Good day everyone, and welcome to the Northeast Bancorp Fiscal Year 2018 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 Jean-Pierre Lapointe, 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 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 statements about Northeast Bancorp. Forward-looking statements are based upon the current expectations of Northeast Bancorp's management and are subject to risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bancorp does not undertake any obligation to update any 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 JP Lapointe, our Chief Financial Officer. After the close of the market yesterday, we announced net income of $3.3 million or $0.36 per diluted common share for the second quarter of fiscal 2018. Earnings were positively affected by strong loan growth in the LASG portfolios of $20.3 million or 4% growth over the linked quarter. Transactional income of $1.9 million was lower than the average for the preceding four quarters and SBA gains of $341,000 were significant lower than prior quarters, as we transition from a BDO business origination model to an inside sales model with a focus on the hotel vertical. This quarterly activity help us achieve a return of equity of 10.2% and a return of assets of 1.3%. Turning to slide three, for the quarter, we generated $101.8 million of loans, which included $44.3 million of LASG originated loans and $34.8 million of LASG purchased loans, $4.5 million of loans in our SBA Division and $18.2 million of loans in our community banking division. We generated a net gain of $341,000 on the sale of $3.4 million of SBA loans. Net interest margin for the second fiscal quarter was 4.9% and our purchase loan yield for the quarter was 11%, which included $1.9 million of transactional interest income. Turning to slide four, as we have discussed in the past, under a regulatory commitment made in conjunction with the 2010 merger, purchased loans are limited to 40% of total loans, loan purchasing capacity was $113.4 million at December 31st as a result of the acquisitions of purchased loans in the quarter. Loan purchasing capacity increases or decreases depending upon the relative amount of purchased and originated loans on our balance sheet at any given point…

Thanks, Rick, and good morning, everyone. I'm picking up on slide 12 to provide more information on our financial results. Net income for the quarter was $3.3 million or $0.36 per diluted common share. Diluted earnings per share were down $0.14 from the quarter ended September 30, 2017, which I still refer to as a linked quarter and up $0.01 from the quarter ended December 31, 2016, which I still refer to as a comparable prior year quarter. The decrease in the linked quarter is due to lower purchased loan transactional interest income, which amounted to $1.9 million in the current quarter, compared to $2.8 million in the linked quarter and $2.9 million in the comparable prior year quarter. Additionally, the gain on the sale of SBA loans into the secondary market decreased to $341,000 in the current quarter, compared to $1 million in the linked quarter and $1.7 million in the comparable prior year quarter. These decreases were partially offset by reduction in income tax expense of $458,000, primarily due to the new tax laws send into effect on December 22, 2017, which reduced our blended federal corporate income tax rate to 28% for fiscal year 2018. Resulting in the $762,000 decrease in income tax expense during the current quarter. In addition, we recorded a $279,000 tax benefit from stock-based compensation during the current quarter. These two decreases in income tax expense were partially offset by $498,000 expense to revalue our deferred tax assets at the newly inactive federal corporate income tax rate. The company's effective tax rate for the current quarter was 29.5%, compared to 26% in the linked quarter and 37.2% in the comparable prior year quarter. The linked quarter effective tax rate was lower due to $818,000 of tax benefits from stock-based compensation. Turning to slide…

[Operator Instructions] And our first question comes from Alex Twerdahl, Sandler O'Neil. Your line is now open.

Good morning.

Good morning, Jeff.

This is Jeff Kitsis on for Alex this morning. I was wondering if you could please give us an update on where you are in the transition of the SBA business. And also should we expect volumes to pick up in the next few quarters?

Sure, good morning, Jeff. Usually Jeff, when you call in. I say good morning, Alex and then you say, it's Jeff. This time I got the rhythm. Take two or five calls but I got it. Yes, I would say that - and I'll start with a broader statement for the listeners to make sure that everyone is on the same page relative for the context of this. Previously in our SBA business, we had originations generated through business development officers working in various cities typically out of their home, sending in loans that were underwritten in our credit group in Boston. And overtime, we decided we didn't think that was the best model to create franchise value for the company for a few reasons. One is that, it's mostly a brokered business and the brokers have the relationship with the BDO and not with the bank. And secondly, at some point when we would turn down deals, the brokers - the BDOs brought in not uncommonly they may leave and go to some other SBA lender to get their deals approved. So it didn't feel like we were building up a business that while we had more volume certainly than we did in the last quarter that overtime was going to benefit the company as much. So we moved to an inside sales model, and we've been transitioning to do that over the last three or four quarters. Where now we don't have any BDOs anymore, everyone that is in that group gets paid not on commission, but gets paid salary and bonus depending upon how well the bank does and how well they contribute. And as you can see from the decline in volume, it has taken us longer to transform that business from the BDO model. Frankly…

Okay, thanks for that color. That's helpful. And next I was hoping you can help us understand how we should be thinking about the tax rate in coming quarters?

I'm sorry, did you say about the tax rate?

Yes, the tax rate.

Well, for - I'll use in this context say unfortunately a fiscal year company as you know and others on the call know for banks, well for all corporations but for banks, as we are talking about it now. They were at a maximum rate of 35% for calendar year 2017, and it goes to 21% starting in calendar year 2018. But because we have a June 30th year end, the way the accounting works is that we average those out. And so our federal rate maximum for the balance of our fiscal year the next two quarters will be 28%. And then we go back and look at the - and that's for quarters three and four of our fiscal year 2018 ending on June 30th. And we go back, as we have and JP described in his comments on the tax expense for us. We also go to 28% for the first and second quarter of fiscal year 2018. The impact of that of course was our first quarter, we reported a $0.35, we made an adjustment to bring that down to $0.28. I am talking about federal taxes now of course we have state taxes. And then for the quarter ending December 31, taxes were - federal taxes were calculated at 28%, which is a long winded way of saying that for the quarters that ended on the March 31, and on June 30th, our federal rate will be 28% and the quarter that ends on September 30th, which is our first fiscal quarter in fiscal year 2019 the federal rate will be 21%.

Okay, that's very helpful, thank you. And then on my last question is LASG originated loans are now about 45% of the total loan booked. Is there any reason, why that percentage cannot be meaningfully higher?

I am sorry, are you questioning why it cannot be what?

Meaningfully high, could it go meaningfully higher from about 45% of the total loan book?

Yes, I mean, that - well first let's talk about what one might think would limit, which it doesn't. We have that there are a big part of that is our originated portfolio, is that the one you are referring to when detailing, so I can be specific in addressing your comment, as oppose to the purchased one.

Yes, it's exactly. I am referring to the LASG originated portfolio.

Yes, well there is lot of regulatory limited on how large that can be, as there is in the case of purchased loans, which are limited to 40% of total loans. The one limit that could come into play on that is that we are limited to 300% of total cap-CRE rather, investment CRE is limited to 300% of total capital. So I don't see that really being a practical limitation for the originated book. And so to answer your question, we can grow that significantly higher and we would like to and we're seeing - we saw a high level of originations last quarter and we have a fairly robust pipeline. And we have business development officers that work in the bank, not to be confused with the BDOs, I described earlier in SBA space originating business. And we're getting I believe an excellent reputation as a bank that is a very good lender for those kinds of customers particularly in the portfolio of finance area. So I would expect over time that will become a larger percentage of our balance sheet. As JP noted in his comments, over the last quarter, meaning the one that ended December 31, our LASG book increased 4%. And we saw some reduction in our commercial book in our Community Banking Division. And so because the yields are higher on the LASG originated book, we saw our base net interest income increase, which is of course a good thing.

Got it, thank you. That's helpful. Those are all my questions for today. Thank you for taking them.

Jeff, those are good ones. Thank you.

Thank you. [Operator Instructions] And I'm not showing any further questions at this time. Now, I will turn the call back over to Rick Wayne for closing remarks.

Thank you. And thank you all for listening to this call and supporting us. Jeff were asking good questions and we continually try to provide more visibility and transparency into our company through both this call including the - and also the slide deck, which accompanies this to the extent that any of you either listening now or very often people listen to it online later have some suggestions on information that would be helpful to you, we would certainly like to hear that. And if we can provide greater visibility, we would like to do so. And so with all that, I say thank you and look forward to talking to you again in April to report the results of our third quarter and fiscal 2018. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone, have a wonderful day.