Katahdin Bankshares, First Bancorp see solid Q3 results but acknowledge pandemic's impact

COURTESY / KATAHDIN TRUST Katahdin Bankshares Corp., the Houlton-based parent company of Katahdin Trust Co., posted solid third-quarter results.

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By Staff

Katahdin Bankshares Corp. and First Bancorp are both reporting strong third-quarter results based on factors that include new customer relationships and non-interest income coming through fees from the Small Business Administration’s Paycheck Protection Program.

But continued low interest rates and loan deferrals and extensions, both due to the pandemic, are causing pressures.

Katahdin Bankshares Corp. (OTCQX: KTHN), headquartered in Houlton, is the parent company of Katahdin Trust Co., a community bank founded in 1918 serving northern Maine and the greater Bangor and Portland regions.

First Bancorp (Nasdaq: FNLC), headquartered in Damariscotta, is the parent company of First National Bank.

Katahdin Bankshares

Katahdin last week announced third-quarter earnings of $2.45 million, or 75 cents per common share. Total assets reached $939.2 million.

“We’re pleased to report another quarter of solid financial results,” Jon. J. Prescott, Katahdin Trust’s president and CEO, said in a news release. “Over the past year, we’ve had good success bringing new relationships to the bank in both loans and deposits.”

Earnings per common share of $1.87 through Sept. 30 were 8.1% above 2019.

Interest rates remain at the lowest possible levels due to Federal Reserve actions taken in response to the COVID-19 pandemic and its effects on businesses and consumers, Prescott wrote in his letter to shareholders.

“This is causing tremendous stress on net interest margins at Katahdin Trust and across the banking industry,” he wrote. “Despite the margin pressure, we’re pleased that net interest income increased by $148,000 over the linked quarter and $427,000 over the same period in 2019. It will continue to be necessary to take all measures to increase net interest income through profitable earning asset growth and lowering funding costs to the extent possible.”

Non-interest income increased $595,000 year over year. The bulk of the increase was $519,000 earned on fees from the Small Business Administration’s Paycheck Protection Program. Katahdin Trust secured more than $73 million in Paycheck Protection Program loans for over 600 small businesses.

However, loan deferrals and extensions due to the pandemic played a role in the bank’s performance.

As of September 30, total loans that have been deferred and have yet to resume their newly schedule payments totaled $35.8 million, or 5.1% of total loans (excluding PPP loans).

“Most of the deferrals come from the hotel/motel industry, with the remainder well diversified among many industry classes,” Prescott wrote. “The number of total relationships is manageable, and our staff is following the affected relationships very closely. While we have added $1,010,000 to the reserve for loan loss this year, up from $325,000 at this time in 2019, additional funding may be necessary if credit deteriorates.”

The second-quarter loan drop was primarily due to the expected payoffs of three large commercial loans during the quarter, totaling approximately $25 million. Year-over-year, total loans increased by $72.4 million including the $73.3 million in PPP loans.

“We expect the PPP loans to begin to move off the balance sheet in the first quarter of next year. As for regular loan development, we continue seeking opportunities for growth in profitable customer relationships,” he wrote.

Deposits have grown by $104.2 million year over year, Prescott noted.

First Bancorp

For the three months ended Sept. 30, First Bancorp’s unaudited net income was $7.1 million, a new quarterly record for the company, and up $807,000 or 12.8% from the $6.3 million reported for the three months ended Sept 30, 2019.

Earnings per common share for the period on a fully diluted basis were up 7 cents to 65 cents per share, an increase of 12.1% from the prior year.

The company also reported results for the nine months ended Sept. 30. Net income was $20.2 million, up $1.3 million or 7% from the first nine months of 2019, with earnings per share on a fully diluted basis of $1.84, up 11 cents or 6.4% from the same period in 2019

"Earnings of $7.1 million for the period increased $526,000 from the second quarter, and marked a new quarterly earnings record,” Tony C. McKim, the company’s president and CEO, wrote in a letter to shareholders. “Net interest income before loan loss provision increased $254,000 from the second quarter and $1.5 million from the third quarter of 2019.

"Non-interest revenue increased $204,000 from the second quarter, and $1.3 million, or 36%, year-over-year, driven by continued strong mortgage banking revenue. Operating expenses in the third quarter remained controlled as demonstrated by an efficiency ratio of 45.97% for the quarter, down from 52.08% for the same period a year ago."

First National Bank granted over 1,700 Paycheck Protection Program loans with more than $97 million disbursed to Maine small businesses, at an average loan size of less than $60,000, McKim noted. He added, "We are now working with those borrowers and the Small Business Administration toward forgiveness of loan balances per program guidelines. The bank has also worked with nearly 1,100 borrowers economically impacted by the virus, to modify or defer loan payments during this crisis.”