The First Bancorp, Inc. — FY2012 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2012, including fourth-quarter results. The First Bancorp is a Maine-based bank holding company whose principal subsidiary, The First, N.A., operates 16 full-service banking offices in coastal and eastern Maine. The Bank provides commercial, residential and consumer lending, deposit services, mortgage banking, and investment management through First Advisors.
On October 26, 2012, the Bank acquired a Rockland, Maine branch and a Bangor banking facility from Camden National Bank. The transaction added approximately $32.3 million of deposits and included $2.1 million of goodwill and a $432,000 core deposit intangible. The Bangor branch opened in February 2013.
Financial performance and key metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net income | $12.688 million | $12.364 million | +2.6% |
| Diluted EPS | $1.22 | $1.14 | +7.0% |
| Net interest income | $38.887 million | $40.993 million | -5.1% |
| Tax-equivalent net interest income | $42.015 million | $43.703 million | -3.9% |
| Net interest margin | 3.14% | 3.27% | -13 basis points |
| Provision for loan losses | $7.835 million | $10.550 million | -25.7% |
| Non-interest income | $11.278 million | $11.750 million | -4.0% |
| Non-interest expense | $26.271 million | $26.038 million | +0.9% |
| Return on average assets | 0.89% | 0.87% | +2 basis points |
| Return on average tangible common equity | 10.40% | 10.80% | -40 basis points |
| Efficiency ratio | 51.01% | 49.75% | Higher by 126 basis points |
Fourth-quarter 2012 net income was $3.229 million, compared with $3.022 million in fourth-quarter 2011. Fourth-quarter diluted EPS was $0.31 versus $0.29.
Balance sheet, credit quality, cash flow and liquidity
- Total assets increased 3.1% to $1.415 billion. Loans increased 0.5% to $869.3 million, while investment securities increased 5.9% to $449.4 million.
- Total deposits increased 1.9% to $958.9 million. Low-cost deposits increased $59.7 million, partly reflecting the Rockland branch acquisition, while certificates of deposit declined $44.1 million.
- Total borrowed funds were $282.9 million, up from $265.7 million. FHLB advances were $181.4 million and repurchase agreements were $101.5 million.
- Shareholders’ equity increased to $156.3 million from $150.9 million. Book value per common share was $14.60 and tangible book value was $11.47.
- Net cash provided by operating activities was $25.0 million. Investing activities used $19.3 million, primarily reflecting securities purchases and loan growth, while financing activities used $4.9 million. Cash and cash equivalents ended at $15.0 million.
- Management reported primary liquidity of $276.2 million, with additional borrowing capacity, correspondent credit lines and unencumbered securities bringing total stated liquidity resources to $582.3 million, or 41.2% of assets.
- Nonperforming loans declined to 2.20% of total loans from 3.21%; nonperforming assets declined to 1.89% of total assets from 2.32%; and total past-due loans declined to 2.67% from 3.07%.
- Net charge-offs declined to $8.3 million, or 0.95% of average loans, from $10.9 million, or 1.23%. The allowance for loan losses decreased to $12.5 million, or 1.44% of loans, from $13.0 million, or 1.50%.
- Other real estate owned increased to $7.6 million from $4.1 million. The Bank held 32 properties at year-end compared with 16 in 2011.
- Troubled debt restructurings increased to 101 loans totaling $30.0 million from 59 loans totaling $22.9 million. Of the 2012 TDR balance, 83.0% was performing under modified terms, 5.8% was more than 30 days past due, and 11.2% was on nonaccrual.
Capital, dividends and unusual items
- The Company reported consolidated total risk-based capital of 16.05%, Tier 1 risk-based capital of 14.80%, and leverage capital of 8.46% at December 31, 2012. The Bank was classified as well capitalized.
- The Company declared quarterly dividends of $0.195 per share, or $0.78 for the year. No common shares were repurchased.
- The Company had $12.5 million of U.S. Treasury CPP preferred stock outstanding. The dividend rate is 5% through January 9, 2014 and increases to 9% thereafter unless redeemed, subject to regulatory approval. Related warrants cover up to 225,904 common shares at $16.60 per share.
- Non-interest income included $1.968 million of net securities gains, down from $3.293 million. Acquisition-related costs were $251,000.
- The Company recorded $503,000 of other comprehensive income, primarily from unrealized gains on available-for-sale securities. Securities with temporary unrealized losses had a fair value of $37.2 million and unrealized losses of $739,000; management concluded no other-than-temporary impairment was required.
- Management reported no goodwill impairment. The independent auditor issued an unqualified opinion and concluded that internal control over financial reporting was effective as of December 31, 2012.
Outlook, management commentary and risks
Management attributed lower net interest income and margin compression to the prolonged low-interest-rate environment and expected rates to remain stable over the next two years. Interest-rate simulation indicated that a gradual one-percentage-point decline in short-term rates could reduce first-year net interest income by approximately 1.5%, while a gradual two-percentage-point increase could increase it by approximately 0.8%. Management considered the current interest-rate risk position acceptable.
Management expected no material increase in TDRs during 2013, but emphasized continued economic weakness, high unemployment and uncertainty in local real estate markets. The filing identifies credit losses, commercial real estate exposure, Maine foreclosure delays, liquidity and deposit runoff, wholesale funding renewals, securities-market volatility, interest-rate changes, competition, acquisition execution, cybersecurity, regulatory change and the rising CPP dividend rate as principal risks.
The Company expects the Rockland and Bangor locations to expand its Maine franchise, but cautioned that increased facility and personnel costs may not be offset by loan and deposit growth. The filing does not provide formal earnings or revenue guidance.
Most important facts for investors to verify
- Whether the decline in net interest margin continues as low-yielding assets reprice or deposits and borrowings mature.
- Whether improved nonperforming-loan metrics are sustained and whether the elevated TDR, impaired-loan and OREO balances produce additional losses.
- Whether the $12.5 million CPP preferred stock is redeemed before the dividend rate rises from 5% to 9% in January 2014.
- Whether the Rockland and Bangor expansion generates sufficient deposits, loans and fee income to cover ongoing operating costs.
- Whether deposit runoff, brokered-deposit renewals and FHLB or other wholesale funding remain available on acceptable terms.
- Whether regulatory implementation of Basel III, Dodd-Frank and CFPB requirements increases capital, liquidity, compliance or operating costs.
- The filing’s cash flow, capital and liquidity figures, including the distinction between consolidated Company ratios and Bank regulatory ratios.