Rick Wayne – President, Chief Executive Officer and Director Claire Bean – Chief Operating Officer Brian Shaughnessy – Chief Financial Officer and Treasurer.

Alex Twerdahl – Sandler ONeill David Minkoff – DCM Asset Management.

Good day, everyone, and welcome to the Northeast Bancorp Fiscal Year 2016 First Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is Rick Wayne, President and Chief Executive Officer; Claire Bean, Chief Operating Officer; and Brian Shaughnessy, Chief Financial Officer.

Earlier this morning, an investor presentation was uploaded to the company'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 & Presentations. You may find it helpful to download this investor presentation and follow along during the call.

Also, this call will be available for rebroadcast on the website for future use. A question-and-answer session for this call will be conducted electronically following the presentation. Please note that this presentation contains forward-looking information for Northeast Bancorp.

Such information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involves significant risks and uncertainties. Actual results may differ materially from the results discussed on the forward-looking statements. At this time, I would like to turn the call over to Rick Wayne.

Please go ahead sir..

Thank you. Good morning and thank you all for joining us today. Before I start my presentation, I’d like to take a moment to acknowledge Claire, who announced that she would be retiring at the end of this calendar year.

As many of you know, Claire was instrumental in the acquisition of Northeast and since the merger has been an extraordinarily valuable to us as our Chief Operating Officer and for a previous period of time also as our Chief Financial Officer. Over the past five years, Claire has earned the trust and respect of all of us who have worked with her.

She has been responsible for so much of what we have accomplished leaving her mark on Northeast and we’re much better for it. Thank you, Claire..

Thanks, Rick..

Now the transition to the presentation, which is not that easy but I would do that. Before reviewing the slides, I would like to make some overview comments on our first quarter of the new fiscal year. We had a good quarter with net income of $1.9 million or $0.20 per diluted common share.

Earnings for the quarter were positively affected by loan growth, transactional income from LASG purchase loans, gains on the sale of SBA loans originated by our national SBA division and the repurchase of our common shares through our share repurchase program.

In the Community Banking Division we achieved positive results in commercial and residential loan growth as well as deposit growth. For some of the details, I’m starting with Slide 3.

For the quarter bank wide, we closed $78.9 million of loans with $2.2 million of transactional income, the purchase loan portfolio generated a return of 12.1% and bank wide net interest margin of 4.45%. During the quarter, we repurchased 52,500 shares of Northeast stock at an average share price of $10.45.

Turning to Slide 4, as we have discussed in the past under a regulatory commitment made in connection with a 2010 merger purchase loans are limited to 40% of total loans.

Loan purchasing capacity was $76.5 million at June 30 and $65.3 million at September 30 reflecting loan purchases of $23.5 million on balance sheet loan originations of $25.4 million offset by pay downs in our purchased and originated loan portfolios.

Loan purchase capacity increases or decreases depending upon the relative amount of purchased and originated loans on our balance sheet at any point in time. Moving onto Slide 5, of the $34.4 million invested by LASG for the quarter, $23.5 million were purchase loans and $10.9 million were originated loans.

Purchase loans for the quarter had unpaid principle balances of $23.6 million representing a purchase price of 99.5%. Since June of 2011 when LASG purchased its first loan, it has invested an aggregate of $659 million consisting of $411 million of purchase loans and $248 million of originated loans.

I would like to briefly comment on what we saw in the small balance performing commercial loan purchase market during the past quarter. As I noted, we purchase loans at an invested amount of $23.5 million and unpaid principal balances of $23.6 million.

During the past quarter, we reviewed loans with approximately $360 million of unpaid principal balances and bid on loans with approximately $67 million of unpaid principal balances. As I have noted before, we remain disciplined in our selection underwriting and bidding on loan pools and singularly focused on building a quality portfolio.

Moving on to Slide 6. At the end of the quarter the discount on purchased loans was $35.1 million, a decrease of approximately $2.3 million from the previous quarter ended June 30. The decrease is primarily due to $11.9 million of purchased loan payoffs, offset by purchases in the quarter.

Purchased loan payoffs generated $2.2 million of transactional income. I would like to point out that approximately 72% of the $35.1 million discount is expected to be realized over the remaining life of the purchased loan scheduled accretion.

The non-accretable portion of the discount represents contractual cash flows that in our estimation may – may not be collectible. Turning to Slide 7, we provide detail on returns from the LASG portfolio for the quarter.

The purchased portfolio generated a total of 12.1%, including transactional income of $2.2 million from unscheduled loan payoffs and asset sales.

While the returns on our purchased portfolio are strong, it is important to emphasize that both the amount of loans purchased and the transactional income realized on the purchase portfolio may not be consistent from quarter to quarter.

With respect to the LASG originated portfolio, which does not benefit from a purchase discount, the portfolio generated approximately 5.7% in the quarter. In addition, you will know the yield of 0.5% on loans to broker dealers secured by securities. Turning to Slide 8, we provide some statistics on the LASG loan portfolio as of September 30.

of significance as noted in the chart in the top right, the purchased loan portfolio has a weighted average net investment basis of 86%. On an invested basis the average loan size is approximately 845,000 with the largest individual loan at 12 million. Excluding loans to broker dealers 19% of the portfolio consisted of loans of more than 4 million.

The loan portfolio has a diverse collateral type, primarily focused on retail, hospitality, office, industrial and multi-family. By geography the largest concentrations are in California and New York both at 15% of the portfolio. Our collateral is geographically diverse with collateral in 36 different states.

Turning to Slide 9, for the SBA national division activity, originations have grown from 800,000 in the quarter ended December 31, 2014 to 10.6 million in the first quarter of fiscal year 2016. One of the benefits of the SBA program is the ability to sell the guaranteed portion of a loan often at substantial premiums.

For the quarter ended September 30, the net gain on sale including the capitalized servicing asset was $675,000. Now I would like to turn it over to Brian, who will discuss in more detail our financial results, after which we will be happy to answer your questions.

Brian?.

Thanks Rick and good morning everyone. I’m picking it up on Slide 10, to provide a little more color on our financial results. As Rick noted, it was a good quarter with net income of approximately $1.9 million down $0.02 from linked last quarter, and up $0.04 from the comparable fiscal year 2015 quarter.

Results were driven in part by transactional income which had $2.2 million was slightly up from Q1 in fiscal year 2015, and also $675,000 of gains from our national SBA division. Turning to Slide 11, over the past year we’ve seen net loan portfolio growth of $84 million or 15%.

The majority of the growth comes from our LASG portfolio with a $180 million of traditional purchases and originations and $12 million of loans to broker dealers.

As shown in this chart, we have originated $42 million of SBA loans since the launch of our National SBA Division, of which approximately $25 million have been sold into the secondary market. These sales have contributed to over $3 million in earnings since December of 2015.

While bank wide loan production has been strong increases have been offset by a high level of pay downs in the purchased portfolio, which average just over $20 million per quarter in the prior 12 months.

These results are further detailed on Slide 12, which shows the composition of net loan growth over the past four quarters and this is mainly on the strength of originations by LASG, which had net growth of approximately $60 million or 100% since Q1 of fiscal 2015.

In the current quarter, loans generated by LASG totaled $34.4 million, which consisted of $23.5 million of purchased loans and $10.9 million of originated loans. In addition, the SBA loan portfolio increased to approximately $15 million at the end of the quarter as the majority of these loans are sold into the secondary market.

Turning to funding on Slide 13, we’ve had net deposit growth of approximately a $100 million or 17% over the past year and we’re up $18.7 million or 2.8%, as compared to the prior quarter. For the full year comparison, most of the increase has come in our ableBanking division’s money market product.

As compared to the linked quarter, the growth has come primarily from our Community Banks money market product, which had approximately $13 million of net growth in the current quarter.

This growth in able and the Community Bank have strengthened our overall deposit mix where non-maturity accounts represent approximately 51% on total deposits, up from 43% at September 30, 2014. Slide 14 shows trends in the main components of our income. LASG transactional income has remained relatively consistent over the past five quarters.

However, as previously noted, transactional income can vary from quarter-to-quarter. The slight decrease in net interest income as compared to the linked and comparable prior year quarter is primarily due to increased competition in the purchased and originated market causing pricing and spreads to tighten.

The table on the right highlights the trends in our non-interest income over the past five quarters. These revenue results are further detailed on Slide 15, as compared to trends in non-interest expense over the previous four quarters.

As noted earlier, the decrease in non-interest income as compared to the linked quarter is primarily due to lower originations in sales of SBA loans into the secondary market.

The decrease in non-interest expense in the same period is primarily due to the current quarter benefit recognized upon the forfeiture of stock awards and a decrease in incentive compensation.

Slide 16 provides additional information on trends and yields, average balances and our net interest margin, which was 4.45% as compared to 4.7% in the linked quarter and 5.18% in the comparable prior year quarter. The comparable fiscal 2015 quarter included $335,000 of loan fees related to one loan in the LASG originated portfolio.

The net interest margin excluding these loan fees was approximately 4.99% in Q1 of fiscal 2015. Turning to Slide 17, originations and the associated gains in the residential portfolio remained strong as compared to the linked and comparable prior year quarters. We sell substantially all residential loan production into the secondary market.

Slide 18 provides a snapshot of our asset quality metrics. Compared to the prior quarter credit trends have improved as non-performing loans to total loans has decreased to 1.73% from 1.76% and non-performing assets to total assets has decreased to 1.41% from 1.46%.

As of September 30, approximately 48% of our loans on non-accrual are current and awaiting seasoning before being placed back on accrual.

In addition, as noted in the chart on the bottom right hand corner of the slide, net charge offs to average loan balances have decreased significantly over the past several years and were 3 basis points in the trailing 12 months. That concludes our prepared remarks. We’d like at this time to open up the call to Q&A..

Thank you. [Operator Instructions] Our first question comes from the line of Alex Twerdahl with Sandler ONeill. Your line is now open. .

Hey, good morning..

Good morning, Alex..

First of I’d just like to say that we will miss Claire greatly. I think that she has done a great job over the past couple of years and we’ll wish her the best in her retirement. .

Thanks so much..

And then I want to move on and talk about the quarter a little bit here. Rick, I was just wondering if you could talk a little bit more about the pricing on some of the loans that were purchased in the quarter, and the price being at 99 plus percent seeing this – like it’s a bit high compared to what the model is.

Can you talk about maybe why some of the pricing was that high this quarter and if that’s the average pricing? Does that imply that there were some loans that were purchased above par and how would that sort of affect the income stream going forward..

Sure. For the – and I had read our comment this morning. So I try to dig in and be a little bit more specific in my response. So it would be helpful to you and to others.

For the quarter, we purchased 16 loans and in fact, some of the – in some of the pricing was over par and those were – let me just kind of describe the kind of loans that we – that we purchased and then the other ones that we looked at, these are very low LTV loans in the aggregate on a weighted average basis in the very low 60s.

A bunch of them if you are familiar with the SBA 504 program. This is a bunch of them where the first mortgage piece, which is 50% LTV. They had good pricing. These are kind of loans that we are originating while we can and the pricing and these on average was kind of between six and seven for us.

And so we saw there is an opportunity while we have capacity in our purchase bucket to put on high quality. Yields that are much better than [indiscernible], the kind of originate in footprint and relatively short duration less than five years.

And whether we paid a premium there was of course prepayment protection and that was just factored into the yield. This is not the main part of our business. The main part of our business in the loan purchased area is trying to buy more scratch and dent whether is more discount, which is what we have done historically.

And in fact, which we saw this quarter and bid on it we happen not to win it, but our feeling is that while we have capacity when we can pick up 6% to 7% yields on very safe assets, a short duration with some portion of our balance sheet it is a wise thing to do. It’s not to say we’re not looking for any bidding on the other kinds of loans, we are. .

[indiscernible] Will you – are you going to break out the percentage of that was the scratch and dent versus the SBA loans….

This quarter it was all of the higher quality. I was making the point that – we bid on it. I don’t know, if your question is the percentage that we bid on between scratch and dent kind of loans and this I don’t know, I would – I think I indicated in my comments, we bid on $67 million and we saw overall $360 million, we saw a bunch of the other ones.

I don’t have those numbers in front of me. But in terms of this – the purchases this quarter, they were the higher quality – I don’t want to suggest the other ones are not appropriate quality or as you know from the – our performance metrics. We get paid back, but LTV was lower in all of these that we bought this quarter..

Okay. That’s helpful commentary. And then with respect to the guys that are originating the SBA loans that you’re selling and it’s seems like production was down a little bit this quarter. Were you affected by the SBA guaranteed limit that was nearly [indiscernible] potentially going to be met in, I think it was August..

We were frightened by it, but we weren’t affected by it, it was only around for really short time period. Congress fixed it quickly. But with respect to our volume this quarter in the SBA frankly I thought we were going to do more than we did. It was slow for some members of our BDO team. We’re seeing business pickup now.

And we’ve also hired about another five BDOs. One of the benefits we have, which – you also pointed out correctly in your report, we have great operating leverage.

On the expense side, we’ve been in $32 million, $33 million expense side non-interest expense side of our bank for a while and believe that we can leverage our balance sheet without increasing that much.

And so as we add more BDOs, which are not exclusively, but primarily variable cost, some base but primarily variable cost, we are looking to hire more. So we can get more production. I would – without putting a number to it I would expect our volume to increase overtime..

Just to remind you had – it was seven BDOs, that you had already..

We had seven BDOs and they don’t all produce equally. As you would expect and it almost any activity. But – and so we’re looking to put on some more as I said. .

[indiscernible].

We have all offers out and people joining us. Some have joined us or will very shortly in Florida and Arizona, other places. And so we’re getting pretty good coverage around the country on this and I would expect those numbers to increase.

On the other thing, on the SBA we indicated a number we close that they don’t – they won’t it was about $5.5 million roughly of the timing change that was actually funded. And so some of that – all of that will get funded in the next quarter or quarters..

Okay. And this is my final question Brian I think I missed your comments on the margin you said that the margin excluding something would have been 499.

Can you just go back over that quickly?.

Yes, there was – in the prior year comparable quarter in the LASG originated portfolio, there was one loan that had an exit fee and that’s included in the yield, and that was around 335,000.

So in this quarter we had I think it was like 1,000 or 2,000 of similar types of fee, so that really spiked that yield in that portfolio in the prior quarter, so when you actually strip that out to net interest margin, net interest margins are more than the 4.99 ranges as opposed to 5.18..

Okay, so it wasn’t this quarter it was a year-ago quarter?.

It was the prior quarter, yes..

Okay, that’s extremely helpful, thanks guys for taking my question..

Thank you, Alex..

Thank you, [Operator Instructions] Our next question comes from the line of David Minkoff with DCM Asset Management. Your line is now open..

Okay, Thank you good morning guys, congratulations on another nice quarter..

Thank you, David..

Claire we’re sorry to see you considering retiring you’re too young and vibrant to do that I think you should reconsider?.

Summing up on 64 David, I think it's time..

David you won’t believe we’ve made the same pitch as [indiscernible] to know about,.

64 is the new 50.

I see you bought another 52,500 shares back in this quarter, is that against the 500,000 add on from last April to the buyback or is that against a, you haven’t completed the prior buyback to the 500 – before the 500,000 so what’s left on the buyback I guess is question is?.

315.

315.

315 is left and as you probably know David that the amount we can buyback in any given day is subject to lots of limitations and rules as to volume from prior periods, we can’t have the opening trade we can’t buy after 3:30 in the afternoon, we can’t pay more than the previous trade and there is not a lot of trading going on in our stock so, and the exception for that is the block trade once a week more than10,000 shares so it’s a – not a lot of spark around, it's not easy to but a lot back..

Brain, this stock has been moving up I guess in relation to the back of the earnings at a higher level now, so don’t they account for the back of phase of the buyback is slower or maybe just do you cash capital needs in the business versus the loans you are buying, so I was wondering whether it was possible or feasible to reconsider the cash dividend at this point since as the stock moves higher and maybe less compelling to act on the buyback.

.

I feel so much like a broken record when you mention this and I know you like that and others like that and of course the Board considers, the use – the need of capital frequently and so, and then make decisions accordingly as those facts considering a whole bunch of factors and I really couldn’t say anything more than that on that topic..

Right, right, right. I would just add that we earned $0.72 in the year ending in last calendar – fiscal year and were up 25% in the first quarter. So $0.04 dividend on a $0.72 earnings is kind of low in your area Canada [ph] National Bank for instance, earning 328 last year and they pay out a $1.20, which is about 30% of earnings.

You paying out much less than that I realize because you are – been working on the buyback, but….

The only point I would make, again, without at all changing what I said earlier is that I think our growth and the phase on which we’re putting on assets on our balance sheet is higher, maybe significantly higher than other banks. .

Sure..

And we have leverage limits imposed by the Fed as to our balance sheet, so that is also relevant to the calculation..

Right, okay. Keep up the good work..

David, thank you very much..

Welcome ..

Thank you. I’m showing no further question. Now, I’ll turn the call back to Rick Wayne for any closing remarks..

Thank you for participating and supporting us and asking the good questions that we had today, which I hope fostered an interesting conversation. We will meet again on this call in January after – to discuss the quarter ending 12/31. Thank you very much..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day..