Northeast Bank : Form 10-K Annual Report

About this update from Northeast Bank

FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 FORM 10-K (Mark One) ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2025 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to FDIC Certificate No. 19690 NORTHEAST BANK (Exact name of registrant as specified in its charter) Maine 01-0029040 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 27 Pearl Street, Portland, Maine 04101 (Address of principal executive offices) (Zip Code) (207) 786-3245 (Registrant's telephone number, including area code) Voting Common Stock, $1.00 par value (Title of each class) Securities registered pursuant to Section 12(b) of the Act: NBN (Trading Symbol) The Nasdaq Stock Market LLC (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes No ⌧ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ⌧ 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 ☒ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large Accelerated filer Accelerated filer ⌧ Non-accelerated filer Smaller Reporting Company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ⌧ The aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates, computed by reference to the last reported sales price of the registrant's voting common stock on the Nasdaq Global Market on December 31, 2024 was approximately $669,226,122. As of September 9, 2025, the registrant had outstanding 8,575,048 shares of voting common stock, $1.00 par value per share, and zero shares of non-voting common stock, $1.00 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for the 2025 Annual Meeting of Shareholders to be held on November 18, 2025 (the "Proxy Statement") are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The registrant intends to file the Proxy Statement with the Federal Deposit Insurance Corporation no later than 120 days after the end of its fiscal year ended June 30, 2025 . ‌Table of Contents Part I Item 1. Business .......................................................................................................................................... 5 Item 1A. Risk Factors .................................................................................................................................... 18 Item 1B. Unresolved Staff Comments ........................................................................................................... 29 Item 1C. Cybersecurity .................................................................................................................................. 29 Item 2. Properties ........................................................................................................................................ 31 Item 3. Legal Proceedings ........................................................................................................................... 31 Item 4. Mine Safety Disclosures ................................................................................................................. 31 Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 32 Item 6. [Reserved] 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56 Item 8. Financial Statements and Supplementary Data 57 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 95 Item 9A. Controls and Procedures 95 Item 9B. Other Information 98 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 98 Part III Item 10. Directors, Executive Officers and Corporate Governance 98 Item 11. Executive Compensation 98 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 98 Item 13. Certain Relationships and Related Transactions, and Director Independence 98 Item 14. Principal Accounting Fees and Services 98 Part IV Item 15. Exhibits, Financial Statement Schedules 99 Item 16. Form 10-K Summary 101 A Note About Forward-Looking Statements This report contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as statements relating to the financial condition, prospective results of operations, future performance or expectations, plans, objectives, prospects, credit loss allowance adequacy, simulation of changes in interest rates, capital spending, finance sources, and revenue sources of Northeast Bank ("we," "our," "us," "Northeast" or the "Bank"). These statements relate to expectations concerning matters that are not historical facts. Accordingly, statements that are based on management's projections, estimates, assumptions, and judgments constitute forward-looking statements. These forward looking statements, which are based on various assumptions (some of which are beyond the Bank's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology such as "believe", "expect", "estimate", "anticipate", "continue", "plan", "approximately", "intend", "objective", "goal", "project", or other similar terms or variations on those terms, or the future or conditional verbs such as "will", "may", "should", "could", and "would". Such forward-looking statements reflect the Bank's current views and expectations based largely on information currently available to the Bank's management, and on the Bank's current expectations, assumptions, plans, estimates, judgments, and projections about the Bank's business and industry, and they involve inherent risks and uncertainties. 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, contingencies, and other factors. Accordingly, the Bank cannot give you any assurance that its expectations will in fact occur or that its estimates or assumptions will be correct. The Bank cautions you that actual results could differ materially from those expressed or implied by such forward-looking statements as a result of, among other factors: the factors referenced in this report under Item 1A. "Risk Factors"; changes in interest rates and real estate values, changes in employment levels, and general business and economic conditions on a national basis and in the local markets in which the Bank operates; changes in customer behavior due to changing business and economic conditions (including the impact of actual or threatened tariffs imposed by the United States and foreign governments, inflation, and concerns about liquidity) or legislative or regulatory initiatives; the possibility that future credit losses are higher than currently expected due to changes in economic assumptions, customer behavior, or adverse economic developments; turbulence in the capital and debt markets; competitive pressures from other financial institutions; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of credit loss reserves, or deposit levels necessitating increased borrowing to fund loans and investments; changes in, and evolving interpretations of, existing and future laws, rules, and regulations; operational risks including, but not limited to, cybersecurity, fraud, natural disasters, climate change, 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; and changes in assumptions used in making such forward-looking statements. These forward-looking statements speak only as of the date of this report 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 report. Non-GAAP Financial Measures and Reconciliation to GAAP In addition to evaluating the Bank's results of operations in accordance with accounting principles generally accepted in the United States ("GAAP"), management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as net operating earnings, net operating earnings per share, operating return on average assets, operating return on average equity, operating efficiency ratio, total return and operating common dividend payout ratio. These non-GAAP financial measures are utilized for the purposes of measuring performance against the Bank's peer group and other financial institutions, as well as for analyzing its internal performance. The Bank also believes these non-GAAP financial measures help investors better understand the Bank's operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Bank's underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions. ‌PART I ‌Item 1. Business Overview Northeast, a Maine state-chartered bank organized in 1872, is a Maine-based financial institution. As of June 30, 2025, the Bank had total assets of $4.28 billion, total deposits of $3.38 billion, and shareholders' equity of $494.3 million. We gather retail deposits through our seven branches in Maine and through our online deposit programs, ableBanking and NEB Online; purchase and originate commercial loans, typically secured by real estate, on a nationwide basis through our National Lending Division; and originate loans through the Community Banking Division and Small Business Administration ("SBA") National Division. Strategy The Bank's goal is to prudently grow its franchise, while maintaining sound operations and risk management, by means of the following strategies: Continuing to grow the National Lending Division's purchased and originated loan business. We primarily purchase commercial real estate loans nationally. We also originate loans nationally, taking advantage of our core expertise in underwriting and servicing national credits. Growing our national SBA origination business. We originate loans on a national basis to small businesses, primarily through the SBA 7(a) program, which provides the partial guarantee of the underlying SBA loan. Continuing our community banking tradition. With a history that dates back to 1872, our Community Banking Division maintains its focus on sales and service, with the goal of attracting and retaining deposits. Generating deposits to fund our business. We offer a full line of deposit products through our seven-branch network located in the Community Banking Division's market. ableBanking is a direct savings platform providing an additional channel to raise core deposits to fund our asset strategy. Market Area and Competition National Lending Division and SBA Division activities are nationwide. The National Lending Division competes primarily with community banks, regional banks, and private equity funds operating nationwide in its bid to acquire primarily commercial real estate loans. We believe that we often have a competitive advantage in bidding against private equity funds on performing loans because those funds generally have higher funding costs and, therefore, higher expectations for return on investment than we do. Furthermore, private equity funds typically do not compete for small balance commercial loans and typically pursue larger, bulk transactions. We believe that the National Lending Division continues to have a competitive advantage in bidding against other banks because we have a specialized group with experience in purchasing commercial real estate loans. Additionally, most banks we compete against are community banks looking to acquire loans in their market; these banks usually have specific criteria for their acquisition activities and do not pursue pools with collateral or geographic diversity. The SBA National Division originates loans to small businesses nationwide, most often through the SBA's 7(a) program, which provides a partial government guarantee of the underlying SBA loan. The SBA Division competes primarily with community banks and regional banks who similarly offer loans through the SBA's 7(a) program. Significant assistance in the origination, closing, and servicing of SBA loans is provided by Newity LLC ("Newity"), the Bank's lender services provider. The use of an outsourced lender services provider gives us an advantage over competitors in our ability to efficiently originate and service loans. These loans are originated with the intent to sell the guaranteed portion of the loans in the secondary market. The Community Banking Division's market area is centered in the western and south-central regions of Maine. We encounter significant competition in the Community Banking Division market area in originating loans and attracting deposits. Our competitors include savings banks, commercial banks, credit unions, mutual funds, insurance companies, brokerage and investment banking companies, finance companies, financial technology companies, and other financial intermediaries. Many of our primary competitors there have substantially greater resources, larger established customer bases, higher lending limits, extensive branch networks, numerous ATMs, and greater advertising and marketing budgets. They may also offer services that we do not currently provide. Lending Activities General We conduct our loan-related activities primarily through the National Lending Division and the SBA National Division. We also engage in limited lending through Community Banking Division. The National Lending Division purchases primarily performing commercial real estate loans, on a nationwide basis, typically at a discount from their unpaid principal balances, producing yields comparable to those normally achieved on our originated loan portfolio. The National Lending Division also originates commercial real estate and commercial and industrial loans on a nationwide basis. The SBA National Division originates loans to small businesses to help provide funding opportunities nationally. Typically, the Bank sells the guaranteed portion of these loans which represents the majority of their exposure. The Community Banking Division originates loans directly to businesses located in its market area. At June 30, 2025, our total loan portfolio (including loans held for sale) was $3.79 billion, of which $3.63 billion, or 95.7%, was purchased or originated by the National Lending Division, $18.3 million, or 0.5%, was originated by the Community Banking Division, and $145.0 million, or 3.8%, were originated SBA loans. The following table sets forth certain information concerning our portfolio loan purchases and originations for the periods indicated (including loans held for sale): Years Ended June 30, 2025 2024 (Dollars in thousands) Loans, including loans held for sale, beginning of year Additions: National Lending Division: Originations $ 2,761,157 807,923 $ 2,520,360 399,149 Purchases 863,165 382,047 Subtotal 1,671,088 781,196 SBA Traditional funded originations 408,517 92,479 Community Bank originations: Commercial real estate 400 146 Commercial and industrial - 198 Consumer - - Subtotal 400 344 Total originations and purchases 2,080,005 874,019 Reductions: Sales of traditional SBA and other loans (308,773) (62,202) Charge-offs (6,987) (6,117) Pay-downs and amortization, net (735,245) (564,903) Total reductions (1,051,005) (633,222) Loans, including loans held for sale, end of year $ 3,790,157 $ 2,761,157 Annual percentage increase in loans 37.27% 9.55% We individually underwrite all loans that we originate and purchase. Our loan underwriting policies are reviewed and approved annually by our Board of Directors (the "Board"). Each loan, regardless of whether it is originated or purchased, must meet underwriting criteria set forth in our lending policies and the requirements of applicable federal and state regulations. All loans are subject to approval procedures and amount limitations, and the Board approves loan relationships exceeding certain prescribed dollar limits. We supplement our own supervision of the loan underwriting and approval process with periodic loan audits by internal personnel and outside professionals experienced in loan review. As of June 30, 2025, the Bank's legal lending limit was $108.4 million. We typically retain servicing rights for all loans that we originate or purchase. National Lending Division General . The following table summarizes the National Lending Division loan portfolio as of June 30, 2025: Purchased Originated Total Non-owner occupied commercial real estate $ 2,113,039 (In thousands) $ 360,017 $ 2,473,056 Owner-occupied commercial real estate 172,585 71,439 244,024 Commercial and industrial 19,834 784,097 803,931 1-4 family residential 69,699 36,215 105,914 Total $ 2,375,157 $ 1,251,768 $ 3,626,925 Since the inception of the National Lending Division through June 30, 2025, we have purchased loans with an aggregate investment of $3.77 billion, of which $863.2 million was purchased during the fiscal year ended June 30, 2025 ("fiscal 2025" or "fiscal year 2025"). We have also originated National Lending Division loans totaling $3.96 billion, of which $807.9 million was originated in fiscal 2025. As of June 30, 2025, the unpaid principal balance of loans purchased or originated by the National Lending Division ranged from $0 to $46.7 million and have an average balance of $1.0 million. The real estate loans were secured principally by multi-family, retail, office, industrial, mixed use, and hospitality properties in 44 states. The following table shows the National Lending Division loan portfolio stratified by basis as of June 30, 2025: Range Amount Percent of Total (Dollars in thousands) $0 - $2,000 $ 855,743 23.59% $2,000 - $6,000 946,954 26.11% $6,000 - $10,000 559,761 15.43% $10,000 - $15,000 478,316 13.19% Greater than $15,000 786,151 21.68% Total $ 3,626,925 100.00% The following tables show the National Lending Division loan portfolio by collateral type and location as of June 30, 2025: Collateral Type Amount Percent of Total State Amount Percent of Total (Dollars in thousands) (Dollars in thousands) Multi-family $ 622,696 17.18% NY $ 1,558,523 42.98% Lender Finance (1) 759,614 20.94% CA 836,015 23.05% Retail 734,863 20.26% FL 158,613 4.37% Office 278,708 7.68% NJ 251,090 6.92% Industrial 356,770 9.84% WA 75,456 2.08% Mixed Use 358,688 9.89% TX 69,400 1.91% Hospitality 207,929 5.73% OR 34,344 0.95% Other CRE 145,534 4.01% Non-real estate 188,175 5.19% All Other 162,123 4.47% All other states 455,309 12.55% Total $ 3,626,925 100.00% Total $ 3,626,925 100.00% (1) This segment includes loans to non-bank lenders, which are generally secured by a collateral assignment of the notes and mortgages on loans originated by the non-bank lenders. Loan Purchase Strategies. The National Lending Division's loan purchasing strategy involves the acquisition of commercial loans, typically secured by real estate or other business assets, located throughout the United States. We acquire commercial loans typically at a discount to their unpaid principal balances. While we acquire loans on a nationwide basis, we seek to avoid excessive concentration in any single geographic region or in any one collateral type. We do, however, favor geographies with which we have significant experience. We do not seek acquisition opportunities for which the primary collateral is land, construction, or owner-occupied one- to four-family residential property, although in a very limited number of cases, loans secured by such collateral may be included in a pool of otherwise desirable loans. Purchased loans are sourced on a nationwide basis from banks, insurance companies, investment funds, and government agencies, either directly or indirectly through advisors. We focus on servicing released, whole loan or lead participation transactions so that we can control the management of the portfolio through our experienced asset management professionals. Purchased loans can be acquired as a single relationship or combined with other borrowers in a larger pool. Loans are bid to a minimal acceptable yield to maturity based on the overall risk of the loan, including expected repayment terms and the underlying collateral value. Updated loan-to-value ratios and loan terms both influence the amount of discount the Bank requires in determining whether a loan meets the Bank's guidelines. We often achieve actual results in excess of our minimal acceptable yield to maturity when a loan is prepaid. At June 30, 2025, purchased loans had an unpaid principal balance of $2.55 billion and a basis of $2.38 billion, representing a total discount of 7.0%. The following table shows the purchased loan portfolio as of June 30, 2025 by original purchase price percentage: Initial Investment as a % of 0% - 60% $ 67,318 2.84% 60% - 70% 36,817 1.55% 70% - 80% 283,911 11.95% 80% - 90% 771,508 32.48% > 90% 1,215,603 51.18% Total $ 2,375,157 100.00% Unpaid Principal Balance Amount Percent of Total (Dollars in thousands) Secondary Market for Commercial Loans. Commercial whole loans are typically sold either directly by sellers or through loan sale advisors. Because a central database for commercial whole loan transactions does not exist, we attempt to compile our own statistics by both polling major loan sale advisors to obtain their aggregate trading volume and tracking the deal flow that we see directly via a proprietary database. This data reflects only a portion of the total market, as commercial whole loans that are sold in private direct sales or through other loan sale advisors are not included in our surveys. In recent years, the ratio of performing loans to total loans in the market has increased, in part, because sellers have worked through their most troubled, non-performing loans or are looking to minimize the discount they would receive in a secondary market transaction. Furthermore, we believe that the continued consolidation of the banking industry will create secondary market activity as acquirers often sell non-strategic borrowing relationships or assets that create excess loan concentrations. Underwriting of Purchased Loans. We review many loan purchase opportunities but only initiate underwriting on a relatively small percentage of loans. As governed by our credit policy, purchased loans are underwritten by a team of in-house, seasoned analysts before being considered for purchase. Prior to commencing underwriting, loans are analyzed for performance characteristics, loan terms, collateral quality, and price expectations. We also consider whether the loans would make our total purchased loan portfolio more or less diverse with respect to geography, loan type, and collateral type. The opportunity is underwritten once it has been identified as fitting our investment parameters. While the extent of underwriting may vary based on investment size, procedures generally include the following: A loan analyst reviews and analyzes the seller credit file and our own internal and third-party research in order to assess credit risk; With the assistance of local counsel, where appropriate, an in-house attorney makes a determination regarding the quality of loan documentation and enforceability of loan terms; In-house real estate specialists perform real estate collateral evaluations, which includes conducting original market research for trends and sale and lease comparables, net operating income estimates, and capitalization rates, and develops a valuation based on current data reflecting what we believe are recent trends; An environmental assessment is performed on real estate collateral where appropriate; A property inspection is generally performed on all real estate collateral securing a loan, focusing on several characteristics, including, among other things, the physical quality of the property, current occupancy, general quality and occupancy within the neighborhood, market position, and nearby property listings; and An underwriting package containing the analysis and results is reviewed and submitted for approval by the National Lending Division Credit Committee. Collateral Valuation . The estimated value of the real property collateralizing the loan is determined by the National Lending Division's in-house real estate group, which considers, among other factors, the type of property, its condition, location, and its highest and best use in its marketplace. An inspection is conducted for the real property securing all loans bid upon. For loans that exceed a certain dollar threshold as prescribed in our credit policy, members of the National Lending Division typically conduct an in-person site inspection. We generally view cash flow from operations as the primary source of repayment on purchased loans. The National Lending Division analyzes the current and likely future cash flows generated by the collateral to repay the loan. Also considered are minimum debt service coverage ratios, consisting of the ratio of net operating income to total scheduled principal and interest payments. Consideration of the debt service coverage ratio is critical to the pricing and rating of purchased and originated loans and is analyzed carefully. For purchased loans, care is taken to ensure that, unless significantly offset by other factors in the credit, the purchase price results in an adjusted debt service coverage ratio that is within the Bank's lending limits. Moreover, if the debt service coverage ratio based on the contractual payments, regardless of the Bank's exposure, is significantly below 1.0x, then steps are taken to document alternative sources of repayment or develop a realistic plan to ensure continued performance of the loan. Loan Pricing . In determining whether we are willing to bid to acquire individual loans or loan pools, and if so, at what price, the National Lending Division considers the following: Collateral securing the loan; Geographic location; Financial resources of the borrower or guarantors, if any; Recourse nature of the loan; Age and performance of the loan; Length of time during which the loan has performed in accordance with its repayment term; Yield expected to be earned; Current market conditions including likely competitor bids; and Servicing restrictions, if any. In addition to the factors listed above and despite the fact that purchased loans are typically performing loans, the National Lending Division also estimates the amount that we may realize through collection efforts or foreclosure and sale of the collateral, net of expenses, and the length of time and costs required to complete the collection or foreclosure process in the event a loan becomes non-performing or is non-performing at the time of purchase. Loan Originations . In addition to purchasing loans, the National Lending Division also originates commercial loans on a nationwide basis. Capitalizing on our purchased loan infrastructure, the National Lending Division is in a position to review and act quickly on a variety of lending opportunities. Risk management, approvals, underwriting, and other due diligence for these loans is similar to that for purchased loans, other than the appraisal and documentation process, which mirrors the Community Banking Division's practice of employing local attorneys and real estate appraisers to assist in the process. We believe that the National Lending Division has an advantage in originating commercial loans because of its ability to utilize in-house staff to quickly and accurately screen loan opportunities and accelerate the underwriting process. Loan Servicing . We conduct all loan servicing for purchased and originated loans with an in-house team of experienced asset managers who actively manage the loan portfolio. Asset managers initiate and maintain regular borrower contact and ensure that the loan credit analysis is accurate. Collateral valuations, property inspections, and other collateral characteristics are updated periodically as a result of our ongoing in-house real estate analysis. All asset management activity and analysis is contained within a central database. SBA National Division General . The SBA National Division originates loans to small businesses nationwide, most often through the SBA's 7(a) program, which provides a partial government guarantee of the underlying SBA loan. Our loans are typically secured by liens on business assets and/or mortgages on commercial properties, and also benefit from SBA guarantees. We seek to build a loan portfolio that is diverse with respect to geography, loan type, and collateral type. Significant assistance in the origination, closing, and servicing of SBA loans is provided by Newity LLC ("Newity"), the Bank's lender services provider. Secondary Market for SBA Guarantees . We typically sell the SBA-guaranteed portion of our variable-rate originations (generally 75-85% of the principal balance) at a premium in the secondary market. We generally retain a 15-25% unguaranteed interest and the accompanying servicing rights to the entire loan. Underwriting of SBA National Division Loans . Our loan policies and procedures establish guidelines governing our SBA lending program. Generally, these guidelines address the types of loans that we seek, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. All loans or credit lines are subject to approval procedures and amount limitations. Our policies are reviewed and approved at least annually by our Board to ensure that we are following SBA underwriting guidelines. Loan Servicing . We conduct loan servicing for SBA National Division loans with an in-house team of experienced asset managers who actively manage the loan portfolio. Certain small balance loans are serviced by Newity, which follows Bank guidelines and acts at the direction of Bank personnel. Asset managers initiate and maintain regular borrower contact, and ensure that the loan credit analysis is accurate. Collateral valuations, property inspections, and other collateral characteristics are updated periodically as a result of our ongoing in-house real estate analysis. All asset management activity and analysis is contained within a central database. Community Banking Division Loan Portfolio. Residential Mortgage Loans . During the fiscal year ended June 30, 2021, the Bank shuttered its residential mortgage lending division and the portfolio is thus in late stage runoff. At June 30, 2025, the Community Banking Division's portfolio of residential and home equity loans totaled $13.2 million, or 0.4% of total loans. Of the residential loans we held for investment at June 30, 2025, approximately 32.1% were adjustable rate. Included in residential loans are home equity lines of credit and other second mortgage loans aggregating approximately $452 thousand. Commercial Real Estate Loans . We originate multi-family and other commercial real estate loans secured by property primarily in Maine. At June 30, 2025, the Community Banking Division's commercial real estate loans outstanding were $4.1 million, or 0.1% of total loans. Although the largest commercial real estate loan originated by the Community Banking Division had a principal balance of $675 thousand at June 30, 2025, the remainder of the commercial real estate loans originated by the Community Banking Division had principal balances of less than $500 thousand. Commercial and Industrial Loans . We originate commercial and industrial loans, including term loans, lines of credit, and equipment and receivables financing to businesses located primarily in Maine. At June 30, 2025, commercial and industrial loans outstanding were $783 thousand, or 0.02% of total loans. At June 30, 2025, there were 26 commercial and industrial loans outstanding with an average principal balance of $30 thousand. The largest of these commercial and industrial loans had a principal balance of $311 thousand at June 30, 2025. Consumer Loans . We hold a minimal number of mobile home and overdraft and deposit-secured loans. At June 30, 2025, consumer loans outstanding were $159 thousand. Underwriting of Loans . Our underwriting process for loans originated by the Community Banking Division is as follows: Most of our Community Banking Division originated loans are sourced through relationships between loan officers and current or previous customers. After a loan officer has taken basic information from the borrower, the request is submitted to the Community Banking Division's loan production department. The loan production department obtains comprehensive information from the borrower and third parties, and conducts verification and analysis of the borrower information, which is assembled into a single underwriting package that is submitted for final approval in accordance with the Bank's credit policy. Investment Activities Our securities portfolio and short-term investments provide and maintain liquidity, assist in managing the interest rate sensitivity of our balance sheet, and serve as collateral for certain of our obligations. Individual investment decisions are made based on the credit quality of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our asset/liability management objectives in accordance with the Bank's investment and asset/liability management policies. Sources of Funds Deposits, including brokered deposits, have traditionally been the primary source of the Bank's funds for lending and other investment purposes. In addition to deposits, the Bank obtains funds from the amortization and prepayment of loans and mortgage-backed securities, the sale or maturity of securities, advances from the Federal Home Loan Bank of Boston (the "FHLBB"), other term borrowings, proceeds from at-the-market securities offerings, and cash flows generated by operations. Deposits We offer a full line of deposit products to customers in western and south-central Maine through our seven-branch network. Our deposit products consist of demand deposit, NOW, money market, savings, and certificate of deposit accounts. Our customers access their funds through ATMs, MasterCard® Debit Cards, Automated Clearing House funds (electronic transfers), and checks. We also offer telephone banking, online banking and bill payment, mobile banking, and remote deposit capture services. Interest rates on our deposits are based upon factors that include prevailing loan demand, deposit maturities, alternative costs of funds, interest rates offered by competing financial institutions and other financial service firms, and general economic conditions. Our online deposit program, ableBanking, provides an additional channel through which to obtain core deposits to support our growth. AbleBanking, a division of Northeast Bank, had $18.7 million in money market and time deposits as of June 30, 2025. We also use deposit listing services or brokers to gather deposits in support of our liquidity and asset/ liability management objectives from time to time. At June 30, 2025, listing service deposits and brokered deposits totaled $0 and $1.59 billion, respectively. Borrowings While we currently consider core deposits (defined as non-maturity deposits and non-brokered insured time deposits) and brokered deposits as our primary source of funding to support asset growth, advances from the FHLBB and other sources of wholesale funding remain an important part of our liquidity position and liquidity contingency planning. The Bank may borrow up to 50% of its total assets from the FHLBB, and borrowings are typically collateralized by mortgage loans, including commercial real estate, and securities pledged to the FHLBB. At June 30, 2025, we had $858.5 million of available borrowing capacity based on pledged collateral from the FHLBB. The Bank can also borrow from the Federal Reserve Bank of Boston (the "Federal Reserve"), with any such borrowing collateralized by commercial real estate loans pledged to the Federal Reserve. At June 30, 2025, we had $265.3 million of available borrowing capacity based on pledged collateral from the Federal Reserve. Employees As of June 30, 2025, the Bank employed 211 full-time and 23 part-time employees. The Bank's employees are not represented by any collective bargaining unit. The Bank believes that its relations with its employees are good. Other Subsidiaries As of June 30, 2025, the Bank had seven wholly owned non-bank subsidiaries, all of which were established to hold commercial real estate acquired as a result of loan workouts: 200 Elm Realty, LLC 500 Pine Realty, LLC 17 Dogwood Realty, LLC 1795 Little Diamond Realty, LLC 1872 Peaks Realty, LLC 1630 Spectacle Realty, LLC 1786 Cliff Realty, LLC Supervision and Regulation General The following discussion addresses elements of the regulatory framework applicable to a bank. This regulatory framework is intended primarily to protect the safety and soundness of depository institutions, the federal deposit insurance fund, and depositors, rather than the shareholders of a bank, such as the Bank. This summary is not a comprehensive analysis of all applicable laws and is qualified by reference to the applicable statutes and regulations. Regulation of the Bank As a Maine state-chartered bank, the Bank is subject to supervision, regulation and examination by the Maine Bureau of Financial Institutions (the "Bureau") and the Federal Deposit Insurance Corporation (the "FDIC"). The enforcement powers available to federal and state banking regulators include, among other things, the ability to issue cease and desist or removal orders, to terminate insurance of deposits, to assess civil money penalties, to issue directives to increase capital, to place banks into receivership, and to initiate injunctive actions against banking organizations and institution-affiliated parties. Limitations on Acquisitions of Bank Common Stock . The Change in Bank Control Act prohibits a person or group of persons acting in concert from acquiring "control" of an insured depository institution unless the FDIC has been notified and has not objected to the transaction. For this purpose, a person includes an individual and various types of legal persons. In addition, Maine law requires that any "person or company" obtain the approval of the Maine Superintendent of Financial Institutions before acquiring control of a Maine financial institution. For purposes of Maine law, a "person" means an individual or individuals acting in concert, and a company may be deemed to control a Maine financial institution, among other circumstances, if it would be presumed to control the financial institution under the Change in Bank Control Act, including through acting in concert with other persons or entities. Under the Bank Holding Company Act of 1956, as amended, a company may not acquire control of a bank without first having obtained the approval of the Board of Governors of the Federal Reserve System (the "FRB"). Deposit Insurance . Deposit obligations of the Bank are insured by the FDIC's Deposit Insurance Fund ("DIF") up to $250,000 per depositor for deposits held in the same right and capacity. Deposit insurance premiums are based on assets. For established small banks, which are generally those banks with less than $10 billion of assets that have been insured for at least five years, each of seven financial ratios and a weighted average of CAMELS composite ratings are multiplied by a corresponding pricing multiplier. The sum of these products is added to a uniform amount, with the resulting sum being an institution's initial base assessment rate (subject to minimum or maximum assessment rates based on a bank's CAMELS composite rating). For the fiscal years ended June 30, 2025 and 2024, the FDIC insurance assessment expense for the Bank was $2.4 million and $1.3 million, respectively. The FDIC has the authority to adjust deposit insurance assessment rates at any time. In addition, under the Federal Deposit Insurance Act (the "FDIA"), the FDIC may terminate deposit insurance, among other circumstances, upon a finding that: the institution has engaged in unsafe and unsound practices; is in an unsafe or unsound condition to continue operations; or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Acquisitions and Branching . Prior approval from the Bureau and the FDIC is required for the Bank to acquire another bank or establish a new branch office. Well-capitalized and well-managed banks may acquire other banks in any state, subject to certain deposit concentration limits and other conditions, pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by the Dodd-Frank Act. In addition, the Dodd-Frank Act authorizes a state-chartered bank, such as the Bank, to establish new branches on an interstate basis to the same extent a bank chartered by the host state may establish branches. Activities and Investments of Insured State-Chartered Banks . The FDIA generally limits the types of equity investment an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks. Further, the Gramm-Leach-Bliley Act of 1999 ("GLBA") permits national and state banks, to the extent permitted under state law, to engage-via financial subsidiaries-in certain activities that are permissible for subsidiaries of a financial holding company. In order to form a financial subsidiary, a state-chartered bank must be well capitalized and well managed, and such banks would be subject to certain capital deduction, risk management, and affiliate transaction rules, among other things. Lending Restrictions . Federal and state laws limit a bank's authority to extend credit to its directors, executive officers, and persons or companies that own, control, or have power to vote more than 10% of any class of securities of a bank or an affiliate of a bank, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. The terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's capital and surplus. The Dodd-Frank Act explicitly provides that an extension of credit to an insider includes credit exposure arising from a derivatives transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. Additionally, the Dodd-Frank Act requires that asset purchase or sale transactions with insiders must be on market terms, and if the transaction represents more than 10% of the capital and surplus of the bank, approved by a majority of the disinterested directors of the bank. Brokered Deposits . The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew, or roll over any brokered deposit unless the institution's capital category is "well capitalized" or, with the FDIC's approval, "adequately capitalized." Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments; however, for institutions that are "well capitalized" and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the "Economic Growth Act"), which was enacted in 2018, amended the FDIA to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. Community Reinvestment Act . The Community Reinvestment Act ("CRA") requires the FDIC to evaluate the Bank's performance in helping to meet the credit needs of the entire communities it serves, including low- and moderate-income neighborhoods, consistent with its safe and sound banking operations, and to take this record into consideration when evaluating certain applications. The Bank's most recent performance evaluation from the FDIC was a "satisfactory" rating. In October 2023, the federal banking agencies, including the FDIC, issued a joint final rule to modernize the CRA regulatory framework; however, that joint final rule was rescinded in July 2025. Capital Adequacy and Safety and Soundness Regulatory Capital Requirements . The FDIC has issued risk-based and leverage capital rules applicable to an insured depository institution, such as the Bank. These rules are intended to reflect the relationship between the institution's capital and the degree of risk associated with its operations based on transactions recorded on-balance sheet, as well as off-balance sheet. The FDIC may from time to time require that an institution maintain capital above the minimum levels discussed below, due to its financial condition or actual or anticipated growth. The capital adequacy rules define qualifying capital instruments and specify minimum amounts of capital as a percentage of assets that depository institutions are required to maintain. Common equity Tier 1 capital for banks consists of common shareholders' equity and related surplus. Tier 1 capital for banks generally consists of the sum of common shareholders' equity, non-cumulative perpetual preferred stock, and related surplus and, in certain cases and subject to limitations, minority interest in consolidated subsidiaries, less goodwill, other non-qualifying intangible assets, and certain other deductions. Tier 2 capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt securities, cumulative perpetual preferred stock, term subordinated debt and intermediate-term preferred stock, and, subject to limitations, allowances for credit losses. The sum of Tier 1 and Tier 2 capital, less certain required deductions, represents qualifying total capital. Accumulated other comprehensive income ("AOCI") (positive or negative) must be reflected in Tier 1 capital; however, the Bank made a one-time permanent election to continue to exclude AOCI from capital. Under the FDIC's capital rules, the Bank is required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum total Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0%, and a minimum leverage ratio of 4.0%. Additionally, these rules require an institution to establish a capital conservation buffer of common equity Tier 1 capital above the minimum risk-based capital requirements for "adequately capitalized" institutions that is greater than 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. An FDIC supervised institution, such as the Bank, is considered "well capitalized" if it: (i) has a total capital ratio of 10.0% or greater; (ii) a Tier 1 capital ratio of 8.0% or greater; (iii) a common equity Tier 1 capital ratio of at least 6.5% or greater; (iv) a leverage capital ratio of 5.0% or greater; and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. Generally, a bank, upon being notified that it is not adequately capitalized (i.e., that it is "undercapitalized"), becomes subject to the prompt corrective action provisions of Section 38 of the FDIA that, for example, (i) restrict payment of capital distributions and management fees, (ii) require that its federal bank regulatory agency, which is the FDIC in the case of the Bank, monitor the condition of the institution and its efforts to restore its capital, (iii) require submission of a capital restoration plan, (iv) restrict the growth of the institution's assets, and (v) require prior regulatory approval of certain expansion proposals. A bank that is required to submit a capital restoration plan must concurrently submit a performance guarantee by each company that controls the bank. A bank that is "critically undercapitalized" (i.e., has a ratio of tangible equity to total assets that is equal to or less than 2.0%) will be subject to further restrictions, and generally will be placed in conservatorship or receivership within 90 days. Section 201 of the Economic Growth Act directs the federal bank regulatory agencies to establish a community bank leverage ratio ("CBLR") of tangible capital to average total consolidated assets of not less than 8% or more than 10%. Under the final rule issued by federal banking agencies, effective January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to Tier 1 capital divided by average total consolidated assets) of greater than 9%, will be eligible to opt into the community bank leverage ratio framework. A community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the banking agencies' generally applicable capital rules and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of Section 38 of the FDIA. The final rule includes a two-quarter grace period during which a qualifying banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than 9% leverage ratio requirement, generally would still be deemed well-capitalized so long as the banking organization maintains a leverage ratio greater than 8%. At the end of the grace period, the banking organization must meet all qualifying criteria to remain in the community bank leverage ratio framework or otherwise must comply with and report under the generally applicable rule. The Bank has not elected to use the community bank leverage framework. The Bank is currently considered "well capitalized" under all regulatory definitions. Safety and Soundness Standards . Guidelines adopted by the federal bank regulatory agencies pursuant to the FDIA establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, and compensation and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. In addition, the federal banking agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order restricting asset growth, requiring an institution to increase its ratio of tangible equity to assets, or directing action to correct the deficiency, and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of the FDIA. See "-Regulatory Capital Requirements" above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. Dividend Restrictions The FDIC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis. Maine law requires the approval of the Bureau for any dividend that would reduce a bank's capital below prescribed limits. In addition, the ability of shareholders to participate in any distribution of the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the Bank (including depositors). Consumer Protection Regulation The Bank is subject to a number of federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices. These laws include the Equal Credit Opportunity Act, the Fair Housing Act, Home Ownership Protection Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 ("FACT Act"), GLBA, the Truth in Lending Act ("TILA"), CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the Electronic Fund Transfer Act, the Truth-in-Savings Act, the Secure and Fair Enforcement Act, the Expedited Funds Availability Act, and various state law counterparts. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services. Further, the Consumer Financial Protection Bureau ("CFPB") also has a broad mandate to prohibit unfair, deceptive, or abusive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms. Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines, and other penalties. The FDIC examines the Bank for compliance with CFPB rules and enforces CFPB rules with respect to the Bank. Mortgage Reform . The Dodd-Frank Act prescribes certain standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower's ability to repay such mortgage loan. The Dodd-Frank Act also allows borrowers to assert violations of certain provisions of the TILA as a defense to foreclosure proceedings. Under the Dodd-Frank Act, prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit. The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit, and in each billing statement, and for negative amortization loans and hybrid adjustable-rate mortgages. Additionally, the Dodd-Frank Act prohibits mortgage originators from receiving compensation based on the terms of residential mortgage loans and generally limits the ability of a mortgage originator to be compensated by others if compensation is received from a consumer. The Economic Growth Act included provisions that ease certain requirements related to mortgage transactions for small institutions with less than $10 billion in consolidated assets. Privacy and Customer Information Security . The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties. In general, the Bank must provide its customers with an initial and annual disclosure that explains its policies and procedures regarding the disclosure of such nonpublic personal information and, except as otherwise required or permitted by law, the Bank is prohibited from disclosing such information, except as provided in such policies and procedures. However, an annual disclosure is not required to be provided by a financial institution if the financial institution only discloses information under exceptions from the GLBA that do not require an opt-out to be provided and if there has been no change in its privacy policies and procedures since its most recent disclosure provided to consumers. The GLBA also requires that the Bank develop, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under the GLBA); to protect against anticipated threats or hazards to the security or integrity of such information; and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. The Bank is also required to send a notice to customers whose "sensitive information" has been compromised if unauthorized use of the information is "reasonably possible." All fifty states, as well as the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands, have enacted legislation concerning breaches of data security and the duties of a bank in response to a data breach. Congress continues to consider federal legislation that would require consumer notice of data security breaches. Pursuant to the FACT Act, the Bank has developed and implemented a written identity theft prevention program to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. Additionally, the FACT Act amended the Fair Credit Reporting Act to generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and method to opt out of the making of such solicitations. Anti-Money Laundering The Bank Secrecy Act . Under the Bank Secrecy Act ("BSA"), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the United States Treasury any cash transactions involving more than $10,000. In addition, among other circumstances, financial institutions are required to file suspicious activity reports for any transactions or series of transactions that involve at least $5,000 and which the financial institution knows, suspects, or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA, or has no lawful purpose. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"), which amended the BSA, is designed to deny terrorists and others the ability to obtain anonymous access to the U.S. financial system. The USA PATRIOT Act has significant implications for financial institutions and businesses of other types involved in the transfer of money. The USA PATRIOT Act, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification, and customer risk analysis. In evaluating an application to acquire a bank, merge banks, or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In January 2021, the Anti-Money Laundering Act of 2020 ("AMLA"), which amends the BSA, was enacted. Among other things, the AMLA: codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards by the U.S. Department of the Treasury for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations. Many of the statutory provisions in the AMLA will require additional rule-makings, reports, and other measures, and the impact of the AMLA will depend on, among other things, rule-making and implementation guidance. In June 2021, the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, and human trafficking and proliferation financing. In July 2024, FinCEN issued proposed regulations pursuant to AMLA that, if adopted, would require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed anti-money laundering and counter terrorist financing ("AML/CTF") programs with certain minimum components, including a mandatory risk assessment process. The proposed rule also would require financial institutions to review government-wide AML/CTF priorities and incorporate them, as appropriate, into risk-based programs, and would provide for certain technical changes to program requirements. OFAC . The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others. These sanctions, which are administered by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"), take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in, a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on "U.S. persons" engaging in financial or other transactions relating to a sanctioned country, or with certain designated persons and entities; (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons); and (iii) restrictions on certain transactions with or involving certain persons or entities. Blocked assets (for example, property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences for the Bank. Available Information The Bank's Investor Relations information can be obtained through our Internet address, investor.northeastbank.com/ investor-relations. The Bank makes available on or through its Investor Relations page, without charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with, or furnished to, the FDIC as soon as reasonably practicable after such reports have been filed or furnished to the FDIC. The Bank's reports filed with, or furnished to, the FDIC are also available at the FDIC's website at https://www.FDIC.gov . In addition, the Bank makes available, free of charge, its press releases and Code of Ethics through the Bank's Investor Relations page. Information on our website is not incorporated by reference into this document and should not be considered part of this report. ‌Item 1A. Risk Factors Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all other information in this report, including our financial statements and related notes, before investing in our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occur, our business, financial condition, and results of operations could be impaired. In that event, the market price for our common stock could decline and you may lose your investment. Certain statements below are forward-looking statements. See "A Note About Forward-Looking Statements." Risks Associated With Our Business Changes in interest rates have hurt, and may continue to hurt, our net interest income and profitability. The majority of our assets and liabilities are monetary in nature. As a result, our earnings and growth are significantly affected by interest rates, which are subject to the influence of economic conditions generally, both domestic and foreign, to events in the capital markets and to the monetary and fiscal policies of the United States and its agencies, particularly the FRB. The nature and timing of any changes in such general economic conditions, events, or policies and their effect on us cannot be controlled and are extremely difficult to predict. Changes in interest rates can affect our net interest income as well as the value of our assets and liabilities. Net interest income is the difference between (i) interest income on interest-earning assets, such as loans and securities, and (ii) interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in market interest rates, changes in the relationships between short-term and long-term market interest rates, or the yield curve, or changes in the relationships between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income, and therefore reduce our net interest income. Further, declines in market interest rates may trigger loan prepayments, which in many cases are within our customers' discretion, and which in turn may serve to reduce our net interest income if we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates. We may be adversely affected by volatility in United States and global economic conditions and changes in fiscal, monetary, trade, and regulatory policies. The economy in the United States and globally has experienced volatility in recent years and may continue to experience such volatility for the foreseeable future. Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or changes in interest rates; uncertainties regarding fiscal and monetary policies; the timing and impact of changing governmental policies, including changes in guidance and interpretation by regulatory authorities; changes in trade policies by the United States or other countries, such as tariffs or retaliatory tariffs; supply chain disruptions; consumer spending; employment levels; labor shortages; challenging labor market conditions; wage stagnation; federal government shutdowns; energy prices; home prices; commercial property values; bankruptcies or a default by a significant market participant or class of counterparties; fluctuations in equity, commodity, and futures prices; the implied volatility of interest rates and credit spreads; natural disasters; climate change; epidemics; pandemics; terrorist attacks; acts of war; or a combination of these or other factors. Volatile business and economic conditions could have adverse effects on our business, including but not limited to the following: investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on our stock price and resulting market valuation; increased cost of debt capital or decreases access to credit markets; economic and market developments may further affect consumer and business confidence levels and may cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and default rates; our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future behaviors; we could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with us; competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions or otherwise; and the value of loans and other assets or the collateral securing loans may decrease. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation and concerns about rising inflation remain at elevated levels. While the Federal Reserve cut the federal funds rate in 2024, we cannot predict whether or when it may increase or decrease the federal funds rate in the future. Moreover, while the inflation rate has decreased, prices remain high. Small- to medium-sized businesses may be impacted by higher costs, as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Sustained higher interest rates by the Federal Reserve, changes to fiscal policy, including the expansion of U.S. federal deficit spending and resultant debt issuance, could also affect market interest rates, push down asset prices, and weaken economic activity. Consequently, the ability of our customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to increase, which could adversely affect our results of operations and financial condition. A significant portion of loans held in our loan portfolio were originated by third parties, and such loans may not have been subject to the same level of due diligence that the Bank would have conducted had it originated the loans. At June 30, 2025, 62.7% of the loans held in our loan portfolio were originated by third parties, and therefore may not have been subject to the same level of due diligence that the Bank would have conducted had it originated the loans. Although the National Lending Division conducts a comprehensive review of all loans that it purchases, loans originated by third parties may lack current financial information and may have incomplete legal documentation and outdated appraisals. As a result, the National Lending Division may not have information with respect to an acquired loan which, if known at the time of acquisition, would have caused it to reduce its bid price or not bid for the loan at all. This may adversely affect our yield on loans or cause us to increase our allowance for credit losses. Our experience with loans held in our loan portfolio that were originated by third parties is limited. At June 30, 2025, the loans held in our loan portfolio that were originated by third parties had been held by us for approximately 2.0 years, calculated on a weighted average basis. Consequently, we have had only a relatively short period of time to evaluate the performance of those loans and the price at which we purchased them. Further experience with these loans may provide us with information that could cause us to increase our allowance for credit losses. Our loan portfolio includes commercial real estate and commercial and industrial loans, which in general might be riskier than certain other types of loans. At June 30, 2025, our commercial real estate mortgage and commercial and industrial loan portfolios comprised 96.8% of total loans. Commercial loans generally carry larger loan balances and involve a higher risk of nonpayment or late payment than residential mortgage loans. These loans, and purchased loans in particular, may lack standardized terms and may include a balloon payment feature. The ability of a borrower to make or refinance a balloon payment may be affected by numerous factors, including the financial condition of the borrower, prevailing economic conditions, and prevailing interest rates. Repayment of these loans is generally more dependent on the economy and the successful operation of a business. Because of the risks associated with commercial loans, we may experience higher rates of default than if the portfolio were more heavily weighted toward residential mortgage loans. Higher rates of default could have an adverse effect on our financial condition and results of operations. SBA lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans. Our SBA lending program is dependent upon the U.S. federal government. We are designated by the SBA as a Preferred Lender. As an SBA Preferred Lender, we are able to offer SBA loans to our customers without the potentially lengthy SBA approval process for application, servicing, or liquidation actions required for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including the potential loss of the SBA Preferred Lender designation. If we lose our status as an SBA Preferred Lender, we may lose some or all of our SBA loan customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect on our financial results. Any changes to the SBA program, including but not limited to changes to the level of guarantee provided by the federal government on SBA loans, changes to program specific rules impacting volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress or funding for the SBA program may also have a material adverse effect on our business. In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely affect our business, financial condition, and results of operations. In addition, when we originate SBA 7(a) loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on a loan, we share any loss and recovery related to the loan pro-rata with the SBA. Weakness or deterioration in economic conditions, both in our market area and more generally, could adversely affect our financial condition and results of operations. Our financial performance generally, and in particular the ability of borrowers to pay interest on, and repay principal of, outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets in which we operate in the United States. In addition, our loan portfolio includes commercial loans acquired or originated by the National Lending Division that are secured by assets located nationwide. Deterioration in the economic conditions, including high unemployment levels, could result in the following consequences: Loan delinquencies may increase; Problem assets and foreclosures may increase; Demand for our products and services may decline; Collateral for our loans may decline in value, in turn reducing a customer's borrowing power, and reducing the value of collateral securing a loan; and The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us. If our allowance for credit losses is not sufficient to absorb actual losses or if we are required to increase our allowance, our financial condition and results of operations could be adversely affected. We maintain an allowance for credit losses based on available information, including, but not limited to, our historical loss experience, the quality of the loan portfolio, certain economic conditions, the value of the underlying collateral, expected cash flows from purchased loans, and the level of non-accruing and criticized loans. We rely on our loan quality reviews, our experience, and our evaluation of economic conditions, among other factors, in determining the amount of provision required for the allowance for credit losses. Provisions to this allowance result in an expense for the period. If, as a result of general economic conditions, previously incorrect assumptions, or an increase in defaulted loans, we determine that additional increases in the allowance for credit losses are necessary, we will incur additional expenses. Determining the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends, all of which may undergo material changes. We cannot be sure that we will be able to limit losses on those loans that are identified. We have in the past, and in the future may be, required to increase our allowance for credit losses for any of several reasons. State and federal regulators, in reviewing our loan portfolio as part of a regulatory examination, may request that we increase our allowance for credit losses. Any increases in our allowance for credit losses will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations. Environmental liability associated with our lending activities could result in losses. In the course of business, we may acquire, through foreclosure, properties securing loans we have originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, we might be required to remove these substances from the affected properties at our sole cost and expense or we may be held liable to a government entity or to third parties for property damage, personal injury, and investigation and cleanup costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could substantially exceed the value of the Attention : This is an excerpt of the original content. To continue reading it, access the original document here .

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