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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
Commission file number (0-16123)
Bethel Bancorp
(Exact name of registrant as specified in its charter)
Maine 01-0425066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
158 Court Street, Auburn, Maine 04210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 777-5950
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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 subject to such
filing requirements for the past 90 days. Yes __X__ No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of September 19, 1996, was $7,370,214. Although directors and
executive officers of the registrant and its subsidiaries were assumed to be
"affiliates" of the registrant for the purposes of this calculation, this
classification is not to be interpreted as an admission of such status.
As of September 19, 1996, 1,231,294 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-K:
Document Part
-------- ----
Proxy Statement for the III
1996 Annual Meeting of
Shareholders
PART I
Item 1. Business
_________________
(a) General Development of Business
___________________________________
The Registrant, Bethel Bancorp, which does business under the name Northeast
Bancorp (the "Company"), is a Maine Corporation chartered in April 1987 for the
purpose of becoming a savings and loan holding company. The Office of Thrift
Supervision ("OTS") is the Company's primary regulator. The board of directors
of Bethel Bancorp voted to assume the name of Northeast Bancorp as of July 1,
1996, pending shareholder approval for the name change of the Company. On July
1, 1996 the Company's two wholly-owned banking subsidiaries, Bethel Savings
Bank, F.S.B. ("Bethel"), a federally - chartered savings bank with its
principal place of business in Bethel, Maine and Brunswick Federal Savings,
F.A. ("Brunswick"), a federally - chartered savings association with its
principal place of business in Brunswick, Maine merged following receipt of
regulatory approval. The merged banking subsidiary, which changed its name to
Northeast Bank, FSB (the "Bank"), has branches located in Bethel, Harrison,
South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond and Lisbon Falls,
Maine.
In May of 1992, the Company entered into a Stock Purchase Agreement with
Square Lake Holding Corporation ("Square Lake") and, on February 9, 1994,
following receipt of regulatory and shareholder approval, the Company issued
71,428 shares of a newly designated Series B convertible preferred stock to
Square Lake at an aggregate price of approximately $1 million, or $14.00 per
share. As part of the transaction, the Company also issued Square Lake a
warrant with a term of seven years to purchase 116,882 shares of the Company's
common stock at a price of $14.00 per share. As a result of the exercise of
certain of such warrants and the application of anti-dilution provisions
pursuant to which such warrants were issued, 133,764 shares remain subject to
such warrants at a purchase price of $7.00 per share. The Series B Preferred
Stock is convertible into shares of the Company's common stock on a two-for-one
basis and carries a dividend rate equal to 2% below the prime rate of The First
National Bank of Boston, not to be less than 7%.
In fiscal year 1993, the Company moved its headquarters from Bethel, Maine
to Portland, Maine. The Company also acquired a controlling interest in ASI
Data Services, Inc. ("ASI"), an existing company which provided sales and
service of computer related hardware and software, as well as a full line of
data processing support systems. On July 1, 1996, the operations of ASI, which
consist primarily of providing data processing support to the Bank and the
Company, were transferred to the Bank.
During fiscal 1995 the Company acquired four branches from Key Bank of
Maine, located in Buckfield, Mechanic Falls, Richmond and Lisbon Falls, Maine.
The total deposits and repurchase agreements acquired from the four branches
were approximately $27,749,000. The premium paid to Key Bank of Maine for
these deposits was $1,590,228. The cost of the real estate, buildings and
equipment purchased from Key Bank of Maine was $498,500.
In fiscal year 1996, the Company relocated its headquarters from Portland to
158 Court Street, Auburn, Maine and intends to open a new retail banking
facility in Auburn during the 1997 fiscal year. During fiscal 1996, there were
no bankruptcy, receivership or similar proceedings with respect to the Company
or the Bank.
(b) Financial Information About Industry Segments
__________________________________________________
Not applicable.
(c) Narrative Description of Business
______________________________________
General
_______
The Company is a savings and loan holding company whose primary asset is its
subsidiary, the Bank.
The Bank (which was formerly known as Bethel Savings Bank, F.S.B.), is a
federally-chartered stock savings bank which was organized in 1872 as a
Maine-chartered mutual savings bank and received its federal charter in 1984
and is the successor by merger to Brunswick Federal Savings, F.A., a
federally-chartered savings association formed in 1988.
In connection with its conversion to a federal stock savings bank in 1984,
the Bank retained its then-authorized powers as a Maine-chartered mutual
savings bank. Under applicable federal regulations, the Bank may exercise any
authority it was allowed to exercise as a mutual savings bank under state law
and regulation at the time of its conversion to a federal savings bank. In
exercising such "grandfathered" powers, the Bank may continue to comply with
applicable state laws and regulations in effect at the time of its conversion
to federal charter except as otherwise determined by the Office of Thrift
Supervision (the "OTS"). The Bank, however, may not use its grandfathered
powers to engage in activities to a greater degree than would be allowed under
the most liberal construction of either state or federal law or regulations.
Historically, Maine-chartered savings banks have had certain lending,
investment and other powers only recently authorized for federal institutions,
including commercial lending authority and the ability to offer personal
checking and negotiable order of withdrawal (NOW) accounts. The Bank also has
broader securities investment authority than other federal thrift institutions
(i.e. savings banks and savings and loan associations) as a result of its
retention of state powers.
The Bank's primary business has historically consisted of attracting savings
deposits from the general public and applying these funds primarily to the
origination and retention of first mortgage loans on residential real estate.
Over the past several years, the Bank has concentrated its lending efforts on
the origination of loans that are shorter-term or interest rate sensitive. Of
the Bank's loan portfolio at June 30, 1996, 83% was invested in real estate
loans (including residential, construction and commercial mortgage loans), 8%
in commercial loans and 9% in consumer loans.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation, primarily through the Bank Insurance Fund. Deposits at the
Brunswick branch are insured through the Savings Association Insurance Fund and
represent 41% of the Bank's total deposits at June 30, 1996. The Bank is a
member of the Federal Home Loan Bank of Boston (the "FHLB").
At June 30, 1996, the legal lending limit of Bank was approximately
$2,600,000. When, on occasion, customers' credit needs exceed the Bank's
lending limits, the Bank may seek participations of such loans with other
banks.
Market Area and Competition
___________________________
The Bank is headquartered in Bethel, Maine with full service branches in
Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond and
Lisbon Falls, Maine. The western Maine region of Oxford county is characterized
by a diversified economy and a strong emphasis on the tourist industry. The
south-central region of Cumberland, Androscoggin and Sagadahoc counties also
has a diversified economy with a strong emphasis on the tourist industry.
The banking business in the Bank's market areas has become increasingly
competitive over the past several years. The Bank's major competitors in
attracting deposits and lending funds consist principally of other Maine-based
banks, and regional and money center banks, and nonbank financial institutions.
Many of the Banks' competitors are larger in size and possess greater financial
resources.
The principal factors in competing for deposits are convenient office
locations, flexible hours, interest rates and services, while those relating to
loans are interest rates, the range of lending services offered and lending
fees. Additionally, the Bank believes that the local character of its business
and its "community bank" management philosophy will improve its ability to
compete successfully in its market areas.
Regional Economic Environment
____________________________
The state of Maine's economy, including Cumberland, Androscoggin and
Sagadahoc counties where the Brunswick, Richmond and Lisbon Falls branches are
located, has stabilized with moderate to flat growth, although the state of
economy in Oxford county, the location of the Bethel, Harrison, South Paris,
Buckfield and Mechanic Falls branches continues to remain weak due to high
unemployment and a soft real estate market. The amount of the Company's
non-performing loans at June 30, 1996 was $2,603,000. Other real estate owned
at June 30, 1996 was $513,831. At June 30, 1996, the Company's ratio of
non-performing loans to total loans was 1.53%. At June 30, 1996, the Company's
allowance for loan losses was $2,549,000, which represented 98% of
non-performing loans at the same date. Based on reviewing the credit risk and
collateral of the classified, non-performing and total loan portfolio,
management believes the allowance for loan losses is adequate. While
management uses its best judgement in recognizing loan losses in light of
available information, there can be no assurance that the Company will 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.
Subsidiaries
____________
The Company acquired a wholly-owned subsidiary, ASI Data Services, Inc.
("ASI") through two stock purchases during 1993-1994 for an aggregate purchase
price of $465,840. ASI initially provided data processing services to the
Company and its subsidiaries. The Company's board of directors voted to
transfer the operations of ASI to the Bank as of July 1, 1996. ASI continues
to exist as a separate legal entity, but is now inactive.
The Bank has one wholly-owned subsidiary, Northeast Service Corporation,
which was organized in 1982. Through Northeast Service Corporation, the Bank
has participated in certain real estate development projects. While the Bank
does not actively pursue such projects, several projects of varying sizes have
been undertaken in the past few years. Any proposed development project is
examined for its profit potential and its ability to enhance the communities
served by the Bank. There are no definitive plans for additional real estate
development projects at the present time. At June 30, 1996, investment in and
loans to its subsidiary constituted 0.5% of the Company's total assets. The
service corporation also supports the Bank's non-banking financial services
through its relationship with Independent Financial Marketing Group, a fully
licensed New York securities firm.
Northeast Service Corporation invested $375,000 of capital and owns
62.5% of First New England Benefits, Inc. First New England is an employee
benefits consulting firm which specializes in the design and administration of
qualified retirement and 401(k) plans.
Employees
_________
As of June 30, 1996, the Company and its consolidated subsidiaries had 108
full-time and 20 part-time employees. The Company's employees are not
represented by any collective bargaining unit. Relations between the Company
and its employees are considered good.
Regulation
__________
General
_______
Savings banks and savings and loan holding companies are subject to
extensive supervision and regulation. The Bank is subject to regulation and
supervision by the OTS.
The Company, as a savings and loan holding company, is subject to
regulation, examination and supervision by the OTS under the Home Owners Loan
Act. The Company is also deemed a Maine financial institution holding company.
As such, the Company is registered with the Maine Superintendent of Banking
(the "Superintendent") and will be subject to periodic examinations and
reporting requirements of the Superintendent.
Recent Developments in Savings Institution Regulation
_____________________________________________________
Federal Deposit Insurance Corporation Improvement Act of 1991
_____________________________________________________________
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which was enacted on December 19, 1991, contains various provisions
intended to recapitalize the Bank Insurance Fund ("BIF") and also effects a
number of regulatory reforms that will impact all insured depository
institutions, regardless of the insurance fund in which they participate.
Among other things, FDICIA grants the OTS 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 OTS broader regulatory
authority to take corrective action against insured institutions that are
otherwise operating in an unsafe and unsound manner. Since the Bank exceeded
all capital requirements at June 30, 1996, these new provisions are not
expected to have any significant impact on its operations. Other provisions of
FDICIA increase the premiums to be paid by the Bank for deposit insurance and
make the Bank subject to special assessments to maintain the insurance fund.
See "Savings Institution Regulation -- Insurance of Deposits."
Financial Institutions Reform, Recovery and Enforcement Act of 1989
___________________________________________________________________
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (the
"FIRRE Act"), which was enacted on August 9, 1989, abolished the Federal Home
Loan Bank Board (the "FHLBB") and the Federal Savings and Loan Insurance
Corporation (the "FSLIC") and significantly changed the federal regulatory
framework for savings institutions and their holding companies. The FHLBB's
regulatory responsibilities over savings institutions and their holding
companies were transferred to the Director of the OTS, and a new insurance
fund, the Savings Association Insurance Fund (the "SAIF"), was established to
insure the deposit accounts of savings institutions. All savings institutions
that were insured by the FSLIC immediately prior to the enactment of the FIRRE
Act automatically became members of SAIF upon enactment of the FIRRE Act.
The SAIF is administered by the FDIC, which also administers BIF, the
separate insurance pool for banks. The Bank's deposits are insured under BIF,
except for the Brunswick's branch deposits, which are insured under SAIF. The
FDIC, in its capacity as administrator of SAIF, has the authority generally to
regulate savings institutions to the extent necessary to ensure the safety and
soundness of SAIF. The Director of the OTS serves as a member of the FDIC's
Board of Directors. The FIRRE Act provides that all orders, resolutions,
determinations and regulations issued by the FHLBB or the FSLIC and in effect
on the date of enactment of the FIRRE Act will continue in effect and be
enforceable by the appropriate successor-in-interest to the FHLBB or the FSLIC
under the FIRRE Act, until modified, terminated, set aside or superseded in
accordance with applicable law.
The Federal Home Loan ("FHL") Banks continue to serve as central credit
facilities for member savings institutions and the Bank is a member of the FHL
Bank of Boston. However, the FHL Banks no longer have any supervisory or
regulatory authority over savings institutions.
Upon dissolution of the FSLIC, all of the assets and liabilities of the
FSLIC were transferred to the FSLIC Resolution Fund ("FRF"), which is managed
by the FDIC but maintained separate and apart from SAIF and BIF. The
FRF will be dissolved upon satisfaction of all its debts and liabilities and
sale of all assets acquired in connection with resolutions of savings
institutions that failed prior to January 1, 1989. The FIRRE Act also provides
for the creation of the Resolution Funding Corporation ("REFCORP"), which
issues debt obligations, the proceeds of which are used to fund the case
resolution activities of the Resolution Trust Corporation (the "RTC"). The RTC
is primarily responsible for the disposition of savings institutions that fail
after January 1, 1989 but prior to the third anniversary of the FIRRE Act.
Funds for the operations of REFCORP and repayment of the principal amount of
REFCORP obligations are provided, in the first instance, by contributions from
the FHL Banks. The FHL Banks continue to be obligated to make contributions to
the Financing Corporation ("FICO"), the entity previously created under the
Competitive Equality Banking Act of 1987 ("CEBA"), as the vehicle to
recapitalize the FSLIC, to cover the operating expenses of FICO and repayment
of FICO obligations.
In addition to restructuring the federal regulatory system for savings
institutions, the FIRRE Act included provisions which, among other things,
increased the deposit insurance premiums payable by savings institutions,
authorized the Director of the OTS to make assessments against savings
institutions to cover the operating expenses of the OTS, significantly raised
the regulatory capital requirements for savings institutions, and altered the
investments and activities permitted for savings institutions. These
provisions of the FIRRE Act may increase the cost of doing business for savings
institutions. Additionally, the contributions which the FHL Banks were
required by the FIRRE Act to make to REFCORP and to FICO will reduce the amount
of dividends paid on FHL Bank stock and may increase the costs charged member
savings institutions for FHL Bank services, thereby further increasing savings
institutions' cost of doing business. Implementing regulations were required
to be adopted within various time periods after the effective date of the FIRRE
Act.
Savings and Loan Holding Company Regulation
___________________________________________
General.
________
Under the Home Owners Loan Act, as amended by the FIRRE Act (the "HOLA"),
the Director of the OTS has succeeded to the jurisdiction of the FHLBB, as
operating head of the FSLIC, over savings and loan holding companies. Thus,
the Company, as a savings and loan holding company within the meaning of the
HOLA, is now subject to regulation, supervision and examination by, and the
reporting requirements of, the Director of the OTS.
The HOLA prohibits a savings and loan holding company such as the Company,
directly or indirectly, or through one or more subsidiaries, from (i)
acquiring control of, or acquiring by merger with or purchase of the assets of,
another savings institution or a savings and loan holding company without the
prior written approval of the Director of the OTS; (ii) acquiring more than 5%
of the issued and outstanding shares of voting stock of another savings
institution or savings and loan holding company, except as part of an
acquisition of control approved by the Director of the OTS, as part of an
acquisition of stock issued by an undercapitalized savings institution or its
holding company approved by the Director of the OTS or except under certain
specified conditions (such as an acquisition of stock in a fiduciary capacity)
which negate a finding of control; or (iii) acquiring or retaining control of a
financial institution that does not have SAIF or BIF insurance of accounts.
The HOLA also allows the Director of the OTS to approve transactions resulting
in the creation of multiple savings and loan holding companies controlling
savings institutions located in more than one state in both supervisory and
nonsupervisory transactions, subject to the requirement that, in nonsupervisory
transactions, the law of the state in which the savings institution to be
acquired is located must specifically authorize the proposed acquisition, by
language to that effect and not merely by implication. As a result, the
Company may, with the prior approval of the Director of the OTS, acquire
control of a savings institution located in a state other than Maine if the
acquisition is expressly permitted by the laws of the state in which the
savings institution to be acquired is located. No director, officer, or
controlling shareholder of the Company may, except with the prior approval of
the Director of the OTS, acquire control of any savings institution which is
not a subsidiary of the Company. Restrictions relating to service as an
officer or director of an unaffiliated holding company or savings institution
are applicable to the directors and officers of the Company and its savings
institution subsidiaries under the Depository Institution Management Interlocks
Act.
Pursuant to amendments to the HOLA enacted as part of the FIRRE Act,
transactions engaged in by a savings association or one of its subsidiaries
with affiliates of the savings association generally are subject to the
affiliate transaction restrictions contained in Sections 23A and 23B of the
Federal Reserve Act in the same manner and to the same extent as such
restrictions now apply to transactions engaged in by a member bank or one of
its subsidiaries with affiliates of the member bank. Section 23A of the
Federal Reserve Act imposes both quantitative and qualitative restrictions on
transactions engaged in by a member bank or one of its subsidiaries with an
affiliate, while Section 23B of the Federal Reserve Act requires, among other
things, that all transactions with affiliates be on terms substantially the
same, and at least as favorable to the member bank or its subsidiary, as the
terms that would apply to, or would be offered in, a comparable transaction
with an unaffiliated party. Exemptions from, and waivers, of, the provisions
of Sections 23A and 23B of the Federal Reserve Act may be granted only by the
Federal Reserve Board, but the FIRRE Act authorizes the Director of the OTS
to impose additional restrictions on transactions with affiliates if the
Director determines such restrictions are necessary to ensure the safety and
soundness of any savings institution.
Restrictions on Activities of Savings and Loan Holding Companies
_________________________________________________________________________
The Company is a savings and loan holding company by virtue of its control
of the Bank. Under applicable federal regulations, savings and loan holding
companies and their noninsured subsidiaries are prohibited from engaging in any
activities other than (i) furnishing or providing management services for the
savings association; (ii) conducting an insurance agency or escrow business;
(iii) holding, managing or liquidating assets owned or acquired from the
savings association; (iv) holding or managing properties used or occupied by
the savings association; (v) acting as trustee under deeds of trust; (vi)
engaging in any other activity in which savings and loan holding companies were
authorized by regulation to engage as of March 5, 1987; and (vii) engaging in
any activity which the Board of Governors of the Federal Reserve System has
permitted for bank holding companies under its regulations (unless the Director
of the OTS, by regulation, prohibits or limits any such activity for savings
and loan holding companies). The activities in which savings and loan holding
companies were authorized by regulation to engage as of March 5, 1987 consist
of activities similar to those permitted for service corporations of federally
chartered savings institutions and include, among other things, various types
of lending activities, furnishing or performing clerical, accounting and
internal audit services primarily for affiliates, certain real estate
development and leasing activities, underwriting credit life or credit health
and accident insurance in connection with extension of credit by savings
institutions or their affiliates and the performance of a range of other
services primarily for their affiliates, their savings association subsidiaries
and service corporation subsidiaries thereof. The activities which the Board
of Governors of the Federal Reserve System by regulation has permitted for bank
holding companies generally consist of those activities that the Board of
Governors of the Federal Reserve System has found to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto,
and include, among other things, various lending activities, certain real and
personal property leasing activities, certain securities brokerage activities,
acting as an investment or financial advisor subject to certain conditions, and
providing management consulting to depository institutions, subject to certain
conditions. OTS regulations do not limit the extent to which savings and loan
holding companies and their nonsavings institution subsidiaries may engage in
activities permitted for bank holding companies pursuant to the regulations
adopted by the Governors of the Federal Reserve System, although prior OTS
approval is required to commence such activity whether de novo or by an
acquisition (in whole or part) of a going concern.
The Company could be prohibited from engaging in any activity (including
those otherwise permitted under the HOLA) not allowed for bank holding
companies if the Bank fails to constitute a qualified thrift lender. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
Savings Institution Regulation
______________________________
General.
________
As a federally chartered institution, the Bank is subject to supervision
and regulation by the Director of the OTS, the FHLBB's successor under the
FIRRE Act. As a result of its conversion to a federal mutual savings bank
in 1984, the Bank retains the then-authorized powers of a Maine-chartered
mutual savings bank. Under OTS regulations, the Bank is required to obtain
audits by independent accountants and to be examined periodically by the
Director of the OTS. These examinations must be conducted no less frequently
than every twelve (12) months. The Bank is subject to assessments by the OTS
and the FDIC to cover the costs of such examinations. The OTS may revalue
assets of the Bank, based upon appraisals, and require the establishment of
specific reserves in amounts equal to the difference between such revaluation
and the book value of the assets. The Director of the OTS is also authorized
to promulgate regulations to ensure the safe and sound operations of savings
institutions and may impose various requirements and restrictions on the
activities of savings institutions. The FIRRE Act requires that all
regulations and policies of the Director of the OTS for the safe and sound
operations of savings institutions be no less stringent than those established
by the Office of the Comptroller of the Currency (the "OCC") for national
banks. In November 1993, the OTS, as well as the Office of the Comptroller of
the Currency and the FDIC, acting under FDICIA, issued a notice of proposed
rulemaking in which it requested public comment on proposed safety and
soundness regulations. These regulations relate to (i) internal controls,
information systems, and internal audit systems; (ii) loan documentation;
(iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; and
(vi) compensation and benefit standards for officers, directors, employees and
principal shareholders. No final action has been taken. The Bank is also
subject to regulation and supervision by the FDIC, in its capacity as insurer
of deposits in the Bank, to ensure the safety and soundness of the BIF and
the SAIF. See "Regulation -- Savings Institution Regulation -- Insurance of
Deposits."
Capital Requirements.
_____________________
As required by amendments of the HOLA enacted as part of the FIRRE Act, the
Director of the OTS has adopted capital standards which require savings
institutions to maintain (i) "core capital" in an amount of not less than 3% of
total assets, (ii) "tangible capital" in an amount not less than 1.5% of total
assets and (iii) a level of risk-based capital equal to 8.0% of risk-weighted
assets. The capital standards established for savings institutions must
generally be no less stringent than those applicable to national banks and must
use all relevant substantive definitions used in the capital standards for
national banks. Under the OTS regulations, the term "core capital" includes
common stockholders equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, less intangible assets, other than certain amounts of supervisory
goodwill, and up to 90% of the fair market value of readily marketable
purchased mortgage servicing rights ("PMSRs") (subject to certain conditions).
The term "tangible capital," for purposes of the HOLA, is defined as core
capital minus intangible assets (as defined by the OCC for national banks),
provided, however, that savings institutions may include up to 90% of the
fair market value of readily marketable PMSRs as tangible capital (subject to
certain conditions, including any limitations imposed by the FDIC on the
maximum percentage of the tangible capital requirement that may be satisfied
with such servicing rights). In determining compliance with capital standards,
a savings institution must deduct from capital its entire investment in and
loans to any subsidiary engaged as principal in activities not permissible for
a national bank, other than subsidiaries (i) engaged in such nonpermissible
activities solely as agent for their customers; (ii) engaged in mortgage
banking activities, or (iii) that are themselves savings institutions, or
companies the only investment of which is another savings institution, acquired
prior to May 1, 1989. With respect to investments in and loans to subsidiaries
engaged as of April 12, 1989 in activities not permitted for national banks,
the required deduction from capital was to be phased-in over a period ending
June 30, 1995.
In determining total risk-weighted assets for purposes of the risk-based
requirement, (i) each off-balance sheet asset must be converted to its
on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset), (ii) the credit equivalent amount of each
off-balance sheet asset and the book value of each on-balance sheet asset must
be multiplied by a risk factor ranging from 0% to 100% (again depending upon
the nature of the asset) and (iii) the resulting amounts are added together and
constitute total risk-weighted assets. Total capital, for purposes of the
risk-based capital requirement, equals the sum of core capital plus
supplementary capital (which, as defined, includes, among other items,
perpetual preferred stock, not counted as core capital, limited life preferred
stock, subordinated debt, and general loan and lease loss allowances up to
1.25% of risk-weighted assets), less certain deductions. The amount of
supplementary capital that may be counted towards satisfaction of the total
capital requirement may not exceed 100% of core capital, and OTS regulations
require the maintenance of a minimum ratio of core capital to total risk-
weighted assets of at least 4.0%.
In August 1993, the OTS issued a final ruling adding an interest rate risk
component for purposes of risk-based capital requirements. The interest rate
risk component now takes into account, for risk-based capital purposes, the
effect that a change in interest rates would have on the value of a savings
institution's portfolio. The final rule and amendments became effective July
1, 1994.
Any insured depository institution which falls below the minimum capital
standards must submit a capital restoration plan. In general, undercapitalized
institutions will be precluded from increasing their assets, acquiring other
institutions, establishing additional branches, or engaging in new lines of
business without an approved capital plan and an agency determination that such
actions are consistent with the plan. Savings institutions that are
significantly undercapitalized or critically undercapitalized are subject to
additional restrictions and may be required to (i) raise additional capital;
(ii) limit asset growth; (iii) limit the amount of interest paid on deposits to
the prevailing rate of interest in the region where the institution is located;
(iv) divest or liquidate any subsidiary which the OTS determines poses a
significant risk; (v) order a new election for members of the board of
directors; (vi) require the dismissal of a director or senior executive
officer, or (vii) take such other action as the OTS determines is appropriate.
Under FDICIA, the OTS is required to appoint a conservator or receiver for
a critically undercapitalized institution no later than 9 months after the
institution becomes critically undercapitalized, subject to a limited exception
for institutions which are in compliance with an approved capital plan and
which the OTS and the FDIC certify are not likely to fail.
FDICIA prohibits any depository institution that is not well capitalized
from accepting deposits through a deposit broker. Previously, only troubled
institutions were prohibited from accepting brokered deposits. The FDIC may
allow adequately capitalized institutions to accept brokered deposits for
successive periods of up to 90 days. FDICIA also prohibits undercapitalized
institutions from offering rates of interest on insured deposits that
significantly exceed the prevailing rate in their normal market area or the
area in which the deposits would otherwise be accepted.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings institution if the OTS
determines that the institution's capital was or may become inadequate in view
of its particular circumstances. Individual minimum capital requirements may
be appropriate where the savings institution is receiving special supervisory
attention, has a high degree of exposure to interest rate risk, or poses other
safety or soundness concerns.
Qualified Thrift Lender Requirement.
____________________________________
In order for the Bank to exercise the powers granted to federally chartered
savings institutions, and maintain full access to FHL Bank advances, it must
constitute a "qualified thrift lender" ("QTL"). Pursuant to recent amendment
effected by FDICIA, a savings institution will constitute a QTL if the
institution's qualified thrift investments continue to equal or exceed 65% of
the savings association's portfolio assets on a monthly average basis in 9 out
of every 12 months. As amended by FDICIA, qualified thrift investments
generally consist of (i) various housing related loans and investments (such as
residential construction and mortgage loans, home improvement loans, mobile
home loans, home equity loans and mortgage-backed securities), (ii) certain
obligations of the FSLIC, the FDIC, the FSLIC Resolution fund and the RTC (for
limited periods of time), and (iii) shares of stock issued by any Federal Home
Loan Bank, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association. In addition, the following assets may be categorized as
qualified thrift investments in an amount not to exceed 20% in the aggregate of
portfolio assets: (i) 50% of the dollar amount of residential mortgage loans
originated and sold within 90 days of origination; (ii) investments in
securities of a service corporation that derives at least 80% of its income
from residential housing finance; (iii) 200% of loans and investments made to
acquire, develop or construct starter homes or homes in credit needy areas
(subject to certain conditions); (iv) loans for the purchase or construction of
churches, schools, nursing homes and hospitals; and (v) consumer loans (in an
amount up to 20% of portfolio assets). For purposes of the QTL test, as
amended by FDICIA, the term "portfolio assets" means the savings institution's
total assets minus goodwill and other intangible assets, the value of property
used by the savings institution to conduct its business, and liquid assets
held by the savings institution in an amount up to 20% of its total assets.
OTS regulations provide that any savings institution that fails to meet the
new QTL test must either convert to a national bank charter or limit its future
investments and activities (including branching and payments of dividends) to
those permitted for both savings institutions and national banks. Additionally,
any such savings institution that does not convert to a bank charter will be
ineligible to receive further FHL Bank advances and, beginning three years
after the loss of QTL status, will be required to repay all outstanding FHL
Bank advances and dispose of or discontinue any pre-existing investments and
activities not permitted for both savings institutions and national banks.
Further, within one year of the loss of QTL status, the holding company of a
savings institution that does not convert to a bank charter must register as a
bank holding company and will be subject to all statutes applicable to bank
holding companies.
These penalties do not apply to a federal savings association, such as the
Bank, which existed as a federal savings association on August 9, 1989 but was
chartered before October 15, 1982 as a savings bank under state law.
Liquidity.
__________
Under OTS regulations, savings institutions are required to maintain an
average daily balance of liquid assets (including cash, certain time deposits,
certain bankers' acceptances, certain corporate debt securities and highly
rated commercial paper, securities of certain mutual funds and specified United
States government, state or federal agency obligations) equal to a monthly
average of not less than a specified percentage of the average daily balance of
the savings institution's net withdrawable deposits plus short-term borrowings.
Under the HOLA, this liquidity requirement may be changed from time to time by
the Director of the OTS to any amount within the range of 4% to 10%, depending
upon economic conditions and the deposit flows of member institutions, and the
required ratio currently is 5%. OTS regulations also require each savings
institution to maintain an average daily balance of short term liquid assets at
a specified percentage (currently 1%) of the total of the average daily balance
of its net withdrawable deposits and short-term borrowings.
Loans to One Borrower Limitations.
__________________________________
The HOLA, as amended by the FIRRE Act, generally requires savings
institutions to comply with the loans to one borrower limitations applicable to
national banks. National banks generally may not make loans to a single
borrower in excess of 15% to 25% of their unimpaired capital and unimpaired
surplus (depending upon the type of loans and the collateral therefor). The
HOLA, as amended by the FIRRE Act, provides exceptions from the generally
applicable national bank limits, under which a savings institution may make
loans to one borrower in excess of such limits under one of the following
circumstances: (i) for any purpose, in an amount not to exceed $500,000; (ii)
to develop domestic residential housing units, in an amount not to exceed the
lesser of $30 million or 30% of the savings institution's unimpaired capital
and unimpaired surplus, provided other conditions are satisfied; or (iii) to
finance the sale of real property which it owns as a result of foreclosure, in
an amount not to exceed 50% of the savings institution's unimpaired capital and
unimpaired surplus. In addition, further restrictions on a savings
institution's loans to one borrower may be imposed by the Director of the OTS
if necessary to protect the safety and soundness of the savings institution.
The new loans to one borrower limits apply prospectively to loan commitments
issued after the date of enactment of the FIRRE Act, and legally binding loan
commitments issued prior to that date in compliance with the pre-FIRRE Act
limits may be funded even if the amount of the loan would cause the institution
to exceed the FIRRE Act limits.
Pursuant to its authority to impose more stringent requirements on savings
associations to protect safety and soundness, however, the OTS has promulgated
a rule limiting loans to one borrower to finance the sale of real property
acquired in satisfaction of debts to 15% of unimpaired capital and surplus. The
rule provides that purchase money mortgages received by a savings association
to finance the sale of such real property do not constitute "loans" (provided
that the savings association is not placed in a more detrimental position
holding the note than holding the real estate) and, therefore, are not subject
to the loan-to-one-borrower limitations.
Commercial Real Property Loans.
_______________________________
Another of the FIRRE Act amendments to the HOLA limits the aggregate amount
of commercial real estate loans that a federal savings institution may make to
an amount not in excess of 400% of the savings institution's capital (as
compared with the 40% of assets limitation in effect prior to the enactment of
the FIRRE Act). However, the new limit does not require the divestiture of
loans made prior to enactment of the FIRRE Act. The OTS has the authority
to grant exceptions to the limit if the additional amount will not pose a
significant risk to the safe or sound operation of the savings institution
involved, and is consistent with prudent operating practices.
Regulatory Restrictions on the Payment of Dividends by Savings Institutions.
____________________________________________________________________________
OTS regulations establish uniform treatment for all capital distributions by
savings associations (including dividends, stock repurchases and cash-out
mergers). Under the rules, a savings association is classified as a tier 1
institution, a tier 2 institution or a tier 3 institution, depending on its
level of regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution (i.e., one that both before and
after a proposed capital distribution has net capital equal to or in excess of
its fully phased-in regulatory capital requirement) is allowed, subject to any
otherwise applicable statutory or regulatory requirements or agreements entered
into with regulators, to make capital distributions in any calendar year up to
100% of its net income to date during the capital year plus the amount that
would reduce by one-half its surplus capital ratio (i.e., the percentage by
which (x) its ratio of capital to assets exceeds (y) the ratio of its fully
phased-in capital requirement to assets) as of the beginning of the calendar
year, adjusted to reflect current earnings. No regulatory approval of the
capital distribution is required, but prior notice has to be given to the OTS.
A tier 2 institution (i.e., one that both before and after a proposed capital
distribution has net capital equal to its then-applicable minimum capital
requirement but would fail to meet its fully phased-in capital requirement
either before or after the distribution) may make only limited capital
distributions without prior regulatory approval. A tier 3 institution (i.e.,
one that either before or after a proposed capital distribution fails to meet
its then-applicable minimum capital requirement) may not make any capital
distributions without prior OTS approval. In addition, the OTS may prohibit a
proposed capital distribution, which otherwise would be permitted by the
regulation, if the OTS determines that such a distribution would constitute an
unsafe or unsound practice. Also, an institution meeting the tier 1 criteria
which has been notified that it needs more than normal supervision will be
treated as a tier 2 or tier 3 institution, unless the OTS deems otherwise.
Activities of Subsidiaries.
___________________________
The FIRRE Act requires a savings institution seeking to establish a new
subsidiary, acquire control of an existing company (after which it would be a
subsidiary), or conduct a new activity through a subsidiary, to provide 30 days
prior notice to the FDIC and the Director of the OTS and conduct any activities
of the subsidiary in accordance with regulations and orders of the Director of
the OTS. The Director of the OTS has the power to require a savings
institution to divest any subsidiary or terminate any activity conducted by a
subsidiary that the Director of the OTS determines is a serious threat to the
financial safety, soundness or stability of such savings institution or is
otherwise inconsistent with sound banking practices.
Insurance of Deposits.
______________________
Federal deposit insurance is required for all federal savings institutions.
Federal savings institutions' deposits are insured to a maximum of $100,000 for
each insured depositor by BIF or SAIF. As a FDIC-insured institution, the Bank
is subject to regulation and supervision by the FDIC, to the extent deemed
necessary by the FDIC to ensure the safety and soundness of BIF and SAIF. The
FDIC is entitled to have access to reports of examination of the Banks made by
the Director of the OTS and all reports of condition filed by the Bank with the
Director of the OTS, and may require the Bank to file such additional reports
as the FDIC determines to be advisable for insurance purposes. The FDIC may
determine by regulation or order that any specific activity poses a serious
threat to BIF or SAIF and that no BIF or SAIF member may engage in the activity
directly. The FDIC is also authorized to issue and enforce such regulations or
orders as it deems necessary to prevent actions of savings institutions that
pose a serious threat to BIF or SAIF.
SAIF insurance premiums were increased commencing January 1, 1991 to 0.23%
of the assessment base. The FDIC has the authority to further increase
premiums in order to cover expenses and to recapitalize the deposit insurance
funds. The current FDIC proposal for SAIF insurance premiums is discussed in
the management discussion and analysis section, provided in Item 7, under the
heading Regulatory Matters. On September 5, 1995, the FDIC announced that
BIF was fully recapitalized at the end of May 1995. As a result, the premium
rates for the healthiest banks (1A category) has decreased from 0.23% to 0.04%
of the assessment base. During fiscal 1996, premium rates for the healthiest
banks (1A category) has been decreased from 0.04% to an annual fee of $2,000.
The Bank is 1A category bank. All of the Bank's deposits, except for the
Brunswick's branch deposits, which represented 41% of the Bank's total deposits
at June 30, 1996, are BIF insured.
As required by the FDICIA, the FDIC adopted a final rule on a permanent
system of risk-based premiums effective January 1, 1994. Under the risk-based
assessment system, the FDIC will be required to calculate a savings
institution's semiannual assessment based on (i) the probability that the
insurance fund will incur a loss with respect to the institution (taking into
account the institution's asset and liability concentration), (ii) the
potential magnitude of any such loss, and (iii) the revenue and reserve needs
of the insurance fund. Until December 31, 1997, the minimum semiannual
assessments for SAIF members under the risk-based assessment system must equal
or exceed the assessments that would have applied prior to enactment of the
FDICIA. The semiannual assessments imposed on an institution may be higher
depending on SAIF revenue and expense levels, and the risk classification
applied to the institution. Effective January 1, 1998, the FDIC is required to
set SAIF semiannual assessments rates in an amount sufficient to increase the
reserve ratio of the SAIF to 1.25% of insured deposits over no more than a
15-year period. The FDICIA also gives the FDIC the authority to establish a
higher reserve ratio.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon finding by the FDIC that the savings institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, rule, regulation, order or
condition imposed by, or written agreement with, the FDIC. Additionally, if
insurance termination proceedings are initiated against a savings institution,
the FDIC may temporarily suspend insurance on new deposits received by an
institution under certain circumstances.
Under the Federal Deposit Insurance Act, as amended by the FIRRE Act, a
savings institution may be held liable to the FDIC for any loss incurred by the
FDIC in connection with the default of a commonly controlled savings
institution or in connection with the provision of assistance by the FDIC to a
commonly controlled savings institution in danger of default. Thereafter, if
a receiver, conservator or other legal custodian is appointed for one of the
institutions, or if the FDIC is required to provide financial assistance to the
institution, the institution could be held liable to the FDIC for any loss
incurred in connection with such appointment or assistance.
Effective December 19, 1992, FDICIA requires any company that controls an
undercapitalized savings institution, in connection with the submission of a
capital restoration plan by the savings institution, to guarantee that the
institution will comply with the plan and to provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the savings institution's assets
at the time it became undercapitalized; or (ii) the amount necessary to bring
the savings institution into capital compliance as of the time the institution
fails to comply with the terms of its capital plan.
Federal Home Loan Bank System
_____________________________
The Federal Home Loan Bank System consists of 12 regional FHL Banks, each
subject to supervision and regulation by the Federal Housing Finance Board (the
"FHFB"), a new agency established pursuant to the FIRRE Act. The FHL Banks
provide a central credit facility for member savings institutions. The Bank,
as a member of the FHL Bank of Boston, is required to own shares of capital
stock in that FHL Bank in an amount at least equal to 1% of the aggregate
principal amount of their unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of
their advances (borrowings) from the FHL Bank, whichever is greater. The Bank
is in compliance with this requirement. The maximum amount which the FHL Bank
of Boston will advance fluctuates from time to time in accordance with changes
in policies of the FHFB and the FHL Bank of Boston, and the maximum amount
generally is reduced by borrowings from any other source. In addition, the
amount of FHL Bank advances that a savings institution may obtain will be
restricted in the event the institution fails to constitute a QTL. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
Federal Reserve Board
_____________________
Pursuant to the Depository Institutions Deregulation and Monetary Control
Act of 1980 (the "Deregulation Act"), Federal Reserve Board regulations require
savings institutions to maintain reserves against their net transaction
accounts (primarily NOW accounts), subject to certain exemptions. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the form of vault cash or a
non-interest bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the institution's interest-earning assets.
The Deregulation Act also gives savings institutions authority to borrow
from the appropriate Federal Reserve Bank's "discount window." Current Federal
Reserve regulations require savings institutions to exhaust all FHLB sources
before borrowing from the Federal Reserve Bank. The FDICIA places limitations
upon a Federal Reserve Bank's ability to extend advances to undercapitalized
and critically undercapitalized depository institutions. The FDICIA provides
that a Federal Reserve bank generally may not have advances outstanding to an
undercapitalized institution for more than 60 days in any 120-day period.
Maine Law
_________
Under Maine law, a Maine financial institution holding company such as the
Company may not engage in any activity other than managing or controlling
financial institutions, or other activities deemed permissible by the
Superintendent. The Superintendent has by regulation determined that, with the
prior approval of the Superintendent, a financial institution holding company
may engage in those activities deemed closely related pursuant to Section 408
of the National Housing Act, unless that activity is prohibited by the Maine
Banking Code or regulations.
Securities and Exchange Commission
__________________________________
The Company has registered its common stock with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended. As a result of such registration, the proxy and tender offer
rules, periodic reporting requirements, insider trading restrictions and
reporting requirements, as well as certain other requirements, of such Act are
applicable.
Restrictions on the Payment of Dividends
________________________________________
The Maine Business Corporation Act (the "Business Corporation Act") permits
the Company to pay dividends on its capital stock only from its unreserved and
unrestricted earned surplus or from its net profits for the current fiscal year
and the next preceding fiscal year taken as a single period.
Applicable rules further prohibit the payment of a cash dividend by the
Company if the effect thereof would cause its net worth to be reduced below
either the amount required for the liquidation account or the net worth
requirements imposed by federal laws or regulations. The Company is prohibited
from paying dividends on their capital stock if it is in default in the payment
of any assessment to the FDIC.
Earnings appropriated to bad debt reserves for losses and deducted for
federal income tax purposes are not available for dividends without the payment
of taxes at the current income tax rates on the amount used.
Restrictions on the Acquisition of the Company
______________________________________________
The savings and loan holding company provisions of the HOLA (the "Holding
Company Provisions") provide that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions, may acquire "control" of an insured savings
institution at any time without the prior approval of the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation under the Holding
Company Provisions and the regulations promulgated thereunder. "Control" in
this context means ownership, control of, or holding proxies representing more
than 25% of the voting shares of, an insured institution, the power to control
in any manner the election of a majority of the directors of such institution
or the power to exercise a controlling influence over the management or
policies of the institution.
In addition, the Change in Bank Control Act (the "Control Act") provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire "control" of an insured institution
unless at least 60 days' prior written notice has been given to the OTS and the
OTS has not objected to the proposed acquisition. "Control" is defined for
this purpose as the power, directly or indirectly, to direct the management or
policies of an insured institution or to vote 25% or more of any class of
voting securities of an insured institution. Under both the Holding Company
Provisions and the Control Act (as well as the regulations referred to below)
the term "insured institutions" includes state and federally chartered
SAIF-insured institutions, federally chartered savings banks insured under the
BIF and holding companies thereof.
OTS regulations establish a uniform set of regulations under both the
Control Act and the Holding Company Provisions. Under these regulations, prior
to obtaining control of an insured institution, a person (under the Control
Act) must give 60 days notice to the OTS and have received no OTS objection to
such acquisition of control, and a company (under the Holding Company
Provisions) must apply for and receive OTS approval of the acquisition.
"Control," for purposes of the regulations, means the acquisition of 25% or
more of the voting stock (or irrevocable proxies for 25% of more of the voting
stock) of the institution, control in any manner of the election of a majority
of the institution's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of an institution's voting stock, if the acquiror also is subject
to any one of eight "control factors," constitutes a rebuttable determination
of control under the new regulations. The determination of control may be
rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstance giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings.
The regulations provide that persons or companies which acquire beneficial
ownership exceeding 10% or more of any class of an insured institution's stock
after the effective date of the regulations must file with the OTS a
certification that the holder is not in control of such institution, is not
subject to a rebuttable determination of control and will take no action which
would result in a determination or rebuttable determination of control without
prior notice to or approval of the OTS, as applicable.
Other Regulations
_________________
The policies of regulatory authorities, including the Federal Reserve Board,
the OTS, and the FDIC, have had a significant effect on the operating results
of financial institutions in the past and are expected to do so in the future.
Policies of these agencies may be influenced by many factors, including
inflation, unemployment, short-term and long-term changes in the international
trade balance and fiscal policies of the United States government.
Supervision, regulation or examination of the Company and the Bank by such
regulatory agencies is not intended for the protection of the Company's
shareholders.
Statistical Disclosure
______________________
The additional statistical disclosure describing the business of the Company
and the Banks required by Industry Guide 3 under the Securities Exchange Act of
1934, as amended, is provided in Item 8 b.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales
_____________________________________________________
Not applicable.
Item 2. Properties
__________
The only real property which the Company owns is the real estate in Auburn,
Maine on which various operational functions are performed for the Bank. It
utilizes the premises and equipment of the Bank with no payment of any rental
fee to the Bank.
The Bank owns its branch offices in Bethel, Harrison, Buckfield, Mechanic
Falls, Brunswick, Richmond and Lisbon Falls, Maine. The branch office in South
Paris, Maine is leased.
Item 3. Legal Proceedings
_________________
There are no pending legal proceedings to which the Company is a party or
any of its property is the subject. There are no material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of banking, to which the Bank is a party or of which any of the Bank's
property is the subject. There are no material pending legal proceedings to
which any director, officer or affiliate of the Company, any owner of record
beneficially of more than five percent of the common stock of the Company, or
any associate of any such director, officer, affiliate of the Company or any
security holder is a party adverse to the Company or has a material interest
adverse to the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
Not applicable
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
_____________________________________________________________________
The common stock of the Company trades on The Nasdaq Stock Exchange under the
symbol NEBC. The number of shares of common stock outstanding as of June 30,
1996 was 1,229,910. The number of stockholders of record, as of September 13,
1996 was approximately 415.
The following table sets forth the high and low sales prices of the Company's
common shares and dividends paid during each quarter for fiscal years ending
June 30, 1995 and 1996.
1995-1996 High Low Div. Pd.
_________________ _________ _________ _________
July 1 - Sept.30 11.38* 10.75* .04*
Oct.1 - Dec.31 12.00* 10.75* .04*
Jan.1 - March 31 13.25 11.00 .08
April 1 - June 30 13.25 12.50 .08
1994 - 1995 High Low Div. Pd.
_________________ _________ _________ _________
July 1 - Sept.30 11.75* 10.75* .04*
Oct.1 - Dec.31 11.00* 10.50* .04*
Jan.1 - March 31 11.50* 10.50* .04*
April 1 - June 30 11.25* 10.75* .04*
* Adjusted to reflect 100% stock dividend paid on 12/15/95.
Bethel Bancorp has 45,454 shares of Series A preferred stock outstanding. The
Series A preferred stock is convertible into common stock on a two-for-one
basis and carries a dividend rate of two percent below the prime rate of the
First National Bank of Boston, but in no event to be less than 7% per annum.
There is no trading market for the Series A preferred stock.
Bethel Bancorp has 71,428 shares of Series B preferred stock outstanding. The
Series A preferred stock is convertible into common stock on a two-for-one
basis and carries a dividend rate of two percent below the prime rate of the
First National Bank of Boston, but in no event to be less than 7% per annum.
There is no trading market for the Series B preferred stock.
Item 6. Selected Financial Data
_______________________
Years Ended
June 30,
________________________________________________
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
(Dollars in thousands)
Interest income $ 17,994 $ 16,923 $ 14,036 $ 14,359 $ 13,987
Interest expense 9,128 8,053 6,479 7,155 8,208
________ ________ ________ ________ ________
Net interest income 8,866 8,870 7,557 7,204 5,779
Provision for loan losses 603 641 1,021 852 733
Other operating income 1 1,818 1,697 2,111 1,342 694
Net securities gains 279 419 347 108 183
Other operating expenses 2 8,355 7,988 7,011 5,734 4,192
Writedowns on equity and debt
securities 93 0 84 61 11
________ ________ ________ ________ ________
Income before income taxes 1,912 2,358 1,899 2,008 1,720
Income tax expense 719 869 698 786 655
Cumulative effect of change in
accounting principle - - 260 - -
________ ________ ________ ________ ________
Net income $ 1,193 $ 1,489 $ 1,461 $ 1,222 $ 1,065
======== ======== ======== ======== ========
Primary earnings per share 3 $ 0.83 $ 1.10 $ 1.13 $ 1.07 $ 0.91
Fully diluted earnings per
share 3 $ 0.79 $ 1.02 $ 1.08 $ 1.07 $ 0.91
Cash dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
Common dividend payout ratio 40.51% 15.69% 14.81% 15.02% 17.58%
At June 30,
________________________________________________
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
Total assets $222,290 $207,509 $190,600 $178,914 $164,165
Total loans 169,851 170,140 158,461 150,756 141,431
Total deposits 145,195 147,120 124,306 122,497 121,517
Total borrowings 53,625 37,710 48,420 40,500 29,079
Total stockholders' equity 18,151 17,275 15,756 14,067 12,840
Return on assets
(net income/average assets) 0.56% 0.73% 0.80% 0.72% 0.69%
Return on equity
(net income/average net worth) 6.52% 9.08% 9.72% 9.01% 8.49%
Average equity/average assets 8.62% 8.02% 8.23% 7.85% 8.30%
1 Includes fees for services to customers and gains on sale of loans.
2 Includes salaries, employee benefits and occupancy.
3 Per share data for the years prior to 1996 have been retroactively restated
as a result of the stock split in December 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and
_______________________________________________________________
Results of Operations
_____________________
DESCRIPTION OF OPERATIONS
_________________________
Bethel Bancorp, which does business under the name Northeast Bancorp (the
"Company"), is a savings and loan holding company with the Office of Thrift
Supervision ("OTS") as its primary regulator. The board of directors of Bethel
Bancorp voted to assume the name of Northeast Bancorp as of July 1, 1996,
pending shareholder approval for the name change of the Company. On July 1,
1996 the Company's two wholly-owned banking subsidiaries, Bethel Savings Bank,
F.S.B. and Brunswick Federal Savings, F.A. merged following receipt of
regulatory approval. The merged banking subsidiary, which changed its name to
Northeast Bank, FSB (the "Bank"), has branches located in Bethel, Harrison,
South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond and Lisbon Falls,
Maine.
The Bank's deposits are primarily BIF-insured. Deposits at the Brunswick
branch are SAIF-insured and represent 41% of the Bank's total deposits at June
30, 1996.
The Company relocated its corporate headquarters to 158 Court Street, Auburn,
Maine, in July of 1996 and intends to open a new retail banking facility in the
Lewiston/Auburn area during the 1997 fiscal year.
The Company's board of directors voted to transfer the operations of ASI Data
Services to the Bank as of July 1, 1996. ASI Data Services, Inc. continues to
exist as a separate legal entity and is a wholly - owned subsidiary of the
Company. ASI Data Services performed data and item processing for the Company
and its subsidiaries during fiscal 1996, but is now inactive.
FINANCIAL CONDITION
___________________
The overall strategy of the Company is to increase the core earnings of the
Bank by the development of strong net interest margins, non-interest fee
income, and by increasing volume through a larger market area.
The banking business in the Bank's market areas of western and south central
Maine has become increasingly competitive over the past several years. The
Bank's major competitors for deposits and loans consist primarily of other
Maine-based banks, regional and money center banks, and non-bank financial
institutions. Many of the Bank's competitors are larger in size and,
consequently, possess greater financial resources. The principal factors in
competing for deposits are convenient office locations, flexible hours,
interest rates and services, while those relating to loans are interest rates,
the range of lending services offered and lending fees. Additionally, the Bank
believes that the local character of its business and its "community bank"
management philosophy will improve its ability to compete in its market areas.
The Company has enhanced its product lines and now provides a range of
financial services such as loans, deposits and investments through its
relationship with the Independent Financial Group, trust services through the
Bank's Trust department, employee retirement benefits through the Company's
affiliate First New England Benefits and leasing services through its
relationship with LGIC Leasing.
The state of Maine's economy, in which the Bank operates, including the south
central region of Cumberland, Androscoggin and Sagadahoc counties has
stabilized with moderate growth, although the economy in the western region of
Oxford county remains weak. Based on the different economic conditions in the
Bank's market areas, management of the Company continues to carefully monitor
the exposure to credit risk at the Bank.
The Company believes that it has adequate capital, as total equity represents
8.17% of total assets and that its capital position will support future growth
and development as well as allow for additional provisions to the allowance for
loan losses, if needed, without significant impairment of the financial
stability of the Company.
On October 28, 1994 the Company acquired four Key Bank branches, located in
Buckfield, Mechanic Falls, Richmond and Lisbon Falls, Maine. The total
deposits and repurchase agreements acquired from the four branches were
approximately $27,749,000. The premium paid to Key Bank for these deposits was
$1,590,228. The cost of the real estate, building, and equipment purchased from
Key Bank was $498,500. The growth in assets and deposits in fiscal 1995 was
greatly enhanced by the acquisition of the four Key Bank branches.
The Company's assets totaled $222,289,615 as of June 30, 1996, an increase of
$14,780,478 compared to June 30, 1995. Loan volume was flat during the fiscal
year due to unusually high principal reductions, loans refinancing to the
secondary market, and a higher level of competition from financial institutions
and mortgage companies. The Bank has focused its business development efforts
towards full service credit packages and financial services, as well as
competitively priced mortgage packages.
Cash and cash equivalents decreased by $3,173,943 at June 30, 1996 compared to
June 30, 1995. The reduction in cash equivalents was primarily the result of
securities purchased during fiscal 1996.
The Company's loan portfolio had a balance of $169,850,924 as of June 30, 1996,
which represents a decrease of $288,980 compared to June 30, 1995. From June
30, 1995 to June 30, 1996, the loan portfolio decreased by $352,000 in real
estate mortgage loans, $1,758,000 in consumer loans, and increased by
$1,808,000 in commercial loans. The loan portfolio contains elements of credit
and interest rate risk. The Company primarily lends within its local market
areas, which management believes helps it to better evaluate credit risk. The
Company also maintains a well collateralized position in real estate mortgages.
Residential real estate mortgages make up 68% of the total loan portfolio, in
which 48% of the residential loans are variable rate products. It is
management's intent to increase the proportion of variable rate residential
real estate loans to reduce the interest rate risk in this area.
Fifteen percent of the Company's total loan portfolio balance is commercial
real estate mortgages. Similar to the residential mortgages, the Company tries
to mitigate credit risk by lending in its local market areas as well as
maintaining a well collateralized position in real estate. The commercial real
estate loans have minimal interest rate risk as 83% of the portfolio consists
of variable rate products.
Commercial loans make up 8% of the total loan portfolio in which 87% of the
balance are variable rate instruments. The credit loss exposure on commercial
loans is highly dependent on the cash flow of the customers' business. The Bank
attempts to mitigate losses through lending in accordance with the Company's
credit policies.
Consumer loans make up 9% of the total loan portfolio. Since these loans are
primarily fixed rate products, they have interest rate risk when market rates
increase. These loans also have credit risk with, at times, minimal collateral
security. Management attempts to mitigate these risks by keeping the products
offered short-term, receiving a rate of return commensurate with the risk, and
lending to individuals in the Company's known market areas.
The Company's allowance for loan losses was $2,549,000 as of June 30, 1996
versus $2,396,000 as of June 30, 1995, representing 1.50% and 1.41% of total
loans, respectively. The Company had non-performing loans totaling $2,603,000
and $2,570,000 at June 30, 1996 and 1995, which was 1.53% and 1.51% of total
loans, respectively. Non-performing loans represented 1.17% and 1.24% of total
assets at June 30, 1996 and 1995, respectively. The Company's allowance for
loan losses was equal to 98% and 93% of the total non-performing loans at June
30, 1996 and 1995, respectively. At June 30, 1996, the Company had
approximately $2,541,000 of loans classified substandard, exclusive of the non-
performing loans stated above, that could potentially become non-performing due
to delinquencies or marginal cash flows. As of June 30, 1996, the amount of
such loans has decreased from the June 30, 1995 amount by $1,082,000. This
decrease was primarily due to substandard loans being classified as
non-performing or being liquidated through the sale of foreclosed assets.
Management takes an aggressive posture in reviewing its loan portfolio to
classify certain loans substandard. The following table represents the
Company's current non-performing loans:
Description Total
_______________________ ___________
1-4 Family Mortgages $1,092,000
Commercial Mortgages 1,154,000
Commercial Installment 283,000
Consumer Installment 74,000
_______________________ ___________
Total non-performing $2,603,000
The majority of the non-performing loans are seasoned loans located in the
Oxford county area. This geographic area continues to have a depressed
economy resulting in high unemployment and a soft real estate market. As a
result, management has allocated substantial resources to the collection area
in an effort to control the growth in non-performing, delinquent and
substandard loans. The Company's delinquent accounts has increased slightly
during the 1996 fiscal year. This increase was largely due to higher
delinquencies in the western Maine market and the reduction of the Bank's loan
balances.
The following table reflects the annual trend of total delinquencies 30 days or
more past due, including non-performing loans, for the Company as a percentage
of total loans:
6/30/93 6/30/94 6/30/95 6/30/96
4.42% 2.64% 2.60% 2.77%
The level of the allowance for loan losses as a percentage of total loans and
non-performing loans represented an increase at June 30, 1996 compared to June
30, 1995. Loans classified substandard decreased in the 1996 fiscal year, when
compared to the 1995 fiscal year. Classified loans are also considered in
management's analysis of the adequacy of the allowance for loan losses. Based
on reviewing the credit risk and collateral of these classified loans,
management has considered the risks of the classified portfolio and believes
the allowance for loan losses is adequate. Net charge-offs for the Company
were $449,860, $707,634, and $680,795, for the three years ended June 30, 1996,
June 30, 1995, and June 30, 1994, respectively.
On a regular and ongoing basis, management evaluates the adequacy of the Bank's
allowance for loan losses. The process of evaluating the allowance involves a
high degree of management judgment. The methods employed to evaluate the
allowance for loan losses are quantitative in nature and consider such factors
as the loan mix, the level of non-performing loans, delinquency trends, past
charge-off history, loan reviews and classifications, collateral, and the
current economic climate.
Management believes that the allowance for loan losses is adequate considering
the level of risk in the loan portfolio. While management uses its best
judgement in recognizing loan losses in light of available information, there
can be no assurance that the Company will not have to increase its provision
for loan losses in the future as a result of changing economic conditions,
adverse markets for real estate or other factors. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance for loan losses
based on their judgments about information available to them at the time of
their examination.
At June 30, 1996, the Company had a total of $513,831 in other real estate
owned versus $1,068,454 as of June 30, 1995. The decrease in other real estate
owned of $554,623 was due to sales of properties and an increase in the
allowance for losses on other real estate owned. The Company has an allowance
for losses on other real estate owned that was established to provide for
declines in real estate values and to consider estimated selling costs. The
allowance for losses on other real estate owned totaled $100,000 at June 30,
1996 versus $5,289 at June 30, 1995. The Company provided for this allowance
through a charge against earnings of $94,711 and $107,173 for the years ended
June 30, 1996 and 1995, respectively. In 1996 and 1995, write downs of other
real estate owned totaled $-0- and $151,289, respectively. The Company
increased the June 30, 1996 allowance for losses on other real estate owned to
provide for additional losses due to its plan to aggressively sell the other
real estate owned property. Management periodically receives independent
appraisals to assist in its valuation of the other real estate owned portfolio.
As a result of its review of the independent appraisals and the other real
estate owned portfolio, the Company believes the allowance for losses on other
real estate owned is adequate to state the portfolio at lower of cost, or fair
value less estimated selling costs.
On July 1, 1995 the Company adopted the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards Nos. 114 and 118
("Statements 114 and 118"). The adoption resulted in the reclassification, as
of June 30, 1995, of in-substance foreclosure loans to non-performing loans.
Statements 114 and 118, taken together, require the Company to identify
impaired loans and generally value them at the lower of (I) the present value
of expected future cash flows discounted at the loan's original effective
interest rate or (II) the loan's observable market price or (III) fair value of
the loan's collateral, if the loan is collateral dependent. The two
statements, in connection with recent regulatory guidance, require the Company
to reclassify its in-substance foreclosures to loans and disclose them as
impaired loans. At June 30, 1996, total impaired loans were $1,530,650, of
which $1,063,720 had related allowances of $499,200. During the year ended
June 30, 1996, the income recognized related to impaired loans was $87,128 and
the average balance of outstanding impaired loans was $1,799,087. The Company
recognizes interest on impaired loans on a cash basis when the ability to
collect the principal balance is not in doubt; otherwise, cash received is
applied to the principal balance of the loan.
As of June 30, 1996, trading account securities had increased by $196,246
compared to the balance of such assets at June 30, 1995. This increase was
attributed to the purchase of securities in which management intends to trade
for net securities gains.
Proceeds from increased Federal Home Loan Bank ("FHLB") borrowings as well as
funds obtained from the reduction of FHLB overnight deposits were utilized to
purchase mortgage-backed securities, thereby increasing the Company's earning
assets. The Company restructured its investment portfolio during the quarter
ended December 31, 1995 to improve the yield on the securities portfolio. This
was accomplished by selling mortgage-backed securities with lower coupon rates
and purchasing additional mortgage-backed securities with better yields. The
Company took advantage of the fluctuating market rates and prices and purchased
$16,751,113 of additional mortgage-backed securities in the March 31, 1996
quarter and $2,750,955 in the June 30,1996 quarter, increasing securities
available for sale by $19,502,068 compared to June 30, 1995. The additional
securities currently have a net earnings yield benefit of 200 basis points,
when factoring in the average yield on FHLB overnight deposits and the average
cost on FHLB advances. At June 30, 1996, the Company's total investment
portfolio was classified as available for sale. The amortized cost and market
value of available for sale securities at June 30, 1996 was $30,919,037 and
$29,650,319, respectively. The reduction in carrying value from the cost was
primarily attributable to the decline in market value of mortgage-backed
securities, which was due to the change in current market prices from the price
at the time of purchase. The Company has primarily invested in mortgage-backed
securities. Substantially all of the mortgage-backed securities are high grade
government backed securities. As in any long term earning asset in which the
earning rate is fixed, the market value of mortgage-backed securities will
decline when market interest rates increase from the time of purchase. Since
these mortgage-backed securities are backed by the U.S. government, there is
little or no risk of loss of principal. Management believes that the yields
currently received on this portfolio are satisfactory.
During 1995, the Company purchased $12,399,000 in securities it classified as
held to maturity. At the time of acquiring these securities, the Company had
the intention and the ability to hold such securities to maturity. In the last
quarter of fiscal 1995, as a result of its planning process and changes in
market conditions, Company management determined that it no longer possessed
the intent to hold such securities to maturity. The investment portfolio is an
integral piece of the Company's asset/liability ("ALCO") management program.
The Company's ALCO committee meets on a regular basis to analyze the Company's
risk during a rising or falling interest rate environment. In management's
efforts to maintain the proper asset/liability mix for the Company, management
determined that the investment portfolio needs to be managed aggressively and
consistently. Consequently, the Company transferred its entire held to
maturity portfolio, with an aggregate cost of $18,775,000 and an aggregate
market value of $18,822,000 (including unrealized gains and losses of $191,000
and $144,000, respectively) to available for sale. The Company subsequently
sold selected securities with an aggregate cost of $11,900,000 and realized
gains of $273,000 and realized losses of $225,000. The Company's decision not
to hold these securities to maturity does not satisfy the limited criteria of
FASB Statement of Financial Accounting Standards No. 115, which specifies
circumstances in which it is permissible to sell or transfer held to maturity
securities. Consequently, the Company will, for the foreseeable future,
classify its securities portfolio as available for sale, or trading.
Management reviews the portfolio of investments on an ongoing basis to
determine if there has been an other-than-temporary decline in value. Some of
the considerations management makes in the determination are market valuations
of particular securities and economic analysis of the securities' sustainable
market values based on the underlying companies' profitability. Based on
management's assessment of the securities portfolio in fiscal 1996, 1995 and
1994, there have been other than temporary declines in values of individual
equity securities in the amounts of $93,819, $-0-, and $84,419, respectively.
Such securities have been written down to market value through an adjustment
against current earnings.
The Company increased its investment in FHLB stock by $506,200, compared to
June 30, 1995, due to the increase in FHLB borrowings. The FHLB requires
institutions to hold a certain level of FHLB stock based on advances
outstanding.
The Company has used off-balance-sheet risk financial instruments in the normal
course of business to meet the financing needs of its customers and to reduce
its own exposure to fluctuations in interest rates. These financial instruments
include commitments to extend credit and standby letters of credit. The Company
uses the same credit policies in making commitments as it does for on-balance-
sheet instruments. Hence, these instruments have the same elements of credit
and interest rate risk. The Company limits its involvement in derivative
financial instruments to covered call and put contracts. Gains and losses from
entering into these contracts were immaterial to the results of operations of
the Company in fiscal 1996, 1995 and 1994. The total value of securities under
call and put contracts at any one time is immaterial to the Company's financial
position, liquidity, or results of operations. Off-balance-sheet risk financial
instruments are more fully described in footnote 19 to the financial
statements.
The Company's premises and equipment decreased by a net of $296,892 during
fiscal 1996 due to normal depreciation. The Company's premises and equipment
increased, during fiscal 1995, by a net of $828,487. The 1995 increase was
primarily due to the acquisition of the Key Bank branches, explained above, as
well as the capitalized costs associated with the relocation of the Bank's
Mechanic Falls branch to a new facility.
The increase in accrued interest receivable on investments of $150,391 during
fiscal 1996 was primarily due to the increase in the mortgage-backed securities
portfolio. The Company's goodwill decreased by $308,913 during fiscal 1996 due
to normal amortization. Goodwill increased by $1,414,566 during the 1995
fiscal year due to the premium paid to acquire the deposits of the Key Bank
branches, explained above, less the 1995 amortization of $235,098. The
increase in other assets during fiscal 1996 of $153,188 was primarily due to
the increase in deferred tax assets, caused by a reversal of temporary
differences between the Company's financial statements and its tax returns. Due
from broker decreased by $941,407 due to the purchase of a mortgage-backed
security at June 30, 1995 which settled in fiscal 1996.
The Bank continues to attract new local deposit relationships. The Company
utilizes, as alternative sources of funds, brokered C.D.'s when national
deposit interest rates are less than the interest rates on local market
deposits. Brokered C.D.'s carry the same risk as local deposit C.D.'s, in that
both are interest rate sensitive with respect to the Company's ability to
retain the funds. The Company also utilizes FHLB advances, as alternative
sources of funds, when the interest rates of the advances are less than market
deposit interest rates as well as to fund short-term liquidity demands.
Total deposits were $145,195,369 and securities sold under repurchase
agreements were $3,762,966 as of June 30, 1996. These amounts represent a
decrease of $1,924,501 and an increase of $1,177,579, respectively, compared to
June 30, 1995. Broker deposits represented $5,647,138 of total deposits at
June 30, 1996, which decreased by $3,140,563 compared to June 30, 1995's
$8,787,701 balance. Based on the normal growth of local deposits and
attractive FHLB advance rates, management has chosen to reduce its level of
brokered deposits. Management will be reviewing an additional $1,000,000 of
brokered deposits maturing in the next quarter. Total borrowings from the FHLB
were $52,123,000 as of June 30, 1996, for an increase of $16,423,000 compared
to June 30, 1995. Mortgages, free of liens, pledges and encumbrances are
required to be pledged to secure FHLB advances. The increase in repurchase
agreements and FHLB advances were utilized to fund investment securities
growth.
Notes payable decreased by $507,899 during the 1996 fiscal year due to the
scheduled principal payments on the Fleet Bank of Maine loan incurred to
finance, in part, the Brunswick Federal Savings, F.A. acquisition. In August
1996, the Company refinanced the remaining balance of the note payable of
$1,375,000. The new note is payable in eighteen quarterly principal payments
of $76,389. Interest is payable monthly at an 8% fixed rate. Due to broker
decreased by $989,062 at June 30, 1996 due to the purchase of a GNMA security
on June 30, 1995 that settled in fiscal 1996. Other liabilities decreased by
$274,603 compared to June 30, 1995, due primarily to the decrease in accrued
tax liabilities, deferred gain on loan sales, and escrow accounts.
CAPITAL RESOURCES & LIQUIDITY
_____________________________
Liquidity is defined as the ability to meet unexpected deposit withdrawals and
increased loan demand of a short-term nature with a minimum loss of principal.
The Bank's primary sources of funds are its interest bearing deposits, cash and
due from banks, deposits with the FHLB, certificates of deposit, loan payments
and prepayments and other investments maturing in less than two years as well
as securities available for sale. In addition, the Bank has unused borrowing
capacity from the FHLB through its advances program. The Bank's current advance
availability, subject to the satisfaction of certain conditions, is
approximately $45,000,000 over and above the 1996 end-of-year advances
reported. The Company's ability to access the principal sources of liquid funds
listed above is immediate and adequate to support the Company's budgeted
growth.
Cross selling strategies are employed by the Bank to develop deposit growth.
Even though deposit interest rates increased during fiscal 1996, the rate of
return was much stronger in other financial instruments such as mutual funds
and annuities. Like other companies in the banking industry, the Bank will be
challenged to maintain and or increase its core deposit liquidity base.
Total equity of the Company was $18,151,242 as of June 30, 1996 versus
$17,275,278 at June 30, 1995. On September 8, 1995 Square Lake Holding
Corporation exercised 50,000 warrants at an aggregate price of $700,000. These
proceeds were utilized as general working capital. The exercise of these
warrants contributed to the growth of the Company's total equity. Warrants
outstanding were 133,764 as of June 30, 1996. The Company paid a 100% stock
dividend to all shareholders on December 15, 1995. Based in part on this
dividend, the current common shares outstanding increased to 1,229,910 shares
on June 30, 1996. The Company repurchased 4,100 treasury shares at a cost of
$52,277. These treasury shares are to be utilized for the employee stock bonus
and options plans. The Company continued to pay an annualized dividend of $.32
per share following the stock dividend, resulting in an increase in yield to
shareholders. The effect of increasing the dividend payout to common stock
shareholders will not have a significant effect on the financial position,
liquidity, or results of operations of the Company. The total equity to total
assets ratio of the Company was 8.17% as of June 30, 1996 and 8.33% at June 30,
1995. The reduction in the equity to assets ratio from fiscal 1996 compared to
fiscal 1995 was primarily due to the Company leveraging the Bank in the
purchase of mortgage-backed securities through the increased use of FHLB
advances. Book value per common share was $13.13 as of June 30, 1996 versus
$13.95 at June 30, 1995, when restated for the 100% stock dividend.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which was enacted on December 19, 1991, contains various provisions intended to
recapitalize the Bank Insurance Fund ("BIF") and also effects 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 OTS 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 OTS broader regulatory authority to take corrective action
against insured institutions that are otherwise operating in an unsafe and
unsound manner.
Regulations implementing the prompt corrective action provisions of FDICIA
became effective December 19, 1992 and defined specific capital categories
based on an institution's capital ratios. OTS has issued regulations requiring
a minimum regulatory tangible capital equal to 1.5% of adjusted total assets,
core capital of 3.0%, leverage capital of 4.0% and a risk-based capital
standard of 8.0%. Regulatory capital requirements are also discussed in
footnote 12 of the financial statements. At June 30, 1996, the Bank was in
compliance with regulatory capital requirements as follows:
Northeast
Bank F.S.B.
_____________
Tangible capital $ 15,386,000
Percent of adjusted total assets 7.00%
Excess over requirement $ 12,095,000
Core capital $ 15,386,000
Percent of adjusted total assets 7.00%
Excess over requirement $ 8,804,000
Leverage capital $ 15,386,000
Percent of adjusted total assets 7.00%
Excess over requirement $ 6,610,000
Risk-based capital $ 16,349,000
Percent of total risk-weighted assets 12.60%
Excess over requirement $ 5,987,000
RESULTS OF OPERATIONS
_____________________
Net income for the year ended June 30, 1996 was $1,193,420 versus $1,489,381
for the year ended June 30, 1995 and $1,460,559 for the year ended June 30,
1994. Primary earnings per share was $.83 and fully diluted earnings per share
was $.79 for the period ended June 30, 1996. Primary and fully diluted earnings
per share were $1.10 and $1.02, respectively, for the year ended June 30, 1995
and $1.13 and $1.08 for the year ended June 30, 1994. The weighted average
number of shares outstanding in fiscal 1995 and 1994, as well as the reported
earnings per share for these two years, have been restated as a result of the
Company's 100% stock dividend in December, 1995. Also included in the
Company's income statement for fiscal 1994 was $260,000 for the cumulative
effect of a change in the method of accounting for income taxes, FASB Statement
of Financial Accounting Standard No. 109. This one time adjustment is more
fully described in footnote 16 to the financial statements. This one time
adjustment increased the Company's primary earnings per share by $.22 and the
fully diluted earnings per share by $.19 for the year ended June 30, 1994. The
Company's overall return on assets ("ROA") was .55% for the year ended June 30,
1996, .72% for the year ended June 30, 1995, and .77% for the year ended June
30, 1994. Due to the decreased net income as well as the increase in assets
due to the purchase of securities in the last four months of fiscal 1996, the
Company's ROA decreased compared to fiscal 1995.
The Company experienced a reduction in net income in fiscal year 1996, when
compared to fiscal 1995, primarily due to the expenses attributed to the merger
and name change of the subsidiary banks, the costs associated with the
acquisition of the Key Bank branches, and the general growth in infrastructure
expenses of the Company. These expenses are discussed below.
The Company's net interest income for the years ended June 30, 1996, June 30,
1995 and June 30, 1994 was $8,866,458, $8,870,005 and $7,556,529, respectively.
Net interest income for fiscal 1996 decreased $3,547, or .04%, compared to the
amount at June 30, 1995. Total interest and dividend income increased
$1,071,937 for the year ended June 30, 1996 compared to the year ended June 30,
1995, resulting from the following items: (I) interest income on loans
increased by $925,547 resulting from an increase of $518,349 due to an increase
in the volume of loans and an increase of $407,198 due to increased interest
rates on loans, (II) interest and dividend income on investment securities
decreased by $22,088 resulting from a $11,381 increase due to increased volume,
which was more than offset by the decrease of $33,469 due to decreased interest
rates on investments, and (III) interest income on short term liquid funds
increased by $168,478 resulting from a $154,590 increase due to increased
volume and an increase of $13,888 due to increased interest rates on deposits
at the FHLB and other institutions.
The increase in total interest expense of $1,075,484 for fiscal 1996 compared
to 1995 resulted from the following items: (I) interest expense on deposits
increased by $983,069 resulting from a $328,965 increase due to increased
deposits and an increase of $654,104 due to higher deposit interest rates, (II)
interest expense on repurchase agreements increased by $81,289 resulting from
an $82,258 increase due to increased volume offset, in part, by a decrease of
$969 due to decreasing interest rates, and (III) interest expense on borrowings
increased $11,126 resulting from a decrease of $161,857 due to a decrease in
volume which was more than offset by the increase of $172,983 due to the change
in the mix of interest rates on borrowings. The changes in net interest income,
as explained above, are also presented in the schedule below.
NORTHEAST BANCORP
Rate/Volume Analysis for the Year ended
June 30, 1996 Versus June 30, 1995
Difference Due to
Volume Rate Total
___________ ___________ ___________
Investments $ 11,381 $ (33,469) $ (22,088)
Loans 518,349 407,198 925,547
FHLB & Other Deposits 154,590 13,888 168,478
___________ ___________ ___________
Total Interest Earning
Assets 684,320 387,617 1,071,937
Deposits 328,965 654,104 983,069
Repurchase Agreements 82,258 (969) 81,289
Borrowings (161,857) 172,983 11,126
___________ ___________ ___________
Total Interest-Bearing
Liabilities 249,366 826,118 1,075,484
___________ ___________ ___________
Net Interest Income $ 434,954 $ (438,501) $ (3,547)
___________ ___________ ___________
Rate/Volume amounts spread proportionately between Volume and Rate.
Net interest income for fiscal 1995 increased $1,313,476, or 17.38%, over 1994.
Total interest and dividend income increased $2,886,684 for fiscal 1995
compared to 1994, resulting from the following items: (I) interest income on
loans increased by $1,923,203 resulting from a $747,297 increase due to an
increase in the volume of loans and $1,175,906 due to increased interest rates
on loans, (II) interest and dividend income on investment securities increased
by $793,417 resulting from a $721,372 increase due to an increase in volume and
$72,045 due to increased interest rates on investments, and (III) interest
income on short term liquid funds increased by $170,064 resulting from a
$14,926 increase due to an increase in volume and $155,138 due to increased
interest rates on deposits at the FHLB and other institutions.
The increase in total interest expense of $1,573,208 for fiscal 1995 as
compared to 1994 resulted from the following items: (I) interest expense on
deposits increased by $976,328 resulting from a $557,015 increase due to an
increase in the volume of deposits and $419,313 due to increased deposit
interest rates, (II) interest expense on repurchase agreements increased by
$84,921 as fiscal 1995 was the first year this product was offered, and (III)
interest expense on borrowings increased $511,959 resulting from an increase of
$274,607 due to an increase in the volume of borrowings and $237,352 due to the
change in the mix of interest rates on borrowings. The changes in net interest
income, as explained above, are also presented in the schedule below.
NORTHEAST BANCORP
Rate/Volume Analysis for the Year ended
June 30, 1995 Versus June 30, 1994
Difference Due to
Volume Rate Total
___________ ___________ ___________
Investments $ 721,372 $ 72,045 $ 793,417
Loans 747,297 1,175,906 1,923,203
FHLB & Other Deposits 14,926 155,138 170,064
___________ ___________ ___________
Total Interest Earning
Assets 1,483,595 1,403,089 2,886,684
Deposits 557,015 419,313 976,328
Repurchase Agreements 84,921 -0- 84,921
Borrowings 274,607 237,352 511,959
___________ ___________ ___________
Total Interest-Bearing
Liabilities 916,543 656,665 1,573,208
___________ ___________ ___________
Net Interest Income $ 567,052 $ 746,424 $1,313,476
___________ ___________ ___________
Rate/Volume amounts spread proportionately between Volume and Rate.
The majority of the Company's income is generated from the Bank. Management
believes that the Bank is slightly asset sensitive based on its own internal
analysis which considers its core deposits long term liabilities that are
matched to long term assets; therefore, it will generally experience a
contraction in its net interest margins during a period of falling rates.
Management believes that the maintenance of a slight asset sensitive position
is appropriate since historically interest rates tend to rise faster than they
decline.
Since October 1993, actions by the Federal Reserve Board have resulted in
increases in prime lending rates. Approximately 20% of the Bank's loan
portfolio is comprised of floating rate loans based on a prime rate index.
Interest income on these existing loans will increase as the prime rate
increases, as well as approximately 27% of other loans in the Bank's portfolio
that are based on short-term rate indices such as the one-year treasury bill.
An increase in short-term interest rates will also increase deposit and FHLB
advance rates, increasing the Company's interest expense. Although the Company
has experienced some net interest margin compression, the impact on net
interest income 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.
The provision for loan losses was $602,860 for fiscal 1996 compared to $640,634
and $1,020,795 for 1995 and 1994, respectively. Net charge-offs amounted to
$449,860 during fiscal 1996 versus $707,634 and $680,795 for 1995 and 1994,
respectively. Due to the weak economy in some of the Bank's market areas, loan
charge-offs have been high in the reported fiscal years. The Bank intends to
continue to aggressively manage the non-performing assets, through sales,
work-outs and charge-offs, to reduce the amount of non-performing assets.
Non-interest income was $2,097,191 for the year ended June 30, 1996, $2,116,442
for June 30, 1995 and $2,458,485 for June 30, 1994. Generally, the Bank
continues to generate an increasing level of non-interest income through
service charges and fees for other services. This component totaled $737,229
for the year ended June 30, 1996, $679,495 for the year ended June 30, 1995 and
$579,322 for June 30, 1994. The increase in 1996 was primarily due to growth in
the deposit accounts and other branch services.
Net securities gains were $278,895, $419,313, and $347,032 for fiscal 1996,
1995 and 1994, respectively. The major reason for the increase in 1995 was that
the Company sold some of its available for sale and trading securities, taking
advantage of the fluctuation in market prices.
Gains on the sale of loans amounted to $251,597 for fiscal 1996 and was an
increase of $90,615 compared to $160,982 for fiscal 1995. Gains on the sale of
loans decreased $273,228 in fiscal 1995 compared to the 1994 balance. Gains on
the sale of loans in fiscal 1996 increased due to increased volume in
underwriting Freddie Mac and Fannie Mae loans. The decrease in 1995, compared
to 1994, was primarily due to the Bank's reduced volume in underwriting and
selling Freddie Mac and SBA guaranteed commercial loans. The Company's loan
sales activity is dependent on market interest rates as well as local
competition. The Company receives income from servicing mortgage loans for
others that the Bank originated and sold. The outstanding balance of such loans
increased from approximately $32,560,000 at June 30, 1995 to $39,940,000 during
1996. In addition to loans originated and sold by the Company, during 1993 the
Company purchased loan servicing rights from another institution. The balance
of the loans serviced under this agreement was approximately $9,676,000 and
$12,983,000 at June 30, 1996 and 1995, respectively. Fees for servicing loans
was $302,261 for the year ended June 30, 1996 versus $306,220 and $267,697 for
the years ended June 30, 1995 and 1994, respectively.
Other income was $527,209, $550,432, $830,224 for fiscal 1996, 1995 and 1994,
respectively. The decrease of $279,792 in fiscal 1995 compared to fiscal 1994
was primarily due to the reduction in gross sales at ASI Data Services. ASI
Data Services' operations were transferred to the Bank as of July 1, 1996. ASI
will not be offering services to third parties for the near future, although
it remains a separate legal entity.
Total non-interest expense for the Company was $8,448,757 for fiscal 1996,
$7,987,877 for fiscal 1995, and $7,095,664 for fiscal 1994. The increase in
non-interest expense of $460,880 for fiscal 1996 compared to 1995 was due, in
part, to the following items: (I) compensation expenses increased by $175,360
as the result of the additional employees from the Key Bank branch acquisition,
general growth in the Company, as well as annual salary increases and other
benefits expenses, (II) occupancy expense increased by $100,647 due to the
expense associated with the branches acquired from Key Bank and general
maintenance on existing locations, and (III) equipment expense increased by
$69,957 due to depreciation on new assets, as well as increased maintenance
costs from new assets acquired and the equipment acquired from Key Bank.
Other operating expenses increased by $114,916 in fiscal 1996 compared to 1995
due to the following: an increase of $58,000 in computer servicing expense due
to the merger of the two subsidiary banks and increased ATM services, an
increase of $54,000 in collection expense due to non-performing loans, an
increase of $25,000 in postage expense due to additional customer mailings
concerning the merger of the two subsidiary banks, an increase of $74,000 in
goodwill expense due to a full years recognition of goodwill from the
acquisition of the Key Bank branches, an increase of $94,000 due to the
write-down on equity securities to current market values, a one time expense of
$166,000 due to direct expenses associated with the merger and name change of
the two subsidiary banks, and increases due to normal business growth. These
increases in other expenses were offset by the following reductions: a decrease
of $169,000 in deposit insurance expense due to the FDIC reducing its BIF
deposit insurance assessment from $.23 per $100 of deposits to an annual fee of
$2,000, a decrease of $38,000 in supplies expense due to savings from bulk
orders, a decrease of $53,000 in telephone expense due to the Company's new
telephone network system, and a $93,000 decrease in the Company's other general
business expenses.
The increase in non-interest expense of $892,213 for fiscal 1995 compared to
1994 was due, in part, to the following items: Operating expenses increased
primarily due to the Key Bank branch acquisition and the general growth of the
Company; Compensation expenses increased by $699,682 as the result of the
additional employees from the four new branches, additional employees in sales
and operations due to the new branch locations and general Company growth, as
well as increases in annual salaries and other benefits; occupancy expense
increased $125,952 due to the four new branches acquired from Key Bank and
general maintenance on the Company's existing locations; and equipment expense
increased $62,544 primarily due to depreciation on assets acquired from the Key
Bank acquisition. Other Operating expenses increased by $4,035 in fiscal 1995
compared to 1994 primarily due to the increase in other operational expenses at
the Banks from the Key Bank branch acquisition. This increase was offset by the
reduction of ASI's 1995 cost of goods sold, resulting from hardware sales to
third parties.
In February 1992, the FASB issued Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes ("Statement 109"), which changed the
method of accounting for income taxes to the asset and liability method from
the deferred method previously required by APB opinion 11. Effective July 1,
1993, the Company adopted Statement 109 and has reported the cumulative effect
of the change in the method of accounting for income taxes in the 1994
consolidated statement of income. The cumulative effect of this change in
accounting for income taxes of $260,000 was determined as of July 1, 1993, and
is reported separately in the consolidated statement of income for the year
ended June 30, 1994.
REGULATORY MATTERS
__________________
The FDIC has announced various proposals to recapitalize SAIF. Under one
proposal, the FDIC would charge a one time assessment on all SAIF insured
deposits in a range of $.85 to $.90 per $100 of domestic deposits. This one
time assessment is intended to recapitalize SAIF to the required level of 1.25%
of insured deposits and could be payable in 1996 or early 1997. If the
assessment is made at the proposed rates, the effect on the Company would be an
after tax charge of approximately $320,000 (assuming an income tax rate of
36%). The one time charge assumes a .85% charge on the Brunswick branch
deposits of approximately $60,000,000. Subsequent to the proposed payment of
the one time assessment, the ongoing risk based assessment schedule for the
newly capitalized SAIF would be similar to the schedule of BIF. The current
FDIC BIF insurance rates range from an annual assessment fee of $2,000 to 31
basis points. The Company anticipates that it would be assessed at the lowest
BIF rate as it currently is assessed at the lowest SAIF rate due to its
regulatory standing. The Company would have future after tax annual savings of
approximately $86,000 due to the Brunswick branch deposits described above
(assuming an income tax rate of 36%). The annual savings assumes an annual flat
fee of $2,000 for an insurance premium charge compared to the current .23%
insurance premium paid on the Brunswick branch's deposit base of $60,000,000.
IMPACT OF INFLATION
___________________
The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and virtually
all of the liabilities of the Company are monetary in nature. As a result,
interest rates have a more significant impact on the Company's performance than
the general level of inflation. Over short periods of time, interest rates may
not necessarily move in the same direction or in the same magnitude as
inflation.
RECENT ACCOUNTING DEVELOPMENTS
______________________________
On March 31, 1995, FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("Statement 121"). Statement 121 provides guidance
for recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and
used and assets to be disposed of. Statement 121 requires entities to perform
separate calculations for assets to be held and used to determine whether
recognition of an impairment loss is required and, if so, to measure the
impairment. Statement 121 requires long-lived assets and certain identifiable
intangibles to be disposed of to be reported at the lower of carrying amount or
fair value less cost to sell, except for assets covered by the provisions of
APB Opinion No. 30. Statement 121 is effective for financial statements issued
for fiscal years beginning after December 15, 1995 although earlier application
is encouraged. The Company adopted Statement 121 on July 1, 1996; the effect of
adopting the new rules did not have a significant effect on its financial
condition, liquidity, or results of operations of the Company.
In May 1995, FASB issued Statement No. 122, Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65, ("Statement 122"). Statement
122 is effective for fiscal years beginning after December 15, 1995. The
Company will adopt Statement 122 in the first quarter of fiscal year 1997, on a
prospective basis. Statement 122 requires that a mortgage banking enterprise
recognize as separate assets the rights to service mortgage loans for others.
Statement 122 also requires the assessment of capitalized mortgage servicing
rights for impairment to be based on the current fair value of those rights.
This assessment includes servicing rights capitalized prior to adoption of
Statement 122. Management has determined that the impact of adoption of
Statement 122 will not be material to the Company's financial position,
liquidity, or results of operations.
In October 1995, FASB issued Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), which became effective on July 1, 1996 for the
Company. Statement 123 establishes a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion
No. 25, no compensation cost is recorded if, at the grant date, the exercise
price of the options is equal to the fair market value of the Company's common
stock. The Company has elected to continue to follow the accounting under APB
Opinion No. 25. Statement 123 requires companies which elect to continue to
follow APB Opinion No. 25 to disclose in the notes to their financial
statements pro forma net income and earnings per share as if the value based
method of accounting had been applied. Management has not determined the
impact of the adoption of Statement No. 123.
In June of 1996, FASB issued Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, ("Statement
125"). Statement 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. Statement 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. Statement 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. Management has not determined the impact of the adoption of
Statement 125.
Item 8. Financial Statements and Supplementary Data
___________________________________________
a. Financial Statements Required by Regulation S-X
_______________________________________________
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 1996 and 1995
ASSETS 1996 1995
______ ______________ ______________
Cash and due from banks $ 3,386,263 $ 3,855,648
Interest bearing deposits 650,430 367,423
Federal Home Loan Bank overnight deposits 7,529,435 10,517,000
______________ ______________
11,566,128 14,740,071
Trading account securities, at market value 197,621 1,375
Available for sale securities, at market value
(notes 2 and 11) 29,650,319 10,148,251
Loans held for sale (note 3) 448,475 528,839
Due from broker - 941,407
Loans receivable (notes 4 and 9):
Mortgage loans:
Residential real estate 113,711,131 116,976,491
Construction loans 5,012,583 3,342,708
Commercial real estate 25,314,128 22,778,608
______________ ______________
144,037,842 143,097,807
Less:
Undisbursed portion of construction loans 2,243,814 951,754
Net deferred loan origination fees 289,340 302,178
______________ ______________
Total mortgage loans 141,504,688 141,843,875
Commercial loans 13,990,220 12,181,512
Consumer and other loans 14,356,016 16,114,517
______________ ______________
169,850,924 170,139,904
Less allowance for loan losses 2,549,000 2,396,000
______________ ______________
Net loans 167,301,924 167,743,904
Premises and equipment - net (note 5) 3,576,386 3,873,278
Other real estate owned - net (note 6) 513,831 1,068,454
Real estate held for investment (note 7) 459,820 452,479
Accrued interest receivable - loans 1,094,555 1,031,389
Accrued interest receivable - investments 257,708 107,317
Federal Home Loan Bank stock, at cost (note 9) 2,656,200 2,150,000
Goodwill, net of accumulated amortization of
$940,059 in 1996 and $631,146 in 1995
(note 17) 2,557,913 2,866,826
Other assets (note 16) 2,008,735 1,855,547
______________ ______________
$ 222,289,615 $ 207,509,137
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
____________________________________ ______________ ______________
Liabilities:
Deposits (note 8):
Demand $ 11,424,481 $ 9,711,732
NOW 13,516,135 14,210,010
Money market 12,291,543 12,761,762
Regular savings 21,884,843 23,697,510
Brokered deposits 5,647,138 8,787,701
Certificates of deposit under $100,000 64,962,559 62,633,273
Certificates of deposit $100,000 or more 15,468,670 15,317,882
______________ ______________
Total deposits 145,195,369 147,119,870
Borrowed funds (note 9) 52,123,000 35,700,000
Notes payable (note 10) 1,502,192 2,010,091
Securities sold under repurchase agreements
(note 11) 3,762,966 2,585,387
Due to broker - 989,062
Other liabilities 1,554,846 1,829,449
______________ ______________
Total liabilities 204,138,373 190,233,859
Commitments and contingent liabilities
(notes 10, 18 and 19)
Stockholders' equity (notes 12, 13, 14 and 18):
Series A cumulative convertible preferred
stock; $1 par value, 1,000,000 shares
authorized; 45,454 shares issued and
outstanding 999,988 999,988
Series B cumulative convertible preferred
stock; $1 par value, 1,000,000 shares
authorized; 71,428 shares issued and
outstanding 999,992 999,992
Common stock, $1 par value, 3,000,000 shares
authorized; 1,234,010 and 547,502 shares
issued at June 30, 1996 and 1995,
respectively; 1,229,910 and 547,502 shares
outstanding in 1996 and 1995, respectively 1,234,010 547,502
Additional paid-in capital 5,455,852 4,643,059
Retained earnings 10,351,031 10,180,244
Net unrealized losses on available for sale
securities (note 2) (837,354) (95,507)
Treasury stock at cost 4,100 shares (52,277) -
______________ ______________
Total stockholders' equity 18,151,242 17,275,278
______________ ______________
$ 222,289,615 $ 207,509,137
============== ==============
See accompanying notes.
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
Years Ended June 30, 1996, 1995, and 1994
1996 1995 1994
_____________ _____________ _____________
Interest and dividend income:
Interest on loans $ 16,010,685 $ 15,085,138 $ 13,161,935
Interest on Federal Home Loan
Bank overnight deposits 567,915 393,497 211,213
Interest on investments held to
maturity, excluding mortgage
backed securities - 75,691 48,302
Interest and dividends on
available for sale securities 89,684 60,159 122,719
Interest on mortgage backed
securities 1,149,407 1,088,420 294,037
Dividends on Federal Home Loan
Bank stock 148,762 189,980 156,940
Other interest income 28,409 30,040 41,095
_____________ _____________ _____________
Total interest income 17,994,862 16,922,925 14,036,241
Interest expense:
Deposits (note 8) 6,426,172 5,443,103 4,466,775
Repurchase agreements 166,210 84,921 -
Borrowed funds 2,536,022 2,524,896 2,012,937
_____________ _____________ _____________
Total interest expense 9,128,404 8,052,920 6,479,712
_____________ _____________ _____________
Net interest income before
provision for loan losses 8,866,458 8,870,005 7,556,529
Provision for loan losses (note 4) 602,860 640,634 1,020,795
_____________ _____________ _____________
Net interest income after
provision for loan losses 8,263,598 8,229,371 6,535,734
Noninterest income:
Fees and service charges on loans 188,410 200,782 233,331
Fees for other services to
customers 548,819 478,713 345,991
Net securities gains (note 2) 231,344 49,045 275,263
Gain on trading securities 47,551 370,268 71,769
Gain on sales of mortgage
loans (note 3) 251,597 160,982 434,210
Loan servicing fees 302,261 306,220 267,697
Other income 527,209 550,432 830,224
_____________ _____________ _____________
Total noninterest income 2,097,191 2,116,442 2,458,485
Noninterest expense:
Salaries and employee
benefits (note 18) $ 4,153,160 $ 3,977,800 $ 3,278,118
Occupancy expense (note 5) 611,007 510,360 384,408
Equipment expense (note 5) 761,545 691,588 629,044
Other (note 15) 2,923,045 2,808,129 2,804,094
_____________ _____________ _____________
Total noninterest expense 8,448,757 7,987,877 7,095,664
_____________ _____________ _____________
Income before income taxes and
cumulative effect of change
in accounting principle 1,912,032 2,357,936 1,898,555
Income tax expense (note 16) 718,612 868,555 697,996
_____________ _____________ _____________
Income before cumulative effect
of change in accounting principle 1,193,420 1,489,381 1,200,559
Cumulative effect at July 1, 1993 of
change in accounting for income
taxes (note 16) - - 260,000
_____________ _____________ _____________
Net income $ 1,193,420 $ 1,489,381 $ 1,460,559
============= ============= =============
Net income per common share before
cumulative effect of change in
accounting principle (note 13):
Primary earnings per share .83 1.10 .91
Fully diluted earnings per share .79 1.02 .89
Net income per common share
(note 13):
Primary earnings per share .83 1.10 1.13
Fully diluted earnings per share .79 1.02 1.08
See accompanying notes.
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1996, 1995 and 1994
Preferred Stock Common
Series A and B Stock
_______________ _______________
Balance at June 30, 1993 $ 999,988 $ 542,400
Net income - -
Issuance of Series B preferred stock 999,992 -
Increase in net unrealized losses on
available for sale securities - -
Stock options exercised - 5,000
Dividends on preferred stock - -
Dividends on common stock at $.32 per share - -
_______________ _______________
Balance at June 30, 1994 1,999,980 547,400
Net income - -
Decrease in net unrealized losses on
available for sale securities - -
Issuance of common stock - 102
Dividends on preferred stock - -
Dividends on common stock at $.32 per share - -
_______________ _______________
Balance at June 30, 1995 1,999,980 547,502
Net income - -
Common stock - warrants exercised - 50,000
Stock split in the form of a dividend - 597,743
Increase in net unrealized losses on
available for sale securities - -
Treasury stock purchased (4,100 shares
at $12.75) - -
Issuance of common stock - 765
Stock options exercised - 38,000
Dividends on preferred stock - -
Dividends on common stock at $.32 per share - -
_______________ _______________
Balance at June 30, 1996 $ 1,999,980 $ 1,234,010
=============== ===============
See accompanying notes.
Net Unrealized
(Losses) Gains
Additional on Available
Paid-in Treasury Retained for Sale
Capital Stock Earnings Securities Total
______________ ______________ ______________ ______________ ______________
$ 4,589,068 $ - $ 7,824,465 $ 111,421 $ 14,067,342
- - 1,460,559 - 1,460,559
- - - - 999,992
- - - (549,444) (549,444)
51,900 - - - 56,900
- - (104,998) - (104,998)
- - (173,988) - (173,988)
______________ ______________ ______________ ______________ ______________
4,640,968 - 9,006,038 (438,023) 15,756,363
- - 1,489,381 - 1,489,381
- - - 342,516 342,516
2,091 - - - 2,193
- - (140,000) - (140,000)
- - (175,175) - (175,175)
______________ ______________ ______________ ______________ ______________
4,643,059 - 10,180,244 (95,507) 17,275,278
- - 1,193,420 - 1,193,420
650,000 - - - 700,000
- - (597,743) - -
- - - (741,847) (741,847)
- (52,277) - - (52,277)
10,793 - - - 11,558
152,000 - - - 190,000
- - (139,999) - (139,999)
- - (284,891) - (284,891)
______________ ______________ ______________ ______________ ______________
$ 5,455,852 $ (52,277) $ 10,351,031 $ (837,354) $ 18,151,242
============== ============== ============== ============== ==============
See accompanying notes.
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
______________ ______________ ______________
Cash flows from operating
activities:
Net income $ 1,193,420 $ 1,489,381 $ 1,460,559
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 602,860 640,634 1,020,795
Provision for losses on other
real estate owned 94,711 107,173 62,600
Deferred income tax expense
(benefit) 19,236 122,143 (267,594)
Cumulative effect of change in
accounting for income taxes - - (260,000)
Depreciation of premises and
equipment 675,232 606,604 543,730
Goodwill amortization 308,913 235,098 119,743
Net gain on sale of available
for sale securities (231,344) (49,045) (275,263)
Net gain on sale of loans (251,597) (160,982) (434,210)
Originations of loans held for
sale (13,518,583) (4,273,878) (8,781,896)
Proceeds from sale of loans
held for sale 13,750,008 4,325,745 11,309,708
Net change in trading account
securities (196,246) 171,696 (118,071)
Net change in due to/from
broker (47,655) 47,655 -
Other (5,266) (73,829) 36,177
Change in other assets and
liabilities:
(Increase) decrease in
interest receivable (213,557) (291,215) 179,246
(Increase) decrease in other
assets and liabilities (39,262) (326,872) 300,852
______________ ______________ ______________
Net cash provided by operating
activities 2,140,870 2,570,308 4,896,376
Cash flows from investing
activities:
Proceeds from the sale of
available for sale securities 16,858,222 12,179,897 5,332,865
Purchase of available for sale
securities (38,104,596) (1,265,840) (9,639,772)
Proceeds from maturities and
principal payments on
available for sale securities 851,639 335,432 2,532,959
Proceeds from maturities and
principal payments on held to
maturity securities - 1,645,454 54,672
Purchase of held to maturity
securities - (12,399,309) (3,992,341)
Net increase in loans (177,492) (11,905,988) (8,431,810)
Additions to premises and
equipment (398,937) (936,647) (332,748)
Proceeds from sale of
investment in real estate 24,251 238,189 74,804
Purchase of investment in real
estate (40,068) (13,397) (90,501)
Proceeds from sale of other
real estate owned 585,798 581,880 642,355
Sale (purchase) of Federal Home
Loan Bank stock (506,200) 195,000 (317,400)
Acquisition of nonbanking
subsidiary - - (348,314)
Cash received from acquisition
of bank branches - 25,547,199 -
______________ ______________ ______________
Net cash provided (used) in
investing activities (20,907,383) 14,201,870 (14,515,231)
Cash flows from financing
activities:
Net (decrease) increase in
deposits $ (1,924,501) $ (4,930,902) $ 1,809,469
Net increase in repurchase
agreements 1,177,579 2,585,387 -
Dividends paid (424,890) (315,175) (278,986)
Treasury stock purchased (52,277) - -
Stock options exercised 190,000 - 56,900
Warrants exercised 700,000 - -
Issuance of common stock 11,558 2,193 -
Proceeds from issuance of
preferred stock - - 999,992
Net (payments) borrowings (to)
from Federal Home Loan Bank 16,423,000 (10,200,000) 7,900,000
Increase in notes payable - - 20,206
Principal payments on notes
payable (507,899) (510,115) -
______________ ______________ ______________
Net cash (used) provided by
financing activities 15,592,570 (13,368,612) 10,507,581
______________ ______________ ______________
Net increase (decrease) in cash
and cash equivalents (3,173,943) 3,403,566 888,726
Cash and cash equivalents,
beginning of year 14,740,071 11,336,505 10,447,779
______________ ______________ ______________
Cash and cash equivalents,
end of year $ 11,566,128 $ 14,740,071 $ 11,336,505
============== ============== ==============
Supplemental schedule of cash
flow information:
Interest paid $ 9,103,639 $ 7,997,123 $ 6,457,283
Income taxes paid 913,000 794,000 872,500
Supplemental schedule of
noncash investing and
financing activities:
Transfer from loans to other
real estate owned $ 314,718 $ 827,304 $ 1,479,233
Transfer from other real
estate owned to loans - 382,718 767,720
Loans originated to finance
the sales of other real
estate owned 184,732 399,550 362,826
Transfer from available for
sale securities to held to
maturity securities, at fair
value - - 4,082,439
Transfer of securities into
available for sale securities,
at fair value - 18,821,933 -
Transfer of securities out of
held to maturity securities,
at amortized cost - (18,774,672) -
Net change in valuation for
unrealized (gains) losses on
available for sale securities 741,847 (295,255) 549,444
Net change in deferred taxes for
unrealized losses on available
for sale securities 382,164 (176,446) 326,641
In connection with the acquisition of bank branches in 1995, the Company
assumed deposit liabilities (See note 17).
See accompanying notes.
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
__________________________________________
The accounting and reporting policies of Northeast Bancorp and Subsidiary
(the Company) conform to generally accepted accounting principles and
general practice within the banking industry.
Business
________
On July 1, 1996, Bethel Bancorp assumed the name of Northeast Bancorp. On
the same day, the Company's two banking subsidiaries, Bethel Savings Bank,
F.S.B. and Brunswick Federal Savings Bank, F.A. were merged and renamed
Northeast Bank, F.S.B. ASI Data Services, Inc., a nonbanking subsidiary
which provided data processing services to the Company, was also merged
into the bank.
Northeast Bancorp provides a full range of banking services to individual
and corporate customers throughout south central and western Maine through
its wholly owned subsidiary, Northeast Bank, F.S.B. The bank is subject
to competition from other financial institutions. The bank is subject to
the regulations of the Federal Deposit Insurance Corporation (FDIC) and
the Office of Thrift Supervision (OTS) and undergoes periodic examinations
by these agencies.
Basis of Financial Statement Presentation
_________________________________________
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the balance sheet and
income and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowance for loan losses and the carrying value of real estate acquired
through foreclosure, management obtains independent appraisals for
significant properties.
A substantial portion (85%) of the Company's loans are secured by real
estate in the State of Maine. In addition, all of the real estate
acquired through foreclosure is located in the same market. Accordingly,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio and the recovery of the carrying amount of real estate acquired
through foreclosure are susceptible to changes in market conditions in
Maine.
Principles of Consolidation
___________________________
The accompanying consolidated financial statements include the accounts of
Northeast Bancorp, a savings and loan holding company, its wholly-owned
subsidiary, Northeast Bank, F.S.B. (including the bank's wholly-owned
subsidiary, Northeast Service Corporation and its majority owned
subsidiary, First New England Benefits, Inc.).
All significant intercompany transactions and balances have been
eliminated in consolidation.
Cash Equivalents
________________
Cash equivalents consist of cash and due from banks, Federal Home Loan
Bank overnight deposits and interest bearing deposits. For purposes of
the statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents. The Company is required to maintain a certain reserve
balance in the form of cash or deposits with the Federal Reserve Bank. At
June 30, 1996, the reserve balance was approximately $432,000.
Investments
___________
Trading Account Securities
__________________________
Trading account securities, consisting of equity securities purchased
with the intent to be subsequently sold to provide net securities gains,
are carried at market value. Realized and unrealized gains and losses
on trading account securities are recognized in the statements of income
as they occur. Transactions are accounted for as of the trade date
using the specific identification method.
Held to Maturity Securities
___________________________
Held to maturity securities consist of debt securities purchased where
the Company has the positive intent and ability to hold such securities
until maturity. Debt securities classified as held to maturity are
carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts. When a decline in market value is considered
other than temporary, the loss is charged to expense as a write down.
There were no held to maturity securities at June 30, 1996 and 1995.
Available for Sale Securities
_____________________________
Available for sale securities consist of mortgage-backed, debt and
equity securities not classified as trading or held to maturity. These
assets are specifically identified and are carried at fair value.
Unrealized holding gains and losses for these assets less the related
tax effects are reported as a net amount in a separate component of
stockholders' equity. When a decline in market value is considered
other than temporary, the loss is charged to expense as a write down.
Gains and losses on the sale of available for sale securities are
determined using the specific identification method.
Federal Home Loan Bank Stock
____________________________
Federal Home Loan Bank stock is carried at cost.
Loans Held for Sale
___________________
Loans originated and intended for sale in the secondary market are
classified as held for sale and are carried at the lower of cost or market
value in the aggregate.
Interest Income and Expense Recognition
_______________________________________
Interest income, including amortization of premiums and accretion of
discounts, on loans and debt securities is recognized using the interest
method which relates income earned to the loans and investment securities
outstanding. The recognition of interest income on problem loan accounts
ceases when the loan is 90 days past due or when collectibility becomes
doubtful, whichever is earlier. Interest accrued but not received on
loans placed on nonaccrual status is reversed and charged against current
operations. Interest on nonaccrual loans is recognized only when
received. Loans are restored to accrual status when the borrower has
demonstrated the ability to make future principal and interest payments.
Interest expense on deposits is determined by applying contractual
interest rates to outstanding balances.
Loans
_____
Effective July 1, 1995, the Company adopted SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan Income Recognition and Disclosures.
Loans are classified as impaired when it is probable that the Company will
not be able to collect all amounts due according to the contractual terms
of the loan agreement. Factors considered by management in determining
impairment include payment status and collateral value. At adoption, the
Company reclassified $304,232 of insubstance foreclosures to loans.
Allowance for Loan Losses
_________________________
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the
allowance when management believes that the collectibility of the loan
principal is unlikely. Recoveries on loans previously charged off are
credited to the allowance.
The allowance is an amount that management believes will be adequate to
absorb possible loan losses based on evaluations of collectibility and
prior loss experience. The evaluation takes into consideration such
factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans, and current and anticipated
economic conditions that may affect the borrowers' ability to repay.
Management also obtains appraisals when considered necessary.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
changing economic conditions and the economic prospects of the borrowers
might necessitate future additions to the allowance. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance
based on their judgments about information available to them at the time
of their examination.
Loan Origination Fees
_____________________
Loan origination fees and certain direct loan origination costs are
deferred and recognized in interest income as an adjustment to the loan
yield over the life of the related loans.
Premises and Equipment
______________________
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line and accelerated methods over
the estimated useful lives of the assets or the term of the lease, if
shorter. Maintenance and repairs are charged to current expense as
incurred and the cost of major renewals and betterments are capitalized.
Income Taxes
____________
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Other Real Estate Owned
_______________________
Other real estate owned is comprised of (1) properties or other assets
acquired through foreclosure proceedings, or acceptance of a deed or title
in lieu of foreclosure and (2) other assets repossessed in connection with
non-real estate loans. Other real estate owned is carried at the lower of
cost or fair value of the collateral less estimated selling expenses.
Losses arising from the acquisition of such properties are charged against
the allowance for loan losses. Operating expenses and any subsequent
provisions to reduce the carrying value are charged to current period
earnings. Gains and losses upon disposition are reflected in earnings as
realized.
Real Estate Held for Investment
_______________________________
Real estate properties held for investment are carried at the lower of
cost, including costs of improvements and amenities incurred subsequent to
acquisition, or net realizable value. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
Goodwill
________
Goodwill arising from acquisitions is being amortized on a straight-line
basis over ten to fifteen years.
Reclassification
________________
Certain prior year accounts and balances in the consolidated financial
statements have been reclassified to conform to the current year
presentation.
2. Available for Sale Securities
_____________________________
A summary of the cost and approximate fair values of available for sale
securities at June 30, 1996 and 1995 follows:
1996 1995
________________________ ________________________
Fair Fair
Cost Value Cost Value
___________ ___________ ___________ ___________
Debt securities issued
by the U.S. Treasury
and other U.S.
Government corporations
and agencies $ 1,497,111 $ 1,424,690 $ 250,000 $ 239,225
Corporate bonds 149,646 139,005 149,599 141,436
Equity securities 462,167 440,330 577,939 470,085
Mortgage-backed
securities 28,810,113 27,646,294 9,315,419 9,297,505
___________ ___________ ___________ ___________
$30,919,037 $29,650,319 $10,292,957 $10,148,251
=========== =========== =========== ===========
The gross unrealized gains and unrealized losses on available for sale
securities are as follows:
1996 1995
________________________ ________________________
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
___________ ___________ ___________ ___________
Debt securities issued
by the U. S. Treasury
and other U. S.
Government corporations
and agencies $ - $ 72,421 $ - $ 10,775
Corporate bonds - 10,641 - 8,163
Equity securities 5,321 27,158 10,625 118,479
Mortgage-backed
securities 17,664 1,181,483 211,709 229,623
___________ ___________ ___________ ___________
$ 22,985 $ 1,291,703 $ 222,334 $ 367,040
=========== =========== =========== ===========
At June 30, 1996, investment securities with a carrying value of
approximately $6,000,000 were pledged as collateral to secure outstanding
repurchase agreements.
At June 30, 1996 and 1995, included in net unrealized losses on available
for sale securities as a reduction to stockholders' equity are net
unrealized losses of $1,268,718 and $144,707 respectively, net of the
deferred tax effect of $431,364 and $49,200, respectively.
The cost and fair values of available for sale securities at June 30, 1996
by contractual maturity are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Fair
Cost Value
____________ ____________
Due in one year $ 247,111 $ 246,790
Due after one year through five years 250,000 237,900
Due after five years through ten years 149,646 139,005
Due after ten years 1,000,000 940,000
____________ ____________
1,646,757 1,563,695
Mortgage-backed securities (including
securities with interest rates ranging
from 5.15% to 8.5% maturing September 2003
to June 2026) 28,810,113 27,646,294
Equity securities 462,167 440,330
____________ ____________
$ 30,919,037 $ 29,650,319
============ ============
The realized gains and losses on available for sale securities for the
year ended June 30, 1996 were $248,542 and $17,198, respectively, and for
the year ended June 30, 1995 were $280,257 and $231,212, respectively.
Based on management's assessment of available for sale securities, there
has been more than a temporary decline in fair value of certain
securities. Such securities were written down to market value. At June
30, 1996, 1995 and 1994, write-downs of available for sale securities were
$93,819, $0 and $84,419, respectively, and are included in other expense
in the statements of income.
During 1995, the Company purchased $12,399,000 in securities it classified
as held to maturity, since at the time of acquisition Company management
had the intention, and the Company had the ability, to hold such
securities until maturity. In the last quarter of fiscal 1995, as a
result of its planning process and changes in market conditions, Company
management determined that it no longer possessed the intent to hold such
securities to maturity. Consequently, the Company transferred its entire
held to maturity portfolio, with an aggregate cost of $18,775,000 and an
aggregate fair value of $18,822,000 (including unrealized gains and losses
of $191,000 and $144,000, respectively) to available for sale.
The Company subsequently sold selected of the aforementioned securities
with an aggregate cost of $11,900,000 and realized gains of $273,000 and
realized losses of $225,000.
The Company's decision not to hold these securities to maturity does not
satisfy the limited criteria of Financial Accounting Standards No. 115
which specifies circumstances in which it is permissible to sell or
transfer held to maturity securities. Consequently, the Company will, for
the foreseeable future, classify its securities portfolio as available for
sale, or trading.
3. Loans Held for Sale
___________________
A summary of the carrying value and market value of loans held for sale at
June 30, 1996 and 1995 follows:
June 30, 1996 June 30, 1995
_______________________ _______________________
Carrying Market Carrying Market
Value Value Value Value
__________ __________ __________ __________
Real estate mortgages $ 448,475 $ 452,960 $ 528,839 $ 532,652
========== ========== ========== ==========
At June 30, 1996 and 1995, gross unrealized gains on loans held for sale
were $4,485 and $3,813, respectively, and there were no unrealized losses.
The Company originates loans to be sold to the secondary market and
occasionally sells mortgage loans from its loan portfolios. Gain on sales
of loans amounted to $251,597, $160,982 and $434,210 for the years ended
June 30, 1996, 1995 and 1994. Proceeds from the sale of loans out of the
portfolio were $-0- in 1996, $1,616,926 in 1995 and $3,862,039 in 1994.
4. Loans
_____
The Company's lending activities are conducted in south central and
western Maine. The Company grants single-family and multi-family
residential loans, commercial real estate loans, commercial loans and a
variety of consumer loans. In addition, the Company grants loans for the
construction of residential homes, multi-family properties, commercial
real estate properties and for land development. Most loans granted by
the Company are collateralized by real estate. The ability and
willingness of residential and commercial real estate, commercial and
construction loan borrowers to honor their repayment commitments is
generally dependent on the health of the real estate economic sector in
the borrowers' geographic area and the general economy.
In the ordinary course of business, the Company has loan transactions with
its officers, directors and their associates and affiliated companies
("related parties") at substantially the same terms as those prevailing at
the time for comparable transactions with others. Such loans amounted to
$2,229,045 and $2,564,230 at June 30, 1996 and 1995, respectively. New
loans granted to related parties in 1996 totaled $478,166; payments and
reductions amounted to $813,351. In 1995, new loans granted to related
parties totaled $490,418; payments and reductions amounted to $537,290.
The Company was servicing for others, mortgage loans originated and sold
of approximately $39,940,000 and $32,560,000 at June 30, 1996 and 1995,
respectively. During 1993, the Company purchased loan servicing rights
from another institution. The balance of the loans serviced under this
agreement was approximately $9,676,000 and $12,983,000 at June 30, 1996
and 1995, respectively.
Activity in the allowance for loan losses was as follows:
Years Ended June 30,
________________________________________
1996 1995 1994
____________ ____________ ____________
Balance at beginning of year $ 2,396,000 $ 2,463,000 $ 2,123,000
Provision charged to operating
expenses 602,860 640,634 1,020,795
Loans charged off (525,653) (760,733) (730,108)
Recoveries on loans charged off 75,793 53,099 49,313
____________ ____________ ____________
Net loans charged off (449,860) (707,634) (680,795)
____________ ____________ ____________
Balance at end of year $ 2,549,000 $ 2,396,000 $ 2,463,000
============ ============ ============
Commercial and commercial real estate loans with balances greater than
$25,000 are considered impaired when it is probable that the Company will
not collect all amounts due in accordance with the contractual terms of
the loan. Except for certain restructured loans, impaired loans are loans
that are on nonaccrual status. Loans that are returned to accrual status
are no longer considered to be impaired. Certain loans are exempt from
the provisions of SFAS No. 114, including large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment, such as
consumer and residential mortgage loans and commercial loans with balances
less than $25,000.
The 1996 allowance for loan losses related to loans that are identified as
impaired includes impairment reserves, which are based on discounted cash
flows using the loan's effective interest rate, or the fair value of the
collateral for collateral-dependent loans, or the observable market price
of the impaired loan. When foreclosure is probable, impairment is
measured based on the fair value of the collateral. Loans that experience
insignificant payment delays (less than 60 days) and insignificant
shortfalls in payment amounts (less than 10%) generally are not classified
as impaired, as well as, commercial loans with balances less than $25,000.
Loans which were restructured prior to the adoption of SFAS No. 114, and
which are performing in accordance with the renegotiated terms, are not
required to be reported as impaired. Loans restructured subsequent to the
adoption of SFAS No. 114, are required to be reported as impaired in the
year of restructuring. Thereafter, such loans can be removed from the
impaired loan disclosure if the loans were paying a market rate of
interest at the time of restructuring and are performing in accordance
with their renegotiated terms. In accordance with SFAS No. 114, a loan is
classified as an insubstance foreclosure when the Company has taken
possession of the collateral, regardless of whether formal foreclosure
proceedings take place.
At June 30, 1996, total impaired loans recognized in conformity with SFAS
No. 114 were $1,530,650 of which $1,063,720 had related allowances of
$499,200. During the year ended June 30, 1996, the income recognized
related to impaired loans was $87,128 and the average balance of
outstanding impaired loans was $1,799,087. The Company recognizes
interest on impaired loans on a cash basis when the ability to collect the
principal balance is not in doubt; otherwise, cash received is applied to
the principal balance of the loan.
Loans on nonaccrual status, including impaired loans described above, at
June 30, 1996 and 1995 totaled approximately $2,603,000 and $2,570,000,
respectively. Interest income that would have been recorded under the
original terms of such loans, net of interest income actually recognized
for the years ended June 30, 1996, 1995 and 1994, totaled approximately
$228,000, $266,000 and $293,000, respectively.
The Company has no material outstanding commitments to lend additional
funds to customers whose loans have been placed on nonaccrual status or
the terms of which have been modified.
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 122, Accounting for Mortgage Servicing Rights, an amendment
of FASB Statement No. 65, (Statement 122). Statement 122 is effective in
fiscal years beginning after December 15, 1995. The Company will adopt
Statement 122 in the first quarter of fiscal year 1997, on a prospective
basis. Statement 122 requires that a mortgage banking enterprise
recognize as separate assets the rights to service mortgage loans for
others. Statement 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair
value of those rights. This assessment includes servicing rights
capitalized prior to adoption of Statement 122. Management has determined
that the impact of adoption of Statement 122 will not be material to the
Company's financial position, liquidity or results of operations.
5. Premises and Equipment
______________________
Premises and equipment at June 30, 1996 and 1995 are summarized as follows:
1996 1995
____________ ____________
Land $ 625,750 $ 625,750
Buildings 2,307,574 2,238,391
Leasehold and building improvements 636,814 622,614
Furniture, fixtures and equipment 3,119,569 3,193,546
____________ ____________
6,689,707 6,680,301
Less accumulated depreciation 3,113,321 2,807,023
____________ ____________
Net premises and equipment $ 3,576,386 $ 3,873,278
============ ============
Depreciation and amortization of premises and equipment, included in
occupancy and equipment expense, was $670,774, $599,868 and $531,648 for
the years ended June 30, 1996, 1995 and 1994, respectively.
6. Other Real Estate Owned
_______________________
The following table summarizes the composition of other real estate owned
at June 30:
1996 1995
____________ ____________
Real estate properties acquired in settlement
of loans $ 613,831 $ 1,073,743
Less allowance for losses 100,000 5,289
____________ ____________
$ 513,831 $ 1,068,454
============ ============
Activity in the allowance for losses on other real estate owned was as
follows:
1996 1995 1994
__________ __________ __________
Balance at beginning of year $ 5,289 $ 49,405 $ 27,881
Provision for losses on other real
estate owned 94,711 107,173 62,600
Other real estate owned write-downs - (151,289) (41,076)
__________ __________ __________
Balance at end of year $ 100,000 $ 5,289 $ 49,405
========== ========== ==========
7. Real Estate Held for Investment
_______________________________
Real estate held for investment (held by Northeast Service Corporation) at
June 30 is summarized as follows:
1996 1995
____________ ____________
Rental properties $ 167,741 $ 167,741
Less accumulated depreciation 6,818 2,639
____________ ____________
160,923 165,102
Land held for development 298,897 287,377
____________ ____________
$ 459,820 $ 452,479
============ ============
A summary of loss from real estate held for investment operations, which
is included in other income, for the years ended June 30, 1996, 1995 and
1994 is as follows:
1996 1995 1994
__________ __________ __________
Rental income $ 29,076 $ 9,256 $ 14,513
(Loss) gain on sale of real estate (4,297) 33,816 4,464
Depreciation (4,458) (6,736) (12,082)
Other operating expenses (38,325) (54,068) (23,209)
__________ __________ __________
Loss $ (18,004) $ (17,732) $ (16,314)
========== ========== ==========
8. Deposits
________
Deposits at June 30 are summarized as follows:
Weighted
average
rate 1996 1995
at June _____________________ _____________________
30, 1996 Amount Percent Amount Percent
________ _____________ _______ _____________ _______
Demand 0.00% $ 11,424,481 7.9% $ 9,711,732 6.6%
NOW 1.01 13,516,135 9.3 14,210,010 9.6
Money market 3.36 12,291,543 8.5 12,761,762 8.7
Regular savings 2.60 21,884,843 15.1 23,697,510 16.1
Certificates of
deposit:
1.00 - 3.75% 1.83 256,272 .2 1,564,106 1.1
3.76 - 5.75% 5.22 51,745,006 35.6 40,328,991 27.4
5.76 - 7.75% 6.35 32,963,106 22.7 42,688,280 29.0
7.76 - 9.75% 8.05 1,113,983 .7 2,157,479 1.5
________ _____________ _______ _____________ _______
4.14% $145,195,369 100.0% $147,119,870 100.0%
======== ============= ======= ============= =======
At June 30, 1996, scheduled maturities of certificates of deposit are as
follows:
There-
1997 1998 1999 2000 2001 after
___________ __________ __________ __________ __________ _______
1.00-3.75% $ 179,959 $ 41,482 $ 10,817 $ 24,014 $ - $ -
3.76-5.75% 43,824,371 4,996,804 2,252,868 258,809 385,659 26,495
5.76-7.75% 21,501,112 5,327,290 2,358,635 2,520,489 1,255,580 -
7.76-9.75% 989,208 114,729 1,484 - 8,562 -
Interest expense on deposits for the years ended June 30, 1996, 1995 and
1994 is summarized as follows:
1996 1995 1994
____________ ____________ ____________
NOW $ 265,551 $ 264,143 $ 197,412
Money market 446,950 455,080 452,620
Regular savings 596,863 610,415 521,298
Certificates of deposit 5,116,808 4,113,465 3,295,445
____________ ____________ ____________
$ 6,426,172 $ 5,443,103 $ 4,466,775
============ ============ ============
9. Borrowings From the Federal Home Loan Bank
__________________________________________
A summary of borrowings from the Federal Home Loan Bank are as follows:
June 30, 1996
___________________________________________________
Principal Interest Maturity
amounts rates Dates
_______________ _______________ _______________
$ 31,400,000 5.17% - 8.30% 1997
5,573,000 4.97% - 6.86% 1998
14,500,000 5.64% - 6.35% 1999
325,000 6.40% 2001
325,000 6.61% 2003
_______________
$ 52,123,000
===============
June 30, 1995
___________________________________________________
Principal Interest Maturity
amounts rates Dates
_______________ _______________ _______________
$ 25,400,000 4.41% - 7.65% 1996
5,300,000 5.17% - 8.30% 1997
4,000,000 4.97% - 6.35% 1998
1,000,000 5.75% 1999
_______________
$ 35,700,000
===============
Mortgages, free of liens, pledges and encumbrances, and the Company's
Federal Home Loan Bank stock equal to at least 200% of the borrowings from
that bank have been pledged to secure these borrowings. The Company is
required to own stock of the Federal Home Loan Bank of Boston in order to
borrow from the Federal Home Loan Bank. Several of the Federal Home Loan
Bank borrowings held at June 30, 1996 are adjustable, and therefore the
rates are subject to change.
10. Notes Payable
_____________
At June 30, 1996, notes payable primarily consist of a $2.5 million loan
from an unrelated financial institution for the acquisition of a bank.
The loan was payable in twenty consecutive equal quarterly payments of
principal of $125,000 plus interest payable monthly at a rate equal to the
lender's prime rate, floating daily, plus .75%. In August of 1996, the
Company refinanced the remaining balance on the note payable of
$1,375,000. The new note is payable in eighteen equal quarterly principal
payments of $76,389 beginning in calendar year 1997. Interest is payable
monthly at 8%. The Company has pledged Northeast Bank F.S.B. common stock
and a $1 million key man life insurance policy as collateral for the loan.
The loan agreement contains certain covenants which limits capital
expenditures of the Company and the amount of nonperforming loans and
requires minimum loan loss reserves, capital, and return on assets. At
June 30, 1996, the Company complied with these covenants with the
exception of the return on assets covenant which was waived by the lender.
11. Securities Sold Under Repurchase Agreements
___________________________________________
During 1996 and 1995, the Company sold securities under agreements to
repurchase. The weighted average interest rate on repurchase agreements
was 4.25% and 4.99% at June 30, 1996 and 1995, respectively. These
borrowings, which were scheduled to mature within 180 days, were
collateralized by FHLMC and GNMA securities with a market value of
$5,689,000 and amortized cost of $5,875,000 at June 30, 1996, and a market
value of $4,000,000 and amortized cost of $3,867,000 at June 30, 1995.
The repurchase agreements averaged $3,516,000 and $1,775,000 during the
years ended June 30, 1996 and 1995, respectively. The maximum amount
outstanding at any month-end during 1996 and 1995 was $4,201,000 and
$2,585,000, respectively. Securities sold under these agreements were
under the control of the Company during 1996 and 1995.
12. Regulatory Capital Matters
__________________________
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. Regulations implementing the
prompt corrective action provisions of FDICIA became effective December
19, 1992. In addition to the prompt corrective action requirements,
FDICIA includes significant changes to the legal and regulatory
environment for insured depository institutions, including reductions in
insurance coverage for certain kinds of deposits, increased supervision by
the federal regulatory agencies, increased reporting requirements for
insured institutions and new regulations concerning internal controls,
accounting and operations.
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," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized."
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that
involve quantitative measures of the Company's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a core capital ratio of at least 3%,
a tangible capital ratio of at least 1.5% and a total risk-based capital
ratio of at least 8%. An institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio of 2% or less. At June
30, 1996, the Company was in compliance with the regulatory capital
requirements.
As of June 30, 1996, the most recent notification from the OTS categorized
the Company as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the Company's category.
To be categorized as well capitalized, the Company must maintain minimum
capital amounts and ratios as set forth in the table that follows.
CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
__________________ __________________ __________________
Amount Ratio Amount Ratio Amount Ratio
___________ ______ ___________ ______ ___________ ______
As of June 30, 1996:
Tangible capital:
Northeast
Bancorp $14,415,000 6.5% $ 3,305,000 >1.5% (no requirement)
Northeast
Bank 15,386,000 7.0% 3,291,000 >1.5% (no requirement)
Core capital:
Northeast
Bancorp $14,415,000 6.5% $ 6,611,000 >3.0% $ 8,814,000 >4.0%
Northeast
Bank 15,386,000 7.0% 6,582,000 >3.0% 8,775,000 >4.0%
Risked-based
capital
(total
capital):
Northeast
Bancorp $15,378,000 11.8% $10,438,000 >8.0% $13,048,000 >10.0%
Northeast
Bank 16,349,000 12.6% 10,362,000 >8.0% 12,952,000 >10.0%
13. Earnings Per Share
__________________
Earnings per share have been computed on the basis of the weighted average
number of shares of common stock outstanding. The weighted average number
of shares outstanding were: 1,270,000, 1,227,400 and 1,205,200 for the
years ended June 30, 1996, 1995 and 1994, respectively. All per share
data has been restated as a result of the Company's stock split effected
in the form of a dividend which occurred in December 1995. Common stock
equivalents and potentially dilutive securities were considered in the
calculations of weighted average shares outstanding, since their effect
was dilutive. Preferred stock dividends have been deducted from net
income in the calculation of earnings per share for each of the years.
14. Preferred Stock
_______________
The preferred stock, Series A and B, may be converted to common stock on a
two to one ratio at the option of the holder and carries voting rights.
Dividends are to be paid to the holder of the preferred stock quarterly
at a rate equal to interest at prime rate less two percent but in no event
less than 7% per annum. The Series B preferred stock has warrants
attached for a term of seven years to purchase 133,764 shares of the
Company's common stock at $7 per share.
15. Other Expenses
______________
Other expenses includes the following for the years ended June 30, 1996,
1995 and 1994:
1996 1995 1994
____________ ____________ ____________
Professional fees $ 305,721 $ 304,547 $ 374,572
FDIC and other insurance 256,440 417,202 427,227
Supplies 211,126 248,951 193,158
Real estate owned expenses 87,442 99,272 149,570
Provision for losses on OREO 94,711 107,173 62,600
Goodwill amortization 308,913 235,098 119,743
Write-down on securities 93,819 - 84,419
Other 1,564,873 1,395,886 1,392,805
____________ ____________ ____________
$ 2,923,045 $ 2,808,129 $ 2,804,094
============ ============ ============
16. Income Taxes
The current and deferred components of income tax expense (benefit) were
as follows for the years ended June 30, 1996, 1995 and 1994:
1996 1995 1994
____________ ____________ ____________
Federal:
Current $ 668,441 $ 714,055 $ 936,146
Deferred 19,236 122,143 (267,594)
____________ ____________ ____________
687,677 836,198 668,552
State and local - current 30,935 32,357 29,444
____________ ____________ ____________
$ 718,612 $ 868,555 $ 697,996
============ ============ ============
Total income tax expense is different from the amounts computed by
applying the U. S. Federal income tax rates in effect to income before
income taxes. The reasons for these differences are as follows for the
years ended June 30, 1996, 1995 and 1994:
1996 1995 1994
_________________ _________________ _________________
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
__________ ______ __________ ______ __________ ______
Expected income
tax expense at
Federal tax rate $ 650,091 34.0% $ 801,698 34.0% $ 645,509 34.0%
State tax, net of
federal tax
benefit 20,417 1.1 21,562 .9 19,656 1.0
Amortization of
goodwill 42,192 2.2 34,671 1.5 34,671 1.8
Dividend received
deduction (6,903) (.4) (5,333) (.2) (3,276) (.2)
Low income/
rehabilitation
credit (20,000) (1.0) (20,000) (.9) (20,000) (1.1)
Other 32,815 1.7 35,957 1.5 21,436 1.2
__________ ______ __________ ______ __________ ______
$ 718,612 37.6% $ 868,555 36.8% $ 697,996 36.7%
========== ====== ========== ====== ========== ======
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1996 and 1995 are presented below:
1996 1995
___________ ___________
Deferred tax assets:
Loans, principally due to allowance for
loan losses $ 650,000 $ 666,000
Deferred loan fees 33,000 103,000
Deferred gain on loan sales 59,000 93,000
Interest on nonperforming loans 77,000 132,000
Difference in tax and financial statement
bases of investments 492,000 78,000
Difference in tax and financial statement
amortization of goodwill 48,000 -
Other 49,000 24,000
___________ ___________
Total deferred tax assets 1,408,000 1,096,000
___________ ___________
Deferred tax liabilities:
Loan loss reserve - tax (61,000) (135,000)
Other (35,000) (37,000)
___________ ___________
Total deferred tax liabilities (96,000) (172,000)
___________ ___________
Net deferred tax assets, included in other
assets $1,312,000 $ 924,000
=========== ===========
The Company has sufficient refundable taxes paid in available carryback
years to fully realize its recorded deferred tax asset of $1,408,000.
As a result of the Company filing its 1995 tax return during fiscal year
1996, the Company reclassed $26,000 between current and deferred tax
accounts.
For Federal income tax purposes, the Company has designated approximately
$2,400,000 of net worth as a reserve for bad debts on loans. The use of
this amount for purposes other than to absorb losses on loans would result
in taxable income and financial statement tax expense at the then current
tax rate.
Effective July 1, 1993, the Company adopted Statement 109, which changed
the method of accounting for income taxes to the asset and liability
method from the deferred method previously required by APB Opinion 11.
The cumulative effect of this change in accounting for income taxes of
$260,000 was determined as of July 1, 1993, and is reported separately in
the consolidated statement of income for the year ended June 30, 1994.
17. Acquisition
___________
Acquisition of Bank Branches
____________________________
During 1995, the Company acquired four branches from Key Bank of Maine.
The total deposits assumed were $27,749,000. The premium paid to Key Bank
for these deposits was $1,590,228. In addition to the assumed deposits,
the banks acquired real estate, buildings and furniture totalling
$498,500 and other miscellaneous assets and liabilities which are
immaterial. The excess of cost over the net assets acquired is being
amortized over 10 years. The effective date of the acquisition was
October 28, 1994. The acquisition was accounted for using purchase
accounting. Separate financial information on the results of operations
of the individual branches was not maintained by the seller or the Company
and therefore pro-forma results of operations are not presented.
18. Employee Benefit Plans
______________________
Profit Sharing Plan
___________________
The Company has a profit sharing plan which covers substantially all
full-time employees. Contributions and costs are determined as a percent
of each covered employee's salary and are at the Board of Directors
discretion. Expenses for the profit sharing plan for the years ended June
30, 1996, 1995 and 1994 were $99,000, $76,000 and $84,500, respectively.
401(k) Plan
___________
The Company offers a contributory 401(k) plan which is available to all
full-time salaried and hourly-paid employees who are regularly scheduled
to work 1,000 hours or more in a Plan year, have attained age 21, and have
completed one year of employment. Employees may contribute between 1% and
15% of their base compensation to which the Company will match 50% up to
the first 3% contributed. For the years ended June 30, 1996, 1995, and
1994, the Company contributed approximately $36,800, $30,800, and $14,700,
respectively.
Stock Option Plans
__________________
The Company adopted Stock Option Plans in 1987, 1989 and 1992. Both
"incentive stock options" and "nonqualified stock options" may be granted
pursuant to the Option Plans. Under the Option Plans, incentive stock
options may only be granted at the fair market value to employees of the
Company. In the case of nonqualified stock options, which may be granted
to employees and nonemployee directors, the difference between the
exercise price and the fair market value of the common stock on the date
of exercise will be a tax deductible expense to the Company. All options
granted under the Option Plans will be required to have an exercise price
per share equal to at least the fair market value of the share of common
stock on the date the option is granted. The options are exercisable for
a maximum of ten years after the options are granted in the case of all
incentive stock options, three years for nonqualified stock options in the
1987 plan and five years for nonqualified stock options in the 1989 and
1992 plans.
In accordance with the Stock Option Plans, a total of 236,000 shares of
unissued common stock are reserved for issuance pursuant to incentive
stock options and 60,000 shares of unissued common stock are reserved for
issuance pursuant to nonqualified stock options.
A summary of option activity for the years ended June 30, 1996 and 1995
follows:
1996 1995
________________________ ________________________
Non Non
Incentive qualified Incentive qualified
Plan Plan Plan Plan
______________ _________ ______________ _________
Outstanding at beginning
of year 136,000 - 95,000 -
Granted during the year - - 45,000 -
Exercised, at $5.00 per
share 38,000 - - -
Canceled 5,000 _ 4,000 -
______________ _________ ______________ _________
Outstanding at end of
year 93,000 - 136,000 _
============== ========= ============== =========
Price range of options
granted $5.00 - $11.25 - $5.00 - $11.25 -
Average price of options
outstanding $7.66 - $7.05 -
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which became effective on July 1, 1996 for the
Company. This Statement establishes a fair value based method of
accounting for stock-based compensation plans under which compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period. However, the statement allows a
company to continue to measure compensation cost for such plans under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. Under APB Opinion No. 25, no compensation cost is
recorded if, at the grant date, the exercise price of the options is equal
to the fair market value of the Company's common stock. The Company has
elected to continue to follow the accounting under APB Opinion No. 25.
Statement No. 123 requires companies which elect to continue to follow the
accounting in APB Opinion No. 25 to disclose in the notes to their
financial statements pro forma net income and earnings per share as if the
value based method of accounting had been applied. Management has not
determined the impact of the adoption of Statement No. 123.
Stock Purchase Plan
___________________
The Company has a stock purchase plan which covers substantially all
full-time employees with one year of service. Offerings under the Plan
will be made quarterly at the market value on the offering termination
date. The maximum number of shares which may be granted under the plan is
104,000 shares.
19. Financial Instruments with Off-Balance-Sheet Risk
_________________________________________________
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 and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The
contract amounts of those instruments reflect the extent of involvement
the Company has 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 and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-
sheet instruments.
Financial instruments with contract amounts which represent credit risk:
1996 1995
____________ ____________
Commitments to originate loans:
Residential real estate mortgages $ 4,975,000 $ 4,583,000
Commercial real estate mortgages, including
multi-family residential real estate 4,045,000 1,850,000
Commercial business loans 1,565,000 360,000
Consumer - 4,000
_____________ ____________
10,585,000 6,797,000
Unused lines of credit 6,321,000 4,331,000
Standby letters of credit 221,000 341,000
Unadvanced portions of construction loans 2,244,000 952,000
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 commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness 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 of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are issued to support private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
The Company has only limited involvement with derivative financial
instruments and they are used for trading purposes. The derivative
financial instruments used by the Company are covered call and put
contracts on its equity securities portfolio. Gains and losses from
entering into these types of contracts have been immaterial to the results
of operations of the Company. The total value of securities under call
and put contracts at any one time is immaterial to the Company's financial
position, liquidity, or results of operations.
The Company and its subsidiary are parties to litigation and claims
arising in the normal course of business. Management believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the Company's consolidated financial position.
20. Condensed Parent Information
____________________________
Condensed Financial Statements of the Parent Company
____________________________________________________
Balance Sheets
______________
June 30,
_______________________________
Assets 1996 1995
______ ______________ ______________
Cash and due from banks $ 1,235,116 $ 88,921
Investment in subsidiary 16,556,065 17,357,978
Premises and equipment, net 625,632 603,763
Goodwill, net 917,766 1,032,279
Other assets 385,848 331,897
______________ ______________
Total assets $ 19,720,427 $ 19,414,838
============== ==============
Liabilities and Stockholders' Equity
____________________________________
Note payable $ 1,500,000 $ 2,000,000
Other liabilities 69,185 139,560
______________ ______________
1,569,185 2,139,560
Stockholders' equity 18,151,242 17,275,278
______________ ______________
Total liabilities and stockholders' equity $ 19,720,427 $ 19,414,838
============== ==============
Statements of Income
____________________
Years Ended June 30,
__________________________________________
1996 1995 1994
____________ ____________ ____________
Income:
Dividends from banking
subsidiary $ 1,436,000 - $ 642,000
Management fees charged to
subsidiary 2,119,992 1,673,179 1,265,620
Other income 25,100 30,083 40,536
____________ ____________ ____________
Total income 3,581,092 1,703,262 1,948,156
Expenses:
Goodwill amortization 114,513 102,939 104,997
Origination fee amortization 18,181 4,743 4,742
Interest on note payable 157,959 201,126 174,462
Salaries and benefits 1,326,271 1,318,246 856,249
Occupancy expense 140,065 125,289 104,832
Equipment expense 179,977 159,161 90,012
General and administrative
expenses 422,411 383,980 306,667
____________ ____________ ____________
Total expenses 2,359,377 2,295,484 1,641,961
____________ ____________ ____________
Income (loss) before income
tax benefit, equity
(deficit) in undistributed
net income of subsidiary
and cumulative effect of
change in accounting
principle 1,221,715 (592,222) 306,195
Income tax benefit 31,771 166,182 81,351
____________ ____________ ____________
Income (loss) before equity
(deficit) in undistributed
net income of subsidiary and
cumulative effect of change
in accounting principle 1,253,486 (426,040) 387,546
Equity (deficit) in undistributed
net income of subsidiary (60,066) 1,915,421 813,013
____________ ____________ ____________
Income before cumulative
effect of change in
accounting principle 1,193,420 1,489,381 1,200,559
Cumulative effect at July 1,
1994 of change in accounting
for income taxes - - 260,000
____________ ____________ ____________
Net income $ 1,193,420 $ 1,489,381 $ 1,460,559
============ ============ ============
Statements of Cash Flows
________________________
Years Ended June 30,
1996 1995 1994
____________ ____________ ____________
Cash flows from operating
activities:
Net income $ 1,193,420 $ 1,489,381 $ 1,460,559
Adjustments to reconcile net
income to net cash provided
(used) by operations:
Cumulative effect of change
in accounting principle - - (260,000)
Amortization 132,694 107,682 109,739
Depreciation 120,875 100,321 63,314
Undistributed (earnings)
deficit of subsidiary 60,066 (1,915,421) (813,013)
Decrease (increase) in other
assets (72,132) 24,182 (15,634)
(Decrease) increase in other
liabilities (70,375) 23,242 23,276
____________ ____________ ____________
Net cash provided (used) by
operating activities 1,364,548 (170,613) 568,241
____________ ____________ ____________
Cash flows from investing
activities:
Proceeds from sale of premises
and equipment 24,473 - -
Purchase of premises and
equipment (167,217) (84,439) (203,782)
Increase in goodwill - - (16,526)
____________ ____________ ____________
Net cash used by investing
activities (142,744) (84,439) (220,308)
____________ ____________ ____________
Cash flows from financing
activities:
Principal payments on note
payable (500,000) (500,000) -
Stock options exercised 190,000 - 56,900
Proceeds from issuance of
common stock 11,558 2,193 -
Proceeds from issuance of
preferred stock - - 999,992
Treasury stock purchased (52,277) - -
Dividends paid to stockholders (424,890) (315,175) (278,986)
Warrants exercised 700,000 - -
____________ ____________ ____________
Cash flow provided (used) by
financing activities (75,609) (812,982) 777,906
____________ ____________ ____________
Net increase (decrease) in cash 1,146,195 (1,068,034) 1,125,839
Cash and cash equivalents,
beginning of year 88,921 1,156,955 31,116
____________ ____________ ____________
Cash and cash equivalents,
end of year $ 1,235,116 $ 88,921 $ 1,156,955
============ ============ ============
Supplemental schedule of cash
flow information:
Interest paid $ 157,959 $ 201,126 $ 174,462
Income taxes paid 913,000 794,000 872,500
Supplemental schedule of noncash
investing and financing
activities:
Advance contributed as capital
to nonbanking subsidiary $ - $ - $ 241,790
21. Fair Value of Financial Instruments
___________________________________
Fair value estimates, methods, and assumptions are set forth below for the
Company's significant financial instruments.
Cash and Cash Equivalents
_________________________
The fair value of cash, due from banks, interest bearing deposits and FHLB
overnight deposits approximates their relative book values, as these
financial instruments have short maturities.
Trading Account Securities and Available for Sale Securities
____________________________________________________________
The fair value of investment securities is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers at or near June 30, 1996 and 1995. Fair values are
calculated based on the value of one unit without regard to any premium or
discount that may result from concentrations of ownership of a financial
instrument, possible tax ramifications, or estimated transaction costs. If
these considerations had been incorporated into the fair value estimates,
the aggregate fair value amounts could have changed.
Federal Home Loan Bank Stock
____________________________
This financial instrument does not have a market nor is it practical to
estimate the fair value without incurring excessive costs.
Loans Held for Sale
___________________
The fair value of loans held for sale is estimated based on bid quotations
received from securities dealers at or near June 30, 1996 and 1995.
Loans
_____
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimates of maturity are based on the
Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic conditions, lending conditions and the effects of
estimated prepayments.
Fair value for significant non-performing loans is based on estimated cash
flows and is discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available
market information and historical information.
Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether
the fair value presented would be indicative of the value negotiated in an
actual sale.
Accrued Interest Receivable
___________________________
The fair market value of this financial instrument approximates the book
value as this financial instrument has a short maturity. It is the
Company's policy to stop accruing interest on loans past due by more than
ninety days. Therefore this financial instrument has been adjusted for
estimated credit loss.
Deposits
________
The fair value of deposits with no stated maturity, such as non-interest-
bearing demand deposits, savings, NOW accounts and money market accounts,
is equal to the amount payable on demand as of June 30, 1996 and 1995. The
fair values of certificates of deposit are based on the discounted value
of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market. If that value was considered at June 30,
1996 and 1995, the fair value of the Company's net assets could increase.
Borrowed Funds, Notes Payable and Repurchase Agreements
_______________________________________________________
The fair value of the Company's borrowings with the Federal Home Loan Bank
is estimated by discounting the cash flows through maturity or the next
repricing date based on current rates available to the Company for
borrowings with similar maturities.
The fair value of the notes payable approximates the carrying value at
June 30, 1996 and 1995, as the interest rates adjust periodically.
The fair value of repurchase agreements approximates the carrying value at
June 30, 1996 and 1995, as these financial instruments have a short
maturity.
Commitments to Originate Loans
______________________________
The Company has not estimated the fair value of commitments to originate
loans due to their short term nature and their relative immateriality.
Limitations
___________
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These values do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of
a particular financial instrument. Because no market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financialinstruments include the
deferred tax asset, premises and equipment, and other real estate owned.
In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
The following table presents the estimated fair value of the Company's
significant financial instruments at June 30, 1996 and 1995:
June 30, 1996 June 30, 1995
_________________________ _________________________
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
____________ ____________ ____________ ____________
Non-Trading
Instruments:
Financial assets:
Cash and cash
equivalents $ 11,566,000 $ 11,566,000 $ 14,740,000 $ 14,740,000
Available for
sale securities 29,650,000 29,650,000 10,148,000 10,148,000
Loans held for sale 448,000 452,000 529,000 532,000
Loans 167,302,000 165,730,000 167,740,000 166,290,000
Interest receivable 1,352,000 1,352,000 1,139,000 1,139,000
Financial liabilities:
Deposits (with no
stated maturity) 59,117,000 59,117,000 60,381,000 60,381,000
Time deposits 86,078,000 85,995,000 86,739,000 86,614,000
Borrowed funds 52,123,000 51,888,000 35,700,000 35,670,000
Notes payable 1,502,000 1,502,000 2,010,000 2,010,000
Repurchase
agreements 3,763,000 3,763,000 2,585,000 2,585,000
Trading Instruments:
Financial assets:
Trading account
securities 198,000 198,000 1,400 1,400
INDEPENDENT AUDITORS REPORT
___________________________
The Board of Directors
Northeast Bancorp and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of Northeast Bancorp and Subsidiary (the assumed name of Bethel Bancorp and
Subsidiaries) as of June 30, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. The
consolidated statements of income, changes in stockholders' equity and cash
flows, of Bethel Bancorp and Subsidiaries as of June 30, 1994 and for the year
then ended, were audited by other auditors whose report thereon dated August 5,
1994 included an explanatory paragraph that described the Company's change in
its method of accounting for income taxes in 1994 to adopt provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, on July 1, 1993, as discussed
in note 16 to the financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northeast Bancorp
and Subsidiary as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Portland, Maine /s/ Baker Newman & Noyes
____________________________
August 16, 1996 Limited Liability Company
Independent Auditors Report
The Board of Directors
Northeast Bancorp and Subsidiary:
We have audited the accompanying consolidated statements of income, changes in
stockholders' equity, and cash flows of Northeast Bancorp and subsidiary
(formerly Bethel Bancorp and subsidiaries) for the year ended June 30, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Northeast Bancorp and subsidiary for the year ended June 30, 1994 in conformity
with generally accepted accounting principles.
As discussed in note 16, the Company changed its method of accounting for
income taxes in 1994 to adopt the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes on July 1, 1993.
Portland, Maine /s/ KPMG Peat Marwick LLP
____________________________
August 5, 1994 KPMG Peat Marwick LLP
(b) Supplementary Financial Information
___________________________________
Northeast Bancorp Consolidated
Distribution of Assets, Liabilities and Net Worth
Interest Rates and Interest Differential
Years Ended June 30, 1996, 1995 and 1994
June 30, 1996
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
_____________ _____________ ____________
Assets:
Earning Assets:
Securities Held to Maturity -- -- --
Securities Available for Sale 1,432,475 89,684 6.26%
Trading Securities 162,430 5,474 3.37%
Mortgage-backed Securities 16,013,118 1,149,407 7.18%
FHLB Stock 2,270,262 148,762 6.55%
Loans (3) 169,908,865 16,010,685 9.42%
FHLB Overnight Deposits & Other 10,523,674 590,850 5.61%
_____________ _____________ ____________
Total Earning Assets 200,310,824 17,994,862 8.98%
_____________ _____________ ____________
Non-interest Earning Assets:
Cash & Due from Banks 3,318,095
Premise & Equip Net 3,784,213
Other Assets 7,444,099
(Allowance for Loan Loss) (2,482,368)
_____________
Total Assets $212,374,863
=============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 14,801,458 265,551 1.79%
Money Market 12,980,882 446,950 3.44%
Savings 22,258,232 596,863 2.68%
Time 87,364,527 5,116,808 5.86%
_____________ _____________ ____________
Total Deposits 137,405,099 6,426,172 4.68%
Repurchase Agreements 3,516,283 166,210 4.73%
Other Borrowed Funds 40,797,048 2,536,022 6.22%
_____________ _____________ ____________
Total Interest Bearing Liabilities 181,718,430 9,128,404 5.02%
_____________ _____________ ____________
Non-interest Bearing Liabilities
Demand 10,019,506
Other 2,323,046
Net Worth 18,313,881
_____________
Total Liabilities & Net Worth $212,374,863
=============
Net Interest Income $ 8,866,458
=============
Interest Rate Spread (1) 3.96%
Net yield on Interest Earning
Assets (2) 4.43%
Equity to Assets Ratio (4) 8.62%
June 30, 1995
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
_____________ _____________ ____________
Assets:
Earning Assets:
Securities Held to Maturity $ 897,691 $ 75,691 8.43%
Securities Available for Sale 971,763 60,159 6.19%
Trading Securities 186,757 1,165 0.62%
Mortgage-backed Securities 15,181,721 1,088,420 7.17%
FHLB Stock 2,470,616 189,980 7.69%
Loans 164,344,609 15,085,138 9.18%
FHLB Overnight Deposits & Other 7,763,217 422,372 5.44%
_____________ _____________ ____________
Total Earning Assets 191,816,374 16,922,925 8.82%
_____________ _____________ ____________
Non-interest Earning Assets:
Cash & Due from Banks 3,342,796
Premise & Equip Net 3,594,335
Other Assets 8,078,832
(Allowance for Loan Loss) (2,569,032)
_____________
Total Assets $204,263,305
=============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 14,673,951 264,143 1.80%
Money Market 14,352,970 455,080 3.17%
Savings 23,027,846 610,415 2.65%
Time 80,114,965 4,113,465 5.13%
_____________ _____________ ____________
Total Deposits 132,169,732 5,443,103 4.12%
Repurchase Agreements 1,776,296 84,921 4.78%
Other Borrowed Funds 43,496,049 2,524,896 5.80%
_____________ _____________ ____________
Total Interest Bearing Liabilities 177,442,077 8,052,920 4.54%
_____________ _____________ ____________
Non-interest Bearing Liabilities
Demand 8,526,363
Other 1,904,767
Net Worth 16,390,098
_____________
Total Liabilities & Net Worth $204,263,305
=============
Net Interest Income $ 8,870,005
=============
Interest Rate Spread (1) 4.28%
Net yield on Interest Earning
Assets (2) 4.62%
Equity to Assets Ratio (4) 8.02%
June 30, 1994
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
_____________ _____________ ____________
Assets:
Earning Assets:
Securities Held to Maturity $ 919,560 $ 48,302 5.25%
Securities Available for Sale 1,953,884 122,634 6.28%
Trading Securities 88,531 85 0.10%
Mortgage-backed Securities 4,593,959 294,037 6.40%
FHLB Stock 2,079,640 156,940 7.55%
Loans 155,786,903 13,161,935 8.45%
FHLB Overnight Deposits & Other 7,349,656 252,308 3.43%
_____________ _____________ ____________
Total Earning Assets 172,772,133 14,036,241 8.12%
_____________ _____________ ____________
Non-interest Earning Assets:
Cash & Due from Banks 2,689,517
Premise & Equip Net 3,246,385
Other Assets 6,365,909
(Allowance for Loan Loss) (2,311,357)
_____________
Total Assets $182,762,587
=============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 11,761,069 197,412 1.68%
Money Market 15,248,339 452,620 2.97%
Savings 20,955,884 521,298 2.49%
Time 70,645,721 3,295,445 4.66%
_____________ _____________ ____________
Total Deposits 118,611,013 4,466,775 3.77%
Repurchase Agreements 0 0 0.00%
Other Borrowed Funds 38,535,140 2,012,937 5.22%
_____________ _____________ ____________
Total Interest Bearing Liabilities 157,146,153 6,479,712 4.12%
_____________ _____________ ____________
Non-interest Bearing Liabilities
Demand 5,578,538
Other 5,004,547
Net Worth 15,033,349
_____________
Total Liabilities & Net Worth $182,762,587
=============
Net Interest Income $ 7,556,529
=============
Interest Rate Spread (1) 4.00%
Net yield on Interest Earning Assets (2) 4.37%
Equity to Assets Ratio (4) 8.23%
(1.) Interest rate spread is the difference between the yield on earning
assets and the rates paid on interest-bearing liabilities.
(2.) Net yield on interest earning assets is net interest income divided by
average earning assets.
(3.) Non-accruing loans are included in the average of net loans.
(4.) Average equity divided by average assets.
Northeast Bancorp Consolidated
Changes in Net Interest Income
Years Ended June 30, 1996 and 1995
June 30, 1996 Compared to June 30, 1995
_______________________________________
Variance Variance Variance
Due to Due to Due to Total
Rate Volume Rate/Volume Variance
___________ ___________ ___________ ___________
Interest Earning Assets:
Securities Held to Maturity $ 0 $ (75,691) $ 0 $ (75,691)
Securities Available for Sale 681 28,521 323 29,525
Trading Securities 5,129 (152) (668) 4,309
Mortgage-backed Securities 1,310 59,605 72 60,987
FHLB Stock (28,090) (15,406) 2,278 (41,218)
Loans 401,222 510,741 13,584 925,547
FHLB Overnight Deposits & Other 13,493 150,188 4,797 168,478
___________ ___________ ___________ ___________
Total Income on Earning Assets 393,745 657,806 20,386 1,071,937
___________ ___________ ___________ ___________
Interest Bearing Liabilities:
Deposits:
Now (880) 2,295 (7) 1,408
Money Market 39,113 (43,504) (3,739) (8,130)
Savings 7,085 (20,401) (236) (13,552)
Time 578,747 372,225 52,371 1,003,343
___________ ___________ ___________ ___________
Total Deposits 624,065 310,615 48,389 983,069
Repurchase Agreements (958) 83,185 (938) 81,289
Borrowed funds 178,901 (156,674) (11,101) 11,126
___________ ___________ ___________ ___________
Total Interest Expense 802,008 237,126 36,350 1,075,484
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Change in Net interest Income $ (408,263) $ 420,680 $ (15,964) $ (3,547)
=========== =========== =========== ===========
June 30, 1995 Compared to June 30, 1994
_______________________________________
Variance Variance Variance
Due to Due to Due to Total
Rate Volume Rate/Volume Variance
___________ ___________ ___________ ___________
Interest Earning Assets:
Securities Held to Maturity $ 29,233 $ (1,149) $ (695) $ 27,389
Securities Available for Sale (1,675) (61,642) 842 (62,475)
Trading Securities 467 94 519 1,080
Mortgage-backed Securities 35,317 677,671 81,395 794,383
FHLB Stock 2,976 29,505 559 33,040
Loans 1,137,694 723,013 62,496 1,923,203
FHLB Overnight Deposits & Other 147,563 14,197 8,304 170,064
___________ ___________ ___________ ___________
Total Income on Earning Assets 1,351,575 1,381,689 153,420 2,886,684
___________ ___________ ___________ ___________
Interest Bearing Liabilities:
Deposits:
Now 14,297 48,893 3,541 66,731
Money Market 30,849 (26,577) (1,811) 2,461
Savings 34,194 51,542 3,381 89,117
Time 331,826 441,716 44,477 818,019
___________ ___________ ___________ ___________
Total Deposits 411,166 515,574 49,588 976,328
Repurchase Agreements 0 84,921 0 84,921
Borrowed funds 223,984 259,140 28,835 511,959
___________ ___________ ___________ ___________
Total Interest Expense 635,150 859,635 78,423 1,573,208
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Change in Net interest Income $ 716,425 $ 522,054 $ 74,997 $1,313,476
=========== =========== =========== ===========
This table reflects changes in net interest income attributable to the change
in interest rates and the change in the volume of interest-bearing assets and
liabilities. Amounts attributable to the change in rate are based upon the
change in rate multiplied by the prior year's volume. Amounts attributable to
the change in volume are based upon the changes in volume multiplied by the
prior year's rate. The combined effect of changes in both volume and rate are
calculated by multiplying the change in rate by the change in volume.
Northeast Bancorp Consolidated
Maturities and Repricing of Loans
As of June 30, 1996
1 Year 1 to 5 5 to 10 Over 10 Total
or Less Years Years Years Loans
___________ ___________ ___________ ___________ ____________
Mortgages:
Residential $45,211,547 $10,920,760 $ 7,342,838 $49,946,646 $113,421,791
Commercial 19,638,340 3,604,126 509,307 1,562,355 25,314,128
Construction 2,510,010 258,759 0 0 2,768,769
Non-Mortgage
Loans :
Commercial 12,427,971 1,212,340 278,941 70,968 13,990,220
Consumer 1,675,607 4,185,767 2,444,396 6,050,246 14,356,016
___________ ___________ ___________ ___________ ____________
Total Loans $81,463,475 $20,181,752 $10,575,482 $57,630,215 $169,850,924
=========== =========== =========== =========== ============
Loans due after
1 year:
Fixed $75,656,528
Variable 12,730,921
___________
Total due after
1 year: $88,387,449
===========
Scheduled repayments are reported in the maturity category in which the payment
is due. Demand loans and overdrafts are reported in one year or less.
Maturities are based upon contract terms.
Northeast Bancorp Consolidated
Securities Held to Maturity
Years Ended June 30, 1996, 1995 and 1994
Securities Held to Maturity June 30, June 30, June 30,
1996 1995 1994
______________________________________ __________ __________ __________
Book Value (thousands)
U.S. Government and Agency Obligations $ 0 $ 0 $ 1,383
Mortgage-backed Securities 0 0 5,669
FNMA Guaranteed REMIC 0 0 968
Other Bonds 0 0 0
__________ __________ __________
Total Securities Held to Maturity $ 0 $ 0 $ 8,020
========== ========== ==========
This table sets forth the book value of securities held to maturity at the
dates indicated.
During 1995, the Company transferred all its securities from held to maturity
to available for sale. (See financial statement footnote #2).
Northeast Bancorp Consolidated
Securities Available for Sale
Years Ended June 30, 1996, 1995 and 1994
Securities Available for Sale June 30, June 30, June 30,
1996 1995 1994
______________________________________ __________ __________ __________
Market Value (thousands)
U.S. Government and Agency Obligations $ 1,425 $ 239 $ 227
Mortgage-backed Securities 27,646 9,298 1,265
Other Bonds 139 141 129
Equity Securities 440 470 439
__________ __________ __________
Total Securities Available for Sale $ 29,650 $ 10,148 $ 2,060
========== ========== ==========
This table sets forth the market value of securities available for sale at the
dates indicated.
Northeast Bancorp Consolidated
Investment Maturity
Weighted
Securities Available for Sale Average Carrying
As of June 30, 1996 Rate Value
___________________________________________ __________ __________
Due in one Year 5.08% $ 247
Due after one year through five years 5.40% 238
Due after five years through ten years 5.95% 139
Due after ten years 7.18% 940
Mortgage-backed securities maturing
September 2003 to June 2026 7.26% 27,646
__________ __________
Total Securities Available for Sale 7.22% $ 29,210
========== ==========
This table sets forth the anticipated maturities of debt securities available
for sale and the respective weighted average rates within these ranges.
Northeast Bancorp Consolidated
Loan Portfolio
Years Ended June 30, 1996, 1995, 1994, 1993 and 1992
June 30, 1996
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 115,432 67.96%
Consumer & Other 14,356 8.45%
Commercial Mortgage 26,073 15.35%
Commercial 13,990 8.24%
____________ ____________
Total Loans 169,851 100.00%
____________ ____________
Less: Allowance for loan losses 2,549
____________
Net Loans $ 167,302
============
June 30, 1995
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 117,795 69.24%
Consumer & Other 16,115 9.47%
Commercial Mortgage 23,975 14.09%
Commercial 12,255 7.20%
____________ ____________
Total Loans 170,140 100.00%
Less: Allowance for loan losses 2,396
____________
Net Loans $ 167,744
============
June 30, 1994
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 110,461 69.71%
Consumer & Other 14,076 8.88%
Commercial Mortgage 22,463 14.18%
Commercial 11,461 7.23%
____________ ____________
Total Loans 158,461 100.00%
____________ ____________
Less: Allowance for loan losses 2,463
____________
Net Loans $ 155,998
============
June 30, 1993
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 108,079 71.69%
Consumer & Other 12,129 8.05%
Commercial Mortgage 20,051 13.30%
Commercial 10,497 6.96%
____________ ____________
Total Loans 150,756 100.00%
____________ ____________
Less: Allowance for loan losses 2,123
____________
Net Loans $ 148,633
============
June 30, 1992
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 102,594 72.54%
Consumer & Other 10,958 7.75%
Commercial Mortgage 15,172 10.73%
Commercial 12,707 8.98%
____________ ____________
Total Loans 141,431 100.00%
____________ ____________
Less: Allowance for loan losses 1,555
____________
Net Loans $ 139,876
============
This table shows the Company's loan distribution at the end of each of the
last five years.
Northeast Bancorp Consolidated
Allowance for Loan Losses
Years Ended June 30, 1996, 1995, 1994, 1993 and 1992
June 30, 1996
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 247 67.96%
Commercial Mortgage 738 15.35%
Commercial & Installment 603 16.69%
Unallocated 961 0.00%
_____________ _____________
Total $ 2,549 100.00%
============= =============
June 30, 1995
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 593 69.24%
Commercial Mortgage 237 14.09%
Commercial & Installment 374 16.67%
Unallocated 1,192 0.00%
_____________ _____________
Total $ 2,396 100.00%
============= =============
June 30, 1994
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 649 69.71%
Commercial Mortgage 232 14.18%
Commercial & Installment 387 16.11%
Unallocated 1,195 0.00%
_____________ _____________
Total $ 2,463 100.00%
============= =============
June 30, 1993
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 1,221 71.69%
Commercial Mortgage 256 13.30%
Commercial & Installment 390 15.01%
Unallocated 256 0.00%
_____________ _____________
Total $ 2,123 100.00%
============= =============
June 30, 1992
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 632 72.54%
Commercial Mortgage 250 10.73%
Commercial & Installment 473 16.73%
Unallocated 200 0.00%
_____________ _____________
Total $ 1,555 100.00%
============= =============
This table shows how the allowance for loan losses was allocated for the
periods indicated.
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the allowance
when management believes that the collectibility of the loan principal is
unlikely. Recoveries on loans previously charged off are credited to the
allowance.
The allowance is an amount that management believes will be adequate to absorb
possible loan losses based on evaluations of collectibility and prior loss
experience. The evaluation takes into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, specific
problem loans, and current and anticipated economic conditions that may affect
the borrowers' ability to pay. Management also obtains appraisals when
considered necessary.
Northeast Bancorp Consolidated
Non-performing Ratios
Years ended June 30, 1996, 1995, 1994, 1993 and 1992
June 30, June 30, June 30, June 30, June 30,
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
Non-performing loans
(thousands)
Mortgages $ 2,246 $ 2,383 $ 2,047 $ 2,308 $ 1,425
Other 357 187 676 181 173
________ ________ ________ ________ ________
Total non-performing loans 2,603 2,570 2,723 2,489 1,598
Other Real Estate Owned 514 1,069 1,994 2,308 2,096
________ ________ ________ ________ ________
Total non-performing assets $ 3,117 $ 3,639 $ 4,717 $ 4,797 $ 3,694
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Total non-performing loans
to total loans 1.53% 1.51% 1.72% 1.65% 1.13%
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Total non-performing assets
to total assets 1.40% 1.75% 2.47% 2.68% 2.25%
======== ======== ======== ======== ========
This table sets forth certain information concerning non-performing loans and
assets and the ratios of non-performing loans to total loans and non-performing
assets to total assets at the dates indicated.
Non-performing loans are problem loan accounts for which the Company has ceased
accrual of interest because the loan is 90 days past due or because
collectability is doubtful, whichever is earlier.
Management believes that all loans that are considered potential problems are
disclosed in the current non-performing loans table above with the exception of
loans internally rated substandard. At June 30, 1996, the Company had
approximately $2,541,000 of loans classified as substandard that could
potentially become non-performing due to previous delinquencies or marginal
cash flows.
No loans greater than 90 days past due are on accrual status and there are no
troubled debt restructurings not disclosed above.
Refer to the financial statement footnotes #1 & #4 for further discussion of
the Company's non-performing loan policy and interest income recognition.
Northeast Bancorp Consolidated
Summary of Loan Losses Experience (in thousands)
Years Ended June 30, 1996, 1995, 1994, 1993 and 1992
June 30, June 30, June 30, June 30, June 30,
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
Average net loans outstanding,
During period $166,965 $161,342 $153,476 $149,051 $131,721
======== ======== ======== ======== ========
Net loans outstanding,
End of period $167,302 $167,440 $155,998 $148,633 $139,876
======== ======== ======== ======== ========
Allowance for loan losses,
Beginning of period $ 2,396 $ 2,463 $ 2,123 $ 1,555 $ 1,005
Loans charged off:
Mortgage 326 419 351 203 0
Commercial/installment 200 342 379 110 196
________ ________ ________ ________ ________
Total loans charged off 526 761 730 313 196
________ ________ ________ ________ ________
Recoveries on amounts
previously charged off:
Mortgage 73 8 25 0 0
Commercial/installment 3 45 24 29 13
________ ________ ________ ________ ________
Total Recoveries 76 53 49 29 13
________ ________ ________ ________ ________
Net loans charged off 450 708 681 284 183
Provision for loan losses 603 641 1,021 852 733
________ ________ ________ ________ ________
Allowance for loan losses,
End of period $ 2,549 $ 2,396 $ 2,463 $ 2,123 $ 1,555
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Net loans charged-off as a
percentage of average loans
outstanding 0.27% 0.44% 0.44% 0.19% 0.14%
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Allowance for loan losses,
as a percentage of net loans
outstanding at the end of
period 1.52% 1.43% 1.58% 1.43% 1.11%
======== ======== ======== ======== ========
This table summarizes loans outstanding at the end of each period indicated,
net of unearned income, at the end of each period indicated and the average
amount of loans outstanding, changes in the allowance for loan losses and
other selected statistics during each period indicated.
Northeast Bancorp Consolidated
Average Deposits and Rates (thousands)
For Years Ended June 30, 1996, 1995 and 1994
June 30, 1996 June 30, 1995 June 30, 1994
_______________ _______________ _______________
Amount Rate Amount Rate Amount Rate
________ _____ ________ _____ ________ _____
Average Deposits:
Non-interest bearing demand
deposits $ 10,020 0.00% $ 8,526 0.00% $ 5,579 0.00%
Regular savings 22,258 2.68% 23,028 2.65% 20,956 2.49%
NOW and Money Market 27,782 2.56% 29,027 2.48% 27,009 2.41%
Time deposits 87,365 5.86% 80,115 5.13% 70,646 4.66%
________ _____ ________ _____ ________ _____
Total Average Deposits $147,425 3.69% $140,696 3.87% $124,190 3.60%
======== ===== ======== ===== ======== =====
This table shows the average daily amount of deposits and average rates paid
on such deposits for the periods indicated.
Northeast Bancorp Consolidated
Maturities of Time Deposits $100,000 & Over
As of June 30, 1996
Balance
___________
Time Deposits $100,000 & Over (in thousands):
3 months or less $ 1,863
Over 3 through 6 months 3,037
Over 6 through 12 months 4,603
Over 12 months 5,966
___________
Total Time Deposits $100,000 & Over $ 15,469
===========
Northeast Bancorp Consolidated
Maturities and Repricing of Earning Assets & Interest-bearing Liabilities
As of June 30, 1996
(in thousands)
Less Than 1-5 Over 5 % of
1 Year Years Years Total Total
_________ _________ _________ _________ _________
EARNING ASSETS
Real Estate Loans:
Fixed $ 1,553 $ 2,155 $ 59,361 $ 63,069 29.89%
Variable 65,807 12,629 0 78,436 37.18%
_________ _________ _________ _________ _________
Total Real Estate Loans 67,360 14,784 59,361 141,505 67.07%
_________ _________ _________ _________ _________
Non-Real Estate Loans:
Fixed 1,103 5,296 8,844 15,243 7.22%
Variable 13,001 102 0 13,103 6.21%
_________ _________ _________ _________ _________
Total Non-Real Estate Loans 14,104 5,398 8,844 28,346 13.44%
_________ _________ _________ _________ _________
Investment Securities &
Other Earning Assets 9,073 238 31,821 41,132 19.50%
_________ _________ _________ _________ _________
Total Earning Assets $ 90,537 $ 20,420 $100,026 $210,983 100.00%
========= ========= ========= ========= =========
INTEREST-BEARING LIABILITIES
Deposits:
Regular savings, value,
& club accounts $ 21,885 $ 21,885 11.45%
NOW Accounts 13,516 13,516 7.07%
Money market accounts 12,292 12,292 6.43%
Certificates of deposit 66,495 19,557 26 86,078 45.03%
_________ _________ _________ _________ _________
Total Deposits 114,188 19,557 26 133,771 69.97%
_________ _________ _________ _________ _________
Repurchase Agreements 3,763 0 0 3,763 1.97%
Borrowings & Notes Payable 31,902 21,398 325 53,625 28.05%
_________ _________ _________ _________ _________
Total Interest-bearing
Liabilities $149,853 $ 40,955 $ 351 $191,159 100.00%
========= ========= ========= ========= =========
_________ _________ _________ _________
Excess(deficiency) of earning
assets over interest-bearing
liabilities (59,316) (20,535) 99,675 19,824
========= ========= ========= =========
_________ _________ _________ _________
Cumulative excess (deficiency)
of earning assets over
interest-bearing liabilities (59,316) (79,851) 19,824 19,824
========= ========= ========= =========
_________ _________ _________ _________
Cumulative excess (deficiency)
of earning assets over
interest-bearing liabilities
as a % of total assets (-26.68%) (-35.92%) 8.92% 8.92%
========= ========= ========= =========
This table summarizes the anticipated maturities and repricing of the Company's
earning assets and interest-bearing liabilities at June 30, 1996.
The Company's internal asset/liability analysis considers regular savings, NOW
and money market accounts core deposits. Due to this consideration, the
Company's internal asset/liabilitiy model has these core deposits designated
in a five year or greater maturity category and not one year or less as the
above schedule shows. Because of this difference, the Company does not
consider its position to be as negative as the schedule above.
(1) Selected Quarterly Financial Data
_________________________________
Northeast Bancorp Consolidated
Quarterly Data
As of June 30, 1996
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Sept. 30 Dec. 31 Mar. 31 June 30
1995 1995 1996 1996
____________ ____________ ____________ ____________
Interest Income
Interest on loans $ 4,098,178 $ 4,059,758 $ 4,003,840 $ 3,848,909
Interest & dividends
on investments &
available for sale
securities 384,493 445,954 522,346 631,385
____________ ____________ ____________ ____________
Total Interest Income 4,482,671 4,505,712 4,526,186 4,480,294
____________ ____________ ____________ ____________
Interest Expense
Interest on Deposits 1,635,482 1,652,178 1,611,581 1,526,929
Interest on Repurchase
Agreements 33,913 48,880 42,872 40,545
Interest on Borrowings 599,959 592,950 654,874 688,239
____________ ____________ ____________ ____________
Total Interest Expense 2,269,354 2,294,008 2,309,327 2,255,713
____________ ____________ ____________ ____________
Net Interest Income 2,213,317 2,211,704 2,216,859 2,224,581
Provision for Loan
Losses 147,855 147,708 159,960 147,337
Net Interest Income
after Provision for
Loan Losses 2,065,462 2,063,996 2,056,899 2,077,244
Securities Transactions 120,593 92,797 35,280 30,225
Other Operating Income 493,700 457,681 420,186 446,727
Other Operating Expense 2,015,938 1,916,693 2,029,985 2,486,141
____________ ____________ ____________ ____________
Income Before Income
Taxes 663,817 697,781 482,380 68,055
Income Tax Expense 242,180 254,345 180,575 41,512
____________ ____________ ____________ ____________
Net Income $ 421,637 $ 443,436 $ 301,805 $ 26,543
____________ ____________ ____________ ____________
Net Income Per Common
Share:
Primary earnings
per share $ 0.32 $ 0.32 $ 0.20 $ (0.01)
Fully diluted
earnings per share $ 0.29 $ 0.29 $ 0.19 $ 0.02
Northeast Bancorp Consolidated
Quarterly Data
As of June 30, 1995
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Sept. 30 Dec. 31 Mar. 31 June 30
1994 1994 1995 1995
____________ ____________ ____________ ____________
Interest Income
Interest on loans $ 3,577,983 $ 3,695,313 $ 3,811,479 $ 4,000,363
Interest & dividends
on investments &
available for sale
securities 321,218 467,246 532,491 516,832
_____________ ____________ ____________ ____________
Total Interest Income 3,899,201 4,162,559 4,343,970 4,517,195
Interest Expense
Interest on Deposits 1,152,639 1,301,403 1,410,185 1,578,876
Interest on Repurchase
Agreements -- 21,442 25,721 37,758
Interest on Borrowings 635,636 597,446 628,564 663,250
____________ ____________ ____________ ____________
Total Interest Expense 1,788,275 1,920,291 2,064,470 2,279,884
____________ ____________ ____________ ____________
Net Interest Income 2,110,926 2,242,268 2,279,500 2,237,311
Provision for Loan
Losses 180,317 168,497 145,776 146,044
____________ ____________ ____________ ____________
Net Interest Income
after Provision for
Loan Losses 1,930,609 2,073,771 2,133,724 2,091,267
Securities Transactions 17,092 214,859 150,061 37,301
Other Operating Income 392,723 443,771 393,324 467,310
Other Operating Expense 1,705,467 2,087,524 2,030,353 2,164,532
____________ ____________ ____________ ____________
Income Before Income
Taxes 634,957 644,877 646,756 431,346
Income Tax Expense 229,245 237,763 238,683 162,864
____________ ____________ ____________ ____________
Net Income $ 405,712 $ 407,114 $ 408,073 $ 268,482
____________ ____________ ____________ ____________
Net Income Per Common
Share:
Primary earnings per
share $ 0.30 $ 0.30 $ 0.31 $ 0.19
Fully diluted
earnings per share $ 0.28 $ 0.28 $ 0.28 $ 0.18
The reduction of net income for the quarter ending June 30, 1996 is primarily a
result of increased operating expenses due to the Bank merger, the writedown of
equity securities and the provision for other real estate owned.
(2) Information on the Effects of Changing Prices
_____________________________________________
The consolidated financial statements and related notes herein
have been presented in terms of historic dollars without
considering changes in the relative purchasing power of money over
time due to inflation.
Unlike many industrial companies, substantially all of the assets
and virtually all of the liabilities of the Company are monetary
in nature. As a result, interest rates have a more significant
impact on the Company's performance than the general level of
inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude
as inflation.
(3) Information About Oil and Gas Producing Activities
__________________________________________________
Not Applicable.
Item 9. Changes in and Disagreements with Accountants on
________________________________________________
Accounting and Financial Disclosure.
____________________________________
KPMG Peat Marwick LLP was previously the principal accountants for Bethel
Bancorp. On February 6, 1995, that firm's appointment as principal accountants
was terminated and Baker Newman & Noyes, Limited Liability Company was engaged
as principal accountants. The decision to change accountants has been
approved by the Board of Directors on February 6, 1995.
In connection with the audits of the two fiscal years ended June 30, 1994 and
the subsequent interim period through February 6, 1995, there were no
disagreements with KPMG Peat Marwick on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.
The audit reports of KPMG Peat Marwick LLP on the consolidated financial
statements of Bethel Bancorp as of and for the years ended June 30, 1994 and
1993 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
PART III
Item 10. Directors and Executive Officers of the Registrant.
___________________________________________________
The "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" sections of the Company's definitive Proxy Statement for
the 1996 Annual Meeting of Shareholders is incorporated herein by reference.
Item 11. Executive Compensation
______________________
The "Excutive Compensation and Other Information" section of the Company's
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
______________________________________________________________
The "Election of Directors" section of the Company's definitive Proxy
Statement for the 1996 Annual Meeting of Shareholders is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
______________________________________________
The "Transaction with Management" section of the Company's definitive Proxy
Statement for the 1996 Annual Meeting of Shareholders is incorporated herein
by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
________________________________________________________________
(a) List of Financial Statements Filed as Part of This Report
_________________________________________________________
The following financial statements are submitted herewith in
response to Part II Item 8:
Consolidated Statements of Financial Condition as of June 30,
1996 and 1995
Consolidated Statements of Income for the years ended June 30,
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for
the years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June
30, 1996, 1995 and 1994
(b) Reports on Form 8-K
___________________
Not Applicable.
(c) Exhibits
________
The exhibits listed below are filed herewith or are incorporated
herein by reference to other filings.
2.1 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Bethel Savings Bank and Key Bank of Maine,
incorporated by reference to Exhibit 2.1 to Bethel
Bancorp's Current Report on Form 8-K dated May 4, 1994
2.2 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Brunswick Federal Savings Bank and Key Bank of
Maine, incorporated by reference to Exhibit 2.2 to
Bethel Bancorp's Current Report on Form 8-K dated May
4, 1994
3.1 Conformed Articles of Incorporation of Bethel Bancorp,
incorporated by reference to Exhibit 3.1 to Bethel
Bancorp's Current Report on Form 10-K dated
June 30, 1995
3.2 Bylaws of Northeast Bancorp are filed herewith as
Exhibit 3.2
10.1* 1987 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Bethel Bancorp's Registration Statement
on Form S-1 (No. 33-12815), filed with the Securities
and Exchange Commission.
10.2* 1989 Stock Option Plan of Bethel Bancorp is
incorporated by reference to Exhibit 10.6 to Bethel
Bancorp's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994
10.3* 1992 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Exhibit 10.7 to Bethel Bancorp's Annual
Report on Form 10-K for the year ended June 30, 1992
11 Statement regarding computation of per share earnings
is submitted herewith as Exhibit 11
21 A list of subsidiaries of Northeast Bancorp is filed
herewith as Exhibit 21
23 The Consent of Baker Newman & Noyes, Limited Liability
Company, is submitted herewith as Exhibit 23
27 A Financial Data Schedule is submitted herewith as
Exhibit 27
* Management or compensation plan or arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of Form 10-K
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NORTHEAST BANCORP
Date: September 20, 1996 By: /s/ James D. Delamater
_____________________________
James D. Delamater, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
_________________________ ____________________ __________________
/s/ Joseph A. Aldred, Jr. Director September 20, 1996
_________________________
Joseph A. Aldred, Jr.
/s/ John B. Bouchard Director September 20, 1996
_________________________
John B. Bouchard
/s/ Norris T. Brown Director September 20, 1996
_________________________
Norris T. Brown
/s/ A. William Cannan Director, September 20, 1996
_________________________ Executive Vice President
A. William Cannan
/s/ James D. Delamater Director, September 20, 1996
_________________________ President and Chief
James D. Delamater Executive Officer
(Principal
Executive Officer)
/s/ Ronald J. Goguen Director September 20, 1996
_________________________
Ronald J. Goguen
/s/ Judith W. Hayes Director September 20, 1996
_________________________
Judith W. Hayes
/s/ Normand R. Houde Director September 20, 1996
_________________________
Normand R. Houde
/s/ Philip C. Jackson Director September 20, 1996
_________________________ Vice President
Philip C. Jackson
/s/ Roland Kendall Director September 20, 1996
_________________________
Roland Kendall
/s/ Robert Morrell Director September 20, 1996
_________________________
Robert Morrell
/s/ John W. Trinward, DMD Chairman of the September 20, 1996
_________________________ Board
John W. Trinward, DMD
/s/ Edmond J. Vachon Director September 20, 1996
_________________________
Edmond J. Vachon
/s/ Stephen W. Wight Director September 20, 1996
_________________________
Stephen W. Wight
/s/ Dennis A. Wilson Director September 20, 1996
_________________________
Dennis A. Wilson
/s/ Richard E. Wyman, Jr. Chief Financial September 20, 1996
_________________________ Officer (Principal)
Richard E. Wyman, Jr. Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Exhibit
______ _______
2.1 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Bethel Savings Bank and Key Bank of Maine,
incorporated by reference to Exhibit 2.1 to Bethel
Bancorp's Current Report on Form 8-K dated May 4, 1994
2.2 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Brunswick Federal Savings Bank and Key Bank of
Maine, incorporated by reference to Exhibit 2.2 to
Bethel Bancorp's Current Report on Form 8-K dated May
4, 1994
3.1 Conformed Articles of Incorporation of Bethel Bancorp,
incorporated by reference to Exhibit 3.1 to Bethel
Bancorp's Current Report on Form 10-K dated June 30, 1995
3.2 Bylaws of Northeast Bancorp are filed herewith as
Exhibit 3.2
10.1* 1987 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Bethel Bancorp's Registration Statement
on Form S-1 (No. 33-12815), filed with the Securities
and Exchange Commission.
10.2* 1989 Stock Option Plan of Bethel Bancorp is
incorporated by reference to Exhibit 10.6 to Bethel
Bancorp's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994
10.3* 1992 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Exhibit 10.7 to Bethel Bancorp's Annual
Report on Form 10-K for the year ended June 30, 1992
11 Statement regarding computation of per share earnings
is submitted herewith as Exhibit 11
21 A list of subsidiaries of Northeast Bancorp is filed herewith
as Exhibit 21
23 The Consent of Baker Newman & Noyes, Limited Liability
Company, is submitted herewith as Exhibit 23
27 A Financial Data Schedule is submitted herewith as
Exhibit 27
* Management or compensation or plan arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of Form 10-K