Maine bank eliminating Fed oversight by ditching holding company

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Northeast Bancorp in Lewiston, Maine, is eliminating its holding company.

The $1.2 billion-asset company said in a press release Monday that it plans to merge the company into Northeast Bank, its wholly owned bank unit. The merger is part of an internal corporate reorganization meant to improve efficiency.

“This transaction will further improve our efficiency by eliminating redundant corporate infrastructure and activities, and eliminating a second level of supervision and oversight that comes with being a registered bank holding company," Richard Wayne, Northeast's president and CEO, said in the release.

“In addition, the regulatory commitments regarding capital levels, asset composition, and sources of funding that we have adhered to since 2010 will be replaced by standards to be incorporated into our policies and procedures,” Wayne added. “We believe that these changes should allow for an increase in loan capacity in the long run, as well as a decrease in our deposit costs and the costs associated with holding excess cash.”

Other banks have eliminated their bank holding companies, including Zions Bank, Bank OZK and BancorpSouth. There has been much debate in the industry around the benefits of bank holding companies and whether banks could benefit from less regulatory scrutiny by shedding their holding companies.

The bank would be regulated by the Federal Deposit Insurance Corp. and the Maine Bureau of Financial Institutions. The holding company has been regulated by the Federal Reserve.

The bank would keep its board of directors and management team. The company will hold a special shareholder meeting to vote on the plan. The FDIC and the Maine Bureau of Financial Institutions also have to approve the plan.

As part of the reorganization, Northeast would redeem the $16.5 million unpaid principal balance of junior subordinated debt tied to its issuance of trust preferred securities. The bank will assume the company’s obligations under the roughly $15.1 million unpaid principal balance on 6.75% fixed-to-floating subordinated notes due July 1, 2026.

The bank’s Tier 1 capital will likely decline by about $24.5 million, while total capital will decrease by roughly $9.8 million.

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