Profile: Northeast Bancorp (NBN.OQ)
Northeast Bancorp (Northeast) is a bank holding company. The Company’s primary subsidiary is its wholly owned banking subsidiary, Northeast Bank (the Bank). The Bank is a state-chartered bank and a member of the Federal Reserve System. Northeast, through the Bank, and third party affiliations, provides a range of financial services to individuals and companies in western and south-central Maine and southeastern New Hampshire. The Company conducted business from its headquarters in Lewiston Maine, an office in Boston Massachusetts, as well as through its 10 banking branches, as of June 30, 2011, the Company also operated four loan production offices, one financial center and 10 insurance agency offices. The Bank’s investment brokerage division has an office in Falmouth, Maine from which investment, life insurance and financial planning products and services are offered. The Bank’s mortgage loan originators are in most of its branches and in four loan production offices in Bangor, Brunswick, Alfred and Portsmouth, New Hampshire. As of June 30, 2011, the Company was in the process of augmenting the community banking strategy with two business initiatives: Loan Acquisition and Servicing Group (LASG) and Online Deposit Program. During the fiscal year ended June 30, 2011, the Bank launched its LASG from its office in Boston, Massachusetts.
The Bank’s gross loan portfolio, including loans held for sale, aggregated $315.1 million, as of June 30, 2011, representing 52.8% of total assets. The principal lending activities of the Bank are the purchase and origination of mortgages for the purpose of financing or re-financing commercial and one-to four-family residential properties. As of June 30, 2011, the majority of the properties securing the mortgage loan portfolio are located in the State of Maine. The Bank originates both multi-family and commercial real estate loans. As of June 30, 2011, originated commercial real estate loans totaled $117.8 million or 37.4% of total loans. Multi-family and commercial property loans generally are made in amounts up to 80% of the lesser of the appraised value or the purchase price of the property.
The Bank’s permanent commercial real estate loans are secured by improved property, such as office buildings, medical facilities, retail centers, warehouses, apartment buildings, condominiums and other types of buildings, which are located in its primary market area. Multi-family and commercial real estate loans generally have interest rates that adjust every three to five years, typically indexed to Federal Home Loan Bank (FHLB) or Wall Street Journal prime rates of interest. Mortgage loan maturities have terms up to 20 years. The Bank offers a variety of commercial business loan services, including term loans, lines of credit and equipment and receivables financing.
A range of short-to-medium term commercial business loans are made available to businesses for working capital, including the support of inventory and receivables, business expansion, including acquisitions of real estate and improvements, and the purchase of machinery and equipment. Equipment loans are typically originated on a one-year line of credit basis or on a fixed-term basis ranging from one-to five-years. As of June 30, 2011, commercial business loans totaled $22.2 million or 7.1% of total loans. The Bank’s commercial business loans are generally underwritten on the basis of the borrower’s ability to make repayment from the cash flow of its business. The Bank’s loan purchasing business consists primarily of acquiring loans at a discount from their outstanding principal balances. These loans are generally secured by commercial real estate, including multi-family residential real estate, one-to four-family residential real estate or business assets and are purchased from sellers nationwide in the financial services industry or government agencies.
The Bank’s lending activities consists of the origination of single-family residential mortgage loans collateralized by owner-occupied property, most of which is located in its community banking market area. As of June 30, 2011, residential loans outstanding, including loans held for sale, totaled $150.7 million or 47.8% of total loans. The Bank offers a variety of mortgage loan products, with most originations centered in adjustable rate mortgages (ARMs) or fixed rate 15 or 30 year monthly payment mortgage loans. Consumer loans made by the Bank include loans collateralized by automobiles, recreational vehicles, and boats, second mortgages, home improvement loans, mobile home loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. As of June 30, 2011, consumer loans outstanding aggregated $22.4 million, or 7.1% of total loans.
The Bank originates residential construction loans to finance the construction of single-family dwellings. As of June 30, 2011, construction loans outstanding totaled $2 million or 0.6% of total loans. Most residential construction loans are made to individuals who intend to erect owner-occupied housing on a purchased parcel of real estate. The Bank finances the construction of individual, owner-occupied houses on the basis of written underwriting and construction loan management guidelines. Residential loan originations may be generated through real estate broker referrals, mortgage loan brokers, direct solicitation by the Bank’s loan officers, present depositors and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders. The legal lending limit of the Bank, as of June 30, 2011, was approximately $13.7 million.
The Company’s available-for-sale securities portfolio totaled $149.0 million as of June 30, 2011. As of June 30, 2011, the Company’s investment portfolio is consists of the United Sates Government-sponsored enterprise bonds and mortgage-backed securities, and equities, with 99.6% of its investment portfolio consisting of the United Sates Government-sponsored enterprise and mortgage-backed securities.
Sources of Funds
The Company’s principal source of funding is its deposit accounts. In addition to deposits, the Bank obtains funds from the amortization and prepayment of loans and mortgage-backed securities, the sale, call or maturity of investment securities, advances from the FHLB, other term borrowings and cash flows generated by operations. Consumer and commercial deposits are gathered principally from the Bank’s primary market area through the offering of a variety of deposit accounts with a range of interest rates and other terms, which are designed to meet customer financial needs. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to certain limits. Short-term borrowings, FHLB advances, Fed Discount Window Borrower-in-custody advances, structured repurchase agreements and junior subordinated debentures are the Company’s sources of funding other than deposits.
The Bank’s investment brokerage division, Northeast Financial Services (Northeast Financial), offers a range of investment and financial planning products and services from its principal office in Falmouth, Maine and through the Bank’s branch network. Working in partnership with Commonwealth Financial Network, a registered investment adviser, Northeast Financial’s 13 registered representatives offer customers a range of investment products including stocks, bonds, mutual funds, fixed annuities, retirement planning, business planning and life insurance.
The Bank has one active non-bank subsidiary, Northeast Bank Insurance Group, Inc., which supports the Bank’s insurance agencies. As of June 30, 2011, investment in this subsidiary constituted 1.70% of the Company’s total assets. The Company’s wholly owned subsidiary, ASI Data Services, Inc. (ASI), is an inactive corporate subsidiary.
500 Canal Street
LEWISTON ME 04240