Northeast Bank Reports Second Quarter Results and Declares Dividend

LEWISTON, Maine, Jan. 27, 2020 (GLOBE NEWSWIRE) -- Northeast Bank (the "Bank") NBN, a Maine-based full-service bank, today reported net income of $4.9 million, or $0.53 per diluted common share, for the quarter ended December 31, 2019, compared to net income of $5.1 million, or $0.56 per diluted common share, for the quarter ended December 31, 2018. Net income for the six months ended December 31, 2019 was $9.6 million, or $1.05 per diluted common share, compared to $9.7 million, or $1.05 per diluted common share, for the six months ended December 31, 2018.

On January 24, 2020, the Board of Directors declared a cash dividend of $0.01 per share, payable on February 24, 2020, to shareholders of record as of February 10, 2020.

"During the second quarter, we generated a record level of loan originations and purchases, and at quarter end we surpassed $1 billion in total loans," said Richard Wayne, Chief Executive Officer. "Our Loan Acquisition and Servicing Group produced $163.4 million of loans, including originations of $98.6 million and purchases with an investment of $64.8 million during the quarter. As a result, we earned $0.53 per diluted common share, a return on average equity of 12.1%, a return on average assets of 1.7%, and a net interest margin of 5.6%."

As of December 31, 2019, total assets were $1.2 billion, an increase of $53.6 million, or 4.6%, from total assets of $1.2 billion as of June 30, 2019. 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 six months ended December 31, 2019:

Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") for the quarter ended December 31, 2019 totaled $163.4 million, which consisted of $64.8 million of purchased loans, at an average price of 97.1% of unpaid principal balance, and $98.6 million of originated loans. The Bank sold the guaranteed portion of Small Business Administration ("SBA") loans totaling $4.0 million in the secondary market, of which $419 thousand were originated in the current quarter and $3.5 million were originated or purchased in the prior quarter. Residential loan production sold in the secondary market totaled $10.8 million for the quarter.

An overview of the Bank's LASG portfolio follows:

2. Deposits decreased by $3.5 million, or 0.4%, from June 30, 2019, attributable primarily to decreases in time deposits of $13.7 million, or 2.7%, demand deposits of $1.9 million, or 2.7%, and money market deposits of $1.8 million, or 0.7%, partially offset by an increase in savings and interest checking accounts of $13.9 million, or 13.8%.

3. Shareholders' equity increased by $9.8 million, or 6.4%, from June 30, 2019, primarily due to net income of $9.6 million.

Net income decreased by $258 thousand to $4.9 million for the quarter ended December 31, 2019, compared to net income of $5.1 million for the quarter ended December 31, 2018.

1. Net interest and dividend income before provision for loan losses decreased by $98 thousand to $15.5 million for the quarter ended December 31, 2019, compared to $15.6 million for the quarter ended December 31, 2018. The decrease was primarily due to higher deposit and borrowing costs and lower transactional interest income in the purchased portfolio, partially offset by higher average balances in the LASG portfolio, as well as a decrease in interest expense on subordinated debt from the redemption of trust preferred securities in May 2019.

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

The components of total income on purchased loans are set forth in the table below entitled "Total Return on Purchased Loans." Wh­en compared to the quarter ended December 31, 2018, transactional income for the quarter ended December 31, 2019 increased by $241 thousand, while regularly scheduled interest and accretion increased by $665 thousand due to the increase in average balances. The total return on p­­­­­­­­urchased loans for the quarter ended December 31, 2019 was 10.2%, a decrease from 10.3% for the quarter ended December 31, 2018. The following table details the total return on purchased loans:

2. Noninterest income decreased by $208 thousand for the quarter ended December 31, 2019, compared to the quarter ended December 31, 2018, principally due to the following:

• A decrease in gain on sale of SBA loans of $638 thousand, due to lower volume of SBA loans sold in the quarter due to lower originations in recent quarters; and
• An increase in net unrealized loss on equity securities of $75 thousand; partially offset by,
• An increase in gain on real estate owned of $338 thousand, due to the gain recorded on the transfer of a loan into real estate owned, partially offset by a write-down on an existing property; and
• An increase in gain on sale of residential loans held for sale of $108 thousand, due to both a higher volume of loans sold and higher pricing on loans sold.

3. Noninterest expense decreased by $114 thousand for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018, primarily due to the following:

• A decrease in professional fees of $211 thousand, due to a decrease in legal expenses related to the corporate reorganization completed in the prior period, as well as lower other professional fees;
• A decrease in occupancy and equipment expense of $108 thousand, primarily due to a decrease in computer equipment repairs and maintenance expense; and
• A decrease in loan acquisition and collection expense of $104 thousand, primarily due to collection expense reimbursements received during the quarter; partially offset by,
• An increase in salaries and employee benefits of $227 thousand, primarily due to increases in regular compensation and incentive compensation, offset by a decrease in stock-based compensation; and
• An increase in data processing fees of $172 thousand, primarily due to increased IT outsourcing costs. 

4. Income tax expense decreased by $76 thousand to $2.0 million, or an effective tax rate of 28.9%, for the quarter ended December 31, 2019, compared to $2.1 million, or an effective tax rate of 28.7%, for the quarter ended December 31, 2018.             

As of December 31, 2019, nonperforming assets totaled $21.3 million, or 1.76% of total assets, as compared to $16.7 million, or 1.45% of total assets, as of June 30, 2019. The increase was primarily due to one LASG originated loan totaling $2.7 million and three LASG purchased loans totaling $2.1 million that were placed on nonaccrual, offset by the payoff of one nonperforming Community Banking loan totaling $1.1 million during the six months ended December 31, 2019.

As of December 31, 2019, past due loans totaled $28.4 million, or 2.84% of total loans, as compared to past due loans totaling $14.6 million, or 1.50% of total loans as of June 30, 2019. The increase was primarily due to nine LASG purchased loans totaling $9.6 million, three LASG originated loans totaling $2.8 million, and six SBA loans totaling $1.9 million, becoming past due during the six months ended December 31, 2019.

As of December 31, 2019, the Bank's Tier 1 leverage capital ratio was 14.3%, compared to 12.9% at June 30, 2019, and the Total capital ratio was 18.5% at December 31, 2019, as compared to 18.0% at June 30, 2019. Capital ratios were affected by earnings and lower average assets in the quarter.

Investor Call Information
Richard Wayne, Chief Executive Officer of Northeast Bank, and Jean-Pierre Lapointe, Chief Financial Officer of Northeast Bank, will host a conference call to discuss second quarter earnings and business outlook at 10:00 a.m. Eastern Time on Tuesday, January 28^th. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 9080916. The call will be available via live webcast, which can be viewed by accessing the Bank'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 Bank
Northeast Bank NBN is a full-service bank headquartered in Lewiston, Maine. We offer personal and business banking services to the Maine market via ten branches. Our Loan Acquisition and Servicing Group purchases and originates commercial loans on a nationwide basis. 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 net operating earnings, operating earnings per common share, operating return on average assets, operating return on average equity, operating efficiency ratio, operating noninterest expense to average total assets, tangible common shareholders' equity, tangible book value per share, total return on purchased loans, and efficiency ratio. The Bank'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 the Bank 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 Bank's control. The Bank'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 Bank 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 Bank may not be successful in the implementation of its business strategy; the risk that intangibles recorded in the Bank'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 Bank's Annual Report on Form 10-K and updated by our Quarterly Reports on Form 10-Q and other filings submitted to the Federal Deposit Insurance Corporation. These statements speak only as of the date of this release and the Bank 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.

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