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 December 31, 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
_______________________________________________________________________________
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 February 10, 1997: 1,234,749 of common stock, $1.00
par value per share.
NORTHEST BANCORP AND SUBSIDIARY
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996
Consolidated Statements of Income
Three Months ended December 31, 1996 and 1995
Consolidated Statements of Income
Six Months ended December 31, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity
Six Months ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows
Six Months ended December 31, 1996 and 1995
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 SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1996 1996
--------------- ---------------
Assets
Cash and due from banks $ 3,708,584 $ 3,386,263
Interest bearing deposits in other banks 341,553 650,430
Federal Home Loan Bank overnight deposits 5,262,000 7,529,435
Trading account securities at market 35,753 197,621
Available for sale securities 28,896,205 29,650,319
Federal Home Loan Bank stock 3,433,200 2,656,200
Loans held for sale 123,405 448,475
Loans 188,691,754 170,140,264
Less deferred loan origination fees 210,767 289,340
Less allowance for loan losses 2,483,000 2,549,000
--------------- ---------------
Net loans 185,997,987 167,301,924
Bank premises and equipment, net 3,719,385 3,576,386
Real estate held for investment 457,675 459,820
Other real estate owned 635,736 513,831
Goodwill (net of accumulated amortization
of $1,088,246 at 12/31/96 and $940,059 at
6/30/96) 2,409,726 2,557,913
Other assets 3,437,836 3,360,998
--------------- ---------------
Total Assets 238,459,045 222,289,615
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 142,959,996 $ 145,195,369
Repurchase Agreements 5,213,846 3,762,966
Advances from Federal Home Loan Bank 68,663,634 52,123,000
Notes payable 1,375,000 1,502,192
Other Liabilities 1,503,491 1,554,846
--------------- ---------------
Total Liabilities 219,715,967 204,138,373
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, 1,234,577 and
1,234,010 shares issued at 12/31/96 and
6/30/96, respectively. 1,231,547 and
1,229,910 shares outstanding at 12/31/96
and 6/30/96, respectively 1,234,577 1,234,010
Additional paid in capital 5,462,231 5,455,852
Retained earnings 10,795,426 10,351,031
--------------- ---------------
19,492,214 19,040,873
Net unrealized loss on available for sale
securities (710,501) (837,354)
Treasury Stock at cost 3,030 shares at
12/31/96 and 4,100 shares at 6/30/96 (38,635) (52,277)
--------------- ---------------
Total Shareholders' Equity 18,743,078 18,151,242
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 238,459,045 $ 222,289,615
=============== ===============
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended
December 31,
1996 1995
--------------- ---------------
Interest and Dividend Income
Interest on FHLB overnight deposits $ 81,122 $ 174,511
Interest on loans & loans held for sale 4,209,837 4,078,736
Interest on investment securities &
available for sale securities 568,645 222,578
Dividends on Federal Home Loan Bank stock 50,384 36,887
Other Interest Income 7,601 11,978
--------------- ---------------
Total Interest Income 4,917,589 4,524,690
Interest Expense
Deposits 1,533,721 1,652,178
Repurchase agreements 54,686 48,880
Other borrowings 929,928 592,950
--------------- ---------------
Total Interest Expense 2,518,335 2,294,008
--------------- ---------------
Net Interest Income 2,399,254 2,230,682
Provision for loan losses 144,443 147,708
--------------- ---------------
Net Interest Income after Provision for
Loan Losses 2,254,811 2,082,974
Other Income
Service charges 246,741 235,211
Available for sale securities gains (losses) 46,117 85,791
Gain (Loss) on trading account (11,241) 7,006
Other 110,439 222,470
--------------- ---------------
Total Other Income 392,056 550,478
Other Expenses
Salaries and employee benefits 970,327 952,595
Net occupancy expense 140,505 126,373
Equipment expense 183,916 175,814
Goodwill amortization 74,094 74,335
FDIC Insurance Assessment (83,140) --
Other 533,311 606,554
--------------- ---------------
Total Other Expenses 1,819,013 1,935,671
--------------- ---------------
Income Before Income Taxes 827,854 697,781
Income tax expense 299,694 254,345
--------------- ---------------
Net Income $ 528,160 $ 443,436
=============== ===============
Earnings Per Share
Primary $ 0.37 $ 0.32
Fully Diluted $ 0.33 $ 0.29
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Six Months Ended
December 31,
1996 1995
--------------- ---------------
Interest and Dividend Income
Interest on FHLB overnight deposits $ 169,187 $ 356,076
Interest on loans & loans held for sale 8,197,097 8,176,899
Interest on investment securities &
available for sale securities 1,151,229 383,158
Dividends on Federal Home Loan Bank stock 96,793 73,737
Other Interest Income 19,917 17,476
--------------- ---------------
Total Interest Income 9,634,223 9,007,346
Interest Expense
Deposits 3,073,287 3,287,660
Repurchase agreements 92,956 82,793
Other borrowings 1,784,774 1,192,909
--------------- ---------------
Total Interest Expense 4,951,017 4,563,362
--------------- ---------------
Net Interest Income 4,683,206 4,443,984
Provision for loan losses 289,257 295,563
--------------- ---------------
Net Interest Income after Provision for
Loan Losses 4,393,949 4,148,421
Other Income
Service charges 513,690 516,820
Available for sale securities gains (losses) 74,417 206,383
Gain (Loss) on trading account 50,124 7,006
Other 258,509 434,563
--------------- ---------------
Total Other Income 896,740 1,164,772
Other Expenses
Salaries and employee benefits 1,994,852 1,995,844
Net occupancy expense 267,475 248,269
Equipment expense 360,943 344,102
Goodwill amortization 148,187 148,669
FDIC Insurance Assessment 296,860 --
Other 1,094,525 1,214,711
--------------- ---------------
Total Other Expenses 4,162,842 3,951,595
--------------- ---------------
Income Before Income Taxes 1,127,847 1,361,598
Income tax expense 416,426 496,525
--------------- ---------------
Net Income $ 711,421 $ 865,073
=============== ===============
Earnings Per Share
Primary $ 0.48 $ 0.64
Fully Diluted $ 0.45 $ 0.58
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended December 31, 1996 and 1995
(Unaudited)
Net
Unrealized
Gains(Losses)
Additional on Available
Common Preferred Paid-In Retained for Sale Treasury
Stock Stock Capital Earnings Securities Stock Total
------------ ----------- ----------- ------------- ------------ ------------- ------------
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 six months
ended December 31, 1995 -- -- -- 865,073 -- -- 865,073
Dividends paid on common
stock -- -- -- (91,629) -- -- (91,629)
Dividends paid on preferred
stock -- -- -- (70,000) -- -- (70,000)
Issuance of common stock 241 -- 4,999 -- -- -- 5,240
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 -- -- -- -- 59,588 -- 59,588
------------ ----------- ----------- ------------- ------------ ------------- ------------
Balance December 31, 1995 $ 1,203,486 $1,999,980 $5,330,058 $ 10,285,945 $ (35,919) $ 0 $18,783,550
============ =========== =========== ============= ============ ============= ============
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 six months
ended December 31, 1996 -- -- -- 711,421 -- -- 711,421
Dividends paid on common
stock -- -- -- (197,027) -- -- (197,027)
Dividends paid on preferred
stock -- -- -- (69,999) -- -- (69,999)
Issuance of common stock 567 -- 6,379 -- -- 13,642 20,588
Net change in unrealized
losses on securities
available for sale -- -- -- -- 126,853 -- 126,853
------------ ----------- ----------- ------------- ------------ ------------- ------------
Balance December 31, 1996 $ 1,234,577 $1,999,980 $5,462,231 $ 10,795,426 $ (710,501) $ (38,635) $18,743,078
============ =========== =========== ============= ============ ============= ============
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flow
(Unaudited)
Six Months Ended
December 31,
1996 1995
--------------- ---------------
Cash provided by operating activities $ 1,628,641 $ 759,572
Cash flows from investing activities:
FHLB stock purchased (777,000) (150,000)
Available for sale securities purchased (10,958,967) (19,088,597)
Available for sale securities principal
reductions 1,020,478 400,237
Available for sale securities sold 10,959,817 16,628,443
New loans, net of repayments & charge offs (19,458,012) (280,874)
Net capital expenditures (392,526) (195,644)
Real estate owned sold 341,067 471,184
Real estate held for investment purchased -- (56,096)
Real estate held for investment sold -- 40,000
--------------- ---------------
Net cash provided by (used in) investing
activities (19,265,143) (2,231,347)
Cash flows from financing activities:
Net change in deposits (2,235,372) 2,215,404
Net change in repurchase agreements 1,450,880 1,179,285
Dividends paid (267,026) (161,629)
Proceeds from stock issuance 20,588 745,240
Net increase in advances from Federal Home
Loan Bank of Boston 16,540,634 5,400,000
Net change in notes payable (127,193) (255,443)
--------------- ---------------
Net cash provided by financing activities 15,382,511 9,122,857
--------------- ---------------
Net (decrease) increase in cash and cash
equivalents (2,253,991) 7,651,082
Cash and cash equivalents, beginning of period 11,566,128 14,740,070
--------------- ---------------
Cash and cash equivalents, end of period $ 9,312,137 $ 22,391,152
=============== ===============
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 126,853 59,588
Net transfer (to) from Loans to Other Real
Estate Owned 551,264 (158,173)
Supplemental disclosure of cash paid during
the period for:
Income taxes paid, net of refunds 13,000 433,700
Interest paid 4,866,038 4,566,224
NORTHEAST BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 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 six month
period ended December 31, 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 the carrying and approximate market values are
summarized below.
December 31, 1996 June 30, 1996
------------------------- -------------------------
Market Market
Cost Value Cost Value
------------ ------------ ------------ ------------
Debt securities issued by
the U.S. Treasury and
other U.S. Government
corporations and agencies $ 1,499,942 $ 1,457,605 $ 1,497,111 $ 1,424,690
Corporate bonds 149,670 145,172 149,646 139,005
Mortgage-backed securities 27,649,529 26,719,550 28,810,113 27,646,294
Equity securities 673,581 573,878 462,167 440,330
------------ ------------ ------------ ------------
$29,972,722 $28,896,205 $30,919,037 $29,650,319
============ ============ ============ ============
December 31, 1996 June 30, 1996
------------------------- -------------------------
Market Market
Cost Value Cost Value
------------ ------------ ------------ ------------
Due in one year or less $ 249,942 $ 249,942 $ 247,111 $ 246,790
Due after one year through
five years 250,000 242,350 250,000 237,900
Due after five years
through ten years 149,670 145,172 149,646 139,005
Due after ten years 1,000,000 965,313 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) 27,649,529 26,719,550 28,810,113 27,646,294
Equity securities 673,581 573,878 462,167 440,330
------------ ------------ ------------ ------------
$29,972,722 $28,896,205 $30,919,037 $29,650,319
============ ============ ============ ============
3. Allowance for Loan Losses
-------------------------
The following is an analysis of transactions in the allowance for loan losses:
Six Months Ended
December 31,
1996 1995
------------ ------------
Balance at beginning of year $ 2,549,000 $ 2,396,000
Add provision charged to operations 289,257 295,563
Recoveries on loans previously charged off 31,703 20,776
------------ ------------
2,869,960 2,712,339
Less loans charged off 386,960 318,339
------------ ------------
Balance at end of period $ 2,483,000 $ 2,394,000
============ ============
4. Advances from Federal Home Loan Bank
------------------------------------
A summary of borrowings from the Federal Home Loan Bank is as follows:
December 31, 1996
---------------------------------------------
Principal Interest Maturity
Amounts Rates Dates
-------------- --------------- ------------
$ 42,850,000 5.17% - 6.87% 1997
18,717,241 4.97% - 6.39% 1998
2,800,000 5.75% - 5.96% 1999
1,888,226 6.21% - 6.49% 2001
2,408,167 6.36% - 6.67% 2003
--------------
$ 68,663,634
==============
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.
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 assets, 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 $238,459,045 on December 31, 1996, which
represents an increase of $16,169,430 from June 30, 1996. Total loans
increased by $18,696,063 while loans held for sale decreased by $325,070.
Federal Home Loan Bank ("FHLB") stock increased by $777,000, while securities
and cash equivalents decreased by $915,982 and $2,253,991, respectively, during
the same period. Total deposits decreased by $2,235,373, while total repurchase
agreements and FHLB borrowings increased by $1,450,880 and $16,540,634,
respectively from June 30, 1996 to December 31, 1996.
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
December 31, 1996. FHLB stock increased due to the increased levels of FHLB
advances during the same time period. The FHLB requires institutions to hold a
certain level of FHLB stock based on advances outstanding.
Total loans increased by $18,696,063 for the six months ended December 31,
1996, which was a $15,494,855 improvement from September 30, 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.
By January 31, 1997, the Company had committed to purchasing an additional
$10,000,000 of 1-4 family adjustable rate mortgages secured by property located
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's response to favorable secondary
market rates has 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 six months of this fiscal year, the Company will
experience some margin compression due to decreased loan rates. Loans held for
sale decreased by $325,070 due to the increased volume of mortgage loans sold
to Freddie Mac and Fannie Mae. The increased volume was due to favorable
secondary market rates during the Company's December 31, 1996 quarter.
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 69% of the total loan portfolio, in which 49% 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.
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. Commercial real
estate loans have minimal interest rate risk as 89% of the portfolio consists
of variable rate products.
Commercial loans make up 9% of the total loan portfolio, in which 83% of its
balance is 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.
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 $121,905 from June 30, 1996 to December
31,1996. This increase was attributable to foreclosures on loan collateral.
Cash provided by operating activities on the Company's Consolidated Statements
of Cash Flows increased by $869,069 at December 31, 1996 compared to December
31, 1995. The increase was primarily due to the increased cash from the sale
of trading securities and loans held for sale.
Total deposits were $142,959,996 and securities sold under repurchase
agreements were $5,213,846 as of December 31, 1996. These amounts represent a
decrease of $2,235,373 and an increase of $1,450,880, respectively, compared
to June 30, 1996. Brokered deposits represented $4,820,113 of the total
deposits for the quarter ended December 31, 1996 a decrease of $827,025
compared to June 30, 1996. The Company utilizes brokered CD's 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 1996, 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 $68,663,634 as of December 31, 1996, an
increase of $16,540,634 compared to June 30, 1996. The cash received from FHLB
advances was utilized for the increase in the loan portfolio, during the
quarter ended December 31, 1996. The Company's current advance availability,
subject to the satisfaction of certain conditions, is approximately $33,200,000
greater than the December 31, 1996 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 future
budgeted growth.
Total equity of the Company was $18,743,078 as of December 31, 1996 versus
$18,151,242 at June 30, 1996. Book value per common share was $13.60 as of
December 31, 1996 versus $13.13 at June 30, 1996. Total equity to total assets
of the Company as of December 31, 1996 was 7.86%.
At December 31, 1996, the Banks' regulatory capital was in compliance with
regulatory capital requirements as follows:
Northeast
Bank, F.S.B.
---------------
Capital Requirements:
Tangible capital $ 3,545,000
Percent of tangible assets 1.50%
Core capital $ 7,089,000
Percent of adjusted tangible assets 3.00%
Leverage capital $ 9,452,000
Percent of adjusted leverage assets 4.00%
Risk-based capital $ 11,644,000
Percent of risk-weighted assets 8.00%
Actual:
Tangible capital $ 16,623,000
Percent of adjusted total assets 7.03%
Excess of requirement $ 13,078,000
Core capital $ 16,623,000
Percent of adjusted tangible assets 7.03%
Excess of requirement $ 9,534,000
Leverage capital $ 16,623,000
Percent of adjusted leverage assets 7.03%
Excess of requirement $ 7,171,000
Risk-based capital $ 17,836,000
Percent of risk-weighted assets 12.25%
Excess of requirement $ 6,192,000
The carrying value of securities available for sale by the Company was
$28,896,205, which is $1,076,517 less than the cost of the underlying
securities, at December 31, 1996. The difference from the carrying value and
the cost of the securities was primarily attributable 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 that the yields currently received on this
portfolio are satisfactory.
The Company's allowance for loan losses was $2,483,000 as of December 31, 1996
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 $2,221,000
at December 31, 1996 compared to $2,603,000 at June 30, 1996. Non-performing
loans represented .93% and 1.17% of total assets at December 31 and June 30,
1996, respectively. The Company's allowance for loan losses was equal to 112%
and 98% of the total non-performing loans at December 31, 1996 and June 30,
1996, respectively. At December 31, 1996, the Company had approximately
$648,000 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 December 31, 1996, the amount of such loans had
decreased from the June 30, 1996 amount by $1,893,000. 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 December 31 and June 30, 1996, respectively:
December 31, June 30,
Description 1996 1996
- ------------------------- --------------- ---------------
1-4 Family Mortgages $ 1,339,000 $ 1,092,000
Commercial Mortgages 552,000 1,154,000
Commercial Installment 293,000 283,000
Consumer Installment 37,000 74,000
--------------- ---------------
Total non-performing $ 2,221,000 $ 2,603,000
=============== ===============
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 decreased its total delinquent accounts during the December
31, 1996 quarter. The reduction was largely due to collection efforts of the
30 and 60 day delinquent accounts as well as the transfer of $551,264
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:
3-31-96 6-30-96 9-30-96 12-31-96
2.82% 2.77% 1.53% 1.24%
While the level of the allowance for loan losses as a percentage of total loans
at December 31, 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 December 31,
1996. Loans classified substandard decreased from June 30, 1996 to December 31,
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 December 31, 1996 was $528,160. Primary
earnings per share was $.37 and fully diluted earnings per share was $.33 for
the quarter ended December 31, 1996. This compares to earnings of $443,436 or a
primary earnings per share of $.32 per share and a fully diluted earnings per
share of $.29, for the quarter ended December 31, 1995. Net income for the six
months ended December 31, 1996 was $711,421 versus $865,073 for the period
ended December 31, 1995. Primary earnings per share was $.48 and fully diluted
earnings per share was $.45 for the six month period ended December 31, 1996
versus primary earnings per share of $.64 and fully diluted earnings per share
of $.58 for the period ended December 31, 1995. The 1995 earnings per share has
been restated as a result of the Company's 100% stock dividend in December,
1995.
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 an ability 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
credit received from the FDIC increased the Company's Primary earnings per
share by $.04 and the fully diluted earnings per share by $.03 for the quarter
ended December 31, 1996. 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 six months ended December 31,
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, 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 $2,399,254 for the quarter ended December
31, 1996 versus $2,230,682 for the quarter ended December 31, 1995, for an
increase of $168,572. This increase was due to an increase of $392,899 in total
interest income offset by an increase in total interest expense of $224,327.
The Company's net interest income was $4,683,206 for the six months ended
December 31, 1996, versus $4,443,984 for the six months ended December 31,
1995, an increase of $239,222. Total interest income increased $626,877 during
the six months ended December 31, 1996 compared to the six months ended
December 31, 1995, resulting from the following items: (I) Interest income on
loans and loans held for sale increased by $20,198 for the six months ended
December 31, 1996 resulting from a $235,890 increase due to an increase in the
volume of loans, which was offset by a decrease of $215,692 due to decreased
rates on loans. (II) Interest income on investment securities increased by
$791,127 resulting from a $761,753 increase due to an increase in volume as
well as an increase of $29,374 due to increased rates on investments. (III)
Interest income on short term liquid funds decreased by $184,448 resulting from
a $151,828 decrease due to a decrease in volume as well as a decrease of
$32,620 due to decreased rates on FHLB overnight deposits.
The increase in total interest expense of $387,655 for the six months ended
December 31, 1996 resulted from the following items: (I) Interest expense on
deposits decreased by $214,373 for the six months ended December 31, 1996
resulting from a $76,363 decrease due to a decrease in the volume of deposits
as well as a decrease of $138,010 due to decreasing deposit rates. (II)
Interest expense on repurchase agreements increased by $10,163 due to an
increase of $19,615 in the volume of repurchase agreements offset by a decrease
of $9,452 due to a decrease in rates. (III) Interest expense on borrowings
increased by $591,865 for the six months ended December 31, 1996 resulting from
an increase of $664,691 due to an increase in the volume of borrowings offset
by a decrease of $72,826 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 six months ended
December 31, 1996 versus December 31, 1995
Difference Due to
Volume Rate Total
---------- ---------- ----------
Investments $ 761,753 $ 29,374 $ 791,127
Loans 235,890 (215,692) 20,198
FHLB & Other Deposits (151,828) (32,620) (184,448)
----------------------------------
Total 845,815 (218,938) 626,877
Deposits (76,363) (138,010) (214,373)
Repurchase Agreements 19,615 (9,452) 10,163
Borrowings 664,691 (72,826) 591,865
----------------------------------
Total 607,943 (220,288) 387,655
----------------------------------
Net Interest Income $ 237,872 $ 1,350 $ 239,222
==================================
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 21% 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 35% 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 $392,056 and $896,740 for the three and six
months ended December 31, 1996 versus $550,478 and $1,164,772 for the three and
six months ended December 31, 1995. Service fee income was $246,741 and
$513,690 for the three and six months ended December 31, 1996 versus $235,211
and $516,820 for the three and six months ended December 31, 1995. The $3,130
service fee decrease for the six months ended December 31, 1996 was primarily
due to the reduction in loan fee income. Income from available for sale
securities gains was $46,117 and $74,417 for the three and six months ended
December 31, 1996 versus $85,791 and $206,383 for the three and six months
ended December 31, 1995. Gains from the sale of securities decreased in the six
months ended December 31, 1996 by $131,966 compared to the six months ended
December 31, 1995. The Company sold some of its available for sale securities
during the six month period ended December 31, 1995, taking advantage of the
fluctuation in market prices in the mortgage-backed security portfolio. Income
from trading account securities was $(11,241) and $50,124 for the three and six
month periods ended December 31, 1996 versus $7,006 for each of the three and
six months ended December 31, 1995. The gain on trading account, in the three
and six month period ended December 31, 1996, was due to the sale and
appreciation in the market values of the securities classified as trading.
Other income was $110,439 and $258,509 for the three and six months ended
December 31, 1996, which was a decrease of $112,031 and a decrease of $176,054
from other income of $222,470 and $434,563 for the three and six months ended
December 31, 1995. The reduction in other income was primarily due to the
decrease in gains on the sale of loans held for sale, which amounted to $9,326
and $29,205 for the three and six months ended December 31, 1995 versus $40,342
and $123,158 for the three and six months ended December 31, 1995. The
reduction in gains from the sale of loans was due to decreased secondary market
activity. Other income was also impacted by losses on the sale of other real
estate owned, which was $22,787 and $24,009 for the three and six months ended
December 31, 1996.
Total operating expense, or non-interest expense, for the Company was
$1,819,013 and $4,162,842 for the three and six months ended December 31, 1996
versus $1,935,671 and $3,951,595 for the three and six months ended December
31, 1995. The increase in compensation, occupancy and equipment expense for the
three and six months ended December 31, 1996 was due to normal growth and
maintenance. Other expenses decreased by $73,243 and $120,186 for the three and
six months ended December 31, 1996, compared to December 31, 1995. The decrease
in other expenses was primarily due to the reduction in loan and deposit
expenses. As previously discussed above, the Company's operating expenses, for
the six months ended December 31, 1996, increased primarily due to the FDIC-
SAIF deposit insurance assessment of $296,860. Excluding the deposit
assessment, the Company's operating expenses were $3,865,982 for the six months
ended December 31, 1996, which was a decrease of $85,613 when compared to the
six months ended December 31, 1995.
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
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
Not Applicable.
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
December 31, 1996.
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: February 11, 1997
NORTHEAST BANCORP AND SUBSIDIARY
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
11 Statement regarding computation of per share earnings
27 Finanacial Data Schedule
NORTHEAST BANCORP AND SUBSIDIARY
Exhibit 11. Statement Regarding Computation of Per Share Earnings
Three Months Ended Three Months Ended
December 31, 1996 December 31, 1995
------------------- -------------------
EQUIVALENT SHARES:
Average Shares Outstanding 1,231,547 1,195,685
Total Equivalent Shares 1,231,547 1,195,685
Total Primary Shares 1,338,846 1,293,424
Total Fully Diluted Shares 1,575,787 1,529,798
Net Income $ 528,160 $ 443,436
Less Preferred Stock Dividend 35,000 35,000
------------------- -------------------
Net Income after Preferred Dividend $ 493,160 $ 408,436
=================== ===================
Primary Earnings Per Share $ 0.37 $ 0.32
Fully Diluted Earnings Per Share $ 0.33 $ 0.29
Six Months Ended Six Months Ended
December 31, 1996 December 31,1995
------------------- -------------------
EQUIVALENT SHARES:
Average Shares Outstanding 1,231,421 1,157,967
Total Equivalent Shares 1,231,421 1,157,967
Total Primary Shares 1,334,738 1,252,857
Total Fully Diluted Shares 1,575,661 1,492,080
Net Income $ 711,421 $ 865,073
Less Preferred Stock Dividend 69,999 69,999
------------------- -------------------
Net Income after Preferred Dividend $ 641,422 $ 795,074
=================== ===================
Primary Earnings Per Share $ 0.48 $ 0.64
Fully Diluted Earnings Per Share $ 0.45 $ 0.58
9
0000811831
NORTHEAST BANCORP
1
6-MOS
JUN-30-1997
JUL-01-1996
DEC-31-1996
3,708,584
341,553
0
35,753
28,896,205
0
0
188,480,987
2,483,000,
238,459,045
142,959,996
48,293,012
1,503,491
26,959,468
0
1,999,980
1,195,942
15,547,156
238,459,045
8,197,097
1,248,022
189,104
9,634,223
3,073,287
4,951,017
4,683,206
289,257
124,541
4,162,842
1,127,847
711,421
0
0
711,421
0.48
0.45
4.134
2,221,000
0
341,215
648,000
2,549,000
386,960
31,703
2,483,000
358,230
0
2,124,770
