Northeast Bank reported robust financial results for the first quarter of fiscal year 2024, with earnings of $15 million, and a return on equity and assets of 19.73% and 2.12% respectively. The bank also highlighted an optimistic outlook for loan purchases in the current market and expects deposit cost pressures to peak soon.
Key takeaways from the earnings call:
- Northeast Bank purchased $130.3 million of loans during the quarter, with $68 million being originated at a weighted average rate of 9.27%.
- Non-performing loans stood at $17.5 million, representing 69 basis points of total loans.
- The bank adopted the CECL allowance for credit loss standard, increasing their allowance to $26.7 million.
- Deposit cost pressures are expected to peak soon, with deposit betas slowing down.
- Non-interest expenses, impacted by stock-based compensation, are expected to remain relatively stable going forward.
- The bank's loan book has grown by nearly $1 billion since December '22, leading to higher operating expenses.
- The bank's purchase market trends are primarily driven by liquidity issues and M&A activity.
The bank's tangible book value stood at $39.96 per share. During the quarter, Northeast Bank also purchased loans with an unpaid principal balance (UPB) of $63.7 million. The bank expressed optimism about opportunities to purchase loans in the current market.
During the earnings call, JP Lapointe and Rick Wayne discussed the impact of loan extensions on discount availability, stating that transactional income would shift towards regularly scheduled accretion over the contractual life of loans. They also noted that deposit cost pressures were slowing down and should peak after the next quarter.
Non-interest expenses were affected by stock-based compensation due to higher stock prices. However, these expenses are expected to remain relatively stable in the coming quarters. The increase in operating expenses was attributed to the bank's loan book growing by almost $1 billion since December '22.
In terms of purchase market trends, the bank attributed most of the activity to liquidity issues and mergers and acquisitions (M&A) rather than credit-related factors. The call concluded with closing remarks from Rick Wayne, expressing anticipation for the next conversation on quarterly results.
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