Northeast Bank Reports Record Fourth Quarter Results and Declares Dividend

PORTLAND, Maine, July 29, 2020 (GLOBE NEWSWIRE) -- Northeast Bank (the “Bank”) (NASDAQ: NBN), a Maine-based full-service bank, today reported net income of $11.2 million, or $1.33 per diluted common share, for the quarter ended June 30, 2020, compared to a net loss of $603 thousand, or ($0.07) per diluted common share, for the quarter ended June 30, 2019. Net income for the year ended June 30, 2020 was $22.7 million, or $2.53 per diluted common share, compared to $13.9 million, or $1.52 per diluted common share, for the year ended June 30, 2019. Earnings were positively impacted in the quarter ended June 30, 2020 by the sale of $457.6 million in Paycheck Protection Program (“PPP”) loans to The Loan Source, Inc. (“Loan Source”) which resulted in a pre-tax net gain of $9.7 million, or approximately $6.7 million net of tax.

The quarter and year ended June 30, 2019 included $6.0 million and $6.4 million of non-recurring expenses (after tax) related to the Bank’s corporate reorganization, respectively. Excluding these non-recurring expenses, the Bank recorded net operating earnings of $5.4 million, or $0.59 per diluted common share, for the quarter ended June 30, 2019 and $20.3 million, or $2.20 per diluted common share, for the year ended June 30, 2019.  We refer to results excluding these non-recurring items as “net operating earnings.”

The Board of Directors declared a cash dividend of $0.01 per share, payable on August 28, 2020, to shareholders of record as of August 14, 2020.

Discussing results, Rick Wayne, Chief Executive Officer, said “We achieved record quarterly results, including diluted earnings per share of $1.33, a return on average equity of 28.4%, a return on average assets of 3.1%, and an efficiency ratio of 37.4%. Additionally, we achieved a quarterly net interest margin, excluding the effects of PPP, of 5.3%. We are proud of our participation in the Paycheck Protection Program, providing PPP loans to over 4,300 small businesses with tens of thousands of related jobs.  We are excited for our correspondent banking relationship with Loan Source, in which we earn a correspondent fee when Loan Source purchases PPP loans and we subsequently share in net servicing income on such purchased PPP loans.” 

Mr. Wayne continued, “During the quarter, Loan Source purchased $1.3 billion of PPP loans, including $457.6 million of PPP loans from the Bank and approximately $815.3 million of PPP loans from lenders other than the Bank, which generated a correspondent fee for the Bank of $2.9 million. Subsequent to the quarter, Loan Source purchased an additional $1.6 billion of PPP loans, which generated an additional correspondent fee for the Bank of $5.6 million which will be recognized over the expected life of the loans. We will also receive one half of the net servicing income on the $2.9 billion PPP portfolio owned by Loan Source. To the extent Loan Source purchases additional PPP loans, the Bank will generate additional correspondent banking fees and receive its share of additional net servicing income.”

As of June 30, 2020, total assets were $1.26 billion, an increase of $103.8 million, or 9.0%, 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 months and year ended June 30, 2020:

Loans generated by the Bank's Loan Acquisition and Servicing Group ("LASG") for the quarter ended June 30, 2020 totaled $46.3 million, which consisted of $12.7 million of purchased loans, at an average price of 87.2% of unpaid principal balance, and $33.6 million of originated loans. Residential loan production sold in the secondary market totaled $2.1 million for the quarter.

Additionally, the Bank originated $487.5 million of loans in connection with the PPP. The Bank subsequently sold PPP loans with a total principal balance of $457.6 million during the quarter ended June 30, 2020, recording a net gain of $9.7 million on the sale primarily resulting from the recognition of net deferred fees, offset by purchase price discounts. The remaining $29.9 million of PPP loans are classified as held for sale at June 30, 2020, offset by a valuation adjustment to reflect the fair value of the loans and unamortized net deferred fees.

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. Short-term investments increased by $86.4 million, or 158.8%, from June 30, 2019, primarily due to a $70.0 million increase in deposits.
    
3. Deposits increased by $70.0 million, or 7.4%, from June 30, 2019, attributable to increases in savings and interest-bearing checking accounts of $36.8 million, or 36.4%, money market accounts of $31.5 million, or 11.6%, and demand deposits of $26.0 million, or 37.8%, partially offset by a decrease in time deposits of $24.3 million, or 4.8%.
    
4. Shareholders’ equity increased by $11.2 million, or 7.3%, from June 30, 2019, primarily due to net income of $22.7 million, partially offset by the repurchase of 853,098 shares at a weighted average price per share of $13.45, which resulted in an $11.5 million reduction in shareholders’ equity.

Net income increased by $11.8 million to $11.2 million for the quarter ended June 30, 2020, compared to a net loss of $603 thousand for the quarter ended June 30, 2019. Net operating earnings increased by $5.8 million to $11.2 million for the quarter ended June 30, 2020, compared to net operating earnings of $5.4 million for the quarter ended June 30, 2019.

1. Net interest and dividend income before provision for loan losses increased by $96 thousand to $17.4 million for the quarter ended June 30, 2020, compared to $17.3 million for the quarter ended June 30, 2019. The increase was primarily due to lower deposit rates, higher average loan balances, and decreased interest expense on subordinated debt from the redemption of trust preferred securities in May 2019, partially offset by increased interest expense in connection with the Bank’s participation in the  Paycheck Protection Program Liquidity Facility (“PPPLF”) used to fund PPP originations during the quarter, and lower rates earned on loans and short-term investments.

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 June 30, 2019, transactional income for the quarter ended June 30, 2020 decreased by $986 thousand due to thinning discounts, while regularly scheduled interest and accretion increased by $893 thousand due to the increase in average balances. The total return on p­­­­­­­­urchased loans for the quarter ended June 30, 2020 was 9.9%, a decrease from 12.3% for the quarter ended June 30, 2019. The following table details the total return on purchased loans:

(1) The total return on purchased loans represents scheduled accretion, accelerated accretion, gains on asset sales and gains on real estate owned recorded during the period divided by the average invested balance, which includes purchased loans held for sale, on an annualized basis.  The total return does not include the effect of purchased loan charge-offs or recoveries in the periods shown. Total return is considered a non-GAAP financial measure.

2. Provision for loan losses increased by $643 thousand for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019, primarily due to a $477 thousand increase in specific reserves as compared to a $231 thousand decrease in specific reserves in the quarter ended June 30, 2019. 
    
3. Noninterest income increased by $8.7 million for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019, primarily due to the following:
   • An increase in gain on sale of PPP loans of $9.7 million, due to the sale of PPP loans with a total principal balance of $457.6 million, which resulted in a net gain based on the recognition of net deferred fees, offset by purchase price discounts in the quarter ended June 30, 2020; partially offset by,
     
   • A $337 thousand loss on assets held for sale, representing the fair value adjustment for PPP loans held for sale at June 30, 2020;
     
   • A $227 thousand decrease in gain on Small Business Administration (“SBA”) loan sales, as no segment loans (SBA loans other than PPP loans) were sold during the current quarter;
     
   • A $223 thousand increase in loss on real estate owned (“REO”), due to a write-down on an existing REO property during the quarter, as compared to two smaller write-downs on REO properties during the quarter ended June 30, 2019; and
     
   • A $188 thousand decrease in gain on sale of residential loans held for sale, due to lower volume sold as compared to the quarter ended June 30, 2019.
     
     
4. Noninterest expense decreased by $8.3 million for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019, primarily due to the following:
   
   • A decrease in reorganization expense of $8.3 million, as the prior year quarter included expenses related to the May 2019 corporate reorganization; and
     
   • A decrease in other noninterest expense of $495 thousand, primarily due to a $190 thousand recovery on SBA servicing assets, as compared to an $85 thousand impairment charge in the quarter ended June 30, 2019, and decreased travel expense; partially offset by,
     
   • An increase in salaries and employee benefits of $371 thousand, primarily due to increases in incentive compensation and regular compensation, partially offset by an increase in deferred salaries and a decrease in stock-based compensation; and
     
   • An increase in professional fees of $371 thousand, primarily due to increased legal fees associated with the correspondent relationship with Loan Source, as well as increased accounting and internal audit expense.
     
     
5. Income tax expense increased by $4.6 million to $4.8 million, or an effective tax rate of 30.4%, for the quarter ended June 30, 2020, compared to $276 thousand, or an effective tax rate of (84.4%), for the quarter ended June 30, 2019. The increase was primarily due to higher pre-tax income, which increased by $16.5 million during the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019.
   
   Income tax expense and the effective tax rate for the quarter ended June 30, 2019 were affected by an income tax benefit of $2.3 million recorded in connection with the redemption of the trust preferred securities and the loss associated with the termination of related interest rate swaps and caps, in connection with the corporate reorganization in May 2019.
   
   Excluding the effects of the corporate reorganization, the effective tax rate for the quarter ended June 30, 2019 was 32.5%, as compared to 30.4% for the quarter ended June 30, 2020. The decrease was primarily related to a smaller year-end true-up adjustment related to state tax apportionment in the quarter ended June 30, 2020.
   

As of June 30, 2020, nonperforming assets totaled $24.4 million, or 1.94% 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 two LASG purchased loans totaling $1.9 million, one LASG originated loan totaling $2.7 million, and one SBA loan totaling $1.5 million that were placed on nonaccrual, and a $1.3 million increase in real estate owned, due to four properties transferred in, partially offset by two properties sold and write-downs during the year ended June 30, 2020.

As of June 30, 2020, past due loans totaled $16.4 million, or 1.69% 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 one LASG originated loan totaling $2.7 million and one SBA loan totaling $1.5 million becoming past due during the year ended June 30, 2020, partially offset by one LASG originated loan totaling $1.3 million and one Community Bank loan totaling $1.1 million that paid off during the year ended June 30, 2020.

As of June 30, 2020, the Bank’s Tier 1 leverage capital ratio was 13.4%, compared to 12.9% at June 30, 2019, and the Total capital ratio was 19.6% at June 30, 2020, compared to 18.0% at June 30, 2019. Capital ratios were primarily affected by increased earnings.

Investor Call Information
Rick Wayne, Chief Executive Officer, Jean-Pierre Lapointe, Chief Financial Officer, and Pat Dignan, Executive Vice President and Chief Credit Officer, will host a conference call to discuss fourth quarter earnings and business outlook at 10:00 a.m. Eastern Time on Thursday, July 30^th. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 2496196. 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 nine 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, efficiency ratio, and net interest margin excluding PPP. 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 employment levels, 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 political, business and economic conditions or legislative or regulatory initiatives; 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.

NBN-F

NORTHEAST BANK
SELECTED FINANCIAL HIGHLIGHTS AND OTHER DATA
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