The First Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
The First Bancorp, Inc. is a financial holding company whose principal subsidiary is The First, N.A., a Maine community bank. This unaudited Form 10-Q covers the three months ended March 31, 2013, with comparisons to the three months ended March 31, 2012 and balances at December 31, 2012. The interim financial statements received a review, not an audit. The company operated 16 branches following the opening of its Bangor, Maine office in February 2013.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Interest income | $12.3 million | $13.1 million |
| Interest expense | $3.1 million | $3.3 million |
| Net interest income | $9.2 million | $9.8 million |
| Provision for loan losses | $1.5 million | $2.1 million |
| Non-interest income | $3.3 million | $2.2 million |
| Non-interest expense | $7.4 million | $6.2 million |
| Income before taxes | $3.6 million | $3.7 million |
| Net income | $2.9 million | $2.9 million |
| Diluted EPS | $0.27 | $0.28 |
| Tax-equivalent net interest margin | 3.06% | 3.22% |
| Efficiency ratio | 56.63% | 50.40% |
| Return on average tangible common equity | 9.45% | 9.68% |
At March 31, 2013, total assets were $1.417 billion, total loans were $863.5 million, total deposits were $975.9 million, investment securities were $451.1 million, and shareholders’ equity was $163.7 million. Book value per common share was $14.43 and tangible book value per common share was $11.55. The company declared a quarterly cash dividend of $0.195 per share.
Net cash provided by operating activities was $5.1 million, compared with $6.7 million in the prior-year quarter. Investing activities used $5.7 million, compared with $55.8 million used in Q1 2012. Financing activities provided $2.2 million, including $11.6 million of common-stock offering proceeds and a $2.5 million preferred-stock repurchase. Cash and cash equivalents increased to $16.5 million from $15.0 million at December 31, 2012.
Total borrowed funds were $261.2 million at March 31, 2013, consisting of $121.0 million of short-term borrowings and $140.2 million of long-term borrowings. Management reported $300.0 million of primary liquidity and $311.6 million of contingent liquidity sources, and stated that funding was adequate for anticipated needs.
Material changes versus the prior comparable period
- Net income declined $57,000, or 2.0%, while diluted EPS declined $0.01, or 3.6%.
- Tax-equivalent net interest income declined $555,000, or 5.3%, primarily because loan and investment yields repriced downward faster than liabilities.
- Net interest margin fell 16 basis points to 3.06%; average loan yield declined to 4.14% from 4.39%.
- Non-interest income rose $1.1 million, or 51.7%, largely because of increased mortgage origination income from refinanced loans sold into the secondary market.
- Non-interest expense increased $1.2 million, or 19.6%, primarily from costs associated with the new Bangor office and the Rockland branch acquired in 2012.
- The loan-loss provision declined $600,000, and net charge-offs declined to $1.3 million from $2.1 million. The allowance increased to $12.7 million, or 1.47% of loans, from $12.5 million, or 1.44%, at year-end 2012.
- Total loans declined $5.8 million from year-end 2012 and $7.4 million from March 31, 2012. Total deposits increased $17.0 million from year-end 2012 but declined $40.0 million year over year.
- Common equity increased through a $11.6 million common-stock offering. The company repurchased $2.5 million of Treasury-held preferred stock during the quarter, leaving $10.0 million outstanding at March 31, 2013.
- Unrealized losses on available-for-sale securities reduced other comprehensive income by $2.5 million during the quarter. Management concluded that temporarily impaired securities did not require other-than-temporary impairment charges.
Credit quality, liquidity, outlook and risks
Non-performing loans were $20.9 million, or 2.42% of total loans, compared with 2.81% a year earlier and 2.20% at December 31, 2012. Total past-due loans were $26.9 million, or 3.12% of loans. Troubled debt restructurings increased to 106 loans totaling $31.1 million, compared with 71 loans totaling $20.6 million a year earlier. Impaired loans totaled $47.4 million, up from $41.1 million a year earlier. Other real estate owned was $7.4 million across 32 properties.
Management attributed the lower provision and charge-offs to improving credit trends but cautioned that future provisions may be required if non-performing loans, economic conditions, loan growth, collateral values or other credit factors deteriorate. Management noted continuing risks from recessionary conditions, unemployment, classified commercial loans and potential property-value declines. The allowance methodology includes specific, general, qualitative and unallocated reserves; management believes the allowance is appropriate, but acknowledges that actual losses may exceed current estimates.
Interest-rate risk is material because of the low-rate environment and asset repricing. The cumulative one-year gap was positive 11.86% of total assets. Modeling indicated that a gradual 1.0% rate decline would reduce year-one net interest income by approximately 1.39%, while a gradual 2.0% increase would increase it by approximately 0.62%. Management expected rates to remain stable over the next ten to twelve quarters, but stated that the modeling is not a forecast.
The company had no material changes to previously disclosed risk factors and no legal proceedings requiring disclosure. Key forward-looking risks include economic and banking-industry conditions, interest-rate volatility, deposit and loan demand, credit losses, securities valuations, regulatory changes, competition, and assumptions used in valuing goodwill, mortgage servicing rights and impaired assets.
As a subsequent event, on May 8, 2013, the company repurchased the remaining $10.0 million of Treasury CPP preferred stock using proceeds from the common-stock offering. The related Treasury warrants for 225,904 common shares remained outstanding. Regulatory capital ratios at March 31, 2013 were reported as well above well-capitalized thresholds.
Important facts for investors to verify
- Whether the completed May 8, 2013 CPP preferred-stock repurchase materially changes capital ratios, dividend obligations and common-share dilution.
- Trends in net interest margin and asset yields as loans and securities continue to reprice in a low-rate environment.
- Whether the increase in past-due loans, TDRs, impaired loans and OREO leads to higher charge-offs or provisions.
- The sustainability of mortgage origination income and whether the increase offsets ongoing costs from the Bangor and Rockland operations.
- Deposit composition and reliance on certificates of deposit and wholesale funding, including maturities of $445.1 million of contractual obligations within one year.
- The valuation of temporarily impaired securities, mortgage servicing rights and goodwill under changing interest rates, prepayment speeds and credit conditions.
- The effect of the outstanding Treasury warrants and other dilutive securities on future diluted EPS.