2016 Annual Report Selected Financial Data
Dollars in thousands, except for per share amounts
2016
2015
2014
2013
2012
$
53,759
$ 50,810
$
51,022
$
49,936
$
10,812
42,947
1,600
12,499
29,383
18,009
1.68
1.66
1.030
15.98
13.20
33.10
10.28%
12.42%
1.12%
10.86%
9.00%
3.05%
61.31%
0.95%
0.73%
0.48%
50.43%
9,874
40,936
1,550
12,230
29,896
16,206
$ 1.52
$
1.51
0.870
15.58
12.78
20.47
9.74%
11.90%
1.07%
11.00%
9.01%
3.10%
57.24%
1.00%
0.75%
0.57%
54.26%
$
$
11,425
39,597
1,150
11,048
30,220
14,709
1.38
1.37
0.830
15.06
12.25
18.09
9.34%
11.57%
0.99%
10.63%
8.58%
3.10%
60.14%
1.13%
1.15%
0.97%
56.86%
12,496
37,440
4,200
12,087
28,937
12,965
1.20
1.20
0.785
13.69
10.83
17.42
8.72%
10.66%
0.90%
10.62%
8.49%
3.05%
65.42%
1.31%
1.86%
1.44%
55.44%
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 Common Share
Diluted Earnings per Common Share
$
Cash Dividends Declared per Common Share
Book Value per Common Share
Tangible Book Value per Common Share
Market Value per Common Share
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
$ 1,712,875
$ 1,564,810
$ 1,482,131
$ 1,463,963
$ 1,414,999
1,071,526
539,174
988,638
477,319
917,564
475,092
876,367
489,013
1,242,957
1,043,189
1,024,819
1,024,399
278,901
172,521
337,457
167,498
279,916
161,554
279,125
146,098
Stock Price
Market price per common share of stock during 2016
High
33.21
$
$
1Annualized using a 365-day basis in all years except 2012 and 2016, in which a 366-day basis was used.
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.
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%
869,284
449,382
958,850
282,905
156,323
Low
22.53
If I had to sum up 2016 for The First Bancorp in one word, it would be “incredible.” Growth
in earning assets of $142.1 million fueled a $2.1 million increase in net interest income
on a tax-equivalent basis. Non-interest income was up slightly despite a lower level of
gains on sales of securities and non-interest expense actually dropped compared to 2015.
Net income for the year was $18.0 million, up $1.8 million or 11.1% from the $16.2 million
reported for 2015 – the best annual performance in the Company’s history – and earnings
per common share on a fully diluted basis of $1.66 were up $0.15 or 9.9% compared to
2015. These factors enabled us to reward our Shareholders in the form of increased cash
dividends and an increase of $12.63 per share in the price of our stock.
The loan portfolio increased $82.9 million to end the year at $1.07 billion. The com-
mercial loan portfolio was up $56.0 million or 13.2% and residential loans were up $18.3
million or 4.5%. The investment portfolio was up $61.9 million or 13.0% over 2015 despite
having a significant volume of securities called by their issuers. On the funding side of the
balance sheet, low-cost deposits were up $61.6 million or 10.6% totaling $640.8 million as
of December 31, 2016 and total deposits were up $199.8 million or 19.1% to $1.24 billion at
year-end. Our investment management division, First Advisors, also had an excellent year
and added $32.1 million in client assets, an 11.0% increase.
Dear Fellow
Shareholder:
Continued improvement in credit quality was another
contributor to our 2016 results. Non-performing assets stood
at 0.48% of total assets as of December 31, 2016 – well below
0.57% a year ago. Net charge offs were 0.13% of average
loans in 2016, down from 0.21% of average loans in 2015. We
provisioned $1.6 million for loan losses in 2016, up $50,000
from the amount provisioned in 2015 and the allowance for loan losses stood at 0.95% of
total loans as of December 31, 2016, down from 1.0% of total loans a year ago.
Strong Operating Ratios
The record financial results we posted in 2016 can certainly be seen in our operating ratios.
Our return on average assets was 1.12% in 2016 compared to a 1.07% return in 2015, and our
return on average tangible common equity was 12.42% compared to 11.90% for the same
periods, respectively. In comparison, the average return on common equity for the Bank’s
UBPR peer group was 9.55% in 2016, placing the Bank in the 82nd percentile. Our efficiency
ratio stood at 50.43% for 2016 compared to 54.26% for 2015 and remains well below the
Bank’s UBPR peer group average which stood at 63.70% for 2016.
Our stock performance was another major positive in 2016, ending the year at $33.10
per share, up $12.63 from our December 31, 2015 close at $20.47 per share. With divi-
dends reinvested, our total return for 2016 was 68.78%. We outperformed the broad market
during this period, as measured by the S&P 500 which had a total return with dividends
reinvested of 11.95%, as well as the Russell 2000, in which we are included, which had a
total return of 21.28%. We also outperformed the banking industry, with total returns for
the year of 39.12% for the KBW Regional Bank Index and 37.97% for the Nasdaq Bank Index.
We increased the quarterly dividend to 23 cents per share in the second quarter of
2016, and based on the December 31, 2016 closing price of $33.10 per share, our dividend
yield was a respectful 2.78%. In addition to the regular quarterly dividend, the Board of
Directors also declared a special cash dividend of 12 cents per share in the fourth quarter.
With regular quarterly dividends of 91 cents per share and the special cash dividend of 12
cents per share, total dividends declared in 2016 were $1.03 per share which resulted in a
dividend payout ratio of 61.31% for the year. All in all, a fantastic year for your Company!
Looking to the Future
Annual reports, by the numbers, reflect on the past. We traditionally discuss the financial
highlights of the past year, provide you with financial metrics and discuss our stock price.
Yet, while we look back to prepare this information for you, we are also continuously mov-
ing forward, determining what’s next, and strategically preparing for the future.
In 2016, we began to lay a firm foundation for the Company in two ways: through suc-
cession planning and goal setting. In 2016 we took succession planning to a new level. All
members of the management team – from the President/CEO to department and branch
managers, created a two-pronged plan. The first part of their plan addressed a short-term
absence from the Bank and the second part a longer-term absence, for example, retire-
ment. Team members were asked to tap who would be a viable short-term replacement for
them and to determine if that same person should be considered a long-term replacement.
Through these plans, we identified top performers, development opportunities for staff
and found gaps that we will
work to fill during the com-
ing year.
With goal setting, 2016
saw us fully embrace a
process that began in 2015
when I set goals for the Ex-
ecutive Management Team.
It is important to me that all
employees understand the
Company’s overall goals and
how everyone can, individ-
ually or departmentally, im-
pact those goals.
Corporate Enterprise Goals
(CEGs): These are the im-
portant metrics by which
we measure the Bank in
comparison with our peers:
Return on Equity, Return on
Assets, Net Interest Margin,
Net Income, and the Efficiency Ratio, to name a few. At the top of each employee’s goal
sheet, the CEGs are listed to keep them top of mind for everyone.
Individual Empirical Goals (IEGs): This section details numerical goals for individual em-
ployees. These goals may be production related – dollar amount of loans closed, number
of deposit referrals made, or keeping an expense account within budget. All of these goals
relate directly to the CEGs so employees can easily see their impact.
Project or Administrative Goals (PAGs): PAGs are much more subjective than the two
types of goals outlined above. Many of the Executive Team’s PAGs are related to initiatives
developed as part of our 2015 Strategic Plan. These projects are ongoing and some are
multi-year in nature. For other employees, PAGs may be a project that they are working on,
or they may be related to personal development, for example, taking a banking class or
attending a seminar that will help them expand their banking knowledge.
Our goal setting works very well in that it lays out quite simply for our employees the
desired corporate results as well as their own individual milestones. Engaging our employ-
ees in the business of banking and helping them understand the “big picture” will continue
to reap rewards for our Company in the future. The ability to Dream Big with our goals is a
collaborative process that keeps us all pulling on the same rope.
The Future of Branch Banking
For many years we’ve been told that the future of branch banking is less than promising
as more customers use debit cards, bank online or use their phones for banking. What we
“The ability
to Dream Big
with our
goals is a
collaborative
process that
keeps us all
pulling on the
same rope.”
are finding, however, is that while customers tend to use electronic options to complete
simple transactions, when they need a loan for their first home, want to start a business
or need retirement advice, they want to talk to a banker – the banker at their local branch.
We have been gradually renovating our branches to reflect a new model of branch banking.
In our renovated branches we no longer have long teller lines, but more accommodating
‘Pod’ structures that make our employees more approachable to our customers. In 2016 we
renovated our busy Rockland Park Street branch in this new model and it looks fantastic.
Hand-in-hand with our renovations, we have revamped our training programs over the last
few years to train our Bankers in the Universal Banker model. We are so very proud of our
employees for embracing this change and for the top-notch quality service they provide
every day. To train the next generation of bankers we have also renovated a space in our
Bangor branch with a state-of-the-art training room. We will be using it for employee
meetings and it will also be available for community groups. Enhanced training programs
help our employees reach their career goals and dreams.
Keeping the Community in Community Banking
In April of 2017, I will celebrate my 25th anniversary as
a Community Banker. To me, being a community banker
means being an active member of my community, serving
on non-profit boards, coaching, and sometimes just listen-
ing to a proposal from a local non-profit and figuring out
how we can help them make their dreams come true. Our
Company also strives to support our communities, from mu-
nicipal governments, to non-profits, to small, Main Street
businesses. We want everyone to succeed, and we assist in
a variety of different ways. In 2016, we made some signifi-
cant commitments to capital campaigns throughout our footprint and we also introduced a
new rewards program to benefit our checking account customers and our local businesses.
Capital Campaigns
Support for local non-profits as they plan for their futures is something we are proud to be a
part of. Later in this report, you’ll learn about a wonderful campaign that the Damariscotta
River Association (DRA) is undertaking. In addition to the DRA, we are also honored to work
with these fine organizations:
LincolnHealth – The primary health care organization in Lincoln County is adding a new
outpatient health center to their Damariscotta Campus, which will allow them to consol-
idate physicians in one location and provide a higher level of convenience and service to
Lincoln County residents and visitors.
Mount Desert Island Hospital – Critical to Island residents, the MDI Hospital needed to re-
place its aging generator. Having a reliable back-up power supply for an island-based hos-
pital is important to keep our Island citizens safe in extreme weather and power outages.
LifeFlight – Our market area covers many remote communities located on peninsulas and
on islands, far from medical care. LifeFlight’s mission in 2016 was to purchase a third heli-
copter to better cover our great state, a very important effort.
Good Shepherd Food Bank – Food insecurity continues to be a problem in Maine. Good
Shepherd provides food to local food pantries and other organizations throughout the
state. They are currently undertaking a major project to renovate a large warehouse space
in Hampden to better serve Northern and Eastern Maine.
Our tagline of “Dream First, Because You Can” is not just for individuals. Working with
non-profits, from the largest hospital to the local little league to make their dreams come
true, to better support our citizens and help our communities thrive is our responsibility as
a good corporate citizen.
“We are
passionate
about causes
related to
youth and more
specifically
about trying to
end youth
hunger and
food insecurity
in Maine.”
Dream First Rewards Program
Small businesses are the backbones of our communities. Without Main Street businesses,
where would towns like Rockland, Damariscotta, and Bar Harbor be? In my lifetime, Main
Street has weathered and survived many competitors – big box stores, shopping malls,
and now, virtual shopping. It’s in our best interest to help our small businesses thrive. To
that end, in 2016 we introduced our Dream First Rewards Program. Merchants that sign
up for the program agree to give First National Bank customers a discount for shopping
at their store. Discounts are tailored specifically to the merchant and can be adjusted over
time. In exchange, the Bank is using our traditional and non-traditional marketing chan-
nels to promote their business and drive new customers to their store. This is a win-win
for customers and businesses. By banking locally and shopping locally, everyone benefits.
Keeping our small businesses a vital part of our economy and community is a goal we can
all get behind.
Be Inspired – Employee Interaction
Every day, our team of employees accomplishes amazing things for you and for our cus-
tomers. I am so proud to walk with this group – they continually inspire me to be a better
leader. In 2016, I had the privilege of meeting with each employee for coffee or breakfast.
At these meetings we reviewed our CEGs and discussed where things stood financially, but
I also had another purpose. I wanted everyone’s input about their passions for our com-
munities. What causes are important to them? Where should the Company spend its time,
talent and funds? How can we make the places where we live and work better?
“We strive to
support our
communities,
from
municipal
governments,
to non-profits,
to the small,
Main Street
businesses.
We want
everyone to
succeed.”
I went into these meetings with no preconceived idea
of how they might go, but I quickly saw that our employees
have a lot of great ideas. Some meetings were humorous,
others emotional, as we discussed a variety of causes. Ev-
eryone was open and honest, sharing stories about their
personal challenges and how they have transcended those
challenges with help from others.
The end result is that we are passionate about caus-
es related to youth and more specifically about trying to
end youth hunger and food insecurity in Maine. Hunger in-
fluences every part of a child’s life. If a child is hungry, it
is hard to concentrate in school, behave appropriately, or
dream about the future. As we move into 2017, we will look
for ways to further engage our employees and our Compa-
ny in these very important causes.
Our Best Days Are Ahead
As I look back on my two years as your President and Chief Executive Officer, I can only
state that it has been a phenomenal ride. With the support of our Board of Directors and
you, our Shareholders, we have accomplished so much. But, this is only the beginning.
With this great team beside me, we will continue to operate on all cylinders, continue to
be inspired to do great things and to help our customers Dream Big! I hope you enjoy the
profiles included in the rest of this annual report along with the financial data. Thank you
for your continued support of The First Bancorp, of me personally, and of our great team.
Best always,
Tony C. McKim
President & Chief Exefutive Officer
Programs for All Ages at DRA
The Damariscotta River Association has been preserving the natural heritage of the Dam-
ariscotta Region since 1973. As they head towards their 45th anniversary, they aren’t resting
on their laurels but are embarking on a capital campaign to purchase land and renovate space for
a new headquarters, preserving their current space as a dedicated Nature and Education Center.
For Steve Hufnagel, this project is part of a bigger dream – creating a sense of community
that’s rooted in the land. He wants to engage today’s kids with nature so they will care about
protecting the land in the future. It’s an ambitious dream and project and one that First National
Bank is proud to support. At the core of the capital campaign is a purchase of 23 acres of riverfront
property in the heart of Damariscotta which will allow the DRA to build a trail connecting down-
town Damariscotta to the Great Salt Farm and Wildlife Preserve, a unique community resource.
One section of the trail, which includes the historic Whaleback Shell MIdden, will be mobility
friendly, allowing all members of our community to see and explore this unique artifact. Another
important part of the campaign supports educational programs which have exploded in enroll-
ment. In 2005 when enrollment grew to 400, they hired a part-time education director, and in
2016, with a full-time education director on staff, enrollment has grown to 2,200.
According to Steve, the capital campaign is a strategic investment in the region’s future. First
National Bank and the DRA have a long history together, both through the Bank and through our
investment management division, First Advisors. We are happy to partner with DRA to ensure the
land is protected and our community is engaged in the future.
-
Deep Water Dreams
In Eastport
Eastport is a small town, the winters are long and economic opportunity
ucts industry. But that’s not the attitude of Chris Gardner, the Director
can sometimes seem to be passing it by, particularly in the forest prod-
of the Eastport Port Authority, who bursts with courageous optimism when
talking about what’s going on in Eastport. He’s determined to not focus on
what has been lost over the years and feels some of Eastport’s best days
are yet to come.
Eastport is the deepest natural seaport in the United States and the clos-
est port to Europe. Over the last few years Chris, along with a group of other
partners including First National Bank, has been working on a bold solution
to take forest products to the next stage in its economic life cycle – shipping
wood to Europe. Proximity to the woods and to the sea is the key.
The first step was building a conveyor system to get the wood to the
ships. And, while this conveyor system was being developed, Chris and his
partners including Phyto Charter, E.J. Carrier, and the University of Maine,
were looking to develop a process to heat treat the wood being shipped.
After some trial and error, they now have a patent sanctioned by the USDA.
According to Chris, First National Bank “has been a leader since the be-
ginning with real people who understand real problems,” and the Port is
building a $1.6 million heat-treating system to put Maine loggers back to
work. Chris’s dream? It is to make the resurgence of the Port of Eastport a
true Maine success story. Eastport is one of our communities, its people are
our customers, we care about its future – so that’s our dream too.
It’s A Dog’s Life
On Main Street
In Rockland
I n 2009, Heidi Neal had a simple dream. She thought it would be fun
to take her dog to work every day and to own a business like Loyal
Biscuit, a fun and pet-friendly pet supply store in downtown Rock-
land. Heidi mentioned her dream to her husband, and he suggested
she talk with the owners. Coincidentally, the business was for sale and
Heidi found her dream of bringing her dog to work coming true much
sooner than she expected. She bought the store.
With stores in Rockland and Belfast, Heidi was satisfied with her
original bank. In 2012, however, when she was ready to expand again
to Camden/Rockport, her bank denied her loan request. Heidi was on a
deadline to get the financing she needed to make her business dreams
comes true. She contacted Todd Savage at First National Bank, he re-
viewed her loan request and the answer was yes.
Today, with the help of First National Bank, Loyal Biscuit has four
locations: Rockland, Belfast, Camden and Waterville, and she recently
bought the building in which her Rockland store is located. The stores
are bright and colorful with self-service dog washes, nutrition advice
and anything customers would want for their pet family members. Loy-
al Biscuit is also a member of the Bank’s Dream First Rewards Program
– rewarding those customers that support her by both banking and
shopping locally.
But Heidi’s dream is not completely done – her business is flourish-
ing and she hopes to expand to other locations. At First National Bank,
we are proud to help our small business customers like Heidi make
their dreams come true so they can keep our Main Streets vibrant.
Developing
Character And
Dreams
a day job, but he loves to coach kids, espe-
Paul Miner is a coach. Not by trade, he has
cially baseball. After coaching Damariscot-
ta Little League for a number of years, starting a
Challenger team in Midcoast Maine was a per-
sonal journey for him. About a year and half ago,
Paul’s five-year-old nephew who has cerebral
palsy was visiting Maine. While Daniel’s cousins
were out playing football in the back yard, he
could only watch from the sidelines. Paul put
Daniel on his back and together they took to the
field. Daniel’s laughter and total enjoyment re-
ally had an impact on Paul, and he decided he
wanted to do something for kids like Daniel in Lincoln County. He had heard
about the Little League Baseball Challenger program so he drove up to Ells-
worth to see their team play.
In 2016, he started the Midcoast Dream Team with six players and eight
buddies who assist in the games. Waldoboro also started a team and the
two teams played six games against each other, including an “under the
lights” night game in Thomaston. Paul’s goal with his Dream Team is to
make dreams come true for as many kids as he can and partnering with
First National Bank was a natural fit with our Dream Big campaign.
Looking to the future, all of the team’s 2016 players are returning and he
hopes to add a few more. The Challenger teams in Maine are also hoping to
have a Jamboree in Ellsworth to get all the kids together to play the sport
that they love and celebrate their dreams.
Rookies of the Year
Some people know how to get off on the right
foot and make a difference. Kristen McAlpine,
below, and Jacob Dodge, right, both
hired in 2016, immediately made an impact in
their respective regions, Kristen as our
Bangor area Business Development Officer and
Jacob as a Banking Associate in Knox County.
Their future looks bright at First National Bank!
Unsung Heroes
Behind the scenes at every financial
institution are dedicated employees
that customers may never see but who play a
vital role in making sure dreams are fulfilled.
In 2016, we honored Terri Geroux, above,
our Application Support Manager and
Brenda Feltis, right, a dedicated commercial
loan processor as our ‘Unsung Heroes’.
First National’s
First Annual
Employee
Awards
First National’s
First Annual
Employee
Awards
tradition at First National Bank.
An annual employee party is a long
the coast from Boothbay Harbor to Eastport
With employees spread out along
and inland to Bangor, it’s an occasion for
getting together, enjoying a great meal,
visiting with each other and having a good
time. In 2016, we added a new element to
our party by recognizing some very worthy
employees. These employees weren’t rec-
ognized for the deals they bring in or for
their stats, but instead they were honored
for the intangibles they bring to work every
day and what they do in their communities.
We are so proud to have them on our team.
Volunteers of the Year
As a community bank, we encourage all employ-
ees to get involved in their communities and we
honored Nicci Doray, left, and Mary Anne Griffin,
below, as our volunteers of the year. A commer-
cial loan portfolio manager in Damariscotta, Nicci
represents the Bank in organizations in southern
Lincoln County, while credit analyst Mary Anne is
out and about on Mount Desert Island.
Team Spirit
Optimistic, customer-focused, tenacious
and inspiring, Jake Miller, left, and Jeff Cole,
above, embody our corporate values
every day as they work with their teams.
Jake manages our two Rockland branches and
Jeff is our assistant manager in Bangor:
two consummate team players who set a
great example for all employees.
National Bank
Office Locations
Bangor
Bar Harbor
Blue Hill
Boothbay Harbor
Calais
Camden
Damariscotta
Eastport
Ellsworth
Northeast Harbor
Rockland Park Street
Rockland Union Street
Rockport
Southwest Harbor
Waldoboro
Wiscasset
First National Bank Executive Management Team
Tony C. McKim
President & Chief Executive Officer
Richard M. Elder
Executive Vice President & Treasurer
Susan A. Norton
Executive Vice President & Chief Administrative Officer
Steven K. Parady, Esq.
Executive Vice President,
Senior Trust Officer & Chief Fiduciary Officer
Tammy L. Plummer
Executive Vice President & Chief Information Officer
Sarah J. Tolman
Executive Vice President, Branch Administration
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Senior Lending Officer
Office Locations
Bangor
Bar Harbor
Damariscotta
Ellsworth
Rockland Union Street
Board of Directors
David B. Soule, Jr., Chairman of the Board
Katherine M. Boyd
Robert B. Gregory
Renee W. Kelly
Tony C. McKim
Mark N. Rosborough
Cornelius J. Russell
Stuart G. Smith
Bruce B. Tindal
Directors of The First Bancorp also serve as
Directors of First National Bank
The First Bancorp Executive Officers
Tony C. McKim
President & Chief Executive Officer
F. Stephen Ward
Executive Vice President & Chief Financial Officer
Charles A. Wootton
Executive Vice President & Clerk
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, 2016
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
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, non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_] Smaller reporting company [_]
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: $217,289,000
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of March 1, 2017
Common Stock: 10,815,445 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, Related Shareholder Matters and Issuer Purchases of Equity
Securities
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 Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services
ITEM 15. Exhibits, Financial Statement Schedules
SIGNATURES
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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 from January 31,
2005, until January 28, 2016, the combined banks operated under the name: The First, N.A. On January 28, 2016, the Board of
Directors voted to change the Bank's name to First National Bank (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 is one of 15 Maine branches Camden National acquired from Bank of America,
and this branch was 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. The
total value of the transaction was $6.6 million, which included 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, 2016, the Company's securities consisted of one class of common stock. At that date, there were
10,793,946 shares of common stock outstanding. On January 9, 2009, the Company issued $25,000,000 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"). As of May 8, 2013, the Company had repurchased all of the CPP Shares.
Incident to such issuance of the CPP Shares, the Company issued to the 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 Warrants (and any
shares of common stock issuable pursuant to the Warrants) are freely transferable by Treasury to third parties. The Warrants
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 will expire after ten years. The Warrants were
unchanged as a result of the CPP Shares repurchase transactions.
In May 2015, the Treasury sold the Warrants to private parties. In accordance with the contractual terms of the Warrants, the
number of shares issuable upon exercise and strike price were adjusted at the time of the sale. As a result of this transaction, the
aggregate number of shares of common stock issuable under the Warrants were adjusted to 226,819 shares with a strike price of
$16.53 per share. In November 2016, the Company repurchased all of the outstanding Warrants for an aggregate purchase price
of $1,750,000.
The common stock of the Bank is the principal asset of the Company, which has no other subsidiaries. The Bank's capital
stock consists of one class of common stock of which 290,069 shares, par value $2.50 per share, are authorized and
outstanding. All of the Bank's common 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 and consumer, commercial and mortgage loans. The Bank has not
made any material changes in its mode of conducting business during the past five years. The banking business in the Bank's
market area is seasonal with lower deposits in the winter and spring and higher deposits in the summer and fall. This swing is
predictable and has not had a materially adverse effect on the Bank.
In addition to traditional banking services, the Company provides investment management and private banking services
through First Advisors, which is an operating division of the Bank. First Advisors is focused on taking advantage of
opportunities created as the larger banks have altered their personal service commitment to clients not meeting established
account criteria. First Advisors is able to offer a comprehensive array of private banking, financial planning, investment
management and trust services to individuals, businesses, non-profit organizations and municipalities of varying asset size, and
to provide the highest level of personal service. The staff includes investment and trust professionals with extensive experience.
The financial services landscape has changed considerably over the past five years in the Bank's primary market area. Two
large out-of-state banks have continued to experience local change as a result of mergers and acquisitions at the regional and
national level. Credit unions have continued to expand their membership and the scope of banking services offered. Non-
banking entities such as brokerage houses, mortgage companies and insurance companies are offering very competitive
products. Many of these entities and institutions have resources substantially greater than those available to the Bank and are
not subject to the same regulatory restrictions as the Company and the Bank.
The Company believes that there will continue to be a need for a bank in the Bank's primary market area with local
management having decision-making power and emphasizing loans to small and medium-sized businesses and to individuals.
The Bank has concentrated on extending business loans to such customers in the Bank's primary market area and to extending
investment and trust services to clients with accounts of all sizes. The Bank's Management also makes decisions based upon,
among other things, the knowledge of the Bank's employees regarding the communities and customers in the Bank's primary
market area. The individuals employed by the Bank, to a large extent, reside near the branch offices and thus are generally
The First Bancorp - 2016 Form 10-K - Page 1
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 BHC 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 18 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 BHC 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.
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.
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. The primary source of funds to pay dividends on our
common 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
The First Bancorp - 2016 Form 10-K - Page 2
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, is resulting in broad changes to the U.S. financial system and is the most
significant financial reform legislation enacted since the 1930s. Financial regulatory agencies have issued numerous
rulemakings to implement its provision, but other rules have yet to be promulgated or to take effect. 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.
Federal regulatory agencies issued numerous other rulemakings in 2012 and 2013 to implement various other requirements
of the Dodd-Frank Act. 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 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 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. During 2017, we expect the CFPB
will 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 focused businesses and financial 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 Gramm-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.
The First Bancorp - 2016 Form 10-K - Page 3
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 regulatory
agencies) to evaluate the effectiveness of an applicant in combating money laundering activities when considering applications
filed under Section 3 of the BHC 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 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.
The First Bancorp - 2016 Form 10-K - Page 4
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 impose 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
economic conditions 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 the majority of 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. A small
amount of assets and off-balance sheet obligations are assigned a risk weight above 100%. Applying these risk-weights to each
category of the bank's balance sheet assets and to the credit equivalent amounts of the bank's off-balance sheet obligations and
summing the totals results in the amount of the bank's total Risk-Adjusted Assets for purposes of the risk-based capital
requirements. Risk-Adjusted Assets can either exceed or be less than reported balance sheet assets, depending on the risk
profile of the banking organization. Risk-Adjusted Assets for institutions such as the Bank will generally be less than reported
balance sheet assets because its retail banking activities include proportionally more residential mortgage loans, many of its
investment securities have a low risk weighting and there is a relatively small volume of off-balance sheet obligations.
The risk-based capital regulations require all banks to maintain a minimum ratio of Total Capital to Risk-Adjusted Assets
of 8.0%, of which at least one-half (4.0%) must be Core (Tier 1) Capital. For the purpose of calculating these ratios: (i) a
banking organization's Supplementary Capital eligible for inclusion in Total Capital is limited to no more than 100% of Core
Capital; and (ii) the aggregate amount of certain types of Supplementary Capital eligible for inclusion in Total Capital is further
limited. For example, the regulations limit the portion of the allowance for loan losses eligible for inclusion in Total Capital to
1.25% of Risk-Adjusted Assets. The Federal Reserve Board has established substantially identical risk-based capital
requirements, which are applied to bank holding companies on a consolidated basis. The risk-based capital regulations
explicitly provide for the consideration of interest rate risk in the overall evaluation of a bank's capital adequacy to ensure that
banks effectively measure and monitor their interest rate risk, and that they maintain capital adequate for that risk. A bank
deemed by its federal banking regulator to have excessive interest rate risk exposure may be required to maintain additional
capital (that is, capital in excess of the minimum ratios discussed above). The Bank believes, based on its level of interest rate
risk exposure, that this provision will not have a material adverse effect on it.
On December 31, 2016, the Company's consolidated Total and Tier 1 Risk-Based Capital Ratios were 15.69% and 14.64%,
respectively, and its Leverage Capital Ratio was 8.71%. Based on the above figures and accompanying discussion, the
Company exceeds all regulatory capital requirements and is considered well capitalized.
The First Bancorp - 2016 Form 10-K - Page 5
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 will:
•
•
•
•
•
•
raise the quality of capital as that banks will be better able to absorb losses on both a going concern basis; and
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).
On June 2013, the U.S. banking regulators finalized rulemaking to implement the BCBS capital guidelines for U.S. banks,
including, 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;
•
comply with the Dodd-Frank Act provision prohibiting the reliance on external credit ratings.
The U.S. banking regulators also 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.
The Company has evaluated the impact of Basel III on its capital ratios based on our interpretation of the capital
requirements, and our Tier 1 common equity ratio of 14.64% exceeded the fully phased-in minimum of ratio of 7.0% by 7.6%
at December 31, 2016.
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.
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 8.0% 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 6.0% 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
The First Bancorp - 2016 Form 10-K - Page 6
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, 2012 and 2013. For purposes of determining the prepayment, the FDIC used the
institution's assessment rate in effect on September 30, 2009. The unused portion of the prepaid assessment was 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, 0.64 cents per $100 of assessment base for
2013, 0.62 cents per $100 of assessment base for 2014 and 0.60 cents per $100 of assessment base for 2015 and on.
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 the Bank could have a material adverse effect on our earnings.
The First Bancorp - 2016 Form 10-K - Page 7
Brokered Deposits and Pass-Through Deposit Insurance Limitations
Under FDICIA, a bank cannot accept brokered deposits unless it either (i) is "Well Capitalized" or (ii) is "Adequately
Capitalized" and has received a written waiver from its primary federal banking regulator. For this purpose, "Well Capitalized"
and "Adequately Capitalized" have the same definitions as in the Prompt Corrective Action regulations. See "Prompt Corrective
Action" above. Banks that are not in the "Well Capitalized" category are subject to certain limits on the rates of interest they
may offer on any deposits (whether or not obtained through a third-party deposit broker). Pass-through insurance coverage is
not available in banks that do not satisfy the requirements for acceptance of brokered deposits, except that pass-through
insurance coverage will be provided for employee benefit plan deposits in institutions which at the time of acceptance of the
deposit meet all applicable regulatory capital requirements and send written notice to their depositors that their funds are
eligible for pass-through deposit insurance. The Bank currently accepts brokered deposits.
Real Estate Lending Standards
FDICIA requires the federal bank regulatory agencies to adopt uniform real estate lending standards. The FDIC and the OCC
have adopted regulations which establish supervisory limitations on Loan-to-Value ("LTV") ratios in real estate loans by FDIC-
insured banks, including national banks. The regulations require banks to establish LTV ratio limitations within or below the
prescribed uniform range of supervisory limits. The CFPB amended Regulation Z effective January 10, 2014 to implement
Ability to Repay and Qualified Mortgage Standards for residential mortgage lending. The Bank is considered a large bank
under the rule. The Bank follows the Ability to Repay rule by making a good faith determination of an applicant’s ability to
repay under the terms of the transaction; loans meeting the outlined standards for Qualified Mortgages are identified as such in
the Bank’s records. The CFPB further amended Regulation Z along with amending Regulation X to combine certain
disclosures consumers receive when applying for and closing on a mortgage loan under the Truth in Lending Act and Real
Estate Settlement Procedures Act. These amendments became effective October 3, 2015.
Standards for Safety and Soundness
Pursuant to FDICIA the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all
insured depository institutions and depository institution holding companies relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset
growth; and (vi) compensation, fees and benefits. The compensation standards prohibit employment contracts, compensation or
benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that would provide "excessive"
compensation, fees or benefits, or that could lead to material financial loss. In addition, the federal bank regulatory agencies are
required by FDICIA to prescribe standards specifying: (i) maximum classified assets to capital ratios; (ii) minimum earnings
sufficient to absorb losses without impairing capital; and (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly-traded shares of depository institutions and depository institution holding companies.
Consumer Protection Provisions
FDICIA also includes provisions requiring advance notice to regulators and customers for any proposed branch closing and
authorizing (subject to future appropriation of the necessary funds) reduced insurance assessments for institutions offering
"lifeline" banking accounts or engaged in lending in distressed communities. FDICIA also includes provisions requiring
depository institutions to make additional and uniform disclosures to depositors with respect to the rates of interest, fees and
other terms applicable to consumer deposit accounts.
FDIC Waiver of Certain Regulatory Requirements
The FDIC issued a rule, effective on September 22, 2003, that includes a waiver provision which grants the FDIC Board of
Directors extremely broad discretionary authority to waive FDIC regulatory provisions that are not specifically mandated by
statute or by a separate regulation.
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.
Legislative changes and additional regulations have the potential to 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.
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
The First Bancorp - 2016 Form 10-K - Page 8
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, 2016, the Company had 235 employees and full-time equivalency of 218 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 - 2016 Form 10-K - Page 9
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, 2016 and 2015 were $478.7
million and $422.7 million, or 44.7% and 42.8% of total loans, respectively. 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 criteria, 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 require 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 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 Bank knew of, or had been
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 the broader 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 have a material
adverse effect on our financial condition, results of operations and cash flows. See the section captioned "Credit Risk
The First Bancorp - 2016 Form 10-K - Page 10
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 in which parties must attend mediation sessions 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") remains elevated.
Our efforts between 2011 and 2015 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, 2016 there were 71
loans with an outstanding balance of $21.5 million that have been restructured. This compares to 84 loans with a value of $23.9
million as of December 31, 2015.
As of December 31, 2016, 57 loans with an aggregate balance of $18.9 million were performing under the modified terms,
five loans with an aggregate balance $876,000 were more than 30 days past due and accruing and nine loans with an aggregate
balance of $1.7 million were on nonaccrual. As a percentage of aggregate outstanding balances, 87.9% were performing under
the modified terms, 4.1% were more than 30 days past due and accruing and 8.0% were 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 or
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 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
The First Bancorp - 2016 Form 10-K - Page 11
net income and capital levels. Our mortgage-backed bond 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, 2016, we had $300.4 million and $226.8 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 the 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 roll over 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.
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.
Loan demand in the Bank's market area may be limited during periods of weak economic conditions. This could have the
greatest impact on the commercial loan portfolio. In addition, in order to reduce the Bank's exposure to interest rate risk, the
Bank may sell residential mortgages to the secondary market that have been refinanced by borrowers seeking to take advantage
of lower interest rates. Should this happen, net interest income may be negatively impacted if loans are replaced by lower-
yielding investment securities or if the balance sheet is allowed to shrink.
The First Bancorp - 2016 Form 10-K - Page 12
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 of 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.
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 by the OCC in the Bank's
charter. First Advisors provides trustee, investment management and custody services for individual, municipal and business
clients, predominantly in the Bank's market area. First Advisors' revenues are directly tied to the asset values 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, and years of industry
experience, and the difficulty of promptly finding qualified replacement personnel for our talented executives and/or
relationship managers.
Other restrictions on executive compensation 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,
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; 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 limitations 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 for remediation of any identified
limitations may be ineffective in improving internal controls.
We continually encounter technological change that may be difficult (costly) 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
The First Bancorp - 2016 Form 10-K - Page 13
marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting
the financial services industry and increased costs due to efforts to keep pace with change, 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 in place 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 or affecting 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.
Our information systems may experience an interruption or breach in security.
We rely heavily on communications, information systems (both internal and provided by third parties) and the internet to
conduct our business. Our business is dependent on our ability to process and monitor large numbers of daily transactions in
compliance with legal, regulatory and internal standards and specifications. In addition, a significant portion of our operations
relies heavily on the secure processing, storage and transmission of personal and confidential information, such as the personal
information of our customers and clients. The risks associated with such operations may increase in the future as we continue to
increase mobile payments and other internet-based product offerings and expand our internal usage of web-based products and
applications.
In the event of a failure, interruption or breach of our information systems, we may be unable to avoid impact to our customers.
Other U.S. financial service institutions and companies have reported breaches in the security of their websites or other systems
and have experienced significant distributed denial-of-service attacks, some of which involved sophisticated and targeted
attacks intended to disable or degrade service, or sabotage systems. Other potential attacks have attempted to obtain
unauthorized access to confidential information or destroy data, often through the introduction of computer viruses or malware,
cyberattacks and other means. To date, none of these efforts has had a material adverse effect on our business or operations.
Such security attacks can originate from a wide variety of sources, including persons who are involved with organized crime or
who may be linked to terrorist organizations or hostile foreign governments. Those same parties may also attempt to
fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access
to our data or funds or those of our customers or clients. Our security systems may not be able to protect our information
systems from similar attacks due to the rapid evolution and creation of sophisticated cyberattacks. We are also subject to the
risk that our employees may intercept and transmit unauthorized confidential or proprietary information. An interception,
misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third
party could result in legal liability, remediation costs, regulatory action and reputational harm.
We also have risk related to data or security breaches affecting other companies. Under Federal banking regulations, if a
consumer’s debit card is compromised, the liability for unauthorized transactions falls primarily to the issuing financial
institution, not to the consumer or the company which experienced the data or security breach. In the normal course of business
the Bank issues debit cards to its customers, creating potential risk for this type of liability.
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 action 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 Bank and its products
and services. Any financial liability or reputational 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
The First Bancorp - 2016 Form 10-K - Page 14
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 the Bank is 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. 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 - 2016 Form 10-K - Page 15
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 and by increased regulation.
Negative developments in 2008 and 2009 in the financial services industry resulted in uncertainty in the financial markets in
general and a related general economic downturn, which lasted for several years. In addition, as a consequence of the recent
U.S. recession, businesses across a wide range of industries 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 during that period.
As a result of these financial and economic crises, during this period, many lending institutions, including us, experienced
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. 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.
Europe's debt crisis could have a material adverse effect on our business, financial condition and liquidity.
The possibility that certain European Union ("EU") member states will default on their debt obligations, or that recessionary
conditions will reappear or deepen in parts of the EU, 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, or result in failure to meet regulatory requirements. Great Britain’s pending departure from the EU has
continued to create additional economic uncertainty, as does the possible unwinding of the North America Free Trade
Agreement.
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 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. These
and other restrictions limit the manner in which we may conduct our business and obtain financing. If we fail to meet minimum
regulatory capital guidelines and other regulatory requirements, our financial condition would be materially and adversely
affected. Our failure to maintain the status of "well-capitalized" under our regulatory framework could affect the confidence of
our customers in us, thus compromising our competitive position, 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. 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 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.
The First Bancorp - 2016 Form 10-K - Page 16
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 short-term and long-term impact of changing regulatory capital requirements and new capital rules is uncertain.
In June 2013, the Federal Reserve Board finalized rules that will substantially amend the regulatory risk-based capital rules
applicable to us. These rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. In
addition, in a weak economic 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.
Risks Associated With Our Common Stock
There may not be a robust trading market for our 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, 2016, the average monthly trading volume of our common
stock was 332,085 shares, or approximately 3.08% of the average number of our outstanding common shares. 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 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;
general domestic economic and market conditions; and
declines in bank stock prices driven by macro-economic concerns.
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 First Bancorp - 2016 Form 10-K - Page 17
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 or such dividends were to be
restricted or reduced, 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 the Bank's liquidation or reorganization is subject to the prior claims of the Bank'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 and 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 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.
The First Bancorp - 2016 Form 10-K - Page 18
ITEM 1B. Unresolved Staff Comments
None
ITEM 2. Properties
The principal office of the Company and the Bank is located in Damariscotta, Maine. The Bank operates 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
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 Operations Centers in Damariscotta and Edgecomb. 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.
ITEM 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
The common stock of The First Bancorp, Inc., (ticker symbol FNLC) trades on the NASDAQ Global Select Market System. As
of December 31, 2016, there were 10,793,946 shares outstanding and held of record by approximately 4,766 shareholders. The
following table reflects the high and low prices of actual sales in each quarter of 2016 and 2015. Such quotations do not reflect
retail mark-ups, mark-downs or brokers' commissions.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
2015
High
Low
High
Low
$
20.50
$
17.37
$
18.25
$
21.79
24.66
33.21
18.50
20.27
22.53
19.74
20.00
22.56
16.20
16.41
17.50
18.61
The last transaction in the Company's stock on NASDAQ during 2016 was on December 31 at $33.10 per share. There are
no warrants outstanding with respect to the Company's common stock and the Company has no securities outstanding which are
convertible into common equity.
The First Bancorp - 2016 Form 10-K - Page 19
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 2017 will be that year's net income plus $13.6 million.
The payment of dividends from the Bank to the Company may be additionally restricted if the payment of such dividends
would result 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, 2016, the Bank was
required to have minimum Tier 1 and Tier 2 risk-based capital ratios of 6.00% and 8.00%, respectively. The Bank's actual ratios
were 14.50% and 15.55%, respectively, as of December 31, 2016. The table below sets forth the cash dividends declared in the
last two fiscal years:
Date Declared
March 19, 2015
June 17, 2015
September 16, 2015
December 17, 2015
March 24, 2016
June 23, 2016
September 22, 2016
December 22, 2016
December 22, 2016
Repurchase of Shares and Use of Proceeds
Amount
Per Share
0.210
$
0.220
$
0.220
$
0.220
$
0.220
$
0.230
$
0.230
$
0.230
$
0.120
$
Date Payable
April 30, 2015
July 31, 2015
October 30, 2015
January 29, 2016
April 29, 2016
July 29, 2016
October 28, 2016
January 31, 2017
January 31, 2017
During the year ended December 31, 2016, the Company repurchased 7,156 shares of common stock with payments totaling
$129,000.
Unregistered Sales of Equity Securities
None
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
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column)
— $
—
— $
—
—
—
291,290
—
291,290
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
The First Bancorp - 2016 Form 10-K - Page 20
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
2011
2012
2013
2014
2015
2016
100.00
100.00
100.00
102.79
102.11
89.50
115.51
118.44
106.23
127.81
156.79
150.55
149.75
158.95
163.86
252.75
177.94
226.08
The First Bancorp - 2016 Form 10-K - Page 21
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 per Common Share
Book Value per Common Share
Tangible Book Value per Common Share
Market Value per Common Share
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
Years ended December 31,
2016
2015
2014
2013
2012
$
$
53,759
10,812
42,947
1,600
12,499
29,383
18,009
1.68
1.66
1.030
15.98
13.20
33.10
10.28%
12.42%
1.12%
10.86%
9.00%
3.05%
61.31%
0.95%
0.73%
0.48%
$
50,810
$
$
$
9,874
40,936
1,550
12,230
29,896
16,206
1.52
1.51
0.870
15.58
12.78
20.47
9.74%
11.90%
1.07%
11.00%
9.01%
3.10%
57.24%
1.00%
0.75%
0.57%
$
$
51,022
11,425
39,597
1,150
11,048
30,220
14,709
1.38
1.37
0.830
15.06
12.25
18.09
9.34%
11.57%
0.99%
10.63%
8.58%
3.10%
60.14%
1.13%
1.15%
0.97%
$
$
49,936
12,496
37,440
4,200
12,087
28,937
12,965
1.20
1.20
0.785
13.69
10.83
17.42
8.72%
10.66%
0.90%
10.62%
8.49%
3.05%
65.42%
1.31%
1.86%
1.44%
51,825
12,938
38,887
7,835
11,278
26,271
12,688
1.22
1.22
0.780
14.60
14.47
16.47
8.84%
10.40%
0.89%
10.96%
8.96%
3.14%
63.93%
1.44%
2.20%
1.89%
50.43%
54.26%
56.86%
55.44%
51.01%
$ 1,712,875
$ 1,564,810
$ 1,482,131
$ 1,463,963
$ 1,414,999
1,071,526
539,174
1,242,957
278,901
172,521
988,638
477,319
917,564
475,092
876,367
489,013
1,043,189
1,024,819
1,024,399
337,457
167,498
279,916
161,554
279,125
146,098
High
869,284
449,382
958,850
282,905
156,323
Low
Market price per common share of stock during 2016
1Annualized using a 365-day basis in all years except 2012 and 2016, in which a 366-day basis was used.
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.
33.21
$
$
22.53
The First Bancorp - 2016 Form 10-K - Page 22
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The First Bancorp, Inc. (the "Company" or "The First Bancorp") was incorporated in the State of Maine on January 15, 1985,
and is the parent holding company of First National Bank (the "Bank"). On January 28, 2016, the Board of Directors voted to
change the Bank's name to First National Bank from The First, N.A.
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 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 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.
Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition and results of operations 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.
The First Bancorp - 2016 Form 10-K - Page 23
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
purchase acquisitions is subject to ongoing periodic evaluation for impairment.
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.
Derivative Financial Instruments Designated as Hedges. The Company recognizes all derivatives in the consolidated
balance sheets at fair value. On the date the Company enters into the derivative contract, the Company designates the derivative
as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset
or liability (“cash flow hedge”), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm
commitment (“fair value hedge”), or a held for trading instrument (“trading instrument”). The Company formally documents
relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedge transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of
hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in other
comprehensive income (loss) and are reclassified into earnings when the forecasted transaction or related cash flows affect
earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged
item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that are classified
as trading instruments are recorded at fair value with changes in fair value recorded in earnings. The Company discontinues
hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of the
hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging
instrument is no longer appropriate.
The First Bancorp - 2016 Form 10-K - Page 24
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 2016,
2015 and 2014.
Dollars in thousands
Net interest income as presented
Effect of tax-exempt income
Net interest income, tax equivalent
Years ended December 31,
2016
2015
2014
$
$
42,947
3,150
46,097
$
$
40,936
3,092
44,028
$
$
39,597
3,475
43,072
The Company presents its efficiency ratio using non-GAAP information which is most commonly used by financial
institutions. 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 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:
Dollars in thousands
Non-interest expense, as presented
Net interest income, as presented
Effect of tax-exempt income
Non-interest income, as presented
Effect of non-interest tax-exempt income
Net securities gains
Adjusted net interest income plus non-interest income
Non-GAAP efficiency ratio
GAAP efficiency ratio
Years ended December 31,
2016
2015
2014
$
29,383
$
29,896
$
30,220
42,947
3,150
12,499
345
(673)
$
58,268
$
50.43%
52.99%
40,936
3,092
12,230
236
(1,399)
55,095
54.26%
56.23%
$
39,597
3,475
11,048
185
(1,155)
53,150
56.86%
59.67%
The First Bancorp - 2016 Form 10-K - Page 25
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:
Dollars in thousands
Average shareholders' equity as presented
Less intangible assets (average)
Average tangible common shareholders' equity
Executive Summary
Years ended December 31,
2016
2015
2014
$
$
175,119
(30,087)
145,032
$
$
166,319
(30,131)
136,188
$
$
157,465
(30,338)
127,127
This was the best annual performance in The First Bancorp, Inc.'s history, surpassing our previous best year in 2015. The
Company's 2016 performance was driven by increased net interest income, the result of continued strong growth in earning
assets. The Company also saw a modest drop in operating expense in 2016 compared to 2015. The Company also increased the
quarterly dividend by one cent in the second quarter to 23 cents per share, and also declared a special cash dividend of 12 cents
per share during the fourth quarter of 2016.
Net income for the year ended December 31, 2016 was $18.0 million, up $1.8 million or 11.1% from the $16.2 million
posted for the year ended December 31, 2015. Earnings per common share on a fully diluted basis were $1.66 for the year
ended December 31, 2016, up $0.15 or 9.9% from the $1.51 posted for the year ended December 31, 2015. Net interest income
on a tax-equivalent basis increased $2.1 million or 4.7% for the year ended December 31, 2016 compared to the year ended
December 31, 2015, with growth in earning assets responsible for the increase. The Company's net interest margin was 3.05%
in 2016, compared to 3.10% in 2015.
Non-interest income for the year ended December 31, 2016 was $12.5 million or 2.2% higher than non-interest income
posted for the year ended December 31, 2015. This was primarily due to a $634,000 increase in mortgage origination and
servicing income and a $153,000 increase in First Advisors income offsetting the strategic decision to not take gains from sale
of securities at the level taken in 2015. Non-interest expense for the year ended December 31, 2016 was $29.4 million or 1.7%
lower than non-interest expense posted for the year ended December 31, 2015, primarily due to a reduction in other credit-
related costs outside of the provision for loan losses.
During 2016, total assets increased $148.1 million or 9.5%. The loan portfolio increased $82.9 million or 8.4% in 2016,
ending the year at $1.07 billion. The investment portfolio was up $61.9 million or 13.0% for the year. On the liability side of
the balance sheet, low-cost deposits increased $61.6 million or 10.6%, totaling $640.8 million as of December 31, 2016.
Certificates of deposit increased $105.6 million or 28.5% from the end of 2015. Local certificates of deposit (CDs) increased
$8.9 million and wholesale CDs increased $96.7 million at December 31, 2016 compared to December 31, 2015.
Continued improvement in credit quality was another contributor to the Company's 2016 results. Non-performing assets
stood at 0.48% of total assets as of December 31, 2016 - well below the 0.57% level of non-performing assets a year ago. This
compares to non-performing loans at 0.66% for our Uniform Bank Performance Report peer group ("UBPR peer group") as of
December 31, 2016. Net chargeoffs were $1.4 million or 0.13% of average loans in 2016 compared to net chargeoffs of $2.0
million or 0.21% of average loans in 2015. Net chargeoffs for the UBPR peer group in 2016 were 0.10% of average loans. The
provision for loan losses in 2016 was $1.6 million, $50,000 or 3.2% higher than in 2015. The allowance as a percentage of
loans outstanding stood at 0.95% in 2016, down from 1.00% at December 31, 2015.
Remaining well capitalized remains a top priority for The First Bancorp, Inc. Since December 31, 2008, the Company's total
risk-based capital ratio has increased from 11.13% to 15.69%, well above the well-capitalized threshold of 10.0% set by the
Federal Deposit Insurance Corporation.
The Company's operating ratios remain good, with a return on average tangible common equity of 12.42% for the year
ended December 31, 2016 compared to 11.90% and 11.57% for the years ended December 31, 2015 and 2014, respectively. Our
return on average tangible equity was in the top 18% of all banks in the UBPR peer group, which had an average return of
9.55% for the year. Our efficiency ratio continues to be an important component in our overall performance and at 50.43%,
dropped 3.83% in 2016, well below the 54.26% and 56.86% posted for 2015 and 2014, respectively. As of December 31, 2016,
the average efficiency ratio for our UBPR peer group was 63.70%, which put us in the top 7% of all banks in the UBPR peer
group.
The First Bancorp - 2016 Form 10-K - Page 26
Results of Operations
Net Interest Income
Net interest income on a tax-equivalent basis increased 4.7% or $2.1 million to $46.1 million for the year ended December 31,
2016 from the $44.0 million reported for the year ended December 31, 2015, with growth in earning assets responsible for the
increase. The Company's net interest margin was 3.05% in 2016, compared to 3.10% in 2015.
Total interest income on a tax-equivalent basis in 2016 was $56.9 million, an increase of $3.0 million or 5.6% from the
$53.9 million posted by the Company in 2015. Total interest expense in 2016 was $10.8 million, an increase of $938,000 or
9.5% from the $9.9 million posted by the Company in 2015. Tax-exempt interest income amounted to $5.8 million for the year
ended December 31, 2016, $5.7 million for the year ended December 31, 2015 and $6.4 million for the year ended
December 31, 2014.
Net interest income on a tax-equivalent basis increased 2.2% or $956,000 to $44.0 million for the year ended December 31,
2015 from the $43.1 million reported for the year ended December 31, 2014. A $1.5 million increase in loan income and a $1.6
million decrease in funding costs more than offset the $2.1 million drop in investment income resulting from a lower level of
investment securities. The Company's net interest margin was 3.10% in 2015, the same as in 2014.
Total interest income on a tax-equivalent basis in 2015 was $53.9 million, a decrease of $595,000 or 1.1% from the $54.5
million posted by the Company in 2014.
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.
Year ended December 31, 2016 compared to 2015
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
Volume
Rate
Rate/
Volume1
Total
$
(8) $
817
11
2,764
3,584
389
95
484
$
3,100
$
$
20
(1,182)
—
605
(557)
330
98
428
(985) $
(9) $
(57)
1
45
(20)
24
2
26
(46) $
3
(422)
12
3,414
3,007
743
195
938
2,069
The First Bancorp - 2016 Form 10-K - Page 27
Year ended December 31, 2015 compared to 2014
Dollars in thousands
Interest on earning assets
Interest-bearing deposits
Investment securities
Loans held for sale
Loans
Total interest income
Interest expense
Deposits
Borrowings
Volume
Rate
Rate/
Volume1
Total
$
15
(1,401)
6
2,429
1,049
(113)
417
$
— $
(774)
(1)
(865)
(1,640)
(1,717)
(151)
(1,868)
228
$
(1) $
56
—
(59)
(4)
28
(15)
13
(17) $
14
(2,119)
5
1,505
(595)
(1,802)
251
(1,551)
956
Total interest expense
Change in net interest income
1 Represents the change attributable to a combination of change in rate and change in volume.
745
304
$
$
The following table presents the interest earned on or paid for each major asset and liability category, respectively, for the
years ended December 31, 2016, 2015, and 2014, 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-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
2016
2015
2014
Amount of
interest
Average
Yield/Rate
Amount of
interest
Average
Yield/Rate
Amount of
interest
Average
Yield/Rate
$
$
22
16,530
29
40,328
56,909
6,028
4,784
10,812
46,097
19
16,952
17
36,914
53,902
5,285
4,589
9,874
44,028
0.51% $
3.42%
3.95%
3.94%
3.76%
0.61%
1.62%
0.84%
$
2.91%
3.05%
5
19,071
12
35,409
54,497
7,087
4,338
11,425
43,072
0.25% $
3.68%
3.85%
3.87%
3.79%
0.57%
1.59%
0.81%
$
2.98%
3.10%
0.27%
3.84%
4.07%
3.97%
3.92%
0.75%
1.64%
0.95%
2.97%
3.10%
The First Bancorp - 2016 Form 10-K - Page 28
Average Daily Balance Sheets
The following table shows the Company's average daily balance sheets for the years ended December 31, 2016, 2015 and 2014.
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, net
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:
Common stock
Additional paid-in capital
Retained earnings
Net unrealized gain on securities available for sale
Net unrealized gain on cash flow hedging derivative instruments
Net unrealized loss on securities transferred from available for sale to held to
maturity
Net unrealized loss on postretirement benefit costs
Total Shareholders' Equity
Years ended December 31,
2016
2015
2014
$
18,742
$
15,446
$
15,674
4,302
251,714
216,640
14,327
734
1,024,777
(10,229)
1,014,548
5,213
21,475
1,171
29,805
33,315
7,573
192,330
254,396
13,757
441
953,396
(9,997)
943,399
4,949
22,097
2,275
29,805
25,120
1,883
261,155
221,938
13,912
295
892,189
(11,659)
880,530
5,071
22,600
4,663
29,805
24,409
$ 1,611,986
$ 1,511,588
$ 1,481,935
$
132,726
$
116,151
$
106,609
259,462
82,563
210,540
441,341
220,815
99,507
187,379
418,092
178,335
94,017
154,938
513,461
1,126,632
1,041,944
1,047,360
158,774
136,611
943
13,907
135,220
154,199
1,103
12,803
173,905
90,141
1,014
12,050
1,436,867
1,345,269
1,324,470
108
60,262
112,405
2,525
100
(125)
(156)
175,119
107
59,458
105,009
1,950
—
(80)
(125)
166,319
$ 1,511,588
107
58,792
98,303
89
—
(12)
186
157,465
$ 1,481,935
Total Liabilities & Shareholders' Equity
$ 1,611,986
The First Bancorp - 2016 Form 10-K - Page 29
Non-Interest Income
Non-interest income in 2016 was $12.5 million, an increase of $269,000 or 2.2% from the $12.2 million reported in 2015, with
a $634,000 increase in mortgage origination income and a $153,000 increase in First Advisors income offsetting the strategic
decision to not take gains from sale of securities at the level taken in 2015.
Non-interest income in 2015 was $12.2 million, an increase of $1.2 million or 10.7% from the $11.0 million reported in
2014. This was primarily due to increases in securities gains and mortgage origination and servicing income.
Non-Interest Expense
Non-interest expense in 2016 was $29.4 million, a decrease of $513,000 or 1.7% from the $29.9 million reported in 2015,
primarily due to a reduction in other-credit-related costs outside of the provision for loan losses.
Non-interest expense in 2015 was $29.9 million, a decrease of $324,000 or 1.1% from the $30.2 million reported in 2014,
primarily due to a decrease in other credit-related costs - including expenses for collections, foreclosure and foreclosed
properties.
Provision to the Allowance for Loan Losses
The Company's provision to the allowance for loan losses was $1.6 million in 2016 compared to $1.6 million in 2015. This was
0.10% of average assets in 2016, compared to 0.12% of average assets for our peer group. The allowance for loan losses stood
at 0.95% of total loans as of December 31, 2016, compared to 1.00% a year ago.
Credit quality continued to improve in 2016. Net loan chargeoffs were $1.4 million or 0.13% of average loans, down
$599,000 from net chargeoffs of $2.0 million or 0.21% of average loans in 2015. Non-performing assets stood at 0.48% of total
assets as of December 31, 2016 compared to 0.57% of total assets at December 31, 2015. Past-due loans were 1.18% of total
loans as of December 31, 2016, up from 0.84% of total loans as of December 31, 2015.
The Company's provision to the allowance for loan losses was $1.6 million in 2015 compared to $1.2 million in 2014. This
was 0.10% of average assets in 2015, compared to 0.09% of average assets for our peer group. The allowance for loan losses
stood at 1.00% of total loans as of December 31, 2015, compared to 1.13% at December 31, 2014.
Credit quality improved significantly in 2015. Net loan chargeoffs were $2.0 million or 0.21% of average loans, down
$342,000 from net chargeoffs of $2.3 million or 0.26% of average loans in 2014. Non-performing assets stood at 0.57% of total
assets as of December 31, 2015 compared to 0.97% of total assets at December 31, 2014. Past-due loans were 0.84% of total
loans as of December 31, 2015, down significantly from 1.29% of total loans as of December 31, 2014.
Income Taxes
Income taxes on operating earnings were $6.5 million for the year ended December 31, 2016, up $940,000 from the same
period in 2015. This is in line with the increase in the Company's level of income before taxes.
Income taxes on operating earnings were $5.5 million for the year ended December 31, 2015, up $948,000 from the same
period in 2014. This is in line with the increase in the Company's level of income before taxes.
Net Income
Net income for 2016 was $18.0 million, up 11.1% or $1.8 million from net income of $16.2 million that was posted in 2015.
Earnings per share on a fully diluted basis were $1.66, up $0.15 or 9.9% from the $1.51 reported for the year ended
December 31, 2015.
Net income for 2015 was $16.2 million, up 10.2% or $1.5 million from net income of $14.7 million that was posted in 2014.
Earnings per share on a fully diluted basis were $1.51, up $0.14 or 10.2% from the $1.37 reported for the year ended December
31, 2014.
Key Ratios
Return on average assets in 2016 was 1.12%, up from the 1.07% and the 0.99% posted in 2015 and 2014, respectively. Return
on average tangible common equity was 12.42% in 2016, compared to 11.90% in 2015 and 11.57% in 2014. In 2016, the
Company's dividend payout ratio (dividends declared per share divided by earnings per share) was 61.31%, compared to
57.24% in 2015 and 60.14% in 2014. The Company's efficiency ratio – a benchmark measure of the amount spent to generate a
dollar of income – was 50.43% in 2016 compared to 63.70% for the Bank's peer group, on average. In 2015, the Company's
efficiency ratio was 54.26% compared to 65.23% for the Bank's peer group, on average.
The First Bancorp - 2016 Form 10-K - Page 30
Investment Management and Fiduciary Activities
As of December 31, 2016, First Advisors, the Bank's private banking and investment management division, had assets under
management with a market value of $851.0 million, consisting of 1,031 trust accounts, estate accounts, agency accounts, and
self-directed individual retirement accounts. This compares to December 31, 2015, when 1,041 accounts with a market value of
$762.0 million were under management.
Assets and Asset Quality
Total assets of $1.713 billion at December 31, 2016 increased 9.5% or $148.1 million from $1.565 billion at December 31,
2015. The investment portfolio increased $61.9 million or 13.0% over December 31, 2015, and the loan portfolio increased
$82.9 million or 8.4%. Year-over-year, average assets were up $100.4 million in 2016 over 2015. Average loans in 2016 were
$71.4 million higher than in 2015, and average investments in 2016 were $22.2 million higher than in 2015.
Credit quality continued to improve in 2016. Non-performing assets to total assets stood at 0.48% at December 31, 2016,
below 0.57% of total assets at December 31, 2015 and 0.97% of total assets at December 31, 2014. 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 minimizes actual loan losses.
Net chargeoffs in 2016 were $1.4 million or 0.13% of average loans outstanding. This compares to net chargeoffs in 2015 of
$2.0 million or 0.21% of average loans outstanding and net charge offs for our UBPR peer group in 2016 of 0.10% of average
loans. Residential real estate term loans represent 38.4% of the total loan portfolio, and this loan category generally has a lower
level of losses in comparison to other loan types. In 2016, the loss ratio for residential mortgages was 0.08% compared to
0.13% 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 potentially higher losses.
The allowance for loan losses ended 2016 at $10.1 million and stood at 0.95% of total loans outstanding compared to $9.9
million and 1.00% of total loans outstanding at December 31, 2015. A $1.6 million provision for losses was made in 2016 and
net charge offs totaled $1.4 million, resulting in the allowance for loan losses increasing $222,000 or 2.2% from December 31,
2015. Management believes the allowance for loan losses is appropriate as of December 31, 2016. In Management's opinion,
the level of the provision for loan losses in 2016 was directionally consistent with the improvement in overall credit quality of
our loan portfolio and corresponding levels of nonperforming loans, as well as with the performance of the national and local
economies, current levels of unemployment and the outlook for future economic conditions.
Investment Activities
During 2016, the investment portfolio increased 13.0% to end the year at $539.2 million compared to $477.3 million at
December 31, 2015. Average investments in 2016 were $22.2 million higher than in 2015. As of December 31, 2016, mortgage-
backed securities had a carrying value of $311.8 million and a fair value of $312.6 million. Of this total, securities with a fair
value of $199.0 million or 63.7% of the mortgage-backed portfolio were issued by the Government National Mortgage
Association and securities with a fair value of $113.6 million or 36.3% of the mortgage-backed portfolio were issued by the
Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.
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.
During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 with a
corresponding fair value of $89,757,000 from available for sale to held to maturity. The net unrealized loss, net of taxes, on
these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be
reported in accumulated other comprehensive income (loss), net of tax and is amortized over the remaining lives of the
securities as an adjustment of the yield. The amortization of the net unrealized loss reported in accumulated other
The First Bancorp - 2016 Form 10-K - Page 31
comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities. The
remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to
maturity was $129,000 at December 31, 2016. These securities were transferred as a part of the Company's overall investment
and balance sheet strategies.
The following table sets forth the Company's investment securities at their carrying amounts as of December 31, 2016,
2015, and 2014.
Dollars in thousands
Securities available for sale
Mortgage-backed securities
State and political subdivisions
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
2016
2015
2014
$
280,604
$
195,110
$
151,855
16,482
3,330
24,506
3,423
30,855
2,551
300,416
223,039
185,261
11,943
31,201
179,384
4,300
226,828
10,893
1,037
11,930
71,000
42,193
122,530
4,300
240,023
13,220
1,037
14,257
92,341
57,003
126,275
300
275,919
12,875
1,037
13,912
Total securities
$
539,174
$
477,319
$
475,092
The First Bancorp - 2016 Form 10-K - Page 32
The following table sets forth information on the yields and expected maturities of the Company's investment securities as
of December 31, 2016. 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
Impaired Securities
Available For Sale
Held to Maturity
Fair Value
Yield to
maturity
Amortized
Cost
Yield to
maturity
$
—
—
—
—
—
253
1,734
19,236
259,381
280,604
—
564
2,269
13,649
16,482
—
—
—
—
—
3,330
0.00% $
0.00%
0.00%
0.00%
0.00%
2.41%
2.88%
2.93%
1.93%
2.01%
0.00%
6.14%
6.21%
5.63%
5.73%
0.00%
0.00%
0.00%
0.00%
0.00%
2.22%
—
—
4,167
7,776
11,943
6
5,584
9,601
16,010
31,201
600
7,867
23,820
147,097
179,384
300
—
4,000
—
4,300
—
$
300,416
2.21% $
226,828
0.00%
0.00%
3.03%
3.34%
3.23%
0.16%
2.41%
3.01%
3.92%
3.37%
6.43%
6.19%
5.82%
4.61%
4.85%
1.00%
0.00%
5.50%
0.00%
5.19%
—
4.56%
The securities portfolio contains certain securities, the amortized cost of which exceeds fair value, which at December 31, 2016
amounted to an unrealized loss of $7.6 million, or 1.44% of the amortized cost of the total securities portfolio. At December 31,
2015 this amount represented an unrealized loss of $3.5 million, or 0.76% 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 a debt security is judged to be other-than-
temporary, the decline related to credit loss is recorded in net realized securities losses while the decline attributable to other
factors is recorded in other comprehensive income or loss.
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 security's 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
The First Bancorp - 2016 Form 10-K - Page 33
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 to quantify potential 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, 2016, the Company had temporarily impaired securities with a fair value of $279.6 million and
unrealized losses of $7.6 million, as identified in the table below. Securities in a continuous unrealized loss position twelve-
months or more amounted to $3.0 million as of December 31, 2016, compared with $21.0 million at December 31, 2015. 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,
2016.
Dollars in thousands
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Government-sponsored agencies
$
6,642
$
(233) $
— $
— $
6,642
$
Mortgage-backed securities
State and political subdivisions
Other equity securities
197,528
72,348
—
$
276,518
$
(3,090)
(4,060)
—
(7,383) $
2,905
—
128
3,033
$
(184)
—
(7)
(191) $
200,433
72,348
128
279,551
$
(233)
(3,274)
(4,060)
(7)
(7,574)
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, 2016, the total unrealized losses on these
securities amounted to $233,000, compared with $2.3 million at December 31, 2015. All of these securities were credit rated
"AAA" or "AA+" by the major credit rating agencies. Management believes that securities issued by U.S. Government-
sponsored agencies and enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's
financial markets, and does not consider these securities to be other-than-temporarily impaired at December 31, 2016.
Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As of
December 31, 2016, the total unrealized losses on these securities amounted to $3.3 million, compared with $1.1 million at
December 31, 2015. All of these securities were credit rated "AAA" by the major credit rating agencies. Management believes
that securities issued by U.S. Government agencies bear no credit risk because they are backed by the full faith and credit of the
United States and that securities issued by U.S. Government-sponsored enterprises have minimal credit risk, as these agencies
enterprises play a vital role in the nation's financial markets. Management believes that the unrealized losses at December 31,
2016 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, 2016. 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, 2016, the total unrealized losses on municipal securities
amounted to $4.1 million, compared with $87,000 at December 31, 2015. 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, 2016, all
municipal bond issuers were current on contractually obligated interest and principal payments. The Company monitors price
changes and changes in credit quality of municipal issuers on a regular basis as a potential indicator of temporary impairment.
The Company attributes the unrealized losses at December 31, 2016, however, 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, 2016. The Company also has the ability and intent to hold these securities
until a recovery of their amortized cost, which may be at maturity.
The First Bancorp - 2016 Form 10-K - Page 34
Corporate securities. As of December 31, 2016 and 2015, there were no unrealized losses on corporate securities. Corporate
securities are dependent on the operating performance of the issuers. At December 31, 2016, all corporate bond issuers were
current on contractually obligated interest and principal payments.
Other Equity Securities. As of December 31, 2016, the total unrealized losses on other equity securities amounted to $7,000,
compared with $6,000 at December 31, 2015. 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, 2016.
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, 2016 and 2015, the Bank's investment
in FHLB stock totaled $10.9 million and $13.2 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, 2016. The Bank will continue to monitor its investment in FHLB stock.
Lending Activities
The loan portfolio increased $82.9 million or 8.4% in 2016, with total loans at $1.1 billion at December 31, 2016, compared to
$988.6 million at December 31, 2015. Commercial loans increased $56.0 million or 13.2% between December 31, 2015 and
December 31, 2016. Residential term loans increased by $8.4 million or 2.1% and municipal loans increased by $7.3 million or
37.0% for the same period.
Commercial loans are comprised of three major classes: commercial real estate loans, commercial construction loans and
other commercial loans.
Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family
residential, commercial/retail, office, industrial, hotels, educational and other specific or mixed use properties. Commercial real
estate loans are typically written with amortizing payment structures. Collateral values are determined based on appraisals and
evaluations in accordance with established policy and regulatory guidelines. Commercial real estate loans typically have a
loan-to-value ratio of up to 80% based upon current valuation information at the time the loan is made. Commercial real estate
loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating
cash flows from the borrower.
Commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied
commercial real estate properties. Commercial construction loans typically have maturities of less than two years. Payment
structures during the construction period are typically on an interest only basis, although principal payments may be established
depending on the type of construction project being financed. During the construction phase, commercial construction loans
are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or
guarantors, if applicable. At the end of the construction period, loan repayment typically comes from a third party source in the
event that the Company will not be providing permanent term financing. Collateral valuation and loan-to-value guidelines
follow those for commercial real estate loans.
Other commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for
the purpose of financing working capital and or capital investment. Collateral generally consists of pledges of business assets
including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial
loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.
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.
Residential loans are comprised of two classes: term loans and construction loans.
Residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who
demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications
include favorable credit history combined with supportive income requirements and loan-to-value ratios within established
policy and regulatory guidelines. Collateral values are determined based on appraisals and evaluations in accordance with
established policy and regulatory guidelines. Residential loans typically have a loan-to-value ratio of up to 80% based on
appraisal information at the time the loan is made. Collateral consists of mortgage liens on one- to four-family residential
properties. Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years.
The First Bancorp - 2016 Form 10-K - Page 35
Residential construction loans typically consist of loans for the purpose of constructing single family residences to be
owned and occupied by the borrower. Borrower qualifications include favorable credit history combined with supportive
income requirements and loan-to-value ratios within established policy and regulatory guidelines. Residential construction
loans normally have construction terms of one year or less and payment during the construction term is typically on an interest
only basis from sources including interest reserves, borrower liquidity and/or income. Residential construction loans will
typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable
mortgage lender. Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans.
Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-
occupied one- to four-family homes, condominiums, or vacation homes. The home equity line of credit typically has a variable
interest rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line
of credit is billed as a percentage of the principal balance plus all accrued interest. Loan maturities are normally 300 months.
Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-
value ratios usually not exceeding 80% inclusive of priority liens. Collateral valuation guidelines follow those for residential
real estate loans.
Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various
purposes such as auto, recreational vehicles, debt consolidation, personal expenses or overdraft protection. Borrower
qualifications include favorable credit history combined with supportive income and collateral requirements within established
policy guidelines. Consumer loans may be secured or unsecured.
Construction loans, both commercial and residential, at 28.9% of capital are well under the regulatory guidance of 100.0%
of capital at December 31, 2016. Construction loans and non-owner-occupied commercial real estate loans are at 109.4% of
total capital, are below the regulatory limit of 300.0% of capital at December 31, 2016.
The following table summarizes the loan portfolio, by class as of December 31, 2016, 2015, 2014, 2013 and 2012.
Dollars
in thousands
Commercial
As of December 31,
2016
2015
2014
2013
2012
Real estate
$ 302,506
25,406
150,769
27,056
28.2% $ 269,462
2.4% 24,881
14.1% 128,341
2.5% 19,751
27.3% $ 242,311
26.4% $ 245,943
28.2% $ 251,335
28.9%
2.5%
30,932
3.4%
13.0% 104,531
11.4%
2.0%
20,424
2.2%
20,382
95,289
19,117
2.3%
10.9%
2.2%
22,417
81,183
14,704
2.6%
9.3%
1.7%
411,469
18,303
38.4% 403,030
1.7%
8,451
40.7% 384,032
41.9% 377,218
43.0% 379,447
43.7%
0.9%
12,160
1.3%
11,803
1.3%
6,459
0.7%
110,907
25,110
10.4% 110,202
2.3% 24,520
11.1% 103,521
11.3%
2.5%
19,653
2.1%
91,549
15,066
10.4%
1.7%
99,082
14,657
11.4%
1.7%
Total loans
$1,071,526
100.0% $ 988,638
100.0% $ 917,564
100.0% $ 876,367
100.0% $ 869,284
100.0%
The First Bancorp - 2016 Form 10-K - Page 36
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of
December 31, 2016:
Dollars in thousands
< 1 Year
1 - 5 Years
5 - 10 Years
> 10 Years
Total
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
$
1,499
$
10,743
$
26,248
$
264,016
$
302,506
—
3,466
—
1
70
100
7,128
5,989
39,493
7,056
5,486
1,042
396
4,943
2,128
33,952
10,332
11,714
54
1,750
2,959
17,289
73,858
9,668
394,268
17,137
108,661
10,080
25,406
150,769
27,056
411,469
18,303
110,907
25,110
$
12,264
$
75,148
$
89,137
$
894,977
$ 1,071,526
The following table provides a listing of loans by class, between variable and fixed rates as of December 31, 2016.
Dollars in thousands
Amount
% of total
Amount
% of total
Amount
% of total
Fixed-Rate
Adjustable-Rate
Total
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
Loan Concentrations
$
32,731
3.1% $
269,775
25.1% $
302,506
5,979
62,660
25,345
287,397
17,735
723
19,434
0.6%
5.8%
2.3%
19,427
88,109
1,711
26.8%
124,072
1.6%
0.1%
1.8%
568
110,184
5,676
1.8%
8.3%
0.2%
11.6%
0.1%
10.3%
0.5%
25,406
150,769
27,056
411,469
18,303
110,907
25,110
28.2%
2.4%
14.1%
2.5%
38.4%
1.7%
10.4%
2.3%
$
452,004
42.1% $
619,522
57.9% $ 1,071,526
100.0%
As of December 31, 2016, 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, 2016, the Bank had $782,000 in loans held for sale. This compares to $349,000 in loans held for sale at
December 31, 2015. The Bank participates in FHLB's Mortgage Partnership Finance Program ("MPF"), selling loans with
recourse. The volume of loans sold to date through the MPF program is de minimis; therefore, there was minimum impact on
the reserve.
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
The First Bancorp - 2016 Form 10-K - Page 37
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 certain
impaired 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 the unallocated portion of our allowance for loan losses.
The process of establishing the allowance with respect to our commercial loan portfolio begins when a loan officer initially
assigns each loan a risk rating, using established credit criteria. Approximately 50% of our outstanding loans and commitments
are subject to review and validation annually by an independent consulting firm, as well as periodically by our internal credit
review function. Our methodology employs Management's judgment as to the level of 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 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.
The First Bancorp - 2016 Form 10-K - Page 38
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 may 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. Consequently, there maybe underlying credit risks that have not yet surfaced in the loan-
specific or qualitative metrics the Company uses to estimate its allowance for loan losses.
The allowance for loan losses includes reserve amounts assigned to individual loans on the basis of loan impairment.
Certain loans are evaluated individually and are judged to be impaired when Management believes it is probable that the
Company will not collect all of the contractual interest and principal payments as scheduled in the loan agreement. Under this
method, loans are selected for evaluation based on internal risk ratings or non-accrual status. A specific reserve is allocated to
an individual loan when that loan has been deemed impaired and when the amount of a probable loss is estimable on the basis
of its collateral value, the present value of anticipated future cash flows, or its net realizable value. At December 31, 2016,
impaired loans with specific reserves totaled $7.9 million and the amount of such reserves was $974,000. This compares to
impaired loans with specific reserves of $8.6 million at December 31, 2015, at which date the amount of such reserves was
$754,000.
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, 2016 is considered by Management to be appropriate to address the credit losses inherent in the loan
portfolio at that date. 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, 2016, 2015, 2014, 2013 and
2012. The percentages are the portion of each loan type to total loans.
Dollars in
thousands
Commercial
As of December 31,
2016
2015
2014
2013
2012
Real estate
$ 3,988
Construction
Other
Municipal
Residential
Term
Construction
Home equity
line of credit
Consumer
Unallocated
396
1,780
18
1,288
44
807
559
1,258
28.2% $ 3,120
2.4%
580
14.1%
1,452
2.5%
17
38.4%
1.7%
10.4%
2.3%
—%
1,391
24
893
566
1,873
27.3% $ 3,532
26.4% $ 4,602
28.2% $ 5,865
28.9%
2.5%
13.0%
2.0%
40.7%
0.9%
11.1%
2.5%
—%
823
1,505
15
1,185
20
1,060
542
1,662
3.4%
11.4%
2.2%
41.9%
1.3%
11.3%
2.1%
—%
575
2,276
15
1,099
21
675
573
1,678
2.3%
10.9%
2.2%
43.0%
1.3%
10.4%
1.7%
—%
1,359
2,050
18
1,109
11
654
592
842
2.6%
9.3%
1.7%
43.7%
0.7%
11.4%
1.7%
—%
Total
$ 10,138
100.0% $ 9,916
100.0% $ 10,344
100.0% $ 11,514
100.0% $ 12,500
100.0%
The allowance for loan losses totaled $10.1 million at December 31, 2016, compared to $9.9 million at December 31, 2015.
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 $220,000 in 2016 from $754,000 at December
The First Bancorp - 2016 Form 10-K - Page 39
31, 2015 to $974,000 at December 31, 2016. 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 increased by
$833,000 in 2016. This increase was due to a growth in the loan portfolio and downgrades on a few larger credits that are
performing under the terms of the loans. The portion of the reserve based on qualitative factors decreased by $216,000 during
2016 as a result of an improved U.S. economy. The unallocated reserves decreased $615,000 in 2016 from $1.9 million at
December 31, 2015 to $1.3 million at December 31, 2016. The decrease in the unallocated portion is a result of charge offs on
collateral dependent loans and the improvement in credit quality. Management feels the decrease in the unallocated portion is
directionally consistent with local and national economic conditions.
A breakdown of the allowance for loan losses as of December 31, 2016, by loan class of financing receivable and allowance
element, is presented in the following table:
Dollars in thousands
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
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
$
505
100
39
—
304
—
26
—
—
$
1,471
$
2,012
$
— $
125
735
—
563
25
444
328
—
171
1,006
18
421
19
337
231
—
—
—
—
—
—
—
—
3,988
396
1,780
18
1,288
44
807
559
1,258
1,258
$
974
$
3,691
$
4,215
$
1,258
$
10,138
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 $1.6 million in 2016
compared to $1.6 million in 2015. Net charge offs were $1.4 million in 2016 compared to net charge offs of $2.0 million in
2015. The allowance as a percentage of loans outstanding stood at 0.95% at December 31, 2016 compared to 1.00% at
December 31, 2015.
The First Bancorp - 2016 Form 10-K - Page 40
The following table summarizes the activities in our allowance for loan losses as of December 31, 2016, 2015, 2014, 2013,
and 2012:
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
As of December 31,
2016
2015
2014
2013
2012
$
9,916
$
10,344
$
11,514
$
12,500
$
13,000
294
75
376
—
379
—
147
450
280
9
732
—
420
—
582
350
1,205
—
989
—
699
—
153
449
150
963
2,583
—
1,394
928
3,215
—
1,118
1,911
—
611
430
389
688
555
1,721
2,373
3,495
5,855
9,080
—
8
129
—
93
—
5
108
343
1,378
1,600
$ 10,138
$
2
1
88
—
152
—
31
121
395
1,978
1,550
9,916
144
—
758
—
36
25
16
196
1,175
2,320
1,150
—
—
359
—
103
—
24
183
669
13
246
113
—
110
54
1
208
745
5,186
4,200
8,335
7,835
$
10,344
$
11,514
$
12,500
Ratio of net loans charged off to average loans
outstanding
Ratio of allowance for loan losses to total loans
outstanding
0.13%
0.21%
0.26%
0.60%
0.95%
0.95%
1.00%
1.13%
1.31%
1.44%
Management believes the allowance for loan losses is appropriate as of December 31, 2016. In Management's opinion, the
level of the provision for loan losses in 2016 was directionally consistent with the improvement in overall credit quality of our
loan portfolio and corresponding levels of nonperforming loans, as well as with the performance of the national and local
economies, current levels of unemployment and the outlook for economic recovery continuing for some time to come.
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
The First Bancorp - 2016 Form 10-K - Page 41
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 obtained 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 0.73% at December 31, 2016 compared to 0.75% at
December 31, 2015. The following table shows the distribution of nonperforming loans by class as of December 31, 2016,
2015, 2014, 2013, and 2012:
Dollars in thousands
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
2016
2015
As of December 31,
2014
2013
2012
$
2,088
$
2,457
$
$
1,907
$
—
964
—
915
238
66
—
208
935
—
—
4,370
—
8,484
—
1,007
—
4,603
101
3,459
—
10,333
—
654
—
4,060
5,260
6,421
—
843
—
—
893
—
—
832
26
Total non-performing loans
$
7,774
$
7,372
$
10,510
$
16,318
$
19,150
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, 2016, loans 90 or more days past
due and still accruing interest totaled $777,000, compared to $136,000, $181,000, $1.0 million and $1.1 million at December
31, 2015, 2014, 2013 and 2012, respectively.
As of December 31, 2016, 9 loans with a balance of $1.7 million were non-performing and also classified as troubled-debt-
restructured.
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.
The First Bancorp - 2016 Form 10-K - Page 42
As of December 31, 2016 there were 71 loans with an aggregate outstanding balance of $21.5 million that have been
restructured. This compares to 84 loans with amounts totaling $23.9 million as of December 31, 2015. The following table
shows the activity in loans classified as TDRs between December 31, 2014 and December 31, 2016:
Balance in Thousands of Dollars
Total at December 31, 2014
Added in 2015
Removed in 2015
Repayments in 2015
Total at December 31, 2015
Added in 2016
Removed in 2016
Repayments in 2016
Total at December 31, 2016
Number of Loans
Aggregate Balance
94
$
2
(12)
—
84
$
—
(13)
—
71
$
27,214
218
(2,142)
(1,367)
23,923
—
(1,433)
(964)
21,526
As of December 31, 2016, 57 loans with an aggregate balance of $18.9 million were performing under the modified terms,
five loans with an aggregate balance of $876,000 were more than 30 days past due and nine loans with an aggregate balance of
$1.7 million were on nonaccrual. As a percentage of aggregate outstanding balance, 87.9% were performing under the modified
terms, 4.1% were more than 30 days past due and 8.0% were on nonaccrual. The performance status of all TDRs as of
December 31, 2016, as well as the associated specific reserve in the allowance for loan losses, is summarized by class 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 reserve
Performing
As
Modified
30+ Days
Past Due
and
Accruing
On
Nonaccrual
All
TDRs
$
8,115
$
— $
822
$
8,937
763
779
—
8,901
—
377
—
18,935
87.9%
57
448
$
$
$
$
—
—
—
709
—
167
—
876
4.1%
5
10
—
—
—
893
—
—
763
779
—
10,503
—
544
—
1,715
—
21,526
$
8.0%
9
280
$
100.0%
71
738
$
$
Residential TDRs as of December 31, 2016 included 52 loans with an aggregate balance of $10.5 million and the
modifications granted fell into five major categories. Loans totaling $6.8 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 $3.9 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. Loans with an aggregate balance of $246,000 were
converted from interest-only to regular principal-and-interest payments based on the borrowers' ability to service the higher
payment amount. Short-term rate concessions were granted on loans totaling $2.0 million, with a rate concession typically of
1.0% or less. Loans with an aggregate balance of $2.3 million were involved in bankruptcy. Certain residential TDRs had more
than one modification.
Commercial TDRs as of December 31, 2016 were comprised of 16 loans with a balance of $10.5 million. Of this total, 12
loans with an aggregate balance of $7.5 million had an extended period of interest-only payments, deferring the start of
The First Bancorp - 2016 Form 10-K - Page 43
principal repayment. Two loans with an aggregate balance of $1.8 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. The remaining
two loans with an aggregate balance of $1.2 million had several different modifications.
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, 2016, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an aggregate
outstanding balance of $1.7 million. There were also nine loans with an outstanding balance of $1.7 million that were classified
as TDRs and on non-accrual status. One loan with an outstanding balance of $46,000 was in the process of foreclosure.
Impaired Loans
Impaired loans include restructured loans and loans placed on non-accrual status when, based on current information and
events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.
These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at
the fair value of the collateral less estimated selling costs if the loan is collateral dependent. If the measure of an impaired loan
is lower than the recorded investment in the loan, a specific reserve is established for the difference. Impaired loans totaled
$27.6 million at December 31, 2016, and have decreased $1.9 million from December 31, 2015. The number of impaired loans
decreased by 11 loans from 145 to 134 during the same period. Impaired commercial loans decreased $450,000 from December
31, 2015 to December 31, 2016. The specific allowance for impaired commercial loans increased from $399,000 at December
31, 2015 to $644,000 as of December 31, 2016, 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, 2015 to December
31, 2016, impaired residential loans decreased $1.4 million and impaired home equity lines of credit decreased $79,000.
The following table sets forth impaired loans as of December 31, 2016, 2015, 2014, 2013 and 2012:
Dollars in thousands
2016
2015
2014
2013
2012
As of December 31,
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Past Due Loans
$
10,021
$
10,717
$
13,304
$
14,935
$
15,774
763
1,743
—
1,026
1,234
—
1,380
2,942
—
1,284
6,698
—
3,354
5,861
—
13,669
15,088
16,123
17,786
19,444
—
1,387
—
—
1,466
—
—
2,087
26
—
1,648
—
—
1,311
—
$
27,583
$
29,531
$
35,862
$
42,351
$
45,744
The Bank's overall loan delinquency ratio was 1.18% at December 31, 2016, versus 0.84% at December 31, 2015. Loans 90
days delinquent and accruing increased from $136,000 at December 31, 2015 to $777,000 as of December 31, 2016. This total
is made up of five loans, with the largest loan totaling $753,000. We expect to collect all amounts due on these loans, including
interest.
The First Bancorp - 2016 Form 10-K - Page 44
The following table sets forth loan delinquencies as of December 31, 2016, 2015, 2014, 2013 and 2012:
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
2016
2015
As of December 31,
2014
2013
2012
$
3,476
—
1,031
—
6,403
—
1,564
184
$ 12,658
$
$
0.65%
0.07%
0.46%
1.18%
884
273
328
—
5,187
368
1,108
139
8,287
0.46%
0.01%
0.37%
0.84%
$
$
860
249
860
—
7,003
—
2,122
769
11,863
$
$
1,086
—
3,469
—
9,144
47
1,719
527
15,992
$
$
4,898
64
3,182
136
12,784
188
1,699
216
23,167
0.38%
0.02%
0.89%
1.29%
0.46%
0.12%
1.24%
1.82%
0.92%
0.12%
1.63%
2.67%
As of December 31, 2016, the UBPR peer group had loans 30-89 days past due to total loans of 0.40% and loans 90+ days
past due on non-accrual to total loans of 0.66%.
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, 2016, there were six potential problem loans with a balance of $1.1 million or 0.10% of total loans. This
compares to six loans with a balance of $579,000 or 0.06% of total loans at December 31, 2015.
As of December 31, 2016, there were 23 loans in the process of foreclosure with a total balance of $4.0 million. The Bank's
residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to
the borrower. If the loan becomes 120 days past due, copies of the promissory note and mortgage deed are forwarded to the
Bank's attorney for review and a complaint for foreclosure 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.
The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is
issued. At expiration of the period to cure default, which lasts 12 days after the issuing of the default letter, copies of the
promissory note and mortgage deed are forwarded to the Bank's attorney for review. A Notice of Statutory Power of Sale is then
prepared. This notice must be published for three consecutive weeks in a newspaper located in the county in which the property
is located. A notice also must be issued to the mortgagor and all parties of interest 21 days prior to the sale. The foreclosure
auction occurs and the Affidavit of Sale is recorded within the appropriate county within 30 days of the sale.
In July 2016, 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 - 2016 Form 10-K - Page 45
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, 2016, there were six properties owned with a net
OREO balance of $375,000, net of an allowance for losses of $205,000, compared to December 31, 2015 when there were 14
properties owned with a net OREO balance of $1.5 million, net of an allowance for losses of $162,000. The following table
presents the composition of other real estate owned as of December 31, 2016, 2015, 2014, 2013 and 2012:
Dollars in thousands
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
$
$
$
$
$
As of December 31,
2016
2015
2014
2013
2012
— $
28
170
—
382
—
—
—
— $
28
706
—
960
—
—
—
$
145
151
888
—
$
394
295
531
—
3,255
—
—
—
3,917
—
—
—
—
3,406
1,617
—
2,943
—
—
—
580
$
1,694
$
4,439
$
5,137
$
7,966
— $
11
127
—
67
—
—
—
— $
11
77
—
74
—
—
—
75
17
170
—
392
—
—
—
$
74
$
8
7
—
241
—
—
—
205
$
162
$
654
$
330
$
—
—
158
—
215
—
—
—
373
— $
17
43
—
315
—
—
—
17
629
—
886
—
—
—
— $
70
$
134
718
—
$
320
287
524
—
—
3,406
1,459
—
2,863
3,676
2,728
—
—
—
—
—
—
—
—
—
$
375
$
1,532
$
3,785
$
4,807
$
7,593
The First Bancorp - 2016 Form 10-K - Page 46
Funding, Liquidity and Capital Resources
As of December 31, 2016, the Bank had primary sources of liquidity of $139.7 million or 8.3% of assets. It is Management's
opinion that this is appropriate. In addition, the Bank has an additional $157.2 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 $169.3
million in unencumbered securities available as collateral for borrowing. These bring the Bank's primary sources of liquidity to
$514.2 million or 30.5% 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 69.9% of total average assets in 2016. 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 prompt and comprehensive
responses 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 three correspondent banks.
Deposits
During 2016, total deposits increased by $199.8 million, ending the year at $1.243 billion compared to $1.043 billion at
December 31, 2015. Low-cost deposits (demand, NOW, and savings accounts) increased by $61.6 million or 10.6% during the
year, money market deposits increased $32.6 million or 35.0%, and certificates of deposit increased $105.6 million or 28.5%.
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 resulted from an inflow of low-cost deposits due to the low interest
rate environment. Average deposits increased $84.7 million in 2016, 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,
% change
2016
132,726
$
2015
116,151
$
2014
106,609
$
259,462
82,563
210,540
441,341
220,815
99,507
187,379
418,092
178,335
94,017
154,938
513,461
$ 1,126,632
$ 1,041,944
$ 1,047,360
2016 vs. 2015
14.27 %
17.50 %
(17.03)%
12.36 %
5.56 %
8.13 %
The First Bancorp - 2016 Form 10-K - Page 47
The average cost of deposits (including non-interest-bearing accounts) was 0.53% for the year ended December 31, 2016,
compared to 0.51% for the year ended December 31, 2015 and 0.68% for the year ended December 31, 2014. The following
table sets forth the average cost of each category of interest-bearing deposits for the periods indicated.
NOW
Money market
Savings
Certificates of deposit
Total interest-bearing deposits
Years ended December 31,
2016
2015
2014
0.44%
0.28%
0.23%
0.96%
0.61%
0.33%
0.28%
0.22%
0.92%
0.57%
0.28%
0.29%
0.20%
1.17%
0.75%
Of all certificates of deposit, $321.5 million or 67.46% will mature by December 31, 2017. As of December 31, 2016, the
Bank held a total of $281.5 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,
2016
2015
$
159,791
$
7,481
21,452
92,781
90,725
18,670
24,284
78,774
$
281,505
$
212,453
Borrowed funds consists mainly of advances from the 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, 2016, advances
totaled $194.7 million, with a weighted average interest rate of 1.67% and remaining maturities ranging from four days to 15
years. This compares to advances totaling $250.4 million, with a weighted average interest rate of 1.53% and remaining
maturities ranging from two days to ten years, as of December 31, 2015, and advances totaling $205.2 million, with a weighted
average interest rate of 1.71% and remaining maturities ranging from two days to ten years, as of December 31, 2014. The
increase in the weighted average rate paid on borrowed funds in 2016 compared to 2015 is consistent with the interest rate
policy and actions of the FOMC.
The Bank offers securities repurchase agreements to municipal and corporate customers as an alternative to deposits. The
balance of these agreements as of December 31, 2016 was $84.2 million, compared to $87.1 million on December 31, 2015,
and $74.7 million on December 31, 2014. The weighted average rates of these agreements were 1.06% as of December 31,
2016, compared to 0.80% as of December 31, 2015 and 0.79% as of December 31, 2014.
The maximum amount of borrowed funds outstanding at any month-end during each of the last three years was $388.5
million at the end of January in 2016, $337.5 million at the end of December in 2015, and $298.5 million at the end of June in
2014. The average amount outstanding during 2016 was $295.4 million with a weighted average interest rate of 1.62%. This
compares to an average outstanding amount of $289.4 million with a weighted average interest rate of 1.53% in 2015, and an
average outstanding amount of $264.0 million with a weighted average interest rate of 1.71% in 2014.
Capital Resources
Shareholders' equity as of December 31, 2016 was $172.5 million, compared to $167.5 million as of December 31, 2015.
Capital at December 31, 2016 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 8.71% on December 31, 2016 and
8.81% at December 31, 2015. To be rated "well-capitalized", regulatory requirements call for a minimum leverage capital ratio
of 5.00%. At December 31, 2016, the Company had tier-one risk-based capital of 14.64% and tier-two risk-based capital of
15.69%, versus 14.70% and 15.78%, respectively, at December 31, 2015. To be rated "well-capitalized", regulatory
requirements call for minimum tier-one and tier-two risk-based capital ratios of 8.00% and 10.00%, respectively. The
The First Bancorp - 2016 Form 10-K - Page 48
company's actual levels of capitalization were comfortably above the standards to be rated "well-capitalized" by regulatory
authorities.
During 2016, the Company declared cash dividends of $0.22 per share in the first quarter and $0.23 per share in the
remaining three quarters, as well as a special dividend of $0.12 per share in the fourth quarter or $1.03 per share for the year.
The dividend payout ratio, which is calculated by dividing dividends declared per share by diluted earnings per share, was
61.31% for the year ended December 31, 2016 compared to 57.24% for the year ended December 31, 2015. 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 ability of the Company to pay cash dividends to its shareholders depends on receipt of
dividends from its subsidiary, the Bank. The subsidiary may pay dividends to its parent 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.
The amount available for dividends in 2017 is this year's net income plus $13.6 million.
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 qualified as Tier 1 capital on the
Company's books for regulatory purposes and ranked 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. In three separate
transactions in 2012 and 2013, the Company repurchased all of the CPP Shares from the Treasury.
Incident to such issuance of the CPP Shares, the Company issued to the 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 Warrants (and any
shares of common stock issuable pursuant to the Warrants) are freely transferable by Treasury to third parties. The Warrants
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 will expire after ten years. The Warrants were
unchanged as a result of the CPP Shares repurchase transactions.
In May 2015, the Treasury sold the Warrants to private parties. In accordance with the contractual terms of the Warrants, the
number of shares issuable upon exercise and strike price were adjusted at the time of the sale. As a result of this transaction, the
aggregate number of shares of common stock issuable under the Warrants were adjusted to 226,819 shares with a strike price of
$16.53 per share. In November 2016, the Company repurchased all of the outstanding Warrants for an aggregate purchase price
of $1,750,000.
In 2016, 47,247 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 $531,000. The following table summarizes
the Company's 2016 stock issuances:
Dividend reinvestment plan
Employee stock program
Net restricted stock grants
Total
10,889
14,511
21,847
47,247
Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding
companies. The net unrealized gain or loss on available for sale securities is generally not included in computing regulatory
capital. During the first quarter of 2015, the Company adopted the new Basel III regulatory capital framework as approved by
the federal banking agencies. The adoption of this new framework modified the calculation of the various capital ratios, added a
new ratio, common equity tier 1, and revised the adequately and well capitalized thresholds. Additionally, under the new rule, in
order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation
buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0%
for 2015 to 2.50% by 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer
includes the fully phased-in 2.50% buffer.
The Company met each of the well-capitalized ratio guidelines at December 31, 2016. The following tables indicate the
capital ratios for the Bank and the Company at December 31, 2016 and December 31, 2015.
As of December 31, 2016
Leverage
Tier 1
Common
Equity Tier 1
Total Risk-
Based
Bank
Company
Adequately capitalized ratio
Adequately capitalized ratio plus capital
conservation buffer
Well capitalized ratio (Bank only)
8.63 %
8.71 %
4.00 %
4.00 %
5.00 %
14.50 %
14.64 %
6.00 %
8.50 %
8.00 %
14.50 %
14.64 %
4.50 %
7.00 %
6.50 %
15.55 %
15.69 %
8.00 %
10.50 %
10.00 %
The First Bancorp - 2016 Form 10-K - Page 49
As of December 31, 2015
Leverage
Tier 1
Common
Equity Tier 1
Total Risk-
Based
Bank
Company
Adequately capitalized ratio
Adequately capitalized ratio plus capital
conservation buffer
Well capitalized ratio (Bank only)
8.82 %
8.81 %
4.00 %
4.00 %
5.00 %
14.45 %
14.70 %
6.00 %
8.50 %
8.00 %
14.45 %
14.70 %
4.50 %
7.00 %
6.50 %
15.53 %
15.78 %
8.00 %
10.50 %
10.00 %
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.
Contractual Obligations
The following table sets forth the contractual obligations and commitments to extend credit of the Company as of December 31,
2016:
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
Less than
1 year
1-3 years
3-5 years
More than
5 years
$
278,901
$
158,774
$
30,000
$
65,000
$
25,127
$
$
$
$
400
476,620
755,921
76,646
57,738
4,198
10,684
$
$
160
321,537
480,471
76,646
57,738
4,198
10,684
174
76,130
31
78,376
35
577
106,304
$
143,407
$
25,739
— $
— $
—
—
—
—
—
—
—
—
—
—
—
Total loan commitments and unused lines of credit
$
149,266
$
149,266
$
— $
— $
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, 2016, 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 2016, the Company made capital purchases totaling $2,131,000 for real estate improvements for branch or operations
premises and equipment related to technology. This cost will be amortized over an average of 16 years, adding approximately
$130,000 to pre-tax operating costs per year.
Goodwill
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.
The First Bancorp - 2016 Form 10-K - Page 50
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 for GAAP but is
amortizable for tax purposes.
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 $48.0 million, 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 $27.6 million 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.
Goodwill is evaluated annually for possible impairment under the provisions of FASB ASC Topic 350, “Intangibles –
Goodwill and Other”. As of December 31, 2016, 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.
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 - 2016 Form 10-K - Page 51
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, 2016, was +0.77% of total assets, compared to +5.13% of assets at December 31, 2015. 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, 2016, is presented in the following table:
Dollars in thousands
0-90
Days
90-365
Days
1-5
Years
5+
Years
Investment securities at amortized cost (HTM) and fair value (AFS) $ 29,230
$
56,147
$ 194,934
$ 246,933
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
10,893
—
378,534
—
6,607
425,264
388,596
128,774
1,900
519,270
—
—
169,530
22,270
—
247,947
80,108
55,000
5,700
—
—
1,037
782
380,548
142,914
—
—
575,482
154,493
95,000
32,350
—
72,516
464,182
479,278
127
291,549
770,954
$ (306,772)
(17.91)
—
140,808
281,843
$ (94,006)
$ 107,139
$ 293,639
(5.49)%
6.25%
17.14%
$ (94,006)
$
13,133
$ 306,772
(5.49)%
0.77%
17.91%
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 0.38% of
stable-rate net interest income if short-term rates affected by Federal Open Market Committee actions fall gradually by one
percentage point over the next year, and decrease by approximately 3.06% 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
The First Bancorp - 2016 Form 10-K - Page 52
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 higher than that earned in a stable rate
environment by 0.48% in a falling-rate scenario, and lower than that earned in a stable rate environment by 1.18% 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, 2016 and 2015 is presented in the following table:
Changes in Net Interest Income
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%
2016
-0.38%
-3.06%
0.48%
1.18%
2015
-0.97%
-1.94%
-2.80%
-1.59%
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, 2016, the Company was
using interest rate swaps 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, 2016, 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 relatively stable in the next year and believes that the current level
of interest rate risk is acceptable.
The First Bancorp - 2016 Form 10-K - Page 53
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 $225,537,000 at December 31, 2016, and
$243,123,000 at December 31, 2015)
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
Shareholders' equity
Common stock, one cent par value per share
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Net unrealized gain (loss) on securities available for sale
Net unrealized loss on securities transferred from available for sale to held to maturity
Net unrealized gain on cash flow hedging derivative instruments
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
2016
2015
$
17,366,000
$
14,299,000
293,000
4,013,000
300,416,000
223,039,000
226,828,000
240,023,000
11,930,000
14,257,000
782,000
1,071,526,000
10,138,000
1,061,388,000
5,532,000
22,202,000
375,000
29,805,000
35,958,000
349,000
988,638,000
9,916,000
978,722,000
4,912,000
21,816,000
1,532,000
29,805,000
32,043,000
$ 1,712,875,000
$ 1,564,810,000
$
140,482,000
$
130,566,000
282,971,000
125,544,000
217,340,000
476,620,000
242,638,000
92,994,000
206,009,000
370,982,000
1,242,957,000
1,043,189,000
158,774,000
120,127,000
18,496,000
222,323,000
115,134,000
16,666,000
1,540,354,000
1,397,312,000
108,000
108,000
60,723,000
59,862,000
111,693,000
106,673,000
(935,000)
(129,000)
1,163,000
(102,000)
172,521,000
$ 1,712,875,000
1,123,000
(112,000)
—
(156,000)
167,498,000
$ 1,564,810,000
18,000,000
10,793,946
15.98
13.20
$
$
18,000,000
10,753,855
15.58
12.78
$
$
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp - 2016 Form 10-K - Page 54
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 $670,000 in 2016,
$578,000 in 2015, and $592,000 in 2014)
Interest on deposits with other banks
Interest and dividends on investments (includes tax-exempt income of $5,168,000 in
2016, $5,157,000 in 2015, and $5,854,000 in 2014)
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
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
2016
2015
2014
$ 39,996,000
$ 36,620,000
$ 35,102,000
22,000
19,000
5,000
13,741,000
14,171,000
15,915,000
53,759,000
50,810,000
51,022,000
6,028,000
4,784,000
5,285,000
4,589,000
7,087,000
4,338,000
10,812,000
9,874,000
11,425,000
42,947,000
40,936,000
39,597,000
1,600,000
1,550,000
1,150,000
41,347,000
39,386,000
38,447,000
2,411,000
2,237,000
673,000
2,192,000
4,986,000
2,258,000
2,384,000
1,399,000
1,558,000
4,631,000
2,139,000
2,505,000
1,155,000
979,000
4,270,000
12,499,000
12,230,000
11,048,000
15,215,000
15,080,000
14,890,000
2,313,000
3,305,000
789,000
43,000
2,312,000
3,171,000
890,000
58,000
2,215,000
2,940,000
1,004,000
326,000
7,718,000
8,385,000
8,845,000
29,383,000
29,896,000
30,220,000
24,463,000
21,720,000
19,275,000
6,454,000
5,514,000
4,566,000
$ 18,009,000
$ 16,206,000
$ 14,709,000
$
$
1.68
1.66
$
1.52
1.51
1.38
1.37
Net unrealized gain (loss) on securities available for sale
(2,058,000)
(1,399,000)
9,113,000
Net unrealized loss on securities transferred from available for sale to held to
maturity, net of amortization
Net unrealized gain on cash flow hedging derivative instruments
Net unrecognized gain (loss) on postretirement benefits
Other comprehensive income (loss)
Comprehensive income
(17,000)
1,163,000
54,000
(858,000)
$ 17,151,000
(64,000)
—
(31,000)
(1,494,000)
$ 14,712,000
(48,000)
—
(313,000)
8,752,000
$ 23,461,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp - 2016 Form 10-K - Page 55
Consolidated Statements of Changes in Shareholders' Equity
The First Bancorp, Inc. and Subsidiary
Common stock and
additional paid-in capital
Amount
Shares
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders'
equity
Balance at December 31, 2013
Net income
10,671,192
—
$ 58,501,000
—
$ 94,000,000
14,709,000
$
(6,403,000) $146,098,000
14,709,000
—
Net unrealized gain on securities available for sale,
net of tax
Net unrealized loss on securities transferred from
available for sale to held to maturity, net of tax
Unrecognized loss for post-retirement benefits, net of
tax
Comprehensive income
Cash dividends declared ($0.83 per share)
Equity compensation expense
Issuance of restricted stock
Proceeds from sale of common stock
—
—
—
—
—
—
25,843
27,324
—
—
—
—
—
—
9,113,000
9,113,000
(48,000)
(48,000)
—
14,709,000
(313,000)
8,752,000
(313,000)
23,461,000
—
431,000
—
457,000
(8,893,000)
—
—
—
—
—
—
—
(8,893,000)
431,000
—
457,000
Balance at December 31, 2014
Net income
10,724,359
—
$ 59,389,000
—
$ 99,816,000
16,206,000
$
2,349,000
—
$161,554,000
16,206,000
Net unrealized loss on securities available for sale, net
of tax
Net unrealized loss on securities transferred from
available for sale to held to maturity, net of tax
Unrecognized loss for post-retirement benefits, net of
tax
Comprehensive income
Cash dividends declared ($0.87 per share)
Equity compensation expense
—
—
—
—
—
—
—
—
—
—
—
—
(1,399,000)
(1,399,000)
(64,000)
(64,000)
—
16,206,000
(31,000)
(1,494,000)
(31,000)
14,712,000
—
296,000
(9,349,000)
—
Payment for repurchase of common stock
Issuance of restricted stock
(10,138)
(180,000)
14,179
—
Proceeds from sale of common stock
25,455
465,000
—
—
—
Balance at December 31, 2015
10,753,855
$ 59,970,000
$106,673,000
$
855,000
$167,498,000
The First Bancorp - 2016 Form 10-K - Page 56
—
—
—
—
—
(9,349,000)
296,000
(180,000)
—
465,000
Balance at December 31, 2015
Net income
Net unrealized loss on securities available for sale,
net of tax
Net unrealized gain on cash flow hedging
derivative instruments, net of tax
Net unrealized loss on securities transferred from
available for sale to held to maturity, net of tax
Unrecognized gain for post-retirement benefits, net
of tax
Comprehensive income
Cash dividends declared ($1.03 per share)
Equity compensation expense
Payment for repurchase of common stock
Repurchase of warrants
Tax benefit from vesting of restricted stock
Issuance of restricted stock
Proceeds from sale of common stock
Common stock and
additional paid-in capital
Amount
Shares
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders'
equity
10,753,855
—
$59,970,000
$106,673,000
— 18,009,000
$
855,000
—
$167,498,000
18,009,000
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,058,000)
(2,058,000)
1,163,000
1,163,000
(17,000)
(17,000)
—
—
— 18,009,000
54,000
(858,000)
54,000
17,151,000
— (11,110,000)
—
298,000
— (11,110,000)
298,000
—
(7,156)
—
—
21,847
25,400
—
—
(129,000)
(1,750,000)
32,000
—
531,000
—
—
—
—
—
—
—
—
(129,000)
(1,750,000)
32,000
—
531,000
Balance at December 31, 2016
10,793,946
$60,831,000
$111,693,000
$
(3,000) $172,521,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp - 2016 Form 10-K - Page 57
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 sales 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
Tax benefit from vesting of restricted stock
Net (increase) decrease in other assets and accrued interest
Net increase 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
(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
Investment in bank-owned life insurance
Purchase of Federal Home Loan Bank Stock
Redemption of restricted equity securities
Net increase in loans
Capital expenditures
Proceeds from sale of premises and equipment
Net cash used in investing activities
2016
2015
2014
$ 18,009,000
$ 16,206,000
$ 14,709,000
1,745,000
(139,000)
1,600,000
(54,257,000)
55,035,000
(1,211,000)
(673,000)
2,810,000
(177,000)
132,000
298,000
32,000
(2,460,000)
665,000
—
194,000
43,000
1,720,000
332,000
1,550,000
(31,306,000)
31,671,000
(714,000)
(1,399,000)
783,000
5,000
311,000
296,000
—
(455,000)
1,418,000
—
266,000
58,000
1,663,000
18,000
1,150,000
(21,758,000)
22,337,000
(496,000)
(1,155,000)
943,000
32,000
637,000
431,000
—
676,000
378,000
3,000
569,000
326,000
21,646,000
20,742,000
20,463,000
3,720,000
10,309,000
79,223,000
88,899,000
1,786,000
(172,343,000)
(75,573,000)
—
—
2,327,000
(84,850,000)
(2,131,000)
—
(148,633,000)
(454,000)
35,468,000
36,588,000
45,688,000
3,260,000
(111,616,000)
(9,644,000)
(10,000,000)
(345,000)
—
(74,375,000)
(927,000)
10,000
(86,347,000)
(997,000)
15,557,000
30,226,000
18,085,000
2,624,000
(908,000)
(34,881,000)
—
—
—
(45,788,000)
(1,909,000)
1,240,000
(16,751,000)
The First Bancorp - 2016 Form 10-K - Page 58
Cash flows from financing activities
Net increase in demand, savings, and money market accounts
Net increase (decrease) in certificates of deposit
Advances on long-term borrowings
Repayment on long-term borrowings
Net increase (decrease) in short-term borrowings
Payment to repurchase common stock
Proceeds from sale of common stock
Repurchase of warrants
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:
94,130,000
105,638,000
35,000,000
(30,000,000)
(63,556,000)
(129,000)
531,000
(1,750,000)
(9,810,000)
130,054,000
94,889,000
(76,519,000)
55,000,000
(40,000,000)
42,541,000
(180,000)
465,000
—
(9,349,000)
66,847,000
3,067,000
1,242,000
84,038,000
(83,618,000)
—
(30,000,000)
30,791,000
—
457,000
—
(8,893,000)
(7,225,000)
(3,513,000)
14,299,000
13,057,000
16,570,000
$ 17,366,000
$ 14,299,000
$ 13,057,000
$ 10,767,000
$
9,960,000
$ 11,503,000
6,367,000
4,235,000
5,150,000
Net transfer from loans to other real estate owned
Transfer of securities from available for sale to held to maturity
584,000
$
— $
1,323,000
2,271,000
— $ 89,757,000
The accompanying notes are an integral part of these consolidated financial statements
The First Bancorp - 2016 Form 10-K - Page 59
Notes to Consolidated Financial Statements
Nature of Operations
The First Bancorp, Inc. (the "Company") through its wholly-owned subsidiary, First National Bank ("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. On January 28,
2016, the Board of Directors voted to change the Bank's name to First National Bank from The First, N.A.
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, 2016, 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
("GAAP"), 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. The cost basis is adjusted for the amortization of premiums
and accretion of discounts. 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 specifically
identified 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.
Derivative Financial Instruments Designated as Hedges
The Company recognizes all derivatives in the consolidated balance sheets at fair value. On the date the Company enters into the
derivative contract, the Company designates the derivative as a hedge of either a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (“fair value hedge”), or a held for trading instrument (“trading
instrument”). The Company formally documents relationships between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedge transactions. The Company also assesses, both at the hedge’s
inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting changes in
cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow
hedge are recorded in other comprehensive income (loss) and are reclassified into earnings when the forecasted transaction or
related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair
value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that
The First Bancorp - 2016 Form 10-K - Page 60
are classified as trading instruments are recorded at fair value with changes in fair value recorded in earnings. The Company
discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the cash flows of
the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging
instrument is no longer appropriate.
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 fair value, as
determined by current investor yield requirements.
Loans
Loans are generally reported at their outstanding principal balances, adjusted for chargeoffs, the allowance for loan losses and any
deferred fees or costs to originate loans. Loan commitments are recorded when funded.
Loan Fees and Costs
Loan origination fees and certain direct loan origination costs are deferred and recognized in interest income as an adjustment to the
loan yield over the life of the related loans. The unamortized net deferred fees and costs are included on the balance sheets with the
related loan balances, and the amortization is included with the related interest income.
Allowance for Loan Losses
Loans considered to be uncollectible are charged against the allowance for loan losses. The allowance for loan losses is maintained
at a level determined by Management to be 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.
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.
Premises and Equipment
Premises, furniture and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed by straight-
line 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
The First Bancorp - 2016 Form 10-K - Page 61
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.
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. There was no annual amortization expense for 2016 as the expense is now fully
amortized. For 2015 and 2014 the annual amortization expense was $15,000 and $283,000, respectfully. 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 2016, 2015 and 2014 was $43,000, and the 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. At December 31, 2016, 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, and for tax credits that are available to offset
future taxable income. 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.
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.
Post-Retirement Benefits
The cost of providing post-retirement benefits is accrued during the active service period of the employee or director.
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.
Comprehensive Income (Loss)
Comprehensive income (loss) 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, change in unrealized losses on securities transferred from
available for sale to held to maturity, net of amortization, change in unrealized gain on cash flow hedging derivative instruments, net
of tax, and unrecognized gains and losses related to post-retirement benefit costs, net of tax.
Segments
The First Bancorp, Inc., through the branches of its subsidiary, First National Bank, 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.
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, 2016, the Company had a contractual clearing balance of $500,000 and a reserve balance
requirement of $2,134,000 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
The First Bancorp - 2016 Form 10-K - Page 62
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.
Note 3. Investment Securities
The following tables summarize the amortized cost and estimated fair value of investment securities at December 31, 2016 and
2015:
As of December 31, 2016
Securities available for sale
Mortgage-backed securities
State and political subdivisions
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
As of December 31, 2015
Securities available for sale
Mortgage-backed securities
State and political subdivisions
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
Unrealized
Unrealized
Fair Value
Cost
Gains
Losses
(Estimated)
$ 282,397,000
$
1,334,000
$
16,183,000
3,274,000
$ 301,854,000
$ 11,943,000
31,201,000
179,384,000
4,300,000
$ 226,828,000
$ 10,893,000
1,037,000
$ 11,930,000
$
$
$
$
$
475,000
63,000
1,872,000
35,000
967,000
1,971,000
—
$
$
2,973,000
$
(3,127,000) $ 280,604,000
16,482,000
3,330,000
(3,310,000) $ 300,416,000
(176,000)
(7,000)
(233,000) $ 11,745,000
(147,000)
32,021,000
(3,884,000)
—
4,300,000
(4,264,000) $ 225,537,000
177,471,000
— $
—
— $
— $ 10,893,000
—
1,037,000
— $ 11,930,000
Amortized
Unrealized
Unrealized
Fair Value
Cost
Gains
Losses
(Estimated)
$ 194,563,000
$
1,509,000
$
1,201,000
48,000
2,758,000
40,000
1,305,000
4,200,000
—
$
$
5,545,000
$
(962,000) $ 195,110,000
(62,000)
24,506,000
(6,000)
3,423,000
(1,030,000) $ 223,039,000
(2,284,000) $ 68,756,000
43,362,000
126,705,000
(136,000)
(25,000)
—
4,300,000
(2,445,000) $ 243,123,000
— $
—
— $
— $ 13,220,000
—
1,037,000
— $ 14,257,000
23,367,000
3,381,000
$ 221,311,000
$ 71,000,000
42,193,000
122,530,000
4,300,000
$ 240,023,000
$ 13,220,000
1,037,000
$ 14,257,000
$
$
$
$
$
The First Bancorp - 2016 Form 10-K - Page 63
The following table summarizes the contractual maturities of investment securities at December 31, 2016:
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
Securities to be held to maturity
Amortized
Cost
Fair Value
(Estimated)
Amortized
Cost
Fair Value
(Estimated)
$
253,000
$
253,000
$
906,000
$
913,000
2,251,000
21,043,000
2,298,000
21,505,000
13,451,000
41,588,000
13,714,000
42,448,000
275,033,000
273,030,000
170,883,000
168,462,000
3,274,000
3,330,000
—
—
$ 301,854,000
$ 300,416,000
$ 226,828,000
$ 225,537,000
The following table summarizes the contractual maturities of investment securities at December 31, 2015:
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
Securities to be held to maturity
Amortized
Cost
Fair Value
(Estimated)
Amortized
Cost
Fair Value
(Estimated)
$
527,000
$
530,000
$
1,814,000
$
1,850,000
7,562,000
19,647,000
7,727,000
20,055,000
6,306,000
58,397,000
6,514,000
60,196,000
190,194,000
191,304,000
173,506,000
174,563,000
3,381,000
3,423,000
—
—
$ 221,311,000
$ 223,039,000
$ 240,023,000
$ 243,123,000
At December 31, 2016, securities with a fair value of $222,328,000 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 $201,879,000 as of December 31, 2015 pledged for the same purposes.
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 2016, 2015 and 2014:
Proceeds from sales of securities
Gross realized gains
Gross realized losses
Net gain
Related income taxes
2016
2015
2014
$ 10,309,000
$ 35,468,000
$ 15,557,000
673,000
1,399,000
1,155,000
—
—
—
$
$
673,000
236,000
$
$
1,399,000
490,000
$
$
1,155,000
404,000
Management reviews securities with unrealized losses for other than temporary impairment. As of December 31, 2016, there
were 299 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 15 had been temporarily impaired for 12 months or more. At the present
time, there have been no material changes in the credit quality of these securities resulting in other than temporary impairment, and
in Management's opinion, no additional write-down for other-than-temporary impairment is warranted.
The First Bancorp - 2016 Form 10-K - Page 64
Information regarding securities temporarily impaired as of December 31, 2016 is summarized below:
As of December 31, 2016
U.S. Government-sponsored
agencies
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
6,642,000
$
(233,000) $
— $
— $
6,642,000
$
(233,000)
Mortgage-backed securities
State and political subdivisions
Other equity securities
197,528,000
72,348,000
—
(3,090,000)
(4,060,000)
—
2,905,000
—
128,000
$276,518,000
$ (7,383,000) $
3,033,000
(184,000)
—
(7,000)
200,433,000
(3,274,000)
72,348,000
(4,060,000)
128,000
$ (191,000) $279,551,000
(7,000)
$ (7,574,000)
As of December 31, 2015, there were 78 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 15 had been temporarily impaired for
12 months or more. Information regarding securities temporarily impaired as of December 31, 2015 is summarized below:
As of December 31, 2015
U.S. Government-sponsored
agencies
Mortgage-backed securities
State and political subdivisions
Other equity securities
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$ 45,311,000
120,915,000
2,528,000
64,000
$168,818,000
$ (1,469,000) $ 17,185,000
910,000
$ (815,000) $ 62,496,000
121,825,000
2,901,000
5,429,000
52,000
$ (2,525,000) $ 21,048,000
116,000
$ (950,000) $189,866,000
(1,027,000)
(24,000)
(5,000)
(71,000)
(63,000)
(1,000)
$ (2,284,000)
(1,098,000)
(87,000)
(6,000)
$ (3,475,000)
During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 and a
corresponding fair value of $89,757,000 from available for sale to held to maturity. The net unrealized loss, net of taxes, on these
securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in
accumulated other comprehensive income (loss), net of tax and is amortized over the remaining lives of the securities as an
adjustment of the yield. The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will
offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net
unrealized losses for the securities transferred from available for sale to held to maturity was $129,000 at December 31, 2016. These
securities were transferred as a part of the Company's overall investment and balance sheet strategies.
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, 2016 and 2015, the Bank's investment in FHLB stock
totaled $10,893,000 and $13,220,000, respectfully. 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, 2016.
The Bank will continue to monitor its investment in FHLB stock.
Note 4. Mortgage Servicing Rights
At December 31, 2016 and 2015, the Bank serviced loans for others totaling $250,083,000 and $223,610,000, respectively. Net
gains from the sale of loans totaled $1,211,000 in 2016, $714,000 in 2015, and $496,000 in 2014. In 2016, mortgage servicing rights
of $554,000 were capitalized and amortization for the year totaled $459,000. At December 31, 2016, mortgage servicing rights had a
fair value of $1,696,000. In 2015, mortgage servicing rights of $487,000 were capitalized and amortization for the year totaled
$449,000. At December 31, 2015, mortgage servicing rights had a fair value of $1,915,000.
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
The First Bancorp - 2016 Form 10-K - Page 65
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, 2016, the prepayment assumption using the PSA model was 250, which translates into an
anticipated annual prepayment rate of 15.00%. The discount rate is the quarterly average ten-year U.S. Treasury interest rate plus
3.79%. 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
Note 5. Loans
2016
2015
$
$
5,901,000
(4,680,000)
(108,000)
1,113,000
$
5,747,000
(4,619,000)
(35,000)
$
1,093,000
The following table shows the composition of the Company's loan portfolio as of December 31, 2016 and 2015:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total loans
December 31, 2016
December 31, 2015
$ 302,506,000
25,406,000
150,769,000
27,056,000
411,469,000
18,303,000
110,907,000
25,110,000
$ 1,071,526,000
28.2% $ 269,462,000
2.4%
24,881,000
14.1%
2.5%
128,341,000
19,751,000
38.4%
1.7%
10.4%
403,030,000
8,451,000
110,202,000
2.3%
24,520,000
100.0% $ 988,638,000
27.3%
2.5%
13.0%
2.0%
40.7%
0.9%
11.1%
2.5%
100.0%
Loan balances include net deferred loan costs of $4,921,000 in 2016 and $3,686,000 in 2015. Pursuant to collateral agreements,
qualifying first mortgage loans, which were valued at $257,122,000 and $279,463,000 at December 31, 2016 and 2015,
respectively, were used to collateralize borrowings from the Federal Home Loan Bank of Boston. In addition, commercial,
construction and home equity loans totaling $261,463,000 at December 31, 2016 and $243,578,000 at December 2015, were used to
collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
At December 31, 2016 and 2015, non-accrual loans were $7,774,000 and $7,372,000, respectively. For the years ended
December 31, 2016, 2015 and 2014, interest income which would have been recognized on these loans, if interest had been accrued,
was $288,000, $369,000, and $551,000, respectively. Loans more than 90 days past due accruing interest totaled $777,000 at
December 31, 2016 and $136,000 at December 31, 2015. The Company continues to accrue interest on these loans because it
believes collection of principal and interest is reasonably assured.
The First Bancorp - 2016 Form 10-K - Page 66
Loans to directors, officers and employees totaled $34,889,000 at December 31, 2016 and $31,285,000 at December 31, 2015.
A summary of loans to directors and executive officers is as follows:
For the years ended December 31,
Balance at beginning of year
New loans
Repayments
Balance at end of year
2016
2015
$ 20,401,000
$ 14,856,000
6,278,000
(3,386,000)
$ 23,293,000
7,382,000
(1,837,000)
$ 20,401,000
Information on the past-due status of loans as of December 31, 2016, is presented in the following table:
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
Total
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
All
Past Due
Current
Total
90+ Days
&
Accruing
$ 1,039,000
$
22,000
$ 2,415,000
$ 3,476,000
$ 299,030,000
$ 302,506,000
$ 753,000
—
202,000
—
—
33,000
—
—
796,000
—
—
1,031,000
25,406,000
149,738,000
25,406,000
150,769,000
—
20,000
—
27,056,000
27,056,000
631,000
3,970,000
1,802,000
6,403,000
405,066,000
411,469,000
—
—
—
—
18,303,000
18,303,000
704,000
135,000
157,000
45,000
703,000
1,564,000
109,343,000
110,907,000
4,000
184,000
24,926,000
25,110,000
4,000
$ 2,711,000
$ 4,227,000
$ 5,720,000
$12,658,000
$1,058,868,000
$1,071,526,000
$ 777,000
Information on the past-due status of loans as of December 31, 2015, 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
$
603,000
$
— $
281,000
$
884,000
$ 268,578,000
$ 269,462,000
$
—
—
—
238,000
25,000
—
273,000
328,000
24,608,000
24,881,000
128,013,000
128,341,000
25,000
—
19,751,000
19,751,000
—
2,098,000
2,639,000
5,187,000
397,843,000
403,030,000
100,000
—
—
368,000
8,083,000
8,451,000
255,000
26,000
592,000
1,108,000
109,094,000
110,202,000
11,000
139,000
24,381,000
24,520,000
11,000
$ 2,122,000
$ 2,379,000
$ 3,786,000
$ 8,287,000
$ 980,351,000
$ 988,638,000
$ 136,000
35,000
303,000
—
450,000
368,000
261,000
102,000
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
The First Bancorp - 2016 Form 10-K - Page 67
—
—
—
—
—
—
—
—
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.
Information on nonaccrual loans as of December 31, 2016 and 2015 is presented in the following table:
As of December 31,
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
2016
2015
$
1,907,000
$
—
964,000
—
915,000
238,000
66,000
—
4,060,000
5,260,000
—
—
843,000
893,000
—
—
$
7,774,000
$
7,372,000
Information regarding impaired loans is as follows:
For the years ended December 31,
Average investment in impaired loans
2016
2015
2014
$ 28,217,000
$ 32,698,000
$ 38,404,000
Interest income recognized on impaired loans, all on cash basis
1,104,000
1,220,000
1,465,000
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
2016
2015
$ 27,583,000
(19,716,000)
7,867,000
$
$
974,000
$ 29,531,000
(20,889,000)
$
$
8,642,000
754,000
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 - 2016 Form 10-K - Page 68
A breakdown of impaired loans by category as of December 31, 2016, is presented in the following table:
With No Related Allowance
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
With an Allowance Recorded
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Recognized
Interest
Income
$ 5,201,000
$ 5,614,000
$
— $ 6,252,000
$
220,000
—
—
1,671,000
1,852,000
—
—
—
—
—
32,000
1,074,000
—
—
86,000
—
11,483,000
12,654,000
— 11,025,000
442,000
—
—
1,361,000
1,733,000
—
—
—
—
—
—
1,213,000
9,000
—
33,000
—
$ 19,716,000
$ 21,853,000
$
— $ 19,605,000
$
781,000
$ 4,820,000
$ 4,925,000
$
505,000
$ 4,153,000
$
186,000
763,000
72,000
—
763,000
72,000
—
100,000
39,000
—
816,000
317,000
—
36,000
—
—
2,186,000
2,328,000
304,000
3,209,000
101,000
—
26,000
—
—
28,000
—
—
26,000
—
—
69,000
48,000
—
—
—
$ 7,867,000
$ 8,116,000
$
974,000
$ 8,612,000
$
323,000
$ 10,021,000
$ 10,539,000
$
505,000
$ 10,405,000
$
406,000
763,000
763,000
1,743,000
1,924,000
—
—
100,000
39,000
—
848,000
1,391,000
—
13,669,000
14,982,000
304,000
14,234,000
—
—
—
—
1,387,000
1,761,000
26,000
1,282,000
—
—
—
57,000
36,000
86,000
—
543,000
—
33,000
—
$ 27,583,000
$ 29,969,000
$
974,000
$ 28,217,000
$ 1,104,000
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 - 2016 Form 10-K - Page 69
A breakdown of impaired loans by category as of December 31, 2015, 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
$ 7,173,000
$ 7,496,000
$
— $ 8,990,000
$
301,000
30,000
30,000
1,163,000
1,210,000
—
—
—
—
—
3,000
1,893,000
—
1,000
76,000
—
11,122,000
12,157,000
— 10,480,000
415,000
—
—
1,401,000
2,054,000
—
—
—
—
—
—
1,400,000
42,000
—
43,000
3,000
$20,889,000
$22,947,000
$
— $22,808,000
$
839,000
$ 3,544,000
$ 3,627,000
$
89,000
$ 3,066,000
$
149,000
996,000
71,000
—
996,000
77,000
—
302,000
1,153,000
8,000
—
256,000
—
44,000
5,000
—
3,966,000
4,193,000
326,000
5,228,000
180,000
—
65,000
—
—
66,000
—
—
—
29,000
187,000
—
—
—
3,000
—
$ 8,642,000
$ 8,959,000
$
754,000
$ 9,890,000
$
381,000
$10,717,000
$11,123,000
$
89,000
$12,056,000
$
450,000
1,026,000
1,234,000
—
1,026,000
1,287,000
—
302,000
8,000
—
1,156,000
2,149,000
—
45,000
81,000
—
15,088,000
16,350,000
326,000
15,708,000
595,000
—
—
—
—
1,466,000
2,120,000
29,000
1,587,000
—
—
—
42,000
—
46,000
3,000
$29,531,000
$31,906,000
$
754,000
$32,698,000
$ 1,220,000
The First Bancorp - 2016 Form 10-K - Page 70
A breakdown of impaired loans by category as of December 31, 2014, 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
$11,687,000
$12,423,000
$
— $11,080,000
$
488,000
—
—
2,616,000
3,407,000
—
—
—
—
—
30,000
—
3,853,000
156,000
—
—
10,820,000
11,824,000
— 10,505,000
402,000
—
—
1,164,000
1,395,000
26,000
28,000
—
—
—
—
1,447,000
11,000
—
29,000
3,000
$26,313,000
$29,077,000
$
— $26,926,000
$ 1,078,000
$ 1,617,000
$ 1,789,000
$
346,000
$ 3,040,000
$
1,380,000
1,380,000
326,000
338,000
—
—
413,000
129,000
—
1,279,000
1,103,000
—
62,000
56,000
13,000
—
5,303,000
5,513,000
519,000
5,738,000
239,000
—
—
—
—
923,000
929,000
396,000
318,000
—
—
—
—
—
17,000
—
$ 9,549,000
$ 9,949,000
$ 1,803,000
$11,478,000
$
387,000
$13,304,000
$14,212,000
$
346,000
$14,120,000
$
550,000
1,380,000
2,942,000
—
1,380,000
3,745,000
—
413,000
129,000
—
1,309,000
4,956,000
—
56,000
169,000
—
16,123,000
17,337,000
519,000
16,243,000
641,000
—
—
—
—
2,087,000
2,324,000
396,000
1,765,000
26,000
28,000
—
11,000
—
46,000
3,000
$35,862,000
$39,026,000
$ 1,803,000
$38,404,000
$ 1,465,000
The First Bancorp - 2016 Form 10-K - Page 71
Troubled Debt Restructured
A TDR constitutes a restructuring of debt if the Company, 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 Company has granted a concession; common concession types include maturity date extension, interest rate adjustments
to below market pricing, and deferment of payments.
The Company applies the same interest accrual policy to TDRs as it does for all classes of loans. As of December 31, 2016, the
Company had 71 loans with a value of $21,526,000 that have been restructured. This compares to 84 loans with a value of
$23,923,000 classified as TDRs as of December 31, 2015. 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, 2016:
Number of
Loans
Balance
Specific
Reserves
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
10
$
8,937,000
$
763,000
779,000
—
375,000
100,000
—
—
10,503,000
261,000
—
544,000
—
—
—
—
$ 21,526,000
$
736,000
1
5
—
52
—
3
—
71
The following table shows TDRs by class and the specific reserve as of December 31, 2015:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Number of
Loans
Balance
Specific
Reserves
15
1
11
—
53
—
4
—
84
$ 10,350,000
$
788,000
1,168,000
—
85,000
94,000
1,000
—
10,875,000
275,000
—
742,000
—
—
—
—
$ 23,923,000
$
455,000
The First Bancorp - 2016 Form 10-K - Page 72
As of December 31, 2016, 12 of the loans classified as TDRs with a total balance of $2,303,000 were more than 30 days past
due. Of these loans, none 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, 2016:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Number of
Loans
Balance
Specific
Reserves
1
—
—
—
10
—
1
—
12
$
822,000
$
264,000
—
—
—
—
—
—
1,314,000
26,000
—
167,000
—
—
—
—
$
2,303,000
$
290,000
As of December 31, 2015, eight of the loans classified as TDRs with a total balance of $1,053,000 were more than 30 days past
due. None of these loans 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, 2015:
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Number of
Loans
Balance
Specific
Reserves
— $
— $
—
—
—
—
—
—
—
1,053,000
46,000
—
—
—
—
—
—
$
1,053,000
$
46,000
—
—
—
8
—
—
—
8
During the year ended December 31, 2016, no loans were placed on TDR status.
During the year ended December 31, 2015, two loans were placed on TDR status with a post-modification balance of $218,000.
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 First Bancorp - 2016 Form 10-K - Page 73
The following table shows loans placed on TDR status in 2015 by type of loan and the associated specific reserve included in
the allowance for loan losses as of December 31, 2015:
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
Specific
Reserves
Number of
Loans
— $
— $
— $
—
—
—
2
—
—
—
2
—
—
—
—
—
—
221,000
218,000
—
—
—
—
—
221,000
$
—
218,000
$
$
—
—
—
—
—
—
—
—
—
As of December 31, 2016, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an
outstanding balance of $1,693,000. As of December 31, 2016, there were nine loans with an outstanding balance of $1,715,000 that
were classified as TDRs and were on non-accrual status, one of which, with an outstanding balance of $46,000, was in the process
of foreclosure.
Residential Mortgage Loans in Process of Foreclosure
As of December 31, 2016, there were 15 mortgage loans collateralized by residential real estate in the process of foreclosure with a
total balance of $2,058,000; this compares to 16 mortgage loans collateralized by residential real estate in the process of foreclosure
with a total balance of $1,513,000 as of December 31, 2015.
Note 6. Allowance for Loan Losses
The Company provides for loan losses through the establishment of an allowance for loan losses which represents an estimated
reserve for existing losses in the loan portfolio. A systematic methodology is used for determining the allowance that includes a
quarterly review process, risk rating changes, and adjustments to the allowance. The loan portfolio is classified in eight classes and
credit risk is evaluated separately in each class. The appropriate level of the allowance is evaluated continually based on a review of
significant loans, with a particular emphasis on nonaccruing, past due, and other loans that may require special attention. Other
factors 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 - 2016 Form 10-K - Page 74
The following table summarizes the composition of the allowance for loan losses, by class of financing receivable and
allowance, as of December 31, 2016 and 2015:
As of December 31,
Allowance for Loans Evaluated Individually for Impairment
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Total
Allowance for Loans Evaluated Collectively for Impairment
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
Total
Total Allowance for Loan Losses
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
Total
The First Bancorp - 2016 Form 10-K - Page 75
2016
2015
$
505,000
$
100,000
39,000
—
304,000
—
26,000
—
89,000
302,000
8,000
—
326,000
—
29,000
—
$
974,000
$
754,000
$
3,483,000
$
3,031,000
296,000
1,741,000
18,000
984,000
44,000
781,000
559,000
278,000
1,444,000
17,000
1,065,000
24,000
864,000
566,000
1,258,000
1,873,000
$
9,164,000
$
9,162,000
$
3,988,000
$
3,120,000
396,000
1,780,000
18,000
580,000
1,452,000
17,000
1,288,000
1,391,000
44,000
807,000
559,000
24,000
893,000
566,000
1,258,000
1,873,000
$ 10,138,000
$
9,916,000
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, 2016 and 2015, by class of financing receivable and
allowance element, is presented in the following tables:
As of December 31, 2016
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
As of December 31, 2015
Commercial
Real estate
Construction
Other
Municipal
Residential
Term
Construction
Home equity line of credit
Consumer
Unallocated
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
$
505,000
$
1,471,000
$
2,012,000
$
— $
3,988,000
100,000
39,000
—
304,000
—
26,000
—
—
125,000
735,000
—
563,000
25,000
444,000
328,000
—
171,000
1,006,000
18,000
421,000
19,000
337,000
231,000
—
—
—
—
—
—
—
396,000
1,780,000
18,000
1,288,000
44,000
807,000
559,000
—
1,258,000
1,258,000
$
974,000
$
3,691,000
$
4,215,000
$
1,258,000
$ 10,138,000
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
$
89,000
$
893,000
$
2,138,000
$
— $
3,120,000
302,000
8,000
—
326,000
—
29,000
—
82,000
425,000
—
613,000
14,000
500,000
331,000
196,000
1,019,000
17,000
452,000
10,000
364,000
235,000
—
—
—
—
—
—
—
580,000
1,452,000
17,000
1,391,000
24,000
893,000
566,000
—
754,000
$
—
2,858,000
$
—
4,431,000
$
1,873,000
1,873,000
$
1,873,000
9,916,000
$
The First Bancorp - 2016 Form 10-K - Page 76
Qualitative adjustment factors are taken into consideration when determining reserve estimates. These adjustment factors are
based upon our evaluation of various current conditions, including those listed below.
• 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 qualitative portion of the allowance for loan losses was 0.39% of related loans as of December 31, 2016, compared to
0.45% of related loans as of December 31, 2015. The qualitative portion decreased $216,000 between December 31, 2015 and
December 31, 2016.
The unallocated component totaled $1,258,000 at December 31, 2016, or 12.4% of the total reserve. This compares to
$1,873,000 or 18.9% as of December 31, 2015. The decrease in the unallocated portion is a result of charge offs on collateral-
dependent loans and the improvement in credit quality. Management feels the decrease in the unallocated portion is directionally
consistent with local and national economic conditions.
The allowance for loan losses as a percent of total loans stood at 0.95% as of December 31, 2016, compared to 1.00% of total
loans as of December 31, 2015.
Commercial loans are comprised of three major classes, commercial real estate loans, commercial construction loans and other
commercial loans.
Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential,
commercial/retail, office, industrial, hotels, educational and other specific or mixed use properties. Commercial real estate loans are
typically written with amortizing payment structures. Collateral values are determined based on appraisals and evaluations in
accordance with established policy and regulatory guidelines. Commercial real estate loans typically have a loan-to-value ratio of
up to 80% based upon current valuation information at the time the loan is made. Commercial real estate loans are primarily paid
by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
Commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial
real estate properties. Commercial construction loans typically have maturities of less than two years. Payment structures during the
construction period are typically on an interest only basis, although principal payments may be established depending on the type of
construction project being financed. During the construction phase, commercial construction loans are primarily paid by cash flow
generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable. At the end of
the construction period, loan repayment typically comes from a third party source in the event that the Company will not be
providing permanent term financing. Collateral valuation and loan-to-value guidelines follow those for commercial real estate
loans.
Other commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the
purpose of financing working capital and or capital investment. Collateral generally consists of pledges of business assets
including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans
are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.
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.
Residential loans are comprised of two classes: term loans and construction loans.
Residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who
demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include
favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and
regulatory guidelines. Collateral values are determined based on appraisals and evaluations in accordance with established policy
and regulatory guidelines. Residential loans typically have a loan-to-value ratio of up to 80% based on appraisal information at the
time the loan is made. Collateral consists of mortgage liens on one- to four-family residential properties. Loans are offered with
fixed or adjustable rates with amortization terms of up to thirty years.
Residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned
and occupied by the borrower. Borrower qualifications include favorable credit history combined with supportive income
requirements and loan-to-value ratios within established policy and regulatory guidelines. Residential construction loans normally
have construction terms of one year or less and payment during the construction term is typically on an interest only basis from
sources including interest reserves, borrower liquidity and/or income. Residential construction loans will typically convert to
permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender.
Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans.
The First Bancorp - 2016 Form 10-K - Page 77
Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-
occupied one- to four-family homes, condominiums, or vacation homes. The home equity line of credit typically has a variable
interest rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of
credit is billed as a percentage of the principal balance plus all accrued interest. Loan maturities are normally 300 months.
Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-
value ratios usually not exceeding 80% inclusive of priority liens. Collateral valuation guidelines follow those for residential real
estate loans.
Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various
purposes such as auto, recreational vehicles, debt consolidation, personal expenses or overdraft protection. Borrower qualifications
include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.
Consumer loans may be secured or unsecured.
Construction loans, both commercial and residential, at 28.9% of capital are well under the regulatory guidance of 100.0% of
capital at December 31, 2016. Construction loans and non-owner-occupied commercial real estate loans are at 109.4% of total
capital, are below the regulatory limit of 300.0% of capital at December 31, 2016.
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 First Bancorp - 2016 Form 10-K - Page 78
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 following table summarizes the risk ratings for the Company's commercial construction, commercial real estate,
commercial other and municipal loans as of December 31, 2016:
1 Strong
2 Above average
3 Satisfactory
4 Average
5 Watch
6 OAEM
7 Substandard
8 Doubtful
Total
Commercial
Real Estate
Commercial
Construction
Commercial
Other
Municipal
Loans
All Risk-
Rated Loans
$
2,000
$
— $
850,000
$
— $
852,000
13,981,000
81,286,000
49,000
1,345,000
139,421,000
16,506,000
43,181,000
4,569,000
20,066,000
—
7,349,000
—
157,000
—
8,934,000
48,212,000
65,146,000
16,864,000
1,587,000
9,176,000
—
25,527,000
1,529,000
—
—
—
—
—
48,491,000
132,372,000
221,073,000
67,394,000
6,156,000
29,399,000
—
$ 302,506,000
$
25,406,000
$ 150,769,000
$
27,056,000
$ 505,737,000
The First Bancorp - 2016 Form 10-K - Page 79
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, 2015:
1 Strong
2 Above average
3 Satisfactory
4 Average
5 Watch
6 OAEM
7 Substandard
8 Doubtful
Total
Commercial
Real Estate
Commercial
Construction
Commercial
Other
Municipal
Loans
All Risk-
Rated Loans
$
6,000
$
— $
1,256,000
$
— $
1,262,000
56,000
7,506,000
18,321,000
29,176,000
52,821,000
2,057,000
122,071,000
18,070,000
36,075,000
9,742,000
19,571,000
—
4,490,000
—
208,000
—
28,787,000
67,301,000
18,135,000
2,410,000
2,946,000
—
1,430,000
—
—
—
—
—
55,059,000
85,095,000
207,442,000
58,700,000
12,152,000
22,725,000
—
$ 269,462,000
$
24,881,000
$ 128,341,000
$
19,751,000
$ 442,435,000
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. One-
to four-family residential real estate loans and home equity loans are written down or charged-off no later than 180 days past due, or
for residential real estate secured loans having a borrower in bankruptcy, within 60 days of receipt of notification of filing from the
bankruptcy court, whichever is sooner. This is subject to completion of a current assessment of the value of the collateral with any
outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.
The First Bancorp - 2016 Form 10-K - Page 80
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, 2016. Allowance for loan losses activity for the years ended December 31, 2016, 2015 and
2014 was as follows:
Commercial
Residential
Real Estate
Construction
Other
Municipal
Term
Construction
Home Equity
Line of
Credit
Consumer
Unallocated
Total
For the year ended
December 31, 2016
Allowance for loan
losses:
Beginning balance
$
3,120,000
$
580,000
$
1,452,000
$
17,000
$
1,391,000
$
24,000
$
893,000
$
566,000
$ 1,873,000
$
9,916,000
Chargeoffs
Recoveries
294,000
—
75,000
8,000
Provision (credit)
1,162,000
(117,000)
376,000
129,000
575,000
—
—
1,000
379,000
93,000
183,000
—
—
20,000
147,000
5,000
56,000
450,000
108,000
335,000
—
—
1,721,000
343,000
(615,000)
1,600,000
Ending balance
$
3,988,000
$
396,000
$
1,780,000
$
18,000
$
1,288,000
$
44,000
$
807,000
$
559,000
$ 1,258,000
$
10,138,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
Related loan
balances:
$
505,000
$
100,000
$
39,000
$
— $
304,000
$
— $
26,000
$
— $
— $
974,000
$
3,483,000
$
296,000
$
1,741,000
$
18,000
$
984,000
$
44,000
$
781,000
$
559,000
$ 1,258,000
$
9,164,000
Ending balance
$302,506,000
$ 25,406,000
$150,769,000
$27,056,000
$411,469,000
$ 18,303,000
$110,907,000
$ 25,110,000
$
— $ 1,071,526,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
For the year ended
December 31, 2015
Allowance for loan
losses:
$ 10,021,000
$
763,000
$
1,743,000
$
— $ 13,669,000
$
— $
1,387,000
$
— $
— $
27,583,000
$292,485,000
$ 24,643,000
$149,026,000
$27,056,000
$397,800,000
$ 18,303,000
$109,520,000
$ 25,110,000
$
— $ 1,043,943,000
Commercial
Residential
Real Estate
Construction
Other
Municipal
Term
Construction
Home Equity
Line of
Credit
Consumer
Unallocated
Total
Beginning balance
$
3,532,000
$
823,000
$
1,505,000
$
15,000
$
1,185,000
$
20,000
$
1,060,000
$
542,000
$ 1,662,000
$
10,344,000
Chargeoffs
Recoveries
280,000
2,000
9,000
1,000
Provision (credit)
(134,000)
(235,000)
732,000
88,000
591,000
—
—
2,000
420,000
152,000
474,000
—
—
4,000
582,000
31,000
384,000
350,000
121,000
253,000
—
—
211,000
2,373,000
395,000
1,550,000
Ending balance
$
3,120,000
$
580,000
$
1,452,000
$
17,000
$
1,391,000
$
24,000
$
893,000
$
566,000
$ 1,873,000
$
9,916,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
Related loan
balances:
$
89,000
$
302,000
$
8,000
$
— $
326,000
$
— $
29,000
$
— $
— $
754,000
$
3,031,000
$
278,000
$
1,444,000
$
17,000
$
1,065,000
$
24,000
$
864,000
$
566,000
$ 1,873,000
$
9,162,000
Ending balance
$269,462,000
$ 24,881,000
$128,341,000
$19,751,000
$403,030,000
$ 8,451,000
$110,202,000
$ 24,520,000
$
— $ 988,638,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
$ 10,717,000
$ 1,026,000
$
1,234,000
$
— $ 15,088,000
$
— $
1,466,000
$
— $
— $
29,531,000
$258,745,000
$ 23,855,000
$127,107,000
$19,751,000
$387,942,000
$ 8,451,000
$108,736,000
$ 24,520,000
$
— $ 959,107,000
The First Bancorp - 2016 Form 10-K - Page 81
Commercial
Residential
Real Estate
Construction
Other
Municipal
Term
Construction
Home Equity
Line of
Credit
Consumer
Unallocated
Total
For the year ended
December 31, 2014
Allowance for loan
losses:
Beginning balance
$
4,602,000
$
575,000
$
2,276,000
$
15,000
$
1,099,000
$
21,000
$
675,000
$
573,000
$ 1,678,000
$
11,514,000
Chargeoffs
Recoveries
1,205,000
144,000
—
—
989,000
758,000
Provision (credit)
(9,000)
248,000
(540,000)
—
—
—
699,000
36,000
749,000
—
25,000
(26,000)
153,000
16,000
522,000
449,000
196,000
222,000
—
—
(16,000)
3,495,000
1,175,000
1,150,000
Ending balance
$
3,532,000
$
823,000
$
1,505,000
$
15,000
$
1,185,000
$
20,000
$
1,060,000
$
542,000
$ 1,662,000
$
10,344,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
Related loan
balances:
$
346,000
$
413,000
$
129,000
$
— $
519,000
$
— $
396,000
$
— $
— $
1,803,000
$
3,186,000
$
410,000
$
1,376,000
$
15,000
$
666,000
$
20,000
$
664,000
$
542,000
$ 1,662,000
$
8,541,000
Ending balance
$242,311,000
$ 30,932,000
$104,531,000
$20,424,000
$384,032,000
$ 12,160,000
$103,521,000
$19,653,000
$
— $ 917,564,000
Ending balance
specifically evaluated
for impairment
Ending balance
collectively evaluated
for impairment
$ 13,304,000
$ 1,380,000
$
2,942,000
$
— $ 16,123,000
$
— $
2,087,000
$
26,000
$
— $
35,862,000
$229,007,000
$ 29,552,000
$101,589,000
$20,424,000
$367,909,000
$ 12,160,000
$101,434,000
$19,627,000
$
— $ 881,702,000
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
2016
2015
$
4,742,000
$
4,539,000
1,041,000
21,601,000
12,032,000
39,416,000
17,214,000
874,000
20,569,000
11,358,000
37,340,000
15,524,000
$ 22,202,000
$ 21,816,000
Based on current contractual agreements (leases), Management anticipates rental revenue over the next 4 years to be $147,000 in
2017, $55,000 in 2018, $11,000 in 2019, and $4,000 in 2020.
Note 8. Other Real Estate Owned
The following summarizes other real estate owned:
As of December 31,
Real estate acquired in settlement of loans
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
2016
$
375,000
$
2015
1,532,000
2016
2015
2014
$
$
162,000
(89,000)
132,000
205,000
$
$
654,000
(803,000)
311,000
162,000
$
$
330,000
(313,000)
637,000
654,000
The First Bancorp - 2016 Form 10-K - Page 82
Note 9. Income Taxes
The current and deferred components of income tax expense (benefit) were as follows:
For the years ended December 31,
Federal income tax
Current
Deferred
State franchise tax
2016
2015
2014
$
6,276,000
(139,000)
6,137,000
317,000
$
4,895,000
$
4,282,000
332,000
5,227,000
287,000
18,000
4,300,000
266,000
$
6,454,000
$
5,514,000
$
4,566,000
The actual tax expense differs from the expected tax expense (computed by applying the applicable U.S. Federal corporate
income tax rate to income before income taxes) as follows:
For the years ended December 31,
Expected tax expense
Non-taxable income
State franchise tax, net of federal tax benefit
Tax credits, net of amortization
Other
2016
2015
2014
$
$
8,562,000
(2,176,000)
206,000
(105,000)
(33,000)
6,454,000
$
$
7,602,000
(2,086,000)
187,000
(185,000)
(4,000)
5,514,000
$
6,746,000
(2,292,000)
173,000
(414,000)
353,000
$
4,566,000
The First Bancorp - 2016 Form 10-K - Page 83
Deferred tax assets and liabilities are classified in 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, 2016 and 2015 are as follows:
Allowance for loan losses
OREO
Accrued pension and post-retirement
Goodwill
Unrealized loss on securities transferred from available for sale to held to maturity
Unrealized loss on securities available for sale
Restricted stock grants
Core deposit intangible
Investment in flow through entities
Other assets
Total deferred tax asset
Net deferred loan costs
Depreciation
Unrealized gain on securities available for sale
Mortgage servicing rights
Unrealized gain on derivative instruments
Investment in flow through entities
Prepaid expense
Total deferred tax liability
Net deferred tax asset
2016
2015
$
3,548,000
$
3,471,000
72,000
57,000
1,730,000
1,769,000
2,000
70,000
503,000
237,000
20,000
29,000
48,000
6,259,000
(1,895,000)
(1,808,000)
—
(390,000)
(626,000)
—
—
(4,719,000)
1,540,000
$
70,000
60,000
—
367,000
15,000
—
93,000
5,902,000
(1,445,000)
(2,000,000)
(605,000)
(382,000)
—
(425,000)
(104,000)
(4,961,000)
$
941,000
At December 2016 and 2015, the Company held investments in two limited partnerships with related low income housing tax
credits. The investments are carried at cost and amortized on the effective yield method as they were entered into prior to 2015. The
tax credits from the investments are estimated at $231,000 and $244,000 for the years ended December 31, 2016 and 2015,
respectively, and are recorded as a reduction of income tax expense. Amortization of the investment in the limited partnership
totaled $194,000 and $201,000 for the years ended December 31, 2016 and 2015, respectively, and is recognized as a component of
income tax expense in the consolidated statements of income. The carrying value of these investments was $1,503,000 and
$1,739,000 at December 31, 2016 and 2015, respectively, and is recorded in securities available for sale. The Company's total
exposure to the limited partnership was $1,503,000 and $1,739,000, at December 31, 2016 and 2015, respectively, which is
comprised of the Company's equity investment in the limited partnership.
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, 2013 through 2015.
The First Bancorp - 2016 Form 10-K - Page 84
Note 10. Certificates of Deposit
The following table represents the breakdown of certificates of deposit at December 31, 2016 and 2015:
Certificates of deposit < $100,000
Certificates $100,000 to $250,000
Certificates $250,000 and over
December 31, 2016
December 31, 2015
$
$
195,115,000
$
240,904,000
40,601,000
476,620,000
$
158,529,000
175,077,000
37,376,000
370,982,000
At December 31, 2016, the scheduled maturities of certificates of deposit are as follows:
Year of Maturity
2017
2018
2019
2020
2021
2022 and thereafter
Less than
$100,000
$100,000 and
Greater
All
Certificates of
Deposit
$ 132,813,000
$ 188,724,000
$ 321,537,000
13,346,000
20,991,000
14,597,000
13,313,000
55,000
17,512,000
24,281,000
31,315,000
19,151,000
522,000
30,858,000
45,272,000
45,912,000
32,464,000
577,000
$ 195,115,000
$ 281,505,000
$ 476,620,000
Interest on certificates of deposit of $100,000 or more was $1,970,000, $2,431,000, and $2,823,000 in 2016, 2015 and 2014,
respectively.
Note 11. Borrowed Funds
Borrowed funds consist of advances from the FHLB 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. All FHLB
advances as of December 31, 2016, 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 $157,000,000
with the Federal Reserve Bank of Boston using commercial and home equity loans as collateral which are currently not in use.
Borrowed funds at December 31, 2016 and 2015 have the following range of interest rates and maturity dates:
As of December 31, 2016
Federal Home Loan Bank Advances
2017
2018
2020
2021
2022 and thereafter
Repurchase agreements
Municipal and commercial customers
0.99% - 3.69% $
74,600,000
2.25% - 3.25%
1.60% - 1.97%
1.55%
0.00% - 0.59%
30,000,000
55,000,000
10,000,000
25,127,000
194,727,000
0.15% - 1.93%
84,174,000
$ 278,901,000
The First Bancorp - 2016 Form 10-K - Page 85
As of December 31, 2015
Federal Home Loan Bank Advances
2016
2017
2018
2020
2021 and thereafter
Repurchase agreements
Municipal and commercial customers
Note 12. Employee Benefit Plans
0.41% - 2.44% $ 135,220,000
0.99% - 3.69%
2.25% - 3.25%
1.60% - 1.97%
0.00%
30,000,000
30,000,000
55,000,000
134,000
250,354,000
0.20% - 1.89%
87,103,000
$ 337,457,000
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 2016, 2015,
and 2014. The expense related to the 401(k) plan was $435,000, $462,000, and $454,000 in 2016, 2015, and 2014, respectively.
Deferred Compensation and Supplemental Retirement Plan
The Bank also provides unfunded, non-qualified deferred compensation payable over two years, as well as unfunded 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 $215,000 in 2016,
$312,000 in 2015, and $722,000 in 2014. As of December 31, 2016 and 2015, the accrued liability of these plans was $3,073,000
and $3,088,000, respectively, and is recorded in other liabilities.
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 Bank also provides health insurance for
retired directors. The other plan provides life insurance coverage to certain retired employees. None of these plans are pre-funded.
The Company utilizes FASB ASC Topic 712, "Compensation – Nonretirement Postemployment Benefits", to recognize the
overfunded or underfunded status of defined benefit post-retirement plans (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 First Bancorp - 2016 Form 10-K - Page 86
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:
Interest cost
Benefits paid
Actuarial (gain) loss
Benefit obligation at end of year:
Funded status
Benefit obligation at end of year
Unamortized loss
Accrued benefit cost
Weighted average discount rate as of December 31
The following table sets forth the net periodic benefit cost:
For the years ended December 31,
Components of net periodic benefit cost
Interest cost
Amortization of (gain) loss
Other settlement expense
Net periodic benefit cost
Weighted average discount rate for net periodic cost
2016
2015
2014
$ 1,967,000
$ 1,928,000
$ 1,479,000
81,000
(109,000)
(69,000)
80,000
(102,000)
61,000
71,000
(100,000)
478,000
$ 1,870,000
$ 1,967,000
$ 1,928,000
$ (1,870,000)
156,000
$ (1,714,000)
4.25%
$ (1,967,000)
240,000
$ (1,727,000)
4.25%
$ (1,928,000)
192,000
$ (1,736,000)
4.25%
2016
2015
2014
$
$
81,000
$
80,000
$
71,000
4,000
11,000
96,000
$
—
12,000
92,000
$
(12,000)
10,000
69,000
4.25%
4.25%
5.00%
The measurement date for benefit obligations was as of year-end for all years presented. The estimated amount of benefits to be
paid in 2017 is $126,000. For years ending 2018 through 2021, the estimated amount of benefits to be paid is $126,000, $125,000,
$124,000 and $123,000, respectively, and the total estimated amount of benefits to be paid for years ended 2022 through 2026 is
$623,000. Plan expense for 2017 is estimated to be $77,000.
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:
2016
(156,000) $
54,000
2015
(240,000)
84,000
(102,000) $
(156,000) $
Portion to Be
Recognized in
Income in
2017
—
—
At December 31,
Unamortized net actuarial loss
Deferred tax benefit at 35%
Net unrecognized post-retirement benefits included in accumulated other
comprehensive income (loss)
$
$
The First Bancorp - 2016 Form 10-K - Page 87
Note 13. Other Comprehensive Income (Loss)
The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other
comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014.
For the years ended December 31,
Balance at beginning of year
Unrealized gains (losses) arising during the year
Realized gains during the year
Related deferred taxes
Net change
Balance at end of year
$
$
2016
1,123,000
(2,493,000)
(673,000)
1,108,000
(2,058,000)
$
(935,000) $
2015
2,522,000
(754,000)
(1,399,000)
754,000
(1,399,000)
1,123,000
$
2014
(6,591,000)
15,175,000
(1,155,000)
(4,907,000)
9,113,000
$
2,522,000
The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to
maturity included in other comprehensive income (loss) for the years ended December 31, 2016, 2015, and 2014.
For the years ended December 31,
Balance at beginning of year
Net unrealized losses transferred during the year
Amortization of net unrealized losses
Related deferred taxes
Net change
Balance at end of year
2016
2015
2014
$
$
(112,000) $
—
(26,000)
9,000
(17,000)
(129,000) $
(48,000) $
—
(98,000)
34,000
(64,000)
(112,000) $
—
(23,000)
(51,000)
26,000
(48,000)
(48,000)
The following table represents the effect of the Company's derivative financial instruments included in other comprehensive
income (loss) for the years ended December 31, 2016, 2015, and 2014.
For the years ended December 31,
Balance at beginning of year
Unrealized gains on cash flow hedging derivatives arising during the year
Related deferred taxes
Net change
Balance at end of year
2016
2015
2014
$
— $
— $
1,790,000
(627,000)
1,163,000
—
—
—
$
1,163,000 $
— $
—
—
—
—
—
The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other
comprehensive income (loss) for the years ended December 31, 2016, 2015, and 2014:
For the years ended December 31,
Unrecognized postretirement benefits at beginning of year
Change in unamortized net actuarial loss
Related deferred taxes
Net change
Unrecognized postretirement benefits at end of year
2016
(156,000) $
84,000
(30,000)
54,000
$
(102,000) $
2015
(125,000) $
(48,000)
17,000
(31,000) $
(156,000) $
2014
188,000
(481,000)
168,000
(313,000)
(125,000)
$
$
$
The reclassification of unrecognized transition obligation and accumulated losses is a component of net periodic benefit cost (see
Note 12) and the income tax effect is included in the income tax expense line of the consolidated statements of income and
comprehensive income.
The First Bancorp - 2016 Form 10-K - Page 88
Note 14 - Financial Derivative Instruments
As part of its overall asset and liability management strategy, the Company periodically uses derivative instruments to mitigate
significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company’s interest rate risk
management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest
rates do not have a significant effect on net interest income.
The Company recognizes its derivative instruments in the consolidated balance sheet at fair value. On the date the
derivative instrument is entered into, the Company designates whether the derivative is part of a hedging relationship (i.e., cash
flow or fair value hedge). The Company formally documents relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking hedge transactions. The Company also assesses, both at the
hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in
offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are
highly effective and qualify as cash flow hedges are recorded in other comprehensive income or loss. Any ineffective portion is
recorded in earnings. The Company discontinues hedge accounting when it is determined that the derivative is no longer highly
effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the
derivative as a hedging instrument is no longer appropriate.
In 2016, interest rate swaps were contracted to limit the Company’s exposure to rising interest rates on short-term liabilities
indexed to one-month London Inter-bank Offered Rates (LIBOR). The interest rate swaps were designated as cash flow hedges.
The details of the interest rate swap agreements are as follows:
Notional
Amount
Effective Date Maturity Date
30,000,000 June 28, 2016 June 28, 2021
20,000,000 June 27, 2016 June 27, 2021
Variable Index
Received
1-Month USD
LIBOR
1-Month USD
LIBOR
50,000,000
$
$
$
(1) Presented within other assets in the consolidated balance sheet.
As of December 31,
2016
2015
Fixed Rate
Paid
Fair Value(1)
Fair Value(1)
0.94% $
1,049,000 $
0.89% $
741,000
$
1,790,000 $
—
—
—
The Company would reclassify unrealized gains or losses accounted for within accumulated other comprehensive income
(loss) into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate. In the next 12 months,
the Company does not believe it will be required to reclassify any unrealized gains or losses accounted for within accumulated
other comprehensive income (loss) into earnings as a result of ineffectiveness or swap termination. Amounts paid or received
under the swaps are reported in interest expense in the statement of income, and in interest paid in the statement of cash flows.
Note 15. Preferred and Common Stock
Preferred Stock
On January 9, 2009, the Company issued $25,000,000 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 qualified as Tier 1 capital on the Company's
books for regulatory purposes and ranked 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. In three separate transactions in 2012
and 2013, the Company repurchased all of the CPP Shares from the Treasury.
Incident to such issuance of the CPP Shares, 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 Warrants (and any
shares of common stock issuable pursuant to the Warrants) are freely transferable by Treasury to third parties. The warrants have a
term of 10 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 will expire after ten years. The Warrants were unchanged as a result
of the CPP Shares repurchase transactions.
In May 2015, the Treasury sold all of the Warrants to private parties. In accordance with the contractual terms of the Warrants,
the number of shares issuable upon exercise of the Warrants and the strike price were adjusted at the time of the sale. As a result of
this transaction, the number of shares issuable under the Warrants was adjusted to 226,819 with a strike price of $16.53 per share. In
November 2016, the Company repurchased all of the outstanding Warrants for an aggregate purchase price of $1,750,000.
The First Bancorp - 2016 Form 10-K - Page 89
Common Stock
In 2016, the Company reserved 250,000 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. As of December 31, 2016, 14,511 shares had been issued pursuant
to these plans, leaving 235,489 shares available for future use. The issuance price is based on the market price of the stock at
issuance date. Prior to 2016, the Company had 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 investment plans. As of December 31, 2015, 562,224 shares had
been issued pursuant to these plans. The issuance price was based on the market price of the stock at issuance date. Sales of stock to
directors and employees amounted to 13,787 shares in 2015 and 14,638 shares in 2014.
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, 2016, 247,837 shares have been issued, leaving 352,163 shares usable for
future issuance. 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 10,889 shares in 2016, 11,668 shares in 2015, and 12,686 shares in 2014.
Issuance of common stock for plans totaled $531,000, $465,000 and $457,000 for the years ended December 31, 2016, 2015
and 2014, respectively.
Note 16. 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 have been and 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, 2016, 108,710 shares of restricted stock had been granted under the 2010 Plan, of which 67,064 shares
remain restricted as of December 31, 2016 as detailed in the following table:
Year
Granted
2012
2013
2014
2015
2016
2016
Vesting Term
(In Years)
5.0
5.0
5.0
5.0
1.0
5.0
Shares
7,996
14,776
10,422
12,023
6,832
15,015
67,064
Remaining Term
(In Years)
0.1
0.9
1.9
2.9
0.1
3.9
1.9
The compensation cost related to these restricted stock grants was $1,140,000 and will be recognized over the vesting terms of
each grant. In 2016, $298,000 of expense was recognized for these restricted shares, leaving $457,000 in unrecognized expense as
of December 31, 2016. In 2015, $296,000 of expense was recognized for restricted shares, leaving $345,000 in unrecognized
expense as of December 31, 2015.
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 exercise 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, and as of January 16, 2015, all options under the 1995 Plan had
been exercised or expired.
The First Bancorp - 2016 Form 10-K - Page 90
Note 17. 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, 2016, 2015 and 2014:
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
For the year ended December 31, 2016
Net income as reported
$ 18,009,000
Basic EPS: Income available to common shareholders
18,009,000
10,713,290
$
1.68
Effect of dilutive securities: restricted stock and warrants
Diluted EPS: Income available to common shareholders plus assumed
conversions
For the year ended December 31, 2015
116,512
$ 18,009,000
10,829,802
$
1.66
Net income as reported
$ 16,206,000
Basic EPS: Income available to common shareholders
16,206,000
10,674,755
$
1.52
Effect of dilutive securities: restricted stock and warrants
Diluted EPS: Income available to common shareholders plus assumed
conversions
For the year ended December 31, 2014
90,114
$ 16,206,000
10,764,869
$
1.51
Net income as reported
$ 14,709,000
Basic EPS: Income available to common shareholders
14,709,000
10,638,527
$
1.38
Effect of dilutive securities: restricted stock and warrants
Diluted EPS: Income available to common shareholders plus assumed
conversions
72,337
$ 14,709,000
10,710,864
$
1.37
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, 2016, 2015 and 2014 and the
amount which are above or below the strike price:
Outstanding
In-the-Money
Out-of-the-Money
As of December 31, 2016
Incentive stock options
Warrants issued to private parties
Total dilutive securities
As of December 31, 2015
Incentive stock options
Warrants issued to private parties
Total dilutive securities
As of December 31, 2014
Incentive stock options
Warrants issued to U.S. Treasury
Total dilutive securities
—
—
—
—
226,819
226,819
42,000
225,904
267,904
—
—
—
—
226,819
226,819
—
225,904
225,904
—
—
—
—
—
—
42,000
—
42,000
The First Bancorp - 2016 Form 10-K - Page 91
Note 18. Regulatory Capital Requirements
The ability of the Company to pay cash dividends to its shareholders depends primarily on receipt of dividends from its subsidiary,
the Bank. The subsidiary may pay dividends to its parent out of so much of its net income as the Bank's directors deem appropriate,
subject to the limitation that the total of all dividends declared by the Bank in any calendar year may not exceed the total of its net
income of that year combined with its retained net income of the preceding two years and subject to minimum regulatory capital
requirements. The amount available for dividends in 2017 will be 2017 earnings plus retained earnings of $13,560,000 from 2016
and 2015.
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 of the Currency 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.
Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding companies.
The net unrealized gain or loss on securities available for sale is generally not included in computing regulatory capital. During the
first quarter of 2015, the Company adopted the new Basel III regulatory capital framework as approved by the federal banking
agencies. The adoption of this new framework modified the calculation of the various capital ratios, added a new ratio, common
equity tier 1, and revised the adequately and well capitalized thresholds. Additionally, under the new rule, in order to avoid
limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer above the
adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by
2019. The Company met each of the well-capitalized ratio guidelines at December 31, 2016.
As of December 31, 2016, 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, common equity 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 - 2016 Form 10-K - Page 92
The actual and minimum capital amounts and ratios for the Bank are presented in the following table:
As of December 31, 2016
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Common equity Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
As of December 31, 2015
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Common equity Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
Actual
For capital
adequacy
purposes
To be well-
capitalized
under prompt
corrective
action
provisions
$ 151,487,000
$ 77,928,000
$ 97,410,000
15.55%
8.00%
10.00%
$ 141,249,000
$ 58,446,000
$ 77,928,000
14.50%
6.00%
8.00%
$ 141,249,000
$ 43,835,000
$ 63,317,000
14.50%
4.50%
6.50%
$ 141,249,000
$ 65,437,000
$ 81,797,000
8.63%
4.00%
5.00%
$ 144,255,000
$ 74,316,000
$ 92,895,000
15.53%
8.00%
10.00%
$ 134,239,000
$ 55,737,000
$ 74,316,000
14.45%
6.00%
8.00%
$ 134,239,000
$ 41,803,000
$ 60,382,000
14.45%
4.50%
6.50%
$ 134,239,000
$ 60,885,000
$ 76,106,000
8.82%
4.00%
5.00%
The First Bancorp - 2016 Form 10-K - Page 93
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, 2016
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Common equity Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
As of December 31, 2015
Tier 2 capital to
risk-weighted assets
Tier 1 capital to
risk-weighted assets
Common equity Tier 1 capital to
risk-weighted assets
Tier 1 capital to
average assets
Actual
For capital
adequacy
purposes
$ 152,802,000
$ 77,928,000
15.69%
8.00%
$ 142,564,000
$ 58,446,000
14.64%
6.00%
$ 142,564,000
$ 43,835,000
14.64%
4.50%
$ 142,564,000
$ 65,470,000
8.71%
4.00%
$ 146,653,000
$ 74,357,000
15.78%
8.00%
$ 136,637,000
$ 55,767,000
14.70%
6.00%
$ 136,637,000
$ 41,826,000
14.70%
4.50%
$ 136,637,000
$ 62,022,000
8.81%
4.00%
To be well-
capitalized
under prompt
corrective
action
provisions
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Note 19. 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 2016, 2015 or 2014.
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.
The First Bancorp - 2016 Form 10-K - Page 94
At December 31, 2016 and 2015, 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
2016
2015
$ 76,646,000
$ 69,244,000
57,738,000
49,833,000
4,198,000
4,098,000
10,684,000
10,374,000
$ 149,266,000
$ 133,549,000
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.
Derivative Financial Instruments Designated as Hedges
As part of its overall asset and liability management strategy, the Company periodically uses derivative instruments to minimize
significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company's interest rate risk
management strategy involves modifying the re-pricing characteristics of certain assets and/or liabilities so that change in interest
rates does not have a significant adverse effect on net interest income. Derivative instruments that Management periodically uses as
part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and
interest rate cap agreements.
At December 31, 2016, the Company had two outstanding, off-balance sheet, derivative instruments. These derivative
instruments were interest rate swap agreements, with notional principal amounts totaling $50,000,000 and an unrealized gain of
$1,163,000, net of tax. The notional amounts of the financial derivative instruments do not represent exposure to credit loss. The
Company is exposed to credit loss only to the extent the counter-party defaults in its responsibility to pay interest under the terms of
the agreements. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties
that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party. At December 31, 2016,
the Company’s derivative instrument counterparties were credit rated “A” by the major credit rating agencies. The interest rate swap
agreements were entered into by the Company to limit its exposure to rising interest rates and were designated as cash flow hedges.
Note 20. 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 First Bancorp - 2016 Form 10-K - Page 95
The fair value methods and assumptions for the Company's financial instruments and other assets measured at fair value 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 using a market approach with observable inputs,
including matrix pricing and recent transactions. 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 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 certain collateral-dependent 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 as determined
by reference to sale prices of similar properties, less costs to sell. As such, the Company classifies collateral dependent impaired
loans for which a specific reserve results in a fair value measure as Level 2. All other impaired loans are classified as Level 3.
Other Real Estate Owned
Real estate acquired through foreclosure is initially recorded at fair value. The fair value of other real estate owned is based on
property appraisals and an analysis of sales prices 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 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. As such, the Company classifies deposits as Level 2. The fair value
The First Bancorp - 2016 Form 10-K - Page 96
estimates do not include the benefit that results from the low-cost funding provided by the deposits compared to the cost of
borrowing funds in the market. If that value were considered, the fair value of the Company's net assets could increase.
Borrowed Funds
The fair value of borrowed funds is based on the discounted value of contractual cash flows. The discount rate is estimated using the
rates currently available for borrowings of similar remaining maturities. 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.
Derivatives
The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties
including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The
credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the
likelihood of default by the Company and its counterparties. As of December 31, 2016, the Company has assessed the significance
of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the
credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.
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.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of
December 31, 2016 and 2015.
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Other equity securities
Total securities available for sale
Interest rate swap agreements
Total assets
At December 31, 2016
Level 1
Level 2
Level 3
Total
$
$
$
$
— $ 280,604,000
—
16,482,000
—
3,330,000
— $ 300,416,000
— $
1,790,000
— $ 302,206,000
$
$
$
$
— $ 280,604,000
—
16,482,000
—
3,330,000
— $ 300,416,000
— $
1,790,000
— $ 302,206,000
The First Bancorp - 2016 Form 10-K - Page 97
Securities available for sale
Mortgage-backed securities
State and political subdivisions
Other equity securities
Total assets
At December 31, 2015
Level 1
Level 2
Level 3
Total
$
$
— $ 195,110,000
—
24,506,000
—
3,423,000
— $ 223,039,000
$
$
— $ 195,110,000
—
24,506,000
—
3,423,000
— $ 223,039,000
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The following tables present assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their
initial recognition. Other real estate owned is presented net of an allowance for losses of $205,000 and $162,000 at December 2016
and 2015, respectively. Only collateral-dependent impaired loans with a related specific allowance for loan losses or a partial charge
off are included in impaired loans for purposes of fair value disclosures. Impaired loans below are presented net of specific
allowances of $478,000 and $292,000 at December 31, 2016 and 2015, respectively.
Other real estate owned
Impaired loans
Total assets
Other real estate owned
Impaired loans
Total assets
Fair Value of Financial Instruments
At December 31, 2016
Level 1
Level 2
Level 3
— $
—
— $
375,000
827,000
1,202,000
$
$
At December 31, 2015
Level 1
Level 2
Level 3
— $
—
— $
1,532,000
699,000
2,231,000
$
$
$
$
$
$
Total
375,000
827,000
1,202,000
— $
—
— $
Total
1,532,000
699,000
2,231,000
— $
—
— $
FASB ASC Topic 825, "Financial Instruments," requires disclosures of fair value information about financial instruments, whether
or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other
valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. FASB ASC Topic 825 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent
the underlying fair value of the Company.
The First Bancorp - 2016 Form 10-K - Page 98
The carrying amounts and estimated fair values for financial instruments as of December 31, 2016 were as follows:
Interest-bearing deposits in other banks
293,000
293,000
293,000
$
17,366,000
$
17,366,000
$
17,366,000
$
As of December 31, 2016
Financial assets
Cash and cash equivalents
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
Interest rate swap agreements
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
Level 1
Level 2
Level 3
300,416,000
300,416,000
226,828,000
225,537,000
11,930,000
11,930,000
782,000
782,000
297,952,000
293,103,000
24,954,000
24,548,000
148,737,000
147,394,000
27,035,000
27,446,000
409,999,000
410,327,000
18,253,000
18,125,000
109,986,000
108,740,000
24,472,000
24,131,000
1,061,388,000
1,053,814,000
1,113,000
1,790,000
5,532,000
1,696,000
1,790,000
5,532,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
300,416,000
225,537,000
11,930,000
782,000
—
—
—
—
—
—
558,000
292,545,000
—
24,548,000
33,000
147,361,000
—
27,446,000
236,000
410,091,000
—
—
—
18,125,000
108,740,000
24,131,000
827,000
1,052,987,000
1,696,000
1,790,000
5,532,000
$
140,482,000
$
133,342,000
$
— $
133,342,000
$
282,971,000
259,418,000
125,544,000
115,087,000
217,340,000
188,260,000
210,316,000
209,370,000
266,304,000
266,372,000
—
—
—
—
—
259,418,000
115,087,000
188,260,000
209,370,000
266,372,000
1,242,957,000
1,171,849,000
— 1,171,849,000
84,174,000
79,827,000
194,727,000
193,733,000
278,901,000
273,560,000
479,000
479,000
—
—
—
—
79,827,000
193,733,000
273,560,000
479,000
The First Bancorp - 2016 Form 10-K - Page 99
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The carrying amounts and estimated fair values for financial instruments as of December 31, 2015 were as follows:
Carrying
value
Estimated
fair value
Level 1
Level 2
Level 3
Interest-bearing deposits in other banks
4,013,000
4,013,000
4,013,000
$
14,299,000
$
14,299,000
$
14,299,000
$
As of December 31, 2015
Financial assets
Cash and cash equivalents
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
223,039,000
223,039,000
240,023,000
243,123,000
14,257,000
14,257,000
349,000
349,000
265,616,000
262,763,000
24,166,000
23,906,000
126,551,000
126,141,000
19,730,000
20,331,000
401,315,000
405,315,000
8,421,000
8,379,000
109,101,000
108,118,000
23,822,000
23,754,000
978,722,000
978,707,000
1,093,000
4,912,000
1,915,000
4,912,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
223,039,000
243,123,000
14,257,000
349,000
—
—
—
—
—
—
—
—
—
—
—
—
262,763,000
23,906,000
126,141,000
20,331,000
405,315,000
8,379,000
699,000
107,419,000
—
23,754,000
699,000
978,008,000
1,915,000
4,912,000
$
130,566,000
$
125,651,000
$
— $
125,651,000
$
242,638,000
224,627,000
92,994,000
82,050,000
206,009,000
181,010,000
201,420,000
201,013,000
169,562,000
169,617,000
1,043,189,000
983,968,000
87,103,000
82,168,000
250,354,000
250,027,000
337,457,000
332,195,000
435,000
435,000
—
—
—
—
—
—
—
—
—
—
224,627,000
82,050,000
181,010,000
201,013,000
169,617,000
983,968,000
82,168,000
250,027,000
332,195,000
435,000
The First Bancorp - 2016 Form 10-K - Page 100
—
—
—
—
—
—
—
—
—
—
—
—
—
Note 21. 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
Accounting and auditing expenses
Collections/foreclosures/ other real estate owned expense
ATM and interchange expense
Legal fees and expenses
Note 22. Legal Contingencies
2016
2015
2014
$
$
$
$
3,024,000
1,099,000
690,000
278,000
853,000
377,000
$
$
2,714,000
1,178,000
797,000
432,000
814,000
369,000
2,630,000
1,022,000
746,000
657,000
760,000
769,000
Various legal claims also arise from time to time in the normal course of business which, in the opinion of Management, will have
no material effect on the Company's consolidated financial statements.
Note 23. 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 - 2016 Form 10-K - Page 101
Note 24. 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
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Net unrealized gain on available for sale securities,
net of tax
Total accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
2016
2015
$
613,000
$
1,431,000
3,800,000
432,000
2,500,000
509,000
143,611,000
137,433,000
4,000
12,000
27,559,000
27,559,000
300,000
438,000
$ 176,319,000
$ 169,882,000
$
3,778,000
$
2,366,000
20,000
18,000
3,798,000
2,384,000
108,000
108,000
60,723,000
59,862,000
111,653,000
107,500,000
37,000
37,000
28,000
28,000
172,521,000
167,498,000
$ 176,319,000
$ 169,882,000
The First Bancorp - 2016 Form 10-K - Page 102
Statements of Income
For the years ended December 31,
Interest and dividends on investments
Net securities gains (losses)
Total income
Occupancy expense
Other operating expense
Total expense
Loss before income taxes and Bank earnings
Applicable income taxes
Loss before Bank earnings
Equity in earnings of Bank
Remitted
Unremitted
Net income
Statements of Cash Flows
2016
2015
2014
$
22,000
(6,000)
16,000
9,000
528,000
537,000
(521,000)
(186,000)
(335,000)
$
18,000
$
—
18,000
12,000
488,000
500,000
(482,000)
(172,000)
(310,000)
15,000
38,000
53,000
12,000
604,000
616,000
(563,000)
(200,000)
(363,000)
11,300,000
10,000,000
7,044,000
6,516,000
8,850,000
6,222,000
$ 18,009,000
$ 16,206,000
$ 14,709,000
For the years ended December 31,
Cash flows from operating activities:
Net income
2016
2015
2014
$ 18,009,000
$ 16,206,000
$ 14,709,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Equity compensation expense
(Gain) loss on sale of investments
Tax benefit from vesting of restricted stock
(Increase) decrease in other assets
Increase in dividends receivable
Increase in dividends payable
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
Capital expenditures
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Purchase of common stock
Proceeds from sale of common stock
Repurchase of warrants
Dividends paid
Net cash 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
8,000
298,000
6,000
32,000
136,000
(1,300,000)
112,000
(4,000)
(7,044,000)
10,253,000
87,000
—
87,000
(129,000)
531,000
(1,750,000)
(9,810,000)
(11,158,000)
(818,000)
1,431,000
12,000
296,000
—
—
(135,000)
(50,000)
—
160,000
9,000
431,000
(38,000)
—
(98,000)
(1,050,000)
—
105,000
(6,516,000)
9,973,000
(6,222,000)
7,846,000
—
—
—
(180,000)
465,000
—
(9,349,000)
(9,064,000)
909,000
—
(1,000)
(1,000)
—
457,000
—
(8,893,000)
(8,436,000)
(591,000)
522,000
1,113,000
$
613,000
$
1,431,000
$
522,000
The First Bancorp - 2016 Form 10-K - Page 103
Note 25. New Accounting Pronouncements
In January 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-01, Financial Instruments - Overall:
Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU was issued to enhance the reporting model for
financial instruments to provide users of financial statements with more decision-useful information. This ASU changes how entities
account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting.
The ASU also changes certain disclosure requirements and other aspects of U.S. GAAP, including a requirement for public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The ASU is
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU will not
have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU was issued to increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. The ASU is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2018. Management is reviewing the guidance in the ASU to determine whether it will have a material
effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. Under the new guidance, which will replace the existing incurred loss model for recognizing credit
losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses. The new
guidance, which is referred to as the current expected credit loss model, requires that expected credit losses for financial assets held
at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current
and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these
requirements also applies to debt securities classified as available for sale. The ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after
December 15, 2018, including interim periods within such years. The Company is evaluating the potential impact of the ASU on its
consolidated financial statements and anticipates the ASU may have a material impact.
The First Bancorp - 2016 Form 10-K - Page 104
Note 26. Quarterly Information
The following tables provide unaudited financial information by quarter for each of the past two years:
Dollars in thousands
except per share data
Balance Sheets
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
Cash and cash equivalents $
13,855
$
16,481
$
19,169
$
14,299
$
14,533
$
20,838
$
23,456
$
17,366
Interest-bearing deposits
in other banks
Investments
Restricted equity
securities
Net loans and loans held
for sale
Other assets
Total assets
Deposits
Borrowed funds
Other liabilities
Shareholders' equity
Total liabilities
& equity
336
418,772
24,565
463,064
301
4,013
6,372
7,568
461,255
463,062
453,336
457,599
15,098
471,063
293
527,244
13,912
13,912
13,912
14,257
13,875
14,441
14,048
11,930
928,973
82,984
953,201
82,117
953,674
91,361
979,071
90,108
994,947
1,029,568
1,019,922
1,062,170
91,618
91,440
91,501
93,872
$ 1,458,832
$ 1,553,340
$ 1,539,672
$ 1,564,810
$ 1,574,681
$ 1,621,454
$ 1,635,088
$ 1,712,875
$
966,825
$ 1,096,323
$ 1,058,365
$ 1,043,189
$ 1,109,441
$ 1,145,709
$ 1,173,749
$ 1,242,957
312,576
15,915
163,516
278,013
15,195
163,809
297,369
16,797
167,141
337,457
16,666
167,498
276,531
17,165
171,544
283,095
17,862
174,788
268,098
17,247
175,994
278,901
18,496
172,521
$ 1,458,832
$ 1,553,340
$ 1,539,672
$ 1,564,810
$ 1,574,681
$ 1,621,454
$ 1,635,088
$ 1,712,875
Income and Comprehensive Income Statements
$
12,365
$
12,574
$
12,833
$
13,038
$
13,276
$
13,600
$
13,283
$
13,600
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
$
$
2,663
9,702
500
9,202
3,658
7,265
5,595
1,420
4,175
0.39
2,496
10,078
400
9,678
2,834
6,980
5,532
1,458
4,074
0.38
0.38
$
$
$
2,322
10,511
200
2,393
10,645
450
2,547
10,729
375
2,649
10,951
375
2,754
10,529
375
2,862
10,738
475
10,311
10,195
10,354
10,576
10,154
10,263
2,975
7,707
5,579
1,391
4,188
0.39
0.39
$
$
$
2,763
7,944
5,014
1,245
3,769
0.36
0.35
$
$
$
2,964
7,200
6,118
1,615
4,503
0.42
0.42
$
$
$
3,006
7,245
6,337
1,713
4,624
0.43
0.43
$
$
$
3,469
7,405
6,218
1,656
4,562
0.43
0.42
$
$
$
3,060
7,533
5,790
1,470
4,320
0.40
0.39
$
$
$
Diluted earnings per share $
0.39
Other comprehensive income (loss), net of tax
Net unrealized gain (loss)
on securities available for
sale
Net unrealized gain (loss)
on securities transfered
from available for sale to
held to maturity
Net unrealized gain (loss)
on cash flow hedging
derivative instruments
Unrecognized gain (loss)
on postretirement benefit
costs
Other comprehensive
income (loss)
Comprehensive income
$
57
$
(1,591) $
1,330
$
(1,195) $
1,852
$
1,025
$
(1,292) $
(3,643)
(19)
(17)
(15)
(13)
(11)
(10)
9
(5)
—
—
38
4,213
$
$
—
—
—
—
—
(31)
—
—
$
$
(1,608) $
1,315
2,466
$
5,503
$
$
(1,239) $
1,841
2,530
$
6,344
$
$
The First Bancorp - 2016 Form 10-K - Page 105
(135)
193
1,105
—
880
5,504
$
$
—
54
(1,090) $
(2,489)
3,472
$
1,831
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, 2016 and 2015, 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, 2016. We have also audited The First
Bancorp, Inc.'s internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013
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
accounting principles generally accepted in the United States of America. 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 accounting
principles generally accepted in the United States of America 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, 2016 and 2015, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the period ended December 31, 2016, 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, 2016,
based on criteria established in COSO.
Bangor, Maine
March 10, 2017
The First Bancorp – 2016 Form 10-K 106
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, 2016, 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, 2016 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, 2016. The standard measures adopted by Management in making its evaluation are the
measures in the 2013 Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of
the Treadway Commission. Based upon its review and evaluation, Management concluded that, as of December 31, 2016, 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.
Tony C. McKim, President and Director
(Principal Executive Officer)
March 10, 2017
F. Stephen Ward, Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 10, 2017
The First Bancorp – 2016 Form 10-K 107
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 26, 2017 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 26, 2017 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 26,
2017 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, and director independence required by Item 13 shall
be included in the Proxy Statement for the Annual Meeting of Stockholders to be held on April 26, 2017 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 26, 2017 and is incorporated herein by reference.
The First Bancorp – 2016 Form 10-K 108
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
Exhibit 10.1 Employee Stock Purchase Plan, as referenced in the Company’s Form S-8 filed on January 28, 2016.
Exhibit 10.2(a) Specimen Split Dollar Agreement entered into with Mr. McKim with a death benefit of $250,000.
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 10.3(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 23.1 Consent of Independent Registered Public Accounting Firm
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of 1934
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of 1934
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
Exhibit 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 – 2016 Form 10-K 109
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.
Tony C. McKim, President
March 10, 2017
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.
Tony C. McKim, President and Director
(Principal Executive Officer)
March 10, 2017
F. Stephen Ward, Treasurer and Chief Financial Officer
(Principal Financial Officer, Principal Accounting Officer)
March 10, 2017
David B. Soule, Jr., Director and Chairman of the Board
March 10, 2017
Katherine M. Boyd, Director
March 10, 2017
Robert B. Gregory, Director
March 10, 2017
Renee W. Kelly, Director
March 10, 2017
Mark N. Rosborough, Director
March 10, 2017
Cornelius Russell, Director
March 10, 2017
Stuart G. Smith, Director
March 10, 2017
Bruce A. Tindal, Director
March 10, 2017
The First Bancorp – 2016 Form 10-K 110
Exhibit 3.5
BYLAWS OF
THE FIRST BANCORP, INC.
Revised January 2008
Updated November 16, 2016
ARTICLE I
Name, Location, Type of Financial Institution, Seal
Section 1.1 - Name
The name of this corporation is The First Bancorp, Inc. (hereinafter referred to as the “Company”).
Section 1.2 - Location
The principal place of business of the Company is Main Street, Damariscotta, Maine 04543. The Company may have
additional places of business in Damariscotta or elsewhere within or without the State of Maine.
Section 1.3 - Type of Corporation
The Company is a bank holding company and is organized under the Maine Business Corporation Act.
Section 1.4 - Corporate Seal
The corporate seal of the Company shall be circular in form and shall be engraved as follows:
THE FIRST BANCORP, INC.
1985
MAINE
ARTICLE II
Common Stock
Section 2.1 - Authorized Common Stock
The authorized common stock of the Company shall consist of Eighteen Million (18,000,000) shares of Common Stock, each
having a par value of $.01.
Section 2.2 - Stock Certificates
Each stockholder shall be entitled to a certificate certifying the number of shares of common stock owned by the stockholder.
Each certificate shall be signed by the President or a Vice President and by the Treasurer or the Clerk. Signatures of the
officers of the Company on the certificate may be by facsimile so long as the manual signature of an authorized officer of the
Transfer Agent appears. A certificate may be adopted by the Company and may be issued and delivered notwithstanding the
fact that the person or persons who signed such certificate, or whose facsimile signatures appear thereon, have ceased to be
officers of the Company.
The First Bancorp – 2016 Form 10-K 111
Section 2.3 – Direct Registration System
In lieu of Stock Certificates, stockholders may opt to hold the Company’s shares through the Direct Registration System
(DRS). This provides registered owners with the option of holding their assets on the books and records of the transfer agent
in book-entry form. Through DRS, assets can be electronically transferred to and from the transfer agent and broker/dealer.
Section 2.4 - Transfers of Stock, Transfer Agent
Transfers of stock shall be made only upon the transfer books of the Transfer Agent, as from time to time designated by the
Board of Directors. Before a new certificate is issued the old certificate shall be surrendered for cancellation or satisfactory
evidence provided of its loss or destruction.
Section 2.5 - Stockholders to be Registered
Only those persons whose names are registered on the books of the Transfer Agent shall be entitled to be treated by the
Company as holders of the stock standing in their respective names. The Company shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or
other notice thereof, except as expressly provided by the laws of the State of Maine.
Section 2.6 - Loss or Destruction of Certificate
In case of loss or destruction of any certificate of stock, another may be issued in its place upon proof of such loss or
destruction and upon the giving of a satisfactory assurance of indemnity to the Company and/or to the Transfer Agent, as the
Company may reasonably require.
Section 2.7 – Non-Assessability of Stock
The common stock of the Company, when duly issued, shall be fully paid and forever non-assessable.
ARTICLE III
Meetings of Stockholders
Section 3.1 - Annual Meeting
The annual meeting of the stockholders (the “Annual Meeting”) shall be held on such date during the months of April or May
in each year, or in such other month as the Board of Directors may determine, at Damariscotta, Maine or such other location
within the State of Maine as may be designated in the notice for the Meeting. At the Annual Meeting, the stockholders shall
elect Directors and shall transact such other business as may properly be brought before the meeting.
Section 3.2 - Special Meetings
Special meetings of the stockholders may be called by the President, by the Chairman of the Board of Directors, by a
majority of the Board of Directors or of the Executive Committee, or by the holders of not less than 10% of the shares
entitled to vote at the meeting.
Section 3.3 - Notice of Meetings
Written notice of the Annual Meeting and of any special meeting shall be delivered to each shareholder of record entitled to
vote at such meeting not less than ten (10) nor more than sixty (60) days prior to the date fixed for the meeting. Notice shall
be deemed delivered when deposited with postage prepaid in the United States mail, addressed to the stockholder at the
address appearing on the transfer books of the Transfer Agent. Upon written request transmitted in person or by registered or
certified mail to the President or the Clerk by any person entitled under Section 3.2 to call a special meeting of stockholders,
such officer shall deliver to the stockholders entitled thereto notice of a meeting to be held on a date fixed by such officer,
such notice to be given within thirty (30) days after receipt of such request. Any such notice shall be delivered as provided in
this Section 3.3.
When a meeting of stockholders is adjourned for whatever reason for thirty (30) days or more, notice of the reconvening of
the adjourned meeting shall be given as provided in this Section 3.3. Notice of the reconvening of a meeting adjourned for
less than thirty (30) days need not be given if the time and place of the reconvening of the adjourned meeting are announced
at the meeting at which the adjournment is taken unless a new record date is fixed for the reconvening of the meeting. At the
reconvened meeting the Company may transact any business which might have been transacted at the meeting at which the
adjournment was taken.
The First Bancorp – 2016 Form 10-K 112
Section 3.4 - Record Date
For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of a dividend or other distribution or in order to make a determination of
stockholders for any other purpose, the Board of Directors shall fix in advance a record date for any such determination of
stockholders. Such date shall not in any case be more than seventy (70) nor less than ten (10) days prior to the date
designated for the meeting or the payment of the dividend or distribution.
Section 3.5 - Stockholder List
The Clerk shall, in advance of each meeting of stockholders, prepare a complete alphabetized list of the stockholders entitled
to notice of that meeting, showing the address of and number of shares held of record by each stockholder. The list shall be
kept available at the Company’s principal office, or at a place identified in the meeting notice in the city where the meeting
will be held, for inspection, upon written demand, by any stockholder (or any stockholder’s agent or attorney) during usual
business hours, beginning two (2) business days after notice of the meeting is given and continuing through the meeting.
Such list shall also be available during usual business hours for copying at the stockholder’s expense, subject to the
requirements of Section 1602(4) of the Maine Business Corporation Act. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at any meeting, but if there has not been substantial compliance with
the requirements of this section, the Maine Superior Court, on application of the stockholder requesting inspection, may
postpone the meeting until an opportunity for inspection is provided.
Section 3.6 - Quorum at Meetings
The presence in person or by proxy of the holders of not less than one-third of the shares entitled to vote at any meeting shall
constitute a quorum for that meeting and, except where a larger percentage is required by the Company’s Articles of
Incorporation or by law, action at any meeting at which a quorum is present may be taken by the affirmative vote of the
holders or representatives of a majority of the stock present or represented.
Section 3.7 - Conduct of Meetings
Each meeting of stockholders shall be presided over by the President or such other person as the Board of Directors has
designated to act as chairman of the meeting. The Clerk, or such other person as the Board or the chairman of the meeting
shall designate, shall act as secretary of the meeting. The chairman of the meeting shall determine the order of business at the
meeting and shall have full authority to set reasonable rules of procedure by which the meeting is to be governed. Rulings of
the chairman of the meeting on the order of business, adjournment of the meeting and other procedural matters may be
overturned only by the affirmative vote of two thirds of the shares present in person or by proxy at the meeting. At any
meeting of stockholders, the items of business to be acted upon by stockholders shall be limited to: matters specified in a
notice of meeting given by, or at the direction of, the Board; in the case of a special meeting, matters properly designated in a
valid and timely request by one or more stockholders for the calling of the meeting; in the case of an Annual Meeting,
matters otherwise properly brought before the meeting by a stockholder who has given due notice of such matter to the Board
in accordance with the requirements of Section 3.8 below; and any other matters properly brought before the meeting by, or
at the direction of, the Board (or a duly authorized committee thereof). The chairman of the meeting shall have authority to
rule out of order any proposed item of business or Director nomination that is not a proper matter for stockholder action at the
meeting, whether due to defects in notice or otherwise. The secretary of the meeting shall keep a record of all actions taken
by the stockholders at the meeting. Minutes of the meeting shall thereafter be filed with the Clerk as part of the corporate
records.
Section 3.8 - Advance Notice of Stockholder Proposals at Annual Meetings
A stockholder who wishes to propose a matter for action by the stockholders at any Annual Meeting (“proponent”) must give
the Board of Directors proper and timely notice that satisfies the following conditions:
(1) The notice must set forth in writing (i) the name and address of the proponent, (ii) a representation that the proponent is a
stockholder of record of the Company, (iii) a fair description of the proposal or, if the proposal relates to the nomination of
one or more candidates for election as Directors, the name, address and business background of each such candidate, (iv) any
significant personal or pecuniary interest (whether direct or indirect) of the proponent in such matter or, if the proposal relates
to the nomination of one or more candidates for election as Directors, any arrangement or relationship between the proponent
and each such candidate and (v) such other information regarding the proponent and the proposal as the proxy rules of the
United States Securities and Exchange Commission or any successor commission or other governmental agency thereto (the
“SEC”) would require in a proxy statement for a contested solicitation of proxies.
(2) The notice must be addressed to the Clerk and received at the Company’s principal office not fewer than 120 days before
the date (the “anniversary date”) that falls one year after the date on which the Company’s proxy statement was released to
stockholders in connection with the immediately preceding Annual Meeting; and provided further that if the Annual Meeting
The First Bancorp – 2016 Form 10-K 113
is held more than 30 days before or after the anniversary date, then notice shall be deemed to be timely if received at the
Company’s principal office not later than 10 days after the Company first announces publicly the intended date of the
meeting, through a press release, SEC filing or otherwise.
Upon receipt of such notice, the Clerk shall forward a copy thereof to the Board, which may consider whether to endorse the
proposal or, as the case may be, the proposed candidate(s). If the proposal is otherwise a proper matter for stockholder action,
a proponent who has satisfied the foregoing notice requirements shall thereafter be entitled at the next Annual Meeting to
introduce the proposal or, as the case may be, place in nomination the candidate(s) so described, regardless of whether the
Board has chosen to endorse the proposal or candidate(s). Nothing contained herein shall relieve any person from obligations
imposed under the proxy rules of the SEC or shall obligate the Company to give notice, or include in its proxy statement a
description, of any stockholder proposal. In order to be eligible to submit a proposal, the stockholder must have continuously
held at least $2,000 in market value of the Company’s common stock (as determined by the President) for at least one year as
of the date of submittal of such proposal, and must continue to hold those securities through the date of such Annual Meeting.
ARTICLE IV
Board of Directors
Section 4.1 - Management of Company
Subject to other provisions of these Bylaws, the business and affairs of the Company shall be managed by its Board of
Directors (the “Board”). Each Director shall hold office for the duration of his/her term and until his/her successor shall have
been elected and qualified or until his/her earlier resignation, death or incapacity.
Section 4.2 - Number, Residence, Election, Qualifying Shares
The Board of Directors shall consist of not fewer than five (5) or more than twenty five (25) persons as determined by the
Board prior to each Annual Meeting. No decrease in the number of Directors shall have the effect of shortening the term of
an incumbent Director. No person shall be eligible to serve as a Director unless he/she is the actual and beneficial owner of
1,000 shares of common stock of the Company with additional requirements that the minimum number of shares a Director
will ultimately own will be 5,000. The shortfall between the Director’s actual ownership and the 5,000 shares shall be
acquired through the Employee Stock Purchase Plan or through open market purchases (see Section 4.11 regarding
acquisition of additional shares). Qualifying shares may not be encumbered.
Section 4.3 - Changes in the Number of Directors
Within the limits permitted by these Bylaws, the Board of Directors shall have the power, by resolution, to increase the
number of Directors between Annual Meetings by not more than two members. An increase in the number of Directors,
other than at the Annual Meeting, shall have the effect of creating a vacancy or vacancies which may be filled by the Board,
with the person or persons elected to fill such vacancy or vacancies to hold office until the next Annual Meeting.
Section 4.4 - Director’s Oath
Upon election or re-election, and at least annually, the Directors shall be sworn to the proper discharge of their duties and
each shall take an oath that his/her qualifying shares are unencumbered and that such shares will remain unencumbered
during his/her term of office.
Section 4.5 - Maximum Age
No person shall be eligible to serve as a Director beyond the Annual Shareholder Meeting if he/she is seventy-two (72) years
of age.
Section 4.6 - Executive Committee
The Board of Directors, by a resolution adopted by a majority of the Directors then in office, may elect from the Board an
executive committee (the “Executive Committee”) of not fewer than three (3) or more than seven (7) members, one of whom
shall be the President. The Executive Committee shall have the powers of the Board in regard to the operations of the
business of the Company, which powers shall be exercised at all times when the Board is not in session, subject always to
any specific vote of the Board and limitations imposed by the Maine Business Corporation Act. A majority of the members
of the Executive Committee shall constitute a quorum at any meeting thereof.
The First Bancorp – 2016 Form 10-K 114
At the time the Executive Committee is elected, the Board may designate from among its members one or more alternate
members of the Executive Committee and may specify their order of preference. Each alternate member may attend all
meetings of the Committee but shall be without vote unless one or more of the regularly designated members of the
Committee fails to attend the meeting. In the absence of one or more of the regular members of the Committee, such
alternate member or members may be counted toward a quorum and may vote as though they were regular members of the
Committee. In the event that there are more alternate members of the Committee present than there are absent regular
members of the Committee, the alternate members shall have the right to vote in the order of preference specified by the
Board of Directors in designating them or, if no order of preference was specified, in the order of their appointment or their
listing in a single appointment.
Section 4.7 - Meetings of Directors
The Board shall hold regular meetings at least quarterly at a time and place designated by the Board. Special meetings of the
Board may be called, on at least twenty-four (24) hours’ notice, by the President, the Chairman of the Board, or any three
Directors. Notice may be given by telephone, fax, mail, e- mail, or other commercially reasonable means and shall be
effective upon actual receipt or, in the case of notice sent by U.S. mail addressed to the Director’s residence or usual place of
business, shall be deemed effective two (2) business days after mailing, regardless of when actually received.
Section 4.8 - Quorum
At any regular or special meeting of the Board of Directors, a quorum shall consist of not less than a majority of the Board,
but less than a quorum shall have power to adjourn from time to time, until the next duly called meeting.
Section 4.9 - Vacancies in Board
Vacancies in the Board, whether created by resignation, by death or by enlargement of the Board, may be filled by vote of a
majority of the remaining Directors at any meeting of the Board. Any person elected to fill a vacancy shall hold office until
the next Annual Meeting and until his/her successor has been duly elected and qualified.
Vacancies in the Executive Committee may be filled by majority vote of the Board of Directors from its own membership at
any meeting of the Board, and any person so chosen shall hold office until the next Annual Meeting and until his/her
successor has been duly elected and qualified.
Section 4.10 - Meetings by Telephone
Members of the Board may participate in a meeting through use of a conference telephone or similar communications
equipment, so long as all Directors participating in such meeting can hear each other. Participation in a meeting pursuant to
this paragraph constitutes presence in person at such meeting.
Section 4.11 - Compensation of Directors
Directors shall receive such reasonable compensation for meetings actually attended as from time to time shall be determined
by the Board, and Directors may be reimbursed for reasonable expenses actually incurred while engaged in the business of
the Company. Until the Director owns a minimum of 5,000 shares of FNLC stock, 75% of that Director’s director fees will
be paid through shares issued under the Company’s Employee Stock Purchase Plan.
Section 4.12 - Annual Meeting of Directors
A meeting of the Board of Directors (the Annual Meeting of Directors) shall be held immediately following the Annual
Meeting and no notice of such meeting shall be necessary in order legally to constitute the meeting, provided a majority of
the whole Board shall be present. At the Annual Meeting of Directors, the Directors shall elect officers for the ensuing year.
Section 4.13 - Additional Committees
The Board of Directors, by a resolution adopted by a majority of the Directors then in office, may designate from among its
members additional committees, each consisting of two or more Directors, and may delegate to such committee or
committees any part or all of the authority of the Board of Directors, except as otherwise limited by the Maine Business
Corporation Act.
The First Bancorp – 2016 Form 10-K 115
ARTICLE V
Officers
Section 5.1 - Offices to be Filled, Election, Oath, Compensation, Vacancies, Bonds
At the Annual Meeting of Directors, the Board shall elect a President (who shall be a member of the Board of Directors), a
Treasurer and a Clerk. In addition, the Board may appoint one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Assistant Treasurers, a Secretary and such other officers as the Board may from time to time
determine. The Board shall elect from its own membership a Chairman of the Board to serve for a term of one year, plus any
portion of a year resulting from an appointment occurring after the date of the annual meeting of the Board of Directors;
provided, however, that no individual may serve as Chair for more than eight terms. The officers shall exercise such powers
as may be authorized by the Board or by the Executive Committee, to the extent the same are not in conflict with the specific
powers hereinafter authorized.
Compensation of officers shall be fixed by the Compensation Committee. If any office becomes vacant, the Board may
immediately fill the same. The President, the Treasurer and the Secretary shall hold office at the pleasure of the Board.
Other officers, except the Clerk shall hold office at the pleasure of the President. The Clerk shall hold office until removed by
the Board in accordance with law.
The Board may require security for the fidelity and faithful performance of duties of its officers, employees and agents in
such amount as the Board shall deem necessary or advisable.
Section 5.2 - President
The President shall be the Chief Executive Officer, shall preside at all meetings of the stockholders and, in the absence of the
Chairman, at meetings of the Board of Directors and shall discharge such other duties as the Board shall determine. He/she
shall be a member of the Executive Committee. Unless the Board directs otherwise, he/she shall have the power to exercise
the Company’s voting rights with respect to the common stock of its subsidiaries.
Subject to the direction of the Board, the President shall at all times exercise such general authority, direction and supervision
over all of the affairs of the Company as its interest and security may require. In all cases where the duties of the subordinate
officers and agents of the Company are not specifically prescribed by the Bylaws or by resolution of the Board, such
subordinate officers and agents shall perform their duties under the direction of the President or his/her designee.
In the case of the death, absence or disability of the Clerk, Secretary or Treasurer, the President may exercise such of their
powers as are not inconsistent with these Bylaws. He/she shall perform such other duties as may be provided in the Bylaws
or as may be assigned to him/her from time to time by the Board of Directors.
Section 5.3 - Executive Vice President
The Board may (but shall not be required to) elect one or more Executive Vice Presidents who shall perform such duties as
may be specifically designated by the President or by the Board. In the case of death, absence or disability of the President,
the Board shall implement the previously approved succession plan.
Section 5.4 – Senior Vice Presidents
The Board may from time to time elect one or more Senior Vice Presidents who shall perform such duties as may be assigned
to them from time to time by the President or in his/her absence, by the Board or by the Executive Vice President.
Section 5.5 - Treasurer, Assistant Treasurer
The Treasurer shall have the custody of all monies and securities of the Company and shall keep regular and proper books of
accounts as directed by the Board or any relevant committee thereof. He/she shall have power to endorse all checks, drafts,
notes and orders for money which may be payable to the Company or its order and shall disburse funds of the Company in
payment of just demands against the Company or as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Board from time to time as may be required of him/her an account of all of his/her
transactions as Treasurer and of the financial condition of the Company. He/she shall perform all duties incident to his/her
office or which properly are required of him/her by the Board.
The First Bancorp – 2016 Form 10-K 116
The Assistant Treasurers, in order of seniority in office, unless otherwise directed by the President, shall have and may
exercise all of the powers of the Treasurer in his/her absence, and they may also exercise such additional powers as may be
specifically designated by the Treasurer or by the Executive Committee.
Section 5.6 - Clerk
The Clerk shall record or cause to be recorded the proceedings and actions of all meetings of the stockholders and shall give
or cause to be given all notices required by these Bylaws, by law or by action of the Board for which no other provision is
made.
The Clerk shall have the custody of the seal of the Company and shall have the power to affix the same to certificates of
stock and to other documents and instruments, the execution of which in the name of the Company may be required.
The Clerk shall be a resident of the State of Maine and if he/she dies, becomes incapacitated, resigns or is otherwise unable to
perform his/her duties, the Board shall promptly appoint another Clerk who shall execute and file, in the office of the
Secretary of State a written statement of his/her appointment.
Section 5.7 - Secretary
The Secretary shall record or cause to be recorded the proceedings and actions of all meetings of the Board of Directors and
the Executive Committee and shall perform such other duties as may be assigned by the Board.
Deleted by requisite vote of shareholders at the Annual Shareholder Meeting held April 30, 1996.
ARTICLE VI
Business Combinations
ARTICLE VII
Indemnification and Insurance
Section 7.1 - Indemnification
The Company shall in all cases indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he/she is or was a Director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him/her in connection with such action, suit or proceeding; provided that no indemnification shall be
provided for any person with respect to any matter as to which he/she (a) (i) received a financial benefit to which he/she is
not entitled; (ii) intentionally inflicted harm on the Company or its shareholders; (iii) violated Section 833 of the Maine
Business Corporation Act; or (iv) intentionally violated criminal law, or (b) unless ordered by court under Section 855(1)(C)
of the Maine Business Corporation Act, (i) in connection with a proceeding by or in the right of the Company, except for
reasonable expenses incurred in connection with the proceeding if it is determined that the person seeking indemnification
has met the relevant standard under Section 852(1) of the Maine Business Corporation Act, or (ii) in connection with any
proceeding with respect to conduct for which the person seeking indemnification was adjudged liable on the basis that he/she
received a financial benefit to which he/she was not entitled, whether or not involving action in such person’s official
capacity. The termination of any action, suit or proceeding by judgment, order or conviction adverse to such person, or by
settlement or plea of nolo contendere or its equivalent, shall not of itself create a presumption that such person did not act in
good faith in the reasonable belief that his/her action was in the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his/her conduct was unlawful.
Section 7.2 - Authorization
Any indemnification under Section 7.1, unless ordered by a court or required by the Bylaws, shall be made by the Company
only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is
proper in the circumstances because he/she has met the applicable standard of conduct set forth in Section 7.1. Such
determination shall be made by the Board of Directors by a vote of a majority of the Disinterested Directors (as hereinafter
The First Bancorp – 2016 Form 10-K 117
defined) from a quorum consisting of at least two (2) Directors (a) who were not parties to such action, suit or proceeding and
(b) who do not have a familial, financial, professional or employment relationship with the person(s) whose indemnification
is the subject of the decision being made, which relationship would, in the circumstances, reasonably be expected to exert an
influence on the Director’s judgment when voting on the decision being made (each, a “Disinterested Director”), or if such a
quorum is not obtainable, or even if obtainable, if a majority of Disinterested Directors (or, if there are fewer than two (2)
Disinterested Directors, the Board) so directs, by independent legal counsel in written opinion, or by the shareholders
(provided that shares owned by or voted under the control of a Director who is not a Disinterested Director may not be voted
on the determination). Such a determination, once made by the Board of Directors may not be revoked by the Board of
Directors, and upon the making of such determination by the Board of Directors, the Director, officer, employee or agent may
enforce the indemnification against the Company by a separate action notwithstanding any attempted or actual subsequent
action by the Board.
Section 7.3 - Advancement of Expenses
Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided in
Subsection 7.2 upon receipt of (a) a written affirmation of the Director’s, officer’s, employee’s or agent’s good faith belief
that he/she has met the relevant standard of conduct described in Section 7.1 or that the proceeding involves conduct for
which liability has been eliminated pursuant to Section 202(2)(D) of the Maine Business Corporation Act, and (b) an
unlimited general undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he/she is entitled to be indemnified by the Company as authorized in this section.
Section 7.4 - Nonexclusivity of Rights
The indemnification provided by this section shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or Disinterested Directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who
has ceased to be a Director, officer, employee or agent and shall insure to the benefit of the heirs, executors and
administrators of such a person. A right to indemnification required by these Bylaws may be enforced by a separate action
against the Company, if an order for indemnification has not been entered by a court in any action, suit or proceeding with
respect to which indemnification is sought.
Section 7.5 - Insurance
The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Company, or is or was serving at the request of the Company as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him/her
and incurred by him/her in any such capacity, or arising out of his/her status as such, whether or not the Company would
have the power to indemnify him/her against such liability under this section.
ARTICLE VIII
Books, Accounts And Records
Section 8.1 - Retention And Location
The books, accounts and records of the Company, except as may otherwise be required by the laws of the State of Maine,
shall be kept at the principal or registered office of the Company or at such other place or places as the Board of Directors
may from time to time designate.
Section 8.2 - Inspection By Stockholders
No stockholder as such shall have any right to inspect any account or book or document of the Company, except as such right
may be conferred by law.
Each request by a stockholder for inspection of books and records shall be made in writing. Except as the Maine Business
Corporation Act or the Board or the President may otherwise provide, each such written request must:
(i) describe with reasonable particularity both the stockholder’s purpose and the records he or she desires to inspect, and
demonstrate that the requested records are directly connected with the stockholder’s purposes;
The First Bancorp – 2016 Form 10-K 118
(ii) affirm that the stockholder is making this request in good faith and that the stockholder (including any agents or attorneys
through whom he or she conducts such inspection) shall not make any use of the records except for the particular purpose set
forth in such request; and
(iii) contain an undertaking by the stockholder (a) to preserve the confidentiality of any nonpublic financial information or
other competitively sensitive information about the Company or its business; b) to pay the Company’s reasonable costs in
making any of the requested records available for inspection by the stockholder or his or her duly designated agents or
attorneys, and (c) in the event of any breach by the stockholder or his or her agents or attorneys, to indemnify the Company
against its reasonable costs of enforcing any restrictions on use of the requested records.
As a condition to disclosure of any nonpublic financial information or other competitively sensitive information, and as a
condition to disclosure of personal information about stockholders, creditors, directors, officers or employees of the
Company, the Board or the President may require the stockholder and his or her agents or attorneys to execute a
confidentiality agreement containing provisions reasonably intended, in light of the stated scope and purpose of the requested
inspection, to preserve the confidentiality of such information.
ARTICLE IX
Amendment of Bylaws
Section 9.1 - Amendment of Bylaws
Except as otherwise expressly provided by the Articles of Incorporation or Bylaws, these Bylaws may be amended by the
Board of Directors.
Sections of these bylaws were amended by the shareholders on April 30, 2008 as required. Other sections were amended by
the Board of Directors.
Signed: _________________________________
Charles A. Wootton, Clerk
The First Bancorp, Inc.
Dated: November 16, 2016
The First Bancorp – 2016 Form 10-K 119
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm
Consent of Independent Registered Public Accounting Firm
As the independent registered public accountants of The First Bancorp, Inc., we hereby consent to the incorporation by
reference in the registration statement (No. 333-167014) on Form S-8 of our report dated March 10, 2017, with respect to the
consolidated balance sheets of The First Bancorp, Inc. and Subsidiary as of December 31, 2016 and 2015, 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, 2016, and the effectiveness of internal control over financial reporting as of
December 31, 2016, which report appears in the December 31, 2016 annual report on Form 10-K of The First Bancorp, Inc.
Bangor, Maine
March 10, 2017
The First Bancorp – 2016 Form 10-K 120
Exhibit 31.1 Certification of Chief Executive Officer
I, Tony C. McKim, 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 2015 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 10, 2017
Tony C. McKim
President and Chief Executive Officer
The First Bancorp – 2016 Form 10-K 121
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 2015 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 10, 2017
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp – 2016 Form 10-K 122
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, 2016 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 10, 2017
Tony C. McKim
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, 2016 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 10, 2017
F. Stephen Ward
Treasurer and Chief Financial Officer
The First Bancorp – 2016 Form 10-K 123
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 2016 and 2015.
Such quotations do not reflect retail mark-ups, mark-
downs or brokers’ commissions.
2016
2015
High
$20.50
21.79
24.66
33.21
Low
$17.37
18.50
20.27
22.53
High
$18.25
19.74
20.00
22.56
Low
$16.20
16.41
17.50
18.61
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
The last known transaction of the Company’s stock
during 2016 was on December 31 at $33.10 per share.
There are no warrants outstanding with respect to the
Company’s common stock.. 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 19, 2015
June 17, 2015
September 16, 2015
December 17, 2015
March 24 2016
June 23, 2016
September 22, 2016
December 22, 2016
December 22, 2016
Amount
Per Share
$0.210
$0.220
$0.220
$0.220
$0.220
$0.230
$0.230
$0.230
$0.120
Date
Payable
April 30, 2015
July 31, 2015
October 30, 2015
January 29, 2016
April 29, 2016
July 29, 2016
October 28, 2015
January 31, 2017
January 31, 2017
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 26, 2017 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 15, 2017 was approximately 4,700.
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 2017 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
36 Pleasant Street
Bangor, Maine 04401
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:
Adam Woodworth: Front Cover. Frank Stephens: Page 3.
Melissa Huston: Page 4. Darryn Kayman: Page 5.
Damariscotta River Association: Pages 6, 7.
Don Dunbar: Pages 8, 9. Stacy Flagg, pages 10, 11.
Lincoln Little League: Pages 12, 13. Michael O’Neil,
pages 14, 15.
The First Bancorp – 2016 Form 10-K 124