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 Common 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
Market price per common share of stock during 2010
2010
$ 57,260
16,671
40,589
8,400
9,135
25,130
12,116
Years ended December 31,
2009
2008
2007
$ 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
2006
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
$ 1.10
1.10
0.780
12.80
15.79
$ 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
9.53%
10.83
0.89
11.20
9.15
3.38
70.91
1.50
2.39
1.87
48.15
10.66%
12.54
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
887,596
416,052
974,518
257,330
149,848
$1,393,802 $1,331,394 $1,325,744 $1,223,250 $1,104,869
838,145
172,301
805,235
179,862
107,327
Low
$12.27
920,164
208,585
781,280
316,719
112,453
High
$16.37
979,273
247,839
925,736
272,074
117,181
952,492
287,818
922,667
249,778
147,938
President’s Letter
Dear First Bancorp Shareholder:
While 2010 was another challenging year for the economy and the banking in-
dustry, there were, on the one hand, glimpses of stability and even improvement.
On the other hand, unemployment remained elevated with little relief and the real
estate market remained very weak with continued decline in values. These mixed
results for the national economy were reflected in The First Bancorp’s 2010 per-
formance as well.
1
Along the coast of Maine, which is our primary market area, the economy in 2010
had varied results. As a community bank, our performance and success is directly tied to our local economy.
In order to put the Company’s performance in proper perspective let’s first look at the major components
which drive the coastal Maine economy:
• The lobster industry
• Tourism
• Retail sales
• Real estate
The lobster industry had a record year with a statewide catch in excess of 93 million pounds – an increase
of 12 million pounds over the previous record set in 2009. The estimated value of the catch was $308 mil-
lion, and is only the third time that annual statewide lobster landings have been $300 million or more. The
tonnage was up as was the price paid to the lobstermen, and as the season progressed, we sensed in talking
to our customers that 2010 was shaping up to be a very good year. From the year-end reports, it appears
that this was the case. As a Bank with a strong lobster-fishing portfolio, this was an excellent result for an
important segment of our customer base and the other businesses that depend on the lobster industry.
While the tourism industry is critical to the entire State of Maine, it is especially important to the coast. In
2010, we experienced some of the best summer weather we have had in years with many warm, sunny days.
The combination of nice weather, an improved national economy and stable gasoline prices resulted in the
number of overnight visitors increasing by 14% in 2010 compared to 2009. The number of day visitors also
increased nicely by 8%. These results were especially reflected in the Down East Acadia region of Maine.
The First has a major presence in this part of the state and the strong statistics for the region were reflected
in the sales numbers of many of our customers and the Bank’s deposit totals.
An improved economy and strong tourism contributed to the increased level of retail sales. Overall, retail
sales were up 2.8% from 2009 but still well below the peak in 2007. Restaurant and lodging sales were es-
pecially strong, again reflecting a strong tourism season.
The real estate market, however, continued to be the weak link, as
it has been since 2008. Because so much of our coastal economy is
tied in some manner to real estate, a weak real estate market tends
to overshadow the good numbers reflected in other sectors of the
economy. Real estate sales volume remained weak, values continued
to decline and the construction industry continued to struggle as
s
r
a
“An improved economy and strong tourism
in 2010 contributed to the increased
level of retail sales – up 2.8% from 2009.”
l
l
o
d
f
o
s
n
o
i
l
l
i
m
n
I
Investments
450
400
350
300
250
200
150
100
50
0
2006
2007
2008
2009
2010
2
Total Loans
“The level of delinquent loans at the end of 2010
was showing signs of stabilization. ”
new home construction, once a huge driver in the coastal economy,
was practically non-existent in 2010, as it was in 2009 and 2008.
This sector’s weakness impacted our loan demand as well as our loan
quality numbers.
Net Income & Earnings
1000
800
600
400
200
0
s
r
a
l
l
o
d
f
o
s
n
o
i
l
l
i
m
n
I
2006
2007
2008
2009
2010
Net income of $12,116,000 was a decline of $926,000 from the
$13,042,000 earned in 2009. Although a decrease in earnings is a
disappointment, when the various revenue components are analyzed in greater detail, one sees the decline
in a different perspective. The primary reason was a $3.1 million decrease in net interest income, and during
2010, our net interest margin – the ratio of what we earn on our loans and investments versus the interest
costs we pay for deposits and other funding sources – dropped from 3.66% to 3.38%. A decrease in revenues
from the loan portfolio was due to a decline in loans outstanding, primarily residential real estate loans. At
the same time, the yield on our investment portfolio declined as maturing investments purchased when
interest rates were much higher were replaced with securities with lower yields.
On the funding side, we made a strategic decision to extend the term of a large amount of our borrowed
funds to five years. This was done for two reasons: 1) to reduce the Company’s exposure to rising interest
rates and therefore reduce our interest rate risk and 2) take advantage of historically low five-year interest
rates not seen in recent times. Once interest rates start going up, this strategy should serve the Company
well. However, as rates remained flat in 2010, this extension was responsible for $2.1 million of the $3.1
million decline in net interest income.
Offsetting some of the decline in net interest income were increased income from the wealth management
division and improved revenues from service charges on deposit accounts. In addition, the Company re-
duced the provision for loan losses by $3.8 million and other operating expenses were relatively stable.
Loan Portfolio
The loan portfolio declined by $64.9 million or 6.8% in 2010 compared to the 2009. The majority of this
reduction was in residential term loans, which declined $29.3 million, and consumer loans, which declined
$6.1 million. These were directly related to individuals taking advantage of historically low mortgage rates
and converting their loans to a fixed rate. The Bank, in turn, sold these low-interest-rate loans to the sec-
ondary mortgage market in order to not overly expose ourselves to long-term interest rate risk. We earn a
fee, however, for each loan sold, which is reflected in non-interest income. In addition, the level of munici-
pal loans declined by $24.1 million in 2010 when a planned payoff of a large loan for a school construction
project was received early in the year. We also saw a $14.5 million decline in commercial loans due to the
weak economy impacting local business’ demand for loans, receipt of normal pay downs, and loan charge
offs. The only loan category that experienced an increase in 2010 was home equity lines of credit which
went up $11.0 million as consumers took advantage of the low interest rates on this product and advanced
funds on existing line availability. The level of loan delinquencies and losses on this product line continues
to be very low.
Investment Portfolio
The Company took advantage of a strong growth in low-cost core deposits and increased the total assets
by $62.4 million in 2010. With a previously noted decline in the loan portfolio, the growth in assets was
achieved by increasing the investment portfolio by $128.2 million from 2009 year-end levels. Almost all
of the growth was in GNMA mortgage-backed securities, and these have no credit risk since they are fully
backed by the U.S. Government. The remaining growth was in municipal securities. The Company has a
well-diversified portfolio of municipal investments that is comprised mostly of general obligations of mu-
nicipalities and school districts. The Company categorized nearly all of the new investments as “Available
for Sale” which provides more flexibility should the Company have a need to sell these at a later date. This
categorization reduces liquidity risk which has been a major focus of bank regulators during the prolonged
financial crisis and economic weakness. The portfolio provides a tax-equivalent yield of approximately 4.6%
which is very good in this rate environment.
3
Asset Quality
Although the recession has come to an official end, a weak real estate market and high unemployment per-
sisted throughout the year – impacting the ability of businesses to continue operating and individuals’ ca-
pacity and resolve to make their loan payments. Some businesses had sufficient revenues to absorb a couple
of down years, but for others, three-plus down years became too much and business failures mounted. In
2010, we experienced a continued increase in loan losses, reaching $8.7 million as certain businesses failed,
especially those related to real estate development and construction. While the level of losses experienced by
us and in the State of Maine is relatively low compared to other parts of the country, it is high compared to
our historical loss experience. The level of delinquent loans was about equal at the end of 2010 to the end
of 2009, showing one sign of stabilization. As previously mentioned, actual loan losses were $8.7 million
or 0.94% of average loans which is substantially above the ten-year average of loan losses for the Company
of 0.29% of average loans. The ratio of non-performing loans to total loans stood at 2.39% as of December
31, 2010, compared to 1.95% at December 31, 2009. The majority of this increase occurred in the first half
of 2010, and since mid-year, the level of non-performing loans has been relatively stable. The key to future
improvement is a better national and Maine economy and especially a much-improved real estate market.
Until unemployment levels decline and the real estate market picks up in both unit sales and prices, a height-
ened level of non-performing loans is likely to continue. The Company therefore continued to provision for
loan losses at an elevated level and ended the year with the allowance for loan losses at 1.50% of outstanding
loans, up from 1.43% as of year-end 2009.
Capital
As we have stated in the past, maintaining a strong capital base has
been a priority of the Company throughout this financial and eco-
nomic crisis. During the past two years we have had a significant
increase in total risk-based capital – from 11.13% at the end of 2008
to 14.96% at the end of 2009 and to 16.23% at the end of 2010. This
“During the past two years we have had a
significant increase in total risk-based capital –
from 11.13% to 16.11% at the end of 2010.”
18
16
14
12
10
8
6
4
2
0
Total Risk-Based Capital
2006
2007
2008
2009
2010
20
15
10
5
0
Closing Price per Share
“With dividends reinvested, in 2010 the total
return for The First Bancorp shares was 8.14%.”
is substantially above the well-capitalized threshold of 10.00% set by
the FDIC and was accomplished through the issuance of $25 mil-
lion in preferred stock under the U.S. Treasury’s Capital Purchase
Program, strong earnings retention in both 2009 and 2010, and a
planned reduction in risk-based assets. It is one of the highest capital
levels in the history of the Company and places us in a strong posi-
tion to continue to work with troubled borrowers and absorb loan
losses if necessary. This high level of capital along with continued
2006
2007
2008
2009
2010
4
good earnings has enabled the Company to maintain the $0.195 per share quarterly cash dividend.
Dividends and The First Bancorp Share Price
During 2010, the Company was able to maintain the quarterly dividend of $0.195 per share, totaling $0.78
per share for the year. In addition, the market share price of FNLC stock ended the year at $15.79, a nice
increase of $0.37 per share or 2.40% over the December 31, 2009 price. With dividends reinvested, the
total return for The First Bancorp in 2010 was 8.14%. Throughout the year the volume of activity in FNLC
shares continued to be good, providing improved liquidity in the stock compared to where the Company
was just a few years ago. During the course of 2010 the stock reached a high of $16.37 per share in the
second quarter and a low of $12.27 per share in the third quarter.
Expectations for 2011
We feel 2011 will be another year of uncertainty for the financial industry but hopefully a year with con-
tinued improvement in the economy and some rebound in the real estate market. Until a substantial num-
ber of new jobs are created and real unemployment declines, the economy will fluctuate between signs of
improvement and disappointment. The real measurement, in my opinion, will be in the real estate market,
as measured by housing starts, housing price trends and the level of home sales. It is expected that these
numbers will continue to remain weak in 2011, with elevated unemployment levels and a large number of
foreclosures that still have to work their way through the system. In Maine, we are seeing some improve-
ment with a reduced unemployment level, but still do not see a major rebound in real estate. Another good
tourist season combined with another strong lobster-fishing season will go a long way, however, towards
moving the recovery forward.
At The First Bancorp, our focus will continue to be on reducing the level of our non-performing loans,
maintaining a strong capital base, looking for good lending opportunities, increasing our retail deposit base
and most importantly for our shareholders, maintaining the cash dividend.
Sincerely,
Daniel R. Daigneault
President & Chief Executive Officer
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, 2010
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: $115,823,000
Indicate the number of shares outstanding of each of the registrant‟s classes of common stock as of March 9, 2011
Common Stock: 9,786,300 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
15
15
15
15
16
18
19
45
47
87
87
88
88
88
88
88
88
89
90
91
92
93
93
94
96
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, 2010, the Company‟s securities consisted of one class of common stock, one class of preferred
stock, and warrants to purchase common stock. At that date, there were 9,773,025 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 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.
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 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.
The First Bancorp 2010 Form 10-K ● Page 1
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 17 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.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) was enacted on July 21, 2010.
The Act creates a new Consumer Financial Protection Bureau with power to promulgate and enforce consumer
protection laws. Smaller institutions, those with $10 billion or less in assets, will be subject to the Consumer Financial
Protection Bureau‟s rule-writing authority, and existing depository institution regulatory agencies will retain
examination and enforcement authority for such institutions. The Act also establishes a Financial Stability Oversight
Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a
systemic risk and, among other things, includes provisions affecting (1) corporate governance and executive
compensation of all companies whose securities are registered with the SEC, (2) FDIC insurance assessments, (3)
interchange fees for debit cards, which would be set by the Federal Reserve under a restrictive “reasonable and
proportional cost” per transaction standard, (4) minimum capital levels for bank holding companies, subject to a
grandfather clause for financial institutions with less than $15 billion in assets, (5) derivative and proprietary trading by
financial institutions, and (6) the resolution of large financial institutions. At this time, it is difficult to predict the extent
to which the Act or the resulting regulations may adversely impact us. However, compliance with these new laws and
regulations may increase our costs, limit our ability to pursue attractive business opportunities, cause us to modify our
strategies and business operations and increase our capital requirements and constraints, any of which may have a
material adverse impact on our business, financial condition, liquidity or results of operations.
Customer Information Security
The Federal Deposit Insurance Corporation (“FDIC”), the OCC and other bank regulatory agencies have published
guidelines (the “Guidelines”) establishing standards for safeguarding nonpublic personal information about customers
that implement provisions of the Graham-Leach-Bliley Act (the “GLBA”). 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.
The First Bancorp 2010 Form 10-K ● Page 2
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 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
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.
The First Bancorp 2010 Form 10-K ● Page 3
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
(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 the issuance of 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 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, 2010, the Company‟s consolidated Total and Tier 1 Risk-Based Capital Ratios were 16.23% and
14.97%, respectively, and its Leverage Capital Ratio was 9.30%. Based on the above figures and accompanying
discussion, the Company exceeds all regulatory capital requirements and is considered well capitalized.
The First Bancorp 2010 Form 10-K ● Page 4
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
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, or 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.
No 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 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 target levels within the statutorily mandated period of time, in 2009 the
FDIC Board took the following steps:
The First Bancorp 2010 Form 10-K ● Page 5
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.
In December 2010, the FDIC Board adopted a final rule establishing the long-term Designated Reserve Ratio at
2.00% of insured deposits. In February 2011, the FDIC Board approved a final rule that changed the assessment base
from domestic deposits to average assets minus average tangible equity, adopted a new large-bank pricing assessment
scheme, and set a target size for the Deposit Insurance Fund. The changes will go into effect beginning with the second
quarter of 2011 and will be payable at the end of September of 2011.
The rule also implements a lower assessment rate schedule when the fund reaches 1.15 percent (so that the average
rate over time should be about 8.5 basis points) and, in lieu of dividends, provides for a lower rate schedule when the
reserve ratio reaches 2 percent and 2.5 percent. The rule defines tangible equity as Tier 1 capital. The rule requires
banks under $1 billion in assets to report average weekly balances during the calendar quarter, unless they elect to
report daily averages.
The rule lowers overall assessment rates in order to generate the same approximate amount of revenue under the
new larger base as was raised under the old base. The assessment rates in total would be between 2.5 and 9 basis points
on the broader base for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk
category. The FDIC noted that while the rule is overall revenue neutral, it would, in aggregate, increase the share of
assessments paid by large institutions, consistent with the express intent of Congress. Based on September 30, 2010,
data, the FDIC said that the share of overall dollar assessments paid to FDIC would increase from 70 to 79 percent for
banks over $10 billion and from 48 percent to 57 percent for banks over with assets over $100 billion. The FDIC also
acknowledged that “many large institutions would experience a significant change in their overall assessment.” The
FDIC reported that, under the combined effect of both the assessment base change and the new large bank risk-based
formula, 51 banks with assets over $10 billion would pay more and 59 would pay less. The FDIC also noted that only
84 banks with assets under $10 billion would pay higher assessments.
The final rule also creates a scorecard-based assessment system for banks with more than $10 billion in assets. The
scorecards include financial measures that the FDIC believes are predictive of long-term performance. In a change from
the earlier proposals, the brokered deposit adjustment will not apply to banks over $10 billion that are well-capitalized
and CAMELS 1 or 2, consistent with the treatment for smaller banks. Also, the “noncore funding to total liabilities”
ratio is eliminated from the loss severity score and the liability run-off rates have been recalibrated. The FDIC will
consider changes in the brokered deposit adjustment after completing a study on brokered deposits due in July 2011, as
mandated by Dodd-Frank.
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, 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,
The First Bancorp 2010 Form 10-K ● Page 6
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, 2010, the Company had 212 employees and full-time equivalency of 207 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
other employees.
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. Interactive Reports for our 10-K and 10-Q filings are available in XBRL format at the Company‟s website.
The First Bancorp 2010 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.
The Dodd-Frank Act and related regulations may adversely affect our business, financial condition, liquidity or
results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) was enacted on July 21, 2010.
The Act creates a new Consumer Financial Protection Bureau with power to promulgate and enforce consumer
protection laws. Smaller institutions, those with $10 billion or less in assets (such as the Company), will be subject to
the Consumer Financial Protection Bureau‟s rule-writing authority, and existing depository institution regulatory
agencies will retain examination and enforcement authority for such institutions. The Act also establishes a Financial
Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices
that might pose a systemic risk and, among other things, includes provisions affecting (1) corporate governance and
executive compensation of all companies whose securities are registered with the SEC, (2) FDIC insurance assessments,
(3) interchange fees for debit cards, which would be set by the Federal Reserve under a restrictive “reasonable and
proportional cost” per transaction standard, (4) minimum capital levels for bank holding companies, subject to a
grandfather clause for financial institutions (such as the Company) with less than $15 billion in assets, (5) derivative and
proprietary trading by financial institutions, and (6) the resolution of large financial institutions crisis.
Financial Stability – addresses the core purpose of the bill by creating a new oversight regulator, the Financial Stability
Oversight Council. This council of regulators will monitor the financial system for “systemic risk” and will determine
which entities pose significant systemic risk. Generally speaking, it will make recommendations to regulators for the
implementation of the increased risk standards, also known as prudential regulation, to be applied to bank-holding
companies with total consolidated assets of $50 billion or more and to designated nonbanks. The Act grandfathers trust
preferred securities issued before May 19, 2010 by bank holding companies with less than $15 billion in total assets.
Orderly Liquidation Authority –establishes a framework for the liquidation by the Federal Deposit Insurance
Corporation (“FDIC”) of large institutions that pose systemic risk. The Treasury supplies liquidity for the liquidation
that must be paid back in 60 months.
Enhancing Financial Institution Safety and Soundness – merges the Office of Thrift Supervision (“OTS”) into the
Office of the Comptroller of the Currency (“OCC”), the Bank‟s primary regulator. The OTS regulatory responsibilities
will be spread among other regulators. The Federal Reserve will regulate savings and loan holding companies, the OCC
will regulate federal savings associations, and the FDIC will regulate state-chartered savings associations. The transfer
of functions is to occur on the date one year from the date of enactment but may be extended for up to eighteen months
from the date of enactment. The regulators are required to issue regulations for the entities that are newly under their
regulatory umbrella no later than the date of the transfer of the functions. Ninety days after the transfer, the OTS will go
out of existence and its employees will become employees of the OCC or the FDIC. For the Bank, a key provision in
this title changes the assessment base for deposit insurance. Before, the base was domestic deposits less tangible equity.
The new base will be average consolidated total assets minus average tangible equity. The result is that larger financial
institutions, which have more non-deposit liabilities, will pay a greater percentage of the aggregate insurance
assessment and smaller banks (such as the Bank) will pay less than they would have, perhaps as much as $4.5 billion
less over the next three years. Another key provision for the Bank is the permanent increase in FDIC deposit insurance
per depositor in the aggregate from $100,000 to $250,000, and the extension of the unlimited deposit coverage for non-
interest bearing transaction accounts for two years. HR 4173 increases the minimum reserve ratio for the Deposit
Insurance Fund from 1.15 percent to 1.35 percent, but exempts institutions (such as the Bank) with assets of less than
$10 billion from the cost of the increase.
Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions –
implements the so-called modified Volcker Rule. The rule limits the ability of certain bank and bank-related entities to
engage in proprietary trading or investing in hedge funds and private equity funds to 3 percent of the entity‟s Tier 1
capital, among other restrictions. “Proprietary trading” is defined to include the purchase or sale of any security, any
derivative, any contract for the sale of a commodity for future delivery, or option on such instrument. The key
The First Bancorp 2010 Form 10-K ● Page 8
provisions in this title are a moratorium on deposit insurance applications for three years for new credit card banks,
industrial loan companies and trust banks owned by commercial companies, the expansion of the definition of affiliate
transactions to cover certain kinds of security transactions such as repurchase agreement, derivative transaction and
securities borrowing; and the codification of the source of strength doctrine, the long-time view of the Federal Reserve
that a holding company should serve as a source of financial strength for its subsidiary banks.
Regulation of Over-the-Counter Swaps Markets – imposes exchange trading for derivatives contracts and imposes
new capital and margin requirements and various reporting obligations on Over The Counter (“OTC”) swap dealers and
major OTC swap participants. For the Bank, the most important provision in this title levels the competitive playing
field by prohibiting the Federal Reserve or the FDIC from providing assistance to insured depository institutions
involved in the swaps markets, with certain exceptions.
Payment, Clearing, and Settlement Supervision – allows for a systemic approach to certain financial market
payment, payment, clearing and settlement systems. Designation of a large financial institution as “systemically
important” will require two-thirds of the Financial Stability Oversight Council.
Investor Protections and Improvements to the Regulation of Securities – has a number of provisions intended to
protect investors, including for example: risk retention requirements for certain asset-backed securities; reforms to
regulation of credit rating agencies; establishing an Investor Advisory Committee and an Office of Investor Advocate,
and requiring the SEC to study whether a fiduciary duty standard of care for broker-dealers providing personalized
investment advice to a retail customer should be created. For the Bank, the most important section of this Title
establishes a number of changes to corporate governance procedures for public companies that ultimately, and perhaps
quickly, will become the “best practices” (if not the expected practices) for all corporations large and small. The most
important of these are: proxy access requirements for shareholders; disclosures about the failure to separate the role of
the chair of board and chief executive officer; non-binding shareholder voting on executive compensation; the
establishment of an independent compensation committee; executive compensation disclosures and clawbacks. In
addition, the Federal Reserve is required to issue regulations regarding incentive-based pay practices within nine
months of the effective date of the Act; these regulations will apply to institutions (such as the Bank) with more than $1
billion in assets.
Bureau of Consumer Financial Protection – the most important title in the Act for the Bank. It will alter in dramatic
fashion the way consumer credit is regulated, moving from the current framework of the federal regulation of disclosure
and the state law regulation of fairness and suitability, to an overall, nationwide federal suitability framework. It
establishes the Bureau of Consumer Financial Protection, an independent entity housed within the Federal Reserve in
order to provide a source of funding (initially $500 million) and gives the Bureau the authority to prohibit practices that
it finds to be “unfair,” “deceptive,” or “abusive” in addition to requiring certain disclosures. The words “unfair” and
“deceptive” appear to reference and incorporate similar words in the enabling legislation of the Federal Trade
Commission and some state consumer legislation. The “abusive” addition to this grant of regulatory scope is new and it
is likely that defining the meaning of this term in this context will produce additional regulation and litigation. The
Bureau may also prohibit mandatory consumer arbitration provisions and it will oversee mortgage reform. For the Bank,
in addition to creation of the Bureau, this Title also contains a number of other important provisions. It limits
interchange fees for debit card transactions (including those involved with certain prepaid card products) to an amount
established as reasonable under regulations to be issued by the Federal Reserve. Cards issued by banks with less than
$10 billion in assets are exempt from this requirement although this exemption has been criticized as being ineffective
because small banks may be forced by market dynamics to match the rates being offered by their larger competitors.
The Bank has estimated this provision will result in the loss of several hundred thousand dollars in revenue per year.
Another key change for the Bank is the Act‟s treatment of preemption. Essentially, the Act will undo recent court
decisions and OCC guidance that expanded the application of preemption to subsidiaries of national banks. The
standard for the preemption of state law is to return to the one enunciated in a well-known court decision, Barnet Bank
v. Nelson: “irreconcilable conflict” and “stand as an obstacle to the accomplishment” of the purpose of the federal law.
The Act also codified the result in a recent U.S. Supreme Court decision that the visitorial powers provisions of the
National Bank Act do not limit the authority of state attorneys general to bring actions against national banks to enforce
state consumer protection laws.
Federal Reserve System Revisions – gives the Government Accountability Office authority to conduct a one-time
audit of the Federal Reserve‟s emergency lending during the credit crisis and gives the GAO other auditing
responsibilities over the Federal Reserve. The title also tightens the conditions under which the Fed may provide
emergency assistance to institutions and authorizes the FDIC to guarantee debts of banks and bank holding companies.
The First Bancorp 2010 Form 10-K ● Page 9
Improving Access to Mainstream Financial Institutions – is intended to provide alternatives to payday loans. This
title is intended to encourage low-and moderate-income individuals to create accounts in insured depository institutions
and it creates a program to provide low-cost loans of $2,500 or less.
Pay It Back Act – a largely technical section dealing with previous programs for emergency assistance to insured
financial institutions. It decreases the Troubled Asset Relief Program (“TARP”) funds authorized by under the
Emergency Economic Stabilization Act of 2008 from $700 billion to $475 billion.
Mortgage Reform and Anti-Predatory Lending Act – places new regulations on mortgage originators and imposes
new disclosure requirements and appraisal reforms, the most important of which are: the creation of a mortgage
originator duty of care, the establishment of certain underwriting requirements so that at the time of origination the
consumer has a reasonable ability to repay the loan; the creation of document requirements intended to eliminate “no
document” and “low document” loans, the prohibition of steering incentives for mortgage originators; a prohibition on
yield spread premiums, and prepayment penalties in many cases; and a provision that allows borrowers to assert as a
foreclosure defense a contention that the lender violated the anti-steering restrictions or the reasonable repayment
requirements.
For the Bank, the key in the immediate future is watching the regulatory implementation of HR 4173. There are tens, if
not hundreds, of new regulatory initiatives arising from the Act. Although most should have little impact on the Bank,
some will be critical. The most critical ones for the Bank will be those concerning capital requirements and consumer
lending.
Recent negative developments in the financial services industry and U.S. and global credit markets may adversely
impact our operations and results.
Negative developments between 2007 and 2010 in the capital markets have resulted in uncertainty in the financial
markets in general with the expectation of the general economic downturn continuing in 2011 and perhaps beyond
2011. 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.
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
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
The First Bancorp 2010 Form 10-K ● Page 10
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, 2010, we had $293.2 million and $107.4 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 and for the Company to then pay dividends to shareholders. It could
also negatively impact our regulatory capital ratios and result in our not being classified as “well-capitalized” for
regulatory purposes.
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.
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.
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.
The First Bancorp 2010 Form 10-K ● Page 11
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
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 consistent with our credit criteria 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.
The First Bancorp 2010 Form 10-K ● Page 12
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.
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
2010, 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 and dependence on key personnel.
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.
The First Bancorp 2010 Form 10-K ● Page 13
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.
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, 2010, for example, the average
monthly trading volume of our common stock has been 207,029 shares or approximately 2.12% 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.
The First Bancorp 2010 Form 10-K ● Page 14
ITEM 1B. Unresolved Staff Comments
None
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 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 2010 Form 10-K ● Page 15
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, 2010, there were 9,773,025 shares outstanding and held of record by approximately 3,646
shareholders. The following table reflects the high and low prices of actual sales in each quarter of 2010 and 2009. Such
quotations do not reflect retail mark-ups, mark-downs or brokers‟ commissions.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2010
2009
High
$16.26
16.37
14.48
16.00
Low
$13.11
13.07
12.27
13.40
High
$20.29
21.80
20.50
19.00
Low
$10.77
14.49
17.29
14.65
The last transaction in the Company‟s stock on NASDAQ during 2010 was on December 31 at $15.79 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 (through January 9,
2012). 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 2011 will
be that year‟s net income plus $8.1 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, 2010, 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 14.86% and 16.11%, respectively,
as of December 31, 2010. The table below sets forth the cash dividends declared in the last two fiscal years:
Date Declared
March 18, 2009
June 18, 2009
September 17, 2009
December 17, 2009
March 18, 2010
June 17, 2010
September 16, 2010
December 16, 2010
Amount Per Share
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Repurchase of Shares and Use of Proceeds
Date Payable
April 30, 2009
July 31, 2009
October 30, 2009
January 29, 2010
April 30, 2010
July 30, 2010
October 29, 2010
January 28, 2011
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, 2010, the Company repurchased fractional shares from employee benefit plans
totaling five shares.
Unregistered Sales of Equity Securities
The Company had no unregistered sales of equity securities in 2010.
The First Bancorp 2010 Form 10-K ● Page 16
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)
55,500
$15.89
-
55,500
$ -
$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.
150
125
s
r
a
l
l
o
D
100
75
50
FNLC
S&P 500
NASD Bank
2005
2006
2007
2008
2009
2010
FNLC
S&P 500
NASD Bank
2006
2005
98.37
100.00
100.00 115.79 122.12
91.27
100.00 113.82
2007
2009
2008
89.82 129.07 103.26
97.30
76.94
60.17
71.66
2010
111.65
111.95
68.68
The First Bancorp 2010 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 Common 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
Market price per common share of stock during 2010
2010
$ 57,260
16,671
40,589
8,400
9,135
25,130
12,116
Years ended December 31,
2009
2008
2007
$ 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
2006
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
$ 1.10
1.10
0.780
12.80
15.79
$ 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
9.53%
10.83
0.89
11.20
9.15
3.38
70.91
1.50
2.39
1.87
48.15
10.66%
12.54
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
887,596
416,052
974,518
257,330
149,848
$1,393,802 $1,331,394 $1,325,744 $1,223,250 $1,104,869
838,145
172,301
805,235
179,862
107,327
Low
$12.27
920,164
208,585
781,280
316,719
112,453
High
$16.37
952,492
287,818
922,667
249,778
147,938
979,273
247,839
925,736
272,074
117,181
The First Bancorp 2010 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 or 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, 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 annual 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 Company 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 factors that
affect the Company‟s business.
The First Bancorp 2010 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 Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“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 2010 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 in this report, 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
2010, 2009 and 2008.
Years ended December 31,
2008
2009
Dollars in thousands
2010
$40,589 $43,653 $37,703
Net interest income as presented
Effect of tax-exempt income
2,187
2,395
Net interest income, tax equivalent $42,870 $46,048 $39,890
2,281
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,
2008
2009
In thousands of dollars
2010
$ 25,130 $ 26,658 $ 22,994
Non-interest expense, as presented
(89)
Net securities losses
-
Other than temporary impairment charge
22,905
Adjusted non-interest expense
37,703
Net interest income, as presented
2,187
Effect of tax-exempt income
9,646
Non-interest income, as presented
186
Effect of non-interest tax-exempt income
-
Net securities gains
Adjusted net interest income plus non-interest income $ 52,196 $ 58,987 $ 49,722
46.07%
Non-GAAP efficiency ratio
48.56%
GAAP efficiency ratio
(150)
(916)
25,592
43,653
2,395
12,754
185
-
-
-
25,130
40,589
2,281
9,135
189
2
43.39%
47.26%
48.15%
50.54%
The First Bancorp 2010 Form 10-K ● Page 21
The Company presents certain information based upon average tangible common 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, and preferred stock. 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 GAAP:
Years ended December 31,
2008
2009
In thousands of dollars
2010
$151,739 $146,854 $116,448
Average shareholders‟ equity as presented
-
Less preferred stock (average)
(27,684)
Less intangible assets
Average tangible common shareholders‟ equity $ 99,449 $ 94,718 $ 88,764
(24,452)
(27,684)
(24,606)
(27,684)
Executive Summary
Net income for the year ended December 31, 2010 was $12.1 million, down $926,000 or 7.1% from the $13.0 million
posted for the year ended December 31, 2009. Earnings per common share on a fully diluted basis were $1.10 for the
year ended December 31, 2010, down $0.12 or 9.8% from the $1.22 posted for the year ended December 31, 2009. Net
interest income on a tax-equivalent basis was down $3.1 million for the year ended December 31, 2010 compared to the
year ended December 31, 2009, with the variance coming from the net interest margin dropping from 3.66% to 3.38%.
Margin compression was responsible for approximately $1.1 million of this change while $2.0 million was attributable
to lengthening the maturity of our liabilities to reduce interest rate risk.
While we continue to be in the longest and worst economic downturn since the Great Depression of the 1930‟s, the
Company feels that the deteriorating trend in credit quality experienced during the past three years somewhat stabilized
in 2010. Non-performing loans stood at 2.39% of total loans on December 31, 2010 compared to 2.36% of total loans
on September 30, 2010 and 1.95% on December 31, 2009. This compares favorably to nonperforming loans at 3.39%
for our Uniform Bank Performance Report peer group (“UBPR peer group”) as of December 31, 2010. Net chargeoffs
were $8.7 million or 0.94% of average loans in 2010 compared to net charge offs of $7.3 million or 0.75% of average
loans in 2009. Net charge offs for the UBPR peer group in 2010 were 1.28% of average loans.
The slump in the housing market is continuing and the national unemployment rate was 9.4% at December 31,
2010. Fortunately, the unemployment rate in Maine, at 7.3%, was much better than the national average and ranks as the
fourteenth-best state in the country. Unemployment numbers, however, do not reflect the number of people
experiencing reduced incomes from wage cutbacks and loss of overtime. We provisioned $8.4 million for loan losses in
2010, down $3.8 million from the $12.2 million provision made during 2009. Although the allowance for loan losses
decreased $321,000 during the year, it stands at 1.50% of outstanding loans at December 31, 2010 compared to 1.43%
of outstanding loans at December 31, 2009.
During 2010, total assets increased $62.4 million or 4.7%. The loan portfolio was down $64.9 million or 6.8%, with
a drop due to refinancing of mortgages to very low fixed rates that have been sold to the secondary market. The
investment portfolio is up $128.2 million or 44.6% for the year. On the liability side of the balance sheet, low-cost
deposits have increased $22.6 million or 8.3% for the year, and local certificates of deposit are up $8.2 million or 3.6%.
Remaining well capitalized remains a top priority for The First Bancorp. In the past two years, the Company‟s total
risk-based capital has increased from 11.13% to 16.23%, well above the well-capitalized threshold of 10.0% set by the
FDIC. In Management‟s view, participating in the U.S. Treasury Capital Purchase Program was the right decision for
The First Bancorp. The Company obtained additional capital at a relatively low cost and it provides us with greater
ability to ride out the current economic storm and allows us more flexibility to work with individuals and businesses as
they too struggle through these adverse economic conditions.
The Company‟s operating ratios remain good, with a return on average tangible common equity of 10.83% for the
year ended December 31, 2010 compared to 12.54% for the year ended December 31, 2009. Our return on average
equity was in the top 30% of all banks in the UBPR peer group, which had an average return of 3.12% for the year. Our
efficiency ratio continues to be an important component in our overall performance; it slipped to 48.15% in 2010
compared to 43.39% in 2009. This was the result of lower revenues and not due to a significant increase in operating
expenses. As of December 31, 2010, the average efficiency ratio for our UBPR peer group was 67.23%, which put us in
the top 9% of all banks in the UBPR peer group.
The First Bancorp 2010 Form 10-K ● Page 22
Results of Operations
Net Interest Income
Net interest income decreased 7.0% or $3.1 million to $40.6 million for the year ended December 31, 2010 from the
$43.7 million reported for the year ended December 31, 2009. Margin compression was responsible for approximately
$1.1 million of this change while $2.0 million was attributable to lengthening the maturity of our liabilities to reduce
interest rate risk, which led to the Company‟s net interest margin on a tax-equivalent basis decreasing from 3.66% in
2009 to 3.38% in 2010.
Total interest income in 2010 was $57.3 million, a decrease of $5.3 million or 8.5% from the $62.6 million posted
by the Company in 2009. Total interest expense in 2010 was $16.7 million, a decrease of $2.2 million or 11.9% from
the $18.9 million posted by the Company in 2009. The decrease in both interest income and interest expense was
attributable to lower interest rates. Tax-exempt interest income amounted to $4.2 million for the year ended December
31, 2010, $4.4 million for the year ended December 31, 2009 and $4.1 million for the year ended December 31, 2008.
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, 2010 compared to 2009
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)
3,420
33
(2,813)
639
129
(492)
(363)
$ 1,002
Rate
Rate/Volume1
Total
$ (1)
(2,555)
(7)
(3,086)
(5,649)
(1,685)
(191)
(1,876)
$ (3,773)
$ 1
(587)
(1)
174
(413)
(19)
13
(6)
$ (407)
Rate
Volume
Rate/Volume1
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
1 Represents the change attributable to a combination of change in rate and change in volume.
$ (3)
(2,424)
(4)
(10,359)
(12,790)
$ (3)
(491)
(1)
(355)
(850)
(12,373)
(2,335)
(14,708)
$ 1,918
$ 4
3,002
30
2,008
5,044
2,694
(1,651)
1,043
$ 4,001
(1,449)
361
(1,088)
$ 238
The First Bancorp 2010 Form 10-K ● Page 23
$ (1)
278
25
(5,725)
(5,423)
(1,575)
(670)
(2,245)
$ (3,178)
Total
$ (2)
87
25
(8,706)
(8,596)
(11,128)
(3,625)
(14,753)
$ 6,157
The following table presents, for the years ended December 31, 2010, 2009, and 2008, 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
2010
2009
2008
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
$ 1
15,170
150
44,220
59,541
10,297
6,374
16,671
$ 42,870
$ 1
14,893
125
49,945
64,964
11,872
7,044
18,916
$ 46,048
0.25%
4.49%
4.73%
4.77%
4.70%
1.15%
2.76%
1.48%
3.22%
3.38%
$ 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%
3.49%
3.66%
1.65%
6.07%
4.05%
6.16%
6.14%
2.90%
3.62%
3.10%
3.04%
3.33%
The First Bancorp 2010 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, 2010, 2009
and 2008.
In thousands of dollars
Assets
Cash and due from banks
Overnight funds sold
Securities available for sale
Securities to be held to maturity
Federal Reserve Bank stock, at cost
Federal Home Loan Bank Stock, at cost
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 & Shareholders' Equity
Demand deposits
NOW deposits
Money market deposits
Savings deposits
Certificates of deposit
Total deposits
Borrowed funds – short term
Borrowed funds – long term
Dividends payable
Other liabilities
Total Liabilities
Shareholders' Equity:
Preferred Stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities
Net unrealized loss on post-retirement benefit costs
Total Shareholders' Equity
Total Liabilities & Shareholders' Equity
Years ended December 31,
2010
2009
2008
$ 15,722
88
178,116
144,601
1,412
14,031
3,173
926,338
(14,393)
911,945
5,397
18,463
5,276
27,684
29,159
$ 1,355,067
$ 69,260
118,400
78,155
97,484
597,982
961,281
127,160
103,775
989
10,123
1,203,328
24,606
97
45,187
81,288
$ 14,288
407
29,040
245,972
783
14,031
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
578,713
948,018
149,601
98,690
953
9,401
1,206,663
24,452
97
44,807
78,072
$ 16,281
181
22,865
205,783
610
14,031
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
474,517
853,418
131,890
161,855
850
8,972
1,156,985
-
97
44,214
72,492
762
(201)
151,739
$ 1,355,067
(310)
(264)
146,854
$ 1,353,517
(87)
(268)
116,448
$ 1,273,433
The First Bancorp 2010 Form 10-K ● Page 25
Non-Interest Income
Non-interest income in 2010 was $9.1 million, a decrease of 28.4% from the $12.8 million reported in 2009. This
decrease was partly attributable to mortgage origination and servicing income, which decreased $0.5 million or 23.3%
as a result of a lower volume of residential mortgages refinancing and a portion of these loans being sold to the
secondary market. It was also impacted by the sale of the merchant credit card servicing portfolio in December of 2009.
As a result of this sale, $2.3 million in revenues which were recognized in 2009 were not repeated in 2010.
Non-Interest Expense
Non-interest expense in 2010 was $25.1 million, a decrease of 5.7% from the $26.7 million reported in 2009. This
decrease was partly attributable to an other-than-temporary impairment charge of $0.9 million recorded during the first
quarter of 2009 that did not recur in 2010. It was also impacted by the sale of the merchant credit card servicing
portfolio in December of 2009. As a result of this sale, $2.2 million in expense that was recognized during 2009 was not
repeated in 2010.
Provision to the Allowance for Loan Losses
The Company‟s provision to the allowance for loan losses was $8.4 million in 2010 compared to $12.2 million in 2009.
This was 0.62% of average assets in 2010, compared to 0.95% of average assets for our peer group. The level of
provision in 2010 was to maintain the allowance for loan losses at an adequate level given the size of our loan portfolio
and our overall asset quality. While our allowance for loan losses decreased by $321,000 in 2010 from the 2009 level,
the allowance for loan losses stands at 1.50% of outstanding loans at December 31, 2010 compared to 1.43% of
outstanding loans at December 31, 2009. Given the number of economic uncertainties at this time, Management
believes it is prudent to continue to provision for loan losses and that the current level is directionally consistent with
the 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 2010 was $12.1 million – a 7.1% or $926,000 decrease from net income of $13.0 million that was
posted in 2009. Earnings per share on a fully diluted basis were $1.10, down $0.12 or 9.8% from the $1.22 reported for
the year ended December 31, 2009.
Key Ratios
Return on average assets in 2010 was 0.89%, down from the 0.96% posted in 2009. Return on average tangible common
equity was 10.83% in 2010, compared to 12.54% in 2009 and 15.75% in 2008. In 2010, the Company‟s dividend payout
ratio (dividends declared per share divided by earnings per share) was 70.91%, compared to 63.93% in 2009 and
52.76% in 2008. The Company‟s efficiency ratio – a benchmark measure of the amount spent to generate a dollar of
income – was 48.15% in 2010 compared to 67.23% for the Bank‟s peer group, on average. In 2009, the Bank‟s
efficiency ratio was 43.39% compared to 74.23% for the Bank‟s peer group, on average. The rise in the efficiency for
2010 was the result of lower revenues and not due to a significant increase in operating expenses.
Investment Management and Fiduciary Activities
As of December 31, 2010, First Advisors, the Bank‟s private banking and investment management division, had assets
under management with a market value of $562.6 million, consisting of 674 trust accounts, estate accounts, agency
accounts, and self-directed individual retirement accounts. This compares to December 31, 2009, when 918 accounts
with a market value of $205.2 million were under management. The significant increase in assets under management in
2010 was the result of First Advisors assuming responsibility for managing the Bank‟s investment portfolio. Without
the addition of the Bank‟s investment portfolio, assets under management would have declined to $185.4 million.
The First Bancorp 2010 Form 10-K ● Page 26
Assets and Asset Quality
Total assets increased in 2010, with the investment portfolio providing all the growth, increasing $128.2 million or
44.6% over December 31, 2009, while the loan portfolio decreased $64.9 million or 6.8%. Total assets increased 4.7%
or $62.4 million from $1.331 billion at December 31, 2009, to $1.394 billion at December 31, 2010.
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, although it
has been relatively stable for the past year. Non-performing assets to total assets stood at 1.87% at December 31, 2010,
a slight increase over 1.80% at December 31, 2009. 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 2010 were $8.7 million or 0.94% of average loans outstanding compared to $7.3 million or
0.75% of average loans outstanding in 2009. Despite the increase, this is relatively low compared to most banks in the
country and our UBPR peer group, which had net charge offs of 1.28% of average loans outstanding in 2010. We
manage our loan portfolio to minimize losses and have shown an excellent track record for the past 20 years with annual
average charge offs of 0.26% of average loans outstanding.
Residential real estate term loans represent 38.1% of the total loan portfolio, and this loan category generally has a
lower level of losses in comparison to other loan types. In 2010, the loss ratio for residential mortgages was 0.12%
compared to 0.94% for the entire loan portfolio. 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 $13.3 million and stood at 1.50% of total loans outstanding
compared to $13.6 million and 1.43% of total loans outstanding at December 31, 2009. An $8.4 million provision for
losses was made in 2010 and net charge offs totaled $8.7 million, resulting in the allowance for loan losses decreasing
$321,000 or 2.4% from December 31, 2009. Management believes the allowance for loan losses is adequate as of
December 31, 2010. In Management‟s opinion, the level of the provision for loan losses is directionally consistent with
the overall credit quality of our loan portfolio and corresponding levels of nonperforming loans and unallocated
reserves, as well as with the performance of the national and local economies, higher levels of unemployment and the
outlook for economic weakness continuing for some time to come.
Investment Activities
During 2010, the investment portfolio increased 44.6% to end the year at $416.1 million compared to $287.8 million at
December 31, 2009. This increase is primarily due to the purchase of GNMA mortgage-backed securities, which have
no credit risk since they are fully backed by the U.S. Government. 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,
2010, 2009, and 2008.
The First Bancorp 2010 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
Non-marketable Securities
Federal Reserve Bank Stock
Federal Home Loan Bank Stock
Total securities
2010
2009
2008
$ 16,045
234,414
41,524
866
380
293,229
$ 30,959
31,148
18,514
818
399
81,838
$ -
922
8,910
2,977
263
13,072
2,190
55,710
49,330
150
107,380
39,099
90,193
61,095
150
190,537
110,513
60,774
62,330
1,150
234,767
1,412
14,031
15,443
$ 416,052
1,412
14,031
15,443
$ 287,818
662
14,031
14,693
$ 262,532
The following table sets forth information on the yields and expected maturities of the Company‟s investment
securities as of December 31, 2010. 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 contractual maturity date, while the yield
takes into effect 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
$ -
-
-
16,045
16,045
-
28
76
234,310
234,414
-
3,071
2,328
36,125
41,524
-
-
-
866
866
380
$ 293,229
0.00%
0.00%
0.00%
5.34%
5.34%
0.00%
5.71%
8.50%
4.06%
4.06%
0.00%
7.07%
7.37%
6.54%
6.63%
0.00%
0.00%
0.00%
1.37%
1.37%
3.03%
4.48%
$ -
-
-
2,190
2,190
-
968
954
53,788
55,710
1,045
4,507
12,884
30,894
49,330
150
-
-
-
150
-
$ 107,380
The First Bancorp 2010 Form 10-K ● Page 28
0.00%
0.00%
0.00%
6.50%
6.50%
6.12%
4.16%
5.97%
4.10%
4.13%
7.44%
6.23%
6.51%
6.32%
6.38%
1.50%
0.00%
0.00%
0.00%
1.50%
0.00%
5.21%
Impaired Securities
The securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December
31, 2010 amounted to an excess of $5.9 million, or 1.45% of the amortized cost of the total securities portfolio. At
December 31, 2009 this amount represented an excess of $2.1 million, or 0.8% 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, the Company has one available-for-sale corporate security with an
amortized cost of $1.0 million that is 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 of this security in the first 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, 2010, the Company had temporarily impaired securities with a fair value of $212.9 million and
unrealized losses of $5.9 million, as identified in the table below. Securities in a continuous unrealized loss position
more than twelve-months amounted to $7.6 million as of December 31, 2010, compared with $2.2 million at December
31, 2009. The Company has concluded that these securities were not other-than-temporarily impaired. This conclusion
was based on the issuers‟ continued satisfaction of their 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, 2010.
In thousands of dollars
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
Fair
Value
$ -
160,767
44,513
-
-
$ 205,280
Unrealized
Losses
$ -
(2,654)
(2,307)
-
-
$ (4,961)
Unrealized
Losses
12 months or more
Fair
Value
$ -
5,348
1,355
866
56
$ 7,625
$ -
(226)
(407)
(247)
(10)
$ (890)
Total
Fair
Value
$ -
166,115
45,868
866
56
$ 212,905
Unrealized
Losses
$ -
(2,880)
(2,714)
(247)
(10)
$ (5,851)
For securities with unrealized losses, the following information was considered in determining that the securities
were not other-than-temporarily impaired:
The First Bancorp 2010 Form 10-K ● Page 29
Securities issued by the U.S. Treasury and U.S. Government-sponsored agencies and enterprises. As of December
31, 2010 there were no unrealized losses on these securities, compared with $707,000 at December 31, 2009.
Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As
of December 31, 2010, the total unrealized losses on these securities amounted to $2.9 million, compared with $602,000
at December 31, 2009. 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, 2010 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, 2010. 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, 2010, the total unrealized losses on municipal
securities amounted to $2.7 million, compared with $485,000 at December 31, 2009. 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, 2010 all municipal bond issuers were current on contractually obligated interest and principal payments.
The Company attributes the unrealized losses at December 31, 2010 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, 2010. 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, 2010, the total unrealized losses on corporate securities amounted to
$247,000, compared with $302,000 at December 31, 2009. Corporate securities are dependent on the operating
performance of the issuers. At December 31, 2010 all corporate bond issuers were current on contractually obligated
interest and principal payments. The Company attributes the unrealized losses at December 31, 2010 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, 2010. The Company
also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.
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, 2010 and December 31, 2009, 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 2010.
For the year ended December 31, 2010, FHLB‟s net income was $106.6 million, compared with a net loss of
$186.8 million for 2009. Although the Company had no dividend income on its FHLB stock in 2010, in February 2011
FHLB‟s board of directors declared a dividend equal to an annual yield of 0.30 percent, based on average stock
outstanding for the fourth quarter of 2010, to be paid on March 2, 2011. FHLB‟s board of directors anticipates that it
will continue to declare modest cash dividends through 2011, but cautioned that adverse events such as a negative trend
in credit losses on the FHLB‟s private-label mortgage-backed securities or mortgage portfolio, a meaningful decline in
income, or regulatory disapproval could lead to reconsideration of this plan.
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 2010 Form 10-K ● Page 30
Lending Activities
The loan portfolio declined $64.9 million or 6.8% in 2010, with total loans at $887.6 million at December 31, 2010,
compared to $952.5 million at December 31, 2009. Commercial loans decreased $14.5 million or 3.6% between
December 31, 2009 and December 31, 2010, residential term loans decreased by $29.3 million or 8.0% 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 decreased by $24.1 million or 52.5%.
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. Commercial construction loans comprise a very small portion of the portfolio,
and at 31.8% of capital are well under the regulatory guidance of 100.0% of total risk-based capital. Construction and
non-owner-occupied commercial real estate loans are at 98.5% of total capital, well under regulatory guidance of
300.0% of 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.
Residential loans are also comprised of two categories, term loans, which include traditional amortizing home
mortgages, 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. Home
equity loans and lines of credit are generally underwritten to the same standards. Consumer loans are primarily short-
term amortizing loans to individuals collateralized by automobiles, pleasure craft and recreation 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, 2010, 2009, 2008, 2007 and 2006.
In thousands
of dollars
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Total loans
2010
2009
As of December 31,
2008
2007
2006
$245,540 27.7% $240,178 25.2% $219,057 22.3% $202,301 22.0% $140,626 16.8%
0.0%
41,869
101,462 11.4% 114,486 12.0% 118,109 12.1% 109,954 11.9% 189,908 22.7%
2.8%
21,833
48,182
34,832
34,425
48,714
45,952
23,724
2.5%
4.7%
4.9%
5.1%
3.6%
4.8%
3.7%
0.0%
-
-
337,927 38.1% 367,267 38.7% 431,520 44.0% 431,237 46.9% 371,242 44.3%
2.4%
15,512
26,235
45,942
17,361
20,258
1.7%
2.7%
5.0%
1.8%
105,297 11.9%
2.0%
8.8%
2.3%
$887,596 100.0% $952,492 100.0% $979,273 100.0% $920,164 100.0% $838,145 100.0%
77,206
24,132
74,199
22,106
94,324
24,210
73,453
18,934
8.1%
2.4%
7.9%
2.5%
9.9%
2.5%
18,156
The First Bancorp 2010 Form 10-K ● Page 31
The following table sets forth certain information regarding the contractual maturities of the Bank‟s loan portfolio
as of December 31, 2010:
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
$ 8,691
9,184
15,963
4,061
5,522
6,976
1,258
6,855
$58,510
$16,566
8,059
22,589
2,558
12,250
1,269
1,919
7,522
$72,732
$19,070
354
30,487
8,760
24,982
301
661
1,250
$85,865
$201,213 $245,540
41,869
101,462
21,833
24,272
32,423
6,454
295,173
6,966
101,459
2,529
337,927
15,512
105,297
18,156
$670,489 $887,596
The following table provides a listing of loans by category, excluding loans held for sale, between variable and
fixed rates as of December 31, 2010.
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
Total
Amount
% of total
Amount
% of total
Amount
% of total
$ 42,167
5,770
46,141
18,257
116,368
5,304
3,754
14,812
$252,573
4.8%
0.7%
5.2%
2.1%
13.1%
0.6%
0.4%
1.6%
28.5%
$203,373
36,099
55,321
3,576
221,559
10,208
101,543
3,344
$635,023
22.9%
4.0%
6.2%
0.4%
25.0%
1.1%
11.5%
0.4%
71.5%
$245,540
41,869
101,462
21,833
337,927
15,512
105,297
18,156
$887,596
27.7%
4.7%
11.4%
2.5%
38.1%
1.7%
11.9%
2.0%
100.0%
As of December 31, 2010, 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 $2.8 million at December 31, 2010
compared with $2.9 million at December 31, 2009. No recourse obligations have been incurred in connection with the
sale of loans.
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.
The First Bancorp 2010 Form 10-K ● Page 32
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 rating, and adjustment to our allowance. We classify our
portfolios as either residential and consumer or commercial and monitor credit risk separately as discussed below. We
evaluate the adequacy of our allowance continually based on a review of significant loans, with a particular emphasis on
nonaccruing, past due, and other loans that we believe require special attention.
The allowance consists of four elements: (1) specific reserves for loans evaluated individually for impairment; (2)
general reserves for types or portfolios of loans based on historical loan loss experience, (3) qualitative reserves
judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and
severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies, and
underwriting standards, credit administration practices, and other factors as applicable; and (4) unallocated 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 collectability of specific loans when
determining the adequacy of the allowance for loan losses, Management also takes into consideration other factors such
as changes in the mix and size of the loan portfolio, historical 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, are 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 collectability 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 our 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. The methodology employs Management‟s judgment as to the level
of losses on existing loans based on our internal review of the loan portfolio, including an analysis of a borrower‟s
current financial position, and the consideration of current and anticipated economic conditions and their potential
effects on specific borrowers and lines of business. In determining our ability to collect certain loans, we also consider
the fair value of 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 First Bancorp 2010 Form 10-K ● Page 33
the appropriate risk classification and accrual status, and to determine the need for a specific reserve. Consumer loans
greater than 120 days past due are generally charged off. Residential loans 90 days or more past due are placed on non-
accrual status unless the loans are both well secured and in the process of collection.
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
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 to assigned 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, 2010, impaired loans with specific reserves totaled $9.5 million and the amount of
such reserves was $1.3 million. This compares to impaired loans with specific reserves of $12.2 million at December
31, 2009 and the amount of such reserves was $2.2 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, 2010 is considered by Management to be adequate to address the credit
losses inherent in the loan portfolio at that date. 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 following table summarizes our allocation of allowance by loan type as of December 31, 2010, 2009, 2008,
2007 and 2006. 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
2010
2009
2008
2007
2006
As of December 31,
$ 5,260
1,012
2,377
19
27.7%
4.7%
11.4%
2.5%
$ 5,297
896
3,095
23
25.2% $2,958
650
5.1%
2,595
12.0%
20
4.8%
22.3% $3,020
4.9%
-
1,633
12.1%
25
3.6%
22.0% $1,905
-
0.0%
2,573
11.9%
25
3.7%
16.8%
0.0%
22.7%
2.8%
1,408
44
38.1%
1.7%
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%
670
646
1,880
8.7%
2.3%
0.0%
$13,316 100.0% $13,637 100.0% $8,800 100.0% $6,800 100.0% $6,364 100.0%
11.9%
2.0%
0.0%
515
716
1,855
8.1%
2.4%
0.0%
9.9%
2.5%
0.0%
7.9%
2.5%
0.0%
482
662
676
470
537
105
491
606
244
The allowance for loan losses totaled $13.3 million at December 31, 2010, compared to $13.6 million at December
31, 2009. Management‟s ongoing application of methodologies to establish the allowance include an evaluation of non-
accrual loans and troubled debt restructured for specific reserves. These specific reserves decreased $0.9 million in 2010
The First Bancorp 2010 Form 10-K ● Page 34
from $2.2 million at December 31, 2009 to $1.3 million at December 31, 2010. The specific loans that make up those
categories change from period to period. The portion of the reserve based upon homogeneous pools of loans decreased
by $940,000 in 2010. The portion of the reserve based on qualitative factors increased by $593,000 during 2010 due to
increased uncertainty with real estate appraisal values. Despite the shifts in specific, pooled and qualitative reserves,
Management feels that market trends and other internal factors justified the minimal increase in unallocated reserves
during 2010.
A breakdown of the allowance for loan losses as of December 31, 2010, by loan segment and allowance element, is
presented in the following table:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Unallocated
Specific Reserves
Evaluated
Individually for
Impairment
General Reserves
Based on
Historical Loss
Experience
Reserves for
Qualitative
Factors
Unallocated
Reserves
Total
Reserves
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
-
$1,256,000
$ 2,183,000
370,000
899,000
-
401,000
18,000
72,000
324,000
-
$ 4,267,000
$2,885,000
490,000
1,187,000
19,000
$ - $ 5,260,000
1,012,000
2,377,000
19,000
-
-
-
575,000
26,000
476,000
255,000
-
$5,913,000
-
-
-
-
1,880,000
1,408,000
44,000
670,000
646,000
1,880,000
$1,880,000 $13,316,000
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 $8.4 million in 2010 compared
to $12.2 million in 2009. Net charge offs were $8.7 million in 2010 compared to net charge offs of $7.3 million in 2009.
Our allowance as a percentage of outstanding loans has increased from 1.43% as of December 31, 2009 to 1.50% as of
December 31, 2010, reflecting the changes in our loss estimates and the increases resulting from the application of our
loss estimate methodology.
The First Bancorp 2010 Form 10-K ● Page 35
The following table summarizes the activities in our allowance for loan losses as of December 31, 2010, 2009,
2008, 2007 and 2006:
Dollars in thousands
Balance at beginning of year
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
2010
$ 13,637
4,005
175
1,125
-
392
2,361
8
951
9,017
4
-
69
-
As of December 31,
2008
2009
$ 8,800 $ 6,800 $ 6,364 $ 6,086
2007
2006
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
-
5
-
-
204
241
2,700
4,700
4
-
-
219
296
8,721
8,400
59
-
1
114
253
7,323
12,160
16
-
-
160
266
1,047
1,325
$ 13,316 $ 13,637 $ 8,800 $ 6,800 $ 6,364
0.13%
0.76%
4
-
21
174
341
996
1,432
0.11%
0.74%
0.28%
0.90%
0.75%
1.43%
0.94%
1.50%
Management believes the allowance for loan losses is adequate as of December 31, 2010. In Management‟s
opinion, the level of provision for loan losses and the corresponding increase in the allowance for loan losses is
directionally consistent with the overall credit quality of our loan portfolio and corresponding 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 difficult economic conditions continuing for some time to come.
The First Bancorp 2010 Form 10-K ● Page 36
Nonperforming Loans
Nonperforming loans are comprised of loans, for which 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 or when principal and
interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case
the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by
collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable
value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially
responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1)
through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through
collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its
restoration to a current status in the near future.
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 or other evaluation method. 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, and if secured by real estate, 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 new 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 2.39% at December 31, 2010 compared to
1.95% at December 31, 2009. The following table shows the distribution of nonperforming assets and loans greater than
90 days past due as of December 31, 2010, 2009, 2008, 2007 and 2006:
Dollars in thousands
2010
As of December 31,
2008
2009
2007
2006
$ 5,946
937
2,277
-
$ 6,589
458
2,735
-
Commercial
Real estate
Construction
Other
Municipal
Residential
606
Term
-
Construction
190
Home equity line of credit
46
Consumer
Total loans 90 or more days past due
$ 22,291 $ 19,738 $ 17,429 $ 5,154 $ 4,232
Non-accrual loans included in above total $ 21,175 $ 18,562 $ 12,449 $ 2,867 $ 3,485
$ 734 $ 1,105
-
2,285
-
$ 7,477
-
2,908
-
8,932
3,567
519
113
6,594
-
313
137
2,109
-
299
1
6,322
3,182
143
309
-
2,011
-
Total nonperforming loans does not include loans 90 or more days past due and still accruing interest. These are
loans in which we expect to collect all amounts due, including past-due interest. As of December 31, 2010, loans 90 or
more days past due and still accruing interest totaled $1.1 million, compared to $1.2 million at December 31, 2009.
The First Bancorp 2010 Form 10-K ● Page 37
Troubled Debt Restructured
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, 2010 we had 32 loans with a value of $5.5 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 52 loans
with a value of $8.4 million as of December 31, 2009. As of both dates, all TDRs were for residential term loans. As of
December 31, 2010, nine of the loans classified as TDRs with a total balance of $1.3 million were greater than 30 days
past due and three loans with a balance of $483,000 were in the process of foreclosure.
Impaired Loans
Impaired loans include restructured loans and loans placed on non-accrual status 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. These 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. If the measure of an
impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is
established for the difference. Impaired loans totaled $25.3 million at December, 2010, and have decreased $559,000
from December 31, 2009. The number of loans decreased by eight loans from 183 to 175 during the same period.
Impaired commercial loans decreased $658,000 from December 31, 2009 to December 31, 2010. The specific
allowance for impaired commercial loans decreased from $1.7 million at December 31, 2009 to $635,000 as of
December 31, 2010, 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. From December 31, 2009 to December 31, 2010,
impaired residential loans decreased $308,000, impaired home equity lines of credit increased $376,000, and impaired
consumer loans increased $31,000.
The following table sets forth impaired loans as of December 31, 2010, 2009, 2008, 2007 and 2006:
Dollars in thousands
2010
As of December 31,
2008
2009
2007
2006
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
$ 5,946
937
1,753
-
$ 6,198
458
2,638
-
$ 7,477 $1,105 $ 744
-
1,697
-
-
2,281
-
-
2,742
-
12,455
3,567
519
106
637
-
-
17
$25,283 $25,843 $12,449 $3,485 $3,095
13,149
3,182
143
75
2,163
-
67
-
86
-
-
13
The First Bancorp 2010 Form 10-K ● Page 38
Past Due Loans
The Bank‟s overall loan delinquency ratio was 3.15% at December 31, 2010, versus 3.14% at December 31, 2009.
Loans 90 days delinquent and accruing decreased slightly from $1.2 million at December 31, 2009 to $1.1 million as of
December 31, 2010. This total is made up of 11 loans, with the largest loan totaling $366,000. We expect to collect all
amounts due on these loans, including interest.
The following table sets forth loan delinquencies as of December 31, 2010, 2009, 2008, 2007 and 2006:
Dollars in thousands
2010
As of December 31,
2008
2007
2009
2006
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
$ 6,055
1,057
4,440
-
$ 9,443 $ 10,446
584
4,713
-
458
3,607
-
$ 2,607
325
8,393
-
$ 2,326
9
5,575
-
12,231
1,828
2,038
266
11,747
3,182
682
775
$ 27,915 $ 29,894
1.26%
0.12%
1.76%
3.14%
1.32%
0.13%
1.70%
3.15%
8,803
-
872
496
11,526
-
1,423
609
4,067
-
627
312
$ 29,301 $ 21,496 $ 12,916
1.04%
1.78%
0.09%
0.25%
0.42%
0.31%
1.54%
2.34%
1.21%
0.51%
1.27%
2.99%
As of December 31, 2010, the UBPR peer group had loans 30-89 days past due of 1.04% and loans 90+ days past
due on non-accrual of 3.39%.
Potential Problem Loans and Loans in Process of Foreclosure
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 borrowers 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 borrowers, 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. At
December 31, 2010, there were 32 potential problem loans with a balance of $3.9 million or 0.4% of total loans. This
compares to 28 loans with a balance of $8.7 million or 0.9% of total loans at December 31, 2009.
As of December 30, 2010, there were 33 loans in the process of foreclosure with a total balance of $12.3 million.
The Bank‟s foreclosure process begins when a loan becomes 45 days past due at which time a preliminary foreclosure
letter is sent to the borrower. If the loan becomes 80 days past due, copies of the promissory note and mortgage deed are
forwarded to the Bank‟s attorney for review and an affidavit for a Motion for Summary Judgment is then prepared. An
authorized Bank officer signs the affidavit certifying the validity of the documents and verification of the past due
amount which is then forwarded to the court. Once a Motion for Summary Judgment is granted, a Period of Redemption
(POR) begins which gives the customer 90 days to cure the default. A foreclosure auction date is then set 30 days from
the POR expiration date if the default is not cured.
In October 2010, the Bank conducted a self-audit of its loans in foreclosure and its foreclosure process and found
there were no deficiencies or areas to improve. For loans sold to the secondary market on which servicing is retained,
the Bank follows Freddie Mac‟s and Fannie Mae‟s published guidelines and regularly reviews these guidelines for
updates and changes to process. All secondary market loans have been sold without recourse in a non-securitized, one-
on-one basis. As a result, the Bank has no liability for these loans in the event of a foreclosure.
The First Bancorp 2010 Form 10-K ● Page 39
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 cost or fair value less estimated cost to sell. At December 31, 2010, there were 18 properties
owned with a net OREO balance of $4.9 million, net of an allowance for losses of $0.1 million, compared to December
31, 2009 when there were 18 properties owned with a net OREO balance of $5.3 million, net of an allowance for losses
of $0.6 million. The following table presents the composition of other real estate owned as of December 31, 2010, 2009,
2008, 2007 and 2006:
Dollars in thousands
2010
As of December 31,
2008
2007
2009
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
2006
$ -
950
463
-
$ - $ - $ - $ -
1,152
-
-
1,172
731
-
1,182
1,920
-
424
1,795
-
2,842
-
-
-
2,826
-
-
-
$ 5,061 $ 5,928
$ - $ -
476
-
-
-
66
-
849
-
-
-
-
-
-
-
$ 2,752 $ 1,152 $ 1,413
-
-
-
-
$ - $ - $ -
250
19
-
325
-
-
325
-
-
66
-
-
-
$ 132
107
-
-
-
$ 583
-
-
-
-
$ 325
-
-
-
-
$ 325
-
-
-
-
$ 269
$ -
424
1,729
-
$ -
706
1,920
-
$ -
848
731
-
$ -
827
-
-
$ -
700
444
-
2,776
-
-
-
2,719
-
-
-
$ 4,929 $ 5,345
849
-
-
-
$ 2,428
-
-
-
-
-
-
-
-
$ 827 $ 1,144
The First Bancorp 2010 Form 10-K ● Page 40
Funding, Liquidity and Capital Resources
As of December 31, 2010, the Bank had primary sources of liquidity of $259.7 million or 19.03% of assets. It is
Management‟s opinion that this is adequate. In addition, the Bank has an additional $116.1 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 $52.9 million in unencumbered securities available as collateral for borrowing. These bring
the Bank‟s primary sources of liquidity to $446.7 million or 32.66% of assets. 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 70.9% of total average assets in 2010. 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 2010, total deposits increased by $51.9 million or 5.6%, ending the year at $974.5 million compared to $922.7
million at December 31, 2009. Low-cost deposits (demand, NOW, and savings accounts) increased by $22.6 million or
8.3% during the year, money market deposits declined $22.8 million or 24.2%, and certificates of deposit increased
$52.1 million or 9.4%. The majority of the change in certificates of deposit year-to-date was primarily from wholesale
and brokered sources, resulting from a shift in funding between borrowed funds and certificates of deposit. The increase
in low-cost deposits is higher than the usual seasonal flow we experience each year in our marketplace. Average
deposits increased $13.3 million in 2010, as shown in the following table which sets forth the average daily balance for
the Bank‟s principal deposit categories for each period:
Years ended December 31,
2009
2010
Dollars in thousands
Demand deposits
NOW accounts
Money market accounts
Savings
Certificates of deposit
Total deposits
$ 69,260 $ 65,567
106,895
108,922
87,921
578,713
$ 961,281 $ 948,018
118,400
78,155
97,484
597,982
2008
$ 63,495
105,689
123,699
86,018
474,517
$ 853,418
% change
2010 vs. 2009
5.63%
10.76%
-28.25%
10.88%
3.33%
1.40%
The First Bancorp 2010 Form 10-K ● Page 41
The average cost of deposits (including non-interest-bearing accounts) was 1.07% for the year ended December 31,
2010, compared to 1.25% for the year ended December 31, 2009 and 2.69% for the year ended December 31, 2008. 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,
2009
2010
0.33%
0.69%
0.60%
1.47%
1.15%
0.35%
1.07%
0.62%
1.75%
1.35%
2008
0.63%
2.88%
0.97%
3.78%
2.90%
Of all certificates of deposit, $374.1 million or 61.5% will mature by December 31, 2011. As of December 31,
2010, the Bank held a total of $376.2 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
2009
As of December 31,
2010
$ 215,112
35,700
26,687
98,745
$ 376,244
$ 184,574
94,778
27,709
36,143
$ 343,204
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, 2010, the Bank‟s total FHLB borrowing capacity, based upon the
Bank‟s holding of FHLB stock, was $266.9 million, of which $68.3 million was unused. As of December 31, 2010,
advances totaled $198.6 million, with a weighted average interest rate of 2.09% and remaining maturities ranging from
three days to 10 years. This compares to advances totaling $199.4 million, with a weighted average interest rate of
2.90% and remaining maturities ranging from three days to 15 years, as of December 31, 2009. The decrease in the
weighted average rate paid on borrowed funds in 2010 compared to 2009 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, 2010 was $57.3 million, compared to $49.7 million on
December 31, 2009, and $48.8 million on December 31, 2008. The weighted average rates of these agreements were
1.16% as of December 31, 2010, compared to 1.57% as of December 31, 2009 and 2.12% as of December 31, 2008.
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, 2010, 2009, and 2008 were $1.4 million, $0.6 million, and $2.9 million, respectively.
The maximum amount of borrowed funds outstanding at any month-end during each of the last three years was
$257.3 million at the end of December in 2010, $306.5 million at the end of February in 2009, and $331.7 million at the
end of January in 2008. The average amount outstanding during 2010 was $230.9 million with a weighted average
interest rate of 2.76%. This compares to an average outstanding amount of $248.3 million with a weighted average
interest rate of 2.84% in 2009, and an average outstanding amount of $293.7 million with a weighted average interest
rate of 3.62% in 2008. The decline in average cost realized during 2010 is consistent with the interest rate policy and
actions of the FOMC.
The First Bancorp 2010 Form 10-K ● Page 42
Capital Resources
Shareholders‟ equity as of December 31, 2010 was $149.8 million, compared to $147.9 million as of December 31,
2009. The Company‟s earnings for 2010, net of dividends paid, 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”, increased by $1.9 million from December 31, 2009.
Capital at December 31, 2010 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 9.30% on December 31,
2010 and 9.44% at December 31, 2009. To be rated “well-capitalized”, regulatory requirements call for a minimum
leverage capital ratio of 5.00%. At December 31, 2010, the Company had tier-one risk-based capital of 14.97% and tier-
two risk-based capital of 16.23%, versus 13.70% and 14.96%, respectively, at December 31, 2009. 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.
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 (“CPP”). 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 rank senior to the Company‟s common stock and will rank 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 2010, 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 70.91% of
earnings in 2010 compared to 63.93% in 2009 and 52.76% in 2008. 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 $8.9 million in dividends
was declared in 2010 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
2011 will be that year‟s net income plus $8.1 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 (through January 9, 2012) without the consent of the U.S. Treasury.
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, 2010, the Company repurchased fractional shares from employee benefit plans.
In 2010, 28,855 shares, net of five fractional shares repurchased from employee benefit plans, were issued via
employee stock programs and the dividend reinvestment plan for consideration totaling $416,000. No shares of common
stock were issued in conjunction with the exercise of stock options.
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 2010 Form 10-K ● Page 43
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, 2010, 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, 2010:
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
$257,330
726
608,189
$866,245
$ 62,765
50,179
2,792
9,222
$124,958
Less than
1 year
$127,160
97
374,131
$ 501,388
1-3 years
$ 20,000
289
85,264
$ 105,553
3-5 years
$ 60,000
109
148,794
$ 208,903
More than
5 years
$ 50,170
231
-
$ 50,401
$ 62,765
50,179
2,792
9,222
$124,958
$ -
-
-
-
$ -
$ -
-
-
-
$ -
$ -
-
-
-
$ -
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, 2010, 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 2010, the Company made capital purchases totaling $2.0 million. This cost will be amortized over an average of
seven years, adding approximately $292,000 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 2010 Form 10-K ● Page 44
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 December 31, 2010, was +2.14% of total assets, which compares to +0.72% of assets at
December 31, 2009. 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, 2010, 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
5+
Years
-
-
422,940
-
8,494
446,724
328,720
127,163
1,850
457,733
-
-
139,952
9,842
-
183,182
136,537
9
5,850
142,396
14,031
-
220,603
-
100
377,473
214,771
80,048
38,800
333,619
$ 15,290 $ 33,388 $142,739 $209,192
1,412
2,806
104,101
-
68,912
386,423
220,458
50,110
189,486
460,054
$ (11,009) $ 40,786 $ 43,854 $ (73,631)
-5.28%
-
0.00%
-0.79%
(11,009)
-0.79%
3.15%
73,631
5.28%
2.93%
29,777
2.14%
The earnings simulation model forecasts capture the impact of changing interest rates on one-year and two-year net
interest income. The modeling process calculates changes in interest income received and interest expense paid on all
interest-earning assets and interest-bearing liabilities reflected on the Company‟s balance sheet. None of the assets used
in the simulation are held for trading purposes. The modeling is done for 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
The First Bancorp 2010 Form 10-K ● Page 45
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 Company‟s most recent simulation model projects net interest income would increase by approximately 0.6%
of stable-rate net interest income if short-term rates affected by Federal Open Market Committee actions fall gradually
by one percentage point over the next year, and decrease by approximately 1.5% if rates rise gradually by two
percentage points. Both scenarios are well within ALCO‟s policy limit of a decrease in net interest income of no more
than 10.0% given a 2.0% move in interest rates, up or down. Management believes this reflects a reasonable interest rate
risk position. In year two, and assuming no additional movement in rates, the model forecasts that net interest income
would be lower than that earned in a stable rate environment by 2.2% in a falling-rate scenario, and lower than that
earned in a stable rate environment by 4.7% in a rising rate scenario, when compared to the year-one base scenario. A
summary of the Bank‟s interest rate risk simulation modeling, as of December 31, 2010 and 2009 is presented in the
following table:
Changes in Net Interest Income
2010
2009
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%
+0.6%
-1.5%
-2.2%
-4.7%
-0.1%
-1.0%
-0.8%
-4.4%
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.
This sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of
expected operating results. These hypothetical estimates are based upon numerous assumptions including, among
others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, pricing
decisions on loans and deposits, and reinvestment/ replacement of asset and liability cash flows. While assumptions are
developed based upon current economic and local market conditions, the Company cannot make any assurances as to
the predictive ability of these assumptions, including how customer preferences or competitor influences might change.
Interest Rate Risk Management
A variety of financial instruments can be used to manage interest rate sensitivity. These may include investment
securities, 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, 2010, the Company was using no interest rate derivatives for interest rate risk management.
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, 2010, there were no
significant differences between the views of the independent consultant and Management regarding the Company‟s
interest rate risk exposure. Management expects interest rates will remain stable in the next two-to-four quarters and
believes that the current level of interest rate risk is acceptable.
The First Bancorp 2010 Form 10-K ● Page 46
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
Time deposits in other banks
Securities available for sale
Securities to be held to maturity, fair value of $110,366,000
at December 31, 2010, and $192,838,000 at December 31, 2009
Federal Reserve Bank stock, at cost
Federal Home Loan 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
Total deposits
Borrowed funds – short term
Borrowed funds – long term
Other liabilities
Total liabilities
Commitments and contingent liabilities (notes 13, 17, 18 and 21)
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 $1,108,000 in 2010 and $67,000 in 2009
Net unrealized loss on post-retirement benefit costs,
net of tax benefit of $39,000 in 2010 and $114,000 in 2009
Total shareholders’ equity
Total liabilities and shareholders’ equity
Common stock
Number of shares authorized
Number of shares issued and outstanding
Book value per share
2010
2009
$ 13,838,000
100,000
293,229,000
107,380,000
1,412,000
14,031,000
2,806,000
887,596,000
13,316,000
874,280,000
5,263,000
18,980,000
4,929,000
27,684,000
29,870,000
$ 1,393,802,000
$ 74,032,000
119,823,000
71,604,000
100,870,000
608,189,000
974,518,000
127,160,000
130,170,000
12,106,000
1,243,954,000
$ 15,332,000
-
81,838,000
190,537,000
1,412,000
14,031,000
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
556,097,000
922,667,000
100,177,000
149,601,000
11,011,000
1,183,456,000
24,705,000
98,000
45,474,000
81,701,000
24,606,000
97,000
45,121,000
78,450,000
(2,057,000)
(125,000)
(73,000)
149,848,000
$ 1,393,802,000
(211,000)
147,938,000
$ 1,331,394,000
18,000,000
9,773,025
$12.80
18,000,000
9,744,170
$12.66
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2010 Form 10-K ● Page 47
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
$868,000 in 2010, $1,472,000 in 2009, and $1,245,000 in 2008)
Interest on deposits with other banks
Interest and dividends on investments (includes tax-exempt income of
$3,373,000 in 2010, $2,980,000 in 2009, and $2,820,000 in 2008)
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
2010
2009
2008
$ 43,903,000
6,000
$ 49,277,000 $ 58,079,000
3,000
1,000
13,351,000
57,260,000
13,291,000
62,569,000
13,290,000
71,372,000
10,297,000
6,374,000
16,671,000
40,589,000
8,400,000
32,189,000
1,455,000
2,838,000
2,000
1,796,000
3,044,000
9,135,000
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
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
11,927,000
1,536,000
2,209,000
1,931,000
-
-
283,000
7,244,000
25,130,000
16,194,000
4,078,000
$ 12,116,000
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
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
$ 13,042,000 $ 14,034,000
1,348,000
-
$ 10,768,000 $ 11,881,000 $ 14,034,000
1,161,000
$ 1.10
1.10
0.780
9,760,760
4,726
$ 1.22
1.22
0.780
9,721,172
12,072
$ 1.45
1.44
0.765
9,701,379
18,952
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2010 Form 10-K ● Page 48
Consolidated Statements of Changes in Shareholders’ Equity
The First Bancorp, Inc. and Subsidiary
Preferred
stock
-
-
-
-
-
-
-
-
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 taxes of $32,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Proceeds from sale of preferred
stock
Discount on preferred stock
issuance
Amortization of discount on
preferred stock
Payment to repurchase common
stock
Proceeds from sale of common
stock
Balance at December 31, 2009
-
$ 24,606,000
25,000,000
99,000
-
-
-
-
-
-
(493,000)
-
-
-
-
-
-
9,696,397
-
-
-
-
-
-
-
-
-
Common stock and
additional paid-in capital
Shares
9,732,493
-
Amount
$ 44,859,000 $ 67,432,000
14,034,000
-
Retained
earnings
Accumulated
other
comprehensive
income (loss)
$ 162,000
-
Total
shareholders‟
equity
$ 112,453,000
14,034,000
-
-
(1,255,000)
(1,255,000)
-
-
-
37,000
-
14,034,000
(7,416,000)
-
3,000
(1,252,000)
-
-
(88,764)
(1,414,000)
52,668
732,000
-
-
-
-
3,000
12,782,000
(7,416,000)
37,000
(1,414,000)
732,000
-
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
(99,000)
-
13,042,000
(8,649,000)
-
60,000
754,000
-
-
-
-
-
-
-
-
-
-
60,000
13,796,000
(8,649,000)
37,000
25,000,000
-
-
(263,000)
(15,925)
(263,000)
63,698
9,744,170
836,000
-
$ 45,218,000 $ 78,450,000
836,000
$ (336,000) $ 147,938,000
-
The First Bancorp 2010 Form 10-K ● Page 49
Preferred
stock
-
Balance at December 31, 2009 $ 24,606,000
-
Net income
Net unrealized loss on securities
available for sale, net of tax
benefit of $1,041,000
Unrecognized actuarial gain for
post-retirement benefits, net of
taxes of $75,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Amortization of discount for
preferred stock issuance
Proceeds from sale of common
-
stock
Balance at December 31, 2010 $ 24,705,000
99,000
-
-
-
-
Common stock and
additional paid-in capital
Amount
Shares
$ 45,218,000 $ 78,450,000
9,744,170
12,116,000
-
Retained
earnings
-
Accumulated
other
comprehensive
income (loss)
Total
shareholders‟
equity
$ (336,000) $ 147,938,000
12,116,000
-
-
-
-
-
-
-
-
-
(1,932,000)
(1,932,000)
-
-
-
37,000
-
12,116,000
(8,865,000)
-
138,000
(1,794,000)
-
-
138,000
10,322,000
(8,865,000)
37,000
(99,000)
-
-
-
28,855
9,773,025
416,000
-
$ 45,572,000 $ 81,701,000
-
$ (2,130,000)
416,000
$ 149,848,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2010 Form 10-K ● Page 50
Consolidated Statements of Cash Flows
The First Bancorp, Inc. and Subsidiary
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 amortization (accretion) of premiums and 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 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
Purchase of time deposits in other banks
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 Federal Home Loan Bank stock
Purchases of Federal Reserve Bank 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
2010
2009
2008
$ 12,116,000 $ 13,042,000 $ 14,034,000
1,394,000
395,000
8,400,000
1,483,000
(1,210,000)
12,160,000
(65,726,000) (117,282,000)
115,704,000
65,796,000
150,000
(2,000)
916,000
-
(2,774,000)
899,000
223,000
122,000
481,000
352,000
37,000
37,000
(4,013,000)
177,000
(728,000)
1,139,000
11,000
-
275,000
300,000
260,000
251,000
18,735,000
25,650,000
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
(100,000)
202,000
101,223,000
84,287,000
3,722,000
(316,453,000)
-
(1,363,000)
-
-
52,395,000
(2,043,000)
-
(78,130,000)
-
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
(241,000)
52,124,000
30,000,000
(50,000,000)
27,552,000
-
-
416,000
(8,865,000)
50,986,000
(1,494,000)
15,332,000
15,826,000
(22,217,000)
128,651,000
19,164,000
50,000,000
10,000,000
-
(27,000,000)
(94,622,000)
(5,289,000)
-
25,000,000
(1,414,000)
(263,000)
732,000
836,000
(7,281,000)
(8,649,000)
91,892,000
(8,418,000)
(398,000)
(1,524,000)
17,254,000
16,856,000
$ 13,838,000 $ 15,332,000 $ 16,856,000
$ 16,824,000 $ 19,160,000 $ 34,558,000
7,111,000
5,859,000
3,317,000
3,780,000
4,441,000
1,601,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp 2010 Form 10-K ● Page 51
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, 2010, have been evaluated as to their potential impact to the 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 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.
The First Bancorp 2010 Form 10-K ● Page 52
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 over 30 days past due are
considered delinquent. Impaired loans include restructured loans and loans placed on non-accrual status 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. These 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 2010, 2009 and 2008
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,
2010, 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.
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 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.
The First Bancorp 2010 Form 10-K ● Page 53
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; 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.
Note 2. Cash and Cash Equivalents
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, 2010 the Company had a contractual clearing balance of $500,000
and a reserve balance requirement of $672,000 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 2010 Form 10-K ● Page 54
Note 3. Investment Securities
The following tables summarize the amortized cost and estimated fair value of investment securities at December 31,
2010 and 2009:
As of December 31, 2010
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
Non-marketable securities
Federal Home Loan Bank Stock
Federal Reserve Bank Stock
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
Non-marketable securities
Federal Home Loan Bank Stock
Federal Reserve Bank Stock
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
(Estimated)
$ 15,380,000
236,126,000
43,404,000
1,113,000
371,000
$ 296,394,000
2,190,000
55,710,000
49,330,000
150,000
$ 107,380,000
$ 665,000
1,024,000
171,000
-
19,000
$ 1,879,000
35,000
2,656,000
1,102,000
-
$ 3,793,000
$ -
(2,736,000)
(2,051,000)
(247,000)
(10,000)
$ (5,044,000)
-
(144,000)
(663,000)
-
$ (807,000)
$ 16,045,000
234,414,000
41,524,000
866,000
380,000
$ 293,229,000
2,225,000
58,222,000
49,769,000
150,000
$ 110,366,000
14,031,000
1,412,000
$ 15,443,000
-
-
$ -
-
-
$ -
14,031,000
1,412,000
$ 15,443,000
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
14,031,000
1,412,000
$ 15,443,000
-
-
$ -
-
-
$ -
14,031,000
1,412,000
$ 15,443,000
The following table summarizes the contractual maturities of investment securities at December 31, 2010:
The First Bancorp 2010 Form 10-K ● Page 55
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)
$ -
2,950,000
2,385,000
290,688,000
371,000
$ 296,394,000
$ -
3,099,000
2,404,000
287,346,000
380,000
$ 293,229,000
$ 1,195,000
5,475,000
13,838,000
86,872,000
-
$ 107,380,000
$ 1,203,000
5,749,000
14,435,000
88,979,000
-
$ 110,366,000
The following table summarizes the contractual maturities of investment securities at December 31, 2009:
In thousands of dollars
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
$ -
$ -
18,381,000
18,144,000
3,783,000
3,671,000
59,275,000
59,800,000
399,000
414,000
$ 81,838,000
$ 82,029,000
Securities to be held to maturity
Amortized
Cost
$ 330,000
7,934,000
15,020,000
167,253,000
-
$190,537,000
Fair Value
(Estimated)
$ 335,000
8,245,000
15,591,000
168,667,000
-
$192,838,000
At December 31, 2010, securities with a fair value of $113,023,000 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 $154,034,000, as of December 31, 2009 pledged for the same purpose.
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 2010, 2009 and 2008:
Proceeds from sales
Gross gains
Gross losses
Net gain (loss)
Related income taxes
2010
$ 202,000
2,000
-
$ 2,000
$ 1,000
2009
$ 4,051,000
20,000
(170,000)
$ (150,000)
$ (52,000)
2008
$14,192,000
123,000
(212,000)
$ (89,000)
$ (31,000)
As of December 31, 2010, there were 136 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 value, of which 13 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, 2010 is summarized below:
As of December 31, 2010
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total
Less than 12 months
12 months or more
Fair
Value
Fair
Value
Unrealized
Losses
$ - $ - $ -
5,348,000
1,355,000
866,000
56,000
$205,280,000 $(4,961,000) $7,625,000
160,767,000
44,513,000
-
-
(2,654,000)
(2,307,000)
-
-
Unrealized
Losses
Fair
Unrealized
Value
Losses
$ - $ - $ -
(2,880,000)
(2,714,000)
(247,000)
(10,000)
$(890,000) $212,905,000 $(5,851,000)
(226,000) 166,115,000
45,868,000
(407,000)
866,000
(247,000)
56,000
(10,000)
The First Bancorp 2010 Form 10-K ● Page 56
During the first quarter of 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. 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
Total
Less than 12 months
12 months or more
Fair
Value
Fair
Value
Unrealized
Losses
$19,999,000 $ (707,000) $ -
-
1,350,000
818,000
44,000
$76,904,000 $(1,456,000) $2,212,000
47,509,000
9,396,000
-
-
(602,000)
(147,000)
-
-
Unrealized
Losses
Fair
Unrealized
Losses
Value
$ - $19,999,000 $ (707,000)
(602,000)
47,509,000
(485,000)
10,746,000
(302,000)
818,000
(21,000)
44,000
$(661,000) $79,116,000 $(2,117,000)
-
(338,000)
(302,000)
(21,000)
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
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, 2010 and 2009, 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.
For the year ended December 31, 2010, FHLB‟s net income was $106.6 million, compared with a net loss of
$186.8 million for 2009. Although the Company had no dividend income on its FHLB stock in 2010, in February 2011
FHLB‟s board of directors declared a dividend equal to an annual yield of 0.30 percent, based on average stock
outstanding for the fourth quarter of 2010, to be paid on March 2, 2011. FHLB‟s board of directors anticipates that it
will continue to declare modest cash dividends through 2011, but cautioned that adverse events such as a negative trend
in credit losses on the FHLB‟s private-label mortgage-backed securities or mortgage portfolio, a meaningful decline in
income, or regulatory disapproval could lead to reconsideration of this plan.
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, 2010. The Bank will continue to monitor its investment in FHLB stock.
Note 4. Loan Servicing
At December 31, 2010 and 2009, the Bank serviced loans for others totaling $248,872,000 and $223,837,000,
respectively. Net gains from the sale of loans totaled $977,000 in 2010, $962,000 in 2009, and $249,000 in 2008. In
2010, mortgage servicing rights of $646,000 were capitalized and amortization for the year totaled $450,000. At
December 31, 2010, mortgage servicing rights had a fair value of $1,684,000. In 2009, mortgage servicing rights of
$1,133,000 were capitalized and amortization for the year totaled $539,000. At December 31, 2009, mortgage servicing
rights had a fair value of $1,422,000. Mortgage servicing rights are included in other assets.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or
“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)
The First Bancorp 2010 Form 10-K ● Page 57
and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of December 31,
2010, the prepayment assumption using the PSA model was 236, which translates into an anticipated prepayment rate of
14.16%. 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
2010
$ 5,732,000
(4,265,000)
(23,000)
$ 1,444,000
2009
$ 5,086,000
(3,814,000)
(73,000)
$ 1,199,000
Note 5. Loans
The following table shows the composition of the Company‟s loan portfolio as of December 31, 2010 and 2009:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
December 31, 2010
December 31, 2009
$ 245,540,000
41,869,000
101,462,000
21,833,000
27.7% $240,178,000
48,714,000
4.7%
114,486,000
11.4%
45,952,000
2.5%
25.2%
5.1%
12.0%
4.8%
337,927,000
15,512,000
105,297,000
18,156,000
38.7%
1.8%
9.9%
2.5%
$ 887,596,000 100.0% $952,492,000 100.0%
367,267,000
17,361,000
94,324,000
24,210,000
38.1%
1.7%
11.9%
2.0%
Loan balances include net deferred loan costs of $1,341,000 in 2010 and $1,352,000 in 2009. Pursuant to collateral
agreements, qualifying first mortgage loans, which were valued at $192,911,000 and $295,119,000 at December 31,
2010 and 2009, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In
addition, commercial, construction and home equity loans totaling $342,893,000 at December 31, 2010 were used to
collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
At December 31, 2010 and 2009, non-accrual loans were $21,175,000 and $18,562,000, respectively. As of
December 31, 2010, 2009 and 2008, interest income which would have been recognized on these loans, if interest had
been accrued, was $1,334,000, $1,297,000, and $489,000, respectively. Loans more than 90 days past due accruing
interest totaled $1,116,000 at December 31, 2010 and $1,176,000 at December 31, 2009. The Company continues to
accrue interest on these loans because it believes collection of principal and interest is reasonably assured.
Loans to directors, officers and employees totaled $40,015,000 at December 31, 2010 and $38,952,000 at
December 31, 2009. 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
2010
$ 25,375,000
934,000
(784,000)
$ 25,525,000
2009
$ 23,896,000
3,820,000
(2,341,000)
$ 25,375,000
The First Bancorp 2010 Form 10-K ● Page 58
Information on the past-due status of loans as of December 31, 2010, is presented in the following table:
30-89 Days
Past Due
90+ Days
Past Due
All
Past Due
Current
Total
90+ Days &
Accruing
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
$ 2,055,000 $ 4,000,000 $ 6,055,000 $239,485,000 $245,540,000 $ -
-
524,000
-
40,812,000
41,869,000
97,022,000 101,462,000
21,833,000
21,833,000
120,000
3,070,000
-
1,057,000
4,440,000
-
937,000
1,370,000
-
4,535,000
104,000
1,564,000
259,000
12,231,000 325,696,000 337,927,000
1,828,000
15,512,000
13,684,000
2,038,000 103,259,000 105,297,000
18,156,000
17,890,000
$11,707,000 $16,208,000 $27,915,000 $859,681,000 $887,596,000
7,696,000
1,724,000
474,000
7,000
266,000
585,000
-
-
7,000
$1,116,000
Information on the past-due status of loans as of December 31, 2009, is presented in the following table:
30-89 Days
Past Due
90+ Days
Past Due
All
Past Due
Current
Total
90+ Days &
Accruing
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
$ 2,985,000 $ 6,458,000 $ 9,443,000 $230,735,000 $240,178,000 $ 391,000
-
97,000
-
48,714,000
48,256,000
3,607,000 110,879,000 114,486,000
45,952,000
45,952,000
-
1,624,000
-
458,000
1,983,000
-
458,000
-
6,299,000
-
549,000
536,000
11,747,000 355,520,000 367,267,000
17,361,000
14,179,000
94,324,000
93,642,000
24,210,000
23,435,000
$11,993,000 $17,901,000 $29,894,000 $922,598,000 $952,492,000
5,448,000
3,182,000
133,000
239,000
3,182,000
682,000
775,000
454,000
-
-
234,000
$1,176,000
Loans are placed on non-accrual status 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 or when principal and interest
is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan
may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in
the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient
to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A
loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action,
including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not
involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current
status in the near future.
The First Bancorp 2010 Form 10-K ● Page 59
Information on nonaccrual loans as of December 31, 2010 and 2009 is presented in the following table:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
As of December 31
2009
2010
$ 5,946,000 $ 6,198,000
458,000
2,638,000
-
937,000
1,753,000
-
8,347,000
3,567,000
519,000
106,000
5,868,000
3,182,000
143,000
75,000
$21,175,000 $18,562,000
Information regarding impaired loans is as follows:
For the years ended December 31,
Average investment in impaired loans
Interest income recognized on impaired loans, all on cash basis
2010
$ 25,836,000
227,000
2009
$ 16,263,000
70,000
2008
$ 6,199,000
24,000
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
2010
$ 25,283,000
(15,773,000)
2009
$ 25,843,000
(13,682,000)
$ 9,510,000
$ 12,161,000
Portion of allowance for loan losses allocated to the impaired loan balance
$ 1,256,000
$ 2,196,000
Impaired loans include restructured loans and loans placed on non-accrual status 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. These 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. If the measure of
an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is
established for the difference.
The First Bancorp 2010 Form 10-K ● Page 60
A breakdown of impaired loans by category as of December 31, 2010, is presented in the following table:
With No Related Allowance
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
With an Allowance Recorded
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Unrecognized
Interest
Income
$ 3,531,000
257,000
1,256,000
-
6,804,000
3,567,000
319,000
39,000
$15,773,000
$ 2,415,000
680,000
497,000
-
5,651,000
-
200,000
67,000
$ 9,510,000
$ 5,946,000
937,000
1,753,000
-
12,455,000
3,567,000
519,000
106,000
$25,283,000
$ 3,531,000
257,000
1,256,000
-
6,804,000
3,567,000
319,000
39,000
$15,773,000
$ 2,415,000
680,000
497,000
-
5,651,000
-
200,000
67,000
$ 9,510,000
$ 5,946,000
937,000
1,753,000
-
12,455,000
3,567,000
519,000
106,000
$25,283,000
$ -
-
-
-
-
-
-
-
$ -
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
$ 1,256,000
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
$1,256,000
$ 3,967,000
271,000
1,484,000
-
7,814,000
2,573,000
196,000
20,000
$16,325,000
$2,925,000
305,000
912,000
-
4,869,000
281,000
87,000
132,000
$9,511,000
$ 232,000
20,000
104,000
-
436,000
134,000
6,000
3,000
$ 935,000
$ 157,000
22,000
60,000
-
134,000
14,000
3,000
9,000
$ 399,000
$6,892,000
576,000
2,396,000
-
$ 389,000
42,000
164,000
-
12,683,000
2,854,000
283,000
152,000
$25,836,000
570,000
148,000
9,000
12,000
$1,334,000
The First Bancorp 2010 Form 10-K ● Page 61
Note 6. Allowance for Loan Losses
The Company provides for loan losses through the establishment of an allowance for loan losses which represents an
estimated reserve for existing losses in the loan portfolio. A systematic methodology is used for determining the
allowance that includes a quarterly review process, risk rating changes, and adjustments to the allowance. The loan
portfolio is classified in eight segments and credit risk is evaluated separately in each segment. The adequacy of the
allowance is evaluated continually based on a review of significant loans, with a particular emphasis on nonaccruing,
past due, and other loans that may require special attention. Other factors evaluated on a continual basis include general
conditions in local and national economies; loan portfolio composition and asset quality indicators; and internal factors
such as changes in underwriting policies, credit administration practices, experience, ability and depth of lending
management, among others. The following table summarizes the composition of the allowance for loan losses, by loan
portfolio segment, as of December 31, 2010 and 2009:
2009
$ 701,000
36,000
987,000
-
271,000
125,000
-
76,000
$ 2,196,000
2010
$ 5,068,000
860,000
2,086,000
19,000
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
$ 1,256,000
As of December 31,
Allowance for Loans Evaluated Individually for Impairment
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Total
Allowance for Loans Evaluated Collectively for Impairment
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Unallocated
Total
Total Allowance for Loan Losses
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Unallocated
Total
976,000
44,000
548,000
579,000
1,880,000
$12,060,000
1,408,000
44,000
670,000
646,000
1,880,000
$13,316,000
$ 5,260,000
1,012,000
2,377,000
19,000
1,198,000
174,000
515,000
717,000
1,854,000
$13,637,000
927,000
49,000
515,000
641,000
1,854,000
$11,441,000
$ 4,986,000
807,000
3,363,000
23,000
$ 4,285,000
771,000
2,376,000
23,000
The First Bancorp 2010 Form 10-K ● Page 62
The allowance consists of four elements: (1) specific reserves for loans evaluated individually for impairment; (2)
general reserves for types or portfolios of loans based on historical loan loss experience, (3) qualitative reserves
judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and
severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies, and
underwriting standards, credit administration practices, and other factors as applicable; and (4) unallocated reserves.
All outstanding loans are considered in evaluating the adequacy of the allowance. A breakdown of the allowance for
loan losses as of December 31, 2010, by loan segment and allowance element, is presented in the following table:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home Equity Line of Credit
Consumer
Unallocated
Specific Reserves
Evaluated
Individually for
Impairment
General Reserves
Based on
Historical Loss
Experience
Reserves for
Qualitative
Factors
Unallocated
Reserves
Total
Reserves
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
-
$1,256,000
$ 2,183,000
370,000
899,000
-
401,000
18,000
72,000
324,000
-
$ 4,267,000
$ 2,885,000
490,000
1,187,000
19,000
$ - $ 5,260,000
1,012,000
2,377,000
19,000
-
-
-
575,000
26,000
476,000
255,000
-
$ 5,913,000
-
-
-
-
1,880,000
1,408,000
44,000
670,000
646,000
1,880,000
$ 1,880,000 $13,316,000
Commercial loans are comprised of three major 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 of 75% based upon current appraisal
information at the time the loan is made. Construction loans comprise a very small portion of the portfolio, and at 44.6%
of capital are well under the regulatory guidance of 100.0% of capital. Construction and non-owner-occupied
commercial real estate loans are at 98.5% of total capital, well under regulatory guidance of 300.0% of capital.
Municipal loans are comprised of loans to municipalities in 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 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. The methodology employs Management‟s judgment as to the level
of losses on existing loans based on our internal review of the loan portfolio, including an analysis of a 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 underlying collateral. The risk rating system has nine levels, defined as follows:
1 Strong
Credits rated "1" are characterized by borrowers fully responsible for the credit with excellent capacity to pay principal
and interest. Loans rated “1” may be secured with acceptable forms of liquid collateral.
2 Above Average
Credits rated “2” are characterized by borrowers that have better than average liquidity, capitalization, earnings and/or
cash flow with a consistent record of solid financial performance.
3 Satisfactory
Credits rated “3” are characterized by borrowers with favorable liquidity, profitability and financial condition with
adequate cash flow to pay debt service.
The First Bancorp 2010 Form 10-K ● Page 63
4 Average
Credits rated “4” are characterized by borrowers that present risk more than 1, 2 and 3 rated loans and merit an ordinary
level of ongoing monitoring. Financial condition is on par or somewhat below industry averages while cash flow is
generally adequate to meet debt service requirements.
5 Watch
Credits rated “5” are characterized by borrowers that warrant greater monitoring due to financial condition or
unresolved and identified risk factors.
6 Other Assets Especially Mentioned (OAEM)
Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit
risk, but not to the point of justifying a classification of substandard. OAEM have potential weaknesses which may, if
not checked or corrected, weaken the asset or inadequately protect the Bank's credit position at some future date.
7 Substandard
Loans in this category are inadequately protected by the current sound worth and paying capacity of the borrower or of
the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank may sustain some
loss if the deficiencies are not corrected.
8 Doubtful
Loans classified "Doubtful" have the same weaknesses as those classified substandard with the added characteristic that
the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly
questionable and improbable. The possibility of loss is high, but because of certain important and reasonably specific
pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is
deferred until its more exact status may be determined.
9 Loss
Loans classified "Loss" are considered uncollectable and of such little value that their continuance as bankable assets is
not warranted.
The following table summarizes the risk ratings for the Company‟s commercial construction, commercial real
estate, commercial other, and municipal loans as of December 31, 2010:
1 Strong
2 Above Average
3 Satisfactory
4 Average
5 Watch
6 OAEM
7 Substandard
8 Doubtful
9 Loss
Total
Municipal
Loans
Commercial
Other
Commercial
Commercial
Real Estate
Construction
$ 48,000 $ -
10,000
4,694,000
22,177,000
6,347,000
3,715,000
4,926,000
-
-
All Risk-
Rated Loans
$ 2,924,000
36,311,000
68,246,000
174,315,000
46,448,000
29,674,000
52,786,000
-
-
$41,869,000 $101,462,000 $21,833,000 $410,704,000
$ 395,000 $ 2,481,000
11,453,000
4,900,000
2,999,000
-
-
-
-
-
20,365,000
42,600,000
107,167,000
27,898,000
19,496,000
27,966,000
-
-
$245,540,000
4,483,000
16,052,000
41,972,000
12,203,000
6,463,000
19,894,000
-
-
Residential loans are comprised of two categories: term loans, which include traditional amortizing home
mortgages, 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. Home
equity loans and lines of credit, are typically written to the same underwriting standards. Consumer loans are primarily
amortizing loans to individuals collateralized by automobiles, pleasure craft and recreation vehicles, with a maximum
loan to value 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.
Residential loans, consumer loans and home equity lines of credit are segregated into homogeneous pools with
similar risk characteristics. Trends and current conditions are analyzed and historical loss experience is adjusted
accordingly. Quantitative and qualitative adjustment factors for these segments are consistent with those for the
commercial and municipal segments. Certain loans in the residential, home equity lines of credit and consumer
segments identified as having the potential for further deterioration are analyzed individually to confirm impairment
status, and to determine the need for a specific reserve, however there is no formal rating system used for these
segments. Consumer loans greater than 120 days past due are generally charged off. Residential loans 90 days or more
past due are placed on non-accrual status unless the loans are both well secured and in the process of collection.
Allowance for loan losses transactions for the years ended December 31, 2010, 2009 and 2008 were as follows:
The First Bancorp 2010 Form 10-K ● Page 64
For the year ended
December 31, 2010
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
For the year ended
December 31, 2009
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Real Estate
Commercial
Construction
Other
Municipal
Residential
Home Equity
Construction Line of Credit
Term
Consumer
Unallocated
Total
$ 4,986,000
4,005,000
4,000
4,275,000
$ 5,260,000
$ 807,000
175,000
-
380,000
$ 1,012,000
$ 3,363,000
1,125,000
69,000
70,000
$ 2,377,000
$ 23,000
-
-
(4,000)
$ 19,000
$ 1,198,000
392,000
4,000
598,000
$ 1,408,000
$ 174,000
2,361,000
-
2,231,000
$ 44,000
$ 515,000 $ 717,000
951,000
219,000
661,000
$ 646,000
8,000
-
163,000
$ 670,000
$1,854,000
-
-
26,000
$1,880,000
$ 13,637,000
9,017,000
296,000
8,400,000
$ 13,316,000
$ 192,000
$ 152,000
$ 291,000
$ -
$ 432,000 $ -
$ 122,000
$ 67,000 $ -
$ 1,256,000
$ 5,068,000
$ 860,000
$ 2,086,000
$ 19,000
$ 976,000
$ 44,000
$ 548,000
$ 579,000
$1,880,000
$ 12,060,000
$245,540,000
$41,869,000 $101,462,000
$21,833,000
$337,927,000
$ 15,512,000
$105,297,000
$18,156,000 $ - $ 887,596,000
$ 5,946,000 $ 937,000 $ 1,753,000 $ - $ 12,456,000
$ 3,567,000 $ 519,000 $ 106,000 $ - $ 25,284,000
$239,594,000 $40,932,000 $ 99,709,000 $21,833,000 $325,471,000
$11,945,000 $104,778,000 $18,050,000 $ - $ 862,312,000
Commercial
Municipal
Residential
Real Estate
Construction
Other
Term
Construction
Home Equity
Line of Credit
Consumer
Unallocated
Total
$ 3,471,000
2,430,000
-
3,945,000
$ 4,986,000
$ 551,000
-
-
256,000
$ 807,000
$ 2,181,000
2,329,000
79,000
3,432,000
$ 3,363,000
$ 20,000
-
-
3,000
$ 23,000
$ 716,000
1,767,000
59,000
2,190,000
$ 1,198,000
$ 41,000
47,000
-
180,000
$ 174,000
$ 482,000
177,000
1,000
209,000
$ 515,000
$ 662,000
826,000
114,000
767,000
$ 717,000
$ 676,000
-
-
1,178,000
$1,854,000
$ 8,800,000
7,576,000
253,000
12,160,000
$ 13,637,000
$ 701,000
$ 36,000
$ 987,000
$ -
$ 271,000
$ 125,000
$ -
$ 76,000 $ -
$ 2,196,000
$ 4,285,000
$ 771,000
$ 2,376,000
$ 23,000
$ 927,000
$ 49,000
$ 515,000
$ 641,000
$1,854,000
$ 11,441,000
$240,178,000
$48,714,000
$114,486,000
$45,952,000
$367,267,000
$17,361,000
$94,324,000
$24,210,000 $ -
$952,492,000
$ 6,198,000
$ 458,000
$ 2,638,000
$ -
$ 13,149,000
$ 3,182,000
$ 143,000 $ 75,000 $ -
$ 25,843,000
$233,980,000
$48,256,000
$111,848,000 $45,952,000 $354,118,000 $14,179,000
$94,181,000 $24,135,000 $ - $926,649,000
The First Bancorp 2010 Form 10-K ● Page 65
For the year ended
December 31, 2008
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance
collectively evaluated for
impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance
collectively evaluated for
impairment
Real Estate
Commercial
Construction
Other
Municipal
Residential
Term
Construction
Home Equity
Line of Credit
Consumer
Unallocated
Total
$ 3,020,000
3,000
-
454,000
$ 3,471,000
$ - $ 1,633,000
1,997,000
32,000
2,513,000
$ 551,000 $ 2,181,000
-
-
551,000
$ 25,000
-
-
(5,000)
$ 20,000
$ 706,000
113,000
5,000
118,000
$ 75,000
-
-
(34,000)
$ 716,000 $ 41,000
$ 491,000
83,000
-
74,000
$ 482,000
$ 606,000
745,000
204,000
597,000
$ 662,000
$244,000 $ 6,800,000
2,941,000
241,000
4,700,000
$676,000 $ 8,800,000
-
-
432,000
$ 947,000
$ - $ 821,000
$ -
$ 142,000 $ -
$ 47,000 $ -
$ - $ 1,957,000
$ 2,524,000
$ 551,000 $ 1,360,000
$ 20,000 $ 574,000 $ 41,000
$ 435,000
$ 662,000
$676,000 $ 6,843,000
$219,057,000
$48,182,000 $118,109,000
$34,832,000 $431,520,000
$26,235,000
$77,206,000
$24,132,000
$ - $979,273,000
$ 7,477,000 $ - $ 2,742,000 $ - $ 2,163,000 $ -
$ 67,000
$ -
$ - $ 12,449,000
$211,580,000
$48,182,000 $115,367,000
$34,832,000 $429,357,000
$26,235,000
$77,139,000
$24,132,000
$ - $966,824,000
The First Bancorp 2010 Form 10-K ● Page 66
A troubled debt restructured (“TDR”) constitutes a restructuring of debt 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, 2010 we had 32 loans with a value of $5.5 million that have been restructured. This compares
to 52 loans with a value of $8.4 million classified as TDRs as of December 31, 2009. As of both dates, all TDRs were
for residential term loans.
Note 7. Premises and Equipment
Premises and equipment are carried at cost and consist of the following:
As of December 31,
Land
Land improvements
Buildings
Equipment
Less accumulated depreciation
2010
$ 4,028,000
686,000
14,764,000
9,961,000
29,439,000
10,459,000
$ 18,980,000
2009
$ 3,556,000
648,000
13,821,000
9,532,000
27,557,000
9,226,000
$ 18,331,000
Note 8. Other Real Estate Owned
The following summarizes other real estate owned:
As of December 31,
Real estate acquired in settlement of loans
2010
2009
$ 4,929,000
$ 5,345,000
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
2010
$ 583,000
(803,000)
352,000
$ 132,000
2009
$ 325,000
(223,000)
481,000
$ 583,000
2008
$ 325,000
-
-
$ 325,000
Note 9. 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”. As of December 31, 2010, in accordance
with Topic 350, the Company completed its annual review of goodwill and determined there has been no impairment.
The Company also carries $125,000 in goodwill for a de minimus transaction in 2001.
The First Bancorp 2010 Form 10-K ● Page 67
Note 10. 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
2010
2009
2008
$ 3,450,000
395,000
3,845,000
233,000
$ 4,078,000
$ 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
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
2010
$ 5,668,000
(1,527,000)
151,000
(345,000)
131,000
$ 4,078,000
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
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, 2010 and 2009 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
2010
2009
$ 4,662,000 $ 4,773,000
204,000
46,000
1,000
-
1,183,000
1,187,000
67,000
1,108,000
321,000
321,000
169,000
56,000
6,718,000
7,380,000
(672,000)
(663,000)
(2,106,000)
(2,138,000)
(420,000)
(506,000)
(500,000)
(401,000)
(10,000)
(1,000)
(114,000)
(204,000)
(3,822,000)
(3,913,000)
$ 3,467,000 $ 2,896,000
At December 31, 2010, 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 for each of the years ended December 31, 2010 and 2009, respectively, and are
recorded as a reduction of income tax expense. Amortization of the investments in the limited partnerships totaled
$300,000 and $275,000 for the years ended December 31, 2010 and 2009, respectively, and is recognized as a
component of income tax expense in the consolidated statements of income. The carrying value of these investments
was $2,412,000 and $2,712,000 at December 31, 2010 and 2009, respectively, and is recorded in other assets. The
Company's total exposure to these limited partnerships was $5,912,000 and $6,212,000, at December 31, 2010 and
The First Bancorp 2010 Form 10-K ● Page 68
2009, 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, 2007 through 2009.
Note 11. Certificates of Deposit
The following table represents the breakdown of Certificates of Deposit at December 31, 2010 and 2009:
Certificates of deposit < $100,000
Certificates $100,000 to $250,000
Certificates $250,000 and over
December 31, 2010
December 31, 2009
$ 231,945,000
338,452,000
37,792,000
$ 608,189,000
$ 212,893,000
287,051,000
56,153,000
$ 556,097,000
At December 31, 2010, the scheduled maturities of certificates of deposit are as follows:
Year of
Maturity
2011
2012
2013
2014
2015
Less than
$100,000
$ 96,632,000
27,244,000
19,413,000
27,933,000
60,723,000
$ 231,945,000
Greater than
$100,000
$ 277,499,000
15,944,000
22,663,000
19,958,000
40,180,000
$ 376,244,000
All Certificates of
Deposit
$ 374,131,000
43,188,000
42,076,000
47,891,000
100,903,000
$ 608,189,000
Interest on certificates of deposit of $100,000 or more was $3,724,000, $3,901,000, and $6,905,000 in 2010, 2009
and 2008, respectively.
Note 12. 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, 2010,
the Bank‟s total FHLB borrowing capacity, based on its holding of FHLB stock, was $266,889,000 of which
$68,288,000 was unused and available for additional borrowings. All FHLB advances as of December 31, 2010, 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 $116,130,000 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, 2010 and 2009 have the following range of interest rates and maturity dates:
The First Bancorp 2010 Form 10-K ● Page 69
As of December 31, 2010
Federal Home Loan Bank Advances
2011
2012
2013
2014
2015
2016 and thereafter
Treasury Tax & Loan Notes (rate at December 31, 2010 was 0.00%)
Repurchase agreements
Municipal and commercial customers
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
Note 13. Employee Benefit Plans
0.23% - 0.52%
4.39%
3.49%
2.73% - 3.89%
2.03% - 2.98%
0.00% - 3.69%
variable
0.65% - 2.34%
$ 68,441,000
10,000,000
10,000,000
20,000,000
40,000,000
50,170,000
198,611,000
1,427,000
57,292,000
$257,330,000
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
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 2010, 2009, and 2008. The
expense related to the 401(k) plan was $362,000, $365,000, and $356,000 in 2010, 2009, and 2008, 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 post-retirement 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 $230,000 in
2010, $214,000 in 2009, and $164,000 in 2008. As of December 31, 2010 and 2009, the accrued liability of these plans
was $1,596,000 and $1,418,000, 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 post-retirement plan (other than a multiemployer
The First Bancorp 2010 Form 10-K ● Page 70
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 post-retirement 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
2010
2009
2008
$ 1,962,000
15,000
117,000
(136,000)
(162,000)
$ 1,796,000
$ 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
$(1,796,000)
$(1,796,000)
$(1,962,000) $(1,990,000)
$(1,962,000) $(1,990,000)
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
2010
2009
2008
$ 15,000
117,000
29,000
-
22,000
$ 183,000
$ 21,000
134,000
29,000
(1,000)
24,000
$ 207,000
$ 19,000
134,000
29,000
(3,000)
21,000
$ 200,000
6.5%
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 2011 is $147,000. For years ending 2012 through 2015 the estimated amount of
benefits to be paid is $149,000, $150,000, $158,000 and $166,000 respectively, and the total estimated amount of
benefits to be paid for years ended 2016 through 2020 is $810,000. Plan expense for 2011 is estimated to be $165,000.
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 (loss) are as follows:
At December 31,
Unamortized net actuarial loss
Unrecognized transition obligation
Deferred tax benefit at 35%
Net unrecognized post-retirement benefits included in
accumulated other comprehensive income (loss)
2010
$ (49,000)
(63,000)
(112,000)
39,000
2009
$ (233,000)
(92,000)
(325,000)
114,000
Portion to Be
Recognized in
Income in 2011
$ -
29,000
29,000
(10,000)
$ (73,000)
$(211,000)
$ 19,000
The First Bancorp 2010 Form 10-K ● Page 71
Note 14. Preferred and Common Stock
Preferred Stock
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.
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.
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. Fractional shares totaling five shares were
repurchased from employee benefit plans in 2010.
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
The First Bancorp 2010 Form 10-K ● Page 72
aside for these plans was increased by the Board of Directors from 480,000 to 700,000. As of December 31, 2010,
497,185 shares had been issued pursuant to these plans, leaving 202,815 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
12,334 in 2010, 21,469 shares in 2009, and 17,425 shares in 2008.
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, 2010, 172,137 shares have been issued, leaving
427,863 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 16,520 shares in 2010,
21,229 shares in 2009, and 22,243 shares in 2008.
Note 15. Stock Options and Stock-Based Compensation
At the 2010 Annual Meeting, shareholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). This reserves
400,000 shares of Common Stock for issuance in connection with stock options, restricted stock awards and other
equity based awards to attract and retain the best available personnel, provide additional incentive to officers,
employees and non-employee Directors and promote the success of our business. Such grants and awards will be
structured in a manner that does not encourage the recipients to expose the Company to undue or inappropriate risk.
Options issued under the 2010 Plan will qualify for treatment as incentive stock options for purposes of Section 422 of
the Internal Revenue Code. Other compensation under the 2010 Plan will qualify as performance-based for purposes of
Section 162(m) of the Internal Revenue Code, and will satisfy NASDAQ guidelines relating to equity compensation. As
of December 31, 2010, no awards had been granted under the 2010 Plan.
The Company established a shareholder-approved stock option plan in 1995 (the “1995 Plan”), under which the
Company granted options to employees for 600,000 shares of common stock. Only incentive stock options were granted
under the 1995 Plan. The option price of each option grant was determined by the Options Committee of the Board of
Directors, and in no instance was less than the fair market value on the date of the grant. An option‟s maximum term
was 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 the 1995 Plan had been
granted.
The Company applies the fair value recognition provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 718 “Compensation – Stock Compensation”, to stock-
based employee compensation. For the year ended December 31, 2010, $37,000 in compensation cost was recognized
for options granted under the 1995 Plan, which is for 42,000 options granted in 2005. The weighted average fair value
per option was $4.41 at the time of grant. 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, the options‟ maximum term. 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 non-vested options as of December 31, 2010:
Number of
Shares
Weighted Average
Grant Date Fair Value
Non-vested at December 31, 2009
Granted in 2010
Vested in 2010
Forfeited in 2010
Non-vested at December 31, 2010
21,000
-
(21,000)
-
-
$4.41
-
4.41
-
$ -
During 2010, no options have been exercised. A summary of the status of the Stock Option Plan as of December
31, 2010 and changes during the year then ended, is presented below.
The First Bancorp 2010 Form 10-K ● Page 73
Number of
Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
Outstanding at December 31, 2009
Granted in 2010
Exercised in 2010
Forfeited in 2010
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Note 16. Earnings Per Share
55,500
-
-
-
55,500
55,500
$15.89
-
-
-
$15.89
$15.89
3.8
3.8
$51
$51
The following table provides detail for basic earnings per share (EPS) and diluted earnings per share for the years ended
December 31, 2010, 2009 and 2008:
For the year ended December 31, 2010
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, 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
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$ 12,116,000
1,348,000
10,768,000
9,760,760
4,726
$ 1.10
$ 10,768,000
9,765,486
$ 1.10
$ 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
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. The following table presents the number of options and warrants outstanding as of December 31, 2010, 2009
and 2008 and the amount which are above or below the strike price:
The First Bancorp 2010 Form 10-K ● Page 74
Outstanding
In-the-Money
Out-of-the-Money
As of December 31, 2010
Incentive stock options
Warrants issued to U.S. Treasury
Total dilutive securities
As of December 31, 2009
Incentive stock options
Warrants issued to U.S. Treasury
Total dilutive securities
As of December 31, 2008
Incentive stock options
Total dilutive securities
55,500
225,904
281,404
55,500
225,904
281,404
76,500
76,500
Note 17. Regulatory Capital Requirements
13,500
-
13,500
13,500
-
13,500
76,500
76,500
42,000
225,904
267,904
42,000
225,904
267,904
-
-
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 2011 will be 2011
earnings plus retained earnings of $8,074,000 from 2010 and 2009.
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, 2010, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2010, 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:
The First Bancorp 2010 Form 10-K ● Page 75
As of December 31, 2010
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$132,530,000
16.11%
$122,210,000
14.86%
$122,210,000
9.03%
$129,338,000
14.88%
$118,437,000
13.62%
$118,437,000
9.19%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$65,799,000
8.00%
$32,900,000
4.00%
$54,117,000
4.00%
$69,553,000
8.00%
$34,776,000
4.00%
$51,559,000
4.00%
$82,249,000
10.00%
$49,349,000
6.00%
$67,646,000
5.00%
$86,941,000
10.00%
$52,165,000
6.00%
$64,449,000
5.00%
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, 2010
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$133,473,000
16.23%
$123,153,000
14.97%
$123,153,000
9.30%
$130,031,000
14.96%
$119,130,000
13.70%
$119,130,000
9.44%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$65,799,000
8.00%
$32,900,000
4.00%
$52,963,000
4.00%
$69,557,000
8.00%
$34,778,000
4.00%
$50,461,000
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
Note 18. 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 2010, 2009 or 2008.
The First Bancorp 2010 Form 10-K ● Page 76
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, 2010 and 2009, 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
2010
$ 62,765,000
50,179,000
2,792,000
9,222,000
$124,958,000
2009
$ 58,751,000
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.
Note 19. 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
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.
The First Bancorp 2010 Form 10-K ● Page 77
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, 2010 and 2009.
Level 1
At December 31, 2010
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
$ -
-
-
-
-
$ 16,045,000
234,414,000
41,524,000
866.000
380,000
$ - $ 293,229,000 $ - $ 293,229,000
$ 16,045,000 $ -
-
234,414,000
-
41,524,000
-
866.000
-
380,000
Securities available for sale
U.S. Treasury and agency
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Level 1
$ -
-
-
-
-
$ -
At December 31, 2009
Level 2
Level 3
Total
$30,959,000
31,148,000
18,514,000
818,000
399,000
$81,838,000
$ -
-
-
-
-
$ -
$30,959,000
31,148,000
18,514,000
818,000
399,000
$81,838,000
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 or the present value of future cashflows. 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 following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2010, 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 $132,000. Impaired loans are presented net of their related specific
allowance for loan losses of $1,256,000.
The First Bancorp 2010 Form 10-K ● Page 78
Level 1
At December 31, 2010
Level 2
Level 3
Total
Mortgage servicing rights $ - $ 1,684,000 $ - $ 1,684,000
2,806,000
Loans held for sale
4,929,000
Other real estate owned
8,254,000
Impaired loans
$ 17,673,000
Total Assets
-
-
-
$ 17,673,000 $ -
-
-
-
$ -
2,806,000
4,929,000
8,254,000
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 $ - $ 1,422,000 $ - $ 1,422,000
2,876,000
Loans held for sale
5,345,000
Other real estate owned
Impaired loans
9,965,000
$ 19,608,000
Total Assets
-
-
-
$ 19,608,000 $ -
-
-
-
$ -
2,876,000
5,345,000
9,965,000
FASB ASC Topic 825 “Financial Instruments” 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 825 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 estimated fair values for financial instruments as of December 31, 2010 and 2009 were as follows:
Financial assets
Cash and cash equivalents
Time deposits in other banks
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, 2010
Carrying
amount
Estimated
fair value
December 31, 2009
Carrying
amount
Estimated
fair value
$ 13,838,000
100,000
293,229,000
107,380,000
15,443,000
2,806,000
874,280,000
9,842,000
5,263,000
$ 13,838,000
100,000
293,229,000
110,366,000
$ 15,332,000
-
81,838,000
190,537,000
$ 15,332,000
-
81,838,000
192,838,000
15,443,000
2,806,000
878,856,000
9,842,000
5,263,000
15,443,000
2,876,000
938,855,000
9,492,000
4,889,000
15,443,000
2,876,000
938,095,000
9,492,000
4,889,000
$ 974,518,000
257,330,000
926,000
$ 924,903,000
262,984,000
926,000
$922,667,000
249,778,000
1,078,000
$877,883,000
255,292,000
1,078,000
The First Bancorp 2010 Form 10-K ● Page 79
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.
Loans Held for Sale
The carrying value approximates fair value because the sale price of the loans has been contracted.
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.
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
The First Bancorp 2010 Form 10-K ● Page 80
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 20. 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 and debit card income
Gain on sale of merchant credit card processing portfolio
Other operating expense
Merchant credit card processing fees
Advertising and marketing expense
Collections/foreclosures/other real estate owned expense
Note 21. Legal Contingencies
2010
2009
2008
$ - $ 2,289,000 $ 2,433,000
1,156,000
-
1,184,000
1,402,000
1,394,000
-
$ -
688,000
1,355,000
$ 2,214,000
-
-
$ 2,358,000
-
-
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 22. Reclassifications
Certain items from prior years 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 2010 Form 10-K ● Page 81
Note 23. 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
Premises and Equipment
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 taxes of $3,000 in 2010 and tax benefit of $5,000 in 2009
Net unrealized loss on post-retirement benefit costs, net
of tax benefit of $39,000 in 2010 and $114,000 in 2009
Total accumulated other comprehensive loss
Total shareholders‟ equity
Total liabilities and shareholders’ equity
2010
2009
$ 642,000
1,900,000
285,000
121,346,000
10,000
27,559,000
15,000
$ 313,000
1,900,000
260,000
119,786,000
-
27,559,000
20,000
$ 151,757,000 $ 149,838,000
$ 1,906,000 $ 1,900,000
-
1,900,000
3,000
1,909,000
24,705,000
98,000
45,474,000
79,638,000
24,606,000
97,000
45,121,000
78,335,000
6,000
(10,000)
(73,000)
(67,000)
149,848,000
(211,000)
(221,000)
147,938,000
$ 151,757,000 $ 149,838,000
Statements of Income
For the years ended December 31,
Investment income
Other expense
Loss before Bank earnings
Equity in earnings of Bank
Remitted
Unremitted
Net income
2010
$ 10,000
113,000
(103,000)
2009
$ 10,000
152,000
(142,000)
2008
$ 11,000
136,000
(125,000)
8,850,000
3,369,000
$ 12,116,000
8,404,000
4,780,000
$ 13,042,000
7,281,000
6,878,000
$ 14,034,000
The First Bancorp 2010 Form 10-K ● Page 82
Statements of Cash Flows
2009
$ 13,042,000
2010
$ 12,116,000
-
-
37,000
(1,000)
5,000
(3,369,000)
8,788,000
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
Unremitted earnings of Bank
Net cash provided by operating activities
Cash flows from investing activities:
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
-
-
-
416,000
(8,865,000)
(8,449,000)
329,000
313,000
$ 642,000
(10,000)
(10,000)
-
-
-
37,000
38,000
(41,000)
(4,780,000)
8,296,000
(120,000)
(25,000,000)
-
(25,120,000)
-
25,000,000
(263,000)
836,000
(8,649,000)
16,924,000
100,000
213,000
$ 313,000
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
The First Bancorp 2010 Form 10-K ● Page 83
Note 24. New Accounting Pronouncements
In June 2009, FASB issued guidance (incorporated in the FASB ASC via Accounting Standards Update (“ASU”) 2009-
16, Transfers and Servicing: Accounting for Transfers of Financial Assets, in December 2009) which provides amended
guidance relating to transfers of financial assets that eliminates the concept of a qualifying special-purpose entity. This
guidance must be applied as of the beginning of each reporting entity‟s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting
periods thereafter. This guidance must be applied to transfers occurring on or after its effective date. On and after the
effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on
and after the effective date in accordance with the applicable consolidation guidance. The new guidance also changed
the requirements which must be satisfied in order for an entity to treat a loan participation as a sale. The disclosure
provisions were also amended and apply to transfers that occurred both before and after the effective date of this
guidance. The adoption of this update did not have a significant impact on the Company‟s consolidated financial
statements.
In June 2009, the FASB issued guidance (incorporated in the FASB ASC via ASU 2009-17, Consolidations:
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, in December 2009) which
provides amended guidance for consolidation of a variable interest entity by replacing the quantitative-based risks and
rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest
entity. The amended guidance uses an approach that focuses on identifying which enterprise has the power to direct the
activities of a variable interest entity that most significantly impact the entity‟s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about
an enterprise‟s involvement in variable interest entities are also required. This guidance is effective as of the beginning
of each reporting entity‟s first annual reporting period that begins after November 15, 2009, for interim periods within
that first annual reporting period, and for interim and annual reporting periods thereafter. The adoption of this update
did not have a significant impact on the Company‟s consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements, to amend the disclosure requirements related to recurring and nonrecurring
fair value measurements. The guidance requires new disclosures regarding transfers of assets and liabilities between
Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable
inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the
guidance requires a rollforward of activities, separately reporting purchases, sales, issuance, and settlements, for assets
and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance is
effective for annual reporting periods that begin after December 15, 2009, and for interim periods within those annual
reporting periods except for the changes to the disclosure of rollforward activities for any Level 3 fair value
measurements, which are effective for annual reporting periods that begin after December 15, 2010, and for interim
periods within those annual reporting periods. Other than requiring additional disclosures, adoption of this new
guidance did not have a material impact on the Company‟s consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to Certain Recognition and
Disclosure Requirements, related to events that occur after the balance sheet date but before financial statements are
issued. This guidance amends existing standards to address potential conflicts with Securities and Exchange
Commission (“SEC”) guidance and refines the scope of the reissuance disclosure requirements to include revised
financial statements only. Under this guidance, SEC registrants or filers with the SEC are no longer required to disclose
the date through which subsequent events have been evaluated. The adoption of this update did not have a material
effect on the Company‟s consolidated financial statements.
In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. This ASU is intended to provide additional information to
assist financial statement users in assessing an entity‟s credit risk exposures and evaluating the adequacy of its
allowance for credit losses. The guidance is effective for interim and annual reporting periods ending after December
15, 2010. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on
the Company‟s consolidated financial statements.
The First Bancorp 2010 Form 10-K ● Page 84
Note 25. Quarterly Information
The following tables provide unaudited financial information by quarter for each of the past two years:
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
Basic earnings per
share
Diluted earnings per
share
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
$ 15,815 $ 18,575 $ 23,921 $ 15,332 $ 11,731 $ 22,219 $ 13,880 $ 13,838
400,609
309,106
272,375
353,416
283,599
250,359
279,141
296,465
14,693
963,817
79,052
14,693
973,746
79,373
15,443
941,730
86,514
14,693
982,158
76,728
15,443
877,086
86,826
$1,398,500 $1,369,986 $1,331,842 $1,331,394 $1,336,544 $1,326,275 $1,374,624 $1,393,802
$ 987,440 $ 913,949 $ 960,072 $ 922,667 $ 939,180 $ 949,501 $ 986,932 $ 974,518
257,330
12,106
149,848
254,124
12,336
144,600
249,778
11,011
147,938
297,361
12,478
146,198
222,672
12,790
152,230
213,944
12,385
150,445
213,061
11,095
147,614
236,913
11,909
148,542
15,443
905,324
86,561
15,443
924,877
88,028
15,443
921,271
88,201
$1,398,500 $1,369,986 $1,331,842 $1,331,394 $1,336,544 $1,326,275 $1,374,624 $1,393,802
$ 16,618 $ 16,251 $ 15,224 $ 14,476 $ 14,133 $ 14,215 $ 14,570 $ 14,342
3,984
10,358
5,545
11,073
4,148
10,328
4,317
10,253
4,814
11,437
4,112
10,021
4,409
10,815
4,258
9,957
1,650
2,950
3,060
4,500
2,400
2,100
1,800
2,100
9,423
2,586
6,787
5,222
1,494
8,258
2,611
6,725
4,144
1,067
$ 3,728 $ 3,762 $ 2,890 $ 2,662 $ 2,684 $ 3,160 $ 3,195 $ 3,077
5,828
4,228
6,765
3,291
629
8,487
2,963
6,234
5,216
1,454
7,857
2,282
5,895
4,244
1,084
7,621
2,175
6,282
3,514
830
8,453
2,067
6,228
4,292
1,097
7,755
2,977
6,872
3,860
970
150
337
337
337
337
337
337
337
$ 3,578 $ 3,425 $ 2,553 $ 2,325 $ 2,347 $ 2,823 $ 2,858 $ 2,740
$ 0.37 $ 0.35 $ 0.26
$ 0.24 $ 0.24 $ 0.29 $ 0.29 $ 0.28
$ 0.37 $ 0.35 $ 0.26
$ 0.24 $ 0.24 $ 0.29 $ 0.29 $ 0.28
The First Bancorp 2010 Form 10-K ● Page 85
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, 2010 and 2009, 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, 2010. We have also audited The First Bancorp,
Inc.‟s internal control over financial reporting as of December 31, 2010, 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, 2010 and 2009, and the consolidated
results of their operations and their consolidated cash flows for each of the three years in the period ended December 31,
2010, 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, 2010, based on criteria established in COSO.
Portland, Maine
March 11, 2011
The First Bancorp 2010 Form 10-K ● Page 86
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, 2010,
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, 2010 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, 2010. 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, 2010, 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 precedes this report.
Daniel R. Daigneault, President and Director
(Principal Executive Officer)
March 11, 2011
F. Stephen Ward , Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 11, 2011
The First Bancorp 2010 Form 10-K ● Page 87
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 27, 2011 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 27, 2011 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 27, 2011 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 27, 2011 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 27, 2011 and is incorporated herein by reference.
The First Bancorp 2010 Form 10-K ● Page 88
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
Exhibit 101.INS XBRL Instance Document
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.DEF XBRL Taxonomy Extension Definitions Linkbase Document
The First Bancorp 2010 Form 10-K ● Page 89
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 11, 2011
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 11, 2011
F. Stephen Ward, Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 11, 2011
Stuart G. Smith, Director and Chairman of the Board
March 11, 2011
Katherine M. Boyd, Director
March 11, 2011
Carl S. Poole, Jr., Director
March 11, 2011
Robert B. Gregory, Director
March 11, 2011
Mark N. Rosborough, Director
March 11, 2011
Tony C. McKim, Director
March 11, 2011
David B. Soule, Jr., Director
March 11, 2011
Bruce A. Tindal, Director
March 11, 2011
The First Bancorp 2010 Form 10-K ● Page 90
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 fourth quarter of 2010 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:
(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 11, 2011
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp 2010 Form 10-K ● Page 91
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 fourth quarter of 2010 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:
(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 11, 2011
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2010 Form 10-K ● Page 92
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, 2010 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 11, 2011
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, 2010 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 11, 2011
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2010 Form 10-K ● Page 93
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 First Bancorp, Inc.‟s 2010 fiscal year (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 2010 Form 10-K ● Page 94
(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 11, 2011
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp 2010 Form 10-K ● Page 95
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 First Bancorp, Inc.‟s 2010 fiscal year (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 2010 Form 10-K ● Page 96
(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 11, 2011
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp 2010 Form 10-K ● Page 97
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 2010 and 2009.
Such quotations do not reflect retail mark-ups, mark-
downs or brokers‟ commissions.
2010
2009
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low
High
Low
High
$16.26 $13.11 $20.29 $10.77
14.49
16.37
17.29
14.48
14.65
16.00
13.07
12.27
13.40
21.80
20.50
19.00
The last known transaction of the Company‟s stock
during 2010 was on December 31 at $15.79 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 18, 2009
June 18, 2009
September 17, 2009
December 17, 2009
March 18, 2010
June 17, 2010
September 16, 2010
December 16, 2010
Amount
Per Share
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Date
Payable
April 30, 2009
July 31, 2009
October 30, 2009
January 29, 2010
April 30, 2010
July 30, 2010
October 29, 2010
January 28, 2011
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 27, 2011 at
11:00 a.m. at Point Lookout, 67 Atlantic Highway,
Northport, Maine 04849.
Number of Shareholders
The number of shareholders of record as of
February 16, 2011 was approximately 3,646.
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 2011 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 LLP, Attorneys
One Monument Square
Portland, Maine 04101
Photography Credits
All photographs contained in this report are
copyright of the following photographers:
Cover: Rose at Pemaquid Point,
J. Kevin White Photography
CEO Letter: Benjamin Magro
The First Bancorp 2010 Form 10-K ● Page 98
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