LEWISTON, Maine--(BUSINESS WIRE)-- Northeast Bancorp ("Northeast" or the "Company") (NASDAQ: NBN), a Maine-based full-service financial services company and parent of Northeast Bank (the "Bank"), today reported net income available to common shareholders of $542 thousand, or $0.05 per diluted common share, for the quarter ended June 30, 2014, compared to net income available to common shareholders of $205 thousand, or $0.02 per diluted common share, for the quarter ended June 30, 2013. Net income available to common shareholders for the year ended June 30, 2014 was $2.7 million, compared to $4.1 million for the year ended June 30, 2013.

The current quarter and year included several non-recurring items, related principally to severance costs, one-time costs associated with the Bank's core systems conversion and a legal settlement recovery. Excluding these items, which the Company considers to be non-core, net operating earnings were $1.1 million, or $0.11 per share, for the quarter and $3.6 million, or $0.35 per share, for the year ended June 30, 2014. Reported net income and net operating earnings for the quarters and years ended June 30, 2014 and 2013, respectively, are set forth below:

The Board of Directors has declared a cash dividend of $0.01 per share, payable on August 21, 2014 to shareholders of record as of August 7, 2014.

"It was a very productive and busy quarter," said Rick Wayne, President and Chief Executive Officer of Northeast. "We closed $75 million of loans, including commercial loan purchases and originations totaling $45 million, while maintaining sound asset quality. We generated a return of 12.2% on our purchased loan book, supporting a net interest margin of 4.75% for the quarter. We significantly enhanced our delivery platform with the successful completion of our core systems conversion; this achievement and the restructuring expenses we incurred will help us to better align resources with our business objectives. Looking forward, we believe our significant operational capacity, lending expertise and capital resources leave us well-positioned for growth."

At June 30, 2014, total assets were $761.9 million, an increase of $91.3 million, or 13.6%, compared to June 30, 2013. The principal components of the change in the Company's balance sheet are as follows:

1. The loan portfolio grew by $84.4 million, or 19.0%, compared to June 30, 2013, principally due to net growth of $75.3 million in commercial loans purchased or originated by the Bank's Loan Acquisition and Servicing Group ("LASG") and $9.1 million of net growth in loans originated by the Bank's Community Banking Division.

For the quarter ended June 30, 2014, significant loan growth by the LASG was largely offset by runoff, resulting in a net increase in the LASG purchased and originated portfolio of $7.3 million. Purchased loans of $33.6 million produced a net increase of $18.5 million, net of pay-downs. LASG originated loans totaling $11.5 million were more than offset by pay-downs, in large part due to the payoff of a low-yielding $12 million securities loan.

As has been discussed in the Company's prior SEC filings, the Company made certain commitments to the Board of Governors of the Federal Reserve System in connection with the merger of FHB Formation LLC with and into the Company in December 2010. The Company's loan purchase and commercial real estate loan availability under these conditions follow.

An overview of the LASG portfolio follows.

2. Deposits and borrowings increased by $89.7 million and $1.7 million, respectively, from June 30, 2013. Non-maturity deposits increased by $10.6 million, or 4.8%, for the year while time deposits grew by 30.1% or $79.1 million. The latter was centered in deposits raised through deposit listing services, which the Bank uses when advantageous to acquire term funding consistent with its asset/liability management objectives.

3. Stockholders' equity decreased by $1.7 million from June 30, 2013, in part due to common stock dividends of $2.9 million and $2.8 million of common stock repurchases (representing 291,200 shares).

Net income from continuing operations increased by $296 thousand to $542 thousand for the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013, both results affected by non-core items as noted above. Earnings for the current quarter included the following items of significance:

1. Net interest income before provision for loan losses decreased slightly, by $55 thousand, or less than 1%, for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013, due to lower transactional interest income from purchased loan payoffs offset by the positive effect of balance sheet growth. Average earning assets increased by $72.4 million, and average loans by $121.3 million, when compared to the fourth quarter of FY 2013.

The various components of transactional income are set forth in the table below entitled "Total Return on Purchased Loans." When compared to the quarter ended June 30, 2013, transactional interest income decreased by $1.1 million, impacting the net interest margin, which declined to 4.75% from 5.32%. The following table summarizes interest income and related yields recognized on the loan portfolios.

The yield on purchased loans in each period shown was increased by unscheduled loan payoffs, which resulted in immediate recognition of the prepaid loans' discount in interest income. The following table details the "total return" on purchased loans, which includes total transactional income of $1.7 million for the quarter ended June 30, 2014, a decrease of $1.1 million from the quarter ended June 30, 2013. The following table summarizes the total return recognized on the purchased loan portfolio:

2. Quarterly noninterest income of $1.4 million was unchanged compared to the quarter ended June 30, 2013, as a $318 thousand increase in gains on sales of commercial loans offset a $209 thousand reduction in gains realized on sales of residential mortgage loans. The decline in residential loan sale gains was the result of a reduction in refinance activity compared to the prior period.

3. Noninterest expense decreased by $672 thousand for the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013. Variances of significance are:

• An increase of $296 thousand in salaries and employee benefits, principally related to an increase in severance costs incurred between the two periods. Severance costs of $652 thousand in the current quarter were primarily the result of the elimination of two senior positions in the Community Banking Division and a restructuring of the Bank's information technology infrastructure in light of the Bank's core banking systems conversion in May 2014;
• An increase of $64 thousand in occupancy and equipment expense, principally related to a higher level of software maintenance and depreciation;
• An increase of $91 thousand in data processing, due to the conversion of the Bank's core software to an outsourced model during the quarter ended June 30, 2014;
• A decrease of $271 thousand in marketing expense, due to a reduction in deposit and residential mortgage marketing in fiscal 2014;
• A decrease of $145 thousand in loan expense, principally due to lower loan acquisitions and work-out expenses;
• Legal settlement expense in the amount of $980 thousand incurred in the fourth quarter of 2013;
• An increase of $251 thousand in other noninterest expense, principally due to contract termination costs and one-time non-capital expenses associated with the recent core banking systems conversion.

4. The Company's effective tax rate for the quarter ended June 30, 2014 was 45.9%, compared to 36.9% and 30.5% for the fiscal years ended June 30, 2014 and 2013, respectively. The increase in the quarter was primarily the result of a change in estimated state tax apportionment. Absent this change, the Company's annual effective tax rate would have been approximately 33.3%.

At June 30, 2014, nonperforming assets totaled $8.9 million, or 1.2% of total assets, compared to $7.0 million, or 1.0% of total assets at June 30, 2013.

At June 30, 2014, the Company's Tier 1 leverage ratio was 15.9%, a decrease from 17.8% at June 30, 2013, and the total risk-based capital ratio was 23.7%, a decrease from 27.5% at June 30, 2013.

Investor Call Information

Richard Wayne, Chief Executive Officer of Northeast Bancorp, and Claire Bean, Chief Financial Officer of Northeast Bancorp, will host a conference call to discuss fourth quarter earnings and business outlook at 9:30 a.m. Eastern Time on Friday, July 25, 2014. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 77324290. The call will be available via live webcast, which can be viewed by accessing the Company's website at www.northeastbank.com and clicking on the About Us - Investor Relations section. To listen to the webcast, attendees are encouraged to visit the website at least fifteen minutes early to register, download and install any necessary audio software. Please note there will also be a slide presentation that will accompany the webcast. For those who cannot listen to the live broadcast, a replay will be available online for one year at www.northeastbank.com.

About Northeast Bancorp

Northeast Bancorp (NASDAQ: NBN) is the holding company for Northeast Bank, a full-service bank headquartered in Lewiston, Maine. Northeast Bank offers traditional banking services through its Community Banking Division, which operates ten full-service branches and six loan production offices that serve individuals and businesses located in western and south-central Maine, southern New Hampshire and eastern Massachusetts. Northeast Bank's Loan Acquisition and Servicing Group purchases and originates commercial loans for the Bank's portfolio. ableBanking, a division of Northeast Bank, offers savings products to consumers online. Information regarding Northeast Bank can be found on its website at www.northeastbank.com.

Non-GAAP Financial Measure

In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures, including tangible common stockholders' equity, tangible book value per share, and net operating earnings. Northeast's management believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although Northeast believes that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company's control. The Company's actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in interest rates and real estate values; competitive pressures from other financial institutions; the effects of continuing weakness in general economic conditions on a national basis or in the local markets in which the Company operates, including changes that adversely affect borrowers' ability to service and repay loans; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; increasing government regulation; the risk that the Company may not be successful in the implementation of its business strategy; the risk that intangibles recorded in the Company's financial statements will become impaired; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company's Annual Report on Form 10-K and updated by the Company's Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. These statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this communication or to reflect the occurrence of unanticipated events.

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