Good day, everyone, and welcome to the Northeast Bancorp Fiscal Year 2019 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 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 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 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 would like to turn the call over to Rick Wayne. Please go ahead, sir.

Good morning, and thank you all for joining us today. I am Rick Wayne, the Chief Executive Officer of Northeast Bancorp, and with me on the call is JP Lapointe, our Chief Financial Officer. Before we discuss our financial results, I would like to discuss the proposed reorganization announced in our press release issued on January 7. Under the proposed reorganization, Northeast Bancorp would merge into Northeast Bank, with the bank continuing as the surviving entity. Shares of Northeast Bank’s common stock are expected to be owned directly by Northeast Bancorp shareholders in the same proportion as their ownership of Northeast Bancorp immediately before the organization. The board and the executive officers of Northeast Bancorp will hold the same positions in Northeast Bank following the reorganization. The reorganization requires both the regulatory and shareholder approval. If completed, this transaction will improve our efficiency by eliminating redundant corporate infrastructure and activities as well as removing a second level of supervision and oversight that comes with our holding company. Accordingly, our commitments to the Federal Reserve will no longer be applicable and will be replaced with internal standards to ensure the bank continues to operate in a safe and sound manner, but will allow for more growth of our loan portfolio and more diverse and cost-effective funding sources. I believe this is a very positive transaction for our company and is in the best interest – in our best interest to allow us to increase loan production, while decreasing the cost associated with maintaining a certain level of deposits and excess cash. Now moving on to the financial matters. For the second quarter of fiscal 2019, after the close of the market yesterday, we announced quarterly net income of $5.1 million or $0.56 per diluted common share. Earnings were positively affected by…

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 $5.1 million or $0.56 per diluted common share. Diluted earnings per share were up $0.07 from the quarter ended September 30, 2018, which I shall refer to as the linked quarter, and up $0.20 from the quarter ended December 31, 2017, which I shall refer to as the comparable prior year quarter. The increase of $0.07 per diluted common share from the linked quarter was due to higher interest income, which amounted to $20.3 million in the current quarter compared to $18.8 million in the linked quarter as a result of higher transactional income as well as higher average balances in the LASG portfolio. This was offset by higher interest expense of $4.7 million in the current quarter compared to $4.4 million in the linked quarter as a result of higher funding cost and higher average deposit balances required to fund loan originations. Non-interest expense increased by $548,000 compared to linked quarter due to higher salary and employee benefit cost, higher professional and data processing fees and higher loan acquisition and collection expenses, offset by lower occupancy and equipment expense. Additionally, the effective tax rate for the quarter was 28.7% compared to 24.8% in the linked quarter. The increase was primarily due to a $178,000 decrease in tax benefits from vested restricted stock awards and the stock option exercises as compared to the linked quarter. The increase from the comparable prior year quarter of $0.20 per diluted common share was due to an increase in interest income of $5.1 million due to an increase in average balances on loans and higher rates earned as well as an increase in transactional income. Additionally, there was…

[Operator Instructions]. Our first question comes from Alexander Twerdahl of Sandler O’Neill Partners. Your line is now open.

Hey, good morning. It’s actually Justin Crowley on for Alex this morning.

Good morning.

So, first off, assuming that the reorganization is completed, do you guys expect your pricing thresholds for purchased loans to change at all, now that the purchased loan portfolio can be a bigger slice of the overall pie? And then secondly, how quickly do you think that the portfolio could conceivably approach the new 60% of loans level?

As to the first question, I would expect that we could price more competitively and hopefully win more purchased loans if we can hold a bigger percentage of those on our balance sheet, because even at a lower yield, in purchased loans, it’s higher than the yield on originated loans, and as you know it, an average of 7.6% on originated loan, even that’s a good number. So the answer to your question is, yes. With respect to the second question, it’s hard to say. We have to look at what the opportunities are. If you think about of a spectrum, if the world continues as it is now, we buy our fair share in round numbers over the last seven years or so, we’ve kind of brought $100 million, $110 million a year; I think that’s a reasonable assumption going forward. If the real estate market changes and this supply-demand ratio changes and there’s more opportunities to buy, then we would take a look at that. So, it really depends on what’s available in the market. We like our originated business a lot. We, as indicated, get very good pricing on it, its – 92% of it’s floating, it’s building relationships with customers. We have no interest in abandoning that and becoming a total purchase shop, but if they were good purchase opportunities, we would – we would buy more.

Okay, great. That all makes sense. I appreciate the details there. And then, so my next question was on SBA lending, were originations here all impacted by the government shutdown?

No. The shutdown was mostly in the current quarter. I would – I would use this as an opportunity to point out that the SBA business and the originated are very competitive and the volume we did this quarter at a little bit less than $14 million, we weren’t thrilled with, but there are a lot of lenders out there doing SBA lending and while we see plenty, particularly light in the hotel space, we’re not going to put on loans just to do volume and so as – that sounds a little bit like I’m getting on a pedestal presumably, credible banks think the same way, but it was a tough quarter for originating, but we don’t have the shutdown to blame for it.

Okay, great. That’s helpful. And then also, have you guys seen any shift in demand for the LASG originated loan product just as rates have been on the rise?

No. We had a strong volume of $64 million of originated; our pipeline is strong. We have the opportunities to grow that. We have the customers that we have which is a fair number – based on our in-house and legal lending limits, we have the ability to lend them more. We’re out and trying to develop new customers with more effort put into marketing and meetings and all the things one would do for business development. There seems to be a lot of interest in this. Because as you may remember, and I will say to remind anyone on the call that doesn’t know it, the niche that we have found in this area, our lending money, particularly in a non-bank lending space to borrowers that are too small for big banks and the kind of what they’re doing is not what most smaller banks would be doing with sometimes collateral and different states or sometimes different regions. And then, we as a national lender with a lot of experience and also a lot of experience purchasing loans working by deadlines and a great team to evaluate all this. I think our borrowers recognize that we’re a very good fit for a lot of them and it gives them the ability to leverage their loans to take what might be – if they’re lending money at a 10, and these are just very rough numbers and we loan them 70% of their number of their loan. They may have the ability on the 30% they keep in between the points and the leverage, the ones that are making a 2017 or an 2018 and there’s a lot of interest in that. So, I would say, your question any shift, I would say that the demand is strong and expected to get stronger with that.

Okay.

Everybody, we have a forward-looking statement here, the world could change, but that’s what we see as of this date.

Right, of course. Okay. That’s all I had. Thank you very much for taking my questions.

Thank you very much.

Thank you. [Operator Instructions] Now, I would like to turn the call back over to Rick Wayne for closing remarks.

Thank you, and thank you all of you for listening and from time to time giving us your input. We try and make these calls as informative as possible providing as much transparency as possible into our company, so that you can evaluate us and understand what we are doing. And kind of the highlight, we think this is a very, very strong quarter, as JP described in great detail. Again, thank you for your support. We will keep you posted on our reorganization, if we have any news to report as it goes through the process, and look forward to talking to you at the end of – this quarter we’re in now. So thank you all.

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.