The First Bancorp, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021, including fourth-quarter results. The First Bancorp is a Maine-based bank holding company whose principal asset is First National Bank. The Bank provides commercial, residential and consumer lending, deposit services, payment processing, investment management, private banking and trust services across coastal and eastern Maine. The Bank operated 18 offices at year-end; a Brewer, Maine, branch opened in January 2022.
The company reported one operating segment and had 269 employees at December 31, 2021. Its common stock trades on Nasdaq under the symbol FNLC.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total assets | $2.527 billion | $2.361 billion | +7.0% |
| Net income | $36.3 million | $27.1 million | +33.7% |
| Diluted EPS | $3.30 | $2.48 | +33.1% |
| Tax-equivalent net interest income | $68.6 million | $62.2 million | +10.4% |
| Net interest margin | 2.95% | 2.94% | +1 basis point |
| Non-interest income | $19.4 million | $18.1 million | +7.0% |
| Non-interest expense | $42.1 million | $39.7 million | +6.3% |
| Pre-tax income | $43.9 million | $32.3 million | +36.2% |
| Operating cash flow | $56.7 million | $22.7 million | +150% |
Fourth-quarter 2021 net income was $9.5 million, or $0.87 diluted EPS, compared with $7.0 million, or $0.63 diluted EPS, in fourth-quarter 2020. Fourth-quarter net interest income was $17.7 million, and the quarter included a $2.0 million credit to the provision for loan losses.
Balance sheet, credit quality and liquidity
- Loans increased 11.6% to $1.648 billion. Commercial real estate loans increased to $576.2 million, while residential term loans reached $550.8 million.
- Deposits increased 15.1% to $2.123 billion, led by a 25.6% increase in low-cost deposits. Certificates of deposit declined 6.5% to $566.2 million.
- Borrowed funds declined to $136.3 million from $262.0 million, primarily because of deposit growth.
- The allowance for loan losses was $15.5 million, or 0.94% of loans, compared with 1.10% at year-end 2020. The company recorded a $375,000 net credit to provision expense and $357,000 of net charge-offs.
- Nonperforming loans were $5.6 million, or 0.35% of loans, versus 0.46% in 2020. Past-due loans were 0.26% of loans versus 0.66%.
- Management released $2.3 million from the allowance in December after selling $14.5 million of commercial loans without recourse and observing improved credit metrics.
- Primary liquidity sources totaled $1.010 billion, or 40.4% of assets. Including additional borrowing capacity and unencumbered securities, available liquidity was approximately $1.507 billion, or 60.3% of assets.
- Shareholders’ equity increased to $245.7 million from $223.7 million. Book value per share was $22.33 and tangible book value per share was $19.52.
Capital and cash distributions
At December 31, 2021, the company reported a 14.27% total risk-based capital ratio, a 13.31% Tier 1 risk-based capital ratio and an 8.63% leverage ratio. The Bank’s corresponding ratios were 14.17%, 13.21% and 8.56%. The Bank was classified as well capitalized.
The company declared $1.27 per share of dividends for 2021, representing a 38.14% payout ratio. It repurchased 9,752 shares for $253,000. Future dividends depend substantially on dividends received from the Bank and on regulatory capital requirements.
Material changes versus the prior comparable period
- Profitability improved substantially because of earning-asset growth, lower deposit funding costs, higher debit-card and wealth-management revenue, and reduced credit-loss expense.
- Net interest expense declined 37.6% to $10.8 million, offsetting lower yields on investments and loans.
- Non-interest income benefited from an $869,000 increase in wealth-management revenue and a $1.1 million increase in debit-card income; securities gains declined by $1.1 million.
- Non-interest expense included a $2.2 million loss on commercial loan sales in 2021. Salary and benefit expense also increased 3.7%.
- Asset quality improved, including lower nonperforming loans, delinquencies, impaired loans and other real estate owned. TDR balances declined to $8.3 million from $11.5 million.
- Accumulated other comprehensive income was affected by a $6.7 million after-tax decline in the unrealized value of available-for-sale securities, largely reflecting interest-rate movements. The company concluded the securities were not other-than-temporarily impaired.
- The company terminated its interest-rate hedge portfolio in the fourth quarter and recognized a one-time $336,000 gain. Six customer loan-swap arrangements remained outstanding with total notional value of $80.7 million.
Guidance, outlook, risks and unusual items
- Management expects interest rates to increase and considers current interest-rate exposure acceptable. Modeling indicated one-year net interest income declines of approximately 1.5% under a 1% rate decrease and 2.8% under a 2% rate increase; these are management scenarios, not forecasts.
- COVID-19 restrictions were largely lifted in Maine, but management continues to identify risks from new variants, tourism and hospitality weakness, staffing shortages, supply-chain disruption and economic deterioration.
- The company expects to adopt the current expected credit loss model on January 1, 2023. Management anticipates a modest day-one allowance increase and does not presently expect a material adverse earnings effect, although the filing states the eventual impact may be material.
- LIBOR transition remains a contingency. The company adopted SOFR for new transactions and expects to amend legacy LIBOR-linked contracts during the latter half of 2022.
- Key exposures include commercial real estate, construction, hotels and motels, geographic concentration in Maine, interest-rate changes, deposit runoff, wholesale funding availability, securities valuation, cybersecurity, regulatory changes and competition.
- At year-end, hotel and motel loans totaled $183.4 million, or 11.13% of total loans. Commercial, commercial real estate and commercial construction loans represented 55.9% of total loans.
- Off-balance-sheet commitments totaled $363.9 million, including unused lines, commitments to extend credit and standby letters of credit. No material legal proceedings were pending, and the auditor reported effective internal control over financial reporting.
Investor verification checklist
- Verify whether strong loan and deposit growth remains sustainable as interest rates and funding competition increase.
- Review the sustainability of the $2.3 million allowance release and monitor credit performance in commercial real estate, hotel and motel, and construction portfolios.
- Assess the effect of securities unrealized losses and higher market yields on accumulated other comprehensive income, tangible capital and liquidity.
- Monitor the timing and financial impact of CECL adoption in 2023.
- Confirm completion and economic effects of the transition from LIBOR to SOFR for legacy contracts and customer swaps.
- Evaluate the parent company’s ability to continue dividends if Bank dividend capacity becomes restricted by regulation, capital needs or earnings.