Northeast Bancorp's (NBN) CEO Rick Wayne on Q2 2016 Results - Earnings Call Transcript

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Northeast Bancorp (NASDAQ:NBN)

Q2 2016 Earnings Conference Call

February 2, 2016 10:00 AM ET

Executives

Rick Wayne - President, Chief Executive Officer and Director

Brian Shaughnessy - Chief Financial Officer and Treasurer

Analysts

Alex Twerdahl - Sandler O'Neill

David Minkoff - DCM Asset Management

Operator

Good day, everyone. And welcome to the Northeast Bancorp Fiscal Year 2016 Second Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is Rick Wayne, President and Chief Executive 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. The question-and-answer session for this call will be conducted electronically following this 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 now like to turn the call over to Rick Wayne. Please go ahead, sir.

Rick Wayne

Good morning. And thank you for all joining us today. I am Rick Wayne and with me is Brian Shaughnessy, our Chief Financial Officer and Treasurer. Let's start on start on Slide 3 this morning which provides the highlights of the quarter ending December 31 and a comparison with the linked quarter ending September 30. As you can see except for the unusually large provision which will I discuss shortly, results for the December 31 quarter were solid. Loan volume was a $120 million compared with $79 million for the linked quarter which included LASG activity of $35.9 million of purchased loans at $0.89 and $39.5 million of originated loans. The SBA division enclosed $16.3 million compared to $10.6 million for the linked quarter. Deposits grew by $33 million or 5% largely due to the strength money market accounts in the community banking division.

We repurchased 72,600 shares compared with 52,500 for the linked quarter. All the above coupled with strong noninterest income and disciplined noninterest expense, the company generated quarterly earnings of $1.7 million, or $0.18 per share. This compares unfavorably with earnings in the linked quarter of $1.9 million, or $0.20 per share. This variance results from an unusually high provision of $896,000 compared to $169,000 in the linked quarter or a difference of $0.05 per share on an after tax basis.

Approximately $590,000 of the provision representing a substantial portion of the current quarter's was attributable to loans purchased three years ago. One of the loans in a very profitable pool of 13 relationships and the second as a single asset purchase. While we are disciplined in our underwriting process and of course do not like to see write-offs, they occasionally happen and we were adversely impacted this quarter. Notwithstanding the higher provision, our asset quality remains strong as indicated on slide 4 with nonperforming assets to total assets at 0.82% at December 31 as compared with 1.46% at June 30.

Classified commercial loans were $5.1 million at December 31 as compared with $8.9 million on June 30. Turning to Slide 5. As we've discussed in the past under a regulatory commitment made in connection with the 2010 merger purchased loans are limited to 40% of total loans. Loan purchasing capacity was $65.3 million at September 30 and $81.3 million at December 31, representing loan purchases of $35.9 million on balance sheet funded loan originations of $51.8 million, offset by paydowns and our purchased and originated loan portfolios.

As indicated before loan purchased capacity increases or decreases depending upon the relative amount of purchased and originated loans on our balance sheet at any point in time. Now on Slide 6. Under another regulatory commitment, non-owner occupied commercial real estate loans are limited to 300% of total capital. At December 31, capacity under this condition was $120 million. It is important to note that owner occupied commercial real estate is not subject to this regulatory condition. Owner occupied commercial real estate is generally speaking real estate collateral used in the business of the borrower. SBA loans secured by commercial real estate are typically considered owner occupied for purposes of the regulatory condition. We have been focused on loans to borrower with owner occupied real commercial real estate collateral with $141 million portfolio at December 31, up 24% over the prior 12 months.

Moving on to Slide 7. Of the $75.4 million invested by LASG for the quarter, $35.9 million were purchased loans and $39.5 million were originated loans. Purchased loans for the quarter have unpaid principal balances of $40.1 million representing a purchase price of approximately 89%. Since the merger in 2010, LASG has invested an aggregate of $735 million consisted of $447 million of purchased loans and $288 million of originated loans. I'd like to briefly comment on what we saw in the small balance performing commercial loan purchased market during the past quarter. As I noted, we purchased loans at invested amount of $35.9 million and an unpaid principal balance of $40.1 million. During the past quarter we reviewed loans with approximately $180 million of unpaid principal balances and bid on loans with approximately $85 million of unpaid principal balance.

Of interest in this quarter with purchased as of loans with unpaid principal balances of $40 million, this represents a successful bidding of 47% generally higher than a prior quarters. As I have said 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 8. At the end of the quarter the discount on purchased loans was $32 million, a decrease of $3 million from the previous quarter ended September 30. The decrease is primarily due to $24 million of purchased loan payoffs offset by purchases in the quarter. Purchased loan payoff generated $2.6 million of transactional income.

Turning to Slide 9. We provide detail on return from the LASG portfolio. For the quarter, the purchased portfolio generated a total return of 12.74% including transactional income of $2.6 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 purchased portfolio may not be consistent from quarter-to-quarter. With respect to the LASG originated portfolio which does not benefit from a purchased discount, the portfolio generated returns of approximately 5.7% in the quarter. In addition, you will note a yield of 0.5% on loans to broker dealers secured by securities.

Turning to Slide 10. We provide some statistics on the LASG loan portfolio as of December 31 of significance as noted in the chart in the top right corner, the purchased loan portfolio has a weighted average net invested basis of 88%. On an invested basis the average loan size is approximately $740,000 with the largest loan at $12 million, excluding loans to broker dealers, 19% of the portfolio consist loans more than $4 million. The loan portfolio has a diverse collateral type primarily focused on retail, hospitality, office, industrial and multifamily. By geography the largest concentration are in California at 15% and New York at 12%. Our collateral geographically diverse with collateral on 36 different states.

Turning to Slide 11. For SBA division, originations have grown from $800,000 in the quarter ended December 31, 2014 to $16.3 million in the quarter ended December 31, 2015. One of the benefits of the SBA program is the ability to sell the guaranteed portion of the loan and often at substantial premium. I'd like to point out that for a variety reasons SBA loans closed in one quarter are sometime sold in a subsequent quarter and sometimes held in portfolio. In the current quarter, we closed $16.3 million of SBA loans of which only $4.7 million was sold in the December 31 quarter and the remaining can be sold in subsequent quarters. For the quarter ending December 31, the net gains on sale including the capitalized servicing asset were $679,000.

And now I'd 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?

Brian Shaughnessy

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 $1.7 million down $0.02 from the linked quarter, and up $0.02 from the comparable fiscal year 2015 quarter.

Results were driven in part by transactional interest income of $2.6 million, $679,000 of gains on loan sales from SBA division and keeping our operating expenses in check. As noted previously this was offset by an increase in our provision for loan loss in the current quarter.

Turning to Slide 13, over the past year we’ve seen net loan portfolio growth of $104 million or 18%. The majority of the growth comes from our LASG portfolio with a $187 million of purchases and originations. As shown in the chart we've originated $59 million of SBA loans since the launch of our SBA division of which approximately $32 million of this loan have been sold into the secondary market. These sales have contributed to over $3.5 million in earnings since December of 2015. While bank wide loan production has been strong, increases have been offset by a high level of paydowns in the purchased portfolio which averaged just over $20 million per quarter in the prior 12 months.

These results are further detailed on Slide 14, which shows the composition of net loan growth over the past five quarters and this is mainly on the strength of originations by LASG, which had net growth of approximately $77 million or 97% since Q2 of fiscal 2015. In the current quarter, loans generated by LASG totaled $75.4 million, which consisted of $35.9 million of purchased loans and $39.5 million of originated loans. In addition, the SBA portfolio is approximately $26 million at December 31 as a large portion of these loans are sold into the secondary market.

Turning to funding on Slide 15, we’ve had net deposit growth of approximately $95 million or 15% over the past year and we’re up approximately $33 million or 4.8%, as compared to the prior quarter. For the full year comparison, the majority of the growth is due to increases in our ableBanking division’s money market product of $27 million and growth in our Community Bank money market of $37 million. As compared to the linked quarter, the growth has come primarily from our Community Banks money market product, which had net growth of approximately $25 million 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% of total deposits.

Slide 16 shows the trends in the main components of our income. Compared to last quarter the increase in net interest income before loan loss provision is largely attributable to an increase in transactional interest income of $400,000 from the LASG purchased portfolio, and also due to the benefit of a larger bank wide average loan portfolio. The average balance in our loan portfolio has increased by $31 million, or 5% as compared to the linked quarter. This growth in the margin coupled with SBA loan sales and stable operating expenses running at an average of $8.2 million over the trailing 12 months, helps contribute to an efficiency ratio in the current quarter of approximately 69% which does not include the impact of the higher provision for loan loss in the current quarter.

The trend in our efficiency ratio is further detailed on slide 17 which shows trends in total revenue, noninterest expense and the efficiency ratio over the last five quarters. As compared to linked quarter ending September 30, total revenue has increased by approximately $900,000 while noninterest expense has remained relatively consistent with the average noninterest expense balance over the past five quarters or $8.2 million.

Slide 18 provides additional information on trends in yields, average balances and our net interest margin which was 4.87% as compared to 4.45% in the linked quarter and 4.87% in the comparable prior year quarter. As noted earlier, the increased in margin as compared to the linked quarter is largely attributable to an increase in transactional interest income and due to a larger average loan portfolio.

Finally turning to Slide 19. Originations and the associated gain to the residential portfolio are highlighted over the past five quarters. The current quarter is seasonally slower as compared to the linked quarter ending September 30. However, the gains continued to be a positive contribution to noninterest income. We sell substantially all residential loan production into the secondary market.

That concludes our prepared remarks. We would like at this time to open the call to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]

And our first question comes from Alex Twerdahl of Sandler O'Neill. Your line is now open.

Alex Twerdahl

Good morning. I wanted to drill down a little bit more into this nonperforming loan that creeped during the quarter. You mentioned there is two loans from vintages I think that were-- or purchases that were I think three years old. I mean what cause -- first of all, were there any charge off associated with it or is just a specific provision that was added to it and then so what caused that deterioration? Is it whether oil related or is this downturn in collateral values or what changed?

Rick Wayne

Okay. So let me just talk first about out there the two loans and I'll talk about the bigger one first. About three years ago we purchased a pool of 13 loans that we bought for $15 million in the aggregate. Then the UPB was called $23 million in that range $24 million. And our total recoveries of principal on those including the loss from this loan were $20 million. So even including this specific loan on that we made on that purchased we made about $5 million and that's not including interest that was paid to us and some of those loans we were able to restructure with a guarantee and sell off but the headline is it was profitable. We had -- there are two remaining loans in that pool. This one was one of them and I am going to have speak for -- because of customer confidentiality obviously in very general terms about this. At the time we bought this loan there was -- it was part of a pool and so therefore it was included and what we had to buy and we bid a relatively small amount for this one loan relative to what was owed because of the very subordinate collateral position. And then over time the business got into trouble and originally the loan was -- I wanted to say our investment was [500 or 550] something like that and along the way we've added to the reserve by couple hundred grand and then an event occurred which made our remaining balance from -- there was about [350] roughly or zero. It wasn't related to oil, it wasn't related to anything macro in the economy and it's not indicative this particular credit of any trend in our portfolio that says we have a problem because this was a problem. This is not the canary in the coal mine, this is part of pool that performed very well and this one credit towards the end got into trouble and what remains in that pool out of our $15 million originally invested in that one pool is one loan with an invested about $100,000 or $150,000. So we took -- and the way this works with the accounting for purchase loans, when you buy them, you take them and you only take an impairment charge when they occurred. So as we move along and we saw what was happening, we thought we were good at [350] until we weren't. So first let me ask if you have any -- before I talk about other one ask if you have -- if is anything more I can tell you about that one that would be helpful.

Alex Twerdahl

No. I think that pretty much cleared it up for that specific one.

Rick Wayne

Okay. Now the second loan was a single asset that we purchased also about three years ago that was on commercial property say in the Midwest that at the time we always paid, it was always current, over time we had to advance some more money for tenant improvements, it was non-recourse loan and so we were working with the borrower and then eventually the property was sold and because it was not recourse the proceeds that came out of that more of couple hundred thousand dollar short. Again not -- it's the same accounting story around the purchased loan. And so I would want underscore what did say in my prepared comments which the nature of this business is that every once in a while you have a loan something happens. We are not buying treasuries. Obviously, it has been an amazing track record with -- since we started just about five years ago having purchased $475 million of loans and having this very small charge-offs occur occasionally, I did want to in my comments talk about asset quality knowing that this quarter, that was a one thing that made what was otherwise we thought a really, really strong quarter on every front for all the reasons that I said initially and I promised I won't make it hear again. But I wanted to move the asset quality slide upfront to make the point that when we look at our asset quality at the end of December you can see, again we have the impairment issue of course but when you look at our balance sheet, these are the numbers and it demonstrates we think very strong asset quality.

Alex Twerdahl

Okay. I appreciate the additional color. And then on quarter's past you've broken out for the discount associated with the purchased portfolio, the accretable versus the non-accretable section of the $32 million?

Rick Wayne

We have, yes. And we switched this time -- what we've really said in the prior quarters we would have a number and we would say this much is accretable and then there would be some portion of it that we would say that based on the cash flows we expect this much of what the principal balance we thought that this much might not be collectable. But for a lot of technical accounting reasons which I will put forward to Brian in one second, the accounting never change but we thought it was clear to just to say this is the discount piece. But that's not I assume a wholly satisfactory answer but I think Brian can improve on that.

Brian Shaughnessy

Yes. From a calendar wise I guess stepping back to the slide, to Rick's point, we thought it would be more meaningful to show what our investment base, invested basis is as a percentage of the unpaid principal balance because that will give you a sense of what our basis is in those loans. Whether it is 85%, 90% and what not. From an accounting perspective for the accretable or non-accretable yield, based on expected cash flows and so when you look at what our expected cash flows over and above say $220 million, $230 million purchased portfolio you have to basically take all principal interest fees over and above that which definitely --which technically doesn't correlate to difference between our basis and the UPB. So we thought be more meaningful to show you here is our basis, here is our UPB and this is the discount that we have at this time.

Rick Wayne

But as we are talking Alex we have someone looking to see if we can tell you what the numbers, not intended to be a secret, we just thought there was more clarity around here but I am hopeful you have another question and while you are asking that I can tell you what it is, it wasn't -- wait I am getting close to, am I getting -- I have a number for you hopefully in a minute or two. And if you think it's helpful for example it is not a problem putting that in a comments or in the slide, we just thought for the reasons Brian described, it was easier just to show the total discount. But if you like that and now that we like to see that number in there we can certainly do that.

Alex Twerdahl

Yes, I would be interested to see it. And then as we -- I have a couple more questions here so I can ask those while you get those numbers. On Slide 11 with the national SBA Division piece you talked about how you had $7.5 million that were originated during the quarter that were guaranteed and possibly could be sold. And then you only sold $4.7 million. But then when I look at the balance sheet in the earnings release I see that as of the end of the year there were zero loans that were SBA loans held for sale. So does that mean that you are not intending to sell the difference between the $7.5 million and the $4.7 million? Or is there something else that I am misunderstanding here?

Rick Wayne

No. First let's try and go over the numbers and make sure we are on the same place on the numbers, so we and Brian help me on this. We close 16 -- and this is -- the first time I think it will be a general interest to you, although you may know this but others on the call, so in the SBA division we closed $16.3 million but when you close the loan, you are not allowed to sell that loan until it's 100% funded if you want to sell it. So and the reason they are not -- they are very often not 100% funded when you close them because there maybe some a borrower that part of the proceeds use to order a piece of equipment, part of it is do, we are not doing grounds up construction but it might be used for example to do some renovation in the person's business et cetera. And so out of the $16.3 million that we closed we funded -- how much of that Brian? Do you have that number?

Brian Shaughnessy

Yes. $14 million, $14.5 million.

Rick Wayne

And then out of the $7.5 million that we sold some of those were loan that were originated in the prior quarter and some of them were originated in the current quarter, right it's a mix as you can imagine. So I think when we spoken about this that you kind of have to look at this over a time period because the way that quarter ends you can't always sell in the same quarter for example if you close a loan in round numbers after the 20th day roughly of the third month, you can't settle that loan in that month and so even if you have sold it you wouldn't have the gain. And so as we are building up the portfolio, we have loans in there that when they get fully funded and are available to be sold which they are not now, we will likely to sell up substantial portion of those. When we think about selling them, we take a look at; there is a bunch of factors that affect the premium you get for them. One is the term; one is whether it's shorter term or longer term. Longer term gets you higher premium. Whether or not it's a floating or fixed and we are generally doing floating and what is the spread over prime. Obviously the higher the spread the more that you get. But we have some loans of small number that for some reasons are fixed, for some reasons are shorter term and we wouldn't sell those. But generally when we are funding loans that we can get a substantial premium and we are selling them. And we will sell them as we fund the ones that we originated and need to be funded.

Alex Twerdahl

Okay, that is helpful. But just to expand a little bit further. Can you -- for our modeling purposes, and I know quarter- to- quarter it is going to be pretty choppy in terms of origination and sales of premiums, et cetera. But on an annual basis if you had to give a range between what you think the team right now is capable of originating and what kind of premiums -- and I know it is going to be a moving target. But just for some rough generalities just so we can try to be in the ballpark with what the gain on sale from that could be. Could you maybe give us some sense for what you are anticipating?

Rick Wayne

Well, I think you note this morning kind of said it well, your early warning -- you don't call it early warning but early note, warnings not but your early note going back and for the benefit of others on the call, we started this in the fourth quarter of calendar year 2014 late kind of November we did $3 million of originations and then the March 31 quarter we did $9.5 million and then the June 30 we did $20 million. I think you indicated in your note and I agree with it, that was an unusually high quarter. We've ended for the quarter ending September 30 we did about $10 million and we did $15 million or $16 million this quarter. I think not that I would expect, I don't expect it to go over 60% every quarter. I kind of think in the range of again this is subject to one gigantic forward looking statement but for the time being kind of thinking about $10 million to $15 million a quarter is not unreasonable, it could be more than that, and could be less than that but I think that's a -- I want to put a wide band around it because it's so transactional. You could have difference of closing loan in a quarter when you look at it on a quarter basis on the 19th of the month and the 20th of the month and that may depends on whether your borrower gets an occupancy permit from the town that he or she is living in. So I think that's a reasonable band and you didn't ask the question but I'll trying and be helpful. I would think kind of that 40% to 50% would stay on balance sheet and maybe around 40% say and the balance would be sold. And I say it may help with you with the math. If you sold the whole loan you would keep 25% on balance sheet whatever you put the bunch of loans that we originated and as I said because they are shorter term or occasionally fixed, that doesn't happen that much or some other reason we made just sold it on balance sheet

Alex Twerdahl

Okay, and then the premiums on what you do sell, which have been the last couple quarters it was almost 10% down to 8% and then this quarter it was about 6.5% premium if you back out that servicing asset. Do you have any forward-looking general -- rough generalities over where that premium might potentially go based on what you are originating and what you are seeing in the market?

Rick Wayne

I think it would be probably more appropriate if we wait few more quarters and we have some more data to be more helpful. Obviously I get that your number but I want to make sure that I want to have subject to the forward looking statement, so I am confident that what we are saying we are going to be able to do so. If we could hold off on that until we see few more quarters I think we could be more helpful.

Alex Twerdahl

Fair enough. I appreciate you taking my questions. Thank you.

Rick Wayne

Well, I have your answer also to your question which is out of the total discount is 32, the $6 million of it is which is roughly 20% of the total 32 is what we would call non accretable last time. And on the go forward we thought it was helpful and simpler and to do it this way but that's a number we know so we can of course put it in either the notes of the slide if that would be helpful for you.

Operator

[Operator Instructions]

And our next question comes from David Minkoff of DCM Asset Management. Your line is now open.

David Minkoff

Good morning, Brian and Rick. How are you? Congratulations on a good quarter. Too bad we had the write-off, it would have been even better, of course. So, on the share buyback, you purchased -- on the footnote it shows you purchased [1.1 million] from the inception. Is that the inception of this latest buyback program or all of them combined?

Rick Wayne

That's everything we ever done under a buyback. And we have combination

David Minkoff

So how many shares --

Rick Wayne

We have about 200,000 more or less left

David Minkoff

200,000 left, okay, and you bought 72,000 in this past quarter, right?

Rick Wayne

That's right.

David Minkoff

At $10.75, okay. Just a minor housekeeping item. May I suggest that you -- when you release your earnings, I think they come out typically at 6:30 or 7 PM at night when most people are gone? And I realize you do it before the conference call, but my screen and many other people's screens -- I am watching 100 stocks on there let's say, and when news comes out on one of the companies I am watching there is a star, an asterix going in designating or indicating that there is news. And I see it and go to look for it. Now in my case I know you are going to come out with your earnings so I will look for it at 6:30 or 7:00 at night. But someone that is not a shareholder that is an investor would see this on their screen or see the news come across the tape and it is almost like free advertising. Usually companies that come out with their earnings at 6:30 PM are trying to bury their earnings, they don't want it to be seen, there are big losses, and it is not the case with us. You are proud of the earnings I would say, come out with it at 8:00 in the morning perhaps or during hours and the asterix or be designated that you have news on the stock all day. It would be sitting up there for others to see, not just Alex and myself and others that are quite attached to the Company. So, it is just a minor housekeeping item. Any reason you come out with it late at night?

Rick Wayne

No. It's a good suggestion probably give you more information that you actually care to hear. We have our Board meeting way the calendar falls we obviously before we can release the earnings we need to have our Board meeting and audit -- all the things that you do as a matter of governance, so way the calendar fell this year, our Board meeting was on Friday and it kind of packed up a lot of things but I think your suggestion is good one and whether we have good news or bad news it is not our intention to bury it and I like your free advertising idea, we will try and get it much closer to one news day light.

David Minkoff

Good, good. And finally, we came out with about I think $0.38 for the six months. So I am guesstimating we are going to earn -- and you always caution us not to let one quarter's earnings be a guide of the following quarter. But let's assume you earned $0.80 or $0.76 for the year and I'm just annualizing the $0.38 you came out with. We are only paying $0.04 in dividends for the year, a $0.01 a quarter. Have you given any other thoughts -- I realize you have a buyback going on and you are using funds for that. But have you considered raising the dividend? A Company earning $0.78, $0.80 or somewhere in that range to pay only $0.04 is kind of low. You watch Shark Tank from time to time, you know who Kevin O'Leary is, and I am sure? He is always [Multiple speakers]

Rick Wayne

Mr. Wonderful?

David Minkoff

Mr. wonderful, right. I think he lives in Massachusetts doesn't he?

Rick Wayne

I think he did yes. I don't think he is that wonderful but --

David Minkoff

I know that, a lot of people have mixed feelings about him. Nevertheless he is a bright guy, a successful guy as an investor. He has always said he would never touch a stock that doesn't pay a dividend, we are close to not paying a dividend, and we are paying $0.01 a quarter. I happen to be in his camp not because of his show or I felt that way, way before I even knew him. It is nice to get paid to wait rather than just to buy back. So again, I would urge you to consider the ratio of payout to your earnings, it is quite low and perhaps you would raise that. I think it would be helpful for the stock, by the way.

Rick Wayne

Let me just make two comments just in case Mr. O'Leary is an investor, I do think he is wonderful I agree with it. But the -- whether it is a question -- to give you some comfort which will mean I like the kind of what we are doing exactly. The Board obviously thinks about it and the competing considerations that any company would think about are alternative usage of capital. In our case I had -- and we put it in our slide deck for a reason under regulatory conditions there are limits on how much CRE we can have, how much loan capacity we can have. If I were to demonstrate the math for you I would show you what you notice if you leverage the balance sheet more and maintain your operating expenses, it's going to be more profitable and so you have one question about the use of capital for that, there is also at the stock price that we are trading at, the repurchase, many investors -- those investors that voice and opinion on this a bunch of them think that the repurchase is a good use of capital given where our stock price is, and others articulate the positions you have about being the $0.04 a year being a low payout on our earnings. And I guess the best thing I can say on this is that our very good Board thinks about this and there are competing considerations. Obviously I am not in a position to say anything about what the Board will decide other than it's going to think about all these things and do what they think is best.

David Minkoff

Right. Well, you did have a higher dividend before the buyback; I think you were paying $0.36 a share. So you gave us something good in the buyback. I'm not trying -- hoping -- looking to minimize that. But you took away something good in the dividend. So we changed or traded one good feature for another good feature. But I always say that nobody gets up in the morning and says, hey, we are doing great let's cut the dividend. So it was a trade-off really. And you are right, there are some people that feel a dividend is more viable and others may feel that a buyback is more viable. I happen to personally prefer the dividends because if a company was not successful and they were buying back their stock, the fact that they were buying stock didn't work out for me. It is overkill; I have all my eggs in one basket. Whereas if I am getting paid a yield on the investment at least I am making something and hopefully the stock takes care of itself and that the company does well. When you plow it back into the buyback I've got all my eggs in that basket. So it is my own personal feeling. But --

Rick Wayne

But you take some comfort that as you started the conversation with your kind words which of course appreciate, we think we are on a good trajectory and we are building our balance sheet, managing our expenses but for an occasional blip and for an asset we buy at a discount, we are building our SBA business, we think we are good course so hopefully that will mitigate some of our reservations.

David Minkoff

Yes, it does. I do think you are doing a good job and I am a very happy shareholder. So, overall we're just trying to make you more perfect. How is Claire doing in retirement?

Rick Wayne

I think she is doing great, spoken to her few times and she has three beautiful grand children and she has been traveling and I think she is sort of trying to figure out what she will do, seems quite happy though and I will tell her that you asked for her, she will appreciate that.

David Minkoff

I hope you do. Thank you so much, Rick. Thank you. That is all I have. Keep up the good work.

Operator

[Operator Instructions]

And I am showing no further questions at this time. I'd now like to turn the call over to Rick Wayne for closing remarks.

Rick Wayne

Thank you all of you for calling in and reading our material, listening, engaging us in conversation. I hope that you find this valuable, we really do spend a lot of time trying to provide information to you and all of our other investors so that you can have as much visibility into our company as possible to the extent as I mentioned both to Alex and David, thanking him for his comments. If you have thoughts on ways we can provide more information or improve our slide deck or something you want to hear that we are able to do. We want to accommodate you in and we appreciate your support very, very much. And with that I will thank you and sign off. Bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.

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