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CST: 18/08/2019 08:04:40   

Northeast Bancorp Reports Third Quarter Results and Declares Dividend

110 Days ago

LEWISTON, Maine, April 29, 2019 (GLOBE NEWSWIRE) -- Northeast Bancorp (“Northeast” or the “Company”) (NASDAQ: NBN), a Maine-based full-service financial services company and parent of Northeast Bank (the “Bank”), today reported net income of $4.8 million, or $0.52 per diluted common share, for the quarter ended March 31, 2019, an increase of $896 thousand, or 22.8%, compared to net income of $3.9 million, or $0.43 per diluted common share, for the quarter ended March 31, 2018. Net income for the nine months ended March 31, 2019 was $14.5 million, or $1.58 per diluted common share, an increase of $2.7 million, or 22.5%, compared to $11.8 million, or $1.29 per diluted common share, for the nine months ended March 31, 2018.

The Board of Directors declared a cash dividend of $0.01 per share, payable on May 28, 2019, to shareholders of record as of May 13, 2019.

“In the quarter, we produced $104.7 million of new loan volume,” said Richard Wayne, President and Chief Executive Officer. “Our Loan Acquisition and Servicing Group originated a record volume of $84.5 million of loans during the quarter, representing net growth in our LASG originated portfolio of $42.2 million, or 9.7%, compensating for the lower level of loan purchases, which can be lumpy from quarter to quarter. This quarterly activity helped us achieve a return on average equity of 13.0%, a return on average assets of 1.6%, and an efficiency ratio of 57.7%.”

As of March 31, 2019, total assets were $1.2 billion, an increase of $73.7 million, or 6.4%, from total assets of $1.2 billion as of June 30, 2018. The principal components of the changes in the balance sheet follow:

1.      The following table highlights the changes in the loan portfolio for the three and nine months ended March 31, 2019:

  Loan Portfolio Changes
  Three Months Ended March 31, 2019
  March 31, 2019
Balance
  December 31, 2018
Balance
   
Change ($)
   
Change (%)
               
  (Dollars in thousands)
LASG Purchased $ 320,326   $ 330,643     $ (10,317)     (3.12%)
LASG Originated   478,020     435,817       42,203     9.68%
SBA   63,653     67,282       (3,629)     (5.39%)
Community Banking   99,654     104,544       (4,890)     (4.68%)
Total $ 961,653   $ 938,286     $ 23,367     2.49%
                         
   

Nine Months Ended March 31, 2019
  March 31, 2019
Balance
  June 30, 2018
Balance
   
Change ($)
   
Change (%)
               
  (Dollars in thousands)
LASG Purchased $ 320,326   $ 290,972     $ 29,354     10.09%
LASG Originated   478,020     397,363       80,657     20.30%
SBA   63,653     60,156       3,497     5.81%
Community Banking   99,654     123,311       (23,657)     (19.18%)
Total $ 961,653   $ 871,802     $ 89,851     10.31%

Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") for the quarter ended March 31, 2019 totaled $89.1 million, which consisted of $4.6 million of purchased loans, at an average price of 98.5% of unpaid principal balance, and $84.5 million of originated loans. The Bank's Small Business Administration ("SBA") Division closed and funded $6.4 million of new loans during the quarter ended March 31, 2019. In addition, the Company sold $6.7 million of the guaranteed portion of SBA loans in the secondary market, of which $4.8 million were originated in the current quarter and $1.9 million were originated in prior quarters. Residential loan production sold in the secondary market totaled $7.8 million for the quarter.

As previously discussed in the Company’s SEC filings, the Company made certain commitments to the Board of Governors of the Federal Reserve System (“FRB”) in connection with the merger of FHB Formation LLC with and into the Company in December 2010. The Company’s loan purchase and commercial real estate loan availability under these conditions follow:

Basis for
Regulatory Condition
  Condition   Availability at March 31, 2019
        (Dollars in millions)
Total Loans   Purchased loans may not exceed 40% of total loans   $   108.1
Regulatory Capital   Non-owner occupied commercial real estate loans may not exceed 300% of total capital     90.1

On January 7, 2019, the Company announced a corporate reorganization pursuant to which its bank holding company structure would be eliminated and the Bank would become the top-level company (the “Reorganization”). If the Reorganization is completed, these commitments to the FRB will no longer be applicable. The Bank intends to replace these commitments with standards relating to its capital levels and asset portfolio composition, which will be incorporated into its policies and procedures, and compliance with Federal Deposit Insurance Corporation (“FDIC”) policy on commercial real estate concentration risk.

As a result of the Reorganization, the Bank intends to incorporate the following standards into its policies and procedures:

  • Maintain a Tier 1 leverage ratio of at least 10%, which is unchanged from the requirement in the commitments to the FRB;
  • Maintain a Total capital ratio of at least 13.5% (as opposed to 15%);
  • Limit purchased loans to 60% of total loans (as opposed to 40%);
  • Maintain a ratio of the Bank’s loans to core deposits of not more than 125% (as opposed to 100%); and
  • Hold commercial real estate loans (excluding owner-occupied commercial real estate) to within 500% of Total capital (as opposed to 300%).

These newly established standards are designed to help ensure the Bank will continue to operate in a safe and sound manner, but may permit more growth in the Bank’s loan portfolio as compared to operating under the existing commitments. The Maine Bureau of Financial Institutions’ order approving FHB Formation LLC’s acquisition of the Company in December of 2010 requires the Bank to maintain a Tier 1 leverage ratio of not less than 8.5% and a Total capital ratio of not less than 13.5%. These conditions will continue to apply to the Bank whether or not the Reorganization is completed.

On March 11, 2019, the Company announced that the Bank received approval from the FDIC for the Reorganization. The Reorganization remains subject to various closing conditions including, among others, (i) approval by the holders of the outstanding shares of the Company’s capital stock entitled to vote on the Reorganization, (ii) receipt of all remaining required regulatory approvals, including approval of the Bank’s stock issuance and amended and restated articles of incorporation and bylaws by the Maine Bureau of Financial Institutions, and (iii) approval for listing on NASDAQ of the Bank’s common stock.

An overview of the Bank’s LASG portfolio follows:

  LASG Portfolio
  Three Months Ended March 31,
  2019   2018
  Purchased   Originated   Total LASG   Purchased   Originated   Total LASG
  (Dollars in thousands)
Loans purchased or originated during the period:                                  
Unpaid principal balance $ 4,675     $ 84,546     $ 89,221     $ 38,493     $ 72,894     $ 111,387  
Net investment basis   4,604       84,546       89,150       33,021       72,894       105,915  
                                   
Loan returns during the period:                                  
Yield   9.49 %     7.87 %     8.56 %     11.29 %     6.83 %     8.65 %
Total Return on Purchased Loans (1)   10.22 %     7.87 %     8.87 %     12.16 %     6.83 %     9.00 %
                                   
  Nine Months Ended March 31,
  2019   2018
  Purchased   Originated   Total LASG   Purchased   Originated   Total LASG
  (Dollars in thousands)
Loans purchased or originated during the period:                                  
Unpaid principal balance $ 94,423     $ 219,348     $ 313,771     $ 81,016     $ 157,958     $ 238,974  
Net investment basis   88,741       219,348       308,089       71,474       157,958       229,432  
                                   
Loan returns during the period:                                  
Yield   9.75 %     7.64 %     8.54 %     11.53 %     6.56 %     8.60 %
Total Return on Purchased Loans (1)   10.00 %     7.64 %     8.65 %     11.82 %     6.56 %     8.72 %
                                   
Total loans as of period end:                                  
Unpaid principal balance $ 354,655     $ 478,020     $ 832,675     $ 289,852     $ 381,990     $ 671,842  
Net investment basis   320,326       478,020       798,346       254,700       381,990       636,690  
                                   
                                   

(1) The total return on purchased loans represents scheduled accretion, accelerated accretion, gains on asset sales, gains on real estate owned and other noninterest income recorded during the period divided by the average invested balance, which includes purchased loans held for sale, on an annualized basis.  The total return on purchased loans does not include the effect of purchased loan charge-offs or recoveries during the period. Total return on purchased loans is considered a non-GAAP financial measure. See reconciliation in below table entitled “Total Return on Purchased Loans.”

  1. Deposits increased by $61.7 million, or 6.5%, from June 30, 2018, attributable primarily to an increase in time deposits of $187.1 million, or 53.1%, as a result of campaigns in the current nine-month period, partially offset by decreases in money market accounts of $124.2 million, or 29.5%.
     
  2. Shareholders’ equity increased by $14.8 million, or 10.7%, from June 30, 2018, primarily due to year to date earnings of $14.5 million.

Net income increased by $896 thousand to $4.8 million for the quarter ended March 31, 2019, compared to net income of $3.9 million for the quarter ended March 31, 2018.

  1. Net interest and dividend income before provision for loan losses increased by $1.9 million to $15.0 million for the quarter ended March 31, 2019, compared to $13.1 million for the quarter ended March 31, 2018. The increase was primarily due to higher yields and higher average balances in the loan portfolio. These increases were partially offset by higher funding costs and higher average deposit balances.

The following table summarizes interest income and related yields recognized on the loan portfolios:

  Interest Income and Yield on Loans
  Three Months Ended March 31,
  2019   2018
  Average   Interest       Average   Interest    
  Balance (1)   Income   Yield   Balance (1)   Income   Yield
  (Dollars in thousands)
Community Banking $ 102,850   $   1,348   5.32 %   $ 136,824   $   1,743   5.17 %
SBA   69,247     1,366   8.00 %     53,069     1,017   7.77 %
LASG:                              
Originated    437,499       8,490   7.87 %      351,271       5,916   6.83 %
Purchased   324,414       7,592   9.49 %      241,793       6,732   11.29 %
Total LASG    761,913       16,082   8.56 %      593,064       12,648   8.65 %
Total $ 934,010   $   18,796   8.16 %   $  782,957   $   15,408   7.98 %
                                   
   

Nine Months Ended March 31,
  2019   2018
  Average   Interest       Average   Interest    
  Balance (1)   Income   Yield   Balance (1)   Income   Yield
  (Dollars in thousands)
Community Banking $ 110,566   $  4,319   5.20 %   $ 142,873   $   5,242   4.89 %
SBA   71,309     4,091   7.64 %     52,014     2,772   7.10 %
LASG:                              
Originated    418,747       24,031   7.64 %      340,014       16,746   6.56 %
Purchased    311,780       22,815   9.75 %      237,183       20,532   11.53 %
Total LASG   730,527       46,846   8.54 %      577,197       37,278   8.60 %
Total $  912,402   $   55,256   8.07 %   $  772,084   $   45,292   7.81 %
   
(1) Includes loans held for sale.

The components of total income on purchased loans are set forth in the table below entitled “Total Return on Purchased Loans.” Wh­en compared to the three months ended March 31, 2018, transactional income for the three months ended March 31, 2019 decreased by $672 thousand, while regularly scheduled interest and accretion increased by $1.6 million due to the increase in average balance. The total return on p­­­­­­­­urchased loans for the three months ended March 31, 2019 was 10.2%. When compared to the nine months ended March 31, 2018, transactional income for the nine months ended March 31, 2019 decreased by $1.8 million, while regularly scheduled interest and accretion increased by $4.1 million due to the increase in average balance. The following table details the total return on purchased loans:

  Total Return on Purchased Loans
  Three Months Ended March 31,
  2019   2018
  Income   Return (1)   Income   Return (1)
  (Dollars in thousands)
Regularly scheduled interest and accretion $ 6,228   7.79 %   $ 4,630   7.77 %
Transactional income:                  
Gain on loan sales   582   0.73 %       516   0.87 %
Gain on sale of real estate owned     -   0.00 %       -   0.00 %
Other noninterest income     -   0.00 %       -    0.00 %
Accelerated accretion and loan fees     1,364   1.70 %       2,102   3.52 %
Total transactional income     1,946   2.43 %       2,618   4.39 %
Total $   8,174   10.22 %   $   7,248   12.16 %
                       
   



  Nine Months Ended March 31,
  2019   2018
  Income   Return (1)   Income   Return (1)
  (Dollars in thousands)
Regularly scheduled interest and accretion $ 17,849   7.63 %   $ 13,709   7.70 %
Transactional income:                  
Gain on loan sales     582   0.25 %       516   0.29 %
Gain on sale of real estate owned     -   0.00 %       -   0.00 %
Other noninterest income     -   0.00 %       -   0.00 %
Accelerated accretion and loan fees     4,966   2.12 %       6,823   3.83 %
Total transactional income     5,548   2.37 %       7,339   4.12 %
Total $ 23,397   10.00 %   $   21,048   11.82 %

(1) The total return on purchased loans represents scheduled accretion, accelerated accretion, gains on asset sales, gains on real estate owned and other noninterest income recorded during the period divided by the average invested balance, which includes purchased loans held for sale, on an annualized basis.  The total return does not include the effect of purchased loan charge-offs or recoveries in the quarter. Total return is considered a non-GAAP financial measure.

2. Noninterest income decreased by $16 thousand for the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018, principally due to the following:

  • A decrease in gain on sale of residential loans of $119 thousand, due to lower volume of residential loans sold in the quarter; and
  • A decrease in fees for other services to customers of $27 thousand, due to lower deposit fees and commercial loan servicing fees; offset by,
  • An increase in gain on sale of other loans of $66 thousand, due to a higher volume of LASG purchased loans sold in the quarter; and
  • An increase in net unrealized gain on equity securities of $65 thousand. 

3. Noninterest expense increased by $777 thousand for the quarter ended March 31, 2019 compared to the quarter ended March 31, 2018, primarily due to the following:

  • An increase in salaries and employee benefits expense of $453 thousand, primarily due to increases in base salary, stock-based compensation expense, incentive compensation, and a decrease in deferred salaries expense;
  • An increase in loan acquisition and collection expense of $345 thousand, largely driven by increased loan expenses and collection expenses incurred on the purchased loan payoffs and real estate owned during the quarter; and
  • An increase in data processing fees of $208 thousand, primarily due to increased IT outsourcing costs; partially offset by,
  • A decrease in occupancy and equipment of $202 thousand, primarily due to a decrease in equipment repairs and maintenance expense.  

4. Income tax expense increased by $160 thousand to $1.9 million, or an effective tax rate of 28.3%, for the quarter ended March 31, 2019, compared to $1.7 million, or an effective tax rate of 30.7%, for the quarter ended March 31, 2018. The increase in expense was primarily due to the increase in pre-tax earnings. The decrease in effective tax rate was primarily due to the decrease in the federal corporate income tax rate to 21.0% for the quarter ended March 31, 2019, as compared to the blended federal corporate income tax rate of 28.0% for the quarter ended March 31, 2018, offset by a decrease in excess tax benefits recognized in the current period.

As of March 31, 2019, nonperforming assets totaled $14.8 million, or 1.20% of total assets, as compared to $14.2 million, or 1.23% of total assets, as of June 30, 2018.

As of March 31, 2019, past due loans totaled $20.8 million, or 2.16% of total loans, as compared to past due loans totaling $7.7 million, or 0.89% of total loans as of June 30, 2018. The increase in past due loans from June 30, 2018 is largely attributed to the thirty-one day month in March, as past due loans totaled $18.3 million, or 1.95% of total loans as of December 31, 2018.

As of March 31, 2019, the Company’s Tier 1 leverage capital ratio was 13.6%, compared to 13.1% at June 30, 2018, and the Total capital ratio was 19.3% at both March 31, 2019 and June 30, 2018.

In connection with the Reorganization, the Company intends to redeem the $16.5 million unpaid principal balance of junior subordinated debentures issued by the Company in connection with the issuance of trust preferred securities by its three Delaware statutory trust subsidiaries, and the Bank will assume the Company’s obligations under the $15.1 million unpaid principal balance of 6.75% Fixed-to-Floating Rate Subordinated Notes due July 1, 2026. On a pro forma basis as of March 31, 2019, after giving effect to these transactions, the Bank’s Tier 1 leverage capital ratio and Total capital ratio would have been 12.3% and 17.8%, respectively, and the Bank would be considered “well capitalized” under all regulatory capital definitions and in excess of the proposed standards.  In addition, the redemption of the junior subordinated debentures is expected to result in a reduction in net income of approximately $5.2 million, after tax, during the quarter in which the redemption occurs, due to the write-off of the carrying value discount on the debentures that was recognized in connection with the merger of FHB Formation LLC with and into the Company in December 2010.

Investor Call Information
Richard Wayne, Chief Executive Officer of Northeast Bancorp, and Jean-Pierre Lapointe, Chief Financial Officer of Northeast Bancorp, will host a conference call to discuss third quarter earnings and business outlook at 10:00 a.m. Eastern Time on Tuesday, April 30th. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 2888769. The call will be available via live webcast, which can be viewed by accessing the Company’s website at www.northeastbank.com and clicking on the About Us - Investor Relations section. To listen to the webcast, attendees are encouraged to visit the website at least fifteen minutes early to register, download and install any necessary audio software. Please note there will also be a slide presentation that will accompany the webcast. For those who cannot listen to the live broadcast, a replay will be available online for one year at www.northeastbank.com.

About Northeast Bancorp
Northeast Bancorp (NASDAQ: NBN) is the holding company for Northeast Bank, a full-service bank headquartered in Lewiston, Maine. We offer personal and business banking services to the Maine market via ten branches. Our Loan Acquisition and Servicing Group purchases and originates commercial loans on a nationwide basis and our SBA Division supports the needs of growing businesses nationally. ableBanking, a division of Northeast Bank, offers online savings products to consumers nationwide. Information regarding Northeast Bank can be found at www.northeastbank.com.

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures, including tangible common shareholders’ equity, tangible book value per share, total return on purchased loans, and efficiency ratio. Northeast’s management believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although Northeast believes that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in interest rates and real estate values; competitive pressures from other financial institutions; the effects of weakness in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers’ ability to service and repay our loans; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; changing government regulation; operational risks including, but not limited to, cybersecurity, fraud and natural disasters; the risk that the Company may not be successful in the implementation of its business strategy; the risk that intangibles recorded in the Company’s financial statements will become impaired; the ability of the Company and the Bank to satisfy the conditions to the completion of the Reorganization; the ability of the Company and the Bank to meet expectations regarding the timing, completion and accounting and tax treatments of the Reorganization; the possibility that any of the anticipated benefits of the Reorganization will not be realized or will not be realized as expected; the failure of the Reorganization to close for any reason; the possibility that the Reorganization may be more expensive to complete than anticipated, including as a result of unexpected factors or events;  changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated by the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. These statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this communication or to reflect the occurrence of unanticipated events.

NBN-F

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share data)
  March 31, 2019   June 30, 2018
Assets          
Cash and due from banks $ 2,507     $ 3,889  
Short-term investments   150,346       153,513  
Total cash and cash equivalents   152,853       157,402  
           
Available-for-sale securities, at fair value   76,938       81,068  
Equity securities, at fair value   6,819       6,619  
Total investment securities   83,757       87,687  
           
Residential real estate loans held for sale   1,276       3,405  
SBA loans held for sale   -       3,750  
Total loans held for sale   1,276       7,155  
           
Loans          
Commercial real estate   641,157       579,450  
Commercial and industrial   231,176       188,852  
Residential real estate   86,754       100,256  
Consumer   2,566       3,244  
Total loans   961,653       871,802  
Less: Allowance for loan losses   5,658       4,807  
Loans, net   955,995       866,995  
           
Premises and equipment, net   5,786       6,591  
Real estate owned and other repossessed collateral, net   2,014       2,233  
Federal Home Loan Bank stock, at cost   1,258       1,652  
Intangible assets, net   542       867  
Loan servicing rights, net   2,943       2,970  
Bank-owned life insurance   16,948       16,620  
Other assets   8,030       7,564  
Total assets $ 1,231,402     $ 1,157,736  
           
Liabilities and Shareholders' Equity          
Deposits          
Demand $ 76,003     $ 72,272  
Savings and interest checking   104,678       109,637  
Money market   296,720       420,886  
Time   539,223       352,145  
Total deposits   1,016,624       954,940  
           
Federal Home Loan Bank advances   15,000       15,000  
Subordinated debt   24,217       23,958  
Capital lease obligation   395       605  
Other liabilities   21,978       24,803  
Total liabilities   1,078,214       1,019,306  
           
Commitments and contingencies   -       -  
           
Shareholders' equity          
Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and June 30, 2018   -       -  
Voting common stock, $1.00 par value, 25,000,000 shares authorized; 8,241,314 and 8,056,527 shares issued and outstanding at March 31, 2019 and June 30, 2018, respectively   8,241       8,057  
Non-voting common stock, $1.00 par value, 3,000,000 shares authorized; 800,554 and 882,314 shares issued and outstanding at March 31, 2019 and June 30, 2018, respectively 801       882  
Additional paid-in capital   77,732       77,016  
Retained earnings   68,274       54,236  
Accumulated other comprehensive loss   (1,860 )     (1,761 )
Total shareholders' equity   153,188       138,430  
Total liabilities and shareholders' equity $ 1,231,402     $ 1,157,736  


 

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share data)
  Three Months Ended March 31,   Nine Months Ended March 31,  
  2019   2018   2019   2018  
Interest and dividend income:                        
Interest and fees on loans $ 18,796   $ 15,408   $ 55,256     $ 45,292  
Interest on available-for-sale securities   444     280     1,229       813  
Other interest and dividend income   939     795     2,789       1,818  
Total interest and dividend income   20,179     16,483     59,274       47,923  
                         
Interest expense:                        
Deposits   4,447     2,696     12,111       7,001  
Federal Home Loan Bank advances   116     118     359       438  
Subordinated debt   578     525     1,752       1,550  
Obligation under capital lease agreements   5     10     19       31  
Total interest expense   5,146     3,349     14,241       9,020  
Net interest and dividend income before provision for loan losses   15,033     13,134     45,033       38,903  
Provision for loan losses   414     364     1,047       1,156  
Net interest and dividend income after provision for loan losses   14,619     12,770     43,986       37,747  
                         
Noninterest income:                        
Fees for other services to customers   408     435     1,240       1,437  
Gain on sales of SBA loans   568     560     2,361       1,921  
Gain on sales of residential loans held for sale   108     227     387       772  
Gain on sales of other loans   582     516     582       537  
Net unrealized gain on equity securities   65     -     75       -  
Gain (loss) on real estate owned, other repossessed collateral and premises and equipment, net   -     4     (64 )     15  
Bank-owned life insurance income   108     108     328       331  
Other noninterest income   27     32     56       55  
Total noninterest income   1,866     1,882     4,965       5,068  
                         
Noninterest expense:                        
Salaries and employee benefits   5,782     5,329     16,991       15,756  
Occupancy and equipment expense   957     1,159     2,692       3,418  
Professional fees   483     423     1,516       1,291  
Data processing fees   827     619     2,764       1,846  
Marketing expense   160     172     413       329  
Loan acquisition and collection expense   609     264     1,633       998  
FDIC insurance premiums   81     77     242       236  
Intangible asset amortization   107     107     325       325  
Other noninterest expense   746     825     2,433       2,053  
Total noninterest expense   9,752     8,975     29,009       26,252  
Income before income tax expense   6,733     5,677     19,942       16,563  
Income tax expense   1,905     1,745     5,455       4,741  
Net income $ 4,828   $ 3,932   $ 14,487     $ 11,822  
                         
Weighted-average shares outstanding:                        
Basic   9,044,230     8,927,544     9,029,409       8,897,633  
Diluted   9,198,077     9,143,177     9,194,346       9,133,515  
                         
Earnings per common share:                        
Basic $ 0.53   $ 0.44   $ 1.60     $ 1.33  
Diluted   0.52     0.43     1.58       1.29  
                           
Cash dividends declared per common share $ 0.01   $ 0.01   $ 0.03     $ 0.03  


NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED AVERAGE BALANCE SHEETS AND ANNUALIZED YIELDS
(Unaudited)
(Dollars in thousands)
  Three Months Ended March 31,
  2019   2018
      Interest   Average       Interest   Average
  Average   Income/   Yield/   Average   Income/   Yield/
  Balance   Expense   Rate   Balance   Expense   Rate
Assets:                              
Interest-earning assets:                              
Investment securities $ 84,318   $ 444   2.14 %   $ 91,630   $ 280   1.24 %
Loans (1) (2) (3)   934,010     18,796   8.16 %     782,957     15,408   7.98 %
Federal Home Loan Bank stock   1,332     26   7.92 %     1,758     23   5.31 %
Short-term investments (4)   152,854     913   2.42 %     202,283     772   1.55 %
Total interest-earning assets   1,172,514     20,179   6.98 %     1,078,628     16,483   6.20 %
Cash and due from banks   2,647               3,079          
Other non-interest earning assets   28,399               32,332          
Total assets $ 1,203,560             $ 1,114,039          
                               
Liabilities & Shareholders' Equity:                              
Interest-bearing liabilities:                              
NOW accounts $ 68,869   $ 59   0.35 %   $ 68,716   $ 49   0.29 %
Money market accounts   318,423     1,251   1.59 %     428,946     1,437   1.36 %
Savings accounts   35,599     14   0.16 %     38,369     17   0.18 %
Time deposits   501,378     3,123   2.53 %     321,271     1,193   1.51 %
Total interest-bearing deposits   924,269     4,447   1.95 %     857,302     2,696   1.28 %
Federal Home Loan Bank advances   15,000     116   3.14 %     15,000     118   3.19 %
Subordinated debt   24,170     578   9.70 %     23,831     525   8.93 %
Capital lease obligations   419     5   4.84 %     697     10   5.82 %
Total interest-bearing liabilities   963,858     5,146   2.17 %     896,830     3,349   1.51 %
                               
Non-interest bearing liabilities:                              
Demand deposits and escrow accounts   79,599               78,209          
Other liabilities   9,489               7,714          
Total liabilities   1,052,946               982,753          
Shareholders' equity   150,614               131,286          
Total liabilities and shareholders' equity $ 1,203,560             $ 1,114,039          
                               
Net interest income       $ 15,033             $ 13,134    
                               
Interest rate spread             4.81 %               4.69 %
Net interest margin (5)             5.20 %               4.94 %
                               
(1)  Interest income and yield are stated on a fully tax-equivalent basis using the statutory tax rate.
(2)  Includes loans held for sale.
(3)  Nonaccrual loans are included in the computation of average, but unpaid interest has not been included for purposes of determining interest income.
(4)  Short-term investments include FHLB overnight deposits and other interest-bearing deposits.
(5)  Net interest margin is calculated as net interest income divided by total interest-earning assets.


NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED AVERAGE BALANCE SHEETS AND ANNUALIZED YIELDS
(Unaudited)
(Dollars in thousands)
  Nine Months Ended March 31,
  2019   2018
      Interest   Average       Interest   Average
  Average   Income/   Yield/   Average   Income/   Yield/
  Balance   Expense   Rate   Balance   Expense   Rate
Assets:                              
Interest-earning assets:                              
Investment securities $ 85,850   $ 1,229   1.91 %   $ 93,816   $ 813   1.15 %
Loans (1) (2) (3)   912,402     55,256   8.07 %     772,084     45,302   7.82 %
Federal Home Loan Bank stock   1,547     74   6.37 %     1,852     65   4.68 %
Short-term investments (4)   164,841     2,715   2.19 %     169,073     1,753   1.38 %
Total interest-earning assets   1,164,640     59,274   6.78 %     1,036,825     47,933   6.16 %
Cash and due from banks   2,606               2,981          
Other non-interest earning assets   30,339               31,924          
Total assets $ 1,197,585             $ 1,071,730          
                               
Liabilities & Shareholders' Equity:                              
Interest-bearing liabilities:                              
NOW accounts $ 70,882   $ 183   0.34 %   $ 69,532   $ 152   0.29 %
Money market accounts   366,326     4,259   1.55 %     394,364     3,564   1.20 %
Savings accounts   35,592     42   0.16 %     37,418     42   0.15 %
Time deposits   450,064     7,627   2.26 %     312,268     3,243   1.38 %
Total interest-bearing deposits   922,864     12,111   1.75 %     813,582     7,001   1.15 %
Federal Home Loan Bank advances   15,000     359   3.19 %     17,594     438   3.32 %
Subordinated debt   24,084     1,752   9.69 %     23,745     1,550   8.70 %
Capital lease obligations   490     19   5.17 %     764     31   5.41 %
Total interest-bearing liabilities   962,438     14,241   1.97 %     855,685     9,020   1.40 %
                               
Non-interest bearing liabilities:                              
Demand deposits and escrow accounts   80,953               80,896          
Other liabilities   8,575               7,080          
Total liabilities   1,051,966               943,661          
Shareholders' equity   145,619               128,069          
Total liabilities and shareholders' equity $ 1,197,585             $ 1,071,730          
                               
Net interest income (5)       $ 45,033             $ 38,913    
                               
Interest rate spread             4.81 %               4.76 %
Net interest margin (6)             5.15 %               5.00 %
                               
(1)  Interest income and yield are stated on a fully tax-equivalent basis using the statutory tax rate.
(2)  Includes loans held for sale.
(3)  Nonaccrual loans are included in the computation of average, but unpaid interest has not been included for purposes of determining interest income.
(4)  Short-term investments include FHLB overnight deposits and other interest-bearing deposits.
(5)  Includes tax exempt interest income of $10 thousand for the nine months ended March 31, 2018.
(6)  Net interest margin is calculated as net interest income divided by total interest-earning assets.


NORTHEAST BANCORP AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS AND OTHER DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
  Three Months Ended:
  March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018


Net interest income
$ 15,033     $ 15,643     $ 14,359     $ 14,408     $ 13,134  
Provision for loan losses   414       101       532       254       364  
Noninterest income   1,866       1,545       1,554       1,959       1,882  
Noninterest expense   9,752       9,903       9,355       9,478       8,975  
Net income   4,828       5,125       4,534       4,344       3,932  
                   
Weighted-average common shares outstanding:                  
Basic   9,044,230       9,048,397       8,995,925       8,934,038       8,927,544  
Diluted   9,198,077       9,201,557       9,183,729       9,116,157       9,143,177  
Earnings per common share:                  
Basic $ 0.53     $ 0.57     $ 0.50     $ 0.49     $ 0.44  
Diluted   0.52       0.56       0.49       0.48       0.43  
Dividends declared per common share   0.01       0.01       0.01       0.01       0.01  
                   
Return on average assets   1.63 %     1.70 %     1.51 %     1.55 %     1.43 %
Return on average equity   13.00 %     13.94 %     12.81 %     12.97 %     12.15 %
Net interest rate spread (1)   4.81 %     5.00 %     4.61 %     5.02 %     4.69 %
Net interest margin (2)   5.20 %     5.33 %     4.93 %     5.28 %     4.94 %
Efficiency ratio (non-GAAP) (3)   57.71 %     57.62 %     58.79 %     57.91 %     59.77 %
Noninterest expense to average total assets   3.29 %     3.28 %     3.12 %     3.37 %     3.27 %
Average interest-earning assets to average
interest-bearing liabilities
  121.65 %     120.67 %     120.72 %     120.52 %     120.27 %
                   
  As of:
  March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
Nonperforming loans:                  
Originated portfolio:                  
Residential real estate $ 2,169     $ 2,445     $ 2,633     $ 2,914     $ 3,116  
Commercial real estate   3,336       2,764       1,703       1,499       1,408  
Home equity   148       150       151       298       255  
Commercial and industrial   1,495       1,420       1,454       1,368       636  
Consumer   236       216       185       134       136  
Total originated portfolio   7,384       6,995       6,126       6,213       5,551  
Total purchased portfolio   5,366       5,351       5,375       5,745       8,063  
Total nonperforming loans   12,750       12,346       11,501       11,958       13,614  
Real estate owned and other repossessed collateral, net   2,014       1,463       1,549       2,233       947  
Total nonperforming assets $ 14,764     $ 13,809     $ 13,050     $ 14,191     $ 14,561  
                   
Past due loans to total loans   2.16 %     1.95 %     1.09 %     0.89 %     1.37 %
Nonperforming loans to total loans   1.33 %     1.32 %     1.30 %     1.37 %     1.67 %
Nonperforming assets to total assets   1.20 %     1.16 %     1.08 %     1.23 %     1.25 %
Allowance for loan losses to total loans   0.59 %     0.57 %     0.60 %     0.55 %     0.57 %
Allowance for loan losses to nonperforming loans   44.38 %     42.99 %     45.98 %     40.20 %     34.46 %
                   
Commercial real estate loans to total capital (4)   251.02 %     242.38 %     230.48 %     200.74 %     186.07 %
Net loans to core deposits (5)   94.19 %     94.84 %     87.17 %     91.54 %     83.65 %
Purchased loans to total loans, including held for sale   33.27 %     35.17 %     33.75 %     33.10 %     31.02 %
Equity to total assets   12.44 %     12.44 %     11.81 %     11.96 %     11.47 %
Common equity tier 1 capital ratio   16.23 %     16.04 %     16.50 %     16.02 %     16.48 %
Total capital ratio   19.33 %     19.15 %     19.81 %     19.28 %     19.92 %
Tier 1 leverage capital ratio   13.58 %     13.20 %     12.83 %     13.12 %     12.88 %
                   
Total shareholders' equity $ 153,188     $ 148,491     $ 143,391     $ 138,430     $ 133,787  
Less: Preferred stock   -       -       -       -       -  
Common shareholders' equity   153,188       148,491       143,391       138,430       133,787  
Less: Intangible assets (6)   (3,485 )     (3,583 )     (3,768 )     (3,837 )     (3,973 )
Tangible common shareholders' equity (non-GAAP) $ 149,703     $ 144,908     $ 139,623     $ 134,593     $ 129,814  
                   
Common shares outstanding   9,041,868       9,048,863       9,047,390       8,938,841       8,925,399  
Book value per common share $ 16.94     $ 16.41     $ 15.85     $ 15.49     $ 14.99  
Tangible book value per share (non-GAAP) (7)   16.56       16.01       15.43       15.06       14.54  
                   
(1) The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.
(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(3) The efficiency ratio represents noninterest expense divided by the sum of net interest income (before the loan loss provision) plus noninterest income.
(4) For purposes of calculating this ratio, commercial real estate includes all non-owner occupied commercial real estate loans defined as such by regulatory guidance, including all land development and construction loans.
(5) Core deposits include all non-maturity deposits and maturity deposits less than $250 thousand. Loans include loans held for sale.
(6) Includes the core deposit intangible asset and loan servicing rights asset.
(7) Tangible book value per share represents total shareholders' equity less the sum of preferred stock and intangible assets divided by common shares outstanding.

For More Information:
Jean-Pierre Lapointe, Chief Financial Officer
Northeast Bank, 500 Canal Street, Lewiston, ME 04240
207.786.3245 ext. 3220
www.northeastbank.com

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