The First Bancorp, Inc. 2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2019, with quarterly information through the fourth quarter of 2019. The First Bancorp is a Maine financial holding company whose principal asset is First National Bank, operating 16 full-service offices in coastal and eastern Maine. The Bank serves individuals and small and medium-sized businesses through deposits, commercial, residential and consumer lending, mortgage banking, wealth management, private banking and trust services.
Unless otherwise noted, financial amounts below are in millions. The filing was signed March 6, 2020.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total assets | $2,068.8 | $1,944.6 | Up 6.4% |
| Total loans | $1,297.1 | $1,238.3 | Up 4.7% |
| Total deposits | $1,650.5 | $1,527.1 | Up 8.1% |
| Investment securities | $651.1 | $584.7 | Up 11.4% |
| Borrowed funds | $185.0 | $210.3 | Down 12.1% |
| Shareholders’ equity | $212.5 | $191.5 | Up 10.9% |
| Net interest income | $52.5 | $50.2 | Up 4.5% |
| Net income | $25.5 | $23.5 | Up 8.5% |
| Diluted EPS | $2.34 | $2.17 | Up 7.8% |
Tax-equivalent net interest income increased 4.6% to $54.8 million, while the tax-equivalent net interest margin declined to 2.89% from 2.91%. Interest income rose 11.5% to $80.9 million, but interest expense increased 28.6% to $26.2 million, primarily reflecting higher deposit costs. Non-interest income increased 12.6% to $14.2 million, supported by mortgage banking, wealth management and loan swap fees. Non-interest expense increased 5.1% to $35.2 million, mainly from employee costs. The non-GAAP efficiency ratio improved to 51.04% from 51.50%.
Return on average assets was 1.27%, return on average equity was 12.51%, and return on average tangible equity was 14.66%. Cash dividends declared were $1.19 per share, representing a 50.42% dividend payout ratio. Book value per share increased to $19.50 from $17.63, and tangible book value per share increased to $16.75 from $14.87.
Fourth-quarter information
Fourth-quarter 2019 net income was $6.686 million, compared with $6.363 million in the fourth quarter of 2018. Diluted EPS was $0.60 versus $0.58. Fourth-quarter net interest income was $13.418 million, non-interest income was $3.908 million, non-interest expense was $9.004 million and the provision for loan losses was $375,000.
Cash flow, debt and liquidity
- Cash provided by operating activities was $26.1 million; investing activities used $116.3 million, primarily reflecting securities purchases and loan growth; financing activities provided $85.5 million.
- Cash and cash equivalents declined to $14.4 million from $19.1 million at year-end 2018.
- Primary liquidity sources were $680.2 million, or 33.4% of assets. Including additional Federal Reserve borrowing capacity, correspondent credit lines and unencumbered securities, total identified liquidity was approximately $1.071 billion, or 52.5% of assets.
- Certificates of deposit increased $98.6 million to $690.0 million; $507.2 million, or 73.5%, was scheduled to mature by December 31, 2020.
- Borrowed funds declined to $185.0 million, including $147.5 million of Federal Home Loan Bank advances and $37.5 million of repurchase agreements.
Asset quality and capital
- The allowance for loan losses increased to $11.6 million, or 0.90% of loans, from $11.2 million, or 0.91%.
- The provision for loan losses declined to $1.25 million from $1.50 million, and net charge-offs declined to $843,000 from $997,000.
- Nonperforming loans increased to $16.6 million, or 1.28% of loans, from $14.7 million, or 1.19%. Nonperforming assets increased to 0.82% of assets from 0.79%.
- Past-due loans increased to 1.16% of loans from 1.08%, including $1.6 million of loans 90 days or more past due and still accruing interest.
- There were 81 troubled debt restructurings totaling $21.4 million. Of this amount, $8.8 million, or 41.1%, was on nonaccrual status.
- The consolidated total risk-based capital ratio was 15.27%, the Tier 1 risk-based ratio was 14.34% and the leverage ratio was 8.88%. The Bank remained well-capitalized.
Material changes versus the prior comparable period
- Management characterized 2019 as the Company’s sixth consecutive year of record earnings and its best annual performance.
- Assets exceeded $2 billion for the first time, driven by loan and investment-security growth.
- Commercial loans increased $52.7 million, or 9.1%; residential term loans increased $23.3 million, while municipal loans declined $9.8 million.
- Deposit growth was concentrated in certificates of deposit, including a $97.5 million increase in wholesale CDs, raising funding-cost and refinancing considerations.
- Investment securities increased $66.4 million. Unrealized losses declined materially to $1.1 million from $13.1 million, and accumulated other comprehensive income related to available-for-sale securities improved from a $5.1 million loss to a $3.7 million gain.
- The Company early adopted amendments permitting the transfer of certain prepayable securities from held to maturity to available for sale. Securities with a carrying value of $24.9 million were reclassified, and approximately $4.3 million were subsequently sold for a $209,000 gain.
Guidance, outlook, commentary and risks
No formal earnings or balance-sheet guidance was provided. Management expected interest rates to increase slightly in the following year and considered the Company’s interest-rate exposure acceptable. Modeling indicated that a gradual 2.0 percentage-point increase in rates could reduce first-year net interest income by approximately 4.3% and second-year net interest income by approximately 10.1%; these estimates are scenarios, not forecasts.
The Company delayed adoption of the current expected credit loss model for smaller reporting companies until January 1, 2023. Management expects implementation may require a one-time increase in the allowance, although it does not presently expect a material adverse effect on earnings.
Principal risks include concentration in commercial and real-estate lending in Maine, elevated nonperforming loans and TDRs, potential insufficiency of the allowance for loan losses, deposit runoff and wholesale funding renewal risk, interest-rate and prepayment risk, competition, regulatory costs, cybersecurity and operational disruptions, and the potential end of LIBOR after 2021. The Company also noted economic risks associated with global slowdowns, trade disputes and the emerging coronavirus outbreak.
Management reported no material pending legal proceedings, no unresolved SEC staff comments and effective disclosure controls and internal control over financial reporting. The independent auditor issued unqualified opinions on the financial statements and internal control.
Important facts for investors to verify
- Whether nonperforming loans, TDRs and delinquency levels improve or continue to exceed peer-group levels.
- The magnitude and timing of the CECL transition adjustment and its effect on capital ratios.
- Whether the large 2020 certificate-of-deposit maturities can be renewed at acceptable costs without compressing the net interest margin.
- The sustainability of loan growth, mortgage banking, wealth-management and loan-swap fee income.
- The effect of changing interest rates on deposit pricing, funding costs and the investment portfolio.
- Progress toward replacing LIBOR in the Company’s derivatives and customer loan contracts.
- The Company’s response to cybersecurity, regulatory and broader economic risks identified in the filing, including coronavirus-related uncertainty.