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The First Bancorp Reports Record Net Income for 2014

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The First Bancorp (Nasdaq: FNLC), today announced unaudited results for the year ended December 31, 2014. Net income was $14.7 million, up $1.7 million or 13.5% from 2013, and earnings per common share on a fully diluted basis of $1.37 were up $0.17 or 14.2% from 2013. The Company also announced unaudited results for the quarter ended December 31, 2014. Net income was $3.4 million, down $76,000 or 2.2% from the fourth quarter of 2013, and earnings per common share on a fully diluted basis of $0.32 were down $0.01 or 3.0% from the fourth quarter of 2013.

“With Daniel R. Daigneault’s retirement on January 2, I am pleased to report that his final year as President and Chief Executive Officer was the best year in the Company’s history,” observed Tony C. McKim, the Company’s new President and Chief Executive Officer, “Net income was up $675,000 or 4.8% from our previous best year in 2008, and with an improved economy, a number of factors came together in 2014 that contributed to our record results: lower credit costs, an improved net interest margin and growth in the loan portfolio.

“The Company’s total assets increased $18.2 million or 1.2% in 2014,” said President McKim. “Loan demand was the healthiest we have seen in several years, with total loans increasing $41.2 million or 4.7%. At the same time the investment portfolio decreased $13.9 million or 2.8%. On the funding side of the balance sheet, low-cost deposits were up $72.2 million or 17.7% from 2013, replacing higher-cost certificates of deposits which decreased $83.6 million or 15.7% from 2013.

“Net interest income on a tax-equivalent basis was up $2.1 million in 2014 over 2013,” President McKim continued. “Higher levels of earning assets were responsible for $1.7 million of the increase and $407,000 resulted from an improved net interest margin. We benefited from a $1.1 million drop in funding costs, and after a prolonged period of margin compression which lasted more than five years, our net interest margin climbed from a recent-year low of 3.05% in 2013 to 3.10% in 2014.

“Improved credit quality, however, was the greatest contributor to 2014’s increase in earnings,” President McKim commented. “Past-due loans were 1.29% of total loans at December 31, 2014, down significantly from 1.82% of total loans at the end of 2013. Non-performing assets stood at 0.97% of total assets as of December 31, 2014 – the lowest level we have seen since the third quarter of 2008. This is well below the 2.32% peak in non-performing assets at December 31, 2011, and down from 1.44% a year ago.

“Net chargeoffs in 2014 were $2.3 million or 0.26% of average loans on an annualized basis, compared to $5.2 million or 0.60% of average loans in 2013,” President McKim continued. “With significantly lower levels of non-performing assets, past due loans and net chargeoffs, our provision for loan losses in 2014 was $1.2 million – a $3.0 million or 72.6% reduction from the $4.2 million provisioned in 2013. The allowance for loan losses stood at 1.13% of total loans as of December 31, 2014, down from 1.31% at December 31, 2013 and well below the peak of 1.79% in 2011.”

“Our operating ratios were indicative of our strong performance in 2014,” commented F. Stephen Ward, the Company’s Chief Financial Officer. “At 56.86%, the efficiency ratio remains well below the Bank’s UBPR peer group average which stood at 66.28% as of September 30, 2014. Our return on average assets was 0.99% in 2014 compared to 0.90% in 2013, and our return on average tangible common equity was 11.57% compared to 10.66% for the same periods, respectively.

“The First Bancorp’s price per share was $18.09 at December 31, 2014, up $0.67 or 3.85% from December 31, 2013,” Mr. Ward noted. “When dividends are added, our total return in 2014 was 10.24%. This outperformed the Dow Jones Industrial Average with a total return of 10.04% for the year and underperformed the S&P 500 which had a total return of 13.68% for the year. Our stock significantly outperformed the banking industry in 2014, as measured by the KBW Regional Bank and Nasdaq Bank indices, which had total returns of 2.43% and 4.92%, respectively. We also outperformed the Russell 2000 index in 2014, in which we are included, which had a total return of 4.90%.”

“The Board of Directors increased the quarterly dividend in the second quarter to 21 cents per share, resulting in total dividends for the year of 83 cents per share, an increase of 4.5 cents over 2013,” President McKim commented. “Increasing the dividend in 2014 was consistent with the Company’s overall performance during the year, including the improved credit quality and other key metrics. Our generous dividend continues to be one of the major reasons people invest in our stock and we have an annualized dividend yield of 4.59% based on the year-end closing price of $18.09 per share.

“As I take the helm at the beginning of 2015, I feel The First Bancorp is in excellent condition after 21 years under former President Daigneault’s leadership,” President McKim concluded, “We had several challenging years during the Great Recession, and now that we are past this difficult period, I feel the Company is positioned well for this year and beyond. We have an excellent franchise along the coast of Maine, a highly experienced and capable management team, and dedicated employees who are focused on delivering a consistently superior level of service to our customers. With all of these positives, I am confident we can continue to deliver strong results for our shareholders over the next several years.”

The First Bancorp

Consolidated Balance Sheets (Unaudited)

In thousands of dollars except common stock data December 31, 2014 December 31, 2013
Assets
Cash and due from banks $ 13,057 $ 16,570
Interest-bearing deposits in other banks 3,559 2,562
Securities available for sale 185,261 305,824
Securities to be held to maturity 275,919 169,277
Restricted equity securities, at cost 13,912 13,912
Loans held for sale - 83
Loans 917,564 876,367
Less allowance for loan losses 10,344 11,514
Net loans 907,220 864,853
Accrued interest receivable 4,748 5,038
Premises and equipment 22,619 23,616
Other real estate owned 3,785 4,807
Goodwill 29,805 29,805
Other assets 22,246 27,616
Total assets $ 1,482,131 $ 1,463,963
Liabilities
Demand deposits $ 113,133 $ 106,125
NOW deposits 199,977 151,322
Money market deposits 98,607 86,730
Savings deposits 165,601 149,103
Certificates of deposit 184,471 210,321
Certificates $100,000 to $250,000 221,892 278,674
Certificates $250,000 and over 41,138 42,124
Total deposits 1,024,819 1,024,399
Borrowed funds 279,916 279,125
Other liabilities 15,842 14,341
Total Liabilities 1,320,577 1,317,865
Shareholders’ equity
Common stock 107 106
Additional paid-in capital 59,282 58,395
Retained earnings 99,816 94,000
Net unrealized gain/(loss) on securities available-for-sale 2,522 (6,591 )
Net unrealized loss on securities transferred from available for sale to held to maturity (48 )
Net unrealized gain/(loss) on postretirement benefit costs (125 ) 188
Total shareholders’ equity 161,554 146,098
Total liabilities & shareholders’ equity $ 1,482,131 $ 1,463,963
Common Stock
Number of shares authorized 18,000,000 18,000,000
Number of shares issued and outstanding 10,724,359 10,671,192
Book value per common share $ 15.06 $ 13.69
Tangible book value per common share $ 12.25 $ 10.83
The First Bancorp

Consolidated Statements of Income and Comprehensive Income (Unaudited)

For the years ended For the quarters ended
In thousands of dollars, except per share data 12/31/2014 12/31/2013 12/31/2014 12/31/2013
Interest income
Interest and fees on loans $ 35,102 $ 34,897 $ 8,982 $ 8,657
Interest on deposits with other banks 5 8 1 2
Interest and dividends on investments 15,915 15,031 3,807 4,108
Total interest income 51,022 49,936 12,790 12,767
Interest expense
Interest on deposits 7,087 7,997 1,681 1,962
Interest on borrowed funds 4,338 4,499 1,062 1,144
Total interest expense 11,425 12,496 2,743 3,106
Net interest income 39,597 37,440 10,047 9,661
Provision for loan losses 1,150 4,200 300 700
Net interest income after provision for loan losses 38,447 33,240 9,747 8,961
Non-interest income
Investment management and fiduciary income 2,139 1,919 520 481
Service charges on deposit accounts 2,505 2,756 606 657
Net securities gains 1,155 1,087 10
Mortgage origination and servicing income 979 2,080 369 345
Other operating income 4,270 4,245 1,097 1,116
Total non-interest income 11,048 12,087 2,602 2,599
Non-interest expense
Salaries and employee benefits 14,890 14,305 3,622 3,698
Occupancy expense 2,215 2,050 527 493
Furniture and equipment expense 2,940 2,656 816 664
FDIC insurance premiums 1,004 1,143 240 279
Amortization of identified intangibles 326 326 81 81
Other operating expense 8,845 8,457 2,589 1,904
Total non-interest expense 30,220 28,937 7,875 7,119
Income before income taxes 19,275 16,390 4,474 4,441
Applicable income taxes 4,566 3,425 1,048 939
Net Income $ 14,709 $ 12,965 $ 3,426 $ 3,502
Basic earnings per share $ 1.38 $ 1.20 $ 0.32 $ 0.33
Diluted earnings per share 1.37 1.20 0.32 0.33
The First Bancorp

Selected Financial Data (Unaudited)

Dollars in thousands, For the years ended For the quarters ended
except for per share amounts 12/31/2014 12/31/2013 12/31/2014 12/31/2013
Summary of Operations
Interest Income $ 51,022 $ 49,936 $ 12,790 $ 12,767
Interest Expense 11,425 12,496 2,743 3,106
Net Interest Income 39,597 37,440 10,047 9,661
Provision for Loan Losses 1,150 4,200 300 700
Non-Interest Income 11,048 12,087 2,602 2,599
Non-Interest Expense 30,220 28,937 7,875 7,119
Net Income 14,709 12,965 3,426 3,502
Per Common Share Data
Basic Earnings per Share $ 1.38 $ 1.20 $ 0.32 $ 0.33
Diluted Earnings per Share 1.37 1.20 0.32 0.33
Cash Dividends Declared 0.830 0.785 0.210 0.200
Book Value per Common Share 15.06 13.69 15.06 13.69
Tangible Book Value per Common Share 12.25 10.83 12.25 10.83
Market Value 18.09 17.42 18.09 17.42
Financial Ratios
Return on Average Equity (a) 9.34 % 8.72 % 8.39 % 9.33 %
Return on Average Tangible Common Equity (a) 11.57 % 10.66 % 10.32 % 11.76 %
Return on Average Assets (a) 0.99 % 0.90 % 0.92 % 0.95 %
Average Equity to Average Assets 10.63 % 10.62 % 10.93 % 10.19 %
Average Tangible Equity to Average Assets 8.58 % 8.49 % 8.88 % 8.09 %
Net Interest Margin Tax-Equivalent (a) 3.10 % 3.05 % 3.09 % 3.07 %
Dividend Payout Ratio 60.14 % 65.42 % 65.63 % 60.61 %
Allowance for Loan Losses/Total Loans 1.13 % 1.31 % 1.13 % 1.31 %
Non-Performing Loans to Total Loans 1.15 % 1.86 % 1.15 % 1.86 %
Non-Performing Assets to Total Assets 0.97 % 1.44 % 0.97 % 1.44 %
Efficiency Ratio 56.86 % 55.44 % 58.36 % 53.79 %
At Period End
Total Assets $ 1,482,131 $ 1,463,963 $ 1,482,131 $ 1,463,963
Total Loans 917,564 876,367 917,564 876,367
Total Investment Securities 475,092 489,013 475,092 489,013
Total Deposits 1,024,819 1,024,399 1,024,819 1,024,399
Total Shareholders’ Equity 161,554 146,098 161,554 146,098
(a) Annualized using a 365-day basis for both years

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 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 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 35.0% tax rate was used in both 2014 and 2013.

For the years ended For the quarters ended
In thousands of dollars 12/31/2014 12/31/2013 12/31/2014 12/31/2013
Net interest income as presented $ 39,597 $ 37,440 $ 10,047 $ 9,661
Effect of tax-exempt income 3,475 3,573 807 926
Net interest income, tax equivalent $ 43,072 $ 41,013 $ 10,854 $ 10,587

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 between the GAAP and non-GAAP efficiency ratio:

For the years ended For the quarters ended
In thousands of dollars 12/31/2014 12/31/2013 12/31/2014 12/31/2013
Non-interest expense, as presented $ 30,220 $ 28,937 $ 7,875 $ 7,119
Net interest income, as presented 39,597 37,440 10,047 9,661
Effect of tax-exempt income 3,475 3,573 807 926
Non-interest income, as presented 11,048 12,087 2,602 2,599
Effect of non-interest tax-exempt income 185 182 49 48
Net securities gains (1,155 ) (1,087 ) (10 )
Adjusted net interest income plus non-interest income $ 53,150 $ 52,195 $ 13,495 $ 13,234
Non-GAAP efficiency ratio 56.86 % 55.44 % 58.36 % 53.79 %
GAAP efficiency ratio 59.67 % 58.43 % 62.26 % 58.07 %

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 preferred stock and 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 years ended For the quarters ended
In thousands of dollars 12/31/14 12/31/13 12/31/14 12/31/13
Average shareholders’ equity as presented $ 157,465 $ 152,722 $ 162,067 $ 148,842
Less preferred stock - (4,020 ) -
Less intangible assets (30,338 ) (30,664 ) (30,338 ) (30,664 )
Tangible average shareholders’ equity $ 127,127 $ 118,038 $ 131,729 $ 118,178

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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