Northeast Bancorp Q2 Earnings Call Highlights

Northeast Bancorp (NASDAQ:NBN) executives highlighted significant balance sheet growth during the company’s fiscal 2026 second-quarter earnings call, while also pointing to a temporary slowdown in SBA-related fee income that contributed to lower earnings compared with prior quarters.

Large quarter for loan growth, with a late-quarter tilt

President and CEO Rick Wayne said the “highlight of this quarter” was the volume of loans added to the balance sheet, totaling just under $900 million for the quarter. That included $575 million of purchased commercial real estate loans (UPB) acquired for $532 million, or 92.6% of unpaid principal balance, as well as a record $252 million in originated loans at a weighted average rate of 7.6%.

Chief Financial Officer Santino Delmolino said total assets ended the quarter at $4.95 billion, while loans ended at $4.4 billion, up from $3.7 billion as of September 30. He noted the timing of purchases and originations was “heavily weighted towards the tail end of the quarter,” which muted the impact to net interest income during the period but is expected to be accretive going forward.

Earnings, profitability, and margin trends

The bank reported net income of $20.7 million, or $2.47 per diluted share, for the quarter. Year-to-date net income was $43.3 million, or $5.14 per diluted share. Return on average assets was 1.87% for the quarter (2.0% year to date), and return on average equity was 15.6% (16.6% year to date).

Net interest margin was 4.49%, down from 4.59% in the linked quarter, which Delmolino attributed largely to a “lag in timing of liabilities repricing.” He said the bank has approximately $1.25 billion in CDs maturing over the next six months at a weighted average rate of 4.05%, and both Delmolino and Wayne indicated that liability repricing could support margin improvement ahead.

Net interest income was $48.8 million for the quarter and $97.0 million year to date. Wayne emphasized that because a substantial portion of purchased loans settled late in December, the ending loan balance was roughly $500 million higher than the quarter’s average loan balance, creating what he described as “tailwinds” for future quarters from a larger earning-asset base.

SBA shutdown impact and small business activity

Management attributed a meaningful portion of the quarter-over-quarter earnings decline to SBA-related disruption. Wayne said SBA activity was constrained during the government shutdown (October 1 through November 12), limiting the bank’s ability to originate, fund, and sell loans unless they already had key approvals and documentation. He also said the SBA’s July 1 restructuring of the small balance program increased documentation and underwriting time.

During the quarter, the bank originated $39.8 million (about $40 million) of SBA 7(a) loans and sold $25 million, generating $2.1 million in gains. Wayne compared that with $8 million of gains in the quarter ended June 30, describing a roughly $6 million difference that he said equated to about $0.50 of after-tax earnings per share.

Chief Operating Officer and Chief Credit Officer Pat Dignan said total small balance originations were 537 loans for $111 million, with SBA representing $40 million. Looking ahead, Dignan said “$20 million a month or so seems like a reasonable run rate” for SBA volume before considering potential new offerings. In response to an analyst question, management said it expects the SBA guaranteed portion gain-on-sale percentage to remain “somewhere in the realm of 8%–9%.”

Purchased loans, origination metrics, and pipeline commentary

Dignan said the bank purchased 152 loans in five transactions, totaling $576 million of balances at a $533 million purchase price (92.6%) and a weighted average yield to maturity of 10.8%. The portfolios were geographically diverse, with “significant concentrations in New York and New Jersey.” He said three of the five transactions came from banks, but 80% of balances were sourced from loan funds exiting previously purchased bank portfolios.

Dignan described the current purchase pipeline as “as full as we’ve ever seen” and said the bank is aware of several large transactions expected to come to market, which he suggested are being fueled by M&A activity. He cited information from Sandler indicating bank M&A was up 45% in 2025 over 2024, and said 2026 “is shaping up to be even bigger.”

On the origination side, Dignan said the bank closed $252 million across 32 loans, with two-thirds lender-financed. He cited an average balance of $7.5 million, loan-to-value ratios “just over 50%,” and an average interest rate “just over 7.5%.” He said inbound demand remains strong despite increasing competition from private lenders, and noted the bank’s funding costs and ability to close quickly as advantages, particularly in what he called its “sweet spot in the middle market space.”

Funding mix, credit, expenses, and capital

Delmolino said purchases were funded through a combination of brokered CDs and Federal Home Loan Bank borrowings, with a weighted average cost of funds of 3.8%. Wayne said the bank continues to work on growing deposits in Maine, including municipal deposits, but added that given the pace of loan growth, brokered deposits will likely remain a key funding source. He also argued brokered funding can be efficient as long as the bank remains well-capitalized.

On credit, Delmolino said asset quality remained strong, with delinquencies, non-accruals, and classified loans “relatively flat” quarter over quarter. The allowance for credit losses increased from $46.7 million (1.24% coverage ratio) at September 30 to $63.8 million (1.47%) at December 31, largely tied to purchase-loan activity. Net charge-offs rose to $2.9 million from $1.9 million in the linked quarter, including a $1.2 million charge-off on a single purchased loan that had previously been reserved, resulting in a provision of $875,000 for the quarter.

Non-interest expense fell to $20.8 million from $21.9 million, driven by lower professional fees and reduced loan acquisition and collection costs. The effective tax rate was 31.1%, and the Tier 1 leverage ratio was 12.2%. Tangible book value ended the quarter at $62.65 per share, and Delmolino said the company’s capital position supported “just under $1 billion of loan capacity” as of December 31.

About Northeast Bancorp (NASDAQ:NBN)

Northeast Bancorp is a Maine-based bank holding company and the parent of Northeast Bank, a state‐chartered commercial bank headquartered in Lewiston, Maine. Through its subsidiary, the company provides a variety of financial services, including personal checking and savings accounts, residential mortgage lending, small business and commercial loans, treasury management and private banking services. The bank operates a branch network spanning central and southern Maine, serving individuals, families and local businesses across the region.

Founded in 1872 as Androscoggin County Savings Bank, the institution has evolved through mutual and stock conversions, adopting the Northeast Bank name in 2001 and forming Northeast Bancorp as its mutual holding company in 2013.