The First Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2022. The First Bancorp is a financial holding company whose principal subsidiary is First National Bank, serving primarily Maine markets. The interim financial statements were reviewed, not audited, by the independent registered public accounting firm.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total assets | $2.549 billion | $2.437 billion | +4.6% |
| Total loans | $1.707 billion | $1.517 billion | +12.6% |
| Total deposits | $2.159 billion | $1.954 billion | +10.5% |
| Net interest income | $18.620 million | $15.873 million | +17.3% |
| Net income | $9.705 million | $8.922 million | +8.8% |
| Diluted EPS | $0.88 | $0.81 | +$0.07 |
| Tax-equivalent net interest margin | 3.24% | 2.99% | +25 basis points |
| Return on average assets | 1.56% | 1.54% | Improved |
| Return on average tangible common equity | 18.25% | 18.34% | Declined |
| Non-GAAP efficiency ratio | 45.42% | 45.52% | Improved |
Interest income increased 8.3% to $20.533 million, while interest expense declined 37.9% to $1.913 million, driven by earning-asset growth and lower funding costs. Pre-tax, pre-provision net income was $12.202 million versus $11.297 million in the prior-year quarter.
Non-interest income declined 20.1% to $4.232 million, primarily because mortgage origination and servicing income fell 74.7% to $498,000 after unusually strong prior-year activity. Wealth management income increased 12.4% and debit card income increased 14.1%. Non-interest expense increased 7.9% to $10.650 million, principally reflecting higher salaries and employee benefits.
Cash provided by operating activities was $7.832 million, compared with $19.044 million in Q1 2021. Investing activities used $35.436 million, primarily reflecting a $59.904 million increase in loans, while financing activities provided $29.021 million. Cash and cash equivalents increased $1.417 million to $22.051 million.
Shareholders' equity was $233.646 million, down from $245.657 million at December 31, 2021, primarily because of a $18.343 million after-tax unrealized loss on available-for-sale securities. Book value per common share was $21.19 and tangible book value per common share was $18.39. A quarterly cash dividend of $0.32 per share was declared.
Material changes versus comparable periods
- Loans grew $190.6 million year over year and $59.7 million during the quarter, led by commercial real estate, commercial construction and residential term loans.
- Deposits grew $205.0 million year over year and $35.2 million from year-end 2021. Low-cost deposits increased 18.2% year over year; certificates of deposit increased $43.7 million during the quarter.
- Borrowed funds declined 41.8% year over year to $133.7 million, primarily due to repayment of short-term Federal Home Loan Bank borrowings.
- The provision for loan losses was $450,000, compared with $525,000 in Q1 2021 and a $1.950 million credit in Q4 2021. Net charge-offs were $205,000, or 0.05% of average loans on an annualized basis.
- The allowance for loan losses was $15.766 million, or 0.92% of total loans, versus 1.09% a year earlier. Nonperforming loans declined to $5.049 million, or 0.30% of loans, from $6.941 million, or 0.46%, a year earlier.
- Unrealized losses on available-for-sale securities increased substantially as interest rates rose. The after-tax accumulated loss was $20.061 million at March 31, 2022, versus a $1.718 million loss at year-end 2021 and a $219,000 gain a year earlier.
- The number and balance of troubled debt restructurings declined to 56 loans totaling $7.790 million, compared with 73 loans totaling $11.306 million a year earlier.
Liquidity, capital and debt
Management reported primary liquidity sources of approximately $965.0 million, including $469.0 million of contingent sources, and believes liquidity is sufficient under a broad range of scenarios. Deposits funded 84.2% of average assets during the quarter. Contractual obligations included $133.712 million of borrowed funds and $609.947 million of certificates of deposit. Unused loan commitments and lines of credit totaled $349.442 million.
The Company's total risk-based capital ratio was 14.08%, compared with the 10.00% well-capitalized threshold applicable to the Bank. The Bank's total risk-based capital ratio was 14.01%. Management stated that the Bank remained well capitalized under its capital plan and tested stress scenarios.
Guidance, outlook, commentary and risks
The filing does not provide formal earnings or revenue guidance. Management described Q1 2022 as a record earnings quarter and identified high-quality loan growth, earning-asset growth and lower funding costs as key performance drivers. Management expects interest rates to increase slightly over the next year and considers current interest-rate risk acceptable.
Management concluded that securities with $51.5 million of unrealized losses were temporarily impaired rather than other-than-temporarily impaired, based on expected recovery of contractual cash flows and the Company's intent and ability to hold the securities. The portfolio included $502.1 million of temporarily impaired securities at fair value.
COVID-19-related loan modifications had nearly all been resolved, with $1.1 million remaining in modification status. Remaining PPP balances totaled approximately $2.6 million, and management expected most remaining PPP1 and PPP2 balances to be forgiven or paid in Q2 2022.
Key risks include renewed COVID-19 disruption, particularly in Maine's tourism and hospitality sectors; the Russia-Ukraine conflict and related supply-chain and market volatility; rising interest rates and securities valuation losses; credit deterioration and collateral-value declines; deposit runoff and wholesale funding availability; and the concentration of hotel and motel loans, which totaled $193.4 million, or 11.33% of loans.
The Company plans to adopt the current expected credit loss standard on January 1, 2023 and anticipates that adoption may have a material impact on the financial statements. Legacy customer loan swaps reference LIBOR tenors expected to continue through June 2023; amendments to replacement reference rates were anticipated in late 2022.
Important facts for investors to verify
- Whether loan growth, particularly in commercial real estate, construction and hotel/motel lending, remains consistent with credit quality and concentration limits.
- The effect of rising interest rates on the $51.5 million of unrealized securities losses, tangible capital and future earnings.
- The adequacy of the $15.766 million allowance, including the $1.732 million unallocated component and COVID-19-related qualitative adjustments.
- Deposit composition, uninsured deposits of $232.7 million, and the ability to maintain liquidity as certificates of deposit mature.
- The timing and balance-sheet impact of CECL adoption on January 1, 2023.
- Progress in transitioning legacy LIBOR-referenced customer swap contracts to replacement rates.
- The filing's statement that disclosure controls were effective and that no material legal proceedings were pending during the reporting period.