Business Wire | Oct 21, 2020 04:15PM EDT

The First Bancorp Reports Third Quarter Earnings

Oct. 21, 2020

DAMARISCOTTA, Maine--(BUSINESS WIRE)--Oct. 21, 2020--The First Bancorp (Nasdaq: FNLC), parent company of First National Bank, today announced operating results for the three months ended September 30, 2020. 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 September 30, 2019. Earnings per common share for the period on a fully diluted basis were up $0.07 to $0.65 per share, an increase of 12.1% from the prior year. The Company also reported results for the nine months ended September 30, 2020. Net income was $20.2 million, up $1.3 million or 7.0% from the first nine months of 2019, with earnings per share on a fully diluted basis of $1.84, up $0.11 or 6.4% from the same period in 2019.

"With great appreciation for the team of dedicated professionals at The First Bancorp, I'm pleased to report that the Company posted strong operating results in the third quarter," commented Tony C. McKim, the Company's President and Chief Executive Officer. "Earnings of $7.1 million for the period increased $526,000 from the second quarter, and marked a new quarterly earnings record. 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 36.0%, 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."

Mr. McKim continued, "The Company continues to support our customers and community partners in addressing the impact of COVID-19. First National Bank granted over 1,700 Paycheck Protection Program (PPP) loans with more than $97 million disbursed to Maine small businesses at an average loan size of less than $60,000. We are now working with those borrowers and the Small Business Administration towards 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.

"The lobbies of our sixteen banking offices re-opened in mid-June to serve customers under appropriate safety and social distancing protocols; currently approximately 25% of our staff continues to work remotely.

"And lastly, I am excited to share that on September 3rd, 2020 we announced the signing of an agreement to acquire a retail banking branch in Belfast, pending regulatory approval. The branch in Belfast would be our 17th and take us into Waldo County, bridging the gap between Knox and Hancock counties. We look forward to bringing First National Bank's brand of 'Dream First' banking to the area later this year."

THIRD QUARTER 2020 FINANCIAL HIGHLIGHTS

* Net income increased 12.8% compared to the third quarter of 2019. * Pre-tax, pre-provision net income (non-GAAP) increased 33.1% compared to the third quarter of 2019. * Total Assets increased $29.5 million in the third quarter to $2.3 billion. * Low-cost deposits as of September 30, 2020 totaled $1.0 billion, an increase of $102.7 million in the quarter. * Tangible Book Value increased to $17.32 per share, up from $17.07 at June 30, 2020 and $16.39 at September 30, 2019.

FINANCIAL CONDITION

Total assets at September 30, 2020 were $2.3 billion, up $29.5 million in the third quarter and up $263.4 million from a year ago. Earning assets increased $31.5 million during the quarter and have increased $258.8 million year-over-year. Loan balances fell $15.0 million in the third quarter, while investments increased $18.6 million. Commercial real estate and construction loans increased $14.8 million during the period, offset by an $18.7 million drop in other commercial loans, a $5.5 million reduction in municipal loans, and a $4.0 million decline in home equity line of credit balances. Overall loan growth excluding PPP has totaled $42.2 million, or 3.26%, year-to-date, and $75.8 million, or 6.0%, year-over-year. PPP loans totaled $97.3 million at the end of the third quarter.

Total deposits at September 30, 2020 were $1.8 billion, up $22.9 million during the quarter, and up $139.8 million or 8.6% from September 30, 2019. Low-cost deposits increased $102.7 million in the third quarter, a level consistent with the seasonal lift experienced in the third quarter over the past several years. The increase in low-cost deposits allowed for a decrease in higher cost funding sources; Certificate of Deposit balances were down $66.7 million for the quarter.

The Company's capital position remained strong as of September 30, 2020, with an estimated total risk-based capital ratio of 15.53%, and an estimated leverage capital ratio of 8.42%. The total capital ratio compares favorably to 15.03% as of June 30, 2020 and 15.44% as of September 30, 2019. The leverage capital ratio is level with the immediate prior quarter end, and is down from 8.82% at September 30, 2019, the result of asset growth, including the $97.3 million in PPP loan balances. The Company is eligible and enrolled to participate in the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF), but to date has elected not to do so. Had PPPLF been utilized to its fullest extent, the leverage capital ratio as of September 30, 2020 is estimated to have been 8.80%. Each of the Company's capital ratios remain well in excess of regulatory requirements.

ASSET QUALITY & PROVISION FOR LOAN LOSSES

Asset quality remains stable. As of September 30, 2020, the ratio of non-performing assets to total assets was 0.43%, up slightly from 0.41% at June 30, 2020, and improved from 0.84% at September 30, 2019. Net charge-offs for the quarter were an annualized 0.15% of total loans; the year-to-date annualized charge-off rate of 0.08% of total loans is in line with the 0.07% experienced in the year ended December 31, 2019. Past due loans were 0.89% of total loans as of September 30, 2020, up modestly from 0.66% of total loans at June 30, 2020, and 0.78% as of September 30, 2019.

The provision for loan losses totaled $1.8 million in the third quarter of 2020, compared with $250,000 for the same period in 2019. Despite stable non-performing asset levels, continued positive charge-off metrics, and modest changes in the level of past due loans, management continues to view it prudent to consider the uncertainties brought about by COVID-19 and the potential impact to borrowers in its provision analysis. The allowance for loan losses stood at 1.07% of total loans as of September 30, 2020, up from the 0.97% of total loans at June 30, 2020, and 0.93% of loans at September 30, 2019. If PPP loan balances are excluded, the allowance as of September 30, 2020 would stand at 1.14% of total loans.

Through September 30, 2020, the Bank had processed 996 loan modification requests for interest-only payments or deferred payments in conformance with the CARES Act or inter-agency guidance issued in March, representing $279.7 million in loan balances, or approximately 20.8% of the loan portfolio excluding PPP balances. Of the $279.7 million total, $228.1 million were in the commercial and municipal loan portfolios, $50.5 million were residential real estate secured loans, and $1.1 million were consumer loans.

As of September 30, 2020, loans totaling $81.0 million, or 6% of all loans, remained in either their original modification or a subsequent modification.

Modification statuses in the two primary segments are summarized below:

Commercial/Municipal Loan Modifications

Units Percentage Balance Percentage (000's)

Paid Off 34 6% $6,031 3%

Subsequent Modification 41 7% 20,443 9%

Still in Original 55 9% 30,188 13%Modification

Out of Modification 452 78% 171,407 75%

Total 582 100% $228,069 100%



Residential Real Estate Modifications

Units Percentage Balance Percentage (000's)

Paid Off 17 5% $3,102 6%

Subsequent Modification 97 28% 13,857 27%

Still in Original 125 35% 15,565 31%Modification

Out of Modification 111 32% 17,949 36%

Total 350 100% $50,473 100%

Consumer loans totaling $967,000 also remain in modification as of September 30, 2020.

OPERATING RESULTS

Net Income for the three months ended September 30, 2020 was $7.1 million, up $807,000 or 12.8% from the three months ended September 30, 2019. The Company's Return on Average Assets of 1.24% for the quarter was level with the third quarter of 2019. On a Pre-Tax, Pre-Provision (non-GAAP) basis, the third quarter 2020 Return on Assets was 1.79%, up from 1.52% the prior year. Return on Average Tangible Common Equity was improved year-over-year, at 14.81% for the third quarter of 2020, up from 14.01% for the third quarter of 2019. The Company's Efficiency Ratio (non-GAAP) was 45.97% in the third quarter of 2020, down from 46.23% in the immediately preceding quarter and from 52.08% in the third quarter of 2019. Year-to-date in 2020, the efficiency ratio (non-GAAP) stands at 50.00%, down from 51.12% for the first nine months of 2019. (GAAP Efficiency Ratio was 47.45% for the three months ended September 30, 2020, and 50.60% for the nine months then ended).

Contributing factors to the Company's operating results in the three months ended September 30, 2020 included:

* Earning asset growth led to a $1.5 million increase in net interest income from the third quarter of 2019, an increase of 11.5%. * Net interest margin for the third quarter of 2020 was 2.82%, down six basis points from the same period in 2019. * Non-interest income was $4.8 million for the three months ended September 30, 2020, up $1.3 million or 36.0% from the three months ended September 30, 2019. Strong purchase and refinance volume led to secondary market mortgage banking revenue increasing $1.3 million, or 232.3% year-over-year. Revenue increased $87,000, or 10.6% year-over-year, at First National Wealth Management, the Bank's trust and investment management division. Service charge income and other income were both negatively impacted by lower transaction volume related to COVID-19. * Non-interest expense for the three months ended September 30, 2020 was $9.3 million, up $236,000 or 2.6% from the three months ended September 30, 2019. Employee salary and benefit expense increased a modest 3.4% from the prior year; a 22.2% period to period increase in Furniture & Equipment expense reflects recent building and technology investments. FDIC insurance premium was fully offset by small bank assessment credits in the third quarter of 2019; all credits having been applied, the year-to-year increase is $189,000. Third quarter 2020 savings in other operating expenses versus the prior year reflect the cost of an asset disposition in 2019.

As mentioned previously, the Bank had $97.3 million in PPP loan balances as of September 30, 2020, comprised of 1,707 loans, representing an average loan size at origination of $56,960. The Company has accrued $3.80 million in associated origination fees, of which $382,000 were recognized in interest income in the second quarter, and $468,000 were recognized in the third quarter.

DIVIDEND

On September 24, 2020 the Company's Board of Directors declared a third quarter dividend of 31 cents per share. The third quarter dividend represents a payout to shareholders of 47.69% of earnings per share for the period, and was paid on October 16, 2020 to shareholders of record as of October 6, 2020.

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 $2.27 billion in assets. The Bank provides a complete array of commercial and retail banking services through sixteen 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.

The First Bancorp

Consolidated Balance Sheets (Unaudited)

In thousands of dollars, except per September December Septembershare data 30, 2020 31, 2019 30, 2019

Assets

Cash and due from banks $ 22,742 $ 14,433 $ 21,418

Interest-bearing deposits in other banks 48,111 11,310 16,714

Securities available for sale 340,140 360,520 326,798

Securities to be held to maturity 331,962 281,606 298,786

Restricted equity securities, at cost 10,545 8,982 8,982

Loans held for sale 6,387 154 852

Loans 1,436,646 1,297,075 1,263,459

Less allowance for loan losses 15,371 11,639 11,765

Net loans 1,421,275 1,285,436 1,251,694

Accrued interest receivable 10,249 7,167 7,636

Premises and equipment 27,110 21,305 21,232

Other real estate owned 777 279 279

Goodwill 29,805 29,805 29,805

Other assets 47,523 47,799 49,031

Total assets $ 2,296,626 $ 2,068,796 $ 2,033,227

Liabilities

Demand deposits $ 248,444 $ 169,777 $ 171,623

NOW deposits 492,223 393,569 400,514

Money market deposits 156,948 161,000 148,689

Savings deposits 275,513 236,141 240,691

Certificates of deposit 252,461 277,225 319,292

Certificates $100,000 to $250,000 269,881 345,241 278,050

Certificates $250,000 and over 67,589 67,513 64,431

Total deposits 1,763,059 1,650,466 1,623,290

Borrowed funds 283,787 184,955 181,417

Other liabilities 30,340 20,867 20,031

Total Liabilities 2,077,186 1,856,288 1,824,738

Shareholders' equity

Common stock 109 109 109

Additional paid-in capital 64,943 63,964 63,602

Retained earnings 154,783 144,839 141,509

Net unrealized gain on securities 5,520 3,657 3,686available-for-sale

Net unrealized loss on securitiestransferred from available for sale to (139) (182) (189)held to maturity

Net unrealized gain (loss) on cash flow (5,800) 97 (265)hedging derivative instruments

Net unrealized gain on postretirement 24 24 37costs

Total shareholders' equity 219,440 212,508 208,489

Total liabilities & shareholders' equity $ 2,296,626 $ 2,068,796 $ 2,033,227

Common Stock

Number of shares authorized 18,000,000 18,000,000 18,000,000

Number of shares issued and outstanding 10,942,959 10,899,210 10,896,331

Book value per common share $ 20.05 $ 19.50 $ 19.13

Tangible book value per common share $ 17.32 $ 16.75 $ 16.39

The First Bancorp

Consolidated Statements of Income (Unaudited)

For the nine months ended September 30,

For the quarter ended September 30,

In thousands of dollars, except per share data

2020

2019

2020

2019

Interest income

Interest and fees on loans

$

44,124

$

44,450

$

14,109

$

14,993

Interest on deposits with other banks

87

145

8

48

Interest and dividends on investments

13,775

14,399

4,389

4,863

Total interest income

57,986

58,994

18,506

19,904

Interest expense

Interest on deposits

11,613

17,739

2,866

5,983

Interest on borrowed funds

2,219

2,180

895

695

Total interest expense

13,832

19,919

3,761

6,678

Net interest income

44,154

39,075

14,745

13,226

Provision for loan losses

4,550

875

1,800

250

Net interest income after provision for loan losses

39,604

38,200

12,945

12,976

Non-interest income

Investment management and fiduciary income

2,712

2,459

909

822

Service charges on deposit accounts

1,257

1,747

375

577

Net securities gains

1,179

15

-

15

Mortgage origination and servicing income

3,802

1,227

1,914

576

Other operating income

4,677

4,833

1,607

1,542

Total non-interest income

13,627

10,281

4,805

3,532

Non-interest expense

Salaries and employee benefits

14,719

13,698

5,032

4,865

Occupancy expense

2,117

1,931

709

644

Furniture and equipment expense

3,438

2,969

1,184

969

FDIC insurance premiums

548

439

189

-

Amortization of identified intangibles

32

32

10

10

Other operating expense

8,382

7,099

2,152

2,552

Total non-interest expense

29,236

26,168

9,276

9,040

Income before income taxes

23,995

22,313

8,474

7,468

Applicable income taxes

3,836

3,474

1,379

1,180

Net Income

$

20,159

$

18,839

$

7,095

$

6,288

Basic earnings per share

$

1.86

$

1.74

$

0.65

$

0.58

Diluted earnings per share

$

1.84

$

1.73

$

0.65

$

0.58

The First Bancorp

Consolidated Statements of Income (Unaudited)

For the nine months For the quarter ended ended September 30, September 30,

In thousands of dollars, except per 2020 2019 2020 2019share data

Interest income

Interest and fees on loans $ 44,124 $ 44,450 $ 14,109 $ 14,993

Interest on deposits with other banks 87 145 8 48

Interest and dividends on investments 13,775 14,399 4,389 4,863

Total interest income 57,986 58,994 18,506 19,904

Interest expense

Interest on deposits 11,613 17,739 2,866 5,983

Interest on borrowed funds 2,219 2,180 895 695

Total interest expense 13,832 19,919 3,761 6,678

Net interest income 44,154 39,075 14,745 13,226

Provision for loan losses 4,550 875 1,800 250

Net interest income after provision 39,604 38,200 12,945 12,976for loan losses

Non-interest income

Investment management and fiduciary 2,712 2,459 909 822income

Service charges on deposit accounts 1,257 1,747 375 577

Net securities gains 1,179 15 - 15

Mortgage origination and servicing 3,802 1,227 1,914 576income

Other operating income 4,677 4,833 1,607 1,542

Total non-interest income 13,627 10,281 4,805 3,532

Non-interest expense

Salaries and employee benefits 14,719 13,698 5,032 4,865

Occupancy expense 2,117 1,931 709 644

Furniture and equipment expense 3,438 2,969 1,184 969

FDIC insurance premiums 548 439 189 -

Amortization of identified intangibles 32 32 10 10

Other operating expense 8,382 7,099 2,152 2,552

Total non-interest expense 29,236 26,168 9,276 9,040

Income before income taxes 23,995 22,313 8,474 7,468

Applicable income taxes 3,836 3,474 1,379 1,180

Net Income $ 20,159 $ 18,839 $ 7,095 $ 6,288

Basic earnings per share $ 1.86 $ 1.74 $ 0.65 $ 0.58

Diluted earnings per share $ 1.84 $ 1.73 $ 0.65 $ 0.58

The First Bancorp

Selected Financial Data (Unaudited)

As of and for the nine months ended September 30,

As of and for the quarter ended September 30,

Dollars in thousands, except for per share amounts

2020

2019

2020

2019

Summary of Operations

Interest Income

$

57,986

$

58,994

$

18,506

$

19,904

Interest Expense

13,832

19,919

3,761

6,678

Net Interest Income

44,154

39,075

14,745

13,226

Provision for Loan Losses

4,550

875

1,800

250

Non-Interest Income

13,627

10,281

4,805

3,532

Non-Interest Expense

29,236

26,168

9,276

9,040

Net Income

20,159

18,839

7,095

6,288

Per Common Share Data

Basic Earnings per Share

$

1.86

$

1.74

$

0.65

$

0.58

Diluted Earnings per Share

1.84

1.73

0.65

0.58

Cash Dividends Declared

0.92

0.89

0.31

0.30

Book Value per Common Share

20.05

19.13

20.05

19.13

Tangible Book Value per Common Share

17.32

16.39

17.32

16.39

Market Value

21.07

27.49

21.07

27.49

Financial Ratios

Return on Average Equity (a)

12.32

%

12.49

%

12.80

%

11.99

%

Return on Average Tangible Common Equity (a)

14.27

%

14.67

%

14.81

%

14.01

%

Return on Average Assets (a)

1.22

%

1.26

%

1.24

%

1.24

%

Average Equity to Average Assets

9.89

%

10.11

%

9.65

%

10.33

%

Average Tangible Equity to Average Assets

8.54

%

8.61

%

8.34

%

8.84

%

Net Interest Margin Tax-Equivalent (a)

2.93

%

2.90

%

2.82

%

2.88

%

Dividend Payout Ratio

49.46

%

51.15

%

47.69

%

51.72

%

Allowance for Loan Losses/Total Loans

1.07

%

0.93

%

1.07

%

0.93

%

Non-Performing Loans to Total Loans

0.63

%

1.33

%

0.63

%

1.33

%

Non-Performing Assets to Total Assets

0.43

%

0.84

%

0.43

%

0.84

%

Efficiency Ratio

50.00

%

51.12

%

45.97

%

52.08

%

At Period End

Total Assets

$

2,296,626

$

2,033,227

$

2,296,626

$

2,033,227

Total Loans

1,436,646

1,263,459

1,436,646

1,263,459

Total Investment Securities

682,647

634,566

682,647

634,566

Total Deposits

1,763,059

1,623,290

1,763,059

1,623,290

Total Shareholders' Equity

219,440

208,489

219,440

208,489

(a) Annualized using a 366-day basis for 2020 and a 365-day basis for 2019

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 2020 and 2019.

The First Bancorp

Selected Financial Data (Unaudited)

As of and for the nine months As of and for the quarter ended ended September 30, September 30,

Dollars inthousands, 2020 2019 2020 2019except for pershare amounts



Summary of Operations

Interest Income $ 57,986 $ 58,994 $ 18,506 $ 19,904

Interest Expense 13,832 19,919 3,761 6,678

Net Interest 44,154 39,075 14,745 13,226 Income

Provision for 4,550 875 1,800 250 Loan Losses

Non-Interest 13,627 10,281 4,805 3,532 Income

Non-Interest 29,236 26,168 9,276 9,040 Expense

Net Income 20,159 18,839 7,095 6,288

Per Common Share Data

Basic Earnings $ 1.86 $ 1.74 $ 0.65 $ 0.58 per Share

Diluted Earnings 1.84 1.73 0.65 0.58 per Share

Cash Dividends 0.92 0.89 0.31 0.30 Declared

Book Value per 20.05 19.13 20.05 19.13 Common Share

Tangible BookValue per Common 17.32 16.39 17.32 16.39 Share

Market Value 21.07 27.49 21.07 27.49

Financial Ratios

Return onAverage Equity 12.32 % 12.49 % 12.80 % 11.99 %(a)

Return onAverage Tangible 14.27 % 14.67 % 14.81 % 14.01 %Common Equity(a)

Return onAverage Assets 1.22 % 1.26 % 1.24 % 1.24 %(a)

Average Equityto Average 9.89 % 10.11 % 9.65 % 10.33 %Assets

Average TangibleEquity to 8.54 % 8.61 % 8.34 % 8.84 %Average Assets

Net InterestMargin 2.93 % 2.90 % 2.82 % 2.88 %Tax-Equivalent(a)

Dividend Payout 49.46 % 51.15 % 47.69 % 51.72 %Ratio

Allowance forLoan Losses/ 1.07 % 0.93 % 1.07 % 0.93 %Total Loans

Non-PerformingLoans to Total 0.63 % 1.33 % 0.63 % 1.33 %Loans

Non-PerformingAssets to Total 0.43 % 0.84 % 0.43 % 0.84 %Assets

Efficiency Ratio 50.00 % 51.12 % 45.97 % 52.08 %

At Period End

Total Assets $ 2,296,626 $ 2,033,227 $ 2,296,626 $ 2,033,227

Total Loans 1,436,646 1,263,459 1,436,646 1,263,459

Total Investment 682,647 634,566 682,647 634,566 Securities

Total Deposits 1,763,059 1,623,290 1,763,059 1,623,290

TotalShareholders' 219,440 208,489 219,440 208,489 Equity

(a) Annualized using a 366-day basis for 2020 and a 365-day basis for 2019

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 2020 and 2019.

For the nine months For the quarters ended ended

September September September SeptemberIn thousands of dollars 30, 30, 30, 30, 2020 2019 2020 2019

Net interest income as $ 44,154 $ 39,075 $ 14,745 $ 13,226 presented

Effect of tax-exempt income 1,741 1,723 587 572

Net interest income, tax $ 45,895 $ 40,798 $ 15,332 $ 13,798 equivalent

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:

For the nine months For the quarters ended ended

September September September SeptemberIn thousands of dollars 30, 30, 30, 30, 2020 2019 2020 2019

Non-interest expense, as presented $ 29,236 $ 26,168 $ 9,276 $ 9,040

Net interest income, as presented 44,154 39,075 14,745 13,226

Effect of tax-exempt interest 1,741 1,723 587 572 income

Non-interest income, as presented 13,627 10,281 4,805 3,532

Effect of non-interest tax-exempt 124 124 41 41 income

Net securities gains (1,179) (15) - (15)

Adjusted net interest income plus $ 58,467 $ 51,188 $ 20,178 $ 17,356 non-interest income

Non-GAAP efficiency ratio 50.00 % 51.12 % 45.97 % 52.08 %

GAAP efficiency ratio 50.60 % 53.02 % 47.45 % 53.94 %

The Company presents certain information based upon average tangible common 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 equity to the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles:

For the nine months For the quarters ended ended

September September September SeptemberIn thousands of dollars 30, 30, 30, 30, 2020 2019 2020 2019

Average shareholders' $ 218,603 $ 201,655 $ 220,465 $ 208,040 equity as presented

Less intangible assets (29,920) (29,963) (29,934) (29,978)

Tangible average $ 188,683 $ 171,692 $ 190,531 $ 178,062 shareholders' equity

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

For the nine months For the quarters ended ended

September September September SeptemberIn thousands of dollars 30, 30, 30, 30, 2020 2019 2020 2019

Net Income, as presented $ 20,159 $ 18,839 $ 7,095 $ 6,288

Add: provision for loan 4,550 875 1,800 250 losses

Add: income taxes 3,836 3,474 1,379 1,180

Pre-Tax, pre-provision net $ 28,545 $ 23,188 $ 10,274 $ 7,718 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.

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CONTACT: Richard M. Elder The First Bancorp's Treasurer & Chief Financial Officer 207.563.3195