Northeast Bank entered into a loan purchase and sale agreement with The Loan Source and agreed to sell $457.6 million of loans originated by the bank in connection with the Small Business Administration’s Paycheck Protection Program. After amortizing previously unamortized PPP loan origination fees, the bank will realize a pre-tax gain of approximately $9.8 million in the current fiscal quarter as a result of the sale. In addition, the bank will receive fee income on the loans sold until such time as the loans are forgiven or repaid.
The sale reflects originations of PPP loans by the bank through June 11, 2020. The bank intends to continue to originate and sell PPP loans to Loan Source under the terms of the loan sale agreement until the PPP is closed; however, the bank expects PPP loan originations to continue at lower volumes going forward.
Northeast Bank also announced that, through June 24, 2020, Loan Source is in the closing process of purchasing approximately $1.27 billion in outstanding principal amount of PPP loans, including $457.6 million of PPP loans from the bank and approximately $815.3 million of PPP loans from lenders other than Northeast Bank. Pursuant to the bank’s previously disclosed correspondent agreement with Loan Source and ACAP SME, the bank will act as correspondent for Loan Source in connection with Loan Source’s pledge of PPP loans to the Federal Reserve Bank of Minneapolis under the Paycheck Protection Program Liquidity Facility and ACAP will act as servicer for the PPP loans pledged by Loan Source.
With respect to the approximately $815.3 million of PPP loans purchased by Loan Source from lenders other than Northeast Bank, the bank will receive correspondent fees of approximately $2.9 million, which will be recognized over a period of approximately two years, and will receive 50% of the net servicing income earned over time on such loans. Loan Source informed Northeast Bank that it intends to continue to purchase PPP loans and pledge them under the PPPLF as long as the PPPLF remains operational. The bank expects to earn additional correspondent fees and servicing income on pledged loans.
“Our team is proud to work closely with so many small business owners across the nation, many of whom were in dire need of PPP funds in order to keep their employees, and their businesses, afloat,” Rick Wayne, president and CEO of Northeast Bank, said. “Our employees worked around the clock to ensure small businesses across the country received critical relief during the global COVID-19 pandemic. This collective effort resulted in over 4,100 loans and helped to save tens of thousands of associated jobs. The loan sale will result in a significant gain in the current quarter and provide additional liquidity for the bank to originate and purchase loans. We expect that the loan sale and correspondent relationship will generate significant income going forward and are excited to partner with Loan Source and ACAP in connection with these initiatives.”
Northeast Bank is a bank headquartered in Portland, ME.