The First Bancorp, Inc. — First Quarter 2015 Form 10-Q
Business context and reporting period
The First Bancorp, Inc. is a Maine-based financial holding company that owns The First, N.A. The filing covers the unaudited three months ended March 31, 2015, with comparison to March 31, 2014 and December 31, 2014 balance-sheet data. Interim financial information was reviewed, not audited, by Berry Dunn McNeil & Parker, LLC.
Financial performance and condition
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total interest income | $12.365 million | $12.623 million | Down 2.0% |
| Net interest income | $9.702 million | $9.711 million | Nearly flat |
| Net interest margin, tax-equivalent | 3.10% | 3.13% | Down 3 basis points |
| Provision for loan losses | $0.500 million | $0.400 million | Up 25.0% |
| Non-interest income | $3.658 million | $2.332 million | Up 56.9% |
| Non-interest expense | $7.265 million | $7.252 million | Up 0.2% |
| Net income | $4.175 million | $3.428 million | Up 21.8% |
| Diluted EPS | $0.39 | $0.32 | Up 21.9% |
| Return on average assets | 1.16% | 0.95% | Improved |
| Return on average equity | 10.32% | 9.19% | Improved |
| Efficiency ratio, non-GAAP | 56.79% | 55.90% | Worsened modestly |
The earnings increase was driven primarily by $1.395 million of net securities gains, compared with $36,000 in the prior-year quarter, loan growth, and controlled expenses. Management described Q1 2015 net income as the highest quarterly result in the Company's history.
| Balance-sheet metric | March 31, 2015 | March 31, 2014 | Year-over-year change |
|---|---|---|---|
| Total assets | $1.459 billion | $1.466 billion | Down 0.5% |
| Total loans | $939.2 million | $868.9 million | Up 8.1% |
| Investment securities | $432.7 million | $502.5 million | Down 13.9% |
| Total deposits | $966.8 million | $1.046 billion | Down 7.6% |
| Borrowed funds | $312.6 million | $253.5 million | Up 23.3% |
| Shareholders’ equity | $163.5 million | $152.4 million | Up 7.3% |
| Book value per common share | $15.23 | $14.24 | Up 7.0% |
Compared with December 31, 2014, loans increased $21.6 million, while investment securities declined $42.4 million and total deposits declined $58.0 million. Certificates of deposit decreased $49.3 million during the quarter, with borrowed funds increasing $32.7 million. Cash and cash equivalents ended at $13.9 million.
Cash flow, liquidity, capital and debt
- Operating activities provided $2.9 million of cash; investing activities provided $25.6 million, largely from securities sales, maturities and calls; financing activities used $27.7 million.
- Cash and cash equivalents increased $0.8 million during the quarter to $13.9 million.
- Management reported $231.2 million of primary liquidity and an additional $294.9 million of contingent liquidity, and believes funding sources are sufficient under a broad range of scenarios.
- Total borrowed funds were $312.6 million, including $167.4 million short term and $145.1 million long term. Contractual obligations included $398.2 million of certificates of deposit and $312.6 million of borrowed funds.
- The Company and Bank exceeded applicable well-capitalized thresholds. The Company’s total risk-based capital ratio was 16.71%; the Bank’s was 16.19%. The Company’s common equity tier 1 ratio was 15.52% and its leverage ratio was 9.21%.
- The quarterly dividend was maintained at $0.21 per share, representing a 53.85% payout ratio based on diluted EPS.
Credit quality and material changes
- Nonperforming loans were $10.3 million, or 1.10% of loans, versus 1.63% a year earlier and 1.15% at December 31, 2014.
- Nonperforming assets were 0.91% of total assets, down from 1.30% a year earlier and 0.97% at year-end.
- Total past-due loans were $12.0 million, or 1.27% of loans, compared with 1.48% a year earlier.
- Net charge-offs increased to $648,000, or 0.28% of average loans annualized, from $259,000, or 0.12%, in Q1 2014.
- The allowance for loan losses declined to $10.2 million, or 1.09% of loans, from $11.7 million, or 1.34%, a year earlier. Management considered the allowance appropriate but noted that future additions could be necessary.
- Impaired loans declined to $34.8 million from $40.6 million a year earlier and $35.9 million at year-end. Troubled debt restructurings declined to 90 loans totaling $26.5 million from 101 loans totaling $28.8 million a year earlier.
- Other real estate owned declined to $2.9 million from $4.9 million a year earlier. The Company had 26 loans totaling $2.8 million in foreclosure and 16 consumer mortgage loans totaling $1.7 million in foreclosure.
Outlook, management commentary, risks and unusual items
The filing provides no formal earnings or revenue guidance. Management expected interest rates to remain stable over the next two to four quarters and considered current interest-rate risk acceptable. Interest-rate simulations indicated projected first-year net interest income declines of 1.24% under a gradual 1.0% rate decrease and 1.55% under a gradual 2.0% rate increase; these are hypothetical sensitivity results, not forecasts.
- Key risks include economic and regional banking conditions, interest-rate volatility, changes in loan demand and collectability, deposit runoff, wholesale funding availability, securities valuations, regulatory changes, and competition.
- Management’s principal estimates involve the allowance for loan losses, goodwill, mortgage servicing rights, and other-than-temporary impairment assessments for securities.
- The investment portfolio included $80.1 million of temporarily impaired securities with $1.4 million of unrealized losses. Management concluded no other-than-temporary impairment charge was required.
- Q1 results benefited materially from the $1.395 million securities gain, making earnings less representative of recurring operating performance.
- The Company adopted Basel III during the quarter and remained well capitalized. No material changes to previously disclosed risk factors, legal proceedings, or internal control effectiveness were reported.
- The Company had $129.0 million of loan commitments and unused lines of credit. No material off-balance-sheet risk requiring a separate liability was identified.
Investor verification checklist
- Determine the recurring earnings contribution excluding the $1.395 million securities gain.
- Monitor whether loan growth continues to outpace deposit growth and increases reliance on borrowed funds.
- Reconcile future charge-offs and provisioning with the declining 1.09% allowance-to-loans ratio.
- Track nonperforming loans, TDRs, foreclosure balances, OREO and net charge-offs for signs of renewed credit deterioration.
- Review liquidity and capital ratios as deposits reprice or mature and wholesale funding changes.
- Assess sensitivity to interest-rate movements, securities valuations, mortgage prepayments and mortgage-servicing-rights assumptions.
- Confirm that the dividend remains supported by earnings, retained capital and regulatory capital requirements.