First Bancorp, Inc. — Form 10-Q Summary
Business Context and Reporting Period
The First Bancorp, Inc. is a Maine-based financial holding company for First National Bank. This filing covers the three months ended March 31, 2021, compared primarily with the three months ended March 31, 2020 and December 31, 2020. The interim financial statements were reviewed, not audited, by the independent registered public accounting firm.
Financial Performance and Position
| Metric | Q1 2021 | Comparable Period | Change |
|---|---|---|---|
| Net interest income | $15.9 million | $14.9 million | +6.4% |
| Provision for loan losses | $0.5 million | $0.4 million | +$0.1 million |
| Non-interest income | $5.3 million | $4.2 million | +25.5% |
| Non-interest expense | $9.9 million | $11.0 million | -10.6% |
| Net income | $8.9 million | $6.5 million | +37.4% |
| Diluted EPS | $0.81 | $0.60 | +$0.21 |
| Tax-equivalent net interest margin | 2.99% | 3.12% | -13 basis points |
| Non-GAAP efficiency ratio | 45.52% | 58.12% | Improved |
- Interest income declined 8.4% to $19.0 million, but interest expense declined 46.7% to $3.1 million, producing higher net interest income. Q1 2021 included $1.2 million of recognized PPP loan origination fees; $3.3 million remained unrecognized at quarter-end.
- Mortgage banking income increased $1.5 million, or 290.3%, due to strong purchase and refinancing activity and favorable mortgage servicing rights valuation. Wealth management income increased 19.1%.
- The $1.2 million decline in non-interest expense primarily reflected $1.76 million of interest-rate-swap restructuring charges recorded in Q1 2020.
- Total assets were $2.44 billion, up 3.2% from December 31, 2020 and 14.1% year over year. Total loans were $1.52 billion, up 2.7% year-to-date and 12.8% year over year.
- Total deposits were $1.95 billion, up 5.9% from year-end and 18.8% year over year. Borrowed funds totaled $229.6 million, down 12.4% from year-end and 7.4% year over year.
- Cash flow from operating activities was $19.0 million, compared with $2.9 million in Q1 2020. Investing activities used $98.4 million, primarily for securities purchases and loan growth; financing activities provided $73.1 million. Cash and cash equivalents ended at $20.0 million.
- Shareholders’ equity was $228.2 million. Book value per common share was $20.78 and tangible book value per common share was $17.96.
- The Company’s total risk-based capital ratio was 14.83%, above the 10.0% well-capitalized threshold applicable to the Bank. A quarterly cash dividend of $0.31 per share was declared.
Material Changes Versus Prior Comparable Period
- Net income, diluted EPS, non-interest income and operating efficiency improved materially from Q1 2020.
- Net interest margin compressed despite higher net interest income, reflecting lower asset yields and the low-rate environment.
- Loan growth was concentrated in commercial real estate, municipal and other commercial loans. PPP balances were $62.7 million at March 31, 2021; PPP1 balances had declined to $17.6 million after forgiveness activity, while PPP2 included $45.1 million of loans granted.
- Credit metrics improved: nonperforming loans were $6.9 million, or 0.46% of total loans, versus 0.75% a year earlier; total past-due loans were 0.37% of loans versus 1.62% a year earlier.
- The allowance for loan losses increased to $16.6 million, or 1.09% of loans, from $11.9 million, or 0.88%, a year earlier. Net charge-offs were $184,000, or 0.05% of average loans.
- Unrealized losses on securities increased as interest rates and market spreads changed. Securities with unrealized losses had a fair value of $268.0 million and unrealized losses of $10.0 million; management concluded the securities were not other-than-temporarily impaired.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal earnings or revenue guidance. Management described Q1 2021 as a record operating quarter and expects interest rates to increase slightly over the next year, while considering current interest-rate risk acceptable.
- Management stated that primary liquidity sources totaled $925.6 million, with an additional $527.4 million of contingent sources. Management believes funding sources are sufficient under a broad range of scenarios.
- COVID-19 remains a significant uncertainty, particularly for Maine’s tourism, hospitality, restaurant and indoor-dining sectors. Approximately 11% of the loan portfolio involved hospitality or restaurant borrowers.
- A total of 1,037 COVID-related loan modifications covering approximately $292.0 million had been completed. Loans totaling $50.6 million, or 3.3% of the portfolio, remained in an original or subsequent modification at March 31, 2021. Management cautioned that additional allowance increases may be required as borrower performance develops.
- COVID-related risks include lower loan demand, borrower defaults, collateral declines, deposit or funding outflows, reduced fee income and renewed operating restrictions.
- The Company is preparing for the cessation of certain USD LIBOR tenors. Seven interest-rate swaps totaling $165 million mature after June 30, 2023, creating transition-related execution and valuation considerations.
- The Company expects ASU 2016-13, the current expected credit loss standard, may have a material impact upon adoption. As a smaller reporting company, adoption is expected for fiscal years beginning after December 15, 2022; the filing does not provide a quantified impact.
- No material legal proceedings, senior-security defaults or changes in disclosure controls were reported. Management concluded disclosure controls were effective as of March 31, 2021.
Important Facts for Investors to Verify
- Whether PPP forgiveness, declining fee recognition and the eventual runoff of PPP balances affect future net interest income and loan growth.
- Whether COVID-related loan modifications perform after payment relief ends, particularly within hospitality and restaurant exposures.
- Whether the $16.6 million allowance adequately covers future credit losses and whether additional provisioning is required.
- The sustainability of exceptionally strong mortgage banking revenue and the valuation of mortgage servicing rights.
- The effect of continued low rates, securities valuation changes and LIBOR-to-SOFR transition on net interest margin, accumulated other comprehensive income and capital.
- The timing and balance-sheet impact of CECL adoption, which management expects could be material but has not quantified.