Northeast Bancorp Reports Third Quarter Results, Announces Increase in Stock Repurchase Program and Declares Dividend

Lewiston, Maine
Thursday, April 30, 2015

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 $1.8 million, or $0.18 per diluted common share, for the quarter ended March 31, 2015, compared to net income of $437 thousand, or $0.04 per diluted common share, for the quarter ended March 31, 2014. Net income for the nine months ended March 31, 2015 was $5.0 million, compared to $2.2 million for the nine months ended March 31, 2014. 

The Board of Directors has voted to amend the existing stock repurchase program to authorize the Company to purchase an additional 500,000 shares of its common stock, representing 5.1% of the Company’s outstanding common shares or approximately $4.7 million based on the Company’s closing price on April 29, 2015.   Under the existing program, implemented in April 2014, the Company has purchased 783,336 shares through April 29, 2015 and 86,664 shares remain available for repurchase under the program on that date, prior to the 500,000 share increase in the repurchase plan. The amended stock repurchase program will expire on April 30, 2017. 

The Board of Directors has also declared a cash dividend of $0.01 per share, payable on May 26, 2015 to shareholders of record as of May 12, 2015.

“We continue to make progress in the execution of our business plan,” said Richard Wayne, President and Chief Executive Officer. “We’ve begun to see results from our new SBA Lending Division, with SBA loan originations totaling $9.4 million for the quarter. It was also a strong quarter for transactional income, which totaled $2.7 million and contributed to our 4.8% net interest margin for the period. As always, we remain focused on the further leveraging of our operating infrastructure and the effective deployment of our capital.”

“With regard to capital, we continue to believe that our shares are undervalued, based on current market prices,” said Mr. Wayne.  “Our goal in implementing the amendment to the existing stock repurchase program is to continue to enhance shareholder value.”

At March 31, 2015, total assets were $832.9 million, an increase of $71.0 million, or 9.3%, compared to June 30, 2014. The principal components of the change in the balance sheet follow:

1. The loan portfolio – excluding loans held for sale – grew by $62.8 million, or 12.2%, compared to June 30, 2014, the result of net growth of $67.1 million in commercial loans purchased or originated by the Bank’s Loan Acquisition and Servicing Group (“LASG”), offset by a $4.3 million decrease in the Bank’s Community Banking Division loan portfolio. 

New loans generated by the LASG totaled $35.8 million and $156.1 million for the three and nine-month periods, respectively, ending March 31, 2015. The quarterly growth in LASG loans consisted of $5.1 million of purchased loans, at an average price of 92.3%, and $30.7 million of originated loans. Small Business Administration (“SBA”) loans originated during the quarter totaled $9.4 million, of which $3.1 million were sold in the secondary market. Residential and consumer loan production sold in the secondary market totaled $20.0 million for the quarter.

As discussed in the Company’s prior 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.

An overview of the Bank’s LASG portfolio follows:

2. Deposits increased by $23.5 million, or 3.7%, for the quarter, attributable primarily to growth in non-maturity accounts, which increased by $20.1 million, or 6.9%, for the three months ended March 31, 2015, as well as an increase of $3.3 million in time deposits. For the nine-month period, deposits increased by $80.8 million, or 14.1%. Growth in both periods was attributable mainly to increases in money market accounts attracted through the Bank’s online-only ableBanking division.

3. Stockholders’ equity increased by $421 thousand from June 30, 2014, due principally to earnings of $5.0 million, as well as $504 thousand of scheduled amortization of stock-based compensation, offset by $4.4 million in share repurchases (representing 479,936 shares), a decrease in accumulated other comprehensive income of $365 thousand and $302 thousand in dividends paid on common stock. During the quarter, there were 31,250 shares repurchased for $291 thousand.

Net income from continuing operations increased by $1.3 million to $1.8 million for the quarter ended March 31, 2015, compared to $437 thousand for the quarter ended March 31, 2014. 

1. Net interest and dividend income before provision for loan losses increased by $2.0 million, or 28.2%, for the quarter ended March 31, 2015 compared to the quarter ended March 31, 2014, due primarily to higher transactional interest income from purchased loan payoffs and the positive effect of balance sheet growth. Average total interest-earning assets for the three months ended March 31, 2015 increased by $64.6 million, and average loans increased by $58.9 million, when compared to the three months ended March 31, 2014. For the nine months ended March 31, 2015, average total interest-earning assets increased by $66.9 million and average loans increased by $60.5 million compared to the nine months ended March 31, 2014.

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 nine month periods ended March 31, 2014, transactional interest income increased by $2.0 million and $3.9 million, respectively.  The following table summarizes interest income and related yields recognized on the loan portfolios.

The yield on purchased loans for the three and nine months ended March 31, 2015 increased primarily due to unscheduled loan payoffs, which resulted in immediate recognition in interest income of the discount associated with the prepaid loans. The following table details the “total return” on purchased loans, which includes transactional income of $2.7 million for the quarter ended March 31, 2015, an increase of $2.0 million from the quarter ended March 31, 2014.  Additionally, total transactional income for the nine months ended March 31, 2015 increased by $3.8 million, compared to the nine months ended March 31, 2014. The following table summarizes the total return recognized on the purchased loan portfolio.

2. Noninterest income increased by $246 thousand for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, principally due to the following:

  • An increase of $192 thousand in gains recognized on Real Estate Owned/Other Assets Acquired (“REO/OAA”);
  • An increase of $90 thousand in gains realized on sale of loans held for sale in the secondary market, due principally to an increase in purchase-related mortgage loan activity in the current period;
  • An increase of $52 thousand in gains realized on sale of portfolio loans. The recent quarter  includes gains realized on sale of SBA loans of $425 thousand, compared to zero in the quarter ended March 31, 2014; and
  • A decrease of $82 thousand in fees and other services to customers, primarily due to a decrease in servicing rights related to loans paid off or sold.

3. Noninterest expense increased by $369 thousand for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, principally due to the following:

  • An increase of $557 thousand in salaries and employee benefits, principally due to increased employee head count; and
  • A decrease of $172 thousand in occupancy and equipment expense, the result of a reduction in software maintenance and depreciation expense following the conversion of the Bank’s core systems platform to an outsourced model in May 2014. The decrease in equipment expense was offset in part by higher data processing fees, which increased by $104 thousand.

4. The Company’s effective tax rate for the quarter ended March 31, 2015 was 36.17%, compared to 39.64% for the quarter ended March 31, 2014. The decrease in the quarter was primarily due to fluctuations in projected pre-tax income and permanent book to tax differences for the prior fiscal year.

At March 31, 2015, nonperforming assets totaled $14.1 million, or 1.7% of total assets, as compared to $9.3 million, or 1.2% of total assets at June 30, 2014.  The increase in nonperforming assets during the nine months ended March 31, 2015 was mainly due to the addition of one purchased loan relationship.

At March 31, 2015, the Company’s Tier 1 Leverage Ratio was 15.0%, a decrease from 15.9% at June 30, 2014, and the Total Capital Ratio was 21.2%, a decrease from 23.7% at June 30, 2014. The decreases resulted primarily from balance sheet growth, risk weighting adjustment due to the effect of the adoption of Basel III, and the effect of purchases under the Company’s share repurchase program in the nine months ended March 31, 2015.
Investor Call Information
Richard Wayne, Chief Executive Officer of Northeast Bancorp, Claire Bean, Chief Operating Officer of Northeast Bancorp, and Brian Shaughnessy, 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 Friday, May 1, 2015. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 34175780. 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. Northeast Bank offers traditional banking services through its Community Banking Division, which operates ten full-service branches and two loan production offices that serve individuals and businesses located in western and south-central Maine and southern New Hampshire. Northeast Bank’s Loan Acquisition and Servicing Group purchases and originates commercial loans for the Bank’s portfolio. In addition, the Small Business Lending 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 Measure
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 stockholders’ equity, tangible book value per share, and net operating earnings. 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.

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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; increasing 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.