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 March 31, 1997
------------------
or
___ Transition report pursuant 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)
232 Center Street, Auburn, Maine 04210
________________________________________ ____________________________________
(Address of principal executive offices) (Zip Code)
(207) 777 - 5950
_______________________________________________________________________________
Registrant's telephone number, including area code
Not Applicable
_______________________________________________________________________________
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 May, 12, 1997: 1,274,969 of common stock, $1.00 par
value per share.
NORTHEAST BANCORP AND SUBSIDIARIES
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
March 31, 1997 and June 30, 1996
Consolidated Statements of Income
Three Months ended March 31, 1997 and 1996
Consolidated Statements of Income
Nine Months ended March 31, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity
Nine Months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows
Nine Months ended March 31, 1997 and 1996
Notes to Consolidated 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 SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
_______________ _______________
<S> <C> <C>
Assets
Cash and due from banks $ 3,700,489 $ 3,386,263
Interest bearing deposits in other banks 330,220 650,430
Federal Home Loan Bank overnight deposits 5,053,000 7,529,435
Trading account securities at market 67,951 197,621
Available for sale securities 28,363,128 29,650,319
Federal Home Loan Bank stock 3,739,800 2,656,200
Loans held for sale 143,340 448,475
Loans 198,046,580 170,140,264
Less deferred loan origination fees 168,002 289,340
Less allowance for loan losses 2,620,000 2,549,000
_______________ _______________
Net loans 195,258,578 167,301,924
Bank premises and equipment, net 3,949,915 3,576,386
Real estate held for investment 458,568 459,820
Other real estate owned 631,075 513,831
Goodwill (net of accumulated amortization
of $1,162,340 at 3/31/97 and $940,059 at
6/30/96) 2,335,632 2,557,913
Other assets 3,492,858 3,360,998
_______________ _______________
Total Assets 247,524,554 222,289,615
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 154,672,129 $ 145,195,369
Repurchase Agreements 4,788,597 3,762,966
Advances from Federal Home Loan Bank 65,700,742 52,123,000
Notes payable 1,375,000 1,502,192
Other Liabilities 1,791,049 1,554,846
_______________ _______________
Total Liabilities 228,327,517 204,138,373
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, 1,274,749 and
1,234,010 shares issued at 3/31/97 and
6/30/96, respectively. 1,274,749 and
1,229,910 shares outstanding at 3/31/97 and
6/30/96, respectively 1,274,749 1,234,010
Additional paid in capital 5,636,702 5,455,852
Retained earnings 11,112,636 10,351,031
_______________ _______________
20,024,067 19,040,873
Net unrealized loss on available for sale
securities (827,030) (837,354)
Treasury Stock at cost 4,100 shares at 6/30/96 -- (52,277)
_______________ _______________
Total Shareholders' Equity 19,197,037 18,151,242
_______________ _______________
Total Liabilities and Shareholders' Equity $ 247,524,554 $ 222,289,615
=============== ===============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
_______________ _______________
<S> <C> <C>
Interest and Dividend Income
Interest on FHLB overnight deposits $ 119,816 $ 129,919
Interest on loans & loans held for sale 4,405,483 4,053,993
Interest on investment securities & available
for sale securities 507,879 351,339
Dividends on Federal Home Loan Bank stock 60,658 35,868
Other Interest Income 4,247 5,220
_______________ _______________
Total Interest Income 5,098,083 4,576,339
Interest Expense
Deposits 1,586,983 1,611,581
Repurchase agreements 50,745 42,872
Other borrowings 1,079,816 654,874
_______________ _______________
Total Interest Expense 2,717,544 2,309,327
_______________ _______________
Net Interest Income 2,380,539 2,267,012
Provision for loan losses 144,452 159,960
_______________ _______________
Net Interest Income after Provision for
Loan Losses 2,236,087 2,107,052
Other Income
Service charges 237,975 250,005
Available for sale securities gains (losses) 2,306 19,187
Gain (Loss) on trading account 73,187 16,093
Other 330,070 170,181
_______________ _______________
Total Other Income 643,538 455,466
Other Expenses
Salaries and employee benefits 1,022,651 1,095,931
Net occupancy expense 182,365 171,886
Equipment expense 199,731 180,026
Goodwill amortization 74,094 74,335
FDIC Insurance-Assessment --
Other 674,999 557,960
_______________ _______________
Total Other Expenses 2,153,840 2,080,138
_______________ _______________
Income Before Income Taxes 725,785 482,380
Income tax expense 274,796 180,575
_______________ _______________
Net Income $ 450,989 $ 301,805
=============== ===============
Earnings Per Share
Primary $ 0.31 $ 0.20
Fully Diluted $ 0.29 $ 0.19
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
_______________ _______________
<S> <C> <C>
Interest and Dividend Income
Interest on FHLB overnight deposits $ 289,002 $ 485,995
Interest on loans & loans held for sale 12,602,580 12,230,893
Interest on investment securities &
available for sale securities 1,659,108 734,496
Dividends on Federal Home Loan Bank stock 157,450 109,605
Other Interest Income 24,167 22,697
_______________ _______________
Total Interest Income 14,732,307 13,583,686
Interest Expense
Deposits 4,660,271 4,899,241
Repurchase agreements 143,700 125,665
Other borrowings 2,864,590 1,847,784
_______________ _______________
Total Interest Expense 7,668,561 6,872,690
_______________ _______________
Net Interest Income 7,063,746 6,710,996
Provision for loan losses 433,710 455,524
_______________ _______________
Net Interest Income after Provision for
Loan Losses 6,630,036 6,255,472
Other Income
Service charges 751,665 766,824
Available for sale securities gains (losses) 76,724 225,570
Gain (Loss) on trading account 123,311 23,098
Other 588,578 604,746
_______________ _______________
Total Other Income 1,540,278 1,620,238
Other Expenses
Salaries and employee benefits 3,017,503 3,091,775
Net occupancy expense 449,840 420,155
Equipment expense 560,675 524,128
Goodwill amortization 222,280 223,004
FDIC Insurance-Assessment 296,860 --
Other 1,769,524 1,772,671
_______________ _______________
Total Other Expenses 6,316,682 6,031,733
_______________ _______________
Income Before Income Taxes 1,853,632 1,843,977
Income tax expense 691,221 677,099
_______________ _______________
Net Income $ 1,162,411 $ 1,166,878
=============== ===============
Earnings Per Share
Primary $ 0.80 $ 0.83
Fully Diluted $ 0.74 $ 0.76
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Gains(Loses)
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 nine months
ended March 31, 1996 -- -- -- 1,166,878 -- -- 1,166,878
Dividends paid on common stock -- -- -- (187,930) -- -- (187,930)
Dividends paid on preferred
stock -- -- -- (104,999) -- -- (104,999)
Issuance of common stock 519 -- 7,779 -- -- -- 8,298
Common stock warrants exercised 50,000 -- 650,000 -- -- -- 700,000
Stock Split effected in the
form of a dividend 597,743 -- -- (597,743) -- -- 0
Stock options exercised 8,000 -- 32,000 -- -- -- 40,000
Net change in unrealized
losses on securities
available for sale -- -- -- -- (388,251) -- (388,251)
------------ ----------- ----------- ------------ ------------ ------------- ------------
Balance March 31, 1996 $ 1,203,764 $1,999,980 $5,332,838 $10,456,450 $ (483,758) $ 0 $18,509,274
============ =========== =========== ============ ============ ============= ============
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 nine months
ended March 31, 1997 -- -- -- 1,162,411 -- -- 1,162,411
Dividends paid on common stock -- -- -- (295,807) -- -- (295,807)
Dividends paid on preferred
stock -- -- -- (104,999) -- -- (104,999)
Issuance of common stock 799 -- 9,395 -- -- 13,642 23,836
Common stock warrants exercised 19,940 -- 88,005 -- -- 67,055 175,000
Stock options exercised 20,000 -- 83,450 -- -- (28,420) 75,030
Net change in unrealized
losses on securities
available for sale -- -- -- -- 10,324 -- 10,324
------------ ----------- ----------- ------------ ------------ ------------- ------------
Balance March 31, 1997 $ 1,274,749 $1,999,980 $5,636,702 $11,112,636 $ (827,030) $ 0 $19,197,037
============ =========== =========== ============ ============ ============= ============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
_______________ _______________
<S> <C> <C>
Cash provided by operating activities $ 2,270,005 $ 3,567,289
Cash flows from investing activities:
FHLB stock purchased (1,083,600) (150,000)
Available for sale securities purchased (12,412,186) (35,381,445)
Available for sale securities principal
reductions 1,669,327 524,396
Available for sale securities sold 12,114,602 16,746,027
New loans, net of repayments & charge offs (28,457,580) 1,993,534
Net capital expenditures (776,591) (248,449)
Real estate owned sold 369,567 585,116
Real estate held for investment purchased (1,965) (56,096)
Real estate held for investment sold -- 40,000
--------------- ---------------
Net cash (used in) investing activities (28,578,426) (15,946,917)
Cash flows from financing activities:
Net change in deposits 9,476,760 (501,706)
Net change in repurchase agreements 1,025,631 1,196,884
Dividends paid (400,805) (292,929)
Proceeds from stock issuance 273,866 748,298
Net increase in advances from Federal Home
Loan Bank of Boston 13,577,742 7,400,000
Net change in notes payable (127,192) (383,278)
--------------- ---------------
Net cash provided by financing activities 23,826,002 8,167,269
--------------- ---------------
Net (decrease) in cash and cash
equivalents (2,482,419) (4,212,359)
Cash and cash equivalents, beginning of period 11,566,128 14,740,070
--------------- ---------------
Cash and cash equivalents, end of period $ 9,083,709 $ 10,527,711
=============== ===============
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 change in valuation for unrealized market
value adjustments on available for sale
securities 10,324 (388,251)
Net transfer (to) from Loans to Other Real
Estate Owned 551,265 (100,174)
Supplemental disclosure of cash paid during
the period for:
Income taxes paid, net of refunds 291,000 693,700
Interest paid 7,552,308 6,904,084
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
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 nine month
period ended March 31, 1997 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 the carrying and approximate market values are
summarized below.
<TABLE>
<CAPTION>
March 31, 1997 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 $ 1,499,197 $ 1,433,584 $ 1,497,111 $ 1,424,690
Corporate bonds 149,682 139,847 149,646 139,005
Mortgage-backed securities 27,252,760 26,202,083 28,810,113 27,646,294
Equity securities 714,566 587,614 462,167 440,330
------------ ------------ ------------ ------------
$29,616,205 $28,363,128 $30,919,037 $29,650,319
============ ============ ============ ============
March 31, 1997 June 30, 1996
------------------------- -------------------------
Market Market
Cost Value Cost Value
------------ ------------ ------------ ------------
Due in one year or less $ 249,197 $ 249,197 $ 247,111 $ 246,790
Due after one year
through five years 250,000 239,075 250,000 237,900
Due after five years
through ten years 149,682 139,847 149,646 139,005
Due after ten years 1,000,000 945,312 1,000,000 940,000
Mortgage-backed securities
(including securities with
interest rates ranging from
5.15% to 10.0% maturing
September 2003 to December
2026) 27,252,760 26,202,083 28,810,113 27,646,294
Equity securities 714,566 587,614 462,167 440,330
------------ ------------ ------------ ------------
$29,616,205 $28,363,128 $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>
Nine Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 2,549,000 $ 2,396,000
Add provision charged to operations 433,710 455,524
Recoveries on loans previously charged off 102,693 58,229
------------ ------------
3,085,403 2,909,753
Less loans charged off 465,403 412,753
------------ ------------
Balance at end of period $ 2,620,000 $ 2,497,000
============ ============
</TABLE>
4. Advances from Federal Home Loan Bank
------------------------------------
A summary of borrowings from the Federal Home Loan Bank is as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------
Principal Interest Maturity
Amounts Rates Dates
-------------- --------------- ------------
<C> <C> <C>
$ 42,294,000 4.97% - 7.03% 1998
19,267,639 5.64% - 6.39% 1999
1,802,276 6.21% - 6.49% 2002
2,336,827 6.36% - 6.67% 2004
--------------
$ 65,700,742
==============
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
==============
</TABLE>
5. New Accounting Pronouncements
-----------------------------
In June 1996, FASB issued Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("Statement
125"). Statement 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial asssets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. Statement 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. Statement 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occuring after December 31,
1996. The adoption of Statement 125 was not material to the Company's
financial position, liquidity, or results of operations.
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 were $247,524,554 on March 31, 1997, which represents
an increase of $25,234,939 from June 30, 1996. Total loans increased by
$27,956,654 while loans held for sale decreased by $305,135. Federal Home Loan
Bank ("FHLB") stock increased by $1,083,600, while securities and cash
equivalents decreased by $1,416,861 and $2,482,419, respectively, during the
same period. Total deposits, repurchase agreements and FHLB borrowings
increased by $9,476,760, $1,025,631 and $13,577,742, respectively from June 30,
1996 to March 31, 1997.
The decrease in cash equivalents, FHLB overnight deposits and securities was
utilized to support the increase in the loan portfolio from June 30, 1996 to
March 31, 1997. FHLB stock increased due to the increased levels of FHLB
advances during the same time period. The FHLB requires financial institutions
to hold a certain level of FHLB stock based on advances outstanding.
Total loans increased by $27,956,654 for the nine months ended March 31, 1997,
which was a $9,260,591 increase from December 31, 1996. The loan portfolio
growth was in 1-4 family mortgages, commercial real estate and commercial
loans. On December 4, 1996, the Company purchased approximately $10,000,000 of
1-4 family mortgages. The loans purchased were all one year adjustable rate
mortgages secured by property located in the state of Maine. On January 31,
1997, the Company purchased an additional loan portfolio of approximately
$10,000,000. The purchase consisted of 1-4 family adjustable rate mortgages
secured by property located primarily in the state of Maine. By April 30,1997,
the Company had committed to purchasing an additional $5,000,000 of 1-4 family
adjustable rate mortgages secured by property located primarily in the state of
Maine. 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 customer response to favorable secondary market rates have
affected the Company's ability to increase the loan portfolio. In the effort
to increase loan volume, the Company's offering rates for its loan products
have been reduced to compete in the various markets. While loan volume has
increased in the nine months 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 them to better evaluate credit risk. The Company also maintains
a well collateralized position in real estate mortgages. Residential real
estate mortgages make up 70% of the total loan portfolio, in which 53% of the
residential loans are variable rate products. It is management's intent to
increase the volume in 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.
Sixteen percent of the Company's total loan portfolio balance is commercial
real estate mortgages. Similar to 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 real estate. Commercial real estate loans
have minimal interest rate risk as 88% of the portfolio consists of variable
rate products.
Commercial loans make up 8% of the total loan portfolio, of which 80% 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 with the Company's credit policy
guidelines established by the Bank's Board of Directors.
Consumer and other loans make up 6% 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.
The net increase in the Company's premises and equipment is primarily due to
the construction of the new branch in Auburn, Maine.
Other real estate owned increased by $117,244 from June 30, 1996 to March 31,
1997. This increase was attributable to foreclosures on loan collateral.
Cash provided by operating activities on the Company's Consolidated Statements
of Cash Flows decreased by $1,297,284 at March 31, 1997 compared to March 31,
1996. The decrease was primarily due to the timing of payments in other
liabilities.
Total deposits were $154,672,129 and securities sold under repurchase
agreements were $4,788,597 as of March 31, 1997. These amounts represent an
increase of $9,476,760 and $1,025,631, respectively, compared to June 30, 1996.
The increase in deposits was primarily due to the opening of the Company's new
branch in Auburn, Maine. Brokered deposits represented $7,878,307 of the total
deposits at March 31, 1997. The Company utilizes brokered deposits as
alternative sources of funds. Brokered deposits are similar to local deposits,
in that both are interest rate sensitive with respect to the Company's ability
to retain the funds. Cross selling strategies are employed by the Bank to
develop deposit growth. Even though deposit interest rates increased during
the first nine months in fiscal 1997, the rate of return was much stronger in
other financial instruments such as mutual funds and annuities. Like other
companies in the banking industry, the Bank will be challenged to maintain
and/or increase its core deposit base.
Total advances from the FHLB were $65,700,742 as of March 31, 1997, an increase
of $13,577,742 compared to June 30, 1996. The cash received from FHLB advances
was utilized for the increase in the loan portfolio. The Company's current
advance availability, subject to the satisfaction of certain conditions, is
approximately $42,500,000 greater than the March 31, 1997 advances reported.
Mortgages, free of liens, pledges and encumbrances are required to be pledged
to secure FHLB advances. The Company utilizes FHLB advances, as alternative
sources of funds, when the interest rates of the advances are less than market
deposit interest rates and to fund short-term liquidity demands for loan
volume. With the borrowing capacity at the Federal Home Loan Bank, the normal
growth in bank deposits and repurchase agreements and the immediate
availability of the Bank's cash equivalents as well as securities available for
sale, management believes that the Company's available liquidity resources are
sufficient to support anticipated growth.
Total equity of the Company was $19,197,037 as of March 31, 1997 versus
$18,151,242 at June 30, 1996. Book value per common share was $13.49 as of
March 31, 1997 versus $13.13 at June 30, 1996. Total equity to total assets of
the Company as of March 31, 1997 was 7.76%.
At March 31, 1997, the Bank's regulatory capital was in compliance with
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
Northeast Bank, F.S.B.
Actual Capital Required Capital Excess Capital
Amount Ratio Amount Ratio Amount
------------- ------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Tangible capital $ 17,180,000 7.00% $ 3,683,000 1.50% $ 13,497,000
Core capital $ 17,180,000 7.00% $ 7,366,000 3.00% $ 9,814,000
Leverage capital $ 17,180,000 7.00% $ 9,822,000 4.00% $ 7,358,000
Risk-based capital $ 18,414,000 12.20% $ 12,073,000 8.00% $ 6,341,000
</TABLE>
The carrying value of securities available for sale by the Company was
$28,363,128, which is $1,253,077 less than the cost of the underlying
securities, at March 31, 1997. The difference between the carrying value and
the cost of the securities was primarily attributable to the decline in the
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 that the yields currently received on this
portfolio are satisfactory.
The Company's allowance for loan losses was $2,620,000 as of March 31, 1997
versus $2,549,000 as of June 30, 1996, representing 1.32% and 1.50% of total
loans, respectively. The Company had non-performing loans totaling $2,765,000
at March 31, 1997 compared to $2,603,000 at June 30, 1996. Non-performing
loans represented 1.12% and 1.17% of total assets at March 31, 1997 and June
30, 1996, respectively. The Company's allowance for loan losses was equal to
95% and 98% of the total non-performing loans at March 31, 1997 and June 30,
1996, respectively. At March 31, 1997, the Company had approximately $558,000
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. As of March 31, 1997, the amount of such loans had
decreased from the June 30, 1996 amount by $1,983,000. This decrease was
attributed to the reclassification of loans to lower risk classifications as a
result of favorable changes to in the borrower's financial condition,
indicating a decreased potential for these loans becoming non-performing
assets. 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 March 31, 1997 and June 30, 1996, respectively:
<TABLE>
<CAPTION>
March 31, June 30,
Description 1997 1996
------------------------- --------------- ---------------
<S> <C> <C>
1-4 Family Mortgages $ 1,234,000 $ 1,092,000
Commercial Mortgages 953,000 1,154,000
Commercial Installment 517,000 283,000
Consumer Installment 61,000 74,000
--------------- ---------------
Total non-performing $ 2,765,000 $ 2,603,000
=============== ===============
</TABLE>
The majority of the non-performing and substandard 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 had an increase in its total delinquent accounts during the
March 31, 1997 quarter. The increase in delinquency was largely due to the
increase in non-performing loans, when compared to the December 31, 1996
quarter.
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>
6-30-96 9-30-96 12-31-96 3-31-97
2.77% 1.53% 1.24% 1.52%
</TABLE>
The level of the allowance for loan losses as a percentage of total loans and
as a percentage of non-performing loans at March 31, 1997 decreased from June
30,1996. Total delinquencies as a percentage of total loans increased during
the quarter ended March 31,1997. Loans classified substandard decreased from
June 30, 1996 to March 31, 1997. 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.
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 March 31, 1997 was $450,989. Primary earnings
per share was $.31 and fully diluted earnings per share was $.29 for the
quarter ended March 31, 1997. This compares to earnings of $301,805 or a
primary earnings per share of $.20 per share and a fully diluted earnings per
share of $.19, for the quarter ended March 31, 1996. Net income for the nine
months ended March 31, 1997 was $1,162,411 versus $1,166,878 for the period
ended March 31, 1996. Primary earnings per share was $.80 and fully diluted
earnings per share was $.74 for the nine month period ended March 31, 1997
versus primary earnings per share of $.83 and fully diluted earnings per share
of $.76 for the period ended March 31, 1996.
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 Ratio. Institutions with SAIF deposits were
required to pay an 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. This resulted in an expense of $380,000 which
was reflected in the Company's September 30, 1996 quarter end financial
statements. During the December 31, 1996 quarter, Congress issued final
legislation which enabled certain qualifying institutions to apply for a 20%
discount on the special assessment. The Bank received a credit of $83,140
reducing the assessment expense in the December 31, 1996 quarter. The net
effect of the one time assessment was $296,860 and decreased the Company's
primary earnings per share by $.15 and the fully diluted earnings per share by
$.13 for the nine months ended March 31, 1997. 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, the 1997 annual assessment would be approximately $64,000. Commencing
in 2000 and continuing through 2017, banks would be required to pay a flat
annual assessment of 2.43 cents for every $100 of domestic deposits. If there
are no additional deposit assessments in the future, it is anticipated that the
Company will save approximately $82,000 annually commencing in fiscal 1998.
The Company's net interest income was $2,380,539 for the quarter ended March
31, 1997 versus $2,267,012 for the quarter ended March 31, 1996, for an
increase of $113,527. This increase was due to an increase of $521,744 in
total interest income offset by an increase in total interest expense of
$408,217.
The Company's net interest income was $7,063,746 for the nine months ended
March 31, 1997, versus $6,710,996 for the nine months ended March 31, 1996, an
increase of $352,750. Total interest income increased $1,148,621 during the
nine months ended March 31, 1997 compared to the nine months ended March 31,
1996, resulting from the following items: (I) interest income on loans and
loans held for sale increased by $371,687 for the nine months ended March 31,
1997 resulting from a $812,644 increase due to an increase in the volume of
loans, which was offset by a decrease of $440,957 due to decreased rates on
loans; (II) interest income on investment securities increased by $926,564
resulting from a $908,600 increase due to an increase in volume as well as an
increase of $17,964 due to increased rates on investments; and (III) interest
income on short term liquid funds decreased by $149,630 resulting from a
$112,968 decrease due to a decrease in volume as well as a decrease of $36,662
due to decreased rates on FHLB overnight deposits.
The increase in total interest expense of $795,871 for the nine months ended
March 31, 1997 resulted from the following items: (I) interest expense on
deposits decreased by $238,970 for the nine months ended March 31, 1997
resulting from a $33,041 decrease due to a decrease in the volume of deposits
as well as a decrease of $205,929 due to decreasing deposit rates; (II)
interest expense on repurchase agreements increased by $18,035 due to an
increase of $31,450 in the volume of repurchase agreements offset by a decrease
of $13,415 due to a decrease in rates; and (III) interest expense on
borrowings increased by $1,016,806 for the nine months ended March 31, 1997
resulting from an increase of $1,136,176 due to an increase in the volume of
borrowings offset by a decrease of $119,370 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 nine months ended
March 31, 1997 versus March 31, 1996
<TABLE>
<CAPTION>
Difference Due to
Volume Rate Total
----------- ----------- -----------
<S> <C> <C> <C>
Investments $ 908,600 $ 17,964 $ 926,564
Loans 812,644 (440,957) 371,687
FHLB & Other Deposits (112,968) (36,662) (149,630)
-------------------------------------
Total 1,608,276 (459,655) 1,148,621
Deposits (33,041) (205,929) (238,970)
Repurchase Agreements 31,450 (13,415) 18,035
Borrowings 1,136,176 (119,370) 1,016,806
-------------------------------------
Total 1,134,585 (338,714) 795,871
-------------------------------------
Net Interest Income $ 473,691 $ (120,941) $ 352,750
=====================================
</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 22% 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 36% 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 FHLB 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 $643,538 and $1,540,278 for the three and nine
months ended March 31, 1997 versus $455,466 and $1,620,238 for the three and
nine months ended March 31, 1996. Service fee income was $237,975 and $751,665
for the three and nine months ended March 31, 1997 versus $250,005 and $766,824
for the three and nine months ended March 31, 1996. The $15,159 service fee
decrease for the nine months ended March 31, 1997 was primarily due to a
reduction in loan fee income. Income from available for sale securities gains
was $2,306 and $76,724 for the three and nine months ended March 31, 1997
versus $19,187 and $225,570 for the three and nine months ended March 31, 1996.
Gains from the sale of securities decreased in the nine months ended March 31,
1997 by $148,846 compared to the nine months ended March 31, 1996. The Company
sold some of its available for sale securities during the nine month period
ended March 31, 1996, taking advantage of the fluctuation in market prices in
the mortgage-backed security portfolio. Income from trading account securities
was $73,187 and $123,311 for the three and nine month periods ended March 31,
1997 versus $16,093 and $23,098 for the three and nine month periods ended
March 31, 1996. The increase in the gain on trading account, in the three and
nine month period ended March 31, 1997, was due to the sale and appreciation in
the market values of the securities classified as trading.
Other income was $330,070 and $588,578 for the three and nine months ended
March 31, 1997, which was an increase of $159,889 and a decrease of $16,168
from other income of $170,181 and $604,746 for the three and nine months ended
March 31, 1996. The increase in other income in the three months ended March
31,1997, was primarily due to the following items: (I) gains on the sale of
loans held for sale amounted to $118,836 for the three months ended March 31,
1997 versus $67,968 for the three months ended March 31, 1996, the increase was
due to the sale of SBA guarenteed loans; (II) other income increased from
rental income and gains on the sale of other real estate owned, which were
$45,275 and $29,839 for the three months ended March 31, 1997 versus $13,602
and $3,541 for the three months ended March 31, 1996, respectively.
Total operating expense, or non-interest expense, for the Company was
$2,153,840 and $6,316,682 for the three and nine months ended March 31, 1997
versus $2,080,138 and $6,031,733 for the three and nine months ended March 31,
1996. The increase in occupancy and equipment expense for the three and nine
months ended March 31, 1997 was due to costs associated with the new branch
opened in Auburn, Maine as well as normal growth and maintenance. Other
expenses increased by $117,039 for the three months ended March 31, 1997,
compared to March 31, 1996. The increase in other expenses was primarily due
to professional services, advertising expenses and loan expenses. As
previously discussed above, the Company's operating expenses, for the nine
months ended March 31, 1997, increased primarily due to the FDIC-SAIF deposit
insurance assessment of $296,860. Excluding the deposit assessment, the
Company's operating expenses were $6,019,822 for the nine months ended March
31, 1997, which was a decrease of $11,911 when compared to the nine months
ended March 31, 1996.
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
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 SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes in Securities
---------------------
(a) Not applicable.
(b) Not applicable.
(c) On February 18, Square Lake Holding Co, ("Square Lake") exercised warrants
to purchase 25,000 common shares of the Company at a purchase price of
$7.00 per share, for an aggregate purchase price of $175,000. There was
no underwriting discount or commission. The warrants had been issued to
Square Lake pursuant to a Stock Purchase Agreement dated as of May 14,
1992 in a transaction exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof. The warrants were offered and sold
to a single purchaser for investment in a negotiated transaction not
involving general solicitation. No underwriter was involved in the sale
of the warrants.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
(a) On May 9, 1997, Northeast Bancorp signed a definitive agreement to
purchase Cushnoc Bank. The acquisition will be reported on Form 8-K
which will be filed by May 24, 1997.
Item 6. Exhibits and Reports on Form 8 - K
----------------------------------
(a) Exhibits
Not Applicable.
11 Statement regarding computation of per share.
27 Financial data schedule
(b) Reports on Form 8 - K
---------------------
No reports on Form 8 - K have been filed during the quarter ended March
31, 1997.
NORTHEAST BANCORP AND SUBSIDIARIES
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: May 13, 1997
NORTHEAST BANCORP AND SUBSIDIARIES
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
NORTHEAST BANCORP AND SUBSIDIARIES
Exhibit 11. Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------------- --------------------
<S> <C> <C>
EQUIVALENT SHARES:
Average Shares Outstanding 1,250,990 1,203,764
Total Equivalent Shares 1,250,990 1,203,764
Total Primary Shares 1,332,581 1,313,669
Total Fully Diluted Shares 1,568,067 1,558,516
Net Income $ 450,989 $ 301,805
Less Preferred Stock Dividend 34,999 35,000
-------------------- --------------------
Net Income after Preferred Dividend $ 415,990 $ 266,805
==================== ====================
Primary Earnings Per Share $ 0.31 $ 0.20
Fully Diluted Earnings Per Share $ 0.29 $ 0.19
Nine Months Ended Nine Months Ended
March 31, 1997 March 31, 1996
-------------------- --------------------
EQUIVALENT SHARES:
Average Shares Outstanding 1,237,848 1,173,201
Total Equivalent Shares 1,237,848 1,173,201
Total Primary Shares 1,317,902 1,273,434
Total Fully Diluted Shares 1,554,925 1,527,953
Net Income $ 1,162,411 $ 1,166,878
Less Preferred Stock Dividend 104,999 104,999
-------------------- --------------------
Net Income after Preferred Dividend $ 1,057,413 $ 1,061,879
==================== ====================
Primary Earnings Per Share $ 0.80 $ 0.83
Fully Diluted Earnings Per Share $ 0.74 $ 0.76
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,700,489
<INT-BEARING-DEPOSITS> 5,383,220
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 67,951
<INVESTMENTS-HELD-FOR-SALE> 28,363,128
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 197,878,578
<ALLOWANCE> 2,620,000
<TOTAL-ASSETS> 247,524,554
<DEPOSITS> 154,672,129
<SHORT-TERM> 47,388,153
<LIABILITIES-OTHER> 1,791,049
<LONG-TERM> 24,476,186
0
1,999,980
<COMMON> 1,274,749
<OTHER-SE> 15,922,308
<TOTAL-LIABILITIES-AND-EQUITY> 247,524,554
<INTEREST-LOAN> 12,602,580
<INTEREST-INVEST> 1,659,108
<INTEREST-OTHER> 470,619
<INTEREST-TOTAL> 14,732,307
<INTEREST-DEPOSIT> 4,660,271
<INTEREST-EXPENSE> 7,668,561
<INTEREST-INCOME-NET> 7,063,746
<LOAN-LOSSES> 433,710
<SECURITIES-GAINS> 200,035
<EXPENSE-OTHER> 6,316,682
<INCOME-PRETAX> 1,853,632
<INCOME-PRE-EXTRAORDINARY> 1,853,632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,162,411
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 3.998
<LOANS-NON> 2,765,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 331,186
<LOANS-PROBLEM> 558,000
<ALLOWANCE-OPEN> 2,549,000
<CHARGE-OFFS> 465,403
<RECOVERIES> 102,693
<ALLOWANCE-CLOSE> 2,620,000
<ALLOWANCE-DOMESTIC> 409,505
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,210,495
</TABLE>
