The First Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
The First Bancorp, Inc. is a Maine-based financial holding company whose principal subsidiary is The First, N.A. The filing covers the quarter and six months ended June 30, 2015. Interim financial statements are unaudited and were reviewed by the independent registered public accounting firm. Results for the period are not necessarily indicative of full-year performance.
Financial performance and condition
| Metric | Six months ended June 30, 2015 | Six months ended June 30, 2014 | Q2 2015 | Q2 2014 |
|---|---|---|---|---|
| Net interest income | $19.8 million | $19.5 million | $10.1 million | $9.8 million |
| Provision for loan losses | $0.9 million | $0.5 million | $0.4 million | $0.1 million |
| Non-interest income | $6.5 million | $4.8 million | $2.8 million | $2.5 million |
| Non-interest expense | $14.2 million | $14.5 million | $7.0 million | $7.3 million |
| Net income | $8.2 million | $7.2 million | $4.1 million | $3.7 million |
| Diluted EPS | $0.77 | $0.67 | $0.38 | $0.35 |
| Tax-equivalent net interest margin | 3.08% | 3.11% | 3.07% | 3.10% |
- Total assets were $1.55 billion at June 30, 2015, up 4.8% from December 31, 2014 and 3.3% from June 30, 2014.
- Total loans were $963.1 million, up 5.0% year-to-date and 8.0% year over year. Commercial loans increased $39.4 million year-to-date, while residential term loans declined $5.9 million.
- Total deposits were $1.10 billion, up 7.0% year-to-date and 6.1% year over year. Low-cost deposits increased $37.3 million year-to-date and $88.5 million year over year.
- Borrowed funds totaled $278.0 million, down 0.7% from year-end and 6.9% from June 30, 2014.
- Shareholders’ equity was $163.8 million; book value per common share was $15.25 and tangible book value per common share was $12.45.
- Return on average equity was 10.09% for the first six months, while return on average assets was 1.12%. The non-GAAP efficiency ratio improved to 53.71% from 55.48%.
- Net cash provided by operating activities was $8.1 million. Investing activities used $69.7 million, principally due to a $47.4 million increase in loans and purchases of investment securities. Financing activities provided $65.0 million. Cash and cash equivalents ended at $16.5 million.
Material changes versus comparable periods
- Six-month net income increased 15.0%, and second-quarter net income increased 8.7%. Management described the first half as the company’s best first-half result to date.
- Net interest income increased 1.2% for the six months and 2.5% for the quarter, despite a modest decline in net interest margin. Lower deposit interest expense was the principal offset to lower investment yields.
- Non-interest income increased 35.5% for the six months, driven by $1.4 million of net securities gains in the first quarter and stronger mortgage origination and servicing income.
- Non-interest expense declined 2.0% for the six months, reflecting lower employee and credit-related costs.
- The provision for loan losses increased 80.0% year over year. Net charge-offs rose to $1.3 million from $0.4 million, although credit-quality indicators improved overall.
- Nonperforming loans declined to $8.9 million, or 0.93% of total loans, from $10.5 million at year-end and $12.6 million a year earlier. Nonperforming assets were 0.72% of total assets versus 0.97% at year-end and 1.16% a year earlier.
- The allowance for loan losses declined to $9.9 million, or 1.03% of loans, from 1.13% at year-end and 1.31% a year earlier.
- Troubled debt restructurings declined to 88 loans totaling $25.8 million, compared with 94 loans totaling $27.2 million at year-end and 97 loans totaling $28.3 million a year earlier. No loans were placed on TDR status during the first six months of 2015.
- Other real estate owned declined to $2.2 million across 20 properties, from $3.8 million across 28 properties at year-end and $4.9 million across 33 properties a year earlier.
Guidance, outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. Management expects interest rates to remain stable over the next one to four quarters and considers current interest-rate risk acceptable.
- Management attributes performance to strong loan growth and continuing improvement in credit quality. It states that the allowance is appropriate but cautions that future charge-offs, economic conditions, loan growth and regulatory reviews could require additional provisions.
- Liquidity was reported as sufficient under a broad range of scenarios. Primary liquidity sources totaled $251.6 million, with an additional $322.7 million of contingent sources.
- The company met well-capitalized regulatory guidelines. At June 30, 2015, the company’s total risk-based capital ratio was 16.12%, and the bank’s ratio was 15.63%. Basel III capital rules were adopted in the first quarter.
- Investment securities included $237.3 million of temporarily impaired securities with $5.8 million of unrealized losses. Management concluded that no other-than-temporary impairment was warranted, based primarily on credit quality, expected cash flows, and the intent and ability to hold the securities.
- In May 2015, the U.S. Treasury sold the company’s remaining warrants to private parties. The warrants were adjusted to 226,819 shares with a $16.53 exercise price.
- At June 30, 2015, 17 residential consumer mortgage loans totaling $1.9 million were in foreclosure; 27 loans totaling $3.0 million were in the broader foreclosure process. Eight TDRs totaling $1.2 million involved bankruptcy, 14 TDRs totaling $2.0 million were on non-accrual status, and four TDRs totaling $452,000 were in foreclosure.
- Key risks include interest-rate volatility, deposit runoff, dependence on wholesale funding, loan collectability and collateral values, regional economic conditions, securities valuation, mortgage-servicing-right assumptions, regulatory changes and accounting estimates.
- Management reported no material legal proceedings, no material changes to previously disclosed risk factors, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan growth and commercial-loan concentration continue without a corresponding deterioration in delinquencies, charge-offs or criticized loans.
- Whether the lower allowance ratio remains adequate as loan balances grow and net charge-offs remain above the prior-year level.
- The sustainability of earnings excluding the $1.4 million first-quarter securities gain and other non-recurring or market-sensitive items.
- The effect of future interest-rate movements on the 3.08% net interest margin, securities values, mortgage-servicing rights and deposit pricing.
- The maturity and pricing profile of $478.1 million of certificates of deposit and $278.0 million of borrowed funds.
- The status and resolution of TDRs, non-accrual loans, foreclosure balances and other real estate owned.
- Compliance with Basel III capital requirements and the potential effect of dividends, loan growth or future losses on capital buffers.