Northeast Bank Q1 FY2026 earnings call

Highlights: The quarter was very strong with strong financial metrics. Loan activity: purchases were strong, originations had seasonality, SBA activity was affected by rule changes. Asset quality was generally strong with loan book mostly flat. ### Pat's loan activity: SBA business had volume ramping up post government potential reopening, purchase business had 522 loans in 7 transactions with $153 million principal balance, origination business had $134 million closed with robust pipeline. ### Santino's financial results: Earnings of $22.5 million, ROA 2.1%, ROE 17.6%. NIM 4.6%, pre-provision net interest income $48.2 million. Provision for loan losses was a credit of $435,000 due to strong asset quality. SBA gains on sales $4.2 million. Expenses were managed strategically while investing in people and technology.

For the quarter, Northeast Bank had net income of $22.5 million, a NIM of 4.59%, return on equity of 17.64%, a return on assets of 2.13% and diluted earnings per share of $2.67. Tangible book value was just under $60. In loan activity, purchases were strong with UPB of $152.7 million at an invested amount of $144.6 million. Originations were $134 million. For SBA activity, this quarter funded $42 million and sold $53 million of loans, with gains on sales of $4.2 million on sales of $58 million.

Margin: Generally don't give guidance on margin as transactional income is lumpy. ### Tax rate: Expect effective tax rate for the rest of the year to be in the realm of 31% to 32%.

SBA business: Impacted by government closing which temporarily diminished volume. ### Loan activity: Transactional income can be lumpy depending on loan payoffs. ### Lender financing: Concerns about potential fraud, but measures in place like third-party checks, independent verification, etc. are taken.

Q: Could you share how the cost structure arrangement with annuity over the SBA stuff changed?

A: Beginning October 1 of last year, instead of a split in the gain on sale with annuity, they're charging a flat fee on a per loan submitted basis.

Q: What will the margin look like next quarter?

A: Generally don't give guidance on margin as transactional income is lumpy.

Q: How do you feel about the quality of the lender financing portfolio?

A: We have measures in place like third-party checks, independent verification, daily monitoring, etc. and are comfortable with asset quality.

Q: Any visibility on loan growth net growth for the quarter?

A: This quarter had larger payoffs, with factors like interest rate environment and efforts to reduce exposure in certain portfolios affecting it.

Q: Why did the tax rate come in lower this quarter?

A: Impacted by state law changes in Massachusetts and California, and stock vesting and grants affecting tax benefit.