ANNUAL REPORT 2009
www.thefi rstbancorp.com
Selected Financial Data
The First Bancorp, Inc. and Subsidiary
Dollars in thousands,
except for per share amounts
Summary of Operations
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Non-Interest Income
Non-Interest Expense
Net Income
Per Common Share Data
Net Income
Basic
Diluted
Cash Dividends (Declared)
Book Value
Market Value
Financial Ratios
Return on Average Equity
Return on Average Tangible Equity
Return on Average Assets
Average Equity to Average Assets
Average Tangible Equity to Average Assets
Net Interest Margin (Tax-Equivalent)
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2009
Years ended December 31,
2008
2007
2006
2005
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 71,721
39,885
31,836
1,432
10,145
22,183
13,101
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
$ 50,431
18,848
31,583
200
9,034
22,518
12,843
$ 1.22
1.22
0.780
12.66
15.42
$ 1.45
1.44
0.765
12.09
19.89
$ 1.34
1.34
0.690
11.58
14.64
$ 1.25
1.25
0.610
10.98
16.72
$ 1.32
1.30
0.530
10.52
17.58
10.66%
13.77
0.96
10.85
8.80
3.66
63.93
1.43
1.95
1.80
43.39
12.02%
15.75
1.10
9.14
6.98
3.33
52.76
0.90
1.27
1.31
46.07
11.89%
15.89
1.13
9.53
7.13
3.13
51.49
0.74
0.31
0.56
50.16
11.63%
15.75
1.14
9.81
7.24
3.24
48.80
0.76
0.42
0.32
52.12
12.98%
17.81
1.36
10.44
7.61
3.84
40.15
0.79
0.40
0.30
52.89
952,492
272,375
922,667
249,778
$ 147,938
$1,331,394 $1,325,744 $1,223,250 $1,104,869 $1,042,209
772,338
173,033
713,964
215,189
$ 103,452
Low
$10.77
920,164
838,145
208,585
172,301
781,280
805,235
179,862
316,719
$112,453 $ 107,327
High
$21.80
979,273
247,839
925,736
272,074
$ 117,181
Market price per common share of stock during 2009
Directors and Executive Officers
Board of Directors
Stuart G. Smith, Chairman of the Board
Katherine M. Boyd
Daniel R. Daigneault
Robert B. Gregory
Tony C. McKim
Carl S. Poole, Jr.
Mark N. Rosborough
David B. Soule, Jr.
Bruce B. Tindal
Directors of The First Bancorp also serve as
Directors of The First, N.A.
The First, N.A. Management Executive
Committee
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President & Chief Operating Officer
Susan A. Norton
Executive Vice President, Human Resources &
Compliance
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Senior Loan Officer
The First Bancorp Executive Officers
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President & Chief Operating Officer
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Clerk
Office Locations
Bar Harbor
Blue Hill
Boothbay Harbor
Calais
Camden
Damariscotta
Eastport
Ellsworth
Northeast Harbor
Rockland
Rockport
Southwest Harbor
Waldoboro
Wiscasset
Office Locations
Bar Harbor
Damariscotta
President’s Letter
Dear Shareholder:
Most people will agree that 2009 was the most challenging year for the Unites States
economy since the Great Depression: (1) Unemployment increased to 10.0%, which is
the highest level since 1983. Since the start of the recession in the fall of 2007, 8.5 million
jobs have been lost in the US. (2) The housing market continued to weaken with values
plummeting by as much as 50% in certain parts of the country and home sales declining
dramatically. (3) Small businesses experienced a decrease in sales as well, impacting their
fi nancial performance and the viability of some companies that were unable to adjust to
the reduction in revenues. All of the above issues have had a direct impact on the perfor-
mance of The First Bancorp and our fi nancial results refl ect such.
15
As a local community bank, the success of our Bank is directly correlated to the lo-
cal communities we serve. For most of the past 15 years, the economy along the coast
of Maine – our primary market area – has been and has remained very
strong and robust. Especially noteworthy was the housing market. Driven
by strong demand from buyers of second homes and retirement homes, as
well as from fi rst-time homebuyers, the real estate market prospered, as did
everyone that was directly or indirectly tied to the industry. The construc-
tion industry, land development investors and home owners all profi ted
from the robust housing market. As a bank, The First benefi ted immensely
in several different ways, especially in the volume of mortgage loans we
booked. For the period of 2003 to 2006, our annual growth for mortgage
loans ranged from 12.0% to 20.0%. When the housing market started to
weaken in 2007, however, our mortgage loan growth rate subsided. In 2008,
the real estate market in our communities continued to slump and in 2009 it
dropped substantially again in both volume of real estate sales and market
values. In early 2008, the unemployment rate started to rise from 4.8% and reached 10.0%
by the end of 2009 – more than doubling in less than two years. These external economic
forces, along with the struggles of small businesses, have negatively impacted our local
communities and therefore impacted The First Bancorp’s results.
2005
10
11
12
13
14
In my letter this year, I will share with you my views on the fi nancial impact that the reces-
sion, a weak prolonged economy and the real estate issues have had on the Company’s
performance.
Earnings/Revenues
Net income of $13,042,000 represents a decline of $992,000 or 7.10% from the
$14,034,000 earned in 2008 and is just about equal to the earnings of $13,101,000 posted
in 2007. Given the economic challenges we faced in 2009, I feel this is a strong perfor-
mance. As noted in our fi nancial statements, this net income is after expensing $12.2 mil-
lion for the provision for loan losses, $1.6 million in FDIC insurance premiums and $1.1
million in net securities related losses and impairment. All three of these costs are directly
related to the economy. Another measure of the Company’s performance is to look at our
pre-provision, pre-tax revenues. In 2009 this fi gure was $30.6 million, a $6.2 million or
25.4% increase over the $24.4 million level in 2008. Going back to 2005, which was the
2006
2007
2008
2009
“As a local
community
bank,
the success of
our Bank is
directly
correlated to
the local
communities
we serve.”
Page 1
Company’s fi rst post-merger year, this fi gure was $18.0 million. So during this fi ve-year
period, The First Bancorp has substantially increased its revenue base, reaching an all-time
high in the year just ended.
Another way of putting 2009’s earnings into perspective is the use of operating ratios and
comparison to peers. The $13.0 million in net income produced a 0.96% return on aver-
age assets and a 13.77% return on average tangible equity. By any measure, these results
– which are the most widely used metrics to evaluate the performance of a bank – are well
above comparable results for the banking industry. For our peer group, which is defi ned as
banks with assets of $1.0 billion to $3.0 billion, the return on average assets was -0.23%.
Our results place us in the 84th percentile of the group. Another measure of the Compa-
ny’s performance is the effi ciency ratio. In 2009, the effi ciency ratio for the
Company improved to an all time best of 43.39% and places the Company
in the top tier as one of the most effi cient banks in the country. This also
bodes well for us – with a lower operating cost structure, we should benefi t
from improved revenues as the economy strengthens.
Asset Quality
2008
2009
Strong pre-provision revenue generation is great as long as this fi gure is not
all absorbed by the provision for loan losses. As the economy continued
to weaken and real estate prices plummeted, the collateral values support-
ing the Bank’s loans were impacted and the actual loan losses recognized
in 2009 were signifi cant. The $7.3 million in net loan losses or 0.75% of
average loans were by far the worst in the recent history of the Bank. With
this level of losses and continued economic weakness, the Bank provisioned $12.2 million
for loan losses in 2009 compared to $4.7 million in 2008, an increase of $7.5 million. By
provisioning this amount, we not only covered all the losses for 2009, but also increased
the allowance for loan losses by $4.8 million, ending the year at $13.7 million or 1.43% of
total loans.
The level of non-performing assets at year end in 2009 was 1.80% compared to 1.31% in
the prior year. The stress on the loan portfolio will likely continue as long as unemploy-
ment remains elevated and the real estate market remains weak. We have always focused
on working with our individual borrowers to prevent losses and to keep small businesses
open. However, in this sustained weak economy and long recession, some individuals are
just unable to meet their fi nancial obligations and many businesses are no longer viable
and cannot continue. These circumstances have led to instances where the Bank has had
to rely on the value of the collateral to repay our loans. Unfortunately, in such a prolonged
and deep recession and with the reduction in real estate prices, for some borrowers the
market value of their collateral is no longer suffi cient to repay the loan balance, resulting
in a loss to the Bank.
Investments
In addition to the loan portfolio, the Company also has focused on the credit quality of
the investment portfolio. At the beginning of 2008 we had a highly rated corporate bond
portfolio of $13.9 million that performed well and produced substantial returns for the
Company. As the fi nancial crisis hit and worsened, we reduced our exposure to these
once investment-grade bonds and sold off $11.7 million and in 2009 also recognized a
$916,000 pre-tax impairment charge on a General Motors bond we own. As of year end
2009, our holdings in the corporate bond portfolio were only $1.1 million and these are
securities we currently feel comfortable retaining. We are not aware of any other impend-
ing credit issues in our investment portfolio.
Total Capital
16%
14%
12%
10%
8%
6%
4%
2%
0%
s
t
e
s
s
A
l
a
t
o
T
f
o
t
n
e
c
r
e
P
a
s
A
2005
2006
2007
“Remaining
comfortably
above the
well-
capitalized
threshold
set by bank
regulators was
one of our
primary
focuses
in 2009.”
Page 2
Asset Growth
Year over year, the Company posted very little asset growth. Investments increased by
$24.6 million and the loan portfolio decreased by $26.8 million. During the course of the
year, however, average assets were much higher than in 2008, with investments growing
substantially at the beginning of the year and mortgage loans declining as the year pro-
gressed. As investments matured in the second half of the year, we did not replace them
and instead focused on maintaining a level balance sheet. In addition, we did not feel
the investment opportunities presented were attractive enough after performing a risk/
reward analysis.
The loan portfolio, despite the net reduction at year end, was quite active with some good
growth areas – commercial real estate loans increased by $21.1 million and loans to local
municipalities increased $11.1 million. Another strong growth category was home equity
loans, which increased by $17.1 million. The growth in these three categories totaled
$49.3 million. This was offset by a decline in residential mortgage and construction loans
of $73.1 million, driven by borrowers taking advantage of low fi xed rates and refi nancing
their existing loans into 30-year fi xed rate loans. In order to reduce the Company’s expo-
sure to interest rate risk, we choose to sell these to the secondary mortgage market. This
refi nance activity, however, produced a sizable income of $2.2 million from the gain on
sales and the servicing income generated by the originations and sales.
So despite an apparent lack in loan growth, the fact is that lending activity was quite ro-
bust and generated considerable income for the Company in 2009. This is quite notewor-
thy given the weak economy that resulted in low loan demand in general.
Capital Base
“Maintaining
the cash
dividend
at 19.5 cents
per share
per quarter
was also one of
the Company’s
top priorities
in 2009. ”
Dividends Declared Per Share
0.70
$0.80
Maintaining a strong bank capital base and remaining comfortably above
the well-capitalized threshold set by bank regulators was another one of
our primary focuses in 2009. Capital is the foundation of strength for a
fi nancial institution and is the amount reserved to absorb losses above and
beyond the allowance for loan losses. Regulators require all banks to main-
tain certain levels of capital based on the size of a bank’s balance sheet
and level of risk-based assets. Improving these ratios with an extra level of
excess capital was the primary reason for obtaining Shareholder approval
in 2008 to participate in the U.S. Treasury’s Capital Purchase Program. This
has served the Company well. At year end 2009, our total risk-based capital
ratio had improved to 14.96%, up from 11.13% at the end of 2008. At this
level, the capital of the Company is in the 80th percentile of banks our size
– a very strong position to be in. This additional capital was also critical in
enabling the Company to continue paying the 78 cent per share cash dividend declared in
2009 and for our ability to work with our troubled loan customers.
2005
d
d
0.20
0.30
0.00
0.60
0.10
0.50
0.40
2006
2007
2008
2009
Dividends
Maintaining the cash dividend at 19.5 cents per share per quarter was also one of the
Company’s top priorities in 2009. We recognize the importance of this dividend to our
numerous shareholders that look forward to and depend on receiving it each quarter. On
an annualized basis, this dividend amounts to 78 cents per share, and based on the De-
cember 31, 2009, closing price of $15.42 per share, generated a current yield of 5.06%. To
put the dividend in perspective, out of the $13,042,000 in net income earned in 2009, the
cash dividend on common stock paid out was $7,586,000 or 58.2% of the earnings. The
Company has always prided itself on paying out a generous, consistent dividend.
Page 3
The First Bancorp’s Share Price
The market value of FNLC shares declined over the course of the year after closing at a
strong $19.89 per share on December 31, 2008. In 2008, the value of each share had a to-
tal return of 43.7%, up from $14.64 per share as of the end of 2007 – quite extraordinary
in a year when most indices were down 30%. The Company’s price declined to $15.42
per share as of December 31, 2009, down $4.47 or 22.5% for the year. Over a two-year
horizon however, the market price of the stock is, in fact, up by $0.78 per share or 5.33%.
This is actually very good when compared to the average equity markets over the same
24-month period. Over the past fi ve years, $100.00 invested in our stock on December 31,
2004, grew to $107.09 on December 31, 2009, which compares favorably to
$102.09 for the S&P 500 and $58.99 for the NASD Bank Index.
Stock Performance vs. Benchmarks
The First Bancorp
Economic Recession
$150
$125
$100
$75
$50
S&P 500
NASD Bank Index
2004
2005
2006
2007
2008
2009
As we are now well aware, the recession started in the fourth quarter of
2007 and continued through the fourth quarter of 2009. This downturn in
the economy has been characterized by many as the worst since the Great
Depression due to its longevity and, more importantly, the depth of the
downturn. It has impacted all areas of the economy from job losses and
business failures, to a fi nancial crisis and a virtual collapse of the real estate
market. Dealing with any one of these alone would be a challenge, but deal-
ing with all of them at one time has had a major impact on not only the
economy as a whole but especially the banking industry.
“A rebound
in the
housing
market along
with a strong
tourism season
would set the
Maine economy
on the course
for recovery.”
For The First Bancorp, the economic weakness that has affected our fi nancial perfor-
mance the most was the decline in real estate values and the inability to sell both residen-
tial and commercial properties in a reasonable timeframe. In the past, when a borrower
encountered fi nancial diffi culties and was unable to repay the bank, the underlying col-
lateral, being mostly real estate, was sold to satisfy the debt. This time, however, things are
very different – with the real estate market so weak, properties are unable to be sold at a
reasonable price. Despite having a good equity cushion when the loans were originated, in
many situations the values are now far below the original loan amounts resulting in loan
losses.
The housing crisis has had the single most negative impact on our market area economies.
Along coastal Maine, our economies are driven to a large extent by the real estate and con-
struction industry. Although tourism and fi shing are still a large part of our economy, the
real estate market has nearly as much of an impact on the Maine economy, both directly
and indirectly. As we move forward in 2010 and beyond, the recovery for the State of
Maine will likely be slow and will take a long time. A rebound in the housing market along
with a strong tourism season would set the Maine economy on the course for recovery.
As for The First Bancorp, our focus will continue to be improving the asset quality in the
loan portfolio and maintaining a strong capital base. The Bank continues to be strong and
sound and looks forward to returning to a time of a growing economy and a stable hous-
ing market. As always, the Board of Directors, the employees and I thank you for your
support and confi dence.
Sincerely,
y,
Page 4
Daniel R. Daigneault
l
D i l R D i
Daniel R. Daigneault
President & Chief Executive Offi cer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 2009
Commission File Number 0-26589
THE FIRST BANCORP, INC.
(Exact name of Registrant as specified in its charter)
MAINE
(State or other jurisdiction of incorporation or organization)
01-0404322
(I.R.S. Employer Identification No.)
MAIN STREET, DAMARISCOTTA, MAINE
(Address of principal executive offices)
04543
(Zip code)
(207) 563-3195
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [_] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [_] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [_] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
Common Stock: $170,925,000
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of March 12, 2010
Common Stock: 9,751,475 shares
Table of Contents
ITEM 1. Discussion of Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Market for Registrant’s Common Equity and Related Shareholder Matters
ITEM 6. Selected Financial Data
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
ITEM 8. Financial Statements and Supplemental Data
ITEM 9. Changes in and/or Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services
ITEM 15. Exhibits, Financial Statement Schedules
SIGNATURES
Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 31 U.S.C. Section 30.15
Exhibit 99.1 Certification of Chief Financial Officer Pursuant to 31 U.S.C. Section 30.15
1
8
13
14
14
14
15
18
19
44
46
78
78
79
79
79
79
79
79
80
81
82
83
84
84
85
87
ITEM 1. Discussion of Business
The First Bancorp, Inc. (the “Company”) was incorporated under the laws of the State of Maine on January 15, 1985,
for the purpose of becoming the parent holding company of The First National Bank of Damariscotta, which was
chartered as a national bank under the laws of the United States on May 30, 1864. At the Company’s Annual Meeting of
Shareholders on April 30, 2008, the Company’s name was changed from First National Lincoln Corporation to The
First Bancorp, Inc. On January 14, 2005, the acquisition of FNB Bankshares (“FNB”) of Bar Harbor, Maine, was
completed, adding seven banking offices and one investment management office in Hancock and Washington counties
of Maine. FNB’s subsidiary, The First National Bank of Bar Harbor, was merged into The First National Bank of
Damariscotta at closing, and since January 31, 2005, the combined banks have operated under a new name: The First,
N.A. (the “Bank”).
As of December 31, 2009, the Company’s securities consisted of one class of common stock, one class of preferred
stock, and stock warrants. At that date, there were 9,744,170 shares of common stock outstanding. In addition, there
were 25,000 shares of cumulative perpetual preferred stock outstanding with a preference value of $1,000 per share, all
of which were issued to the U.S. Treasury under its Capital Purchase Program (the “CPP Shares”). Incident to the
issuance of the CPP Shares, the Company has issued to the U.S. Treasury warrants to purchase up to 225,904 shares of
the Company’s common stock at a price per share of $16.60 (the “Warrants”). The CPP Shares and the Warrants (and
any shares of common stock issuable pursuant to the Warrants) are freely transferable by the U.S. Treasury to third
parties and the Company has filed a registration statement with the Securities and Exchange Commission to allow for
possible resale of such securities.
The common stock and preferred stock of the Bank are the principal assets of the Company, which has no other
subsidiaries. The Bank’s capital stock consists of one class of common stock of which 120,000 shares, par value $2.50
per share, are authorized and outstanding, and one class of non-cumulative perpetual preferred stock, $1,000 preference
value, of which 25,000 shares are authorized and outstanding. All of the Bank’s common stock and preferred stock is
owned by the Company.
The Bank emphasizes personal service, and customers are primarily small businesses and individuals for whom the
Bank offers a wide variety of services, including deposit accounts, consumer and commercial and mortgage loans. The
Bank has not made any material changes in its mode of conducting business during the past five years. The banking
business in the Bank’s market area is seasonal with lower deposits in the winter and spring and higher deposits in the
summer and fall. This swing is predictable and has not had a materially adverse effect on the Bank.
In addition to traditional banking services, the Company provides investment management and private banking
services through First Advisors, which is an operating division of the Bank. First Advisors is focused on taking
advantage of opportunities created as the larger banks have altered their personal service commitment to clients not
meeting established account criteria. First Advisors is able to offer a comprehensive array of private banking, financial
planning, investment management and trust services to individuals, businesses, non-profit organizations and
municipalities of varying asset size, and to provide the highest level of personal service. The staff includes investment
and trust professionals with extensive experience.
The financial services landscape has changed considerably over the past five years in the Bank’s primary market
area. Two large out-of-state banks have continued to experience local change as a result of mergers and acquisitions at
the regional and national level. Credit unions have continued to expand their membership and the scope of banking
services offered. Non-banking entities such as brokerage houses, mortgage companies and insurance companies are
offering very competitive products. Many of these entities and institutions have resources substantially greater than
those available to the Bank and are not subject to the same regulatory restrictions as the Company and the Bank.
In November of 1999, Congress adopted the Gramm-Leach-Bliley Financial Modernization Act (“GLBA”). This
legislation breaks down the firewalls separating related businesses in order to create more competition and a level
playing field in the financial services sector. GLBA eliminated depression-era restrictions which separate the business
of banking from the businesses of insurance and securities underwriting, and also resulted in modifications to protect
consumers and streamline regulation. While the Company views this legislation as an opportunity to offer a more
comprehensive range of financial products and services, at the same time it has provided additional competition in the
marketplace.
The Company believes that there will continue to be a need for a bank in the Bank’s primary market area with local
management having decision-making power and emphasizing loans to small and medium-sized businesses and to
individuals. The Bank has concentrated on extending business loans to such customers in the Bank’s primary market
area and to extending investment and trust services to clients with accounts of all sizes. The Bank’s Management also
makes decisions based upon, among other things, the knowledge of the Bank’s employees regarding the communities
and customers in the Bank’s primary market area. The individuals employed by the Bank, to a large extent, reside near
The First Bancorp 2009 Form 10-k • Page 1
the branch offices and thus are generally familiar with their communities and customers. This is important in local
decision-making and allows the Bank to respond to customer questions and concerns on a timely basis and fosters
quality customer service.
The Bank has worked and will continue to work to position itself to be competitive in its market area. The Bank’s
ability to make decisions close to the marketplace, Management’s commitment to providing quality banking products,
the caliber of the professional staff, and the community involvement of the Bank’s employees are all factors affecting
the Bank’s ability to be competitive.
Supervision and Regulation
The Company is a financial holding company within the meaning of the Bank Holding Company Act of 1956, as
amended (the “Act”), and section 225.82 of Regulation Y issued by the Board of Governors of the Federal Reserve
System (the “Federal Reserve Board”), and is required to file with the Federal Reserve Board an annual report and other
information required pursuant to the Act. The Company is subject to examination by the Federal Reserve Board.
The Act requires the prior approval of the Federal Reserve Board for a financial holding company to acquire or
hold more than a 5% voting interest in any bank, and controls interstate banking activities. The Act restricts The First
Bancorp’s non-banking activities to those which are determined by the Federal Reserve Board to be closely related to
banking. The Act does not place territorial restrictions on the activities of non-bank subsidiaries of financial holding
companies. Virtually all of the Company’s cash revenues are generally derived from dividends paid to the Company by
the Bank. These dividends are subject to various legal and regulatory restrictions which are summarized in Note 19 to
the accompanying financial statements. The Bank is regulated by the Office of the Comptroller of the Currency
(“OCC”) and is subject to the provisions of the National Bank Act. As a result, it must meet certain liquidity and capital
requirements, which are discussed in the following sections.
Customer Information Security
The Federal Deposit Insurance Corporation (“FDIC”), the OCC and other bank regulatory agencies have published
guidelines establishing standards for safeguarding nonpublic personal information about customers that implement
provisions of the GLBA (the “Guidelines”). Among other things, the Guidelines require each financial institution, under
the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop,
implement and maintain a comprehensive written information security program designed to ensure the security and
confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity
of such information, and to protect against unauthorized access to or use of such information that could result in
substantial harm or inconvenience to any customer.
Privacy
The FDIC, the OCC and other regulatory agencies have published privacy rules pursuant to provisions of the GLBA
(“Privacy Rules”). The Privacy Rules, which govern the treatment of nonpublic personal information about consumers
by financial institutions, require a financial institution to provide notice to customers (and other consumers in some
circumstances) about its privacy policies and practices, describe the conditions under which a financial institution may
disclose nonpublic personal information to nonaffiliated third parties, and provide a method for consumers to prevent a
financial institution from disclosing that information to most nonaffiliated third parties by “opting-out” of that
disclosure, subject to certain exceptions.
USA Patriot Act
The USA Patriot Act of 2001, designed to deny terrorists and others the ability to obtain anonymous access to the U.S.
financial system, has significant implications for depository institutions, broker-dealers and other businesses involved in
the transfer of money. The USA Patriot Act, together with the implementing regulations of various federal regulatory
agencies, have caused financial institutions, including the Bank, to adopt and implement additional or amend existing
policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity and
currency transaction reporting, customer identity verification and customer risk analysis. The statute and its underlying
regulations also permit information sharing for counter-terrorist purposes between federal law enforcement agencies and
financial institutions, as well as among financial institutions, subject to certain conditions, and require the Federal
Reserve Board (and other federal banking agencies) to evaluate the effectiveness of an applicant in combating money
laundering activities when considering applications filed under Section 3 of the Act or under the Bank Merger Act.
The First Bancorp 2009 Form 10-k • Page 2
The Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 (“SOX”) implements a broad range of corporate governance and accounting measures
for public companies (including publicly-held bank holding companies such as the Company) designed to promote
honesty and transparency in corporate America and better protect investors from the type of corporate wrongdoings that
occurred at Enron and WorldCom, among other companies. SOX’s principal provisions, many of which have been
implemented through regulations released and policies and rules adopted by the securities exchanges in 2003 and 2004,
provide for and include, among other things:
The creation of an independent accounting oversight board;
Auditor independence provisions which restrict non-audit services that accountants may provide to clients;
Additional corporate governance and responsibility measures, including the requirement that the chief
executive officer and chief financial officer of a public company certify financial statements;
The forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s
securities by directors and senior officers in the twelve-month period following initial publication of any
financial statements that later require restatement;
An increase in the oversight of, and enhancement of certain requirements relating to, audit committees of
public companies and how they interact with the public company’s independent auditors;
Requirements that audit committee members must be independent and are barred from accepting consulting,
advisory or other compensatory fees from the issuer;
Requirements that companies disclose whether at least one member of the audit committee is a ‘financial
expert’ (as such term is defined by the Securities and Exchange Commission (“SEC”) ) and if not, why not;
Expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions
by insiders and a prohibition on insider trading during pension blackout periods;
A prohibition on personal loans to directors and officers, except certain loans made by insured financial
institutions, such as the Bank, on nonpreferential terms and in compliance with bank regulatory requirements;
Disclosure of a code of ethics and filing a Form 8-K in the event of a change or waiver of such code; and
A range of enhanced penalties for fraud and other violations.
The Company complies with the provisions of SOX and its underlying regulations. Management believes that such
compliance efforts have strengthened the Company’s overall corporate governance structure and does not expect that
such compliance has to date had, or will in the future have, a material impact on the Company’s results of operations or
financial condition.
Capital Requirements and FDICIA
The OCC has established guidelines with respect to the maintenance of appropriate levels of capital by FDIC-insured
banks. The Federal Reserve Board has established substantially identical guidelines with respect to the maintenance of
appropriate levels of capital, on a consolidated basis, by bank holding companies. If a banking organization’s capital
levels fall below the minimum requirements established by such guidelines, a bank or bank holding company will be
expected to develop and implement a plan acceptable to the FDIC or the Federal Reserve Board, respectively, to
achieve adequate levels of capital within a reasonable period, and may be denied approval to acquire or establish
additional banks or non-bank businesses, merge with other institutions or open branch facilities until such capital levels
are achieved. Federal regulations require federal bank regulators to take “prompt corrective action” with respect to
insured depository institutions that fail to satisfy minimum capital requirements and imposes significant restrictions on
such institutions. See “Prompt Corrective Action” below.
Leverage Capital Ratio
The regulations of the OCC require national banks to maintain a minimum “Leverage Capital Ratio” or “Tier 1 Capital”
(as defined in the Risk-Based Capital Guidelines discussed in the following paragraphs) to Total Assets of 4.0%. Any
bank experiencing or anticipating significant growth is expected to maintain capital well above the minimum levels. The
Federal Reserve Board’s guidelines impose substantially similar leverage capital requirements on bank holding
companies on a consolidated basis. It is possible that banking regulators may increase minimum capital requirements for
banks should the current economic situation persist or worsen.
Risk-Based Capital Requirements
OCC regulations also require national banks to maintain minimum capital levels as a percentage of a bank’s risk-
adjusted assets. A bank’s qualifying total capital (“Total Capital”) for this purpose may include two components:
“Core” (Tier 1) Capital and “Supplementary” (Tier 2) Capital. Core Capital consists primarily of common stockholders’
equity, which generally includes common stock, related surplus and retained earnings, certain non-cumulative perpetual
preferred stock and related surplus, and minority interests in the equity accounts of consolidated subsidiaries, and
The First Bancorp 2009 Form 10-k • Page 3
(subject to certain limitations) mortgage servicing rights and purchased credit card relationships, less all other intangible
assets (primarily goodwill). Supplementary Capital elements include, subject to certain limitations, a portion of the
allowance for loan losses, perpetual preferred stock that does not qualify for inclusion in Tier 1 capital, long-term
preferred stock with an original maturity of at least 20 years and related surplus, certain forms of perpetual debt and
mandatory convertible securities, and certain forms of subordinated debt and intermediate-term preferred stock.
The risk-based capital rules assign a bank’s balance sheet assets and the credit equivalent amounts of the bank’s
off-balance sheet obligations to one of four risk categories, weighted at 0%, 20%, 50% or 100%, as applicable.
Applying these risk-weights to each category of the bank’s balance sheet assets and to the credit equivalent amounts of
the bank’s off-balance sheet obligations and summing the totals results in the amount of the bank’s total Risk-Adjusted
Assets for purposes of the risk-based capital requirements. Risk-Adjusted Assets can either exceed or be less than
reported balance sheet assets, depending on the risk profile of the banking organization. Risk-Adjusted Assets for
institutions such as the Bank will generally be less than reported balance sheet assets because its retail banking activities
include proportionally more residential mortgage loans, many of its investment securities have a low risk weighting and
there is a relatively small volume of off-balance sheet obligations.
The risk-based capital regulations require all banks to maintain a minimum ratio of Total Capital to Risk-Adjusted
Assets of 8.0%, of which at least one-half (4.0%) must be Core (Tier 1) Capital. For the purpose of calculating these
ratios: (i) a banking organization’s Supplementary Capital eligible for inclusion in Total Capital is limited to no more
than 100% of Core Capital; and (ii) the aggregate amount of certain types of Supplementary Capital eligible for
inclusion in Total Capital is further limited. For example, the regulations limit the portion of the allowance for loan
losses eligible for inclusion in Total Capital to 1.25% of Risk-Adjusted Assets. The Federal Reserve Board has
established substantially identical risk-based capital requirements, which are applied to bank holding companies on a
consolidated basis. The risk-based capital regulations explicitly provide for the consideration of interest rate risk in the
overall evaluation of a bank’s capital adequacy to ensure that banks effectively measure and monitor their interest rate
risk, and that they maintain capital adequate for that risk. A bank deemed by its federal banking regulator to have
excessive interest rate risk exposure may be required to maintain additional capital (that is, capital in excess of the
minimum ratios discussed above). The Bank believes, based on its level of interest rate risk exposure, that this provision
will not have a material adverse effect on it.
On January 9, 2009, the Company received $25 million from a preferred stock issuance of 25,000 shares under the
U.S. Treasury Capital Purchase Program (the “CPP Shares”) at a purchase price of $1,000 per share. The CPP Shares
call for cumulative dividends at a rate of 5.0% per year for the first five years, and at a rate of 9.0% per year in
following years, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year.
Incident to such issuance, the Company issued to the U.S. Treasury warrants (the “Warrants”) to purchase up to 225,904
shares of the Company’s common stock at a price per share of $16.60 (subject to adjustment). The CPP Shares and the
related Warrants (and any shares of common stock issuable pursuant to the Warrants) are freely transferable by the U.S.
Treasury to third parties and the Company has filed a registration statement with the SEC to allow for possible resale of
such securities. The CPP Shares qualify as Tier 1 capital on the Company’s books for regulatory purposes and rank
senior to the Company’s common stock and senior or at an equal level in the Company’s capital structure to any other
shares of preferred stock the Company may issue in the future. The Company may redeem the CPP Shares at any time
using any funds available to the Company, and any redemption would be subject to the prior approval of the Federal
Reserve Bank of Boston. The minimum amount that may be redeemed is 25% of the original CPP investment. The CPP
Shares are “perpetual” preferred stock, which means that neither the U.S. Treasury nor any subsequent holder would
have a right to require that the Company redeem any of the shares.
On December 31, 2009, the Company’s consolidated Total and Tier 1 Risk-Based Capital Ratios were 14.96% and
13.70%, respectively, and its Leverage Capital Ratio was 9.44%. Based on the above figures and accompanying
discussion, the Company exceeds all regulatory capital requirements and is considered well capitalized.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires, among other things, that
the federal banking regulators take “prompt corrective action” with respect to, and imposes significant restrictions on,
any bank that fails to satisfy its applicable minimum capital requirements. FDICIA establishes five capital categories
consisting of “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and
“critically undercapitalized.” Under applicable regulations, a bank that has a Total Risk-Based Capital Ratio of 10.0%
or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Leverage Capital Ratio of 5.0% or greater, and is
not subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain
a specific capital level for any capital measure is deemed to be “well capitalized.” A bank that has a Total Risk-Based
Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater and a Leverage Capital Ratio of
4.0% (or 3% for banks with the highest regulatory examination rating that are not experiencing or anticipating
The First Bancorp 2009 Form 10-k • Page 4
significant growth or expansion) or greater and does not meet the definition of a well capitalized bank is considered to
be “adequately capitalized.” A bank that has a Total Risk-Based Capital Ratio of less than 8.0% or has a Tier 1 Risk-
Based Capital Ratio that is less than 4.0%, except as noted above, a Leverage Capital Ratio of less than 4.0% is
considered “undercapitalized.” A bank that has a Total Risk-Based Capital Ratio of less than 6.0%, or a Tier 1 Risk-
Based Capital Ratio that is less than 3.0% or a Leverage Capital Ratio that is less than 3.0% is considered to be
“significantly undercapitalized,” and a bank that has a ratio of tangible equity to total assets equal to or less than 2% is
deemed to be “critically undercapitalized.” A bank may be deemed to be in a capital category lower than is indicated by
its actual capital position if it is determined to be in an unsafe or unsound condition or receives an unsatisfactory
examination rating. FDICIA generally prohibits a bank from making capital distributions (including payment of
dividends) or paying management fees to controlling stockholders or their affiliates if, after such payment, the bank
would be undercapitalized.
Under FDICIA and the applicable implementing regulations, an undercapitalized bank will be (i) subject to
increased monitoring by its primary federal banking regulator; (ii) required to submit to its primary federal banking
regulator an acceptable capital restoration plan (guaranteed, subject to certain limits, by the bank’s holding company)
within 45 days of being classified as undercapitalized; (iii) subject to strict asset growth limitations; and (iv) required to
obtain prior regulatory approval for certain acquisitions, transactions not in the ordinary course of business, and entries
into new lines of business. In addition to the foregoing, the primary federal banking regulator may issue a “prompt
corrective action directive” to any undercapitalized institution. Such a directive may (i) require sale or re-capitalization
of the bank, (ii) impose additional restrictions on transactions between the bank and its affiliates, (iii) limit interest rates
paid by the bank on deposits, (iv) limit asset growth and other activities, (v) require divestiture of subsidiaries, (vi)
require replacement of directors and officers, and (vii) restrict capital distributions by the bank’s parent holding
company. In addition to the foregoing, a significantly undercapitalized institution may not award bonuses or increases in
compensation to its senior executive officers until it has submitted an acceptable capital restoration plan and received
approval from its primary federal banking regulator.
Not later than 90 days after an institution becomes critically undercapitalized, the primary federal banking regulator
for the institution must appoint a receiver or, with the concurrence of the FDIC, a conservator, unless the agency, with
the concurrence of the FDIC, determines that the purpose of the prompt corrective action provisions would be better
served by another course of action. FDICIA requires that any alternative determination be “documented” and reassessed
on a periodic basis. Notwithstanding the foregoing, a receiver must be appointed after 270 days unless the appropriate
federal banking agency and the FDIC certify that the institution is viable and not expected to fail.
Deposit Insurance Assessments
The Bank’s deposits are insured by the Bank Insurance Fund of the FDIC to the current legal maximum of $250,000
generally for each insured depositor. Non-interest bearing checking accounts have unlimited coverage. The Federal
Deposit Insurance Act, as amended by the Federal Deposit Insurance Reform Act of 2005, provides that the FDIC shall
set deposit insurance assessment rates. In 2006, the former Bank Insurance Fund merged with the Savings Association
Insurance Fund to create the Deposit Insurance Fund, or DIF. The Act eliminated the requirement that the FDIC set
deposit insurance assessment rates on a semi-annual basis at a level sufficient to increase the ratio of BIF reserves to
BIF-insured deposits to at least 1.25%. Under the Act, the FDIC annually sets the designated reserve ratio (DRR) of
DIF reserves to DIF-insured deposits between 1.15% and 1.50%, subject to public comment, based on appropriate
considerations including risk of losses and economic conditions such that the ratio would increase during favorable
economic conditions and decrease during less favorable conditions, thus avoiding sharp swings in assessment rates.
Past bank failures and reserves against future failures lowered the FDIC insurance fund to 0.22% of insured
deposits as of June 30, 2009 from 0.40% and 1.22% at December 31, 2008 and 2007, respectively. To keep the fund
from falling to a level that could undermine public confidence, there was a one-time special insurance premium charged
to all FDIC-insured banks of 0.05% on each insured depository institution’s total assets minus Tier 1 capital as of June
30, 2009. To ensure that the reserve ratio returns to 1.15% within the statutorily mandated period of time, in 2009 the
FDIC Board took the following steps:
Impose no further special assessments under the final rule adopted in May 2009.
Maintain assessment rates at their current levels through the end of 2010 and thereafter adopt a uniform 3 basis
point increase in assessment rates effective January 1, 2011.
Extend to eight years the Amended Restoration Plan to raise the Deposit Insurance Fund reserve ratio to 1.15
percent.
Require all institutions to prepay, on December 30, 2009, their estimated risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011, and 2012, at the same time that institutions pay their regular
quarterly deposit insurance assessments for the third quarter of 2009. An institution would initially account for
the prepaid assessments as a prepaid expense and amortize this amount over a three-year period.
The First Bancorp 2009 Form 10-k • Page 5
Brokered Deposits and Pass-Through Deposit Insurance Limitations
Under FDICIA, a bank cannot accept brokered deposits unless it either (i) is “Well Capitalized” or (ii) is “Adequately
Capitalized” and has received a written waiver from its primary federal banking regulator. For this purpose, “Well
Capitalized” and “Adequately Capitalized” have the same definitions as in the Prompt Corrective Action regulations.
See “Prompt Corrective Action” above. Banks that are not in the “Well Capitalized” category are subject to certain
limits on the rates of interest they may offer on any deposits (whether or not obtained through a third-party deposit
broker). Pass-through insurance coverage is not available in banks that do not satisfy the requirements for acceptance of
brokered deposits for deposits of certain employee benefit plans, except that pass-through insurance coverage will be
provided for employee benefit plan deposits in institutions which at the time of acceptance of the deposit meet all
applicable regulatory capital requirements and send written notice to their depositors that their funds are eligible for
pass-through deposit insurance. The Bank currently accepts brokered deposits.
Real Estate Lending Standards
FDICIA requires the federal bank regulatory agencies to adopt uniform real estate lending standards. The FDIC and the
OCC have adopted regulations which establish supervisory limitations on Loan-to-Value (“LTV”) ratios in real estate
loans by FDIC-insured banks, including national banks. The regulations require banks to establish LTV ratio limitations
within or below the prescribed uniform range of supervisory limits.
Standards for Safety and Soundness
Pursuant to FDICIA the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all
insured depository institutions and depository institution holding companies relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation standards prohibit employment contracts,
compensation or benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that
would provide “excessive” compensation, fees or benefits, or that could lead to material financial loss. In addition, the
federal bank regulatory agencies are required by FDICIA to prescribe standards specifying: (i) maximum classified
assets to capital ratios; (ii) minimum earnings sufficient to absorb losses without impairing capital; and (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly-traded shares of depository institutions and
depository institution holding companies.
Consumer Protection Provisions
FDICIA also includes provisions requiring advance notice to regulators and customers for any proposed branch closing
and authorizing (subject to future appropriation of the necessary funds) reduced insurance assessments for institutions
offering “lifeline” banking accounts or engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to depositors with respect to the rates of
interest, fees and other terms applicable to consumer deposit accounts.
FDIC Waiver of Certain Regulatory Requirements
The FDIC issued a rule, effective on September 22, 2003, that includes a waiver provision which grants the FDIC Board
of Directors extremely broad discretionary authority to waive FDIC regulatory provisions that are not specifically
mandated by statute or by a separate regulation.
Impact of Monetary Policy
The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the
operating results of banks and bank holding companies. Through open market securities transactions and changes in its
discount rate and reserve requirements, the Board of Governors exerts considerable influence over the cost and
availability of funds for lending and investment. The nature of future monetary policies and the effect of such policies
on the future business and earnings of the Company and the Bank cannot be predicted. See Item 7 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations, regarding the Bank’s net interest margin and
the effect of interest-rate volatility on future earnings.
Employees
At December 31, 2009, the Company had 212 employees and full-time equivalency of 206 employees. The Company
enjoys good relations with its employees. A variety of employee benefits, including health, group life and disability
income, a defined contribution retirement plan, and an incentive bonus plan, are available to qualifying officers and
employees.
The First Bancorp 2009 Form 10-k • Page 6
Company Website
The Company maintains a website at www.thefirstbancorp.com where it makes available, free of charge, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as all
Section 16 reports on Forms 3, 4, and 5, as soon as reasonably practicable after such reports are electronically filed
with, or furnished to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available at the
SEC’s website at www.sec.gov. Information contained on the Company’s website does not constitute a part of this
report.
The First Bancorp 2009 Form 10-k • Page 7
ITEM 1A. Risk Factors
The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties
that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us and our
business. If any of these risks were to occur, our business, financial condition or results of operations could be
materially and adversely affected.
Recent negative developments in the financial services industry and U.S. and global credit markets may adversely
impact our operations and results.
Negative developments in 2007, 2008 and 2009 in the capital markets have resulted in uncertainty in the financial
markets in general with the expectation of the general economic downturn continuing in 2010 and perhaps beyond
2010. The impact of this situation, together with concerns regarding the financial strength of financial institutions, has
led to distress in credit markets and issues relating to liquidity among financial institutions. Some financial institutions
around the world and the United States have failed; others have been forced to seek acquisition partners. Loan portfolio
value has deteriorated at many institutions resulting from, amongst other factors, a weak economy and a decline in the
value of the collateral supporting their loans. The competition for our deposits has increased significantly due to
liquidity concerns at many of these same institutions. Stock prices of bank holding companies, like ours, have been
negatively affected by the current condition of the financial markets, as has our ability, if needed, to raise capital or
borrow in the debt markets compared to recent years. The United States and other governments have taken
unprecedented steps to try to stabilize the financial system, including investing in financial institutions. Our business
and our financial condition and results of operations could be adversely affected by (1) continued or accelerated
disruption and volatility in financial markets, (2) continued capital and liquidity concerns regarding financial institutions
generally and our counterparties specifically, (3) recessionary conditions that are deeper or last longer than currently
anticipated, or (4) new federal or state laws and regulations regarding lending and funding practices and liquidity
standards, and the likelihood that financial institution regulatory agencies will be very aggressive in responding to
concerns and trends identified in examinations, including the expected issuance of formal enforcement actions.
Negative developments in the financial services industry and the impact of new legislation in response to those
developments could negatively impact our operations by restricting our business operations, including our ability to
originate or sell loans, and adversely impact our financial performance.
Recent legislative and regulatory initiatives to address difficult market and economic conditions may not stabilize the
U.S. banking system.
The recently enacted Emergency Economic Stabilization Act of 2008, or EESA, authorizes the U.S. Treasury to
purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related
securities and certain other financial instruments, including debt and equity securities issued by financial institutions
and their holding companies, under the troubled asset relief program, or TARP. The purpose of TARP is to restore
confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to
customers and to each other. The Treasury has allocated $250 billion towards the TARP Capital Purchase Program.
Under the TARP Capital Purchase Program, Treasury has purchased equity securities from participating institutions.
The EESA also increased federal deposit insurance on most deposit accounts from $100,000 to $250,000. This increase
is in place until the end of 2013. The EESA followed numerous actions by the Federal Reserve Board, the U.S.
Congress, Treasury, the Federal Deposit Insurance Corporation, the SEC and others to address the current liquidity and
credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner
relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities
for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short
selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper
funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to
address illiquidity and other weaknesses in the banking sector.
There can be no assurance that the Emergency Economic Stabilization Act (“EESA”), the American Recovery and
Reinvestment Act of 2009, and other initiatives undertaken by the United States government to restore liquidity and
stability to the U.S. financial system will help stabilize and stimulate the U.S. financial system.
The purpose of these legislative and regulatory actions is to stabilize the U.S. banking system. The EESA and the other
regulatory initiatives described above may not have their desired effects. If the volatility in the markets continues and
economic conditions fail to improve or worsen, our business, financial condition and results of operations could be
materially and adversely affected. There can be no assurance regarding the actual impact that the EESA or the American
Recovery and Reinvestment Act of 2009, or other programs and other initiatives undertaken by the U.S. government,
will have on the financial markets; the extreme levels of volatility and limited credit availability currently being
The First Bancorp 2009 Form 10-k • Page 8
experienced may persist. The failure of the EESA or other government programs to help stabilize the financial markets
and a continuation or worsening of current financial market conditions could have a material adverse effect on the
Company. In the event turmoil in the financial markets continues, we may experience a material adverse effect from (1)
continued or accelerated disruption and volatility in financial markets, (2) continued capital and liquidity concerns
regarding financial institutions generally and our transaction counterparties specifically, (3) limitations resulting from
further governmental action to stabilize or provide additional regulation of the financial system, or (4) recessionary
conditions that are deeper or last longer than currently anticipated.
The soundness of other financial services institutions may adversely affect our credit risk.
We rely on other financial services institutions through trading, clearing, counterparty, and other relationships. We
maintain limits and monitor concentration levels of our counterparties as specified in our internal policies. Our reliance
on other financial services institutions exposes us to credit risk in the event of default by these institutions or
counterparties. These losses could adversely affect our results of operations and financial condition.
Declines in value may adversely impact the investment portfolio.
As of December 31, 2009, we had $81.8 million and $190.5 million in available for sale and held to maturity investment
securities, respectively. We may be required to record impairment charges on our investment securities if they suffer a
decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of
certain investment securities, absence of reliable pricing information for investment securities, adverse changes in
business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a
negative effect on our investment portfolio in future periods. If an impairment charge is significant enough it could
affect the ability of the Bank to renew funding. This could have a material adverse effect on our liquidity and our ability
to upstream dividends to the Company to then pay dividends to Shareholders. It could also negatively impact our
regulatory capital ratios and result in not being classified as “well-capitalized” for regulatory purposes.
Changes in interest rates can have an adverse effect on profitability.
Our earnings and cash flows are largely dependent upon the Bank’s net interest income. Net interest income is the
difference between interest income earned on interest-earning assets, such as loans and investment securities, and
interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are sensitive to
many factors that are beyond our control, including general economic conditions, competition, and policies of various
governmental and regulatory agencies and, in particular, the policies of the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, could influence not only the interest the Bank receives on loans and
investment securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect
(i) the Bank’s ability to originate loans and obtain deposits, (ii) the fair value of the Bank’s financial assets and
liabilities, including the held to maturity, available for sale, and trading securities portfolios, and (iii) the average
duration of the Bank’s interest-earning assets. This also includes the risk that interest-earning assets may be more
responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk that the
individual interest rates or rate indices underlying various interest-earning assets and interest-bearing liabilities may not
change in the same degree over a given time period (basis risk), and the risk of changing interest rate relationships
across the spectrum of interest-earning asset and interest-bearing liability maturities (yield curve risk), including a
prolonged flat or inverted yield curve environment. Although Management believes it has implemented effective asset
and liability management strategies to reduce the potential effects of changes in interest rates on our results of
operations, any substantial, unexpected, or prolonged change in market interest rates could have a material adverse
effect on our financial condition and results of operations.
Regulation.
Bank holding companies and nationally chartered banks operate in a highly regulated environment and are subject to
supervision and examination by various regulatory agencies. The Company is subject to the Bank Holding Company
Act of 1956, as amended, and to regulation and supervision by the Federal Reserve Board. The Bank is subject to
regulation and supervision by the Office of the Comptroller of the Currency, or the OCC. The cost of compliance with
regulatory requirements may adversely affect our results of operations or financial condition. Federal and state laws and
regulations govern numerous matters including: changes in the ownership or control of banks and bank holding
companies; maintenance of adequate capital and the financial condition of a financial institution; permissible types,
amounts and terms of extensions of credit and investments; permissible non-banking activities; the level of reserves
against deposits; and restrictions on dividend payments. The OCC possesses cease and desist powers to prevent or
remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve
Board possesses similar powers with respect to bank holding companies. These and other restrictions limit the manner
in which we may conduct our business and obtain financing.
The First Bancorp 2009 Form 10-k • Page 9
Under regulatory capital adequacy guidelines and other regulatory requirements, we must meet guidelines that
include quantitative measures of assets, liabilities, and certain off-balance sheet items, subject to qualitative judgments
by regulators about components, risk weightings and other factors. If we fail to meet these minimum capital guidelines
and other regulatory requirements, our financial condition would be materially and adversely affected. Our failure to
maintain the status of “well-capitalized” under our regulatory framework could affect the confidence of our customers
in us, thus compromising our competitive position. In addition, failure to maintain the status of “well-capitalized” under
our regulatory framework or “well-managed” under regulatory examination procedures could compromise our status as
a bank holding company and related eligibility for a streamlined review process for acquisition proposals.
The Cost of FDIC Insurance May Increase.
The FDIC has publicly stated that past bank failures and reserves against future failures have lowered the FDIC
insurance fund to 0.22% of insured deposits as of June 30, 2009 from 0.40% and 1.22% at December 31, 2008 and
2007, respectively. In order to keep the insurance fund from falling to a level that could undermine public confidence,
there was a one-time special insurance premium paid by all FDIC-insured banks of 0.05% on each insured depository
institution’s total assets minus Tier 1 capital as of June 30, 2009. To ensure that the reserve ratio returns to 1.15%
within the statutorily mandated period of time, meet the FDIC’s liquidity needs without imposing additional burdens on
the industry during a period of stress, and ensure that the deposit insurance system remains directly industry-funded, in
2009 the FDIC Board took the following steps:
Impose no further special assessments under the final rule adopted in May 2009.
Maintain assessment rates at their current levels through the end of 2010 and thereafter adopt a uniform 3 basis
point increase in assessment rates effective January 1, 2011.
Extend to eight years the Amended Restoration Plan to raise the Deposit Insurance Fund reserve ratio to 1.15
percent.
Require all institutions to prepay, on December 30, 2009, their estimated risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011, and 2012, at the same time that institutions pay their regular
quarterly deposit insurance assessments for the third quarter of 2009. An institution would initially account for
the prepaid assessments as a prepaid expense and amortize this amount over a three-year period.
While the FDIC projects that the 2009 special assessment, raising the assessment schedule and prepaying three-
year’s projected assessments will recapitalize the insurance fund to 1.15% of insured deposits in eight years, there can
be no assurance that additional payments related to FDIC insurance will not be required and that such payments could
materially or adversely affect the Company’s results of operations.
Interest rate risk.
Our main source of income is net interest income, which is equal to the difference between the interest income received
on loans, investment securities and other interest-bearing assets and the interest expense incurred in connection with
deposits, borrowings and other interest-bearing liabilities. As a result, our net interest income can be affected by
changes in market interest rates. These rates are highly sensitive to many factors beyond our control, including general
economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and
regulatory authorities. We have asset and liability management policies that attempt to minimize the potential adverse
effects of changes in interest rates on our net interest income, primarily by altering the mix and maturity of loans,
investments and funding sources. However, even with these policies in place, we cannot provide assurance that changes
in interest rates will not negatively impact our operating results. For a further discussion on the Company’s exposure to
interest rate risk, see Item 7A: Quantitative and Qualitative Disclosures about Market Risk.
Furthermore, our banking business is affected not only by general economic conditions, but also by the monetary
policies of the Federal Reserve Board. Changes in monetary or legislative policies may affect the interest rates we must
offer to attract deposits and the interest rates we can charge on our loans, as well as the manner in which we offer
deposits and make loans. These monetary policies have had, and are expected to continue to have, significant effects on
the operating results of depository institutions, including the Bank. Increases in interest rates also may reduce the
demand for loans and, as a result, the amount of loan and commitment fees the Bank receives.
Credit risk.
A number of factors can impact the ability of borrowers to repay their current loan obligations, which could not only
result in increased loan defaults, foreclosures and write-offs, but also necessitate further increases to our allowance for
loan losses. If customers default on the repayment of their loans, our profitability could be adversely affected. A
borrower’s default on its obligations under one or more of our loans may result in lost principal and interest income and
increased operating expenses as a result of the allocation of Management time and resources to the collection and work-
out of the loans. If collection efforts are unsuccessful or acceptable workout arrangements cannot be reached, we may
The First Bancorp 2009 Form 10-k • Page 10
have to write-off the loans in whole or in part. Although we may acquire real estate or other assets that secure the
defaulted loans through foreclosure or other similar remedies, the amount owed under the defaulted loans may exceed
the value of the assets acquired.
Management periodically makes a determination of our allowance for loan losses based on available information,
including the quality of our loan portfolio, economic conditions, the value of the underlying collateral and the level of
our non-accruing loans. If assumptions prove to be incorrect, our allowance may not be sufficient. Increases in this
allowance will result in an expense for the period. If, as a result of general economic conditions or an increase in non-
performing loans, Management determines that an increase in our allowance for loan losses is necessary, we may incur
additional expenses.
As an integral part of their examination processes, bank regulatory agencies periodically review our allowance for
loan losses and the value we attribute to real estate acquired through foreclosure or other similar remedies. These
regulatory agencies may require us to adjust our determination of the value of these items. These adjustments could
negatively impact our results of operations or financial condition.
Because we serve primarily individuals and smaller businesses located in coastal Maine, the ability of customers to
repay their loans is impacted by the economic conditions in this area. In addition, our ability to continue to originate
loans may be impaired by adverse changes in local and regional economic conditions. These events also could have an
adverse effect on the value of our collateral and our financial condition.
In the course of business, we may acquire, through foreclosure, properties securing loans that are in default. In
commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this
event, we might be required to remove these substances from the affected properties at our sole cost and expense. The
cost of this removal could exceed the value of the affected properties. We may not have adequate remedies against the
prior owners or other responsible parties and could find it difficult or impossible to sell the affected properties. The
occurrence of one or more of these events could adversely affect our financial condition or operating results.
Liquidity and funding.
We have traditionally obtained funds principally through deposits and borrowings. As a general matter, deposits are a
lower-cost source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates
charged for borrowings. If, as a result of competitive pressures, market interest rates, general economic conditions or
other events, the balance of our deposits decreases relative to our overall banking operations, we may have to rely more
heavily on borrowings as a source of funds in the future. Such an increased reliance on borrowings could have a
negative impact on our results of operations or financial condition. In addition, fluctuations in interest rates may result
in disintermediation, which is the flow of funds away from depository institutions into direct investments that pay
higher rates of return, and may affect the value of our investment securities and other interest-earning assets.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect
us specifically or the financial services industry in general. Factors that could detrimentally impact our access to
liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory
action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe
disruption of the financial markets or negative views and expectations about the prospects for the financial services
industry as a whole should the recent turmoil faced by banking organizations in the domestic and worldwide credit
markets continue or worsen.
Loss of lower-cost funding sources.
Checking and savings, NOW, and money market deposit account balances and other forms of customer deposits can
decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return
tradeoff. If customers move money out of bank deposits and into other investments, we could lose a relatively low cost
source of funds, increasing our funding costs and reducing our net interest income and net income. Advances from the
Federal Home Loan Bank of Boston (“FHLB”) are currently a relatively low-cost source of funding. The availability of
qualified collateral on the Bank’s balance sheet determines the level of advances available from FHLB and a
deterioration in quality in the Bank’s loan portfolio can adversely impact the availability of this source of funding.
Competition in the financial services industry.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are
larger and may have more financial resources than we do. We compete with other providers of financial services such as
commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage
companies, asset managers, insurance companies and a wide array of other local, regional and national institutions
which offer financial services. Mergers between financial institutions within Maine and in neighboring states have
added competitive pressure. If we are unable to compete effectively, we will lose market share and our income
generated from loans, deposits, and other financial products will decline.
The First Bancorp 2009 Form 10-k • Page 11
Allowance for loan losses may be insufficient.
The Bank maintains an allowance for loan losses based on, among other things, national and regional economic
conditions, historical loss experience and delinquency trends. We make various assumptions and judgments about the
collectability of our loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other
assets serving as collateral for the repayment of loans. In determining the size of the allowance for loan losses, we rely
on our experience and our evaluation of economic conditions. However, we cannot predict loan losses with certainty,
and we cannot provide assurance that charge-offs in future periods will not exceed the allowance for loan losses. During
2009, the Bank experienced incremental increases in both non-performing loans and net loan charge-offs, as compared
to prior periods. No assurance can be given that the relevant economic and market conditions will improve or will not
further deteriorate. Hence, the persistence or worsening of such conditions could result in an increase in delinquencies,
could cause a decrease in our interest income, or could continue to have an adverse impact on our loan loss experience,
which, in turn, may necessitate increases to our allowance for loan losses. If net charge-offs exceed the Bank’s
allowance, its earnings would decrease. In addition, regulatory agencies review the Bank’s allowance for loan losses
and may require additions to the allowance based on their judgment about information available to them at the time of
their examination. Management could also decide that the allowance for loan losses should be increased. An increase in
the Bank’s allowance for loan losses could reduce its earnings.
Changes in primary market area could adversely impact results of operations and financial condition.
Most of the Bank’s lending is in Mid-Coast and Down East Maine. As a result of this geographic concentration, a
significant broad-based deterioration in economic conditions in this area or Northern New England could have a
material adverse impact on the quality of the Bank’s loan portfolio, and accordingly, our results of operations. Such a
decline in economic conditions could impair borrowers’ ability to pay outstanding principal and interest on loans when
due and, consequently, adversely affect the cash flows of our business.
The Bank’s loan portfolio is largely secured by real estate collateral. A substantial portion of the real and personal
property securing the loans in the Bank’s portfolio is located in Mid-Coast and Down East Maine. Conditions in the real
estate market in which the collateral for the Bank’s loans is located strongly influence the level of the Bank’s non-
performing loans and results of operations. The recent decline in the Mid-Coast and Down East Maine area real estate
values, as well as other external factors, could adversely affect the Bank’s loan portfolio.
Operational risk.
We face the risk that the design of our controls and procedures, including those to mitigate the risk of fraud by
employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection of errors
or inaccuracies in data and information. Management regularly reviews and updates our internal controls, disclosure
controls and procedures, and corporate governance policies and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to
comply with regulations related to controls and procedures could have a material adverse effect on our business, results
of operations and financial condition.
We may also be subject to disruptions of our systems arising from events that are wholly or partially beyond our
control (including, for example, computer viruses or electrical or telecommunications outages), which may give rise to
losses in service to customers and to financial loss or liability. We are further exposed to the risk that our external
vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational
errors by their respective employees as are we) and to the risk that our (or our vendors’) business continuity and data
security systems prove to be inadequate.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. There is intense
competition in the financial services industry for qualified employees. In addition, we face increasing competition with
businesses outside the financial services industry for the most highly skilled individuals. Our business operations could
be adversely affected if we were unable to attract new employees and retain and motivate our existing employees.
Claims and litigation pertaining to fiduciary responsibility or lender liability.
From time to time as part of our normal course of business, customers make claims and take legal action against the
Bank based on actions or inactions of the Bank. If such claims and legal actions are not resolved in a manner favorable
to us, they may result in financial liability and/or adversely affect the market perception of the Company and its
products and services. This may also impact customer demand for the Company’s products and services. Any financial
liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material
adverse effect on our financial condition and results of operations.
The First Bancorp 2009 Form 10-k • Page 12
There may not be a robust trading market for the common stock.
Although our common stock is traded on the NASDAQ Global Select market, the trading volume of the common stock
has historically not been substantial. Over the five-year period ending December 31, 2009, for example, the average
monthly trading volume of our common stock has been 185,745 shares or approximately 1.91% of the outstanding
common stock. Due to the limited trading volume in our common stock, the intraday spread between bid and ask prices
of the shares can be quite high. There can be no assurance that a more robust, active or economical trading market for
our common stock will develop. The market value and liquidity of our common stock may, as a result, be adversely
affected.
The price of our common stock may fluctuate.
The price of our common stock on the NASDAQ Global Select Market constantly changes and recently, given the
uncertainty in the financial markets, has fluctuated widely. We expect the market price of our common stock will
continue to fluctuate. Holders of our common stock will be subject to the risk of volatility and changes in prices. Our
common stock price can fluctuate as a result of many factors which are beyond our control, including:
quarterly fluctuations in our operating and financial results;
operating results that vary from the expectations of Management, securities analysts and investors;
changes in expectations as to our future financial performance, including financial estimates by securities
analysts;
events negatively impacting the financial services industry which result in a general decline for the industry;
announcements of material developments affecting our operations or our dividend policy;
future sales of our equity securities;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles; and
general domestic economic and market conditions.
In addition, recently the stock market generally has experienced extreme price and volume fluctuations, and industry
factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest
rate changes or credit loss trends, could also cause our stock price to decrease regardless of our operating results.
Future offerings of debt or other securities may adversely affect the market price of our stock.
In the future, we may attempt to increase our capital resources or, if our or the Bank’s capital ratios approach or fall
below the required minimums, we or the Bank could be forced to raise additional capital by making additional offerings
of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated
notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with
respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Additional equity offerings may dilute the value for existing Shareholders or reduce the market price of our common
stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.
ITEM 1B. Unresolved Staff Comments
None
The First Bancorp 2009 Form 10-k • Page 13
ITEM 2. Properties
The principal office of the Company and the Bank is located in Damariscotta, Maine. The Bank operates 14 full-service
banking offices in four counties in the Mid-Coast and Down East regions of Maine:
Lincoln County
Boothbay Harbor
Damariscotta
Waldoboro
Wiscasset
Knox County
Camden
Rockland
Rockport
Hancock County
Bar Harbor
Blue Hill
Ellsworth
Northeast Harbor
Southwest Harbor
Washington County
Eastport
Calais
First Advisors, the investment management and trust division of the Bank, operates from two offices in Bar Harbor
and Damariscotta. The Bank also maintains an Operations Center in Damariscotta.
The Company owns all of its facilities except for the land on which the Ellsworth branch is located, and except for
the Camden, Calais, and Northeast Harbor offices and the Southwest Harbor drive-up facility, for which the Bank has
entered into long-term leases. Management believes that the Bank’s current facilities are suitable and adequate in light
of its current needs and its anticipated needs over the near term.
ITEM 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or the Bank is a party or to which any of its
property is subject, other than routine litigation incidental to the business of the Bank. None of these proceedings is
expected to have a material effect on the financial condition of the Company or of the Bank.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
The First Bancorp 2009 Form 10-k • Page 14
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
The common stock of The First Bancorp (ticker symbol FNLC) trades on the NASDAQ Global Select Market System.
As of December 31, 2009, there were 9,744,170 shares outstanding and held of record by approximately 3,446
Shareholders. The following table reflects the high and low prices of actual sales in each quarter of 2009 and 2008.
Such quotations do not reflect retail mark-ups, mark-downs or brokers’ commissions.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2009
2008
High
$20.29
21.80
20.50
19.00
Low
$10.77
14.49
17.29
14.65
High
$15.74
18.00
23.05
22.98
Low
$13.95
13.65
12.88
12.84
The last transaction in the Company’s stock on NASDAQ during 2009 was on December 31 at $15.42 per share.
There are no warrants outstanding with respect to the Company’s common stock other than warrants to purchase up to
225,904 shares of its common stock (subject to adjustment) at $16.60 per share issued to the U.S. Treasury incident to
the Company’s participation in the CPP program. The Company has no securities outstanding which are convertible
into common equity.
The ability of the Company to pay cash dividends depends on receipt of dividends from the Bank. While the
Company’s preferred stock issued under the CPP Program remains outstanding, the Company may not increase the
dividend paid on its common stock without U.S. Treasury approval during the first three years. Dividends may be
declared by the Bank out of its net profits as the directors deem appropriate, subject to the limitation that the total of all
dividends declared by the Bank in any calendar year may not exceed the total of its net profits of that year plus retained
net profits of the preceding two years. The amount available for dividends in 2010 will be that year’s net income plus
$11.8 million. The payment of dividends from the Bank to the Company may be additionally restricted if the payment
of such dividends resulted in the Bank failing to meet regulatory capital requirements. The Bank is also required to
maintain minimum amounts of capital-to-total-risk-weighted-assets, as defined by banking regulators. At December 31,
2009, the Bank was required to have minimum Tier 1 and Tier 2 risk-based capital ratios of 4.00% and 8.00%,
respectively. The Bank’s actual ratios were 13.62% and 14.88%, respectively, as of December 31, 2009. The table
below sets forth the cash dividends declared in the last two fiscal years:
Date Declared
March 20, 2008
June 19, 2008
September 18, 2008
December 18, 2008
March 18, 2009
June 18, 2009
September 17, 2009
December 17, 2009
Amount Per Share
$0.185
$0.190
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Date Payable
April 30, 2008
July 31, 2008
October 31, 2008
January 30, 2009
April 30, 2009
July 31, 2009
October 30, 2009
January 29, 2010
The First Bancorp 2009 Form 10-k • Page 15
Securities Authorized for Issuance Under Equity Compensation Plans
The following table lists the amount and weighted-average exercise price of securities authorized for issuance under
equity compensation plans:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
(c)
55,000
$15.89
-
55,000
-
$15.89
-
-
-
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved
by security holders
Total
Performance Graph
Set forth below is a line graph comparing the five-year cumulative total return of $100.00 invested in the Company’s
common stock (“FNLC”), assuming reinvestment of all cash dividends and retention of all stock dividends, with a
comparable amount invested in the Standard & Poor’s 500 Index (“S&P 500”) and the NASDAQ Combined Bank
Index (“NASD Bank”). The NASD Bank index is a capitalization-weighted index designed to measure the performance
of all NASDAQ stocks in the banking sector.
2004
FNLC
S&P 500
NASD Bank 100.00
2006
2005
100.00 103.71 102.02
100.00 104.92 121.49 128.13
89.48
98.04 111.59
2009
2008
2007
93.15 133.86 107.09
80.72 102.09
58.99
70.25
The First Bancorp 2009 Form 10-k • Page 16
Repurchase of Shares and Use of Proceeds
On August 16, 2007, the Company announced that its Board of Directors had authorized a program for the repurchase
of up to 300,000 shares of the Company’s common stock or approximately 3.1% of the outstanding shares. This
program ended on August 16, 2009. Under the program the Company repurchased 182,869 shares at an average price of
$15.63 and at a total cost of $2.9 million. As a consequence of the Company’s issuance of securities under the U.S.
Treasury’s CPP program, its ability to repurchase stock while such securities remain outstanding is restricted to
purchases from employee benefit plans. During the year ended December 31, 2009, the Company repurchased 15,925
shares from employee benefit plans at an average price of $16.51 per share and for total proceeds of $263,000.
Repurchase transactions from employee benefit plans in 2009 are detailed in the following table:
Total
Number of
Shares
Purchased
1,077
820
666
1
75
-
4,717
260
70
860
7,378
1
15,925
Average
Price Paid
Per Share
$ 16.50
14.46
13.93
20.00
16.21
-
19.26
19.89
19.13
17.06
15.02
11.00
$ 16.51
Month
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
Total
Total Number of Shares
Purchased as Part of a
Publicly Announced Plan
or Program
Maximum Number of
Shares that may yet be
Purchased under the Plan or
Program
1,077
820
666
1
75
-
4,717
40
-
-
-
-
7,396
123,450
122,630
121,964
121,963
121,888
121,888
117,171
-
-
-
-
-
-
Unregistered Sales of Equity Securities
The Company issues shares to the Bank’s 401k Investment and Savings Plan pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the “Securities Act”), contained in Section 3(a)(11) thereof and Rule 147
promulgated thereunder. Sales in 2009 are presented in the following table:
Month
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
Total
Shares Average Price
$ 16.57
14.62
12.46
16.77
15.61
17.39
19.05
19.85
18.69
17.67
15.31
-
$ 14.73
385
671
5,552
1,138
633
592
577
355
400
404
705
-
11,412
Proceeds
$ 6,378
9,807
69,183
19,088
9,880
10,296
10,990
7,047
7,477
7,137
10,794
-
$168,077
In addition, on January 9, 2009, the Company issued 25,000 shares of its Series A Preferred Stock, as well as
warrants to purchase up to 225,904 shares of its common stock, to the U.S. Treasury under the CPP Program for total
proceeds of $25,000,000 pursuant to an exemption from registration under Section 4(2) of the Securities Act. The
preferred shares were subsequently registered with the Securities and Exchange Commission.
The First Bancorp 2009 Form 10-k • Page 17
ITEM 6. Selected Financial Data
The First Bancorp, Inc. and Subsidiary
Dollars in thousands,
except for per share amounts
Summary of Operations
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Non-Interest Income
Non-Interest Expense
Net Income
Per Common Share Data
Net Income
Basic
Diluted
Cash Dividends (Declared)
Book Value
Market Value
Financial Ratios
Return on Average Equity
Return on Average Tangible Equity
Return on Average Assets
Average Equity to Average Assets
Average Tangible Equity to Average Assets
Net Interest Margin (Tax-Equivalent)
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2009
Years ended December 31,
2008
2007
2006
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 71,721
39,885
31,836
1,432
10,145
22,183
13,101
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
2005
$ 50,431
18,848
31,583
200
9,034
22,518
12,843
$ 1.22
1.22
0.780
12.66
15.42
$ 1.45
1.44
0.765
12.09
19.89
$ 1.34
1.34
0.690
11.58
14.64
$ 1.25
1.25
0.610
10.98
16.72
$ 1.32
1.30
0.530
10.52
17.58
10.66%
13.77
0.96
10.85
8.80
3.66
63.93
1.43
1.95
1.80
43.39
12.02%
15.75
1.10
9.14
6.98
3.33
52.76
0.90
1.27
1.31
46.07
11.89%
15.89
1.13
9.53
7.13
3.13
51.49
0.74
0.31
0.56
50.16
11.63%
15.75
1.14
9.81
7.24
3.24
48.80
0.76
0.42
0.32
52.12
12.98%
17.81
1.36
10.44
7.61
3.84
40.15
0.79
0.40
0.30
52.89
952,492
272,375
922,667
249,778
$ 147,938
$1,331,394 $1,325,744 $1,223,250 $1,104,869 $1,042,209
772,338
173,033
713,964
215,189
$ 103,452
Low
$10.77
838,145
172,301
805,235
179,862
$ 107,327
High
$21.80
920,164
208,585
781,280
316,719
$ 112,453
979,273
247,839
925,736
272,074
$ 117,181
Market price per common share of stock during 2009
The First Bancorp 2009 Form 10-k • Page 18
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The First Bancorp, Inc. (the “Company”) was incorporated in the State of Maine on January 15, 1985, and is the parent
holding company of The First, N.A. (the “Bank”). At the Company’s Annual Meeting of Shareholders on April 30,
2008, the Company’s name was changed to The First Bancorp, Inc. from First National Lincoln Corporation.
The Company generates almost all of its revenues from the Bank, which was chartered as a national bank under the laws
of the United States on May 30, 1864. The Bank, which has fourteen offices along coastal Maine, emphasizes personal
service to the communities it serves, concentrating primarily on small businesses and individuals.
The Bank offers a wide variety of traditional banking services and derives the majority of its revenues from net
interest income – the spread between what it earns on loans and investments and what it pays for deposits and borrowed
funds. While net interest income typically increases as earning assets grow, the spread can vary up or down depending
on the level and direction of movements in interest rates. Management believes the Bank has modest exposure to
changes in interest rates, as discussed in “Interest Rate Risk Management” elsewhere in Management’s Discussion. The
banking business in the Bank’s market area historically has been seasonal with lower deposits in the winter and spring
and higher deposits in the summer and fall. This seasonal swing is fairly predictable and has not had a materially
adverse effect on the Bank.
Non-interest income is the Bank’s secondary source of revenue and includes fees and service charges on deposit
accounts, fees for processing merchant credit card receipts, income from the sale and servicing of mortgage loans, and
income from investment management and private banking services through First Advisors, a division of the Bank.
Forward-Looking Statements
This report contains statements that are “forward-looking statements.” We may also make written or oral forward-
looking statements in other documents we file with the SEC, in our annual reports to Shareholders, in press releases and
other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-
looking statements by the use of the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “assume”, “outlook”,
“will”, “should”, “may”, “might, “could”, and other expressions that predict or indicate future events and trends and
which do not relate to historical matters. You should not rely on forward-looking statements, because they involve
known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company.
These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company
to be materially different from the anticipated future results, performance or achievements expressed or implied by the
forward-looking statements.
Some of the factors that might cause these differences include the following: changes in general national, regional
or international economic conditions or conditions affecting the banking or financial services industries or financial
capital markets, volatility and disruption in national and international financial markets, government intervention in the
U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the
balance and mix of loans and deposits, reductions in the market value of wealth management assets under
administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan
collectibility, default and charge-off rates, changes in the size and nature of the Company’s competition, changes in
legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in
making such forward-looking statements. In addition, the factors described under “Risk Factors” in Item 1A of this
Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the SEC, may result in these
differences. You should carefully review all of these factors, and you should be aware that there may be other factors
that could cause these differences. These forward-looking statements were based on information, plans and estimates at
the date of this quarterly report, and we assume no obligation to update any forward-looking statements to reflect
changes in underlying assumptions or factors, new information, future events or other changes.
Although The First Bancorp, Inc. believes that the expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially from the results discussed in these forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties
of the facts that affect the Company’s business.
The First Bancorp 2009 Form 10-k • Page 19
Critical Accounting Policies
Management’s discussion and analysis of the Company’s financial condition is based on the consolidated financial
statements which are prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of such financial statements requires Management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, Management evaluates its estimates, including those related to the allowance for loan
losses, goodwill, the valuation of mortgage servicing rights, and other-than-temporary impairment on securities.
Management bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values
of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from
Management’s estimates and assumptions under different assumptions or conditions.
Allowance for Loan Losses. Management believes the allowance for loan losses requires the most significant
estimates and assumptions used in the preparation of the consolidated financial statements. The allowance for loan
losses is based on Management’s evaluation of the level of the allowance required in relation to the estimated loss
exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimate and therefore
regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character
and size of the loan portfolio, business and economic conditions and Management’s estimation of potential losses. The
use of different estimates or assumptions could produce different provisions for loan losses.
Goodwill. Management utilizes numerous techniques to estimate the value of various assets held by the Company,
including methods to determine the appropriate carrying value of goodwill as required under FASB ASC Topic 350
“Intangibles – Goodwill and Other.” In addition, goodwill from a purchase acquisition is subject to ongoing periodic
impairment tests, which include an evaluation of the ongoing assets, liabilities and revenues from the acquisition and an
estimation of the impact of business conditions.
Mortgage Servicing Rights. The valuation of mortgage servicing rights is a critical accounting policy which
requires significant estimates and assumptions. The Bank often sells mortgage loans it originates and retains the
ongoing servicing of such loans, receiving a fee for these services, generally 0.25% of the outstanding balance of the
loan per annum. Mortgage servicing rights are recognized when they are acquired through the sale of loans, and are
reported in other assets. They are amortized into non-interest income in proportion to, and over the period of, the
estimated future net servicing income of the underlying financial assets. Management uses an independent firm which
specializes in the valuation of mortgage servicing rights to determine the fair value which is recorded on the balance
sheet. The most important assumption is the anticipated loan prepayment rate, and increases in prepayment speed results
in lower valuations of mortgage servicing rights. The valuation also includes an evaluation for impairment based upon
the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as
compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as
interest rates and terms. The use of different assumptions could produce a different valuation. All of the assumptions are
based on standards the Company believes would be utilized by market participants in valuing mortgage servicing rights
and are consistently derived and/or benchmarked against independent public sources.
Other-Than-Temporary Impairment on Securities. One of the significant estimates related to investment
securities is the evaluation of other-than-temporary impairments. The evaluation of securities for other-than- temporary
impairments is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to
determine whether declines in the fair value of investments should be recognized in current period earnings. The risks
and uncertainties include changes in general economic conditions, the issuer’s financial condition and/or future
prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses.
Securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary
impairment is present based on certain quantitative and qualitative factors and measures. The primary factors considered
in evaluating whether a decline in value of securities is other-than-temporary include: (a) the length of time and extent
to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the
financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually
obligated interest and principal payments, (d) the volatility of the securities’ market price, (e) the intent and ability of
the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and
(f) any other information and observable data considered relevant in determining whether other-than-temporary
impairment has occurred, including the expectation of receipt of all principal and interest when due.
The First Bancorp 2009 Form 10-k • Page 20
Use of Non-GAAP Financial Measures
Certain information in Management’s Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Report 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 presented on a fully taxable 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
2009, 2008 and 2007.
Years ended December 31,
2007
2008
Dollars in thousands
2009
$43,653 $37,703 $31,836
Net interest income as presented
Effect of tax-exempt income
2,081
2,187
Net interest income, tax equivalent $46,048 $39,890 $33,917
2,395
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:
Years ended December 31,
2007
2008
In thousands of dollars
2009
$ 26,658 $ 22,994 $ 22,183
Non-interest expense, as presented
-
Net securities losses
-
Other than temporary impairment charge
22,183
Adjusted non-interest expense
31,836
Net interest income, as presented
2,081
Effect of tax-exempt income
10,145
Non-interest income, as presented
165
Effect of non-interest tax-exempt income
Net securities gains
2
Adjusted net interest income plus non-interest income $ 58,987 $ 49,722 $ 44,229
50.16%
Non-GAAP efficiency ratio
52.84%
GAAP efficiency ratio
(89)
-
22,905
37,703
2,187
9,646
186
-
(150)
(916)
25,592
43,653
2,395
12,754
185
-
46.07%
48.56%
43.39%
47.26%
The First Bancorp 2009 Form 10-k • Page 21
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:
In thousands of dollars
Average shareholders’ equity as presented $146,854 $116,448 $111,422
Intangible assets
27,684
$ 88,764 $ 83,738
Tangible average shareholders’ equity
27,684
$119,170
27,684
Years ended December 31,
2007
2008
2009
Executive Summary
Net income for the year ended December 31, 2009 was $13.0 million, down $1.0 million or 7.1% from the $14.0
million posted for the year ended December 31, 2008. Earnings per common share on a fully diluted basis were $1.22
for the year ended December 31, 2009, down $0.22 or 15.3% from the $1.44 posted for the year ended December 31,
2008.
The core business of The First Bancorp continues to be the spread business from traditional banking services – the
difference between what we earn from loans and investments and what we pay for deposits and borrowed funds. The
spread business did extremely well in 2009. With low interest rates and a steep yield curve, net interest income for the
year ended December 31, 2009 was up $6.0 million or 15.8% over the year ended December 31, 2008 and the net
interest margin widened from 3.33% for the year ended December 31, 2008 to 3.66% for the year ended December 31,
2009. Our 2009 operating results also included nonrecurring revenues of $910,000, after taxes, related to the sale of our
merchant credit card processing portfolio.
At the same time, we continue to be in the longest and worst recession since the Great Depression of the 1930’s.
With weakening credit quality, the $7.5 million or 158.7% increase in our provision for loan losses in 2009 more than
offset the above-noted increase in net interest income. The slump in the housing market is continuing and the national
unemployment rate is at 10.0%. Fortunately, the unemployment rate in Maine, at 8.3%, is somewhat better than the
national average. These unemployment numbers, however, do not reflect the number of people who have experienced
reduced incomes from wage cutbacks and loss of overtime. In Maine, many people who are self-employed are also
experiencing a decline in business revenues impacting their individual incomes as well.
Total assets were up $5.7 million or 0.4% over December 31, 2008. The loan portfolio was down $26.8 million or
2.7%, with a decline in residential mortgages that refinanced and the sale of such refinanced loans to the secondary
market because of their low interest rates. The investment portfolio was up $24.5 million or 9.9% over December 31,
2008. On the liability side of the balance sheet, low-cost deposits were up $12.7 million or 4.9% year-to-date, which
Management views as very positive given that these are among our lowest cost sources of funding.
We also added $25.0 million in preferred stock in the first quarter of 2009 under the U.S. Treasury Capital Purchase
Program. Our participation in the program provides us with greater ability to ride out the current economic storm,
especially if conditions worsen, and also provides greater ability to work with individuals and businesses as they also
struggle through these adverse economic conditions. We continue to be considered well-capitalized by FDIC standards
with total risk-based capital at 14.96%, well above the well-capitalized threshold of 10.00% set by the FDIC.
The First Bancorp 2009 Form 10-k • Page 22
Results of Operations
Net Interest Income
Net interest income increased 15.8% or $6.0 million to $43.7 million for the year ended December 31, 2009 from the
$37.7 million reported for the year ended December 31, 2008. This was a result of two factors. Although earning assets
were lower at December 31, 2009 than at December 31, 2008, average earning assets in 2009 were $79.8 million higher
than in 2008. At the same time, actions taken by the Federal Open Market Committee (“FOMC”) in 2009 resulted in
significantly lower interest rates, which led to the Company’s net interest margin on a tax-equivalent basis increasing
from 3.33% in 2008 to 3.66% in 2009.
Total interest income in 2009 was $62.6 million, a decrease of $8.8 million or 12.3% from the $71.4 million posted
by the Company in 2008. Total interest expense in 2009 was $18.9 million, a decrease of $14.8 million or 43.8% from
the $33.7 million posted by the Company in 2008. The decrease in both interest income and interest expense was
attributable to lower interest rates. Tax-exempt interest income amounted to $4.4 million for the year ended December
31, 2009, $4.1 million for the year ended December 31, 2008 and $3.9 million for the year ended December 31, 2007.
The following tables present changes in interest income and expense attributable to changes in interest rates,
volume, and rate/volume1 for interest-earning assets and interest-bearing liabilities. Tax-exempt income is calculated on
a tax-equivalent basis, using a 35.0% tax rate.
Volume
Year ended December 31, 2009 compared to 2008
Dollars in thousands
Interest on earning assets
Interest-bearing deposits
Investment securities
Loans held for sale
Loans
Total interest income
Interest expense
Deposits
Borrowings
Total interest expense
Change in net interest income
$ 4
3,002
30
2,008
5,044
2,694
(1,651)
1,043
$ 4,001
Rate
Rate/Volume1
Total
$ (3)
(2,424)
(4)
(10,359)
(12,790)
(12,373)
(2,335)
(14,708)
$ 1,918
$ (3)
(491)
(1)
(355)
(850)
(1,449)
361
(1,088)
$ 238
Rate
Volume
Rate/Volume1
Year ended December 31, 2008 compared to 2007
Dollars in thousands
Interest on earning assets
Interest-bearing deposits
Investment securities
Loans held for sale
Loans
Total interest income
Interest expense
Deposits
Borrowings
Total interest expense
Change in net interest income
1 Represents the change attributable to a combination of change in rate and change in volume.
$ 3
(63)
47
(632)
(645)
$ -
(305)
22
(7,251)
(7,534)
$ -
2,592
6
5,338
7,936
(329)
(842)
(1,171)
$ 526
(7,688)
(2,317)
(10,005)
$ 2,471
1,272
3,688
4,960
$ 2,976
The First Bancorp 2009 Form 10-k • Page 23
$ (2)
87
25
(8,706)
(8,596)
(11,128)
(3,625)
(14,753)
$ 6,157
Total
$ 3
2,224
75
(2,545)
(243)
(6,745)
529
(6,216)
$ 5,973
The following table presents, for the years ended December 31, 2009, 2008, and 2007, the interest earned on or
paid for each major asset and liability category, respectively, the average yield for each major asset and liability
category, and the net yield between assets and liabilities. Tax-exempt income has been calculated on a tax-equivalent
basis using a 35% rate. Unrecognized interest on non-accrual loans is not included in the amount presented, but the
average balance of non-accrual loans is included in the denominator when calculating yields.
Dollars in thousands
Interest on earning assets
Interest-bearing deposits
Investment securities
Loans held for sale
Loans
Total interest-earning assets
Interest-bearing liabilities
Deposits
Borrowings
Total interest-bearing liabilities
Net interest income
Interest rate spread
Net interest margin
2009
2008
2007
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
$ 1
14,893
125
49,945
64,964
11,872
7,044
18,916
$46,048
$ 3
14,806
78
58,672
73,559
23,000
10,669
33,669
$ 39,890
0.25%
5.42%
4.99%
5.09%
5.16%
1.35%
2.84%
1.67%
3.48%
3.66%
$ -
12,582
53
61,167
73,802
29,745
10,140
39,885
$ 33,917
1.65%
6.07%
4.05%
6.16%
6.14%
2.90%
3.62%
3.10%
3.04%
3.33%
0.00%
5.98%
8.43%
7.01%
6.81%
3.93%
4.71%
4.10%
2.71%
3.13%
The First Bancorp 2009 Form 10-k • Page 24
Average Daily Balance Sheets
The following table shows the Company’s average daily balance sheets for the years ended December 31, 2009, 2008
and 2007.
In thousands of dollars
Assets
Cash and due from banks
Overnight funds sold
Securities available for sale
Securities to be held to maturity
Federal Home Loan Bank and Federal Reserve Bank Stock
Loans held for sale (fair value approximates cost)
Loans
Allowance for loan losses
Net loans
Accrued interest receivable
Premises and equipment, net of accumulated depreciation
Other real estate owned
Goodwill
Other assets
Total Assets
Liabilities & Stockholders' Equity
Demand deposits
NOW deposits
Money market deposits
Savings deposits
Certificates of deposit
Certificates $100M and over
Total deposits
Borrowed funds
Dividends payable
Other liabilities
Total Liabilities
Shareholders' Equity:
Preferred Stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Net unrealized gains (losses) on available-for-sale securities
Net unrealized loss on postretirement benefit costs
Total Stockholders' Equity
Total Liabilities & Stockholders' Equity
Years ended December 31,
2009
2008
2007
$ 14,288
407
29,040
245,972
14,814
2,506
981,628
(11,277)
970,351
6,027
18,024
2,652
27,684
21,752
$1,353,517
$ 65,567
106,895
108,922
87,921
227,161
351,552
948,018
248,291
953
9,401
1,206,663
24,452
97
44,807
78,072
$ 16,281
181
22,865
205,783
14,641
1,923
949,135
(7,607)
941,528
6,846
16,228
1,736
27,684
17,737
$1,273,433
$ 63,495
105,689
123,699
86,018
364,529
109,988
853,418
293,745
850
8,972
1,156,985
-
97
44,214
72,492
$ 19,978
-
33,765
158,080
9,887
623
873,009
(6,634)
866,375
6,697
15,664
931
27,684
16,833
$1,156,517
$ 61,678
102,083
125,370
91,967
323,367
114,764
819,229
215,403
739
9,724
1,045,095
-
98
45,644
65,366
(310)
(264)
146,854
$1,353,517
(87)
(268)
116,448
$1,273,433
574
(260)
111,422
$1,156,517
The First Bancorp 2009 Form 10-k • Page 25
Non-Interest Income
Non-interest income in 2009 was $12.8 million, an increase of 32.2% from the $9.6 million reported in 2008. This
increase was attributable to mortgage origination and servicing income, which increased $2.2 million or 1,514.5% as a
result of a high volume of residential mortgages refinancing and these loans being sold to the secondary market, as well
as an increase in other operating income of $1.4 million or 26.5% due to the sale of the Company’s merchant credit card
processing portfolio.
Non-Interest Expense
Non-interest expense in 2009 was $26.7 million, an increase of 15.9% from the $23.0 million reported in 2008. The
majority of the increase was attributable to a $916,000 charge for other-than-temporary impairment of investment
securities and a $1.3 million increase in FDIC insurance assessments (see “Discussion of Business – Deposit Insurance
Assessments”). Despite these increases in non-interest expense, the Company’s efficiency ratio improved considerably
in 2009 – 43.39% compared to 46.07% in 2008. The improvement in the efficiency ratio year-to-date was the result of
the increase in both net interest income and non-interest income previously discussed.
Provision to the Allowance for Loan Losses
The Company’s provision to the allowance for loan losses was $12.2 million in 2009 compared to $4.7 million in 2008.
The level of provision in 2009 and 2008 was to maintain the allowance for loan losses at an adequate level given the
size of our loan portfolio and the recent deterioration in asset quality. While the weakness in the national economy has
not hit coastal Maine as hard as many other parts of the country, the Company has seen an increase in non-performing
loans and net chargeoffs were $7.3 million in 2009 compared to $2.7 million in 2008. As a result, our provision for loan
losses increased by $7.5 million in 2009 from the 2008 level. Despite this increase, our 2009 provision for loan losses of
0.91% of average assets compares quite favorable to our peer at 1.43% of average assets. Given the number of
economic uncertainties at this time, Management views it prudent to continue to increase the allowance for loan losses
and that the amount of increase is directionally consistent with the decline in credit quality seen in the portfolio. A
further discussion of asset and credit quality can be found in “Assets and Asset Quality”.
Net Income
Net income for 2009 was $13.0 million – a 7.1% or $1.0 million decrease from net income of $14.0 million that was
posted in 2008. Earnings per share on a fully diluted basis were $1.22, down $0.22 or 15.3% from the $1.44 reported for
the year ended December 31, 2008.
Key Ratios
Return on average assets in 2009 was 0.96%, down from the 1.10% posted in 2008. Return on average tangible equity
was 13.77% in 2009, compared to 15.75% in 2008 and 15.89% in 2007. In 2009, the Company’s dividend payout ratio
(dividends declared per share divided by earnings per share) was 63.93%, compared to 52.76% in 2008 and 51.49% in
2007. The Company’s efficiency ratio – a benchmark measure of the amount spent to generate a dollar of income – was
43.39% in 2009 compared to 74.23% for the Bank’s peer group, on average. In 2008, the Bank’s efficiency ratio was
46.07% compared to 64.72% for the Bank’s peer group, on average. The improvement in 2009 was the result of
revenues (net interest income and non-interest income) increasing at a higher rate than operating expenses. The
efficiency ratio is calculated by dividing the Company’s operating expenses (which excludes the provision for loan
losses) by the total of net interest income on a tax-equivalent basis before provision for loan losses and other operating
income (which excludes securities gains).
Investment Management and Fiduciary Activities
As of December 31, 2009, First Advisors, the Bank’s private banking and investment management division, had assets
under management with a market value of $205.2 million, consisting of 918 trust accounts, estate accounts, agency
accounts, and self-directed individual retirement accounts. This compares to December 31, 2008, when 1,015 accounts
with a market value of $223.8 million were under management. The decline in market value was due to decline in
equity markets that impacted the value of assets under management.
The First Bancorp 2009 Form 10-k • Page 26
Assets and Asset Quality
Total assets were up slightly in 2009, with the investment portfolio increasing $24.5 million or 9.9% over December 31,
2008, while the loan portfolio decreased $26.8 million or 2.7%. Total assets increased 0.4% or $5.7 million from $1.326
billion at December 31, 2008, to $1.331 billion at December 31, 2009. Although earning assets were lower at December
31, 2009 than at December 31, 2008, average earning assets in 2009 were $79.8 million higher than in 2008. This
increase in average earning assets contributed to net interest income increasing $6.0 million or 15.8% during 2009 when
compared to 2008.
While the weaknesses in the national and global economies have not impacted coastal Maine as much as some
other parts of the country, we nevertheless experienced a deterioration in asset quality in our loan portfolio. Non-
performing assets to total assets stood at 1.80% at December 31, 2009, a significant increase over 1.31% at December
31, 2008. This increase is attributable to the impact that the weakened economy is having on our borrowers. Small
businesses are seeing revenue/sales decreases and some are struggling to meet their obligations with a declining revenue
base. A number of consumers have lost their jobs or seen a reduction in hours worked and/or overtime, thereby creating
strained finances resulting in payment issues on their loans. In Management’s opinion, the Company’s long-standing
approach to working with borrowers and ethical loan underwriting standards helps alleviate some of the payment
problems on customers’ loans and in the end minimizes actual loan losses.
Net charge offs in 2009 were $7.3 million or 0.75% of average loans outstanding compared to $2.7 million or
0.28% of average loans outstanding in 2008. Despite the increase, this is relatively low compared to most banks in the
country and our peer group, which had, on average, net charge offs of 1.49% of average loans outstanding in 2009. We
manage our loan portfolio to minimize losses and have shown an excellent track record for the past 20 years with annual
average chargeoffs of 0.25% of average loans outstanding.
Residential real estate loans represent 38.7% of the total loan portfolio, and this loan category generally has a lower
level of losses in comparison to other loan types. In 2009, the loss ratio for residential mortgages was 0.50% compared
to 0.75% for the entire loan portfolio. We have not written subprime mortgages or “no documentation loans” – the types
of loans that are currently defaulting on a large scale nationwide. The Company does not have a credit card portfolio or
offer dealer consumer loans which generally carry more risk and therefore higher losses.
The allowance for loan losses ended the year at $13.6 million and stood at 1.43% of total loans outstanding
compared to 0.90% at December 31, 2008. A $12.2 million provision for losses was made in 2009, resulting in the
allowance for loan losses increasing $4.8 million or 55.0% from December 31, 2008, after $7.3 million in net
chargeoffs. This compares to a $4.7 million provision for losses in 2008. Management believes this level of provision to
be directionally consistent with a weakening economy and an increase in the level of non-performing loans. Given the
above factors, Management views the $13.6 million allowance for loan losses to be adequate as of December 31, 2009.
Investment Activities
During 2009, the investment portfolio increased 9.9% to end the year at $272.4 million compared to $247.8 million at
December 31, 2008. The Company’s investment securities are classified into two categories: securities available for sale
and securities to be held to maturity. Securities available for sale consist primarily of debt securities which Management
intends to hold for indefinite periods of time. They may be used as part of the Company’s funds management strategy,
and may be sold in response to changes in interest rates, prepayment risk and liquidity needs, to increase capital ratios,
or for other similar reasons. Securities to be held to maturity consist primarily of debt securities that the Company has
acquired solely for long-term investment purposes, rather than for trading or future sale. For securities to be categorized
as held to maturity, Management must have the intent and the Company must have the ability to hold such investments
until their respective maturity dates. The Company does not hold trading account securities.
All investment securities are managed in accordance with a written investment policy adopted by the Board of
Directors. It is the Company’s general policy that investments for either portfolio be limited to government debt
obligations, time deposits, and corporate bonds or commercial paper with one of the three highest ratings given by a
nationally recognized rating agency. The portfolio is currently invested primarily in U.S. Government agency securities
and tax-exempt obligations of states and political subdivisions. The individual securities have been selected to enhance
the portfolio’s overall yield while not materially adding to the Company’s level of interest rate risk.
The following table sets forth the Company’s investment securities at their carrying amounts as of December 31,
2009, 2008, and 2007.
The First Bancorp 2009 Form 10-k • Page 27
Dollars in thousands
Securities available for sale
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Securities to be held to maturity
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Total securities
2009
2008
2007
$ 30,959
31,148
18,514
818
399
$ 81,838
$ 39,099
90,193
61,095
150
190,537
$ 272,375
$ -
922
8,910
2,977
263
$ 13,072
$ 110,513
60,774
62,330
1,150
234,767
$ 247,839
$ -
1,322
10,855
14,727
326
$ 27,230
$ 95,009
30,786
53,914
1,645
181,354
$ 208,584
The following table sets forth certain information regarding the yields and expected maturities of the Company’s
investment securities as of December 31, 2009. Yields on tax-exempt securities have been computed on a tax-equivalent
basis using a tax rate of 35%. Mortgage-backed securities are presented according to their final contractual maturity
date, while the calculated yield takes into effect the intermediate cashflows from repayment of principal which results in
a much shorter average life.
Dollars in thousands
U.S. Treasury & Agency
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total
Mortgage-Backed Securities
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total
State & Political Subdivisions
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total
Corporate Securities
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total
Equity Securities
Available For Sale
Held to Maturity
Fair Value
Yield to
maturity
Amortized
Cost
Yield to
maturity
$ -
15,000
-
15,959
30,959
-
91
82
30,975
31,148
-
3,290
3,701
11,523
18,514
-
-
-
818
818
399
$ 81,838
0.00%
2.75%
0.00%
5.35%
4.09%
0.00%
5.71%
8.50%
3.52%
3.54%
0.00%
7.13%
7.57%
6.24%
6.66%
0.00%
0.00%
0.00%
1.38%
1.38%
2.43%
4.43%
$ -
-
-
39,099
39,099
125
1,662
1,255
87,151
90,193
205
6,122
13,765
41,003
61,095
-
150
-
-
150
0.00%
0.00%
0.00%
6.07%
6.07%
4.50%
4.17%
5.79%
3.80%
3.84%
6.95%
6.51%
6.53%
6.40%
6.44%
0.00%
1.50%
0.00%
0.00%
1.50%
$ 190,537
5.13%
The First Bancorp 2009 Form 10-k • Page 28
Impaired Securities
The securities portfolio contains certain securities the amortized cost of which exceeds fair value, which at December
31, 2009 amounted to an excess of $2.1 million, or 0.8% of the amortized cost of the total securities portfolio. At
December 31, 2008 this amount represented an excess of $8.6 million, or 3.5% of the total securities portfolio. As a part
of the Company’s ongoing security monitoring process, the Company identifies securities in an unrealized loss position
that could potentially be other-than-temporarily impaired. If a decline in the fair value of an available-for-sale security
is judged to be other-than-temporary, a charge is recorded in net realized securities losses equal to the difference
between the fair value and cost or amortized cost basis of the security.
The Company’s evaluation of securities for impairments is a quantitative and qualitative process intended to
determine whether declines in the fair value of investment securities should be recognized in current period earnings.
The primary factors considered in evaluating whether a decline in the fair value of securities is other-than-temporary
include: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the
expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c)
whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the
securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient
to allow for recovery, which may be at maturity, and (f) any other information and observable data considered relevant
in determining whether other-than-temporary impairment has occurred.
The Company’s best estimate of cash flows uses severe economic recession assumptions due to market uncertainty.
The Company’s assumptions include but are not limited to delinquencies, foreclosure levels and constant default rates
on the underlying collateral, loss severity ratios, and constant prepayment rates. If the Company does not expect to
receive 100% of future contractual principal and interest, an other-than-temporary impairment charge is recognized.
Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third
party sources along with certain internal assumptions and judgments regarding the future performance of the underlying
collateral.
Based on the foregoing evaluation criteria, during the first quarter of 2009, the Company concluded that one
available-for-sale corporate security with an amortized cost of $1.0 million was other-than-temporarily impaired,
because the Company could no longer conclude that it is probable that it will recover 100% of the investment.
Accordingly, the Company recorded a $916,000 charge for other-than-temporary impairment. Management believes this
loss was attributable to potential bankruptcy of the issuer of the security, which ultimately happened in the second
quarter of 2009. While recording this impairment charge is consistent with GAAP, Management estimates that the
ultimate economic losses that may be realized for other securities in the portfolio may be meaningfully less than the
current “mark-to-market” losses. Management believes that the difference between the expected losses and current
“mark-to-market” losses is largely attributable to current market illiquidity conditions, de-leveraging, and the historical
disruption in the financial markets in general. In Management’s opinion, no additional write-down for other-than-
temporary impairment is required.
As of December 31, 2009, the Company had temporarily impaired securities with a fair value of $79.1 million and
unrealized losses of $2.1 million, as identified in the table below. Securities in a continuous unrealized loss position
more than twelve-months amounted to $2.2 million as of December 31, 2009, compared with $17.5 million at
December 31, 2008. The Company has concluded that these securities were not other-than-temporarily impaired. This
conclusion was based on the issuer’s continued satisfaction of the securities issuers’ obligations in accordance with their
contractual terms and the expectation that the issuers will continue to do so, Management’s intent and ability to hold
these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at
maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation
of the fundamentals of the issuers’ financial condition and other objective evidence. The following table summarizes
temporarily impaired securities and their approximate fair values at December 31, 2009.
Less than 12 months
Unrealized
Losses
12 months or more
Fair
Value
In thousands of dollars
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Fair
Value
$ 19,999
47,509
9,396
-
-
$ 76,904
$ (707) $ -
-
1,350
818
44
$ 2,212
(602)
(147)
-
-
$ (1,456)
Total
Fair
Value
Unrealized
Losses
$ - $ 19,999
47,509
10,746
818
44
$ (661) $ 79,116
-
(338)
(302)
(21)
Unrealized
Losses
$ (707)
(602)
(485)
(302)
(21)
$ (2,117)
The First Bancorp 2009 Form 10-k • Page 29
For securities with unrealized losses, the following information was considered in determining that the securities
were not other-than-temporarily impaired:
Securities issued by the U.S. Treasury and U.S. Government-sponsored agencies and enterprises. As of December
31, 2009, the total unrealized losses on these securities amounted to $707,000, compared with $5.9 million at December
31, 2008. All of these securities were credit rated “AAA” by the major credit rating agencies. Management believes that
securities issued by the U.S. Treasury bear no credit risk because they are backed by the full faith and credit of the
United States and that securities issued by U.S. Government-sponsored agencies and enterprises have minimal credit
risk, as these agencies and enterprises play a vital role in the nation’s financial markets. Management believes that the
unrealized losses at December 31, 2009 were attributable to changes in current market yields and spreads since the date
the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at
December 31, 2009. The Company also has the ability and intent to hold these securities until a recovery of their
amortized cost, which may be at maturity.
Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As
of December 31, 2009, the total unrealized losses on these securities amounted to $602,000, compared with $297,000 at
December 31, 2008. All of these securities were credit rated “AAA” by the major credit rating agencies. Management
believes that securities issued by U.S. Government agencies bear no credit risk because they are backed by the full faith
and credit of the United States and that securities issued by U.S. Government-sponsored enterprises have minimal credit
risk, as these agencies enterprises play a vital role in the nation’s financial markets. Management believes that the
unrealized losses at December 31, 2009 were attributable to changes in current market yields and spreads since the date
the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at
December 31, 2009. The Company also has the ability and intent to hold these securities until a recovery of their
amortized cost, which may be at maturity.
Obligations of state and political subdivisions. As of December 31, 2009, the total unrealized losses on municipal
securities amounted to $485,000, compared with $684,000 at December 31, 2008. Municipal securities are supported by
the general taxing authority of the municipality and, in the cases of school districts, are supported by state aid. At
December 31, 2009 all municipal bond issuers were current on contractually obligated interest and principal payments.
The Company attributes the unrealized losses at December 31, 2009 to changes in prevailing market yields and pricing
spreads since the dates the underlying securities were purchased, combined with current market liquidity conditions and
the disruption in the financial markets in general. Accordingly, the Company does not consider these municipal
securities to be other-than-temporarily impaired at December 31, 2009. The Company also has the ability and intent to
hold these securities until a recovery of their amortized cost, which may be at maturity.
Corporate securities. As of December 31, 2009, the total unrealized losses on corporate securities amounted to
$302,000, compared with $1.7 million at December 31, 2008. Corporate securities are dependent on the operating
performance of the issuers. At December 31, 2009 all corporate bond issuers were current on contractually obligated
interest and principal payments. The Company attributes the unrealized losses at December 31, 2009 to changes in
prevailing market yields and pricing spreads since the dates the underlying securities were purchased, combined with
current market liquidity conditions and the disruption in the financial markets in general. Accordingly, the Company
does not consider these corporate securities to be other-than-temporarily impaired at December 31, 2009. The Company
also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.
The previously discussed security which was designated as other-than-temporarily impaired in the first quarter of 2009
was evaluated separately because fair value exceeded its impaired value at December 31, 2009.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston. The FHLB is a cooperatively owned
wholesale bank for housing and finance in the six New England States. Its mission is to support the residential mortgage
and community-development lending activities of its members, which include over 450 financial institutions across
New England. As a requirement of membership in the FHLB, the Bank must own a minimum required amount of
FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. The Company uses the
FHLB for much of its wholesale funding needs. As of December 31, 2009 and December 31, 2008, the Company’s
investment in FHLB stock totaled $14.0 million.
FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value. Shares
held in excess of the minimum required amount are generally redeemable at par value. However, in the first quarter of
2009 the FHLB announced a moratorium on such redemptions in order to preserve its capital in response to current
The First Bancorp 2009 Form 10-k • Page 30
market conditions and declining retained earnings. The minimum required shares are redeemable, subject to certain
limitations, five years following termination of FHLB membership. The Bank has no intention of terminating its FHLB
membership. The Company had no dividend income on its FHLB stock in 2009.
The FHLB recorded a net loss of $186.8 million for the year ending December 31, 2009. Losses due to the other-
than-temporary impairment of investments in private-label mortgage-backed securities resulted in a credit loss of $444.1
million for the year. The associated non-credit loss on these securities in 2009 was $885.4 million, which is recorded in
capital rather than through earnings, and contributed largely to an accumulated other comprehensive loss of $1.0 billion
at December 31, 2009. Retained earnings increased to $142.6 million at December 31, 2009, up from an accumulated
deficit of $19.7 million at December 31, 2008. This increase was mainly due to the effect of adopting FSP FAS 115-2
and FAS 124-2 on January 1, 2009, which reclassified $349.1 million from accumulated deficit to accumulated other
comprehensive loss. The FHLB remained in compliance with all regulatory capital ratios as of December 31, 2009, and,
in the most recent information available, was classified “adequately capitalized” by its regulator, the Federal Housing
Finance Agency, as of September 30, 2009.
Notwithstanding continued significant credit losses in its investment portfolio, the FHLB reported modest
profitability for the fourth quarter. Net income for the fourth quarter of 2009 was $6.3 million. The FHLB’s net interest
income continues to be strong, and totaled $311.7 million for the year ending December 31, 2009, and $88.0 million for
the fourth quarter of 2009. The FHLB expects to see volatility in its earnings in the next several quarters as it works
through continued challenges. In particular, high and prolonged unemployment rates, high delinquency and foreclosure
rates, and declining housing prices may result in additional credit losses from the FHLB’s private-label mortgage-
backed securities investments. The FHLB will continue to monitor this situation closely in 2010.
The FHLB remains focused on returning the FHLB to stable profitability and enhancing the FHLB’s capital base
by building retained earnings. The FHLB’s board of directors is unlikely to declare any dividends until a consistent
pattern of positive net income is demonstrated, allowing growth in retained earnings, which will likely preclude a
declaration of dividends for at least the first two quarters of 2010. The opportunity to pay a dividend after that, and the
amount of any such dividend, will be a function of the success that the FHLB has in stabilizing earnings and building
retained earnings, which will be driven in large part by the performance of its private-label mortgage-backed securities
portfolio. The FHLB’s current retained earnings target is estimated at $925 million, a target adopted in connection with
the FHLB’s Revised Operating Plan to preserve capital in light of the various challenges to the FHLB. The FHLB’s
retained earnings target could be superseded by mandates from its primary regulator, the Federal Housing Finance
Agency, either in the form of an order specific to the FHLB or by promulgation of new regulations requiring a level of
retained earnings that is different from the FHLB’s currently targeted level. Moreover, Management and the board of
directors of the FHLB may, at any time, change the FHLB’s methodology or assumptions for modeling the FHLB’s
retained earnings requirement. Either of these could result in the FHLB further increasing its retained earnings target or
reducing or eliminating the dividend payout, as necessary.
The Company periodically evaluates its investment in FHLB stock for impairment based on, among other factors,
the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through
December 31, 2009. The Bank will continue to monitor its investment in FHLB stock.
Lending Activities
The loan portfolio declined $26.8 million or 2.7% in 2009, with total loans at $952.5 million at December 31, 2009,
compared to $979.3 million at December 31, 2008. While commercial loans increased $18.0 million or 4.7% between
December 31, 2008 and December 31, 2009, residential term loans decreased by $64.3 million or 14.9% during the
same period as a result of borrowers refinancing home mortgage loans which were sold by the Bank to the secondary
market. At the same time, municipal loans posted growth of $11.1 million or 31.9%.
Commercial loans are comprised of three categories, commercial real estate loans, commercial construction loans
and other commercial loans. Commercial real estate is primarily comprised of loans to small businesses collateralized
by owner-occupied real estate, while other commercial is primarily comprised of loans to small businesses
collateralized by plant and equipment, commercial fishing vessels and gear, and limited inventory-based lending.
Commercial real estate loans typically have a maximum loan-to-value ratio of 75% based upon current appraisal
information at the time the loan is made. Land development loans typically have a maximum loan-to-value ratio of 65%
based upon current appraisal information at the time the loan is made. Commercial construction loans comprise a very
small portion of the portfolio, and at 37.7% of capital are well under the regulatory guidance of 100.0% of total risk-
based capital. Commercial real estate loans are at 185.7% of total risk-based capital, well under the regulatory guidance
of 300.0% of total risk-based capital. Municipal loans are comprised of loans to municipalities in the State of Maine for
capitalized expenditures, construction projects or tax-anticipation notes. All municipal loans are considered general
obligations of the municipality and as such are collateralized by the taxing ability of the municipality for repayment of
debt.
The First Bancorp 2009 Form 10-k • Page 31
Residential loans are also comprised of two categories, term loans, which include traditional amortizing home
mortgages and home equity loans and lines of credit, and construction loans, which include loans for owner-occupied
residential construction. Residential loans typically have a 75% to 80% loan to value based upon current appraisal
information at the time the loan is made. Consumer loans are primarily short-term amortizing loans to individuals
collateralized by automobiles, pleasure craft and recreations vehicles, with a maximum loan to value ratio of 80%-90%
of the purchase price of the collateral. Consumer loans also include a small amount of unsecured short-term time notes
to individuals. The following table summarizes the loan portfolio as of December 31, 2009, 2008, 2007, 2006 and 2005.
In thousands
of dollars
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Total loans
2009
2008
As of December 31,
2007
2006
2005
$240,178 25.2% $219,057
48,182
48,714
5.1%
114,486 12.0% 118,109
34,832
4.8%
45,952
22.3% $202,301
4.9%
-
12.1% 109,954
34,425
3.6%
22.0% $140,626
-
0.0%
11.9% 189,908
23,724
3.7%
0.0%
16.8% $142,137
-
22.7% 170,108
20,270
2.8%
18.4%
0.0%
22.0%
2.7%
367,267 38.7% 431,520
26,235
1.8%
17,361
44.0% 431,237
45,942
2.7%
46.9% 371,242
20,258
5.0%
44.3% 309,689
26,909
2.4%
40.1%
3.5%
94,324
24,210
10.8%
2.5%
$952,492 100.0% $979,273 100.0% $920,164 100.0% $838,145 100.0% $772,338 100.0%
73,453
18,934
83,587
19,638
74,199
22,106
77,206
24,132
9.9%
2.5%
8.8%
2.3%
8.1%
2.4%
7.9%
2.5%
The following table sets forth certain information regarding the contractual maturities of the Bank’s loan portfolio
as of December 31, 2009:
In thousands of dollars
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
< 1 Year
1 - 5 Years
5 - 10 Years
> 10 Years
Total
$ 10,314
18,506
17,690
26,277
$ 8,600
3,243
22,494
2,607
$ 25,331
454
34,446
6,375
$ 195,933
26,511
39,856
10,693
$ 240,178
48,714
114,486
45,952
5,944
9,842
1,030
7,440
$ 97,043
8,394
947
1,232
10,343
$ 57,860
35,013
19
1,129
1,454
$ 104,221
317,916
6,553
90,933
4,973
$ 693,368
367,267
17,361
94,324
24,210
$ 952,492
The First Bancorp 2009 Form 10-k • Page 32
The following table provides a listing of loans by category, excluding loans held for sale, between variable and
fixed rates as of December 31, 2009.
In thousands of dollars
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
Loan Concentrations
Fixed-Rate
Adjustable-Rate
Amount % of total Amount % of total Amount % of total
Total
$ 55,378
13,733
53,399
42,072
128,901
6,726
2,111
19,454
$321,774
5.8% $184,800
34,981
1.4%
61,087
5.6%
3,880
4.4%
19.4% $240,178
48,714
114,486
45,952
3.7%
6.4%
0.4%
13.5%
0.7%
0.2%
2.0%
238,366
10,635
92,213
4,756
33.8% $630,718
25.0%
1.1%
9.7%
0.5%
367,267
17,361
94,324
24,210
66.2% $952,492
25.2%
5.1%
12.0%
4.8%
38.7%
1.8%
9.9%
2.5%
100.0%
As of December 31, 2009, the Bank did not have any concentration of loans in one particular industry that exceeded
10% of its total loan portfolio.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value, with a balance of $2.9 million at December 31, 2009
compared with $1.3 million at December 31, 2008. No recourse obligations have been incurred in connection with the
sale of loans. Due to refinancing activity at substantially lower interest rates, $115.7 million of residential mortgages
were sold into the secondary market during 2009, much higher than the $19.7 million sold in 2008. This resulted in non-
interest income for mortgage origination and servicing in 2009 being up $2.2 million or 1,514.5% compared to 2008.
Credit Risk Management and Allowance for Loan Losses
Credit risk is the risk of loss arising from the inability of a borrower to meet its obligations. We manage credit risk by
evaluating the risk profile of the borrower, repayment sources, the nature of the underlying collateral, and other support
given current events, conditions, and expectations. We attempt to manage the risk characteristics of our loan portfolio
through various control processes, such as credit evaluation of borrowers, establishment of lending limits, and
application of lending procedures, including the holding of adequate collateral and the maintenance of compensating
balances. However, we seek to rely primarily on the cash flow of our borrowers as the principal source of repayment.
Although credit policies and evaluation processes are designed to minimize our risk, Management recognizes that loan
losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of our loan portfolio,
as well as general and regional economic conditions.
We provide for loan losses through the establishment of an allowance for loan losses which represents an estimated
reserve for existing losses in the loan portfolio. We deploy a systematic methodology for determining our allowance
that includes a quarterly review process, risk assessment, and adjustment to our allowance. We classify our portfolios as
either consumer or commercial and monitor credit risk separately as discussed below. We evaluate the adequacy of our
allowance continually based on a review of all significant loans, with a particular emphasis on nonaccruing, past due,
and other loans that we believe require special attention.
The allowance consists of three elements: (1) specific reserves and valuation allowances for individual credits; (2)
general reserves for types or portfolios of loans based on historical loan loss experience, judgmentally adjusted for
current conditions and credit risk concentrations; and (3) unallocated reserves. Combined specific reserves and general
reserves by loan type are considered allocated reserves. All outstanding loans are considered in evaluating the adequacy
of the allowance.
Adequacy of the allowance for loan losses is determined using a consistent, systematic methodology, which
analyzes the risk inherent in the loan portfolio. In addition to evaluating the collectibility of specific loans when
determining the adequacy of the allowance for loan losses, Management also takes into consideration other factors such
The First Bancorp 2009 Form 10-k • Page 33
as changes in the mix and size of the loan portfolio, historic loss experience, the amount of delinquencies and loans
adversely classified, economic trends, changes in credit policies, and experience, ability and depth of lending
Management. The adequacy of the allowance for loan losses is assessed by an allocation process whereby specific loss
allocations are made against certain adversely classified loans, and general loss allocations are made against segments
of the loan portfolio which have similar attributes. The Company’s historical loss experience, industry trends, and the
impact of the local and regional economy on the Company’s borrowers, in whole or in part, were considered by
Management in determining the adequacy of the allowance for loan losses.
The allowance for loan losses is increased by provisions charged against current earnings. Loan losses are charged
against the allowance when Management believes that the collectibility of the loan principal is unlikely. Recoveries on
loans previously charged off are credited to the allowance. While Management uses available information to assess
possible losses on loans, future additions to the allowance may be necessary based on increases in non-performing
loans, changes in economic conditions, growth in loan portfolios, or for other reasons. Any future additions to the
allowance would be recognized in the period in which they were determined to be necessary. In addition, various
regulatory agencies periodically review the Company’s allowance for loan losses as an integral part of their examination
process. Such agencies may require the Company to record additions to the allowance based on judgments different
from those of Management.
Commercial
Our commercial portfolio includes all secured and unsecured loans to borrowers for commercial purposes, including
commercial lines of credit and commercial real estate. Our process for evaluating commercial loans includes performing
updates on loans that we have rated for risk. Our non-performing commercial loans are generally reviewed individually
to determine impairment, accrual status, and the need for specific reserves. Our methodology incorporates a variety of
risk considerations, both qualitative and quantitative. Quantitative factors include our historical loss experience by loan
type, collateral values, financial condition of borrowers, and other factors. Qualitative factors include judgments
concerning general economic conditions that may affect credit quality, credit concentrations, the pace of portfolio
growth, and delinquency levels; these qualitative factors are also considered in connection with the unallocated portion
of our allowance for loan losses.
The process of establishing the allowance with respect to our commercial loan portfolio begins when a loan officer
initially assigns each loan a risk rating, using established credit criteria. Approximately 50% of our outstanding loans
and commitments are subject to review and validation annually by an independent consulting firm, as well as
periodically by our internal credit review function. Our methodology employs Management’s judgment as to the level
of potential losses on existing loans based on our internal review of the loan portfolio, including an analysis of the
borrowers’ current financial position, and the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers and/or lines of business. In determining our ability to collect certain loans, we
also consider the fair value of any underlying collateral. We also evaluate credit risk concentrations, including trends in
large dollar exposures to related borrowers, industry and geographic concentrations, and economic and environmental
factors.
Residential and Consumer
Consumer and residential mortgage loans are generally segregated into homogeneous pools with similar risk
characteristics. Trends and current conditions in consumer and residential mortgage pools are analyzed and historical
loss experience is adjusted accordingly. Quantitative and qualitative adjustment factors for the consumer and residential
mortgage portfolios are consistent with those for the commercial portfolios. Certain loans in the consumer and
residential portfolios identified as having the potential for further deterioration are analyzed individually to confirm the
appropriate risk rating and accrual status, and to determine the need for a specific reserve. Consumer loans that are
greater than 120 days past due are generally charged off. Residential loans that are greater than 90 days past due are
generally placed in non-accrual status unless, through an internal evaluation, it can be demonstrated that the loans are
both well secured and in the process of collection. In general, the foreclosure process is also begun at this time.
Unallocated
The unallocated portion of the allowance is intended to provide for losses that are not identified when establishing the
specific and general portions of the allowance and is based upon Management’s evaluation of various conditions that
are not directly measured in the determination of the portfolio and loan specific allowances. Such conditions include
general economic and business conditions affecting our lending area, credit quality trends (including trends in
delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations,
specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of
the current business cycle, bank regulatory examination results, findings of external loan review examiners, and
The First Bancorp 2009 Form 10-k • Page 34
Management’s judgment with respect to various other conditions including loan administration and management and
the quality of risk identification systems. Management reviews these conditions quarterly. We have risk management
practices designed to ensure timely identification of changes in loan risk profiles; however, undetected losses may exist
inherently within the loan portfolio. The judgmental aspects involved in applying the risk grading criteria, analyzing the
quality of individual loans, and assessing collateral values can also contribute to undetected, but probable, losses.
The allowance for loan losses includes reserve amounts assigned to individual loans on the basis of loan impairment.
Certain loans are evaluated individually and are judged to be impaired when Management believes it is probable that the
Company will not collect all of the contractual interest and principal payments as scheduled in the loan agreement.
Under this method, loans are selected for evaluation based on internal risk ratings or non-accrual status. A specific
reserve is allocated to an individual loan when that loan has been deemed impaired and when the amount of a probable
loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net
realizable value. At December 31, 2009, impaired loans with specific reserves totaled $12.2 million (all of these loans
were on non-accrual status) and the amount of such reserves was $2.2 million. This compares to impaired loans with
specific reserves of $7.6 million at December 31, 2008 (all of these loans were on non-accrual status) at which time the
amount of such reserves was $2.0 million. All of these analyses are reviewed and discussed by the Directors’ Loan
Committee, and recommendations from these processes provide Management and the Board of Directors with
independent information on loan portfolio condition. Our total allowance at December 31, 2009 is considered by
Management to be adequate to address the credit losses inherent in the current loan portfolio. Management views the
level of the allowance for loan losses as adequate. However, our determination of the appropriate allowance level is
based upon a number of assumptions we make about future events, which we believe are reasonable, but which may or
may not prove valid. Thus, there can be no assurance that our charge-offs in future periods will not exceed our
allowance for loan losses or that we will not need to make additional increases in our allowance for loan losses.
The allowance for loan losses totaled $13.6 million at December 31, 2009, compared to $8.8 million at December
31, 2008. The increase in the allowance reflects Management’s ongoing application of its methodologies to establish the
allowance, which included increases in the allowance for collateral dependent impaired loans (specific reserves), which
increased $0.2 million in 2009 from $2.0 million at December 31, 2008 to $2.2 million at December 31, 2009. The
specific loans that make up those categories change from period to period. Impairment on those loans, which would be
reflected in the allowance for loan losses, might or might not exist, depending on the specific circumstances of each
loan. Increases to reflect negative market trends and other qualitative factors (unallocated reserves) increased $1.2
million in 2009 from $676,000 on December 31, 2008 to $1.9 million on December 31, 2009.
The following table summarizes our allocation of allowance by loan type as of December 31, 2009, 2008, 2007,
2006 and 2005. The percentages are the portion of each loan type to total loans.
Dollars in
thousands
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Unallocated
Total
2009
2008
As of December 31,
2007
2006
2005
$ 5,297
896
3,095
23
25.2% $2,958
650
5.1%
2,595
12.0%
20
4.8%
22.3% $3,020
-
1,633
25
4.9%
12.1%
3.6%
22.0% $1,905
-
2,573
25
0.0%
11.9%
3.7%
16.8% $1,791
-
2,142
50
0.0%
22.7%
2.8%
18.4%
0.0%
22.0%
2.6%
1,197
43
38.7%
1.8%
713
44
44.0%
2.7%
706
75
46.9%
5.0%
711
38
44.3%
2.4%
734
64
40.1%
3.5%
515
716
1,855
10.8%
2.5%
0.0%
$13,637 100.0% $8,800 100.0% $6,800 100.0% $6,364 100.0% $6,086 100.0%
9.9%
2.5%
0.0%
7.9%
2.5%
0.0%
8.1%
2.4%
0.0%
8.8%
2.3%
0.0%
482
662
676
491
606
244
470
537
105
560
483
262
Based upon Management’s evaluation, provisions are made to maintain the allowance as a best estimate of inherent
losses within the portfolio. The provision for loan losses to maintain the allowance was $12.2 million in 2009 compared
to $4.7 million in 2008. Net chargeoffs were $7.3 million in 2009 compared to net chargeoffs of $2.7 million in 2008.
Our allowance as a percentage of outstanding loans has increased from 0.90% as of December 31, 2008 to 1.43% as of
December 31, 2009, reflecting the changes in our loss estimates and the increases resulting from the application of our
loss estimate methodology.
The First Bancorp 2009 Form 10-k • Page 35
The following table summarizes the activities in our allowance for loan losses as of December 31, 2009, 2008,
2007, 2006 and 2005:
Dollars in thousands
Balance at beginning of year
Acquisition of FNB Bankshares
Loans charged off:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Recoveries on loans previously charged off
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Net loans charged off
Provision for loan losses
Balance at end of period
Ratio of net loans charged off to average loans outstanding
Ratio of allowance for loan losses to total loans outstanding
2009
As of December 31,
2007
$ 8,800 $ 6,800 $ 6,364 $6 ,086 $ 4,714
2,066
2005
2006
2008
-
-
-
-
2,430
-
2,329
-
1,767
47
177
826
7,576
-
-
79
-
3
-
1,997
-
113
-
83
745
2,941
-
-
32
-
27
-
477
-
13
-
50
770
1,337
-
-
142
-
2
-
854
-
42
-
21
394
1,313
30
-
60
-
-
-
473
-
256
-
-
323
1,052
18
-
31
-
5
-
-
204
241
2,700
4,700
-
4
59
-
-
-
-
21
1
109
174
114
158
341
253
894
996
7,323
200
1,432
12,160
$13,637 $ 8,800 $ 6,800 $ 6,364 $ 6,086
0.13%
0.11%
0.75%
0.79%
0.74%
1.43%
16
-
-
160
266
1,047
1,325
0.13%
0.76%
0.28%
0.90%
Management believes the allowance for loan losses is adequate as of December 31, 2009. In Management’s
opinion, the increase in provision for loan losses and the corresponding increase in the allowance for loan losses is
directionally consistent with the deterioration in credit quality of our loan portfolio and corresponding increased levels
of specific reserves and unallocated reserves, as well as with the performance of the national and local economies,
higher levels of unemployment and the outlook for the recession continuing for some time to come.
The First Bancorp 2009 Form 10-k • Page 36
Nonperforming Loans
Nonperforming loans are comprised of loans which have been determined to be impaired when, based on current
information and events, it is probable that we will be unable to collect all amounts due according to the contractual
terms of the loan agreement. A loan is not considered impaired during a minimal period of delay in payment if we
expect to collect all amounts due, including past-due interest. When a loan becomes nonperforming (generally 90 days
past due), it is evaluated for collateral dependency based upon the most recent appraisal. If the collateral value is lower
than the outstanding loan balance plus accrued interest and estimated selling costs, the loan is placed on non-accrual
status, all accrued interest is reversed from interest income, and a specific reserve is established for the difference
between the loan balance and the collateral value less selling costs. At the same time, a new independent, third-party
appraisal may be ordered, based on the currency of the most recent appraisal and the size of the loan, and upon receipt
of the revised appraisal – typically 30 days for residential loans and 60-90 days for commercial loans – the loan may
have an additional specific reserve or write down based upon the new appraisal information.
On an ongoing basis, if a non-performing loan is collateral dependent as its source of repayment, we may have an
independent appraisal done periodically, based on the currency of the most recent appraisal and the size of the loan, and
an additional specific reserve or write down based upon the new appraisal information will be made if appropriate. Once
a loan is placed on nonaccrual, it remains in nonaccrual status until the loan is current as to payment of both principal
and interest and the borrower demonstrates the ability to pay and remain current. All payments made on nonaccrual
loans are applied to the principal balance of the loan.
Nonperforming loans, expressed as a percentage of total loans, totaled 1.95% at December 31, 2009 compared to
1.27% at December 31, 2008. The following table shows the distribution of nonperforming assets and loans greater than
90 days past due as of December 31, 2009, 2008, 2007, 2006 and 2005:
Dollars in thousands
2009
As of December 31,
2007
2008
2006
2005
458
2,735
-
$ 6,589 $ 7,477 $ 734 $1,105 $ 744
-
1,697
-
Commercial
Real estate
Construction
Other
Municipal
Residential
914
Term
-
Construction
20
Home equity line of credit
45
Consumer
Total loans 90 or more days past due
$19,738 $17,429 $5,154 $4,232 $3,420
Non-accrual loans included in above total $18,562 $12,449 $2,867 $3,485 $3,095
6,322
3,182
143
309
2,109
-
299
1
6,594
-
313
137
-
2,285
-
-
2,011
-
-
2,908
-
606
-
190
46
Impaired loans increased $6.1 million from December 31, 2008 to December 31, 2009, with the number of loans
increasing by 58 from 81 to 139 during the same period. Impaired commercial loans decreased $925,000 from
December 31, 2008 to December 31, 2009. The specific allowance for impaired commercial loans increased from $1.8
million at December 31, 2008 to $2.4 million as of December 31, 2009, which represented the fair value deficiencies for
those loans for which the net fair value of the collateral was estimated at less than our carrying amount of the loan.
Impaired residential loans increased $3.7 million from December 31, 2008 to December 31, 2009, with the recession
and resulting higher unemployment leading to higher levels of delinquent borrowers. Impaired consumer loans were up
slightly from December 31, 2008 to December 31, 2009.
The First Bancorp 2009 Form 10-k • Page 37
Troubled Debt Restructures
A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the Bank, for economic or legal reasons
related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.
To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the
following criteria:
The borrower demonstrates financial difficulty; common indicators include past due status with bank obligations,
substandard credit bureau reports, or an inability to refinance with another lender, and
The Bank has granted a concession; common concession types include maturity date extension, interest rate
adjustments to below market pricing, and deferment of payments.
As of December 31, 2009 we had 52 loans with a value of $8.4 million that have been restructured due to the
borrower’s inability to maintain a current status on the loan that were classified as TDRs. This compares to no loans
classified as TDRs as of December 31, 2008. As of December 31, 2009, six of the loans classified as TDRs with a total
balance of $835,000 were greater than 30 days past due and one loan with a balance of $234,000 was in the process of
foreclosure. Management is aware of only one TDR with a balance of $77,000 in which the borrower is in the process
of bankruptcy.
Potential Problem Loans
Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between
30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrower or collateral
deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in
collateral values or the financial condition of the borrower, while the credit quality of other loans may deteriorate,
resulting in some amount of loss. These loans are not included in the analysis of non-accrual loans above. At December
31, 2009, there were 28 potential problem loans with a balance of $8.7 million or 0.9% of total loans. This compares to
26 loans with a balance of $2.0 million or 0.2% of total loans at December 31, 2008.
As of December 31, 2009, there were 42 loans in the process of foreclosure with a total balance of $8.0 million.
Past Due Loans
The Bank’s overall loan delinquency ratio was 3.14% at December 31, 2009, versus 2.99% at December 31, 2008.
Loans 90 days delinquent and accruing decreased from $5.0 million at December 31, 2008 to $1.2 million as of
December 31, 2009. This total is made up of 18 loans, with the largest loan totaling $391,000. We expect to collect all
amounts due on these loans, including interest.
The following table sets forth loan delinquencies as of December 31, 2009, 2008, 2007, 2006 and 2005:
Dollars in thousands
2009
As of December 31,
2007
2008
2006
2005
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Loans 30-89 days past due to total loans
Loans 90+ days past due and accruing to total loans
Loans 90+ days past due on non-accrual to total loans
Total past due loans to total loans
$ 9,443 $10,446 $ 2,607 $ 2,326 $1,006
-
4,331
-
9
5,575
-
325
8,393
-
584
4,713
-
458
3,607
-
4,067
-
627
312
8,803
-
872
496
11,747
3,182
682
775
11,526
-
1,423
609
3,093
-
729
328
$29,894 $29,301 $21,496 $12,916 $9,487
1.04% 0.79%
1.26%
0.09% 0.04%
0.12%
0.42% 0.40%
1.76%
1.54% 1.23%
3.14%
1.78%
0.25%
0.31%
2.34%
1.21%
0.51%
1.27%
2.99%
The First Bancorp 2009 Form 10-k • Page 38
Other Real Estate Owned
Other real estate owned and repossessed assets (“OREO”) are comprised of properties or other assets acquired through a
foreclosure proceeding, or acceptance of a deed or title in lieu of foreclosure. Real estate acquired through foreclosure is
carried at the lower of fair value less estimated cost to sell. At December 31, 2009, there were 18 properties owned with
a net OREO balance of $5.3 million, net of an allowance for losses of $0.6 million, compared to December 31, 2008
when there were nine properties owned with a net OREO balance of $2.4 million, net of an allowance for losses of $0.3
million. The following table presents the composition of other real estate owned as of December 31, 2009, 2008, 2007,
2006 and 2005:
Dollars in thousands
2009
As of December 31,
2007
2006
2008
2005
Carrying Value
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Related Allowance
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Net Value
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
$ - $ - $ - $ - $ -
-
1,152
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,152
1,172
731
-
-
849
-
-
-
2,752
950
463
-
-
-
-
-
-
1,413
1,182
1,920
-
-
2,826
-
-
-
5,928
-
476
-
-
-
107
-
-
-
583
-
325
-
-
-
-
-
-
-
325
-
325
-
-
-
-
-
-
-
325
-
250
19
-
-
-
-
-
-
269
-
-
-
-
-
-
-
-
-
-
-
706
1,920
-
-
2,719
-
-
-
-
-
-
-
-
-
-
-
-
$5,345 $2,428 $ 827 $1,144 $ -
-
700
444
-
-
-
-
-
-
-
827
-
-
-
-
-
-
-
-
848
731
-
-
849
-
-
-
The First Bancorp 2009 Form 10-k • Page 39
Funding, Liquidity and Capital Resources
As of December 31, 2009 the Bank had primary sources of liquidity of $206.8 million. It is Management’s opinion that
this is adequate. In addition, the Bank has an additional $142.6 million in borrowing capacity under the Federal Reserve
Bank of Boston’s Borrower in Custody program, $18.0 million in credit lines with correspondent banks, and $24.9
million in unencumbered securities available as collateral for borrowing. These bring the Bank’s primary sources of
liquidity to $392.3 million. The Asset/Liability Committee (“ALCO”) establishes guidelines for liquidity in its
Asset/Liability policy and monitors internal liquidity measures to manage liquidity exposure. Based on its assessment of
the liquidity considerations described above, Management believes the Company’s sources of funding will meet
anticipated funding needs.
Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand.
The Bank’s primary source of liquidity is deposits, which funded approximately 70% of total average assets in 2009.
While the generally preferred funding strategy is to attract and retain low cost deposits, the ability to do so is affected by
competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased
liabilities (e.g., FHLB term advances and other borrowings), cash flows from the securities portfolios and loan
repayments. Securities designated as available for sale may also be sold in response to short-term or long-term liquidity
needs although Management has no intention to do so at this time.
The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and
comprehensive response to unexpected demands for liquidity. Management has developed quantitative models to
estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as
usual” cash flows. In Management’s estimation, risks are concentrated in two major categories: runoff of in-market
deposit balances and the inability to renew wholesale sources of funding. Of the two categories, potential runoff of
deposit balances would have the most significant impact on contingent liquidity. Our modeling attempts to quantify
deposits at risk over selected time horizons. In addition to these unexpected outflow risks, several other “business as
usual” factors enter into the calculation of the adequacy of contingent liquidity including payment proceeds from loans
and investment securities, maturing debt obligations and maturing time deposits. The Bank has established
collateralized borrowing capacity with the Federal Reserve Bank of Boston and also maintains additional collateralized
borrowing capacity with the FHLB in excess of levels used in the ordinary course of business as well as Fed Funds lines
with two correspondent banks.
Deposits
During 2009, total deposits decreased by $3.0 million or 0.3%, ending the year at $922.7 million compared to $925.7
million at December 31, 2008. This decrease was primarily due to a decrease in money market accounts. Average
deposits, however, increased $94.6 million in 2009, as shown in the following table which sets forth the average daily
balance for the Bank’s principal deposit categories for each period:
Dollars in thousands
Demand deposits
NOW accounts
Money market accounts
Savings
Certificates of deposit
Total deposits
Years ended December 31,
2008
$ 63,495
105,689
123,699
86,018
474,517
$ 853,418
2007
$ 61,678
102,083
125,370
91,967
438,131
$ 819,229
2009
$ 65,567
106,895
108,922
87,921
578,713
$ 948,018
% change
2009 vs. 2008
3.26%
1.14%
-11.95%
2.21%
21.96%
11.08%
The First Bancorp 2009 Form 10-k • Page 40
The average cost of deposits (including non-interest-bearing accounts) was 1.25% for the year ended December 31,
2009, compared to 2.69% for the year ended December 31, 2008 and 3.75% for the year ended December 31, 2007. The
following table sets forth the average cost of each category of interest-bearing deposits for the periods indicated.
NOW
Money market
Savings
Certificates of deposit
Total interest-bearing deposits
Years ended December 31,
2008
2009
0.35%
1.07%
0.62%
1.75%
1.35%
0.63%
2.88%
0.97%
3.78%
2.90%
2007
0.66%
4.82%
1.12%
5.12%
3.93%
Of all certificates of deposit, $452.1 million or 81.3% will mature by December 31, 2010. As of December 31,
2009, the Bank held a total of $343.2 million in certificate of deposit accounts with balances in excess of $100,000. The
following table summarizes the time remaining to maturity for these certificates of deposit:
Dollars in thousands
Within 3 Months
3 Months through 6 months
6 months through 12 months
Over 12 months
Total
Borrowed Funds
2008
As of December 31,
2009
$ 184,574
94,778
27,709
36,143
$ 343,204
$ 214,491
35,475
22,631
18,200
$ 290,797
Borrowed funds consists mainly of advances from the Federal Home Loan Bank of Boston (FHLB) which are secured
by FHLB stock, funds on deposit with FHLB, U.S. Treasury and Agency notes and mortgage-backed securities and
qualifying first mortgage loans. As of December 31, 2009, the Bank’s total FHLB borrowing capacity was $253.4
million, of which $54.0 million was unused. As of December 31, 2009, advances totaled $199.4 million, with a
weighted average interest rate of 2.90% and remaining maturities ranging from three days to 15 years. This compares to
advances totaling $220.4 million, with a weighted average interest rate of 3.38% and remaining maturities ranging from
two days to 16 years, as of December 31, 2008. During 2009, the Bank shifted a portion of its funding from borrowed
funds to wholesale certificates of deposit to increase the Bank’s immediate sources of liquidity by increasing collateral
capacity at the FHLB. The decrease in the weighted average rate paid on borrowed funds in 2009 compared to 2008 is
consistent with the interest rate policy and actions of the FOMC.
The Bank offers securities repurchase agreements to municipal and corporate customers as an alternative to
deposits. The balance of these agreements as of December 31, 2009 was $49.7 million, compared to $48.8 million on
December 31, 2008, and $41.1 million on December 31, 2007. The weighted average rates of these agreements were
1.57% as of December 31, 2009, compared to 2.12% as of December 31, 2008 and 3.46% as of December 31, 2007.
The Bank participates in the Note Option Depository which is offered by the U.S. Treasury Department. Under the
Treasury Tax and Loan Note program, the Bank accumulates tax deposits made by its customers and is eligible to
receive additional Treasury Direct investments up to an established maximum balance of $5.0 million. The balances
invested by the Treasury are increased and decreased at the discretion of the Treasury. The deposits are generally made
at interest rates that are favorable in comparison to other borrowings. The balances on the Treasury Tax and Loan note
at December 31, 2009, 2008, and 2007 were $0.6 million, $2.9 million, and $2.0 million, respectively.
The maximum amount of borrowed funds outstanding at any month-end during each of the last three years was
$306.5 million at the end of February in 2009, $331.7 million at the end of January in 2008, and $316.7 million at the
end of December in 2007. The average amount outstanding during 2009 was $248.3 million with a weighted average
interest rate of 2.84%. This compares to an average outstanding amount of $293.7 million with a weighted average
interest rate of 3.62% in 2008, and an average outstanding amount of $215.4 million with a weighted average interest
rate of 4.71% in 2007. The decline in average cost realized during 2009 is consistent with the interest rate policy and
actions of the FOMC.
The First Bancorp 2009 Form 10-k • Page 41
Capital Resources
Shareholders’ equity as of December 31, 2009 was $147.9 million, compared to $117.2 million as of December 31,
2008. The Company’s earnings for 2009, net of dividends paid, plus participation in the U.S. Treasury Capital Purchase
Program (“CPP”), added to shareholders’ equity. The net unrealized loss on available-for-sale securities, presented in
accordance with FASB ASC Topic 740 “Investments – Debt and Equity Securities”, decreased by $0.7 million from
December 31, 2008.
Capital at December 31, 2009 was sufficient to meet the requirements of regulatory authorities. Leverage capital of
the Company, or total shareholders’ equity divided by average total assets for the current quarter less goodwill and any
net unrealized gain or loss on securities available for sale and postretirement benefits, stood at 9.44% on December 31,
2009 and 7.07% at December 31, 2008. To be rated “well-capitalized”, regulatory requirements call for a minimum
leverage capital ratio of 5.00%. At December 31, 2009, the Company had tier-one risk-based capital of 13.70% and tier-
two risk-based capital of 14.96%, versus 10.11% and 11.13%, respectively, at December 31, 2008. To be rated “well-
capitalized”, regulatory requirements call for minimum tier-one and tier-two risk-based capital ratios of 6.00% and
10.00%, respectively. The Company’s actual levels of capitalization were comfortably above the standards to be rated
“well-capitalized” by regulatory authorities.
During 2009, the Company declared cash dividends of $0.195 per share in each quarter or $0.78 per share for the
year. The Company’s dividend payout ratio (dividends declared per share divided by earnings per share) was 63.93% of
earnings in 2009 compared to 52.76% in 2008 and 51.49% in 2007. The ability of the Company to pay cash dividends
to its Shareholders depends on receipt of dividends from its subsidiary, the Bank. A total of $8.6 million in dividends
was declared in 2009 from the Bank to the Company.
In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and
earnings retention, as set forth in the Company’s Dividend Policy. The Bank may pay dividends to the Company out of
so much of its net profits as the Bank’s directors deem appropriate, subject to the limitation that the total of all
dividends declared by the Bank in any calendar year may not exceed the total of its net profits of that year combined
with its retained net profits of the preceding two years. Based upon this restriction, the amount available for dividends in
2010 will be that year’s net income plus $11.8 million. The payment of dividends from the Bank to the Company may
be additionally restricted if the payment of such dividends resulted in the Bank failing to meet regulatory capital
requirements. Also, pursuant to restrictions applicable to the Company as a consequence of its participation in the CPP
program discussed below, the Company may not increase its quarterly dividend above $0.195 per share during the first
three years that the CPP shares are outstanding without the consent of the U.S. Treasury.
In 2009, 21,000 shares of common stock were issued in conjunction with the exercise of stock options for
consideration totaling $134,000 and 42,698 shares were issued via employee stock programs and the dividend
reinvestment plan during the year for consideration totaling $702,000. The Company also purchased 15,925 shares of
common stock for total consideration of $263,000 during the year.
On November 21, 2008, the Company received approval for a $25.0 million preferred stock investment by the U.S.
Treasury under the Capital Purchase Program. The Company completed the CPP investment transaction on January 9,
2009. The CPP Shares call for cumulative dividends at a rate of 5.0% per year for the first five years, and at a rate of
9.0% per year in following years. The CPP Shares qualify as Tier 1 capital on the Company’s books for regulatory
purposes and will rank senior to the Company’s common stock and senior or at an equal level in the Company’s capital
structure to any other shares of preferred stock the Company may issue in the future. During the first three years these
securities remain outstanding, the Company may increase the dividend on shares of its common stock only with the
consent of the U.S. Treasury.
On August 16, 2007, the Company announced that its Board of Directors had authorized a program for the
repurchase of up to 300,000 shares of the Company’s common stock or approximately 3.1% of the outstanding shares.
This program ended on August 16, 2009 and under the program the Company repurchased 182,869 shares at an average
price of $15.63 and at a total cost of $2.9 million. As a consequence of the Company’s issuance of securities under the
U.S. Treasury’s CPP program, its ability to repurchase stock while such securities remain outstanding is restricted to
purchases from employee benefit plans. In 2009, the Company repurchased 11,412 shares from employee benefit plans
at an average price of $14.73 per share and for total proceeds of $168,000.
Except as identified in Item 1A, “Risk Factors”, Management knows of no present trends, events or uncertainties
that will have, or are reasonably likely to have, a material effect on capital resources, liquidity, or results of operations.
The First Bancorp 2009 Form 10-k • Page 42
Goodwill
On January 14, 2005, the Company completed the acquisition of FNB Bankshares of Bar Harbor, Maine, and its
subsidiary, The First National Bank of Bar Harbor, which was merged into the Bank. The total value of the transaction
was $48.0 million, and all of the voting equity interest of FNB Bankshares was acquired in the transaction. As of
December 31, 2009, the Company completed its annual review of goodwill and determined there has been no
impairment.
Contractual Obligations
The following table sets forth the contractual obligations and commitments to extend credit of the Company as of
December 31, 2009:
Dollars in thousands
Borrowed funds
Operating leases
Certificates of deposit
Total
Unused lines, collateralized by residential real estate
Other unused commitments
Standby letters of credit
Commitments to extend credit
Total loan commitments and unused lines of credit
Total
$249,778
907
556,097
806,782
58,751
76,125
3,449
4,512
$142,837
Less than
1 year
$149,601
190
452,129
601,920
58,751
76,125
3,449
4,512
$142,837
1-3 years 3-5 years
$30,000
131
47,589
77,720
$20,000
334
56,379
76,713
More than
5 years
$50,177
252
-
50,429
-
-
-
-
$ -
-
-
-
-
$ -
-
-
-
-
$ -
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These include commitments to originate loans, commitments for unused lines of
credit, and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the consolidated balance sheets. Commitments for unused lines are agreements to lend to a
customer provided there is no violation of any condition established in the contract and generally have fixed expiration
dates. Standby letters of credit are conditional commitments issued by the Bank to guarantee a customer’s performance
to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loans to customers. As of December 31, 2009, the Company’s off-balance-sheet activities consisted entirely of
commitments to extend credit.
Off-Balance Sheet Financial Instruments
No material off-balance sheet risk exists that requires a separate liability presentation.
Capital Purchases
In 2009, the Company made capital purchases totaling $3.8 million. This cost will be amortized over an average of
seven years, adding approximately $543,000 to pre-tax operating costs per year. The capital purchases included real
estate improvements for branch premises and equipment related to technology.
Effect of Future Interest Rates on Post-retirement Benefit Liabilities
In evaluating the Company’s post-retirement benefit liabilities, Management believes changes in discount rates which
have occurred pursuant to newly enacted Federal legislation will not have a significant impact on the Company’s future
operating results or financial condition.
The First Bancorp 2009 Form 10-k • Page 43
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in
interest rates, and the Company’s market risk is composed primarily of interest rate risk. The Bank’s Asset/Liability
Committee (ALCO) is responsible for reviewing the interest rate sensitivity position of the Company and establishing
policies to monitor and limit exposure to interest rate risk. All guidelines and policies established by ALCO have been
approved by the Board of Directors.
Asset/Liability Management
The primary goal of asset/liability management is to maximize net interest income within the interest rate risk limits set
by ALCO. Interest rate risk is monitored through the use of two complementary measures: static gap analysis and
earnings simulation modeling. While each measurement has limitations, taken together they present a reasonably
comprehensive view of the magnitude of interest rate risk in the Company, the level of risk through time, and the
amount of exposure to changes in certain interest rate relationships.
Static gap analysis measures the amount of repricing risk embedded in the balance sheet at a point in time. It does
so by comparing the differences in the repricing characteristics of assets and liabilities. A gap is defined as the
difference between the principal amount of assets and liabilities which reprice within a specified time period. The
cumulative one-year gap, at year-end, was +0.72% of total assets, which compares to -8.95% of assets at December 31,
2008. ALCO’s policy limit for the one-year gap is plus or minus 20% of total assets. Core deposits with non-contractual
maturities are presented based upon historical patterns of balance attrition which are reviewed at least annually.
The gap repricing distributions include principal cash flows from residential mortgage loans and mortgage-backed
securities in the time frames in which they are expected to be received. Mortgage prepayments are estimated by
applying industry median projections of prepayment speeds to portfolio segments based on coupon range and loan age.
The Company’s summarized static gap, as of December 31, 2009, is presented in the following table:
Dollars in thousands
Investment securities at amortized cost
Federal Home Loan Bank and Federal Reserve Bank Stock, at cost
Loans held for sale
Loans
Other interest-earning assets
Non-rate-sensitive assets
Total assets
Interest-bearing deposits
Borrowed funds
Non-rate-sensitive liabilities and equity
Total liabilities and equity
Period gap
Percent of total assets
Cumulative gap (current)
Percent of total assets
0-90
Days
90-365
Days
1-5
Years
$ 98,862
-
-
280,994
-
-
379,856
103,471
40,047
38,800
182,318
$ 28,564 $ 69,880
-
-
157,308
9,492
-
236,680
221,275
70,008
5,850
297,133
5+
Years
$ 75,260
1,412
14,031
2,876
-
87,540
426,650
-
-
70,410
8,115
237,498
477,360
205,775
325,829
60,119
79,604
178,766
1,850
407,283
444,660
$ 70,077 $(60,453) $197,538 $(207,162)
-15.56%
-
0.00%
14.84%
207,162
15.56%
-4.54%
9,624
0.72%
5.26%
70,077
5.26%
The earnings simulation model forecasts one- and two-year net interest income under a variety of scenarios that
incorporate changes in the absolute level of interest rates as well as basis risk, as represented by changes in the shape of
the yield curve and changes in interest rate relationships. Management evaluates the effects on income of alternative
interest rate scenarios against earnings in a stable interest rate environment. This analysis is also most useful in
determining the short-run earnings exposures to changes in customer behavior involving loan payments and deposit
additions and withdrawals.
The most recent simulation model projects net interest income would decrease by approximately 0.1% of stable-
rate net interest income if short-term rates fall gradually by one percentage point over the next year, and decrease by
approximately 1.0% if short-term rates rise gradually by two percentage points. Both scenarios are within ALCO’s
policy limit of a decrease in net interest income of no more than 10.0% given a move in interest rates of 2.0% up or
1.0% down, in the first year. Management believes this reflects a reasonable interest rate risk position. Within a two-
year horizon and assuming no additional change in interest rates, the model forecasts that net interest income would be
The First Bancorp 2009 Form 10-k • Page 44
lower than that earned in a stable rate environment by 0.8% in a falling rate scenario and decrease by 4.4% in a rising
rate scenario.
The change in net interest income projections between December 31, 2009, and December 31, 2008, is attributable
to the change in the Company’s mix of assets and liabilities, as well as lowering of interest rates by the FOMC and the
corresponding steepening of the yield curve which occurred in 2008 and 2009. A summary of the Company’s interest
rate risk simulation modeling, as of December 31, 2009 and 2008 is presented in the following table:
Changes in Net Interest Income
2009
2008
Year 1
Projected changes if rates decrease by 1.0%
Projected change if rates increase by 2.0%
Year 2
Projected changes if rates decrease by 1.0%
Projected change if rates increase by 2.0%
-0.1%
-1.0%
-0.8%
-4.4%
+1.8%
-1.2%
-.0.5%
-6.4%
This dynamic simulation model includes assumptions about how the balance sheet is likely to evolve through time
and in different interest rate environments. Loans and deposits are projected to maintain stable balances. All maturities,
calls and prepayments in the securities portfolio are assumed to be reinvested in similar assets. Mortgage loan
prepayment assumptions are developed from industry median estimates of prepayment speeds for portfolios with similar
coupon ranges and seasoning. Non-contractual deposit volatility and pricing are assumed to follow historical patterns.
The sensitivities of key assumptions are analyzed annually and reviewed by ALCO.
Interest Rate Risk Management
A variety of financial instruments can be used to manage interest rate sensitivity. These may include the securities in the
investment portfolio, interest rate swaps, and interest rate caps and floors. Frequently called interest rate derivatives,
interest rate swaps, caps and floors have characteristics similar to securities but possess the advantages of customization
of the risk-reward profile of the instrument, minimization of balance sheet leverage and improvement of liquidity. As of
December 31, 2009, the Company had a de diminimus interest rate cap for interest rate risk management.
Management believes that the current level of interest rate risk is acceptable as of December 31, 2009. The
Company engages an independent consultant to periodically review its interest rate risk position, as well as the
effectiveness of simulation modeling and reasonableness of assumptions used. As of December 31, 2009, there were no
significant differences between the views of the independent consultant and Management regarding the Company’s
interest rate risk exposure.
The First Bancorp 2009 Form 10-k • Page 45
ITEM 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets
The First Bancorp, Inc. and Subsidiary
As of December 31,
Assets
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity, fair value of $192,838,000
at December 31, 2009, and $229,460,000 at December 31, 2008
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
Loans held for sale
Loans
Less allowance for loan losses
Net loans
Accrued interest receivable
Premises and equipment, net
Other real estate owned
Goodwill
Other assets
Total assets
Liabilities
Demand deposits
NOW deposits
Money market deposits
Savings deposits
Certificates of deposit under $100,000
Certificates of deposit $100,000 or more
Total deposits
Borrowed funds
Other liabilities
Total liabilities
Commitments and contingent liabilities (notes 12, 15, 19 and 20)
Shareholders’ equity
Preferred stock, $1,000 preference value per share
Common stock, one cent par value per share
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Net unrealized loss on securities available for sale, net of
tax benefit of $67,000 in 2009 and $441,000 in 2008
Net unrealized loss on post-retirement benefit costs,
net of tax benefit of $114,000 in 2009 and $146,000 in 2008
Total shareholders’ equity
Total liabilities and shareholders’ equity
Common stock
Number of shares authorized
Number of shares issued
Number of shares outstanding
Book value per share
2009
2008
$ 15,332,000
81,838,000
$ 16,856,000
13,072,000
190,537,000
15,443,000
2,876,000
952,492,000
13,637,000
938,855,000
4,889,000
18,331,000
5,345,000
27,684,000
30,264,000
$ 1,331,394,000
$ 66,317,000
114,955,000
94,425,000
90,873,000
212,893,000
343,204,000
922,667,000
249,778,000
11,011,000
1,183,456,000
234,767,000
14,693,000
1,298,000
979,273,000
8,800,000
970,473,000
5,783,000
16,028,000
2,428,000
27,684,000
22,662,000
$ 1,325,744,000
$ 68,399,000
108,188,000
129,333,000
82,867,000
246,152,000
290,797,000
925,736,000
272,074,000
10,753,000
1,208,563,000
24,606,000
97,000
45,121,000
78,450,000
-
97,000
44,117,000
74,057,000
(125,000)
(819,000)
(211,000)
147,938,000
$ 1,331,394,000
(271,000)
117,181,000
$ 1,325,744,000
18,000,000
9,744,170
9,744,170
$12.66
18,000,000
9,696,397
9,696,397
$12.09
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2009 Form 10-k • Page 46
Consolidated Statements of Income
The First Bancorp, Inc. and Subsidiary
Years ended December 31,
Interest and dividend income
Interest and fees on loans (includes tax-exempt income of
$1,472,000 in 2009, $1,245,000 in 2008, and $1,179,000 in 2007)
Interest on deposits with other banks
Interest and dividends on investments (includes tax-exempt income of
$2,980,000 in 2009, $2,820,000 in 2008, and $2,685,000 in 2007)
Total interest and dividend income
Interest expense
Interest on deposits
Interest on borrowed funds
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Fiduciary and investment management income
Service charges on deposit accounts
Net securities gains
Mortgage origination and servicing income
Other operating income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy expense
Furniture and equipment expense
FDIC insurance premiums
Net securities losses
Other than temporary impairment charge
Amortization of core deposit intangible
Other operating expenses
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Less dividends and amortization of premium on preferred stock
Net income available to common shareholders
Earnings per common share
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Weighted average number of shares outstanding
Incremental shares
2009
2008
2007
$ 49,277,000
1,000
$58,079,000
3,000
$60,585,000
-
13,291,000
62,569,000
13,290,000
71,372,000
11,136,000
71,721,000
11,872,000
7,044,000
18,916,000
43,653,000
12,160,000
31,493,000
1,331,000
2,516,000
-
2,341,000
6,566,000
12,754,000
10,935,000
1,580,000
2,273,000
1,666,000
150,000
916,000
283,000
8,855,000
26,658,000
17,589,000
4,547,000
$ 13,042,000
1,161,000
$ 11,881000
23,000,000
10,669,000
33,669,000
37,703,000
4,700,000
33,003,000
1,475,000
2,837,000
-
145,000
5,189,000
9,646,000
29,745,000
10,140,000
39,885,000
31,836,000
1,432,000
30,404,000
1,737,000
2,740,000
2,000
589,000
5,077,000
10,145,000
11,333,000
1,518,000
2,005,000
402,000
89,000
-
283,000
7,364,000
22,994,000
19,655,000
5,621,000
11,037,000
1,438,000
1,944,000
97,000
-
-
283,000
7,384,000
22,183,000
18,366,000
5,265,000
$14,034,000 $13,101,000
-
$14,034,000 $13,101,000
-
$ 1.45
1.44
0.765
9,701,379
18,952
The accompanying notes are an integral part of these consolidated financial statements
$ 1.22
1.22
0.780
9,721,172
12,072
$ 1.34
1.34
0.690
9,787,287
25,731
The First Bancorp 2009 Form 10-k • Page 47
Consolidated Statements of Changes in Shareholders’ Equity
The First Bancorp, Inc. and Subsidiary
Balance at December 31, 2006
Net income
Net unrealized loss on securities
available for sale, net of tax benefit of
$100,000
Unrecognized actuarial gain
for post-retirement benefits,
net of taxes of $42,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Payment to repurchase common stock
Proceeds from sale of common stock
Change in accounting for split dollar
life insurance arrangements
Balance at December 31, 2007
Net income
Net unrealized loss on securities
available for sale, net of tax benefit of
$675,000
Unrecognized actuarial gain
for post-retirement benefits,
net of taxes of $1,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Payment to repurchase common stock
Proceeds from sale of common stock
Tax benefit of disqualifying
disposition of stock option shares
Balance at December 31, 2008
Net income
Net unrealized gain on securities
available for sale, net of taxes
of $374,000
Unrecognized actuarial gain
for post-retirement benefits, net of tax
benefit of $32,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Proceeds from sale of preferred stock
Premium on preferred stock issuance
Amortization of premium on
preferred stock
Payment to repurchase common stock
Proceeds from sale of common stock
Balance at December 31, 2009
Preferred
stock
Common stock and
additional paid-in capital
Shares
$ - 9,770,792
-
-
Retained
earnings
Amount
$45,685,000 $61,298,000
13,101,000
-
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
$ 344,000 $107,327,000
13,101,000
-
-
-
-
-
-
-
-
-
-
-
(260,000)
(260,000)
-
-
-
-
(109,860)
71,561
-
-
-
59,000
(1,687,000)
802,000
-
13,101,000
(6,752,000)
-
-
-
78,000
(182,000)
-
-
-
-
78,000
12,919,000
(6,752,000)
59,000
(1,687,000)
802,000
-
$ -
-
-
9,732,493
-
-
(215,000)
$44,859,000 $67,432,000
14,034,000
-
-
(215,000)
$ 162,000 $112,453,000
14,034,000
-
-
-
-
-
-
-
-
-
-
-
(1,255,000)
(1,255,000)
-
-
-
-
(88,764)
52,668
-
-
-
37,000
(1,414,000)
732,000
-
14,034,000
(7,416,000)
-
-
-
3,000
(1,252,000)
-
-
-
-
3,000
12,782,000
(7,416,000)
37,000
(1,414,000)
732,000
-
-
$ - 9,696,397
-
-
-
-
-
-
-
25,000,000
(493,000)
-
-
-
-
-
-
-
-
7,000
$44,214,000 $74,057,000
13,042,000
-
-
7,000
$ (1,090,000) $117,181,000
13,042,000
-
-
-
694,000
694,000
-
-
-
37,000
-
493,000
-
13,042,000
(8,649,000)
-
-
-
60,000
754,000
-
-
-
-
60,000
13,796,000
(8,649,000)
37,000
25,000,000
-
-
99,000
(15,925)
-
63,698
-
$24,606,000 9,744,170
(99,000)
(263,000)
836,000
-
-
-
$45,218,000 $78,450,000
-
(263,000)
836,000
$ (336,000) $147,938,000
-
-
-
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2009 Form 10-k • Page 48
Consolidated Statements of Cash Flows
The First Bancorp, Inc. and Subsidiary
2009
2008
2007
For the years ended December 31,
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Change in deferred income taxes
Provision for loan losses
Loans originated for resale
Proceeds from sales of loans
Net (gain) loss on sale or call of securities
Write-down of securities available for sale
Net accretion of discounts on investments
Net loss on sale of other real estate owned
Provision for losses on other real estate owned
Equity compensation expense
Net change in other assets and accrued interest receivable
Net change in other liabilities
Net (gain) loss on sale of premises and equipment
Amortization of investments in limited partnerships
Net acquisition amortization
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from sales of securities available for sale
Proceeds from maturities, payments, calls of securities available for sale
Proceeds from maturities, payments, calls of securities held to maturity
Proceeds from sales of other real estate owned
Purchases of securities available for sale
Investments in limited partnerships
Purchases of securities to be held to maturity
Purchases of FRB and FHLB stock
Net (increase) decrease in loans
Capital expenditures
Proceeds from sale of premises and equipment
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in transaction and savings accounts
Net increase in certificates of deposit
Advances on long-term borrowings
Repayments on long-term borrowings
Net increase (decrease) in short-term borrowings
Proceeds from issuance of preferred stock
Payments to repurchase common stock
Proceeds from sale of common stock
Dividends paid
Net cash provided (used) by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Interest paid
Income taxes paid
Non-cash transactions:
Transfer from loans to other real estate owned
Net (increase) decrease in unrealized gain on securities available for sale
Net decrease in net unrealized loss on postretirement benefit costs
$ 13,042,000 $ 14,034,000 $ 13,101,000
1,483,000
(1,210,000)
12,160,000
(117,282,000)
115,704,000
150,000
916,000
(2,774,000)
223,000
481,000
37,000
(4,013,000)
(728,000)
11,000
275,000
260,000
18,735,000
1,232,000
(1,039,000)
4,700,000
(19,199,000)
19,718,000
89,000
-
(5,475,000)
-
-
37,000
(1,627,000)
(1,933,000)
17,000
84,000
239,000
10,877,000
4,051,000
10,255,000
183,973,000
820,000
(81,853,000)
(1,371,000)
14,192,000
3,551,000
106,450,000
-
(5,373,000)
(1,700,000)
(138,186,000) (154,618,000)
(1,463,000)
(63,410,000)
(796,000)
-
(11,841,000) (103,167,000)
(750,000)
15,017,000
(3,798,000)
1,000
1,224,000
(464,000)
1,432,000
(24,081,000)
22,724,000
(2,000)
-
(2,996,000)
20,000
56,000
59,000
(926,000)
486,000
(34,000)
-
228,000
10,827,000
179,000
8,883,000
90,261,000
978,000
-
-
(133,008,000)
(4,983,000)
(83,804,000)
(2,108,000)
282,000
(123,320,000)
(22,217,000)
19,164,000
10,000,000
(27,000,000)
(5,289,000)
25,000,000
(263,000)
836,000
(8,649,000)
(8,418,000)
(1,524,000)
16,856,000
(24,102,000)
15,826,000
231,000
128,651,000
100,000,000
50,000,000
(62,000,000)
-
98,880,000
(94,622,000)
-
-
(1,687,000)
(1,414,000)
802,000
732,000
(6,565,000)
(7,281,000)
105,559,000
91,892,000
(6,934,000)
(398,000)
24,188,000
17,254,000
$ 15,332,000 $ 16,856,000 $ 17,254,000
$ 19,160,000 $ 34,558,000 $ 39,265,000
5,919,000
7,111,000
5,859,000
4,441,000
(1,068,000)
60,000
1,601,000
1,930,000
3,000
737,000
360,000
78,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2009 Form 10-k • Page 49
Notes to Consolidated Financial Statements
Nature of Operations
The First Bancorp, Inc. (the “Company”) through its wholly-owned subsidiary, The First, N.A. (“the Bank”), provides a
full range of banking services to individual and corporate customers from fourteen offices in coastal Maine. First
Advisors, a division of the Bank, provides investment management, private banking and financial planning services. At
the Company’s Annual Meeting of Shareholders on April 30, 2008, the Company’s name was changed to The First
Bancorp, Inc. from First National Lincoln Corporation.
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and the Bank. All intercompany accounts
and transactions have been eliminated in consolidation.
Subsequent Events
Events occurring subsequent to December 31, 2009, have been evaluated as to their potential impact to the financial
statements.
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which established
Accounting Standards Codification (the “Codification” or “ASC”) to become the single source of authoritative
generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities,
with the exception of guidance issued by the U.S. Securities and Exchange Commission (the “SEC”) and its staff. All
guidance contained in the Codification carries an equal level of authority. The Codification is not intended to change
GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately 90
accounting topics. The Company adopted this accounting standard in preparing the Consolidated Financial Statements
for the period ended September 30, 2009. The adoption of this accounting standard, which was subsequently codified
into FASB ASC Topic 105, “Generally Accepted Accounting Principles,” had no impact on the Company’s
consolidated financial statements.
Use of Estimates in Preparation of Financial Statements
In preparing the financial statements in accordance with accounting principles generally accepted in the United States of
America, Management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet and revenues and
expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan
losses, the valuation of mortgage servicing rights, and goodwill.
Investment Securities
Investment securities are classified as available for sale or held to maturity when purchased. There are no trading
account securities. Securities available for sale consist primarily of debt securities which Management intends to hold
for indefinite periods of time. They may be used as part of the Bank’s funds management strategy, and may be sold in
response to changes in interest rates or prepayment risk, changes in liquidity needs, or for other reasons. They are
accounted for at fair value, with unrealized gains or losses adjusted through shareholders’ equity, net of related income
taxes. Securities to be held to maturity consist primarily of debt securities which Management has acquired solely for
long-term investment purposes, rather than for purposes of trading or future sale. For securities to be held to maturity,
Management has the intent and the Bank has the ability to hold such securities until their respective maturity dates.
Such securities are carried at cost adjusted for the amortization of premiums and accretion of discounts. Investment
securities transactions are accounted for on a settlement date basis; reported amounts would not be materially different
from those accounted for on a trade date basis. Gains and losses on the sales of investment securities are determined
using the amortized cost of the security. For declines in the fair value of individual debt securities available for sale
below their cost that are deemed to be other than temporary, where the Company does not intend to sell the security and
it is more likely than not that the Company will not be required to sell the security before recovery of its amortized cost
basis, the other-than-temporary decline in the fair value of the debt security related to 1) credit loss is recognized in
earnings and 2) other factors is recognized in other comprehensive income or loss. Credit loss is deemed to exist if the
present value of expected future cash flows using the effective rate at acquisition is less than the amortized cost basis of
The First Bancorp 2009 Form 10-k • Page 50
the debt security. For individual debt securities where the Company intends to sell the security or more likely than not
will be required to sell the security before recovery of its amortized cost, the other-than-temporary impairment is
recognized in earnings equal to the entire difference between the security’s cost basis and its fair value at the balance
sheet date.
Loans Held for Sale
Loans held for sale consist of residential real estate mortgage loans and are carried at the lower of aggregate cost or
market value, as determined by current investor yield requirements.
Loans
Loans are generally reported at their outstanding principal balances, adjusted for chargeoffs, the allowance for loan
losses and any deferred fees or costs to originate loans. Loan commitments are recorded when funded.
Loan Fees and Costs
Loan origination fees and certain direct loan origination costs are deferred and recognized in interest income as an
adjustment to the loan yield over the life of the related loans. The unamortized net deferred fees and costs are included
on the balance sheets with the related loan balances, and the amortization is included with the related interest income.
Allowance for Loan Losses
Loans considered to be uncollectible are charged against the allowance for loan losses. The allowance for loan losses is
maintained at a level determined by Management to be adequate to absorb probable losses. This allowance is increased
by provisions charged to operating expenses and recoveries on loans previously charged off. Arriving at an appropriate
level of allowance for loan losses necessarily involves a high degree of judgment. In determining the appropriate level
of allowance for loan losses, Management takes into consideration several factors, including reviews of individual non-
performing loans and performing loans listed on the watch report requiring periodic evaluation, loan portfolio size by
category, recent loss experience, delinquency trends and current economic conditions. Loans more than 30 days past
due are considered delinquent. Impaired loans, including restructured loans, are measured at the present value of
expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral if the loan
is collateral dependent. Management takes into consideration impaired loans in addition to the above mentioned factors
in determining the appropriate level of allowance for loan losses.
Goodwill and Identified Intangible Assets
Intangible assets include the excess of the purchase price over the fair value of net assets acquired (goodwill) from the
acquisition of FNB Bankshares in 2005 as well as the core deposit intangible related to the same acquisition. The core
deposit intangible is amortized on a straight-line basis over ten years. Amortization expense for 2009, 2008 and 2007
was $283,000 and the amortization expense for each year until fully amortized will be $283,000. The straight-line basis
is used because the Company does not expect significant run off in the core deposits acquired. The Company annually
evaluates goodwill, and periodically evaluates other intangible assets for impairment on the basis of whether these
assets are fully recoverable from projected, undiscounted net cash flows of the acquired company. At December 31,
2009, the Company determined goodwill and other intangible assets were not impaired.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period the change is enacted.
Accrual of Interest Income and Expense
Interest on loans and investment securities is taken into income using methods which relate the income earned to the
balances of loans and investment securities outstanding. Interest expense on liabilities is derived by applying applicable
interest rates to principal amounts outstanding. Recording of interest income on problem loans, which includes impaired
loans, ceases when collectibility of principal and interest within a reasonable period of time becomes doubtful. Cash
payments received on non-accrual loans, which includes impaired loans, are applied to reduce the loan’s principal
balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected.
As a general rule, a loan may be restored to accrual status when payments are current and repayment of the remaining
contractual amounts is expected or when it otherwise becomes well secured and in the process of collection.
The First Bancorp 2009 Form 10-k • Page 51
Premises and Equipment
Premises, furniture and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed
by straight-line and accelerated methods over the asset’s estimated useful life.
Other Real Estate Owned (OREO)
Real estate acquired by foreclosure or deed in lieu of foreclosure is transferred to OREO and recorded at fair market
value, less estimated costs to sell, based on appraised value at the date actually or constructively received. Loan losses
arising from the acquisition of such property are charged against the allowance for loan losses. Subsequent provisions to
reduce the carrying value of a property are recorded to the allowance for OREO losses and a charge to operations on a
specific property basis.
Earnings Per Share
Basic earnings per share data are based on the weighted average number of common shares outstanding during each
year. Diluted earnings per share gives effect to the stock options and warrants outstanding, determined by the treasury
stock method.
Post-Retirement Benefits
The cost of providing post-retirement benefits is accrued during the active service period of the employee or director.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income (loss), which is comprised of the change
in unrealized gains and losses on securities available for sale, net of tax, and unrealized gains and loss related to post-
retirement benefit costs, net of tax, is disclosed in the consolidated statements of changes in shareholders’ equity.
Segments
The First Bancorp, Inc., through the branches of its subsidiary, The First, N.A., provides a broad range of financial
services to individuals and companies in coastal Maine. These services include demand, time, and savings deposits;
lending; credit card servicing; ATM processing; and investment management and trust services. Operations are
managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all of the Company’s banking
operations are considered by Management to be aggregated in one reportable operating segment.
Loan Servicing
Servicing rights are recognized when they are acquired through sale of loans. Capitalized servicing rights are reported in
other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net
servicing income of the underlying financial assets. Servicing rights are evaluated for impairment based upon the fair
value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Impairment is recognized through a valuation allowance for an
individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.
The First Bancorp 2009 Form 10-k • Page 52
Stock Options
The Company established a Shareholder-approved stock option plan in 1995, under which the Company may grant
options to its employees for up to 600,000 shares of common stock. The Company believes that such awards align the
interests of its employees with those of its Shareholders. Only incentive stock options may be granted under the plan.
The exercise price of each option grant is determined by the Options Committee of the Board of Directors, and in no
instance shall be less than the fair market value on the date of the grant. An option’s maximum term is ten years from
the date of grant, with 50% of the options granted vesting two years from the date of grant and the remaining 50%
vesting five years from date of grant. As of January 16, 2005, all options under this plan had been granted.
The Company applies the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock
Compensation”, to stock-based employee compensation for fiscal years beginning on or after January 1, 2006. As a
result, $37,000, $37,000 and $59,000 in compensation cost was included in the Company’s financial statements for
2009, 2008 and 2007, respectively. The unrecognized compensation cost to be amortized over a weighted average
remaining vesting period of 1.0 years is $37,000 for 21,000 options granted in 2005.
The weighted average fair market value per share was $4.41 for options granted in 2005. The fair market value
was estimated using the Black-Scholes option pricing model and the following assumptions: quarterly dividends of
$0.12, risk-free interest rate of 4.20%, volatility of 25.81%, and an expected life of ten years. Volatility is based on
the actual volatility of the Company’s stock during the quarter in which the options were granted. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of the option grant.
The following table summarizes the status of the Company’s non-vested options as of December 31, 2009.
Number of
Shares
Weighted Average Grant
Date Fair Value
Non-vested at December 31, 2008
Granted in 2009
Vested in 2009
Forfeited in 2009
Non-vested at December 31, 2009
21,000
-
-
-
21,000
$4.41
-
-
-
$4.41
During 2009, 21,000 options were exercised, with total proceeds paid to the Company of $134,000. The excess of
the fair value of the stock issued upon exercise over the exercise price was $200,000. A summary of the status of the
Company’s Stock Option Plan as of December 31, 2009, and changes during the year then ended, is presented below.
Number of
Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
Outstanding at December 31, 2008
Granted in 2009
Vested in 2009
Exercised in 2009
Forfeited in 2009
Outstanding at December 31, 2009
Exercisable at December 31, 2009
Note 2. Cash and Cash Equivalents
76,500
-
-
(21,000)
-
55,500
34,500
$ 13.27
-
-
6.36
-
$ 15.89
$ 14.61
4.6
4.1
$ 82,000
$ 82,000
For the purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand, amounts due
from banks and federal funds sold. At December 31, 2009 the Company had a contractual clearing balance of $500,000
and a reserve balance requirement of $576,000 at the Federal Reserve Bank, which are satisfied by both cash on hand at
branches and balances held at the Federal Reserve Bank of Boston. The Company maintains a portion of its cash in
bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any significant risk with respect to these accounts.
The First Bancorp 2009 Form 10-k • Page 53
Note 3. Investment Securities
The following tables summarize the amortized cost and estimated fair value of investment securities at December 31,
2009 and 2008:
As of December 31, 2009
Securities available for sale
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Securities to be held to maturity
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
As of December 31, 2008
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Securities to be held to maturity
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
(Estimated)
$ 31,022,000
31,254,000
18,219,000
1,120,000
414,000
$ 82,029,000
$ 39,099,000
90,193,000
61,095,000
150,000
$190,537,000
$ 90,000
133,000
414,000
-
6,000
$ 643,000
$ 142,000
1,839,000
1,603,000
-
$3,584,000
$ (153,000)
(239,000)
(119,000)
(302,000)
(21,000)
$ (834,000)
$ (554,000)
(363,000)
(366,000)
-
$(1,283,000)
$ 30,959,000
31,148,000
18,514,000
818,000
399,000
$ 81,838,000
$ 38,687,000
91,669,000
62,332,000
150,000
$192,838,000
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
(Estimated)
$ 900,000
8,571,000
4,566,000
295,000
$ 14,332,000
$110,513,000
60,774,000
62,330,000
1,150,000
$234,767,000
$ 22,000
339,000
-
2,000
$ 363,000
$ 74,000
640,000
952,000
-
$1,666,000
$ -
-
(1,589,000)
(34,000)
$(1,623,000)
$ 922,000
8,910,000
2,977,000
263,000
$ 13,072,000
$(5,871,000)
(297,000)
(684,000)
(121,000)
$(6,973,000)
$104,716,000
61,117,000
62,598,000
1,029,000
$229,460,000
The following table summarizes the contractual maturities of investment securities at December 31, 2009:
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Equity securities
Securities available for sale
Fair Value
Amortized
(Estimated)
Cost
Securities to be held to maturity
Amortized
Cost
Fair Value
(Estimated)
$ -
18,144,000
3,671,000
59,800,000
414,000
$ 82,029,000
$ -
18,381,000
3,783,000
59,275,000
399,000
$81,838,000
$ 330,000
7,934,000
15,020,000
167,253,000
-
$190,537,000
$ 335,000
8,245,000
15,591,000
168,667,000
-
$192,838,000
At December 31, 2009, securities with a fair value of $154,034,000 were pledged to secure borrowings from the
Federal Home Loan Bank of Boston, public deposits, repurchase agreements, and for other purposes as required by law.
This compares to securities with a fair value of $153,560,000, as of December 31, 2008 pledged for the same purpose.
The First Bancorp 2009 Form 10-k • Page 54
Gains and losses on the sale of securities available for sale are computed by subtracting the amortized cost at the
time of sale from the security’s selling price, net of accrued interest to be received. The following table shows securities
gains and losses for 2009, 2008 and 2007:
Proceeds from sales
Gross gains
Gross losses
Net gain (loss)
Related income taxes
2009
$ 4,051,000
20,000
(170,000)
$ (150,000)
$ (52,000)
2008
$14,192,000
123,000
(212,000)
$ (89,000)
$ (31,000)
2007
$179,000
2,000
-
$ 2,000
$ 1,000
Management reviews securities with unrealized losses for other than temporary impairment. During the first quarter
2009, the Company took an after-tax charge of $596,000 for other-than-temporary impairment related to one automotive
company corporate security in the investment portfolio. As of December 31, 2009, there were 45 securities with
unrealized losses held in the Company’s portfolio. These securities were temporarily impaired as a result of changes in
interest rates reducing their fair market value, of which eight had been temporarily impaired for 12 months or more. At
the present time, there have been no material changes in the credit quality of these securities resulting in other than
temporary impairment, and in Management’s opinion, no additional write-down for other-than-temporary impairment is
warranted. Information regarding securities temporarily impaired as of December 31, 2009 is summarized below:
As of December 31, 2009
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
12 months or more
Fair
Value
Fair
Value
Unrealized
Losses
$19,999,000 $ (707,000) $ -
47,509,000
-
1,350,000
9,396,000
818,000
-
44,000
-
$76,904,000 $(1,456,000) $2,212,000
(602,000)
(147,000)
-
-
Unrealized
Losses
$ -
-
(338,000)
(302,000)
(21,000)
$(661,000)
Total
Fair
Value
$19,999,000
47,509,000
10,746,000
818,000
44,000
Unrealized
Losses
$(707,000)
(602,000)
(485,000)
(302,000)
(21,000)
$79,116,000 $(2,117,000)
As of December 31, 2008, there were 97 securities with unrealized losses held in the Company’s portfolio. These
securities were temporarily impaired as a result of changes in interest rates reducing their fair market value, of which 29
had been temporarily impaired for 12 months or more. Information regarding securities temporarily impaired as of
December 31, 2008 is summarized below:
As of December 31, 2008
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$64,951,000 $(4,610,000) $10,043,000 $(1,261,000) $ 74,994,000 $(5,871,000)
(297,000)
12,498,000
(684,000)
13,592,000
(1,710,000)
1,821,000
(34,000)
-
$92,862,000 $(5,480,000) $17,483,000 $(3,116,000) $110,345,000 $(8,596,000)
16,032,000
15,757,000
3,530,000
32,000
(187,000)
(111,000)
(1,523,000)
(34,000)
3,534,000
2,165,000
1,709,000
32,000
(110,000)
(573,000)
(187,000)
-
Federal Home Loan Bank stock and Federal Reserve Bank stock have also been evaluated for impairment. The
Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston. The FHLB is a cooperatively owned
wholesale bank for housing and finance in the six New England States. Its mission is to support the residential mortgage
and community-development lending activities of its members, which include over 450 financial institutions across
New England. As a requirement of membership in the FHLB, the Bank must own a minimum required amount of
The First Bancorp 2009 Form 10-k • Page 55
FHLB stock, calculated periodically based primarily on the Bank’s level of borrowings from the FHLB. The Company
uses the FHLB for much of its wholesale funding needs. As of December 31, 2009 and 2008, the Company’s
investment in FHLB stock totaled $14.0 million.
FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value. Shares
held in excess of the minimum required amount are generally redeemable at par value. However, in the first quarter of
2009 the FHLB announced a moratorium on such redemptions in order to preserve its capital in response to current
market conditions and declining retained earnings. The minimum required shares are redeemable, subject to certain
limitations, five years following termination of FHLB membership. The Bank has no intention of terminating its FHLB
membership. The Company had no dividend income on its FHLB stock in 2009.
The FHLB recorded a net loss of $186.8 million for the year ending December 31, 2009. Losses due to the other-
than-temporary impairment of investments in private-label mortgage-backed securities resulted in a credit loss of $444.1
million for the year. The associated non-credit loss on these securities in 2009 was $885.4 million, which is recorded in
capital rather than through earnings, and contributed largely to an accumulated other comprehensive loss of $1.0 billion
at December 31, 2009. Retained earnings increased to $142.6 million at December 31, 2009, up from an accumulated
deficit of $19.7 million at December 31, 2008. This increase was mainly due to the effect of adopting FSP FAS 115-2
and FAS 124-2 on January 1, 2009, which reclassified $349.1 million from accumulated deficit to accumulated other
comprehensive loss. The FHLB remained in compliance with all regulatory capital ratios as of December 31, 2009, and,
in the most recent information available, was classified “adequately capitalized” by its regulator, the Federal Housing
Finance Agency, as of September 30, 2009.
Notwithstanding continued significant credit losses in its investment portfolio, the FHLB reported modest
profitability for the fourth quarter. Net income for the fourth quarter of 2009 was $6.3 million. The FHLB’s net interest
income continues to be strong, and totaled $311.7 million for the year ending December 31, 2009, and $88.0 million for
the fourth quarter of 2009. The FHLB expects to see volatility in its earnings in the next several quarters as it works
through continued challenges. In particular, high and prolonged unemployment rates, high delinquency and foreclosure
rates, and declining housing prices may result in additional credit losses from the FHLB’s private-label mortgage-
backed securities investments. The FHLB will continue to monitor this situation closely in 2010.
The FHLB remains focused on returning the FHLB to stable profitability and enhancing the FHLB’s capital base
by building retained earnings. The FHLB’s board of directors is unlikely to declare any dividends until a consistent
pattern of positive net income is demonstrated, allowing growth in retained earnings, which will likely preclude a
declaration of dividends for at least the first two quarters of 2010. The opportunity to pay a dividend after that, and the
amount of any such dividend, will be a function of the success that the FHLB has in stabilizing earnings and building
retained earnings, which will be driven in large part by the performance of its private-label mortgage-backed securities
portfolio. The FHLB’s current retained earnings target is estimated at $925 million, a target adopted in connection with
the FHLB’s Revised Operating Plan to preserve capital in light of the various challenges to the FHLB. The FHLB’s
retained earnings target could be superseded by mandates from its primary regulator, the Federal Housing Finance
Agency, either in the form of an order specific to the FHLB or by promulgation of new regulations requiring a level of
retained earnings that is different from the FHLB’s currently targeted level. Moreover, Management and the board of
directors of the FHLB may, at any time, change the FHLB’s methodology or assumptions for modeling the FHLB’s
retained earnings requirement. Either of these could result in the FHLB further increasing its retained earnings target or
reducing or eliminating the dividend payout, as necessary.
The Company periodically evaluates its investment in FHLB stock for impairment based on, among other factors,
the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through
December 31, 2009. The Bank will continue to monitor its investment in FHLB stock.
The First Bancorp 2009 Form 10-k • Page 56
Note 4. Loan Servicing
At December 31, 2009 and 2008, the Bank serviced loans for others totaling $223,837,000 and $168,242,000,
respectively. Net gains from the sale of loans totaled $962,000 in 2009, $249,000 in 2008, and $333,000 in 2007. In
2009, mortgage servicing rights of $1,133,000 were capitalized and amortization for the year totaled $539,000. After
deducting for an impairment reserve of $73,000 at December 31, 2009, mortgage servicing rights had a fair value of
$1,199,000, which is included in other assets. In 2008, mortgage servicing rights of $201,000 were capitalized or
acquired, and amortization for the year totaled $366,000. After deducting for an impairment reserve of $368,000 at
December 31, 2008, mortgage servicing rights had a fair value of $311,000, which is included in other assets.
FASB ASC Topic 860, “Transfers and Servicing”, requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable. Servicing assets and servicing liabilities are reported using
the amortization method or the fair value measurement method. In evaluating the carrying values of mortgage servicing
rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the
underlying loans. The model utilizes several assumptions, the most significant of which is loan prepayments, calculated
using a three-month moving average of weekly prepayment data published by the Public Securities Association (PSA)
and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of December 31,
2009, the prepayment assumption using the PSA model was 256, which translates into an anticipated prepayment rate of
15.33%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus 4.22%. Other assumptions
include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are
adjusted periodically to reflect current circumstances. Amortization of mortgage servicing rights, as well as write-offs
due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee
income. Mortgage servicing rights are included in other assets and detailed in the following table:
As of December 31,
Mortgage servicing rights
Accumulated amortization
Impairment reserve
2009
$ 5,086,000
(3,814,000)
(73,000)
$ 1,199,000
2008
$ 3,954,000
(3,275,000)
(368,000)
$ 311,000
Note 5. Loans
The following table shows the composition of the Company’s loan portfolio as of December 31, 2009 and 2008:
As of December 31,
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
2009
2008
$ 240,178,000
48,714,000
114,486,000
45,952,000
$ 219,057,000
48,182,000
118,109,000
34,832,000
367,267,000
17,361,000
94,324,000
24,210,000
431,520,000
26,235,000
77,206,000
24,132,000
$ 952,492,000
$ 979,273,000
Loan balances include net deferred loan costs of $1,352,000 in 2009 and $1,369,000 in 2008. Pursuant to collateral
agreements, qualifying first mortgage loans, which were valued at $295,119,000 and $356,964,000 at December 31,
2009 and 2008, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In
addition, commercial, construction and home equity loans totaling $366,264,000 were used to collateralize a standby
line of credit at the Federal Reserve Bank of Boston that is currently unused.
At December 31, 2009 and 2008, non-accrual loans were $18,562,000 and $12,449,000, respectively. As of
December 31, 2009, 2008 and 2007, interest income which would have been recognized on these loans, if interest had
been accrued, was $1,297,000, $489,000, and $283,000, respectively. Loans more than 90 days past due accruing
interest totaled $1,176,000 at December 31, 2009 and $4,980,000 at December 31, 2008. The Company continues to
The First Bancorp 2009 Form 10-k • Page 57
accrue interest on these loans because it believes collection of principal and interest is reasonably assured. Allowance
for loan losses transactions for the years ended December 31, 2009, 2008 and 2007 were as follows:
For the years ended December 31,
Balance at beginning of year
Provision charged to operating expenses
Loans charged off
Recoveries on loans
Net loans charged off
Balance at end of year
2009
$ 8,800,000
12,160,000
20,960,000
(7,576,000)
253,000
(7,323,000)
2007
$ 6,364,000
1,432,000
7,796,000
(1,337,000)
341,000
(996,000)
$ 13,637,000 $ 8,800,000 $ 6,800,000
2008
$ 6,800,000
4,700,000
11,500,000
(2,941,000)
241,000
(2,700,000)
Information regarding impaired loans is as follows:
As of December 31,
Average investment in impaired loans
Interest income recognized on impaired loans, all on cash basis
2009
$ 16,263,000
70,000
2008
$ 6,199,000
24,000
2007
$ 2,427,000
163,000
As of December 31,
Balance of impaired loans
Less portion for which no allowance for loan losses is allocated
Portion of impaired loan balance for which an allowance for loan losses is
allocated
Portion of allowance for loan losses allocated to the impaired loan balance
2009
$ 25,843,000
(13,682,000)
2008
$ 12,449,000
(4,805,000)
$ 12,161,000
$ 2,196,000
$ 7,644,000
$ 1,957,000
Loans to directors, officers and employees totaled $38,952,000 at December 31, 2009 and $37,876,000 at December 31,
2008. A summary of loans to directors and executive officers, which in the aggregate exceed $60,000, is as follows:
For the years ended December 31,
Balance at beginning of year
New loans
Repayments
Balance at end of year
Note 6. Premises and Equipment
2009
$ 23,896,000
3,820,000
(2,341,000)
$ 25,375,000
2008
$ 20,886,000
12,245,000
(9,235,000)
$ 23,896,000
Premises and equipment are carried at cost and consist of the following:
As of December 31,
Land
Land improvements
Buildings
Equipment
Less accumulated depreciation
2009
$ 3,556,000
648,000
13,821,000
9,532,000
27,557,000
9,226,000
$ 18,331,000
2008
$ 3,556,000
636,000
13,788,000
6,348,000
24,328,000
8,300,000
$ 16,028,000
The First Bancorp 2009 Form 10-k • Page 58
Note 7. Other Real Estate Owned
The following summarizes other real estate owned:
As of December 31,
Real estate acquired in settlement of loans
2009
$ 5,345,000
2008
$ 2,428,000
Changes in the allowance for losses from other real estate owned were as follows:
For the years ended December 31,
Balance at beginning of year
Losses charged to allowance
Provision charged to operating expenses
Balance at end of year
2009
$ 325,000
(223,000)
481,000
$ 583,000
2008
$ 325,000
-
-
$ 325,000
2007
$ 269,000
-
56,000
$ 325,000
Note 8. Goodwill
On January 14, 2005, the Company acquired FNB Bankshares (“FNB”) of Bar Harbor, Maine, and its subsidiary, The
First National Bank of Bar Harbor. The total value of the transaction was $47,955,000, and all of the voting equity
interest of FNB was acquired in the transaction. The transaction was accounted for as a purchase and the excess of
purchase price over the fair value of net tangible assets acquired equaled $27,559,000 and was recorded as goodwill,
none of which was deductible for tax purposes. The portion of the purchase price related to the core deposit intangible is
being amortized over its expected economic life, and goodwill is evaluated annually for possible impairment under the
provisions of FASB ASC Topic 350, “Intangibles – Goodwill and Other”.
Note 9. Income Taxes
The current and deferred components of income tax expense (benefit) were as follows:
For the years ended December 31,
Federal income tax
Current
Deferred
State franchise tax
2009
2008
2007
$5,520,000
(1,210,000)
4,310,000
237,000
$4,547,000
$ 6,415,000
(1,039,000)
5,376,000
245,000
$ 5,621,000
$ 5,500,000
(464,000)
5,036,000
229,000
$ 5,265,000
The actual tax expense differs from the expected tax expense (computed by applying the applicable U.S. Federal
corporate income tax rate to income before income taxes) as follows:
For the years ended December 31,
Expected tax expense
Non-taxable income
State franchise tax, net of federal tax benefit
Tax credits, net of amortization
Other
2009
$6,156,000
(1,555,000)
154,000
(345,000)
137,000
$4,547,000
2008
$ 6,879,000
(1,364,000)
159,000
(100,000)
47,000
$ 5,621,000
2007
$ 6,428,000
(1,244,000)
149,000
-
(68,000)
$ 5,265,000
The First Bancorp 2009 Form 10-k • Page 59
Deferred tax assets and liabilities are classified as other assets and other liabilities in the consolidated balance
sheets. No valuation allowance is deemed necessary for the deferred tax asset. Items that give rise to the deferred
income tax assets and liabilities and the tax effect of each at December 31, 2009 and 2008 are as follows:
Allowance for loan losses
Other real estate owned
Assets related to FNB acquisition
Accrued pension and post-retirement
Unrealized loss on securities available for sale
Other than temporary impairment of securities available for sale
Other assets
Total deferred tax asset
Net deferred loan costs
Depreciation
Mortgage servicing rights
Core deposit intangible
Liabilities related to FNB acquisition
Other liabilities
Total deferred tax liability
Net deferred tax asset
2009
2008
$4,773,000 $3,080,000
114,000
204,000
9,000
1,000
1,139,000
1,183,000
441,000
67,000
-
321,000
75,000
169,000
4,858,000
6,718,000
(578,000)
(672,000)
(1,422,000)
(2,106,000)
(109,000)
(420,000)
(600,000)
(500,000)
(32,000)
(10,000)
(35,000)
(114,000)
(2,776,000)
(3,822,000)
$2,896,000 $2,082,000
At December 31, 2009, the Company held investments in two limited partnerships with related New Market Tax
Credits. These investments are carried at cost and amortized on the effective yield method. The tax credits from these
investments are estimated at $530,000 and $154,000 for the years ended December 31, 2009 and 2008, respectively, and
are recorded as a reduction of income tax expense. Amortization of the investments in the limited partnerships totaled
$275,000 and $84,000 for the years ended December 31, 2009 and 2008, respectively, and is recognized as a component
of income tax expense in the consolidated statements of income. The carrying value of these investments was
$2,712,000 and $1,616,000 at December 31, 2009 and 2008, respectively, and is recorded in other assets. The
Company's total exposure to these limited partnerships was $5,712,000 and $5,516,000, at December 31, 2009 and
2008, respectively, which is comprised of the Company's equity investment in the limited partnerships and the balance
of a participated loan receivable.
FASB ASC Topic 740 “Income Taxes” defines the criteria that an individual tax position must satisfy for some or
all of the benefits of that position to be recognized in a company’s financial statements. Topic 740 prescribes a
recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be
taken on a tax return, in order for those tax positions to be recognized in the financial statements. Effective January 1,
2007, the Company has adopted these provisions and there was no material effect on the financial statements, and no
cumulative effect. The Company is currently open to audit under the statute of limitations by the Internal Revenue
Service for the years ended December 31, 2006 through 2008.
Note 10. Certificates of Deposit
At December 31, 2009, the scheduled maturities of certificates of deposit are as follows:
Year of
Maturity
2010
2011
2012
2013
2014
Less than
$100,000
$145,068,000
15,885,000
14,429,000
11,850,000
25,661,000
$212,893,000
Greater than
$100,000
$307,061,000
7,566,000
3,119,000
3,530,000
21,928,000
$343,204,000
All Certificates of
Deposit
$452,129,000
23,451,000
17,548,000
15,380,000
47,589,000
$556,097,000
Interest on certificates of deposit of $100,000 or more was $3,901,000, $6,905,000, and $11,885,000 in 2009, 2008
and 2007, respectively.
The First Bancorp 2009 Form 10-k • Page 60
Note 11. Borrowed Funds
Borrowed funds consist of advances from the Federal Home Loan Bank of Boston (FHLB), Treasury Tax & Loan
Notes, and securities sold under agreements to repurchase with municipal and commercial customers. Pursuant to
collateral agreements, FHLB advances are collateralized by all stock in FHLB, qualifying first mortgage loans, U.S.
Government and Agency securities not pledged to others, and funds on deposit with FHLB. As of December 31, 2009,
the Bank’s total FHLB borrowing capacity was $253,439,000, of which $54,037,000 was unused and available for
additional borrowings. All FHLB advances as of December 31, 2009, had fixed rates of interest until their respective
maturity dates. Under the Treasury Tax & Loan Note program, the Bank accumulates tax deposits made by customers
and is eligible to receive Treasury Direct investments up to an established maximum balance. Securities sold under
agreements to repurchase include U.S. Treasury and Agency securities and other securities. Repurchase agreements
have maturity dates ranging from one to 365 days. The Bank also has in place $10.0 million in credit lines with
correspondent banks and a credit facility of $142,600,000 with the Federal Reserve Bank of Boston using commercial
and home equity loans as collateral which are currently not in use.
Borrowed funds at December 31, 2009 and 2008 have the following range of interest rates and maturity dates:
As of December 31, 2009
Federal Home Loan Bank Advances
2010
2012
2013
2014
2015 and thereafter
Treasury Tax & Loan Notes (rate at December 31, 2009 was 0.00%)
Repurchase agreements
Municipal and commercial customers
As of December 31, 2008
Federal Home Loan Bank Advances
2009
2010
2012
2013
2014 and thereafter
Treasury Tax & Loan Notes (rate at December 31, 2008 was 0.00%)
Repurchase agreements
Municipal and commercial customers
0.20% - 5.41%
4.39%
3.49%
2.73% - 3.89%
0.00% - 2.69%
variable
0.90% - 4.00%
$ 99,225,000
10,000,000
10,000,000
20,000,000
60,177,000
199,402,000
638,000
49,738,000
$249,778,000
0.36% - 5.00%
4.43% - 5.41%
4.39%
3.49%
0.00% - 3.89%
variable
1.49% - 4.75%
$ 80,227,000
50,000,000
10,000,000
10,000,000
70,184,000
220,411,000
2,864,000
48,799,000
$272,074,000
The First Bancorp 2009 Form 10-k • Page 61
Note 12. Employee Benefit Plans
401(k) Plan
The Bank has a defined contribution plan available to substantially all employees who have completed six months of
service. Employees may contribute up to $16,500 of their compensation if under age 50 and $22,000 if over age 50, and
the Bank may provide a match to employee contributions not to exceed 3.0% of compensation depending on
contribution level. Subject to a vote of the Board of Directors, the Bank may also make a profit-sharing contribution to
the Plan. Such contribution equaled 2.0% of each eligible employee’s compensation in 2009, 2008, and 2007. The
expense related to the 401(k) plan was $365,000, $356,000, and $338,000 in 2009, 2008, and 2007, respectively.
Supplemental Retirement Plan
The Bank also provides unfunded, non-qualified supplemental retirement benefits for certain officers, payable in
installments over 20 years upon retirement or death. The agreements consist of individual contracts with differing
characteristics that, when taken together, do not constitute a postretirement plan. The costs for these benefits are
recognized over the service periods of the participating officers in accordance with FASB ASC Topic 712,
“Compensation – Nonretirement Postemployment Benefits”. The expense of these supplemental plans was $214,000 in
2009, $164,000 in 2008, and $153,000 in 2007. As of December 31, 2009 and 2008, the accrued liability of these plans
was $1,418,000 and $1,265,000, respectively.
Post-Retirement Benefit Plans
The Bank sponsors two post-retirement benefit plans. One plan currently provides a subsidy for health insurance
premiums to certain retired employees and a future subsidy for seven active employees who were age 50 and over in
1996. These subsidies are based on years of service and range between $40 and $1,200 per month per person. The other
plan provides life insurance coverage to certain retired employees. The Bank also provides health insurance for retired
directors. None of these plans are pre-funded.
The Company utilizes FASB ASC Topic 712, “Compensation – Nonretirement Postemployment Benefits”, to
recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its balance sheet and to recognize changes in the funded status in the year in which the
changes occur through comprehensive income of a business entity. The Bank sponsors postretirement benefit plans
which provide certain life insurance and health insurance benefits for certain retired employees and health insurance for
retired directors.
The following tables set forth the accumulated post-retirement benefit obligation, funded status, and net periodic
benefit cost:
At December 31,
Change in benefit obligations
Benefit obligation at beginning of year:
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Benefit obligation at end of year:
Funded status
Benefit obligation at end of year
Accrued benefit cost
2009
2008
2007
$ 1,990,000
21,000
134,000
(143,000)
(40,000)
$ 1,962,000
$ 1,949,000
19,000
134,000
(155,000)
43,000
$ 1,990,000
$ 2,005,000
20,000
136,000
(144,000)
(68,000)
$ 1,949,000
$(1,962,000)
$(1,962,000)
$(1,990,000)
$(1,990,000)
$(1,949,000)
$(1,949,000)
The First Bancorp 2009 Form 10-k • Page 62
For the years ended December 31,
Components of net periodic benefit cost
Service cost
Interest cost
Amortization of unrecognized transition obligation
Amortization of prior service credit
Amortization of accumulated losses
Net periodic benefit cost
Weighted average assumptions as of December 31
Discount rate
2009
2008
2007
$ 21,000
134,000
29,000
(1,000)
24,000
$ 207,000
$ 19,000
134,000
29,000
(3,000)
21,000
$ 200,000
$ 20,000
136,000
29,000
(3,000)
26,000
$ 208,000
7.0%
7.0%
7.0%
The above discount rate assumption was used in determining both the accumulated benefit obligation as well as the
net benefit cost. The measurement date for benefit obligations was as of year-end for all years presented. The estimated
amount of benefits to be paid in 2010 is $148,000. For years ending 2011 through 2014 the estimated amount of
benefits to be paid is $159,000, $168,000, $156,000 and $164,000 respectively, and the total estimated amount of
benefits to be paid for years ended 2015 through 2019 is $887,000. Plan expense for 2010 is estimated to be $188,000.
In accordance with FASB ASC Topic 715, “Compensation – Retirement Benefits”, amounts not yet reflected in net
periodic benefit cost and included in accumulated other comprehensive income are as follows:
At December 31,
Unamortized prior service credit
Unamortized net actuarial loss
Unrecognized transition obligation
Deferred tax benefit at 35%
Net unrecognized post-retirement benefits
included in accumulated other comprehensive income
Note 13. Preferred Stock
2009
$ -
(233,000)
(92,000)
(325,000)
114,000
2008
$ 1,000
(297,000)
(121,000)
(417,000)
146,000
$(211,000)
$(271,000)
Portion to Be
Recognized in
Income in 2010
$ -
-
29,000
29,000
(10,000)
$ 19,000
On January 9, 2009, the Company received $25 million from preferred stock issuance under the U.S. Treasury Capital
Purchase Program (the “CPP Shares”) at a purchase price of $1,000 per share. The CPP Shares call for cumulative
dividends at a rate of 5.0% per year for the first five years, and at a rate of 9.0% per year in following years, payable
quarterly in arrears on February 15, May 15, August 15 and November 15 of each year. Incident to such issuance, the
Company issued to the U.S. Treasury warrants (the “Warrants”) to purchase up to 225,904 shares of the Company’s
common stock at a price per share of $16.60 (subject to adjustment). The CPP Shares and the related Warrants (and any
shares of common stock issuable pursuant to the Warrants) are freely transferable by the U.S. Treasury to third parties
and the Company has filed a registration statement with the Securities and Exchange Commission to allow for possible
resale of such securities. The CPP Shares qualify as Tier 1 capital on the Company’s books for regulatory purposes and
rank senior to the Company’s common stock and senior or at an equal level in the Company’s capital structure to any
other shares of preferred stock the Company may issue in the future.
The Company may redeem the CPP Shares at any time using any funds available to the Company, and any
redemption would be subject to the prior approval of the Federal Reserve Bank of Boston. The minimum amount that
may be redeemed is 25% of the original CPP investment. The CPP Shares are “perpetual” preferred stock, which means
that neither Treasury nor any subsequent holder would have a right to require that the Company redeem any of the
shares.
During the first three years following the Company’s sale of the CPP Shares, the Company is required to obtain
Treasury’s consent to increase the dividend per share paid on the Company’s common stock unless the Company had
redeemed the CPP Shares in full or Treasury had transferred all of the CPP Shares to other parties. Also during the first
three years following the Company’s sale of the CPP Shares, the Company is required to obtain Treasury’s consent in
order to repurchase any shares of its outstanding stock of any type (other than purchases of common stock or preferred
stock ranking junior to the CPP Shares in the ordinary course of the Company’s business and consistent with the
Company’s past practices in connection with a benefit plan) unless the Company had redeemed the CPP Shares in full
or Treasury had transferred all of the CPP Shares to other parties.
The First Bancorp 2009 Form 10-k • Page 63
As a condition to Treasury’s purchase of the CPP Shares, during the time that Treasury holds any equity or debt
instrument the Company issued, the Company is required to comply with certain restrictions and other requirements
relating to the compensation of the Company’s chief executive officer, chief financial officer and three other most
highly compensated executive officers. These restrictions include a prohibition on severance payments to those
executive officers upon termination of their employment and a $500,000 limit on the tax deductions the Company can
take for compensation expense for each of those executive officers in a single year as well as a prohibition on bonus
compensation to such officers other than limited amounts of long-term restricted stock.
In conjunction with the sale of the CPP Shares, the Company also issued the Warrants which have a term of ten
years and could be exercised by Treasury or a subsequent holder at any time or from time to time during their term.
Treasury will not vote any shares of common stock it receives upon exercise of the Warrants, but that restriction would
not apply to third parties to whom Treasury transferred the Warrants. The Warrants (and any common stock issued upon
exercise of the Warrants) could be transferred to third parties separately from the CPP Shares. The proceeds from the
sale of the CPP Shares were allocated between the CPP Shares and Warrants based on their relative fair values on the
issue date. The fair value of the Warrants was determined using the Black-Scholes model which includes the following
assumptions: common stock price of $16.60 per share, dividend yield of 4.70%, stock price volatility of 24.43%, and a
risk-free interest rate of 2.01%. The discount on the CPP Shares was based on the value that was allocated to the
Warrants upon issuance, and is being accreted back to the value of the CPP Shares over a five-year period (the expected
life of the shares upon issuance) on a straight-line basis.
Note 14. Common Stock
On August 16, 2007, the Company announced that its Board of Directors had authorized a program for the repurchase
of up to 300,000 shares of the Company’s common stock or approximately 3.1% of the outstanding shares. This
program ended on August 16, 2009 and under the program the Company repurchased 182,869 shares at an average price
of $15.63 and at a total cost of $2.9 million. As a consequence of the Company’s issuance of securities under the U.S.
Treasury’s CPP program, its ability to repurchase stock while such securities remain outstanding is restricted to
purchases from employee benefit plans. In 2009, the Company repurchased 11,412 shares from employee benefit plans
at an average price of $14.73 per share and for total proceeds of $168,000.
The Company has reserved 700,000 shares of its common stock to be made available to directors and employees
who elect to participate in the stock purchase or savings and investment plans. During 2006, the number of shares set
aside for these plans was increased by the Board of Directors from 480,000 to 700,000. As of December 31, 2009,
484,851 shares had been issued pursuant to these plans, leaving 215,149 shares available for future use. The issuance
price is based on the market price of the stock at issuance date. Sales of stock to directors and employees amounted to
21,469 shares in 2009, 17,425 shares in 2008, and 17,828 shares in 2007.
In 2001, the Company established a dividend reinvestment plan to allow Shareholders to use their cash dividends
for the automatic purchase of shares in the Company. When the plan was established, 600,000 shares were registered
with the Securities and Exchange Commission, and as of December 31, 2009, 155,617 shares have been issued, leaving
444,383 shares for future use. Participation in this plan is optional and at the individual discretion of each Shareholder.
Shares are purchased for the plan from the Company at a price per share equal to the average of the daily bid and asked
prices reported on the NASDAQ System for the five trading days immediately preceding, but not including, the
dividend payment date. Sales of stock under the Dividend Reinvestment Plan amounted to 21,229 shares in 2009,
22,243 shares in 2008, and 20,233 shares in 2007.
The First Bancorp 2009 Form 10-k • Page 64
Note 15. Off-Balance-Sheet Financial Instruments and Concentrations of Credit Risk
The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to originate loans, commitments for
unused lines of credit, and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect
the extent of involvement the Bank has in particular classes of financial instruments.
Commitments for unused lines are agreements to lend to a customer provided there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on Management’s credit evaluation of the borrower. The Bank did not incur any losses on
its commitments in 2009, 2008 or 2007.
Standby letters of credit are conditional commitments issued by the Bank to guarantee a customer’s performance to
a third party, with the customer being obligated to repay (with interest) any amounts paid out by the Bank under the
letter of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending
loans to customers.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
loan commitments and standby letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance
sheet instruments. At December 31, 2009 and 2008, the Bank had the following off-balance-sheet financial instruments,
whose contract amounts represent credit risk:
As of December 31,
Unused lines, collateralized by residential real estate
Other unused commitments
Standby letters of credit
Commitments to extend credit
Total
2009
2008
$ 58,751,000 $ 55,370,000
75,236,000
2,687,000
12,496,000
$145,789,000
76,125,000
3,449,000
4,512,000
$142,837,000
The Bank grants residential, commercial and consumer loans to customers principally located in the Mid-Coast and
Down East regions of Maine. Collateral on these loans typically consists of residential or commercial real estate, or
personal property. Although the loan portfolio is diversified, a substantial portion of borrowers’ ability to honor their
contracts is dependent on the economic conditions in the area, especially in the real estate sector.
The First Bancorp 2009 Form 10-k • Page 65
Note 16. Earnings Per Share
The following table provides detail for basic earnings per share (EPS) and diluted earnings per share for the years ended
December 31, 2009, 2008 and 2007:
For the year ended December 31, 2009
Net income as reported
Less dividends and amortization of premium on
preferred stock
Basic EPS: Income available to common shareholders
Effect of dilutive securities: incentive stock options
Diluted EPS: Income available to common
shareholders plus assumed conversions
For the year ended December 31, 2008
Net income as reported
Basic EPS: Income available to common shareholders
Effect of dilutive securities: incentive stock options
Diluted EPS: Income available to common
shareholders plus assumed conversions
For the year ended December 31, 2007
Net income as reported
Basic EPS: Income available to common shareholders
Effect of dilutive securities: incentive stock options
Diluted EPS: Income available to common
shareholders plus assumed conversions
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$ 13,042,000
1,161,000
11,881,000
9,721,172
12,072
$ 1.22
$ 11,881,000
9,733,244
$ 1.22
$ 14,034,000
14,034,000
9,701,379
18,952
$ 1.45
$ 14,034,000
9,720,331
$ 1.44
$ 13,101,000
$ 13,101,000
9,787,287
25,731
$ 1.34
$ 13,101,000
9,813,018
$ 1.34
All earnings per share calculations have been made using the weighted average number of shares outstanding
during the period. The dilutive securities are incentive stock options granted to certain key members of Management
and warrants granted to the U.S. Treasury under the Capital Purchase program. The dilutive number of shares has been
calculated using the treasury method, assuming that all granted options and warrants were exercisable at the end of each
period.
Note 17. Fair Value Disclosures
Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of
earnings. Some of these assets and liabilities are measured on a recurring basis while others are measured on a
nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example,
securities available for sale are recorded at fair value on a recurring basis. Other assets, such as, mortgage servicing
rights, loans held for sale, and impaired loans, are recorded at fair value on a nonrecurring basis using the lower of cost
or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which
are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy
is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest
and level 3 considered lowest). A brief description of each level follows.
Level 1 – Valuation is based upon quoted prices for identical instruments in active markets.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates that market participants would use in
pricing the asset or liability. Valuation includes use of discounted cash flow models and similar techniques.
The most significant instruments that the Company fair values include securities which fall into Level 2 in the fair
value hierarchy. The securities in the available for sale portfolio are priced by independent providers. In obtaining such
The First Bancorp 2009 Form 10-k • Page 66
valuation information from third parties, the Company has evaluated their valuation methodologies used to develop the
fair values in order to determine whether the valuations are representative of an exit price in the Company’s principal
markets. The Company’s principal markets for its securities portfolios are the secondary institutional markets, with an
exit price that is predominantly reflective of bid level pricing in those markets.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Securities Available for Sale. Investment securities available for sale are recorded at fair value on a recurring basis. Fair
value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair
values are measured using matrix pricing models, or other model-based valuation techniques requiring observable
inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. Recurring Level 1 securities
would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.
Recurring Level 2 securities include federal agency securities, mortgage-backed securities, collateralized mortgage
obligations, municipal bonds and corporate debt securities. The following table presents the balances of assets and
liabilities that were measured at fair value on a recurring basis as of December 31, 2009 and 2008.
Level 1
At December 31, 2009
Level 2
Level 3
Total
Securities available for sale
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
$ - $30,959,000 $ - $30,959,000
31,148,000
18,514,000
818,000
399,000
$ - $81,838,000 $ - $81,838,000
31,148,000
18,514,000
818,000
399,000
-
-
-
-
-
-
-
-
Level 1
At December 31, 2008
Level 2
Level 3
Total
$ - $ 922,000 $ - $ 922,000
8,910,000
2,977,000
263,000
$13,072,000 $ - $13,072,000
-
-
-
$ -
8,910,000
2,977,000
263,000
-
-
-
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights. Mortgage servicing rights represent the value associated with servicing residential
mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method or the fair value
measurement method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party
valuations based on loan level data including note rate, type and term of the underlying loans. As such, the Company
classifies mortgage servicing rights as nonrecurring Level 2.
Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of carrying value or market value. The fair
value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with
similar characteristics. As such, the Company classifies mortgage loans held for sale as nonrecurring Level 2.
Other Real Estate Owned. Real estate acquired through foreclosure is recorded at fair value. The fair value of other real
estate owned is based on property appraisals and an analysis of similar properties currently available. As such, the
Company records other real estate owned as nonrecurring Level 2.
Impaired Loans. A loan is considered to be impaired when it is probable that all of the principal and interest due under
the original underwriting terms of the loan may not be collected. Impairment is measured based on the fair value of the
underlying collateral. The Company measures impairment on all nonaccrual loans for which it has established specific
reserves as part of the specific allocated allowance component of the allowance for loan losses. As such, the Company
records impaired loans as nonrecurring Level 2.
The First Bancorp 2009 Form 10-k • Page 67
The following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2009, that
have had a fair value adjustment since their initial recognition as of March 31, 2008. Other real estate owned is
presented net of an allowance for losses of $583,000. Impaired loans are presented net of their related specific
allowance for loan losses of $2,196,000.
Level 1
At December 31, 2009
Level 2
Level 3
Total
Mortgage servicing rights $ - $ 1,199,000 $ - $ 1,199,000
2,876,000
Loans held for sale
5,345,000
Other real estate owned
Impaired loans
9,965,000
$ 19,385,000
Total Assets
-
-
-
$ 19,385,000 $ -
-
-
-
$ -
2,876,000
5,345,000
9,965,000
The following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2008, that
have had a fair value adjustment since their initial recognition as of March 31, 2008. Other real estate owned is
presented net of an allowance for losses of $325,000. Impaired loans are presented net of their related specific
allowance for loan losses of $1,957,000.
Level 1
At December 31, 2008
Level 2
Level 3
Total
Mortgage servicing rights $ - $ 311,000 $ - $ 311,000
1,298,000
Loans held for sale
Other real estate owned
2,428,000
10,492,000
Impaired loans
$ 14,529,000
Total Assets
-
-
-
$ 14,529,000 $ -
-
-
-
$ -
1,298,000
2,428,000
10,492,000
FASB ASC Topic 820 “Fair Value Measurements and Disclosures” requires disclosures of fair value information
about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably
determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no
quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques using observable inputs
when available. Those techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of
the instrument. FASB ASC Topic 820 excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the
underlying fair value of the Company.
The First Bancorp 2009 Form 10-k • Page 68
The estimated fair values for financial instruments as of December 31, 2009 and 2008 were as follows:
Financial assets
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity
Federal Home Loan Bank and Federal Reserve
Bank stock
Loans held for sale
Loans (net of allowance for loan losses)
Cash surrender value of life insurance
Accrued interest receivable
Financial liabilities
Deposits
Borrowed funds
Accrued interest payable
December 31, 2009
December 31, 2008
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
$ 15,332,000 $ 15,332,000
81,838,000
192,838,000
81,838,000
190,537,000
$ 16,856,000 $ 16,856,000
13,072,000
229,460,000
13,072,000
234,767,000
15,443,000
2,876,000
938,555,000
9,492,000
4,889,000
15,443,000
2,876,000
938,095,000
9,492,000
4,889,000
14,693,000
1,298,000
970,473,000
9,148,000
5,783,000
14,693,000
1,298,000
994,560,000
9,148,000
5,783,000
$ 922,667,000
249,778,000
1,078,000
$ 877,883,000
255,292,000
1,078,000
$ 925,736,000 $904,926,000
290,336,000
1,322,000
272,074,000
1,322,000
The fair value methods and assumptions for the Company’s financial instruments are set forth below.
Cash and Cash Equivalents
The carrying values of cash equivalents, due from banks and federal funds sold approximate their relative fair values.
Investment Securities
The fair values of investment securities are estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices
of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. Fair
values are calculated based on the value of one unit without regard to any premium or discount that may result from
concentrations of ownership of a financial instrument, possible tax ramifications, or estimated transaction costs. If these
considerations had been incorporated into the fair value estimates, the aggregate fair value could have been changed.
The carrying values of restricted equity securities approximate fair values.
Federal Home Loan Bank and Federal Reserve Bank Stock
The carrying value approximates fair value.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. The fair values of performing
loans are calculated by discounting scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest risk inherent in the loan. The estimates of maturity are based on the
Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of
the effect of current economic and lending conditions, and the effects of estimated prepayments. Fair values for
significant non-performing loans are based on estimated cash flows and are discounted using a rate commensurate with
the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower information. Management has made
estimates of fair value using discount rates that it believes to be reasonable. However, because there is no market for
many of these financial instruments, Management has no basis to determine whether the fair value presented above
would be indicative of the value negotiated in an actual sale.
The First Bancorp 2009 Form 10-k • Page 69
Cash Surrender Value of Life Insurance
The fair value is based on the actual cash surrender value of life insurance policies.
Accrued Interest Receivable
The fair value estimate of this financial instrument approximates the carrying value as this financial instrument has a
short maturity. It is the Company’s policy to stop accruing interest on loans for which it is probable that the interest is
not collectible. Therefore, this financial instrument has been adjusted for estimated credit loss.
Deposits
The fair value of deposits is based on the discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the
benefit that results from the low-cost funding provided by the deposits compared to the cost of borrowing funds in the
market. If that value were considered, the fair value of the Company’s net assets could increase.
Borrowed Funds
The fair value of borrowed funds is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently available for borrowings of similar remaining maturities.
Accrued Interest Payable
The fair value estimate approximates the carrying amount as this financial instrument has a short maturity.
Off-Balance-Sheet Instruments
Off-balance-sheet instruments include loan commitments. Fair values for loan commitments have not been presented as
the future revenue derived from such financial instruments is not significant.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about
the financial instrument. These values do not reflect any premium or discount that could result from offering for sale at
one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant
portion of the Company’s financial instruments, fair value estimates are based on Management’s judgments regarding
future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair
value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Other significant assets and liabilities that are not considered financial instruments include the deferred tax asset,
premises and equipment, and other real estate owned. In addition, tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of
the estimates.
Note 18. Other Operating Income and Expense
Other operating income and other operating expense include the following items greater than 1% of revenues.
For the years ended December 31,
Other operating income
Merchant credit card processing income
ATM income
Gain on sale of merchant credit card processing portfolio
Other operating expense
Merchant credit card processing fees
2009
2008
2007
$ 2,289,000 $ 2,433,000 $ 2,528,000
971,000
-
1,156,000
-
1,184,000
1,402,000
$ 2,214,000
$ 2,358,000
$ 2,427,000
The First Bancorp 2009 Form 10-k • Page 70
Note 19. Regulatory Capital Requirements
The ability of the Company to pay cash dividends to its Shareholders depends primarily on receipt of dividends from its
subsidiary, the Bank. The subsidiary may pay dividends to its parent out of so much of its net income as the Bank’s
directors deem appropriate, subject to the limitation that the total of all dividends declared by the Bank in any calendar
year may not exceed the total of its net income of that year combined with its retained net income of the preceding two
years and subject to minimum regulatory capital requirements. The amount available for dividends in 2010 will be 2010
earnings plus retained earnings of $11,786,000 from 2009 and 2008.
The payment of dividends by the Company is also affected by various regulatory requirements and policies, such as
the requirements to maintain adequate capital. In addition, if, in the opinion of the applicable regulatory authority, a
bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank, could include the payment of dividends), that authority may require, after notice and
hearing, that such bank cease and desist from that practice. The Federal Reserve Bank and the Comptroller of the
Currency have each indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be
an unsafe and unsound banking practice. The Federal Reserve Bank, the Comptroller and the Federal Deposit Insurance
Corporation have issued policy statements which provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
In addition to the effect on the payment of dividends, failure to meet minimum capital requirements can also result
in mandatory and discretionary actions by regulators that, if undertaken, could have an impact on the Company’s
operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measurements of the Bank’s assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and
classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios set forth in the table below of Tier 1 capital and Tier 2 or total capital to risk-weighted assets and of
Tier 1 capital to average assets. Management believes, as of December 31, 2009, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2009, the most recent notification from the Office of the Comptroller of the Currency
classified the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized
as well-capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since this notification that Management believes have changed
the institution’s category.
The actual and minimum capital amounts and ratios for the Bank are presented in the following table:
As of December 31, 2009
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
As of December 31, 2008
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
Actual
$129,338,000
14.88%
$118,437,000
13.62%
$118,437,000
9.19%
$ 97,454,000
11.10%
$ 88,554,000
10.09%
$ 88,554,000
6.90%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$ 69,553,000
8.00%
$ 34,776,000
4.00%
$ 51,559,000
4.00%
$ 70,243,000
8.00%
$ 35,122,000
4.00%
$ 51,311,000
4.00%
$ 86,941,000
10.00%
$ 52,165,000
6.00%
$ 64,449,000
5.00%
$ 87,804,000
10.00%
$ 52,682,000
6.00%
$ 64,139,000
5.00%
The First Bancorp 2009 Form 10-k • Page 71
The actual and minimum capital amounts and ratios for the Company, on a consolidated basis, are presented in the
following table:
As of December 31, 2009
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
As of December 31, 2008
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
Note 20. Legal Contingencies
Actual
$130,031,000
14.96%
$119,130,000
13.70%
$119,130,000
9.44%
$ 97,649,000
11.13%
$ 88,749,000
10.11%
$ 88,749,000
7.07%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$ 69,557,000
8.00%
$ 34,778,000
4.00%
$ 50,461,000
4.00%
$ 70,218,000
8.00%
$ 35,109,000
4.00%
$ 50,204,000
4.00%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Various legal claims also arise from time to time in the normal course of business which, in the opinion of Management,
will have no material effect on the Company’s consolidated financial statements.
Note 21. Reclassifications
Certain items from prior year were reclassified in the financial statements to conform with the current year presentation.
These do not have a material impact on the balance sheet or statement of income presentations.
The First Bancorp 2009 Form 10-k • Page 72
Note 22. Condensed Financial Information of Parent
Condensed financial information for The First Bancorp, Inc. exclusive of its subsidiary is as follows:
Balance Sheets
As of December 31,
Assets
Cash and cash equivalents
Dividends receivable
Investments
Investment in subsidiary
Goodwill
Other assets
Total assets
Liabilities and shareholders’ equity
Dividends payable
Other liabilities
Total liabilities
Shareholders’ equity
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Net unrealized loss on available for sale securities, net
of tax benefit of $3,000 in 2009 and $11,000 in 2008
Net unrealized loss on post-retirement benefit costs, net
of tax benefit of $114,000 in 2009 and $146,000 in 2008
Total accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
2009
2008
$ 313,000
1,900,000
260,000
119,786,000
27,559,000
20,000
$149,838,000
$ 213,000
1,800,000
123,000
89,323,000
27,559,000
64,000
$119,082,000
$ 1,900,000
-
1,900,000
$ 1,891,000
10,000
1,901,000
24,606,000
97,000
45,121,000
78,335,000
-
97,000
44,117,000
73,259,000
(10,000)
(21,000)
(211,000)
(221,000)
147,938,000
$149,838,000
(271,000)
(292,000)
117,181,000
$119,082,000
Statements of Income
For the years ended December 31,
Investment income
Other income
Other expense
Loss before Bank earnings
Equity in earnings of Bank
Remitted
Unremitted
Net income
2009
$ 10,000
-
152,000
(142,000)
2008
$ 11,000
-
136,000
(125,000)
2007
$ 28,000
26,000
179,000
(125,000)
8,404,000
4,780,000
$ 13,042,000
7,281,000
6,878,000
$ 14,034,000
7,825,000
5,401,000
$ 13,101,000
The First Bancorp 2009 Form 10-k • Page 73
Statements of Cash Flows
2009
$ 13,042,000
-
-
37,000
38,000
(41,000)
-
(4,780,000)
8,296,000
For the years ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Net realized loss on sale of securities
Equity compensation expense
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Gain on sale of real estate
Unremitted earnings of Bank
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturities and calls of investments
Purchases of investments
Preferred stock investment in subsidiary
Capital expenditures
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from sale of real estate
Proceeds from issuance of preferred stock
Payments to purchase common stock
Proceeds from sale of common stock
Dividends paid
Net cash provided (used) in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
-
25,000,000
(263,000)
836,000
(8,649,000)
16,924,000
100,000
213,000
$ 313,000
-
(120,000)
(25,000,000)
-
(25,120,000)
2008
$ 14,034,000
2,000
24,000
37,000
(38,000)
278,000
-
(6,878,000)
7,459,000
-
-
-
-
-
348,000
-
(1,414,000)
732,000
(7,281,000)
(7,615,000)
(156,000)
369,000
$ 213,000
2007
$ 13,101,000
1,000
-
59,000
(134,000)
(73,000)
(27,000)
(5,401,000)
7,526,000
251,000
-
-
(350,000)
(99,000)
250,000
-
(1,687,000)
802,000
(6,565,000)
(7,200,000)
227,000
142,000
$ 369,000
The First Bancorp 2009 Form 10-k • Page 74
Note 23. New Accounting Pronouncements
In April 2009, the FASB issued a change to ASC Topic 820, “Fair Value Measurements and Disclosures”, related to
determining fair values when there is no active market or where the price inputs being used represent distressed sales.
The update provides guidance in determining when and how to use modeled values, as opposed to broker price quotes.
The update should result in a greater use of models for estimating fair value, as well as more consistent approaches in
modeling. This change was effective for interim and annual reporting periods ending after June 15, 2009. This guidance
does not require any new fair value measurements. Management has adopted this guidance and there was no material
impact on the financial statements of the Company.
In April 2009, the FASB issued a change to ASC Topic 820, “Fair Value Measurements and Disclosures”, intended
to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about credit
and noncredit components of impaired debt securities that are not expected to be sold. Under the guidance, for many
securities with other-than-temporary impairment, only the amount of the estimated credit loss is recorded through
earnings, while the remaining mark-to-market loss is recognized through other comprehensive income or loss. The
change is retroactive, meaning entities will reclassify amounts back into retained earnings related to non-credit-related
market losses on certain investments held at the beginning of the period of adoption. This guidance was effective for
interim and annual reporting periods ending after June 15, 2009. Management has adopted this guidance and there was
no material impact on the Company’s financial statements.
In May 2009, the FASB issued a change to ASC Topic 855, “Subsequent Events.” ASC Topic 855 establishes
general standards for the evaluation, recognition and disclosure of events and transactions that occur after the balance
sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist
in the auditing standards. The standard is effective for periods ending after June 15, 2009. The adoption of ASC Topic
855 did not have a material effect on the Company’s consolidated financial statements.
In June 2009, the FASB issued a change to ASC Topic 860, “Transfers and Servicing”, to improve the reporting for
the transfer of financial assets resulting from 1) practices that have developed since the issuance of a previous FASB
statement that are not consistent with the original intent and key requirements of that statement and 2) concerns of
financial statement users that many of the financial assets (and related obligations) that have been derecognized should
continue to be reported in the financial statements of transferors. This ASC must be applied as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15, 2009. Earlier application is prohibited.
The Company does not expect that the adoption of this Statement will have a material impact on the Company’s
consolidated financial statements.
In June 2009, the FASB issued ASC Topic 105, “Generally Accepted Accounting Principles.” Under the ASC, the
Codification became the source of authoritative GAAP recognized by the FASB to be applied by non-governmental
entities. On the effective date of this ASC, the Codification superseded all then-existing accounting and reporting
standards, other than those issued by the Securities and Exchange Commission (SEC). All other non-grandfathered non-
SEC accounting literature not included in the Codification became non-authoritative. This ASC is effective for financial
statements issued for annual periods ending after September 15, 2009. In the FASB’s view, the issuance of this ASC
and the Codification will not change GAAP, except for those nonpublic nongovernmental entities that must now apply
the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue
Recognition,” paragraphs 38–76, now part of ASC Topic 985. Management adopted ASC Topic 105 in 2009 and there
was no material impact on the Company’s consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, “Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” which updates ASC Topic 820. The update provides
clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the following techniques:
1. A valuation technique that uses a) the quoted price of an identical liability when traded as an asset, or b) quoted
prices for similar liabilities or similar liabilities when traded as assets.
2. Another valuation technique that is consistent with the principles of ASC Topic 820, examples include an
income approach, such as a present value technique, or a market approach, such as a technique that is based on
the amount at measurement date that the reporting entity would pay to transfer the identical liability or would
receive to enter into the identical liability.
This standard is effective for financial statements issued for the first reporting period beginning after August 2009. The
adoption is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued ASU 2010-6, “Fair Value Measurements and Disclosures (Topic 820) -
Improving Disclosures about Fair Value Measurements,” to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities
between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other
The First Bancorp 2009 Form 10-k • Page 75
observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers.
Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance
will become effective with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward
activities for any Level 3 fair value measurements, which will become effective with the reporting period beginning
January 1, 2011. Other than requiring additional disclosures, adoption of this new guidance will not have a material
impact on the financial statements.
Note 24. Quarterly Information
The following tables provide unaudited financial information by quarter for each of the past two years:
283,599
250,359
309,106
246,364
231,685
247,839
2009Q4
2009Q2
2009Q3
2008Q1
2008Q2
2009Q1
2008Q3
2008Q4
218,185
14,693
953,797
74,636
14,693
971,771
74,585
14,693
982,158
76,728
14,693
973,746
79,373
14,693
963,817
79,052
213,061
11,095
147,614
297,361
12,478
146,198
14,693
946,267
72,731
254,124
12,336
144,600
272,074
10,753
117,181
264,617
11,812
115,872
317,055
11,440
114,758
14,693
928,887
70,606
295,253
12,867
113,611
$1,248,208 $1,285,373 $1,311,157 $1,325,744 $1,398,500 $1,369,986 $1,331,842 $1,331,394
$ 15,837 $ 19,997 $ 21,667 $ 16,856 $ 15,815 $ 18,575 $ 23,921 $ 15,332
272,375
15,443
941,730
86,514
$1,248,208 $1,285,373 $1,311,157 $1,325,744 $1,398,500 $1,369,986 $1,331,842 $1,331,394
$ 826,477 $ 842,120 $ 918,856 $ 925,736 $ 987,440 $ 913,949 $ 960,072 $ 922,667
249,778
11,011
147,938
Dollars in thousands
except per share data
Balance Sheets
Cash
Investments
FHLB & FRB stock,
at cost
Net loans
Other assets
Total assets
Deposits
Borrowed funds
Other liabilities
Shareholders’ equity
Total liabilities
& equity
Income Statements
Interest income
Interest expense
Net interest income
Provision for
loan losses
Net interest income
after provision for loan
losses
Non-interest income
Non-interest expense
Income before taxes
Income taxes
Net income
Less preferred stock
premium amortization
and dividends
Net income available to
common shareholders $ 3,591 $ 3,603 $ 3,832 $ 3,008 $ 3,578 $ 3,425 $ 2,553 $ 2,325
Basic earnings per
share
Diluted earnings per
share
9,423
2,586
6,787
5,222
1,494
$ 3,591 $ 3,603 $ 3,832 $ 3,008 $ 3,728
$ 18,330 $ 17,514 $ 17,891 $ 17,637 $ 16,618 $ 16,251 $ 15,224 $ 14,476
4,148
10,328
5,828
8,487
4,229
2,963
6,766
6,234
3,291
5,216
1,454
629
$3,762 $ 2,890 $ 2,662
$ 0.37 $ 0.37 $ 0.40 $ 0.31 $ 0.37 $ 0.35 $ 0.26 $ 0.24
$ 0.37 $ 0.37 $ 0.39 $ 0.31 $ 0.37 $ 0.35 $ 0.26 $ 0.24
8,317
2,176
5,449
5,044
1,453
7,755
2,977
6,872
3,860
970
7,935
2,096
5,836
4,195
1,187
8,748
2,856
6,284
5,320
1,488
8,003
2,518
5,425
5,096
1,493
4,409
10,815
5,545
11,073
4,814
11,437
7,316
10,321
9,513
8,817
8,268
9,623
8,572
8,942
1,650
3,060
2,950
2,386
4,500
500
875
939
150
337
337
337
-
-
-
-
The First Bancorp 2009 Form 10-k • Page 76
Report of Independent Registered Public Accounting Firm
Berry, Dunn, McNeil & Parker
The Shareholders and Board of Directors
The First Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of The First Bancorp, Inc. and Subsidiary as of
December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009. We have also audited The First Bancorp,
Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The First Bancorp, Inc.’s Management is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by Management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of Management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of The First Bancorp, Inc. and Subsidiary as of December 31, 2009 and 2008, and the consolidated
results of their operations and their consolidated cash flows for each of the three years in the period ended December 31,
2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,
The First Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Portland, Maine
March 12, 2010
The First Bancorp 2009 Form 10-k • Page 77
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), as of December 31, 2009,
the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the
participation of the Company’s Management, including the Company’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. In
designing and evaluating the Company’s disclosure controls and procedures, the Company and its Management
recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and the Company’s Management necessarily was required to
apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms. Also, based on Management’s evaluation, there
was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended
December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its
internal controls over financial reporting, on an ongoing basis, and may from time to time make changes aimed at
enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.
Management’s Annual Report on Internal Control over Financial Reporting
The Management of the Company is responsible for the preparation and fair presentation of the financial statements and
other financial information contained in this Form 10-K. Management is also responsible for establishing and
maintaining adequate internal control over financial reporting and for identifying the framework used to evaluate its
effectiveness. Management has designed processes, internal control and a business culture that foster financial integrity
and accurate reporting. The Company’s comprehensive system of internal control over financial reporting was designed
to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the consolidated
financial statements of the Company in accordance with generally accepted accounting principles. The Company’s
accounting policies and internal control over financial reporting, established and maintained by Management, are under
the general oversight of the Company’s Board of Directors, including the Board of Directors’ Audit Committee.
Management has made a comprehensive review, evaluation, and assessment of the Company’s internal control over
financial reporting as of December 31, 2009. The standard measures adopted by Management in making its evaluation
are the measures in Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations
of the Treadway Commission (“the COSO”). Based upon its review and evaluation, Management concluded that, as of
December 31, 2009, the Company’s internal control over financial reporting was effective and that there were no
material weaknesses.
Berry, Dunn, McNeil & Parker, an independent registered public accounting firm, which has audited and reported on
the consolidated financial statements contained in this Form 10-K, has issued its written attestation report on
Management’s assessment of the Company’s internal control over financial reporting which follows this report.
Daniel R. Daigneault, President and Director
(Principal Executive Officer)
March 12, 2010
F. Stephen Ward , Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 12, 2010
The First Bancorp 2009 Form 10-k • Page 78
ITEM 9B. Other Information
None
ITEM 10. Directors, Executive Officers and Corporate Governance
Information with respect to directors and executive officers of the Company required by Item 10 shall be included in the
Proxy Statement for the Annual Meeting of Stockholders to be held on April 28, 2010 and is incorporated herein by
reference.
ITEM 11. Executive Compensation
Information with respect to executive compensation required by Item 11 shall be included in the Proxy Statement for
the Annual Meeting of Stockholders to be held on April 28, 2010 and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information with respect to security ownership of certain beneficial owners and Management and related stockholder
matters required by Item 12 shall be included in the Proxy Statement for the Annual Meeting of Stockholders to be held
on April 28, 2010 and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to certain relationships and related transactions required by Item 13 shall be included in the
Proxy Statement for the Annual Meeting of Stockholders to be held on April 28, 2010 and is incorporated herein by
reference.
ITEM 14. Principal Accounting Fees and Services
Information with respect to principal accounting fees and services required by Item 14 shall be included in the Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 2010 and is incorporated herein by reference.
The First Bancorp 2009 Form 10-k • Page 79
ITEM 15. Exhibits, Financial Statement Schedules
A. Exhibits
Exhibit 2.1 Agreement and Plan of Merger With FNB Bankshares Dated August 25, 2004, incorporated by reference to
Exhibit 2.1 to the Company’s Form 8-K dated August 25, 2004, filed under item 1.01 on August 27, 2004.
Exhibit 3.1 Conformed Copy of the Registrant’s Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Company’s Form 8-K filed under item 5.03 on October 7, 2004).
Exhibit 3.2 Amendment to the Registrant’s Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K filed under item 5.03 on May 1, 2008).
Exhibit 3.3 Amendment to the Registrant’s Articles of Incorporation (incorporated by reference to the Definitive Proxy
Statement for the Company’s 2008 Annual Meeting filed on March 14, 2008).
Exhibit 3.4 Amendment to the Registrant’s Articles of Incorporation authorizing issuance of preferred stock
(incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on December 29, 2008).
Exhibit 3.5 Conformed Copy of the Company’s Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s
Form 8-K filed under item 5.03 on October 7, 2004).
Exhibit 10.2(a) Specimen Employment Continuity Agreement entered into with Mr. McKim, incorporated by reference
to Exhibit 10.2(a) to the Company’s Form 8-K filed under item 1.01 on January 14, 2005.
Exhibit 10.2(b) Specimen Amendment to Employment Continuity Agreement entered into with Mr. McKim,
incorporated by reference to Exhibit 10.2(b) to the Company’s Form 8-K filed under item 1.01 on January 14, 2005.
Exhibit 10.2(c) Specimen Amendment to Employment Continuity Agreement entered into with Mr. McKim,
incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed under item 1.01 on January 31, 2006.
Exhibit 10.3(a) Specimen Split Dollar Agreement entered into with Mr. McKim with a death benefit of $250,000.
Incorporated by reference to Exhibit 10.3(a) to the Company’s Form 8-K filed under item 1.01 on January 14, 2005.
Exhibit 10.3(b) Specimen Amendment to Split Dollar Agreement entered into with Mr. McKim, incorporated by
reference to Exhibit 10.3(b) to the Company’s Form 8-K filed under item 1.01 on January 14, 2005.
Exhibit 10.4 Specimen Amendment to Supplemental Executive Retirement Plan entered into with Messrs. Daigneault
and Ward changing the normal retirement age to receive the full benefit under the Plan from age 65 to age 63,
incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed under item 1.01 on December 30, 2008.
Exhibit 14.1 Code of Ethics for Senior Financial Officers, adopted by the Board of Directors on September 19, 2003.
Incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed on March 15, 2006.
Exhibit 14.2 Code of Business Conduct and Ethics, adopted by the Board of Directors on April 15, 2004. Incorporated
by reference to Exhibit 14.2 to the Company’s Annual Report on Form 10-K filed on March 15, 2006.
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of
1934
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of
1934
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 31 U.S.C. Section 30.15
Exhibit 99.2 Certification of Chief Financial Officer Pursuant to 31 U.S.C. Section 30.15
The First Bancorp 2009 Form 10-k • Page 80
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE FIRST BANCORP, INC.
Daniel R. Daigneault, President
March 12, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Daniel R. Daigneault, President and Director
(Principal Executive Officer)
March 12, 2010
F. Stephen Ward , Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 12, 2010
Stuart G. Smith, Director and Chairman of the Board
March 12, 2010
Katherine M. Boyd , Director
March 12, 2010
Carl S. Poole, Jr., Director
March 12, 2010
Robert B. Gregory, Director
March 12, 2010
Mark N. Rosborough, Director
March 12, 2010
Tony C. McKim, Director
March 12, 2010
David B. Soule, Jr. , Director
March 12, 2010
Bruce A. Tindal, Director
March 12, 2010
The First Bancorp 2009 Form 10-k • Page 81
Exhibit 31.1 Certification of Chief Executive Officer
I, Daniel R. Daigneault, President and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of The First Bancorp, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and
for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over
financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves Management or other employees who have a significant role
in the Registrant’s internal control over financial reporting.
Date: March 12, 2010
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp 2009 Form 10-k • Page 82
Exhibit 31.2 Certification of Chief Financial Officer
I, F. Stephen Ward, Treasurer and Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of The First Bancorp, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and
for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over
financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves Management or other employees who have a significant role
in the Registrant’s internal control over financial reporting.
Date: March 12, 2010
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2009 Form 10-k • Page 83
Exhibit 32.1 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
The undersigned officer of The First Bancorp, Inc. (the “Company”) hereby certifies that the Company’s annual report
on Form 10-K for the period ended December 31, 2009 to which this certification is being furnished as an exhibit (the
“Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. This certification is provided pursuant to 18 U.S.C. Section 1350
and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended
(the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A)
shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: March 12, 2010
Daniel R. Daigneault
President and Chief Executive Officer
Exhibit 32.2 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
The undersigned officer of The First Bancorp, Inc. (the “Company”) hereby certifies that the Company’s annual report
on Form 10-K for the period ended December 31, 2009 to which this certification is being furnished as an exhibit (the
“Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. This certification is provided pursuant to 18 U.S.C. Section 1350
and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended
(the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A)
shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: March 12, 2010
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2009 Form 10-k • Page 84
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 31 U.S.C. Section 30.15
I, Daniel R. Daigneault, certify, based on my knowledge, that:
(i) The Compensation Committee of The First Bancorp, Inc. has discussed, reviewed, and evaluated with senior risk
officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after
the closing date of the agreement between The First Bancorp, Inc. and Treasury and ending with the last day of The
First Bancorp, Inc.'s fiscal year containing that date (the applicable period), the senior executive officer (SEO)
compensation plans and the employee compensation plans and the risks these plans pose to The First Bancorp, Inc.;
(ii) The Compensation Committee of The First Bancorp, Inc. has identified and limited during the applicable period any
features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could
threaten the value of The First Bancorp, Inc., and during that same applicable period has identified any features of the
employee compensation plans that pose risks to The First Bancorp, Inc. and has limited those features to ensure that The
First Bancorp, Inc. is not unnecessarily exposed to risks;
(iii) The Compensation Committee has reviewed, at least every six months during the applicable period, the terms of
each employee compensation plan and identified any features of the plan that could encourage the manipulation of
reported earnings of The First Bancorp, Inc. to enhance the compensation of an employee, and has limited any such
features;
(iv) The Compensation Committee of The First Bancorp, Inc. will certify to the reviews of the SEO compensation plans
and employee compensation plans required under (i) and (iii) above;
(v) The Compensation Committee of The First Bancorp, Inc. will provide a narrative description of how it limited
during any part of the most recently completed fiscal year that included a TARP period the features in
(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value
of The First Bancorp, Inc.;
(B) Employee compensation plans that unnecessarily expose The First Bancorp, Inc. to risks; and
(C) Employee compensation plans that could encourage the manipulation of reported earnings of The First Bancorp,
Inc. to enhance the compensation of an employee;
(vi) The First Bancorp, Inc. has required that bonus payments, as defined in the regulations and guidance established
under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be
subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a
TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially
inaccurate performance metric criteria;
(vii) The First Bancorp, Inc. has prohibited any golden parachute payment, as defined in the regulations and guidance
established under section 111 of EESA, to an SEO or any of the next five most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date;
(viii) The First Bancorp, Inc. has limited bonus payments to its applicable employees in accordance with section 111 of
EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing
date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of
The First Bancorp, Inc.'s fiscal year containing that date;
The First Bancorp 2009 Form 10-k • Page 85
(ix) The board of directors of The First Bancorp, Inc. has established an excessive or luxury expenditures policy, as
defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or
ninety days after the closing date of the agreement between The First Bancorp, Inc. and Treasury; this policy has been
provided to Treasury and its primary regulatory agency; The First Bancorp, Inc. and its employees have complied with
this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of
directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility
were properly approved;
(x) The First Bancorp, Inc. will permit a non-binding Shareholder resolution in compliance with any applicable Federal
securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO
compensation paid or accrued during the period beginning on the later of the closing date of the agreement between The
First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year
containing that date;
(xi) The First Bancorp, Inc. will disclose the amount, nature, and justification for the offering during the period
beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15,
2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for
any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) The First Bancorp, Inc. will disclose whether The First Bancorp, Inc., the board of directors of The First Bancorp,
Inc., or the Compensation Committee of The First Bancorp, Inc. has engaged during the period beginning on the later of
the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the
last day of The First Bancorp, Inc.'s fiscal year containing that date, a compensation consultant; and the services the
compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) The First Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance
established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date;
(xiv) The First Bancorp, Inc. has substantially complied with all other requirements related to employee compensation
that are provided in the agreement between The First Bancorp, Inc. and Treasury, including any amendments;
(xv) The First Bancorp, Inc. has submitted to Treasury a complete and accurate list of the SEOs and the twenty next
most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the
non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each
SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification
may be punished by fine, imprisonment, or both.
Date: March 12, 2010
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp 2009 Form 10-k • Page 86
Exhibit 99.2 Certification of Chief Financial Officer Pursuant to 31 U.S.C. Section 30.15
I, F. Stephen Ward, certify, based on my knowledge, that:
(i) The Compensation Committee of The First Bancorp, Inc. has discussed, reviewed, and evaluated with senior risk
officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after
the closing date of the agreement between The First Bancorp, Inc. and Treasury and ending with the last day of The
First Bancorp, Inc.'s fiscal year containing that date (the applicable period), the senior executive officer (SEO)
compensation plans and the employee compensation plans and the risks these plans pose to The First Bancorp, Inc.;
(ii) The Compensation Committee of The First Bancorp, Inc. has identified and limited during the applicable period any
features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could
threaten the value of The First Bancorp, Inc., and during that same applicable period has identified any features of the
employee compensation plans that pose risks to The First Bancorp, Inc. and has limited those features to ensure that The
First Bancorp, Inc. is not unnecessarily exposed to risks;
(iii) The Compensation Committee has reviewed, at least every six months during the applicable period, the terms of
each employee compensation plan and identified any features of the plan that could encourage the manipulation of
reported earnings of The First Bancorp, Inc. to enhance the compensation of an employee, and has limited any such
features;
(iv) The Compensation Committee of The First Bancorp, Inc. will certify to the reviews of the SEO compensation plans
and employee compensation plans required under (i) and (iii) above;
(v) The Compensation Committee of The First Bancorp, Inc. will provide a narrative description of how it limited
during any part of the most recently completed fiscal year that included a TARP period the features in
(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value
of The First Bancorp, Inc.;
(B) Employee compensation plans that unnecessarily expose The First Bancorp, Inc. to risks; and
(C) Employee compensation plans that could encourage the manipulation of reported earnings of The First Bancorp,
Inc. to enhance the compensation of an employee;
(vi) The First Bancorp, Inc. has required that bonus payments, as defined in the regulations and guidance established
under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be
subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a
TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially
inaccurate performance metric criteria;
(vii) The First Bancorp, Inc. has prohibited any golden parachute payment, as defined in the regulations and guidance
established under section 111 of EESA, to an SEO or any of the next five most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date;
(viii) The First Bancorp, Inc. has limited bonus payments to its applicable employees in accordance with section 111 of
EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing
date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of
The First Bancorp, Inc.'s fiscal year containing that date;
The First Bancorp 2009 Form 10-k • Page 87
(ix) The board of directors of The First Bancorp, Inc. has established an excessive or luxury expenditures policy, as
defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or
ninety days after the closing date of the agreement between The First Bancorp, Inc. and Treasury; this policy has been
provided to Treasury and its primary regulatory agency; The First Bancorp, Inc. and its employees have complied with
this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of
directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility
were properly approved;
(x) The First Bancorp, Inc. will permit a non-binding Shareholder resolution in compliance with any applicable Federal
securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO
compensation paid or accrued during the period beginning on the later of the closing date of the agreement between The
First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year
containing that date;
(xi) The First Bancorp, Inc. will disclose the amount, nature, and justification for the offering during the period
beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15,
2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for
any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) The First Bancorp, Inc. will disclose whether The First Bancorp, Inc., the board of directors of The First Bancorp,
Inc., or the Compensation Committee of The First Bancorp, Inc. has engaged during the period beginning on the later of
the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the
last day of The First Bancorp, Inc.'s fiscal year containing that date, a compensation consultant; and the services the
compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) The First Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance
established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.'s fiscal year containing that date;
(xiv) The First Bancorp, Inc. has substantially complied with all other requirements related to employee compensation
that are provided in the agreement between The First Bancorp, Inc. and Treasury, including any amendments;
(xv) The First Bancorp, Inc. has submitted to Treasury a complete and accurate list of the SEOs and the twenty next
most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the
non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each
SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification
may be punished by fine, imprisonment, or both.
Date: March 12, 2010
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2009 Form 10-k • Page 88
Shareholder Information
Common Stock Prices and Dividends
The common stock of The First Bancorp, Inc. (ticker
symbol FNLC) trades on the NASDAQ Global Select
Market. The following table reflects the high and low
prices of actual sales in each quarter of 2009 and 2008.
Such quotations do not reflect retail mark-ups, mark-
downs or brokers’ commissions.
2009
2008
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low
High
Low
High
$20.29 $10.77 $15.74 $13.95
13.65
21.80
12.88
20.50
12.84
19.00
18.00
23.05
22.98
14.49
17.29
14.65
The last known transaction of the Company’s stock
during 2009 was on December 31 at $15.42 per share.
There are no warrants outstanding with respect to the
Company’s common stock other than warrants to
purchase up to 225,904 shares of its common stock
(subject to adjustment) at $16.60 per share issued to the
U.S. Treasury incident to the Company’s participation in
the Capital Purchase Program. The Company has no
securities outstanding which are convertible into common
equity. The table below sets forth the cash dividends
declared in the last two fiscal years:
Date
Declared
March 20, 2008
June 19, 2008
September 18, 2008
December 18, 2008
March 18, 2009
June 18, 2009
September 17, 2009
December 17, 2009
Amount
Per Share
$0.185
$0.190
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Date
Payable
April 30, 2008
July 31, 2008
October 31, 2008
January 30, 2009
April 30, 2009
July 31, 2009
October 30, 2009
January 29, 2010
Pending Legal Proceedings
There are no material pending legal proceedings to which
the Company or the Bank is the party or to which any of
its property is subject, other than routine litigation
incidental to the business of the Bank. None of these
proceedings is expected to have a material effect on the
financial condition of the Company or of the Bank.
Annual Meeting
The Annual Meeting of the Shareholders of The First
Bancorp, Inc. will be held Wednesday, April 28, 2010 at
11:00 a.m. at The Samoset Resort, 220 Warrenton Street,
Rockport, Maine 04856.
Number of Shareholders
The number of shareholders of record as of
February 17, 2010 was approximately 3,446.
Annual Report on Form 10-K
The Annual Report on Form 10-K to be filed with the
Securities and Exchange Commission is available online
at the Commission’s website: www.sec.gov. Shareholders
may obtain a written copy, without charge, upon written
request to the address listed below.
Accessing Reports Online
The Company’s 2009 proxy materials may be accessed
online at: http://materials.proxyvote.com/31866P.
The First Bancorp, Inc.’s website address is
www.thefirstbancorp.com. All press releases, SEC filings
and other reports or information issued by the Company
are available at this website, as well as the Company’s
Code of Ethics for Senior Financial Officers, the
Company’s Code of Business Conduct and Ethics, Audit
Committee Charter, Nominating Committee Charter, and
Compensation Committee Charter. All SEC filings are
accessible at the Commission’s website: www.sec.gov.
Corporate Headquarters
Contact:
F. Stephen Ward, Chief Financial Officer
The First Bancorp, Inc.
223 Main Street, P.O. Box 940
Damariscotta, Maine 04543
207-563-3195; 1-800-564-3195
Transfer Agent
Changes of address or title should be directed to:
Shareholder Relations
The First Bancorp, Inc.
223 Main Street, P.O. Box 940
Damariscotta, Maine 04543
207-563-3195; 1-800-564-3195
Independent Certified Public Accountants
Berry, Dunn, McNeil & Parker
100 Middle Street, P.O. Box 1100
Portland, Maine 04104-1100
Corporate Counsel
Pierce Atwood, Attorneys
One Monument Square
Portland, Maine 04101
Photography Credits
All photographs contained in this report are
copyright of the following photographers:
Cover: Michael Marr
CEO Letter: Benjamin Magro
Selected Financial Data
The First Bancorp, Inc. and Subsidiary
Dollars in thousands,
except for per share amounts
Summary of Operations
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Non-Interest Income
Non-Interest Expense
Net Income
Per Common Share Data
Net Income
Basic
Diluted
Cash Dividends (Declared)
Book Value
Market Value
Financial Ratios
Return on Average Equity
Return on Average Tangible Equity
Return on Average Assets
Average Equity to Average Assets
Average Tangible Equity to Average Assets
Net Interest Margin (Tax-Equivalent)
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2009
Years ended December 31,
2008
2007
2006
2005
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 71,721
39,885
31,836
1,432
10,145
22,183
13,101
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
$ 50,431
18,848
31,583
200
9,034
22,518
12,843
$ 1.22
1.22
0.780
12.66
15.42
$ 1.45
1.44
0.765
12.09
19.89
$ 1.34
1.34
0.690
11.58
14.64
$ 1.25
1.25
0.610
10.98
16.72
$ 1.32
1.30
0.530
10.52
17.58
10.66%
13.77
0.96
10.85
8.80
3.66
63.93
1.43
1.95
1.80
43.39
12.02%
15.75
1.10
9.14
6.98
3.33
52.76
0.90
1.27
1.31
46.07
11.89%
15.89
1.13
9.53
7.13
3.13
51.49
0.74
0.31
0.56
50.16
11.63%
15.75
1.14
9.81
7.24
3.24
48.80
0.76
0.42
0.32
52.12
12.98%
17.81
1.36
10.44
7.61
3.84
40.15
0.79
0.40
0.30
52.89
952,492
272,375
922,667
249,778
$ 147,938
$1,331,394 $1,325,744 $1,223,250 $1,104,869 $1,042,209
772,338
173,033
713,964
215,189
$ 103,452
Low
$10.77
920,164
838,145
208,585
172,301
781,280
805,235
179,862
316,719
$112,453 $ 107,327
High
$21.80
979,273
247,839
925,736
272,074
$ 117,181
Market price per common share of stock during 2009
Directors and Executive Officers
Board of Directors
Stuart G. Smith, Chairman of the Board
Katherine M. Boyd
Daniel R. Daigneault
Robert B. Gregory
Tony C. McKim
Carl S. Poole, Jr.
Mark N. Rosborough
David B. Soule, Jr.
Bruce B. Tindal
Directors of The First Bancorp also serve as
Directors of The First, N.A.
The First, N.A. Management Executive
Committee
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President & Chief Operating Officer
Susan A. Norton
Executive Vice President, Human Resources &
Compliance
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Senior Loan Officer
The First Bancorp Executive Officers
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President & Chief Operating Officer
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Clerk
Office Locations
Bar Harbor
Blue Hill
Boothbay Harbor
Calais
Camden
Damariscotta
Eastport
Ellsworth
Northeast Harbor
Rockland
Rockport
Southwest Harbor
Waldoboro
Wiscasset
Office Locations
Bar Harbor
Damariscotta
ANNUAL REPORT 2009
www.thefi rstbancorp.com