ARCover2012v3.indd 1
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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
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Declared
Book Value per Common Share
Tangible Book Value per Common Share
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
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio2
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2012
$ 51,825
12,938
38,887
7,835
11,278
26,271
12,688
$ 1.22
1.22
0.780
14.60
11.47
16.47
8.84%
10.40
0.89
10.96
8.96
3.14
63.93
1.44
2.20
1.89
51.01
Years ended December 31,
2010
2009
2011
$ 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
$ 1.14
1.14
0.780
14.12
11.20
15.37
$ 1.10
1.10
0.780
12.80
9.84
15.79
9.37%
9.53%
10.80
0.87
10.72
8.70
3.27
68.42
1.50
3.21
2.32
49.75
10.97
0.89
11.20
9.06
3.38
70.91
1.50
2.39
1.87
48.15
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 1.22
1.22
0.780
12.66
9.65
15.42
10.66%
12.76
0.96
10.85
8.69
3.66
63.93
1.43
1.95
1.80
43.39
$1,414,999
869,284
449,382
958,850
282,905
156,323
$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
High
$18.96
Market price per common share of stock during 2012
1Annualized using a 366-day basis in 2012 and 365-day basis in 2011
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.
2008
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 1.45
1.44
0.765
12.09
9.01
19.89
12.02%
16.14
1.10
9.14
6.83
3.33
52.76
0.90
1.27
1.31
46.07
$1,325,744
979,273
247,839
925,736
272,074
117,181
Low
$13.41
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
Bangor
Bar Harbor
Blue Hill
Boothbay Harbor
Calais
Camden
Damariscotta
Eastport
Ellsworth
Northeast Harbor
Rockland
Rockport
Southwest Harbor
Waldoboro
Wiscasset
Office Locations
Bangor
Bar Harbor
Damariscotta
Ellsworth
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Dear First Bancorp Shareholders:
I am pleased to share with you the favorable per-
formance the Company posted in 2012 as well
as detail on the two major strategic initiatives
the Company took on last year. On a number of
fronts, 2012 was one of the best years we have
had in the recent past, with increased earnings
and significant improvement in credit quality and
non-performing assets.
First, I would like to put the year in perspec-
tive. The national economy continued to strug-
gle, with unemployment still elevated – ending
the year at 7.80%. Although this was an improve-
ment from the end of 2011 at 8.50%, the level of
unemployment still remains too high if we are to
realize significant growth in the Gross Domes-
tic Product (GDP). With a weak GDP growth
rate, businesses are not yet seeing a resurgence in
sales and profitability. In turn, they are reluctant
to add to staff, thereby not creating the addition-
al jobs needed to help the employment picture.
Without a meaningful increase in sales, business-
es, especially smaller ones which are prevalent in
the communities served by The First, are not ex-
panding and are primarily focused on maintain-
ing or reducing debt rather than borrowing.
In 2012, the real estate market experienced
a slight improvement. Unit sales of properties in-
creased throughout the United States as well as
in Maine. The median sales price also increased,
especially in the hard hit metropolitan areas such
as Phoenix, Arizona and Las Vegas, Nevada,
with other areas also seeing a notable increase
in values. According to the Case-Shiller 20-City
Index, home prices as of the end of December
2012 were 6.8% above the levels of the previous
year. Is this a firm indication that the housing cri-
sis is over? We do not have a definitive answer to
this question, as there is still a backlog of foreclo-
sures working through the system, which could
dampen prices further. On the other hand, it is
the strongest housing market we have seen since
2006, although prices remain 30% below that
year’s peak, per the 20-City Index. Prices at last
have likely hit bottom and hopefully will increase
from this point forward. This fact alone will likely
entice people looking to buy or build to move
forward and get back into the market. In the
State of Maine, real estate prices likely hit a low
point in 2012 and will improve as well in 2013.
Historically, we tend to lag the national market
but should not be too far behind.
The sustained weak economy continued
to impact the local communities we serve and,
in turn, the Company’s performance. Loan de-
mand except for mortgage refinancing was weak.
Foreclosure activity slowed somewhat but was
1
AnnualReport2012.indd 1
3/11/13 12:12 PM
Earnings Per Share
still higher than we would like to see, and a large
number of businesses continued to struggle, re-
sulting in an elevated level of loan losses. I will
speak to each of these in more detail below.
EARNINGS
0.75
1.00
0.50
1.50
1.25
Net income for 2012 was $12,688,000, which
represented an increase of $324,000 or 2.6%
from the $12,364,000 earned in 2011. Given
the pressure on the net interest
margin, which led to a $2,106,000
decrease in net interest income,
posting an increase in earnings was
a significant achievement. During
2012, the Federal Reserve Bank
continued its policy of maintaining
low interest rates – specificlly the
Fed Funds Rate, upon which most
borrowing rates for business loans
and home equity loans are based. In addition,
the Federal Reserve took aggressive steps in buy-
ing mortgage-backed securities in the open mar-
ket in an effort to drive down the ten-year U.S.
Treasury rate. The ten-year rate is the benchmark
upon which home mortgage rates are based, and
by reducing this rate, the rates at which individ-
ual homeowners can borrow decreases as well.
In 2012, this action was successful in reducing
mortgage rates to historically low levels.
0.00
0.25
2009
2008
Lower borrowing rates are good for bor-
rowers but present a significant challenge for
banks. These lower rates resulted in a decline in
the yield on loans and investments, reducing our
revenues by $3,877,000 in 2012 compared to
2011. Interest expense for deposits and borrowed
funds, however, declined by only $1,771,000.
With rates paid on deposits at already low levels,
the Bank did not have the room to lower them
enough to offset the decline on the yield of its
loans and investments. This result is what is com-
monly known as margin compression: the Com-
pany’s net interest margin was 3.14% in 2012
compared to 3.27% in 2011.
Loan quality improved in 2012, however,
and the provision for loan losses was $2,715,000
lower than in 2011, more than enough to com-
pensate for the decline in net interest income.
The lower provision was directly related to net
loan charge-offs decreasing by $2,530,000 in
2012 compared to 2011. At the same time, oper-
ating expenses remained relatively level with re-
ductions in credit-related costs offsetting modest
increases in personnel and occu-
pancy costs. Non-interest income
in 2012 was $11,278,000, a slight
decrease of $472,000 or 4.0%
from the $11,750,000 reported
in 2011. This decrease was attrib-
uted to lower levels of net security
gains offset by a strong increase in
mortgage originations and servic-
ing income.
2012
2011
ASSET QUALITY
As previously mentioned, credit quality improved
significantly in 2012, which enabled the Com-
pany to provision less for losses in 2012 than in
2011. Net loan charge-offs were $8,335,000 or
0.95% of average loans, down $2,531,000 from
net charge-offs of $10,866,000 or 1.23% of aver-
age loans in 2011. Non-performing assets, which
are a combination of non-performing loans plus
other real estate owned acquired through fore-
closure, stood at 1.89% of total assets as of De-
cember 31, 2012 compared to 2.32% of total
assets as of December 31, 2011. Past due loans
were 2.67% of total loans at year end 2012, the
lowest year-end level in the past five years and
well below the 3.07% of total loans reported as
of the end of 2011.
LOAN ACTIVITY
Despite the weak economy and overall low
loan demand, loan activity posted some notable
achievements in the past year, especially in mort-
gage banking. The First has a robust mortgage
2010
2
AnnualReport2012.indd 2
3/11/13 12:12 PM
banking business and has had a strong focus on
residential lending for a number of years. With
our locations along the coast of Maine, housing-
related lending activity has generally been healthy,
with strong demand for second homes and re-
tirement homes. In the early to mid 2000’s, pur-
chase activity was vibrant in our markets and the
Bank took advantage of that demand and booked
a lot of mortgage loans. As the housing market
weakened over the last five years, purchase ac-
tivity has been replaced by refinancing activity,
brought about by the declining interest rates. In
2012, The First posted its second highest pro-
duction year in both number of loans and gross
dollars. This strong level of activity enabled the
Company to both recognize substantial revenues
on loans sold to the secondary market, and in-
crease the level of residential loans held on our
balance sheet by $34,151,000. Mortgage-bank-
ing operations were certainly a bright spot for
the Company in 2012, and they are expected to
remain so in years to come. Most other loan cat-
egories, however, experienced decreases in activ-
ity and loans outstanding, offsetting some of the
growth in the residential loan port-
folio. As the economy improves,
we expect to see improved demand
in all loan categories.
2.0%
2.5%
primarily in U.S. Government-sponsored agency
securities and tax-exempt obligations of states
and political subdivisions. Individual securities
are selected to enhance the portfolio’s overall re-
turn without taking undue credit risk and to not
materially increase the Company’s level of inter-
est rate risk.
STRATEGIC INITIATIVES
In 2012, the Company made two major strategic
decisions. The first was to purchase the former
Bank of America branch located on Union Street
in downtown Rockland, Maine. This location and
solid customer base provided the Company with
a very unique opportunity to increase our market
share in Rockland and Knox County and at the
same time significantly increase core deposits. We
found both the physical location of the branch of-
fice and the customer base very attractive and an
opportunity that we should pursue. Total depos-
its acquired when the transaction was finalized in
October 2012 were approximately $32,300,000,
nearly all of which were low-cost core deposits.
These additional deposits enabled us to reduce
significantly our level of wholesale
funding and we are very excited
about the increased revenue oppor-
tunities this office provides us.
Non-Performing Assets
INVESTMENT ACTIVITIES
1.5%
1.0%
2008
2009
0.0%
0.5%
The investment portfolio was a
strong contributor to the Com-
pany’s earnings in 2012. Despite
a decline in yields available on in-
vestment security purchases, the year-over-year
increase in securities of $25,076,000, when com-
bined with active management of the portfolio,
resulted in an after-tax return that contributed
nicely to the bottom line. The portfolio ended
the year at $449,382,000, representing a 5.9%
increase over the 2011 year-end total. Also, av-
erage investments in 2012 were $13,490,000
higher than in 2011. The portfolio is invested
2010
3
2012
2011
The other major decision
was to open a full-service office in
downtown Bangor, Maine. With
the purchase of the Rockland
branch, we were also presented with
an opportunity to purchase an exist-
ing bank location in Bangor. We decided to take
advantage of that opportunity and expand into
this market. Bangor and its surrounding com-
munities are a very attractive banking market
with over $2 billion in FDIC-insured deposits.
Although there are a number of banks already
located in the market, we are confident that we
can be successful in building a significant mar-
ket share in Bangor over the next few years.
AnnualReport2012.indd 3
3/11/13 12:12 PM
Price Per Share
Our expansion into a new market provides
a number of benefits for the Company. First, we
will be situated in the heart of Bangor’s finan-
cial district, in a prominent location with a large,
highly visible building. The Bangor market will
provide the Company with a more diversified
customer base. This market, although similar to
coastal Maine, has a number of non-tourist re-
lated businesses and a population base that is not
dependent on tourism, fishing or real estate for its
primary sources of income. We expect Bangor to
provide good opportunities for growth in all loan
categories as well as core deposits. In addition,
this market will provide strong op-
portunities for increased mortgage
banking revenues as well as income
for our investment management
division. The office is staffed with
a full complement of banking pro-
fessionals and opened in February
2013.
$20
12
16
4
8
0
2008
2009
Both of these initiatives, once
their initial startup costs are cov-
ered, will contribute to the long-term prosperity
and growth of the Company. While taking these
bold moves in challenging economic times may
seem unconventional to some, having the fore-
sight to take advantage of opportunities as they
present themselves oftentimes are the best stra-
tegic moves. We also believe that these are rela-
tively low-risk undertakings with a much larger
upside potential than downside risks.
FIRST BANCORP STOCK PERFORMANCE
First Bancorp shareholders had a very good year
in 2012 on two fronts: a continued strong annual
dividend of $0.78 per share and good apprecia-
tion in our stock price. The First Bancorp’s stock
increased 7.16% or $1.10 per share in 2012, and
when combined with the dividend, the total re-
turn with dividends reinvested was 12.37%. As a
high dividend paying stock, FNLC is often cited
in investment reports with reference to its divi-
2010
4
dend yield and consistency of dividends. During
2012, the stock actually reached a high of $18.96
in the third quarter and settled back to end the
year at $16.47 per share, providing a 4.74% divi-
dend yield based on the closing price.
2013 EXPECTATIONS
Our focus in 2013 will be to continue to work
on improving asset quality, to pay off the balance
of the CPP Preferred Stock and, most impor-
tantly, to establish our presence in Bangor and
build upon our market share in Rockland. We
expect that the national economy will continue
to show modest improvement and
the housing market will continue
to improve as well. Each of these
positive developments should lead
to a decline in the unemployment
rate and, we hope, an increase
in revenues for small businesses.
With a continued improvement
in the fragile housing market, we
should also see an uptick in real es-
2012
2011
tate sales and construction activity.
Per Federal Reserve Bank guidance inter-
est rates are expected to remain low throughout
2013 and 2014 and will not see an increase un-
til sometime in 2015. This low rate environment
will remain attractive to those looking to borrow
money but will put a continued strain on banks’
net interest margin. Despite these challenges, we
remain optimistic that the worse of this recession,
financial crisis and real estate collapse is behind us
and better times are ahead. The First Bancorp has
continued to prosper and is well positioned to
take advantage of better economic times.
Sincerely,
Daniel R. Daigneault
President & Chief Executive Officer
AnnualReport2012.indd 4
3/11/13 12:12 PM
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, 2012
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: $150,599,000
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of February 28, 2013
Common Stock: 9,892,466 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
12
22
23
23
23
24
26
27
55
57
104
104
105
105
105
105
105
105
106
108
109
110
111
111
112
114
116
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”).
On October 26, 2012, the Bank completed the purchase of a branch at 63 Union Street in Rockland, Maine, from Camden
National Bank (Camden National). The branch represents one of 15 Maine branches Camden National acquired from Bank of
America and divested by Camden National to resolve competitive concerns in that market raised by the U.S. Department of
Justice’s Antitrust Division. As part of the transaction, the Bank acquired approximately $32.3 million in deposits as well as a
small volume of loans. On the same date, the Bank completed the purchase of a full-service bank building at 145 Exchange
Street in Bangor, Maine, also from Camden National, and opened a full-service branch in this building in February of
2013.This Bangor location offers an excellent opportunity to enter the expanding Eastern Maine market. The total value of
the transaction was $6.6 million, which includes the premises and equipment for the two locations, the premium paid for the
Rockland deposits, a small amount of loans, plus core deposit intangible and goodwill.
As of December 31, 2012, 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 9,859,914 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
The First Bancorp • 2012 Form 10-K • Page 3
are generally familiar with their communities and customers. This is important in local decision-making and allows the Bank
to respond to customer questions and concerns on a timely basis and fosters quality customer service.
The Bank has worked and will continue to work to position itself to be competitive in its market area. The Bank’s ability
to make decisions close to the marketplace, Management’s commitment to providing quality banking products, the caliber of
the professional staff, and the community involvement of the Bank’s employees are all factors affecting the Bank’s ability to
be competitive.
Supervision and Regulation
The Company is a financial holding company within the meaning of the Bank Holding Company Act of 1956, as amended
(the “BHC Act”), and section 225.82 of Regulation Y issued by the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board” or “FRB”), 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. 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 (the “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.
General
As a financial holding company, the Company is subject to regulation under the Act and to inspection, examination and
supervision by its primary regulator, the FRB. The Company is also subject to the disclosure and regulatory requirements of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the
Securities and Exchange Commission (the “SEC”). As a company with securities listed on the NASDAQ, the Company is
subject to the rules of the NASDAQ for listed companies. The Bank is subject to regulation and examination primarily by the
OCC and is subject to regulations of the Federal Deposit Insurance Corporation (the “FDIC”).
Bank Holding Company Activities
As a bank holding company (“BHC”) that has elected to become a financial holding company pursuant to the BHC Act, we
may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or
incidental or complementary to activities that are financial in nature. “Financial in nature” activities include securities
underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking; and activities that the FRB, in consultation with the Secretary of the U.S. Treasury, determines to
be financial in nature or incidental to such financial activity. “Complementary activities” are activities that the FRB
determines upon application to be complementary to a financial activity and do not pose a safety and soundness risk.
FRB approval is not generally required for us to acquire a company (other than a bank holding company, bank or savings
association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as
determined by the FRB. Prior notice to the FRB may be required, however, if the company to be acquired has total
consolidated assets of $10 billion or more. Prior FRB approval is required before we may acquire the beneficial ownership or
control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings
association. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) also does
not allow us to merge, acquire all or substantially all of the assets of, or acquire control of another company if our total
resulting consolidated liabilities would exceed 10% of the aggregate consolidated liabilities of all financial companies.
Because we are a financial holding company, if the Bank receives a rating under the Community Reinvestment Act of
1977, as amended (the “CRA”), of less than satisfactory, the Bank and/or the Company will be prohibited, until the rating is
raised to satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies,
banks or savings associations, except that we could engage in new activities, or acquire companies engaged in activities, that
are closely related to banking under the BHC Act. In addition, if the FRB finds that the Bank is not well capitalized or well
managed, we would be required to enter into an agreement with the FRB to comply with all applicable capital and
management requirements and which may contain additional limitations or conditions. Until corrected, we could be
prohibited from engaging in any new activity or acquiring companies engaged in activities that are not closely related to
banking under the BHC Act without prior FRB approval. If we fail to correct any such condition within a prescribed period,
the FRB could order us to divest our banking subsidiaries or, in the alternative, to cease engaging in activities other than
those closely related to banking under the BHC Act.
Under the Riegle-Neal Interstate Banking and Branching Act (the “Riegle-Neal” Act), a bank holding company may
acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and
operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not
control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository
institutions nationwide or, unless the acquisition is the bank holding company’s initial entry into the state, more than 30% of
The First Bancorp • 2012 Form 10-K • Page 4
such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to
merge across state lines, thereby creating interstate branches. Banks are also permitted to acquire and to establish new
branches in other states.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other
factors, the effect of the acquisition on competition, financial condition, and future prospects including current and projected
capital ratios and levels, the competence, experience, and integrity of management and record of compliance with laws and
regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of
compliance under the CRA, the effectiveness of the acquiring institution in combating money laundering activities and the
risk to the stability of the United States banking system.
The Company is a legal entity separate and distinct from the Bank. A primary source of funds to pay dividends on our
common and preferred stock is dividends from the Bank. Various federal and state statutory provisions and regulations limit
the amount of dividends the Bank may pay without regulatory approval. Federal bank regulatory agencies have the authority
to prohibit the Bank from engaging in unsafe or unsound practices in conducting its business. The payment of dividends,
depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice. The ability of the Bank to
pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines.
The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value from a
subsidiary to the Company and any nonbank subsidiaries (including affiliates) in so-called “covered transactions.” In general,
covered transactions include loans and other extensions of credit, investments and asset purchases, as well as certain other
transactions involving the transfer of value from a subsidiary bank to an affiliate or for the benefit of an affiliate. Unless an
exemption applies, covered transactions by a subsidiary bank with a single affiliate are limited to 10% of the subsidiary
bank’s capital and surplus and, with respect to all covered transactions with affiliates in the aggregate, to 20% of the
subsidiary bank’s capital and surplus. Also, loans and extensions of credit to affiliates generally are required to be secured by
qualifying collateral. A bank’s transactions with its nonbank affiliates are also generally required to be on arm’s-length terms.
The FRB has a policy that a BHC is expected to act as a source of financial and managerial strength to each of its
subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank. This
support may be required at times when the BHC may not have the resources to provide the support. The OCC may order an
assessment of the BHC if the capital of one of its national bank subsidiaries were to become impaired. If the BHC failed to
pay the assessment within three months, the OCC could order the sale of the BHC’s holdings of stock in the national bank to
cover the deficiency.
In the event of the “liquidation or other resolution” of an insured depository institution, the claims of deposits payable in
the United States (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative
expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured
depository institution fails, claims of insured and uninsured U.S. depositors, along with claims of the FDIC, will have priority
in payment ahead of unsecured creditors, including the BHC, and depositors whose deposits are solely payable at such
insured depository institution’s non-U.S. offices.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act, enacted on July 21, 2010, will result in broad changes to the U.S. financial system and is the most
significant financial reform legislation since the 1930s. Financial regulatory agencies have issued numerous rulemakings to
implement its provisions, but a number of rulemakings required by the Dodd-Frank Act have either not yet been proposed or
have not been finalized. As a result, the ultimate impact of the Dodd-Frank Act is not yet known, but it has affected, and we
expect it will continue to affect, most of our businesses in some way, either directly through regulation of specific activities
or indirectly through regulation of concentration risks, capital or liquidity. Until the remaining provisions of the December
2011 FRB proposal are finalized, we are unable to fully estimate their impact on the Company, but we expect the final rules
may significantly increase our compliance and regulatory requirements.
Federal regulatory agencies issued numerous other rulemakings in 2011 and 2012 to implement various other
requirements of the Dodd-Frank Act, but many of these other proposed rules remain open for comment. Agencies have
proposed rules establishing a comprehensive framework for the regulation of derivatives, restricting banking entities from
engaging in proprietary trading or owning interests in or sponsoring hedge funds or private equity funds (the “Volcker
Rule”), and requiring sponsors of asset-backed securities (“ABS”) to retain an ownership stake in the ABS. In November
2012, the Financial Stability Oversight Council proposed new regulations for addressing perceived risks that money market
mutual funds may pose to the financial stability of the United States. Once final recommendations are issued, the SEC is
required to adopt the recommendations or explain its reasons for not implementing the recommendations. Although we have
analyzed these and other proposed rules, the absence of final rules and the complexity of some of the proposed rules make it
difficult for the Company to estimate the financial, compliance or operational impacts of the proposals.
The Dodd-Frank Act also established the Consumer Financial Protection Bureau (the “CFPB”) to ensure consumers
receive clear and accurate disclosures regarding financial products and to protect consumers from hidden fees and unfair or
abusive practices. The CFPB, which has now been in operation for over a year, has begun exercising supervisory review of
banks under its jurisdiction and has concentrated much of its initial rulemaking efforts on a variety of mortgage-related topics
The First Bancorp • 2012 Form 10-K • Page 5
required under the Dodd-Frank Act, including ability-to-repay and qualified mortgage standards, mortgage servicing
standards, loan originator compensation standards, high-cost mortgage requirements, appraisal and escrow standards and
requirements for higher-priced mortgages. Several of the CFPB’s rulemakings were issued in January 2013, and we continue
to analyze their requirements to determine the impact of the rules to our businesses. During 2013, we expect the CFPB to
focus its rulemaking efforts on integrating disclosure requirements for lenders and settlement agents and expanding the scope
of information lenders must report in connection with mortgage and other housing-related loan applications. In addition to the
exercise of its rulemaking authority, the CFPB is continuing its on-going examination activities with respect to a number of
consumer businesses and products.
Customer Information Security
The 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.
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 Bank Secrecy Act
The Bank Secrecy Act (the “BSA”) requires all financial institutions, including banks and securities broker-dealers, to,
among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and
the financing of terrorism. It includes a variety of recordkeeping and reporting requirements (such as cash and suspicious
activity reporting) as well as due diligence/know-your-customer documentation requirements. The Bank has established an
anti-money laundering program to comply with the BSA requirements.
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 First Bancorp • 2012 Form 10-K • Page 6
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 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 BHCs. If a banking organization’s capital levels fall below the minimum
requirements established by such guidelines, a bank or BHC will be expected to develop and implement a plan acceptable to
the FDIC or the Federal Reserve Board, respectively, to achieve adequate levels of capital within a reasonable period, and
may be denied approval to acquire or establish additional banks or non-bank businesses, merge with other institutions or open
branch facilities until such capital levels are achieved. Federal regulations require federal bank regulators to take “prompt
corrective action” with respect to insured depository institutions that fail to satisfy minimum capital requirements and
imposes significant restrictions on such institutions. See “Prompt Corrective Action” below.
Leverage Capital Ratio
The regulations of the OCC require national banks to maintain a minimum “Leverage Capital Ratio” or “Tier 1 Capital” (as
defined in the Risk-Based Capital Guidelines discussed in the following paragraphs) to Total Assets of 4.0%. Any bank
experiencing or anticipating significant growth is expected to maintain capital well above the minimum levels. The Federal
Reserve Board’s guidelines impose substantially similar leverage capital requirements on bank holding companies on a
consolidated basis. It is possible that banking regulators may increase minimum capital requirements for banks should the
current economic situation persist or worsen.
Risk-Based Capital Requirements
OCC regulations also require national banks to maintain minimum capital levels as a percentage of a bank’s risk-adjusted
assets. A bank’s qualifying total capital (“Total Capital”) for this purpose may include two components: “Core” (Tier 1)
Capital and “Supplementary” (Tier 2) Capital. Core Capital consists primarily of common stockholders’ equity, which
generally includes common stock, related surplus and retained earnings, certain non-cumulative perpetual preferred stock and
related surplus, and minority interests in the equity accounts of consolidated subsidiaries, and (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
The First Bancorp • 2012 Form 10-K • Page 7
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 December 31, 2012, the Company’s consolidated Total and Tier 1 Risk-Based Capital Ratios were 16.05% and
14.80%, respectively, and its Leverage Capital Ratio was 8.46%. Based on the above figures and accompanying discussion,
the Company exceeds all regulatory capital requirements and is considered well capitalized.
Basel III Capital Requirements
In December 2010, the Basel Committee on Bank Supervision (the “BCBS”) finalized a set of international guidelines for
determining regulatory capital known as “Basel III.” These guidelines were developed in response to the financial crisis of
2008 and 2009 and were intended to address many of the weaknesses identified in the banking sector as contributing to the
crisis including excessive leverage, inadequate and low quality capital and insufficient liquidity buffers. The Basel III
guidelines would:
raise the quality of capital to be better able to absorb losses on both a going concern and gone concern basis;
increase the risk coverage of the capital framework, specifically for trading activities, securitizations, exposures to
off-balance sheet vehicles, and counterparty credit exposures arising from derivatives;
raise the level of minimum capital requirements;
establish an international leverage ratio;
develop capital buffers;
raise standards for the supervisory review process (Pillar 2) and public disclosures (Pillar 3).
U.S. regulatory authorities have been considering the BCBS capital guidelines and proposals, and in June 2012, the U.S.
banking regulators jointly issued three notices of proposed rulemaking that are essentially intended to implement the BCBS
capital guidelines for U.S. banks. Together these notices of proposed rulemaking would, among other things:
implement in the United States the Basel III regulatory capital reforms including those that revise the definition of
capital, increase minimum capital ratios, and introduce a minimum Tier 1 common equity ratio of 4.5% and a capital
conservation buffer of 2.5% (for a total minimum Tier 1 common equity ratio of 7.0%) and a potential
countercyclical buffer of up to 2.5%, which would be imposed by regulators at their discretion if it is determined
that a period of excessive credit growth is contributing to an increase in systemic risk;
revise “Basel I” rules for calculating risk-weighted assets to enhance risk sensitivity;
modify the existing Basel II advanced approaches rules for calculating risk-weighted assets to implement Basel III;
Although the proposals contemplated an effective date of January 1, 2013, with phased in compliance requirements, the
comply with the Dodd-Frank Act provision prohibiting the reliance on external credit ratings.
rules have not yet been finalized by the U.S. banking regulators due to the volume of comments received and concerns
expressed during the comment period. The U.S. banking regulators have approved a final rule to implement changes to the
market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital
requirements to better account for the market risks of those activities.
Although uncertainty exists regarding final capital rules, we evaluate the impact of Basel III on our capital ratios based
on our interpretation of the proposed capital requirements, and we estimate that our Tier 1 common equity ratio under the
Basel III proposals exceeded the fully phased-in minimum of 7.0% by 123 basis points at December 31, 2012. The proposed
Basel III capital rules and interpretations and assumptions used in estimating our Basel III calculations are subject to change
depending on final promulgation of Basel III capital rulemaking.
From time to time, the OCC, the FRB and the Federal Financial Institutions Examination Council (the “FFIEC”) propose
changes and amendments to, and issue interpretations of, risk-based capital guidelines and related reporting instructions. In
addition, the FRB has closely monitored capital levels of the institutions it supervises during the ongoing financial disruption,
and may require such institutions to modify capital levels based on FRB determinations. Such determinations, proposals or
interpretations could, if implemented in the future, affect our reported capital ratios and net risk-adjusted assets.
The First Bancorp • 2012 Form 10-K • Page 8
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 is a member of the Deposit Insurance Fund (DIF) maintained by the FDIC. Through the DIF, the FDIC insures the
deposits of the Bank up to prescribed limits for each depositor. The DIF was formed March 31, 2006, upon the merger of the
Bank Insurance Fund and the Savings Insurance Fund in accordance with the Federal Deposit Insurance Reform Act of 2005
(the “FDIR Act”). The FDIR Act established a range of 1.15% to 1.50% within which the FDIC Board of Directors may set
the Designated Reserve Ratio (the “reserve ratio” or “DRR”). The FDIR Act also granted the FDIC Board the discretion to
price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio.
In 2009, the FDIC undertook several measures in an effort to replenish the DIF. On February 27, 2009, the FDIC
adopted a final rule modifying the risk-based assessment system and set new initial base assessment rates beginning April 1,
2009. Annual rates ranged from a minimum of 12 cents per $100 of domestic deposits for well-managed, well-capitalized
institutions with the highest credit ratings, to 45 cents per $100 for those institutions posing the most risk to the DIF. Risk-
based adjustments to the initial assessment rate could have lowered the rate to 7 cents per $100 of domestic deposits for well-
managed, well-capitalized banks with the highest credit ratings or raised the rate to 77.5 cents per $100 for depository
institutions posing the most risk to the DIF. On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special
assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The amount of the special
assessment for any institution was limited to 10 basis points times the institution’s assessment base for the second quarter
2009. On November 17, 2009, the FDIC amended its regulations to require insured institutions to prepay their estimated
quarterly risk-based assessments for fourth quarter 2009, and all of 2010, 2011, and 2012. For purposes of determining the
The First Bancorp • 2012 Form 10-K • Page 9
prepayment, the FDIC used the institution’s assessment rate in effect on September 30, 2009. Any unused prepaid assessment
will be refunded on June 28, 2013.
The Dodd-Frank Act gave the FDIC greater discretion to manage the DIF, raised the minimum DRR to 1.35% and
removed the upper limit of the range. In October 2010, the FDIC Board adopted a Restoration Plan to ensure that the DIF
reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. At the same time, the FDIC Board
proposed a comprehensive, long-range plan for DIF management. In December 2010, as part of the comprehensive plan, the
FDIC Board adopted a final rule to set the DRR at 2%, and in February 2011, the FDIC Board approved the remainder of the
comprehensive plan. The Restoration Plan eliminated a 3 basis point increase in the annual assessment rates that was to take
effect January 1, 2011.
On February 7, 2011, the FDIC Board approved a final rule on assessments, dividends, assessment base and large bank
pricing that took effect on April 1, 2011. To maintain the DIF, member institutions are assessed an insurance premium based
on an assessment base and an assessment rate. Generally, the assessment base is an institution’s average consolidated total
assets minus average tangible equity. For large and highly complex institutions (those that are very large and are structurally
and operationally complex or that pose unique challenges and risks in the case of failure), the assessment rate is determined
by combining supervisory ratings and certain financial measures into scorecards. The score received by an institution will be
converted into an assessment rate for the institution. The FDIC retains the ability to adjust the total score of large and highly
complex institutions based upon quantitative or qualitative measures not adequately captured in the scorecards.
All FDIC-insured depository institutions must also pay a quarterly assessment towards interest payments on bonds
issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance
Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance
Corporation. FDIC-insured depository institutions paid approximately 1.00 to 1.02 cents per $100 of assessable deposits
during the first nine months of 2011. To coincide with Dodd-Frank Act mandated changes to the insurance assessment base,
the FDIC established lower FICO assessment rates, 0.66 cents per $100 of assessment base for 2012 and 0.64 cents per $100
of assessment base for first quarter 2013.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial
condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any
applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of
deposit insurance for one or more of our bank subsidiaries could have a material adverse effect on our earnings, depending on
the collective size of the particular banks involved.
Brokered Deposits and Pass-Through Deposit Insurance Limitations
Under FDICIA, a bank cannot accept brokered deposits unless it either (i) is “Well Capitalized” or (ii) is “Adequately
Capitalized” and has received a written waiver from its primary federal banking regulator. For this purpose, “Well
Capitalized” and “Adequately Capitalized” have the same definitions as in the Prompt Corrective Action regulations. See
“Prompt Corrective Action” above. Banks that are not in the “Well Capitalized” category are subject to certain limits on the
rates of interest they may offer on any deposits (whether or not obtained through a third-party deposit broker). Pass-through
insurance coverage is not available in banks that do not satisfy the requirements for acceptance of brokered deposits, except
that pass-through insurance coverage will be provided for employee benefit plan deposits in institutions which at the time of
acceptance of the deposit meet all applicable regulatory capital requirements and send written notice to their depositors that
their funds are eligible for pass-through deposit insurance. The Bank currently accepts brokered deposits.
Real Estate Lending Standards
FDICIA requires the federal bank regulatory agencies to adopt uniform real estate lending standards. The FDIC and the OCC
have adopted regulations which establish supervisory limitations on Loan-to-Value (“LTV”) ratios in real estate loans by
FDIC-insured banks, including national banks. The regulations require banks to establish LTV ratio limitations within or
below the prescribed uniform range of supervisory limits.
Standards for Safety and Soundness
Pursuant to FDICIA the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all
insured depository institutions and depository institution holding companies relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset
growth; and (vi) compensation, fees and benefits. The compensation standards prohibit employment contracts, 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.
The First Bancorp • 2012 Form 10-K • Page 10
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.
Future Legislation or Regulation
In light of recent conditions in the U.S. and global financial markets and the U.S. and global economy, legislators, the
presidential administration and regulators have continued their increased focus on regulation of the financial services
industry. Proposals that further increase regulation of the financial services industry have been and are expected to continue
to be introduced in the U.S. Congress, in state legislatures and abroad. In addition, not all regulations authorized or required
under the Dodd-Frank Act have been proposed or finalized by federal regulators. Further legislative changes and additional
regulations may change our operating environment in substantial and unpredictable ways. Such legislation and regulations
could increase our cost of doing business, affect our compensation structure, restrict or expand the activities in which we may
engage or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
We cannot predict whether future legislative proposals will be enacted and, if enacted, the effect that they, or any
implementing regulations, would have on our business, results of operations or financial condition. The same uncertainty
exists with respect to regulations authorized or required under the Dodd-Frank Act but that have not yet been proposed or
finalized.
Impact of Monetary Policy
Our business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its
agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the
United States. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in
United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or
changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements
against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to
directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.
The policies of the FRB may have a material effect on our business, results of operations and financial condition. 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, 2012, the Company had 228 employees and full-time equivalency of 222 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 • 2012 Form 10-K • Page 11
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.
Risk Associated With Our Business
We are subject to credit risk and may incur losses if loans are not repaid.
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.
Our loan portfolio includes commercial and commercial real estate loans that may have higher risks than other types of
loans.
Our commercial, commercial real estate, and commercial construction loans at December 31, 2012 and 2011 were $354.9
million and $375.0 million, respectively, or 40.8% and 43.4% of total loans. Commercial and commercial real estate loans
generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. As a result,
banking regulators continue to give greater scrutiny to lenders with a high concentration of commercial real estate loans in
their portfolios, and such lenders are expected to implement stricter underwriting, internal controls, risk management policies
and portfolio stress testing, as well as higher capital levels and loss allowances. The increased financial and credit risk
associated with these types of loans are a result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these types of loans.
Regulators have the right to request banks to maintain elevated levels of capital or liquidity due to commercial real estate
loan concentrations, and could do so, especially if there is a further downturn in our local real estate markets. In addition,
when underwriting a commercial or industrial loan, we may take a security interest in commercial real estate, and, in some
instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to potential
financial risks for us under applicable environmental laws. If hazardous substances were discovered on any of these
properties, we may be liable to governmental agencies or third parties for the costs of remediation of the hazard, as well as
for personal injury and property damage. Many environmental laws can impose liability regardless of whether the Company
knew of, or were responsible for, the contamination.
Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful
operation of the related real estate or commercial project. If the cash flows from the project are reduced, a borrower’s ability
to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases,
we may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less
predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may, to a greater extent than
residential loans, be subject to adverse conditions in the real estate market or economy.
Our allowance for loan losses may be insufficient and require additional provision from earnings.
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. If, as a result of general economic
conditions, previously incorrect assumptions or an increase in defaulted loans, we determine that additional increases in the
allowance for loan losses are necessary, we will incur additional provision expenses. 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. 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
The First Bancorp • 2012 Form 10-K • Page 12
have a material adverse effect on our financial condition, results of operations and cash flows. See the section captioned
“Credit Risk Management and 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.
The Maine foreclosure process can be lengthy and add additional losses for the Bank.
Residential foreclosures in Maine occur through the judicial system. Under ideal circumstances, it can take as little as six
months to foreclose on a Maine property, however, if the borrower contests the foreclosure or the court delays the
foreclosure, the process may take as long as two years. In 2009, the Maine Legislature passed “An Act to Preserve Home
Ownership and Stabilize the Economy by Preventing Unnecessary Foreclosures.” This law provides for mediation of
foreclosure of residential mortgages and borrowers may choose mediation at which parties must attend and evaluate
foreclosure alternatives in good faith. This law also provides that issues such as reinstatement of the mortgage, modification
of the loan and restructuring of the mortgage debt are to be addressed at these mediations. Given the uncertain timeframe
related to foreclosure in Maine, the Bank can incur additional legal fees and other costs, such as payment of property taxes
and insurance, if the foreclosure process is extended. In addition, the value of the property may further decline if the borrower
fails to maintain the property in good order.
Our level of troubled debt restructured (“TDR”) has increased and could adversely affect our financial condition and
results of operations.
Our efforts in 2011 and 2012 to assist homeowners and other borrowers increased our overall level of TDRs. In each case
when a loan was modified, Management determined it was in the Bank’s best interest to work with the borrower with
modified terms rather than to proceed to foreclosure. Once a loan is classified as a TDR, however, it remains classified as a
TDR until the balance is fully repaid, whether or not the loan is performing under the modified terms. As of December 31,
2012 there were 101 loans with an outstanding balance of $30.0 million that have been restructured. This compares to 59
loans with a value of $22.9 million as of December 31, 2011.
As of December 31, 2012, 70 loans with an aggregate balance of $24.9 million were performing under the modified
terms, seven loans with an aggregate balance $1.7 million were more than 30 days past due and 24 loans with an aggregate
balance of $3.4 million were on nonaccrual. As a percentage of aggregate outstanding balances, 83.0% was performing under
the modified terms, 5.8% was more than 30 days past due and 11.2% was on nonaccrual. Although a large percentage of
TDRs continue to be performing, as a group our TDRs are relatively unseasoned and the full collection of principal and
interest on some TDRs may not occur, which could adversely affect our financial condition and results of operations.
Changes in interest rates could adversely affect our net interest income and profitability.
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
our ability to originate loans and obtain deposits;
the fair value of our financial assets and liabilities; and
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.
The value of our investment portfolio may be negatively affected by changes in interest rates and 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
The First Bancorp • 2012 Form 10-K • Page 13
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. As of December 31, 2012, we had $291.6 million and $143.3 million in available for sale and held
to maturity investment securities, respectively. 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.
Illiquidity 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. 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 (the “FHLB”) and other secured and
unsecured borrowings to fund our operations. 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,
adverse regulatory action against us, changes in market interest rates or increased competition for funding within our market.
Disruptions in the capital markets or interest rate changes may make the terms of wholesale funding sources less favorable
and may make it difficult to sell securities when needed to provide additional liquidity. 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 subject to restrictions. As a result, there is a risk that our cost of funding will
increase or we will not have sufficient funds to meet our obligations when they become due.
Loss of lower-cost funding sources could lead to margin compression and decrease net interest income.
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 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, which could increase our funding costs and reduce our net interest income.
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. In addition, many of these
transactions expose us to credit risk in the event of default of our counterparty or client. Further, 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.
Lack of loan demand may adversely impact net interest income.
During the past two years our loan portfolio has decreased $18.3 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
The First Bancorp • 2012 Form 10-K • Page 14
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.
Our recent acquisitions may negatively impact earnings.
On October 26, 2012, the Company completed the purchase of the former Bank of America branch at 63 Union Street in
Rockland, Maine, from Camden National Bank. As part of the transaction, the Company acquired approximately $32.3
million in deposits as well as a small volume of loans. On the same date, the Company completed the purchase of a full-
service bank building at 145 Exchange Street in Bangor, Maine, also from Camden National, and opened a full-service
branch in this building in February of 2013. While these locations offer an excellent opportunity for the Company to expand
its presence in Mid-Coast Maine and enter a new market in Eastern Maine, there is no guarantee that the increased operating
costs for facilities and personnel will be offset by growth in loans and deposits in the new locations.
A decline in real estate values in our 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 could result in a decline in the demand for our products and services and,
accordingly, could negatively impact our results of operations. Such a decline in economic conditions could impair
borrowers’ ability to pay outstanding principal and interest on loans when due and, consequently, adversely affect the cash
flows of our business. The Bank’s loan portfolio is largely secured by real estate collateral. A substantial portion of the real
and personal property securing the loans in the Bank’s portfolio is located in Mid-Coast and Down East Maine. Conditions in
the real estate market in which the collateral for the Bank’s loans is located strongly influence the level of the Bank’s non-
performing loans and results of operations. The recent decline in the Mid-Coast and Down East Maine area real estate values,
as well as other external factors, could adversely affect the Bank’s loan portfolio.
Our investment management activities are dependent on the value of investment securities which may lead to revenue
fluctuations.
First Advisors is the investment management arm of the Bank, operating under trust powers granted from the OCC in the
Bank’s charter. First Advisors provides trustee, investment management and custody services for individual, municipal and
business clients, predominately in the Bank’s market area. First Advisors’ revenues are directly tied to the market
performance of the investments it manages for clients, and these may be adversely affected by a decline in the market value
of these investments caused by normal fluctuations in the bond and stock markets.
We are dependent upon the services of our management team and if we are unable to retain the services of our
management team, our business may suffer.
Our future success and profitability are substantially dependent upon the management and banking abilities of our senior
executives. Changes in key personnel may be disruptive to our business and could have a material adverse effect on our
business, financial condition and results of operations. We believe that our future results will also depend in part upon our
attracting and retaining highly skilled and qualified management. 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
negatively affected by these developments or any new executive compensation limits.
Our internal control systems are inherently limited and may fail or be circumvented.
We face the risk that the design of our controls and procedures, including those intended to mitigate the risk of fraud by
employees or outsiders, may prove to be inadequate or may be circumvented, thereby causing delays in detection of errors or
inaccuracies in data and information. Although Management regularly reviews and updates our internal controls, disclosure
controls and procedures, and corporate governance policies and procedures, the Company’s systems of internal controls,
The First Bancorp • 2012 Form 10-K • Page 15
disclosure controls and corporate governance policies and procedures are inherently limited. The inherent limitations of our
system of internal controls include the use of judgment in decision-making that can be faulty; breakdowns can occur because
of human error or mistakes; and controls can be circumvented by individual acts or by collusion of two or more people. The
design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any
design may not succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitation
of a cost-effective control system, misstatements due to error or fraud may occur and may not be detected, which may have
an adverse effect on the Company’s business, results of operations or financial condition. Additionally, any plans of
remediation for any identified limitations may be ineffective in improving internal controls.
We continually encounter technological change that may be difficult to keep up with.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
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.
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. 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.
We are subject to claims and litigation that may impact our earnings and/or our reputation.
From time to time, customers, vendors or other parties may make claims and take legal actions against us. Whether any
particular claims and legal actions are founded or unfounded, 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. 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. We maintain reserves
for certain claims when deemed appropriate based upon our assessment that a loss is probable, consistent with applicable
accounting guidance. At any given time we may have legal actions asserted against us in various stages of litigation.
Resolution of a legal action can often take years. We are also involved, from time to time, in other reviews, investigations
and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business, including,
among other things, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines,
penalties, injunctions or other relief. The number and risk of these investigations and proceedings has increased in recent
years with regard to many firms in the financial services industry due to legal changes to the consumer protection laws
provided for by the Dodd-Frank Act, the creation of the CFPB, and the uncertainty as to whether federal preemption of
certain state consumer laws remains intact for federally chartered financial institutions like the Bank. A weakening of federal
pre-emption would potentially increase our compliance and operational costs and risks since we are a national bank and we
would potentially face new state and local enforcement activity. There have also been a number of highly publicized cases
involving fraud or misconduct by employees in the financial services industry in recent years, and we face the risk that
employee misconduct could occur. It is not always possible to deter or prevent employee misconduct, and the precautions we
take to prevent and detect this activity may not be effective in all cases. Any financial liability for which we have not
adequately maintained reserves or insurance coverage, and/or any damage to our reputation from such claims and legal
actions, could have a material adverse effect on us.
Damage to our reputation could significantly harm our businesses.
Our ability to attract and retain customers, clients, investors and highly-skilled management and employees is impacted by
our reputation. Public perception of the financial services industry declined since the recent downturn in the U.S. economy.
The First Bancorp • 2012 Form 10-K • Page 16
We continue to face increased public and regulatory scrutiny resulting from the financial crisis and economic downturn.
Significant harm to our reputation can also arise from other sources, including employee misconduct, actual or perceived
unethical behavior, litigation or regulatory outcomes, failing to deliver minimum or required standards of service and quality,
compliance failures, disclosure of confidential information, and the activities of our clients, customers and counterparties,
including vendors. Actions by the financial services industry generally or by certain members or individuals in the industry
can also significantly adversely affect our reputation. We could also suffer significant reputational harm if we fail to properly
identify and manage potential conflicts of interest. The actual or perceived failure to adequately address conflicts of interest
could affect the willingness of clients to deal with us, which could adversely affect our businesses. Our actual or perceived
failure to address these and other issues gives rise to reputational risk that could cause significant harm to us and our business
prospects, and may have a material adverse effect on us.
Our recent results may not be indicative of our future results.
We may not be able to sustain our historical rate of growth or may not even be able to grow our business at all. In addition,
our recent growth may distort some of our historical financial ratios and statistics. Various factors, such as economic
conditions, regulatory and legislative considerations and competition, may also impede our ability to expand our market
presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial
condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.
The First Bancorp • 2012 Form 10-K • Page 17
Risks Associated With Our Industry
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 2013. 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 Risk Management and Allowance for Loan Losses” 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. BHC
stock prices have been negatively affected, and the ability of banks and BHCs 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. New legislation responding to these developments may
negatively impact us 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 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 has 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.
We operate in a highly regulated environment and may be adversely affected by changes in law and regulations.
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 BHC Act, as amended, and to
regulation and supervision by the Federal Reserve Board. The Bank is subject to regulation and supervision by 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 required 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
The First Bancorp • 2012 Form 10-K • Page 18
confidence of our customers in us, thus compromising our competitive position, or could cause our regulators to take
corrective or other supervisory action.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau, tightened capital standards and will continue
to result in new laws and regulations that are expected to increase our costs of operations.
The Dodd-Frank Act is significantly changing the current bank regulatory structure and affecting the lending, deposit,
investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act
requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare numerous studies and
reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations,
and consequently, many of the details and the impacts of the Dodd-Frank Act may not be known for many months or years.
However, it is expected that the legislation and implementing regulations may materially increase our operating and
compliance costs.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection matters that
apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and
practices. The CFPB’s authority to prescribe rules governing the provision of consumer financial products and services could
result in rules and regulations that reduce the profitability of such products or services, or impose new disclosure or
substantive requirements on us that could increase the cost to us of providing such products and services. The Dodd-Frank
Act also weakens the federal preemption rules that have been applicable to national banks and federal savings associations,
and gives state attorneys general the ability to enforce federal consumer protection laws, which could increase our operating
costs.
Effective July 21, 2011, the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits,
thus allowing businesses to have interest bearing checking accounts, which could result in an increase in our interest expense.
The Dodd-Frank Act also broadens the base for FDIC deposit insurance assessments. Assessments are now based on the
average consolidated total assets less tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank
Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to
$250,000 per depositor, retroactive to January 1, 2009. The legislation also increases the required minimum reserve ratio for
the Deposit Insurance Fund, from 1.15% to 1.35% of insured deposits, but directs the FDIC to offset the effects of increased
assessments on depository institutions, such as the Bank, with less than $10 billion in assets. Any increase in our deposit
insurance premiums will result in an increase in our non-interest expense.
The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive
compensation and so-called “golden parachute” payments. It also provides that the listing standards of the national securities
exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive
compensation paid to executive officers in connection with accounting restatements. The legislation also directs the Federal
Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives. These
rules could adversely affect our ability to hire and retain qualified management, which could have an adverse effect on our
business.
The short-term and long-term impact of changing regulatory capital requirements and anticipated new capital rules are
uncertain.
On June 7, 2012, the Federal Reserve Board issued proposed rules that would substantially amend the regulatory risk-based
capital rules applicable to us. The proposed rules implement the Basel III regulatory capital reforms and changes required by
the Dodd-Frank Act. Basel III was initially intended to be implemented beginning January 1, 2013, however on November 9,
2012, the U.S. federal banking agencies announced that the proposed rules would not become effective on January 1, 2013,
and it is not clear when the proposed rules will become effective.
Various provisions of the Dodd-Frank Act increase the capital requirements of financial institutions. The proposed rules
include new minimum risk-based capital and leverage ratios, which would be phased in during 2013 and 2014, and would
refine the definition of what constitutes “capital” for purposes of calculating these ratios. The proposed new minimum capital
requirements would be:
a new common equity Tier 1 capital ratio of 4.5%;
a Tier 1 capital ratio of 6% (increased from 4%);
a total capital ratio of 8% (unchanged from current rules); and
a Tier 1 leverage ratio of 4% for all institutions.
The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum
capital ratios, and would result in the following minimum ratios:
a common equity Tier 1 capital ratio of 7.0%,
a Tier 1 capital ratio of 8.5%, and
a total capital ratio of 10.5%.
The First Bancorp • 2012 Form 10-K • Page 19
The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-
weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to
limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls
below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be
utilized for such actions. While the proposed Basel III changes and other regulatory capital requirements will result in higher
regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied. In
addition, in the current economic and regulatory environment, bank regulators may impose capital requirements that are more
stringent than those required by applicable existing regulations.
The application of more stringent capital requirements could, among other things, result in lower returns on equity,
require the raising of additional capital, and result in adverse regulatory actions if we were to be unable to comply with such
requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could
result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of
liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or
deducted in calculating regulatory capital or additional capital conservation buffers, could result in management modifying
our business strategy and could limit our ability to make distributions, including paying dividends or buying back our shares.
Significant competition in the financial services industry may impact our results.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are
larger and have more financial resources than we do. We compete with other providers of financial services such as
commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage
companies, asset managers, insurance companies and a wide array of other local, regional and national institutions which
offer financial services. Mergers between financial institutions within Maine and in neighboring states have added
competitive pressure. If we are unable to compete effectively, we will lose market share and our income generated from
loans, deposits, and other financial products will decline.
The First Bancorp • 2012 Form 10-K • Page 20
Risks Associated With Our Common Stock
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. For the year ended December 31, 2012, the average monthly trading volume of our common
stock was 336,734 shares, or approximately 3.42% of the average number of outstanding common shares for the year. 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 and investors;
changes in expectations as to our future financial performance, including financial estimates;
events negatively impacting the financial services industry which result in a general decline for the industry;
announcements of material developments affecting our operations or our dividend policy;
future sales of our equity securities;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles; and
general domestic economic and market conditions.
In addition, recently the stock market generally has experienced extreme price and volume fluctuations, and industry factors
and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes
or credit loss trends, could also cause our stock price to decrease regardless of our operating results.
The inability to receive dividends from the Bank would negatively affect our ability to pay dividends to shareholders.
The Company is a legal entity separate and distinct from the Bank. With the exception of cash raised from debt and equity
issuances, we receive substantially all of our cash flow from dividends from the Bank. These dividends are the principal
source of funds to pay dividends on our equity securities. Federal banking law and regulations limit the amount of dividends
that the Bank can pay. For further information on the regulatory restrictions on the payment of dividends by the Bank, see
“Supervision and Regulation” in Item 1. In the event the Bank is unable to pay dividends to the Company, we may not be
able to service debt, pay obligations or pay dividends on our equity securities. Our right to participate in a distribution of
assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
If we do not manage our capital position strategically, our return on equity could be lower compared to our competitors as
a result of our high level of capital.
If we are unable to use strategically our excess capital, or to successfully continue capital management programs, such as
stock repurchase programs or quarterly dividends to our shareholders, then our goal of generating a return on average equity
that is competitive, increasing earnings per share and book value per share without assuming undue risk, could be delayed or
may not be attained. Failure to achieve a competitive return on average equity might decrease investments in our common
stock and might cause our common stock to trade at lower prices.
We may issue additional equity securities or engage in other transactions which dilute our book value or affect the priority
of the common stock, which may adversely affect the market price of our common stock.
Our Board of Directors may determine from time to time that we need to raise additional capital by issuing additional shares
of our common stock or other securities. Except pursuant to the rules of the NASDAQ Stock Market, we are not restricted
from issuing additional shares of common stock, including securities that are convertible into or exchangeable for, or that
represent the right to receive, common stock. Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any
future offerings, or the prices at which such offerings may be affected. Such offerings could be dilutive to common
shareholders or reduce the market price of our common stock. Holders of our common stock are not entitled to preemptive
rights or protection against dilution. New investors also may have rights, preferences and privileges that are senior to, and
The First Bancorp • 2012 Form 10-K • Page 21
that adversely affect, our then current common shareholders. We may attempt to increase our capital resources or, if our or
the Bank’s capital ratios fall below the required minimums, we could be forced to raise additional capital, by making
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 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. Our Board of
Directors is authorized to issue one or more series of preferred stock from time to time without any action on the part of our
shareholders. Our Board of Directors also has the power, without shareholder approval, to set the terms of any such series of
preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with
respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred stock in the
future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation,
dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock,
the rights of holders of our common stock or the market price of our common stock could be adversely affected.
Potential acquisitions may disrupt our business and dilute shareholder value.
Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including:
potential exposure to unknown or contingent liabilities of the target;
exposure to potential asset quality issues of the target;
difficulty and expense of integrating the operations and personnel of the target;
potential disruption to our business;
potential diversion of Management’s time and attention;
the possible loss of key employees and customers of the target;
difficulty in estimating the value of the assets and liabilities of the target;
potential changes in banking or tax laws or regulations that may affect the target.
Merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions
involving cash, debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium
over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may
occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings,
increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material
adverse effect on us.
Our participation in the TARP Capital Purchase Program may depress the market value of our common stock.
On January 9, 2009, the Company issued $25 million in Fixed Rate Cumulative Perpetual Preferred Stock, Series A, to the
U.S. Treasury under the Capital Purchase Program (“the CPP Shares”). 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. On August 24, 2011, the
Company repurchased $12.5 million of the CPP Shares, and after the repurchase, $12.5 million of the CPP shares remains
outstanding. 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.
During the time that Treasury holds any equity or debt instrument the Company issued, the Company is required to
comply with certain restrictions relating to the compensation of the Company’s chief executive officer, chief financial officer
and three other most highly compensated executive officers. Additional restrictions with regard to increasing shareholder
dividends and repurchase of Company stock were in place for the first three years of participation in the program and were
lifted on January 9, 2012. The Company’s earnings may be adversely impacted if the remaining $12.5 million of CPP shares
is not repaid before January 9, 2014, at which time the annual dividend rate on the CPP shares increases from 5.0% to 9.0%.
This in turn, may impact the price of the Company’s shares.
ITEM 1B. Unresolved Staff Comments
None
The First Bancorp • 2012 Form 10-K • Page 22
ITEM 2. Properties
The principal office of the Company and the Bank is located in Damariscotta, Maine. The Bank operates 16 full-service
banking offices in five counties in the Mid-Coast, Eastern and Down East regions of Maine:
Lincoln County
Boothbay Harbor
Damariscotta
Waldoboro
Wiscasset
Knox County
Camden
Rockland Park Street
Rockland Union Street
Rockport
Hancock County
Bar Harbor
Blue Hill
Ellsworth
Northeast Harbor
Southwest Harbor
Washington County
Eastport
Calais
Penobscot County
Bangor (opened February 2013)
First Advisors, the investment management and trust division of the Bank, operates from four offices in Bangor, 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 • 2012 Form 10-K • Page 23
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, 2012, there were 9,859,914 shares outstanding and held of record by approximately 3,547 shareholders. The
following table reflects the high and low prices of actual sales in each quarter of 2012 and 2011. Such quotations do not
reflect retail mark-ups, mark-downs or brokers’ commissions.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2012
High
Low
$16.38
17.44
18.96
18.14
$14.00
13.41
16.02
14.32
2011
High
$15.95
15.96
15.30
15.95
Low
$13.40
13.79
11.69
11.75
The last transaction in the Company’s stock on NASDAQ during 2012 was on December 31 at $16.47 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 2013 will be that year’s net income plus $6.8
million. The payment of dividends from the Bank to the Company may be additionally restricted if the payment of such
dividends resulted in the Bank failing to meet regulatory capital requirements. The Bank is also required to maintain
minimum amounts of capital-to-total-risk-weighted-assets, as defined by banking regulators. At December 31, 2012, 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 14.41% and 15.66%, respectively, as of December 31, 2012. The table below sets forth the cash
dividends declared in the last two fiscal years:
Date Declared
March 17, 2011
June 15, 2011
September 15, 2011
December 15, 2011
March 15, 2012
June 20, 2012
September 20, 2012
December 20, 2012
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 29, 2011
July 29, 2011
October 28, 2011
January 31, 2012
April 30, 2012
July 31, 2012
October 31, 2012
January 31, 2013
During the year ended December 31, 2012, the Company repurchased no common stock.
Unregistered Sales of Equity Securities
The Company had no unregistered sales of equity securities in 2012.
The First Bancorp • 2012 Form 10-K • Page 24
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)
42,000
$18.00
-
42,000
$ -
$18.00
380,273
-
380,273
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
2007
2008
2009
2010
2011
2012
FNLC
S&P 500
NASD Bank
2007
100.00
100.00
100.00
2008
143.84
63.00
78.46
2009
115.08
79.67
65.67
2010
124.43
91.67
74.96
2011
127.90
93.60
67.09
2012
143.72
108.58
79.63
The First Bancorp • 2012 Form 10-K • Page 25
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
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Declared
Book Value per Common Share
Tangible Book Value per Common Share
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
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio2
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2012
$ 51,825
12,938
38,887
7,835
11,278
26,271
12,688
$ 1.22
1.22
0.780
14.60
11.47
16.47
8.84%
10.40
0.89
10.96
8.96
3.14
63.93
1.44
2.20
1.89
51.01
Years ended December 31,
2010
2009
2011
$ 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
$ 1.14
1.14
0.780
14.12
11.20
15.37
$ 1.10
1.10
0.780
12.80
9.84
15.79
9.37%
9.53%
10.80
0.87
10.72
8.70
3.27
68.42
1.50
3.21
2.32
49.75
10.97
0.89
11.20
9.06
3.38
70.91
1.50
2.39
1.87
48.15
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 1.22
1.22
0.780
12.66
9.65
15.42
10.66%
12.76
0.96
10.85
8.69
3.66
63.93
1.43
1.95
1.80
43.39
2008
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 1.45
1.44
0.765
12.09
9.01
19.89
12.02%
16.14
1.10
9.14
6.83
3.33
52.76
0.90
1.27
1.31
46.07
$1,414,999
869,284
449,382
958,850
282,905
156,323
$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
High
$18.96
$1,325,744
979,273
247,839
925,736
272,074
117,181
Low
$13.41
Market price per common share of stock during 2012
1Annualized using a 366-day basis in 2012 and 365-day basis in 2011
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 • 2012 Form 10-K • Page 26
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”).
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 sixteen offices along coastal and eastern 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 • 2012 Form 10-K • Page 27
Critical Accounting Policies
Management’s discussion and analysis of the Company’s financial condition and results of operation 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 amounts 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.” 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 • 2012 Form 10-K • Page 28
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 2012, 2011 and 2010.
Dollars in thousands
2012
Net interest income as presented
$38,887
Effect of tax-exempt income
3,128
Net interest income, tax equivalent $42,015
Years ended December 31,
2010
2011
$40,589
$40,993
2,281
2,710
$42,870
$43,703
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 and
Comprehensive Income. The non-GAAP efficiency ratio excludes securities losses and other-than-temporary impairment
charges from noninterest expenses, excludes securities gains from noninterest income, and adds the tax-equivalent adjustment
to net interest income. The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:
In thousands of dollars
2012
Non-interest expense, as presented
$ 26,271
Adjusted non-interest expense
26,271
Net interest income, as presented
38,887
Effect of tax-exempt income
3,128
Non-interest income, as presented
11,278
Effect of non-interest tax-exempt income
177
Net securities gains
(1,968)
Adjusted net interest income plus non-interest income $ 51,502
Non-GAAP efficiency ratio
51.01%
GAAP efficiency ratio
52.37%
Years ended December 31,
2011
$ 26,038
26,038
40,993
2,710
11,750
182
(3,293)
$ 52,342
49.75%
49.37%
2010
$ 25,130
25,130
40,589
2,281
9,135
193
(2)
$ 52,196
48.15%
50.54%
The First Bancorp • 2012 Form 10-K • Page 29
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:
In thousands of dollars
2012
Average shareholders’ equity as presented
$155,822
Less preferred stock (average)
(12,341)
Less intangible assets (average)
(28,422)
Average tangible common shareholders’ equity $115,059
Years ended December 31,
2011
$152,254
(20,290)
(28,698)
$103,266
2010
$151,739
(24,606)
(28,982)
$ 98,151
Executive Summary
Net income for the year ended December 31, 2012 was $12.7 million, up $324,000 or 2.6% from the $12.4 million posted for
the year ended December 31, 2011. Earnings per common share on a fully diluted basis were $1.22 for the year ended
December 31, 2012, up $0.08 or 7.0% from the $1.14 posted for the year ended December 31, 2011. Net interest income on a
tax-equivalent basis declined $1.7 million or 3.9% for the year ended December 31, 2012 compared to the year ended
December 31, 2011. This decrease was attributable to margin compression due to the unprecedented low interest rate
environment now entering its fifth straight year. As a result, our net interest margin slipped from 3.27% in 2011 to 3.14% in
2012. This year-over-year decline in net interest income was offset by a lower provision for loan losses.
During 2012, total assets increased $42.1 million or 3.1%. The loan portfolio was up $4.3 million or 0.5%. The
investment portfolio was up $25.1 million or 5.9% for the year. On the liability side of the balance sheet, low-cost deposits
have increased $59.7 million or 19.1% for the year. We continue to see an inflow of low-cost deposits due to the low interest
rate environment and had a $25 million lift in low-cost deposits in the fourth quarter due to the acquisition of the former
Bank of America branch in Rockland. Local certificates of deposit decreased $874,000 or 4.0%.
Credit quality improved significantly in 2012. Non-performing loans stood at 2.20% of total loans on December 31,
2012 compared to 3.21% of total loans on December 31, 2011. This compares to nonperforming loans at 1.73% for our
Uniform Bank Performance Report peer group (“UBPR peer group”) as of December 31, 2012. Net chargeoffs were $8.3
million or 0.95% of average loans in 2012 compared to net charge offs of $10.9 million or 1.23% of average loans in 2011.
Net charge offs for the UBPR peer group in 2012 were 0.58% of average loans. We provisioned $7.8 million for loan losses
in 2012, down $2.7 million from the $10.5 million provision made during 2011. The allowance as a percentage of loans
outstanding stood at 1.44% in 2012 compared to 1.50% in 2011.
The Company’s operating ratios remain good, with a return on average tangible common equity of 10.40% for the year
ended December 31, 2012 compared to 10.80% and 10.97% for the year ended December 31, 2011 and 2010, respectively.
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 9.18% for the year. Our efficiency ratio continues to be an important component in our overall performance and at 51.01%
in 2012, is only slightly above the 49.75% and 48.15% posted for 2011 and 2010, respectively. As of December 31, 2012, the
average efficiency ratio for our UBPR peer group was 66.38%, which put us in the top 10% of all banks in the UBPR peer
group.
The First Bancorp • 2012 Form 10-K • Page 30
Results of Operations
Net Interest Income
Net interest income on a tax-equivalent basis decreased 3.9% or $1.7 million to $42.0 million for the year ended December
31, 2012 from the $43.7 million reported for the year ended December 31, 2011. This decrease is due to margin compression
resulting in a decrease in the net interest margin from 3.27% in 2011 to 3.14% in 2012.
Total interest income in 2012 was $51.8 million, a decrease of $3.9 million or 7.0% from the $55.7 million posted by the
Company in 2011. Total interest expense in 2012 was $12.9 million, a decrease of $1.8 million or 12.0% from the $14.7
million posted by the Company in 2011. The decrease in both interest income and interest expense was attributable to lower
interest rates. Tax-exempt interest income amounted to $5.8 million for the year ended December 31, 2012, $5.0 million for
the year ended December 31, 2011 and $4.2 million for the year ended December 31, 2010.
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, 2012 compared to 2011
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
$ (8)
549
(15)
(379)
147
(316)
438
122
$ 25
Rate
Rate/Volume1
Total
$ -
(1,150)
(6)
(2,441)
(3,597)
(1,068)
(789)
(1,857)
$ (1,740)
$ -
(35)
3
23
(9)
34
(70)
(36)
$ 27
Rate
Volume
Rate/Volume1
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
1 Represents the change attributable to a combination of change in rate and change in volume.
$ (6)
(1,403)
(13)
(2,080)
(3,502)
$ 315
4,913
(127)
(2,078)
3,023
$ (303)
(455)
10
98
(650)
(1,016)
(1,636)
(2,652)
$ (850)
(51)
(78)
(129)
$ (521)
516
303
819
$ 2,204
The First Bancorp • 2012 Form 10-K • Page 31
$ (8)
(636)
(18)
(2,797)
(3,459)
(1,350)
(421)
(1,771)
$ (1,688)
Total
$ 6
3,055
(130)
(4,060)
(1,129)
(551)
(1,411)
(1,962)
$ 833
The following table presents the interest earned on or paid for each major asset and liability category, respectively, for
the years ended December 31, 2012, 2011, and 2010, 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
2012
2011
2010
Amount of
interest
Average
Yield/Rate
Amount of
interest
Average
Yield/Rate
Amount of
interest
Average
Yield/Rate
$ 4
17,584
12
37,353
54,953
8,396
4,542
12,938
$ 42,015
$ 12
18,220
30
40,150
58,412
9,746
4,963
14,709
$ 43,703
0.25%
3.81%
3.69%
4.27%
4.11%
0.93%
1.73%
1.11%
3.00%
3.14%
$ 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%
0.25%
4.49%
4.73%
4.77%
4.70%
1.15%
2.76%
1.48%
3.22%
3.38%
The First Bancorp • 2012 Form 10-K • Page 32
Average Daily Balance Sheets
The following table shows the Company’s average daily balance sheets for the years ended December 31, 2012, 2011 and
2010.
Dollars in thousands
Assets
Cash and cash equivalents
Interest bearing deposits in other banks
Securities available for sale
Securities to be held to maturity
Restricted equity securities, at cost
Loans held for sale (fair value approximates cost)
Loans
Allowance for loan losses
Net loans
Accrued interest receivable
Premises and equipment
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
Net unrealized gain on securities available-for-sale
Net unrealized loss on postretirement benefit costs
Total Shareholders’ Equity
Total Liabilities & Shareholders’ Equity
Years ended December 31,
2011
2012
2010
$ 13,877
1,615
306,454
140,057
14,697
325
874,464
(13,737)
860,727
5,008
18,582
4,760
27,690
27,819
$ 1,421,611
$ 80,461
129,125
76,972
124,173
576,049
986,780
142,750
120,511
932
14,816
1,265,789
12,341
98
46,122
88,554
8,784
(77)
155,822
$ 1,421,611
$ 13,405
4,710
315,255
117,020
15,443
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
2,807
(62)
152,254
$ 1,419,875
$ 15,722
88
178,116
144,601
15,443
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
762
(201)
151,739
$ 1,355,067
The First Bancorp • 2012 Form 10-K • Page 33
Non-Interest Income
Non-interest income in 2012 was $11.3 million, a decrease of $472,000 or 4.0% from the $11.8 million reported in 2011.
This decrease was attributable to lower levels of securities gains, which was partially offset with strong mortgage origination
income.
Non-Interest Expense
Non-interest expense in 2012 was $26.3 million, with a modest 3.6% increase in employee costs being offset by lower other
operating expenses. Acquisition costs of $251,000 were incurred in conjunction with the acquisition of a branch in Rockland
and a building in Bangor. See “Capital Purchases”.
Provision to the Allowance for Loan Losses
The Company’s provision to the allowance for loan losses was $7.8 million in 2012 compared to $10.5 million in 2011. This
was 0.55% of average assets in 2012, compared to 0.30% of average assets for our peer group. The allowance for loan losses
stood at 1.44% of total loans as of December 31, 2012, compared to 1.50% a year ago. 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”.
Credit quality improved significantly in 2012 which enabled the Company to provision less in 2012 than in 2011. Net
loan chargeoffs were $8.3 million or 0.95% of average loans, down $2.6 million from net chargeoffs of $10.9 million or
1.23% of average loans in 2011. Non-performing assets stood at 1.89% of total assets as of December 31, 2012 compared to
2.32% of total assets at December 31, 2011. Past-due loans were 2.67% of total loans as of December 31, 2012, the lowest
year-end total in the past five years and well below 3.07% of total loans as of December 31, 2011.
Net Income
Net income for 2012 was $12.7 million, up 2.6% or $324,000 from net income of $12.4 million that was posted in 2011.
Earnings per share on a fully diluted basis were $1.22, up $0.08 or 7.0% from the $1.14 reported for the year ended
December 31, 2011.
Key Ratios
Return on average assets in 2012 was 0.89%, up from the 0.87% and equal to the 0.89% posted in 2011 and 2010
respectively. Return on average tangible common equity was 10.40% in 2012, compared to 10.80% in 2011 and 10.97% in
2010. In 2012, the Company’s dividend payout ratio (dividends declared per share divided by earnings per share) was
63.93%, compared to 68.42% in 2011 and 70.91% in 2010. The Company’s efficiency ratio – a benchmark measure of the
amount spent to generate a dollar of income – was 51.01% in 2012 compared to 66.37% for the Bank’s peer group, on
average. In 2011, the Company’s efficiency ratio was 49.75% compared to 66.26% for the Bank’s peer group, on average.
Investment Management and Fiduciary Activities
As of December 31, 2012, First Advisors, the Bank’s private banking and investment management division, had assets under
management with a market value of $651.3 million, consisting of 834 trust accounts, estate accounts, agency accounts, and
self-directed individual retirement accounts. This compares to December 31, 2011, when 730 accounts with a market value of
$619.3 million were under management.
The First Bancorp • 2012 Form 10-K • Page 34
Assets and Asset Quality
Total assets of $1.415 billion increased 3.1% or $42.1 million in 2012 from $1.373 billion at December 31, 2011. The
investment portfolio increased $25.1 million or 5.9% over December 31, 2011, and the loan portfolio increased $4.3 million
or 0.5%. Year-over-year, average assets were up $1.7 million in 2012 over 2011. Average loans in 2012 were $8.3 million
lower than in 2011, but average investments in 2012 were $13.5 million higher than in 2011.
Credit quality improved significantly in 2012. Non-performing assets to total assets stood at 1.89% at December 31,
2012, well below 2.32% of total assets at December 31, 2011 and just above the 1.87% low in the past three years. 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 2012 were $8.3 million or 0.95% of average loans outstanding. This compares to net charge offs in
2011 of $10.9 million or 1.23% of average loans outstanding and net charge offs for our UBPR peer group in 2012 of 0.58%.
Residential real estate term loans represent 43.7% of the total loan portfolio, and this loan category generally has a lower
level of losses in comparison to other loan types. In 2012, the loss ratio for residential mortgages was 0.45% compared to
0.95% 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 $12.5 million and stood at 1.44% of total loans outstanding compared to
$13.0 million and 1.50% of total loans outstanding at December 31, 2011. A $7.8 million provision for losses was made in
2012 and net charge offs totaled $8.3 million, resulting in the allowance for loan losses decreasing $500,000 or 3.8% from
December 31, 2011. Management believes the allowance for loan losses is appropriate as of December 31, 2012. 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 2012, the investment portfolio increased 5.9% to end the year at $449.4 million compared to $424.3 million at
December 31, 2011. Average investments in 2012 were $13.5 million higher than in 2011. 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, 2012,
2011, and 2010.
The First Bancorp • 2012 Form 10-K • Page 35
Dollars in thousands
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
Restricted equity securities
Federal Reserve Bank Stock
Federal Home Loan Bank Stock
Total securities
2012
2011
2010
$ -
169,093
120,944
-
1,577
291,614
$ -
198,232
85,726
811
1,433
286,202
$ 16,045
234,414
41,524
866
380
293,229
60,919
39,193
42,908
300
143,320
19,390
56,800
46,171
300
122,661
2,190
55,710
49,330
150
107,380
1,036
13,412
14,448
$ 449,382
1,412
14,031
15,443
$ 424,306
1,412
14,031
15,443
$ 416,052
The following table sets forth information on the yields and expected maturities of the Company’s investment securities
as of December 31, 2012. Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of
35%. Mortgage-backed securities are presented according to their contractual maturity date, while the yield takes into effect
intermediate cashflows from repayment of principal which results in a much shorter average life.
Dollars in thousands
U.S. 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
Available For Sale
Held to Maturity
Fair Value
Yield to maturity
Amortized Cost
Yield to maturity
$ -
-
-
-
-
16,799
27,145
16,324
108,825
169,093
2,127
671
1,342
116,804
120,944
-
-
-
-
-
1,577
$ 291,614
0.00%
0.00%
0.00%
0.00%
2.06%
2.82%
3.18%
2.30%
2.44%
6.81%
7.18%
6.21%
5.66%
5.69%
0.00%
0.00%
0.00%
0.00%
1.89%
3.79%
$ -
-
-
60,919
60,919
2,809
6,167
5,854
24,363
39,193
645
5,783
21,607
14,873
42,908
300
-
-
-
300
-
$ 143,320
0.00%
0.00%
0.00%
3.29%
3.29%
3.03%
5.36%
3.99%
4.54%
4.48%
5.96%
6.62%
6.27%
6.17%
6.28%
1.25%
0.00%
0.00%
0.00%
1.25%
-
4.50%
The First Bancorp • 2012 Form 10-K • Page 36
Impaired Securities
The securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December 31,
2012 amounted to an excess of $739,000, or 0.17% of the amortized cost of the total securities portfolio. At December 31,
2011 this amount represented an excess of $796,000, or 0.19% 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, 2012, the Company had temporarily impaired securities with a fair value of $37.2 million and
unrealized losses of $739,000, as identified in the table below. Securities in a continuous unrealized loss position more than
twelve-months amounted to $2.8 million as of December 31, 2012, compared with $9.3 million at December 31, 2011. 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, 2012.
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
$ 15,817
9,982
8,621
-
-
$ 34,420
$ (182)
(231)
(199)
-
-
$ (612)
$ -
2,534
-
-
222
$ 2,756
$ -
(83)
-
-
(44)
$ (127)
$ 15,817
12,516
8,621
-
222
$ 37,176
$ (182)
(314)
(199)
-
(44)
$ (739)
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, 2012, the total unrealized losses on these
securities amounted to $182,000, compared with no unrealized losses at December 31, 2011.
Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As of
December 31, 2012, the total unrealized losses on these securities amounted to $314,000, compared with $181,000 at
December 31, 2011. All of these securities were credit rated “AAA” by the major credit rating agencies. Management
believes that securities issued by U.S. Government agencies bear no credit risk because they are backed by the full faith and
credit of the United States and that securities issued by U.S. Government-sponsored enterprises have minimal credit risk, as
The First Bancorp • 2012 Form 10-K • Page 37
these agencies enterprises play a vital role in the nation’s financial markets. Management believes that the unrealized losses
at December 31, 2012 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,
2012. 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, 2012, the total unrealized losses on municipal
securities amounted to $199,000, compared with $189,000 at December 31, 2011. 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,
2012, all municipal bond issuers were current on contractually obligated interest and principal payments. The Company
attributes the unrealized losses at December 31, 2012 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, 2012. 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, 2012, there were no unrealized losses on corporate securities, compared with
$287,000 at December 31, 2011. Corporate securities are dependent on the operating performance of the issuers. At
December 31, 2012, all corporate bond issuers were current on contractually obligated interest and principal payments. The
Company attributes the unrealized losses at December 31, 2012 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, 2012. The Company also has the ability and intent to hold these securities
until a recovery of their amortized cost, which may be at maturity.
Other Equity Securities. As of December 31, 2012, the total unrealized losses on other equity securities amounted to
$44,000, compared with $139,000 at December 31, 2011. Other equity securities is comprised of common and preferred
stock holdings. The unrealized losses were the result of normal market fluctuations for equity securities. Accordingly, the
Company does not consider other equity securities to be other-than-temporarily impaired at December 31, 2012.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston, a cooperatively owned wholesale bank for
housing and finance in the six New England States. As a requirement of membership in the FHLB, the Bank must own a
minimum required amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.
The Bank uses the FHLB for much of its wholesale funding needs. As of December 31, 2012 and December 31, 2011, the
Bank’s investment in FHLB stock totaled $13.4 million and $14.0 million, respectively. FHLB stock is a non-marketable
equity security and therefore is reported at cost, which equals par value. 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, 2012. The Bank will continue to monitor its
investment in FHLB stock.
Lending Activities
The loan portfolio increased $4.3 million or 0.5% in 2012, with total loans at $869.3 million at December 31, 2012,
compared to $865.0 million at December 31, 2011. Commercial loans decreased $20.0 million or 5.3% between December
31, 2011 and December 31, 2012, residential term loans increased by $38.2 million or 11.2% during the same period. At the
same time, municipal loans decreased by $1.5 million or 9.4%. Loan demand in the Bank’s market area has been limited in
the past three years as a result of continued weak economic conditions.
Commercial loans are comprised of three major classes, 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. Land and land
development loans typically have a maximum loan-to-value of 65% to 75% based upon current appraisal information at the
time the loan is made. Construction loans, both commercial and residential, comprise a very small portion of the portfolio,
and at 23.0% of capital are well under the regulatory guidance of 100.0% of capital. Construction loans and non-owner-
occupied commercial real estate loans are at 81.0% of total capital, well under the regulatory guidance of 300.0% of capital.
The First Bancorp • 2012 Form 10-K • Page 38
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 comprised of two classes, 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 are comprised
of variable-rate lines of credit which are secured by one-to-four family real estate, typically with a maximum loan-to-value of
80% based upon current appraisal information at the time the loan is made. 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% to 90% of the purchase price of the collateral. Consumer loans also include a small amount of unsecured short-term
loans to individuals.
The following table summarizes the loan portfolio, by class as of December 31, 2012, 2011, 2010, 2009 and 2008.
Dollars
in thousands
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Total loans
2012
2011
As of December 31,
2010
2009
2008
$251,335
22,417
81,183
14,704
28.9% $255,424
32,574
2.6%
86,982
9.3%
16,221
1.7%
29.5% $245,540
3.8%
41,869
10.1% 101,462
21,833
1.9%
27.7% $240,178
48,714
4.7%
114,486
11.4%
45,952
2.5%
25.2% $219,057
5.1%
48,182
12.0% 118,109
34,832
4.8%
22.3%
4.9%
12.1%
3.6%
379,447
6,459
43.7%
0.7%
341,286
10,469
39.5% 337,927
15,512
1.2%
38.1%
1.7%
367,267
17,361
38.7% 431,520
26,235
1.8%
44.0%
2.7%
99,082
14,657
7.9%
2.5%
$869,284 100.0% $864,988 100.0% $887,596 100.0% $952,492 100.0% $979,273 100.0%
12.1% 105,297
18,156
1.9%
105,244
16,788
11.4%
1.7%
77,206
24,132
94,324
24,210
11.9%
2.0%
9.9%
2.5%
The following table sets forth certain information regarding the contractual maturities of the Bank’s loan portfolio as of
December 31, 2012:
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
$ 5,591
3,692
12,380
859
$ 23,791
2,245
19,187
3,735
$ 19,358
259
19,615
4,371
$ 202,595
16,221
30,001
5,739
$ 251,335
22,417
81,183
14,704
2,050
2,477
1,381
6,493
$ 34,923
11,260
502
149
5,093
$ 65,962
19,687
-
871
793
$ 64,954
346,450
3,480
96,681
2,278
$ 703,445
379,447
6,459
99,082
14,657
$ 869,284
The First Bancorp • 2012 Form 10-K • Page 39
The following table provides a listing of loans by class, between variable and fixed rates as of December 31, 2012.
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
$ 34,513
463
27,725
14,704
193,101
4,043
1,596
8,686
$ 284,831
4.0%
0.1%
3.2%
1.7%
22.3%
0.5%
0.2%
1.0%
33.0%
$ 216,822
21,954
53,458
-
186,346
2,416
97,486
5,971
$ 584,453
24.9%
2.5%
6.1%
0.0%
21.4%
0.2%
11.2%
0.7%
67.0%
$ 251,335
22,417
81,183
14,704
379,447
6,459
99,082
14,657
$ 869,284
28.9%
2.6%
9.3%
1.7%
43.7%
0.7%
11.4%
1.7%
100.0%
As of December 31, 2012, 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, 2012, the Bank had $1.0 million in loans held for sale. This compares to no loans held for sale at
December 31, 2011. 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, as well as general and regional economic
conditions.
We provide for loan losses through the establishment of an allowance for loan losses which represents an estimated
reserve for existing losses in the loan portfolio. We deploy a systematic methodology for determining our allowance that
includes a quarterly review process, risk rating, and adjustment to our allowance. We classify our portfolios as either
commercial or residential and consumer and monitor credit risk separately as discussed below. We evaluate the
appropriateness of our allowance continually based on a review of all significant loans, with a particular emphasis on
nonaccruing, past due, and other loans that we believe require special attention.
The allowance consists of 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 appropriateness of the allowance.
Appropriateness 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 appropriateness 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, historic loss experience, the amount of delinquencies and loans adversely classified,
economic trends, changes in credit policies, and experience, ability and depth of lending management. The appropriateness of
the allowance for loan losses is assessed by an allocation process whereby specific reserve allocations are made against
The First Bancorp • 2012 Form 10-K • Page 40
certain adversely classified loans, and general reserve 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 appropriateness 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. Our 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 the borrowers’ current financial position, and the
consideration of current and anticipated economic conditions and their potential effects on specific borrowers and or lines of
business. In determining our ability to collect certain loans, we also consider the fair value of any underlying collateral. We
also evaluate credit risk concentrations, including trends in large dollar exposures to related borrowers, industry and
geographic concentrations, and economic and environmental factors.
Residential, Home Equity and Consumer
Consumer, home equity and residential mortgage loans are generally segregated into homogeneous pools with similar risk
characteristics. Trends and current conditions in these pools are analyzed and historical loss experience is adjusted
accordingly. Quantitative and qualitative adjustment factors for the consumer, home equity and residential mortgage
portfolios are consistent with those for the commercial portfolios. Certain loans in the consumer and residential portfolios
identified as having the potential for further deterioration are analyzed individually to confirm the appropriate risk status and
accrual status, and to determine the need for a specific reserve. Consumer loans that are greater than 120 days past due are
generally charged off. Residential loans and home equity lines of credit that are greater than 90 days past due are evaluated
for collateral adequacy and if deficient are placed on non-accrual status.
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, 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 assigned to individual loans on the basis of loan impairment.
Certain loans are evaluated individually and are judged to be impaired when Management believes it is probable that the
Company will not collect all of the contractual interest and principal payments as scheduled in the loan agreement. Under this
The First Bancorp • 2012 Form 10-K • Page 41
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, 2012,
impaired loans with specific reserves totaled $17.5 and the amount of such reserves was $3.5 million. This compares to
impaired loans with specific reserves of $14.2 million at December 31, 2011 and the amount of such reserves was $2.1
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, 2012 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 class as of December 31, 2012, 2011, 2010, 2009
and 2008. 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
2012
2011
As of December 31,
2010
2009
2008
$ 5,865
1,359
2,050
18
28.9%
2.6%
9.3%
1.7%
$ 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%
1,109
11
43.7%
0.7%
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%
654
592
842
$12,500
11.4%
1.7%
0.0%
100.0%
595
584
2,008
$13,000
12.1%
1.9%
0.0%
100.0%
670
646
1,880
$13,316
11.9%
2.0%
0.0%
100.0%
515
717
1,854
$13,637
9.9%
2.5%
0.0%
100.0%
482
662
676
$8,800
7.9%
2.5%
0.0%
100.0%
The allowance for loan losses totaled $12.5 million at December 31, 2012, compared to $13.0 million at December 31,
2011. 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 $1.4 million in 2012 from $2.1
million at December 31, 2011 to $3.5 million at December 31, 2012. The specific loans that make up those categories change
from period to period. Impairment on those loans, which would be reflected in the allowance for loan losses, might or might
not exist, depending on the specific circumstances of each loan. The portion of the reserve based upon homogeneous pools of
loans decreased by $197,000 in 2012. This was attributable to a lower level of classified loans in 2012. The portion of the
reserve based on qualitative factors decreased by $618,000 during 2012 as a result of adjustments for several qualitative
factors. Despite the shifts in specific, pooled and qualitative reserves, Management feels that market trends and other internal
factors justified the decrease in unallocated reserves during 2012.
The First Bancorp • 2012 Form 10-K • Page 42
A breakdown of the allowance for loan losses as of December 31, 2012, by loan class 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
$1,523
969
652
-
395
-
-
-
-
$3,539
$2,369
213
763
-
278
4
315
362
-
$4,304
$1,973
177
635
18
436
7
339
230
-
$3,815
$ -
-
-
-
-
-
-
-
842
$842
$ 5,865
1,359
2,050
18
1,109
11
654
592
842
$12,500
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 at an appropriate level was $7.8 million in
2012 compared to $10.5 million in 2011. Net charge offs were $8.3 million in 2012 compared to net charge offs of $10.9
million in 2011. The allowance as a percentage of loans outstanding stood at 1.44% in 2012 compared to 1.50% in 2011.
The First Bancorp • 2012 Form 10-K • Page 43
The following table summarizes the activities in our allowance for loan losses as of December 31, 2012, 2011, 2010,
2009 and 2008:
Dollars in thousands
Balance at beginning of year
Loans charged off:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Recoveries on loans previously charged off
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Net loans charged off
Provision for loan losses
Balance at end of period
Ratio of net loans charged off to average loans
outstanding
Ratio of allowance for loan losses to total loans
outstanding
As of December 31,
2012
$13,000
2011
$13,316
2010
$13,637
2009
$ 8,800
2008
$6,800
1,394
928
3,215
-
1,911
389
688
555
9,080
13
246
113
-
1,619
346
6,492
-
1,421
505
415
381
11,179
23
-
60
-
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
-
110
54
1
208
745
8,335
7,835
$12,500
7
-
1
222
313
10,866
10,550
$13,000
4
-
-
219
296
8,721
8,400
$13,316
59
-
1
114
253
7,323
12,160
$13,637
3
-
1,997
-
113
-
83
745
2,941
-
-
32
-
5
-
-
204
241
2,700
4,700
$8,800
0.95%
1.23%
0.94%
0.75%
0.28%
1.44%
1.50%
1.50%
1.43%
0.90%
Management believes the allowance for loan losses is appropriate as of December 31, 2012. In Management’s opinion,
the level of the provision for loan losses and the corresponding decrease in the allowance for loan losses is directionally
consistent with the overall credit quality of our loan portfolio and corresponding levels of nonperforming loans and
unallocated reserves, as well as with the performance of the national and local economies, higher levels of unemployment
and the outlook for the recession continuing for some time to come.
The First Bancorp • 2012 Form 10-K • Page 44
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 or, in certain situations, the difference between the loan balance and the collateral value less selling costs is
written off. Concurrently, a new appraisal or valuation may be ordered, depending on collateral type, currency of the most
recent valuation, the size of the loan, and other factors appropriate to the loan. Upon receipt and acceptance of the new
valuation, the loan may have an additional specific reserve or write down based on the updated collateral value. On an
ongoing basis, appraisals or valuations may be done periodically on collateral dependent non-performing loans and an
additional specific reserve or write down will be made, if appropriate, based on the new collateral value.
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 non-accrual
loans are applied to the principal balance of the loan.
Nonperforming loans, expressed as a percentage of total loans, totaled 2.20% at December 31, 2012 compared to 3.21%
at December 31, 2011. The following table shows the distribution of nonperforming loans by class as of December 31, 2012,
2011, 2010, 2009, and 2008:
Dollars in thousands
2012
As of December 31,
2010
2009
2011
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total non-performing loans
$4,603
101
3,459
-
10,333
-
654
-
$19,150
$7,064
2,350
5,784
-
10,194
1,198
1,163
53
$27,806
$5,946
937
1,753
-
8,347
3,567
519
106
$21,175
$6,198
458
2,638
-
5,868
3,182
143
75
$18,562
2008
$7,477
-
2,742
-
2,163
-
67
-
$12,449
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, 2012, loans 90 or more days past
due and still accruing interest totaled $1.1 million, compared to $1.2 million, $1.1 million, $1.2 million and $5.0 million at
December 31, 2011, 2010, 2009 and 2008, respectively.
As of December 31, 2012, 24 loans with a balance of $3.4 million were non-performing and also classified as troubled-
debt-restructured.
The First Bancorp • 2012 Form 10-K • Page 45
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.
Our efforts to assist homeowners and other borrowers increased our overall level of TDRs in 2012. As of December 31,
2012 there were 101 loans with an aggregate outstanding balance of $30.0 million that have been restructured. This compares
to 59 loans with amounts totaling $22.9 million as of December 31, 2011. The following table shows the activity in loans
classified as TDRs between December 31, 2010 and December 31, 2012:
Balance in Thousands of Dollars Number of Loans Aggregate Balance
$ 5,670
Total at December 31, 2010
18,325
Added in 2011
(1,137)
Removed in 2011
22,858
Total at December 31, 2011
14,657
Added in 2012
(7,560)
Removed in 2012
$29,955
Total at December 31, 2012
34
31
(6)
59
52
(10)
101
As of December 31, 2012, 70 loans with an aggregate balance of $24.9 million were performing under the modified
terms, seven loans with an aggregate balance of $1.7 million were more than 30 days past due and 24 loans with an aggregate
balance of $3.4 million were on nonaccrual. As a percentage of aggregate outstanding balance, 83.0% was performing under
the modified terms, 5.8% was more than 30 days past due and 11.2% was on nonaccrual. The performance status of all TDRs
as of December 31, 2012, as well as the associated specific balance in the allowance for loan losses, is summarized by type of
loan in the following table.
In thousands of dollars
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Percent of balance
Number of loans
Associated specific balance
Performing
As Modified
30+ Days Past Due
and Accruing
On
Nonaccrual
All
TDRs
$ 9,890
3,253
3,074
-
8,015
-
627
-
$24,859
83.0%
70
$ 2,414
$ 608
-
-
-
1,096
-
29
-
$1,733
5.8%
7
$ 26
$ 1,463
66
-
-
1,834
-
-
-
$3,363
11.2%
24
$ 150
$11,961
3,319
3,074
-
10,945
-
656
-
$29,955
100.0%
101
$ 2,590
The majority of residential TDRs as of December 31, 2012, was comprised of 51 loans with an aggregate balance of $9.2
million, and the modifications granted fell into three major categories. Loans totaling $7.3 million had an extension of term,
allowing the borrower to repay over an extended number of years and lowering the monthly payment to a level the borrower
can afford. Loans totaling $3.5 million had interest capitalized, allowing the borrower to become current after unpaid interest
was added to the balance of the loan and re-amortized over the remaining life of the loan. Short-term rate concessions were
granted on loans totaling $1.5 million, with a rate concession typically of 1.0% or less. Certain residential TDRs had more
than one modification.
The First Bancorp • 2012 Form 10-K • Page 46
The majority of commercial TDRs as of December 31, 2012, was comprised of 21 loans with a balance of $18.3 million.
Of this total, 10 loans with an aggregate balance of $7.0 million had an extended period of interest-only payments, deferring
the start of principal repayment. Four loans with an aggregate balance of $3.9 million were modified by reducing the balance
owed, taking into account the borrower’s financial resources, and charging off the remaining balance. Four loans with an
aggregate balance of $3.2 million were converted from interest-only to regular principal-and-interest payments based on the
borrowers’ ability to service the higher payment amount. Two loans with an aggregate balance of $2.7 million were
consolidated into a one loan and re-amortized with an extended term, lowering the amount of regular debt service. Two loans
with an aggregate balance of $1.5 million were granted a short-term predetermined period of interest-only payments, with
regular principal-and-interest payments resuming after that time.
In each case when a loan was modified, Management determined it was in the Bank’s best interest to work with the
borrower with modified terms rather than to proceed to foreclosure. Once a loan is classified as a TDR, however, it remains
classified as such until the balance is fully repaid, despite whether the loan is performing under the modified terms. As of
December 31, 2012, Management is aware of 11 loans classified as TDRs that are involved in bankruptcy with an aggregate
outstanding balance of $1.2 million as well as five loans in the process of foreclosure totaling $521,000. Management does
not expect a material increase in TDRs in 2013 from the amount outstanding at December 31, 2012.
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 $45.7 million at December 31, 2012, and have increased $3.6 million from December 31, 2011. The
number of impaired loans increased by 20 loans from 211 to 231 during the same period. Impaired commercial loans
increased $2.1 million from December 31, 2011 to December 31, 2012. The specific allowance for impaired commercial
loans increased from $1.2 million at December 31, 2011 to $3.1 million as of December 31, 2012, 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, 2011 to December 31, 2012, impaired residential loans increased $1.4 million, impaired
home equity lines of credit increased $148,000, and impaired consumer loans decreased $53,000.
The following table sets forth impaired loans as of December 31, 2012, 2011, 2010, 2009 and 2008:
Dollars in thousands
2012
2011
As of December 31,
2010
2009
2008
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
$15,774
3,354
5,861
-
19,444
-
1,311
-
$45,744
$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
The First Bancorp • 2012 Form 10-K • Page 47
Past Due Loans
The Bank’s overall loan delinquency ratio was 2.67% at December 31, 2012, versus 3.07% at December 31, 2011. Loans 90
days delinquent and accruing decreased from $1.2 million at December 31, 2011 to $1.1 million as of December 31, 2012.
This total is made up of 7 loans, with the largest loan totaling $521,000. We expect to collect all amounts due on these loans,
including interest.
The following table sets forth loan delinquencies as of December 31, 2012, 2011, 2010, 2009 and 2008:
Dollars in thousands
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
2012
$ 4,898
64
3,182
136
12,784
188
1,699
216
$ 23,167
0.92%
0.12%
1.63%
2.67%
As of December 31,
2010
2011
2009
2008
$ 6,864
1,777
2,623
-
$ 6,055
1,057
4,440
-
$ 9,443 $ 10,446
584
4,713
-
458
3,607
-
12,174
1,198
1,614
347
$ 26,597
1.00%
0.14%
1.93%
3.07%
12,231
1,828
2,038
266
$ 27,915
1.32%
0.13%
1.70%
3.15%
11,747
3,182
682
775
$ 29,894
1.26%
0.12%
1.76%
3.14%
11,526
-
1,423
609
$ 29,301
1.21%
0.51%
1.27%
2.99%
As of December 31, 2012, the UBPR peer group had loans 30-89 days past due of 0.70% and loans 90+ days past due on
non-accrual of 1.73%.
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. At December 31, 2012, there were 15 potential problem loans with a balance of $2.7 million or 0.3%
of total loans. This compares to 28 loans with a balance of $4.7 million or 0.5% of total loans at December 31, 2011.
As of December 31, 2012, there were 38 loans in the process of foreclosure with a total balance of $5.9 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 July 2012, the Bank conducted a self-audit of its loans in foreclosure and its foreclosure process and found there were
no deficiencies or areas to improve. For loans sold to the secondary market on which servicing is retained, the Bank follows
Freddie Mac’s and Fannie Mae’s published guidelines and regularly reviews these guidelines for updates and changes to
process. All secondary market loans have been sold without recourse in a non-securitized, one-on-one basis. As a result, the
Bank has no liability for these loans in the event of a foreclosure.
The First Bancorp • 2012 Form 10-K • Page 48
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, 2012, there were 32 properties owned
with a net OREO balance of $7.6 million, net of an allowance for losses of $373,000, compared to December 31, 2011 when
there were 16 properties owned with a net OREO balance of $4.1 million, net of an allowance for losses of $436,000. The
following table presents the composition of other real estate owned as of December 31, 2012, 2011, 2010, 2009 and 2008:
Dollars in thousands
2012
2011
2010
2009
2008
As of December 31,
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
$ -
3,406
1,617
-
2,943
-
-
-
$ 7,966
$ -
-
158
-
215
-
-
-
$ 373
$ -
3,406
1,459
-
2,728
-
-
-
$ 7,593
$ -
59
1,504
-
2,967
-
-
-
$ 4,530
$ -
-
127
-
309
-
-
-
$ 436
$ -
59
1,377
-
2,658
-
-
-
$ 4,094
$ -
424
1,795
-
2,842
-
-
-
$ 5,061
$ -
-
66
-
66
-
-
-
$ 132
$ -
424
1,729
-
2,776
-
-
-
$ 4,929
$ -
1,182
1,920
-
2,826
-
-
-
$ 5,928
$ -
476
-
-
107
-
-
-
$ 583
$ -
706
1,920
-
2,719
-
-
-
$ 5,345
$ -
1,172
731
-
849
-
-
-
$ 2,752
$ -
325
-
-
-
-
-
-
$ 325
$ -
848
731
-
849
-
-
-
$ 2,428
The First Bancorp • 2012 Form 10-K • Page 49
Funding, Liquidity and Capital Resources
As of December 31, 2012, the Bank had primary sources of liquidity of $276.2 million or 19.9% of assets. It is
Management’s opinion that this is appropriate. In addition, the Bank has an additional $115.8 million in borrowing capacity
under the Federal Reserve Bank of Boston’s Borrower in Custody program, $48.0 million in credit lines with correspondent
banks, and $142.3 million in unencumbered securities available as collateral for borrowing. These bring the Bank’s primary
sources of liquidity to $582.3 million or 41.2% 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 69.4% of total average assets in 2012. 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 2012, total deposits increased by $17.5 million or 1.9%, ending the year at $958.8 million compared to $941.3 million
at December 31, 2011. Low-cost deposits (demand, NOW, and savings accounts) increased by $59.7 million or 19.1% during
the year, money market deposits increased $2.0 million or 2.5%, and certificates of deposit decreased $44.1 million or 8.0%.
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 due to an inflow of low-cost deposits due to the low
interest rate environment and a net $25 million lift in low-cost deposits in the fourth quarter with the acquisition of the former
Bank of America branch in Rockland. Average deposits decreased $26.6 million in 2012, as shown in the following table
which sets forth the average daily balance for the Bank’s principal deposit categories for each period:
Dollars in thousands
Demand deposits
NOW accounts
Money market accounts
Savings
Certificates of deposit
Total deposits
Years ended December 31,
2011
$ 76,686
123,377
74,945
109,561
628,855
$1,013,424
2012
$ 80,461
129,125
76,972
124,173
576,049
$986,780
2010
$ 69,260
118,400
78,155
97,484
597,982
$ 961,281
% change
2012 vs. 2011
4.92%
4.66%
2.70%
13.34%
-8.40%
-2.63%
The First Bancorp • 2012 Form 10-K • Page 50
The average cost of deposits (including non-interest-bearing accounts) was 0.85% for the year ended December 31,
2012, compared to 0.96% for the year ended December 31, 2011 and 1.07% for the year ended December 31, 2010. The
following table sets forth the average cost of each category of interest-bearing deposits for the periods indicated.
Years ended December 31,
2011
2010
2012
NOW
Money market
Savings
Certificates of deposit
Total interest-bearing deposits
0.18%
0.31%
0.28%
1.31%
0.93%
0.26%
0.46%
0.44%
1.37%
1.04%
0.33%
0.69%
0.60%
1.47%
1.15%
Of all certificates of deposit, $304.7 million or 60.33% will mature by December 31, 2013. As of December 31, 2012,
the Bank held a total of $305.8 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
As of December 31,
2012
$ 131,768
34,838
53,129
86,056
$ 305,791
2011
$ 140,397
50,919
38,240
102,784
$ 332,340
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, 2012, the Bank’s total FHLB borrowing capacity, based upon the Bank’s holding of FHLB stock,
was $248.9 million, of which $67.5 million was unused. As of December 31, 2012, advances totaled $181.4 million, with a
weighted average interest rate of 2.04% and remaining maturities ranging from two days to 12 years. This compares to
advances totaling $175.1 million, with a weighted average interest rate of 1.89% and remaining maturities ranging from three
days to 13 years, as of December 31, 2011, and advances totaling $198.6 million, with a weighted average interest rate of
2.09% and remaining maturities ranging from three days to 14 years, as of December 31, 2010. The increase in the weighted
average rate paid on borrowed funds in 2012 compared to 2011 is due to maturing lower-cost borrowings being replaced by
other sources of funding, and as a result increasing the average rate since the remaining liabilities have higher interest rates.
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, 2012 was $101.5 million, compared to $90.5 million on December 31, 2011,
and $57.3 million on December 31, 2010. The weighted average rates of these agreements were 0.84% as of December 31,
2012, compared to 0.97% as of December 31, 2011 and 1.16% as of December 31, 2010.
The maximum amount of borrowed funds outstanding at any month-end during each of the last three years was $304.7
million at the end of September in 2012, $277.4 million at the end of October in 2011, and $257.3 million at the end of
December in 2010. The average amount outstanding during 2012 was $263.3 million with a weighted average interest rate of
1.73%. This compares to an average outstanding amount of $241.9 million with a weighted average interest rate of 2.05% in
2011, and an average outstanding amount of $230.9 million with a weighted average interest rate of 2.76% in 2010. The
decline in average cost realized during 2012 is consistent with the interest rate policy and actions of the FOMC.
The First Bancorp • 2012 Form 10-K • Page 51
Capital Resources
Shareholders’ equity as of December 31, 2012 was $156.3 million, compared to $150.9 million as of December 31, 2011.
The Company’s earnings for 2012, net of dividends paid, added to shareholders’ equity. Capital at December 31, 2012 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 8.46% on December 31, 2012 and 8.32% at December 31, 2011. To be rated
“well-capitalized”, regulatory requirements call for a minimum leverage capital ratio of 5.00%. At December 31, 2012, the
Company had tier-one risk-based capital of 14.80% and tier-two risk-based capital of 16.05%, versus 14.40% and 15.66%,
respectively, at December 31, 2011. 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 ranks 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 warrants
issued in conjunction with the CPP Shares for 225,904 shares of Common Stock at an exercise price of $16.60 per share were
unchanged as a result of the repurchase transaction and remains outstanding.
During 2012, the Company declared cash dividends of $0.195 per share in each quarter or $0.78 per share for the year.
The Company’s dividend payout ratio (dividends declared per share divided by earnings per share) was 63.93% of earnings
in 2012 compared to 68.42% in 2011 and 70.91% in 2010. 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 $8.3 million in dividends was declared
in 2012 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 2013 will be that year’s net income
plus $6.8 million. The payment of dividends from the Bank to the Company may be additionally restricted if the payment of
such dividends resulted in the Bank failing to meet regulatory capital requirements.
In 2012, 47,734 shares were issued via employee stock programs, the dividend reinvestment plan, the exercise of stock
options, and restricted stock grants. The Company received consideration totaling $499,000. The following table summarizes
the Company’s 2012 stock issuances:
Dividend reinvestment plan
Employee stock program
Stock options exercised
Net restricted stock grants
Total
14,056
12,451
9,000
12,227
47,734
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 • 2012 Form 10-K • Page 52
Contractual Obligations
The following table sets forth the contractual obligations and commitments to extend credit of the Company as of December
31, 2012:
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
$282,905
816
505,056
$788,777
$56,420
45,747
2,700
6,245
$111,112
Less than
1 year
$142,749
162
304,719
$447,630
1-3 years
$ 50,000
274
166,397
$216,671
3-5 years
$ 60,000
249
33,940
$ 94,189
$ 56,420
45,747
2,700
6,245
$111,112
$ -
-
-
-
$ -
$ -
-
-
-
$ -
More than
5 years
$30,156
131
-
$30,287
$ -
-
-
-
$ -
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, 2012, 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 2012, the Company made capital purchases totaling $1.7 million for real estate improvements for branch or operations
premises and equipment related to technology. This cost will be amortized over an average of seven years, adding
approximately $247,000 to pre-tax operating costs per year. The Company also purchased a branch at 63 Union Street in
Rockland, Maine, from Camden National Bank that was formerly operated by Bank of America. As part of the transaction,
the Bank acquired approximately $32.3 million in deposits as well as a small volume of loans. The Company also purchased
a full-service bank building at 145 Exchange Street in Bangor, Maine, also from Camden National Bank, and opened a full-
service branch in this building in February of 2013. The acquisition allows the Bank to expand its community banking
franchise into eastern Maine and expand its presence in Rockland, Maine. The acquisition-date estimated fair values of assets
acquired and liabilities assumed in Rockland and Bangor were as follows:
Dollars in thousands
Assets
Cash
Loans
Bank premises and equipment
Accrued interest receivable and other assets
Core deposit intangible
Goodwill
Liabilities
Deposits
Accrued interest and other liabilities
$25,297
224
3,776
24
432
2,121
$31,858
16
The First Bancorp • 2012 Form 10-K • Page 53
The purchase premium of $2.6 million was allocated to assets acquired and liabilities assumed based on estimates of fair
value at the date of acquisition. The fair value of the deposit accounts assumed was compared to the carrying amounts
received and the difference of $432,000 was recorded as core deposit intangible. The core deposit intangible is subject to
amortization over the estimated ten-year average life of the acquired core deposit base and will be evaluated for impairment
periodically. The amortization expense will be included in other noninterest expense in the Consolidated Statements of
Income and Comprehensive Income and is deductible for tax purposes. As of December 31, 2012, the amortization expense
related to the core deposit intangible, absent any future impairment, is expected to be as follows:
Dollars in thousands
2013
2014
2015
2016
2017
Thereafter
Total
$ 43
43
43
43
43
217
$432
The banking facilities were valued at the most recent tax assessed value, which approximates fair value. The loans
acquired were recorded at fair value at the time of acquisition. The estimated fair value of the loans acquired is equal to the
carrying value. The excess of the purchase price over the fair value of the assets acquired, liabilities assumed, and the amount
allocated for core deposit intangible totaled $2.1 million and was recorded as goodwill. The goodwill is not amortizable but is
deductible for tax purposes. Management periodically assesses qualitative factors to determine whether goodwill is impaired.
Management is not aware of any such events or circumstances that would cause it to conclude that the goodwill is impaired.
Goodwill
In addition to goodwill totaling $2.1 million related to the 2012 purchase detailed in the previous section, the Company
booked $27.6 million in goodwill related to the 2005 acquisition of FNB Bankshares of Bar Harbor, Maine. 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, 2012, the Company completed its annual review of goodwill and determined there has been no
impairment.
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 • 2012 Form 10-K • Page 54
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, 2012, was +11.52% of total assets, which compares to +1.55% of assets at December 31, 2011. 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, 2012, is presented in the following table:
Dollars in thousands
Investment securities at carrying value
Restricted equity securities, 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
$ 45,707
13,412
-
408,569
-
11,632
479,320
244,136
142,749
2,791
389,676
$ 89,644
6.30%
89,644
6.30%
90-365
Days
$ 75,985
-
-
149,506
10,510
-
236,001
153,375
-
8,318
161,693
$ 74,308
5.22%
163,952
11.52%
1-5
Years
$143,676
-
-
155,506
-
-
299,182
238,856
110,000
45,106
393,962
$ (94,780)
-6.66%
69,172
4.86%
5+
Years
$169,566
1,036
-
155,703
-
82,508
408,813
232,231
30,156
215,598
477,985
$ (69,172)
-4.86%
-
0.00%
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 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 1.5% 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 increase by approximately 0.8% 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
The First Bancorp • 2012 Form 10-K • Page 55
stable rate environment by 6.1% in a falling-rate scenario, and higher than that earned in a stable rate environment by 1.1% 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, 2012 and 2011 is presented in the following table:
Changes in Net Interest Income
2012
2011
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%
-1.5%
+0.8%
-6.1%
+1.1%
-0.8%
-0.4%
-7.6%
-1.0%
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, 2012, 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, 2012, 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 years and believes that the current
level of interest rate risk is acceptable.
The First Bancorp • 2012 Form 10-K • Page 56
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 $150,247,000
at December 31, 2012, and $130,677,000 at December 31, 2011)
Restricted equity securities, 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 on securities available-for-sale
Net unrecognized loss on postretirement benefit costs
Total shareholders’ equity
Total liabilities and shareholders’ equity
Common stock
Number of shares authorized
Number of shares issued and outstanding
Book value per common share
Tangible book value per common share
2012
2011
$ 14,958,000
1,638,000
291,614,000
143,320,000
14,448,000
1,035,000
869,284,000
12,500,000
856,784,000
4,912,000
22,988,000
7,593,000
29,805,000
25,904,000
$ 1,414,999,000
$ 90,252,000
147,309,000
80,983,000
135,250,000
505,056,000
958,850,000
142,750,000
140,155,000
16,921,000
1,258,676,000
$ 14,115,000
-
286,202,000
122,661,000
15,443,000
-
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
12,402,000
98,000
46,314,000
89,692,000
12,303,000
98,000
45,829,000
85,314,000
7,940,000
(123,000)
156,323,000
$ 1,414,999,000
7,401,000
(87,000)
150,858,000
$ 1,372,867,000
18,000,000
9,859,914
$14.60
$11.47
18,000,000
9,812,180
$14.12
$11.20
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2012 Form 10-K • Page 57
Consolidated Statements of Income and Comprehensive 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
$629,000 in 2012, $696,000 in 2011, and $868,000 in 2010)
Interest on deposits with other banks
Interest and dividends on investments (includes tax-exempt
income of $5,175,000 in 2012, $4,332,000 in 2011, and
$3,373,000 in 2010)
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
Acquisition-related costs
Amortization of identified intangibles
Other operating expense
Total non-interest expense
Income before income taxes
Applicable tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities available for sale
Related tax expense (benefit)
Net unrealized gain (loss) on securities available for sale
Unrecognized postretirement benefits
Related tax expense (benefit)
Net unrecognized (loss) gain on postretirement benefits
Other comprehensive income (loss)
Comprehensive income
2012
2011
2010
$ 37,026,000
4,000
$ 39,805,000
12,000
$ 43,903,000
6,000
14,795,000
51,825,000
15,885,000
55,702,000
13,351,000
57,260,000
8,396,000
4,542,000
12,938,000
38,887,000
7,835,000
31,052,000
1,636,000
2,671,000
1,968,000
1,396,000
3,607,000
11,278,000
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
12,691,000
1,639,000
2,235,000
1,212,000
251,000
283,000
7,960,000
26,271,000
16,059,000
3,371,000
$ 12,688,000
$ 1.22
1.22
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
$ 12,364,000
$ 1.14
1.14
11,927,000
1,536,000
2,209,000
1,931,000
-
283,000
7,244,000
25,130,000
16,194,000
4,078,000
$ 12,116,000
$ 1.10
1.10
829,000
290,000
539,000
(56,000)
(20,000)
(36,000)
503,000
$ 13,191,000
14,551,000
5,093,000
9,458,000
(22,000)
(8,000)
(14,000)
9,444,000
$ 21,808,000
(2,973,000)
(1,041,000)
(1,932,000)
213,000
75,000
138,000
(1,794,000)
$ 10,322,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2012 Form 10-K • Page 58
Consolidated Statements of Changes in Shareholders’ Equity
The First Bancorp, Inc. and Subsidiary
Balance at
December 31, 2009
Net income
Net unrealized loss on
securities available for sale, net
of tax benefit of $1,041,000
Unrecognized transition
obligation for post-retirement
benefits, net of taxes of
$75,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Amortization of premium for
preferred stock issuance
Proceeds from sale of common
stock
Balance at
December 31, 2010
Net income
Net unrealized gain on
securities available for sale, net
of taxes of $5,093,000
Unrecognized transition
obligation post-retirement
benefits, net of tax benefit of
$8,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Amortization of premium for
preferred stock issuance
Payment to repurchase
preferred stock
Proceeds from sale of common
stock
Balance at
December 31, 2011
Preferred
stock
Common stock and
additional paid-in capital
Amount
Shares
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
$ 24,606,000
-
9,744,170
-
$ 45,218,000 $ 78,450,000
12,116,000
-
$ (336,000)
-
$ 147,938,000
12,116,000
-
28,855
416,000
$ 24,705,000
-
9,773,025
-
$ 45,572,000 $ 81,701,000
12,364,000
-
$ (2,130,000)
-
$ 149,848,000
12,364,000
-
-
-
-
-
99,000
-
-
-
-
-
-
-
-
-
-
-
98,000
-
-
-
-
-
-
-
-
(1,932,000)
(1,932,000)
-
-
-
37,000
(99,000)
-
12,116,000
(8,865,000)
-
138,000
(1,794,000)
-
-
138,000
10,322,000
(8,865,000)
37,000
-
-
-
-
-
416,000
-
-
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
431,000
-
-
-
-
-
-
(12,500,000)
-
431,000
$ 12,303,000
9,812,180
$ 45,927,000 $ 85,314,000
$ 7,314,000
$ 150,858,000
The First Bancorp • 2012 Form 10-K • Page 59
Preferred
stock
Common stock and
additional paid-in capital
Amount
Shares
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders’
equity
$ 12,303,000
-
9,812,180
-
$ 45,927,000
-
$ 85,314,000
12,688,000
$ 7,314,000
-
$ 150,858,000
12,688,000
-
-
-
-
-
99,000
-
-
-
-
-
-
-
-
539,000
539,000
-
-
-
85,000
(99,000)
-
12,688,000
(8,310,000)
-
(36,000)
503,000
-
-
(36,000)
13,191,000
(8,310,000)
85,000
-
-
-
-
-
499,000
-
47,734
499,000
$ 12,402,000
9,859,914
$ 46,412,000
$ 89,692,000
$ 7,817,000
$ 156,323,000
Balance at
December 31, 2011
Net income
Net unrealized gain on
securities available for sale, net
of taxes of $290,000
Unrecognized loss on post-
retirement benefits, net of tax
benefit of $20,000
Comprehensive income
Cash dividends declared
Equity compensation expense
Amortization of premium for
preferred stock issuance
Proceeds from sale of common
stock
Balance at
December 31, 2012
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2012 Form 10-K • Page 60
2012
2011
2010
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 taxes
Provision for loan losses
Loans originated for resale
Proceeds from sales and transfers of loans
Net gain on sale or call of securities
Net amortization of investment premiums
Net (gain) loss on sale of other real estate owned
Provision for losses on other real estate owned
Equity compensation expense
Net decrease in other assets and accrued interest
Net increase (decrease) in other liabilities
Net loss on disposal of premises and equipment
Amortization of investments in limited partnerships
Net acquisition amortization
Net cash provided by operating activities
Cash flows from investing activities
Net increase (decrease) in interest-bearing 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
Purchases of securities to be held to maturity
Redemption of restricted equity securities
Net (increase) decrease in loans
Capital expenditures
Proceeds from sale of premises and equipment
Cash acquired, net of cash paid, in branch acquisitions
Net cash provided by (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 in short-term borrowings
Repurchase of preferred stock
Proceeds from sale of common stock
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Interest paid
Income taxes paid
Non-cash transactions:
Net transfer from loans to other real estate owned
Fair value of assets acquired
Less liabilities assumed
$ 12,688,000
1,314,000
(108,000)
7,835,000
(40,606,000)
39,571,000
(1,968,000)
2,676,000
(7,000)
397,000
85,000
756,000
1,631,000
-
476,000
283,000
25,023,000
(1,638,000)
26,437,000
61,776,000
53,958,000
3,345,000
(93,378,000)
(74,743,000)
995,000
(19,635,000)
(1,726,000)
42,000
25,297,000
(19,270,000)
37,552,000
(51,893,000)
-
-
17,242,000
-
499,000
(8,310,000)
(4,910,000)
843,000
14,115,000
$ 14,958,000
$ 13,052,000
2,547,000
7,234,000
(6,577,000)
31,874,000
$ 12,364,000
$ 12,116,000
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
1,394,000
395,000
8,400,000
(65,726,000)
65,796,000
(2,000)
899,000
122,000
352,000
37,000
177,000
1,139,000
-
300,000
251,000
25,650,000
(100,000)
202,000
101,223,000
84,287,000
3,722,000
(316,453,000)
(1,363,000)
-
52,395,000
(2,043,000)
-
-
(78,130,000)
(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
5,566,000
-
-
3,780,000
-
-
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp • 2012 Form 10-K • Page 61
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 sixteen offices in coastal and eastern Maine.
First Advisors, a division of the Bank, provides investment management, private banking and financial planning
services.
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, 2012, 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 • 2012 Form 10-K • Page 62
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 2012, 2011 and
2010 was $283,000 and the amortization expense for each year until fully amortized will be $283,000. Intangible assets
also include the goodwill and core deposit intangible from the 2012 acquisition of a bank branch in Rockland, Maine
and a bank building in Bangor, Maine. The core deposit intangible will be amortized on a straight-line basis over ten
years. Annual amortization expense for each year until fully amortized will be $43,000. 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,
2012, 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 • 2012 Form 10-K • Page 63
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 restricted stock granted and 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 unrecognized gains and loss related to post-
retirement benefit costs, net of tax.
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, 2012 the Company had a contractual clearing balance of $500,000
and a reserve balance requirement of $882,000 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 • 2012 Form 10-K • Page 64
Note 3. Investment Securities
The following tables summarize the amortized cost and estimated fair value of investment securities at December 31,
2012 and 2011:
As of December 31, 2012
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
(Estimated)
$ 164,752,000
113,069,000
-
1,578,000
$ 4,636,000
8,074,000
-
43,000
$ 279,399,000 $ 12,753,000
$ (295,000)
(199,000)
-
(44,000)
$ (538,000)
$ 169,093,000
120,944,000
-
1,577,000
$ 291,614,000
Securities to be held to maturity
U.S. Government-sponsored agencies $ 60,919,000 $ 242,000
Mortgage-backed securities
2,850,000
State and political subdivisions
4,036,000
Corporate securities
-
$ 7,128,000
39,193,000
42,908,000
300,000
$ 143,320,000
$ (182,000)
(19,000)
-
-
$ (201,000)
$ 60,979,000
42,024,000
46,944,000
300,000
$ 150,247,000
Restricted equity securities
Federal Home Loan Bank Stock
Federal Reserve Bank Stock
$ 13,412,000
1,036,000
$ 14,448,000
$ -
-
$ -
$ -
-
$ -
$ 13,412,000
1,036,000
$ 14,448,000
As of December 31, 2011
Securities available for sale
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
Restricted equity 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
The First Bancorp • 2012 Form 10-K • Page 65
The following table summarizes the contractual maturities of investment securities at December 31, 2012:
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
Amortized Cost
$ 18,761,000
27,243,000
16,686,000
215,131,000
1,578,000
$ 279,399,000
Fair Value
(Estimated)
$ 18,926,000
27,816,000
17,666,000
225,629,000
1,577,000
$ 291,614,000
Amortized Cost
Securities to be held to maturity
Fair Value
(Estimated)
$ 3,754,000
11,950,000
27,461,000
100,155,000
-
$ 143,320,000
$ 3,785,000
12,701,000
29,986,000
103,775,000
-
$ 150,247,000
The following table summarizes the contractual maturities of investment securities at December 31, 2011:
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
Amortized
Cost
$ 6,617,000
18,792,000
23,219,000
224,653,000
1,535,000
$ 274,816,000
Fair Value
(Estimated)
$ 6,773,000
19,473,000
24,065,000
234,458,000
1,433,000
$ 286,202,000
Securities to be held to maturity
Fair Value
Amortized
(Estimated)
Cost
$ 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
At December 31, 2012, securities with a fair value of $154,817,000 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 $141,506,000, as of December 31, 2011 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 2012, 2011 and 2010:
Proceeds from sales of securities
Gross realized gains
Gross realized losses
Net gain
Related income taxes
2012
2011
2,257,000
(289,000)
$ 26,437,000 $140,417,000
4,020,000
(727,000)
$ 1,968,000 $ 3,293,000
$ 689,000 $ 1,153,000
2010
$ 202,000
2,000
-
$ 2,000
$ 1,000
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, 2012, 2011 and 2010.
Years ended December 31,
Balance at beginning of year
Unrealized gains (losses) arising during the
period
Realized gains during the period
Related deferred taxes
Net change
Balance at end of year
2012
$ 7,401,000
2,797,000
(1,968,000)
(290,000)
539,000
$ 7,940,000
2011
2010
$ (2,057,000)
$ (125,000)
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)
Management reviews securities with unrealized losses for other than temporary impairment. As of December 31,
2012, there were 42 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 7 had been temporarily impaired for
The First Bancorp • 2012 Form 10-K • Page 66
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, 2012 is summarized below:
As of December 31, 2012
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
$15,817,000
9,982,000
8,621,000
-
-
$34,420,000
$(182,000) $ -
2,534,000
-
-
222,000
$(612,000) $2,756,000
(231,000)
(199,000)
-
-
$ - $15,817,000
12,516,000
8,621,000
-
222,000
$(127,000) $37,176,000
(83,000)
-
-
(44,000)
$(182,000)
(314,000)
(199,000)
-
(44,000)
$(739,000)
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)
$ - $ -
(181,000)
(189,000)
(287,000)
(139,000)
$14,627,000 $ (162,000) $ 9,292,000 $ (634,000) $23,919,000 $ (796,000)
19,269,000
3,651,000
811,000
188,000
12,489,000
1,984,000
-
154,000
6,780,000
1,667,000
811,000
34,000
(25,000)
(17,000)
-
(120,000)
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston, a cooperatively owned wholesale
bank for housing and finance in the six New England States. As a requirement of membership in the FHLB, the Bank
must own a minimum required amount of FHLB stock, calculated periodically based primarily on its level of
borrowings from the FHLB. The Bank uses the FHLB for much of its wholesale funding needs. As of December 31,
2012 and December 31, 2011, the Bank’s investment in FHLB stock totaled $13,412,000 and $14,031,000, respectively.
FHLB stock is a restricted equity security and therefore is reported at cost, which equals par value.
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, 2012. The Bank will continue to monitor its investment in FHLB stock.
The First Bancorp • 2012 Form 10-K • Page 67
Note 4. Loan Servicing
At December 31, 2012 and 2011, the Bank serviced loans for others totaling $205,859,000 and $238,221,000,
respectively. Net gains from the sale of loans totaled $1,191,000 in 2012, $756,000 in 2011, and $977,000 in 2010. In
2012, mortgage servicing rights of $330,000 were capitalized and amortization for the year totaled $636,000. At
December 31, 2012, mortgage servicing rights had a fair value of $1,228,000. 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.
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,
2012, the prepayment assumption using the PSA model was 412, which translates into an anticipated prepayment rate of
24.72%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus 4.86%. 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
2012
$ 6,430,000
(5,473,000)
(90,000)
$ 867,000
2011
$ 6,099,000
(4,837,000)
(61,000)
$ 1,201,000
Note 5. Loans
The following table shows the composition of the Company’s loan portfolio as of December 31, 2012 and 2011:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
December 31, 2012
December 31, 2011
$ 251,335,000
22,417,000
81,183,000
14,704,000
28.9%
2.6%
9.3%
1.7%
$ 255,424,000
32,574,000
86,982,000
16,221,000
29.5%
3.8%
10.1%
1.9%
379,447,000
43.7%
6,459,000
0.7%
99,082,000
11.4%
1.7%
14,657,000
$ 869,284,000 100.0%
341,286,000
10,469,000
105,244,000
16,788,000
39.5%
1.2%
12.1%
1.9%
$ 864,988,000 100.0%
Loan balances include net deferred loan costs of $1,783,000 in 2012 and $1,386,000 in 2011. Pursuant to collateral
agreements, qualifying first mortgage loans, which were valued at $256,378,000 and $211,597,000 at December 31,
2012 and 2011, respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In
addition, commercial, construction and home equity loans totaling $220,520,000 at December 31, 2012 were used to
collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
At December 31, 2012 and 2011, non-accrual loans were $19,150,000 and $27,806,000, respectively. As of
December 31, 2012, 2011 and 2010, interest income which would have been recognized on these loans, if interest had
been accrued, was $1,158,000, $1,052,000, and $1,334,000, respectively. Loans more than 90 days past due accruing
interest totaled $1,051,000 at December 31, 2012 and $1,170,000 at December 31, 2011. The Company continues to
accrue interest on these loans because it believes collection of principal and interest is reasonably assured.
The First Bancorp • 2012 Form 10-K • Page 68
Loans to directors, officers and employees totaled $28,707,000 at December 31, 2012 and $37,935,000 at
December 31, 2011. 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
2012
$ 24,551,000
275,000
(9,909,000)
$ 14,917,000
2011
$ 25,525,000
237,000
(1,211,000)
$ 24,551,000
Information on the past-due status of loans as of December 31, 2012, is presented in the following table:
30-59 Days
Past Due
60-89
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
$2,172,000 $ 346,000 $ 2,380,000 $ 4,898,000 $246,437,000 $251,335,000 $ 102,000
64,000
-
2,000
3,182,000
-
136,000
22,353,000
78,001,000
14,568,000
22,417,000
81,183,000
14,704,000
35,000
2,306,000
-
29,000
218,000
-
658,000
136,000
2,404,000
188,000
430,000
101,000
363,000
12,784,000
188,000
-
539,000
1,699,000
45,000
216,000
$6,089,000 $1,878,000 $15,200,000 $23,167,000 $846,117,000 $869,284,000 $1,051,000
366,663,000
6,271,000
97,383,000
14,441,000
379,447,000
6,459,000
99,082,000
14,657,000
9,298,000
-
1,136,000
45,000
1,082,000
-
133,000
70,000
Information on the past-due status of loans as of December 31, 2011, is presented in the following table:
30-59
Days Past
Due
60-89
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
$1,367,000 $1,505,000 $ 3,992,000 $ 6,864,000 $248,560,000 $255,424,000 $ -
1,777,000
-
52,000
2,623,000
-
-
30,797,000
84,359,000
16,221,000
32,574,000
86,982,000
16,221,000
1,603,000
1,192,000
-
174,000
766,000
-
-
665,000
-
1,933,000
-
1,398,000
-
8,843,000
1,198,000
12,174,000
1,198,000
329,112,000
9,271,000
341,286,000
10,469,000
1,118,000
-
480,000
230,000
1,614,000
-
347,000
-
$4,675,000 $3,944,000 $17,978,000 $26,597,000 $838,391,000 $864,988,000 $1,170,000
103,630,000
16,441,000
105,244,000
16,788,000
1,134,000
16,000
-
101,000
For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable
that the Company 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
The First Bancorp • 2012 Form 10-K • Page 69
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.
Information on nonaccrual loans as of December 31, 2012 and 2011 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
2012
2011
$ 4,603,000
101,000
3,459,000
-
10,333,000
-
654,000
-
$19,150,000
$ 7,064,000
2,350,000
5,784,000
-
10,194,000
1,198,000
1,163,000
53,000
$27,806,000
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
2012
$ 45,019,000
1,039,000
2011
$ 28,777,000
598,000
2010
$ 25,836,000
143,000
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
2012
$ 45,744,000
(28,282,000)
2011
$ 42,120,000
(27,897,000)
$ 17,462,000
$ 14,223,000
$ 3,539,000
$ 2,058,000
Impaired loans include restructured loans and loans placed on non-accrual. 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, or, in certain situations, if the measure of an
impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.
The First Bancorp • 2012 Form 10-K • Page 70
A breakdown of impaired loans by category as of December 31, 2012, 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
$ 9,386,000
101,000
4,737,000
-
12,747,000
-
1,311,000
-
$28,282,000
$ 6,388,000
3,253,000
1,124,000
-
6,697,000
-
-
-
$17,462,000
$15,774,000
3,354,000
5,861,000
-
19,444,000
-
1,311,000
-
$45,744,000
$ 9,963,000
115,000
5,345,000
-
14,440,000
-
1,440,000
-
$31,303,000
$ 7,018,000
3,253,000
1,126,000
-
6,842,000
-
-
-
$18,239,000
$16,981,000
3,368,000
6,471,000
-
21,282,000
-
1,440,000
-
$49,542,000
$ -
-
-
-
-
-
-
-
$ -
$10,102,000
2,533,000
2,877,000
-
9,801,000
560,000
961,000
3,000
$26,837,000
$ 199,000
-
53,000
-
189,000
-
27,000
-
$ 468,000
$ 1,523,000
969,000
652,000
-
395,000
-
-
-
$3,539,000
$1,523,000
969,000
652,000
-
395,000
-
-
-
$3,539,000
$4,614,000
1,816,000
1,974,000
-
$ 211,000
85,000
38,000
-
9,066,000
261,000
442,000
9,000
$18,182,000
237,000
-
-
-
$ 571,000
$14,716,000
4,349,000
4,851,000
-
18,867,000
821,000
1,403,000
12,000
$45,019,000
$ 410,000
85,000
91,000
-
426,000
-
27,000
-
$1,039,000
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 • 2012 Form 10-K • Page 71
A breakdown of impaired loans by category as of December 31, 2011, is presented in the following table:
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Recognized
Interest
Income
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
$ 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
Note 6. Allowance for Loan Losses
The Company provides for loan losses through the establishment of an allowance for loan losses which represents an
estimated reserve for existing losses in the loan portfolio. A systematic methodology is used for determining the
allowance that includes a quarterly review process, risk rating changes, and adjustments to the allowance. The loan
portfolio is classified in eight segments and credit risk is evaluated separately in each segment. The 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 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 First Bancorp • 2012 Form 10-K • Page 72
The following table summarizes the composition of the allowance for loan losses, by class of financing receivable
and allowance, as of December 31, 2012 and 2011:
$ 808,000
33,000
402,000
-
478,000
235,000
91,000
11,000
$ 2,058,000
2012
$ 4,342,000
390,000
1,398,000
18,000
$ 1,523,000
969,000
652,000
-
395,000
-
-
-
$ 3,539,000
As of December 31,
2011
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
714,000
11,000
654,000
592,000
842,000
$ 8,961,000
1,109,000
11,000
654,000
592,000
842,000
$ 12,500,000
$ 5,865,000
1,359,000
2,050,000
18,000
$ 4,851,000
625,000
1,661,000
19,000
681,000
20,000
504,000
573,000
2,008,000
$ 10,942,000
$ 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
The allowance consists of four elements: (1) specific reserves for loans evaluated individually for impairment; (2)
general reserves for each portfolio segment 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 for each portfolio segment; and
(4) unallocated reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance.
A breakdown of the allowance for loan losses as of December 31, 2012 and 2011, by class of financing receivable
and allowance element, is presented in the following tables:
The First Bancorp • 2012 Form 10-K • Page 73
Specific
Reserves on
Loans
Evaluated
Individually for
Impairment
General
Reserves on
Loans Based
on Historical
Loss
Experience
Reserves for
Qualitative
Factors
Unallocated
Reserves
Total Reserves
$1,523,000
969,000
652,000
-
395,000
-
-
-
-
$3,539,000
$2,369,000
213,000
763,000
-
278,000
4,000
315,000
362,000
-
$4,304,000
$1,973,000
177,000
635,000
18,000
436,000
7,000
339,000
230,000
-
$3,815,000
$ -
-
-
-
-
-
-
-
842,000
$ 842,000
$ 5,865,000
1,359,000
2,050,000
18,000
1,109,000
11,000
654,000
592,000
842,000
$12,500,000
Specific
Reserves on
Loans
Evaluated
Individually for
Impairment
General
Reserves on
Loans Based
on Historical
Loss
Experience
Reserves for
Qualitative
Factors
Unallocated
Reserves
Total Reserves
$ 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
$ -
-
-
-
-
-
-
-
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, 2012
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
As of December 31, 2011
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
The qualitative amount assigned to the substandard commercial loan segments declined between December 31,
2012, and December 31, 2011, to adjust historical loss averages for the impact of recent write downs taken on a large,
atypical credit. Changes to qualitative adjustments for other major portfolio segments were not material in 2012.
Qualitative adjustment factors are based upon Management’s evaluation of various current conditions, including:
• General economic conditions.
• Credit quality trends with emphasis on loan delinquencies, nonaccrual levels and classified loans.
• Recent loss experience in particular segments of the portfolio.
• Loan volumes and concentrations, including changes in mix.
• Other factors, including changes in quality of the loan origination; loan policy changes; changes in credit risk
management processes; Bank regulatory and external loan review examination results.
The unallocated component is available to cover imprecision or uncertainties to incorporate the range of probable
outcomes inherent in estimates used for the allowance, which may change from period to period. An example of this
could be a delay in receiving an updated appraisal on a troubled credit. The unallocated component totaled $842,000 at
December, 2012 compared to $2.0 million as of December 31, 2011. The decline in the unallocated amount was deemed
appropriate due to the following:
The First Bancorp • 2012 Form 10-K • Page 74
• Given more certainty in the status of several loans between December 31, 2011 and December 31, 2012,
$666,000 was transferred from unallocated to specific reserves.
• Credit quality improved significantly in 2012. Net loan chargeoffs were $8,335,000 or 0.95% of average loans,
down $2,531,000 from net chargeoffs of $10,866,000 or 1.23% of average loans in 2011. Non-performing
assets stood at 1.89% of total assets as of December 31, 2012 compared to 2.32% of total assets at December
31, 2011. Past-due loans were 2.67% of total loans as of December 31, 2012, the lowest year-end total in the
past five years and well below 3.07% of total loans as of December 31, 2011. Management determined a lower
level of unallocated was appropriate and reduced unallocated reserves by $500,000.
Commercial loans are comprised of three major classes, 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. 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 are collateralized by the taxing ability of the municipality for repayment of debt.
Construction loans, both commercial and residential, comprise a very small portion of the portfolio, and at 23.0%
of capital are well under the regulatory guidance of 100.0% of capital at December 31, 2012. Construction loans and
non-owner-occupied commercial real estate loans are at 81.0% of total capital, well under regulatory guidance of
300.0% of capital at December 31, 2012.
The process of establishing the allowance with respect to the commercial loan portfolio begins when a loan officer
initially assigns each loan a risk rating, using established credit criteria. Approximately 50% of the outstanding loans
and commitments are subject to review and validation annually by an independent consultant, as well as periodically by
the Company’s internal credit review function. The methodology employs Management’s judgment as to the level of
losses on existing loans based on 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 the Company’s ability to collect certain loans, Management
also considers 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 paying capacity of the borrower or of the collateral, if
any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard
loans are characterized by the distinct possibility that the Bank may sustain some loss if 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 • 2012 Form 10-K • Page 75
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, 2012:
1 Strong
2 Above average
3 Satisfactory
4 Average
5 Watch
6 OAEM
7 Substandard
8 Doubtful
Total
Commercial
Real Estate
$ 19,000
13,871,000
34,454,000
99,712,000
43,369,000
26,302,000
33,153,000
455,000
$251,335,000
Commercial
Construction
Commercial
Other
Municipal
Loans
$ -
1,274,000
2,312,000
12,322,000
1,721,000
79,000
4,709,000
-
$22,417,000
$ 271,000
4,084,000
14,578,000
28,618,000
19,524,000
5,300,000
8,806,000
2,000
$81,183,000
$ 1,731,000
7,061,000
3,487,000
2,425,000
-
-
-
-
$14,704,000
All Risk-
Rated Loans
$ 2,021,000
26,290,000
54,831,000
143,077,000
64,614,000
31,681,000
46,668,000
457,000
$369,639,000
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, 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
Commercial loans are generally charged off when all or a portion of the principal amount is determined to be
uncollectible. 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 classes: 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% to 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 classes. Certain loans in the residential, home equity lines of credit and consumer classes
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 classes. 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, 2012. Allowance for loan losses transactions for the years ended
December 31, 2012, 2011 and 2010 were as follows:
The First Bancorp • 2012 Form 10-K • Page 76
For the year ended
December 31, 2012
Allowance for loan losses:
Beginning balance
Charge offs
Recoveries
Provision
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
For the year ended
December 31, 2011
Allowance for loan losses:
Commercial
Municipal
Residential
Home Equity
Consumer
Unallocated
Total
Real Estate
Construction
Other
Term
Construction
Line of Credit
$ 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
1,394,000
13,000
928,000
246,000
3,215,000
113,000
-
-
110,000
1,911,000
389,000
1,587,000
1,383,000
3,089,000
(1,000)
1,751,000
54,000
91,000
688,000
1,000
555,000
208,000
-
-
9,080,000
745,000
746,000
355,000
(1,166,000)
7,835,000
$ 5,865,000
$ 1,359,000
$ 2,050,000
$ 18,000
$ 1,109,000
$ 11,000
$654,000
$592,000
$842,000
$12,500,000
$ 1,523,000
$ 969,000
$ 652,000
$ -
$ 395,000
$ -
$ -
$ - $ -
$ 3,539,000
$ 4,342,000
$ 390,000
$ 1,398,000
$ 18,000
$ 714,000
$ 11,000
$ 654,000
$ 592,000
$ 842,000
$ 8,961,000
$251,335,000
$22,417,000
$81,183,000
$14,704,000
$379,447,000
$6,459,000
$99,082,000
$14,657,000
$ -
$869,284,000
$ 15,774,000
$ 3,354,000
$ 5,861,000
$ -
$ 19,444,000
$ -
$ 1,311,000
$ -
$ -
$ 45,744,000
$235,561,000
$19,063,000
$75,322,000
$14,704,000
$360,003,000
$6,459,000
$97,771,000
$14,657,000
$ -
$823,540,000
Commercial
Municipal
Residential
Home Equity
Consumer
Unallocated
Total
Real Estate
Construction
Other
Term
Construction
Line of Credit
Beginning balance
$ 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
Charge offs
Recoveries
Provision
1,619,000
23,000
1,995,000
346,000
6,492,000
-
60,000
(8,000)
6,118,000
-
-
-
1,421,000
505,000
7,000
-
1,165,000
716,000
415,000
1,000
339,000
381,000
222,000
97,000
-
-
11,179,000
313,000
128,000
10,550,000
Ending balance
$ 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
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
$ 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
The First Bancorp • 2012 Form 10-K • Page 77
For the year ended
December 31, 2010
Allowance for loan losses:
Commercial
Municipal
Residential
Home Equity
Consumer
Unallocated
Total
Real Estate
Construction
Other
Term
Construction
Line of Credit
Beginning balance
$ 4,986,000
$ 807,000
$ 3,363,000
$ 23,000
$ 1,198,000
$ 174,000
$ 515,000
$ 717,000
$1,854,000
$ 13,637,000
Charge offs
Recoveries
Provision
4,005,000
175,000
1,125,000
4,000
-
4,275,000
380,000
69,000
70,000
-
-
(4,000)
392,000
4,000
598,000
2,361,000
-
2,231,000
8,000
-
163,000
951,000
219,000
661,000
-
-
26,000
9,017,000
296,000
8,400,000
Ending balance
$ 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
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
Related loan balances:
Ending balance
Ending balance specifically
evaluated for impairment
Ending balance collectively
evaluated for impairment
$ 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 • 2012 Form 10-K • Page 78
Troubled Debt Restructured
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,
2012 we had 101 loans with a value of $29,955,000 that have been restructured. This compares to 59 loans with a value
of $22,858,000 classified as TDRs as of December 31, 2011. 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, 2012:
Number of Loans
Balance
Specific Reserves
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
18
3
23
-
53
-
4
-
101
$11,961,000
3,319,000
3,074,000
-
10,945,000
-
656,000
-
$29,955,000
$ 823,000
969,000
574,000
-
224,000
-
-
-
$2,590,000
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
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
The First Bancorp • 2012 Form 10-K • Page 79
As of December 31, 2012, 12 of the loans classified as TDRs with a total balance of $2,413,000 were more than 30
days past due. Of these loans, six loans with an outstanding balance of $1,059,000 had been placed on TDR status in the
previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in
the allowance for loan losses as of December 31, 2012:
Number of Loans
Balance
Specific Reserves
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
3
-
-
-
8
-
1
-
12
$ 760,000
-
-
-
1,624,000
-
29,000
-
$2,413,000
$ -
-
-
-
67,000
-
-
-
$67,000
As of December 31, 2011, 14 of the loans classified as TDRs with a total balance of $2,841,000 were more than 30
days past due. Of these loans, six loans with an outstanding balance of $1,588,000 had been placed on TDR status in the
previous 12 months. The following table shows past-due TDRs by class and the associated specific reserves included in
the allowance for loan losses 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
-
1
3
-
10
-
-
-
14
$ -
1,154,000
96,000
-
1,591,000
-
-
-
$2,841,000
$ -
-
47,000
-
52,000
-
-
-
$99,000
The First Bancorp • 2012 Form 10-K • Page 80
During the year ended December 31, 2012, 52 loans were placed on TDR status with an outstanding balance of
$14,657,000. These were considered 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 during the year ended December 31,
2012, by class of loan and the associated specific reserve included in the allowance for loan losses as of December 31,
2012:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
Number
of Loans
13
3
19
-
13
-
4
-
52
$ 6,821,000
3,319,000
1,887,000
-
1,974,000
-
656,000
-
$14,657,000
$ 7,149,000
3,333,000
1,903,000
-
1,989,000
-
656,000
-
$15,030,000
Specific
Reserves
$ 180,000
969,000
543,000
-
77,000
-
-
-
$1,769,000
During the year ended December 31, 2011, 31 loans were placed on TDR status with an outstanding balance of
$18,325,000. 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, 2012, Management is aware of 11 loans classified as TDRs that are involved in bankruptcy
with an outstanding balance of $1,158,000. As of December 31, 2012, there were 24 loans with an outstanding balance
of $3,363,000 that were classified as TDRs and were on non-accrual status, five of which, with an outstanding balance
of $521,000, were in the process of foreclosure.
The First Bancorp • 2012 Form 10-K • Page 81
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
2012
2011
$ 4,532,000 $ 4,123,000
693,000
15,415,000
10,201,000
30,432,000
11,590,000
$ 22,988,000 $ 18,842,000
781,000
18,958,000
11,592,000
35,863,000
12,875,000
Note 8. Other Real Estate Owned
The following summarizes other real estate owned:
As of December 31,
Real estate acquired in settlement of loans
2012
2011
$ 7,593,000
$ 4,094,000
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
2012
$ 436,000
(460,000)
397,000
$ 373,000
2011
$ 132,000
(980,000)
1,284,000
$ 436,000
2010
$ 583,000
(803,000)
352,000
$ 132,000
Note 9. Acquisitions and Intangible Assets
On October 26, 2012, the Bank completed the purchase of a branch at 63 Union Street in Rockland, Maine, from
Camden National Bank that was formerly operated by Bank of America. As part of the transaction, the Bank acquired
approximately $32.3 million in deposits as well as a small volume of loans. On the same date, the Bank completed the
purchase of a full-service bank building at 145 Exchange Street in Bangor, Maine, also from Camden National Bank,
and opened a full-service branch in this building in February of 2013. The acquisition allows the Bank to expand its
community banking franchise into eastern Maine and expand its presence in Rockland, Maine. The acquisition-date
estimated fair values of assets acquired and liabilities assumed in Rockland and Bangor were as follows:
Assets
Cash
Loans
Bank premises and equipment
Accrued interest receivable and other assets
Core deposit intangible
Goodwill
Liabilities
Deposits
Accrued interest and other liabilities
$25,297,000
224,000
3,776,000
24,000
432,000
2,121,000
$31,858,000
16,000
The purchase premium of $2,553,000 was allocated to assets acquired and liabilities assumed based on estimates of
fair value at the date of acquisition. The fair value of the deposit accounts assumed was compared to the carrying
amounts received and the difference of $432,000 was recorded as core deposit intangible. The core deposit intangible is
subject to amortization over the estimated ten-year average life of the acquired core deposit base and will be evaluated
for impairment periodically. The amortization expense will be included in other noninterest expense in the consolidated
The First Bancorp • 2012 Form 10-K • Page 82
statements of income and comprehensive income and is deductible for tax purposes. As of December 31, 2012, the
amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:
2013
2014
2015
2016
2017
Thereafter
Total
$ 43,000
43,000
43,000
43,000
43,000
217,000
$432,000
The banking facilities were valued at the most recent tax assessed value, which approximates fair value. The loans
acquired were recorded at fair value at the time of acquisition. The estimated fair value of the loans acquired is equal to
the carrying value. The excess of the purchase price over the fair value of the assets acquired, liabilities assumed, and
the amount allocated for core deposit intangible totaled $2,121,000 and was recorded as goodwill. The goodwill is not
amortizable but is deductible for tax purposes. Management periodically assesses qualitative factors to determine
whether goodwill is impaired. Management is not aware of any such events or circumstances that would cause it to
conclude that the goodwill is impaired.
One-time costs associated with the acquisition that were recognized by the Company and included in the
consolidated statements of income and comprehensive income for 2012 were $251,000. The amounts of revenue and
expenses related to the Rockland branch since the October 26, 2012 acquisition date are included in the consolidated
statements of income of the Company as follows:
Interest income
Interest expense
Net interest income
Non-interest income
Non-interest expense
Loss before taxes
Tax benefit
Net loss
$ 2,000
21,000
(19,000)
36,000
55,000
(38,000)
(13,000)
$ (25,000)
Disclosure of the proforma revenue and earnings of the combined entity for the current and prior reporting periods
as though the acquisition had occurred at the beginning of the prior annual reporting period is not considered
practicable. Retrospective application to January 1, 2012 and January 1, 2011 requires assumptions about management's
intent in prior periods that cannot be independently substantiated. It is not possible to objectively distinguish
information about significant estimates of amounts that provide evidence of circumstances that existed on the dates at
which those amounts would be recognized, measured, or disclosed under retrospective application and would have been
available when the financial statements for that prior period were issued. The Company is unable to obtain certain
information from the seller regarding transfer of deposits among branches and deposit activity since January 1, 2011. It
is impracticable to estimate historical information.
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, 2012, 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 • 2012 Form 10-K • Page 83
Note 10. Income Taxes
The current and deferred components of income tax expense were as follows:
For the years ended December 31,
Federal income tax
Current
Deferred
State franchise tax
2012
2011
2010
$ 3,239,000
(108,000)
3,131,000
240,000
$ 3,371,000
$ 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
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
Other
2012
$ 5,621,000
(2,096,000)
156,000
(414,000)
104,000
$ 3,371,000
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
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, 2012 and 2011 are as follows:
Allowance for loan losses
OREO
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
Investment in flow through entities
Prepaid expense
Other liabilities
Total deferred tax liability
Net deferred tax liability
2012
$4,375,000
131,000
1,412,000
-
-
192,000
6,110,000
(770,000)
(2,326,000)
(4,275,000)
(303,000)
(203,000)
(323,000)
(422,000)
-
(8,622,000)
$(2,512,000)
2011
$4,550,000
153,000
1,293,000
-
-
57,000
6,053,000
(664,000)
(2,236,000)
(3,985,000)
(421,000)
(303,000)
(264,000)
(528,000)
(2,000)
(8,403,000)
$(2,350,000)
At December 31, 2012, 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 $636,000 and $589,000 for each of the years ended December 31, 2012 and 2011,
respectively, and are recorded as a reduction of income tax expense. Amortization of the investments in the limited
partnerships totaled $476,000 and $390,000 for the years ended December 31, 2012 and 2011, respectively, and is
recognized as a component of income tax expense in the consolidated statements of income. The carrying value of these
investments was $1,546,000 and $2,022,000 at December 31, 2012 and 2011, respectively, and is recorded in other
assets. The Company’s total exposure to these limited partnerships was $5,046,000 and $5,522,000, at December 31,
The First Bancorp • 2012 Form 10-K • Page 84
2012 and 2011, 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. The Company is
currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December
31, 2009 through 2011.
Note 11. Certificates of Deposit
The following table represents the breakdown of Certificates of Deposit at December 31, 2012 and 2011:
Certificates of deposit < $100,000
Certificates $100,000 to $250,000
Certificates $250,000 and over
December 31, 2012
December 31, 2011
$ 199,265,000
277,571,000
28,220,000
$ 505,056,000
$ 216,836,000
309,841,000
22,499,000
$ 549,176,000
At December 31, 2012, the scheduled maturities of certificates of deposit are as follows:
Year of
Maturity
2013
2014
2015
2016
2017
Less than
$100,000
$ 84,984,000
46,347,000
50,925,000
11,564,000
5,445,000
$199,265,000
$100,000 and
Greater
$219,735,000
27,099,000
42,026,000
10,671,000
6,260,000
$305,791,000
All Certificates
of Deposit
$304,719,000
73,446,000
92,951,000
22,235,000
11,705,000
$505,056,000
Interest on certificates of deposit of $100,000 or more was $3,358,000, $3,606,000, and $3,724,000 in 2012, 2011
and 2010, 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, 2012,
the Bank’s total FHLB borrowing capacity, based on its holding of FHLB stock, was $248,933,000 of which
$67,532,000 was unused and available for additional borrowings. All FHLB advances as of December 31, 2012, had
fixed rates of interest until their respective maturity dates. 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 $48,000,000 in credit lines with correspondent banks and a credit facility of $115,839,000 with
the Federal Reserve Bank of Boston using commercial and home equity loans as collateral which are currently not in
use.
The First Bancorp • 2012 Form 10-K • Page 85
Borrowed funds at December 31, 2012 and 2011 have the following range of interest rates and maturity dates:
As of December 31, 2012
Federal Home Loan Bank Advances
2013
2014
2015
2016
2017
2018 and thereafter
Repurchase agreements
Municipal and commercial customers
As of December 31, 2011
Federal Home Loan Bank Advances
2012
2013
2014
2015
2016
2017 and thereafter
Repurchase agreements
Municipal and commercial customers
Note 13. Employee Benefit Plans
0.16%-0.31%
2.73%-3.20%
2.03%-2.98%
2.36%-2.44%
0.99%-3.69%
0.00%-3.25%
0.20%-1.89%
$ 41,245,000
10,000,000
40,000,000
30,000,000
30,000,000
30,156,000
181,401,000
101,504,000
$282,905,000
0.15%-0.32%
-
2.73%-3.20%
2.03%-2.98%
1.31%-1.39%
0.00%-3.69%
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
401(k) Plan
The Bank has a defined contribution plan available to substantially all employees who have completed three months of
service. Employees may contribute up to IRS-determined limits 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 2012, 2011, and 2010. The expense related to the 401(k) plan was $363,000,
$341,000, and $362,000 in 2012, 2011, and 2010, 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 $289,000 in
2012, $307,000 in 2011, and $230,000 in 2010. As of December 31, 2012 and 2011, the accrued liability of these plans
was $2,080,000 and $1,847,000, 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 • 2012 Form 10-K • Page 86
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 following table sets forth the accumulated postretirement benefit obligation and funded status:
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
Unamortized prior service cost
Unrecognized transition obligation
Accrued benefit cost
Weighted average discount rate as of December 31
2012
2011
2010
$ 1,848,000 $ 1,796,000
12,000
112,000
(134,000)
62,000
$ 1,954,000 $ 1,848,000
16,000
107,000
(103,000)
86,000
$ 1,962,000
15,000
117,000
(136,000)
(162,000)
$ 1,796,000
186,000
5,000
$(1,954,000) $(1,848,000) $(1,796,000)
49,000
100,000
63,000
34,000
$(1,763,000) $(1,714,000) $(1,684,000)
6.5%
6.5%
4.5%
The following table sets forth the net periodic pension cost:
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 discount rate for net periodic cost
2012
2011
2010
$ 16,000
107,000
29,000
-
-
$152,000
4.5%
$ 12,000
112,000
29,000
-
11,000
$164,000
6.5%
$ 15,000
117,000
29,000
-
22,000
$ 183,000
6.5%
The measurement date for benefit obligations was as of year-end for all years presented. The estimated amount of
benefits to be paid in 2013 is $102,000. For years ending 2014 through 2017 the estimated amount of benefits to be paid
is $104,000, $105,000, $118,000 and $120,000 respectively, and the total estimated amount of benefits to be paid for
years ended 2018 through 2022 is $641,000. Plan expense for 2013 is estimated to be $112,000.
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 (expense) at 35%
Net unrecognized post-retirement benefits included in
accumulated other comprehensive income (loss)
2012
$ (186,000)
(5,000)
(191,000)
68,000
2011
$ (100,000)
(34,000)
(134,000)
47,000
Portion to Be
Recognized in
Income in 2013
$ 14,000
5,000
19,000
(7,000)
$ (123,000)
$ (87,000)
$ 12,000
The First Bancorp • 2012 Form 10-K • Page 87
The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other
comprehensive income for the years ended December 31, 2012 and 2011:
For the years ended December 31,
Unrecognized postretirement benefits at beginning of period
Change in unrecognized postretirement benefits
Related deferred taxes
Unrecognized postretirement benefits at end of period
2012
$ (87,000)
(57,000)
21,000
$(123,000)
2011
$(73,000)
(22,000)
8,000
$(87,000)
Note 14. Preferred and Common Stock
Preferred Stock
On January 9, 2009, the Company issued $25 million in Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
having a liquidation preference of $1,000 per share, to the U.S. Treasury under the Capital Purchase Program (“the CPP
Shares”). 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.
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, 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 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.
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 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.
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 First Bancorp • 2012 Form 10-K • Page 88
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, 2012, 522,411
shares had been issued pursuant to these plans, leaving 177,589 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 12,451
shares in 2012, 12,775 shares in 2011, and 12,334 shares in 2010.
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, 2012, 200,580 shares have been issued, leaving
399,420 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 14,056 shares in 2012,
14,387 shares in 2011, and 16,520 shares in 2010.
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, 2012, 19,727 shares of restricted stock had been granted under the 2010 Plan, as detailed in
the following table:
Year
Granted
2011
2011
2012
2012
2012
Vesting Term
(In Years)
4.0
5.0
3.0
4.0
5.0
Shares
1,500
5,500
2,027
2,704
7,996
19,727
Remaining Term
(In Years)
2.1
3.1
2.2
3.2
4.2
3.4
The compensation cost related to these restricted stock grants was $302,000 and will be recognized over the
vesting terms of each grant. In 2012, $85,000 of expense was recognized for these restricted shares, leaving $207,000 in
unrecognized expense as of December 31, 2012. In 2011, $22,000 of expense was recognized for restricted shares,
leaving $89,000 in unrecognized expense as of December 31, 2011.
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 the 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. As of December 31, 2012, all outstanding options were fully
vested and all compensation cost for options had been recognized. During 2012, 9,000 options were exercised. A
summary of the status of outstanding stock options as of December 31, 2012 and changes during the year then ended, is
presented below.
The First Bancorp • 2012 Form 10-K • Page 89
Number of
Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic
Value
51,000
-
(9,000)
-
42,000
42,000
$16.47
-
$ 9.33
-
$18.00
$18.00
$59,000
-
-
2.0
2.0
Outstanding at December 31, 2011
Granted in 2012
Exercised in 2012
Forfeited in 2012
Outstanding at December 31, 2012
Exercisable at December 31, 2012
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, 2012, 2011 and 2010:
For the year ended December 31, 2012
Net income as reported
Less dividends and amortization of premium on preferred stock
Basic EPS: Income available to common shareholders
Effect of dilutive securities: restricted stock
Diluted EPS: Income available to common shareholders plus
assumed conversions
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
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 and
restricted stock
Diluted EPS: Income available to common shareholders plus
assumed conversions
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$ 12,688,000
723,000
11,965,000
9,828,925
17,606
$ 1.22
$ 11,965,000
9,846,531
$ 1.22
$ 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
$ 1.10
4,726
$ 10,768,000
9,765,486
$ 1.10
The First Bancorp • 2012 Form 10-K • Page 90
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, 2012, 2011
and 2010 and the amount which are above or below the strike price:
Outstanding
In-the-Money
Out-of-the-Money
As of December 31, 2012
Incentive stock options
Warrants issued to U.S. Treasury
Total dilutive securities
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
42,000
225,904
267,904
51,000
225,904
276,904
55,500
225,904
281,404
Note 17. Regulatory Capital Requirements
-
-
-
9,000
-
9,000
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 2013 will be 2013
earnings plus retained earnings of $6,781,000 from 2012 and 2011.
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, 2012, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2012, 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 First Bancorp • 2012 Form 10-K • Page 91
The actual and minimum capital amounts and ratios for the Bank are presented in the following table:
As of December 31, 2012
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$124,366,000
15.66%
$114,419,000
14.41%
$114,419,000
8.23%
$123,599,000
15.37%
$113,521,000
14.11%
$113,521,000
8.33%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$63,531,000
8.00%
$31,765,000
4.00%
$55,636,000
4.00%
$64,320,000
8.00%
$32,160,000
4.00%
$54,600,000
4.00%
$79,414,000
10.00%
$47,648,000
6.00%
$69,545,000
5.00%
$80,400,000
10.00%
$48,240,000
6.00%
$68,250,000
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, 2012
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
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
Actual
$127,557,000
16.05%
$117,603,000
14.80%
$117,603,000
8.46%
$125,943,000
15.66%
$115,865,000
14.40%
$115,865,000
8.32%
For capital
adequacy
purposes
To be well-capitalized
under prompt corrective
action provisions
$63,579,000
8.00%
$31,790,000
4.00%
$55,628,000
4.00%
$64,320,000
8.00%
$32,160,000
4.00%
$55,720,000
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
The First Bancorp • 2012 Form 10-K • Page 92
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 2012, 2011 or 2010.
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, 2012 and 2011, 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
2012
2011
$ 56,420,000 $ 59,427,000
39,313,000
2,177,000
12,551,000
$111,112,000 $113,468,000
45,747,000
2,700,000
6,245,000
The Bank grants residential, commercial and consumer loans to customers principally located in the Mid-Coast and
Down East regions of Maine. Collateral on these loans typically consists of residential or commercial real estate, or
personal property. Although the loan portfolio is diversified, a substantial portion of borrowers’ ability to honor their
contracts is dependent on the economic conditions in the area, especially in the real estate sector.
The First Bancorp • 2012 Form 10-K • Page 93
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 fair value methods and assumptions for the Company’s financial instruments are set forth below.
Cash, Cash Equivalents and Interest-Bearing Deposits in Other Banks
The carrying values of cash equivalents, due from banks and federal funds sold approximate their relative fair values.
As such, the Company classifies these financial instruments as Level 1.
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. As such, the Company classifies investment securities as Level 2.
Loans Held for Sale
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.
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. 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. As such,
the Company classifies loans as Level 3, except for impaired loans. Fair values of impaired loans are based on estimated
cash flows and are discounted using a rate commensurate with the risk associated with the estimated cash flows, or if
collateral dependent, discounted to the appraised value of the collateral, less costs to sell. As such, the Company
classifies impaired loans as Level 2.
The First Bancorp • 2012 Form 10-K • Page 94
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.
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 and compared to fair value for impairment. In evaluating
the fair 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.
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. As such, the Company
classifies accrued interest receivable as Level 2.
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. As such, the Company
classifies deposits as Level 2.
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. As such, the Company
classifies borrowed funds as Level 2.
Accrued Interest Payable
The fair value estimate approximates the carrying amount as this financial instrument has a short maturity. As such, the
Company classifies accrued interest payable as Level 2.
Off-Balance-Sheet Instruments
Off-balance-sheet instruments include loan commitments. Fair values for loan commitments have not been presented as
the future revenue derived from such financial instruments is not significant.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about
the financial instrument. These values do not reflect any premium or discount that could result from offering for sale at
one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant
portion of the Company’s financial instruments, fair value estimates are based on Management’s judgments regarding
future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair
value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Other significant assets and liabilities that are not considered financial instruments include the deferred tax asset,
premises and equipment, and other real estate owned. In addition, tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of
the estimates.
The First Bancorp • 2012 Form 10-K • Page 95
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following table presents the balances of assets and liabilities that were measured at fair value on a recurring basis as
of December 31, 2012 and 2011.
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Corporate securities
Other equity securities
Total assets
Level 1
At December 31, 2012
Level 3
Level 2
Total
$ -
-
-
-
$ -
$ 169,093,000
120,944,000
-
1,577,000
$ 291,614,000
$ -
-
-
-
$ -
$ 169,093,000
120,944,000
-
1,577,000
$ 291,614,000
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
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2012 and 2011.
Other real estate owned is presented net of an allowance for losses of $373,000 and $436,000, respectively. Impaired
loans are presented net of their related specific allowance for loan losses of $3,539,000 and $2,058,000, respectively.
At December 31, 2012
Level 1
Level 2
Mortgage servicing rights $ - $ 1,228,000
1,035,000
Loans held for sale
7,593,000
Other real estate owned
13,923,000
Impaired loans
$ 23,779,000
Total Assets
-
-
-
$ -
Level 3
$ -
-
-
-
$ -
Total
$ 1,228,000
1,035,000
7,593,000
13,923,000
$ 23,779,000
At December 31, 2011
Level 1
Level 2
Mortgage servicing rights $ - $ 1,581,000
Loans held for sale
-
4,094,000
Other real estate owned
12,165,000
Impaired loans
$ 17,840,000
Total Assets
-
-
-
$ -
Level 3
$ -
-
-
-
$ -
Total
$ 1,581,000
-
4,094,000
12,165,000
$ 17,840,000
The First Bancorp • 2012 Form 10-K • Page 96
Fair Value of Financial Instruments
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, 2012 were as follows:
As of December 31, 2012
Financial assets
Cash and cash equivalents
Interest bearing deposits in other banks
Securities available for sale
Securities to be held to maturity
Restricted equity securities
Loans held for sale
Loans (net of allowance for loan losses)
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
Mortgage servicing rights
Accrued interest receivable
Financial liabilities
Demand deposits
NOW deposits
Money market deposits
Savings deposits
Local certificates of deposit
National certificates of deposit
Total deposits
Repurchase agreements
Federal Home Loan Bank advances
Total borrowed funds
Accrued interest payable
Carrying
value
Estimated
fair value
$ 14,958,000
1,638,000
291,614,000
143,320,000
14,448,000
1,035,000
$ 14,958,000
1,638,000
291,614,000
150,247,000
14,448,000
1,035,000
245,046,000
20,960,000
78,985,000
14,685,000
244,365,000
20,902,000
79,312,000
16,058,000
378,258,000
6,447,000
98,381,000
14,022,000
856,784,000
867,000
4,912,000
$ 90,252,000
147,309,000
80,983,000
135,250,000
218,571,000
286,485,000
958,850,000
101,504,000
181,401,000
282,905,000
619,000
390,223,000
6,430,000
99,038,000
14,392,000
870,720,000
1,228,000
4,912,000
$ 91,544,000
141,436,000
71,799,000
126,142,000
223,748,000
290,457,000
945,126,000
101,504,000
189,321,000
290,825,000
619,000
Level 1
Level 2
Level 3
$ 14,958,000 $ - $ -
-
-
-
-
-
-
291,614,000
150,247,000
14,448,000
1,035,000
1,638,000
-
-
-
-
4,865,000
2,284,000
472,000
-
239,500,000
18,618,000
78,840,000
16,058,000
-
-
-
-
-
-
-
-
-
-
-
6,302,000
-
-
-
13,923,000
1,228,000
4,912,000
383,921,000
6,430,000
99,038,000
14,392,000
856,797,000
-
-
$ -
-
-
-
-
-
-
-
-
-
-
$ -
-
-
-
-
-
-
-
-
-
-
$ 91,544,000
141,436,000
71,799,000
126,142,000
223,748,000
290,457,000
945,126,000
101,504,000
189,321,000
290,825,000
619,000
The First Bancorp • 2012 Form 10-K • Page 97
The estimated fair values for financial instruments as of December 31, 2011 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
Restricted equity securities
Loans held for sale
Loans (net of allowance for loan losses)
Mortgage servicing rights
Accrued interest receivable
Financial liabilities
Deposits
Borrowed funds
Accrued interest payable
December 31, 2011
Carrying
amount
Estimated
fair value
$ 14,115,000
-
286,202,000
122,661,000
15,443,000
-
851,988,000
1,201,000
4,835,000
$ 14,115,000
-
286,202,000
130,677,000
15,443,000
-
866,442,000
1,581,000
4,835,000
$941,333,000
265,663,000
734,000
$921,388,000
273,568,000
734,000
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
ATM and debit card income
Other operating expense
Advertising and marketing expense
Collections/foreclosures/ other real estate owned expense
ATM and interchange expense
Legal fees and expenses
2012
2011
2010
$1,994,000
$1,744,000
$1,394,000
$935,000
606,000
940,000
715,000
$713,000
964,000
848,000
670,000
$688,000
825,000
581,000
608,000
Note 21. Legal Contingencies
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 • 2012 Form 10-K • Page 98
Note 23. Condensed Financial Information of Parent
Condensed financial information for The First Bancorp, Inc. exclusive of its subsidiary is as follows:
Balance Sheets
As of December 31,
Assets
Cash and cash equivalents
Dividends receivable
Investments
Investment in subsidiary
Premises and equipment
Goodwill
Other assets
Total assets
Liabilities and shareholders’ equity
Dividends payable
Other liabilities
Total liabilities
Shareholders’ equity
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Net unrealized loss on available for sale securities,
net of tax benefit of $33,000 in 2011
Total accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
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
2012
2011
$ 2,685,000
1,900,000
429,000
125,580,000
43,000
27,559,000
72,000
$ 158,268,000
$ 894,000
1,900,000
327,000
122,009,000
26,000
27,559,000
57,000
$ 152,772,000
$ 1,923,000
22,000
1,945,000
$ 1,912,000
2,000
1,914,000
12,402,000
98,000
46,314,000
97,509,000
12,303,000
98,000
45,829,000
92,694,000
-
-
156,323,000
$ 158,268,000
(66,000)
(66,000)
150,858,000
$ 152,772,000
2012
$ 10,000
-
10,000
8,000
218,000
226,000
(216,000)
(76,000)
(140,000)
9,694,000
3,134,000
$12,688,000
2011
$ 10,000
153,000
163,000
4,000
137,000
141,000
22,000
15,000
7,000
8,710,000
3,647,000
$12,364,000
2010
$ 10,000
-
10,000
1,000
150,000
151,000
(141,000)
(38,000)
(103,000)
8,850,000
3,369,000
$12,116,000
The First Bancorp • 2012 Form 10-K • Page 99
Statements of Cash Flows
2012
$ 12,688,000
8,000
85,000
-
(15,000)
(5,000)
(3,134,000)
9,627,000
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 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
Capital expenditures
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Payment to repurchase preferred stock
Proceeds from sale of common stock
Dividends paid
Net cash 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
-
499,000
(8,310,000)
(7,811,000)
1,791,000
894,000
$ 2,685,000
-
-
(25,000)
(25,000)
2011
2010
$ 12,364,000
$ 12,116,000
13,000
22,000
(153,000)
(42,000)
44,000
(3,647,000)
8,601,000
12,773,000
(273,000)
(29,000)
12,471,000
(12,500,000)
431,000
(8,751,000)
(20,820,000)
252,000
642,000
$ 894,000
-
37,000
-
(1,000)
5,000
(3,369,000)
8,788,000
-
-
(10,000)
(10,000)
-
416,000
(8,865,000)
(8,449,000)
329,000
313,000
$ 642,000
The First Bancorp • 2012 Form 10-K • Page 100
Note 24. New Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update (“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 adoption of this guidance did not have a material impact 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 requires 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 adoption of this new
guidance did 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 adoption of this new guidance did not
have a material effect on the Company’s consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated
Comprehensive Income. The ASU adds new disclosure requirements for items reclassified out of accumulated other
comprehensive income (AOCI) and is intended to help entities improve the transparency of changes in other
comprehensive income and items reclassified out of AOCI in their financial statements. The guidance is effective
prospectively for reporting periods beginning after December 15, 2012, 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 • 2012 Form 10-K • Page 101
Note 25. Quarterly Information
The following tables provide unaudited financial information by quarter for each of the past two years:
15,443
14,823
14,448
15,443
14,448
14,448
15,443
15,443
2012Q4
2011Q2
2011Q3
2012Q2
2012Q1
2011Q4
2011Q1
2012Q3
853,484
84,967
867,808
85,187
858,122
82,475
855,132
83,995
872,314
88,263
851,988
82,458
881,134
85,274
-
443,122
100
456,481
1,638
434,934
1,532
454,717
681
454,156
100
427,248
-
408,863
100
435,387
240,151
16,213
151,593
255,616
15,990
150,538
248,926
17,152
153,405
249,336
13,306
156,210
304,749
17,383
156,637
265,663
15,013
150,858
217,534
11,703
151,544
$ 13,700 $ 14,322 $ 16,563 $ 14,115 $ 12,123 $ 14,192 $ 14,904 $ 14,958
$1,431,038 $1,417,690 $1,427,038 $1,372,867 $1,423,792 $1,424,757 $1,423,316 $1,414,999
$ 14,254 $ 13,997 $ 13,898 $ 13,553 $ 13,106 $ 13,133 $ 12,892 $ 12,694
3,201
9,493
857,819
91,202
$1,431,038 $1,417,690 $1,427,038 $1,372,867 $1,423,792 $1,424,757 $1,423,316 $1,414,999
$1,050,257 $ 998,838 $1,004,894 $ 941,333 $1,015,835 $1,005,274 $ 944,547 $ 958,850
282,905
16,921
156,323
Dollars in thousands
except per share data
Balance Sheets
Cash
Interest-bearing
deposits in other banks
Investments
Restricted equity
securities
Net loans for sale and
loans held
Other assets
Total assets
Deposits
Borrowed funds
Other liabilities
Shareholders’ equity
Total liabilities
& equity
Income and Comprehensive 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
Basic earnings per
share
Diluted earnings per
share
Other comprehensive income (loss), net of tax
Net unrealized gain
(loss) on securities
available for sale
Unrecognized gain
(loss) on postretirement
benefits
Other comprehensive
income (loss)
$ 673 $ 3,592 $ 5,961 $ (782) $ (308) $ 443 $ 1,967 $ (1,599)
Comprehensive income $ 3,816 $ 6,785 $ 8,967 $ 2,240 $ 2,605 $ 3,766 $ 5,190 $ 1,630
7,958
2,722
6,768
3,912
683
$ 3,143 $ 3,193 $ 3,006 $ 3,022 $ 2,913 $ 3,323 $ 3,223 $ 3,229
$ 0.29 $ 0.29 $ 0.27 $ 0.29 $ 0.28 $ 0.32 $ 0.31 $ 0.31
$ 668 $ 3,587 $ 5,957 $ (754) $ (313) $ 438 $ 1,962 $ (1,548)
$ 0.29 $ 0.29 $ 0.27 $ 0.29 $ 0.28 $ 0.32 $ 0.31 $ 0.31
8,405
2,277
6,488
4,194
1,051
5,087
5,159
6,366
3,880
858
8,223
2,234
6,250
4,207
1,014
8,270
2,492
6,595
4,167
944
7,118
3,896
6,730
4,284
961
7,706
2,168
6,178
3,696
783
8,728
2,080
6,934
3,874
868
3,749
10,505
3,516
10,037
3,774
10,223
3,670
10,228
3,215
9,918
3,300
9,806
3,222
9,670
2,100
4,950
1,535
2,000
1,400
2,100
2,800
1,500
(51)
(28)
5
5
5
5
5
4
The First Bancorp • 2012 Form 10-K • Page 102
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, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in
shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. We have also
audited The First Bancorp, Inc.’s internal control over financial reporting as of December 31, 2012, 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, 2012 and 2011, and the consolidated
results of their operations and their consolidated cash flows for each of the three years in the period ended December 31,
2012, 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, 2012, based on criteria established in COSO.
Portland, Maine
March 8, 2013
The First Bancorp • 2012 Form 10-K • Page 103
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, 2012,
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, 2012 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, 2012. 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, 2012, 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 8, 2013
F. Stephen Ward , Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 8, 2013
The First Bancorp • 2012 Form 10-K • Page 104
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 24, 2013 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 24, 2013 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 24, 2013 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 24, 2013 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 24, 2013 and is incorporated herein by reference.
The First Bancorp • 2012 Form 10-K • Page 105
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 3.1 to the Company’s
Form 8-K filed under item 5.03 on October 31, 2012).
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 10.5 Purchase and Assumption Agreement between the Bank and Camden National Bank for the purchase of a
bank branch, loans and deposits at 63 Union Street in Rockland, Maine, attached as Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q filed on August 9, 2012.
Exhibit 10.6 Purchase and Sale Agreement between the Bank and Camden National Bank for the purchase of a bank
building at 145 Exchange Street in Bangor, Maine, attached as Exhibit 10.6 to the Company’s Quarterly Report on
Form 10-Q filed on August 9, 2012.
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
The First Bancorp • 2012 Form 10-K • Page 106
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
The First Bancorp • 2012 Form 10-K • Page 107
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 8, 2013
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 8, 2013
F. Stephen Ward, Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 8, 2013
Stuart G. Smith, Director and Chairman of the Board
March 8, 2013
Katherine M. Boyd, Director
March 8, 2013
Carl S. Poole, Jr., Director
March 8, 2013
Robert B. Gregory, Director
March 8, 2013
Mark N. Rosborough, Director
March 8, 2013
Tony C. McKim, Director
March 8, 2013
David B. Soule, Jr., Director
March 8, 2013
Bruce A. Tindal, Director
March 8, 2013
The First Bancorp • 2012 Form 10-K • Page 108
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 2012 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 8, 2013
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp • 2012 Form 10-K • Page 109
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 2012 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 8, 2013
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2012 Form 10-K • Page 110
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, 2012 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 8, 2013
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, 2012 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 8, 2013
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2012 Form 10-K • Page 111
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 2012 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 • 2012 Form 10-K • Page 112
(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 8, 2013
Daniel R. Daigneault
President and Chief Executive Officer
The First Bancorp • 2012 Form 10-K • Page 113
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 2012 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 • 2012 Form 10-K • Page 114
(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 8, 2013
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp • 2012 Form 10-K • Page 115
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 2012 and 2011.
Such quotations do not reflect retail mark-ups, mark-
downs or brokers’ commissions.
2012
2011
High
$16.38
17.44
18.96
18.14
Low
$14.00
13.41
16.02
14.32
High
$15.95
15.96
15.30
15.95
Low
$13.40
13.79
11.69
11.75
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
The last known transaction of the Company’s stock
during 2012 was on December 31 at $16.47 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 17, 2011
June 15, 2011
September 15, 2011
December 15, 2011
March 15, 2012
June 20, 2012
September 20, 2012
December 20, 2012
Amount
Per Share
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
$0.195
Date
Payable
April 29, 2011
July 29, 2011
October 28, 2011
January 31, 2012
April 30, 2012
July 31, 2012
October 31, 2012
January 31, 2013
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 24, 2013 at
11:00 a.m. at the Samoset Resort, 220 Warrenton Street
Rockport Maine 04856.
Number of Shareholders
The number of shareholders of record as of
February 13, 2013 was approximately 3,547.
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 2013 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: Rockland Breakwater,
Kevin Shields Photography
CEO Letter: Benjamin Magro
The First Bancorp • 2012 Form 10-K • Page 116
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
Basic Earnings per Share
Diluted Earnings per Share
Cash Dividends Declared
Book Value per Common Share
Tangible Book Value per Common Share
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
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio2
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
2012
$ 51,825
12,938
38,887
7,835
11,278
26,271
12,688
$ 1.22
1.22
0.780
14.60
11.47
16.47
8.84%
10.40
0.89
10.96
8.96
3.14
63.93
1.44
2.20
1.89
51.01
Years ended December 31,
2010
2009
2011
$ 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
$ 1.14
1.14
0.780
14.12
11.20
15.37
$ 1.10
1.10
0.780
12.80
9.84
15.79
9.37%
9.53%
10.80
0.87
10.72
8.70
3.27
68.42
1.50
3.21
2.32
49.75
10.97
0.89
11.20
9.06
3.38
70.91
1.50
2.39
1.87
48.15
$ 62,569
18,916
43,653
12,160
12,754
26,658
13,042
$ 1.22
1.22
0.780
12.66
9.65
15.42
10.66%
12.76
0.96
10.85
8.69
3.66
63.93
1.43
1.95
1.80
43.39
$1,414,999
869,284
449,382
958,850
282,905
156,323
$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
High
$18.96
Market price per common share of stock during 2012
1Annualized using a 366-day basis in 2012 and 365-day basis in 2011
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.
2008
$ 71,372
33,669
37,703
4,700
9,646
22,994
14,034
$ 1.45
1.44
0.765
12.09
9.01
19.89
12.02%
16.14
1.10
9.14
6.83
3.33
52.76
0.90
1.27
1.31
46.07
$1,325,744
979,273
247,839
925,736
272,074
117,181
Low
$13.41
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
Bangor
Bar Harbor
Blue Hill
Boothbay Harbor
Calais
Camden
Damariscotta
Eastport
Ellsworth
Northeast Harbor
Rockland
Rockport
Southwest Harbor
Waldoboro
Wiscasset
Office Locations
Bangor
Bar Harbor
Damariscotta
Ellsworth
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