Good day, everyone, and welcome to the Northeast Bank Fiscal Year 2020 Second Quarter Earnings Results Conference Call. This call is being recorded. With us today from the bank is Rick Wayne, President and Chief Executive Officer; and JP Lapointe, Chief Financial Officer. Earlier this morning, an investor presentation was uploaded to the bank'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 Bank. Forward-looking statements are based upon the current expectations of Northeast Bank's management and are subject to risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank 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. Before turning the call over to JP for a more detailed analysis, I would like to discuss highlights for the quarter ended December 31, which is the second quarter of our fiscal year. For the second quarter, after the close of the market yesterday, we announced quarterly net income of $4.9 million, or $0.53 per diluted common share, a return on average equity of 12.1%, a return on average assets of 1.7%, and a net interest margin of 5.6%. Earnings were positively affected by strong loan growth in the LASG portfolio of $75.4 million, or 10% over the linked quarter and transactional income of $2.4 million, as well as lower non-interest expense. Turning to slide 3. During the second quarter, bank-wide we generated a record $175.4 million of loans, which brought the quarter end loan portfolio to slightly in excess of $1 billion. The quarter end loan balance represents a significant increase over the average loan balance of $946 million in the second quarter. Loans closed in the second quarter included $163.4 million in LASG, of which $98.6 million were originated and $64.8 million were purchased. The weighted average yield of the LASG loans originated in the second quarter was 7.4% as of December 31, of which 82% were variable mostly tied to prime. The total return on purchased loans for the quarter was 10.2%, which included $2.4 million of transactional income and as previously mentioned, net interest margin for the quarter was 5.6%. Moving on to slide 4. Of the $163.4 million invested by LASG for the quarter, $64.8 million were purchased loans and $98.6 million were originated loans. Purchased loans for the quarter have unpaid principal balances of $66.8…

Thanks, Rick, and good morning, everyone. I'm picking up on slide 8 to provide more information on our financial results. As announced in our earnings release that was made public after the close of business yesterday, net income for the quarter was $4.9 million or $0.53 per diluted common share. Diluted net income per common share was up $0.01 from the quarter ended September 30, 2019, which I shall refer to as the linked quarter and down $0.03 from the quarter ended December 31, 2018, which I shall refer to as a comparable prior year quarter. The increase of $0.01 per diluted common share from the linked quarter was due to a decrease in noninterest expense of $565,000 and an increase in noninterest income of $161,000, partially offset by a decrease in net interest income of $192,000 and an increase in the provision for loan losses of $379,000. The decrease in noninterest expense was primarily related to a decrease in sales and employee benefits expense, mostly related to decreased payroll taxes and a reduction in stock compensation expense. The increase in noninterest income was due to a gain on real estate owned on a property that was transferred in during the quarter and recorded at its fair value less expected cost to sell. Net interest income was down, primarily due to a decrease in loan interest income of $214,000 due to lower average balances in the loan portfolio along with lower interest income earned in the SBA and community bank portfolios, partially offset by a decrease in interest expense. Additionally, the provision for loan losses amounted to $243,000 in the current quarter, which increased from a credit of $136,000 in the linked quarter, primarily as a result of the growth in the loan portfolio. The effective tax rate for the…

[Operator Instructions] Our first question comes from David Minkoff with DCM Asset Management. Your line is now open.

Good morning, Rick and JP. How are you today?

Good morning, David.

Good morning, David.

So JP addressed the non-performers that went up a little bit to $21 million from $16.7 million, and I think you said it was one loan of $12 million that caused that. But I noticed that was pass-through loans of $28 million versus – or 2.84% versus $14.6 million, or 1.5%. Would you – is that indicative of the economy overheating or getting a little dicey? That's – and is it concerning in any way?

First of all David, thank you for asking that question because it's a topic that I'd like to address. And so I'm going to answer it a little bit broader for the others on the call, and of course respond to your question about the reason for that. One to put in context LASG between purchased and originated has 1,100 loans. So it's a fair number. And I want to address both NPLs and delinquencies. So NPLs went up a little bit less than $5 million from September 30 to December 31. And there were really two loans that accounted for 75% of that increase both of which one has an LTV of around 60% and one 50%. And I'm going to come back to it at sort of at the end as why the numbers in our MVLs and delinquencies can change from quarter-to-quarter. With respect to delinquencies, they went up about $14 million from September 30th quarter, half of them are three loans. One of the loans which is $2.7 million of that is already paid off. Another one of the loans that is $2.7 million -- again $2.7 million of it is in the process of foreclosure we would expect -- I won't bore everyone by reading the forward-looking statement, but I will make one. We anticipate that by the end of our fiscal year that we will get out of this with all principal accrued interest, late fees, legal fees, et cetera. And then there was another one for $2.2 million which was recently purchased in August. Our delinquency levels, there is some variability from -- in different quarters. I went to look back this morning at quarter that was two years ago 12/31/17, delinquencies were $30 million; last year 12/31/18 they were $18 million and…

Okay. Understood on that. In the past due section though they went to $28 million from $14 million. And the absolute number is not that terrible when you consider you had a higher volume of loans. But what did jump out to me a little bit was the percentage went from 1.46% -- I'm sorry 1.50% to 2.84%. The percentage of past due doubled. Is that -- that's I guess what was more concerning on the absolute number going from $14 million to $28 million. Am I reading this wrong or?

Your arithmetic is right. But now let me take that long comment I gave earlier and kind of narrow it down to its basics. One in our portfolio, we can have a higher level of non-accruals or delinquent loans. We can -- for the reasons I described, which I won't bore everyone by repeating, but they resolve themselves and the level of charge-offs are very small. So, I would not be concerned. And furthermore, that increase, as I described, three of those or a half of that increase is attributable to three loans, which I will say with great confidence, there's going to be no loss on those.

Okay. Understood. That's kind of clear. One other thing was, last quarter you announced a significant share buyback, or you authorized one, let's say, I think, it was not for 900,000 shares. And at that time, I think, the stock was in the $22 range. I'm just wondering -- and stocks are little lower now, but most of the lower part came in after the second quarter. So, I think -- but year-end was only $21.5. Should I assume that no shares were bought back in the last quarter? Or, I guess, you would -- would you have announced it, if you did?

We would have announced it and you are correct. There were no shares purchased in the last quarter.

Very good.

I know you have, and others do, a question of stock repurchases. And you've mentioned in the past, we have desire for more dividends. We're not in the business of holding capital. It's our -- if we can't use it. But if you take a look at the last quarter, we earned around $5 million, a little bit less, which -- using this simple math, it could be a little more complicated. But if you said, you can leverage that by 10 as $50 million, if you're 80% loans to that number, that will be $40 million of loans and we grew our loan book by $75 million. And so, what we're paying close attention to is our ability to leverage our balance sheet and use that capital. Of course, if we got to the point where we determined that we have more capital than we could use, then it would be appropriate, as both management and the board does, is to think about utilization of capital, whether through a stock repurchase or a dividend, which, as you know, David, from our conversations in the past is, in part, a function of stock price and all those kinds of factors.

Rights. That’s good.

Where we sit today, based on what we're seeing, the best thing we can do is leverage the capital we have. And if we have to go back to the market and raise more capital, I suspect it would be fairly expensive. So we want to make sure we believe we can use the capital. And if that changes, then we'd have a different plan.

Obviously.

Which you will see.

Right. Very good. I'll get back into the queue. Nice talking to you guys and we'll talk again soon.

Delightful. Thank you, David.

Okay.

Thank you. [Operator Instructions] So there are no questions in the queue, I will now turn the call over to Rick Wayne for closing remarks.

Well, thank you, for those of you who have called in and for those of you that are going to listen after the call. Thank you for following and paying attention to our stock. I think, you can tell from both the press release and the enthusiastic discussion of the past quarter. And we thought it was a very, very strong one with the record level of loan volume out of LASG, good control of expenses and good level of earnings. And with that, I thank you again and look forward to talking to you when we report our earnings in three months in April. Thank you very much.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.