FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: Commission File No. 2-96573
September 30, 1996
FIRST NATIONAL LINCOLN CORPORATION
(Exact name of registrant as specified in its charter)
MAINE 01-0404322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
MAIN STREET, DAMARISCOTTA, MAINE 04543
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (207) 563 - 3195
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 twelve 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 XX No __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
Common Stock, Par One Cent 612,705
<PAGE>
FIRST NATIONAL LINCOLN CORPORATION
INDEX
PART 1 Financial Information
Page No.
Item 1: Financial Statements
Consolidated Balance Sheets - 1 - 2
September 30, 1996, September 30, 1995, and December 31, 1995.
Consolidated Statements of Income - 3 - 4
Nine months ended September 30, 1996 and September 30, 1995.
Consolidated Statements of Income - 5 - 6
Three months ended September 30, 1996 and September 30, 1995.
Consolidated Statements of Cash Flows - 7 - 8
Nine months ended September 30, 1996 and September 30, 1995.
Footnotes to Financial Statements - 9
Nine months ended September 30, 1996 and September 30, 1995.
Item 2: Management's discussion and analysis of 10 - 13
financial condition and results of operations.
PART II Other Information
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 15
Item 3: Defaults Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 17
Item 5: Other Information 18
Item 6: Exhibits and reports on Form 8-K. 19
Signatures 20
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
9/30/96 9/30/95 12/31/95
(Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $5,974 $5,303 $5,404
Interest bearing deposits in other banks 0 0 2,700
Investments:
Available for sale 25,261 13,022 34,236
Held to maturity (market values
$36,189 at 9/30/96, $49,761 at
9/30/95 and $27,473 at 12/31/95) 36,750 49,839 27,334
Loans held for sale
(market value $4,127 at 12/31/95) 0 0 4,066
Loans 153,891 133,080 133,245
Less allowance for loan losses 1,867 2,163 2,059
Net loans 152,024 130,917 131,186
Accrued interest receivable 1,739 1,677 1,708
Bank premises and equipment 3,842 4,178 4,146
Other real estate owned 870 721 648
Other assets 1,180 1,316 854
Total Assets $227,640 $206,973 $212,282
Page 1
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BALANCE SHEETS CONT.
9/30/96 9/30/95 12/31/95
(Unaudited) (Unaudited) (Unaudited)
Liabilities & Stockholders' Equity
Demand deposits $14,104 $13,037 $12,989
NOW deposits 27,339 26,821 27,064
Money market deposits 6,725 7,155 7,179
Savings deposits 35,518 33,796 32,943
Certificates of deposit 59,088 56,255 57,535
Certificates $100M and over 12,032 13,832 12,758
Total deposits $154,806 $150,896 $150,468
Borrowed funds 49,615 35,650 41,225
Other liabilities 1,599 1,630 1,024
Total Liabilities 206,020 188,176 192,717
Shareholders' Equity:
Common stock 6 1,524 1,524
Additional paid-in capital 4,346 2,717 2,719
Retained earnings 17,276 14,544 15,123
Net unrealized gains (losses) on
available- for-sale securities (8) 35 202
Treasury stock 0 (23) (3)
Total Stockholders' Equity 21,620 18,797 19,565
Total Liabilities &
Stockholders' Equity $227,640 $206,973 $212,282
Page 2
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the nine months ended September 30,
1996 1995
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $9,768 $8,904
Interest on deposits with other banks 15 0
Interest and dividends on investments 3,224 3,312
Total interest income 13,007 12,216
Interest expense:
Interest on deposits 4,156 3,833
Interest on borrowed funds 1,953 1,903
Total interest expense 6,109 5,736
Net interest income 6,898 6,480
Provision for loan losses 0 0
Net interest income after provision
for loan losses 6,898 6,480
Other operating income:
Trust department income 238 173
Service charges on deposit accounts 366 369
Net securities gains (losses) 2 19
Other operating income 410 143
Total other operating income 1,016 704
Other operating expenses:
Salaries and employee benefits 2,246 2,240
Occupancy expense 246 231
Furniture and equipment expense 430 446
Other 1,329 1,365
Total other operating expenses 4,251 4,282
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STATEMENTS OF INCOME CONT.
1996 1995
(Unaudited) (Unaudited)
Income before income taxes 3,663 1,845
Applicable income taxes 1,180 919
NET INCOME $2,483 $1,983
Earnings per common share:
Net income $4.05 $3.26
Dividends declared $0.54 $0.44
Page 6
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the quarter ended September 30,
1996 1995
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $3,380 $3,132
Interest on deposits with other banks 9 0
Interest and dividends on investments 1,070 1,092
Total interest income 4,459 4,224
Interest expense:
Interest on deposits 1,364 1,438
Interest on borrowed funds 697 598
Total interest expense 2,061 2,036
Net interest income 2,398 2,188
Provision for loan losses 0 0
Net interest income after provision
for loan losses 2,398 2,188
Other operating income:
Trust department income 81 68
Service charges on deposit accounts 117 135
Net securities gains (losses) 0 58
Other operating income 202 40
Total other operating income 400 301
Other operating expenses:
Salaries and employee benefits 765 751
Occupancy expense 79 75
Furniture and equipment expense 141 146
Other 495 460
Total other operating expenses 1,480 1,432
Page 3
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STATEMENTS OF INCOME CONT.
1996 1995
(Unaudited) (Unaudited)
Income before income taxes 1,318 1,057
Applicable income taxes 425 336
NET INCOME $893 $721
Earnings per common share:
Net income $1.46 $1.18
Dividends declared $0.19 $0.15
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $2,483 $1,983
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 395 383
Provision for loan losses 0 0
Net (gain) loss on sale of investments (2) 39
Provision for losses on other
real estate owned 15 15
Losses related to other
real estate owned 9 7
Net change in other assets (478) (132)
Net change in other liabilities 575 680
Net amortization of premium
on investments 105 18
Net cash provided by operating activities 3,102 2,993
Cash flows from investing activities:
Proceeds from sales of investments 4,479 2,968
Proceeds from maturities of investments 11,861 6,952
Proceeds from maturities of
deposits in other banks 2,700 0
Proceeds from sales of other real estate owned 364 118
Additional investment in other real estate owned (7) (7)
Purchase of investments (16,973) (6,764)
Net decrease (increase) in loans (17,375) (13,354)
Capital expenditures (91) (77)
Net cash used in investing activities (15,042) (10,164)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market and club accounts 3,511 (7,887)
Net increase (decrease) in
certificates of deposit 827 16,338
Net increase (decrease) in other borrowings 8,390 (960)
Proceeds from sale of Treasury stock 29 31
Payment to repurchase common stock (26) (54)
Net proceeds from stock issuance 109 44
Dividends paid (330) (268)
Net cash provided by financing activities 12,510 7,244
Page 7
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STATEMENTS OF CASH FLOWS CONT.
1996 1995
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents 570 73
Cash and cash equivalents at beginning
of period 5,404 5,230
Cash and cash equivalents at end of
period $5,974 $5,303
Interest paid $6,012 $5,620
Income taxes paid 1,096 594
Non-cash transactions:
Loans transferred to other real estate
owned (net) 603 303
Loans held for sale transferred to loan portfolio 4,066 -
Net change in unrealized gain (loss) on
available for sale securities (210) 169
Page 8
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FOOTNOTES TO FINANCIAL STATEMENTS
1. At the Company's annual meeting held on April 30, 1996, shareholders
approved an amendment to increase the number of shares of common stock
authorized for issuance from 1,200,000 to 600,000, and to change the par
value of the common stock from no par value to $.01 cent per share.
2. The quarterly financial statements in the opinion of Management fairly
represent all adjustments made to reflect the current financial condition of
the Company for this interim period just ended. All such adjustments were of
a normal recurring nature.
Page 9
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Item 2 - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION &
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the nine months ended September 30, 1996 was $2,483,000, an
increase of 25.2% over 1995's net income of $1,983,000. Net income for the
quarter ended September 30, 1996 was $893,000. This is a 23.9% increase over
the same period a year ago.
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 1996 was
$6,898,000, a 6.5% increase over 1995's net interest income of $6,480,000.
Total interest income of $13,007,000 is a 6.5% increase over 1995's total
interest income of $12,216,000. Total interest expense of $6,109,000 is a 6.5%
increase over 1995's total interest expense of $5,736,000.
Net interest income for the quarter ended September 30, 1996 was
$2,398,000. This is a 9.6% increase over 1995's net interest income of
$2,188,000. Total interest income was $4,459,000, a 5.6% increase over 1995's
total interest income of $4,224,000. Total interest expense of $2,061,000 is a
1.2% increase over 1995's total interest expense of $2,036,000.
PROVISION FOR LOAN LOSSES
No provision to the allowance for loan losses was made during the first
nine months of 1996. The allowance for loan losses is deemed adequate as
calculated in accordance with Banking Circular #201 and with respect to SFAS
114/118. Loans considered to be impaired according to SFAS 114/118 totalled
$162,000 at September 30, 1996. The portion of the allowance for loan losses
allocated to impaired loans at September 30, 1996 was $12,000.
NON-INTEREST INCOME
Non-interest income of $1,016,000 for the nine months ended September 30,
1996 was an increase of 44.3% from 1995's non-interest income of $704,000.
This increase can be attributed to an increase in fiduciary income and fees
charged for processing merchant credit card deposits.
Non-interest income for the quarter ended September 30, 1996 was $400,000,
a 32.9% increase over 1995's non-interest income of $301,000.
NON-INTEREST EXPENSE
Non-interest expense of $4,251,000 for the nine months ended September 30,
1996 is a decrease of 0.7% from 1995's non-interest expense of $4,282,000.
Non-interest expense for the quarter ended September 30, 1996 was $1,480,000,
a 3.4% increase over the same period a year ago.
INCOME TAXES
Income taxes on operating earnings increased to $1,180,000 for the first
nine months of 1996 from $919,000 for the same period a year ago. Income taxes
on operating earnings were $425,000 for the quarter ended September 30, 1996,
compared to $336,000 in 1995. The level of income taxes has increased as a
result of the Company's increased earnings.
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DEPOSITS AND BORROWED FUNDS
Deposits as of September 30, 1996 increased by 2.6% or $3,910,000 from
September 30, 1995. Demand deposits increased by 8.2% or $1,067,000, NOW
deposits increased by 1.9% or $518,000, savings deposits increased by 5.1% or
$1,722,000, money market deposits decreased by 6.0% or $430,000 and
certificates of deposit increased by 1.5% or $1,033,000.
Deposits were supplemented by borrowings from the Federal Home Loan Bank
and repurchase agreements. Total borrowed funds increased by 39.2% or
$13,965,000 from the same period a year ago.
STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES
Stockholders' investment as of September 30, 1996 was $21,620,000 compared
to $18,797,000 for the same period in 1995. The reason for this increase was
the strong earnings performance in the year 1995 and the first nine months of
1996.
During 1995, the Company declared cash dividends of 14 cents per share for
the first quarter and 15 cents per share for the second and third quarters.
Dividends were increased by one cent in the fourth quarter of 1995 to 16 cents
per share. In addition, the Company declared a one-time special cash dividend
of 10 cents per share in the fourth quarter of 1995. Dividends were increased
one cent per quarter in the first, second and third quarters of 1996 to the
current level of 19 cents per share.
Leverage capital ratios for the Company were 9.50% and 9.08%,
respectively, at September 30, 1996 and September 30, 1995. The Bank had a
tier one risk-based capital ratio of 14.46% and tier two risk-based capital
ratio of 15.71% at September 30, 1996, compared to 13.33% and 14.58%,
respectively, at September 30, 1995. These were comfortably above the
standards to be rated "well-capitalized" by the regulatory authorities.
LIQUIDITY MANAGEMENT
As of September 30, 1996 the Bank had primary sources of liquidity of
$33,099,000, or 14.6% of its assets. It is Management's opinion that this is
adequate. In its Asset/Liability policy, the Bank has adopted guidelines for
liquidity.
We are not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Corporation's liquidity, capital resources or results of operations.
LOAN POLICIES
Real estate values:
A. Residential properties We loan up to 80% of the appraised value of
properties without mortgage insurance and up to 95% of the appraised value of
properties with mortgage insurance. No further appraisals are done as long as
the payment history remains satisfactory. If a loan becomes delinquent, a
review might be done of the loan.
Page 11
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When a loan becomes 90 or more days past due, an in-depth review is made of
the loan and a determination made as to whether or not a reappraisal is
required.
B. Land only properties We do not have many of these but we do loan up to 65%
of the appraised value of the property. They are handled the same way as above
from booking date on.
C. Commercial properties We loan up to 75% of the appraised value and, once
the loan is closed, the decision to re-appraise a property is subjective and
depends on a variety of factors, such as: the payment status of the loan, the
risk rating of the loan, the amount of time that has passed since the last
appraisal, changes in the real estate market, availability of financing,
inventory of competing properties, and changes in condition of the property
i.e. zoning changes, environmental contamination, etc.
Note: A certified or licensed appraiser is used for all appraisals.
At September 30, 1996 and 1995, loans on a non-accrual status totaled
$430,000 and $1,231,000, respectively. In addition to loans on a non-accrual
status at September 30, 1996 and 1995, loans past due greater than 90 days
totaled $161,000 and $117,000 respectively. The Company continues to accrue
interest on these loans because it believes collection of the interest is
reasonably assured.
INVESTMENTS
In the first quarter of 1994, the Company adopted SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 115 requires that
all debt securities be classified into one of three categories: trading
securities, securities available for sale and securities held to maturity. As
of September 30, 1996 stockholders' equity was reduced by $8,000 due to a net
unrealized loss in the available-for-sale portfolio.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
No material off-balance sheet risk exists that requires a separate
liability presentation.
SALE OF LOANS
In the first quarter of 1996, the Company adopted SFAS 122, "Accounting
for Mortgage Servicing Rights". This statement requires mortgage servicing
rights, whether purchased or originated, to be capitalized and subsequently
considerd for impairment. As of September 30, 1996, the Bank had not acquired
any servicing rights through loan origination or purchase transactions.
No recourse obligations have been incurred in connection with the sale of
loans.
RISK ELEMENTS
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III of
Industry Guide 3 do not represent or result from trends or uncertainties which
Page 12
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Management reasonably expects will materially impact future operating results,
liquidity or capital resources.
There are no known potential problem loans which are not now disclosed
pursuant to Item III. C. 1. of Industry Guide 3. Item III. C. 2. is not
applicable.
REGULATORY MATTERS
Procedures for monitoring Bank Loan Administration:
A. Loan reviews are done on a regular basis.
B. An action plan is prepared quarterly on all criticized commercial loans
greater than $100,000.
C. Delinquent loans are reviewed weekly by the Bank's Collections Officer and
Senior Loan Officer.
D. A tickler system is utilized to insure timely receipt of current information
(such as financial statements, appraisals and/or credit memos to the credit
file).
Note: Most of the above applies only to commercial loans, but retail loans are
reviewed periodically, usually around a delinquency.
Procedures for monitoring Bank Other Real Estate Owned:
The O.R.E.O. portfolio is handled by the Collections Officer, with backup
by the Senior Loan Officer. Most properties are listed with real estate
brokers for sale. All properties are appraised periodically for market value,
and provision is made to the allowance for O.R.E.O. losses if the estimated
market value after selling costs is lower than the carrying value of the
property.
OTHER
TERMINATION OF PENSION PLAN
As of May 31, 1996, the Company ceased benefit accruals for its pension
plan, which covers substantially all employees. All required documents
requesting approval for termination of the defined benefit plan were filed with
the Internal Revenue Service and the Pension Benefit Guarantee Corporation on
June 18, 1996. The Company has received final approvals for termination of the
plan and will distribute the assets to fulfill the Company's liabilities under
the plan in the fourth quarter of 1996. The Company expects to realize a gain
on termination of approximately $63,000.
The Company is modifying its defined contribution (401k) plan as a
replacement for the pension plan, and has added an annual compensation-based
contribution to the plan, in addition to the current employer-matching
contribution. This modification is not expected to have a material impact on
the Company's financial statements.
Page 13
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company was not involved in any legal proceedings requiring disclosure
under Item 103 of Regulation S-K during the reporting period.
Page 14
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ITEM 2. CHANGES IN SECURITIES
None
Page 15
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ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
Page 16
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Page 17
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ITEM 5: Other Information
None.
Page 18
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ITEM 6: Exhibits, Financial Statement Schedules, and reports on Form 8-K
A. EXHIBITS
EXHIBIT 27. Financial Data Schedule.
B. REPORTS ON FORM 8-K
During the registrant's first six months ended September 30, 1996 the
registrant was not required to and did not file any reports on Form 8-K.
Page 19
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SIGNATURES
Pursuant to the requirements 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.
FIRST NATIONAL LINCOLN CORPORATION
November 13, 1996 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
November 13, 1996 F. Stephen Ward
Date F. Stephen Ward
Treasurer
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<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5974
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25261
<INVESTMENTS-CARRYING> 36750
<INVESTMENTS-MARKET> 36189
<LOANS> 153891
<ALLOWANCE> 1867
<TOTAL-ASSETS> 227640
<DEPOSITS> 154806
<SHORT-TERM> 47790
<LIABILITIES-OTHER> 1599
<LONG-TERM> 1825
<COMMON> 6
0
0
<OTHER-SE> 21614
<TOTAL-LIABILITIES-AND-EQUITY> 227640
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