(EDGAR Online via COMTEX) -- ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The First Bancorp, Inc. (the "Company" or "The First Bancorp") was incorporated in the State of Maine on January 15, 1985, and is the parent holding company of First National Bank (the "Bank"). On January 28, 2016, the Board of Directors voted to change the Bank's name to First National Bank from The First, N.A. The Company generates almost all of its revenues from the Bank, which was chartered as a national bank under the laws of the United States on May 30, 1864. The Bank, which has seventeen offices along coastal and eastern Maine, emphasizes personal service to the communities it serves, concentrating primarily on small businesses and individuals.
This report contains statements that are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the Securities and Exchange Commission ("SEC"), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.
The First Bancorp - 2020 Form 10-K - Page 22
Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, Management evaluates its estimates, including those related to the allowance for loan losses, fair value of securities, goodwill, the valuation of mortgage servicing rights, and other-than-temporary impairment on securities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amounts derived from Management's estimates and assumptions under different assumptions or conditions.
would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and/or benchmarked against independent public sources.
Use of Non-GAAP Financial Measures
Certain information in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management uses these "non-GAAP" measures in its analysis of the Company's performance and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. Management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Years ended December 31, Dollars in thousands 2020 2019 Net interest income as presented $ 59,833 $ 52,493 Effect of tax-exempt income 2,336 2,295 Net interest income, tax equivalent $ 62,169 $ 54,788
The Company presents its efficiency ratio using non-GAAP information which is most commonly used by financial institutions. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the Consolidated Statements of Income and Comprehensive Income. The non-GAAP efficiency ratio excludes securities losses from noninterest expenses, excludes securities gains from noninterest income, and adds the tax-equivalent adjustment to net interest income.
The First Bancorp - 2020 Form 10-K - Page 24 -------------------------------------------------------------------------------- The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio: Years ended December 31, Dollars in thousands 2020 2019 Non-interest expense, as presented $ 39,652 $ 35,172 Net interest income, as presented 59,833 52,493 Effect of tax-exempt income 2,336 2,295 Non-interest income, as presented 18,119 14,189 Effect of non-interest tax-exempt income 167 163 Net securities gains (1,155) (224) Adjusted net interest income plus non-interest income $ 79,300 $ 68,916 Non-GAAP efficiency ratio 50.00 % 51.04 % GAAP efficiency ratio 50.87 % 52.75 %
The Company presents certain information based upon average tangible common shareholders' equity instead of total average shareholders' equity. The difference between these two measures is the Company's intangible assets, specifically goodwill from prior acquisitions. Management, banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions. The following table provides a reconciliation of average tangible common shareholders' equity to the Company's consolidated financial statements, which have been prepared in accordance with GAAP:
Years ended December 31, Dollars in thousands 2020 2019 Average shareholders' equity as presented $ 219,729 $ 204,092 Less intangible assets (average) (29,918) (29,957) Average tangible common shareholders' equity $ 189,811 $ 174,135
The Company posted record annual earnings in 2020, an outcome that exceeded the Company's expectations given the ongoing challenges posed by the COVID-19 pandemic. The Company's 2020 performance was driven by earning asset growth, which led to increased net interest income. This was supplemented by growth in non-interest income, stemming primarily from year-over-year increases in mortgage banking and wealth management. Earnings growth was achieved while at the same time loan loss reserves were increased for the effects of the pandemic on our borrowers' ability to make payments on their loans.
deposit (CDs) decreased $35.4 million and wholesale CDs decreased $49.0 million at December 31, 2020 compared to December 31, 2019.
Results of Operations
Net Interest Income
Net interest income on a tax-equivalent basis increased 13.5% or $7.4 million to $62.2 million for the year ended December 31, 2020 from the $54.8 million reported for the year ended December 31, 2019, with growth in earning assets responsible for the increase. The Company's net interest margin was 2.94% in 2020, compared to 2.89% in 2019.
Dollars in thousands Volume Rate Rate/Volume1 Total Interest on earning assets Interest-bearing deposits $ 395 $ (157) $ (330) $ (92) Investment securities 1,421 (2,441) (164) (1,184) Loans held for sale 42 (2) (19) 21 Loans 7,162 (6,604) (794) (236) Total interest income 9,020 (9,204) (1,307) (1,491) Interest expense Deposits 1,185 (9,814) (500) (9,129) Borrowings 1,154 (641) (256) 257 Total interest expense 2,339 (10,455) (756) (8,872) Change in net interest income $ 6,681 $ 1,251 $ (551) $ 7,381
1 Represents the change attributable to a combination of change in rate and change in volume.
The First Bancorp - 2020 Form 10-K - Page 26
The following table presents the interest earned on or paid for each major asset and liability category, respectively, for the years ended December 31, 2020 and 2019, as well as the average yield for each major asset and liability category, and the net yield between assets and liabilities. Tax-exempt income has been . . .
Mar 05, 2021
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