sept2012ex99.htm

FOR IMMEDIATE RELEASE For More Information:
Claire S. Bean, CFO & COO Northeast Bank, 500 Canal Street, Lewiston, ME 04240 207.786.3245 ext. 6202 www.northeastbank.com

Northeast Bancorp Reports First Quarter Results, Declares Dividend

Lewiston, ME (October 22, 2012) ‒ 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 $1.0 million, or $0.09 per diluted common share, for the quarter ended September 30, 2012, compared to net income of $529 thousand, or $0.12 per diluted common share, for the quarter ended September 30, 2011. The 2011 quarter included a $594 thousand net loss, or $0.13 per diluted share, from continuing operations and $1.1 million of net income, or $0.25 per diluted common share, from discontinued operations. Weighted average shares outstanding increased to 10.4 million in the current quarter from 3.5 million in the 2011 quarter as a result of the Company’s public offering of common stock in May 2012.

The Board of Directors has declared a cash dividend of $0.09 per share, payable on November 19, 2012 to shareholders of record as of November 5, 2012.

“We are pleased to report even further growth in our key business lines this quarter,” said Richard Wayne, Chief Executive Officer. “Our Loan Acquisition and Servicing Group invested $40.1 million in new commercial loans, consisting of both purchased loans and commercial loan originations. The purchased portfolio generated a total return of 17.4%, including transactional income from unscheduled loan payoffs and asset sales, while maintaining strong asset quality. Deposits increased by 8%, on strong results from both the Community Banking Division and ableBanking, our new online affinity deposit program. Our residential lending group had another solid quarter, achieving a year over year increase in loan sale gains of 15%. These results demonstrate real progress in the execution of our business strategy, and position us well for future success.”

During the quarter ended September 30, 2012, the Bank’s Loan Acquisition and Servicing Group (“LASG”) purchased loans totaling $31.3 million, and grew the purchased loan portfolio on a net basis to $107.4 million at quarter end. Additionally, the LASG originated $8.8 million in commercial loans, thereby increasing its originated book to $12.6 million at quarter end. An overview of LASG portfolio results for the three months ended September 30, 2012 follows:

	LASG Portfolio Overview
	Purchased			Originated			Total LASG
	(Dollars in thousands)
Purchased or originated during the three months ended September 30, 2012:
Unpaid principal balance	$	42,273		$	8,799		$	51,072
Net investment basis		31,349			8,799			40,148

Totals as of September 30, 2012:
Unpaid principal balance	$	133,510		$	12,594		$	146,104
Net investment basis		107,440			12,594			120,034

Returns during the three months ended September 30, 2012:
Yield		15.13	%		9.54	%		14.58	%
Total Return (1)		17.41	%		9.54	%		16.63	%

(1) The total return on purchased loans represents scheduled accretion, accelerated accretion, gains on asset sales, and other noninterest income recorded during the period divided by the average invested balance, on an annualized basis.

Quarterly results included the following items of significance:

The Company’s net interest margin was 3.80% for the quarter ended September 30, 2012, compared to 3.11% in the quarter ended September 30, 2011, an increase principally attributable to the growth in the Company’s purchased loan portfolio. The following table summarizes interest income and related yields recognized on the Company’s loans.

	Interest Income and Yield on Loans
	Three Months Ended September 30, 2012									Three Months Ended September 30, 2011
	Average			Interest						Average			Interest
	Balance			Income			Yield			Balance			Income			Yield
	(Dollars in thousands)
Community Banking Division		$	270,758		$	3,936		5.77	%		$	304,041		$	4,937		6.46	%
LASG:
Originated			9,193			221		9.54	%			1,141			29		10.11	%
Purchased			83,475			3,184		15.13	%			11,066			200		7.19	%
Total LASG			92,668			3,405		14.58	%			12,207			229		7.44	%
Total		$	363,426		$	7,341		8.01	%		$	316,248		$	5,137		6.46	%

The yield on purchased loans was increased by unscheduled loan payoffs during the period, which resulted in immediate recognition of the prepaid loans’ discount in interest income. The following table details the “total return” on purchased loans, based on transactional income earned totaling $1.8 million for the quarter. This amount includes accelerated accretion, a $473 thousand gain realized on the sale of real estate previously securing a purchased loan and other income recognized upon unscheduled loan payoffs or sales.

	Total Return on Purchased Loans
	Three Months Ended September 30, 2012			Three Months Ended September 30, 2011
	Income		Return (1)	Income		Return (1)
	(Dollars in thousands)
Regularly scheduled interest and accretion	$	1,911	9.01%	$	200	7.19%
Transactional income:
Gain on sale of real estate owned		473	2.23%		-	0.00%
Other noninterest income		36	0.17%		-	0.00%
Accelerated accretion and loan fees		1,273	6.00%		-	0.00%
Total	$	3,693	17.41%	$	200	7.19%

2.	A net gain on the sale of residential mortgage loans in the secondary market of $756 thousand for the quarter ended September 30, 2012, an increase of $100 thousand, or 15.2%, compared to the quarter ended September 30, 2011.

3.	Net securities gains of $792 thousand for the quarter ended September 30, 2012, compared to a net loss of $53 thousand in the quarter ended September 30, 2011.

Increased noninterest expense of $903 thousand for the quarter ended September 30, 2012, compared to the quarter ended September 30, 2011, principally resulting from increases of $172 thousand in loan acquisition and collection costs, $340 thousand in employee compensation, and $229 thousand in occupancy and equipment expense. These increases were associated with the implementation of the Company’s business strategy over the past twelve months.

Total assets increased by $1.7 million, or 0.3%, to $670.9 million at September 30, 2012, compared to June 30, 2012. The principal components of the change in the balance sheet were as follows:

Loan growth of $18.9 million, or 5.3%, principally due to net growth of $22.9 million in the Company’s purchased loan portfolio ($31.3 million of purchases less $8.4 million of amortization and payoffs) and $8.8 million of commercial loans originated by the LASG, offset in part by net amortization and payoffs of $12.8 million in the Community Banking Division loan portfolio. In conjunction with one purchased pool, the Company acquired the right to service the guaranteed portion of $44 million of SBA loans at an average annual gross servicing fee equal to approximately 1%.

Deposit growth of $33.6 million, or 8.0%, consisting of a $10.5 million increase in deposits raised through ableBanking, the Company’s online affinity deposit platform, $15.5 million raised through the Company’s Community Banking branch network, and $7.6 million generated through deposit listing service referrals.

3.	A $31.2 million, or 25.8%, decrease in borrowings, the result primarily of the repayment of structured repurchased agreements totaling $30.0 million during the quarter.

4.	A $25.7 million decrease in cash and equivalents, principally the result of loan growth during the quarter.

During the quarter ended September 30, 2012, nonperforming assets increased by $777 thousand to $7.7 million or 1.2% of total assets, from $6.9 million, or 1.0%, of total assets at June 30, 2012.

At September 30, 2012, the Company’s Tier 1 leverage ratio was 18.4%, a decrease from 19.9% at June 30, 2012, and the total risk-based capital ratio was 31.3%, a decrease from 33.3% at June 30, 2012.

Investor Call Information

Richard Wayne, Chief Executive Officer of Northeast Bancorp, and Claire Bean, Chief Financial Officer of Northeast Bancorp, will host a conference call to discuss first quarter earnings at 11:00 a.m. Eastern Time on Tuesday, October 23, 2012. Investors can access the call by dialing 877.844.6886 and entering the following passcode: 42311260. 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, an online 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, some with investment centers, and four 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. 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. 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.

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 continuing 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; changes in the rules of participation for the Troubled Asset Relief Program Capital Purchase Program promulgated by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008, which may be changed unilaterally and restrictively by legislative or regulatory actions; the risk that we may not be successful in the implementation of our 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 we do 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.

IMPORTANT NOTE: Securities and Advisory Services offered through Commonwealth Financial Network, Member FINRA, SIPC, and a Registered Investment Adviser. Securities are not FDIC insured, not bank obligations or otherwise bank guaranteed and may lose value. Northeast Financial is located at 77 Middle Street, Portland, ME 04101.

NBN-F

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share data)

	September 30, 2012		June 30, 2012
Assets
Cash and due from banks	$	3,341	$	2,538
Short-term investments		99,231		125,736
Total cash and cash equivalents		102,572		128,274

Available-for-sale securities, at fair value		137,069		133,264
Loans held for sale		12,986		9,882

Loans
Commercial real estate		205,875		180,735
Residential real estate		133,776		137,571
Construction		508		1,187
Commercial business		19,201		19,612
Consumer		15,833		17,149
Total loans		375,193		356,254
Less: Allowance for loan losses		668		824
Loans, net		374,525		355,430

Premises and equipment, net		9,295		9,205
Repossessed collateral, net		2,645		834
Accrued interest receivable		1,751		1,840
Federal Home Loan Bank stock, at cost		4,602		4,602
Federal Reserve Bank stock, at cost		871		871
Intangible assets, net		4,222		4,487
Bank owned life insurance		14,418		14,295
Other assets		5,952		6,212
Total assets	$	670,908	$	669,196

Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand	$	47,071		$	45,323
Savings and interest checking		87,010			90,204
Money market		48,896			45,024
Time deposits		272,798			241,637
Total deposits		455,775			422,188

Federal Home Loan Bank advances		43,331			43,450
Structured repurchase agreements		35,821			66,183
Short-term borrowings		484			1,209
Junior subordinated debentures issued to affiliated trusts		8,146			8,106
Capital lease obligation		1,869			1,911
Other liabilities		6,625			7,010
Total liabilities		552,051			550,057

Commitments and contingencies

Stockholders' equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; 4,227
shares issued and outstanding at September 30, 2012 and June 30, 2012;
liquidation preference of $1,000 per share		4			4
Voting common stock, $1.00 par value, 13,500,000 shares authorized;
9,412,972 and 9,307,127 issued and outstanding at September 30, 2012 and
June 30, 2012, respectively		9,413			9,307
Non-voting common stock, $1.00 par value, 1,500,000 shares authorized;
970,469 and 1,076,314 issued and outstanding at September 30, 2012 and
June 30, 2012, respectively		970			1,076
Warrants to purchase common stock		406			406
Additional paid-in capital		96,215			96,080
Unearned restricted stock		(118	)		(127	)
Retained earnings		12,236			12,235
Accumulated other comprehensive (loss) income		(269	)		158
Total stockholders' equity		118,857			119,139
Total liabilities and stockholders' equity	$	670,908		$	669,196

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share data)
	Three Months Ended
	September 30, 2012		September 30, 2011
Interest and dividend income:
Interest on loans	$	7,341	$	5,137
Interest and dividends on available-for-sale securities		347		639
Dividends on regulatory stock		6		12
Other interest and dividend income		83		47
Total interest and dividend income		7,777		5,835

Interest expense:
Deposits		978		837
Federal Home Loan Bank advances		259		258
Structured repurchase agreements		219		248
Short-term borrowings		6		5
Junior subordinated debentures issued to affiliated trusts		193		183
Obligation under capital lease agreements		24		26
Total interest expense		1,679		1,557

Net interest and dividend income before provision for loan losses		6,098		4,278
Provision for loan losses		228		400
Net interest and dividend income after provision for loan losses		5,870		3,878

Noninterest income:
Fees for other services to customers		310		340
Net securities gains (losses)		792		(53	)
Gain on sales of loans held for sale		756		656
Gain (loss) recognized on repossessed collateral, net		451		(77	)
Investment commissions		675		687
Bank-owned life insurance income		123		127
Other noninterest income		43		44
Total noninterest income		3,150		1,724

Noninterest expense:
Salaries and employee benefits		4,057		3,717
Occupancy and equipment expense		1,078		849
Professional fees		423		415
Data processing fees		268		274
Marketing expense		187		73
FDIC insurance premiums		117		117
Intangible asset amortization		265		336
Other noninterest expense		1,107		818
Total noninterest expense		7,502		6,599

Income (loss) from continuing operations before income tax expense (benefit)		1,518		(997	)
Income tax expense (benefit)		484		(403	)
Net income (loss) from continuing operations	$	1,034	$	(594	)

Discontinued operations:
Income from discontinued operations	$	-	$	186
Gain on sale of discontinued operations		-		1,529
Income tax expense		-		592
Net income from discontinued operations		-		1,123

Net income	$	1,034	$	529

Net income available to common stockholders	$	936	$	431

Weighted-average shares outstanding:
Basic		10,383,441		3,494,498
Diluted		10,383,441		3,513,545
Earnings per common share:
Basic:
Income (loss) from continuing operations	$	0.09	$	(0.13	)
Income from discontinued operations		-		0.25
Net income	$	0.09	$	0.12
Diluted:
Income (loss) from continuing operations	$	0.09	$	(0.13	)
Income from discontinued operations		-		0.25
Net income	$	0.09	$	0.12

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED AVERAGE BALANCE SHEETS AND ANNUALIZED YIELDS
(Unaudited)
(Dollars in thousands)
	Three Months Ended September 30,
	2012							2011
			Interest		Average					Interest		Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Assets:
Interest-earning assets:
Investment securities (1)	$	131,796	$	347		1.04	%	$	147,692	$	639		1.72	%
Loans (2) (3)		363,426		7,341		8.01	%		316,248		5,137		6.46	%
Regulatory stock		5,473		6		0.43	%		5,761		12		0.83	%
Short-term investments (4)		136,143		83		0.24	%		78,351		47		0.24	%
Total interest-earning assets		636,838		7,777		4.84	%		548,052		5,835		4.24	%
Cash and due from banks		3,177							2,920
Other non-interest earning assets		37,695							38,809
Total assets	$	677,710						$	589,781

Liabilities & Stockholders' Equity:
Interest-bearing liabilities:
NOW accounts	$	56,595	$	42		0.29	%	$	56,182	$	69		0.49	%
Money market accounts		47,349		53		0.44	%		45,981		51		0.44	%
Savings accounts		31,347		11		0.14	%		33,439		26		0.31	%
Time deposits		257,976		872		1.34	%		215,595		691		1.28	%
Total interest-bearing deposits		393,267		978		0.99	%		351,197		837		0.95	%
Short-term borrowings		1,251		6		1.90	%		1,141		5		1.74	%
Borrowed funds		100,186		502		1.99	%		113,746		532		1.86	%
Junior subordinated debentures		8,124		193		9.43	%		7,971		183		9.13	%
Total interest-bearing liabilities		502,828		1,679		1.32	%		474,055		1,557		1.31	%

Interest-bearing liabilities of discontinued operations (5)		-							1,140

Non-interest bearing liabilities:
Demand deposits and escrow accounts		49,815							44,553
Other liabilities		6,223							4,478
Total liabilities		558,866							524,226
Stockholders' equity		118,844							65,555
Total liabilities and stockholders' equity	$	677,710						$	589,781

Net interest income			$	6,098						$	4,278

Interest rate spread						3.52	%						2.93	%
Net interest margin (6)						3.80	%						3.11	%

(1) Interest income and yield are stated on a fully tax-equivalent basis using a 34% tax rate.

(2) Includes loans held for sale.

(3) Nonaccrual loans are included in the computation of average, but unpaid interest has not been included for purposes of determining interest income.

(4) Short term investments include FHLB overnight deposits and other interest-bearing deposits.

(5) The average balance of borrowings associated with discontinued operations has been excluded from interest expense, interest rate spread, and net interest margin.

(6) Net interest margin is calculated as net interest income divided by total interest-earning assets.

NORTHEAST BANCORP AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS AND OTHER DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
	Three Months Ended
	September 30, 2012				June 30, 2012			March 31, 2012			December 31, 2011				September 30, 2011
Net interest income		$	6,098		$	6,749		$	4,754			$	4,916		$	4,278
Provision for loan losses			228			312			100				134			400
Noninterest income			3,150			2,464			2,767				2,692			1,778
Noninterest expense			7,502			7,473			7,252				6,877			6,653
Net income from discontinued operations			0			10			14				0			1,123
Net income			1,034			1,048			168				418			529

Weighted average common shares outstanding:
Basic			10,383,441			6,605,465			3,494,498				3,494,498			3,494,498
Diluted			10,383,441			6,607,171			3,512,273				3,512,273			3,512,545
Earnings per common share:
Basic			0.09		$	0.14		$	0.02			$	0.09		$	0.12
Diluted			0.09			0.14			0.02				0.09			0.12
Dividends per common share			0.09			0.09			0.09				0.09			0.09

Return on average assets			0.61	%		0.68	%		0.11	%			0.28	%		0.36	%
Return on average equity			3.45	%		4.74	%		1.03	%			2.52	%		3.21	%
Net interest rate spread (1)			3.52	%		4.41	%		3.26	%			3.35	%		2.93	%
Net interest margin (2)			3.80	%		4.63	%		3.44	%			3.53	%		3.11	%
Efficiency ratio (3)			81.12	%		81.11	%		96.42	%			90.39	%		109.95	%
Noninterest expense to average total assets			4.39	%		4.82	%		4.91	%			4.60	%		4.45	%
Average interest-earning assets to average interest-bearing liabilities			126.65	%		120.51	%		115.69	%			116.59	%		115.61	%

	As of
Nonperforming loans:		September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011
Originated portfolio:
Residential real estate		$	3,184		$	3,090		$	3,067		$	3,264		$	2,733
Commercial real estate			626			417			442			1,998			2,797
Construction			0			0			0			0			121
Home equity			289			220			255			182			205
Commercial business			133			1,008			1,108			1,119			1,224
Consumer			181			324			309			329			356
			4,413			5,059			5,181			6,892			7,436
Purchased portfolio:
Residential real estate			0			0			0			0			0
Commercial real estate			667			1,055			0			0			0
Commercial business			0			0			0			0			0
			667			1,055			0			0			0
Total nonperforming loans			5,080			6,114			5,181			6,892			7,436
Repossessed collateral			2,645			834			915			837			463
Total nonperforming assets		$	7,725		$	6,948		$	6,096		$	7,729		$	7,899

Past due loans to total loans			1.65	%		1.95	%		2.06	%		2.29	%		2.20	%
Nonperforming loans to total loans			1.35	%		1.72	%		1.50	%		1.99	%		2.35	%
Nonperforming assets to total assets			1.15	%		1.04	%		1.02	%		1.30	%		1.35	%
Allowance for loan losses to total loans			0.18	%		0.23	%		0.22	%		0.21	%		0.22	%
Allowance for loan losses to nonperforming loans			13.15	%		13.48	%		14.44	%		10.69	%		9.55	%

Commercial real estate loans to risk-based capital (4)			167.62	%		148.28	%		238.25	%		236.88	%		194.08	%
Net loans to core deposits (5)			86.69	%		88.29	%		88.65	%		91.34	%		84.75	%
Purchased loans to total loans, including held for sale			27.68	%		23.07	%		16.16	%		14.83	%		3.90	%
Equity to total assets			17.72	%		17.83	%		10.90	%		11.08	%		11.27	%
Tier 1 leverage capital ratio			18.37	%		19.91	%		11.85	%		11.86	%		11.85	%
Total risk-based capital ratio			31.32	%		33.34	%		19.49	%		19.28	%		21.02	%

Total stockholders' equity		$	118,857		$	119,139		$	64,870		$	65,900		$	66,188
Less: Preferred stock			(4,227	)		(4,227	)		(4,227	)		(4,227	)		(4,227	)
Common stockholders' equity			114,630			114,912			60,643			61,673			61,961
Less: Intangible assets			(4,222	)		(4,487	)		(4,749	)		(5,012	)		(5,348	)
Tangible common stockholders' equity (non-GAAP)		$	110,408		$	110,425		$	55,894		$	56,661		$	56,613

Common shares outstanding			10,383,441			10,383,441			3,507,524			3,507,524			3,507,524
Book value per common share		$	11.04		$	11.07		$	17.29		$	17.58		$	17.66
Tangible book value per share (non-GAAP) (6)		$	10.63		$	10.63		$	15.94		$	16.15		$	16.14


(1) The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.
(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(3) The efficiency ratio represents non-interest expense divided by the sum of net interest income (before the loan loss provision) plus non-interest income.
(4) For purposes of calculating this ratio, commercial real estate includes all those loans defined as such by regulatory guidance, including all land development and construction loans.
(5) Core deposits includes all non-maturity deposits and maturity deposits less than $250 thousand. Net loans includes loans held-for-sale.
(6) Tangible book value per share represents total stockholders' equity less the sum of preferred stock and intangible assets divided by common shares outstanding.