The First Bancorp Announces Third Quarter Earnings

The First Bancorp (NASDAQ:FNLC), parent company of First National Bank, today announced operating results for the three months ended September 30, 2023. Unaudited net income for the period was $7.5 million representing an increase of 1.1% from the second quarter of 2023. Diluted earnings per share were $0.67, level with the prior quarter. The Company also reported results for the nine months ended September 30, 2023. Net income year-to-date in 2023 was $22.8 million, with diluted earnings per share of $2.06. Total assets have increased $205.0 million year-to-date to reach $2.94 billion, supported by total deposits of $2.60 billion, borrowings of $83.0 million and common equity of $226.7 million.

"The third quarter was one of relative stability on our balance sheet and in our earnings, featuring strong deposit growth and a slowing of the margin compression experienced year-to-date," commented Tony C. McKim, the Company's President and Chief Executive Officer. "We were very pleased by the $143.7 million increase in local deposits in the third quarter, the result of the intense focus of our sales team on gathering deposits within our footprint, and other seasonal factors. Our net interest margin declined slightly to begin the third quarter, however, we are encouraged by an uptick in the margin towards the latter part of the quarter.

"Loan growth in the third quarter was $18.9 million. Most of this increase was within our retail loan portfolios, specifically residential mortgages and home equity loans. Commercial lending saw growth in construction loan balances, partially offset by small declines in the commercial real estate, commercial & industrial, and multifamily segments. We continue to be disciplined in our lending process, making loans to quality borrowers at interest rates on new production that reflect the realities of the current market."

Mr. McKim continued, "Our overall asset quality continues to be excellent as shown in the Bank's strong metrics. The ratio of non-performing loans to total loans was 0.12% as of September 30, 2023, while the ratio of non-performing assets to total assets was just 0.09%. Past due loans remained very low at 0.10% of total loans, improved from 0.14% at the end of the second quarter. While mindful of concerns in some markets around commercial real estate exposure, our loan portfolio is well diversified with CRE exposure well below regulatory guidance, and very limited exposure in sectors frequently mentioned as potential problems, such as office space."

Commenting on third quarter results, Mr. McKim remarked, "While encouraged by recent margin trends, higher funding costs continue to impact our bottom line. The linked quarter increase in interest expense moderated compared to what we have experienced year-to-date and we gained benefit from swap positions put on in March and July this year, resulting in a net interest margin of 2.40% for the current period, down nominally from 2.46% in the second quarter. As the margin stabilized, so too did net interest income, with a quarter-to-quarter increase of 0.2%. Non-interest income in the third quarter increased 0.5% from the prior quarter. Operating expenses remain controlled."

Mr. McKim concluded, "We were pleased to be recognized by Bank Director magazine as one of the top twenty-five banks in the country in its recent Ranking Banking list. Such recognition is a testament to the strength of our banking teams, who continue to provide exceptional service to the Bank's growing customer base, and generate positive results for the Company."

THIRD QUARTER 2023 FINANCIAL HIGHLIGHTS

• Net Income of $7.5 million, an increase of 1.1% from the quarter ended June 30, 2023.
• Loan balances increased $18.9 million in the third quarter to $2.08 billion.
• Total deposits increased $100.1 million to $2.60 billion.
• Net interest margin of 2.40%, down nominally from the prior quarter.
• Asset quality remains very strong with a ratio of Non-Performing Assets to Total Assets of just 0.09% as of September 30, 2023.
• Tangible Book Value per share of $17.66 as of September 30, 2023, down $0.49 per share for the period.
• A quarterly shareholder dividend of $0.35 per share was declared.

FINANCIAL CONDITION

Total assets at September 30, 2023, were $2.94 billion, up $69.3 million in the third quarter and up $209.1 million from a year ago. Earning assets increased $56.4 million during the quarter comprised primarily of an increase in overnight funds sold and an increase in loans of $18.9 million. As compared to September 30, 2022, earning assets have increased by $202.0 million centered in loan growth of $221.9 million, an increase in the carrying value of investments of $6.5 million, and a reduction in interest earning cash balances of $27.4 million.

Loan growth in the third quarter was led by retail credit where residential term loans increased by $14.9 million and home equity balances grew $2.3 million. Commercial loans increased by $4.2 million during the period led by an increase in commercial construction balances of $8.3 million.

Deposit growth was strong in the third quarter. Total deposits at September 30, 2023 were $2.60 billion, up $100.1 million during the period, and up $230.0 million or 9.7% from September 30, 2022. Low-cost deposit categories led the quarterly growth, collectively increasing by $77.7 million, and Money Market balances grew by $62.8 million. This growth allowed for redemption of $45.7 million of wholesale CDs and a reduction of $31.5 million in borrowings during the period.

The Company's regulatory capital position remained strong as of September 30, 2023, with an estimated total risk-based capital ratio of 13.81%, an increase from the total capital ratios of 13.66% as of June 30, 2023, and 13.59% as of September 30, 2022. The Company's leverage capital ratio was an estimated 8.65% as of September 30, 2023, as compared to the 8.68% and 8.99% reported as of June 30, 2023, and as of September 30, 2022, respectively. The Company's tangible book value per share was $17.66 as of September 30, 2023, down from $18.15 at June 30, 2023, the decrease resulting from an increase in unrealized losses on available-for-sale securities during the period. Similarly, the Tangible Common Equity ratio was 6.72% as of September 30, 2023, down from 7.07% as of June 30, 2023.

ASSET QUALITY & PROVISION FOR CREDIT LOSSES

Asset quality continues to be very strong. As of September 30, 2023, the ratio of non-performing assets to total assets was 0.09%, up slightly from 0.06% as of June 30, 2023, and 0.07% as of September 30, 2022. Net charge-offs year-to-date in 2023 were an annualized 0.002% of total loans, as compared to 0.03% in 2022. Past due loans remain low and were 0.10% of total loans as of September 30, 2023, a small decrease from 0.14% of total loans at June 30, 2023, and a slight increase from 0.08% as of September 30, 2022.

A reversal in the provision for credit losses on loans of $161,000 was recorded in the third quarter of 2023 under CECL methodology, compared with provision expense of $30,000 in the second quarter of 2023 and with provision expense of $400,000 for the third quarter of 2022 under the incurred loss method. The effects of improved economic projections and strong asset quality offset the effects of loan growth and other factors in the third quarter model, resulting in a modest reversal of provision for the period. The ACL stood at 1.12% of total loans and 913% of non-performing loans as of September 30, 2023, as compared to an ACL of 1.14% of total loans and 1,400% of non-performing loans at June 30, 2023, and an allowance for loan losses of 0.88% of total loans and 881% of non-performing loans as of September 30, 2022.

OPERATING RESULTS - Third Quarter of 2023 vs. Second Quarter of 2023

Net Income for the three months ended September 30, 2023, was $7.5 million, an increase of $80,000 or 1.1% from the three months ended June 30, 2023. The Company's Return on Average Assets of 1.02% for the quarter was down nominally from 1.04%; the third quarter 2023 PTPP Return on Average Assets was 1.21%, down from 1.28% in the prior quarter. Return on Average Tangible Common Equity was 14.59% for the period, compared to 14.67%. The Company's Efficiency Ratio (non-GAAP) was 53.49% in the third quarter of 2023, up from 52.27% in the second quarter of 2023.

Contributing factors to the Company's operating results in the three months ended September 30, 2023, included:

• Net interest income was $16.0 million, an increase of $29,000 or 0.2% from the second quarter of 2023.
  • Net interest margin was 2.40%, down marginally from 2.46%
  • The average tax equivalent yield on earning assets increased from 4.72% to 4.89%
  • The average cost of total liabilities increased from 2.66% to 2.96%
• Non-interest income before securities gains or losses was $3.9 million, an increase of $21,000 or 0.5%.
• Non-interest expense totaled $11.0 million, an increase of 2.7%.

DIVIDEND

On September 28, 2023, the Company's Board of Directors declared a third quarter dividend of $0.35 per share, representing a payout to shareholders of 51.5% of earnings per share for the period. The dividend will be paid on October 20, 2023, to shareholders of record as of October 10, 2023.

ABOUT THE FIRST BANCORP

The First Bancorp, the parent company of First National Bank, is based in Damariscotta, Maine. Founded in 1864, First National Bank is a full-service community bank with $2.91 billion in assets. The Bank provides a complete array of commercial and retail banking services through eighteen locations in mid-coast and eastern Maine. First National Wealth Management, a division of the Bank, provides investment management and trust services to individuals, businesses, and municipalities. More information about The First Bancorp, First National Bank and First National Wealth Management may be found at www.thefirst.com.

Use of Non-GAAP Financial Measures

Certain information in this release 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 (including for purposes of determining the compensation of certain executive officers and other Company employees) and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and with other financial institutions, as well as demonstrating the effects of significant gains and charges in the current period, in light of the disclosure practices employed by many other publicly-traded financial institutions. 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.

In several places net interest income is calculated on a fully tax-equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax-exempt income has been added back to the interest income total which, as adjusted, increased net interest income accordingly. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax-equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.

The following table provides a reconciliation of tax-equivalent financial information to the Company's consolidated financial statements, which have been prepared in accordance with GAAP. A 21.0% tax rate was used in both 2023 and 2022.

The Company presents its efficiency ratio using non-GAAP information which is most commonly used by financial institutions. The GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income from the Consolidated Statements of Income. The non-GAAP efficiency ratio excludes securities losses and other-than-temporary impairment charges from non-interest expenses, excludes securities gains from non-interest income, and adds the tax-equivalent adjustment to net interest income. The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:

The Company presents certain information based upon tangible common equity instead of total 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 equity to the Company's consolidated financial statements, which have been prepared in accordance with U.S. GAAP:

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of PTPP Net Income is presented. The following table provides a reconciliation to Net Income:

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially, as discussed in the Company's filings with the Securities and Exchange Commission.

Category: Earnings

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