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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
Tangible Book Value
Market Value
Financial Ratios
Return on Average Equity1
Return on Average Tangible Equity1,2
Return on Average Assets1
Average Equity to Average Assets
Average Tangible Equity to Average Assets2
Net Interest Margin Tax-Equivalent1,2
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio2 (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2011
Years ended December 31,
2010
2009
2008
$ 55,702 $ 57,260
16,671
40,589
8,400
9,135
25,130
12,116
14,709
40,993
10,550
11,750
26,038
12,364
$ 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
2007
$ 71,721
39,885
31,836
1,432
10,145
22,183
13,101
$ 1.14
1.14
0.780
14.12
11.30
15.37
$ 1.10
1.10
0.780
12.80
9.97
15.79
$ 1.22
1.22
0.780
12.66
9.82
15.42
$ 1.45
1.44
0.765
12.09
9.23
19.89
$ 1.34
1.34
0.690
11.58
8.73
14.64
9.37%
10.70
0.87
10.72
8.77
3.27
68.42
1.50
3.21
2.32
49.75
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
864,988
424,306
941,333
265,663
150,858
$1,372,867 $1,393,802 $1,331,394 $1,325,744 $1,223,250
920,164
208,585
781,280
316,719
112,453
Low
$11.69
979,273
247,839
925,736
272,074
117,181
High
$15.96
887,596
416,052
974,518
257,330
149,848
952,492
287,818
922,667
249,778
147,938
Market price per common share of stock during 2011
1Annualized using a 365-day basis
2These ratios use non-GAAP financial measures. See Management’s Discussion and Analysis of Financial
Condition and Results of Operations for additional disclosures and information.
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Dear First Bancorp Shareholders:
As I prepared my remarks for this year’s annual
report, I reflected on comments I made in my
last three annual shareholder letters. It is eerie
how many of the issues noted in each of the last
three years persisted in 2011 and are still present
as we enter 2012.
In 2008, the second year of the official reces-
sion, the impact of the weakened economy and
deteriorating real estate market started to hit
home for the Company as the number of delin-
quent loans started to increase and the level of
loan losses spiked dramatically from prior years
to $2.7 million. The Federal Reserve Open Mar-
ket Committee (FOMC) drastically reduced the
Federal Funds Target Rate to 0.25% by year-end
2008 which was, at that time, its lowest point
since 1955.
Today, three years later, interest rates remain
at very low levels, and per recent FOMC state-
ments, these unprecedented low interest rates are
expected to be in place until the end of 2014 –
three years from now. These low rates reflect the
continued weak economy and the expectation
of little improvement in the foreseeable future.
The drivers of the weak economy are the poor
real estate market as well as continued weakness
in manufacturing and consumer spending. All
of these factors have an impact on the State of
Maine economy and the communities served by
The First.
The Accelerant
If 2008 was the beginning of the economic
downturn, 2009 was the accelerant. This was
the most challenging year for the United States
economy since the Great Depression. Unem-
ployment increased to 10.2%, its highest level
since 1983 – reflecting the loss of 8.5 million
jobs. The housing market continued to weaken
throughout the United States, with unit sales de-
clining and values dropping up to 50% in certain
markets. Small businesses experienced a decrease
in sales, impacting their financial performance
and their ability to survive the recession.
As 2011 ended, many of the concerns of 2009
remained, and for a number of businesses and in-
dividuals, apprehension increased. The housing
market continued its decline in 2011, with values
decreasing once again, housing starts showing
no significant improvement, and unit sales, other
than foreclosed properties, remained at anemic
levels.
Another big impact on the health of the econ-
omy has been continued weak revenue numbers
for most businesses. For many of them, sales re-
main well below pre-recession levels and their
ability to downsize and operate at reduced rev-
enue levels diminished as financial resources were
exhausted over this four-year period. Unfortu-
nately, for a number of businesses, this resulted
in failure. The failure and closing of a business
not only impacts its owners and the bank that has
loaned to the business, but also its employees, its
vendors and its customers. It results in a no-win
situation for all involved.
One economic indicator that has improved in
between 2009 and 2011 is the unemployment
rate. It peaked at 10.2% and has declined to 8.5%
as of year-end 2011. This historically high level is
still too elevated to sustain an improved economy
and lead to a real recovery. The improvement in
the unemployment picture and the creation of
1
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Earnings Per Share
net new jobs over the past few months is some-
what encouraging and is going in the right direc-
tion, but the number of new jobs created needs
to accelerate each month in order to reduce the
unemployment rate to the 5.0% range.
Green Shoots
2007
2008
1.50
1.20
0.90
0.60
0.30
0.00
In 2010, the economy appeared to show some
signs of improvement, but the continued weak
housing market and further reduction in real es-
tate values greatly hampered the recovery. Con-
sumer spending improved slightly
and the auto industry showed
positive momentum. However, a
sustained recovery is very much
dependent on the housing market.
For The First Bancorp, 2010’s per-
formance reflected increased loan
losses from failed businesses and
real estate development projects.
The Bank also experienced increas-
es in defaults on residential loans,
which resulted in a spike of foreclosures. As we
entered 2011, I was optimistic that, after four
years, we would see some positive rebound and
recovery. I felt at the time, however, that the real
estate market would have to lead the economy as
measured by housing starts, unit sales and most
importantly real estate valuations. Unfortunately,
2011 did not bring the positive changes we all
hoped for. Housing starts remained flat for the
year, well below pre-recession levels and much
too low to sustain any type of true real estate
market recovery. Home prices continued their
decline as well, although not as dramatic as in
prior years. The inability of the real estate mar-
ket to reach a bottom and show some signs of
rebounding will continue to haunt the economy.
Many economists believe that at some point in
2012, we will finally be at the bottom.
As was the case for the past four years, the
weak economy, especially the issues with the
real estate market, continued to impact the per-
formance of The First. Loan demand remained
low, loan quality issues resulted in higher loan
losses and an increase in the provision to cover
these losses, while the low interest rate environ-
ment negatively affected our net interest margin.
Despite the challenges and the impact from the
weak economy, however, The First Bancorp had
a relatively good year with increased earnings,
strong capital ratios, excellent growth in core de-
posits, growth in our investment portfolio and a
continued strong efficiency ratio.
Earnings
Net income of $12,364,000 represented a mod-
est gain of $248,000 over the $12,116,000
earned in 2010. Earnings per share of $1.14 rep-
resented a 3.6% increase over the $1.10 earned
in 2010. One of the primary contributors to this
earnings increase was a $404,000
improvement in net interest in-
come, attributable to average earn-
ing assets in 2011 running $68.0
million above the level in 2010,
adding $2.2 million to net inter-
est income. This increase was off-
set somewhat by a reduction in our
net interest margin from 3.38% to
3.27% in 2011. This margin com-
pression was due to the continued
low interest rates, which decreased the yield on
earning assets more rapidly than we had the abil-
ity to reduce our interest costs. In order to offset
this margin compression, the Bank successfully
added to the investment portfolio. Another criti-
cal component of our earnings performance is
our ability to operate with a relatively low cost
structure. Through the effective use of technol-
ogy, a flat corporate structure and an excellent
core group of experienced and highly productive
employees, we have one of the best efficiency ra-
tios of all banks in the United States.
2011
2010
Loan Portfolio
Total loans declined by $22.6 million or 2.5% in
2011 from year-end 2010. The largest declines
were $13.9 million in the commercial portfolio
and $5.6 million in loans to local municipali-
ties. The commercial portfolio decrease reflected
loan losses, pay downs of operating lines by lo-
cal businesses and an overall reduction in debt.
With decreased revenues and lack of growth op-
portunities, local businesses are not looking to
increase their debt levels. Loan demand is driven
by business expansion and the creation of new
businesses. In this economy, neither is happen-
ing, especially in the State of Maine. With mini-
mal loan demand, it is difficult to offset loan pay
2009
2
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downs, which results in reduced levels of loans
outstanding. The residential and consumer port-
folios showed a modest $2.1 million decline as
borrowers refinanced to take advantage of lower
rates but with little new loan activity.
Loan Quality
As previously mentioned, the continued weak
real estate market, a decline in revenues, a high
unemployment rate and decreased wages for a
number of people have impacted the ability of
many small businesses to meet their financial
obligations. As a result, the level of loan charge
offs for 2011 was $10.9 million, up $2.2 mil-
lion from the 2010 loan losses of $8.7 million.
The losses recognized were on larger loans,
which contributed to the higher dollar total. To
cover these losses we provisioned $10.6 million,
resulting in the Allowance for Loan Losses as a
percentage of loans outstanding remaining un-
changed at 1.50%. For most of 2011, however,
delinquencies were level or slightly below 2010.
The Company was also successful in disposing
of numerous foreclosed properties during 2011.
We continue to work vigilantly with borrowers
to resolve problem loan issues whenever possi-
ble. The number of loan modifica-
tions and restructuring of business
loans that we have done has helped
a number of borrowers and in the
long run, will result in lower loan
loss levels and will preserve jobs in
our communities.
Municipal
31%
Investment Portfolio
With limited loan demand and
the sale of mortgage loans to the
secondary market, the Company’s investment
portfolio has become increasingly important to
our overall operating results. Over the past five
years, the investment portfolio has more than
doubled, up $252.0 million from $172.3 mil-
lion as of December 31, 2006 to $424.3 million
on December 31, 2011. In comparison, during
the same period the loan portfolio showed an in-
crease of only 3.2% or $26.8 million. In 2011,
the investment portfolio earned $18.2 million on
a tax-equivalent basis, and after deducting fund-
ing costs of $5.0 million, it contributed $13.3
million to net interest income. In addition, we
3
took the opportunity to sell $141.0 million of
securities in 2011 and booked an associated gain
on sale of $3.2 million.
Our investment portfolio has significantly
outperformed our peers for the past 15 years.
Based on the Uniform Bank Performance Report
(UBPR), our tax-equivalent yield of 4.17% in
2011 places us in the 87th percentile of our peer
group, which had an average tax-equivalent yield
of 3.15%. We do not achieve our results by taking
credit risk. Instead, the yield comes from strate-
gic selection of securities with modest optional-
ity (the ability for the issuer to call the security
before maturity), and limited interest rate risk.
The investment portfolio has two primary
components: the first segment includes mort-
gage-backed securities (MBS) and collateral-
ized mortgage obligations (CMO), almost all
of which have been issued by the Government
National Mortgage Association (Ginnie Mae).
Since Ginnie Mae is a U.S. Government Agency,
these securities are backed by the full faith and
credit of the U.S. Government and thus pres-
ent little credit risk. MBS and CMOs comprise
60.1% of the investment portfolio. The second
segment includes securities issued by states and
municipalities. We have been ex-
tremely careful in our selection of
municipal securities and virtually
all of these holdings are rated A or
AA. Municipal securities comprise
31.1% of the investment portfolio.
MBS/CMO
60%
Regulatory Capital
Maintaining strong capital ratios
continues to be a major focus of
The First Bancorp’s Management
and Directors. Our capital structure is typical of
many community banks and has three principal
components:
Preferred Stock – Issued to the U.S. Treasury
under its Capital Purchase Program (the CPP
Preferred Stock).
Common Stock – The proceeds from the sale of
common stock to our shareholders.
Retained Earnings – The undistributed profits
the Company has kept after dividends.
Capital management is an area we spent a
great deal of time on in 2011 because strong
capital ratios support growth in earning assets,
Investment Mix
Other 9%
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serves as a cushion for credit losses, and enables
us to continue paying dividends to Sharehold-
ers. In August the Company repaid $12.5 mil-
lion of the CPP Preferred Stock. This transaction
required approval from the Company’s primary
regulator, The Federal Reserve Bank of Boston,
as well as the Bank’s primary regulator, the Of-
fice of the Comptroller of the Currency. These
approvals were based on the Company’s and the
Bank’s continued strong capital ratios after the
repayment, and almost all of the repayment was
made from retained earnings accumulated since
the preferred stock was issued in 2009.
s
r
a
1,500
1,200
As of December 31, 2011, the Company’s le-
verage capital ratio was 8.32%, and tier one and
tier two risk-based capital ratios were 14.40%
and 15.66%, respectively. These are
all well above the FDIC minimum
requirements of 5.00%, 6.00% and
10.00%, respectively, to be consid-
ered “well-capitalized”. Our year-
end regulatory capital ratios also
compare favorably to our regula-
tory capital ratios just before the
CPP Preferred Stock repayment,
at 8.88%, 15.14% and 16.40%, re-
spectively. After the repayment,
$12.5 million of CPP preferred stock remains
outstanding. The warrant issued in conjunction
with the CPP Preferred Stock for 225,904 shares
of Common Stock at an exercise price of $16.60
per share was unchanged as a result of the repur-
chase transaction and remains outstanding.
o
d
f
o
s
n
o
2008
2007
300
600
900
m
n
i
l
l
i
0
l
l
I
Dividends & Stock Performance
As noted above, one of the reasons we must
maintain strong capital ratios is to support the
payment of dividends to our Common Share-
holders. Since dividends are paid from retained
earnings and result in a reduction of capital,
banking regulators require a bank to have strong
capital ratios if it is to continue paying dividends
to Common Shareholders.
In 2011, we paid a dividend of 19.5 cents per
share in each quarter,or 78 cents per share for
the year. This results in a dividend payout ratio
of 68.4% of earnings per share in 2011 compared
to a dividend payout ratio of 70.9% in 2010. We
continue to hear from our shareholders that our
generous cash dividend is an important reason
that they hold our shares, and based on the De-
cember 31, 2011 closing price of $15.37 per
share, the 78 cent annual dividend results in an
annual dividend yield of 5.07%.
Although our year-end closing price of $15.37
per share was down 2.7% or $0.42 per share from
the December 31, 2010 close at $15.79 per share,
when the $0.78 per share dividend is added, our
total return with dividends reinvested was 2.29%
for the year. We outperformed all but one of the
relevant indices in 2011, with the KBW Regional
Bank Index at -5.23%, the S&P 500 at 2.11%,
and the Russell 2000 and Russell 3000 indices
(which we are included in) at -4.16% and 1.03%,
respectively. We underperformed the Dow Jones
Industrial Average, however, which had a total
Total Assets
return of 8.30% for the year.
Expectations for 2012
2010
2011
As I previously mentioned, 2012
will likely be another challenging
year for the economy, the housing
market and the banking industry.
The real growth in the economy
will depend on the housing mar-
ket. Once a bottom in values is
reached and potential buyers be-
lieve we are finally at the the low point, we expect
that demand will pick up, prices will slowly rise
and new construction starts will be on a slight
upswing. For Maine, this likely will be later in
the cycle. Employment is expected to continue to
improve, which is a real positive, and some manu-
facturing is showing strong signs of upswing. For
The First, our focus will continue to be on main-
taining a strong balance sheet – especially with
our regulatory capital ratios – working with bor-
rowers to minimize defaults and loan losses, and
to meet the needs of local companies that find
reasons to grow or expand. We are also hope-
ful that the 2012 tourist season will be as strong
as the last two summers and the lobster industry
will have another good year.
Sincerely,
Daniel R. Daigneault
President & Chief Executive Officer
2009
4
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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, 2011
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: $131,301,000
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of March 1, 2012
Common Stock: 9,826,376 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. Mine Safety Disclosures
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
Shareholder Information
1
8
18
18
18
18
19
21
22
48
50
93
93
94
94
94
94
94
94
95
96
97
98
99
99
100
102
104
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, 2011, 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 9,812,180 shares of common stock outstanding.
In addition, there were 12,500 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 12,500 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 its customers are primarily small businesses and individuals to 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 • 2011 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 created 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, are 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 established 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, included 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. 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 • 2011 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 • 2011 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 August 24, 2011, the Company repurchased $12.5 million of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, having a liquidation preference of $1,000 per share. This stock was issued to the United
States Treasury on January 9, 2009 under its Capital Purchase Program (the “CPP Shares”). The repurchase transaction
was approved by the Federal Reserve Bank of Boston, the Company’s primary regulator, as well as the Bank’s primary
regulator, the Office of the Comptroller of the Currency, based on continued strong capital ratios after the repayment.
Almost all of the repayment was made from retained earnings accumulated since the CPP Shares were issued in 2009.
After the repurchase, $12.5 million of the originally issued CPP shares remains outstanding, as do all of the related
warrants described above and below.
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
The First Bancorp • 2011 Form 10-K • Page 4
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, 2011, the Company’s consolidated Total and Tier 1 Risk-Based Capital Ratios were 15.66% and
14.40%, respectively, and its Leverage Capital Ratio was 8.32%. Based on the above figures and accompanying
discussion, the Company exceeds all regulatory capital requirements and is considered well capitalized.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires, among other things, that
the federal banking regulators take “prompt corrective action” with respect to, and imposes significant restrictions on,
any bank that fails to satisfy its applicable minimum capital requirements. FDICIA establishes five capital categories
consisting of “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and
“critically undercapitalized.” Under applicable regulations, a bank that has a Total Risk-Based Capital Ratio of 10.0%
or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Leverage Capital Ratio of 5.0% or greater, and is
not subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain
a specific capital level for any capital measure is deemed to be “well capitalized.” A bank that has a Total Risk-Based
Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater and a Leverage Capital Ratio of
4.0% (or 3% for banks with the highest regulatory examination rating that are not experiencing or anticipating
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
The First Bancorp • 2011 Form 10-K • Page 5
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:
Extend to eight years the Amended Restoration Plan to raise the Deposit Insurance Fund reserve ratio to 1.15
percent and 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 went into effect beginning with the second
quarter of 2011 and the new levels of assessment became 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 lowered 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 will 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 will, 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 created 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 does not apply to banks over $10 billion that are well-capitalized
and with CAMELS ratings of 1 or 2, consistent with the treatment for smaller banks.
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.
The First Bancorp • 2011 Form 10-K • Page 6
Standards for Safety and Soundness
Pursuant to FDICIA the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all
insured depository institutions and depository institution holding companies relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation standards prohibit employment contracts,
compensation or benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that
would provide “excessive” compensation, fees or benefits, or that could lead to material financial loss. In addition, the
federal bank regulatory agencies are required by FDICIA to prescribe standards specifying: (i) maximum classified
assets to capital ratios; (ii) minimum earnings sufficient to absorb losses without impairing capital; and (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly-traded shares of depository institutions and
depository institution holding companies.
Consumer Protection Provisions
FDICIA also includes provisions requiring advance notice to regulators and customers for any proposed branch closing
and authorizing (subject to future appropriation of the necessary funds) reduced insurance assessments for institutions
offering “lifeline” banking accounts or engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to depositors with respect to the rates of
interest, fees and other terms applicable to consumer deposit accounts.
FDIC Waiver of Certain Regulatory Requirements
The FDIC issued a rule, effective on September 22, 2003, that includes a waiver provision which grants the FDIC Board
of Directors extremely broad discretionary authority to waive FDIC regulatory provisions that are not specifically
mandated by statute or by a separate regulation.
Impact of Monetary Policy
The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the
operating results of banks and bank holding companies. Through open market securities transactions and changes in its
discount rate and reserve requirements, the Board of Governors exerts considerable influence over the cost and
availability of funds for lending and investment. The nature of future monetary policies and the effect of such policies
on the future business and earnings of the Company and the Bank cannot be predicted. See Item 7 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations, regarding the Bank’s net interest margin and
the effect of interest-rate volatility on future earnings.
Employees
At December 31, 2011, the Company had 210 employees and full-time equivalency of 203 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 • 2011 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 created 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), are subject to the
Consumer Financial Protection Bureau’s rule-writing authority, and existing depository institution regulatory agencies
retain examination and enforcement authority for such institutions. The Act also established 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, included 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 will 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, and (5) derivative
and proprietary trading by financial institutions.
Financial Stability – addressed the core purpose of the bill by creating a new oversight regulator, the Financial
Stability Oversight Council. This council of regulators monitors the financial system for “systemic risk” and will
determine which entities pose significant systemic risk. Generally speaking, it makes 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 –established 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 – merged the Office of Thrift Supervision (“OTS”) into the
Office of the Comptroller of the Currency (“OCC”), the Bank’s primary regulator. The regulatory responsibilities for
former OTS banks were spread among other regulators: The Federal Reserve now regulates former OTS savings and
loan holding companies, the OCC now regulates former OTS federal savings associations, and the FDIC now regulates
former OTS state-chartered savings associations. 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 is average consolidated
total assets minus average tangible equity. The result is that larger financial institutions, which have more non-deposit
liabilities, now pay a greater percentage of the aggregate insurance assessment and smaller banks (such as the Bank)
will pay less than they would have. Another key provision for the Bank was the permanent increase in FDIC deposit
insurance per depositor in the aggregate from $100,000 to $250,000. The Act 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 –
implemented 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
provisions in this title are a moratorium on deposit insurance applications for three years, ending July 21, 2013, 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
The First Bancorp • 2011 Form 10-K • Page 8
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 – imposed 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 – allowed 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 a two-thirds vote 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
established a number of changes to corporate governance procedures for public companies The most important of these
are: proxy access requirements for shareholders; disclosures about the failure to separate the roles 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 has requested comment on proposed regulations regarding incentive-based pay practices that 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 has altered in
dramatic fashion the way consumer credit is regulated, moving from the previous 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 gave 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. For the Bank, in addition to creation of the Bureau, this Title
also contains a number of other important provisions. It limited interchange fees for debit card transactions (including
those involved with certain prepaid card products) to an amount established as reasonable under regulations 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. 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.
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.
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
The First Bancorp • 2011 Form 10-K • Page 9
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.
There can be no assurance that the Dodd-Frank Act and other Government programs will stabilize the U.S. financial
system.
There can also be no assurance as to the actual impact that the Dodd-Frank Act and other programs will continue to
have on the financial markets, including credit availability. The failure of the Dodd-Frank Act or other programs to
stabilize the financial markets and a continuation or worsening of current financial market conditions could materially
and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our
voting common stock.
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.
Among the purposes 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
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.
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 2011 in the capital markets have resulted in uncertainty in the financial
markets in general with the expectation of the general economic downturn continuing in 2012 and perhaps beyond
2012. 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. 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.
The downgrade of the U.S. credit rating and Europe’s debt crisis could have a material adverse effect on our
business, financial condition and liquidity.
Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+ on
August 5, 2011. A further downgrade or a downgrade by other rating agencies could have a material adverse impact on
financial markets and economic conditions in the United States and worldwide. Any such adverse impact could have a
material adverse effect on our liquidity, financial condition and results of operations. Many of our investment securities
are issued by U.S. government agencies and U.S. government sponsored entities. In addition, the possibility that certain
European Union (“EU”) member states will default on their debt obligations have negatively impacted economic
conditions and global markets. The continued uncertainty over the outcome of international and the EU’s financial
support programs and the possibility that other EU member states may experience similar financial troubles could
further disrupt global markets. The negative impact on economic conditions and global markets could also have a
material adverse effect on our liquidity, financial condition and results of operations.
The First Bancorp • 2011 Form 10-K • Page 10
Lack of loan demand may impact net interest income.
During the past two years the loan portfolio has decreased $70.0 million. Loan demand in the Bank’s market area has
been limited as a result of continued weak economic conditions. This has had the greatest impact on the commercial
loan portfolio. In addition, in order to reduce the Bank’s exposure to interest rate risk, the Bank has sold residential
mortgages to the secondary market that have been refinanced by borrowers seeking to take advantage of lower interest
rates. Should this trend continue, net interest income may be negatively impacted if loans are replaced by lower-yielding
investment securities or if the balance sheet is allowed to shrink.
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, 2011, we had $286.2 million and $122.7 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
the Bank’s 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.
Our business has been and may Continue to be adversely affected by conditions in the financial markets and
economic conditions generally.
Negative developments in 2008 and 2009 in the financial services industry have resulted in uncertainty in the financial
markets in general and a related general economic downturn, which have continued into 2012. In addition, as a
consequence of the recent U.S. recession, businesses across a wide range of industries have faced serious difficulties
due to the decrease in consumer spending, reduced consumer confidence brought on by deflated home values, among
other things, and reduced liquidity in the credit markets. Unemployment also increased significantly over the past
several years.
As a result of these financial and economic crises, many lending institutions, including us, have experienced in
recent years declines in the performance of their loans, including construction, land development and land loans,
commercial real estate loans and other commercial and consumer loans (see “Credit & Credit Risk” in ITEM 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations). Moreover, competition
among depository institutions for core deposits and quality loans has increased significantly. In addition, the values of
real estate collateral supporting many commercial loans and home mortgages have declined and may continue to
decline. Banks and bank holding company stock prices have been negatively affected, and the ability of banks and bank
holding companies to raise capital or borrow in the debt markets has been more difficult compared to years prior to the
economic downturn. As a result, bank regulatory agencies have been and are expected to continue to be very aggressive
in responding to concerns and trends identified in examinations, including the issuance of formal or informal
enforcement actions or orders. The impact of new legislation in response to these developments may negatively impact
our operations by restricting our business operations, including our ability to originate or sell loans, and adversely
impact our financial performance or our stock price.
In addition, further negative market developments may affect consumer confidence levels and may cause adverse
changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs
and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these
difficult market conditions on us and others in the financial services industry.
Overall, during the past four years, the general business environment has had an adverse effect on our business, and
there can be no assurance that the environment will improve in the near term. Until conditions improve, we expect our
business, financial condition and results of operations to be adversely affected.
The First Bancorp • 2011 Form 10-K • Page 11
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.
We are subject to credit risk.
There are inherent risks associated with our lending activities. These risks include, among other things, the impact of
changes in interest rates and changes in the economic conditions in the markets where we operate as well as those
across the United States and abroad. Increases in interest rates and/or weakening economic conditions could adversely
impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. We seek to
mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. Although we believe that
our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet
our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for loan
losses.
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
2011, 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.
We may be required to charge off additional loans in the future and make further increases in our Provision for
Loan Losses which could adversely affect our results of operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to
expense, that represents management’s best estimate of probable incurred losses within the existing portfolio of loans.
The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in
the loan portfolio. The level of the allowance reflects management’s continuing evaluation of specific credit risks; loan
loss experience; current loan portfolio quality; present economic, political and regulatory conditions; industry
concentrations; and other unidentified losses inherent in the current loan portfolio. The determination of the appropriate
level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to
make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes
in economic conditions affecting borrowers, new information regarding existing loans, identification of additional
The First Bancorp • 2011 Form 10-K • Page 12
problem loans and other factors, both within and outside of our control, may require an increase in the allowance for
loan losses. Increases in nonperforming loans have a significant impact on our allowance for loan losses. Generally, our
nonperforming loans and assets reflect operating difficulties of individual borrowers resulting from weakness in both
the national and coastal Maine economies. If the real estate valuation trends of the past several years continue, we could
continue to experience delinquencies and credit losses, particularly with respect to commercial real estate loans.
If charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase
the allowance for loan losses. Furthermore, growth in the loan portfolio would generally lead to an increase in the
provision for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and
capital, and may have a material adverse effect on our financial condition, results of operations and cash flows. See the
section captioned “Allowance for Loan Losses” in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, located elsewhere in this report for further discussion related to our process for
determining the appropriate level of the allowance for loan losses.
We are subject to interest rate risk.
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference
between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on
interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that
are beyond our control, including general economic conditions, demand for loans, securities and deposits, and policies
of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve
System. Changes in monetary policy, including changes in interest rates, could influence not only the interest we
receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could
also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities
and (iii) the average duration of our loans and securities that are collateralized by mortgages. If the interest rates paid on
deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments,
our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if
the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and
other borrowings. If interest rates decline our higher-rate loans and investments may be subject to prepayment risk,
which could negatively impact our net interest margin. Conversely, if interest rates increase, our loans and investments
may be subject to extension risk, which could negatively impact our net interest margin as well. Any substantial,
unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition,
results of operations and cash flows. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk located
elsewhere in this report for further discussion related to our management of interest rate risk.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through traditional deposits, brokered deposit renewals
or rollovers, secured or unsecured borrowings, the sale of securities or loans and other sources could have a substantial
negative effect on our liquidity. 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 or economy in general, or could be
available only under terms which are unacceptable to us. Factors that could detrimentally impact our access to liquidity
sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our
loans are concentrated 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 disruption in the financial markets or negative views and expectations about the
prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the
continued deterioration in credit markets. We rely primarily on commercial and retail deposits and to a lesser extent,
brokered deposit renewals and rollovers, advances from the Federal Home Loan Bank of Boston (“FHLB”) and other
secured and unsecured borrowings to fund our operations. Although we have historically been able to replace maturing
deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our
results of operations or financial condition or the results of operations or financial condition of the FHLB or market
conditions were to change. In addition, if we fall below the FDIC’s thresholds to be considered “well capitalized”, we
will be unable to continue to rollover or renew brokered funds, and the interest rate paid on deposits would be restricted.
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
FHLB are currently a relatively low-cost source of funding. The availability of qualified collateral on the Bank’s
The First Bancorp • 2011 Form 10-K • Page 13
balance sheet determines the level of advances available from FHLB and a deterioration in quality in the Bank’s loan
portfolio can adversely impact the availability of this source of funding.
Competition in the financial services industry.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are
larger and may have more financial resources than we do. We compete with other providers of financial services such as
commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage
companies, asset managers, insurance companies and a wide array of other local, regional and national institutions
which offer financial services. Mergers between financial institutions within Maine and in neighboring states have
added competitive pressure. If we are unable to compete effectively, we will lose market share and our income
generated from loans, deposits, and other financial products will decline.
We may elect or be compelled to seek additional capital in the future, but capital may not be available when needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our
operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any,
or we may otherwise elect to raise additional capital. In that regard, a number of financial institutions have recently
raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition
arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values
and other factors, which may diminish our ability to raise additional capital.
Our ability to raise additional capital, if needed or desired (including to repurchase the remaining outstanding CPP
Shares before the dividend payable thereunder increases to 9% per annum), will depend on conditions in the capital
markets, economic conditions and a number of other factors, many of which are outside our control, and on our
financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms
acceptable to us. If we cannot raise additional capital when needed, we may become subject to increased regulatory
supervision and the imposition of restrictions on our growth and our business, which may have a material adverse effect
on our financial condition, results of operations and prospects.
The value of our investment securities portfolio may be negatively affected by disruptions in securities markets.
The market for some of the investment securities held in our portfolio has become volatile over the past several years.
Volatile market conditions may detrimentally affect the value of these securities due to the perception of heightened
credit and liquidity risks. There can be no assurance that the declines in market value associated with these disruptions
will not result in other than temporary impairments of these assets, which would lead to accounting charges that could
have a material adverse effect on our net income and capital levels. Our mortgage-backed portfolio may be subject to
extension risk as interest rates rise and borrowers are unable to refinance their current mortgages into lower rate
mortgages, extending the average life of the bonds.
The soundness of other financial institutions could adversely affect us.
Since mid-2007, the financial services industry as a whole, as well as the securities markets generally, have been
materially and adversely affected by very significant declines in the values of nearly all asset classes and by a very
serious lack of liquidity. Financial institutions in particular have been subject to increased volatility and an overall loss
in investor confidence.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing,
counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely
execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial
banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even
rumors or questions about, one or more financial services companies, or the financial services industry generally, have
led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these
transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may
be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the
full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially
and adversely affect our business, financial condition or results of operations.
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
The First Bancorp • 2011 Form 10-K • Page 14
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.
We may not be able to attract and retain skilled people.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in
most activities in which we are engaged can be intense, and we may not be able to retain or hire the people we want
and/or need. In order to attract and retain qualified employees, we must compensate such employees at market levels.
Typically, those levels have caused employee compensation to be our greatest expense. If we are unable to continue to
attract and retain qualified employees, or do so at rates necessary to maintain our competitive position, our performance,
including our competitive position, could suffer, and, in turn, have a material adverse effect on us. Although we have
incentive compensation plans aimed, in part, at long-term employee retention, the unexpected loss of services of one or
more of our key personnel could still occur, and such events may have a material adverse effect on us because of the
loss of the employee’s skills, knowledge of our market, years of industry experience and the difficulty of promptly
finding qualified replacement personnel for our talented executives and/or relationship managers.
Pursuant to the standardized terms of the CPP, among other things, we agreed to institute certain restrictions on the
compensation of certain senior executive management positions that could have an adverse effect on our ability to hire
or retain the most qualified senior executives. Other restrictions were imposed under the Recovery Act, the Dodd-Frank
Act and other legislation or regulations. Our ability to attract and/or retain talented executives and/or relationship
managers may be affected by these developments or any new executive compensation limits, and such restrictions could
have a material adverse effect on us.
We have operational risk.
We face the risk that the design of our controls and procedures, including those to mitigate the risk of fraud by
employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection of errors
or inaccuracies in data and information. Management regularly reviews and updates our internal controls, disclosure
controls and procedures, and corporate governance policies and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to
comply with regulations related to controls and procedures could have a material adverse effect on our business, results
of operations and financial condition.
We may also be subject to disruptions of our systems arising from events that are wholly or partially beyond our
control (including, for example, computer viruses or electrical or telecommunications outages), which may give rise to
losses in service to customers and to financial loss or liability. We are further exposed to the risk that our external
vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational
errors by their respective employees, or others, as are we) and to the risk that our (or our vendors’) business continuity
and data security systems prove to be inadequate.
Our information systems may experience an interruption or breach in security.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or
breach in security of these systems could result in failures or disruptions in our customer relationship management,
general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the
effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that
any such failure, interruption or security breach will not occur or, if any does occur, that it will be adequately addressed.
The occurrence of any failure, interruption or security breach of our information systems could damage our reputation,
result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and
possible financial liability, any of which could have a material adverse effect on us.
We regularly review and update 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 us.
We continually encounter technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
The First Bancorp • 2011 Form 10-K • Page 15
technology-driven products and services. The effective use of technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to
address the needs of our customers by using technology to provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in our operations. Our largest competitors have substantially greater
resources to invest in technological improvements. We may not be able to effectively implement new technology-driven
products and services or be successful in marketing these products and services to our customers. Failure to successfully
keep pace with technological change affecting the financial services industry could have a material adverse effect on us.
In particular, we are subject to security, transactional and operational risks relating to the use of technology that
could damage our reputation and our business.
We rely heavily on communications and information systems to conduct our business serving both internal and
customer constituencies. Any failure, interruption or breach in security of these systems could result in failures or
disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have
policies and procedures, security applications and fraud mitigation applications, designed to prevent or limit the effect
of the failure, interruption, fraud attacks or security breach of our information systems, there can be no assurance that
any such failures, interruptions, fraud attacks or security breaches will not occur or, if they do occur, that they will be
adequately addressed. Additionally, we outsource our data processing to a third party. If our third party provider
encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our
ability to adequately process and account for customer transactions, which would significantly affect our business
operations. Furthermore, breaches of such third party’s technology may also cause reimbursable loss to our consumer
and business customers, through no fault of our own. Fraud attacks targeting customer-controlled devices, plastic
payment card terminals, and merchant data collection points provide another source of potential loss, again through no
fault of our own. The occurrence of any failures, interruptions or security breaches of information systems used to
process customer transactions could damage our reputation, result in a loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a
material adverse effect on our financial condition, results of operations and cash flows.
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, 2011, for example, the average
monthly trading volume of our common stock has been 335,409 shares or approximately 3.43% 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;
The First Bancorp • 2011 Form 10-K • Page 16
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 • 2011 Form 10-K • Page 17
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 three offices in Bar Harbor,
Ellsworth 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 office 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. Mine Safety Disclosures
Not applicable.
The First Bancorp • 2011 Form 10-K • Page 18
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, 2011, there were 9,812,180 shares outstanding and held of record by approximately 2,686
shareholders. The following table reflects the high and low prices of actual sales in each quarter of 2011 and 2010. Such
quotations do not reflect retail mark-ups, mark-downs or brokers’ commissions.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2011
2010
High
$15.95
15.96
15.30
15.95
Low
$13.40
13.79
11.69
11.75
High
$16.26
16.37
14.48
16.00
Low
$13.11
13.07
12.27
13.40
The last transaction in the Company’s stock on NASDAQ during 2011 was on December 30 at $15.37 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. 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 2012 will be that year’s net
income plus $6.9 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, 2011, 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 14.11% and 15.37%, respectively, as of December 31, 2011. The
table below sets forth the cash dividends declared in the last two fiscal years:
Date Declared
March 18, 2010
June 17, 2010
September 16, 2010
December 16, 2010
March 17, 2011
June 15, 2011
September 15, 2011
December 15, 2011
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, 2010
July 30, 2010
October 29, 2010
January 28, 2011
April 29, 2011
July 29, 2011
October 28, 2011
January 31, 2012
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, 2011, the Company repurchased no common stock.
Unregistered Sales of Equity Securities
The Company had no unregistered sales of equity securities in 2011.
The First Bancorp • 2011 Form 10-K • Page 19
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)
51,000
$16.47
-
51,000
$ -
$16.47
392,500
-
392,500
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.
FNLC
S&P 500
NASD Bank
150
125
s
r
a
l
l
o
D
100
75
50
2006
2007
2008
2009
2010
2011
FNLC
S&P 500
NASD Bank
2009
2008
2006
100.00
100.00 105.46
80.19
100.00
2007
91.31 131.21 104.97 113.50
96.68
60.34
84.03
52.86
66.44
62.96
2010
2011
116.10
98.72
54.01
The First Bancorp • 2011 Form 10-K • Page 20
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
Tangible Book Value
Market Value
Financial Ratios
Return on Average Equity1
Return on Average Tangible Equity1,2
Return on Average Assets1
Average Equity to Average Assets
Average Tangible Equity to Average
Assets2
Net Interest Margin Tax-Equivalent1,2
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio2 (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2011
Years ended December 31,
2010
2009
2008
2007
$ 55,702
14,709
40,993
10,550
11,750
26,038
12,364
$ 57,260
16,671
40,589
8,400
9,135
25,130
12,116
$ 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
$ 1.14
1.14
0.780
14.12
11.30
15.37
9.37%
10.70
0.87
10.72
8.77
3.27
68.42
1.50
3.21
2.32
49.75
$ 1.10
1.10
0.780
12.80
9.97
15.79
9.53%
10.83
0.89
11.20
9.15
3.38
70.91
1.50
2.39
1.87
48.15
$ 1.22
1.22
0.780
12.66
9.82
15.42
$ 1.45
1.44
0.765
12.09
9.23
19.89
$ 1.34
1.34
0.690
11.58
8.73
14.64
10.66%
12.54
0.96
10.85
12.02%
15.75
1.10
9.14
11.89%
15.89
1.13
9.53
8.80
3.66
63.93
1.43
1.95
1.80
43.39
6.98
3.33
52.76
0.90
1.27
1.31
46.07
7.13
3.13
51.49
0.74
0.31
0.56
50.16
$1,372,867
864,988
424,306
941,333
265,663
150,858
$1,393,802
887,596
416,052
974,518
257,330
149,848
$1,331,394
952,492
287,818
922,667
249,778
147,938
$1,325,744
979,273
247,839
925,736
272,074
117,181
High
$15.96
$1,223,250
920,164
208,585
781,280
316,719
112,453
Low
$11.69
Market price per common share of stock during 2011
1Annualized using a 365-day basis
2These ratios use non-GAAP financial measures. See Management’s Discussion and Analysis of Financial Condition
and Results of Operations for additional disclosures and information.
The First Bancorp • 2011 Form 10-K • Page 21
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, 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 • 2011 Form 10-K • Page 22
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 to determine the appropriate level 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 at fair value 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. The rights are subsequently carried at the
lower of amortized cost or fair value. Management uses an independent firm which specializes in the valuation of
mortgage servicing rights to determine the fair value. 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 • 2011 Form 10-K • Page 23
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
2011, 2010 and 2009.
Years ended December 31,
2009
2010
Dollars in thousands
2011
$40,993 $40,589 $43,653
Net interest income as presented
Effect of tax-exempt income
2,395
2,281
Net interest income, tax equivalent $43,703 $42,870 $46,048
2,710
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,
2009
2010
In thousands of dollars
2011
$ 26,038 $ 25,130 $ 26,658
Non-interest expense, as presented
(150)
Net securities losses
(916)
Other than temporary impairment charge
25,592
Adjusted non-interest expense
43,653
Net interest income, as presented
2,395
Effect of tax-exempt income
12,754
Non-interest income, as presented
185
Effect of non-interest tax-exempt income
-
Net securities gains
Adjusted net interest income plus non-interest income $ 52,342 $ 52,196 $ 58,987
43.39%
Non-GAAP efficiency ratio
47.26%
GAAP efficiency ratio
-
-
26,038
40,993
2,710
11,750
182
(3,293)
-
-
25,130
40,589
2,281
9,135
193
(2)
48.15%
50.54%
49.75%
49.37%
The First Bancorp • 2011 Form 10-K • Page 24
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,
2009
2010
In thousands of dollars
2011
$152,254 $151,739 $146,854
Average shareholders’ equity as presented
(24,452)
Less preferred stock (average)
(27,684)
Less intangible assets
Average tangible common shareholders’ equity $104,280 $ 99,449 $ 94,718
(24,606)
(27,684)
(20,290)
(27,684)
Executive Summary
Net income for the year ended December 31, 2011 was $12.4 million, up $248,000 or 2.0% from the $12.1 million
posted for the year ended December 31, 2010. Earnings per common share on a fully diluted basis were $1.14 for the
year ended December 31, 2011, up $0.04 or 3.6% from the $1.10 posted for the year ended December 31, 2010. Net
interest income on a tax-equivalent basis was up $833,000 or 1.9% for the year ended December 31, 2011 compared to
the year ended December 31, 2010. This increase was attributable to average earning assets in 2011 running $68.0
million or 5.4% above the level seen in 2010, adding $2.2 million to net interest income. This increase more than offset
our net interest margin slipping from 3.38% in 2010 to 3.27% in 2011.
During 2011, total assets decreased $20.9 million or 1.5%. The loan portfolio was down $22.6 million or 2.5%. The
investment portfolio was up $8.3 million or 2.0% for the year. On the liability side of the balance sheet, low-cost
deposits have increased $18.4 million or 6.2% for the year, and local certificates of deposit decreased $8.2 million or
6.90%.
We continue to be in the longest and worst economic downturn since the Great Depression of the 1930’s. The
slump in the housing market is continuing and the national unemployment rate was 8.5% at December 31, 2011.
Fortunately, the unemployment rate in Maine at December 31, 2011, at 7.0%, was much better than the national average
and ranks as the nineteenth-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.
Non-performing loans stood at 3.21% of total loans on December 31, 2011 compared to 2.39% of total loans on
December 31, 2010. This compares to nonperforming loans at 2.57% for our Uniform Bank Performance Report peer
group (“UBPR peer group”) as of December 31, 2011. Net chargeoffs were $10.9 million or 1.23% of average loans in
2011 compared to net charge offs of $8.7 million or 0.94% of average loans in 2010. Net charge offs for the UBPR peer
group in 2011 were 0.94% of average loans. We provisioned $10.6 million for loan losses in 2011, up $2.2 million from
the $8.4 million provision made during 2010. Although the allowance for loan losses decreased $316,000 during the
year, year-over-year the allowance as a percentage of loans outstanding was unchanged at 1.50%
Remaining well capitalized continues to be a top priority for The First Bancorp. In 2009, we received a $25 million
preferred stock investment from the U.S. Treasury Capital Purchase Program which enabled the Company to obtain
additional capital at a relatively low cost, and it provided 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. In the third quarter of 2011, we repaid half of this preferred stock investment to the U.S. Treasury.
Even after the repayment, the Company’s total risk-based capital ratio remains very strong at 15.66%, well above the
well-capitalized threshold of 10.0% set by the FDIC.
The Company’s operating ratios remain good, with a return on average tangible common equity of 10.70% for the
year ended December 31, 2011 compared to 10.83% for the year ended December 31, 2010. Our return on average
tangible equity was in the top 40% of all banks in the UBPR peer group, which had an average return of 7.26% for the
year. Our efficiency ratio continues to be an important component in our overall performance; it slipped to 49.75% in
2011 compared to 48.15% in 2010. This was the result of higher operating expenses. As of December 31, 2011, the
average efficiency ratio for our UBPR peer group was 66.26%, which put us in the top 12% of all banks in the UBPR
peer group.
The First Bancorp • 2011 Form 10-K • Page 25
Results of Operations
Net Interest Income
Net interest income on a tax-equivalent basis increased 1.9% or $0.8 million to $43.7 million for the year ended
December 31, 2011 from the $42.9 million reported for the year ended December 31, 2010. A higher level of average
earning assets in 2011 was responsible for $2.2 million of this change while several factors, including the decrease in
the net interest margin from 3.38% in 2010 to 3.27% in 2011, reduced the increase in net interest income by $1.4
million.
Total interest income in 2011 was $55.7 million, a decrease of $1.6 million or 2.7% from the $57.3 million posted
by the Company in 2010. Total interest expense in 2011 was $14.7 million, a decrease of $2.0 million or 11.8% from
the $16.7 million posted by the Company in 2010. The decrease in both interest income and interest expense was
attributable to lower interest rates. Tax-exempt interest income amounted to $5.0 million for the year ended December
31, 2011, $4.2 million for the year ended December 31, 2010 and $4.4 million for the year ended December 31, 2009.
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, 2011 compared to 2010
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
$ 315
4,913
(127)
(2,078)
3,023
516
303
819
$ 2,204
Rate
Rate/Volume1
Total
$ (6)
(1,403)
(13)
(2,080)
(3,502)
(1,016)
(1,636)
(2,652)
$ (850)
$ (303)
(455)
10
98
(650)
(51)
(78)
(129)
$ (521)
Rate
Volume
Rate/Volume1
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 Represents the change attributable to a combination of change in rate and change in volume.
$ (1)
(2,555)
(7)
(3,086)
(5,649)
$ 1
(587)
(1)
174
(413)
$ (1)
3,420
33
(2,813)
639
(1,685)
(191)
(1,876)
$ (3,773)
(19)
13
(6)
$ (407)
129
(492)
(363)
$ 1,002
The First Bancorp • 2011 Form 10-K • Page 26
$ 6
3,055
(130)
(4,060)
(1,129)
(551)
(1,411)
(1,962)
$ 833
Total
$ (1)
278
25
(5,725)
(5,423)
(1,575)
(670)
(2,245)
$ (3,178)
The following table presents the interest earned on or paid for each major asset and liability category, respectively,
for the years ended December 31, 2011, 2010, and 2009, as well as 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
2011
2010
2009
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
Amount
of interest
Average
Yield/Rate
$ 12
18,220
30
40,150
58,412
9,746
4,963
14,709
$ 43,703
$ 1
15,170
150
44,220
59,541
10,297
6,374
16,671
$ 42,870
0.25%
4.07%
4.63%
4.55%
4.37%
1.04%
2.05%
1.25%
3.12%
3.27%
$ 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%
0.25%
5.42%
4.99%
5.09%
5.16%
1.35%
2.84%
1.67%
3.49%
3.66%
The First Bancorp • 2011 Form 10-K • Page 27
Average Daily Balance Sheets
The following table shows the Company’s average daily balance sheets for the years ended December 31, 2011, 2010
and 2009.
Dollars in thousands
Assets
Cash and cash equivalents
Interest bearing deposits in other banks
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,
2011
2010
2009
$ 13,405
4,710
315,255
117,020
1,412
14,031
648
882,806
(14,418)
868,388
5,180
18,690
5,772
27,684
27,680
$ 1,419,875
$ 76,686
123,377
74,945
109,561
628,855
1,013,424
135,500
106,427
989
11,281
1,267,621
20,290
98
45,652
83,469
$ 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
2,807
(62)
152,254
$ 1,419,875
762
(201)
151,739
$ 1,355,067
(310)
(264)
146,854
$ 1,353,517
The First Bancorp • 2011 Form 10-K • Page 28
Non-Interest Income
Non-interest income in 2011 was $11.8 million, an increase of $2.6 million or 28.6% from the $9.1 million reported in
2010. This increase was attributable to the realignment of the available for sale portfolio. As a result of the sale of
$140.4 million of securities, the Company booked a $3.3 million gain on investments. There was also a decline of
$658,000 in mortgage origination income due to a lower level of loans sold to the secondary market in 2011 than in
2010.
Non-Interest Expense
Non-interest expense in 2011 was $26.0 million, an increase of 3.6% from the $25.1 million reported in 2010. This
increase was attributable to salaries and employee benefits and expenses related to other real estate owned and
foreclosure costs. There was also a $540,000 decrease in FDIC insurance premiums.
Provision to the Allowance for Loan Losses
The Company’s provision to the allowance for loan losses was $10.6 million in 2011 compared to $8.4 million in 2010.
This was 0.74% of average assets in 2011, compared to 0.55% of average assets for our peer group. The level of
provision in 2011 was to maintain the allowance for loan losses at an appropriate level given the size of our loan
portfolio and our overall asset quality. Although the allowance for loan losses decreased by $316,000 in 2011 from the
2010 level, year-over-year the allowance as a percentage of loans outstanding was unchanged at 1.50%. Given the
number of economic uncertainties at this time, Management believes it is prudent to continue to provide 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 2011 was $12.4 million, up 2.0% or $248,000 from net income of $12.1 million that was posted in 2010.
Earnings per share on a fully diluted basis were $1.14, up $0.04 or 3.6% from the $1.10 reported for the year ended
December 31, 2010.
Key Ratios
Return on average assets in 2011 was 0.87%, down from the 0.89% posted in 2010. Return on average tangible common
equity was 10.70% in 2011, compared to 10.83% in 2010 and 12.54% in 2009. In 2011, the Company’s dividend payout
ratio (dividends declared per share divided by earnings per share) was 68.42%, compared to 70.91% in 2010 and
63.93% in 2009. The Company’s efficiency ratio – a benchmark measure of the amount spent to generate a dollar of
income – was 49.75% in 2011 compared to 66.26% for the Bank’s peer group, on average. In 2010, the Bank’s
efficiency ratio was 48.15% compared to 67.23% for the Bank’s peer group, on average. The rise in the efficiency ratio
for 2011 was the result of an increase in operating expenses, primarily in credit-related costs.
Investment Management and Fiduciary Activities
As of December 31, 2011, First Advisors, the Bank’s private banking and investment management division, had assets
under management with a market value of $619.3 million, consisting of 730 trust accounts, estate accounts, agency
accounts, and self-directed individual retirement accounts. This compares to December 31, 2010, when 674 accounts
with a market value of $562.6 million were under management.
The First Bancorp • 2011 Form 10-K • Page 29
Assets and Asset Quality
Total assets of $1.373 billion decreased 1.5% or $20.9 million in 2011 from $1.394 billion at December 31, 2010. The
investment portfolio increased $8.3 million or 2.0% over December 31, 2010, while the loan portfolio decreased $22.6
million or 2.5%. Although total assets decreased year-over-year, average assets were up $64.8 million in 2011 over
2010. Average loans in 2011 were $43.5 million lower than in 2010, but average investments in 2011 were $109.5
million higher than in 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. Non-
performing assets to total assets stood at 2.32% at December 31, 2011, an increase over 1.87% at December 31, 2010.
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 2011 were $10.9 million or 1.23% of average loans outstanding. This compares to net charge
offs in 2010 of $8.7 million or 0.94% of average loans outstanding and net charge offs for our UBPR peer group in
2011 of 0.94%. Residential real estate term loans represent 39.5% of the total loan portfolio, and this loan category
generally has a lower level of losses in comparison to other loan types. In 2011, the loss ratio for residential mortgages
was 0.39% compared to 1.23% 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 $13.0 million and stood at 1.50% of total loans outstanding
compared to $13.3 million and 1.50% of total loans outstanding at December 31, 2010. A $10.6 million provision for
losses was made in 2011 and net charge offs totaled $10.9 million, resulting in the allowance for loan losses decreasing
$316,000 or 2.4% from December 31, 2010. Management believes the allowance for loan losses is appropriate as of
December 31, 2011. 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, high levels of unemployment and the
outlook for economic weakness continuing for some time to come.
Investment Activities
During 2011, the investment portfolio increased 2.0% to end the year at $424.3 million compared to $416.1 million at
December 31, 2010. Average investments in 2011 were $109.5 million higher than in 2010. During the second and
fourth quarters, the Company realigned the available for sale portfolio resulting in a $3.3 million gain on investments as
the result of the sale of $140.4 million of securities. 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 sponsored 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,
2011, 2010, and 2009.
The First Bancorp • 2011 Form 10-K • Page 30
2011
Dollars in thousands
Securities available for sale
U.S. Government sponsored agencies $ -
Mortgage-backed securities
198,232
State and political subdivisions
85,726
Corporate securities
811
Other equity securities
1,433
286,202
2010
2009
$ 16,045 $ 30,959
31,148
18,514
818
399
81,838
234,414
41,524
866
380
293,229
Securities to be held to maturity
U.S. Government sponsored agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Non-marketable Securities
Federal Reserve Bank Stock
Federal Home Loan Bank Stock
Total securities
19,390
56,800
46,171
300
122,661
2,190
55,710
49,330
150
107,380
39,099
90,193
61,095
150
190,537
1,412
14,031
15,443
1,412
14,031
15,443
$ 424,306 $ 416,052 $ 287,818
1,412
14,031
15,443
The following table sets forth information on the yields and expected maturities of the Company’s investment
securities as of December 31, 2011. 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.
Held to Maturity
Available For Sale
Dollars in thousands
U.S. Government Sponsored Agencies
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
Fair Value
Yield to
maturity
Amortized
Cost
Yield to
maturity
$ -
-
-
-
-
6,578
16,677
22,931
152,046
198,232
195
2,796
1,134
81,601
85,726
-
-
-
811
811
1,433
$ 286,202
0.00%
0.00%
0.00%
0.00%
0.00%
1.30%
3.38%
3.08%
3.20%
3.14%
6.85%
6.92%
6.17%
6.29%
6.31%
0.00%
0.00%
0.00%
1.48%
1.48%
3.76%
4.09%
$ -
-
5,000
14,390
19,390
3,692
4,028
2,326
46,754
56,800
1,487
5,757
15,701
23,226
46,171
-
300
-
-
300
-
$ 122,661
0.00%
0.00%
3.00%
3.19%
3.14%
2.56%
3.53%
5.06%
4.57%
4.39%
6.08%
6.60%
6.33%
6.27%
6.33%
0.00%
1.25%
0.00%
0.00%
1.25%
-
4.91%
The First Bancorp • 2011 Form 10-K • Page 31
Impaired Securities
The securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December
31, 2011 amounted to an excess of $0.8 million, or 0.19% of the amortized cost of the total securities portfolio. At
December 31, 2010 this amount represented an excess of $5.9 million, or 1.45% 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 impairment 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.
As of December 31, 2011, the Company had temporarily impaired securities with a fair value of $23.9 million and
unrealized losses of $0.8 million, as identified in the table below. Securities in a continuous unrealized loss position
more than twelve-months amounted to $9.3 million as of December 31, 2011, compared with $7.6 million at December
31, 2010. 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, 2011.
Dollars in thousands
U.S. Government-sponsored
agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ -
12,489
1,984
-
154
$ 14,627
$ -
(25)
(17)
-
(120)
$ (162)
$ -
6,780
1,667
811
34
$ 9,292
$ -
(156)
(172)
(287)
(19)
$ (634)
$ -
19,269
3,651
811
188
$ 23,919
$ -
(181)
(189)
(287)
(139)
$ (796)
For securities with unrealized losses, the following information was considered in determining that the securities
were not other-than-temporarily impaired:
Securities issued by U.S. Government-sponsored agencies. As of December 31, 2011 and 2010 there were no
unrealized losses on these securities.
Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As
of December 31, 2011, the total unrealized losses on these securities amounted to $181,000, compared with $2.9 million
at December 31, 2010. All of these securities were credit rated “AAA” by the major credit rating agencies. Management
The First Bancorp • 2011 Form 10-K • Page 32
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, 2011 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, 2011. 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, 2011, the total unrealized losses on municipal
securities amounted to $189,000, compared with $2.7 million at December 31, 2010. 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, 2011, all municipal bond issuers were current on contractually obligated interest and principal payments.
The Company attributes the unrealized losses at December 31, 2011 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, 2011. 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, 2011, the total unrealized losses on corporate securities amounted to
$287,000, compared with $247,000 at December 31, 2010. Corporate securities are dependent on the operating
performance of the issuers. At December 31, 2011, all corporate bond issuers were current on contractually obligated
interest and principal payments. The Company attributes the unrealized losses at December 31, 2011 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, 2011. 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
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, 2011 and 2010, 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, which moratorium remains in effect. 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.
Although the Company had no dividend income on its FHLB stock in 2010, in each of the four quarters of 2011,
FHLB’s board of directors declared a dividend equal to an annual yield of 0.30%. FHLB’s board of directors anticipates
that it will continue to declare modest cash dividends through 2012, 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, 2011. The Bank will continue to monitor its investment in FHLB stock.
The First Bancorp • 2011 Form 10-K • Page 33
Lending Activities
The loan portfolio declined $22.6 million or 2.5% in 2011, with total loans at $865.0 million at December 31, 2011,
compared to $887.6 million at December 31, 2010. Commercial loans decreased $13.9 million or 3.6% between
December 31, 2010 and December 31, 2011, residential term loans increased by $3.4 million or 1.0% during the same
period. At the same time, municipal loans decreased by $5.6 million or 25.7%. Loan demand in the Bank’s market area
has been limited in the past three years as a result of continued weak economic conditions. In addition, in order to
reduce the Bank’s exposure to interest rate risk, the Bank has sold residential mortgages to the secondary market that
have been refinanced by borrowers seeking to take advantage of lower interest rates.
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 26.0% 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 98.0% 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, 2011, 2010, 2009, 2008 and 2007.
Dollars
in thousands
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Total loans
2011
2010
As of December 31,
2009
2008
2007
$255,424
32,574
86,982
16,221
29.5% $245,540
41,869
3.8%
10.1% 101,462
21,833
1.9%
27.7% $240,178
4.7%
48,714
11.4% 114,486
45,952
2.5%
25.2% $219,057
5.1%
48,182
12.0% 118,109
34,832
4.8%
22.3% $202,301
-
4.9%
12.1% 109,954
34,425
3.6%
22.0%
0.0%
11.9%
3.7%
341,286
10,469
39.5% 337,927
15,512
1.2%
38.1% 367,267
17,361
1.7%
38.7% 431,520
26,235
1.8%
44.0% 431,237
45,942
2.7%
46.9%
5.0%
105,244
16,788
8.1%
2.4%
$864,988 100.0% $887,596 100.0% $952,492 100.0% $979,273 100.0% $920,164 100.0%
12.1% 105,297
18,156
1.9%
94,324
24,210
74,199
22,106
77,206
24,132
11.9%
2.0%
7.9%
2.5%
9.9%
2.5%
The First Bancorp • 2011 Form 10-K • Page 34
The following table sets forth certain information regarding the contractual maturities of the Bank’s loan portfolio
as of December 31, 2011:
Dollars in thousands
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
$ 7,548
12,289
11,154
406
$ 17,609
1,864
23,635
3,597
$ 21,635
324
20,371
6,082
$ 208,632
18,097
31,822
6,136
$ 255,424
32,574
86,982
16,221
1,874
4,296
958
7,116
$ 45,641
12,909
644
1,806
6,200
$ 68,264
22,189
8
547
1,036
$ 72,192
304,314
5,521
101,933
2,436
$ 678,891
341,286
10,469
105,244
16,788
$ 864,988
The following table provides a listing of loans by category, excluding loans held for sale, between variable and
fixed rates as of December 31, 2011.
Dollars in thousands
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
$ 47,799
624
40,423
16,144
137,263
4,360
3,148
13,496
$263,257
5.5%
0.1%
4.7%
1.9%
15.9%
0.5%
0.4%
1.6%
30.6%
$207,625
31,950
46,559
77
204,023
6,109
102,096
3,292
$601,731
24.1%
3.8%
5.4%
0.0%
23.6%
0.7%
11.8%
0.4%
69.8%
$255,424
32,574
86,982
16,221
341,286
10,469
105,244
16,788
$864,988
29.5%
3.8%
10.1%
1.9%
39.5%
1.2%
12.1%
1.9%
100.0%
As of December 31, 2011, 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
As of December 31, 2011, the Bank did not have any loans held for sale. This compares to $2.8 million at December
31, 2010. Loans held for sale are carried at the lower of cost or market value. 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,
The First Bancorp • 2011 Form 10-K • Page 35
as well as general and regional economic conditions.
We provide for loan losses through the establishment of an allowance for loan losses which represents an
estimated reserve for existing losses in the loan portfolio. We deploy a systematic methodology for determining our
allowance that includes a quarterly review process, 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.
The appropriate level 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 appropriate level 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 allowance for loan losses is developed 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
appropriate level 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.
Consumer and Residential
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
The First Bancorp • 2011 Form 10-K • Page 36
residential mortgage portfolios are consistent with those for the commercial portfolios. Certain loans in the consumer
and residential portfolios identified as having the potential for further deterioration are analyzed individually to confirm
the appropriate risk 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, 2011, impaired loans with specific reserves totaled $14.2 million and the amount of
such reserves was $2.1 million. This compares to impaired loans with specific reserves of $9.5 million at December 31,
2010 and the amount of such reserves was $1.3 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, 2011 is considered by Management to be appropriate to address the
credit losses inherent in the loan portfolio at that date. Management views the level of the allowance for loan losses as
appropriate. 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, 2011, 2010, 2009,
2008 and 2007. 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
2011
2010
As of December 31,
2009
2008
2007
$ 5,659
658
2,063
19
29.5%
3.8%
10.1%
1.9%
$ 5,260
1,012
2,377
19
27.7%
4.7%
11.4%
2.5%
$ 4,986
807
3,363
23
25.2%
5.1%
12.0%
4.8%
$2,958
650
2,595
20
22.3%
4.9%
12.1%
3.6%
$3,020
-
1,633
25
22.0%
0.0%
11.9%
3.7%
1,159
255
39.5%
1.2%
1,408
44
38.1%
1.7%
1,198
174
38.7%
1.8%
713
44
44.0%
2.7%
706
75
46.9%
5.0%
595
584
2,008
670
12.1%
646
1.9%
1,880
0.0%
$13,000 100.0% $13,316
11.9%
2.0%
0.0%
515
717
1,854
100.0% $13,637
9.9%
2.5%
0.0%
100.0%
482
662
676
$8,800
7.9%
2.5%
0.0%
100.0%
491
606
244
$6,800
8.1%
2.4%
0.0%
100.0%
The First Bancorp • 2011 Form 10-K • Page 37
The allowance for loan losses totaled $13.0 million at December 31, 2011, compared to $13.3 million at December
31, 2010. 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 increased $0.8 million in 2011
from $1.3 million at December 31, 2010 to $2.1 million at December 31, 2011. The specific loans that make up those
categories change from period to period. The portion of the reserve based upon homogeneous pools of loans increased
by $234,000 in 2011. The portion of the reserve based on qualitative factors decreased by $1.5 million during 2011 due
to less 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 2011.
A breakdown of the allowance for loan losses as of December 31, 2011, by loan segment and allowance element, is
presented in the following table:
In thousands of dollars
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
$ 808
33
402
-
478
235
91
11
-
$ 2,058
$ 2,578
332
883
-
222
6
149
331
-
$ 4,501
$ 2,273
293
778
19
459
14
355
242
-
$ 4,433
$ -
-
-
-
-
-
-
-
2,008
$ 2,008
$ 5,659
658
2,063
19
1,159
255
595
584
2,008
$ 13,000
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 $10.6 million in 2011 compared
to $8.4 million in 2010. Net charge offs were $10.9 million in 2011 compared to net charge offs of $8.7 million in 2010.
Year-over-year the allowance as a percentage of loans outstanding was unchanged at 1.50%.
The First Bancorp • 2011 Form 10-K • Page 38
The following table summarizes the activities in our allowance for loan losses as of December 31, 2011, 2010,
2009, 2008 and 2007:
Dollars in thousands
2011
As of December 31,
2009
2010
2008
$ 8,800 $ 6,800 $ 6,364
2007
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
$ 13,316 $ 13,637
1,619
346
6,473
19
1,421
505
415
381
11,179
23
-
42
18
4,005
175
1,125
-
392
2,361
8
951
9,017
4
-
69
-
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
-
4
-
-
219
296
8,721
8,400
59
-
1
114
253
7,323
12,160
7
-
1
222
313
10,866
10,550
4
-
21
174
341
996
1,432
$ 13,000 $ 13,316 $ 13,637 $ 8,800 $ 6,800
0.11%
0.74%
5
-
-
204
241
2,700
4,700
1.23%
1.50%
0.94%
1.50%
0.28%
0.90%
0.75%
1.43%
Management believes the allowance for loan losses is appropriate as of December 31, 2011. In Management’s
opinion, the level of provision for loan losses and the corresponding decrease in the allowance for loan losses from
December 31, 2010, is directionally consistent with the decline in the size of our loan portfolio and corresponding levels
of specific reserves and unallocated reserves.
The First Bancorp • 2011 Form 10-K • Page 39
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.
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 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 3.21% at December 31, 2011 compared to
2.39% at December 31, 2010. The following table shows the distribution of nonperforming loans and loans greater than
90 days past due as of December 31, 2011, 2010, 2009, 2008 and 2007:
Dollars in thousands
2011
As of December 31,
2009
2010
2008
2007
$ 5,946
937
2,277
-
$ 7,064
2,350
5,836
-
Commercial
Real estate
Construction
Other
Municipal
Residential
2,109
Term
-
Construction
299
Home equity line of credit
1
Consumer
Total loans 90 or more days past due
$ 28,976 $ 22,291 $ 19,738 $ 17,429 $ 5,154
Non-accrual loans included in above total $ 27,806 $ 21,175 $ 18,562 $ 12,449 $ 2,867
$ 6,589
458
2,735
-
$ 7,477
-
2,908
-
11,312
1,198
1,163
53
$ 734
-
2,011
-
8,932
3,567
519
113
6,322
3,182
143
309
6,594
-
313
137
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, 2011, loans 90 or
more days past due and still accruing interest totaled $1.2 million, compared to $1.1 million at December 31, 2010.
The First Bancorp • 2011 Form 10-K • Page 40
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, 2011 we had 59 loans with a value of $22.9 million that have been restructured. This compares
to 32 loans with a value of $5.5 million as of December 31, 2010. As of December 31, 2011, Management is aware of
six loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $1.0 million as well as two
loans in the process of foreclosure totaling $240,000. There were 19 loans with an outstanding balance of $3.4 million
that were classified as TDRs and were on non-accrual status.
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 $42.1 million at December 31, 2011, and have increased $16.8
million from December 31, 2010. The number of impaired loans increased by 36 loans from 175 to 211 during the same
period. Impaired commercial loans increased $14.2 million from December 31, 2010 to December 31, 2011. The
specific allowance for impaired commercial loans increased from $635,000 at December 31, 2010 to $1.2 million as of
December 31, 2011, 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, 2010 to December 31, 2011,
impaired residential loans increased $2.0 million, impaired home equity lines of credit increased $644,000, and
impaired consumer loans decreased $53,000.
The following table sets forth impaired loans as of December 31, 2011, 2010, 2009, 2008 and 2007:
Dollars in thousands
2011
2010
As of December 31,
2009
2008
2007
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
$ 10,141
5,702
7,042
-
16,821
1,198
1,163
53
$42,120
$ 5,946
937
1,753
-
12,455
3,567
519
106
$25,283
$ 6,198
458
2,638
-
13,149
3,182
143
75
$25,843
$ 7,477
-
2,742
-
2,163
-
67
-
$12,449
$1,105
-
2,281
-
86
-
-
13
$3,485
The First Bancorp • 2011 Form 10-K • Page 41
Past Due Loans
The Bank’s overall loan delinquency ratio was 3.07% at December 31, 2011, versus 3.15% at December 31, 2010.
Loans 90 days delinquent and accruing increased slightly from $1.1 million at December 31, 2010 to $1.2 million as of
December 31, 2011. This total is made up of 6 loans, with the largest loan totaling $942,000. We expect to collect all
amounts due on these loans, including interest.
The following table sets forth loan delinquencies as of December 31, 2011, 2010, 2009, 2008 and 2007:
Dollars in thousands
2011
As of December 31,
2009
2008
2010
2007
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
$ 6,864 $ 6,055 $ 9,443 $ 10,446 $ 2,607
325
8,393
-
458
3,607
-
1,057
4,440
-
584
4,713
-
1,777
2,623
-
12,231
1,828
2,038
266
12,174
1,198
1,614
347
11,747
3,182
682
775
$ 26,597 $ 27,915 $ 29,894
1.26%
1.32%
0.12%
0.13%
1.76%
1.70%
3.14%
3.15%
1.00%
0.14%
1.93%
3.07%
11,526
-
1,423
609
8,803
-
872
496
$ 29,301 $ 21,496
1.78%
0.25%
0.31%
2.34%
1.21%
0.51%
1.27%
2.99%
As of December 31, 2011, the UBPR peer group had loans 30-89 days past due of 0.88% and loans 90+ days past
due on non-accrual of 2.57%.
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, 2011, there were 28 potential problem loans with a balance of $4.7 million or 0.5% of total loans. This
compares to 32 loans with a balance of $3.9 million or 0.4% of total loans at December 31, 2010.
As of December 31, 2011, there were 45 loans in the process of foreclosure with a total balance of $8.2 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 March and October 2011, the Bank conducted self-audits 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 • 2011 Form 10-K • Page 42
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, 2011, there were 16 properties
owned with a net OREO balance of $4.1 million, net of an allowance for losses of $0.4 million, compared to December
31, 2010 when there were 18 properties owned with a net OREO balance of $4.9 million, net of an allowance for losses
of $0.1 million. The following table presents the composition of other real estate owned as of December 31, 2011, 2010,
2009, 2008 and 2007:
Dollars in thousands
2011
As of December 31,
2009
2008
2010
2007
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
$ -
59
1,504
-
$ - $ - $ - $ -
1,152
-
-
1,172
731
-
424
1,795
-
1,182
1,920
-
2,967
-
-
-
2,826
-
-
-
$ 4,530 $ 5,061 $ 5,928
2,842
-
-
-
$ - $ - $ -
476
-
-
-
127
-
-
66
-
849
-
-
-
-
-
-
-
$ 2,752 $ 1,152
$ - $ -
325
-
-
325
-
-
309
-
-
-
66
-
-
-
$ 436 $ 132
107
-
-
-
$ 583
-
-
-
-
$ 325
-
-
-
-
$ 325
$ - $ -
424
1,729
-
59
1,377
-
$ -
706
1,920
-
$ -
848
731
-
$ -
827
-
-
2,658
-
-
-
2,719
-
-
-
$ 4,094 $ 4,929 $ 5,345
2,776
-
-
-
849
-
-
-
$ 2,428
-
-
-
-
$ 827
The First Bancorp • 2011 Form 10-K • Page 43
Funding, Liquidity and Capital Resources
As of December 31, 2011, the Bank had primary sources of liquidity of $229.1 million or 17.0% of assets. It is
Management’s opinion that this is appropriate. In addition, the Bank has an additional $108.3 million in borrowing
capacity under the Federal Reserve Bank of Boston’s Borrower in Custody program, $31.0 million in credit lines with
correspondent banks, and $114.8 million in unencumbered securities available as collateral for borrowing. These bring
the Bank’s primary sources of liquidity to $485.2 million or 36.1% 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 71.3% of total average assets in 2011. 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 2011, total deposits decreased by $33.2 million or 3.4%, ending the year at $941.3 million compared to $974.5
million at December 31, 2010. Low-cost deposits (demand, NOW, and savings accounts) increased by $18.4 million or
6.2% during the year, money market deposits increased $7.4 million or 10.3%, and certificates of deposit decreased
$59.0 million or 9.7%. The majority of the change in certificates of deposit year-to-date was primarily 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 $52.1 million in 2011, as shown
in the following table which sets forth the average daily balance for the Bank’s principal deposit categories for each
period:
Dollars in thousands
Demand deposits
NOW accounts
Money market accounts
Savings
Certificates of deposit
Total deposits
2009
2011
Years ended December 31,
2010
$ 76,686 $ 69,260 $ 65,567
106,895
118,400
108,922
78,155
87,921
97,484
578,713
597,982
$1,013,424 $ 961,281 $ 948,018
123,377
74,945
109,561
628,855
% change
2011 vs. 2010
10.72%
4.20%
-4.11%
12.39%
5.16%
5.42%
The First Bancorp • 2011 Form 10-K • Page 44
The average cost of deposits (including non-interest-bearing accounts) was 0.96% for the year ended December 31,
2011, compared to 1.07% for the year ended December 31, 2010 and 1.25% for the year ended December 31, 2009. 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,
2010
2011
0.26%
0.46%
0.44%
1.37%
1.04%
0.33%
0.69%
0.60%
1.47%
1.15%
2009
0.35%
1.07%
0.62%
1.75%
1.35%
Of all certificates of deposit, $320.4 million or 58.3% will mature by December 31, 2012. As of December 31,
2011, the Bank held a total of $332.3 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
2010
As of December 31,
2011
$ 140,397
50,919
38,240
102,784
$ 332,340
$ 215,112
35,700
26,687
98,745
$ 376,244
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. agencies notes and mortgage-backed securities and qualifying first
mortgage loans. As of December 31, 2011, the Bank’s total FHLB borrowing capacity, based upon the Bank’s holding
of FHLB stock, was $260.1 million, of which $84.9 million was unused. As of December 31, 2011, advances totaled
$175.1 million, with a weighted average interest rate of 1.89% and remaining maturities ranging from three days to 10
years. This compares to advances totaling $198.6 million, with a weighted average interest rate of 2.09% and remaining
maturities ranging from three days to 10 years, as of December 31, 2010. The decrease in the weighted average rate paid
on borrowed funds in 2011 compared to 2010 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, 2011 was $90.5 million, compared to $57.3 million on
December 31, 2010, and $49.7 million on December 31, 2009. The weighted average rates of these agreements were
0.97% as of December 31, 2011, compared to 1.16% as of December 31, 2010 and 1.57% as of December 31, 2009.
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. There were no Treasury Tax and Loan notes at
December 31, 2011, compared to $1.4 million at December 31, 2010 and $0.6 million at December 31, 2009.
The maximum amount of borrowed funds outstanding at any month-end during each of the last three years was
$277.4 million at the end of October in 2011, $257.3 million at the end of December in 2010, and $306.5 million at the
end of February in 2009. The average amount outstanding during 2011 was $241.9 million with a weighted average
interest rate of 2.05%. This compares to an average outstanding amount of $230.9 million with a weighted average
interest rate of 2.76% in 2010, and an average outstanding amount of $248.3 million with a weighted average interest
rate of 2.84% in 2009. The decline in average cost realized during 2011 is consistent with the interest rate policy and
actions of the FOMC.
The First Bancorp • 2011 Form 10-K • Page 45
Capital Resources
Shareholders’ equity as of December 31, 2011 was $150.9 million, compared to $149.8 million as of December 31,
2010. The Company’s earnings for 2011, net of dividends paid, added to shareholders’ equity. At the same time, a
$12.5 million repurchase of the Company’s preferred stock was mostly offset by a $9.5 million gain on available-for-
sale securities, presented in accordance with FASB ASC Topic 740 “Investments – Debt and Equity Securities”. This
gain was the result of lower interest rates resulting in higher security values.
Capital at December 31, 2011 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 8.32% on December 31,
2011 and 9.30% at December 31, 2010. To be rated “well-capitalized”, regulatory requirements call for a minimum
leverage capital ratio of 5.00%. At December 31, 2011, the Company had tier-one risk-based capital of 14.40% and tier-
two risk-based capital of 15.66%, versus 14.97% and 16.23%, respectively, at December 31, 2010. 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.
On August 24, 2011, the Company repurchased $12.5 million of the CPP Shares. The repurchase transaction was
approved by the Federal Reserve Bank of Boston, the Company’s primary regulator, as well as the Bank’s primary
regulator, the Office of the Comptroller of the Currency. These approvals were based on the Company’s and the Bank’s
continued strong capital ratios after the repayment, and almost all of the repayment was made from retained earnings
accumulated since the preferred stock was issued in 2009. After the repurchase, $12.5 million of CPP Shares remains
outstanding. The warrant issued in conjunction with the CPP Shares for 225,904 shares of Common Stock at an exercise
price of $16.60 per share was unchanged as a result of the repurchase transaction and remains outstanding.
During 2011, 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 68.42% of
earnings in 2011 compared to 70.91% in 2010 and 63.93% in 2009. 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 $8.7 million in dividends
was declared in 2011 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
2012 will be that year’s net income plus $6.9 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. 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. Fractional shares totaling five shares were repurchased from employee benefit plans in 2010. During 2011, the
Company repurchased no common stock.
In 2011, 28,855 shares 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 • 2011 Form 10-K • Page 46
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, 2011, 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, 2011:
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
$265,663
604
549,176
$815,443
59,427
39,313
2,177
12,551
$113,468
Less than
1 year
$135,500
142
320,374
$456,016
1-3 years
$ 10,000
157
119,642
$129,799
3-5 years
$ 70,000
136
109,160
$179,296
59,427
39,313
2,177
12,551
$113,468
-
-
-
-
$ -
-
-
-
-
$ -
More than
5 years
$ 50,163
169
-
$ 50,332
-
-
-
-
$ -
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, 2011, 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 2011, the Company made capital purchases totaling $1.2 million. This cost will be amortized over an average of
seven years, adding approximately $171,000 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 recently enacted Federal legislation will not have a significant impact on the Company’s
future operating results or financial condition.
The First Bancorp • 2011 Form 10-K • Page 47
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, 2011, was +1.55% of total assets, which compares to +2.14% of assets at
December 31, 2010. 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, 2011, 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
$ 22,927 $ 383,349
$ 1,218 $ 1,369
1,412
-
-
-
-
-
104,275
183,564
153,484
-
-
10,181
61,767
-
819
550,803
206,491
165,853
207,763
227,779
145,205
47,977
80,000
-
182,652
32,350
16,152
161,357
438,392
340,129
$ 4,496 $ (133,638) $ 112,411
8.18%
-9.73%
-
(112,411)
0.00%
-8.18%
14,031
-
423,665
-
11,395
450,309
284,836
137,686
11,056
433,578
$ 16,731
1.22%
16,731
1.22%
0.33%
21,227
1.55%
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 • 2011 Form 10-K • Page 48
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 decrease by approximately 0.8%
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 0.4% 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 7.6% in a falling-rate scenario, and lower than that
earned in a stable rate environment by 1.0% 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, 2011 and 2010 is presented in the
following table:
Changes in Net Interest Income
2011
2010
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%
-0.8%
-0.4%
-7.6%
-1.0%
+0.6%
-1.5%
-2.2%
-4.7%
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, 2011, 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, 2011, 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 • 2011 Form 10-K • Page 49
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
Interest bearing deposits in other banks
Securities available for sale
Securities to be held to maturity, fair value of $130,677,000
at December 31, 2011, and $110,366,000 at December 31, 2010
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 income (loss)
Net unrealized gain (loss) on securities available for sale, net of
tax of $3,985,000 in 2011 and tax benefit of $1,108,000 in 2010
Net unrealized loss on post-retirement benefit costs,
net of tax benefit of $47,000 in 2011 and $39,000 in 2010
Total shareholders’ equity
Total liabilities and shareholders’ equity
Common stock
Number of shares authorized
Number of shares issued and outstanding
Book value per share
Tangible book value per common share
2011
2010
$ 14,115,000
-
286,202,000
122,661,000
1,412,000
14,031,000
-
864,988,000
13,000,000
851,988,000
4,835,000
18,842,000
4,094,000
27,684,000
27,003,000
$ 1,372,867,000
$ 75,750,000
122,775,000
79,015,000
114,617,000
549,176,000
941,333,000
135,500,000
130,163,000
15,013,000
1,222,009,000
$ 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
12,303,000
98,000
45,829,000
85,314,000
24,705,000
98,000
45,474,000
81,701,000
7,401,000
(2,057,000)
(87,000)
150,858,000
$ 1,372,867,000
(73,000)
149,848,000
$ 1,393,802,000
18,000,000
9,812,180
$14.12
$11.30
18,000,000
9,773,025
$12.80
$ 9.97
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2011 Form 10-K • Page 50
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
$696,000 in 2011, $868,000 in 2010, and $1,472,000 in 2009)
Interest on deposits with other banks
Interest and dividends on investments (includes tax-exempt income of
$4,332,000 in 2011, $3,373,000 in 2010, and $2,980,000 in 2009)
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
2011
2010
2009
$ 39,805,000 $ 43,903,000
6,000
12,000
$ 49,277,000
1,000
15,885,000
55,702,000
13,351,000
57,260,000
13,291,000
62,569,000
9,746,000
4,963,000
14,709,000
40,993,000
10,550,000
30,443,000
1,506,000
2,688,000
3,293,000
1,138,000
3,125,000
11,750,000
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
12,245,000
1,583,000
2,144,000
1,391,000
-
-
283,000
8,392,000
26,038,000
16,155,000
3,791,000
10,935,000
11,927,000
1,580,000
1,536,000
2,273,000
2,209,000
1,666,000
1,931,000
150,000
-
916,000
-
283,000
283,000
8,855,000
7,244,000
26,658,000
25,130,000
17,589,000
16,194,000
4,547,000
4,078,000
$ 13,042,000
$ 12,364,000 $ 12,116,000
1,161,000
1,348,000
$ 11,156,000 $ 10,768,000 $ 11,881,000
1,208,000
$ 1.14 $ 1.10
1.10
0.780
9,760,760
4,726
The accompanying notes are an integral part of these consolidated financial statements
1.14
0.780
9,788,610
9,619
$ 1.22
1.22
0.780
9,721,172
12,072
The First Bancorp • 2011 Form 10-K • Page 51
Consolidated Statements of Changes in Shareholders’ Equity
The First Bancorp, Inc. and Subsidiary
Preferred
stock
(493,000)
-
-
-
-
-
25,000,000
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
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
99,000
-
-
-
-
-
-
Common stock and
additional paid-in capital
Amount
Shares
$ 44,214,000 $ 74,057,000
9,696,397
13,042,000
-
Retained
earnings
-
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
$ (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
12,116,000
-
-
836,000
$ (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
416,000
$ (2,130,000) $ 149,848,000
-
The First Bancorp • 2011 Form 10-K • Page 52
Preferred
stock
-
Balance at December 31, 2010 $ 24,705,000
-
Net income
Net unrealized gain on
securities available for sale, net
of taxes of $5,093,000
Unrecognized actuarial loss for
post-retirement benefits, net of
tax benefit of $8,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Amortization of discount for
preferred stock issuance
Payment to repurchase
preferred stock
Proceeds from sale of common
stock
-
Balance at December 31, 2011 $ 12,303,000
98,000
-
-
-
-
(12,500,000)
Common stock and
additional paid-in capital
Amount
Shares
$ 45,572,000 $ 81,701,000
9,773,025
12,364,000
-
Retained
earnings
-
Accumulated
other
comprehensive
income (loss)
$ (2,130,000) $ 149,848,000
12,364,000
Total
shareholders’
equity
-
-
-
-
-
-
-
-
-
9,458,000
9,458,000
-
-
-
22,000
-
12,364,000
(8,751,000)
-
(14,000)
9,444,000
-
-
(14,000)
21,808,000
(8,751,000)
22,000
(98,000)
-
-
-
-
-
-
-
(12,500,000)
39,155
9,812,180
431,000
-
$ 45,927,000 $ 85,314,000
-
$ 7,314,000
431,000
$ 150,858,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2011 Form 10-K • Page 53
2011
2010
2009
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 investment premiums and discounts
Net (gain) 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
Maturity 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 Reserve Bank stock
Net decrease in loans
Capital expenditures
Proceeds from sale of premises and equipment
Net cash provided (used) in investing activities
Cash flows from financing activities
Net increase (decrease) in transaction and savings accounts
Net increase (decrease) 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
Repurchase of preferred stock
Payments to repurchase common stock
Proceeds from sale of common stock
Dividends paid
Net cash provided (used) by 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
Interest paid
Income taxes paid
Non-cash transactions:
Transfer from loans to other real estate owned
$12,364,000
1,355,000
730,000
10,550,000
(34,304,000)
37,110,000
(3,293,000)
-
3,583,000
(7,000)
1,284,000
22,000
1,288,000
(1,596,000)
5,000
390,000
244,000
29,725,000
-
100,000
140,417,000
42,756,000
28,644,000
5,124,000
(161,386,000)
-
(44,424,000)
-
6,176,000
(1,222,000)
-
16,185,000
25,828,000
(58,981,000)
30,000,000
(30,000,000)
8,340,000
-
(12,500,000)
-
431,000
(8,751,000)
(45,633,000)
277,000
13,838,000
$14,115,000
$14,901,000
3,037,000
$12,116,000
$13,042,000
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
(100,000)
-
202,000
101,223,000
84,287,000
3,722,000
(316,453,000)
-
-
-
4,051,000
10,255,000
183,973,000
820,000
(81,853,000)
(1,371,000)
(1,363,000) (138,186,000)
(750,000)
15,017,000
(3,798,000)
1,000
(11,841,000)
-
52,395,000
(2,043,000)
-
(78,130,000)
(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
$13,838,000
$16,824,000
3,317,000
(22,217,000)
19,164,000
10,000,000
(27,000,000)
(5,289,000)
25,000,000
-
(263,000)
836,000
(8,649,000)
(8,418,000)
(1,524,000)
16,856,000
$15,332,000
$19,160,000
5,859,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2011 Form 10-K • Page 54
5,566,000
3,780,000
4,441,000
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, 2011, 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, goodwill, the valuation of mortgage servicing rights, and other-than-temporary impairment of securities.
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 • 2011 Form 10-K • Page 55
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 appropriate 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. For all loan
classes, 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 the Bank 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.
Troubled Debt Restructured
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 to first determine if the
borrower demonstrates financial difficulty. Common indicators of this include past due status with bank obligations,
substandard credit bureau reports, or an inability to refinance with another lender. If the borrower is experiencing
financial difficulty and concessions are granted, such as maturity date extension, interest rate adjustments to below
market pricing, or a deferment of payments, the loan will generally be classified as a TDR.
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. Annual amortization expense for 2011, 2010 and
2009 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, 2011, 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. For all classes of loans, 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 for a
substantial period of time, generally six months,and repayment of the remaining contractual amounts is expected or
when it otherwise becomes well secured and in the process of collection.
The First Bancorp • 2011 Form 10-K • Page 56
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.
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, and 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, 2011 the Company had a contractual clearing balance of $500,000
and a reserve balance requirement of $629,000 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 • 2011 Form 10-K • Page 57
Note 3. Investment Securities
The following tables summarize the amortized cost and estimated fair value of investment securities at December 31,
2011 and 2010:
As of December 31, 2011
Securities available for sale
U.S. Government sponsored agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Securities to be held to maturity
U.S. Government sponsored agencies
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, 2010
Securities available for sale
U.S. Government sponsored agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Securities to be held to maturity
U.S. Government sponsored agencies
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)
$ -
191,924,000
80,259,000
1,098,000
1,535,000
$ 274,816,000
$19,390,000
56,800,000
46,171,000
300,000
$ 122,661,000
$ -
6,486,000
5,484,000
-
37,000
$ 12,007,000
$ 132,000
3,900,000
4,159,000
-
$ 8,191,000
$ -
(178,000)
(17,000)
(287,000)
(139,000)
$ (621,000)
$ -
(3,000)
(172,000)
-
$ (175,000)
$ -
198,232,000
85,726,000
811,000
1,433,000
$ 286,202,000
$ 19,522,000
60,697,000
50,158,000
300,000
$ 130,677,000
$ 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)
$ 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
The First Bancorp • 2011 Form 10-K • Page 58
The following table summarizes the contractual maturities of investment securities at December 31, 2011:
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)
$ 6,617,000
18,792,000
23,219,000
224,653,000
1,535,000
$ 274,816,000
$ 6,773,000
19,473,000
24,065,000
234,458,000
1,433,000
$ 286,202,000
$ 5,179,000
10,085,000
23,027,000
84,370,000
-
$ 122,661,000
$ 5,227,000
10,654,000
24,694,000
90,102,000
-
$ 130,677,000
The following table summarizes the contractual maturities of investment securities at December 31, 2010:
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
$ -
$ -
3,099,000
2,950,000
2,404,000
2,385,000
287,346,000
290,688,000
380,000
371,000
$ 293,229,000
$ 296,394,000
Securities to be held to maturity
Amortized
Cost
$ 1,195,000
5,475,000
13,838,000
86,872,000
-
$ 107,380,000
Fair Value
(Estimated)
$ 1,203,000
5,749,000
14,435,000
88,979,000
-
$ 110,366,000
At December 31, 2011, securities with a fair value of $141,506,000 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 $113,023,000, as of December 31, 2010 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 2011, 2010 and 2009:
Proceeds from sales
Gross gains
Gross losses
Net gain (loss)
Related income taxes
2011
$140,417,000
4,020,000
(727,000)
$ 3,293,000
$ 1,153,000
2010
$ 202,000
2,000
-
$ 2,000
$ 1,000
2009
$ 4,051,000
20,000
(170,000)
$ (150,000)
$ (52,000)
The following table summarizes activity in the unrealized gain or loss on available for sale securities included in
other comprehensive income for the years ended December 31, 2011, 2010 and 2009.
Years ended December 31,
Balance at beginning of year
Unrealized gains (losses) arising during the
period
Realized (gains) losses during the period
Related deferred taxes
Net change
Balance at end of year
2011
$(2,057,000)
2010
$ (125,000)
2009
$(819,000)
17,844,000
(3,293,000)
(5,093,000)
9,458,000
$7,401,000
(2,971,000)
(2,000)
1,041,000
(1,932,000)
$(2,057,000)
918,000
150,000
(374,000)
694,000
$(125,000)
Management reviews securities with unrealized losses for other than temporary impairment. As of December 31,
2011, there were 29 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 11 had been temporarily impaired for
The First Bancorp • 2011 Form 10-K • Page 59
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, 2011 is
summarized below:
As of December 31, 2011
U.S. Government sponsored
agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ - $ - $ - $ -
(156,000)
(172,000)
(287,000)
(19,000)
6,780,000
(25,000)
1,667,000
(17,000)
811,000
-
34,000
(120,000)
$(162,000) $9,292,000
12,489,000
1,984,000
-
154,000
$14,627,000
19,269,000
3,651,000
811,000
188,000
$(634,000) $23,919,000
$ - $ -
(181,000)
(189,000)
(287,000)
(139,000)
$(796,000)
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. Government sponsored
agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ - $ - $ -
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)
-
-
$ - $ - $ -
(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)
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, 2011 and 2010, 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.
Although the Company had no dividend income on its FHLB stock in 2010, in each of the four quarters of 2011,
FHLB’s board of directors declared a dividend equal to an annual yield of 0.30%. FHLB’s board of directors anticipates
that it will continue to declare modest cash dividends through 2012, 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, 2011. The Bank will continue to monitor its investment in FHLB stock.
The First Bancorp • 2011 Form 10-K • Page 60
Note 4. Loan Servicing
At December 31, 2011 and 2010, the Bank serviced loans for others totaling $238,221,000 and $248,872,000,
respectively. Net gains from the sale of loans totaled $756,000 in 2011, $977,000 in 2010, and $962,000 in 2009. In
2011, mortgage servicing rights of $368,000 were capitalized and amortization for the year totaled $573,000. At
December 31, 2011, mortgage servicing rights had a fair value of $1,581,000. 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.
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)
and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of December 31,
2011, the prepayment assumption using the PSA model was 329, which translates into an anticipated prepayment rate of
19.74%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus 5.11%. 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
2011
$ 6,099,000
(4,837,000)
(61,000)
$ 1,201,000
2010
$ 5,732,000
(4,265,000)
(23,000)
$ 1,444,000
Note 5. Loans
The following table shows the composition of the Company’s loan portfolio as of December 31, 2011 and 2010:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
December 31, 2011
December 31, 2010
$ 255,424,000
32,574,000
86,982,000
16,221,000
29.5%
3.8%
10.1%
1.9%
$ 245,540,000
41,869,000
101,462,000
21,833,000
27.7%
4.7%
11.4%
2.5%
341,286,000
39.5%
10,469,000
1.2%
105,244,000
12.1%
1.9%
16,788,000
$ 864,988,000 100.0%
337,927,000
15,512,000
105,297,000
18,156,000
38.1%
1.7%
11.9%
2.0%
$ 887,596,000 100.0%
Loan balances include net deferred loan costs of $1,386,000 in 2011 and $1,341,000 in 2010. Pursuant to collateral
agreements, qualifying first mortgage loans, which were valued at $211,597,000 and $192,911,000 at December 31,
2011 and 2010, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In
addition, commercial, construction and home equity loans totaling $218,417,000 at December 31, 2011 were used to
collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
At December 31, 2011 and 2010, non-accrual loans were $27,806,000 and $21,175,000, respectively. As of
December 31, 2011, 2010 and 2009, interest income which would have been recognized on these loans, if interest had
been accrued, was $1,052,000, $1,334,000, and $1,297,000, respectively. Loans more than 90 days past due accruing
interest totaled $1,170,000 at December 31, 2011 and $1,116,000 at December 31, 2010. The Company continues to
The First Bancorp • 2011 Form 10-K • Page 61
accrue interest on these loans because it believes collection of principal and interest is reasonably assured.
Loans to directors, officers and employees totaled $37,935,000 at December 31, 2011 and $40,015,000 at
December 31, 2010. 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
2011
$ 25,525,000
237,000
(1,211,000)
$ 24,551,000
2010
$ 25,375,000
934,000
(784,000)
$ 25,525,000
Information on the past-due status of loans as of December 31, 2011, is presented in the following table:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
30-89 Days
Past Due
90+ Days
Past Due
All
Past Due
Current
Total
90+ Days &
Accruing
$2,872,000 $ 3,992,000
1,603,000
1,192,000
-
174,000
1,431,000
-
$ 6,864,000 $248,560,000 $255,424,000
32,574,000
30,797,000
86,982,000
84,359,000
16,221,000
16,221,000
1,777,000
2,623,000
-
$ -
-
52,000
-
3,331,000
-
480,000
331,000
1,118,000
-
-
-
$8,619,000 $17,978,000 $26,597,000 $838,391,000 $864,988,000 $1,170,000
12,174,000 329,112,000 341,286,000
1,198,000
10,469,000
9,271,000
1,614,000 103,630,000 105,244,000
16,788,000
16,441,000
8,843,000
1,198,000
1,134,000
16,000
347,000
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
-
41,869,000
40,812,000
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
585,000
-
-
7,000
$11,707,000 $16,208,000 $27,915,000 $859,681,000 $887,596,000 $1,116,000
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
7,696,000
1,724,000
474,000
7,000
266,000
For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable
that the Bank 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 • 2011 Form 10-K • Page 62
Information on nonaccrual loans as of December 31, 2011 and 2010 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
2011
2010
$ 7,064,000
2,350,000
5,784,000
-
10,194,000
1,198,000
1,163,000
53,000
$27,806,000
$ 5,946,000
937,000
1,753,000
-
8,347,000
3,567,000
519,000
106,000
$21,175,000
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
2011
2010
$ 28,777,000 $ 25,836,000
143,000
598,000
2009
$ 16,263,000
70,000
As of December 31,
Balance of impaired loans
Less portion for which no allowance for loan losses is allocated
Portion of impaired loan balance for which an allowance for loan losses is
allocated
Portion of allowance for loan losses allocated to the impaired loan balance
2011
$ 42,120,000
(27,897,000)
2010
$ 25,283,000
(15,773,000)
$ 14,223,000
$ 2,058,000
$ 9,510,000
$ 1,256,000
Impaired loans include restructured loans and loans placed on non-accrual status when, based on current
information and events, it is probable that the Bank 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 typically established for the difference. The change in present value of expected future cash flows due to the
passage of time is recorded to the provision for loan losses.
The First Bancorp • 2011 Form 10-K • Page 63
A breakdown of impaired loans by category as of December 31, 2011, 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
Recognized
Interest
Income
$ 5,584,000
5,172,000
6,022,000
-
9,875,000
468,000
739,000
37,000
$27,897,000
$4,557,000
530,000
1,020,000
-
6,946,000
730,000
424,000
16,000
$14,223,000
$10,141,000
5,702,000
7,042,000
-
16,821,000
1,198,000
1,163,000
53,000
$42,120,000
$ 5,584,000
5,172,000
6,022,000
-
$ -
-
-
-
9,875,000
468,000
739,000
37,000
$27,897,000
-
-
-
-
$ -
$4,557,000
530,000
1,020,000
-
6,946,000
730,000
424,000
16,000
$14,223,000
$10,141,000
5,702,000
7,042,000
-
16,821,000
1,198,000
1,163,000
53,000
$42,120,000
$ 808,000
33,000
402,000
-
478,000
235,000
91,000
11,000
$2,058,000
$808,000
33,000
402,000
-
478,000
235,000
91,000
11,000
$2,058,000
$ 5,212,000
1,072,000
1,918,000
-
9,493,000
961,000
646,000
39,000
$19,341,000
$ 2,307,000
247,000
681,000
-
5,628,000
244,000
272,000
57,000
$ 9,436,000
$ 7,519,000
1,318,000
2,600,000
-
15,121,000
1,205,000
918,000
96,000
$28,777,000
$ 23,000
143,000
28,000
-
54,000
-
-
-
$248,000
$103,000
-
19,000
-
228,000
-
-
-
$350,000
$126,000
143,000
47,000
-
282,000
-
-
-
$598,000
Substantially all interest income recognized on impaired loans for all classes of financing receivables was
recognized on a cash basis as received.
The First Bancorp • 2011 Form 10-K • Page 64
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
Recognized
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
$ 6,892,000
576,000
2,396,000
-
12,683,000
2,854,000
283,000
152,000
$25,836,000
$ -
-
-
-
-
-
-
-
$ -
$ 13,000
-
-
-
127,000
-
3,000
-
$ 143,000
$ 13,000
-
-
-
127,000
-
3,000
-
$ 143,000
The First Bancorp • 2011 Form 10-K • Page 65
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 classes and credit risk is evaluated separately in each class. The appropriate level 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 considered for each class 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 and class, as of December 31, 2011 and 2010:
2010
$ 192,000
152,000
291,000
-
432,000
-
122,000
67,000
$ 1,256,000
2011
$ 808,000
33,000
402,000
-
$ 4,851,000
625,000
1,661,000
19,000
478,000
235,000
91,000
11,000
$ 2,058,000
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
1,159,000
255,000
595,000
584,000
2,008,000
$13,000,000
681,000
20,000
504,000
573,000
2,008,000
$10,942,000
$ 5,659,000
658,000
2,063,000
19,000
1,408,000
44,000
670,000
646,000
1,880,000
$13,316,000
976,000
44,000
548,000
579,000
1,880,000
$12,060,000
$ 5,068,000
860,000
2,086,000
19,000
$ 5,260,000
1,012,000
2,377,000
19,000
The First Bancorp • 2011 Form 10-K • Page 66
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, 2011 and 2010, by loan segment and allowance element, is presented in the following
tables:
As of December 31, 2011
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
$ 808,000
33,000
402,000
-
478,000
235,000
91,000
11,000
-
$2,058,000
$2,578,000
332,000
883,000
-
222,000
6,000
149,000
331,000
-
$4,501,000
$2,273,000
293,000
778,000
19,000
459,000
14,000
355,000
242,000
-
$4,433,000
Unallocated
Reserves
Total Reserves
$ -
-
-
-
-
-
-
-
2,008,000
$2,008,000
$ 5,659,000
658,000
2,063,000
19,000
1,159,000
255,000
595,000
584,000
2,008,000
$13,000,000
As of December 31, 2010
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
$ 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
Reserves for
Qualitative
Factors
$ 2,885,000
490,000
1,187,000
19,000
575,000
26,000
476,000
255,000
-
$ 5,913,000
Unallocated
Reserves
Total Reserves
$ -
-
-
-
-
-
-
-
1,880,000
$ 1,880,000
$ 5,260,000
1,012,000
2,377,000
19,000
1,408,000
44,000
670,000
646,000
1,880,000
$13,316,000
Risk Characteristics
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. Commercial construction loans comprise a very small portion of the portfolio, and at 26.4%
of capital are well under the regulatory guidance of 100.0% of capital. Construction and non-owner-occupied
The First Bancorp • 2011 Form 10-K • Page 67
commercial real estate loans are at 89.6% 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 borrower’s
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 eight 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.
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 full
repayment upon 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.
The First Bancorp • 2011 Form 10-K • Page 68
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, 2011:
1 Strong
2 Above average
3 Satisfactory
4 Average
5 Watch
6 OAEM
7 Substandard
8 Doubtful
Total
Commercial
Real Estate
$ 23,000
21,334,000
33,119,000
106,171,000
44,215,000
18,309,000
31,575,000
678,000
$255,424,000
Commercial
Construction
$ -
-
1,365,000
17,125,000
3,287,000
2,320,000
7,323,000
1,154,000
$32,574,000
Commercial
Other
$ 465,000
4,229,000
10,981,000
31,600,000
17,893,000
5,303,000
16,362,000
149,000
$86,982,000
Municipal
Loans
$ 2,158,000
7,509,000
3,861,000
2,693,000
-
-
-
-
$16,221,000
All Risk-
Rated Loans
$ 2,646,000
33,072,000
49,326,000
157,589,000
65,395,000
25,932,000
55,260,000
1,981,000
$391,201,000
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
Total
Commercial
Real Estate
$ 48,000
20,365,000
42,600,000
107,167,000
27,898,000
19,496,000
27,966,000
-
$245,540,000
Commercial
Construction
Commercial
Other
$ -
10,000
4,694,000
22,177,000
6,347,000
3,715,000
4,926,000
-
$41,869,000
$ 395,000
4,483,000
16,052,000
41,972,000
12,203,000
6,463,000
19,894,000
-
$101,462,000
Municipal
Loans
$ 2,481,000
11,453,000
4,900,000
2,999,000
-
-
-
-
$21,833,000
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
-
$410,704,000
Commercial loans are generally charged off when all or a portion of the principal amount is determined to be
uncollectable. This determination is based on circumstances specific to a borrower including repayment ability, analysis
of collateral and other factors as applicable.
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, typically 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.
There were no changes to the Company’s accounting policies or methodology used to estimate the allowance for
loan losses during the year ended December 31, 2011. Allowance for loan losses transactions for the years ended
December 31, 2011, 2010 and 2009 were as follows:
The First Bancorp • 2011 Form 10-K • Page 69
For the year ended
December 31, 2011
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
For the year ended
December 31, 2010
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance individually
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
$ 5,260,000
1,619,000
23,000
1,995,000
$ 5,659,000
$ 1,012,000 $ 2,377,000 $ 19,000 $ 1,408,000
1,421,000
7,000
1,165,000
$ 658,000 $ 2,063,000 $ 19,000 $ 1,159,000
6,473,000
42,000
6,117,000
346,000
-
(8,000)
19,000
18,000
1,000
$ 44,000
505,000
-
716,000
$ 255,000
$ 670,000 $ 646,000 $ 1,880,000 $ 13,316,000
11,179,000
313,000
10,550,000
$ 595,000 $ 584,000 $ 2,008,000 $ 13,000,000
415,000
1,000
339,000
-
-
128,000
381,000
222,000
97,000
$ 808,000
$ 33,000 $ 402,000 $ - $ 478,000
$ 235,000
$ 91,000 $ 11,000 $ - $ 2,058,000
$ 4,851,000
$ 625,000 $ 1,661,000 $ 19,000 $ 681,000
$ 20,000
$ 504,000 $ 573,000 $ 2,008,000 $ 10,942,000
$255,424,000
$32,574,000
$86,982,000 $16,221,000 $341,286,000
$10,469,000
$105,244,000 $16,788,000 $ - $864,988,000
$ 10,141,000
$ 5,702,000
$ 7,042,000 $ - $ 16,821,000
$ 1,198,000
$ 1,163,000 $ 53,000 $ - $ 42,120,000
$245,283,000
$26,872,000
$79,940,000 $16,221,000 $324,465,000
$ 9,271,000
$104,081,000 $16,735,000 $ - $822,868,000
Commercial
Real Estate Construction
Other
Municipal
Residential
Home Equity
Construction Line of Credit
Term
Consumer
Unallocated
Total
$ 4,986,000 $ 807,000 $ 3,363,000 $ 23,000 $ 1,198,000 $ 174,000
2,361,000
-
2,231,000
$ 5,260,000 $ 1,012,000 $ 2,377,000 $ 19,000 $ 1,408,000 $ 44,000
4,005,000
4,000
4,275,000
1,125,000
69,000
70,000
392,000
4,000
598,000
175,000
-
380,000
-
-
(4,000)
$ 515,000
8,000
-
163,000
$ 670,000
$ 717,000
951,000
219,000
661,000
$ 646,000
$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
$ - $ 12,455,000 $ 3,567,000
$ 519,000
$ 106,000
$ -
$ 25,283,000
$239,594,000 $40,932,000 $ 99,709,000 $21,833,000 $325,472,000 $11,945,000
$104,778,000
$18,050,000
$ -
$862,313,000
The First Bancorp • 2011 Form 10-K • Page 70
For the year ended
December 31, 2009
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance individually
evaluated for impairment
Ending balance collectively
evaluated for impairment
Real Estate
Commercial
Construction
Municipal
Residential
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 $ 20,000 $ 716,000 $ 41,000
47,000
-
180,000
$ 3,363,000 $ 23,000 $ 1,198,000 $ 174,000
1,767,000
59,000
2,190,000
2,329,000
79,000
3,432,000
-
-
3,000
$ 482,000 $ 662,000
826,000
114,000
767,000
$ 515,000 $ 717,000
177,000
1,000
209,000
$ 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 • 2011 Form 10-K • Page 71
A 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.
The Bank applies the same interest accrual policy to TDRs as it does for all classes of loans. As of December 31,
2011 we had 59 loans with a value of $22.9 million that have been restructured. This compares to 32 loans with a value
of $5.5 million classified as TDRs as of December 31, 2010. The impairment carried as a specific reserve in the
allowance for loan losses is calculated by present valuing the cashflow modification on the loan, or, for collateral-
dependent loans, using the fair value of the collateral less costs to sell. The following table shows TDRs by class and the
specific reserve as of December 31, 2011:
Number of Loans
Balance
Specific Reserves
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
4
3
9
-
43
-
-
-
-
59
$ 3,078,000
4,506,000
5,350,000
-
9,924,000
-
-
-
-
$22,858,000
$ 273,000
-
97,000
-
363,000
-
-
-
-
$ 733,000
During the year ending December 31, 2011, 31 loans were placed on TDR status with an outstanding balance of
$18.3 million. These were considered to be TDRs because concessions had been granted to borrowers experiencing
financial difficulties. Concessions include reductions in interest rates, principal and/or interest forbearance, payment
extensions, or combinations thereof. The following table shows loans placed on TDR status in 2011 by type of loan and
the associated specific reserve included in the allowance for loan losses as of December 31, 2011:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
Number
of Loans
4
3
9
-
15
-
-
-
-
31
$ 3,078,000
4,506,000
5,350,000
-
5,391,000
-
-
-
-
$18,325,000
$ 3,078,000
4,506,000
5,350,000
-
5,391,000
-
-
-
-
$18,325,000
Specific
Reserves
$ 273,000
-
97,000
-
258,000
-
-
-
-
$ 628,000
As of December 31, 2011, Management is aware of six loans classified as TDRs that are involved in bankruptcy
with an outstanding balance of $1,035,000. As of December 31, 2011, there were 19 loans with an outstanding balance
of $3.4 million that were classified as TDRs and were on non-accrual status.
The First Bancorp • 2011 Form 10-K • Page 72
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
2011
$ 4,123,000
693,000
15,415,000
10,201,000
30,432,000
11,590,000
$ 18,842,000
2010
$ 4,028,000
686,000
14,764,000
9,961,000
29,439,000
10,459,000
$ 18,980,000
Note 8. Other Real Estate Owned
The following summarizes other real estate owned:
As of December 31,
Real estate acquired in settlement of loans
2011
2010
$ 4,094,000
$ 4,929,000
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
2011
$ 132,000
(980,000)
1,284,000
$ 436,000
2010
2009
$ 583,000
(803,000)
352,000
$ 132,000
$ 325,000
(223,000)
481,000
$ 583,000
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 identifiable 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, 2011, in accordance
with Topic 350, the Company completed its annual review of goodwill and determined there has been no impairment.
The Bank also carries $125,000 in goodwill for a de minimus transaction in 2001.
The First Bancorp • 2011 Form 10-K • Page 73
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
2011
2010
2009
$ 2,828,000
730,000
3,558,000
233,000
$ 3,791,000
$ 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
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
2011
$ 5,654,000
(1,794,000)
152,000
(383,000)
162,000
$ 3,791,000
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
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, 2011 and 2010 are as follows:
Allowance for loan losses
OREO
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
Unrealized gain on securities available for sale
Mortgage servicing rights
Core deposit intangible
Liabilities related to FNB acquisition
Other liabilities
Total deferred tax liability
Net deferred tax asset (liability)
2011
$ 4,550,000
153,000
5,000
1,293,000
-
-
52,000
6,053,000
(664,000)
(2,236,000)
(3,985,000)
(421,000)
(303,000)
-
(794,000)
(8,403,000)
$(2,350,000)
2010
$ 4,662,000
46,000
-
1,187,000
1,108,000
321,000
56,000
7,380,000
(663,000)
(2,138,000)
-
(506,000)
(401,000)
(1,000)
(204,000)
(3,913,000)
$ 3,467,000
At December 31, 2011, 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 $589,000 and $530,000 for each of the years ended December 31, 2011 and 2010,
respectively, and are recorded as a reduction of income tax expense. Amortization of the investments in the limited
partnerships totaled $390,000 and $300,000 for the years ended December 31, 2011 and 2010, respectively, and is
recognized as a component of income tax expense in the consolidated statements of income. The carrying value of these
The First Bancorp • 2011 Form 10-K • Page 74
investments was $2,022,000 and $2,412,000 at December 31, 2011 and 2010, respectively, and is recorded in other
assets. The Company’s total exposure to these limited partnerships was $5,522,000 and $5,912,000, at December 31,
2011 and 2010, 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, 2008 through 2010.
Note 11. Certificates of Deposit
The following table represents the breakdown of Certificates of Deposit at December 31, 2011 and 2010:
Certificates of deposit < $100,000
Certificates $100,000 to $250,000
Certificates $250,000 and over
December 31, 2011
December 31, 2010
$ 216,836,000
309,841,000
22,499,000
$ 549,176,000
$ 231,945,000
338,452,000
37,792,000
$ 608,189,000
At December 31, 2011, the scheduled maturities of certificates of deposit are as follows:
Year of
Maturity
2012
2013
2014
2015
2016
Less than
$100,000
$ 90,818,000
17,901,000
49,153,000
48,760,000
10,204,000
$216,836,000
Greater than
$100,000
$229,556,000
31,400,000
21,188,000
39,610,000
10,586,000
$332,340,000
All Certificates
of Deposit
$320,374,000
49,301,000
70,341,000
88,370,000
20,790,000
$549,176,000
Interest on certificates of deposit of $100,000 or more was $3,606,000, $3,724,000, and $3,901,000 in 2011, 2010
and 2009, 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, 2011,
the Bank’s total FHLB borrowing capacity, based on its holding of FHLB stock, was $260,068,000 of which
$84,920,000 was unused and available for additional borrowings. All FHLB advances as of December 31, 2011, 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. agencies securities and other securities.
Repurchase agreements have maturity dates ranging from one to 365 days. The Bank also has in place $31.0 million in
credit lines with correspondent banks and a credit facility of $103,096,000 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, 2011 and 2010 have the following range of interest rates and maturity dates:
The First Bancorp • 2011 Form 10-K • Page 75
As of December 31, 2011
Federal Home Loan Bank Advances
2012
2013
2014
2015
2016
2017 and thereafter
0.15%-0.32%
-
2.73%-3.20%
2.03%-2.98%
1.31%-1.39%
0.00%-3.69%
Treasury Tax & Loan Notes (rate at December 31, 2011 was 0.00%)
Repurchase agreements
Municipal and commercial customers
variable
0.40%-2.09%
$ 44,985,000
-
10,000,000
40,000,000
30,000,000
50,163,000
175,148,000
-
90,515,000
$265,663,000
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
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
Note 13. Employee Benefit Plans
401(k) Plan
The Bank has a defined contribution plan available to substantially all employees who have completed six months of
service. Employees may contribute up to $16,500 of their compensation if under age 50 and $22,000 if over age 50, and
the Bank may provide a match to employee contributions not to exceed 3.0% of compensation depending on
contribution level. Subject to a vote of the Board of Directors, the Bank may also make a profit-sharing contribution to
the Plan. Such contribution equaled 2.0% of each eligible employee’s compensation in 2011, 2010, and 2009. The
expense related to the 401(k) plan was $341,000, $362,000, and $365,000 in 2011, 2010, and 2009, 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 $307,000 in
2011, $230,000 in 2010, and $214,000 in 2009. As of December 31, 2011 and 2010, the accrued liability of these plans
was $1,847,000 and $1,596,000, 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
The First Bancorp • 2011 Form 10-K • Page 76
recognize the overfunded or underfunded status of a defined benefit post-retirement plan (other than a multiemployer
plan) as an asset or liability in its balance sheet and to recognize changes in the funded status in the year in which the
changes occur through comprehensive income (loss) 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
2011
2010
2009
$ 1,796,000
12,000
112,000
(134,000)
62,000
$ 1,848,000
$ 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
$(1,848,000)
$(1,848,000)
$(1,796,000) $(1,962,000)
$(1,796,000) $(1,962,000)
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
2011
2010
2009
$ 12,000
112,000
29,000
-
11,000
$164,000
$ 15,000
117,000
29,000
-
22,000
$ 183,000
$ 21,000
134,000
29,000
(1,000)
24,000
$ 207,000
6.5%
6.5%
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 2012 is $136,500. For years ending 2013 through 2016 the estimated amount of
benefits to be paid is $133,000, $148,500, $159,000 and $160,500 respectively, and the total estimated amount of
benefits to be paid for years ended 2017 through 2021 is $820,000. Plan expense for 2012 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)
2011
$ (100,000)
(34,000)
(134,000)
47,000
2010
$ (49,000)
(63,000)
(112,000)
39,000
Portion to Be
Recognized in
Income in 2012
$ -
29,000
29,000
(10,000)
$ (87,000)
$ (73,000)
$ 19,000
The First Bancorp • 2011 Form 10-K • Page 77
Note 14. Preferred and Common Stock
Preferred Stock
On August 24, 2011, the Company repurchased $12.5 million of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, having a liquidation preference of $1,000 per share. This stock was issued to the United
States Treasury on January 9, 2009 under its Capital Purchase Program (the “CPP Shares”). The repurchase transaction
was approved by the Federal Reserve Bank of Boston, the Company’s primary regulator, as well as the Bank’s primary
regulator, the Office of the Comptroller of the Currency, based on continued strong capital ratios after the repayment.
Almost all of the repayment was made from retained earnings accumulated since the preferred stock was issued in 2009.
After the repurchase, $12.5 million of the CPP shares remains outstanding.
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 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 remaining CPP Shares at any time using any funds available, subject to the prior
approval of the Federal Reserve Bank of Boston. 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.
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.
The Warrants issued in conjunction with the sale of the CPP Shares 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. To the extent they had not
previously been exercised, the Warrants would expire after ten years. 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. The Warrants were unchanged as a result of the CPP Shares repurchase transaction
and remain outstanding.
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 15,925 shares from employee benefit plans
at an average price of $16.51 per share and for total proceeds of $263,000. Fractional shares totaling five shares were
repurchased from employee benefit plans in 2010. During 2011, the Company repurchased no common stock.
The Company has reserved 700,000 shares of its common stock to be made available to directors and employees
who elect to participate in the stock purchase or savings and investment plans. During 2006, the number of shares set
aside for these plans was increased by the Board of Directors from 480,000 to 700,000. As of December 31, 2011,
The First Bancorp • 2011 Form 10-K • Page 78
509,960 shares had been issued pursuant to these plans, leaving 190,040 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
12,775 shares in 2011, 12,334 shares in 2010, and 21,469 shares in 2009.
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, 2011, 186,524 shares have been issued, leaving
413,476 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 14,387 shares in 2011,
16,520 shares in 2010, and 21,229 shares in 2009.
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, 2011, 7,500 shares of restricted stock had been granted under the 2010 Plan. All of the shares
granted will vest five years from the date of grant, except for 1,500 shares which will vest on January 3, 2015, and the
related compensation cost of $111,000 will be recognized on a straight-line basis over five years. In 2011, $22,000 of
expense was recognized for these restricted shares, leaving $89,000 in unrecognized expense as of December 31, 2011.
The following table presents activity in the nonvested shares of restricted stock in 2011:
Nonvested
Shares
Weighted-Average
Grant-Date
Fair Value
Nonvested at December 31, 2010
Granted during 2011
Vested during 2011
Forfeited during 2011
Nonvested at December 31, 2011
-
7,500
-
-
7,500
$14.84
$14.84
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 FASB ASC Topic 718 “Compensation – Stock
Compensation”, to stock-based employee compensation. For the year ended December 31, 2011, there were no non-
vested option shares outstanding and no compensation cost was recognized for options granted under the 1995 Plan.
The First Bancorp • 2011 Form 10-K • Page 79
During 2011, 4,500 options were exercised. A summary of the status of the 1995 Plan as of December 31, 2011 and
changes during the year then ended, is presented below.
Number of
Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value
55,500
-
4,500
-
51,000
51,000
$15.89
-
9.33
-
$16.47
$16.47
$28,000
$58,000
$58,000
2.5
2.5
Outstanding at December 31, 2010
Granted in 2011
Exercised in 2011
Forfeited in 2011
Outstanding at December 31, 2011
Exercisable at December 31, 2011
Note 16. Earnings Per Share
The following table provides detail for basic earnings per share (EPS) and diluted earnings per share for the years ended
December 31, 2011, 2010 and 2009:
For the year ended December 31, 2011
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 and
nonvested restricted stock
Diluted EPS: Income available to common
shareholders plus assumed conversions
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
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$ 12,364,000
1,208,000
11,156,000
9,788,610
$ 1.14
9,619
$ 11,156,000
9,798,229
$ 1.14
$ 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
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, 2011, 2010
and 2009 and the amount which are above or below the strike price:
The First Bancorp • 2011 Form 10-K • Page 80
Outstanding
In-the-Money
Out-of-the-Money
As of December 31, 2011
Incentive stock options
Warrants issued to U.S. Treasury
Total dilutive securities
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
51,000
225,904
276,904
55,500
225,904
281,404
55,500
225,904
281,404
Note 17. Regulatory Capital Requirements
9,000
-
9,000
13,500
-
13,500
13,500
-
13,500
42,000
225,904
267,904
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 2012 will be 2012
earnings plus retained earnings of $6,960,000 from 2011 and 2010.
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, 2011, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2011, 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 • 2011 Form 10-K • Page 81
As of December 31, 2011
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$123,599,000
15.37%
$113,521,000
14.11%
$113,521,000
8.33%
$132,530,000
16.11%
$122,210,000
14.86%
$122,210,000
9.03%
For capital
Adequacy
Purposes
To be well-capitalized
under prompt corrective
action provisions
$64,320,000
8.00%
$32,160,000
4.00%
$54,600,000
4.00%
$65,799,000
8.00%
$32,900,000
4.00%
$54,117,000
4.00%
$80,400,000
10.00%
$48,240,000
6.00%
$68,250,000
5.00%
$82,249,000
10.00%
$49,349,000
6.00%
$67,646,000
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, 2011
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$125,943,000
15.66%
$115,865,000
14.40%
$115,865,000
8.32%
$133,473,000
16.23%
$123,153,000
14.97%
$123,153,000
9.30%
For capital
Adequacy
Purposes
To be well-capitalized
under prompt corrective
action provisions
$64,320,000
8.00%
$32,160,000
4.00%
$55,720,000
4.00%
$65,799,000
8.00%
$32,900,000
4.00%
$52,963,000
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 2011, 2010 or 2009.
The First Bancorp • 2011 Form 10-K • Page 82
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, 2011 and 2010, 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
2011
$ 59,427,000
39,313,000
2,177,000
12,551,000
$113,468,000
2010
$ 62,765,000
50,179,000
2,792,000
9,222,000
$124,958,000
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 • 2011 Form 10-K • Page 83
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, 2011 and 2010.
Securities available for sale
U.S. Government sponsored agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Securities available for sale
U.S. Government sponsored agencies
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Level 1
At December 31, 2011
Level 3
Level 2
Total
$ -
-
-
-
-
$ -
$ -
198,232,000
85,726,000
811,000
1,433,000
$ 286,202,000
$ -
-
-
-
-
$ -
$ -
198,232,000
85,726,000
811,000
1,433,000
$ 286,202,000
Level 1
At December 31, 2010
Level 3
Level 2
Total
$ -
-
-
-
-
$ 16,045,000
234,414,000
41,524,000
866,000
380,000
$ - $ 293,229,000
$ -
-
-
-
-
$ 16,045,000
234,414,000
41,524,000
866,000
380,000
$ - $ 293,229,000
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, 2011. Other
real estate owned is presented net of an allowance for losses of $436,000. Impaired loans are presented net of their
related specific allowance for loan losses of $2,058,000.
The First Bancorp • 2011 Form 10-K • Page 84
Level 1
At December 31, 2011
Level 2
Level 3
Total
Mortgage servicing rights $ - $ 1,581,000 $ - $ 1,581,000
-
Loans held for sale
4,094,000
Other real estate owned
12,165,000
Impaired loans
$ 17,840,000
Total Assets
-
-
-
$ 17,840,000 $ -
-
-
-
$ -
-
4,094,000
12,165,000
The following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2010. 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.
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
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 carrying amounts and estimated fair values for financial instruments as of December 31, 2011 and 2010 were
as follows:
Financial assets
Cash and cash equivalents
Interest-bearing 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, 2011
December 31, 2010
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
$ 14,115,000
-
286,202,000
122,661,000
$ 14,115,000 $ 13,838,000
100,000
293,229,000
107,380,000
-
286,202,000
130,677,000
$ 13,838,000
100,000
293,229,000
110,366,000
15,443,000
-
851,988,000
10,181,000
4,835,000
15,443,000
-
866,442,000
10,181,000
4,835,000
15,443,000
2,806,000
874,280,000
9,842,000
5,263,000
15,443,000
2,806,000
878,856,000
9,842,000
5,263,000
$941,333,000
265,663,000
734,000
$921,388,000 $ 974,518,000
257,330,000
273,568,000
926,000
734,000
$ 924,903,000
262,984,000
926,000
The First Bancorp • 2011 Form 10-K • Page 85
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 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. 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.
The First Bancorp • 2011 Form 10-K • Page 86
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about
the financial instrument. These values do not reflect any premium or discount that could result from offering for sale at
one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant
portion of the Company’s financial instruments, fair value estimates are based on Management’s judgments regarding
future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair
value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Other significant assets and liabilities that are not considered financial instruments include the deferred tax asset,
premises and equipment, and other real estate owned. In addition, tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of
the estimates.
Note 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
2011
2010
2009
$ - $ - $ 2,289,000
1,184,000
1,402,000
1,394,000
-
1,744,000
-
$ - $ -
688,000
825,000
713,000
964,000
$ 2,214,000
-
-
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 • 2011 Form 10-K • Page 87
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 income (loss)
Net unrealized income (loss) on available for sale securities, net of tax
benefit of $33,000 in 2011 and taxes of $3,000 in 2010
Total accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
2011
2010
$ 894,000 $ 642,000
1,900,000
285,000
121,346,000
10,000
27,559,000
15,000
$ 152,772,000 $ 151,757,000
1,900,000
327,000
122,009,000
26,000
27,559,000
57,000
$ 1,912,000 $ 1,906,000
3,000
1,909,000
2,000
1,914,000
12,303,000
98,000
45,829,000
92,694,000
24,705,000
98,000
45,474,000
79,565,000
(66,000)
(66,000)
150,858,000
6,000
6,000
149,848,000
$ 152,772,000 $ 151,757,000
Statements of Income
For the years ended December 31,
Interest and dividends on investments
Net securities gains
Total income
Occupancy expense
Other operating expense
Total expense
Income (loss) before income taxes
Applicable income taxes
Income (loss) before Bank earnings
Equity in earnings of Bank
Remitted
Unremitted
Net income
2011
$ 10,000
153,000
163,000
4,000
137,000
141,000
22,000
15,000
7,000
2010
$ 10,000
-
10,000
1,000
150,000
151,000
(141,000)
(38,000)
(103,000)
2009
$ 10,000
-
10,000
-
209,000
209,000
(199,000)
(57,000)
(142,000)
8,710,000
3,647,000
$12,364,000
8,850,000
3,369,000
8,404,000
4,780,000
$12,116,000 $13,042,000
The First Bancorp • 2011 Form 10-K • Page 88
Statements of Cash Flows
2011
$ 12,364,000
13,000
22,000
(153,000)
(42,000)
44,000
(3,647,000)
8,601,000
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
Equity compensation expense
Gain on sale of investment
(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:
Proceeds from sales/maturities of investments
Purchases of investments
Preferred stock investment in subsidiary
Capital expenditures
Net cash provided (used) in investing activities
Cash flows from financing activities:
Proceeds from issuance of preferred stock
Payment to repurchase preferred stock
Payments to purchase common stock
Proceeds from sale of common stock
Dividends paid
Net cash provided (used) in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
-
(12,500,000)
-
431,000
(8,751,000)
(20,820,000)
252,000
642,000
$ 894,000
12,773,000
(273,000)
-
(29,000)
12,471,000
2010
$ 12,116,000
-
37,000
-
(1,000)
5,000
(3,369,000)
8,788,000
2009
$ 13,042,000
-
37,000
-
38,000
(41,000)
(4,780,000)
8,296,000
-
-
-
(10,000)
(10,000)
-
(120,000)
(25,000,000)
-
(25,120,000)
-
-
-
416,000
(8,865,000)
(8,449,000)
329,000
313,000
$ 642,000
25,000,000
-
(263,000)
836,000
(8,649,000)
16,924,000
100,000
213,000
$ 313,000
The First Bancorp • 2011 Form 10-K • Page 89
Note 24. New Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“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 April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of
Whether a Restructuring Is a Troubled Debt Restructuring. This ASU is intended to provide clarification in determining
whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of
determining whether a restructuring constitutes a troubled debt restructuring. For public entities, this guidance is
effective for the first interim or annual reporting period beginning on or after June 15, 2011. The adoption of this
guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU clarifies how to
measure fair value, but does not require additional fair value measurement and is not intended to affect current valuation
practices outside of financial reporting. However, additional information and disclosure will be required for transfers
between Level 1 and Level 2, the sensitivity of a fair value measurement categorized as Level 3, and the categorization
of items that are not measured at fair value by level of the fair value hierarchy. The guidance is effective during interim
and annual reporting periods beginning after December 15, 2011. The Company is currently evaluating the impact of
the clarifications provided in ASU No. 2011-04 on the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. This ASU will require that all nonowner changes in shareholders’ equity be presented either in
a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-
statement approach, the first statement should present total net income and its components followed consecutively by a
second statement that should present total other comprehensive income, the components of other comprehensive
income, and the total of comprehensive income. This guidance is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. Other than the manner of presentation, the Company believes the
adoption of this new guidance will not have a material effect on the Company’s consolidated financial statements.
In August 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing
Goodwill for Impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it
is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this
ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more
likely than not that the fair value of the reporting unit is less than its carrying amount. The guidance is effective for
fiscal years ending after December 15, 2011, with early adoption permitted. The Company believes the adoption of this
new guidance will not have a material effect on the Company’s consolidated financial statements.
The First Bancorp • 2011 Form 10-K • Page 90
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
Interest-bearing
deposits in other banks
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
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
$ 11,731 $ 22,219 $ 13,880 $ 13,838 $ 13,700 $ 14,322 $ 16,563 $ 14,115
-
296,465
-
279,141
-
353,416
100
400,609
100
435,387
100
427,248
100
456,481
-
408,863
15,443
905,324
86,561
15,443
924,877
88,028
15,443
921,271
88,201
15,443
877,086
86,726
15,443
851,988
83,047
$1,336,544 $1,326,275 $1,374,624 $1,393,802 $1,431,038 $1,417,690 $1,427,038 $1,373,456
$ 939,180 $ 949,501 $ 986,932 $ 974,518 $1,050,257 $ 998,838 $1,004,894 $ 941,333
265,663
15,602
150,858
257,330
12,106
149,848
15,443
872,314
88,263
15,443
853,484
84,967
249,336
13,306
156,210
255,616
15,990
150,538
213,944
12,385
150,445
236,913
11,909
148,542
217,534
11,703
151,544
222,672
12,790
152,230
15,443
881,134
85,274
$1,336,544 $1,326,275 $1,374,624 $1,393,802 $1,431,038 $1,417,690 $1,427,038 $1,373,456
$ 14,133 $ 14,215 $ 14,570 $ 14,342 $ 14,254 $ 13,997 $ 13,898 $ 13,553
3,516
10,037
3,774
10,223
3,670
10,228
3,749
10,505
3,984
10,358
4,317
10,253
4,112
10,021
4,258
9,957
2,400
2,100
1,800
2,100
2,100
2,000
1,500
4,950
7,621
2,175
6,282
3,514
830
5,087
5,159
6,366
3,880
858
$ 2,684 $ 3,160 $ 3,195 $ 3,077 $ 3,143 $ 3,193 $ 3,006 $ 3,022
8,223
2,234
6,250
4,207
1,014
8,728
2,080
6,934
3,874
868
8,405
2,277
6,488
4,194
1,051
7,857
2,282
5,895
4,244
1,084
8,453
2,067
6,228
4,292
1,097
8,258
2,611
6,725
4,144
1,067
337
337
337
337
337
337
353
181
$ 2,347 $ 2,823 $ 2,858 $ 2,740 $ 2,806 $ 2,856 $ 2,653 $ 2,841
$ 0.24 $ 0.29 $ 0.29 $ 0.28 $ 0.29 $ 0.29 $ 0.27 $ 0.29
$ 0.24 $ 0.29 $ 0.29 $ 0.28 $ 0.29 $ 0.29 $ 0.27 $ 0.29
The First Bancorp • 2011 Form 10-K • Page 91
Report of Independent Registered Public Accounting Firm
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, 2011 and 2010, 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, 2011. We have also audited The First Bancorp,
Inc.’s internal control over financial reporting as of December 31, 2011, 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, 2011 and 2010, and the consolidated
results of their operations and their consolidated cash flows for each of the three years in the period ended December 31,
2011, 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, 2011, based on criteria established in COSO.
Portland, Maine
March 12, 2012
The First Bancorp • 2011 Form 10-K • Page 92
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, 2011,
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, 2011 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, 2011. 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, 2011, the Company’s internal control over financial reporting was effective and that there were no
material weaknesses.
Berry Dunn McNeil & Parker, LLC, 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 12, 2012
F. Stephen Ward , Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 12, 2012
The First Bancorp • 2011 Form 10-K • Page 93
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 25, 2012 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 25, 2012 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 25, 2012 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 25, 2012 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 25, 2012 and is incorporated herein by reference.
The First Bancorp • 2011 Form 10-K • Page 94
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 • 2011 Form 10-K • Page 95
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE FIRST BANCORP, INC.
Daniel R. Daigneault, President
March 12, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Daniel R. Daigneault, President and Director
(Principal Executive Officer)
March 12, 2012
F. Stephen Ward, Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 12, 2012
Stuart G. Smith, Director and Chairman of the Board
March 12, 2012
Katherine M. Boyd, Director
March 12, 2012
Carl S. Poole, Jr., Director
March 12, 2012
Robert B. Gregory, Director
March 12, 2012
Mark N. Rosborough, Director
March 12, 2012
Tony C. McKim, Director
March 12, 2012
David B. Soule, Jr., Director
March 12, 2012
Bruce A. Tindal, Director
March 12, 2012
The First Bancorp • 2011 Form 10-K • Page 96
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 2011 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 12, 2012
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp • 2011 Form 10-K • Page 97
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 2011 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 12, 2012
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2011 Form 10-K • Page 98
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, 2011 to which this certification is being furnished as an exhibit (the
“Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. This certification is provided pursuant to 18 U.S.C. Section 1350
and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended
(the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A)
shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: March 12, 2012
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, 2011 to which this certification is being furnished as an exhibit (the
“Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. This certification is provided pursuant to 18 U.S.C. Section 1350
and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended
(the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A)
shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: March 12, 2012
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2011 Form 10-K • Page 99
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 2011 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 • 2011 Form 10-K • Page 100
(ix) The board of directors of The First Bancorp, Inc. has established an excessive or luxury expenditures policy, as
defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or
ninety days after the closing date of the agreement between The First Bancorp, Inc. and Treasury; this policy has been
provided to Treasury and its primary regulatory agency; The First Bancorp, Inc. and its employees have complied with
this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of
directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility
were properly approved;
(x) The First Bancorp, Inc. will permit a non-binding Shareholder resolution in compliance with any applicable Federal
securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO
compensation paid or accrued during the period beginning on the later of the closing date of the agreement between The
First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year
containing that date;
(xi) The First Bancorp, Inc. will disclose the amount, nature, and justification for the offering during the period
beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15,
2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for
any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) The First Bancorp, Inc. will disclose whether The First Bancorp, Inc., the board of directors of The First Bancorp,
Inc., or the Compensation Committee of The First Bancorp, Inc. has engaged during the period beginning on the later of
the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the
last day of The First Bancorp, Inc.’s fiscal year containing that date, a compensation consultant; and the services the
compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) The First Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance
established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year containing that date;
(xiv) The First Bancorp, Inc. has substantially complied with all other requirements related to employee compensation
that are provided in the agreement between The First Bancorp, Inc. and Treasury, including any amendments;
(xv) The First Bancorp, Inc. has submitted to Treasury a complete and accurate list of the SEOs and the twenty next
most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the
non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each
SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification
may be punished by fine, imprisonment, or both.
Date: March 12, 2012
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp • 2011 Form 10-K • Page 101
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 2011 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 • 2011 Form 10-K • Page 102
(ix) The board of directors of The First Bancorp, Inc. has established an excessive or luxury expenditures policy, as
defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or
ninety days after the closing date of the agreement between The First Bancorp, Inc. and Treasury; this policy has been
provided to Treasury and its primary regulatory agency; The First Bancorp, Inc. and its employees have complied with
this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of
directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility
were properly approved;
(x) The First Bancorp, Inc. will permit a non-binding Shareholder resolution in compliance with any applicable Federal
securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO
compensation paid or accrued during the period beginning on the later of the closing date of the agreement between The
First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year
containing that date;
(xi) The First Bancorp, Inc. will disclose the amount, nature, and justification for the offering during the period
beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15,
2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year containing that date of any perquisites, as
defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for
any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) The First Bancorp, Inc. will disclose whether The First Bancorp, Inc., the board of directors of The First Bancorp,
Inc., or the Compensation Committee of The First Bancorp, Inc. has engaged during the period beginning on the later of
the closing date of the agreement between The First Bancorp, Inc. and Treasury or June 15, 2009 and ending with the
last day of The First Bancorp, Inc.’s fiscal year containing that date, a compensation consultant; and the services the
compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) The First Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance
established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during
the period beginning on the later of the closing date of the agreement between The First Bancorp, Inc. and Treasury or
June 15, 2009 and ending with the last day of The First Bancorp, Inc.’s fiscal year containing that date;
(xiv) The First Bancorp, Inc. has substantially complied with all other requirements related to employee compensation
that are provided in the agreement between The First Bancorp, Inc. and Treasury, including any amendments;
(xv) The First Bancorp, Inc. has submitted to Treasury a complete and accurate list of the SEOs and the twenty next
most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the
non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each
SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification
may be punished by fine, imprisonment, or both.
Date: March 12, 2012
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2011 Form 10-K • Page 103
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 2011 and 2010.
Such quotations do not reflect retail mark-ups, mark-
downs or brokers’ commissions.
2011
2010
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low
High
Low
High
$15.95 $13.40 $16.26 $13.11
13.07
15.96
12.27
15.30
13.40
15.95
13.79
11.69
11.75
16.37
14.48
16.00
The last known transaction of the Company’s stock
during 2011 was on December 30 at $15.37 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, 2010
June 17, 2010
September 16, 2010
December 16, 2010
March 17, 2011
June 15, 2011
September 15, 2011
December 15, 2011
Amount
Per Share
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Date
Payable
April 30, 2010
July 30, 2010
October 29, 2010
January 28, 2011
April 29, 2011
July 29, 2011
October 28, 2011
January 31, 2012
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 25, 2012 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 15, 2012 was approximately 2,686.
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 2012 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, LLC
100 Middle Street, P.O. Box 1100
Portland, Maine 04104-1100
Corporate Counsel
Pierce Atwood LLP, Attorneys
254 Commercial Street, Merrill’s Wharf
Portland, Maine 04101
Photography Credits
All photographs contained in this report are
copyright of the following photographers:
Cover: Porcupine Islands from Cadillac Mountain,
Laurence Parent Photography
CEO Letter: Benjamin Magro
The First Bancorp • 2011 Form 10-K • Page 104
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
Ellsworth
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