Good day, ladies and gentlemen. And welcome everyone to the Northeast Bancorp Fiscal Year 2017 Third 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 Brian Shaughnessy, Chief Financial Officer. Earlier this morning an investor presentation was uploaded to the Company'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 & 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 that this presentation contains forward-looking information for the Northeast Bancorp. Such information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve significant risks and uncertainties. Actual results may differ materially from the results discussed on the forward-looking statements. At this time, I would like to turn the call over to Rick Wayne. Please go ahead, sir.

Good morning and thank you all for joining us today. With me is, Brian Shaughnessy, our Chief Financial Officer and Treasurer. Our strong growth in fiscal 2017 continued in the third quarter. After the close of the market yesterday, we announced record earnings, with quarterly net income of $3.5 million or $0.39 per diluted common share. Earnings for the quarter were positively affected by strong originations; transactional income from LASG purchased loans and gains on sale of SBA loans originated by our SBA division. The purchased loan portfolio yielded 11.9% and the SBA gain on the sale was $951,000. In addition, in the third quarter we strategically repositioned our balance sheet with the payoff of $48 million of secured loans to broker dealers and the sale of a commercial loan portfolio of $18.3 million, with a combined weighted yield of 1.92%. The payoff of these lower yielding assets will provide capacity for higher yielding loan growth opportunities for the company. This quarterly activity helped drive our return on equity to 12%, our return on assets to 1.4% and our efficiency ratio to 59.9%. Turning to Slide 3, bank-wide, for the quarter, we generated $125.4 million of loans, including $81.8 million of LASG originated loans and $7.9 million of LASG purchased loans; $22.6 million in our SBA division and $13.1 million in our community banking division, while generating a net gain of $951,000 on the sale of $9.9 million of SBA loans. Our purchased loan yield for the quarter was 11.9%, which included $2.3 million of transactional interest income. Year-to-date, the Company has generated $364.4 million of loans, which include $67.8 million of purchased loans, $169.8 million of originated loans by LASG, $63.8 million of community bank originations and $63 million of SBA originations. Year-to-date, the Company has sold $34.7 million…

Thanks, Rick and good morning everyone. I'm picking it up on the Slide 12 to provide a little more color on our financial results. As Rick noted, it was a record quarter for earnings with net income of approximately $3.5 million or $0.39 per share. Earnings per share were up $0.04 from the linked quarter and up $0.20 from the comparable fiscal year of 2016 quarter. The solid results were largely driven by purchased loan transactional interest income of $2.3 million, the gain on the sale of SBA loans into the secondary market of $951,000, and the benefit of a larger average balance sheet, partially offset by an increase in noninterest expense compared to the quarter ended March 31, 2016. Turning to Slide 13, over the past year we have seen net loan portfolio growth of approximately $43 million. The majority of the growth comes from our LASG portfolio with approximately $288 million of purchases and originations. As shown in the chart, in the trailing 12-month period since March 31, 2016, we have closed approximately $80.4 million of SBA loans and we've sold approximately $49 million of the guaranteed portion of these loans into the secondary market. These loan sales have contributed approximately $5 million to revenue in the same 12-month period. While bank-wide loan production has been strong, increases have been significantly offset by the following. A high level of pay downs and amortization in the LASG purchased and originated portfolios, which averaged approximately $39 million per quarter over the past year and the pay-down of five secured loans to broker-dealers for $60 million in the same. As Rick mentioned, also in an effort to reposition our balance sheet, we sold $18.3 million of commercial loans from our community banking division in the current quarter. Excluding the broker-dealer loan…

[Operator Instructions] And our first post in comes from Alex Twerdahl from Sandler O'Neill. Your line is now open, sir.

Good morning,

Good morning, Alex.

Good morning, Alex.

This is Jeff Kitsis filling in for Alex. I was hoping if you could please give us some color on the dynamics that drove the large quarter for the LASG ordination business?

That business, we started originating loans, maybe three to four years ago and it's still growing every quarter. We've had a big focus on lending to other non-bank lenders that are in the business of making loans secured generally by commercial real estate. And the way we like to describe that is we are doing transactions generally speaking that are too small for big banks kind of $12 million or $15 million or less secured by a pool of commercial loans and I don't want to say too complicated in a patronizing way at all. But now what a typical community bank would do and so we have found a niche for ourselves. There has been a lot of demand. It's something we know how to do well since we've been purchasing and lending nationally for quite a while. And generally we get pricing on this, which is 250, 300 basis points higher and we could get making a loan in footprint. So, as for the niche that we've cracked out is fairly a big chunk of our LASG originations or those kind of loans, not that exclusively but that I think is a big portion of it.

Got it and do you think this level of production is repeatable in each quarters?

Yeah, this is an awfully big quarter. I think we have the light in the pipeline, but $81 million is a lot of originations. I wouldn't want to put a prediction out there. I think you can take a look at what we have done for the year for the three quarters and divide by three would probably give you a more reasonable idea. So, it's a reasonable expectation again with that gigantic forward-looking statement in front of the book.

Got you, all right. Thanks for your time. I appreciate it.

Thank you. Our next question comes from David Wincock [ph] from DCM Asset Management. Your line is now open.

Good morning.

Good morning. Good morning, guys. Congratulations on a nice quarter. I'm starting to believe you guys know what you're doing over there. I don't want to seem hasty, but that's what it seems like.

Yeah, keep worrying about some check. Don't worry.

On the loans purchased of $7.9 million of the $89 million that you purchased at 91.3% of face value, what's the average duration of that book of $7.9 million would you say?

That is knowable. Obviously I don't have that in front of me, David. But I think I can make a point that would be helpful. If you take a look - and this is direction, I don't have this number in front of me. So, to make some room on what I'm going to say. But if you take a look at our purchased loan book probably on a weighted average WAM on that is - could be seven or eight years. Brian, if you know another number? Is that close enough?

Close enough, yeah.

But that doesn't really mean much, because the loans pay off so rapidly that the actual duration of the loan is more like - they turn 25% or 30% a year, which I think is a better way to think about it and again I wouldn't have that for the $7.9 million, but if you think about the whole portfolio, which is probably a more meaningful way to understand our balance sheet is as I described in terms of both WAM and actual duration.

I was trying to see what your yield is on this. I know I think you said or Alex said 11%, not Alex, I think Brian said 11% was the yield on the purchased loans, but if you made 1% a month that's 12%. What I was trying to do, I guess was, there is another 91.3%, there is probably 9% to be made if you held it for a year, plus the average coupon. What is the average coupon on that $7.9 million?

I don't have that either, but I would - we are happy to provide and we will at the next call some more detail about the whole portfolio around that. But I think the slide that we do provide shows the base yield. Do you have that, Brian?

That is in Slide 8.

The Slide 8, David, I think gives you a pretty good idea. Now, this is on the whole portfolio.

Yes, I understood.

The regularly scheduled interest and accretion is 8%, so that includes the payment and then the amount of the discount that we accrete just in the normal course and then we pick up almost 4% from early payoffs. And I think the number 12% was a very good number in the quarter. We've had a range kind of 10.5 to 13 over the years, but I think that probably is –should provide you with some helpful information.

Well, it does actually. Let me be the dead watch one more time on this. What would you guess? It changes all the time day to day, month to month, loan to loan, but as long as I am talking about that 7.9 million, how long would you guess you would keep it? And if you don't know the answer for sure, but three months, six months, nine months, a year or more? You said you turn over 20% a year.

I said kind of 25 to 30, but it's very specific. So, you buy a pool of loans, let's say, to make the point, let's say in that 7.9 million, it's 12 loans. Pick a number. Those loans - each of those are separate loan. They have an interest rate. They have maturity date. They have their payment history. And the way we generate that 4% of a loan has a maturity nine years from now, then in very round numbers you are going to accrete 1% a year. So, if the borrowers bring 5.5, that one loan would then be 6.5 or 7. But if they pay off early, obviously the yield gets enhanced and we don't have control over when borrowers that are making payments on the loan are current, they have the contractual right to keep making those payments in their current, but a lot of times they pay off early because they want to get junior financing, which we may or may not provide or there is a local bank that's trying to get their business or they want to sell the whole bunch are like factors that affect that. And so, it's hard to say anything meaningful about a particular loan, but in the aggregate, which is the data we provide when you look at all the loans we have, the returns are, as we described them each quarter.

Well, you said they may pay off early, well, you may decide, the loans you bought in 91.3%, if they got a 95% six months, you may sell it that way. You may sell it, right. Not that they pay out early, you do sell?

We don't normally sell loans. When we take a look at it, we normally buy. We figure all that pricing and we are making the bid for it. We're not really buying loans to trade them. In rare instances when we will sell a loan as we did this quarter, it's in our community banking division where we had $18 million or $19 million of loans that we are yielding above 4% or so and we could sell those at a slight premium with reasonable dividends, because we can reinvest that at much higher yields. So, our purchased loan, normally we are not - we won't be selling. The only reason we might sell it is if the loan - when it's a flop and when we considered all the exit strategies, that will make the more sense.

Right. So, when you buy, you are planning, you are planning to hold it to term or sooner if they pay off earlier, right?

Usually.

Okay.

[indiscernible] exceptions, but usually.

Very good. And then past due loans would shift you, does that present any problem to you? I realize that went up a little bit, but that was taken care of in April you said the $2.3 million or whatever that number was right in itself if you will, so the nonperformer stayed relative flat, is that right?

Yes. Relatively - they stayed relatively, as Brian pointed out, they broke themselves current in April, but I'll point out in the purchased loan business, you are going to see levels of non-accruals and delinquencies higher than those, because every once in a while, borrowers think it's a good strategy to stop paying us to try and get resolved their credit at a discount. It's not a smart strategy, because they get subject to late fees and charges and legal fees, but nevertheless every once in a while borrowers try that and that's what you see when we see things going purchased loans nonperforming.

Very good and I guess finally, the question I never let up on, you had a good quarter. You had three good quarters so far back to back, any more consideration on dividend increase perhaps?

I don't want to sell like [ph] a broken record, but the board does what you would expect which is to take a look at under its dividend policy, take a look at our capital, what is our - what are our opportunities and what is the best way to deal with that capital. As you can see from, as we described, we have been originating and buying a lot of loans. Balance sheet is growing. It seems as good use of our capital. So, we have to grow our business, but the board evaluates that continually. I know that's a helpful answer.

No, no. I understand. You got a pretty - you've got some pretty good movement on the stock lately and then again today because of the good quarter. I thought to myself maybe you are shaping that for another time when you need it. But that's fair enough. Congratulations again on a great quarter. I am happy to see it.

Thank you, David. Thank you for your good questions.

Thank you.

[Operator Instructions]

Operator, I think we are good. I want to thank everybody for listening to the call. Thank both of you, Alex, stand in and David for asking excellent questions. We appreciate your support and look forward to talking to you at the end of our current quarter, one we are in now. Thank you very much everyone.

Ladies and gentlemen, thank you for your participation for today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.