Northeast Bank Reports Third Quarter Results and Declares Dividend

PORTLAND, Maine, April 22, 2020 (GLOBE NEWSWIRE) -- Northeast Bank (the “Bank”) (NASDAQ: NBN), a Maine-based full-service bank, today reported net income of $1.9 million, or $0.21 per diluted common share, for the quarter ended March 31, 2020, compared to net income of $4.8 million, or $0.52 per diluted common share, for the quarter ended March 31, 2019. Net income for the nine months ended March 31, 2020 was $11.5 million, or $1.25 per diluted common share, compared to $14.5 million, or $1.58 per diluted common share, for the nine months ended March 31, 2019. Results for the quarter and nine months ended March 31, 2020 were negatively impacted by (a) an increased provision for loan losses of $3.3 million ($0.26 per diluted common share), of which $3.0 million was allocated to the SBA portfolio, and (b) a non-recurring income tax expense of $554 thousand ($0.06 per diluted common share) related to the recapture of tax reserve for loan losses triggered by the repurchase of common stock during the quarter ended March 31, 2020.

On April 22, 2020, the Board of Directors declared a cash dividend of $0.01 per share, payable on May 21, 2020, to shareholders of record as of May 7, 2020.

“Our thoughts are with the individuals, families and communities, healthcare workers and first responders affected by COVID-19. We are pleased to participate in the Paycheck Protection Program, having originated in the initial phase 194 loans totaling $37.2 million,” said Rick Wayne, Chief Executive Officer. Mr. Wayne continued, “The Bank is working with our customers impacted by COVID-19 to provide effective solutions during the crisis. While we did not envision that the market event would be this global pandemic, our longstanding credit discipline has generated a strong loan portfolio with a weighted average loan-to-value of approximately 53%. For more information on the Bank’s asset quality, refer to https://investor.northeastbank.com/investor-relations.”

Discussing results, Mr. Wayne said “Our Loan Acquisition and Servicing Group produced $113.8 million of loans, including record purchases of $65.0 million and originations of $48.8 million during the quarter.” Mr. Wayne continued, “We are pleased to report that the remaining regulatory conditions from the 2010 merger have been waived. The Bank’s Tier 1 leverage capital ratio limit has been reduced from 10% to 9%, and Total capital ratio limit has been reduced from 13.5% to 12%. With this change, we are in conformity with many banks’ capital limits and now have more capacity to prudently grow our balance sheet.”

As of March 31, 2020, total assets were $1.23 billion, an increase of $77.6 million, or 6.7%, from total assets of $1.15 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 nine months ended March 31, 2020:

Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") for the quarter ended March 31, 2020 totaled $113.8 million, which consisted of $65.0 million of purchased loans, at an average price of 91.8% of unpaid principal balance, and $48.8 million of originated loans. The Bank sold the guaranteed portion of Small Business Administration ("SBA") loans totaling $4.1 million in the secondary market, all of which was originated or purchased in prior quarters. Residential loan production sold in the secondary market totaled $6.3 million for the quarter.

An overview of the Bank’s LASG portfolio follows:

(1) The total return on purchased loans represents scheduled accretion, accelerated accretion, gains on asset sales, gains on real estate owned and other noninterest income recorded during the period divided by the average invested balance, which includes purchased loans held for sale, on an annualized basis. The total return on purchased loans does not include the effect of purchased loan charge-offs or recoveries during the period. Total return on purchased loans is considered a non-GAAP financial measure. See reconciliation in below table entitled “Total Return on Purchased Loans.”

2. Deposits increased by $70.1 million, or 7.4%, from June 30, 2019, attributable primarily to increases in time deposits of $39.7 million, or 7.9%, money market accounts of $15.4 million, or 5.7%, and savings and interest checking accounts of $13.4 million, or 13.2%.

3. Shareholders’ equity increased by $5.9 million, or 3.9%, from June 30, 2019, primarily due to net income of $11.5 million, partially offset by the repurchase of 416,700 shares at a weighted average share price of $12.83, which resulted in a $5.3 million reduction in shareholders’ equity.

Net income decreased by $3.0 million to $1.9 million for the quarter ended March 31, 2020, compared to net income of $4.8 million for the quarter ended March 31, 2019.

1. Net interest and dividend income before provision for loan losses increased by $1.3 million to $16.3 million for the quarter ended March 31, 2020, compared to $15.0 million for the quarter ended March 31, 2019. The increase was primarily due to higher average balances in the LASG portfolio, higher transactional interest income in the purchased portfolio, lower deposit interest expense due to lower average balances and rates, and a decrease in interest expense on subordinated debt from the redemption of trust preferred securities in May 2019. This activity was partially offset by lower average balances and yields from short-term investments, the SBA portfolio, and the Community Banking Portfolio.

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 March 31, 2019, transactional income for the quarter ended March 31, 2020 increased by $509 thousand, while regularly scheduled interest and accretion increased by $503 thousand due to the increase in average balances. The total return on p­­­­­­­­urchased loans for the quarter ended March 31, 2020 was 10.1%, a decrease from 10.2% for the quarter ended March 31, 2019. The following table details the total return on purchased loans:

2. Provision for loan losses increased by $3.1 million for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, of which $3.0 million was allocated to the SBA portfolio.

3. Noninterest income decreased by $1.0 million for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, primarily due to the following:

• A decrease in gain on sale of other loans of $582 thousand, due to no loans sold during the current quarter, as compared to three LASG purchased loans sold in the quarter ended March 31, 2019;
• A decrease in gain on sale of SBA loans of $331 thousand, due to a lower volume of SBA loans sold in the current quarter resulting from lower originations in previous quarters; and,
• A decrease of $92 thousand in fees for other services to customers due to lower commercial loans servicing fees resulting from a higher volume of SBA loan payoffs.
  

4. Noninterest expense increased by $329 thousand for the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019, primarily due to the following:

• An increase in other noninterest expense of $203 thousand, due to a $215 thousand impairment charge on the SBA servicing asset, as compared to a $94 thousand recovery in the quarter ended March 31, 2019;
• An increase in salaries and employee benefits of $178 thousand, primarily due to increases in regular compensation and incentive compensation, partially offset by a decrease in stock-based compensation;
• An increase in data processing fees of $167 thousand, primarily due to increased IT outsourcing costs; and
• An increase in loan acquisition and collection expense of $107 thousand, primarily related to increased costs associated with real estate owned properties; partially offset by,
• A decrease in professional fees of $144 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; and
• A decrease in Federal Deposit Insurance Corporation (“FDIC”) insurance expense of $77 thousand, primarily due to credits issued from the FDIC in the current quarter.
  

5. Income tax expense decreased by $169 thousand to $1.7 million, or an effective tax rate of 48.1%, for the quarter ended March 31, 2020, compared to $1.9 million, or an effective tax rate of 28.3%, for the quarter ended March 31, 2019. The decrease was primarily due to lower pre-tax income, which decreased by $3.1 million during the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019. Offsetting this activity was the Bank’s recording of a $554 thousand expense related to the recapture of the tax reserve for loan losses as a result of the repurchase of common stock during the quarter ended March 31, 2020. This is a one-time expense as the Bank has now recaptured all of its tax bad debt reserve, which arose from pre-1988 bad debt deductions taken for tax purposes in excess of net charge-offs, which now must be recaptured.  Because the Bank had only intended to use the reserve to absorb loan losses, no provision had been made for this liability.

As of March 31, 2020, nonperforming assets totaled $27.5 million, or 2.23% 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 four LASG purchased loans totaling $4.9 million, one LASG originated loan totaling $2.7 million, and two SBA loans totaling $2.1 million that were placed on nonaccrual, and a $1.2 million increase in real estate owned, due to three properties transferred in, partially offset by two properties sold during the nine months ended March 31, 2020.

As of March 31, 2020, past due loans totaled $36.4 million, or 3.52% 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 twenty LASG purchased loans totaling $14.4 million, one LASG originated loan totaling $2.7 million, and six SBA loans totaling $3.8 million, becoming past due during the nine months ended March 31, 2020. Of the twenty LASG purchased loans totaling $14.4 million, seven loans totaling $3.8 million were purchased during the quarter ended March 31, 2020.

As of March 31, 2020, the Bank’s Tier 1 leverage capital ratio was 13.0%, compared to 12.9% at June 30, 2019, and the Total capital ratio was 18.0% at March 31, 2020 and June 30, 2019. Effective April 13, 2020, the Bank’s Tier 1 leverage capital ratio limit is 9% and Total capital ratio limit is 12%.

Investor Call Information
Rick Wayne, Chief Executive Officer of Northeast Bank, Jean-Pierre Lapointe, Chief Financial Officer of Northeast Bank, and Pat Dignan, Executive Vice President and Chief Credit Officer of Northeast Bank, will host a conference call to discuss third quarter earnings and business outlook at 10:00 a.m. Eastern Time on Thursday, April 23^rd. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 8453418. 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 (NASDAQ: NBN) is a full-service bank headquartered in Portland, 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, the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction resulting from the COVID-19 pandemic; continued deterioration in general business and economic conditions on a national basis and in the local markets in which the Bank operates, including changes which adversely affect borrowers’ ability to service and repay our loans; changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives; continued turbulence in the capital and debt markets; changes in interest rates and real estate values; increases in loan defaults and charge-off rates; decreases 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; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; 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.

For More Information:
Jean-Pierre Lapointe, Chief Financial Officer
Northeast Bank, 27 Pearl Street, Portland, ME 04101
207.786.3245 ext. 3220
www.northeastbank.com

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