Northeast Bank(NBN) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2023, the company purchased $48.8 million of loans with an UPB of $54.3 million, marking a $19 million increase from the previous quarter [2] - The Return on Equity (ROE) was 16.7% for the quarter and 16.5% for the year, while the Return on Assets (ROA) was 1.7% for the quarter and 1.9% for the year [3] - The Net Interest Margin (NIM) increased by 16 basis points from the linked quarter to 4.91% [15] Business Line Data and Key Metrics Changes - The originated loan book increased by $229 million or 30% from the balance on June 30, 2022, with an origination of $84.2 million in the quarter [15] - Non-interest expense for the quarter was $16.4 million, which was $2.6 million over the linked quarter, primarily due to incentive compensation [18] Market Data and Key Metrics Changes - The average cost of deposits rose by 36 basis points from the previous quarter, with 95% of deposits insured [5] - The company noted a general decrease in transaction volume in the marketplace, indicating a wider bid-ask gap [3][15] Company Strategy and Development Direction - The company plans to enhance transparency regarding its commercial real estate portfolio by providing detailed information on various collateral types over the next quarters [6] - Management expressed a cautious approach to new transactions, emphasizing a focus on low loan-to-value (LTV) loans to mitigate credit risk [30] Management's Comments on Operating Environment and Future Outlook - Management noted that while there were significant transactions in the market, many did not meet pricing expectations, leading to a selective bidding strategy [15] - The company expects the bid-ask gap to narrow, potentially leading to more opportunities in the future [15] Other Important Information - The company is preparing for the adoption of the Current Expected Credit Loss (CECL) model, which is not expected to have a meaningful impact on the income statement [41][50] - The company has a current loan capacity of about $450 million, which has increased due to earnings and an $8 million raise through an ATM offering [38] Q&A Session Summary Question: Can you elaborate on the transaction volume coming to market? - Management noted that there were $2.5 billion of transactions in 34 pools, including a $900 million pool, with a mix of large and small transactions [23][25] Question: What is the appetite for larger pools of loans? - Management indicated a strong interest in larger transactions, with a focus on maintaining low credit risk [30][38] Question: What are the expectations regarding the CECL adoption? - Management clarified that the adoption of CECL is not expected to have a significant impact on the income statement, with adjustments primarily affecting the allowance for loan losses [41][50] Question: Who are the main competitors in the purchase market? - Management stated that the competition is primarily from banks, with some private equity and specialty finance companies also participating [49]