Northeast Bancorp (NBN) SEC Quarterly Report (10-Q) for Q4 2016

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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 December 31, 2016

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 organization)		(I.R.S. Employer Identification No.)

500 Canal Street, Lewiston, Maine		04240
(Address of Principal executive offices)		(Zip Code)

(207) 786-3245

Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days. Yes ☑ No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer __ Accelerated filer ☑ Non-accelerated filer __ Smaller Reporting Company __

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes_ No ☑

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of February 2, 2017, the registrant had outstanding 7,518,705 shares of voting common stock, $1.00 par value per share and 1,312,530 shares of non-voting common stock, $1.00 par value per share.

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Part I.	Financial Information		3

	Item 1.	Financial Statements (unaudited)	3

		Consolidated Balance Sheets December 31, 2016 and June 30, 2016	3

		Consolidated Statements of Income Three Months Ended December 31, 2016 and 2015 Six Months Ended December 31, 2016 and 2015	4

		Consolidated Statements of Comprehensive Income Three Months Ended December 31, 2016 and 2015 Six Months Ended December 31, 2016 and 2015	5

		Consolidated Statements of Changes in S hare holders' Equity Six Months Ended December 31, 2016 and 2015	6

		Consolidated Statements of Cash Flows Six Months Ended December 31, 2016 and 2015	7

		Notes to Consolidated Financial Statements	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	44

	Item 4.	Controls and Procedures	45

Part II.	Other Information		45

	Item 1.	Legal Proceedings	45

	Item 1 A .	Risk Factors	45

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

	Item 3.	Defaults Upon Senior Securities	46

	Item 4.	Mine Safety Disclosures	46

	Item 5.	Other Information	46

	Item 6.	Exhibits	46

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PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share data)

	December 31, 2016			June 30, 2016
Assets
Cash and due from banks	$	2,586		$	2,459
Short-term investments		109,610			148,698
Total cash and cash equivalents		112,196			151,157

Available-for-sale securities, at fair value		90,533			100,572

Residential real estate loans held for sale		5,217			6,449
SBA loans held for sale		3,762			1,070
Total loans held for sale		8,979			7,519

Loans
Commercial real estate		503,448			426,568
Residential real estate		106,949			113,962
Commercial and industrial		151,228			145,956
Consumer		5,313			5,950
Total loans		766,938			692,436
Less: Allowance for loan losses		3,107			2,350
Loans, net		763,831			690,086

Premises and equipment, net		7,179			7,801
Real estate owned and other repossessed collateral, net		3,145			1,652
Federal Home Loan Bank stock, at cost		1,938			2,408
Intangible assets, net		1,514			1,732
Bank owned life insurance		15,953			15,725
Other assets		7,391			7,501
Total assets	$	1,012,659		$	986,153

Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand	$	76,721		$	66,686
Savings and interest checking		107,386			107,218
Money market		319,933			275,437
Time		335,531			351,091
Total deposits		839,571			800,432

Federal Home Loan Bank advances		20,024			30,075
Subordinated debt		23,469			23,331
Capital lease obligation		1,003			1,128
Other liabilities		13,650			14,596
Total liabilities		897,717			869,562
Commitments and contingencies		-			-

Shareholders' equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares issued and outstanding at December 31, 2016 and June 30, 2016		-			-
Voting common stock, $1.00 par value, 25,000,000 shares authorized; 7,487,552 and 8,089,790 shares issued and outstanding at December 31, 2016 and June 30, 2016, respectively		7,487			8,089
Non-voting common stock, $1.00 par value, 3,000,000 shares authorized; 1,343,683 and 1,227,683 shares issued and outstanding at December 31, 2016 and June 30, 2016, respectively		1,344			1,228
Additional paid-in capital		77,046			83,020
Retained earnings		30,830			26,160
Accumulated other comprehensive loss		(1,765	)		(1,906	)
Total shareholders' equity		114,942			116,591
Total liabilities and shareholders' equity	$	1,012,659		$	986,153

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except share and per share data)

	Three Months Ended December 31,					Six Months Ended December 31,
	2016		2015			2016			2015
Interest and dividend income:
Interest and fees on loans	$	13,913	$	11,719		$	25,716		$	22,509
Interest on available-for-sale securities		247		236			486			464
Other interest and dividend income		172		80			387			176
Total interest and dividend income		14,332		12,035			26,589			23,149

Interest expense:
Deposits		1,798		1,425			3,553			2,789
Federal Home Loan Bank advances		220		259			475			519
Wholesale repurchase agreements		-		-			-			67
Short-term borrowings		-		5			-			13
Junior subordinated debentures issued to affiliated trusts		468		158			927			312
Obligation under capital lease agreements		13		16			27			33
Total interest expense		2,499		1,863			4,982			3,733
Net interest and dividend income before provision for loan losses		11,833		10,172			21,607			19,416
Provision for loan losses		628		896			820			1,065
Net interest and dividend income after provision for loan losses		11,205		9,276			20,787			18,351

Noninterest income:
Fees for other services to customers		481		428			889			836
Gain on sales of residential loans held for sale		337		398			878			957
Gain on sales of portfolio loans		1,734		679			2,476			1,354
Loss recognized on real estate owned and other repossessed collateral, net		3		(14	)		(11	)		(74	)
Bank-owned life insurance income		114		112			228			224
Other noninterest income		21		21			38			29
Total noninterest income		2,690		1,624			4,498			3,326

Noninterest expense:
Salaries and employee benefits		5,161		4,854			10,475			9,110
Occupancy and equipment expense		1,252		1,320			2,481			2,610
Professional fees		399		264			895			694
Data processing fees		410		366			832			714
Marketing expense		97		66			184			136
Loan acquisition and collection expense		547		219			774			663
FDIC insurance premiums		22		116			146			229
Intangible asset amortization		109		131			218			262
Other noninterest expense		959		860			1,577			1,589
Total noninterest expense		8,956		8,196			17,582			16,007
Income before income tax expense		4,939		2,704			7,703			5,670
Income tax expense		1,839		960			2,852			2,059
Net income		3,100		1,744			4,851			3,611

Weighted-average shares outstanding:
Basic		8,831,235		9,559,369			8,968,690			9,560,913
Diluted		8,864,618		9,569,585			8,999,062			9,567,138

Earnings per common share:
Basic	$	0.35	$	0.18		$	0.54		$	0.38
Diluted		0.35		0.18			0.54			0.38

Cash dividends declared per common share	$	0.01	$	0.01		$	0.02		$	0.02

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)

	Three Months Ended December 31,						Six Months Ended December 31,
	2016			2015			2016			2015

Net income	$	3,100		$	1,744		$	4,851		$	3,611

Other comprehensive income, before tax:
Available-for-sale securities:
Change in net unrealized loss on available-for-sale securities		(1,336	)		(692	)		(1,414	)		(226	)
Derivatives and hedging activities:
Change in accumulated gain (loss) on effective cash flow hedges		1,486			284			1,633			(554	)
Reclassification adjustments included in net income		8			-			14			-
Total derivatives and hedging activities		1,494			284			1,647			(554	)
Total other comprehensive income (loss), before tax		158			(408	)		233			(780	)
Income tax expense (benefit) related to other comprehensive (loss) income		62			(155	)		92			(296	)
Other comprehensive income (loss), net of tax		96			(253	)		141			(484	)
Comprehensive income	$	3,196		$	1,491		$	4,992		$	3,127

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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NORTHEAST BANCORP AND SUBSIDIARY
CONSOLID ATED STATEMENTS OF CHANGES IN SHARE HOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except share and per share data)

Preferred Stock

Voting Common Stock

Non-voting Common Stock

Additional

Paid-in

Retained

Accumulated

Other

Comprehensive