The optimism that has made Northeast Bancorp one of the top-performing bank stocks this year has proven to be a mirage.

The Stamford, Conn., bank's stock is off about 25% this month after having nearly doubled in the first half of the year.

And, on the heels of its worst quarterly loss since the New England recession began, analysts don't see Northeast gaining back much lost ground soon.

"It's going to be tough for the stock to do better than $9.50 or $10 a share," said John D. Rooney Jr., an analyst at Legg Mason Inc.

In late trading Tuesday, Northeast shares were quoted at $9, up 25 cents from Monday's close.

The stock had fallen 8% following the earnings announcement on Thursday and about 25% from its high of $12.25 July 1. Its book value is $17.72 a share.

Northeast, which lost $39.3 million in the quarter, says the Connecticut economy is not recovering as fast as it expected. That prompted a higher-than-expected provision for loan losses and foreclosed real estate writedowns of $52 million.

While nonperforming assets fell slightly in the quarter, they remain high - 13.3% of loans and foreclosed real estate.

The company, which has $3.1 billion in assets, also said that securities gains, which have bolstered results in previous quarters, were negligible in the second quarter.

"The economy didn't go the route we thought it would go, and we didn't see the stabilization in our real estate portfolio that we had hoped for," said John Kline, executive vice president.

Upturn Predicted

He said the company will probably return to the black in the third quarter because it will recognize $28 million in one-time gains from, among other things, securities and loan sales and the sale of its credit card portfolio to Household International of Prospect Heights, Ill.

But analysts say bank management convinced them that Northeast's string of two quarterly profits would continue in the second quarter. Now, they say, they feel misled. They say they are now looking at management's statements with a more jaundiced eye.

"Management seems to be having a hard time getting its arms around the problems," said Gerard Cassidy, an analyst at Tucker Anthony Inc. in Portland, Maine. "They are always trying to paint a better forecast than is the case."

Northeast projected a "modest" second-quarter profit in its first-quarter earnings release. Even at the end of April, Frank J. Kugler Jr., chairman and chief executive, was saying: "We are getting fewer and fewer surprises."

Bank officials denied they misled analysts, saying Northeast's forecast was based on an improving economy.

Although the size of Northeast's loss took everyone by surprise, rumors that the results would be less than expected had been circulating since the beginning of the month.

The Federal Deposit Insurance Corp. is finishing an exam, and analysts say that had been making investors skittish. Analysts also say that the large second-quarter loss was a result of the exam. The bank denied that regulators forced the loss.

Regardless of what prompted the loss, the bank says it believes additional provisions taken in the second quarter will prevent it from taking bigger hits down the road. We wanted to be sure "we cleansed the portfolio as much as possible," Mr. Kline said.

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