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 $437 thousand, or $0.04 per diluted common share, for the quarter ended March 31, 2014, compared to net income available to common shareholders of $1.7 million, or $0.16 per diluted common share, for the quarter ended March 31, 2013. Net income available to common shareholders for the nine months ended March 31, 2014 was $2.2 million, compared to $3.9 million for the nine months ended March 31, 2013.

"The timing of income realized through our loan purchasing activities affected our results this quarter, as transactional income declined to $689 thousand as compared to $4.1 million for the quarter ended March 31, 2013. As we have noted in the past, transactional income on purchased loans can vary significantly from quarter to quarter, and income not recognized currently will benefit future periods," said Richard Wayne, Chief Executive Officer. "Such fluctuations may continue to cause variability in our quarterly earnings per share, until moderated by the positive effect of growth in our balance sheet and the full leveraging of our capital."

The Board of Directors has also voted to authorize the Company to purchase up to 870,000 shares of its common stock, representing 8.3% of the Company's outstanding common shares and approximately $8.4 million based on the Company's closing stock price on April 22, 2014. The Board of Directors has also declared a cash dividend of $0.01 per share, payable on May 19, 2014 to shareholders of record as of May 5, 2014.

"We believe that our shares are undervalued, based on current market prices," said Mr. Wayne. "Our goal in implementing this stock repurchase plan is to enhance shareholder value and, coupled with a reduction in our common stock dividend, provide the Company with greater flexibility in managing its capital position as we continue to implement our growth strategy."

Repurchases under the stock repurchase program will be made in open market or in privately negotiated transactions from time to time and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The stock repurchase program may be suspended or terminated at any time without prior notice, and will expire on April 23, 2016.

At March 31, 2014, total assets were $750.9 million, an increase of $80.3 million, or 12.0%, 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 $78.9 million, or 18.1%, compared to June 30, 2013, principally due to net growth of $68.0 million in commercial loans purchased or originated by the Bank's Loan Acquisition and Servicing Group ("LASG") and $10.9 million of net growth in loans originated by the Bank's Community Banking Division. 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 capacity under these conditions follow.

An overview of the Bank's LASG portfolio follows.

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

2. Deposits and borrowings increased by $78.7 million and $1.6 million, respectively, from June 30, 2013. Growth in each was tied to the Company's strategy for funding its loan growth which, through the third quarter of fiscal 2014, included a component of duration-matched funding for residential mortgages.

Net income from continuing operations decreased by $1.2 million to $437 thousand for the quarter ended March 31, 2014, compared to $1.6 million for the quarter ended March 31, 2013. Operating results for the current quarter included the following additional items of significance:

1. Net interest income before provision for loan losses decreased by $1.1 million, or 13.8%, to $7.1 million for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013, primarily due to lower transactional interest income from purchased loan payoffs. 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 March 31, 2013, transactional interest income decreased nearly $2.4 million, impacting the net interest margin, which declined to 4.08% from 5.07%. 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 $689 thousand for the quarter ended March 31, 2014, a decrease of $3.4 million from the quarter ended March 31, 2013. The following table summarizes the total return recognized on the purchased loan portfolio.

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

2. Noninterest income decreased by $1.3 million for the quarter ended March 31, 2014, compared to the quarter ended March 31, 2013, principally due to the following:

• A decrease of $855 thousand in gain on sales of portfolio loans (this is a component of transactional income, as noted above).
• A decrease of $360 thousand in gain on sales of loans held for sale, principally due to a significant decline in residential loan refinance activity. The Company sold $15.3 million of residential loans in the quarter ended March 31, 2014, compared to $33.3 million in the quarter ended March 31, 2013.
• A decrease of $65 thousand in net gains on the disposition of other real estate owned.
• A decrease of $45 thousand in fee income, principally due to a decrease in transactional deposit account activity.

3. Noninterest expense decreased by $612 thousand for the quarter ended March 31, 2014, compared to the quarter ended March 31, 2013, principally due to the following:

• A decrease of $928 thousand in salaries and employee benefits, principally related to a decline in incentive compensation.
• An increase of $232 thousand in occupancy and equipment expense, due to increased rent and utilities expense, depreciation, and software expenses.
• A decrease of $163 thousand in marketing expense, primarily due to a reduction in deposit marketing in fiscal 2014.
• An increase of $88 thousand in loan acquisition and collection expenses due, in part, to an increase of $5.0 million in loan purchases in the quarter ended March 31, 2014 over the same quarter in 2013.
• An increase of $204 thousand in other noninterest expense, principally due to non-capital expenditures associated with the Company's upcoming core banking software system conversion.

At March 31, 2014, nonperforming assets totaled $9.4 million, or 1.3% of total assets, compared to $7.0 million, or 1.0% of total assets at June 30, 2013. At March 31, 2014, $1.9 million of loans on nonaccrual status were current as to principal and interest payments, compared to $887 thousand at June 30, 2013.

At March 31, 2014, the Company's Tier 1 leverage ratio was 16.3%, a decrease from 17.8% at June 30, 2013, and the total risk-based capital ratio was 24.1%, 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 third quarter earnings and business outlook at 11:00 a.m. Eastern Time on Thursday, April 24, 2014. Investors can access the call by dialing 877.878.2762 and entering the following passcode: 34221296. 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 southeastern 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.

NBN-F

(1) Includes loans held for sale.
(2) Nonaccrual loans are included in the computation of average, but unpaid interest has not been included for purposes of determining interest income.
(3) Short term investments include FHLB overnight deposits and other interest-bearing deposits.
(4) Net interest margin is calculated as net interest income divided by total interest-earning assets.

(1) Includes loans held for sale.
(2) Nonaccrual loans are included in the computation of average, but unpaid interest has not been included for purposes of determining interest income.
(3) Short term investments include FHLB overnight deposits and other interest-bearing deposits.
(4) Net interest margin is calculated as net interest income divided by total interest-earning assets.

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

Northeast Bank
Claire S. Bean, CFO & COO, 207-786-3245 ext. 3202
www.northeastbank.com

Source: Northeast Bancorp

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