Loans generated by the Bank's National Lending Division for the quarter ended December 31, 2023 totaled $249.6 million, which consisted of $186.1 million of purchased loans, at an average price of 89.5% of unpaid principal balance, and $63.5 million of originated loans.

An overview of the Bank's National Lending Division portfolio follows:

2. Deposits increased by $192.5 million, or 9.9%, from June 30, 2023. The increase was primarily attributable to increases in time deposits of $165.2 million, or 18.0%, and savings and interest checking deposits of $84.3 million, or 14.1%, partially offset by a decrease in money market deposits of $56.7 million, or 20.4%. The significant drivers in the change in time deposits was the increase in Community Banking Division time deposits, which increased by $111.2 million, and brokered time deposits, which increased by $97.4 million compared to June 30, 2023, partially offset by the intentional runoff of Bulletin Board time deposits of $40.4 million.

3. Federal Home Loan Bank advances decreased by $115.4 million, or 20.5%, from June 30, 2023. The decrease was primarily attributable to the increase in deposits of $192.5 million partially offset by loan growth of $90.7 million, as the Bank funded loan growth primarily through time deposits and savings and interest checking deposits.

4. Shareholders' equity increased by $30.9 million, or 10.4%, from June 30, 2023, primarily due to net income of $29.2 million and stock-based compensation of $2.8 million, partially offset by the cancelation of common shares to cover tax obligations on restricted stock vests, which resulted in a $1.2 million decrease to shareholders' equity, and the cumulative effect adjustment for the adoption of ASC 326 Financial Instruments – Credit Losses (more commonly known as Current Expected Credit Losses or "CECL"), which resulted in a $870 thousand decrease to shareholders' equity on July 1, 2023.

Net income increased by $2.8 million to $14.1 million for the quarter ended December 31, 2023, compared to net income of $11.3 million for the quarter ended December 31, 2022.

1. Net interest and dividend income before provision for credit losses increased by $8.2 million to $37.0 million for the quarter ended December 31, 2023, compared to $28.8 million for the quarter ended December 31, 2022. The increase was primarily due to the following:

• An increase in interest income earned on loans of $23.1 million, primarily due to an increase in interest income earned on the National Lending Division's purchased and originated portfolios, due to higher average balances and rates earned on both portfolios; and

• An increase in interest income earned on short-term investments of $1.6 million, primarily due to higher rates earned and higher average balances; partially offset by,

• An increase in deposit interest expense of $11.3 million, due to higher interest rates and higher average balances in interest-bearing deposits; and

• An increase in FHLB borrowings interest expense of $5.2 million, primarily due to higher average balances.
  

The following table summarizes interest income and related yields recognized on the loan portfolios:

The components of total income on purchased loans are set forth in the table below entitled "Total Return on Purchased Loans." When compared to the quarter ended December 31, 2022, transactional income decreased by $1.3 million for the quarter ended December 31, 2023, and regularly scheduled interest and accretion increased by $20.4 million primarily due to the increase in average balances. The total return on purchased loans for the quarter ended December 31, 2023 was 9.2%, an increase from 8.7% for the quarter ended December 31, 2022. The following table details the total return on purchased loans:

2. The provision for credit losses for the second quarter of fiscal year 2024 was reported using the CECL methodology, whereas the second quarter of fiscal year 2023 provision for credit losses was reported using the incurred loss methodology. Provision for credit losses increased by $111 thousand to a provision of $436 thousand for the quarter ended December 31, 2023, compared to a provision of $325 thousand in the quarter ended December 31, 2022.

3. Noninterest income increased by $165 thousand for the quarter ended December 31, 2023, compared to the quarter ended December 31, 2022, principally due to the following:

• An increase in gain on sale of Small Business Administration ("SBA") loans of $535 thousand, due to the sale of $11.5 million in SBA loans during the quarter ended December 31, 2023 as compared to the sale of $1.1 million during the quarter ended December 31, 2022; and

• An increase in unrealized gain on equity securities of $219 thousand; partially offset by,

• A decrease in correspondent fee income of $566 thousand from the recognition of correspondent fees and related net servicing income.

4. Noninterest expense increased by $2.0 million for the quarter ended December 31, 2023 compared to the quarter ended December 31, 2022, primarily due to the following:

• An increase in salaries and employee benefits expense of $1.5 million, primarily due to increases in stock compensation expense, regular compensation expense, and incentive compensation expense;

• An increase in loan expense of $190 thousand, primarily due to increased loan collection expense;

• An increase in deposit insurance expense of $143 thousand, primarily due to the increase in average assets and decrease in Tier 1 leverage ratio, which increased the Bank's assessment rate; and

• An increase in data processing fees of $131 thousand, primarily due to increased IT hardware hosted expense and IT software subscription expense.
  

5. Income tax expense increased by $3.6 million to $8.3 million, or an effective tax rate of 37.1%, for the quarter ended December 31, 2023, compared to $4.7 million, or an effective tax rate of 29.5%, for the quarter ended December 31, 2022. The increase in income tax expense is due to an increase in pre-tax income, a decrease in tax benefits arising from the exercise of stock options of $673 thousand, and a write-down of the Bank's deferred tax asset of $957 thousand related to a Massachusetts income tax law passed in the quarter ended December 31, 2023. The law changes the apportionment factors for Massachusetts income and requires entities to write-down any deferred tax assets to the enacted rate at which it expects to realize the deferred tax asset in the future. Excluding the deferred tax asset write-down, the effective tax rate for the quarter ended December 31, 2023 is 32.9%.

As of December 31, 2023, nonperforming assets totaled $30.8 million, or 1.18% of total assets, compared to $15.7 million, or 0.55% of total assets, as of June 30, 2023. The increase was primarily tied to one loan totaling $6.4 million which was placed on non-accrual during the six months ended December 31, 2023.

As of December 31, 2023, past due loans totaled $31.9 million, or 1.22% of total loans, compared to past due loans totaling $13.1 million, or 0.52% of total loans, as of June 30, 2023.

As of December 31, 2023, the Bank's Tier 1 leverage capital ratio was 11.3%, compared to 10.4% at June 30, 2023, and the Total risk-based capital ratio was 13.7% at December 31, 2023, compared to 12.3% at June 30, 2023. Capital ratios increased primarily due to increased earnings and the Total risk-based capital ratio increased due to an increase in Tier 2 capital associated with the allowance for credit losses under CECL.

Investor Call Information
Rick Wayne, Chief Executive Officer, Jean-Pierre Lapointe, Chief Financial Officer, and Pat Dignan, Chief Operating Officer of Northeast Bank, will host a conference call to discuss second quarter earnings and business outlook at 10:00 a.m. Eastern Time on Wednesday, January 31st. To access the conference call by phone, please go to this link (Phone Registration), and you will be provided with dial in details. The call will be available via live webcast, which can be viewed by accessing the Bank's website at www.northeastbank.com and clicking on the About Us - Investor Relations section. To listen to the webcast, attendees are encouraged to visit the website at least fifteen minutes early to register, download and install any necessary audio software. Please note there will also be a slide presentation that will accompany the webcast. For those who cannot listen to the live broadcast, a replay will be available online for one year at www.northeastbank.com.

About Northeast Bank
Northeast Bank (NASDAQ: NBN) is a full-service bank headquartered in Portland, Maine. We offer personal and business banking services to the Maine market via seven branches. Our National Lending Division purchases and originates commercial loans on a nationwide basis. ableBanking, a division of Northeast Bank, offers online savings products to consumers nationwide. Information regarding Northeast Bank can be found at www.northeastbank.com.

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures, including tangible common shareholders' equity, tangible book value per share, total return on purchased loans, and efficiency ratio. The Bank's management believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other documents we file with the Federal Deposit Insurance Corporation (the "FDIC"), in our annual reports to our shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. Although the Bank believes that these forward-looking statements are based on reasonable estimates and assumptions, they are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Bank's control. The Bank's actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in general business and economic conditions on a national basis and in the local markets in which the Bank operates, including changes which adversely affect borrowers' ability to service and repay loans; changes in customer behavior due to political, business and economic conditions, including inflation and concerns about liquidity; turbulence in the capital and debt markets; reductions in net interest income resulting from interest rate volatility as well as changes in the balances and mix of loans and deposits; changes in interest rates and real estate values; changes in loan collectability and increases in defaults and charge-off rates; decreases in the value of securities and other assets, adequacy of credit loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; changing government regulation; competitive pressures from other financial institutions; changes in legislation or regulation and accounting principles, policies and guidelines; cybersecurity incidents, fraud, natural disasters, and future pandemics; the risk that the Bank may not be successful in the implementation of its business strategy; the risk that intangibles recorded in the Bank's financial statements will become impaired; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Bank's Annual Report on Form 10-K and updated by our Quarterly Reports on Form 10-Q and other filings submitted to the FDIC. These statements speak only as of the date of this release and the Bank does not undertake any obligation to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this communication or to reflect the occurrence of unanticipated events.

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