Good day, everyone, and welcome to the Northeast Bancorp Fiscal Year 2015 Second Quarter Earnings Results conference call. This call is being recorded. With us today from the company is Rick Wayne, President and Chief Executive Officer; and Claire Bean, Chief Operating Officer; and Brian Shaughnessy, Chief Financial Officer. Earlier this morning an investor presentation was uploaded to the company’s website, which we will be referenced 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. The question-and-answer session for this call will be conducted electronically following the presentation. Please note this presentation contains forward-looking information for Northeast Bancorp. Such information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involves significant risks and uncertainties. Actual results may differ materially from the results discussed in the forward-looking statements. At this time, I would like to turn the call over to Rick Wayne. Please go ahead sir.

Thank you. Good morning and thank you all for joining us today. With me is Claire Bean, our Chief Operating Officer who will discuss our financial results following my comments. Also with us today is Brian Shaughnessy, our new Chief Financial Officer. Brian joined us recently out of KPMG, where he worked since 2005 in the financial services practice. His very impressive background and experience in financial services makes him a great fit for our company. Following our presentation we will be happy to answer your questions. Please turn to Slide 3. For the quarter we closed $93 million of loans, including $68 million of LASG commercial loan purchases and originations and $25 million of residential loan originations. With $2.8 million of transactional income the purchased loan portfolio generated a return of 13.7% and bank-wide net interest margin of 4.87%. With respect to the stock repurchase plan during the quarter we purchased 434,286 shares at an average share price of $9.14. Cumulatively, we have purchased 739,886 shares at an average price of $9.36. In the prior quarter, I commented on our SBA program and the significant investment we are making in this line of business. In the current quarter, we have added seven new business development officers across the country and we are excited about the experience and opportunity that they bring to Northeast Bank. Moving on to Slide 4 and 5, of the approximately $68 million invested by LASG for the quarter, $39.7 million were purchased loans and $28.6 million were originated loans. Purchased loans for the quarter had unpaid principal balances of $46.3 million, representing a purchase price of 85.7%. Since June of 2011 when LASG purchased its first loan it has invested an aggregate of $534 million consisting of $357 million of purchased loans and $177 million…

Thank you, Rick, and good morning, everyone. I’m picking it up on Slide 11. As Rick noted, it was a solid quarter with net income of $1.6 million, or $0.16 per share that was flat compared to last quarter and up from $0.13 in the comparable fiscal 2014 period. A $2.8 million transactional income for the quarter was strong, as with the net interest margin coming in at 4.87% for the three months. Operating expenses shipped up when compared to the linked-quarter, the reasons, which I’ll discuss in a moment. Turning to Slide 12, we have a strong - we had strong loan growth this past quarter pleasing the portfolio by $33.5 million, or 6%, which is coming primarily on the strength of $68 million in LASG purchases and loan originations. And over the past four quarters, we’ve achieved $73 million of net growth on approximately $200 million of combined purchases and originations. These results are detailed further on Slide 13, which shows the composition of net loan growth over the past four quarters, much of it coming in production by the LASG, which on a net basis increased as originated loan book by approximately 17% and purchase loans by approximately 7%. And as we noted last quarter, we’ve invested in additional Maine based commercial lending resources and saw some favorable preliminary results this quarter, increasing the Community Bank commercial real estate book by about $3 million. Turning to funding, we grew deposits by 6.4% or $38 million over the last three months. That was entirely made up of increases in non-maturity accounts and in our ableBanking division’s money market accounts in particular. Since the inception of the ableBanking division in 2012, money market balances we’ve attracted have proven to be quite sticky even when our rates are not at…

[Operator Instructions] Our first question comes from David Minkoff with DCM Asset Management.

Good morning, ladies and gentlemen; Claire is the lady, and two gentlemen.

Good morning, David.

Congratulations on a pretty decent quarter overall, I would say. But the question I had was the non-performing assets have been hovering around $9 million for last few quarters and jump to $14 million, which Claire touched on due to one recent loan. But the provision for loan losses looks like, it was only $113,000 in the income statement this quarter. I think at the last conference call, you touched on where you provide for those non-performers, is it encompassed in the loan portfolio or something, but how was it broken out, I don’t recall.

You hit on it David. For purchased loans, the losses that that maybe inherent in that portfolio are not really reflected in our allowance. They’re instead reflected in the discount that we achieved when we buy those loans. And to the extent, we think, we may not collect all of the cash flows on a purchased loans. There is a portion of the discount that’s called non-accretable. And that –it’s not brought into income, and may, in fact, reflect the potential for credit loss on a loan. As you know, over time, we’ve had good success in collecting a lot of non-accretable discounts, but there are certainly no guarantee that we might and that’s really the fundamental reasons that we characterize it that way as to allow for the potential for credit losses on a given purchased loans.

Understood. So of the $5 million, approximately that the total non-performers went up in the quarter. How much of that the $5 million would you say, you - was an enhanced discount on the loan portfolio due to that, was it the $4 million, $5 million, or is it a portion of it or how could we could read that?

Let me answer your - hi, David. First of all, thank you for your complement and your introductory comment. The - and I’m aware that you asked the question about the level of non-performers, because we did have a jump this quarter as compared to the linked-quarter and generally. And as Claire alluded to very briefly in her comment, it’s basically it went up because of one purchased loan that was purchased recently. The borrower decided, thinking that maybe what we said at discount might be cut their costs, not to pay us for a while, that ultimately is not a - never a good strategy. But borrowers and then it’s a nature of the purchased loan business, where occasionally borrowers do that. And so, it went up for that reason, which we did a - we’re very familiar with that credit, did a big underwriting, and don’t believe we need any reserve against that or, of course, we would have one.

Okay. So I understand that. But would you say the $5 million went up, would you say, you got that $5 million discount in the purchase of that loan or not?

I’m trying to be responsive for your question, but I’m not sure, I can answer it, I mean, perhaps, I don’t have it exactly. But - so let me try and answer it in this way and maybe you could follow-up with the further question, if it’s not…

Okay.

…clear enough. When we buy a loan, we know, we go through an underwriting process, we buy it at a typically at a discount.

Right.

And way the accounting works for the - for purchased loans, when you buy it, it’s not like an originated loan, you don’t setup any discount against that loan unless the cash flows change. Claire, do you want to?

Don’t setup any allowance.

Allowance, I’m sorry.

Yes.

Again, so that was a loan that and this is true for all the purchased loans, and that’s the loan when we buy it, we believe, we’re carrying it on a net basis at the right value. If it turns out over time, which doesn’t happen a lot, not - without getting overly arrogant, we’re pretty good at it, but sometimes the world changes. But if over time the credit deteriorated, it would be at that point that we would have a setup reserve for it. With respect to your specific question, now going back to the increase it’s - of the kind of loan I described in the beginning, we bought it. We paid the price for it. We believe, we’re carrying it at the right value and we don’t need to have any additional reserve for that.

Okay, I understand that, I do. And second question I had was, I think, originally when you setup the stock buyback, it was for approximately 800,000 shares, you can correct me if I’m wrong. And I think, you said you already did 700,000 something. So you practically done on the buyback and maybe by now it’s a monthly, and for the next quarter, you may have even completed the buyback, is that correct?

Well, the amount of the - I couldn’t comment, of course, on what happened in the - this current quarter. But the buyback 8.70 [ph], Claire, was repurchased and at the end of the quarter we had how many left?

About $130,000 left.

About $130,000 left at the end of the quarter. I would - I assume you and other investors are pleased with that the - we after the last - the quarter ended September 30, the - for whatever reason, we didn’t have an opportunity to buy so much of it but something like 14,000 shares. So this was a pretty big quarter for the repurchase.

Right now I’m pleased with it, because a lot of companies announced buybacks and they never really act on it, it’s just a window-dressing type of thing. But you’re showing how compelling you think the stock is, and I agree, it’s at a 20% discount from the book value equity, it is compelling, and I can’t agree with you. So I applaud you for acting so quickly and buying it back. I guess, my next question would be, are you planning on announcing a further one?

And now unfortunately, I have to give you one of those answers that aren’t going to tell you anything, which is our board looks at that and makes decisions on the best use of our capital.

All right, I’ll look to [indiscernible] that one, that’s okay. That’s fair enough.

I gave you the disclaimer. I was going to tell you something that isn’t going to be helpful, but you understand, of course, that’s all I can say.

I do understand. And okay, we’ll continue watching keep up the good work.

Thank you, David.

Bye now.

Our next question comes from Alexander Twerdahl with Sandler O’Neill and Partners.

Hey, good morning.

Good morning, Alex.

Good morning, Alex.

First, I was wondering if you can elaborate a little bit on the SBA division, some of the loans that you’re the, I guess the new business we got into during the quarter. Can you just talk about what volume of loans needed to be originated to make that $445,000 gain on sale?

I’m sorry, asked the question again. We - I think, we reported that we originated $2.8 million and we sold $2.6 million and that generated the $4.45 [ph].

Okay.

Do you have a different - was that a different - do you have a different question?

I must have a missed that earlier, that’s what I’m looking for. And you guys keep, so you sell off the 75% as guaranteed by the SBA and you keep 25% generally, I mean…

Well, that’s what we did then, I mean, that may or may not be what we do all the time. But the - when you do sell your sell-up of guaranteed piece, so that’s correct, and that’s what we did in the quarter.

Okay. And the compensation for the guys that do that business, is that kind of in lock step with the loan sales, or is there a little bit of a lag behind?

Claire, do you want to talk about the accounting for the - without putting - kind of talking about what the dollars are obviously on anyone’s comp. The - you want to talk about why we have an expense of one quarter and then when you sell, how it works?

Sure. When we put the loan on the books, we record sort of the net cost against this carrying value of that loan, and that’s based on - mostly that bad cost is based on what we pair our BDOs. But when we sell the loan to 75% piece of the loan, with that goes the portion of the costs that relate that. And so that is netted against the gain that we’ve realized.

Okay. So the comp and expenses would be netted against the gain, and so be kind of like everything that was done in the last quarter of the year is already accounted for as of the last quarter of the year?

Yes, but it tracks loan volume. So when you got a start-up business, of course, we got comp in this quarter just closed for seven BDOs, but very little volume, because the pipeline is just building up. So most of that comp in this quarter fell to the bottom line, but once we were up at full, sort of full speed, a lot of that would be netted against the gain.

And if we didn’t sell it, what?

Or recorded as of - essentially against the carrying value that we carry on the balance sheet.

Okay. And so $2.8 million that you did during the quarter is - and I saw a taste of what is possible out there, but you expect that business to get much better over the course of 2015, is that fair?

Yes, we do. We mentioned in the last call, but just to remind others that, the BDOs that joined us started on November 2. And you can imagine when one comes in, and just starts by the time you get this whole process to be able to get the pipeline going. And now we are starting to see a lot more activity from those seven BDOs as they are - they’ve been here now for, kind of three or, three months already. So I’m going to expect that volume without putting a number on it to be higher on a go-forward basis.

Okay. Thank you. And then I apologies if you’ve addressed this already, I jumped on a little bit late. But in terms of the LASG purchases, you had some really nice volume during the fourth quarter, generally, I think, I recall you saying that the first quarter is may be a little bit, that kind of puts us volume gets more attractive as the year goes on for you guys, maybe is a good way to put it. So is that, it would be fair to assume that that the first quarter - the march quarter coming up would be a little bit, I mean, all things being equal would be a little lighter than the fourth quarter?

Yes, I think, that’s a fair statement. And I would underscore your phrase of things being considered, it’s a transactional business and that get always change, but it’s a general rule what you said is true.

Okay. And then just my final question, it’s now been, I think 2.5 years since the LASG business has really been up and running and is again closer to a full tilt, and we are also 2.5 years further out in the financial crisis from what you said this swing up, and you continue to operate quite well underneath your financial constraints the guidelines that are put in place for you to have to abide by. I mean, do you think it is at any point and I know how you are probably going to answer this question, but I mean, is there any point we think that could be reassessed those guidelines?

I would - as you are thinking about this notion [ph], I would not assume, I mean, under the exception anything is possible almost I would not assume that’s a likely result. We have - as I’m sure, we’ve said it’s - we’ve said, we’ve elected to withdraw as a Fed member, which doesn’t mean we don’t have a holding company. It means our primary regulator is the FDIC, not the federal reserve, those are commitments with the federal reserve. You can imagine the Fed has a lot of things on their plate other than our conditions. I don’t - I would not hold that out as high probability, I would assume for modeling that we are going to work within the constraints that we have. But let me say a few positive things about that that we’ve realized now that frankly we didn’t realize when we started all of this is, we are making a real effort to build our origination business, both around the SBA, which we think has got significant potential as you can see from the amount of gain that one could recognize, when you book loans and you can sell them. And also in the community bank in Maine, where we have hired some really good people to originate loans there. And thirdly, we have hired more in Boston in the LASG to originate nationally both - sometimes opportunistically, where we get particularly high rates and sometimes kind of a more traditionally. And so, the limit of the 40%, I mean, it’s a limit, but we’re now focused on also not only the purchase business, but the origination business. And we believe that’s going to - at some point add franchise value towards being able to have an origination business. And you didn’t ask this, but it’s just a follow-up. And on the purchase business, we - while the fourth quarter is, as you did mention is typically stronger. There is a lot of activity out there. There - and so, we are optimistic about that as well.

That’s great. Thanks for taking my questions.

Thank you, Alex.

[Operator Instructions] And I’m not showing any further questions at this time. I’d like to turn the conference back over to Rick Wayne for closing remarks.

Thank you. And thank you all for listening, for paying attention, and for following us, David and Alex, thank you for your very thoughtful questions. As you may have noticed from this slide deck, we’ve added a few more slides to provide greater visibility into our company, the SBA most likely next quarter, gross will add some slide - will add a slide or slides about our SBA business, so that we can provide some greater visibility into that business. And, again, we appreciate your support and thank you for dialing in. And with that now I’ll say goodbye.

Ladies and gentlemen, that concludes today’s presentation. You may now disconnect and have a wonderful day.