This call is being recorded. With us today from the bank is Richard Wayne, President and Chief Executive Officer, Jean-Pierre Lapointe, Chief Financial Officer, and Patrick Dignan, Executive Vice President and Chief Credit Officer. Last night, an investor presentation was uploaded to the bank's website, which we will reference in this morning's call. The presentation can be accessed at the investor relations section of the northeastbank.com under events and 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 the presentation. Please note that this presentation contains forward-looking statements about Northeast Bank. Forward-looking statements are based upon the current expectations of Northeast Bank's management and are subject to risk and uncertainties.
Actual results may differ materially from those discussed in the forward-looking statements. Northeast Bank does not undertake any obligation to update any forward-looking statements. At this time, I'd like to turn the call over to Richard Wayne. Please go ahead, sir.
Thank you very much. Good morning, everyone. I am Rick Wayne, the Chief Executive Officer of Northeast Bank, and with me on the call are JP Lapointe, our Chief Financial Officer, and Pat Bignan, our Chief Credit Officer and Executive Vice President. After my comments, JP, Pat, and I will be happy to answer your questions. Before I start, let me say that our thoughts are with the individuals, families, and communities, healthcare workers, and first responders affected by COVID-19. It is unimaginable the toll the pandemic is taking around the world. We're doing our best to help the many affected by COVID-19, including donating N95 masks to local hospitals, contributing to local food pantries, homeless shelters, and youth programs. We are providing accommodations to borrowers through payment forbearance and meeting the needs of our employees who face new challenges while working at home.
We are participating in the Paycheck Protection Program, having originated 194 loans totaling $37.2 million in the initial phase, and hope to originate even more if funds for a phase II are appropriated. Friends, investors, and other constituents of the bank often kindly and genuinely ask how we are doing. We are doing well. In order to protect our employees and customers, we only service deposit customers in branches, eight out of the 10 which have drive-thru windows. Other than employees working in those branches, almost all other employees are working at home. Thanks to an exceptional IT and operations group, we've been able to conduct business virtually, no pun intended, the same as before the COVID-19 crisis. On the lending side, we are sourcing and underwriting business, closing and funding loans, and managing our portfolio.
On the deposit side, we continue to allow for opening new accounts online and continue to service the needs of our customers. It's certainly a different environment, but our professional, hardworking, adaptive, and dedicated team has risen to the occasion. On this call, we would like to cover four topics. A review of financial results for our third fiscal quarter, recent changes in our Tier 1 leverage and total capital ratio limits, activity in the share repurchase plan, and a deep dive into asset quality. For the third quarter of fiscal 2020, after the close of the market yesterday, we announced quarterly net income of $1.9 million, or $0.21 per diluted common share, a return on average equity of 4.6%, a return of average assets of 0.6%, and net interest margin of 5.5%.
Earnings were negatively impacted by an increased provision for loan losses of $3.3 million, or $0.26 per diluted common share, of which $3 million was allocated to the SBA portfolio. Also a non-recurring income tax expense of $554,000, or $0.06 per diluted common share, related to the recapture of tax reserve for loan losses triggered by the repurchase of common stock during the quarter ending March 31. Turning to slide three. During the third quarter, bank-wide, we generated $119.7 million of loans, which brought the quarter-end loan portfolio to $1 billion and $34 million. Loans closed in the third quarter included $113.8 million in our LASG, of which $48.8 million were originated and a record $65 million were purchased. The weighted average yield of the LASG loans originated in the third quarter was 6.8% as of March 31, all of which were variable.
The total return on purchase loans for the quarter was 10.05%, which included $2.5 million of transactional income. Those of you who have followed our story know that in connection with the merger in 2010, the Federal Reserve and the Maine Bureau of Financial Institutions, or MBFI, imposed numerous conditions on the approval of our merger application. Over the years, some of the conditions have sunset, some have been waived. Last May, the then holding company for the bank was dissolved, and the conditions with the Federal Reserve were no longer applicable. I'm very pleased to report that the remaining regulatory conditions have been waived. The bank's board has reduced the Tier 1 leverage ratio limit from 10% to 9%, and the total capital ratio limit from 13.5% to 12%.
The impact of this change is shown on slide four, where based on capital at March 31, loan capacity has increased by $143 million from $255 million to $398 million. With this change, we are now in conformity with the capital limits of many other banks, we have additional capacity to prudently, and I say prudently, grow our balance sheet. In October 2019, the bank adopted the share repurchase plan for up to 900,000 shares. As indicated on slide five, during the third fiscal quarter, the bank repurchased 416,700 shares at an average price of $12.83. The repurchase of shares during the quarter increased tangible book value by $0.26 per share. At quarter end, 483,300 shares under the plan remained available for repurchase. Asset quality is always important for a bank, an understanding of it is critically important at this moment.
I will spend the remainder of the presentation discussing our loan portfolio, referencing slides six to 14. The remaining slides in the book are those that we typically provide, and at your leisure, please review those, but I believe today our focus on asset quality is the best use of our time. As you will see, our $980 million LASG portfolio, which represents 80% of our loan book, and $76 million of our community banking division portfolio, which represents 7% of our loan book, both have low LTVs. Our $50 million SBA portfolio, which represents 5% of our loan book, not surprisingly, consists of weaker credits with higher LTVs, but now with the additional reserve, have a substantial allowance to absorb credit losses. Now that I've spoiled the punchline, let's examine the information on the slides.
Slide six provides a breakout by group of our $1 billion 34 million portfolio, which consists of 2,384 loans. Of note, the $908 million purchased and originated LASG portfolio has weighted average LTVs ranging from 49%-56%. The aggregate $76 million commercial and residential and consumer portfolios in our community banking division have weighted LTVs of 51% and 65%, respectively. The $50 million SBA portfolio has a weighted average of LTV of 78%. Slide seven breaks out the $908 million LASG portfolio by collateral type. Note that we have $83 million of hospitality with a weighted average loan to value of 52%, and $179 million of retail with a weighted average LTV of 52%.
You will note that with very few exceptions and very small dollars, we have avoided higher risk collaterals such as raw land development and construction, big box retail, shopping malls, and large sale single tenant exposure. Slide eight. Because weighted average by definition is an average, we provide bracketed weighted average LTVs for our $908 million LASG portfolio. You will note that only 2% of that portfolio has greater than 80% LTV, 10% between 70%-79% LTV, and 80% of the LASG portfolio has an LTV of less than 70%. Slide nine examines seasoning in our $395 million purchase portfolio. $244 million, or 62% of our purchase portfolio, was originated before 2009. Since origination, these pre-2009 purchase loans have paid down 42% of the original loan amount.
Our basis, which reflects our discount on the purchase of those loans, is 52% of the original principal amount. $152 million, or 38% of our purchase portfolio, was originated in 2009 or later. Since origination, these post-2009 purchase loans have paid down 28% of the original loan amount, and our basis reflecting our discounted purchase is 66% of the original principal amount. Slide 10. We frequently structure originated loans, both direct and portfolio finance loans, with interest reserves. In the case of our portfolio finance loans, $192 million out of $230 million loan book, or 82.1%, have interest reserves with a weighted average duration of 6.1 months. In the case of direct originations, we have our interest reserves on $104 million out of $274 million, with a weighted average duration of 6.4 months.
Interest reserves on $296 million, or 58% of our total LASG portfolio finance or originations, I should say, provides meaningful payment coverage over the next six months. Slide 11 provides a collateral breakdown of our $76 million community banking division portfolio. Without spending an inordinate amount of time on this slide, I would point out that the $33 million commercial loan book has a 51% weighted average LTV, and $39 million, or 92% of the consumer book is one to four family with a very comfortable 65% weighted average LTV. On the prior six slides, I've discussed our $908 million LASG portfolio and $76 million community banking division portfolio, demonstrating low-weighted LTVs across all collateral types, significant interest reserves to cover payments over the next six months, and substantial seasoning in the case of our purchase loan book. Slide 12 summarizes our SBA loan book.
You will note that LTVs are higher, with concentrations in hospitality of $26.7 million, or 54% of the total book, and retail of $7.9 million, or 16% of the book. The higher LTVs and weaker sponsors, the hallmark of SBA lending, it is these type of loans that can suffer in a downturn, and it is for this reason we substantially increased our reserves relating to our SBA portfolio. I would point out, as many of you know, under the CARES Act, the SBA is going to provide payments on the SBA portfolio, or that that's current, which in our case is around a little bit less than $40 million, over the next six months. That portfolio will perform well for the next six months. Then, of course, if appropriate and due to COVID-19, we could also provide a three-month deferment.
We have a fair amount of time to see ultimately what happens with that portfolio. Without any particular knowledge, but understanding it had higher LTVs and sponsors that were not as strong as in other parts of our portfolio, we thought it was appropriate at this time to substantially increase our reserves. With that, I will turn to slide 13, which is a breakout of our allowance on March 13th. I would want to remind you, and I believe most of you know this, that accounting rules do not permit an allocation of the general reserve to purchase loans. The only reserve on purchase loans are those that are impaired and specifically identified. I think it's most helpful when analyzing our reserve to look at our originated loans, which have a balance of $637 million at the end of March, $8.277 million loans.
The reserve of $8,277,000 is a substantial increase over the $5,182,000 reserve, which is what we had at the last day of our prior fiscal year, June 30th, 2019. I want to highlight two things. One, that the reserve on our unguaranteed portion of our SBA loan is now 10.6%. Just a simple illustration of how important and how much coverage, I should say more accurately, that reserve provides to our SBA loan. If we originated an SBA loan with an 80% LTV, using really simple math, we would have a loan of $80 on collateral worth $100. If that collateral lost half of its value and was worth $100 at origination and is now worth $50, which I might add, I'm intentionally overstating to make this point, that would mean that we would have a loan of $80 with collateral of $50, so there'd be a $30 loss.
Of that loss, we would eat 25% of it, or $7.50, and we have 10% on a reserve there. Not every loan is going to decrease in value. Probably none will decrease that amount. There will be some decrease of amounts that will be determined over time, but we believe that a 10% reserve is substantial. I would finally add that the overall coverage on our originated loans, now this of course includes the SBA, and excluding the purchases, went from 80 basis points to 130 basis points. Now, just on slide 14, some final observations. Investors ask us about what's going on post quarter, and of course, we're only on the 23rd day of the month, so we don't have perfect information. We will tell you what we do know. I am now on slide 14.
I had mentioned the $296 million of our LASG has an interest reserve. I said 38, it's actually $34 million of the SBA portfolio will be paid by the SBA over the six months. With respect to modification requests on our purchase book, we received 97 for $69 million out of a total purchase book of 928 loans for $396 million. On our originated book, we've received requests on 28 loans for $64 million out of 220 loans for $512 million. The Community Banking Division, we've received requests, this is now for both commercial, residential, and consumer, of 84 loans for $10 million out of 1,100 loans for $76 million. Our forbearance agreements are generally in two flavors. We give our borrowers the option for a complete forbearance for three months or interest only for six months.
We do follow the guidance from the regulators and FASB that they won't be treated as TDRs if they're due solely because of the COVID-19 crisis. When we report those in the fourth quarter, and we will accrue income on those, we will of course provide complete transparency on all of that. With respect to delinquencies so far, as I say, we're in the third week of April, but to make these general observations, delinquencies are slightly elevated on our purchase book, slightly. They're on track on our LASG originated portfolio. I say on track, I'm using where they are compared to a typical 30-day month, and similarly on track for our community banking division. That's an awful lot of information we've provided this morning on asset quality.
We thought it would be much better and meaningful presentation to focus on kind of four big things rather than go through line by line on our financial reports. Of course, there's a lot of information in our press release. There will be a lot more information in our Q, and we are available now, and if you have calls later or think of issues later, feel free to call. With that, I will open the floor to questions. Thank you very much.
Thank you, sir. If you'd like to ask a question, please do so by pressing * key followed by the digit 1 on your touchtone telephone. If you're using a speakerphone to ask a question, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us, and we'll take as many questions as time permits. Once again, please press star 1 on your touchtone telephone to ask a question. I show our first question comes from Alex Twerdahl from Piper Sandler. Please go ahead.
Hey, good morning, guys.
Good morning.
Hey, first off, Rick, really appreciate all this detail on LTVs and credit in all your different portfolios. The LTVs all seemingly look great, but certainly depend on the value of the collateral. Are there any of these segments where the collateral values have either declined recently or over time, or may not be fully reflected in the LTVs that we're seeing on these slides?
Thank you, Alex. That's a good question, and I want to make sure everyone's clear on the methodology that we use. We wanted to, for purposes of this, be using the values where there were appraised values. I'm going to divide them into two groups. The purchase loans, the way we calculated the LTV, the way we reported in this slide, LTV, we looked at the original valuation at the time the loan was made, which, as I indicated in the seasoning conversation, was quite a long time ago. We looked at what our basis was, because there's been a lot of pay down and we bought them at a discount relative to that value. We tested that methodology by looking at the values that we came up with when we determined the value when we purchased the loan.
As most of you know, when we buy loans, we're not looking at what the value is in the file. We're making our own determination. We're very comfortable that's a good value. That's about $400 million of our loan book. With the remaining $634 million, Well, let me break it actually into two groups to be more precise. For the remainder of the LASG portfolio, which is another half a billion, those are very recent values because that's a portfolio that we have assembled very recently. With the case of the community banking portfolio, we looked at those values at the time the loans were made, they're a little bit older.
Maine, and we know this from, well, first of all, working in the state and analysis we've done over time, Maine values never spiked up or spiked down. They're pretty steady. Finally, the SBA values, that's a book that was assembled recently, and we use those values. I think it's possible one would look at it and say, if we say we're 53% LTV on our LASG book, one could look at it and say, yes, but maybe the values have gone down some amount since then. The point we're really trying to make is we have such enormous cushion there that they're going to go down probably, or certainly in the short and medium time, but they're not going down 47%.
That's very helpful, Rick. kind of maybe a little bit related, I mean, a big portion of the LASG purchase business is resolving these loans and creating transactional income, which has been relatively consistent over the last couple of years. Do you anticipate any change in the timing or ability to recognize some of that transactional income and resolve these loans in the near term?
It's a little bit hard to predict because by its nature, it's transactional, and we have some where we have big discounts, where the borrowers are asking for pay downs, or pay offs, but they don't always wind up closing. I think the best way I could comment on that is that we should think about this over the next nine months rather than the next quarter in two regards. One, I think it's hard to say what's going to happen over the next two months on pay downs. It's just people are so busy dealing with the COVID-19 crisis that refinancing debt, selling property, which generates transactional income, and the kind of typical life events are not the highest thing on people's to-do list. I would not be surprised if that number was lower in the following quarter, although I really couldn't predict how much.
The reason I say nine months, because I think over nine months, those things will sort out. The other comment I would make now, I'm going to make a forward-looking statement, so I'm going to remind everybody we have a forward-looking disclaimer in here. Not that anybody, of course, absolutely 100% not, would ever wish the tragedy that's going on to have occurred, but it is. I think that what we're going to see, and we are built for this, there are opportunities to buy loans at better prices. There's going to be more supply, we believe. We believe there's going to be less buyers than there has been. The funds that were buying distressed debt for the longest time, and more recently, without distressed debt, have been encroaching in our world, are going to be back to buying distressed debt.
There's going to be less buyers with liquidity to do this. As you know, there are very few banks that do what we do. On the origination side, there's going to be less liquidity and less banks willing to lend. We being ever mindful of not being the victim of a falling knife and really tightening our credit box, even more so than our already tight credit box. I think we're going to have a lot of opportunities. I think we should be thinking about nine months. I don't think we should be thinking about the next quarter.
Okay, that's helpful. Just to that point, maybe it's going to be a nine-month thing and not a next quarter thing, but in terms of your ability to actually transact in the market, can you talk a little bit about whether or not there's any lapses in your abilities, considering that the bulk of your workforce is working remotely?
We're doing this better than I ever could have hoped. I mentioned in my scripted comments about our great IT group and our great operations group. I'll give the same accolades to everybody in the bank. Everybody's working really hard. We've never been busier. We've never been busier that I recall. With technology that's readily available, even to smaller companies like ours, getting into your VPN, having team meetings, using Zoom. We have nCino. It's a platform to managing our commercial portfolio. We can keep track of things. We have all of the internal controls in place to do this. As we sit here, we're sourcing business. We're underwriting business. We're closing deals. We're funding deals. We're managing our portfolio. In fact, we did $65 million of purchase loans in the quarter ending March 3rd.
$20 million of that, about, was done while people were working at home. Just as a touchy-feely note, the whole team, we always worked well together. I think we have a really great culture, even better now. People are trying to help each other out. People are talking continually on Zoom. People understand that everyone is important in what we're doing, and everyone's stepping up. I don't really think there's only one thing. I would say there's probably two practical things. One, people can't get on planes to go look at collateral as we did before. We have folks in the New York area that work full time for us that can work kind of in the Mid-Atlantic safely. We have third parties that can look at collateral around the country for us.
Any kind of collateral that's Pat and his group can tell you in his sleep what a multi-family property is worth in a particular market or certain kinds of collateral. If we have collateral that's tricky, we're passing on that for the time being. I would say in that regard, it's different. Other than that, we're working really well and as well as we did before.
That's great to hear. With respect to the purchase market, you talked a little bit about the supply increasing, the demand potentially decreasing. How does that change your internal thought process around the pricing of some of these loans?
Well, there's a couple things to figure out. One, we're going to get higher yields because there's going to be more supply and less buyers. I can say anecdotally, I don't want to put numbers or describe it in any way, but we've recently had a pool that we bid on, and there were four bidders. We came in fourth, which we thought was unfortunate at the time. As it turned out, the buyer wants to and needs to resell at a number that's significantly less than our bid was a month ago. We expect we're going to see lower pricing. How much lower we will report when we reconvene in July. I think we're going to. Just to put it in context, after the financial crisis, the FDIC was selling performing loans for $0.60.
We've been recently buying loans like that for $0.94. I expect that number is going to be declining. I'm not saying it's going to be $0.60. I'm not saying that at all, I think it's going to be less.
Right. Just, you guys did a lot of buybacks this quarter, which was fantastic to see, especially given the stock valuation. Can you think about the capital position? You think about this opportunity, having really no way of telling how long or how deep the opportunity is going to be for you guys. How do you stack up buying back stock at 65% of tangible versus saving capital for the opportunity that exists on the purchase or the lending side?
Well, on the stock repurchase side, we were getting investors, smart investors that pay attention to our stock that were urging us to buy back when our stock was trading above tangible book, buy back at 18, buy back at 19, on the theory that, and it's a rational one, not one we adopted, but it's a rational one, that the intrinsic value of our stock, in their view, was worth more than that. Even if you're paying more than tangible book, over time, it's going to be smart. At that time, we only had, as indicated in the stock repurchase slide, something like $250 million of capacity to grow our balance sheet. We thought that at that level, it was much better for us to use our capital to invest in our business.
When the stock went down to levels that were just ungodly, I mean, it was down to six or seven bucks at one point, it became irresistible. We thought the most profitable thing we could do was to buy back our stock. We wouldn't use all of our capital to buy back our stock because we have a business to run. With the relief we got, regulatory relief, increasing our loan book now by $140 million, we think we can do both. We think we can buy back our stock where the prices make sense, and still have enough capital to grow our balance sheet. I'm not saying we're going to do this, but just as a math model. If you take a look at what your earnings are, and you multiply them by 10, and you take that by 80%.
Let me just use real numbers. I'm not trying to say we're going to do this. We may do better, we may do worse, I don't know. Let's say you made $20 million in the year. $20 million under our Tier 1 test, you divide that by .09, actually, and I don't have a calculator in front of me, but I'll call that $225 million. I'm probably off a little bit. If you loan 80% of that gives you about $170 million of additional loan growth from earnings, from organic earnings. Between the $400 million we have ready now, the additional amount we're going to get as we earn money, the pay-downs that we have had, we think we have lots of ability to originate and purchase loans, if the stock price stays where it is, to buy back stock.
I want to make one comment also, which I saw in your note, but I think for the broader audience. Within the third quarter, while the window was open, directors went in the market and bought 75,000 shares. Now that we file with the FDIC rather than the SEC, we of course put that on our website, and anybody can find it on the FDIC website, but it's sometimes not readily as available. Just mentioning that for anybody that didn't know it.
That's fantastic. Two more quick questions, if I may. One, just as I look at the funding side of things here, and maybe not quite as important as credit today, but the margin's still important for a bank. It seems like your funding is still relatively expensive at 170 basis points cost of deposits versus what the market has done over the last couple of weeks. How quickly do you think that 170 can start heading back down towards 1% or even potentially lower?
JP, you want to take that, please?
Sure. Thank you, Rick. Alex agreed, the cost of deposits was still a little high during the quarter. The cost of interest-bearing deposits for the quarter was 186, which was down from 198 in the previous quarter. At the end of the quarter, the weighted average rate of our interest-bearing deposits was 1.8%, obviously lower at the end than it was during the quarter. In the first five days of April, we lowered the rates on our money markets, both ableBanking and Community Bank, by at least 30 basis points. That's about almost $300 million that we'll have 30 basis point savings on.
We have about $72 million of CDs that are scheduled to mature in our fourth fiscal quarter at a weighted average rate of 2.19%, which either we let the money run off if we don't need it, or if we put it back on the books, we're saving about 100 basis points on that $72 million over the next quarter.
That's great.
Those upcoming three months.
That's very helpful. Final question from me. The income tax expense that you guys, the non-recurring item this quarter, I think related to the stock buyback. Is that something that we're going to see every time you guys buy back stock, or is that something that's kind of a one-time thing from here on out, we're not going to see it?
No, it's a one and done. The really crazy thing, before 1990, there are some tax rules that allow companies and banks to take more bad debt expense than they actually incurred, kind of like depreciation recapture. There were triggering events to having to recapture that, one of which was the stock repurchase. This round, we've used it all up, so if we were to purchase more shares in the future, we would not have that associated tax cost.
Great. Thank you for taking all my questions.
Thank you very much, Alex.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. I show no further questions in the queue at this time. Now I'll turn the call over to Richard Wayne for closing remarks.
Thank you. First, thank you, Alex, for all of those good questions. I hope that the others on the call found the answers good. They were certainly good questions. I want to, just on a personal note, wish all of you health and safety and that we all get through this challenging time in good shape. I want to thank many of you who have either emailed or called asking how we're doing. Very much appreciated. I hope when we talk again in July, the world is in much better shape, and when we have that conversation. Thank you very much. We always appreciate your input. We always try and improve our presentation to address any things that you think would be helpful and that we can do so. I encourage you, as you have other thoughts on this, to let us know.
With that, we will say goodbye and wish you a nice day and soon to be a nice weekend. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.