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 First National Bank, serving primarily Maine markets. This unaudited report covers the three months ended March 31, 2020, with comparisons to March 31, 2019 and December 31, 2019. The interim financial statements were reviewed, not audited, by the independent registered public accounting firm.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Interest income | $20.7 million | $19.3 million | +7.4% |
| Interest expense | $5.8 million | $6.4 million | -9.3% |
| Net interest income | $14.9 million | $12.9 million | +15.7% |
| Provision for loan losses | $0.4 million | $0.4 million | +$0.025 million |
| Non-interest income | $4.2 million | $3.1 million | +34.3% |
| Non-interest expense | $11.0 million | $8.4 million | +31.5% |
| Net income | $6.5 million | $6.2 million | +5.5% |
| Diluted EPS | $0.60 | $0.57 | +5.3% |
| Tax-equivalent net interest margin | 3.12% | 2.93% | +19 basis points |
| Non-GAAP efficiency ratio | 58.12% | 50.45% | Higher expenses |
At March 31, 2020, total assets were $2.14 billion, total loans were $1.34 billion, investment securities were $664.5 million, deposits were $1.64 billion, and shareholders’ equity was $215.3 million. Book value per common share was $19.71 and tangible book value per share was $16.97.
Net cash provided by operating activities was $2.9 million, compared with $0.7 million in Q1 2019. Investing activities used $50.1 million, principally reflecting a $47.4 million increase in loans and net securities purchases. Financing activities provided $54.0 million, including $63.1 million of increased borrowings, partially offset by dividends and changes in deposits. Cash and cash equivalents increased to $21.1 million from $14.4 million at year-end 2019.
Borrowed funds totaled $248.0 million at March 31, 2020, consisting of $192.9 million of short-term borrowings and $55.1 million of long-term borrowings. Contractual obligations included $710.9 million of certificates of deposit and $183.0 million of loan commitments and unused credit lines. Management reported $844.3 million of primary liquidity and an additional $349.7 million of contingent liquidity.
Material changes versus comparable periods
- Loans grew 3.6% from year-end 2019 and 6.3% year over year, led by commercial loans, which increased $34.9 million during Q1.
- Investment securities increased $13.4 million from year-end 2019 and $49.0 million year over year.
- Total deposits declined $5.9 million during Q1, as low-cost deposits fell $27.0 million while certificates of deposit increased $21.0 million. Deposits remained 2.3% above March 31, 2019.
- Borrowed funds increased $63.1 million from year-end 2019 and $77.6 million year over year, reflecting the use of lower-cost borrowings to support earning-asset growth.
- Non-interest income benefited from $752,000 of net securities gains, a 15.7% increase in investment management income, and a 70.3% increase in mortgage banking revenue.
- Non-interest expense included $1.76 million of one-time charges related to restructuring several interest-rate swaps. Management stated that the Q1 2020 non-GAAP efficiency ratio would have been 48.49% excluding those charges.
- Asset quality improved in some areas: nonperforming loans declined to $10.0 million from $16.6 million at year-end 2019 and $13.7 million a year earlier. Nonperforming loans were 0.75% of total loans, and nonperforming assets were 0.49% of total assets.
- Total past-due loans increased to $21.8 million, or 1.62% of loans, from $15.0 million, or 1.16%, at year-end 2019. Loans 90 days or more past due and accruing increased to $3.8 million, primarily because of one $1.9 million loan.
- The allowance for loan losses increased to $11.9 million, or 0.88% of loans. The unallocated reserve increased to $2.1 million from $1.2 million at year-end 2019, reflecting portfolio growth and uncertainty related to COVID-19.
- Comprehensive income declined to $5.9 million from $9.2 million, primarily because of a $4.9 million after-tax unrealized loss on cash-flow hedging derivatives, partly offset by a $4.2 million gain on available-for-sale securities.
Guidance, outlook, risks and unusual items
Management did not provide formal earnings guidance. It expected COVID-19 to have more severe effects beginning in the second quarter and beyond, but stated that the duration and financial impact could not reasonably be estimated as of May 8, 2020. Maine’s reliance on tourism creates heightened exposure to disruption in hospitality, restaurant and travel-related activity.
As of May 8, 2020, the Bank had completed 747 COVID-19-related loan modifications covering $201.7 million, or approximately 15.0% of the loan portfolio. It had also processed 1,445 Paycheck Protection Program loan requests totaling $105.4 million in funds disbursed. Approximately 8.5% of the loan portfolio consisted of hospitality or restaurant borrowers; 42 related COVID-19 modifications covered $48.5 million, or 42.6% of those industry loans.
Management stated that additional increases to the allowance for loan losses are likely as more information becomes available. Principal risks include borrower defaults, declining collateral values, deposit or wholesale-funding runoff, lower loan demand, reduced fee income, financial-market volatility, lower interest rates, and potential pressure on securities and liquidity. The Company also faces the planned cessation of LIBOR after December 31, 2021; seven interest-rate swaps totaling $170 million mature after that date.
The Company remained well capitalized at March 31, 2020. The Company’s total risk-based capital ratio was 15.08%, compared with a 10.00% well-capitalized threshold for the Bank. The Board declared a quarterly dividend of $0.30 per share, representing a 50.00% payout ratio.
Important facts investors should verify
- Whether COVID-19 loan modifications convert into higher delinquencies, nonaccrual loans, charge-offs and materially higher provisions.
- The performance of hospitality, restaurant, tourism and other Maine borrowers as economic restrictions change.
- The sustainability of loan growth funded by increased borrowings and certificates of deposit.
- The effect of the $1.76 million swap-restructuring charge and the substantially higher unrealized derivative loss on future earnings and capital.
- The adequacy of the $11.9 million allowance, particularly the $2.1 million unallocated component, under the expected-credit-loss standard scheduled for later adoption by this smaller reporting company.
- Future liquidity, deposit-renewal conditions, available borrowing capacity and compliance with regulatory capital requirements.
- The effect of LIBOR replacement terms on the seven swaps with maturities beyond 2021 and on customer loan swap arrangements.
- The filing’s statement that Q1 results are not necessarily indicative of full-year 2020 performance.