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Northeast Bancorp Reports Third Quarter Results and Declares Dividend

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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 %  
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