FY 2020 Q2 Investor Call Northeast BANK Forward-Looking Statement | --- | --- | |---------------------------------------------------------------------------------------------------------------------------- ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2019 Commission File Number: 1-14588 Northeast Bancorp | (Exact name of registrant as specified in its charter) | | | --- | --- | | Maine | 01-0425066 | | (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | | organization) | | | 500 Canal Stree ...

Part I. Financial Information This section covers unaudited financial statements, management's analysis, market risk, and internal controls [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for December 31, 2018, show increased total assets and net income, driven by loan portfolio growth and higher net interest income [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, highlighting asset growth driven by the loan portfolio and increased shareholders' equity | Financial Metric | Dec 31, 2018 (in thousands) | June 30, 2018 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$1,194,127** | **$1,157,736** | **+3.1%** | | Total Loans, Gross | $938,286 | $871,802 | +7.6% | | Total Deposits | $985,591 | $954,940 | +3.2% | | **Total Shareholders' Equity** | **$148,491** | **$138,430** | **+7.3%** | - The growth in total assets was primarily driven by a **7.6% increase** in the total loan portfolio, which grew from **$871.8 million to $938.3 million** between June 30, 2018, and December 31, 2018[8](index=8&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the company's financial performance, showing significant increases in net interest income and net income year-over-year | Metric (in thousands, except EPS) | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $15,643 | $12,457 | +25.6% | | Provision for Loan Losses | $101 | $437 | -76.9% | | **Net Income** | **$5,125** | **$3,304** | **+55.1%** | | **Diluted EPS** | **$0.56** | **$0.36** | **+55.6%** | | Metric (in thousands, except EPS) | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $30,001 | $25,768 | +16.4% | | Provision for Loan Losses | $633 | $792 | -20.1% | | **Net Income** | **$9,659** | **$7,890** | **+22.4%** | | **Diluted EPS** | **$1.05** | **$0.86** | **+22.1%** | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section outlines comprehensive income, reflecting net income adjusted for other comprehensive gains or losses | Metric (in thousands) | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net Income | $5,125 | $3,304 | | Other Comprehensive (Loss) Income, net of tax | ($316) | ($68) | | **Comprehensive Income** | **$4,809** | **$3,236** | [Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section details changes in shareholders' equity, primarily driven by net income for the six-month period - Total shareholders' equity increased from **$138.4 million** at June 30, 2018, to **$148.5 million** at December 31, 2018. The increase was primarily driven by **net income of $9.7 million** for the six-month period[15](index=15&type=chunk)[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flows, showing significant investing activities funded by deposits and operating cash | Cash Flow Activity (in thousands) | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $5,766 | $1,008 | | Net Cash from Investing Activities | ($55,746) | $11,465 | | Net Cash from Financing Activities | $30,194 | ($47,533) | | **Net Decrease in Cash** | **($19,786)** | **($35,060)** | - The primary use of cash in investing activities for the six months ended Dec 31, 2018, was for loan purchases (**$84.1 million**) and net loan originations, significantly higher than the prior year period. This was funded by a net increase in deposits (**$30.7 million**) and cash from operations[18](index=18&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the loan portfolio, allowance for loan losses, and a significant merger agreement - The loan portfolio is composed of originated loans (**$607.6 million**) and purchased loans (**$330.6 million**) as of December 31, 2018. Commercial real estate loans represent the largest segment at **$572.7 million**[50](index=50&type=chunk) - The allowance for loan losses increased to **$5.3 million** at December 31, 2018, from **$4.8 million** at June 30, 2018. The allowance as a percentage of total loans was **0.57%**[66](index=66&type=chunk)[196](index=196&type=chunk)[198](index=198&type=chunk) - On January 7, 2019, the Company entered into an Agreement and Plan of Merger to merge the parent holding company (Northeast Bancorp) into its wholly-owned subsidiary, Northeast Bank. The bank will become the surviving, publicly-traded entity[147](index=147&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong fiscal 2019 performance, driven by loan growth and increased net interest income, alongside a strategic corporate reorganization - The company's strategy focuses on three core areas: - Growing the national originated and purchased loan business through its Loan Acquisition and Servicing Group (LASG) - Expanding its national SBA loan origination business - Maintaining its community banking operations for local deposit gathering and lending[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) | Loan Portfolio Change (Six Months Ended Dec 31, 2018) | Balance (in thousands) | Change vs June 30, 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | LASG Purchased | $330,643 | +$39,671 | +13.63% | | LASG Originated | $435,817 | +$38,454 | +9.68% | | SBA | $67,282 | +$7,126 | +11.85% | | Community Banking | $104,544 | -$18,767 | -15.22% | | **Total** | **$938,286** | **+$66,484** | **+7.63%** | - Nonperforming assets decreased to **$13.8 million** (**1.16% of total assets**) as of December 31, 2018, from **$14.2 million** (**1.23% of total assets**) as of June 30, 2018[191](index=191&type=chunk)[193](index=193&type=chunk) - The company and the bank are considered "well capitalized" under all regulatory definitions. The company's Tier 1 leverage ratio was **13.20%** and its total capital ratio was **19.42%** as of December 31, 2018[160](index=160&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - A planned corporate reorganization will eliminate the bank holding company structure. If completed, regulatory commitments to the Federal Reserve will no longer apply, potentially permitting more growth in the bank's loan portfolio[162](index=162&type=chunk)[179](index=179&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure about market risk is not required for smaller reporting companies[258](index=258&type=chunk) [Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[261](index=261&type=chunk) - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[262](index=262&type=chunk) Part II. Other Information This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other relevant information [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings during the period - There are no legal proceedings to report[264](index=264&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure of risk factors is not required for smaller reporting companies[265](index=265&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company made no common stock repurchases during the quarter, as the repurchase program expired in October 2018 - No purchases of the company's common stock were made during the quarter. The stock repurchase program expired in October 2018[266](index=266&type=chunk) [Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[267](index=267&type=chunk) [Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[268](index=268&type=chunk) [Other Information](index=46&type=section&id=Item%205.%20Other%20Information) The company reported no other information - None[269](index=269&type=chunk) [Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the merger agreement and required certifications - Key exhibits filed include the Agreement and Plan of Merger dated January 7, 2019, and certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act[271](index=271&type=chunk)