10-Q 1 fnlc-20160331x10q.htm 10-Q 10-Q


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549




FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the quarterly period ended March 31, 2016

Commission File Number 0-26589




THE FIRST BANCORP, INC.
(Exact name of Registrant as specified in its charter)

MAINE
01-0404322
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

MAIN STREET, DAMARISCOTTA,  MAINE
04543
(Address of principal executive offices)
 (Zip code)

(207) 563-3195
Registrant's telephone number, including area code




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 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]


Indicate the number of shares outstanding of each of the registrant's classes of common stock as of May 2, 2016
Common Stock: 10,776,377 shares




Table of Contents








Part I. Financial Information

Selected Financial Data (Unaudited)
The First Bancorp, Inc. and Subsidiary
Dollars in thousands,
As of and for the three months ended March 31,
 
except for per share amounts
2016
 
2015
 
Summary of Operations
 
 
 
 
Interest Income
$
13,276

 
$
12,365

 
Interest Expense
2,547

 
2,663

 
Net Interest Income
10,729

 
9,702

 
Provision for Loan Losses
375

 
500

 
Non-Interest Income
2,964

 
3,658

 
Non-Interest Expense
7,200

 
7,265

 
Net Income
4,503

 
4,175

 
Per Common Share Data
 
 
 
 
Basic Earnings per Share
$
0.42

 
$
0.39

 
Diluted Earnings per Share
0.42

 
0.39

 
Cash Dividends Declared
0.22

 
0.21

 
Book Value per Common Share
15.92

 
15.23

 
Tangible Book Value per Common Share2
13.13

 
12.43

 
Market Value
19.51

 
17.45

 
Financial Ratios
 
 
 
 
Return on Average Equity1
10.56

%
10.32

%
Return on Average Tangible Common Equity1,2
12.80

%
12.63

%
Return on Average Assets1
1.15

%
1.16

%
Average Equity to Average Assets
10.92

%
11.26

%
Average Tangible Equity to Average Assets2
9.00

%
9.19

%
Net Interest Margin Tax-Equivalent1,2
3.13

%
3.10

%
Dividend Payout Ratio
52.38

%
53.85

%
Allowance for Loan Losses/Total Loans
1.02

%
1.09

%
Non-Performing Loans to Total Loans
0.67

%
1.10

%
Non-Performing Assets to Total Assets
0.53

%
0.91

%
Efficiency Ratio2
51.45

%
56.79

%
At Period End
 
 
 
 
Total Assets
$
1,574,681

 
$
1,458,832

 
Total Loans
1,004,942

 
939,169

 
Total Investment Securities
467,211

 
432,684

 
Total Deposits
1,109,441

 
966,825

 
Total Shareholders' Equity
171,545

 
163,516

 
1Annualized using a 366-day basis for 2016 and a 365-day basis for 2015.
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.

Page 1



Item 1 – Financial Statements










Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The First Bancorp, Inc.

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc. and Subsidiary as of March 31, 2016 and 2015 and for the three-month periods then ended. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying  interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.


/s/ Berry Dunn McNeil & Parker, LLC
Bangor, Maine
May 6, 2016

Page 2



Consolidated Balance Sheets (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
March 31,
2016
 
December 31, 2015
 
March 31,
2015
Assets
 
 
 
 
 
Cash and cash equivalents
$
14,533,000

 
$
14,299,000

 
$
13,855,000

Interest bearing deposits in other banks
6,372,000

 
4,013,000

 
336,000

Securities available for sale
216,725,000

 
223,039,000

 
156,317,000

Securities to be held to maturity (fair value of $243,337,000 at March 31, 2016, $243,123,000 at December 31, 2015 and $267,247,000 at March 31, 2015)
236,611,000

 
240,023,000

 
262,455,000

Restricted equity securities, at cost
13,875,000

 
14,257,000

 
13,912,000

Loans held for sale
224,000

 
349,000

 

Loans
1,004,942,000

 
988,638,000

 
939,169,000

Less allowance for loan losses
10,219,000

 
9,916,000

 
10,196,000

Net loans
994,723,000

 
978,722,000

 
928,973,000

Accrued interest receivable
6,271,000

 
4,912,000

 
5,724,000

Premises and equipment, net
21,392,000

 
21,816,000

 
22,270,000

Other real estate owned
1,592,000

 
1,532,000

 
2,899,000

Goodwill
29,805,000

 
29,805,000

 
29,805,000

Other assets
32,558,000

 
32,043,000

 
22,286,000

Total assets
$
1,574,681,000

 
$
1,564,810,000

 
$
1,458,832,000

Liabilities
 
 
 
 
 
Demand deposits
$
116,756,000

 
$
130,566,000

 
$
100,939,000

NOW deposits
240,112,000

 
242,638,000

 
199,099,000

Money market deposits
74,643,000

 
92,994,000

 
101,292,000

Savings deposits
205,218,000

 
206,009,000

 
167,338,000

Certificates of deposit
472,712,000

 
370,982,000

 
398,157,000

Total deposits
1,109,441,000

 
1,043,189,000

 
966,825,000

Borrowed funds – short term
151,399,000

 
222,323,000

 
167,437,000

Borrowed funds – long term
125,132,000

 
115,134,000

 
145,139,000

Other liabilities
17,164,000

 
16,666,000

 
15,915,000

Total liabilities
1,403,136,000

 
1,397,312,000

 
1,295,316,000

Shareholders' equity
 
 
 
 
 
Common stock, one cent par value per share
108,000

 
108,000

 
107,000

Additional paid-in capital
60,064,000

 
59,862,000

 
59,286,000

Retained earnings
108,677,000

 
106,673,000

 
101,736,000

Accumulated other comprehensive income (loss)
 
 
 
 
 
   Net unrealized gain on securities available for sale
2,975,000

 
1,123,000

 
2,579,000

Net unrealized loss on securities transferred from available for sale to held to maturity
(123,000
)
 
(112,000
)
 
(67,000
)
   Net unrealized loss on postretirement benefit costs
(156,000
)
 
(156,000
)
 
(125,000
)
Total shareholders' equity
171,545,000

 
167,498,000

 
163,516,000

Total liabilities & shareholders' equity
$
1,574,681,000

 
$
1,564,810,000

 
$
1,458,832,000

Common Stock
 
 
 
 
 
Number of shares authorized
18,000,000

 
18,000,000

 
18,000,000

Number of shares issued and outstanding
10,775,307

 
10,753,855

 
10,734,419

Book value per common share
$
15.92

 
$
15.58

 
$
15.23

Tangible book value per common share
$
13.13

 
$
12.78

 
$
12.43

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

Page 3



Consolidated Statements of Income and Comprehensive Income (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
For the three months ended March 31,
 
2016
 
2015
Interest income
 
 
 
Interest and fees on loans (includes tax-exempt income of $148,000 for March 31, 2016 and $141,000 for March 31, 2015)
$
9,734,000

 
$
8,855,000

Interest on deposits with other banks
3,000

 
5,000

Interest and dividends on investments (includes tax-exempt income of $1,237,000 for March 31, 2016 and $1,312,000 for March 31, 2015)
3,539,000

 
3,505,000

     Total interest income
13,276,000

 
12,365,000

Interest expense
 
 
 
Interest on deposits
1,353,000

 
1,443,000

Interest on borrowed funds
1,194,000

 
1,220,000

     Total interest expense
2,547,000

 
2,663,000

Net interest income
10,729,000

 
9,702,000

Provision for loan losses
375,000

 
500,000

Net interest income after provision for loan losses
10,354,000

 
9,202,000

Non-interest income
 
 
 
Investment management and fiduciary income
563,000

 
541,000

Service charges on deposit accounts
574,000

 
579,000

Net securities gains
536,000

 
1,395,000

Mortgage origination and servicing income, net of amortization
129,000

 
197,000

Other operating income
1,162,000

 
946,000

     Total non-interest income
2,964,000

 
3,658,000

Non-interest expense
 
 
 
Salaries and employee benefits
3,598,000

 
3,720,000

Occupancy expense
578,000

 
645,000

Furniture and equipment expense
796,000

 
770,000

FDIC insurance premiums
214,000

 
230,000

Amortization of identified intangibles
11,000

 
25,000

Other operating expense
2,003,000

 
1,875,000

     Total non-interest expense
7,200,000

 
7,265,000

Income before income taxes
6,118,000

 
5,595,000

Income tax expense
1,615,000

 
1,420,000

NET INCOME
$
4,503,000

 
$
4,175,000

Basic earnings per common share
$
0.42

 
$
0.39

Diluted earnings per common share
$
0.42

 
$
0.39

Other comprehensive income (loss) net of tax
 
 
 
Net unrealized gain on securities available for sale
1,852,000

 
57,000

Net unrealized loss on securities transferred from available for sale to held to maturity, net of amortization
(11,000
)
 
(19,000
)
      Other comprehensive income
1,841,000

 
38,000

Comprehensive income
$
6,344,000

 
$
4,213,000

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

Page 4



Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
 
Common stock and
additional paid-in capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income
 
Total
shareholders'
equity
 
 
Shares
 
Amount
 
 
 
Balance at December 31, 2014
 
10,724,359

 
$
59,389,000

 
$
99,816,000

 
$
2,349,000

 
$
161,554,000

Net income
 

 

 
4,175,000

 

 
4,175,000

Net unrealized gain on securities available for sale, net of tax
 

 

 

 
57,000

 
57,000

Net unrealized loss on securities transferred from available for sale to held to maturity, net of tax
 

 

 

 
(19,000
)
 
(19,000
)
Comprehensive income
 

 

 
4,175,000

 
38,000

 
4,213,000

Cash dividends declared ($0.21 per share)
 

 

 
(2,255,000
)
 

 
(2,255,000
)
Equity compensation expense
 

 
74,000

 

 

 
74,000

Payment to repurchase common stock
 
(10,138
)
 
(180,000
)
 

 

 
(180,000
)
Issuance of restricted stock
 
13,650

 

 

 

 

Proceeds from sale of common stock
 
6,548

 
110,000

 

 

 
110,000

Balance at March 31, 2015
 
10,734,419

 
$
59,393,000

 
$
101,736,000

 
$
2,387,000

 
$
163,516,000

 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
10,753,855

 
$
59,970,000

 
$
106,673,000

 
$
855,000

 
$
167,498,000

Net income
 

 

 
4,503,000

 

 
4,503,000

Net unrealized gain on securities available for sale, net of tax
 

 

 

 
1,852,000

 
1,852,000

Net unrealized loss on securities transferred from available for sale to held to maturity, net of tax
 

 

 

 
(11,000
)
 
(11,000
)
Comprehensive income
 

 

 
4,503,000

 
1,841,000

 
6,344,000

Cash dividends declared ($0.22 per share)
 

 

 
(2,370,000
)
 

 
(2,370,000
)
Equity compensation expense
 

 
49,000

 

 

 
49,000

Payment for repurchase of common stock
 
(6,936
)
 

 
(129,000
)
 

 
(129,000
)
Tax benefit from vesting of restricted stock
 

 
32,000

 

 

 
32,000

Issuance of restricted stock
 
21,847

 

 

 

 

Proceeds from sale of common stock
 
6,541

 
121,000

 

 

 
121,000

Balance at March 31, 2016
 
10,775,307

 
$
60,172,000

 
$
108,677,000

 
$
2,696,000

 
$
171,545,000

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

Page 5



Consolidated Statements of Cash Flows (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
For the three months ended
 
March 31, 2016
 
March 31, 2015
Cash flows from operating activities
 
 
 
     Net income
$
4,503,000

 
$
4,175,000

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
432,000

 
425,000

Change in deferred taxes
(111,000
)
 
88,000

Provision for loan losses
375,000

 
500,000

Loans originated for resale
(4,560,000
)
 
(5,489,000
)
Proceeds from sales and transfers of loans
4,799,000

 
5,599,000

Net gain on sales of loans
(114,000
)
 
(110,000
)
Net gain on sale or call of securities
(536,000
)
 
(1,395,000
)
Net amortization of premiums on investments
619,000

 
159,000

Net gain on sale of other real estate owned
(7,000
)
 
(43,000
)
Equity compensation expense
49,000

 
74,000

Tax benefit from vesting of restricted stock
32,000

 

Net increase in other assets and accrued interest
(1,944,000
)
 
(1,301,000
)
Net increase (decrease) in other liabilities
(388,000
)
 
129,000

Amortization of investment in limited partnership
49,000

 
66,000

Net acquisition amortization
11,000

 
25,000

     Net cash provided by operating activities
3,209,000

 
2,902,000

Cash flows from investing activities
 
 
 
(Increase) decrease in interest-bearing deposits in other banks
(2,359,000
)
 
3,223,000

Proceeds from sales of securities available for sale
8,868,000

 
35,465,000

Proceeds from maturities, payments and calls of securities available for sale
8,852,000

 
5,991,000

Proceeds from maturities, payments and calls of securities to be held to maturity
6,228,000

 
18,875,000

Proceeds from sales of other real estate owned
201,000

 
1,309,000

Purchases of securities available for sale
(8,672,000
)
 
(11,255,000
)
Purchases of securities to be held to maturity
(2,785,000
)
 
(5,344,000
)
Redemption of restricted equity securities
382,000

 

Net increase in loans
(16,630,000
)
 
(22,633,000
)
Capital expenditures
(8,000
)
 
(76,000
)
     Net cash provided (used) by investing activities
(5,923,000
)
 
25,555,000

Cash flows from financing activities
 
 
 
Net decrease in demand, savings, and money market accounts
(35,478,000
)
 
(8,650,000
)
Net increase (decrease) in certificates of deposit
101,730,000

 
(49,344,000
)
Net decrease in short-term borrowings
(70,926,000
)
 
(22,340,000
)
Advances on long-term borrowings
10,000,000

 
55,000,000

Payment to repurchase common stock
(129,000
)
 
(180,000
)
Proceeds from sale of common stock
121,000

 
110,000

Dividends paid
(2,370,000
)
 
(2,255,000
)
     Net cash provided (used) by financing activities
2,948,000

 
(27,659,000
)
Net increase in cash and cash equivalents
234,000

 
798,000

Cash and cash equivalents at beginning of period
14,299,000

 
13,057,000

     Cash and cash equivalents at end of period
$
14,533,000

 
$
13,855,000

Interest paid
$
2,487,000

 
$
2,621,000

Income taxes paid

 

Non-cash transactions
 
 
 
Net transfer from loans to other real estate owned
$
254,000

 
$
380,000


Page 6



Notes to Consolidated Financial Statements
The First Bancorp, Inc. and Subsidiary
                          
Note 1 – Basis of Presentation
The First Bancorp, Inc. ("the Company") is a financial holding company that owns all of the common stock of First National Bank ("the Bank"). The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the 2016 period is not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and notes included in the Company's annual report on Form 10-K for the year ended December 31, 2015.
Subsequent Events
Events occurring subsequent to March 31, 2016, have been evaluated as to their potential impact to the financial statements.
Note 2 – Investment Securities
The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2016:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
190,025,000

 
$
3,837,000

 
$
(205,000
)
 
$
193,657,000

State and political subdivisions
18,975,000

 
948,000

 
(19,000
)
 
19,904,000

Other equity securities
3,148,000

 
39,000

 
(23,000
)
 
3,164,000

 
$
212,148,000

 
$
4,824,000

 
$
(247,000
)
 
$
216,725,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
68,009,000

 
$
37,000

 
$
(107,000
)
 
$
67,939,000

Mortgage-backed securities
39,828,000

 
1,675,000

 
(35,000
)
 
41,468,000

State and political subdivisions
124,474,000

 
5,156,000

 

 
129,630,000

Corporate securities
4,300,000

 

 

 
4,300,000

 
$
236,611,000

 
$
6,868,000

 
$
(142,000
)
 
$
243,337,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
12,838,000

 
$

 
$

 
$
12,838,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
13,875,000

 
$

 
$

 
$
13,875,000



Page 7



The following table summarizes the amortized cost and estimated fair value of investment securities at December 31, 2015:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
194,563,000

 
$
1,509,000

 
$
(962,000
)
 
$
195,110,000

State and political subdivisions
23,367,000

 
1,201,000

 
(62,000
)
 
24,506,000

Other equity securities
3,381,000

 
48,000

 
(6,000
)
 
3,423,000

 
$
221,311,000

 
$
2,758,000

 
$
(1,030,000
)
 
$
223,039,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
71,000,000

 
$
40,000

 
$
(2,284,000
)
 
$
68,756,000

Mortgage-backed securities
42,193,000

 
1,305,000

 
(136,000
)
 
43,362,000

State and political subdivisions
122,530,000

 
4,200,000

 
(25,000
)
 
126,705,000

Corporate securities
4,300,000

 

 

 
4,300,000

 
$
240,023,000

 
$
5,545,000

 
$
(2,445,000
)
 
$
243,123,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
13,220,000

 
$

 
$

 
$
13,220,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
14,257,000

 
$

 
$

 
$
14,257,000


The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2015:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
124,969,000

 
$
2,790,000

 
$
(142,000
)
 
$
127,617,000

State and political subdivisions
24,384,000

 
1,328,000

 
(114,000
)
 
25,598,000

Other equity securities
2,997,000

 
105,000

 

 
3,102,000

 
$
152,350,000

 
$
4,223,000

 
$
(256,000
)
 
$
156,317,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
82,974,000

 
$
108,000

 
$
(912,000
)
 
$
82,170,000

Mortgage-backed securities
53,228,000

 
2,030,000

 
(116,000
)
 
55,142,000

State and political subdivisions
125,953,000

 
3,811,000

 
(129,000
)
 
129,635,000

Corporate securities
300,000

 

 

 
300,000

 
$
262,455,000

 
$
5,949,000

 
$
(1,157,000
)
 
$
267,247,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
12,875,000

 
$

 
$

 
$
12,875,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
13,912,000

 
$

 
$

 
$
13,912,000



Page 8



The following table summarizes the contractual maturities of investment securities at March 31, 2016:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
2,599,000

 
$
2,633,000

 
$
1,825,000

 
$
1,847,000

Due in 1 to 5 years
3,321,000

 
3,390,000

 
6,709,000

 
6,925,000

Due in 5 to 10 years
19,222,000

 
19,946,000

 
56,874,000

 
58,932,000

Due after 10 years
183,858,000

 
187,592,000

 
171,203,000

 
175,633,000

Equity securities
3,148,000

 
3,164,000

 

 

 
$
212,148,000

 
$
216,725,000

 
$
236,611,000

 
$
243,337,000


The following table summarizes the contractual maturities of investment securities at December 31, 2015:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
527,000

 
$
530,000

 
$
1,814,000

 
$
1,850,000

Due in 1 to 5 years
7,562,000

 
7,727,000

 
6,306,000

 
6,514,000

Due in 5 to 10 years
19,647,000

 
20,055,000

 
58,397,000

 
60,196,000

Due after 10 years
190,194,000

 
191,304,000

 
173,506,000

 
174,563,000

Equity securities
3,381,000

 
3,423,000

 

 

 
$
221,311,000

 
$
223,039,000

 
$
240,023,000

 
$
243,123,000


The following table summarizes the contractual maturities of investment securities at March 31, 2015:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
2,842,000

 
$
2,858,000

 
$
1,873,000

 
$
1,899,000

Due in 1 to 5 years
14,950,000

 
15,231,000

 
12,050,000

 
12,241,000

Due in 5 to 10 years
17,746,000

 
18,110,000

 
47,898,000

 
49,930,000

Due after 10 years
113,815,000

 
117,016,000

 
200,634,000

 
203,177,000

Equity securities
2,997,000

 
3,102,000

 

 

 
$
152,350,000

 
$
156,317,000

 
$
262,455,000

 
$
267,247,000

At March 31, 2016, securities with a fair value of $202,296,000 were pledged to secure 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 and $224,133,000 at March 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 the three months ended March 31, 2016 and 2015:
 
For the three months ended March 31,
 
2016
 
2015
Proceeds from sales of securities
$
8,868,000

 
$
35,465,000

Gross realized gains
536,000

 
1,395,000

Gross realized losses

 

Net gain
$
536,000

 
$
1,395,000

Related income taxes
$
188,000

 
$
488,000



Page 9



Management reviews securities with unrealized losses for other than temporary impairment. As of March 31, 2016, there were 34 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 12 had been temporarily impaired for 12 months or more. At the present time, there have been no material changes in the credit quality of these securities resulting in other than temporary impairment, and in Management's opinion, no additional write-down for other-than-temporary impairment is warranted. Information regarding securities temporarily impaired as of March 31, 2016 is summarized below:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
U.S. Government-sponsored agencies
$

 
$

 
$
4,893,000

 
$
(107,000
)
 
$
4,893,000

 
$
(107,000
)
Mortgage-backed securities
17,125,000

 
(170,000
)
 
1,866,000

 
(70,000
)
 
18,991,000

 
(240,000
)
State and political subdivisions
522,000

 

 
1,417,000

 
(19,000
)
 
1,939,000

 
(19,000
)
Other equity securities
235,000

 
(6,000
)
 
106,000

 
(17,000
)
 
341,000

 
(23,000
)
 
$
17,882,000

 
$
(176,000
)
 
$
8,282,000

 
$
(213,000
)
 
$
26,164,000

 
$
(389,000
)

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:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
U.S. Government-sponsored agencies
$
45,311,000

 
$
(1,469,000
)
 
$
17,185,000

 
$
(815,000
)
 
$
62,496,000

 
$
(2,284,000
)
Mortgage-backed securities
120,915,000

 
(1,027,000
)
 
910,000

 
(71,000
)
 
121,825,000

 
(1,098,000
)
State and political subdivisions
2,528,000

 
(24,000
)
 
2,901,000

 
(63,000
)
 
5,429,000

 
(87,000
)
Other equity securities
64,000

 
(5,000
)
 
52,000

 
(1,000
)
 
116,000

 
(6,000
)
 
$
168,818,000

 
$
(2,525,000
)
 
$
21,048,000

 
$
(950,000
)
 
$
189,866,000

 
$
(3,475,000
)
As of March 31, 2015, there were 55 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 five had been temporarily impaired for 12 months or more. Information regarding securities temporarily impaired as of March 31, 2015 is summarized below:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
U.S. Government-sponsored agencies
$
36,459,000

 
$
(595,000
)
 
$
10,903,000

 
$
(317,000
)
 
$
47,362,000

 
$
(912,000
)
Mortgage-backed securities
20,634,000

 
(256,000
)
 
65,000

 
(2,000
)
 
20,699,000

 
(258,000
)
State and political subdivisions
10,390,000

 
(201,000
)
 
1,641,000

 
(42,000
)
 
12,031,000

 
(243,000
)
 
$
67,483,000

 
$
(1,052,000
)
 
$
12,609,000

 
$
(361,000
)
 
$
80,092,000

 
$
(1,413,000
)

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 comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities. The

Page 10



remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $123,000 at March 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 March 31, 2016 and 2015, and December 31, 2015, the Bank's investment in FHLB stock totaled $12,838,000, $12,875,000 and $13,220,000, 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 March 31, 2016. The Bank will continue to monitor its investment in FHLB stock.

Note 3 – Loans
The following table shows the composition of the Company's loan portfolio as of March 31, 2016 and 2015 and at December 31, 2015:
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
279,683,000

 
27.8
%
$
269,462,000

 
27.3
%
$
242,021,000

 
25.8
%
   Construction
20,138,000

 
2.0
%
24,881,000

 
2.5
%
34,683,000

 
3.7
%
   Other
133,629,000

 
13.3
%
128,341,000

 
13.0
%
115,455,000

 
12.3
%
Municipal
19,042,000

 
1.9
%
19,751,000

 
2.0
%
26,277,000

 
2.8
%
Residential
 
 
 
 
 
 
 
 
 
 
 
 
   Term
405,495,000

 
40.3
%
403,030,000

 
40.7
%
383,869,000

 
40.8
%
   Construction
11,754,000

 
1.2
%
8,451,000

 
0.9
%
13,036,000

 
1.4
%
Home equity line of credit
110,249,000

 
11.0
%
110,202,000

 
11.1
%
104,100,000

 
11.1
%
Consumer
24,952,000

 
2.5
%
24,520,000

 
2.5
%
19,728,000

 
2.1
%
Total
$
1,004,942,000

 
100.0
%
$
988,638,000

 
100.0
%
$
939,169,000

 
100.0
%
Loan balances include net deferred loan costs of $4,053,000 as of March 31, 2016, $3,686,000 as of December 31, 2015, and $2,933,000 as of March 31, 2015. Pursuant to collateral agreements, qualifying first mortgage loans, which totaled $277,905,000 at March 31, 2016, $279,463,000 at December 31, 2015, and $240,760,000 at March 31, 2015, were used to collateralize borrowings from the FHLB. In addition, commercial, construction and home equity loans totaling $258,369,000 at March 31, 2016, $243,578,000 at December 31, 2015, and $244,170,000 at March 31, 2015, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
For all loan classes, loans over 30 days past due are considered delinquent. Information on the past-due status of loans by class of financing receivable as of March 31, 2016, is presented in the following table:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90+ Days
Past Due
 
All
Past Due
 
Current
 
Total
 
90+ Days
& Accruing
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
428,000

 
$
376,000

 
$
451,000

 
$
1,255,000

 
$
278,428,000

 
$
279,683,000

 
$

   Construction

 

 
150,000

 
150,000

 
19,988,000

 
20,138,000

 

   Other
323,000

 
110,000

 

 
433,000

 
133,196,000

 
133,629,000

 

Municipal

 

 

 

 
19,042,000

 
19,042,000

 

Residential
 
 
 
 
 
 
 
 
 
 
 
 
 
   Term
2,321,000

 
62,000

 
2,400,000

 
4,783,000

 
400,712,000

 
405,495,000

 
411,000

   Construction

 

 

 

 
11,754,000

 
11,754,000

 

Home equity line of credit
718,000

 
122,000

 
543,000

 
1,383,000

 
108,866,000

 
110,249,000

 

Consumer
176,000

 
26,000

 
41,000

 
243,000

 
24,709,000

 
24,952,000

 
41,000

Total
$
3,966,000

 
$
696,000

 
$
3,585,000

 
$
8,247,000

 
$
996,695,000

 
$
1,004,942,000

 
$
452,000


Page 11



Information on the past-due status of loans by class of financing receivable 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
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
603,000

 
$

 
$
281,000

 
$
884,000

 
$
268,578,000

 
$
269,462,000

 
$

   Construction
35,000

 

 
238,000

 
273,000

 
24,608,000

 
24,881,000

 

   Other
303,000

 

 
25,000

 
328,000

 
128,013,000

 
128,341,000

 
25,000

Municipal

 

 

 

 
19,751,000

 
19,751,000

 

Residential
 
 
 
 
 
 
 
 
 
 
 
 
 
   Term
450,000

 
2,098,000

 
2,639,000

 
5,187,000

 
397,843,000

 
403,030,000

 
100,000

   Construction
368,000

 

 

 
368,000

 
8,083,000

 
8,451,000

 

Home equity line of credit
261,000

 
255,000

 
592,000

 
1,108,000

 
109,094,000

 
110,202,000

 

Consumer
102,000

 
26,000

 
11,000

 
139,000

 
24,381,000

 
24,520,000

 
11,000

Total
$
2,122,000

 
$
2,379,000

 
$
3,786,000

 
$
8,287,000

 
$
980,351,000

 
$
988,638,000

 
$
136,000

Information on the past-due status of loans by class of financing receivable as of March 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
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
491,000

 
$

 
$
307,000

 
$
798,000

 
$
241,223,000

 
$
242,021,000

 
$

   Construction
21,000

 

 
208,000

 
229,000

 
34,454,000

 
34,683,000

 

   Other
135,000

 
2,000

 
857,000

 
994,000

 
114,461,000

 
115,455,000

 

Municipal

 

 

 

 
26,277,000

 
26,277,000

 

Residential
 
 
 
 
 
 
 
 
 
 
 
 
 
   Term
3,948,000

 
1,438,000

 
2,857,000

 
8,243,000

 
375,626,000

 
383,869,000

 
100,000

   Construction

 

 

 

 
13,036,000

 
13,036,000

 

Home equity line of credit
488,000

 
105,000

 
864,000

 
1,457,000

 
102,643,000

 
104,100,000

 

Consumer
136,000

 
16,000

 
85,000

 
237,000

 
19,491,000

 
19,728,000

 
84,000

Total
$
5,219,000

 
$
1,561,000

 
$
5,178,000

 
$
11,958,000

 
$
927,211,000

 
$
939,169,000

 
$
184,000

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in 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.

Page 12



Cash payments received on non-accrual loans, which are included in 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. Information on nonaccrual loans as of March 31, 2016 and 2015 and at December 31, 2015 is presented in the following table:
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
Commercial
 
 
 
 
 
   Real estate
$
920,000

 
$
915,000

 
$
1,609,000

   Construction
180,000

 
238,000

 
208,000

   Other
69,000

 
66,000

 
932,000

Municipal

 

 

Residential
 
 
 
 
 
   Term
4,677,000

 
5,260,000

 
6,514,000

   Construction

 

 

Home equity line of credit
841,000

 
893,000

 
1,039,000

Consumer

 

 
25,000

Total
$
6,687,000

 
$
7,372,000

 
$
10,327,000

Impaired loans include troubled debt restructured 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.


Page 13



A breakdown of impaired loans by class of financing receivable as of and for the three months ended March 31, 2016 is presented in the following table:
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Average Recorded Investment
 
Recognized Interest Income
With No Related Allowance
Commercial
 
 
 
 
 
 
 
 
 
  Real estate
$
7,381,000

 
$
7,712,000

 
$

 
$
7,221,000

 
$
79,000

  Construction
179,000

 
238,000

 

 
80,000

 
1,000

  Other
1,097,000

 
1,137,000

 

 
1,121,000

 
8,000

Municipal

 

 

 

 

Residential
 
 
 
 
 
 
 
 
 
  Term
10,543,000

 
11,541,000

 

 
10,715,000

 
91,000

  Construction

 

 

 

 

Home equity line of credit
1,344,000

 
2,023,000

 

 
1,353,000