat, and I will be happy to answer any of your questions. I'd like to start out with a few highlights on Page three of the slide deck.
For the quarter that ended, we had net income of $10.6 million, earnings per share of $1.36 diluted, return on equity of 17.6%, return on assets of 2.8%. Our cost of funds for the quarter were 30 basis points.
I also want to comment on our share repurchase program. For the quarter, we've repurchased 79,588 shares at $34.70.
And in April through today, we repurchased an additional 82,000 shares at $34.43 combined from January through April to-date we have repurchased a 162,000 shares at $34.57. We recently filed an 8-K and put out a press release where the Board approved and the regulators approved the repurchase of an additional one million shares or $40 of capital.
I also now want to focus a little bit on the originated loan volume. For the quarter, we originated a $152 million of loans, which reflected an increase on our originated portfolio of $61.3 million or 9.9% compared to the [Indiscernible] quarter on December 31, 2021.
And if we go back to the beginning of our fiscal year, our originated loan book has increased $157 million or 30% compared with June 30, 2021. I want to comment also on our purchased loan activity.
For the quarter, we invested $24 million, UPB of $32 million, which is a figured discount than we previously had. Half of the deals that we did were direct as opposed through loan sale advisors.
On the question of the discount, that was primarily directed from one transaction and then the others were typically priced -- or priced more typically where we are. With respect to the activity in the March 31 quarter, typically that quarter from a purchase perspective is light and the activity we saw was even lighter than for a light quarter.
With the gigantic forward-looking statement that you just heard, I expect we're seeing a lot of volume in the quarter that we are in and when we reconvene in July, we'll have a chance to report on the success in the quarter and so, that's where we are. I want to focus, if you go on Slides 4 and 5, I want to make a comment on our correspondent fee income.
One, as we have mentioned from the very beginning, the income from our PPP activity and in particular, as a correspondent for the loan source was in -- that revenue was going to go down over time and at some point, go away. We're starting to -- we've been seeing in over the quarters that number reduced.
For the quarter that was March 31, the income was a little bit less than $5 million, which was down from $6 million in the previous quarter. And the reason for that is that the PPP balances held by Loan Source on the loans that they have purchased have been coming down as loans have been forgiven.
They originally purchased $11.2 billion of loans. And at the end of March 31, it was down to $2.8 billion.
So the loans that they have, the PPP loans they have have come down by 75%. And we share in the servicing income.
So as that portfolio comes down, our share of the servicing income also goes down. And that's why we're seeing a decline of that.
We'd also expect to see a decline in this quarter and in quarters that follow. And we were always asked the question that we have -- we increased our capital by a significant amount because of our Triple P activity, both our originations and our corresponding income, as I mentioned.
And then was observed when that income goes down, we need to replace that by growing our loan book. And so I want to comment on that now as to how that is going.
I mentioned already that on our originated loan book, that's gone up 30% from the beginning of the year. If we take a look at -- and this is when we'll be referencing to Slide 31 for this point, if we take a look at our net interest income, which of course includes interest income minus our interest expense, and we take a look at March 31, now I'm on Slide 31, our base net interest income, which excludes transactional income for the quarter was 18 -- I'll do a little bit of rounding here,$18.4 million and that compares it from a year ago to base net interest income for the quarter of $14.3 million.
So we compare the quarters, our base net interest income went up by $4 million or 28%. And, of course, that happened as a result of two factors.
Our national lending book over that period -- now again, I'm comparing March 31, '22 with March 31, '21 with a little bit of rounding, went from $980 million a year ago to $1.2 billion at the end of March. That's an increase of $220 million or an increase of 22%.
And so with that increase in our loan balance, we generated a lot more interest income. And then, of course, we had savings in our interest expense.
I mentioned earlier that our deposits costs was 30 basis points for the quarter. And that, of course, is our goal, is to keep increasing our commercial real estate book.
And if we're able to do that, then we will be able to keep increasing our income. Of course, a quick comment on asset quality.
Our non-performing assets increased by $3.3 million or 16% since December 31 very happy about that. I also want to make a comment about our exclusive marketing agreement.
With NEWITY around trying to originate 78 loans. When we spoke last time in January, I had said that I would expect that I would have more concrete results to report in our April call.
And I don't have concrete results to report on the amount of 78 volume because annuity is continuing to build out the platform which is not nearly as easy as one would think with all of the eyes to that NT's to cross to ensure that we're doing the underwriting in a way that the SBA will honor it, guarantee that is much more complicated than one would think, but there is some action going on. They have redone the portal for their borrowers in a much more user-friendly way, getting really close to solving the issues around the SBA process that I just described.
Initially, their marketing approach was to send out emails to the 100,000 plus PPP customers that the Loan Source had. I think it's fair to say that that was not a particularly successful approach.
They have now engaged a firm to start a calling campaign, which started this week. The firm's making many, many calls to approach all those customers on multiple times.
They've also signed up more referral partners. I have a high -- much higher confidence level now.
When we reconvene in July, we'll have some tangible results to report. From the very beginning of this, I said, I don't want to set expectations too high on this or too low.
Our investment in dollars in this has been relatively small, $500,000 or $600,000 so far. It's got the possibility to generate a lot of business and a lot of income.
And on the other hand, we have to see whether our customers are interested in a low balance to 7(a) loan. But we will have more to report on this.
And I think with that, I will turn it over to you, our listeners, so that we can respond to any questions that you might have. Thank you.
Operator
Thank you. We will now begin the question-and-answer session.
If you have a question, please [Operator Instruction]. And we're standing by for questions.
Our first question online comes from Mr. Alex Twerdahl from Piper Sandler.
Please go ahead.
Alex Twerdahl
Hey, good morning, guys.
Rick Wayne
Good morning.
Unidentified Company Representative
Good morning [Indiscernible]
Alex Twerdahl
First off, Rick. I missed what you said earlier on -- when I got on the call, you were talking about seeing a lot of volume in the quarter so far in the quarter that we just started.
I think you're talking about the purchase loans. Can you just confirm that comment and maybe talk a little bit more about the market for purchase loans as it stands right now with rates poised to go much higher over the next couple of quarters?
Rick Wayne
Of course. Before I do that, I was -- I just want to clarify.
I think I misspoke in my presentation. I said that non-performing assets increased by $3.3 million, that was wrong.
I meant to say they decreased by $3.3 million. So I wanted just to clarify that.
As to your question, the context was I said that, in the quarter that ended March 31, typically a light quarter, the first calendar quarter of the year and it was even lighter than we would have expected. And then I went on to say that with respect to the quarter we're in without predicting at all what we're going to do because results are binary, you win or you don't win, we're seeing a fair amount of volume now, and so we'll be able to report how we do.
But it's different in terms of what we're seeing now than it was in the quarter that ended March 31.
Patrick Dignan
With respect to your question about increasing rates on the purchase, I'll ask Pat to comment on that -- is.
Unidentified Company Representative
There some activity we're seeing right now that's concentrated in fixed rate assets. And it's certainly a lot of feedback from the large loan sale advisors that banks who are sitting in a lot of fixed rate assets and who funded short for many years are considering selling before rates continue to increase.
So we expect that to be quite a bit of volume coming up, at least that's the feeling of [Indiscernible] advisors and on the street. We haven't seen a ton of volume yet, but again, we're expecting it.
June is typically a -- the quarter ending in June is typically a busy month for loan sales. So we are expecting some volume in the next month.
Alex Twerdahl
That's great color. And then one thing that really jumped of me is I know you didn't do a huge amount of purchases in this should I call it decent, but it looked like the discount that you got on those loans is a lot larger than what we've been seeing [Indiscernible] almost decade.
Is that just indicative of the fixed rate nature of what you purchased and maybe it needs a bigger discount relative to where rates are going or is there something else there as the market and the pricing gotten better all around it?
Rick Wayne
You may -- I mentioned this as well, but I'll clarify it. The large discount was really attributable to one sort of unique transaction.
And so the pricing, other than that one, was typically where we are. So I wouldn't overly generalize about the pricing in the market.
It was just that we got a really good buy on one transaction. And that's what drove it.
Alex Twerdahl
Okay. And then the [Indiscernible] business has obviously been on fire the last couple of quarters as you alluded to, and you're showing in the numbers.
I know you've made some adjustments and added some people and other geographies. Are you continuing to add more people?
Can you maybe talk a little bit about the pipes there? And is that something that also should accelerate into a rising rate environment or into the spring months?
And maybe just give us a little more color on what you are seeing in the originated business.
Rick Wayne
Well, first on the people, as you mentioned, and I've mentioned over the past calls, we have hired more business development folks, not since our last call to be clear. But we now have four outside senior lenders, two in New York, one in Miami, one in Southern California.
We are looking to hire more. We'd like to be able to hire a person -- person or persons in [Indiscernible].
And another one in California and another in Florida. And we're having conversations.
And I just point out that all of the credit around that occurs in Boston -- so we get senior lenders that can source business for us, and then all the underwriting occurs in Boston. And you're right that the volume is on the originated side.
Closed loans has been great. We're over a $150 million last quarter.
I want to say 160 and change. And this quarter, over 150.
We have reasonable expectation that that's pretty good number for us where we are now with the pipeline is very, very strong. Virtually, all of the loans that we're doing now are like the ones we did before, which are floating.
And in the range of prime plus 2 to prime plus 75, something in that range. And the net interest income that I mentioned, the improvement over a year ago, it really doesn't reflect much of an increase in prime.
The 25 basis points that occurred so far happened mid-March or so, and that had a very small impact. We're going to start to see a full impact of that for the whole quarter now, plus any of the increases, which talk is there will be a bunch will get the benefit of that as well.
Alex Twerdahl
Great. And then as you're looking to hire more people, can you give us just a little bit of guidance on what we should expect for expenses, which have ticked up a little bit over the last couple of quarters, but really have remained quite stable given all the growth that you've seen.
Rick Wayne
I want to be careful. I don't want to announce specific salaries for people we hire, but -- people get a very good base.
But the real upside for somebody is a bonus. The lenders are really bonus-driven.
But to be clear, there's no commission, no one gets a formulaic payment based on volume. Instead, it's the basic philosophy of the bank is, first the bank has to do well, then we have a bonus pool, and then we allocate that bonus pool based on people's contribution.
But lenders -- it's not a formula, they don't get a commission. It's not a formula.
But even if they could come in and they could make a fair amount of money if they do a lot of volume. We shoot for lenders to do overtime.
Once they get used to place a $100 million or more of volume for the bank, and if they do that with the kind of rates that we're getting, that's profitable for the bank and they deserve to get paid appropriately for doing that.
Alex Twerdahl
Okay. So --
Rick Wayne
At one point, I want to make on the non-interest expense. And I don't have a number in this, but as we go into the fourth quarter, typically, we have more incentive comp at the back end as the compensation committee makes that determination is bank-wide I'm talking about now based on how we do for the year.
So I would expect that the salary, the compensation number in our non-interest expense would go up in the quarter that ends June 30, as it typically does.
Alex Twerdahl
Great. Thank you for taking my questions.
Rick Wayne
Thank you, Alex.
Operator
Thank you. Once again, [Operator Instructions].
At this time, I see we have no further questions. And now, I will turn the call over to Mr.
Wayne for closing remarks.
Rick Wayne
Thank you, Richard, and thank all of you for participating in our call and supporting our bank. We try and make our material that we provide as helpful and as transparent as possible.
If there are additional things that you would like to see in our material that would be helpful. Let us know and if we're able to include that, we will.
And with that, I wish you a very good day. Thank you.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating.