SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
__X__ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1996
or
_____ Transition report persuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0 - 16123
______________________
Northeast Bancorp
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maine 01 - 0425066
________________________________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
158 Court Street, Auburn, Maine 04210
________________________________________ ____________________________________
(Address of principal executive offices) (Zip Code)
(207) 777 - 5950
_______________________________________________________________________________
Registrant's telephone number, including area code
Bethel Bancorp
_______________________________________________________________________________
Former name,former address and former fiscal year,if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No_____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding as of November 8, 1996: 1,231,547 of common stock, $1.00 par
value per share.
NORTHEAST BANCORP AND SUBSIDIARY
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
September 30, 1996 and June 30, 1996
Consolidated Statements of Income
Three Months ended September 30, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity
Three Months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows
Three Months ended September 30, 1996 and 1995
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Part II. Other Information
Items 1 - 6.
Signature Page
Index to Exhibits
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
_______________ _______________
<S> <C> <C>
Assets
Cash and due from banks $ 5,298,792 $ 3,386,263
Interest bearing deposits in other banks 560,365 650,430
Federal Home Loan Bank overnight deposits 6,881,000 7,529,435
Trading account securities at market 196,298 197,621
Available for sale securities 32,395,480 29,650,319
Federal Home Loan Bank stock 2,980,100 2,656,200
Loans held for sale 390,384 448,475
Loans 173,238,611 170,140,264
Less deferred loan origination fees 248,479 289,340
Less allowance for loan losses 2,487,000 2,549,000
_______________ _______________
Net loans 170,503,132 167,301,924
Bank premises and equipment, net 3,521,672 3,576,386
Real estate held for investment 458,748 459,820
Other real estate owned 772,739 513,831
Goodwill (net of accumulated amortization
of $1,014,153 at 9/30/96 and $940,059 at
6/30/96) 2,483,820 2,557,913
Other assets 3,455,774 3,360,998
_______________ _______________
Total Assets 229,898,304 222,289,615
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 145,544,632 $ 145,195,369
Repurchase Agreements 3,874,811 3,762,966
Advances from Federal Home Loan Bank 59,278,835 52,123,000
Notes payable 1,376,081 1,502,192
Other Liabilities 1,622,447 1,554,846
_______________ _______________
Total Liabilities 211,696,806 204,138,373
Shareholders' Equity
Preferred stock, Series A, 45,454
shares issued and outstanding 999,988 999,988
Preferred stock, Series B, 71,428
shares issued and outstanding 999,992 999,992
Common stock, par value $1,1,234,010 shares
issued at 9/30/96 and 6/30/96. 1,231,294
and 1,229,910 shares outstanding at
9/30/96 and 6/30/96, respectively 1,234,010 1,234,010
Additional paid in capital 5,455,506 5,455,852
Retained earnings 10,401,790 10,351,031
_______________ _______________
19,091,286 19,040,873
Net unrealized loss on available for sale
securities (855,156) (837,354)
Treasury Stock at cost 2,716 shares at
9/30/96 and 4,100 shares at 6/30/96 (34,632) (52,277)
_______________ _______________
Total Shareholders' Equity 18,201,498 18,151,242
_______________ _______________
Total Liabilities and Shareholders' Equity $ 229,898,304 $ 222,289,615
=============== ===============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
______________ ______________
<S> <C> <C>
Interest and Dividend Income
Interest on FHLB overnight deposits $ 88,064 $ 181,565
Interest on loans & loans held for sale 3,987,260 4,098,163
Interest on investment securities &
available for sale securities 590,010 160,580
Dividends on Federal Home Loan Bank stock 46,409 36,850
Other Interest Income 4,891 5,498
______________ ______________
Total Interest Income 4,716,634 4,482,656
Interest Expense
Deposits 1,539,567 1,635,482
Repurchase agreements 38,269 33,913
Other borrowings 854,846 599,959
______________ ______________
Total Interest Expense 2,432,682 2,269,354
______________ ______________
Net Interest Income 2,283,952 2,213,302
Provision for loan losses 144,814 147,855
______________ ______________
Net Interest Income after Provision for
Loan Losses 2,139,138 2,065,447
Other Income
Service charges 267,949 281,609
Available for sale securities gains (losses) 28,300 120,593
Gain (Loss) on trading account 61,366 --
Other 148,069 212,091
______________ ______________
Total Other Income 505,684 614,293
Other Expenses
Salaries and employee benefits 1,024,525 1,043,248
Net occupancy expense 126,970 121,896
Equipment expense 177,028 168,288
Goodwill amortization 74,094 74,335
FDIC Insurance Assessment 380,000 --
Other 561,212 608,156
______________ ______________
Total Other Expenses 2,343,829 2,015,923
______________ ______________
Income Before Income Taxes 300,993 663,817
Income tax expense 116,732 242,180
______________ ______________
Net Income $ 184,261 $ 421,637
============== ==============
Earnings Per Share
Primary $ 0.11 $ 0.32
Fully Diluted $ 0.11 $ 0.29
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Gains(Losses)
Additional on Available
Common Preferred Paid-In Retained for Sale Treasury
Stock Stock Capital Earnings Securities Stock Total
____________ ___________ ___________ _____________ ____________ _____________ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $ 547,502 $1,999,980 $4,643,059 $ 10,180,244 $ (95,507) $ 0 $17,275,278
Net income for three months
ended September 30, 1995 -- -- -- 421,637 -- -- 421,637
Dividends paid on common
stock -- -- -- (43,810) -- -- (43,810)
Dividends paid on preferred
stock -- -- -- (35,000) -- -- (35,000)
Issuance of common stock 123 -- 2,521 -- -- -- 2,644
Common stock warrants
exercised 50,000 -- 650,000 -- -- -- 700,000
Net change in unrealized
losses on securities
available for sale -- -- -- -- (27,717) -- (27,717)
____________ ___________ ___________ _____________ ____________ _____________ ____________
Balance September 30, 1995 $ 597,625 $1,999,980 $5,295,580 $ 10,523,071 $ (123,224) $ 0 $18,293,032
============ =========== =========== ============= ============ ============= ============
Balance at June 30, 1996 1,234,010 1,999,980 5,455,852 10,351,031 (837,354) (52,277) 18,151,242
Net income for three months
ended September 30, 1996 -- -- -- 184,261 -- -- 184,261
Dividends paid on common
stock -- -- -- (98,503) -- -- (98,503)
Dividends paid on preferred
stock -- -- -- (34,999) -- -- (34,999)
Issuance of common stock -- -- (346) -- -- 17,645 17,299
Net change in unrealized
losses on securities
available for sale -- -- -- -- (17,802) -- (17,802)
____________ ___________ ___________ _____________ ____________ _____________ ____________
Balance September 30, 1996 $ 1,234,010 $1,999,980 $5,455,506 $ 10,401,790 $ (855,156) $ (34,632) $18,201,498
============ =========== =========== ============= ============ ============= ============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
______________ ______________
<S> <C> <C>
Cash provided by operating activities $ 542,157 $ 6,862
Cash flows from investing activities:
FHLB stock purchased (323,900) --
Available for sale securities purchased (8,763,065) (8,572,245)
Available for sale securities principal
reductions 572,283 154,533
Available for sale securities sold 5,447,793 8,467,522
New loans, net of repayments & charge offs (3,741,933) 2,146,169
Net capital expenditures (60,543) (107,654)
Real estate owned sold 126,608 8,157
Real estate held for investment purchased -- (56,096)
Real estate held for investment sold -- 30,000
______________ ______________
Net cash provided by (used in) investing
activities (6,742,757) 2,070,386
Cash flows from financing activities:
Net change in deposits 349,263 651,422
Net change in repurchase agreements 111,845 1,204,649
Dividends paid (133,502) (78,810)
Proceeds from stock issuance 17,299 702,645
Net (decrease) increase in advances from
Federal Home Loan Bank of Boston 7,155,835 (2,000,000)
Net change in notes payable (126,111) (127,683)
______________ ______________
Net cash provided by financing activities 7,374,629 352,223
______________ ______________
Net (decrease) increase in cash and cash
equivalents 1,174,029 2,429,471
Cash and cash equivalents, beginning of period 11,566,128 14,740,070
______________ ______________
Cash and cash equivalents, end of period $ 12,740,157 $ 17,169,541
============== ==============
Cash and cash equivalents include cash on hand,
amounts due from banks, interest bearing
deposits and federal funds sold
Supplemental schedule of noncash investing
activities:
Net increase (decrease) in valuation for
unrealized market value adjustments on
available for sale securities (17,802) (27,717)
Net transfer (to) from Loans to Other Real
Estate Owned 447,039 (251,771)
Supplemental disclosure of cash paid during
the period for:
Income taxes paid, net of refunds -- 1,500
Interest paid 2,391,111 2,278,724
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996
1. Basis of Presentation
_____________________
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1997. For further
information, refer to the audited consolidated financial statements and
footnotes thereto for the fiscal year ended June 30, 1996 included in the
Company's annual report on Form 10-K.
2. Securities
__________
Securities available for sale at cost and approximate market values are
summarized below.
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
Debt securities issued by
the U.S. Treasury and
other U.S. Government
corporations and agencies $ 1,250,000 $ 1,222,338 $ 1,497,111 $ 1,424,690
Corporate bonds 149,658 139,828 149,646 139,005
Mortgage-backed securities 31,666,203 30,475,543 28,810,113 27,646,294
Equity securities 625,310 557,771 462,167 440,330
____________ ____________ ____________ ____________
$33,691,171 $32,395,480 $30,919,037 $29,650,319
============ ============ ============ ============
September 30, 1996 June 30, 1996
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
Due in one year or less -- -- $ 247,111 $ 246,790
Due after one year through
five years 250,000 239,525 250,000 237,900
Due after five years
through ten years 149,658 139,828 149,646 139,005
Due after ten years 1,000,000 982,813 1,000,000 940,000
Mortgage-backed securities
(including securities
with interest rates
ranging from 5.15% to
8.5% maturing September
2003 to August 2026) 31,666,203 30,475,543 28,810,113 27,646,294
Equity securities 625,310 557,771 462,167 440,330
____________ ____________ ____________ ____________
$33,691,171 $32,395,480 $30,919,037 $29,650,319
============ ============ ============ ============
</TABLE>
3. Allowance for Loan Losses
The following is an analysis of transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
____________ ____________
<S> <C> <C>
Balance at beginning of year $ 2,549,000 $ 2,396,000
Add provision charged to operations 144,814 147,855
Recoveries on loans previously charged off 21,431 6,842
____________ ____________
2,715,245 2,550,697
Less loans charged off 228,245 56,697
____________ ____________
Balance at end of period $ 2,487,000 $ 2,494,000
============ ============
</TABLE>
4. Advances from Federal Home Loan Bank
A summary of borrowings from the Federal Home Loan Bank is as follows:
<TABLE>
<CAPTION>
September 30, 1996
_______________________________________________
Principal Interest Maturity
Amounts Rates Dates
______________ _______________ ____________
<C> <C> <C>
$ 30,100,000 5.17% - 6.87% 1997
10,243,800 4.97% - 6.39% 1998
14,500,000 5.64% - 5.96% 1999
1,965,953 6.21% - 6.49% 2001
2,469,082 6.36% - 6.67% 2003
______________
$ 59,278,835
==============
June 30, 1996
________________________________________________
Principal Interest Maturity
Amounts Rates Dates
_______________ _______________ ____________
$ 31,400,000 5.17% - 8.30% 1997
5,573,000 4.97% - 6.86% 1998
14,500,000 5.64% - 6.35% 1999
325,000 6.40% 2001
325,000 6.61% 2003
________________ _______________ ____________
$ 52,123,000
================
5. New Accounting Pronouncements
On March 31, 1995, FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" ("Statement 121"). Statement 121 provides guidance
for recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and
used and assets to be disposed of. Statement 121 requires entities to perform
separate calculations for assets to be held and used to determine whether
recognition of an impairment loss is required and, if so, to measure the
impairment. Statement 121 requires long-lived assets and certain identifiable
intangibles to be disposed of to be reported at the lower of carrying amount or
fair value less cost to sell, except for assets covered by the provisions of
APB Opinion No. 31. Statement 121 is effective for financial statements issued
for fiscal years beginning after December 15, 1995. The Company adopted
Statement 121 on July 1, 1996; the effect of adopting the new rules did not
have a significant effect on the financial condition, liquidity, or results of
operations of the Company.
In May 1995, FASB issued Statement No. 122, Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65, ("Statement 122"). Statement
122 is effective for fiscal years beginning after December 15, 1995. The
Company adopted Statement 122 in its first quarter of fiscal year 1997.
Statement 122 requires that a mortgage banking enterprise recognize as separate
assets the rights to service mortgage loans for others. Statement 122 also
requires the assessment of capitalized mortgage servicing rights for impairment
to be based on the current fair value of those rights. This assessment
includes servicing rights capitalized prior to adoption of Statement 122. The
Adoption of Statement 122 was not material to the Company's financial position,
liquidity, or results of operations.
In October 1995, FASB issued Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), which became effective on July 1, 1996 for the
Company. Statement 123 established a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion
No. 25, no compensation cost is recorded if, at the grant date, the exercise
price of the options is equal to the fair market value of the Company's common
stock. The Company has elected to continue to follow the accounting under APB
Opinion No. 25. Statement 123 requires companies which elect to continue to
follow APB Opinion No. 25 to disclose in the notes to their annual financial
statements pro forma net income and earnings per share as if the value based
method of accounting had been applied.
NORTHEAST BANCORP AND SUBSIDIARY
Part I.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
_______________________________________________________________________
of Operation
____________
Financial Condition
___________________
Total consolidated assets at September 30, 1996 were $229,898,304, which was an
increase of $7,608,689 from June 30, 1996. Total loans increased by
$3,201,208, while securities and cash equivalents increased by $3,067,738 and
$1,174,029, respectively during the same period. Total deposits increased by
$349,263, total repurchase agreements increased by $111,845, and total
borrowings from the Federal Home Loan Bank (FHLB) increased by $7,155,835 from
June 30, 1996 to September 30, 1996.
Cash and due from banks has increased by $1,912,529, from fiscal year end, due
to large cash items cleared through the Federal Reserve Bank and the Maine
clearing house on September 30, 1996. FHLB overnight deposits decreased by
$648,435 due to the use of cash to support the increase in the loan and
investment portfolios.
Total loans increased by $3,201,208 for the three months ended September 30,
1996. The loan portfolio growth was in 1-4 family mortgages and commercial
loans. The Company's local market as well as the secondary market has become
and continues to be very competitive for loan volume. The local competitive
environment and customers response to favorable secondary market rates have
affected the Company's ability to increase the loan portfolio. In an effort to
increase loan volume, the Company's offering rates for its loan products has
been reduced to compete in various markets. While the loan portfolio has
increased in the first quarter of this fiscal year, the Company will experience
some margin compression due to decreased loan rates.
The loan portfolio contains elements of credit and interest rate risk. The
Company primarily lends within its local market areas, which management
believes helps it to better evaluate credit risk. The Company also maintains a
well collateralized position in real estate mortgages. Residential real estate
mortgages make up 69% of the total loan portfolio, in which 47% of the
residential loans are variable rate products. It is management's intent to
increase the proportion of variable rate residential loans, by selling fixed
rate loans to the secondary market and maintaining portfolio variable rate
loans, to reduce the interest rate risk in this area.
Fifteen percent of the Company's total loan portfolio balance is commercial
real estate mortgages. Similar to the residential mortgages, the Company tries
to mitigate credit risk by lending in its local market area as well as
maintaining a well collateralized position in the real estate. The commercial
real estate loans have minimal interest rate risk as 87% of the portfolio
consists of variable rate products.
Commercial loans make up 9% of the total loan portfolio, in which 83% of its
balance are variable rate instruments. The credit loss exposure on commercial
loans is highly dependent on the cash flow of the customer's business. The
Company's subsidiary, Northeast Bank, FSB (the "Bank"), attempts to mitigate
losses in commercial loans through lending in accordance to the Company's
credit policy guidelines established by the Bank's Board of Directors.
Consumer and other loans make up 7% of the loan portfolio. Since these loans
are primarily fixed rate products, they have interest rate risk when market
rates increase. These loans also have credit risk with, at times, minimal
collateral security. Management attempts to mitigate these risks by keeping the
products offered short-term, receiving a rate of return commensurate with the
measured risks, and lending to individuals in the Company's known market areas.
Other real estate owned has increased by $258,908 from June 30, 1996 to
September 30,1996. This increase was attributable to foreclosures on loan
collateral.
The Bank continues to attract new deposit relationships. Total deposits were
$145,544,632 and securities sold under repurchase agreements were $3,874,811 as
of September 30, 1996. These amounts represent increases of $349,263 and
$111,845, respectively, when compared to June 30, 1996. Brokered deposits
represented $4,859,868 of the total deposits for the quarter ended September
30, 1996 a decrease of $787,270 compared to June 30, 1996. The Company
utilizes, as alternative sources of funds, brokered CD's when the national
brokered CD interest rates are less than the interest rates on local market
deposits. Brokered deposits are similar to local deposits, in that both are
interest rate sensitive with the respect to the Company's ability to retain the
funds.
Total advances from the Federal Home Loan Bank were $59,278,835 as of September
30, 1996, an increase of $7,155,835 from June 30, 1996. The cash received
from FHLB advances was utilized for the increase in loans and investments.
The Company's current advance availability, subject to the satisfaction of
certain conditions, is approximately $41,200,000 over and above the September
30, 1996 advances reported. Mortgages, free of liens, pledges and encumbrances
are required to be pledged to secure FHLB advances. The Company utilizes
Federal Home Loan Bank advances to fund short-term liquidity demand for loan
volume and as an alternative sources of funds when the interest rates of the
advances are less than market deposit interest rates. With the borrowing
capacity at the Federal Home Loan Bank and the continued growth in bank
deposits and repurchase agreements, management believes that the Company's
available liquidity resources are sufficient to support future loan growth.
Total equity of the Company was at $18,201,498 as of September 30, 1996 versus
$18,151,242 at June 30, 1996. Book value per common share was $13.16 as of
September 30, 1996 versus $13.13 at June 30, 1996. Total equity to total
assets of the Company as of September 30, 1996 was 7.92%.
At September 30, 1996, the Bank's regulatory capital was in compliance with
regulatory capital requirements as follows:
</TABLE>
<TABLE>
<CAPTION>
Northeast
Bank, F.S.B.
_______________
<S> <C>
Capital Requirements:
Tangible capital $ 3,417,000
Percent of tangible assets 1.50%
Core capital $ 6,835,000
Percent of adjusted tangible assets 3.00%
Leverage capital $ 9,113,000
Percent of adjusted leverage assets 4.00%
Risk-based capital $ 10,865,000
Percent of risk-weighted assets 8.00%
Actual:
Tangible capital $ 16,000,000
Percent of adjusted total assets 7.02%
Excess of requirement $ 6,535,000
Core capital $ 16,000,000
Percent of adjusted tangible assets 7.02%
Excess of requirement $ 9,165,000
Leverage capital $ 16,000,000
Percent of adjusted leverage assets 7.02%
Excess of requirement $ 6,887,000
Risk-based capital $ 17,094,000
Percent of risk-weighted assets 12.59%
Excess of requirement $ 6,229,000
</TABLE>
The carrying value of securities available for sale of the Company was
$32,395,480, which is $1,295,691 less than the cost of the underlying
securities, at September 30, 1996. The difference from the cost and the
carrying value of the securities was primarily due to the decline in market
value of mortgage-backed securities, which was due to the change in current
market prices from the prices at the time of purchase. The Company has
primarily invested in mortgage-backed securities. Substantially all of the
mortgage-backed securities are high grade government backed securities. As in
any long term earning asset in which the earning rate is fixed, the market
value of mortgage-backed securities will decline when market interest rates
increase from the time of purchase. Since these mortgage-backed securities are
backed by the U.S. government, there is little or no risk in loss of principal.
Management believes that it would be advantageous to hold these securities
until the market values recover and the that yields currently received on this
portfolio are satisfactory.
The Company increased its investment in FHLB stock by $323,900, compared to
June 30, 1996, due to the increase in FHLB borrowings. The FHLB requires
institutions to hold a certain level of FHLB stock based on advances
outstanding.
The Company's allowance for loan losses was $2,487,000 as of September 30, 1996
versus $2,549,000 as of June 30, 1996, representing 1.44% and 1.50% of total
loans, respectively. The Company had non-performing loans totaling $2,345,000
at September 30, 1996 compared to $2,603,000 at June 30, 1996. Non-performing
loans represented 1.02% and 1.17% of total assets at September 30 and June 30,
1996, respectively. The Company's allowance for loan losses was equal to 106%
and 98% of the total non-performing loans at September 30, 1996 and June 30,
1996, respectively. At September 30, 1996, the Company had approximately
$1,500,000 of loans classified substandard, exclusive of the non-performing
loans stated above, that could potentially become non-performing due to
delinquencies or marginal cash flows. The loans classified substandard, as of
September 30, 1996, have decreased from the June 30, 1996 amount of $2,541,000.
This decrease was attributed to the reclassification of loans to lower risk
classifications as a result of favorable changes in the borrower's financial
condition, indicating a decreased potential for these loans becoming
non-performing assets. Even though substandard loans decreased, there is a
continuation of economic weakness in the Oxford county region served by the
Bank. Along with non-performing and delinquent loans, management takes an
aggressive posture in reviewing its loan portfolio to classify loans
substandard. The following table represents the Company's non-performing loans
as of September 30 and June 30, 1996, respectively:
<TABLE>
<CAPTION>
September 30, June 30,
Description 1996 1996
_______________________ _______________ _______________
<S> <C> <C>
1-4 Family Mortgages $ 1,224,000 $ 1,092,000
Commercial Mortgages 781,000 1,154,000
Commercial Installment 304,000 283,000
Consumer Installment 36,000 74,000
_______________ _______________
Total non-performing $ 2,345,000 $ 2,603,000
=============== ===============
</TABLE>
The majority of the non-performing loans are seasoned loans located in the
Oxford county area. This geographic area continues to have a depressed economy
resulting in high unemployment and a soft real estate market. As a result,
management has allocated substantial resources to collections in an effort to
control the growth in non-performing, delinquent and substandard loans. The
Company has decreased its total delinquent accounts during the September 30,
1996 quarter. The reduction was largely due to collection efforts of the 30
and 60 day delinquent accounts as well as the transfer of non-performing loans
to real estate owned.
The following table reflects the quarterly trend of total delinquencies 30 days
or more past due, including non-performing loans, for the Company as a
percentage of total loans:
<TABLE>
<C> <C> <C> <C>
12-31-95 3-31-96 6-30-96 9-30-96
3.51% 2.82% 2.77% 1.53%
</TABLE>
While the level of the allowance for loan losses as a percentage of total loans
at September 30, 1996 decreased from June 30, 1996, the level of the allowance
for loan losses as a percentage of non-performing loans and total delinquencies
as a percentage of total loans improved during the quarter ended September 30,
1996. Loans classified substandard decreased from June 30, 1996 to September
30, 1996. Based on reviewing the credit risk and collateral of delinquent,
non-performing and classified loans, management considers the allowance for
loan losses to be adequate.
On a regular and ongoing basis, Company management evaluates the adequacy of
the allowance for loan losses. The process to evaluate the allowance involves
a high degree of management judgement. The methods employed to evaluate the
allowance for loan losses are quantitative in nature and consider such factors
as the loan mix, the level of non-performing loans, delinquency trends, past
charge-off history, loan reviews and classifications, collateral, and the
current economic climate.
The state of Maine's economy, in which the Bank operates, including the south
central region of Cumberland, Androscoggin and Sagadahoc counties has
stabilized with moderate growth, although the economy in the western region of
Oxford county remains weak. Based on the different economic conditions in the
Bank's market areas, management of the Company continues to carefully monitor
the exposure to credit risk at the Bank.
While management uses its best judgement in recognizing loan losses in light of
available information, there can be no assurance that the Company will not have
to increase its provision for loan losses in the future as a result of changing
economic conditions, adverse markets for real estate or other factors. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance for
loan losses based on their judgements about information available to them at
the time of their examination. The Company's most recent examination by the
OTS was on August 19, 1996. At the time of the exam the regulators proposed no
additions to the allowance for loan losses.
Results of Operations
_____________________
Net income for the quarter ended September 30, 1996 was $184,261. The primary
and fully diluted earnings per share were $.11 for the quarter ended September
30, 1996. This compares to earnings of $421,637, or primary earnings per share
of $.32 and fully diluted earnings per share of $.29, for the quarter ended
September 30, 1995. The 1995 earnings per share have been restated as a result
of the Company's 100% stock dividend in December, 1995.
The reduction in net income for the quarter ended September 30, 1996, compared
to the quarter ended September 30, 1995 was due to the FDIC special insurance
assessment on thrift SAIF deposits. In September of 1996, Congress enacted
comprehensive legislation amending the FDIC BIF-SAIF deposit insurance
assessment on savings and loan institution deposits. The legislation imposed a
one-time assessment on institutions holding SAIF deposits on March 31,1995, in
an amount necessary for the SAIF to reach its 1.25% Designated Reserve Ration.
Institutions with SAIF deposits will be required to pay an up-front assessment
rate of 65.7 cents per $100 of domestic deposits held as of March 31, 1995.
The Bank held approximately $57,900,000 of SAIF deposits as of March 31, 1995,
which resulted in a first quarter expense of $380,000 to the Company. This one
time assessment decreased the Company's primary earnings per share by $.19 and
the fully diluted earnings per share by $.16 for the quarter ended September
30, 1996. Commencing in 1997 and continuing through 1999, the Bank is required
to pay an annual assessment of 1.29 cents for every $100 of domestic BIF
insured deposits and 6.44 cents for every $100 of domestic SAIF insured
deposits. At the Bank's current deposit level of former SAIF deposits, the
1997 annual assessment would be approximately $47,000. Commencing in 2000 and
continuing through 2017, banks will be required to pay a flat annual assessment
of 2.43 cents for every $100 of domestic deposits. If there are no additional
deposit insurance assessments in the future, it is anticipated that the Company
will save approximately $95,000 annually commencing in fiscal 1998.
The Company's net interest income was $2,283,952 for the quarter ended
September 30, 1996, versus $2,213,302 for the quarter ended September 30, 1995,
an increase of $70,650. Total interest income increased $233,978 during the
three months ended September 30, 1996 compared to the three months ended
September 30, 1995, resulting from the following items: (I) Interest income on
loans and loans held for sale decreased by $110,903 for the three months ended
September 30, 1996 resulting from a $19,374 increase due to an increase in the
volume of loans, which was more than offset by a decrease of $130,277 due to
decreased rates on loans. (II) Interest income on investment securities
increased by $438,989 resulting from a $402,776 increase due to an increase in
volume as well as an increase of $36,213 due to increased rates on investments.
(III) Interest income on short term liquid funds decreased by $94,108 resulting
from a $78,738 decrease due to a decrease in volume as well as a decrease of
$15,370 due to decreased rates on FHLB overnight deposits.
The increase in total interest expense of $163,328 for the three months ended
September 30, 1996 resulted from the following items: (I) Interest expense on
deposits decreased by $95,915 for the three months ended September 30, 1996
resulting from a $25,225 decrease due to a decrease in the volume of deposits
as well as a decrease of $70,690 due to decreasing deposit rates. (II)
Interest expense on repurchase agreements increased $4,356 due to an increase
in the volume of repurchase agreements offset by a decrease of $5,103 due to a
decrease in rates. (III) Interest expense on borrowings increased $254,887 for
the three months ended September 30, 1996 resulting from an increase of
$344,042 due to an increase in the volume of borrowings offset by a decrease
of $89,155 due to a change in the mix of interest rates on borrowings. The
changes in net interest income, as explained above, are also presented in the
schedule below.
Northeast
Bancorp
Rate/Volume Analysis for the three months ended
September 30, 1996 versus September 30, 1995
<TABLE>
<CAPTION>
Difference Due to
Volume Rate Total
__________ __________ __________
<S> <C> <C> <C>
Investments $ 402,776 $ 36,213 $ 438,989
Loans 19,374 (130,277) (110,903)
FHLB & Other Deposits (78,738) (15,370) (94,108)
__________________________________
Total 343,412 (109,434) 233,978
Deposits (25,225) (70,690) (95,915)
Repurchase Agreements 9,459 (5,103) 4,356
Borrowings 344,042 (89,155) 254,887
__________________________________
Total 328,276 (164,948) 163,328
__________________________________
Net Interest Income $ 15,136 $ 55,514 $ 70,650
==================================
</TABLE>
Rate/Volume amounts spread proportionately between volume and rate.
The majority of the Company's income is generated from the Bank. Management
believes that the Bank is slightly asset sensitive based on its own internal
analysis which considers its core deposits long term liabilities that are
matched to long term assets; therefore, it will generally experience a
contraction in its net interest margins during a period of falling rates.
Management believes that the maintenance of a slight asset sensitive position
is appropriate since historically interest rates tend to rise faster than they
decline. Approximately 20% of the Company's loan portfolio is comprised of
floating rate loans based on a prime rate index. Interest income on these
existing loans will increase as the prime rate increases, as well as on
approximately 32% of other loans in the Company's portfolio that are based on
short-term rate indices such as the one-year treasury bill. An increase in
short-term interest rates will also increase deposit and Federal Home Loan Bank
advance rates, increasing the Company's interest expense. The Company is
experiencing and anticipates additional net interest margin compression due to
fluctuating rates. The impact on net interest income will depend on, among
other things, actual rates charged on the Company's loan portfolio, deposit and
advance rates paid by the Company and loan volume.
Total non-interest income was $505,684 for the three months ended September
30, 1996 versus $614,293 for the three months ended September 30, 1995.
Service fee income was $267,949 for the quarter ended September 30, 1996 versus
$281,609 for the quarter ended September 30, 1995. The $13,660 service fee
decrease was primarily due to the reduction in loan fee income. Income from
available for sale securities gains was $28,300 for the three months ended
September 30, 1996 versus $120,593 for the three months ended September 30,
1995. Gains from the sale of securities decreased in the September 30, 1996
quarter by $92,293 compared to the quarter ended September 30, 1995. The
Company sold some of its available for sale securities in the September 30,
1995 quarter, taking advantage of the fluctuation in market prices in the
mortgage-backed security portfolio. Income from trading account securities was
$61,366 and $0 for the three months ended September 30, 1996 and 1995,
respectively. The gain on trading account, in the September 30, 1996 quarter,
was due to the sale and appreciation in market value of the securities
classified as trading.
Other income was $148,069 for the three months ended September 30, 1996, which
was a $64,022 decrease from the September 30, 1995 $212,091 balance. The
reduction in other income was primarily due to the decrease in gains on the
sale of loans held for sale, which amounted to $19,879 for the three months
ended September 30, 1996 versus $82,815 for the three months ended September
30, 1995. The reduction in gains from the sale of loans was due to decreased
secondary market activity.
Total operating expense, or non-interest expense, for the Company was
$2,343,829 for the three months ended September 30, 1996 versus $2,015,923 for
the three months ended September 30, 1995. As previously discussed above, the
Company's operating expenses increased primarily due to the FDIC-SAIF deposit
insurance assessment of $380,000. Excluding the FDIC-SAIF deposit assessment,
the Company's total operating expense was $1,963,829 for the three months ended
September 30,1996, which was a decrease of $52,094 when compared to the three
months ended September 30, 1995.
Cash provided by operating activities increased by $535,295 for the three
months ended September 30, 1996. During the quarter ended September 30, 1995
there was a reduction in cash from operating activities due to the increase in
assets held for sale of $616,000.
On July 1, 1996 the Company adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 122 , Accounting for Mortgage
Servicing Rights, ("Statement 122"). Statement 122 requires that a mortgage
banking enterprise recognize as separate assets the rights to service mortgage
loans for others. Statement 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair value
of those rights. This assessment includes servicing rights capitalized prior
to adoption of Statement 122. The adoption of Statement 122 was not material
to the Company's financial position, liquidity, or results of operations.
Impact of Inflation
___________________
The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and virtually all of the
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the general
level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as inflation.
NORTHEAST BANCORP AND SUBSIDIARY
Part II - Other Information
Item 1. Legal Proceedings
_________________
Not Applicable.
Item 2. Changes in Securities
_____________________
Not Applicable.
Item 3. Defaults Upon Senior Securities
_______________________________
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
SUMMARY OF VOTING AT 10/23/96 ANNUAL SHAREHOLDERS' MEETING
__________________________________________________________
At the Annual Meeting of Shareholders held in Auburn, Maine on October 23,
1996, the following proposals were approved, each proposal receiving the vote
of the Company's outstanding common and preferred shares, voting as one class,
as follows:
Proposal 1 - Election of Directors:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstaining
___________ _____________ ________________
<S> <C> <C> <C>
Joseph A. Aldred, Jr. 1,125,975 9,300 0
A. William Cannan 1,125,975 9,300 0
James D. Delamater 1,134,975 300 0
Normand R. Houde 1,120,413 14,862 0
Philip C. Jackson 1,135,075 200 0
Ronald C. Kendall 1,135,075 200 0
Robert Morrell 1,125,975 9,300 0
</TABLE>
Mr. Aldred was elected to serve until the 1997 Annual Meeting. Mr. Cannan was
elected to serve until the 1998 Annual Meeting and Messrs. Delamater, Houde,
Jackson, Kendal and Morrell were elected to serve until the 1999 Annual
Meeting. The terms of the following Directors continued after the meeting: Ms.
Hayes and Messrs. Bouchard, Brown, Goguen, Trinward, Vachon, Wight, and
Wilson. There was no solicitation in opposition to management's nominees, and
all nominees were elected without contest.
Proposal 2 - Amendment to the Company's Articles of Incorporation to change its
name to Northeast Bancorp.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstaining Broker Non-Votes
___________ _______________ __________________ __________________
<C> <C> <C> <C>
1,130,351 1,860 3,064 0
</TABLE>
Proposal 3 - Appointment of Baker Newman & Noyes, Limited Liability Company as
auditors for fiscal year 1997.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstaining
___________ _______________ __________________
<C> <C> <C>
1,133,935 100 1,240
</TABLE>
Item 5. Other Information
_________________
Not Applicable.
Item 6. Exhibits and Reports on Form 8 - K
__________________________________
(a) Exhibits
________
3.1 Conformed Articles of Incorporation of Northeast Bancorp as amended
October 23, 1996 are filed herewith as Exhibit 3.1.
11 Statement regarding computation of per share earnings is filed herewith as
Exhibit 11.
27 Financial data schedule is filed herewith as exhibit 27.
(b) Reports on Form 8 - K
Not Applicable.
NORTHEAST BANCORP AND SUBSIDIARY
Signatures
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
NORTHEAST BANCORP
________________________
(Registrant)
/s/ James D. Delamater
________________________
James D. Delamater
President and CEO
/s/ Richard Wyman
________________________
Richard Wyman
Chief Financial Officer
Date: November 13, 1996
NORTHEAST BANCORP AND SUBSIDIARY
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
3.1 Conformed Articles of Incoporation of Northeast Bancorp
as amended October 23, 1996
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
NORTHEAST BANCORP
CONFORMED ARTICLES OF INCORPORATION
FIRST: The name of the corporation is NORTHEAST BANCORP.
SECOND: The name of its Clerk, who must be a Maine resident, and the address
of its registered office shall be:
Ariel Rose Gill
158 Court Street, Auburn, Maine 04212
THIRD: The number of directors constituting the initial board of directors of
the corporation is nine, as follows:
Gordon M. Gillies, 3 Broad St, Bethel, Maine 04217
E. Louise Lincoln, PO Box 527, Bethel, Maine 04217
John W. Trinward, 8 Vernon St, Bethel, Maine 04217
Stephen W. Wight, RFD 2, Box 1688, Bethel, Maine 04217
Edmond J. Vachon, Paradise St, Bethel, Maine 04217
Ronald C. Kendall, PO Box 1, Bethel, Maine 04217
Norris T. Brown, Clark St, Bethel, Maine 04217
Philip C. Jackson, 12 Smith St, Bethel, Maine 04217
James D. Delamater, Route 121, Oxford, Maine 04270
FOURTH: The board of directors is authorized to increase or decrease the
number of directors. The minimum number shall be nine directors and
the maximum number shall be fifteen directors.
FIFTH: SHARES - There shall be 3,000,000 authorized shares of $1.00 par value
Common Stock, which may be issued by the Corporation from time to time
by vote of the Board without the approval of the holders of the Common
Stock. Upon payment of lawful consideration, such shares shall be
deemed to be fully paid and nonassessable. Except as the Board shall
have otherwise specified or except as otherwise provided by law,
voting power shall be vested exclusively in the Common Stock. The
holders of the Common Stock shall be entitled to one vote for each
share of Common Stock owned. Dividends, as declared by the Board out
of lawfully available funds, shall be payable on the Common Stock
subject to any rights or preferences of the Preferred Stock.
There shall be 1,000,000 authorized shares of $1.00 par value
Preferred Stock which may be issued from time to time in one or more
series as may be determined by the Board of Directors of the
Corporation. Each series of Preferred is to be distinctly designated
to distinguish the shares in the series from the shares of all other
series and classes. The relative rights and preferences of the
Preferred Stock and the variations of rights and preferences between
different series of Preferred Stock may be fixed and determined by the
Board of Directors by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of Preferred Stock. All
shares of Preferred shall be identical except as to the following
relative rights and preferences, as to which there may be variations
between different series:
a. The rate of dividend;
b. Whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
c. The amount payable upon shares in event of voluntary and
involuntary liquidation;
d. Sinking fund provisions, if any, for the redemption or purchase of
shares;
e. The terms and conditions, if any, on which shares may be converted;
or
f. Voting rights, if any.
Upon any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, holders of Common Stock
are entitled to receive pro rata the remaining assets of the
Corporation after the holders of Preferred Stock have been paid in
full any sums to which they may be entitled.
There shall be no cumulative voting for Directors or otherwise.
II. INTERNAL AFFAIRS OF THE CORPORATION
________________________________________
Section 1. (a) Number, Qualifications and Term of Office.
_________________________________________________________
Subject to the provisions hereof relating to the initial Board, the
number of directors of the corporation shall be no less than 9 and no
more than 15. The exact number of Directors within the minimum and
maximum limitations specified in the preceding sentence shall be fixed
from time to time by the Board pursuant to a resolution adopted by the
majority of the entire Board. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent
director. At the 1988 annual meeting of Shareholders, the Directors
shall be divided into three classes as nearly equal in number as
possible with the term of office of the first class to expire at the
1989 annual meeting of Shareholders, the term of office of the second
class to expire at the 1990 annual meeting of Shareholders and the
term of office of the third class to expire at the 1991 annual meeting
of the Shareholders. At each annual meeting of Shareholders following
such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a three year
term of office to expire at the third succeeding annual meeting of
Shareholders after their election. Directors need not be Shareholders
or residents of the State of Maine.
(b) Vacancies.
______________
Any vacancy in the Board caused by death, resignation, retirement,
disqualification, removal or other cause, shall be filled by a
majority vote of the remaining Directors, though less than a quorum.
A Director so chosen shall hold office for the unexpired term of their
predecessors in office. Any Directorship to be filled by reason of an
increase in the authorized number of directors may be filled by the
Board for a term of office continuing only until the next election of
Directors by Shareholders.
(c) Removal of Directors.
_________________________
At any meeting of Shareholders called expressly for the purpose, any
Director may be removed from office by the affirmative vote of the
holders of seventy-five percent (75%) of the shares entitled to vote
or if removal is for cause, then by a majority of the shares then
entitled to vote. For "cause" shall mean a final adjudication by a
court of competent jurisdiction that the Director (i) is liable for
negligence or misconduct in the performance of his duty, (ii) guilty
of a felony conviction, or (iii) has failed to act or has acted in a
manner which is in derogation of the Director's duties.
(d) Nomination of Directors.
____________________________
In addition to the right of the Board to make nominations for the
election of Directors, nominations for the election of Directors may
be made by any Shareholder entitled to vote for the election of
Directors if that Shareholder complies with all of the following
provisions:
a. Advance notice of such proposed nomination shall be received by
the Secretary of the Corporation not less than thirty (30) days nor
more than sixty (60) days prior to any meeting of the Shareholders
called for the election of the Directors; provided, however, that
if fewer than fourteen (14) days' notice of the meeting is given to
Shareholders, such written notice of a proposed nomination shall be
received not later than the close of the tenth day following the
day on which the notice of the meeting was mailed to Shareholders.
b. Each notice shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such
nominee; and (iii) the number of shares of stock of the Corporation
which are beneficially owned by each such nominee. In addition,
the Shareholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation.
c. The nomination made by a Shareholder may only be made in a meeting
of the Shareholders of the Corporation called for the election of
Directors at which such Shareholder is present in person or by
proxy, and can only be made by a Shareholder who has complied with
the notice provisions of (a) and (b) above.
d. The Chairman of the meeting may in his discretion determine and
declare to the meeting that a nomination was not made in accordance
with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall
be disregarded.
Section 2. Voting for Business Combinations.
_____________________________________________
(a) Neither the Corporation nor any subsidiary of which the
Corporation owns at least a majority of the equity securities
ordinarily entitled to vote for the election of Directors
("Subsidiary"), shall be a party to any of the transactions specified
herein (a "Business Combination") or enter into any agreement
providing for any Business Combination unless the conditions specified
in (b), (c) and (d) below shall have been satisfied:
(i) any merger or consolidation (whether in a single transaction or
a series of related transaction) other than a merger or
consolidation of the Corporation and any of its subsidiaries or
a merger or consolidation of any subsidiaries of the
Corporation; or
(ii) any sale, lease, exchange, transfer or distribution of all or
substantially all or a substantial portion of the property or
assets of the Corporation or any of its subsidiaries, including
its goodwill; or
(iii) the issuance of any securities, or of any rights warrants or
options to acquire any securities of the Corporation or any of
its subsidiaries, to any Shareholders other than by stock
dividend declared and paid to all Shareholders of the
Corporation or pursuant to an employee stock ownership plan or
an employee stock option plan established by the Corporation;
or
(iv) any reclassification of the stock of the Corporation or any of
its subsidiaries or any recapitalization or other transaction
(other than a redemption of stock) which has the effect,
directly or indirectly, of increasing the proportionate share
of stock of the Corporation or any of its subsidiaries held by
any person; or
(v) the dissolution of the Corporation or any subsidiary thereof or
any partial or complete liquidation of the Corporation or any
subsidiary thereof.
(b) The vote of the holders of at least eighty percent (80%) of the
outstanding shares entitled to vote for the election of Directors
shall be required to approve or authorize any Business Combination to
which the Corporation or any Subsidiary is party unless the aggregate
of the cash and fair market value of the consideration to be paid to
all the holders of the Common Stock of the Corporation in connection
with the Business Combination (when adjusted for stock splits, stock
dividends, reclassification of shares or otherwise) shall be equal to
the highest price per share paid by the other party or parties to the
Business Combination (the "Acquiring Party") in acquiring any of the
Corporation's Common Stock; provided however, that the consideration
to be paid to the holders of the Common Stock of the Corporation shall
be in the same form as that paid by the Acquiring Party in acquiring
the shares of the Common Stock held by it except to the extent that
any Stockholder of the Corporation shall otherwise agree.
(c) Subject to the provisions in (b) above, the vote of the holders
of at least seventy-five percent (75%) of the outstanding shares
entitled to vote for the election of Directors shall be required to
approve or authorize any Business Combination to which the Corporation
or any Subsidiary is a party unless the Business Combination shall
have been approved by at least two-thirds (2/3) of the Directors of
the Corporation who are not affiliated with, or Shareholders of, the
Acquiring Party.
In connection with the exercise of its judgment in determining what is
in the best interests of the Corporation and of the Shareholders, when
evaluating a Business Combination or a proposal by another person or
persons to make a Business Combination or a tender or exchange offer,
the Board may, in addition to considering the adequacy of the amount
to be paid in connection with any such transaction, consider all of
the following factors and other factors which it deems relevant: (i)
the social and economic effects of the transaction on the Corporation
and its subsidiaries, employees, depositors, loan and other customers,
creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the
business and financial condition and earnings prospects of the
acquiring person or persons, including but not limited to debt service
and other existing financial obligations, financial obligations to be
incurred in connection with the acquisition, and other likely
financial obligations of the acquiring person or persons, and the
possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the
Corporation and its subsidiaries operate or are located; and (iii) the
competence, experience and integrity of the acquiring person or
persons and its or their management.
(d) In the event that all of the conditions set forth in (b) and (c)
above are met, the Corporation or any Subsidiary may enter into any
Business Combination under the terms and conditions specified in the
Maine Business Corporation Act.
(e) The affirmative vote of the holders of at least eighty percent
(80%) of all of the shares of the Corporation entitled to vote for the
election of Directors shall be required to amend or repeal, or to
adopt any provisions in contravention of or inconsistent with this
Section 2, notwithstanding the fact that a lesser percentage may be
specified by law.
Section 3. Special Meetings and Consent Meetings.
__________________________________________________
Special meetings of the Shareholders may be called by the Chairman,
President, the Board, or by the Secretary upon written request of the
holders of not less than ten percent (10%) of all the shares entitled
to vote.
Section 4. Acquisition of Stock.
_________________________________
(a) Restrictions on Offers and Acquisitions.
_____________________________________________
For a period of five (5) years from the effective date of the
conversion, no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of (i) more than ten percent (10%) of
the issued and outstanding shares of any class of an equity security
of the Corporation; (ii) more than ten percent (10%) of any class of
securities convertible into, or exercisable for, any class of an
equity security of the Corporation; (iii) any securities convertible
into, or exercisable for, any equity securities of the Corporation if
assuming conversion or exercise by such person of all securities of
which such person is the beneficial owner which are convertible into,
or exercisable for, such equity securities (but of no securities
convertible into, or exercisable for, such equity securities of which
such person is not the beneficial owner), such person would be the
beneficial owner of more than ten percent (10%) of any class of an
equity security of the Corporation.
For the same five year period, each share beneficially owned in
violation of the foregoing percentage limitation, as determined by the
Board, shall not be voted by any person or counted as voting shares in
connection with any matter submitted to the shareholders for a vote.
For the purposes of this Section 4:
(i) The term "person" shall mean and include any individual, group
acting in concert, Corporation, partnership, or other
organization or entity, together with its affiliates and
associates; and
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request
or invitation for tenders of, a security (including, without
limitation, shares of any class of capital stock of the
Corporation) or interest in a security for value.
(iii) The term "conversion" shall mean the completed process whereby
Bethel Savings, FSB Bank will be converted from a federally
chartered mutual savings bank to a federally charted stock
savings bank and Bethel Bancorp shall become the holding
company for Bethel Savings Bank, FSB.
(b) Exclusion for Underwriters, Directors, Officers and Employees.
__________________________________________________________________
The restriction contained in this Section 4 shall not apply to any
offer with a view toward public resale made exclusively to the
Corporation or the underwriters or a selling group acting on its
behalf. In addition, the Directors, Officers and employees of the
Corporation or any subsidiary thereof shall not be deemed to be a
group with respect to their individual acquisition of equity stock of
the Corporation.
(c) Readoption of Restriction by Shareholders.
______________________________________________
This Section 4 may be readopted for additional one-year or longer
periods by vote of the holders of a majority of the outstanding voting
shares present or represented at a duly convened annual or special
meeting of Shareholders of the Corporation.
(d) Exception in Cases of Advance Approval.
___________________________________________
This Section 4 shall not apply to any offer or acquisition referred to
in (a) above if such offer or acquisition was approved in advance of
such offer or acquisition by two-thirds (2/3) of the entire Board
utilizing the standard set forth in Section 2(c).
(e) Enforcement of this Section 4.
__________________________________
The Corporation may by law or by resolution of the Directors adopt
such provisions or resolutions as are necessary to provide for the
enforcement of this Section 4.
(f) Amendments of this Section 4.
_________________________________
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, and notwithstanding
the fact that some lesser percentage may be specified by law, this
Section 4 shall not be amended, altered, changed or repealed without:
a. the affirmative vote of two-thirds (2/3) of the Board; and
b. the affirmative vote by the holders of at least two-thirds (2/3)
of the outstanding shares entitled to vote.
This vote shall be in addition to any vote of the Preferred Stock as
may be required by the provisions of any series thereof or applicable
by law.
The readoption of Section 4 for additional one-year or longer periods,
as provided in (c) above, shall not be an amendment, alteration or
change for the purposes of this paragraph.
Section 5. Amendments.
_______________________
(a) Amendments to Articles of Incorporation.
______________________________________________
Except as otherwise provided for in the Articles above, the
affirmative vote of the holders of at least two-thirds (2/3) of all of
the shares of the Corporation entitled to vote for the election of
Directors, shall be required to amend or repeal, or to adopt any
provision in contravention of or inconsistent with these Articles
notwithstanding the fact that a lesser percentage may be specified by
law.
(b) Amendments to By-Laws.
__________________________
The By-Laws of the Corporation may be amended at any time by the
affirmative vote of a majority of the entire Board, subject to repeal,
change or adoption of any contravening or inconsistent provision only
by vote of the holders of at least two-thirds (2/3) of all the shares
entitled to vote on the matter at a meetings expressly called for that
purpose.
Section 6. Right of Shareholders Following Control Transaction.
________________________________________________________________
The provisions of Me. Rev. Stat. Ann. Title 13-A, Section 910 shall
not be applicable to the Corporation.
SUMMARY
The aggregate par value of all authorized shares (of all classes)
having a par value is $4,000,000. The total number of authorized
shares (of all classes) without par value is zero shares.
SIXTH: Meetings of the shareholders may be held outside the State of Maine.
SEVENTH:There are no preemptive rights.
RESOLUTION OF THE BOARD OF DIRECTORS
OF BETHEL BANCORP
ESTABLISHING THE RIGHTS AND PREFERENCES OF THE
CONVERTIBLE PREFERRED STOCK, SERIES A.
WHEREAS, Bethel Bancorp (the "Corporation") has entered into a Stock
Purchase Agreement dated as of September 17, 1990 (the "Stock Purchase
Agreement") by and between the Corporation and Square Lake Holding Corporation
(the "Purchaser"), pursuant to which the Corporation will sell, and the
Purchaser will buy, certain shares of the Corporation's Series A Preferred
Stock, as defined below (the "Stock Purchase"); and
WHEREAS, the Corporation intends to effect the Stock Purchase in part
through the designation and issuance of such preferred stock; and
WHEREAS, the Articles of Incorporation of the Corporation (the "Articles")
authorize the issuance of up to 1,000,000 shares, $1.00 par value per share, of
preferred stock and the Board of Directors of the Corporation has the authority
to issue preferred stock in one or more series and to fix and determine the
relative rights and preferences of the shares of any series of preferred stock
so established, including the rate of dividend, whether shares of such series
may be converted or redeemed, and, if so, the terms and conditions of
conversion or redemption, the amount payable upon shares in event of voluntary
and involuntary liquidation with respect to shares of such series, sinking fund
provisions, if any, for the redemption or purchase of shares of such series,
voting rights, if any, and the number of shares constituting any series without
any further action by shareholders of the Corporation.
NOW, THEREFORE, BE IT RESOLVED THAT a series of preferred stock shall be
established with the following terms, rights and preferences:
1. Designation.
________________
Forty Five Thousand Four Hundred Fifty Four (45,454) shares of the
preferred stock of the Corporation are hereby constituted as a series of
preferred stock, designated as Convertible Preferred Stock, Series A
(hereinafter called the "Series A Preferred Stock"). The number of shares of
Series A Preferred Stock may not be increased but may be decreased by a
resolution duly adopted by the Board of Directors, but not below the number of
shares of Series A Preferred Stock then outstanding.
2. Dividends.
______________
Holders of shares of the Series A Preferred Stock shall be entitled to
receive cumulative cash dividends, when, as and if declared by the Board of
Directors of the Corporation out of funds legally available therefor, payable
at a rate equal to the prime rate of the First National Bank of Boston,as
announced by such bank from time to time (or if such rate is no longer
announced or available, the prime rate of some other national bank
headquartered in Boston, Massachusetts to be designated by the Board of
Directors of the Corporation), less two percent (2%), provided however, that in
no event shall such rate be less than seven percent (7%) per annum based on
$22.00 value per share. Dividends shall be cumulative and shall be determined
and payable quarterly on the first day of January, April, July and October in
each year. The dividend earned in the period from the issue date to the first
quarterly payment date will be prorated. If the dividend accrued on the Series
A Preferred Stock for any dividend period shall not have been paid or set apart
in full for the Series A Preferred Stock, the aggregate deficiency shall be
cumulative and shall be fully paid or set apart for payment before any
dividends shall be paid upon or set apart for payment on any class of common
stock of the Corporation. Accumulations of dividends on the Series A Preferred
Stock shall not bear interest. No dividends shall be paid upon, or declared or
set apart for, any shares of Series A Preferred Stock if the Board of Directors
shall have failed duly and lawfully to declare and pay in full all accumulated
dividends required to be paid to the holders of the Series A Preferred Stock
for all past dividend periods.
3. Amount Payable on Liquidation.
__________________________________
The amount per share to which the holders of the shares of Series A
Preferred Stock shall be entitled to receive for purposes of paragraph (c) of
Part I of Exhibit B to the Articles is $22.00 per share, plus an amount equal
to all dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution, before any payment and distribution shall be
made to the holders of any class of common stock of the Corporation.
4. Conversion.
_______________
(a) At the option of the holder, any share of Series A Preferred Stock
(a "Share") may, at any time, be converted into shares of the Common Stock of
the Corporation (the "Common Stock") as hereinafter provided. In order to
exercise the conversion privilege, the holder of any Share to be converted
shall surrender such Share to the Corporation, together with the conversion
notice in the form provided on the Shares duly executed. As promptly as
practicable after the surrender of such Share for conversion as aforesaid, the
Corporation shall issue and shall deliver to such holder, or on his written
order, a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of such Share or portion thereof and a check
or cash in respect of any fraction of a share of Common Stock issuable upon
such conversion. Such conversion shall be deemed to have been effected on the
date on which such notice shall have been received and such Share shall have
been surrendered as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become on said date the holder or
holders of record of the shares represented thereby; provided however, that any
such surrender on any date when the stock transfer books of the Corporation
shall be closed shall constitute the person or persons in whose name or names
the certificates are to be issued as the record holder or holders thereof for
all purposes on the next succeeding day on which such stock transfer books are
open. In the event the holder of any Share elects to exercise the conversion
privilege as to any Shares, he shall be required to exercise such privilege as
to the lesser of 100 Shares or all Shares beneficially owned by such
shareholder.
(b) The Corporation shall not be required to issue fractions of shares of
Common Stock upon conversion of Shares. If more than one Share shall be
surrendered for conversion at any time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate number of the Shares so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon the conversion of
any Share or Shares, the Corporation shall make an adjustment therefor in cash
equal to the same fraction of the current market price of the Common Stock (as
defined in Section 4(e) (4)).
(c) The conversion ratio in the case of conversion pursuant to Section
4(a) shall be one (1) share of the Corporation's common stock for one (1) share
of the Series A Preferred Stock.
(d) The Corporation shall at the time of conversion pursuant to Section 4
(a) pay to the holder of record of any share of Series A Preferred Stock any
dividend accrued and unpaid on the Series A Preferred Stock. No dividends
shall be paid or set apart for payment on any class of Common Stock of the
Corporation or, in the case of optional conversion, on any remaining shares of
Series A Preferred Stock unless all accrued and unpaid dividends due to the
former holders of Series A Preferred Stock have been fully paid or set apart
for payment.
(e) The conversion ratio shall be adjusted from time to time as follows:
(1) In case the Corporation shall (i) pay a dividend in shares of
its Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares, or (iv) issue by reclassification of its shares of Common Stock
any shares of stock of the Corporation, the conversion privilege and
conversion ratio in effect immediately prior thereto shall be adjusted so
that the holder of any Share thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock which he would
have owned or have been entitled to receive after the happening of any of
the events described above, had such Share been converted immediately
prior to the record date for such dividend or the effective date of such
other event, as the case may be.
(2) In case the Corporation shall issue rights or warrants to all
holders of shares of its Common Stock entitling them (for a period
expiring within 45 days of the record date mentioned below) to subscribe
for or purchase shares of Common Stock at a price per share less than the
current market price per share of Common Stock (as defined in subdivision
(4) below) on the record date mentioned below, the conversion ratio shall
be adjusted so that the same shall equal the ratio determined by
multiplying the conversion ratio in effect immediately prior to the date
of issuance of such rights or warrants by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase and of which
the denominator shall be the number of shares of Common Stock outstanding
on the date of issuance of such rights or warrants plus the number of
shares of Common Stock which the aggregate exercise price of the shares of
Common Stock called for by all such rights or warrants, would purchase at
such current market price. Such adjustment shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants.
(3) In case the Corporation shall distribute to all holders of
shares of its Common Stock evidences of its indebtedness or securities or
assets (excluding cash dividends, or dividends payable in shares of Common
Stock) or rights to subscribe (excluding those referred to in subdivision
(2) above), then in each such case the conversion ratio shall be adjusted
so that the same shall equal the ratio determined by multiplying the
conversion ratio in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the current
market price per share (determined as provided in subsection (4) below)
of the Common Stock on the record date mentioned below plus the then
current fair market value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness so distributed or of such
subscription rights applicable to one share of Common Stock, and the
denominator shall be such current market price per share of the Common
Stock.
(4) For the purpose of any computation under subdivisions (2) and
(3) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated
Quotation System on the last business day immediately preceding the day in
question.
(5) Except as herein otherwise provided, no adjustment in the
conversion ratio shall be made by reason of the issuance, in exchange for
cash, property or services, of shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock, or carrying
the right to purchase any of the foregoing.
(f) In case of any reclassification or change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Corporation with one or
more other corporations (other than a consolidation in which the Corporation is
the continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock), or in case of the merger of the
Corporation into another corporation, or in case of any sale or conveyance to
another corporation of the property of the Corporation as an entirety or
substantially as an entirety, the Corporation, or such successor or purchasing
corporation, as the case may be the holder of each Share then outstanding shall
have the right to convert such Share into the kind and amount of shares of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which such Share might have been converted
immediately prior to such reclassification, change, consolidation, merge, sale
or conveyance.
(g) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares, for the purpose of effecting the conversion
of the Shares, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Shares.
If any shares of Common Stock reserved or to be reserved for the purpose
of the conversation of Shares hereunder require registration with or approval
of any governmental authority under any federal or state law before such shares
may be validly issued upon conversion, then the Corporation covenants that it
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
The Corporation covenants that all shares of Common Stock which may be
issued upon conversion of Shares shall upon issue be fully paid and
non-assessable by the Corporation and free from all taxes, liens and charges
with respect to the issue thereof.
(h) If, and whenever, any event not specified herein occurs which, in the
opinion of the Board of Directors of the Corporation, requires a change in the
conversion ratio of the Shares or in the property deliverable upon conversion
of the Shares, in order to carry out the purposes of these conversion
provisions, said Board of Directors will direct such change in the manner, or
as nearly as may be in the manner, provided for other changes therein.
5. Shares to be Retired.
_________________________
All shares of Series A Preferred Stock converted to Common Stock of the
Corporation pursuant to Section A herein shall be retired and shall be restored
to the status of authorized but unissued shares of preferred stock, without
designation as to series, and may thereafter be issued, but not as shares of
Series A Preferred Stock.
6. Voting Rights.
__________________
(a) Except as hereinafter in this Section 6 expressly provided for and as
otherwise from time to time required by the laws of the State of Maine, the
holders of the outstanding Series A Preferred Stock shall have the right,
voting as a single class with the holders of the Corporation's Common Stock, to
vote on all matters presented for a shareholder vote. Each holder of Series A
Preferred Stock shall be entitled to one vote for each share held.
So long as any shares of Series A Preferred Stock remain outstanding, the
consent of the holders of at least a majority of the shares of Series A
Preferred Stock outstanding at the time (voting separately as a class with all
other affected series of Preferred Stock ranking on a parity with the Series A
Preferred Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights have
been conferred and are exercisable) given in person or by proxy either in
writing or at any special or annual meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of stock having rights, preferences or privileges prior to the
shares of the Series A Preferred Stock as to dividends or the distribution
of assets upon liquidation, dissolution or winding up, or any increase in
the number of authorized shares of any class or series having rights,
preferences or privileges prior to the shares of Series A Preferred Stock
as to dividends or the distribution of assets upon liquidation,
dissolution or winding up; and
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of Articles of
Incorporation of the Corporation or of this resolution which would
materially and adversely affect any right, preference, privilege or voting
power of the Series A Preferred Stock or of the holders thereof; provided,
however, that any increase in the amount of authorized common stock or
authorized preferred stock or the creation and issuance of other series of
common stock or preferred stock, in each case ranking on a parity with or
junior to the Series A Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
(b) For the purposes of this Section, a new class or series of stock
shall not be considered to have rights, preferences or privileges prior to the
shares of the Series A Preferred Stock solely by reason of a difference in the
dividend rate payable on such new class or series.
BETHEL BANCORP AND SUBSIDIARIES
Exhibit 11. Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
__________________ __________________
<S> <C> <C>
EQUIVALENT SHARES:
Average Shares Outstanding 1,231,294 1,120,250
Total Equivalent Shares 1,231,294 1,120,250
Total Primary Shares 1,330,400 1,216,523
Total Fully Diluted Shares 1,565,531 1,451,571
Net Income $ 184,261 $ 421,637
Less Preferred Stock Dividend 34,999 35,000
___________________ __________________
Net Income after Preferred Dividend $ 149,262 $ 386,637
=================== ==================
Primary Earnings Per Share $ 0.11 $ 0.32
Fully Diluted Earnings Per Share $ 0.11 $ 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000811831
<NAME> NORTHEAST BANCORP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,298,792
<INT-BEARING-DEPOSITS> 7,441,366
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 196,298
<INVESTMENTS-HELD-FOR-SALE> 32,395,480
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 172,990,132
<ALLOWANCE> 2,487,000
<TOTAL-ASSETS> 229,898,304
<DEPOSITS> 145,544,632
<SHORT-TERM> 34,128,669
<LIABILITIES-OTHER> 1,622,448
<LONG-TERM> 30,401,057
0
1,999,980
<COMMON> 1,199,379
<OTHER-SE> 15,002,138
<TOTAL-LIABILITIES-AND-EQUITY> 229,898,304
<INTEREST-LOAN> 3,987,260
<INTEREST-INVEST> 636,419
<INTEREST-OTHER> 92,956
<INTEREST-TOTAL> 4,716,634
<INTEREST-DEPOSIT> 1,539,567
<INTEREST-EXPENSE> 2,432,682
<INTEREST-INCOME-NET> 2,283,952
<LOAN-LOSSES> 144,815
<SECURITIES-GAINS> 89,666
<EXPENSE-OTHER> 2,343,829
<INCOME-PRETAX> 300,993
<INCOME-PRE-EXTRAORDINARY> 184,261
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184,261
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 4.222
<LOANS-NON> 2,345,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 338,004
<LOANS-PROBLEM> 1,500,000
<ALLOWANCE-OPEN> 2,549,000
<CHARGE-OFFS> 228,245
<RECOVERIES> 21,431
<ALLOWANCE-CLOSE> 2,487,000
<ALLOWANCE-DOMESTIC> 431,393
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,055,607
</TABLE>
