Northeast Bank(NBN) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record volume in its national lending business with $91 million in purchased loans and $84.6 million in originated loans, resulting in a $76 million increase or 9.2% over the previous quarter [5] - The net interest margin for the quarter was 5.23%, with a return on purchased loans at 9.06%, and earnings of $8.2 million, marking the second highest quarter in the bank's history [7] - The return on equity was 18.37%, earnings per share (EPS) was $0.98, and return on assets was 2.66% [7] Business Line Data and Key Metrics Changes - The correspondent fee income for the quarter was $6 million, with $1 million from amortization of correspondent fees, $600,000 from accrued interest, and $4.4 million from servicing income [9] - The company provided $142.7 million in principal and interest deferrals, with only $26.4 million remaining on deferral by the end of December [10] - For interest-only deferrals, $46.6 million were initiated, with only $6.7 million remaining at the end of December, showing strong performance in loan recovery [12] Market Data and Key Metrics Changes - The average cost of deposits decreased from 1.80% in the prior year to 1.03% in the current quarter, indicating improved funding costs [21] - Total revenue excluding PPP gains increased by 30% year-over-year, from $16.9 million to $21.9 million, primarily driven by correspondent fee income [23] Company Strategy and Development Direction - The company is actively engaged in originating PPP loans and expects to report more on this in the next quarter, indicating a focus on expanding its lending capabilities [6] - The strategy includes maintaining a low weighted average loan-to-value ratio of 51%, which reflects a conservative approach to risk management [13] Management's Comments on Operating Environment and Future Outlook - Management noted that the performance of loans coming off deferment has been excellent, with a significant reduction in the number of loans remaining in deferral [11] - The company expressed confidence in its ability to manage non-performing loans, with a slight increase in non-performing assets but a strong historical performance in charge-offs [14][40] Other Important Information - The company has seen a significant increase in its reserve for originated loans, from $4.8 million (77 basis points) to $9.3 million (1.6%) year-over-year [18] - The company purchased nine pools of loans for $98 million, indicating active participation in the purchased loan market despite competitive pressures [16] Q&A Session Summary Question: Overview of fee income from correspondent banking agreements - The company earns fee income through a split of discounts on purchased loans, accrued interest, and servicing income, totaling $6 million for the quarter [28] Question: Update on PPP loan origination - The company is actively originating PPP loans and plans to sell them to Loan Source, expecting meaningful origination activity [30][31] Question: Trends in the national purchased loan market - The company noted that while it purchased $91 million, other buyers may come in for the remaining volumes, indicating a competitive market [35] Question: Credit quality and non-performing loans - The company clarified that while non-performing loans may appear higher, they are generally in the business of purchasing performing loans, and charge-offs have been low historically [39][40] Question: Expenses related to correspondent banking - The increase in expenses was primarily due to marketing and advertising costs associated with the new stimulus package, but overall expenses remain stable [42]