Good day everyone and welcome to the Northeast Bank Fiscal Year 2021 First Quarter Earnings Results Conference Call. This call is being recorded and with us today from the Bank is Rick Wayne, President and Chief Executive Officer; JP Lapointe, Chief Financial Officer; and Pat Dignan, Executive Vice President and Chief Credit Officer. Last night, 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 at 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 the 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 these forward-looking statements. Northeast Bank does not undertake any obligations to update any forward-looking statements. At this time, I would like to turn the call over to Rick Wayne. Please go ahead, sir.

Thank you, Erin. Good morning, and thank you all for joining us today. I am Rick Wayne, the Chief Executive Officer of Northeast Bank and with me on the call are JP Lapointe our Chief Financial Officer and Pat Dignan, our Chief Credit Officer and Executive Vice President. After my comments JP, Pat and I will be happy to answer your questions. First just make a general comment about how we're doing it at the Bank. We get calls somewhat regularly from different investors and others and asking like how many businesses were still working at home except for the nine branches that we have open. Everyone is healthy and our business is doing remarkably well while we're working at home. This is now going on since the beginning of March. Now let me proceed with some of the conversation around our quarterly results and I'm going to reference the slides that were loaded up yesterday, which you have. Starting first on the financial highlights slide on Page Number 3, I think, kind of that the headline is really great earnings $7.8 million or $0.94 per diluted earnings per share for return on equity of 18.5% and a return on assets of 2.49%. Let me just say that again, return on equity of 18.5%, quite a number. During the quarter our loan volume was a little bit under $76 million, which includes $23 million of triple key loans, which would be originated. We also originated $40.9 million of loans in our national lending group and we purchased $4.6 million invested 4.6 and $5.8 million of UPB. I am going to talk about both of those in more detail in a little bit. Our net interest margin was 4.95 and excluding Triple P was 5%. If we turn to Page 4,…

Thank you, Rick. And good morning everyone. Continuing on Slide 17, we provide a breakout of our allowance for loan losses by loan segment. As you can see our allowance has increased from $5.3 million or 57 basis points of total loans as of September 30, 2019 to $9.5 million or 1.02% of total loans as of September 30, 2020. Excluding purchase loans and the related allowance, our allowance to cover loans is 1.55% at September 30,2020, an increase from 80 basis points at September 30, 2019. As you may recall from our Q3 fiscal 2020 earnings call, we significantly increased our allowance for loan losses as of March 31, 2020 as a result of the COVID-19 pandemic and its effects on our loan portfolio. The increase was largely concentrated in the SBA and USDA loan segment inherent risk of loss is significantly higher given the nature of the borrowers and their typically higher LTVs as Rick indicated. Through September 30, 2020, the allowance for SBA and USDA loans has increased $3 million since September 30, 2019 despite loan balances in this segment declining approximately $9.5 million over the past year, which we feel appropriately addresses the risk inherent in the portfolio as the pandemic continues. Moving to Slide 18, our asset quality metrics for our non-performing assets and non-performing loans have remained fairly consistent over the past three quarters even with a declining loan portfolio. Classified assets have also remained consistent and have not increased significantly over the past three quarters. Net charge-offs were very low during the quarter ended September 30, 2020 with one basis point of average loans being charged off, which is lower than the previous periods shown. Moving to Slide 24, you can see the declining cost of our deposits over the trailing five-quarter period.…

[Operator Instructions] We have a question in from Jeffrey Kitsis with Piper Sandler. Your line is open.

Good morning.

Good morning, Jeff.

Congrats on a strong quarter. I was hoping you could please give us some more clarification around the accounting on loan source fees. I appreciate the color that you did give. But I was hoping you could help us understand some of the drivers for forward looking modeling purposes so it seems like there are different things that will cause these items fluctuate, for example, gain on sale of PPP loans would depend on you guys selling more PPP loans, but other items like the correspondent fees and amortization of purchase of accrued interest are going to depend on other factors. So I was hoping you could run through that, please. Thank you.

JP you want to do that?

Sure. So we have the three different aspects that we broke out in the table on Slide 4, Jeff. We have the corresponding fee of $8.2 million and the purchased accrued interest of about $3.5 million. Right now that's being recognized over an approximate life of two years. However, we have to monitor the underlying loans that are associated with that. So if the loans payoff quicker than the recognition of that deferred income would speed up. If all the loan defer for three years, it will take that straight line over the two-year period. So it kind of depends on when the loans are forgiven and how all of that reacts to how we recognize that over that period. The other aspect to see is earned net servicing interest which is – it fluctuates based on the average balance of the loans that loan source as Rick indicated, whether or not be repay the PPP all of the funds that they from the Fed Reserve at any given period and what we earn in each month on those loan balances. So if loans source continues to purchased loans in the balance of their portfolio that they're servicing gets bigger and those loan sales defer for a longer period of time, then that number could grow and continued to stay large for a period of time whereas if the loans are forgiven in a shorter period of time, then that number will run down a little quicker. It is tough to estimate not knowing exactly how many borrowers are going to apply for forgiveness and when they're going to apply and receive forgiveness if they do. So I hope that answered your question on how you can model it and you know if you want to build into assumptions on loan forgiveness in the upcoming quarters. Rick, do you want to provide any more color on that?

No, unless Jeff has another question around the accounting part.

Thanks, that was very helpful. I appreciate it. So it sounds like the correspondence and purchased accrued interest that kind of depend on loan forgiveness speeds and the earned net servicing interest that is got to fluctuate more based on just the balance of loans that the loan source has so their volume of course. Okay. And then on deferrals. It looks like deferrals have ended sooner for full payment deferrals, those are almost done now but the interest only deferrals are sticking around a little longer. I was wondering if you could please talk about the factors that cause the interest only deferrals to last longer. Is that by design or those typically…

Well, this is simple because they were for six months and we'll come out. I have no doubt that when we talk again after the end of the next quarter, those will all off deferral, they're coming off deferral mostly in October, if not in September. It's just that they were longer. The other one are three months. These are six months.

Got it. Thank you. And then last question, I was hoping you could give an update on the, on the purchased loan market. I appreciate the color that you guys have already put of $80 million of purchased loans under contract so far in October. I am just wondering where you see that trending over time and if you're seeing any more competition for these loans or competition remains low with buyers entering market. Thanks.

No. When we started there has been based on a lot this comes to market, I mentioned that in my comments but what we saw in the quarter that ended September 30, we didn't see a lot that we want to do good even though there is a lot of volume. I think it's going to be a lot coming. I might be wrong on this just to be clear, but my view is that there is going to be a lot of loans coming to market and yes, there will be competition, the 80 million that I referred to, there were lot of bidders but for the right kind of assets we can be very competitive. So I expect that, I can't say quarter to quarter but I would say that over the next a couple of years, we will see the percentage of purchased loans on our balance sheet Increase from where it is now.

Thanks for taking my question.

Jeff the 80 million obviously significant, it is a big month of October for us.

Yes, definitely that's a really strong production. Thanks for taking my questions.

Thank you, Jeff.

And your next question in queue comes from David Minkoff Dcm Assets Management. Your line is open.

Good morning guys. Congratulations on another nice quarter.

Thank you.

I have also a question on those PPP loan chart you may have actually answered it, but I guess it wasn't clear on it. So you show the fourth quarter fiscal year 2000 and the first quarter of fiscal year 2021 and you had the corresponding fees and accrued interest in total. And I think you said it's going to be realized over two years. Does it end at the end of the first quarter 2021 or next quarter might we see a line that says Second Quarter fiscal 2021 and third quarter or is the program over?

No the program under current rules to buy loans was run through December 30 because that's how long the Fed has made available financing the banks and non-banks at 35 basis points. So, excuse me, that was supposed to end September 30, I think and they extending it until December the 31 so they are extending that, the Fed does not extend the borrowing window. There won't be any more loans, 1% loans to purchase. If they extend that and the regulators still say that you don't count that in your capital calculations, then the BBB purchasing could extend beyond December 31.

Okay.

You can see on the chart, there is already some activity in the quarter we're now because loan sources purchased $640 million in October.

Right, right.

And it's possible we can purchase more in November and December.

Okay. In the prior question the gentleman asked, I think, you said it's not necessarily realized over the next two years relatively, but it depends on how they are paid off. I would assume, correct me if I'm wrong, that it will be recognized largely in the earlier quarters waning down as you get to the latter part of the years is that that your anticipation at this time?

We would think that a lot of the loans will be forgiven and therefore the balances will come down, so I think what you're saying is generally correct. There is a small number of loans in the portfolio that are five-year loans and so to the extent that they not forgiven, some memory even longer. So I think as a starting point, thinking about two years for amortization seems to make sense, but I would agree with your point.

Okay. And the second thing I didn't see a comment as to buyback. So I assume that you completed the 900,000 share buyback also the number of shares outstanding last December was roughly nine million and now it's a little over eight million. So that almost shows that you bought back the 900,000, am I my correct in that assumption?

Well you you're mostly correct. At the end of the June, we had out of the 900,000 had 46,000 remaining.

Yes.

And when we had, we did not buy any stock back in the quarter that just ended September 30. So our capacity to buy back stock is 646,000 which consists of 46,000 remaining from the 900,000 planned plus the 600,000 that we recently in the last three or four months announced. So you are mostly correct.

I must have missed that. didn't see that, you announced another 600,000 add on buyback of shares, what month was that in?

JP why don’t you answer that?

July, I think it was July 21 was the announcement, so that would have been in – we did a press release when that was approved.

Very good I would have suggested you – your original 900,000 share buyback was what I would call a standby buyback. I didn't really plan to act on that at the price the stock was selling when you announced it unless there was some kind of dislocation, which you have an amazing crystal ball because that disastrous events with the coronavirus took place a few months after you announced that standby buyback. I was going to suggest that you authorized that standby because we're in crazy times still. Of course, we've got election coming up next week and that could be because of volatility plus in many states the Coronavirus is picking back up again and we're going to get another lockdown or go-backs. We could have the same situation we had early this year in March. I mean there's just no way of telling we are in crazy times, but I'm glad to see you have another standby buyback. Hopefully we don't have to use it, but you never know.

Yes, definitely.

Okay. I'm going to sign off and congratulations for another great quarter.

Thank you, David. Nice to talk to you. Thank you.

[Operator Instructions] Okay. And I see no questions at this time, I would like to turn the call over to Rick Wayne for closing remarks.

Thank you Erin. Well, thank you all for listening, participating, supporting us. I hope you are all safe and stay healthy and I look forward to talking to you at the end of next quarter. Thank you all. Bye.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.