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NORTHEAST FEDERAL RECORDS LOSS OF $59.8 MILLION DUE TO ONE-TIME WRITE-OFF OF SUPERVISORY GOODWILL

 NORTHEAST FEDERAL RECORDS LOSS OF $59.8 MILLION
 DUE TO ONE-TIME WRITE-OFF OF SUPERVISORY GOODWILL
 HARTFORD, Conn., Oct. 16 /PRNewswire/ -- Northeast Federal Corp. (Northeast Federal or the Company) (NYSE: NSB), the holding company for Northeast Savings, F.A., (Northeast Savings or the Association) today reported a net loss of $59.8 million for the quarter ended Sept. 30, 1992, resulting in a primary and fully diluted net loss per common share of $10.73 after preferred stock dividend requirements. For the same quarter last year, Northeast's net income was $484,000, resulting in a primary and fully diluted net loss per common share of 30 cents after preferred stock dividend requirements. The company's reduction of its supervisory goodwill, which was the primary reason for the current quarter's loss, will have no impact on the association's fully phased-in regulatory capital position.
 During the quarter, as a result of an independent valuation of the company's supervisory goodwill, management reduced that supervisory goodwill by $56.6 million to a remaining balance of $1.0 million. "Deteriorating economic conditions in our primary market areas and the impact of regulations promulgated by the OTS have required us to re- evaluate the carrying value of our supervisory goodwill. The results of the valuation indicated a significant decrease in the value of our supervisory goodwill," said George Rutland, chairman. "This reduction in supervisory goodwill will have no adverse effect on Northeast Savings' fully phased-in regulatory tangible, core, and risk-based capital and in addition will reduce future expenses," Rutland continued.
 The reduction of supervisory goodwill was precipitated by several factors that had diminished the value of the Association's Connecticut and Massachusetts franchises. The primary factor was the impact of OTS regulations promulgated pursuant to FIRREA and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), especially the prompt corrective action regulation issued by the federal banking agencies on Sept. 29, 1992, which finalizes the 4 percent core capital requirement for institutions that are not rated MACRO 1. Another factor was the final rule issued by the OTS effective May 11, 1992, which permits federal savings associations to branch interstate to the full extent permitted by federal statute and which greatly increased opportunities for out-of-state institutions to enter these states. Accordingly, the Company hired Kaplan Associates, Inc. to perform an independent valuation of the Association's franchise rights in Connecticut and Massachusetts. This study was completed during the current quarter and supported the value of the Company's remaining supervisory goodwill at Sept. 30, 1992.
 For the six-month period ended Sept. 30, 1992, the company's net loss was $59.6 million or $10.94 per common share after preferred stock dividend requirements, compared to net income of $4.0 million and a net loss per common share of 5 cents for the same six months in 1991.
 Other factors contributing to the reduction in net income include a decrease of $168.8 million in average earning assets, a $4.1 million increase in the provision for loan losses, a $1.8 million decrease in fees for services, a $1.3 million increase in expenses on real estate and other assets acquired in settlement of loans, and higher general and administrative expenses due principally to a 15-branch increase in the Association's branching network as well as to other costs related to managing the assets from the acquisitions in fiscal 1992 and the first quarter of the current year.
 Northeast Savings continues to exceed all capital requirements at Sept. 30:
 1992
 (dollars in thousands)
 Fully Phased-In
 Regulatory Capital Actual Regulatory Regulatory
 Requirement Reg. Capital Capital Required Capital Required
 Tangible core capital $159,928 $58,191 $58,191
 Percent 4.12 pct 1.50 pct 1.50 pct
 Core capital $161,757 $155,209 $155,209
 Percent 4.17 pct(a) 4.00 pct 4.00 pct
 Risk-based capital $181,148 $164,363 $147,927
 Percent 8.82 pct(a) 8.00 pct 7.20 pct
 1991
 (dollars in thousands)
 Regulatory Capital Actual Regulatory
 Requirement Regulatory Capital Capital Required
 Tangible core capital $116,522 $59,022
 Percent 2.96 pct 1.50 pct
 Core capital $175,544 $118,045
 Percent 4.46 pct(a) 3.00 pct
 Risk-based capital $192,939 $141,553
 Percent 9.81 pct(a) 7.20 pct
 (a) The core capital and risked-based capital ratios for 1992 and 1991 include $1.0 million and $59.0 million, respectively, of supervisory goodwill.
 Total assets at Sept. 30, 1992, were $3.9 billion, up from $3.8 billion at March 31, 1992, and down slightly from $4.0 billion reported at Sept. 30, 1991. Net interest income for the current quarter was $1.8 million higher than for the same quarter last year, due primarily to the Company's increased interest rate spread which averaged 2.51 percent for the quarter ended Sept. 30, 1992, compared to 2.18 percent for the same quarter in 1991. For the same respective quarters, the Association's interest rate margin was 2.46 percent and 2.19 percent.
 The provision for loan losses for the current quarter was $6.3 million, compared to $2.2 million for the same quarter in 1991. The increase in the provision was due principally to a $3.9 million increase in net charge-offs on single-family residential loans during the current quarter. Such charge-offs resulted from the continuing poor general economic conditions and the slowdown in the real estate market which has been characterized by a drop in demand and a decline in market values, both in New England and California.
 The allowance for loan losses is $2.4 million higher than at Sept. 30, 1991, while the Association's loan portfolio, excluding the Rhode Island credit union loans, which were acquired in the last quarter and which are protected against loss, is $201.4 million lower. The loan portfolio is lower, due principally to higher prepayments resulting from the overall low level of interest rates. In determining the adequacy of the allowance for loan losses, management considers prevailing and anticipated economic conditions, historical loan loss experience in relation to outstanding loans, the diversification and size of the loan portfolio, the results of the most recent regulatory examinations available to the Association, and the overall loan portfolio quality.
 Non-accrual loans, excluding those acquired in the Rhode Island acquisition, totaled $95.1 million at Sept. 30, 1992, compared to $112.1 million at March 31, 1992, and $114.3 million at Sept. 30, 1991. While management is slightly encouraged by these decreases, non-accrual loans remain at a high level due to continuing poor general economic conditions, particularly the recession in New England and a depressed real estate market in California. At Sept. 30, 1992, approximately 90.8 percent of these non-accrual loans were collateralized by first mortgages on single family residential properties, virtually all of which are collateralized by properties with an original loan-to-value of 80 percent or less. In order to allow them time to work out their financial problems during this difficult economic period, Northeast Savings endeavors to set up temporary payment schedules with borrowers who are having trouble making their mortgage payments because of loss of personal income. Should borrowers fail to meet these temporary schedules, however, Northeast moves quickly to protect its interest through foreclosure.
 At Sept. 30, 1992, non-accrual loans related to the Rhode Island acquisitions totaled $28.6 million. These loans are segregated from the remaining Northeast Savings' non-accrual loans since, in accordance with the Association's valuation agreement with the receivers of the credit unions, the Rhode Island Depositors Economic Protection Corporation (DEPCO), and the State of Rhode Island, the Association is protected against losses on these loans. To the extent that the fair value of the assets does not equal or exceed the amount of deposits issued by Northeast Savings plus the amount of other liabilities assumed, a balancing consideration will be paid to Northeast Savings by DEPCO or the receivers. The valuation of the acquired assets will be performed by independent valuators and is scheduled to be completed no later than six months from the closing date of May 8, 1992. As security for the obligations of DEPCO to pay the balancing consideration, to repurchase certain loans, and to indemnify the Association for certain matters, DEPCO has placed $59 million in treasury securities in escrow and granted to the Association a first priority security interest in such funds. In addition, DEPCO has covenanted that, for one year, it will maintain at least $60 million in a combination of unencumbered assets and 60 percent of the value of the collateral pledged by DEPCO in excess of the amount of the obligations secured by such pledges as additional security for its obligations.
 Non-interest income increased $308,000 from the same quarter in 1991, due primarily to increased net gains on sales of securities from the held for sale portfolio. These increased gains were partly offset by a $1.8 million reduction in loan servicing fees. Loan servicing fees decreased as a result of increased amortization of the Association's purchased mortgage servicing rights and deferred excess servicing, which resulted from higher prepayments on underlying mortgage loans due to the overall low level of interest rates.
 Expenses relating to real estate owned and other assets acquired in settlement of loans have increased by $1.3 million, to $2.6 million from $1.3 million for the quarters ended Sept. 30, 1992 and 1991, respectively, primarily as a result of increased foreclosures on residential real estate.
 General and administrative expenses were $16.9 million, compared to $15.1 million for the same quarter last year. The rise this quarter was due to several factors, including the Association's increased number of branches due to the ComFed, FarWest, and Rhode Island acquisitions, higher costs related to delinquent loans, and higher employee compensation costs. In addition, the company has incurred significant additional costs related to managing the assets acquired in the Rhode Island acquisition.
 Single-family residential loan originations, the Association's ongoing principal use of capital resources, were $179.0 million and $71.3 million for the quarters ended Sept. 30, 1992 and 1991, respectively. For the six-month periods ended Sept. 30, 1992 and 1991, respectively, single-family residential loan originations totaled $328.1 million and $224.7 million.
 For the last 11 quarters, the Board of Directors has suspended the quarterly dividend on Northeast Federal's $2.25 Cumulative Convertible Preferred Stock, Series A. In addition, the board has not declared dividends on its new issue of $8.50 Cumulative Preferred Stock, Series B. These actions are believed necessary and appropriate to conserve capital due to changing regulatory requirements and the Company's Dividend Limitation Agreement with the OTS.
 On Aug. 12, 1992, Northeast Savings refiled its action against the Federal government in the United States Claims Court. Northeast Savings, F.A. vs. United States, No. 92-550c. Northeast Savings' complaint seeks monetary relief against the United States on theories of breach of contract, taking of property without just compensation, and deprivation of property without due process of law, arising out of the refusal of the OTS to recognize all of Northeast Savings' unamortized supervisory goodwill for regulatory capital purposes. The United States has not yet filed an answer to Northeast Savings' complaint.
 Northeast Savings, F.A. is one of the largest thrift institutions based in New England, with almost 160 years of continuous service to its customers. Northeast Savings has retail branches in New York, Connecticut, Massachusetts, California, and Rhode Island.
 NORTHEAST FEDERAL CORP. AND SUBSIDIARIES
 Consolidated Statement of Operations
 (In Thousands Except Per Share Amounts)
 (Unaudited)
 Three Months Ended Six Months Ended
 Sept. 30 Sept. 30
 1992 1991 1992 1991
 CONSOLIDATED OPERATIONS:
 Total interest income $66,481 $85,262 $134,308 $179,491
 Total interest expense 44,391 64,957 92,500 136,610
 Net interest income 22,090 20,305 41,808 42,881
 Provision for loan losses 6,300 2,200 8,800 5,900
 Net interest income after
 provision for loan losses 15,790 18,105 33,008 36,981
 Gain (loss) on sale of
 securities, net 652 (2,398) 2,122 (947)
 Gain on sale of loans, net 312 1,235 664 1,610
 Other income 1,595 3,414 4,800 6,914
 General and administrative
 expenses 16,947 15,091 33,426 30,129
 Amortization of supervisory
 goodwill 992 993 1,985 1,985
 Supervisory goodwill
 valuation adjustment 56,568 --- 56,568 ---
 SAIF insurance fund and
 OTS assessments 2,093 2,014 4,130 4,095
 REO Operations 2,557 1,270 4,898 2,172
 Income (loss) before
 income taxes,
 extraordinary items, and
 cumulative effect of
 change in accounting
 principle (60,808) 988 (60,413) 6,177
 Income tax expense
 (benefit) (1,018) 517 (781) 3,228
 Income (loss) before
 extraordinary items and
 cumulative effect of
 change in accounting
 principle (59,790) 471 (59,632) 2,949
 Extraordinary items,
 net of tax --- 13 --- 77
 Income (loss) before
 cumulative effect of
 change in accounting
 principle (59,790) 484 (59,632) 026
 Cumulative effect of
 change in accounting
 principle --- --- --- 1,022
 Net income (loss) ($59,790) $484 ($59,632) $4,048
 Preferred stock dividend
 requirement $1,653 $2,176 $2,999 $4,322
 Loss before extraordinary
 items and cumulative
 effect of change in
 accounting principle
 applic to common s/h ($61,443) ($1,705) ($62,631) ($1,373)
 Loss per common share
 before cumulative effect
 of change in accounting
 principle applicable to
 common s/h ($61,443) ($1,692) ($62,631) ($1,296)
 Net loss applicable to
 common stockholders ($61,443) ($1,692) ($62,631) ($274)
 Loss per common share
 before extraordinary
 items and cumulative
 effect of change in
 accounting principle:
 Primary and fully diluted ($10.73) ($0.30) ($10.94) ($0.24)
 Loss per common share
 before cumulative effect
 of change in accounting
 principle:
 Primary and fully diluted ($10.73) ($0.30) ($10.94) ($0.23)
 Net loss per common share:
 Primary and fully diluted ($10.73) ($0.30) ($10.94) ($0.05)
 Average shares for the
 calculation of earnings
 per share:
 Primary 5,726,179 5,720,179 5,724,129 5,720,130
 Fully diluted 5,726,179 5,720,179 5,724,129 5,720,130
 Sept 30, March 31, Sept 30,
 1992 1992 1991
 (In Thousands)
 (Unaudited)
 FINANCIAL CONDITION:
 Total assets $3,891,389 $3,821,342 $3,995,578
 Investments 383,445 511,361 373,641
 Mortgage-backed
 securities 792,520 680,752 886,246
 Real estate acquired
 in settlement of loans 96,880 61,208 32,019
 Loans 2,456,793 2,364,443 2,480,841
 Retail deposits 3,350,524 3,462,339 3,458,691
 Brokered deposits 25,714 25,708 25,714
 Borrowings 302,216 56,546 243,372
 Stockholders' equity 138,095 191,024 188,564
 -0- 10/16/92
 /CONTACT: George P. Rutland, chairman of the board and chief executive officer, 203-280-1100, or Kirk W. Walters, president, chief operating Officer and chief financial officer, 203-280-1183/
 (NSB) CO: Northeast Federal Corporation ST: Connecticut IN: FIN SU: ERN


CH -- NE001 -- 0755 10/16/92 07:31 EDT
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Date:Oct 16, 1992
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