10.
Insurance Agency
Acquisitions
Item
2.
Management's Discussion and
Analysis of Results of Operations and Financial Condition
This
Management's Discussion and Analysis of Results of Operations and Financial
Condition presents a review of the results of operations for the three and nine
months ended March 31, 2009 and 2008 and the financial condition at March 31,
2009 and June 30, 2008. This discussion and analysis is intended to assist in
understanding the results of operations and financial condition of Northeast
Bancorp and its wholly-owned subsidiary, Northeast Bank. Accordingly, this
section should be read in conjunction with the consolidated financial statements
and the related notes and other statistical information contained herein. See
our annual report on Form 10-K for the fiscal year ended June 30, 2008 for
discussion of the critical accounting policies of the
Company. Certain amounts in the prior year have been reclassified to
conform to the current-year presentation.
A Note
about Forward Looking Statements
This
report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, such as statements relating to our financial condition,
prospective results of operations, future performance or expectations, plans,
objectives, prospects, loan loss allowance adequacy, simulation of changes in
interest rates, capital spending and finance sources, and revenue sources. These
statements relate to expectations concerning matters that are not historical
facts. Accordingly, statements that are based on management's projections,
estimates, assumptions, and judgments constitute forward-looking statements.
These forward-looking statements, which are based on various assumptions (some
of which are beyond the Company's control), may be identified by reference to a
future period or periods, or by the use of forward-looking terminology such as
"believe", "expect", "estimate", "anticipate", "continue", "plan",
"approximately", "intend", "objective", "goal", "project", or other similar
terms or variations on those terms, or the future or conditional verbs such as
"will", "may", "should", "could", and "would". In addition, the
Company may from time to time make such oral or written "forward-looking
statements" in future filings with the Securities and Exchange Commission
(including exhibits thereto), in its reports to shareholders, and in other
communications made by or with the approval of the Company.
Such
forward-looking statements reflect our current views and expectations based
largely on information currently available to our management, and on our current
expectations, assumptions, plans, estimates, judgments, and projections about
our business and our industry, and they involve inherent risks and
uncertainties. Although we believe 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,
contingencies, and other factors. Accordingly, we cannot give you any assurance
that our expectations will, in fact, occur or that our estimates or assumptions
will be correct. We caution you that actual results could differ materially from
those expressed or implied by such forward-looking statements due to a variety
of factors, including, but not limited to, those related to the current
disruptions in the financial and credit markets, the economic environment,
particularly in the market areas in which the Company operates, competitive
products and pricing, fiscal and monetary policies of the U.S. Government,
changes in government regulations affecting financial institutions, including
regulatory fees and capital requirements, changes in prevailing interest rates,
acquisitions and the integration of acquired businesses, credit risk management,
asset/liability management, changes in technology, changes in the securities
markets, deposit insurance premiums and the availability of and the costs
associated with sources of liquidity. Accordingly, investors and others are
cautioned not to place undue reliance on such forward-looking statements. For a
more complete discussion of certain risks and uncertainties affecting the
Company, please see "Item 1. Business - Forward-Looking Statements and Risk
Factors" set forth in our Form 10-K for the fiscal year ended June 30, 2008 and
the additional risk factors in Part II of this 10-Q. These
forward-looking statements speak only as of the date of this report and we do
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
report or to reflect the occurrence of unanticipated events.
Overview
of Operations
This
Overview is intended to provide a context for the following Management's
Discussion and Analysis of the Results of Operations and Financial Condition,
and should be read in conjunction with our unaudited consolidated financial
statements, including the notes thereto, in this quarterly report on Form 10-Q,
as well as our audited consolidated financial statements for the year ended June
30, 2008 as filed on Form 10-K with the SEC. We have attempted to identify the
most important matters on which our management focuses in evaluating our
financial condition and operating performance and the short-term and long-term
opportunities, challenges, and risks (including material trends and
uncertainties) which we face. We also discuss the action we are taking to
address these opportunities, challenges, and risks. The Overview is not intended
as a summary of, or a substitute for review of, Management's Discussion and
Analysis of the Results of Operations and Financial Condition.
Northeast
Bank is faced with following challenges: growing loans, improving net interest
margins and net interest income, executing our plan of increasing noninterest
income, and improving the efficiency ratio.
Loans
have decreased compared to June 30, 2008, due principally to a decrease in
commercial and consumer loans. We stopped originating indirect automobile and RV
loans in October, 2008 due to increasing delinquencies and credit
losses. We continue to offer auto and other consumer loans through
our branch system. Competition for commercial loans is intense, and
we are not competing for relationships where we believe transaction pricing or
structure does not properly reflect risk.
Net
interest margins are expected to continue to increase modestly over the near
term, due to anticipated decreases in cost of funds as the mix changes to
overnight funding as term advances from the Federal Home Loan Bank of Boston
(“FHLB”) mature. We also have decreased the interest rates paid
on non-maturing, interest-bearing deposit accounts and continue to decrease
rates on certificates of deposits. Since our balance sheet was
liability sensitive at December 31, 2008 (our most recent ALCO review), the cost
of interest-bearing liabilities reprice more quickly than the yield of
interest-bearing assets and would generally be expected to result in an increase
in net interest income during a period of falling interest rates (and a
decrease in net interest income during a period of rising interest rates). The
prospect of additional decreases in prime rate in the immediate future is
unlikely because the Federal Reserve Bank has lowered the federal funds rate to
virtually zero percent. Thus, any significant improvement in net
interest income would require an increased volume of new loan originations in
addition to the changes in market rates.
To
improve net interest income, during the nine months ending March 21,
2009, we leveraged our balance sheet by purchasing FNMA and FHLMC
mortgage-backed securities funded with structured repurchase
agreements. The structured repurchase agreements have imbedded
purchased interest rate caps that are intended to hedge our risk to rising
interest rates. See note 8 to our unaudited financial statements for
additional information.
Management
believes that the allowance for loan losses as of March 31, 2009 was adequate,
under present conditions, for the known credit risk in the loan portfolio. While
the loan portfolio decreased during the nine months ended March 31, 2009 as
compared to June 30, 2008, we increased our allowance for loan losses by
$22,000, to $5,678,000, because loan delinquencies and net credit losses
increased.
Noninterest
income decreased for the quarter ended March 31, 2009 compared to the quarter
ended March 31, 2008. Insurance commission revenue decreased compared
to the quarter ended March 31, 2008 primarily due to lower contingent bonus
payments from higher losses experienced in calendar 2008. Investment brokerage
income also decreased due to the declines in the stock markets which have slowed
the volume of securities transactions handled by our investment brokerage group
compared to the quarter ended March 31, 2008. However, gains on the
sales of residential real estate loans increased 400% as lower interest rates
increased the volume of residential real estate loans being
refinanced. We expect to improve noninterest income primarily from
increases in consumer and commercial property and casualty insurance policies
sold by Northeast Bank Insurance Agency, Inc. through cross-sales to bank
customers and sales to new customers, thereby increasing insurance
commission revenue. Northeast Bank Insurance Group, Inc. will also be
acquiring the Goodrich Agency in May, 2009 and merging their operations into our
Berwick agency which will increase commission revenue annually by approximately
$700,000. As the stock market recovers, we expect investment brokerage sales
volume to increase.
Our
efficiency ratio, calculated by dividing noninterest expense by the sum of net
interest income and noninterest income, was 85% and 83% for the three months
ended March 31, 2009 and 2008, respectively. The ratio has increased
due to the increase in noninterest expense as compared to the same
period from the prior fiscal year.
Description
of Operations
Northeast
Bancorp (the "Company") is a Maine corporation and a bank holding company
registered with the Federal Reserve Bank of Boston ("FRB") under the Bank
Holding Company Act of 1956. The FRB is the primary regulator of the Company and
it supervises and examines our activities. The Company also is a registered
Maine financial institution holding company under Maine law and is subject to
regulation and examination by the Superintendent of Maine Bureau of Financial
Institutions. We conduct business from our headquarters in Lewiston, Maine and,
as of March 31, 2009, we had eleven banking offices, fourteen insurance offices
located in western and south-central Maine and southeastern New Hampshire, a
financial services office in Maine and a mortgage loan production office in New
Hampshire. At March 31, 2009, we had consolidated assets of $607.2
million and consolidated stockholders' equity of $48.3 million.
The
Company's principal asset is all the capital stock of Northeast Bank (the
"Bank"), a Maine state-chartered universal bank. Accordingly, the Company's
results of operations are primarily dependent on the results of the operations
of the Bank. The Bank's 11 offices are located in Auburn, Augusta, Bethel,
Brunswick, Buckfield, Harrison, Lewiston (2), Mechanic Falls, Portland, and
South Paris, Maine. The Bank's investment brokerage division offers investment,
insurance and financial planning products and services from its office in
Falmouth, Maine. We established a mortgage loan production office in
Portsmouth, NH in the quarter ended December 31, 2008.
The
Bank's wholly owned subsidiary, Northeast Bank Insurance Group Inc., is our
insurance agency. Its 14 offices are located in Anson, Auburn, Augusta,
Berwick, Bethel, Jackman, Livermore Falls, Mexico, Rangeley (its headquarters),
Thomaston, Turner, Scarborough, and South Paris, Maine and Rochester, New
Hampshire. Seven agencies have been acquired in the past twenty-four
months: Hyler Agency of Thomaston, Maine was acquired on December 11, 2008;
Spence & Matthews, Inc. of Berwick, Maine and Rochester, New Hampshire, was
acquired on November 30, 2008; Hartford Insurance Agency of Lewiston, Maine was
acquired on August 30, 2008; Russell Agency of Madison, Maine was acquired on
June 28, 2008; Southern Maine Insurance Agency of Scarborough, Maine was
acquired on March 30, 2008; Sturtevant and Ham, Inc. of Livermore,
Maine was acquired on December 1, 2006; and Palmer Insurance of Turner, Maine
was acquired on November 28, 2006. Following the acquisitions, the
Russell Agency was moved to our existing agency office in Anson, Maine and
the Hartford Insurance Agency was moved to our existing agency office in Auburn,
Maine. All of our insurance agencies offer personal and commercial
property and casualty insurance products. Acquisition of the Goodrich
Agency in Berwick, Maine will close May 15, 2009 and be merged into our existing
Berwick agency. See Note 6 in our June 30, 2008 audited consolidated
financial statements and Note 10 of the March 31, 2009 unaudited consolidated
financial statements for more information regarding our insurance agency
acquisitions.
Bank
Strategy
The
principal business of the Bank consists of attracting deposits from the general
public and applying those funds to originate or acquire residential mortgage
loans, commercial loans, commercial real estate loans and a variety of consumer
loans. The Bank sells, from time to time, fixed rate residential mortgage loans
into the secondary market. The Bank also invests in mortgage-backed securities,
securities issued by United States government-sponsored enterprises, and
corporate and municipal securities. The Bank's profitability depends primarily
on net interest income. It continues to be our largest source of revenue and is
affected by the level of interest rates, changes in interest rates, and by
changes in the amount and composition of interest-earning assets(i.e. loans and
investments) and interest-bearing liabilities(i.e. customer deposits
and borrowed funds). The Bank also emphasizes the growth of
non-interest sources of income from investment and insurance brokerage, trust
management and financial planning to reduce its dependency on net interest
income.
Our goal
is to continue modest, but profitable, growth by increasing our loan and deposit
market share in our existing markets in western and south-central Maine, closely
managing the yields on interest-earning assets and rates on interest-bearing
liabilities, introducing new financial products and services, increasing the
number of bank services sold to each household, increasing non-interest income
from expanded trust services, investment and insurance brokerage services and
controlling the growth of non-interest expenses. It also is part of our business
strategy to make targeted acquisitions in our current market areas from time to
time when opportunities present themselves.
Results of
Operations
Comparison
of the three and nine months ended March 31, 2009 and 2008
General
The
Company reported consolidated net income of $387,370, or $0.14 per diluted
share, for the three months ended March 31, 2009 compared to $672,169, or $0.29
per diluted share, for the three months ended March 31, 2008, a decrease of
$284,799, or 42%. Net interest and dividend income increased $828,277, or 24%,
as a result of a net interest margin increase combined with increased earning
assets. The provision for loan losses increased $330,911, or 115%, due to higher
net credit losses. Noninterest income decreased $609,150, or 17%,
primarily from decreased securities gains, investment brokerage commissions and
insurance commissions. Noninterest expense increased $323,558, or 6%, primarily
due to increased other noninterest expenses related to group medical benefits,
FDIC insurance and collections expense.
Annualized
return on average equity ("ROE") and return on average assets ("ROA") were 3.27%
and 0.26%, respectively, for the quarter ended March 31, 2009 as compared to
6.45% and 0.46%, respectively, for the quarter ended March 31, 2008. The
decreases in the returns on average equity and average assets were primarily due
to lower net income for the most recent quarter.
The
Company reported consolidated net income of $750,060, or $0.29 per diluted
share, for the nine months ended March 31, 2009 compared to $1,505,162, or $0.63
per diluted share, for the nine months ended March 31, 2008, a decrease of
$755,102, or 50%. Net interest and dividend income increased
$1,933,987, or 18%, as a result of an increased net interest margin and increase
in average earning assets. The provision for loan losses increased
$985,260, or 150%, due to an increase in net credit
losses. Noninterest income increased $316,167, or 4%, primarily from
increased gains on sale of loans and insurance commission
revenue. Noninterest expense increased $2,431,268, or 15%, from the
full period impact of three insurance agencies acquired in the nine months ended
March 31, 2008, group medical benefits expense, increase in FDIC insurance
assessments, collection expenses and realized impairment expense on investment
securities.
The
annualized ROE and ROA were 2.30% and 0.16%, respectively, for the nine months
ended March 31, 2009 as compared to 4.83% and 0.35%, respectively, for the nine
months ended March 31, 2008. The decreases in the returns on average
equity and average assets were primarily due to lower net income for nine months
ended March 31, 2009.
Net Interest and Dividend
Income
Net
interest and dividend income for the three months ended March 31, 2009 increased
to $4,230,947, as compared to $3,402,670 for the same period in 2008. The
increase in net interest and dividend income of $828,277, or 24%, was primarily
due to a 47 basis point increase in net interest margin, on a tax equivalent
basis, and an increase in average earning assets of $30,000,595, or 6%, for the
quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008.
The increase in average earning assets was primarily due to an increase in
average available-for-sale securities of $32,195,456, or 25%, from the purchase
of mortgage-backed securities combined with an increase in average
interest-bearing deposits and regulatory stock of $1,493,243, or 21%, partially
offset by a decrease in average loans of $3,688,104, or 1%. Average
loans as a percentage of average earning assets were 71% and 75% for quarters
ended March 31, 2009 and 2008, respectively. Our net interest margin,
on a tax equivalent basis, was 3.02% and 2.55% for the quarters ended March 31,
2009 and 2008, respectively. Our net interest spread, on a tax
equivalent basis, for the three months ended March 31, 2009 was 2.70%, an
increase of 47 basis points from 2.23% for the same period a year ago. Comparing
the three months ended March 31, 2009 and 2008, the yields on earning assets
decreased 66 basis points and the cost of interest-bearing liabilities decreased
113 basis points. Our balance sheet has been liability
sensitive, with interest-bearing liabilities repricing more quickly than
interest-bearing assets, causing our cost of funds to decrease more quickly than
our yield on interest-earning assets. Specifically, our
certificate of deposits and FHLB advances rolled over at maturity with lower
interest rates and our non-maturing, interest-bearing deposit accounts decreased
generally following the 400 basis point decrease in federal funds rate from
March 31, 2008 to March 31, 2009. The decreases in our yield on
earning assets reflected the decreased yields on loans with prime rate based
interest rates, which also decreased 400 basis points over the twelve months
ended March 31, 2009 and decreases in yields on regulatory stock and on
interest- bearing deposits.
The
changes in net interest and dividend income, on a tax equivalent basis, are
presented in the schedule below, which compares the three months ended March 31,
2009 and 2008.
|
|
Difference
Due to
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
$
|
415,882
|
|
|
$
|
(25,475
|
)
|
|
$
|
390,407
|
|
|
|
|
(63,676
|
)
|
|
|
(789,416
|
)
|
|
|
(853,092
|
)
|
|
|
|
8,458
|
|
|
|
(5,994
|
)
|
|
|
2,464
|
|
Total
Interest-earnings Assets
|
|
|
360,664
|
|
|
|
(820,885
|
)
|
|
|
(460,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,191
|
|
|
|
(1,179,004
|
)
|
|
|
(1,116,813
|
)
|
Securities
sold under Repurchase Agreements
|
|
|
30,282
|
|
|
|
(148,918
|
)
|
|
|
(118,636
|
)
|
|
|
|
128,464
|
|
|
|
(181,183
|
)
|
|
|
(52,719
|
)
|
Total
Interest-bearing Liabilities
|
|
|
220,937
|
|
|
|
(1,509,105
|
)
|
|
|
(1,288,168
|
)
|
Net
Interest and Dividend Income
|
|
$
|
139,727
|
|
|
$
|
688,220
|
|
|
$
|
827,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/volume
amounts which are partly attributable to rate and volume are spread
proportionately between volume and rate based on the direct change
attributable to rate and volume. Borrowings in the table include junior
subordinated notes, FHLB borrowings, structured repurchase agreements,
capital lease obligations and other borrowings. The adjustment to interest
income and yield on a fully tax equivalent basis was $50,436 and $50,766
for the three months ended March 31, 2009 and 2008,
respectively.
|
|
Net
interest and dividend income for the nine months ended March 31, 2009 increased
to $12,498,798, as compared to $10,564,811 for the same period in 2008. The
increase in net interest and dividend income of $1,933,987, or 18%, was
primarily due to a 31 basis point increase in net interest margin, on a tax
equivalent basis, and an increase in average earning assets of $29,782,544, or
6%, for the quarter ended March 31, 2009 as compared to the quarter ended March
31, 2008. The increase in average earning assets was primarily due to an
increase in average investment securities of $37,212,799, or 33%, from the
purchase of mortgage-backed securities and an increase in average
interest-bearing deposits and regulatory stock of $1,505,240, or 18%, partially
offset by a decrease in average loans of $8,935,495, or 2%. Average loans as a
percentage of average earning assets was 72% and 78% for quarters ended March
31, 2009 and 2008, respectively. Our net interest margin, on a tax
equivalent basis, was 2.97% and 2.66% for the nine months ended March 31, 2009
and 2008, respectively. Our net interest spread, on a tax equivalent basis, for
the nine months ended March 31, 2009 was 2.74%, an increase of 38 basis points
from 2.36% for the same period a year ago. Comparing the nine months ended March
31, 2009 and 2008, the yields on earning assets decreased 64 basis point
compared to a 101 basis point decrease in the cost of interest-bearing
liabilities. The decreases in our yield on earning assets and in the cost of
interest-bearing liabilities reflect the general decrease in interest rates.
Prime rate and federal funds rate have decreased 400 basis points over the
twelve months ended March 31, 2009. Our liability sensitive balance sheet has
allowed us to reduce our cost of funds more rapidly than the decrease in the
yield on earning assets, improving our net interest margin and net interest
spread.
The
changes in net interest and dividend income, on a tax equivalent basis, are
presented in the schedule below, which compares the nine months ended March 31,
2009 and 2008.
|
|
Difference
Due to
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
$
|
1,459,912
|
|
|
$
|
87,749
|
|
|
$
|
1,547,661
|
|
|
|
|
(472,779
|
)
|
|
|
(2,274,917
|
)
|
|
|
(2,747,696
|
)
|
|
|
|
33,788
|
|
|
|
(74,896
|
)
|
|
|
(41,108
|
)
|
Total
Interest-earnings Assets
|
|
|
1,020,921
|
|
|
|
(2,262,064
|
)
|
|
|
(1,241,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,843
|
|
|
|
(3,079,255
|
)
|
|
|
(3,030,412
|
)
|
Securities
sold under repurchase Agreements
|
|
|
59,556
|
|
|
|
(512,136
|
)
|
|
|
(452,580
|
)
|
|
|
|
771,856
|
|
|
|
(464,616
|
)
|
|
|
307,240
|
|
Total
Interest-bearing Liabilities
|
|
|
880,255
|
|
|
|
(4,056,007
|
)
|
|
|
(3,175,752
|
)
|
Net
Interest and Dividend Income
|
|
$
|
140,666
|
|
|
$
|
1,793,943
|
|
|
$
|
1,934,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/volume
amounts which are partly attributable to rate and volume are spread
proportionately between volume and rate based on the direct change
attributable to rate and volume. Borrowings in the table include junior
subordinated notes, FHLB borrowings, structured repurchase agreements,
capital lease obligation and other borrowings. The adjustment to interest
income and yield on a fully tax equivalent basis was $152,434 and $151,812
for the nine months ended March 31, 2009 and 2008,
respectively.
|
|
The
Company's business primarily consists of the commercial banking activities of
the Bank. The success of the Company is largely dependent on its ability to
manage interest rate risk and, as a result, changes in interest rates, as well
as fluctuations in the level of assets and liabilities, affect net interest and
dividend income. Interest rate risk arises primarily in our core banking
activities: lending and deposit gathering. In addition to directly impacting net
interest and dividend income, changes in interest rates can also affect the
amount of loans originated and sold by the Bank, the ability of borrowers to
repay adjustable or variable rate loans, the average maturity of loans, the rate
of amortization of premiums and discounts paid on securities, the amount of
unrealized gains and losses on securities available-for-sale and the fair value
of our saleable assets and the resultant ability to realize gains. The interest
sensitivity of the Bank's balance sheet has a liability sensitive position,
where the costs of interest-bearing liabilities reprice more quickly than the
yield of interest-bearing assets. As a result, the Bank is generally expected to
experience a decrease in its net interest margin during a period of increasing
interest rates, and an increase in its net interest margin during a period of
decreasing interest rates.
As of
March 31, 2009 and 2008, 47% and 43%, respectively, of the Bank's loan portfolio
was composed of adjustable rate loans based on a prime rate index or short-term
rate indices such as the one-year U.S. Treasury bill. Interest income on these
existing loans would increase if short-term interest rates increase. An increase
in short-term interest rates would also increase deposit and FHLB advance rates,
increasing the Company's interest expense. The impact on future net interest and
dividend income from changes in market interest rates will depend on, among
other things, actual rates charged on the Bank's loan portfolio, deposit and
advance rates paid by the Bank and loan volume.
Provision for Loan
Losses
The
provision for loan losses for the three months ended March 31, 2009 was
$618,536, an increase of $330,911, or 115%, from $287,625 for the three months
ended March 31, 2008. For the nine months ended March 31, 2009 and 2008, the
provision for loans losses was $1,642,821 and $657,561, respectively, an
increase of $985,260, or 150%. We have maintained our allowance for loan losses
virtually flat to June 30, 2008 by recognizing a provision equal to net
charge-offs. The provision was increased, due to the increase in net
charge-offs, $661,537 for the three months ended March 31, 2009 compared to
$287,625 for the same period in 2008 and $1,620,821 for the nine months ended
March 31, 2009 compared to $657,561 for the same period in 2008 and increasing
the allowance for loan losses compared to its June 30, 2008 balance to reflect
increasing credit risk in the loan portfolio. For our internal
analysis of the adequacy of the allowance, we considered the decrease in loans
for the nine months ended March 31, 2009, the increase in net credit losses for
the quarter and nine months ended March 31, 2009 compared to the same periods in
the prior year, an increase in loan delinquency (4.59% at March 31, 2009
compared to 3.03% at June 30, 2008 and 3.90% at March 31, 2008) an increase in
nonaccrual loans compared to June 30, 2008 of $974,000, to $8,677,000, and an
increase in internal classified and criticized commercial and commercial real
estate loans. Management deemed the allowance for loan
losses adequate for the risk in the loan portfolio. See Financial Condition for
a discussion of the Allowance for Loan Losses and the factors impacting the
provision for loan losses. The allowance as a percentage of outstanding loans
increased to 1.42% at March 31, 2009 compared to 1.35% at June 30, 2008 and
virtually flat to 1.41% at March 31, 2008.
Noninterest
Income
Total
noninterest income was $3,031,683 for the three months ended March 31, 2009, a
decrease of $609,150, or 17%, from $3,640,833 for the three months ended March
31, 2008. This decrease reflected the combined impact of a $267,147 decrease in
gains on securities sales, a $433,531, or 64%, decrease in investment brokerage
revenue from lower sales volume attributed to the decline in the stock market
and the current economic recession, and a $464,490, or 23%, decrease in
insurance agency commissions due to increased losses experienced by the
insurance companies resulting in a decrease in contingent bonus payments
received, partially offset by a $519,729, or 428%, increase in gains
on sale of loans due to a significant increase in residential real estate
mortgage refinance activity compared to one year ago and a $50,920 increase in
other noninterest income, primarily from mortgage servicing
revenue.
For the
nine months ended March 31, 2009 and 2008, total noninterest income was
$8,343,258 and $8,027,091, respectively, an increase of $316,167, or
4%. This increase was primarily due to insurance agency commissions
which increased $518,705, or 13%, due to the full year impact of the Hartford,
Spence & Matthews, and Hyler agencies acquired in the six months ended
December 31, 2007. We also had an increase of $468,023, or 118%, on gains on the
sale of loans as refinance activity increased the volume of residential real
estate loans sold. Fees for other services to customers
increased $27,876, or 3%, from better management of overdraft
fees. These increases were partially offset by a decrease in net
securities gains of $341,478 and a decrease in investment brokerage commission
of $389,700, or 23%, due to lower sales volume.
Noninterest
Expense
Total
noninterest expense for the three months ended March 31, 2009 was $6,169,926, an
increase of $323,558, or 6%, from $5,846,368 for the three months ended March
31, 2008. Of this increase, $364,420 was from the Bank’s operations other than
insurance and was attributable to an increase of $120,173 for our self-insured
group medical benefits plans due to higher claims, an increase of $139,669 for
FDIC insurance accruals for the temporary increased deposit insurance coverage,
and an increase of $164,969 in collections expense incurred on a higher volume
of workout loans and net credit losses. The quarters ended March 31,
2009 and 2008 had a comparable number of insurance agency
offices. The $40,862 offset to the balance of the $323,558 increase
was due to lower occupancy, advertising, supplies, dues and subscription and
other expenses associated with our insurance agency.
For the
nine months ended March 31, 2009 and 2008, total noninterest expense was
$18,400,089 and $15,968,821, respectively, an increase of $2,431,268, or
15%. The full year impact of the three insurance agencies acquired in
the nine months ended March 31, 2008 accounted for $910,197 of this increase,
which was comprised of a $739,138 increase in salaries and employee benefits,
$42,956 increase in computer services, $131,847 increase in intangible asset
amortization and $72,428 in other noninterest expense. The $1,521,071 balance of
the $2,431,268 increase was related to bank operations other than insurance. Of
this $1,521,071 increase, employee benefits expense increased $392,012 from
increased claims in our self-insurance medical benefits plan and the employee
bank-wide incentive plan. Occupancy expense increased $19,762 from
increases in building depreciation, ground maintenance and
utilities. Equipment expense increased $46,594 due to increases in
depreciation expense for computer hardware and software and software licensing
fees. Other noninterest expense increased $1,062,703 which included
$75,210 of increased professional fees related to the conversion to new Internet
banking software and marketing of repossessed collateral, $267,444 of increased
FDIC insurance due to the loss of one-time assessment credits, $277,891 of
increased loan collections expense, $91,704 of increased postage expense and
$267,853 of increased impairment expense.
For the
three and nine months ended March 31, 2009, the decrease in income tax expense
was primarily due to the decrease in income before income taxes as compared to
the same periods in 2008.
Our
efficiency ratio, which is total noninterest expense as a percentage of the sum
of net interest and dividend income and non-interest income, was 85% and 83% for
the three months ended March 31, 2009 and 2008, respectively. The slight
increase in the efficiency ratio was due to the increase in noninterest
expense. For the nine months ended March 31, 2009 and 2008, the
efficiency ratio was 88% and 86%, respectively. The increase in the
efficiency ratio was due, in part, to the increase in noninterest expenses from
acquired insurance agencies and FDIC insurance premium, collections and
impairment expense.
Financial
Condition
Our
consolidated assets were $607,201,232 and $598,273,650 as of March 31, 2009 and
June 30, 2008, respectively, an increase of $8,927,582, or 1%. This increase was
primarily due to an increase of $25,458,906, or 19%, in available-for-sale
securities, partially offset by a decrease of $3,875,551, or 43%, in
cash and due from banks, $1,397,986, or 40%, in interest-bearing deposits,
$151,765, or 31%, in loans held-for-sale, and $9,892,170, or 2%, in loans,
primarily commercial and consumer loans, a decrease in intangible assets
of $564,621 from amortization and a decrease of $1,395,843 in other assets due
to a decrease in net deferred income taxes. For the three months ended March 31,
2009, average total assets were $615,890,899, an increase of $29,258,551, or 5%,
from $586,632,348 for the same period in 2008. This increase in average assets
was primarily attributable to an increase in available-for-sale
securities.
Total
stockholders' equity was $48,313,998 and $40,273,312 at March 31, 2009 and June
30, 2008, respectively, an increase of $8,040,686, or 20%, due to receipt of
$4,210,480 million of preferred stock and common stock warrants sold to the US
Treasury under the Capital Purchase Program, net of expenses, net income for the
nine months ended March 31, 2009 and an increase in accumulated other
comprehensive income of $3,699,642, partially offset by dividends
paid. Tangible book value per outstanding common share was $13.71 at
March 31, 2009 and $11.85 at June 30, 2008. Book value per
outstanding common share was $19.00 at March 31, 2009 and $17.40 at June 30,
2008.
Investment
Activities
The
available-for-sale investment portfolio was $159,941,883 as of March 31, 2009,
an increase of $25,458,906, or 19%, from $134,482,977 as of June 30,
2008. This increase was due to leveraging transactions carried out in
July and September, 2008 under which we acquired $22 million of mortgage-backed
securities which were funded through available funds and structured repurchase
agreements of $20 million with an average rate of 4.37% and a spread of
approximately 1.34%. To reduce our risk to rising interest rates, $20
million of purchased interest rate caps were imbedded in these transactions with
a strike rate based on three month LIBOR. See note 7 for additional
information. In addition to the leveraging strategy, we continued to
purchase other mortgage-backed securities to pre-invest the estimated cash flow
from our indirect loan portfolio.
The
investment portfolio as of March 31, 2009 consisted of debt securities issued by
U.S. government-sponsored enterprises and corporations, mortgage-backed
securities, municipal securities and equity securities. Generally, funds
retained by the Bank as a result of increases in deposits or decreases in loans
which are not immediately used by the Bank are invested in securities held in
its investment portfolio. The investment portfolio is used as a source of
liquidity for the Bank. The investment portfolio is structured so that it
provides for an ongoing source of funds for meeting loan and deposit demands and
for reinvestment opportunities to take advantage of changes in the interest rate
environment. The investment portfolio averaged $160,117,732 for the three
months ended March 31, 2009 as compared to $127,922,276 for the three months
ended March 31, 2008, an increase of $32,195,456, or 25%. This increase was due
primarily to the leveraging transactions described above which included
purchasing of mortgage-backed securities.
Our
entire investment portfolio is classified as available-for-sale at March 31,
2009 and June 30, 2008, and is carried at market value. Changes in market value,
net of applicable income taxes, are reported as a separate component of
stockholders' equity. Gains and losses on the sale of securities are recognized
at the time of the sale using the specific identification method. The amortized
cost and market value of available-for-sale securities at March 31, 2009 were
$156,312,231 and $159,941,883, respectively. The difference between the carrying
value and the cost of the securities of $3,629,652 was primarily attributable to
the increase in market value of mortgage-backed securities above their cost. The
net unrealized loss on equity securities was $1,218,082 and the net unrealized
gains on U.S. government-sponsored enterprises, corporate debt, mortgage-backed,
and municipal securities were $4,847,734 at March 31, 2009. The U.S.
government-sponsored enterprises, corporate debt, and mortgage-backed securities
have increased in market value due to the decreases in long-term interest rates
as compared to June 30, 2008. Substantially all of the U.S. government-sponsored
enterprises, corporate debt, mortgage-backed and municipal securities held in
our portfolio are high investment grade securities. Management believes that the
yields currently received on this portfolio are satisfactory. Management reviews
the portfolio of investments on an ongoing basis to determine if there have been
any other than temporary declines in value. Some of the considerations
management takes into account in making this determination are market valuations
of particular securities and an economic analysis of the securities' sustainable
market values based on the underlying company's profitability. Management plans
to hold the equity, U.S. government-sponsored enterprises, corporate debt,
mortgage-backed and municipal securities which have market values below cost
until a recovery of market value occurs or until maturity.
Loan
Portfolio
Total
loans, including loans held-for-sale, of $399,635,614 as of March 31, 2009
decreased $10,043,935, or 2%, from $409,679,549 as of June 30, 2008. Compared to
June 30, 2008, construction and commercial real estate loans increased, while
loans held for sale, residential real estate, commercial loans and consumer
loans decreased. Residential real estate loans decreased $2,535,173, or 2%,
reflecting residential real estate originated for sale during the nine months
ended March 31, 2009. Construction loans increased $7,648,070, or 169%, due to
advances on previously approved construction loans during the nine months ended
March 31, 2009. Commercial real estate loans increased $3,577,072, or
3%, reflecting opportunities in our market. Commercial loans
decreased $4,497,985, or 13%, from loan payoffs. Consumer loans
decreased $13,776,748, or 12%, due to our decision to stop originating indirect
recreational vehicle and indirect auto loans in October 2008. Net deferred loan
origination costs decreased $459,171, or 17%, primarily from pay down of
principal of indirect loans. The total loan portfolio averaged
$406,755,506 for the three months ended March 31, 2009, a decrease of
$3,688,104, or 1%, compared to the three months ended March 31,
2008.
The Bank
primarily lends within its local market areas, which management believes helps
it to better evaluate credit risk. The Bank's loan portfolio as of March 31,
2009 had a mix change with increases in real estate secured loans which were
more than offset by decreases in consumer and commercial loans when compared to
June 30, 2008. The Bank's local market continues to be very competitive for loan
volume.
Residential
real estate loans consisting of primarily owner-occupied residential loans as a
percentage of total loans were 35%, 34% and 35% as of March 31, 2009, June 30,
2008 and March 31, 2008, respectively. Variable rate loans as a percentage of
total residential real estate loans was 36% as of March 31, 2009 and 34% as of
both June 30, 2008 and March 31, 2008, respectively. Generally, management has
pursued a strategy of increasing the percentage of variable rate loans as a
percentage of the total loan portfolio to help manage interest rate risk. We
currently plan to continue to sell all newly originated fixed-rate residential
real estate loans into the secondary market to manage interest rate risk.
Average residential real estate loans, including loans held-for-sale, of
$142,105,416 for the three months ended March 31, 2009 decreased $2,802,214, or
2%, from the three months ended March 31, 2008. This decrease was due to the
origination of more fixed rate loans for sale. Purchased loans included in our
loan portfolio are pools of residential real estate loans acquired from and
serviced by other financial institutions. These loan pools are an alternative to
mortgage-backed securities, and represented 3% of residential real estate loans
at March 31, 2009. The Bank has not pursued a similar strategy
recently.
In light
of increases in delinquencies and classified and criticized loans in the
commercial real estate loan and commercial loan portfolios, the Bank applied its
underwriting standards in a manner that reflected the additional risk due to
current economic conditions; as a result, fewer of these loans were originated.
To the extent these types of loans were originated, the interest rates reflected
the additional risk involved in light of the current economic conditions.
Commercial
real estate loans as a percentage of total loans were 29%, 27%, and 26% as of
March 31, 2009, June 30, 2008 and March 31, 2008, respectively. Commercial real
estate loans have minimal interest rate risk because the portfolio consists
primarily of variable rate products. Variable rate loans in this portfolio as a
percentage of total commercial real estate loans were 95% as of March 31, 2009,
June 30, 2008 and March 31, 2008, respectively. The Bank tries to mitigate
credit risk by lending in its market area, as well as by maintaining a
well-collateralized position in real estate. Average commercial real estate
loans of $115,816,063 for the three months ended March 31, 2009 increased
$11,160,985, or 11%, from the same period in 2008.
Construction
loans as a percentage of total loans were 3%, 1%, and 1% as of March 31, 2009,
June 30, 2008 and March 31, 2008, respectively. Limiting disbursements to the
percentage of construction completed controls risk. An independent consultant or
appraiser verifies the construction progress. Construction loans have maturity
dates of less than one year. Variable rate products as a percentage of total
construction loans were 66%, 37%, and 50% for the same periods, respectively.
Average construction loans were $9,380,160 and $5,631,120 for the three months
ended March 31, 2009 and 2008, respectively, an increase of $3,749,040, or
66%.
Commercial
loans as a percentage of total loans were 7%, 8% and 9% as of March 31, 2009,
June 30, 2008 and March 31, 2008, respectively. The variable rate products as a
percentage of total commercial loans were 69%, 67%, and 63% for the same
periods, respectively. The repayment ability of commercial loan customers is
highly dependent on the cash flow of the customer's business. The Bank mitigates
losses by strictly adhering to the Company's underwriting and credit policies.
Average commercial loans of $29,253,267 for the three months ended March 31,
2009 decreased $5,517,095, or 16%, from $34,770,362, for the same period in
2008.
Consumer
and other loans as a percentage of total loans were 26%, 30%, and 29% for the
periods ended March 31, 2009, June 30, 2008, and March 31, 2008, respectively.
At both June 30, 2008 and March 31, 2009, indirect auto, indirect recreational
vehicle, and indirect mobile home loans represented 29%, 47%, and 19% of total
consumer loans, respectively. Since these loans are primarily fixed rate
products, they have interest rate risk when market rates increase. Prior to our
decision to no longer originate indirect loans, the consumer loan department
underwrote all the indirect automobile, recreational vehicle loans and mobile
home loans to mitigate credit risk. The Bank typically paid a one-time
origination fee to dealers of indirect loans. The fees were deferred and
amortized over the life of the loans as a yield adjustment. Management attempted
to mitigate credit and interest rate risk by keeping the products with average
lives of no longer than five years, receiving a rate of return commensurate with
the risk, and lending to individuals in the Bank's market areas. Average
consumer and other loans were $107,916,923 and $117,795,962 for the three months
ended March 31, 2009 and 2008, respectively. The $9,879,039, or 8%, decrease in
the portfolio was due to our decision to no longer originate indirect
recreational vehicle and auto lending in October, 2008. The composition of
consumer loans is detailed in the following table.
|
|
Consumer
Loans as of
|
|
|
|
March
31, 2009
|
|
|
June
30, 2008
|
|
|
|
$
|
29,515,848
|
|
|
|
29
|
%
|
|
$
|
34,980,847
|
|
|
|
30
|
%
|
|
|
|
49,005,078
|
|
|
|
47
|
%
|
|
|
54,915,583
|
|
|
|
47
|
%
|
|
|
|
19,717,641
|
|
|
|
19
|
%
|
|
|
21,759,537
|
|
|
|
18
|
%
|
|
|
|
98,238,567
|
|
|
|
95
|
%
|
|
|
111,655,967
|
|
|
|
95
|
%
|
|
|
|
5,031,444
|
|
|
|
5
|
%
|
|
|
5,390,792
|
|
|
|
5
|
%
|
|
|
$
|
103,270,011
|
|
|
|
100
|
%
|
|
$
|
117,046,759
|
|
|
|
100
|
%
|
Classification of
Assets
Loans are
classified as non-performing when they are more than 90 days delinquent or when
they are less than 90 days past due but, based on our judgment, the loan is
likely to present future principal and/or interest repayment problems. In both
situations, we cease accruing interest. The Bank had non-performing loans
totaling $8,677,000 and $7,703,000 at March 31, 2009 and June 30, 2008,
respectively, or 2.17% and 1.88% of total loans, respectively. The Bank's
allowance for loan losses was equal to 65% and 73% of the total non-performing
loans at March 31, 2009 and June 30, 2008, respectively. The following table
represents the Bank's non-performing loans as of March 31, 2009 and June 30,
2008:
Non-performing
loans increased $974,000, or 13%, for the nine months ended March 31, 2009
compared to June 30, 2008. Of total non-performing loans at March 31, 2009,
$2,053,000 of these loans were current and paying as agreed compared to
$2,510,000 at June 30, 2008, a decrease of $457,000. The commercial
real estate and commercial non-performing loans are subject to a loan-by-loan
review to determine the risk of loss based on the estimated distressed sale
value of collateral. This risk of loss assessment was incorporated in
determining the adequacy of the allowance for loan losses.
At March
31, 2009, the Bank had $1,853,000 in loans classified special mention or
substandard that management believes could potentially become non-performing due
to delinquencies or marginal cash flows. These special mention and substandard
loans decreased by $827,000 when compared to the level of $2,680,000 at June 30,
2008.
The
following table reflects the quarterly trend of total delinquencies 30 days or
more past due and non-performing loans for the Bank as a percentage of total
loans:
3-31-09
|
|
12-31-08
|
|
9-30-08
|
|
6-30-08
|
|
3-31-08
|
5.10%
|
|
4.35%
|
|
3.43%
|
|
3.64%
|
|
4.41%
|
Loans
classified as non-performing remain on such status until the borrower has
demonstrated a sustainable period of performance. Excluding loans classified as
non-performing but whose contractual principal and interest payment are current,
the Bank's total delinquencies 30 days or more past due, as a percentage of
total loans, would be 4.59% as of March 31, 2009 compared to 3.03% at June 30,
2008.
Allowance for Loan
Losses
The
Bank's allowance for loan losses was $5,678,000 as of March 31, 2009, an
increase of $22,000 from $5,656,000 at June 30, 2008 representing 1.42% and
1.38%, respectively, of total loans for each of the periods. Management
maintains this allowance at a level that it believes is reasonable for the
overall probable losses inherent in the loan portfolio. The allowance for loan
losses represents management's estimate of this risk in the loan portfolio. This
evaluation process is subject to numerous estimates and judgments. The frequency
of default, risk ratings, and the loss recovery rates, among other things, are
considered in making this evaluation, as are the size of individual large
credits. Changes in these estimates could have a direct impact on the provision
and could result in a change in the allowance. The larger the provision for loan
losses, the greater the negative impact on our net income. Larger balance,
commercial and commercial real estate loans representing significant individual
credit exposures are evaluated based upon: the borrower's overall financial
condition, resources and payment record; the prospects for support from any
financially responsible guarantors; and, if appropriate, the realizable value of
any collateral. The allowance for loan losses attributed to these loans is
established through a process that includes: estimates of historical and
projected default rates and loss severities; internal risk ratings; and
geographic, industry, and other environmental factors. Management also considers
overall portfolio indicators, including trends in internally risk-rated loans,
classified loans, non accrual loans, and historical and forecasted write-offs
and a review of industry, geographic, and portfolio concentrations, including
current developments. In addition, management considers the current business
strategy and credit process, including credit limit setting and compliance,
credit approvals, loan underwriting criteria, and loan workout procedures.
Within the allowance for loan losses, amounts are specified for larger-balance,
commercial and commercial real estate loans that have been individually
determined to be impaired. These specific reserves consider all available
evidence, including, as appropriate, the present value of the expected future
cash flows, discounted at the loan's contractual effective rate, and the fair
value of collateral. Each portfolio of smaller balance, residential real estate
and consumer loans is collectively evaluated for impairment. The allowance for
loan losses is established pursuant to a process that includes historical
delinquency and credit loss experience, together with analyses that reflect
current trends and conditions. Management also considers overall portfolio
indicators including: historical credit losses; delinquent, non-performing and
classified loans; trends in volumes; terms of loans; an evaluation of overall
credit quality and the credit process, including lending policies and
procedures; and economic factors. For the nine months ended March 31, 2009, we
have not changed our approach in the determination of the allowance for loan
losses. There have been no material changes in the assumptions or estimation
techniques as compared to prior periods in determining the adequacy of the
allowance for loan losses.
Management
believes that the allowance for loan losses as of March 31, 2009 was adequate
considering the level of risk in the loan portfolio. While management believes
that it uses the best information available to make its determinations with
respect to the allowance, 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 Bank's allowance for loan losses.
These agencies may require the Bank to recognize additions to the allowance for
loan losses based on their judgments about information available to them at the
time of their examination. The Bank's most recent joint examination by the
Federal Reserve Bank of Boston and the Maine Bureau of Financial Institutions
was completed in March, 2009. At the time of the examination, the regulators
proposed no adjustments to the allowance for loan losses.
Other
Assets
Bank
owned life insurance (BOLI) is invested in the general account of three
insurance companies and in separate accounts of a fourth insurance company. We
rely on the creditworthiness of each insurance company for general account BOLI
policies. For separate account BOLI policies, the insurance company holds the
underlying bond and stock investments in a trust for the Bank. Standard and
Poor's rated these companies A+ or better at March 31, 2009. The rating for the
separate account insurance company was downgraded during the quarter ended March
31, 2009 from AA- to A+. Interest earnings, net of mortality costs,
increase cash surrender value. These interest earnings are based on interest
rates reset at least annually, subject to minimum interest rates. These
increases were recognized in other income and are not subject to income taxes.
Borrowing on or surrendering the policy may subject the Bank to income tax
expense on the increase in cash surrender value. For this reason, management
considers BOLI an illiquid asset. BOLI represented 24.7% of the Bank’s Tier 2
capital as of March 31, 2009, which is below our 25% policy
limit. Northeast Bancorp contributed the net proceeds from the US
Treasury Capital Purchase Program to the Bank, increasing its capital and
reducing the ratio from the 26.8% reported at June 30, 2008.
Goodwill
of $4,390,340 as of March 31, 2009 was unchanged compared to June 30, 2008. This
asset resulted from consideration paid in excess of identified tangible and
intangible assets from the seven insurance agency acquisitions that occurred in
fiscal 2007 and 2008.
Intangible
assets of $7,879,803 as of March 31, 2009 decreased $564,621, from $8,444,424 as
of June 30, 2008. This decrease represents the normal amortization for the nine
months ended March 31, 2009. This asset consists of customer lists
and non-compete intangibles from the insurance agency acquisitions. See Note 1
of the audited consolidated financial statements as of June 30, 2008 for
additional information on intangible assets.
Capital Resources and
Liquidity
The Bank
continues to attract new local core deposits and certificates of deposit
relationships. As alternative sources of funds, the Bank utilizes FHLB advances
and brokered time deposits ("brokered deposits") when their respective interest
rates are less than the interest rates on local market deposits. FHLB advances
are used to fund short-term liquidity demands and supplement the growth in
earning assets.
Total
deposits of $369,650,787 as of March 31, 2009 increased $6,277,016, or 2%, from
$363,373,771 as of June 30, 2008. Excluding the decrease in brokered
deposits, customer deposits increased $7,579,012, or 2%. Brokered
deposits decreased $1,301,996, or 10%, representing repayment at
maturity. As a result of a direct mail promotion of a tiered money
market account, money market accounts increased $12,528,904, or
57%. Certificates of deposit decreased $5,080,126, or 2%, reflecting
the impact of interest rates offered in the middle of the range in our market as
balances rolled over at maturity. However, a promotion of
9 month certificates with a rate of 2.00% mitigated the
decrease. Demand accounts decreased $5,029,328, or 14%, NOW
accounts decreased $4,721,703, or 10%, and savings accounts decreased $278,987,
or 1%, during the nine months ended March 31, 2009 compared to June 30,
2008. Interest rates on all interest-bearing, non-maturing deposit
accounts were reduced during the nine months ended March 31, 2009 as the federal
funds rate was decreased by the Open Market Committee of the Federal
Reserve. Management's continuing strategy is to offer certificate of
deposit rates for maturities one year and less with interest rates near the top
of the market to attract new relationships and cross sell additional deposit
accounts and other bank services.
Total
average deposits of $368,405,552 for the three months ended March 31, 2009
increased $6,236,926, or 2%, compared to the average for the three months ended
March 31, 2008 of $362,168,626. This increase in total average deposits compared
to March 31, 2008 was attributable to an increase in average money market
accounts of $14,574,762, or 89%, and an increase in certificates of deposit of
$1,418,477, or 1%. These increases were partially offset by a decrease in
average demand deposit accounts of $208,264, or 1%, average NOW accounts of
$5,040,645, or 10%, a decrease in average savings of $669,903, or 3%, and a
decrease in average brokered time deposits of $3,837,501, or
20%. These decreases in core account balances reflect customers
moving funds to higher yielding money market accounts. Excluding average
brokered deposits, average customer deposits increased $10,074,427, or 3%, for
the three months ended March 31, 2009 compared to the same period one year
ago.
All
interest-bearing non-maturing deposit accounts have market interest rates. Like
other companies in the banking industry, the Bank will be challenged to maintain
or increase its core deposits, and improve its net interest margin as the mix of
deposits shifts to deposit accounts with higher interest rates.
We use
brokered deposits as part of our overall funding strategy and as an alternative
to customer certificates of deposits, FHLB advances and junior subordinated
debentures to fund the growth of our earning assets. Policy limits the use of
brokered deposits to 25% of total assets. We use five national brokerage firms
to source brokered deposits. Each brokerage company utilizes a system of agents
who solicit customers throughout the United States. The terms of these deposits
allow for withdrawal prior to maturity only in the case of the depositor's
death, have maturities generally beyond one year, have individual maturities no
greater than $5 million in any one month and bear interest rates equal to or
slightly above comparable FHLB advance rates. Brokered deposits carry similar
risk as local certificates of deposit, in that both are interest rate sensitive
with respect to the Bank's ability to retain the funds. At
March 31, 2009, brokered time deposits as a percentage of total assets was 1.9%
compared to 2.1% at June 30, 2008 and 2.3% at March 31, 2008. The weighted
average maturity for the brokered deposits was approximately 1.5
years.
Advances
from the Federal Home Loan Bank (FHLB) were $50,325,000 as of March 31, 2009, a
decrease of $40,250,000, or 44%, from $90,575,000 as of June 30, 2008. This
decrease was due, in part, to moving overnight advances of $15,000,000 to the
Fed Discount Window. At March 31, 2009, we had pledged U.S.
government agency and mortgage-backed securities of $37,113,886 as collateral
for FHLB advances. We plan to continue to purchase additional U.S. government
agency and mortgage-backed securities to pledge as collateral for advances.
These purchases will be funded from the cash flow from mortgage-backed
securities and residential real estate loan principal and interest payments, and
promotion of certificate of deposit accounts and brokered deposits. Newly
originated adjustable residential real estate loans will be held in portfolio
and will qualify as collateral. In addition to U.S. government agency and
mortgage-backed securities, residential real estate loans, certain commercial
real estate loans, and certain FHLB deposits free of liens, pledges and
encumbrances are required to be pledged to secure FHLB advances. Municipal
securities cannot be pledged. Average advances from the FHLB were $61,124,033
for the three months ended March 31, 2009, a decrease of $22,100,484, or 27%,
compared to $83,224,517 average for the same period last year.
Structured
repurchase agreements were $65,000,000 at March 31, 2009, an increase of
$25,000,000, or 62%, from $40,000,000 at June 30, 2008. This increase was due to
transactions of $5,000,000 in March, 2009 bearing an interest rate of
2.86% and $10,000,000 each in July and September, 2008 bearing interest
rates of 4.30% and 4.44%, respectively. For the outstanding
structured repurchase agreements at March 31, 2009, we pledged $72,533,001 of
mortgage-backed securities as collateral. The structured repurchase
agreements for the quarter ended March 31, 2009 bear an overall interest rate of
4.87%, which reflects the cost of a $10,000,000 with an imbedded sold interest
rate floor and an effective interest rate of 7.96% because three month LIBOR
rate at the last reset date is below the strike rate of
4.86%. Interest is paid quarterly. See note 7 for
additional information. Average structured repurchase agreements were
$60,277,778 for the three months ended March 31, 2009, an increase of
$20,277,778, or 51%, compared to $40,000,000 average for the same period last
year.
Short-term
borrowings, consisting of securities sold under repurchase agreements and other
sweep accounts, were $33,286,109 as of March 31, 2009, an increase of $445,272,
or 1%, from $32,840,837 as of June 30, 2008. Market interest rates are offered
on this product. At March 31, 2009, we had pledged U.S. government agency and
mortgage-backed securities of $34,771,984 as collateral for repurchase
agreements. We have replaced excess deposit insurance on public deposit sweep
accounts with a letter of credit issued by the Federal Home Loan Bank of
Boston. Our excess deposit insurance company no longer offers this
product. Average securities sold under repurchase agreements were
$36,625,204 for the three months ended March 31, 2009, an increase of
$4,231,946, or 13%, compared to the average for the three months ended March 31,
2008 of $32,393,258.
The
Federal Discount Window Borrower-in-Custody program advances were $15,000,000 at
March 31, 2009. There was no outstanding balance at June 30, 2008 or
March 31, 2008. The advance term was 90 days and carries a variable
rate equal to the current federal funds plus 0.25%. Under the terms
of this credit line, the Bank has pledged $23,995,887 of its indirect auto loans
and $9,947,730 of municipal bonds. Average FRB
Borrower-in-Custody was $15,000,000 for the quarter ended March 31,
2009.
The
following table is a summary of the liquidity the Bank has the ability to access
as of March 31, 2009 in addition to the traditional retail deposit
products:
|
|
Subject
to policy limitation of 25% of total assets
|
Federal
Home Loan Bank of Boston
|
|
Unused
advance capacity subject to eligible and
qualified
collateral
|
Federal
Reserve Bank Discount Window Borrower-in-Custody
|
|
Unused
credit line subject to the pledge of indirect auto loans
and
municipal bonds
|
Total
Unused Borrowing Capacity
|
|
|
Brokered
time deposits, retail deposits and FHLB advances are used by the Bank to manage
its overall liquidity position. While we closely monitor and forecast our
liquidity position, it is affected by asset growth, deposit withdrawals and
meeting other contractual obligations and commitments. The accuracy of our
forecast assumptions may increase or decrease the level of brokered time
deposits.
Management
believes that there are adequate funding sources to meet its liquidity needs for
the foreseeable future. Primary among these funding sources are the repayment of
principal and interest on loans, the renewal of time deposits, the potential
growth in the deposit base, and the credit availability from the Federal Home
Loan Bank of Boston and the Fed Discount Window Borrower-in-Custody program.
Management does not believe that the terms and conditions that will be present
at the renewal of these funding sources will significantly impact the Company's
operations, due to its management of the maturities of its assets and
liabilities.
The
following table summarizes the outstanding junior subordinated notes as of March
31, 2009:
Affiliated Trusts
|
|
Outstanding Balance
|
|
Rate
|
|
First Call Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We do not
expect to call NBN Capital Trust II and III on the first call date, in whole or
in part, due to the general unavailability of similar funding. The
excess funds raised from the issuance of trust preferred securities are
available for capital contributions to the Bank. The annual interest expense is
approximately $854,000 based on the current interest rates.
See Note
2 for more information on NBN Capital Trusts II, III and IV and the related
junior subordinated debt.
Under the
terms of the US Treasury Capital Purchase Program, the Company must have the
consent of the US Treasury to redeem, purchase, or acquire any shares of our
common stock or other equity or capital securities, other than in connection
with benefit plans consistent with past practice and certain other circumstances
specified in the Purchase Agreement. The Board of Directors extended
the 2006 Stock Repurchase Plan to permit stock repurchases in connection with
benefit plans. The stock repurchase plan allows the Company to purchase up to
200,000 shares of its common stock from time to time in the open market at
prevailing prices. Common stock repurchased pursuant to the plan will be
classified as authorized but un-issued shares of common stock available for
future issuance as determined by the Board of Directors, from time to time. For
the three and nine months ended March 31, 2009, the Company did not repurchase
any shares of stock. The remaining repurchase capacity of the plan was
58,400 shares at quarter end. Total stock repurchases under the 2006
Plan since inception were 141,600 shares for $2,232,274, an average of $15.76
per share, through March 31, 2009. Management believes that these and
future purchases have not and will not have a significant effect on the
Company's liquidity. The repurchase program may be discontinued by the Company
at any time.
Total
stockholders' equity of the Company was $48,313,998 as of March 31, 2009, as
compared to $40,273,312 at June 30, 2008. The increase of $8,040,686, or 20%,
was due to proceeds from the preferred stock and common stock warrants sold to
the US Treasury under the Capital Purchase Program, net of issuance costs, of
$4,200,994, net income for the nine months ended March 31, 2009 of $750,060, an
increase in other comprehensive income of $3,699,642, stock options exercised of
$50,500 and a stock grant of $1,728 that was partially offset by the payment of
dividends of $662,238. Book value per common share was $19.00 as of March 31,
2009, as compared to $17.40 at June 30, 2008. Tier 1 capital to total
average assets of the Company was 8.19% as of March 31, 2009 and 7.31% at June
30, 2008.
The
Company's net cash used by operating activities was $2,451,767 during the nine
months ended March 31, 2009, which was a $176,478 increase compared to the same
period in 2008, and was primarily attributable to a decrease in loans held for
sale for the nine months ended March 31, 2009. Investing activities
were a net use of cash primarily due to purchasing investment securities during
the nine months ended March 31, 2009 as compared to the same period in 2008.
Financing activities resulted in a net source of cash from sale of preferred
stock, structured repurchase agreements and advances from the Fed Discount
Window Borrower-in-Custody program partially offset by a decrease in FHLB
advances compared to the same period in 2008. Overall, the Company's cash
and cash equivalents decreased by $5,273,537 during the nine months ended March
31, 2009.
The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
contains various provisions intended to capitalize the Bank Insurance Fund
("BIF") and also affects a number of regulatory reforms that impact all insured
depository institutions, regardless of the insurance fund in which they
participate. Among other things, FDICIA grants the FRB broader regulatory
authority to take prompt corrective action against insured institutions that do
not meet capital requirements, including placing undercapitalized institutions
into conservatorship or receivership. FDICIA also grants the FRB broader
regulatory authority to take corrective action against insured institutions that
are otherwise operating in an unsafe and unsound manner.
FDICIA
defines specific capital categories based on an institution's capital ratios.
Regulations require a minimum Tier 1 capital equal to 4.0% of adjusted total
average assets, Tier 1 risk-based capital of 4.0% and a total risk-based capital
standard of 8.0%. The prompt corrective action regulations define specific
capital categories based on an institution's capital ratios. The capital
categories, in declining order are "well capitalized", "adequately capitalized",
"under capitalized", "significantly undercapitalized", and "critically
undercapitalized". As of March 31, 2009, the most recent notification from the
FRB categorized the Bank as well capitalized. There are no conditions or events
since that notification that management believes has changed the institution's
category.
At March
31, 2009, the Company's and Bank's regulatory capital was in compliance with
regulatory capital requirements as follows:
Northeast
Bancorp
|
|
Actual
|
|
|
Required
For Capital Adequacy Purposes
|
|
|
Required
To Be "Well Capitalized" Under Prompt Corrective Action
Provisions
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As
of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets
|
|
$
|
54,816
|
|
|
|
13.26
|
%
|
|
$
|
33,065
|
|
|
|
>
8.00
|
%
|
|
$
|
41,332
|
|
|
|
>
10.00
|
%
|
Tier
1 capital to risk weighted assets
|
|
$
|
49,282
|
|
|
|
11.92
|
%
|
|
$
|
16,533
|
|
|
|
>
4.00
|
%
|
|
$
|
24,799
|
|
|
|
>
6.00
|
%
|
Tier
1 capital to total average assets
|
|
$
|
49,282
|
|
|
|
8.19
|
%
|
|
$
|
24,060
|
|
|
|
>
4.00
|
%
|
|
$
|
30,075
|
|
|
|
>
5.00
|
%
|
Northeast
Bank
|
|
Actual
|
|
|
Required
For Capital Adequacy Purposes
|
|
|
Required
To Be "Well Capitalized" Under Prompt Corrective Action
Provisions
|
|
(Dollars
in Thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As
of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets
|
|
$
|
51,256
|
|
|
|
12.48
|
%
|
|
$
|
32,864
|
|
|
|
>
8.00
|
%
|
|
$
|
41,081
|
|
|
|
>
10.00
|
%
|
Tier
1 capital to risk weighted assets
|
|
$
|
46,114
|
|
|
|
11.23
|
%
|
|
$
|
16,432
|
|
|
|
>
4.00
|
%
|
|
$
|
24,648
|
|
|
|
>
6.00
|
%
|
Tier
1 capital to total average assets
|
|
$
|
46,114
|
|
|
|
7.70
|
%
|
|
$
|
23,968
|
|
|
|
>
4.00
|
%
|
|
$
|
29,959
|
|
|
|
>
5.00
|
%
|
Off-balance Sheet
Arrangements and Aggregate Contractual Obligations
The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, unused lines of
credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amounts
recognized in the condensed consolidated balance sheet. The contract, or
notional amounts, of these instruments reflect the extent of the Company's
involvement in particular classes of financial instruments.
The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit, unused lines
of credit and standby letters of credit is represented by the contractual amount
of those instruments. To control the credit risk associated with entering into
commitments and issuing letters of credit, the Company uses the same credit
quality, collateral policies, and monitoring controls in making commitments and
letters of credit as it does with its lending activities. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total committed amounts do not necessarily represent future cash
requirements.
Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loans to customers.
Unused
lines of credit and commitments to extend credit typically result in loans with
a market interest rate.
A summary
of the amounts of the Company's (a) contractual obligations, and (b) other
commitments with off-balance sheet risk, both at March 31, 2009,
follows:
|
|
|
|
|
Payments
Due by Period
|
|
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
After
5
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
FHLB
advances
|
|
$
|
50,325,000
|
|
|
$
|
12,325,000
|
|
|
$
|
8,000,000
|
|
|
$
|
15,000,000
|
|
|
$
|
15,000,000
|
|
Structured repurchase
agreements
|
|
|
65,000,000
|
|
|
|
30,000,000
|
|
|
|
20,000,000
|
|
|
|
15,000,000
|
|
|
|
-
|
|
FRB
borrower-in-custody account
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Junior
subordinated notes
|
|
|
16,496,000
|
|
|
|
16,496,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Capital
lease obligation
|
|
|
2,780,961
|
|
|
|
153,661
|
|
|
|
331,974
|
|
|
|
368,756
|
|
|
|
1,926,570
|
|
Other
borrowings
|
|
|
3,431,432
|
|
|
|
634,157
|
|
|
|
1,191,914
|
|
|
|
1,161,785
|
|
|
|
443,576
|
|
Total
long-term debt
|
|
|
153,033,393
|
|
|
|
74,608,818
|
|
|
|
29,523,888
|
|
|
|
31,530,541
|
|
|
|
17,370,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (1)
|
|
|
1,803,162
|
|
|
|
454,170
|
|
|
|
760,326
|
|
|
|
383,001
|
|
|
|
205,665
|
|
Total
contractual obligations
|
|
$
|
154,836,555
|
|
|
$
|
75,062,988
|
|
|
$
|
30,284,214
|
|
|
$
|
31,913,542
|
|
|
$
|
17,575,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
After
5
|
|
Commitments with off-balance sheet
risk
|
|
Total
|
|
|
1
Year
|
|
|
1-3
Years
|
|
|
4-5
Years
|
|
|
Years
|
|
Commitments
to extend credit (2)(4)
|
|
$
|
27,674,193
|
|
|
$
|
27,565,469
|
|
|
$
|
108,724
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commitments
related to loans held for sale(3)
|
|
|
5,769,960
|
|
|
|
5,769,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unused
lines of credit (4)(5)
|
|
|
40,615,927
|
|
|
|
17,252,922
|
|
|
|
1,422,814
|
|
|
|
1,980,934
|
|
|
|
19,959,257
|
|
Standby
letters of credit (6)
|
|
|
1,202,698
|
|
|
|
1,045,649
|
|
|
|
157,049
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
75,262,778
|
|
|
$
|
51,634,000
|
|
|
$
|
1,688,587
|
|
|
$
|
1,980,934
|
|
|
$
|
19,959,257
|
|
(1)
|
Represents
an off-balance sheet obligation.
|
(2)
|
Represents
commitments outstanding for residential real estate, commercial real
estate, and commercial loans.
|
(3)
|
Commitments
of residential real estate loans that will be held for
sale.
|
(4)
|
Loan
commitments and unused lines of credit for commercial and construction
loans expire or are subject to renewal in twelve months or
less.
|
(5)
|
Represents
unused lines of credit from commercial, construction, and home equity
loans.
|
(6)
|
Standby
letters of credit generally expire in twelve
months.
|
Management
believes that the Company has adequate resources to fund all of its
commitments.
The Bank
has written options limited to those residential real estate loans designated
for sale in the secondary market and subject to a rate lock. These rate-locked
loan commitments are used for trading activities, not as a hedge. The fair value
of the outstanding written options at March 31, 2009 was a gain of
$13,717.
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.
Item
3.
Quantitative and
Qualitative Disclosure about Market Risk
There
have been no material changes in the Company's market risk from June 30, 2008.
For information regarding the Company's market risk, refer to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
Item
4.
Controls and
Procedures
The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission, and that such information is
accumulated and communicated to the Company's management, including our Chief
Executive Officer and Chief Financial Officer (the Company's principal executive
officer and principal financial officer, respectively), as appropriate to allow
for timely decisions regarding timely disclosure. In designing and evaluating
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost/benefit relationship of
possible controls and procedures.
Our
management, with the participation of the Company's Chief Executive Officer and
Chief Financial Officer, have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) under
the Exchange Act) as of the end of the period covered by this Form
10-Q.
Based on
this evaluation of our disclosure controls and procedures, our Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures were effective as of March 31, 2009.
There
were no significant changes in our internal controls over financial reporting
(as defined in Rule 13a - 15(f) of the Exchange Act) that occurred during the
first nine months of our 2009 fiscal year that has materially affected, or in
other factors that could affect, the Company's internal controls over financial
reporting.
Part
II - Other Information
Item
1.
|
Legal Proceedings
None.
|
|
|
Item
1. a.
|
Risk Factors
The
following risk factors are in addition to those risk factors set forth in
our Annual Report on Form10-K for the fiscal year ended June 30,
2008.
Difficult
Conditions in the Capital Markets and the Economy Generally May Materially
Adversely Affect Our Business and Results of Operations and We Do Not
Expect These Conditions to Improve in the Near Future
Our
results of operations are materially affected by conditions in the capital
markets and the economy generally. The capital and credit markets have
been experiencing extreme volatility and disruption for more than twelve
months. The volatility and disruption have reached unprecedented
levels. In many cases, these markets have produced downward
pressure on stock prices of, and credit availability to, certain companies
without regard to those companies’ underlying financial
strength.
Recently,
concerns over inflation, energy costs, geopolitical issues, the
availability and cost of credit, the U.S. mortgage market and a declining
U.S. real estate market have contributed to increased volatility and
diminished expectations for the economy and the capital and credit markets
going forward. These factors, combined with volatile oil prices, declining
business and consumer confidence and increased unemployment, have
precipitated an economic slowdown and induced fears of a possible
recession. In addition, the fixed-income markets are experiencing a period
of extreme volatility which has negatively impacted market liquidity
conditions. Initially, the concerns on the part of market participants
were focused on the subprime segment of the mortgage-backed securities
market. However, these concerns have since expanded to include a broad
range of mortgage-and asset-backed and other fixed income securities,
including those rated investment grade, the U.S. and international credit
and interbank money markets generally, and a wide range of financial
institutions and markets, asset classes and sectors. As a result, the
market for fixed income instruments has experienced decreased liquidity,
increased price volatility, credit downgrade events, and increased
probability of default. Securities that are less liquid are more difficult
to value and may be hard to dispose of. Domestic and international equity
markets have also been experiencing heightened volatility and turmoil,
with issuers (such as our company) that have exposure to the real estate,
mortgage and credit markets particularly affected. These events and the
continuing market upheavals, may have an adverse effect on us, in part
because we have a large investment portfolio and also because we are
dependent upon customer behavior. Our revenues are likely to decline in
such circumstances, and our profit margins could erode. In addition, in
the event of extreme and prolonged market events, such as the global
credit crisis, we could incur significant losses. Even in the absence of a
market downturn, we are exposed to substantial risk of loss due to market
volatility.
Factors
such as consumer spending, business investment, government spending, the
volatility and strength of the capital markets, and inflation all affect
the business and economic environment and, ultimately, the amount and
profitability of our business. In an economic downturn characterized by
higher unemployment, lower family income, lower corporate earnings, lower
business investment and lower consumer spending, the demand for our
financial products could be adversely affected. Adverse changes
in the economy could affect earnings negatively and could have a material
adverse effect on our business, results of operations and financial
condition. The current mortgage crisis has also raised the possibility of
future legislative and regulatory actions in addition to the recent
enactment of the Emergency Economic Stabilization Act of 2008 (the “EESA”)
that could further impact our business. We cannot predict whether or when
such actions may occur, or what impact, if any, such actions could have on
our business, results of operations and financial condition.
Recent
Negative Developments In The Financial Industry And The Credit Markets May
Subject Us To Additional Regulation.
As
a result of the recent global financial crisis, the potential exists for
new federal or state laws and regulations regarding lending and funding
practices and liquidity standards to be promulgated, and bank regulatory
agencies are expected to be active in responding to concerns and trends
identified in examinations, including the expected issuance of many formal
enforcement orders. Negative developments in the financial industry and
the domestic and international credit markets, and the impact of new
legislation in response to those developments, may negatively impact our
operations by restricting our business operations, including our ability
to originate or sell loans, and adversely impact our financial
performance.
Our
Future Growth May Require Us To Raise Additional Capital In The Future,
But That Capital May Not Be Available When It Is Needed.
We
are required by regulatory authorities to maintain adequate levels of
capital to support our operations. We anticipate that our current capital
levels will satisfy our regulatory requirements for the foreseeable
future. We may at some point, however, need to raise additional capital to
support our continued growth. Our ability to raise additional capital will
depend, in part, on conditions in the capital markets at that time, which
are outside our control, and our financial performance. Accordingly, we
may be unable to raise additional capital, if and when needed, on terms
acceptable to us, or at all. If we cannot raise additional capital when
needed, our ability to further expand our operations through internal
growth and acquisitions could be materially impaired. In addition, if we
decide to raise additional equity capital, your interest could be
diluted.
The
FDIC deposit insurance assessments that we are required to pay may
materially increase in the future, which would have an adverse effect on
our earnings.
As
a member institution of the FDIC, we are required to pay quarterly deposit
insurance premium assessments to the FDIC. Due to the recent failure of
several unaffiliated FDIC insurance depository institutions and the
increased deposit account insurance limit, we anticipate that the deposit
insurance premium assessments paid by all banks will increase. If the
deposit insurance premium assessment rate applicable to us increases, our
earnings could be adversely impacted.
|
|
|
Item
2.(c)
|
Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table provides information on the purchases made by or on behalf
of the Company of shares of Northeast Bancorp common stock during the
indicated periods.
|
|
Period (1)
|
Total
Number
Of
Shares
Purchased (2)
|
Average
Price
Paid per Share
|
Total
Number of
Shares
Purchased
as
Part of Publicly
Announced Program
|
Maximum
Number of
Shares
that May Yet be
Purchased
Under
The Program (3)
|
|
Jan.
1 – Jan. 31
|
-
|
-
|
-
|
58,400
|
|
Feb
1 – Feb. 28
|
-
|
-
|
-
|
58,400
|
|
Mar.
1 – Mar. 31
|
-
|
-
|
-
|
58,400
|
|
|
|
|
|
|
(1)
|
Based
on trade date, not settlement date.
|
(2)
|
Represents
shares purchased in open-market transactions pursuant to the Company's
2006 Stock Repurchase Plan.
|
(3)
|
On
December 15, 2006, the Company announced that the Board of Directors of
the Company approved the 2006 Stock Repurchase Plan pursuant to which the
Company is authorized to repurchase in open-market transactions up to
200,000 shares from time to time until the plan expires on December 31,
2009, unless extended.
|
|
|
Item
3.
|
Defaults Upon Senior
Securities
None
|
|
|
Item
4.
|
Submission of Matters to a Vote of Security
Holders
None
|
|
|
Item
5.
|
Other Information
None.
|
|
|
Item
6.
|
Exhibits
|
|
List
of Exhibits:
|
|
Exhibits No
.
|
Description
|
|
3.1
|
Articles
(incorporated by reference to the Company’s June 30, 2007 10K filed on
September 27, 2007)
|
|
3.2
|
Bylaws
(incorporated by reference to the Company’s June 30, 2007 10K filed on
September 27, 2007)
|
|
11
|
Statement
Regarding Computation of Per Share Earnings.
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
|
|
32.1
|
Certificate
of the Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Rule 13a-14(b)).
|
|
32.2
|
Certificate
of the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Rule
13a-14(b)).
|
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.
Date: May
13, 2009
|
|
NORTHEAST
BANCORP
|
|
By:
|
/s/
James D. Delamater
|
|
|
James D. Delamater
|
|
|
President and CEO
|
|
|
|
|
By:
|
/s/
Robert S. Johnson
|
|
|
Robert S. Johnson
|
|
|
Chief Financial Officer
|
|
|
|
NORTHEAST
BANCORP
Index to
Exhibits
EXHIBIT
NUMBER
|
DESCRIPTION
|
3.1
|
Articles
(incorporated by reference to the Company’s June 30, 2007 10K filed on
September 27, 2007)
|
3.2
|
Bylaws
(incorporated by reference to the Company’s June 30, 2007 10K filed on
September 27, 2007)
|
11
|
Statement
Regarding Computation of Per Share Earnings
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
|
32.1
|
Certificate
of the Chief Executive Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Rule
13a-14(b)).
|
32.2
|
Certificate
of the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Rule 13a-14(b)).
|