earnings10q2.htm

DAMARISCOTTA, ME, July 21 – The First Bancorp (Nasdaq: FNLC), today announced unaudited results for the quarter ended June 30, 2010. Net income was $3.2 million, up $476,000 or 17.7% from the previous quarter, and earnings per common share on a fully diluted basis of $0.29 were up $0.05 or 20.8% from the previous quarter. Compared to the same period in 2009, net income was down $602,000 or 16.0% and earnings per common share on a fully diluted basis were down $0.06 or 17.1%.

“Although our quarterly and year-to-date earnings are below the comparable periods last year, I am very encouraged by the $476,000 increase in earnings from the previous quarter,” noted Daniel R. Daigneault, the Company’s President & Chief Executive Officer. “Our second quarter net income is the best we have posted since the second quarter of 2009, with stable net interest income and a lower provision for loan losses compared to the first quarter. At the same time, we feel that the deteriorating trend in credit quality we have experienced during the past two years has stabilized in the past two quarters.

“While net interest income was down $1.5 million in the second quarter of 2010 compared to the same period in 2009,” President Daigneault continued, “it was down only slightly from the previous quarter. Year-to-date, net interest income is down $2.5 million from the same period in 2009. The variance for both the quarter and year-to-date when compared to 2009 was primarily due to multiple factors which resulted in a decline in our net interest margin. On the asset side of the balance sheet, interest income has been lower as loans and investments continue to reprice downward in this prolonged low-rate environment. Also, our earning assets in the loan portfolio have declined as mortgages which refinanced to very low fixed rates have been sold to the secondary market. On the liability side, we took advantage of historically low interest rates and extended the maturity of wholesale deposits and funding to reduce interest rate risk. This resulted in higher interest expense in the first half of 2010.

“Non-performing loans stood at 2.53% on June 30, 2010 compared to 2.46% of total loans on March 31, 2010 and 1.95% on December 31, 2009,” President Daigneault said. “This compares favorably to nonperforming loans at 3.65% for our peer group as of March 31, 2010, the latest peer data available. Net chargeoffs were $4.0 million or 0.86% of average loans on an annualized basis for the first six months of 2010. This compares to net chargeoffs of $1.6 million or 0.34% of average loans on an annualized basis for the first six months of 2009.”

“We provisioned $4.5 million for loan losses in the first half of 2010,” President Daigneault noted, “down $100,000 from the $4.6 million provision made in the first half of 2009. As a result, the allowance for loan losses has increased $528,000 or 3.9% year-to-date and now stands at 1.52% of outstanding loans compared to 1.43% at December 31, 2009 and 1.20% at June 30, 2009. The increase in the allowance for loan losses is directionally consistent with the level of nonperforming loans and is a reflection of the weak national and local economies.

“Since year-end, total assets have decreased $5.1 million or 0.4%,” observed the Company’s Chief Financial Officer, F. Stephen Ward. “The loan portfolio is down $20.5 million or 2.2%, with a drop due to the refinancing of residential mortgages noted before. The investment portfolio has increased $6.8 million or 2.4% since December 31. We continued to lower our liquidity risk by shifting the investment portfolio to securities available for sale from held to maturity securities, which were 53.5% and 46.5%, respectively, at June 30, 2010, compared to 30.0% and 70.0%, respectively at December 31, 2009 and 12.7% and 87.3%, respectively, at June 30, 2009. On the liability side of the balance sheet, low-cost deposits have increased $20.9 million or 8.4% since June 30, 2009, and local certificates of deposit are up $9.6 million or 4.2%.

“Remaining well capitalized remains a top priority for The First Bancorp,” Mr. Ward noted. “In the past year and a half, the Bank’s total risk-based capital has increased from 11.10% to 15.29%, well above the well-capitalized threshold of 10.0% set by the FDIC. In Management’s view, participating in the U.S. Treasury Capital Purchase Program was the right decision for The First Bancorp, which provided us with additional capital at a relatively low cost. This additional capital provides us with greater ability to ride out the current economic storm and allows us more flexibility to work with individuals and businesses as they too struggle through these adverse economic conditions.

“Another objective is maintaining the cash dividend we pay to our shareholders,” Mr. Ward said. “Good earnings and strong capital are important for our ability to maintain the dividend at its current level. At 19.5 cents per share per quarter or 78 cents per share per year, our dividend yield is 5.94% based on our June 30, 2010 closing price of $13.13 per share. In our view, this is an extremely attractive yield in this period of very low interest rates, and we paid out 67.2% of earnings in the second quarter of 2010 compared to 55.7% in the second quarter of 2009.”

“Our operating ratios remain good,” said President Daigneault, “with a return on average tangible common equity of 12.87% for the quarter ended June 30, 2010 compared to 15.86% for the same period in 2009. Based upon March 31, 2010 data, our return on average equity was in the top 30% of all banks in our peer group, which had an average return of 3.28%. Our efficiency ratio continues to be an important component in our overall performance; it slipped to 45.86% for the second quarter compared to 41.40% for the same period in 2009. This was the result of lower revenues and not due to a significant increase in operating expenses. As of March 31, 2010, the average efficiency ratio for our peer group was 67.67%, which put us in the top 10% of all banks in the peer group.

“Although our income is down from 2009, as I noted before, this was our strongest quarter in a year,” President Daigneault concluded. “While the weak economy continues to present us with economic challenges, I am encouraged that asset quality – as measured by past-due and non-performing loans – has been relatively stable for the past six months. The First Bancorp’s performance continues to be much stronger than our peers, and with good earnings we continue to post a return on assets and a return on equity well above the group. Along with that, we are fortunate that our very strong capital position is enabling us to maintain the quarterly dividend at $0.195 per share, which we feel is important to our shareholders.”

The First Bancorp, headquartered in Damariscotta, Maine, is the holding company for The First, N.A. Founded in 1864, The First is an independent community bank serving Mid-Coast and Down East Maine with 14 offices in Lincoln, Knox, Hancock and Washington Counties. The Bank provides a full range of consumer and commercial banking products and services. First Advisors, a division of The First, provides investment advisory, private banking and trust services from two offices in Lincoln and Hancock Counties.

The First Bancorp
Consolidated Balance Sheets (Unaudited)

In thousands of dollars except for per share amounts	6/30/2010			12/31/2009			6/30/2009
Assets
Cash and due from banks	$	22,219		$	15,332		$	18,575
Overnight funds sold		-			-			-
Securities available for sale		149,249			81,838			35,972
Securities to be held to maturity		129,892			190,537			247,627
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		15,443			15,443			14,693
Loans held for sale		3,426			2,876			3,162
Loans		932,010			952,492			982,336
Less allowance for loan losses		14,165			13,637			11,752
Net loans		917,845			938,855			970,584
Accrued interest receivable		6,536			4,889			7,140
Premises and equipment		18,739			18,331			18,610
Other real estate owned		4,794			5,345			2,797
Goodwill		27,684			27,684			27,684
Other assets		30,448			30,264			23,142
Total assets	$	1,326,275		$	1,331,394		$	1,369,986
Liabilities
Demand deposits	$	62,821		$	66,317		$	63,266
NOW deposits		112,256			114,955			100,283
Money market deposits		77,231			94,425			104,803
Savings deposits		95,686			90,873			86,305
Certificates of deposit		237,757			212,893			202,039
Certificates $100,000 to $250,000		313,908			287,051			306,996
Certificates $250,000 and over		49,842			56,153			50,257
Total deposits		949,501			922,667			913,949
Borrowed funds		213,944			249,778			297,361
Other liabilities		12,385			11,011			12,478
Total Liabilities		1,175,830			1,183,456			1,223,788
Shareholders’ equity
Preferred stock		24,655			24,606			24,557
Common stock		98			97			97
Additional paid-in capital		45,298			45,121			44,958
Retained earnings		79,864			78,450			77,320
Net unrealized gain (loss) on securities available-for-sale		732			(125	)		(472	)
Net unrealized loss on postretirement benefit costs		(202	)		(211	)		(262	)
Total shareholders’ equity		150,445			147,938			146,198
Total liabilities & shareholders’ equity	$	1,326,275		$	1,331,394		$	1,369,986
Common Stock
Number of shares authorized		18,000,000			18,000,000			18,000,000
Number of shares issued and outstanding		9,758,218			9,744,170			9,722,204
Book value per share	$	12.89		$	12.66		$	12.51
Tangible book value per share	$	10.05		$	9.82		$	9.66

The First Bancorp
Consolidated Statements of Income (Unaudited)

	For the six months ended				For the quarters ended
In thousands of dollars	6/30/2010		6/30/2009		6/30/2010		6/30/2009
Interest income
Interest and fees on loans	$	22,206	$	25,533	$	11,056	$	12,606
Interest on deposits with other banks		2		-		-		-
Interest and dividends on investments		6,140		7,336		3,159		3,645
Total interest income		28,348		32,869		14,215		16,251
Interest expense
Interest on deposits		5,051		6,694		2,571		3,049
Interest on borrowed funds		3,319		3,665		1,687		1,765
Total interest expense		8,370		10,359		4,258		4,814
Net interest income		19,978		22,510		9,957		11,437
Provision for loan losses		4,500		4,600		2,100		2,950
Net interest income after provision for loan losses		15,478		17,910		7,857		8,487
Non-interest income
Investment management and fiduciary income		787		678		376		353
Service charges on deposit accounts		1,505		1,158		796		600
Net securities gains		2		-		-		-
Mortgage origination and servicing income		613		1,543		335		862
Other operating income		1,550		2,170		775		1,148
Total non-interest income		4,457		5,549		2,282		2,963
Non-interest expense
Salaries and employee benefits		5,553		5,152		2,808		2,563
Occupancy expense		776		834		382		393
Furniture and equipment expense		1,121		1,138		540		569
FDIC insurance premiums		952		961		477		599
Net securities losses		-		148		-		6
Other than temporary impairment charge		-		916		-		-
Amortization of identified intangibles		142		142		71		71
Other operating expense		3,633		3,730		1,617		2,033
Total non-interest expense		12,177		13,021		5,895		6,234
Income before income taxes		7,758		10,438		4,244		5,216
Applicable income taxes		1,914		2,948		1,084		1,454
NET INCOME	$	5,844	$	7,490	$	3,160	$	3,762
Earnings per common share
Net income, as reported	$	5,844	$	7,490	$	3,160	$	3,762
Less dividends and amortization of premium on preferred stock		674		488		337		337
Net income available to common	$	5,170	$	7,002	$	2,823	$	3,425
Basic earnings per share	$	0.53	$	0.72	$	0.29	$	0.35
Diluted earnings per share	$	0.53	$	0.72	$	0.29	$	0.35

The First Bancorp
Selected Financial Data (Unaudited)


Dollars in thousands,	For the six months ended						For the quarters ended
except for per share amounts	6/30/2010			6/30/2009			6/30/2010			6/30/2009

Summary of Operations
Interest Income	$	28,348		$	32,869		$	14,215		$	16,251
Interest Expense		8,370			10,359			4,258			4,814
Net Interest Income		19,978			22,510			9,957			11,437
Provision for Loan Losses		4,500			4,600			2,100			2,950
Non-Interest Income		4,457			5,549			2,282			2,963
Non-Interest Expense		12,177			13,021			5,895			6,234
Net Income		5,844			7,490			3,160			3,762
Per Common Share Data
Basic Earnings per Share	$	0.53		$	0.72		$	0.29		$	0.35
Diluted Earnings per Share		0.53			0.72			0.29			0.35
Cash Dividends Declared		0.390			0.390			0.195			0.195
Book Value per Common Share		12.89			12.51			12.89			12.51
Tangible Book Value per Common Share		10.05			9.66			10.05			9.66
Market Value		13.13			19.47			13.13			19.47
Financial Ratios
Return on Average Equity (a)		9.38	%		12.48	%		10.05	%		12.29	%
Return on Average Tangible Equity (a)		12.03	%		16.18	%		12.87	%		15.86	%
Return on Average Assets (a)		0.88	%		1.10	%		0.94	%		1.09	%
Average Equity to Average Assets		11.25	%		10.54	%		11.21	%		10.61	%
Average Tangible Equity to Average Assets		9.18	%		8.52	%		9.15	%		8.62	%
Net Interest Margin Tax-Equivalent (a)		3.41	%		3.68	%		3.35	%		3.69	%
Dividend Payout Ratio		73.58	%		54.17	%		67.24	%		55.71	%
Allowance for Loan Losses/Total Loans		1.52	%		1.20	%		1.52	%		1.20	%
Non-Performing Loans to Total Loans		2.53	%		1.57	%		2.53	%		1.57	%
Non-Performing Assets to Total Assets		2.14	%		1.36	%		2.14	%		1.36	%
Efficiency Ratio		47.46	%		40.78	%		45.86	%		41.40	%
At Period End
Total Assets	$	1,326,275		$	1,369,986		$	1,326,275		$	1,369,986
Total Loans		932,010			982,336			932,010			982,336
Total Investment Securities		294,584			298,292			294,584			298,292
Total Deposits		949,501			913,949			949,501			913,949
Total Shareholders’ Equity		150,445			146,198			150,445			146,198
(a) Annualized using a 365-day basis

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 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.

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

	For the six months ended						For the quarters ended
In thousands of dollars	6/30/2010			6/30/2009			6/30/2010			6/30/2009
Non-interest expense, as presented	$	12,177		$	13,021		$	5,895		$	6,234
Net securities losses		-			(148	)		-			(6	)
Other than temporary impairment charge		-			(916	)		-			-
Adjusted non-interest expense		12,177			11,957			5,895			6,228
Net interest income, as presented		19,978			22,510			9,957			11,437
Effect of tax-exempt income		1,127			1,170			567			596
Non-interest income, as presented		4,457			5,549			2,282			2,963
Effect of non-interest tax-exempt income		94			92			47			46
Net securities gains		2			-			-			-
Adjusted net interest income plus non-interest income	$	25,658		$	29,321		$	12,853		$	15,042
Non-GAAP efficiency ratio		47.46	%		40.78	%		45.86	%		41.40	%
GAAP efficiency ratio		49.83	%		46.41	%		48.17	%		43.29	%

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

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.

	For the six months ended				For the quarters ended
	6/30/2010		6/30/2009		6/30/2010		6/30/2009
Average shareholders' equity as presented	$	150,289	$	144,927	$	150,760	$	147,343
Intangible assets		27,684		27,684		27,684		27,684
Tangible average shareholders' equity	$	122,605	$	117,243	$	123,076	$	119,659