Northeast Bancorp Reports Revised First Quarter Results and Declares Dividend

Lewiston, ME
Monday, November 6, 2017

**The press release dated October 24, 2017 has been amended to reflect the adoption of ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). For the quarter ended September 30, 2017, the adoption of ASU 2016-09 resulted in the recognition of an income tax benefit of $818 thousand, which increased net income to $4.6 million, and increased earnings per diluted common share by $0.08 to $0.50 per diluted common share. See “Explanatory Note” in Form 8-K/A filed on November 6, 2017 for further detail.

 

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 revised net income of $4.6 million, or $0.50 per diluted common share, for the quarter ended September 30, 2017, compared to net income of $1.8 million, or $0.19 per diluted common share, for the quarter ended September 30, 2016.

On October 24, 2017, the Board of Directors declared a cash dividend of $0.01 per share, payable on November 20, 2017 to shareholders of record as of November 6, 2017.

“We began our fiscal year with a solid quarter,” said Richard Wayne, President and Chief Executive Officer. “Our earnings of $0.50 per diluted common share, compared to $0.19 per diluted share in the quarter ended September 30, 2016, were positively affected by transactional income from loan payoffs in the purchased portfolio and gains from the sale of SBA and residential loans. This helped us achieve a return on equity of 14.6%, compared to 6.1% in the quarter ended September 30, 2016, as well as a return on assets of 1.7% and an efficiency ratio of 57.1%.”

As of September 30, 2017, total assets were $1.0 billion, a decrease of $27.2 million, or 2.5%, from total assets of $1.1 billion as of June 30, 2017. The principal components of the change in the balance sheet follow:

  1. $74.4 million of loans were originated or acquired during the quarter ended September 30, 2017. Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") totaled $44.5 million, which consisted of $3.7 million of purchased loans, at an average price of 84.6% of unpaid principal balance, and $40.8 million of originated loans. The Bank's Small Business Administration and United States Department of Agriculture ("SBA") Division closed $7.8 million of new loans during the quarter, of which $5.9 million were funded. In addition, the Company sold $9.1 million of the guaranteed portion of SBA loans in the secondary market, of which $3.1 million were originated in the current quarter and $6.0 million were originated or purchased in prior quarters. Residential loan production sold in the secondary market totaled $19.2 million for the quarter.

In totality, the loan portfolio – excluding loans held for sale – has decreased by $19.6 million, or 2.5%, compared to June 30, 2017, primarily due to payoffs, pay-downs and sales in the portfolio, partially offset by originations.

The following table highlights the changes in the loan portfolio for the three months ended September 30, 2017:

AMENDED_q1fy18_table1.jpg

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:

AMENDED_q1fy18_table2.jpg

An overview of the Bank’s LASG portfolio follows:

AMENDED_q1fy18_table3.jpg

2. Deposits decreased by $27.1 million, or 3.0%, from June 30, 2017, attributable primarily to a decrease in time deposits of $35.7 million, or 10.6%, partially offset by growth in non-maturity (demand, savings and interest checking, and money market) accounts, which increased by $8.6 million, or 1.6%.

3. Shareholders’ equity increased by $3.9 million from June 30, 2017, primarily due to earnings of $4.6 million, partially offset by stock option exercises which decreased additional paid-in-capital by $917 thousand. Additionally, there was stock-based compensation of $220 thousand, a decrease in accumulated other comprehensive loss of $104 thousand and $87 thousand in dividends paid on common stock.

Net income increased by $2.8 million to $4.6 million for the quarter ended September 30, 2017, compared to $1.8 million for the quarter ended September 30, 2016.

  1. Net interest and dividend income before provision for loan losses increased by $3.5 million for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016. The increase is primarily due to higher transactional income on purchased loans and higher average balances in the total loan portfolio. This increase was partially offset by higher rates and higher average deposit balances.

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

AMENDED_q1fy18_table4.jpg

The components of transactional income are set forth in the table below entitled “Total Return on Purchased Loans.” When compared to the three months ended September 30, 2016, transactional income increased by $1.5 million. The total return on purchased loans for the three months ended September 30, 2017 was 12.28%. The increase over the prior comparable period was primarily due to higher average balances and transactional income in the three months ended September 30, 2017. The following table details the total return on purchased loans:

AMENDED_q1fy18_table5a.jpg

AMENDED_q1fy18_table5b.jpg

2. Noninterest income increased by $150 thousand for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016, principally due to the following:

  • An increase in gain on sale of SBA loans of $276 thousand, due to a higher dollar amount sold in the quarter; and
  • An increase in fees for other services to customers of $118 thousand, due to higher loan servicing fees on SBA loans sold.
  • The increases in noninterest income were partially offset by a decrease in gain on sale of residential loans held for sale of $251 thousand, due to a lower volume sold in the quarter.

3. Noninterest expense increased by $88 thousand for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016, primarily due to the following:

  • An increase in data processing fees of $183 thousand, primarily due to the outsourcing of data processing.
  • The increase in data processing fees was partially offset by a decrease in occupancy and equipment expense of $120 thousand, primarily due to lower computer equipment and software deprecation.

4. Income tax expense increased by $602 thousand for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016, primarily due to the following:

  • An increase in income before income tax expense of $3.4 million, due primarily to the increase in net interest and dividend income before provision for loan losses of $3.5 million.
  • The increase in income before income tax expense was offset by an $818 thousand income tax benefit arising from the Company’s adoption of ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in the current quarter, whereby the tax effects of exercised or vested awards are now treated as a discrete item in the reporting period in which they occur, and are recorded as an income tax benefit to the income statement.

As of September 30, 2017, nonperforming assets totaled $18.7 million, or 1.78% of total assets, as compared to $14.8 million, or 1.37% of total assets, as of June 30, 2017.

As of September 30, 2017, past due loans totaled $12.1 million, or 1.60% of total loans, as compared to $13.4 million, or 1.72% of total loans as of June 30, 2017.

As of September 30, 2017, the Company’s Tier 1 Leverage Ratio was 12.8%, compared to 12.8% at June 30, 2017, and the Total Capital Ratio was 20.0%, compared to 19.5% at June 30, 2017. The increase in the Total Capital Ratio resulted primarily from the net decrease in the loan portfolio, offset by earnings.

 

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 and New Hampshire markets via ten branches and two loan production offices. Our Loan Acquisition and Servicing Group (“LASG”) 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, 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; 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