Northeast Bancorp Reports Second Quarter Results and Declares Dividend

Lewiston, Maine
Monday, January 29, 2018

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 $3.3 million, or $0.36 per diluted common share, for the quarter ended December 31, 2017, compared to net income of $3.1 million, or $0.35 per diluted common share, for the quarter ended December 31, 2016. Net income for the six months ended December 31, 2017 was $7.9 million, or $0.86 per diluted common share, compared to $4.9 million, or $0.54 per diluted common share, for the six months ended December 31, 2016.

On January 26, 2018, the Board of Directors declared a cash dividend of $0.01 per share, payable on February 27, 2018 to shareholders of record as of February 13, 2018.

“I am pleased to report another strong quarter,” said Richard Wayne, President and Chief Executive Officer. “Our Loan Acquisition and Servicing Group produced $79.1 million of loans, including originations of $44.3 million and purchases with a recorded investment of $34.8 million, for net growth in the LASG portfolio of $20.3 million, or 3.6%, over the linked quarter. With transactional income of $1.9 million, we achieved a total return on our purchased loan portfolio of 11.0% and a net interest margin of 4.9% for the quarter.”

As of December 31, 2017, total assets were $1.0 billion, a decrease of $42.4 million, or 3.9%, from total assets of $1.1 billion as of June 30, 2017. The principal components of the change in the balance sheet follow:

1. The following table highlights the changes in the loan portfolio for the three and six months ended December 31, 2017:

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Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") for the quarter ended December 31, 2017 totaled $79.1 million, which consisted of $34.8 million of purchased loans, at an average price of 91.1% of unpaid principal balance, and $44.3 million of originated loans. The Bank's Small Business Administration and United States Department of Agriculture ("SBA") Division closed and funded $4.5 million of new loans during the quarter ended December 31, 2017. In addition, the Company sold $3.4 million of the guaranteed portion of SBA loans in the secondary market, of which $1.6 million were originated in the current quarter and $1.8 million were originated in prior quarters. Residential loan production sold in the secondary market totaled $17.6 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 decreased by $41.2 million, or 4.6%, from June 30, 2017, attributable primarily to a decrease in money market accounts of $22.3 million, or 6.0%, and a decrease in time deposits of $19.4 million, or 5.8%.

3. Shareholders’ equity increased by $7.2 million, or 5.9%, from June 30, 2017, primarily due to earnings of $7.9 million, partially offset by stock option exercises which decreased additional paid-in-capital by $1.1 million and dividends paid on common stock of $177 thousand. Additionally, there was stock-based compensation of $485 thousand.

Net income increased by $204 thousand to $3.3 million for the quarter ended December 31, 2017, compared to net income of $3.1 million for the quarter ended December 31, 2016.

1. Net interest and dividend income before provision for loan losses increased by $624 thousand for the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016. The increase is primarily due to higher average balances in the total loan portfolio. This increase was 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:

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The components of total transactional income on purchased loans are set forth in the table below entitled “Total Return on Purchased Loans.” When compared to the three months ended December 31, 2016, transactional income decreased by $1.0 million. The total return on purchased loans for the three months ended December 31, 2017 was 11.0%. The decrease over the prior comparable period was primarily due to lower accelerated accretion in the three months ended December 31, 2017. When compared to the six months ended December 31, 2016, transactional income increased by $432 thousand. This increase over the prior comparable period was primarily due to higher loan fees in the six months ended December 31, 2017. The following table details the total return on purchased loans:

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2. Noninterest income decreased by $1.5 million for the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016, principally due to the following:

  • A decrease in gain on sale of SBA loans of $1.4 million, due to a lower amount of SBA loans sold in the quarter; and
  • A decrease in gain on sale of residential loans held for sale of $82 thousand, due to lower volume of residential loans sold in the quarter.

3. Noninterest expense decreased by $393 thousand for the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016, primarily due to the following:

  • A decrease in other noninterest expense of $395 thousand, primarily due to a $330 thousand decrease in expense related to the quarterly valuation of SBA servicing rights; and
  • A decrease in loan expense of $179 thousand, largely driven by lower expense related to loan acquisition and refinance activity.
  • The decreases in noninterest expense were partially offset by an increase in data processing fees of $214 thousand, primarily due to the increased cost associated with outsourcing of data processing. 

4. Income tax expense decreased by $458 thousand for the quarter ended December 31, 2017, compared to the quarter ended December 31, 2016, primarily due to the following:

  • A decrease in the federal corporate income tax rate as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, which resulted in a $762 thousand decrease in federal income tax expense. Of this total, $328 thousand was related to the decrease in the federal corporate income tax rate for the three months ended December 31, 2017 and $434 thousand was related to income tax expense previously recorded in the three months ended September 30, 2017, to arrive at the required blended federal corporate income tax rate of 28.0% for fiscal year 2018; and
  • A decrease in income tax expense as a result of a $279 thousand income tax benefit arising from the treatment of stock options exercised or vested restricted stock awards under ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, whereby the tax effects of exercised options or vested awards are treated as a discrete item in the reporting period in which they occur.
  • The decreases in income tax expense were partially offset by the impact of revaluing the deferred tax asset as a result of the change in the federal corporate income tax rate as well as the recording of current year changes in the deferred tax asset, which resulted in an increase in income tax expense of $498 thousand.

As of December 31, 2017, nonperforming assets totaled $19.0 million, or 1.84% of total assets, as compared to $18.7 million, or 1.78% of total assets, as of September 30, 2017, and $14.8 million, or 1.37% of total assets, as of June 30, 2017.

As of December 31, 2017, past due loans totaled $30.0 million, or 3.87% of total loans, as compared to $12.1 million, or 1.60% of total loans as of September 30, 2017, and $13.4 million, or 1.72% of total loans as of June 30, 2017. The increase was primarily attributable to $5.3 million of loans purchased in December that were delinquent at purchase, as well as $8.8 million of loans that were 30 days past due as of December 31, 2017 and are now current.

As of December 31, 2017, the Company’s Tier 1 Leverage Ratio was 13.4%, compared to 12.8% at June 30, 2017, and the Total Capital Ratio was 20.3%, compared to 19.5% at June 30, 2017. The increase in both the Tier 1 Leverage Ratio and the Total Capital Ratio resulted primarily from the increase in earnings and the net decrease in the loan portfolio.

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 second quarter earnings and business outlook at 10:00 a.m. Eastern Time on Tuesday, January 30th. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 3783438. 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 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.