Good day, everyone, and welcome to the Northeast Bancorp Fiscal Year 2018 Fourth 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 JP 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 risk 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'd 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 on the call is JP Lapointe, our Chief Financial Officer. After the close of the market yesterday, for the fourth quarter of fiscal 2018, we announced quarterly net income of $4.3 million or $0.48 per diluted common share, 13% return on equity, 1.5% return on assets and an efficiency ratio of 57.9%. For the fiscal year ended June 30, 2018, we earned $16.2 million or $1.77 per diluted common share compared to $1.38 for the prior fiscal year, representing a 28% increase. As will be discussed in more detail this morning, we had significant growth in our higher-yielding LASG portfolio, higher volume in SBA originations and a decline in delinquent and nonperforming loans with continued disciplined expense management. Turning to Slide 3. During the fourth quarter, bank wide we generated $155.8 million of loans, including $119.2 million in our Loan Acquisition and Servicing Group. LASG loan production included $66.6 million of originated loans and $52.6 million of purchased loans. Of the $62.6 million (sic) [ $66.6 million ] of originated loans, 91% were variable, indexed to prime with a weighted average yield of 7.53% as of June 30. The LASG portfolio had net growth of $51.6 million or 8.1% over the linked quarter and net growth of $111.4 million or 19.3% over the prior fiscal year. Additionally, we generated $23.9 million of loans in our SBA division compared to $8.9 million of SBA originations in the linked quarter. $16.3 million of the $23.9 million of the SBA originations were loans secured by hotels, demonstrating the continued build-out of our SBA hotel vertical. We generated a net gain of $1 million on the sale of $10.9 million of SBA loans. Net interest margin for the third fiscal quarter (sic)…

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 $4.3 million or $0.48 per diluted common share. Diluted earnings per share were up $0.05 from the quarter ended March 31, 2018, which I shall refer to as the linked quarter, and up $0.03 from the quarter ended June 30, 2017, which I shall refer to as the comparable prior year quarter. The increases are due to higher base net interest income amounts during the quarter, which amounted to $12.4 million in the current quarter compared to $11 million in the linked quarter and $10.2 million in the comparable prior year quarter. Additionally, the gains on the sale of SBA loans into the secondary market increased to $1 million in the current quarter compared to $560,000 in the linked quarter and decreased from $1.9 million in the comparable prior year quarter. We also experienced an increase in interest expense of $215,000 compared to the linked quarter and $950,000 compared to the comparable prior year quarter. Additionally, earnings were impacted by the new tax law signed into effect on December 22, 2017, which reduced our blended federal corporate income tax rate to 28% for fiscal 2018, as our effective tax rate for the current quarter was 34.5% compared to 30.7% in the linked quarter and 41.6% in the comparable prior year quarter. The increase in the effective tax rate during the quarter compared to the linked quarter is due to increased state income tax expense due to updated state apportionments as our income shifts into higher taxing states, along with additional expenses related to the year-end true-up of our tax provision. However, going forward, our federal corporate income tax rate will decrease to 21%, and…

[Operator Instructions] And our first question comes from Alex Twerdahl with Sandler O'Neill.

And first off, I'm just trying to get -- just trying to work through in my mind the -- in my model, the moving parts in the margin, which, excluding the accelerated transactional income this quarter saw a pretty nice pick up. And I appreciate that you gave the amount of loans that are -- LASG originated loans that are tied to prime. But do you have the amount of variable loans in the SBA and the main franchise and the rest of the loan portfolio that are also variable?

Our researchers are researching, as you're asking that question, Alex. I can tell you, in the SBA, what we hold is virtually all variable. We...

That's also prime based?

Yes. And as a general rule, everything we are originating or selling, once we fully fund it and pricing for adjustable rate loans tied to prime get significantly higher premiums than fixed rate. So that part is easy. What was the second part of your question, Alex?

I was just -- I think, you pretty much answered it. Just trying to get a sense for the rest of the portfolio outside of the SBA and the originated LASG loans that have some variability. And then, I guess, the other piece of the margin question would be on the liability side, which, even though your cost of deposits and cost of funds are maybe a little bit higher than a typical bank, they actually kind of held in pretty well in the second quarter compared to -- or in the second calendar quarter versus the calendar first quarter. How are you thinking about -- as you look at your deposit options, how should we be thinking about the deposit beta from here going forward and how to model the cost of liabilities?

On the -- I think, as you pointed out in your report, the strength of our franchise is much more focused on the ability to put on high-yielding, high-quality assets. It's not on having the least expensive funding costs in the world. We are typically funding either through our money market account or product, I should say, which currently has a rate. This is the ableBanking one, which currently has a rate of 1.85, or through -- we have a 1-year able CD rate, which is at 2.5, or on the bulletin boards, which are mostly other banks using -- buying CDs kind of as part of their treasury function, which [ a 1 year is about 2.80. I mean, those ] are incremental funding costs as we grow our bank. That's where we are now. I would expect that, as we grow our banks, we are -- on the funding side, we will be on the higher side compared to other banks. I would add in, though, even in the numbers I'm describing, where on the bulletin boards or on the online savings products, we're often not at the highest, there are banks that are paying more than we are as well. Then, I would just add to that notwithstanding, that funding cost based on the excellent pricing we're getting on our originated loans and the returns that we achieve on our purchased loans, our NIM is quite high.

I would agree. And another question, just about the dynamics in the originated LASG portfolio. And the origination volumes have been pretty strong for couple of quarters. I'm just trying to -- as I sort of model the forward balances of that out, also, I see that there's a fair amount of runoff in the portfolio. I know they're relatively short in terms. Was this quarter the runoff we saw, call it, somewhere in the neighborhood of $50 million, is that kind of a typical quarter in terms of what you kind of have to pedal against in order to grow that portfolio?

I don't think we have enough data points to tell you in any given quarter what's typical. I would suggest you kind of think about the numbers slightly differently that we originated and purchased for the -- for fiscal year '18 about $350 million. That's $125 million of purchases and $225 million of originations, so that's roughly $350 million. And our LASG book grew net about $110 million. It's a little bit -- I think that, for frame of reference, is probably a reasonable way to think about. It could turn out the mix between purchased and originated changes, it could be that we do more than that. But I think that, that's probably reasonable. One of the things we're trying to focus on is, in our originated book, not only doing the portfolio finance, which, for everyone, I know you know, Alex, for everyone else on the call is lending money to nonbank lenders to leverage their lending activities. We're also trying to increase the amount of direct lending we do, where we can have term loans that go out 2 or 3 years, gets -- still get the kind of rates and have higher prepayment penalties or lockouts or yield maintenance where we can have a less runoff. But it's the nature of our businesses that the runoffs tend to be higher than in more traditional real estate lending.

Okay.. And then just a final question for me, as it relates to noninterest expenses. I appreciate that the end of the calendar -- I'm sorry, end of the fiscal year is generally more expensive quarter for salaries and comp true-ups, et cetera. Should we expect the back half of the year, the expense run rate to look a lot more like the first quarter or the first calendar quarter of this year? Is that reasonable?

Yes, I would say that, as JP pointed out, the figure that was almost $450,000 relating to incentive comp that we improved so much during the year, but then when we see how the year ends up, the comp committee determines what is an incentive pool. But absent that, the fourth quarter would have looked pretty much like the linked quarter. I would expect that quarters 1 and 2 will go back to looking like the prior quarters. Except as we grow our balance sheet, we may have some relatively small amount of increases as we tend to do, as you would expect with a larger balance sheet. But I would not take -- suggest you take the fourth quarter and multiply it by 4 and assume that's the run rate.

[Operator Instructions] And I'm showing no further questions. Now I'd like to turn the call over to Rick Wayne for closing remarks.

Thank you. Thank you for participating to all of you on the line and all of you that will subsequently listen when -- you can catch this on our website. And as I generally say, we welcome your input. If there's additional information we can provide you to provide more transparency into our company, let us know and if we're able to do that, we will. And again, thank you for your support.

Thank you all. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.