The First Bancorp, Inc. — FY2010 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2010, including fourth-quarter results. The First Bancorp is a Maine bank holding company whose principal subsidiary, The First, N.A., operates 14 full-service offices in coastal Maine. The Bank serves individuals and small and medium-sized businesses through deposits, commercial, residential and consumer lending, and investment management, private banking and trust services through First Advisors.
Financial performance and key metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Total assets | $1.394 billion | $1.331 billion | +4.7% |
| Net interest income | $40.6 million | $43.7 million | -7.0% |
| Tax-equivalent net interest margin | 3.38% | 3.66% | -28 basis points |
| Provision for loan losses | $8.4 million | $12.2 million | -$3.8 million |
| Non-interest income | $9.1 million | $12.8 million | -28.4% |
| Non-interest expense | $25.1 million | $26.7 million | -5.7% |
| Net income | $12.1 million | $13.0 million | -7.1% |
| Diluted EPS | $1.10 | $1.22 | -9.8% |
| Return on average assets | 0.89% | 0.96% | Down |
| Return on average tangible common equity | 10.83% | 12.54% | Down |
- Cash flow from operating activities was $25.7 million, compared with $18.7 million in 2009. Investing activities used $78.1 million, primarily reflecting substantial purchases of available-for-sale securities. Financing activities provided $51.0 million. Cash and cash equivalents ended at $13.8 million.
- Total loans declined 6.8% to $887.6 million, while investment securities increased 44.6% to $416.1 million. Management attributed the loan decline partly to mortgage refinancing and sales to the secondary market.
- Total deposits increased 5.6% to $974.5 million. Certificates of deposit increased to $608.2 million, including significant wholesale and brokered funding.
- Total borrowings were $257.3 million at year-end, including $198.6 million of Federal Home Loan Bank advances. Shareholders’ equity was $149.8 million, compared with $147.9 million in 2009.
- Primary liquidity sources totaled $259.7 million, or 19.03% of assets. Including additional Federal Reserve borrowing capacity, correspondent lines and unencumbered securities, available liquidity totaled approximately $446.7 million, or 32.66% of assets.
- The quarterly table reports fourth-quarter 2010 net income of $3.1 million and diluted EPS of $0.28, compared with fourth-quarter 2009 net income of $2.7 million and diluted EPS of $0.24.
Material changes versus the prior comparable period
- Net interest income and margin declined as lower market rates compressed asset yields. Management estimated that approximately $1.1 million of the net interest income decline resulted from margin compression and $2.0 million from lengthening liability maturities to reduce interest-rate risk.
- Non-interest income decreased primarily because 2009 included revenue from the merchant credit-card servicing portfolio, which was sold in December 2009. Approximately $2.3 million of related 2009 revenue did not recur in 2010.
- Non-interest expense declined partly because 2009 included $0.9 million of other-than-temporary impairment and expenses associated with the sold merchant credit-card portfolio.
- Credit quality remained stressed. Non-performing loans increased to 2.39% of total loans from 1.95%; non-performing assets increased to 1.87% of total assets from 1.80%; and net charge-offs increased to $8.7 million, or 0.94% of average loans, from $7.3 million, or 0.75%.
- The allowance for loan losses declined to $13.3 million from $13.6 million, but increased as a percentage of loans to 1.50% from 1.43%. Management stated that the allowance was adequate while acknowledging that additional provisions could be required.
- Assets under management at First Advisors increased to $562.6 million from $205.2 million, primarily because the division assumed responsibility for managing the Bank’s investment portfolio. Excluding that portfolio, assets under management declined to $185.4 million.
Capital, dividends, outlook and risks
- The Company remained well capitalized. At December 31, 2010, consolidated total risk-based capital was 16.23%, Tier 1 risk-based capital was 14.97% and the leverage ratio was 9.30%. The Bank’s corresponding ratios were 16.11%, 14.86% and 9.03%.
- The Company paid quarterly common dividends of $0.195 per share, or $0.78 for 2010. The payout ratio was 70.91%. Dividend capacity depends on dividends from the Bank and regulatory capital requirements.
- The Company continued to hold $25 million of U.S. Treasury CPP preferred stock, carrying a 5% cumulative dividend for the first five years and 9% thereafter, plus warrants for 225,904 common shares exercisable at $16.60 per share. Treasury-related restrictions limited common dividend increases and stock repurchases through January 9, 2012 unless applicable approvals or redemptions occurred.
- Management expected interest rates to remain stable over the next two to four quarters and considered the Company’s interest-rate risk acceptable. The filing does not provide formal earnings or revenue guidance.
- Management’s interest-rate simulation projected first-year net interest income sensitivity of approximately +0.6% if short-term rates declined one percentage point and -1.5% if rates increased two percentage points. These are hypothetical scenarios, not forecasts.
- Principal risks include further deterioration in coastal Maine real estate and borrower credit quality, insufficient loan-loss reserves, deposit runoff and reliance on wholesale or brokered funding, interest-rate volatility, securities impairment, competition, regulatory costs, and implementation of the Dodd-Frank Act.
- At year-end, the investment portfolio had approximately $5.9 million of unrealized losses, including $212.9 million of temporarily impaired securities. Management concluded that no additional other-than-temporary impairment was required.
- Off-balance-sheet commitments totaled $125.0 million, consisting of unused lines, commitments to extend credit and standby letters of credit. Management reported no material off-balance-sheet risk requiring a separate liability.
- The independent auditor issued an unqualified opinion on the consolidated financial statements and stated that internal control over financial reporting was effective. No material pending legal proceedings or unresolved SEC staff comments were reported.
Important facts for investors to verify
- Whether non-performing loans, charge-offs and delinquency trends improved or worsened after December 31, 2010, and whether the $13.3 million allowance remains adequate.
- The maturity and renewal risk associated with $374.1 million of certificates of deposit scheduled to mature during 2011, including wholesale and brokered deposits.
- The fair value, credit performance and impairment status of the large mortgage-backed and municipal securities portfolio, particularly the $5.9 million of unrealized losses.
- The sustainability of the $0.78 annual common dividend given the 70.91% payout ratio, CPP restrictions and dependence on Bank dividends.
- The effect of Dodd-Frank implementation, FDIC assessment changes, debit-card interchange rules and evolving capital requirements on future earnings and capital.
- Whether the reported liquidity resources and borrowing capacity remain available under stressed market or collateral conditions.
- The distinction between First Advisors’ reported $562.6 million of assets under management and approximately $185.4 million excluding the Bank’s internally managed investment portfolio.