Northeast Bancorp Reports Record Quarterly Results, Surpasses $1 Billion in Assets and Declares Dividend

Lewiston, Maine
Monday, January 30, 2017

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 $3.1 million, or $0.35 per diluted common share, for the quarter ended December 31, 2016, compared to net income of  $1.7 million, or $0.18 per diluted common share, for the quarter ended December 31, 2015. Net income for the six months ended December 31, 2016 was $4.9 million, or $0.54 per diluted common share, compared to $3.6 million, or $0.38 per diluted common share, for the six months ended December 31, 2015.

The Board of Directors has also declared a cash dividend of $0.01 per share, payable on February 28, 2017 to shareholders of record as of February 15, 2017.

“I am very pleased with the progress we made this quarter,” said Richard Wayne, President and Chief Executive Officer. “We reached a great milestone for the Company by surpassing $1 billion in assets and we also achieved record earnings of 35 cents per share.  In addition, we had solid loan volume, purchased loan transactional income and SBA gains. Our Loan Acquisition and Servicing Group produced $91.7 million of loans, our SBA Division closed $25.3 million of loans, the purchased loan portfolio yielded 13%, and the SBA gain on sale was $1.7 million. This balance sheet growth and solid income from the Loan Acquisition and Servicing Group and the SBA Division helped drive our efficiency ratio to 61.7%.”

As of December 31, 2016, total assets were $1.0 billion, an increase of $26.5 million, or 2.7%, from total assets of $986.2 million as of June 30, 2016. The principal components of the change in the balance sheet follow:

  1. The loan portfolio – excluding loans held for sale – has grown by $74.5 million, or 10.8%, compared to June 30, 2016, principally on the strength of $70.7 million of net growth in commercial loans purchased or originated by the Bank’s Loan Acquisition and Servicing Group (“LASG”) and net growth of $13.2 million in originations by the Bank’s Small Business Administration and United States Department of Agriculture (“SBA”) Division. This net growth was offset by a $9.4 million decrease in the Bank’s Community Banking Division loan portfolio.

Loans generated by the LASG totaled $91.7 million for the quarter ended December 31, 2016. The growth in LASG loans consisted of $46.0 million of purchased loans, at an average price of 90.1% of unpaid principal balance, and $45.7 million of originated loans. SBA loans closed during the quarter totaled $25.3 million, of which $24.7 million were fully funded in the quarter. In addition, the Company sold $17.5 million of the guaranteed portion of SBA loans in the secondary market, of which $9.3 million were originated in the current quarter and $8.2 million were originated or purchased in prior quarters. Residential loan production sold in the secondary market totaled $17.7 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 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:

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An overview of the Bank’s LASG portfolio follows:

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2.     Deposits increased by $34.2 million, or 4.2% for the quarter, attributable primarily to growth in non-maturity (demand, savings and interest checking, and money market) accounts, which increased by $20.3 million, or 4.2%, as well as an increase in time deposits of $13.8 million, or 4.3%. For the six months ended December 31, 2016, deposits increased $39.1 million, or 4.9%, due to growth in non-maturity accounts of $54.7 million, or 12.2%, offset by a decrease in time deposits of $15.6 million, or 4.4%.

3.     Shareholders’ equity decreased by $1.6 million from June 30, 2016, primarily due to the $6.9 million in share repurchases (representing 645,238 shares), offset by earnings of $4.9 million. Additionally, there was stock-based compensation of $483 thousand, a decrease in accumulated other comprehensive loss of $141 thousand and $181 thousand in dividends paid on common stock.

Net income increased by $1.4 million to $3.1 million for the quarter ended December 31, 2016, compared to $1.7 million for the quarter ended December 31, 2015.

1.     Net interest and dividend income before provision for loan losses increased by $1.7 million for the quarter ended December 31, 2016, compared to the quarter ended December 31, 2015. The increase is primarily due to higher average balances in the total loan portfolio and higher transactional income on purchased loans.  This increase was partially offset by higher rates and volume in our deposit portfolio and the effect of the issuance of subordinated debt. 

The various components of transactional income are set forth in the table below entitled “Total Return on Purchased Loans.” When compared to the three and six months ended December 31, 2015, transactional income increased by $331 thousand and decreased by $552 thousand, respectively. The following table summarizes interest income and related yields recognized on the loan portfolios:

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The yield on purchased loans for the quarter ended December 31, 2016 was 13.0% as compared to 12.7% in the quarter ended December 31, 2015, primarily due to higher transactional income in the quarter. The following table details the total return on purchased loans:

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2.      Noninterest income increased by $1.1 million for the quarter ended December 31, 2016, compared to the quarter ended December 31, 2015, principally due to an increase in gains realized on sale of SBA loans of $1.1 million.

3.     Noninterest expense increased by $760 thousand for the quarter ended December 31, 2016, compared to the quarter ended December 31, 2015, primarily due to the following:

  • An increase in loan expense of $328 thousand, largely driven by the expense related to loan collection in the period;
  • An increase in salaries and employee benefits of $307 thousand, primarily due to increased incentive compensation and severance in the three months ended December 31, 2016, offset by higher deferred salaries due to an increase in loan originations;
  • An increase in professional fees of $135 thousand, largely attributable to increased consulting costs, increased audit costs relating to the Company’s transition to accelerated filer status and core system projects; and
  • An increase in other noninterest expense of $99 thousand, largely attributable to $220 thousand of expense related to the quarterly valuation of SBA servicing rights.
  • The increases in noninterest expense were partially offset by a decrease in FDIC deposit insurance premiums of $94 thousand, resulting from changes in the reserve ratio requirements.

As of December 31, 2016, nonperforming assets totaled $13.3 million, or 1.32% of total assets, as compared to $9.5 million, or 0.96% of total assets, as of June 30, 2016.  The increase primarily relates to one loan placed on non-accrual in the quarter ended December 31, 2016, as well as one loan added to other real estate owned in the quarter ended September 30, 2016.

As of December 31, 2016, past due loans totaled $21.9 million, or 2.85% of total loans, compared to $6.9 million, or 1.00% of total loans as of June 30, 2016. The increase is primarily due to the following:

  • $6.0 million of loans purchased in December that were delinquent at month end, of which $4.5 million have been paid current in January; and
  • $6.0 million of loans that were 30 days past due as of December 31, 2016, of which $4.1 million have been paid current in January.

As of December 31, 2016, the Company’s Tier 1 Leverage Ratio was 12.6%, compared to 13.3% at June 30, 2016, and the Total Capital Ratio was 18.3%, a decrease from 20.4% at June 30, 2016. The decrease resulted primarily from loan growth and the effect of purchases under the Company’s share repurchase program.

Investor Call Information

Richard Wayne, Chief Executive Officer of Northeast Bancorp, and Brian Shaughnessy, Chief Financial Officer of Northeast Bancorp, will host a conference call to discuss second quarter earnings and business outlook at 10:00 a.m. Eastern Time on Tuesday, January 31st. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 49922895. 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 traditional banking services through the Community Banking Division, which operates ten full-service branches that serve customers located in western, central, and southern Maine. From our Maine and Boston locations, we also lend throughout the New England area. Our Loan Acquisition and Servicing Group (“LASG”) purchases and originates commercial loans on a nationwide basis. In addition, our SBA Division supports the needs of growing businesses nationally. ableBanking, a division of Northeast Bank, offers savings products to consumers online. Information regarding Northeast Bank can be found on its website 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, and total return. 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; 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; 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.