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, 1997
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, 1997
Common Stock, Par One Cent 618,289
<PAGE>
FIRST NATIONAL LINCOLN CORPORATION
INDEX
PART 1 Financial Information
Page No.
Item 1: Financial Statements
Consolidated Balance Sheets - 1 - 2
Sept. 30, 1997, Sept. 30, 1996, and December 31, 1996.
Consolidated Statements of Income - 3 - 4
Nine months ended Sept. 30, 1997 and Sept. 30, 1996.
Consolidated Statements of Income - 5 - 6
Quarter ended Sept. 30, 1997 and Sept. 30, 1996.
Consolidated Statements of Cash Flows - 7 - 8
Nine months ended Sept. 30, 1997 and Sept. 30, 1996.
Footnotes to Financial Statements - 9
Nine months ended Sept. 30, 1997 and Sept. 30, 1996.
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)
9/30/97 9/30/96 12/31/96
(Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $5,476 $5,974 $6,023
Interest bearing deposits in other banks 1,300 0 975
Investments:
Available for sale 16,078 25,261 18,492
Held to maturity (market values $54,835
at 9/30/97, $36,189 at 9/30/96 and
$41,873 at 12/31/96) 54,692 36,750 42,072
Loans held for sale (market value $302
at 12/31/96) 0 0 302
Loans 173,130 153,891 156,970
Less allowance for loan losses 1,818 1,867 1,906
Net loans 171,312 152,024 155,064
Accrued interest receivable 1,815 1,739 1,702
Bank premises and equipment 4,062 3,842 4,172
Other real estate owned 395 870 814
Other assets 1,923 1,180 1,152
Total Assets $257,053 $227,640 $230,768
Liabilities & Stockholders' Equity
Demand deposits $13,856 $14,104 $14,786
NOW deposits 28,352 27,339 26,349
Money market deposits 4,213 6,725 6,314
Savings deposits 35,221 35,518 34,688
Certificates of deposit 64,453 59,088 61,476
Certificates $100M and over 15,620 12,032 12,061
Total deposits $161,715 $154,806 $155,674
Page1
<PAGE>
BALANCE SHEETS CONT.
9/30/97 9/30/96 12/31/96
(Unaudited) (Unaudited) (Unaudited)
Borrowed funds 68,489 49,615 51,148
Other liabilities 1,716 1,599 1,469
Total Liabilities 231,920 206,020 208,291
Shareholders' Equity:
Common stock 6 6 6
Additional paid-in capital 4,584 4,346 4,486
Retained earnings 20,485 17,276 17,971
Net unrealized gains (losses) on available-
for-sale securities 58 (8) 14
Treasury stock 0 0 0
Total Stockholders' Equity 25,133 21,620 22,477
Total Liabilities & Stockholders'
Equity $257,053 $227,640 $230,768
Page 2
<PAGE>
FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the nine months ended Sept. 30,
1997 1996
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $11,099 $9,768
Interest on deposits with other banks 34 15
Interest and dividends on investments 3,520 3,224
Total interest income 14,653 13,007
Interest expense:
Interest on deposits 4,288 4,156
Interest on borrowed funds 2,672 1,953
Total interest expense 6,960 6,109
Net interest income 7,693 6,898
Provision for loan losses 20 0
Net interest income after provision
for loan losses 7,673 6,898
Other operating income:
Trust department income 248 238
Service charges on deposit accounts 414 366
Net securities gains (losses) 0 2
Other operating income 478 410
Total other operating income 1,140 1,016
Other operating expenses:
Salaries and employee benefits 2,434 2,246
Occupancy expense 253 246
Furniture and equipment expense 467 430
Other 1,388 1,329
Total other operating expenses 4,542 4,251
Page 3
<PAGE>
STATEMENTS OF INCOME CONT.
1997 1996
(Unaudited) (Unaudited)
Income before income taxes 4,271 3,663
Applicable income taxes 1,349 1,180
NET INCOME $2,922 $2,483
Earnings per common share:
Net income $4.73 $4.05
Dividends declared $0.66 $0.54
Page 4
<PAGE>
FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the quarter ended Sept. 30,
1997 1996
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $3,872 $3,380
Interest on deposits with other banks 10 9
Interest and dividends on investments 1,229 1,070
Total interest income 5,111 4,459
Interest expense:
Interest on deposits 1,470 1,364
Interest on borrowed funds 961 697
Total interest expense 2,431 2,061
Net interest income 2,680 2,398
Provision for loan losses 20 0
Net interest income after provision
for loan losses 2,660 2,398
Other operating income:
Trust department income 78 81
Service charges on deposit accounts 139 117
Net securities gains (losses) 0 0
Other operating income 232 202
Total other operating income 449 400
Other operating expenses:
Salaries and employee benefits 833 765
Occupancy expense 84 79
Furniture and equipment expense 175 141
Other 528 495
Total other operating expenses 1,620 1,480
Page 5
<PAGE>
STATEMENTS OF INCOME CONT.
1997 1996
(Unaudited) (Unaudited)
Income before income taxes 1,489 1,318
Applicable income taxes 473 425
NET INCOME $1,016 $893
Earnings per common share:
Net income $1.64 $1.46
Dividends declared $0.23 $0.19
Page 6
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended Sept. 30,
1997 1996
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $2,922 $2,483
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 437 395
Provision for loan losses 20 0
Loans originated for resale (1,657) 0
Proceeds from sales and transfers of loans 1,959 0
Net (gain) loss on sale of investments 0 (2)
Provision for losses on other real estate 0 15
Losses related to other real estate 26 9
Net change in other assets (906) (478)
Net change in other liabilities 350 575
Net amortization of premium on investments 85 105
Net cash provided by operating activities 3,236 3,102
Cash flows from investing activities:
Proceeds from sales of investments 0 4,479
Proceeds from maturities of investments 11,975 11,861
Proceeds from maturities of interest-bearing
deposits 0 2,700
Purchase of interest-bearing deposits (325) 0
Proceeds from sales of other real estate 444 364
Additional investment in other real estate (1) (7)
Purchase of investments (22,199) (16,973)
Net decrease (increase) in loans (16,523) (17,375)
Capital expenditures (123) (91)
Net cash used in investing activities (26,752) (15,042)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market and club accounts (495) 3,511
Net increase (decrease) in certificates
of deposit 6,536 827
Net increase (decrease) in other borrowings 17,341 8,390
Proceeds from sale of Treasury stock 48 29
Payment to repurchase common stock (48) (26)
Net proceeds from stock issuance 98 109
Dividends paid (511) (330)
Net cash provided by financing activities 22,969 12,510
Page 7
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STATEMENTS OF CASH FLOWS CONT.
1997 1996
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents (547) 570
Cash and cash equivalents at beginning
of period 6,023 5,404
Cash and cash equivalents at end of
period $5,476 $5,974
Interest paid $6,852 $6,012
Income taxes paid 1,307 1,096
Non-cash transactions:
Loans transferred to other real estate
owned (net) 50 603
Loans held for sale transferred to loan portfolio 0 4,066
Net change in unrealized gain (loss) on
available for sale securities 44 (210)
Page 8
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FOOTNOTES TO FINANCIAL STATEMENTS
1. 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, 1997 was $2,922,000, an
increase of 17.7% over 1996's net income of $2,483,000. Net income for the
quarter ended September 30, 1997 was $1,016,000. This is a 13.8% increase over
1996's net income of $893,000.
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 1997 was
$7,693,000, an 11.5% increase over 1996's net interest income of $6,898,000.
Total interest income of $14,653,000 is a 12.7% increase over 1996's total
interest income of $13,007,000. Total interest expense of $6,960,000 is a
13.9% increase over 1996's total interest expense of $6,109,000.
Net interest income for the quarter ended September 30, 1997 was
$2,680,000. This is an 11.8% increase over 1996's net interest income of
$2,398,000. Total interest income was $5,111,000, a 14.6% increase over 1996's
total interest income of $4,459,000. Total interest expense of $2,431,000 is
an, 18.0% increase over 1996's total interest expense of $2,061,000.
PROVISION FOR LOAN LOSSES
A provision of $20,000 was made to the allowance for loan losses during
the first nine months of 1997. 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 $478,000 and $162,000 at September 30, 1997 and 1996,
respectively. The portion of the allowance for loan losses allocated to
impaired loans at September 30, 1997 and 1996 was $152,000 and $12,000,
respectively.
NON-INTEREST INCOME
Non-interest income was $1,140,000 for the nine months ended September 30,
1997. This is an increase of 12.2% from 1996's non-interest income of
$1,016,000. Non-interest income for the quarter ended September 30, 1997 was
$449,000, a 12.3% increase over the same period a year ago.
NON-INTEREST EXPENSE
Non-interest expense of $4,542,000 for the nine months ended September 30,
1997 is an increase of 6.8% from 1996's non-interest expense of $4,251,000.
Non-interest expense for the quarter ended September 30, 1997 was $1,620,000, a
9.5% increase over the same period a year ago.
INCOME TAXES
Income taxes on operating earnings increased to $1,349,000 for the first
nine months of 1997 from $1,180,000 for the same period a year ago. The level
of income taxes has increased as a result of the Company's increased earnings.
Page 10
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MANAGEMENT'S DISCUSSION CONTINUED
DEPOSITS AND BORROWED FUNDS
Deposits as of September 30, 1997 increased by 4.5% or $6,909,000 from
September 30, 1996. Demand deposits decreased by 1.8% or $248,000, NOW
deposits increased by 3.7% or $1,013,000, savings deposits decreased by 0.8% or
$297,000, money market deposits decreased by 37.4% or $2,512,000 and
certificates of deposit increased by 12.6% or $8,953,000.
Deposits were supplemented by borrowings from the Federal Home Loan Bank
and repurchase agreements. Total borrowed funds increased by 38.0% or
$18,874,000 from the same period a year ago.
STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES
Stockholders' investment as of September 30, 1997 was $25,133,000 compared
to $21,620,000 for the same period in 1996. The reason for this increase was
the strong earnings performance in the year 1996 and the first nine months of
1997.
During 1996, the Company increased its dividend one cent each quarter to
end the year at a dividend rate of 20 cents per share. In addition, a special
cash dividend of 20 cents per share was declared in the fourth quarter of 1996.
Dividends were increased one cent in the first quarter of 1997 to 21 cents per
share, again in the second quarter to 22 cents per share, and once again in the
third quarter to 23 cents per share.
Leverage capital ratios for the Company were 9.78% and 9.50%,
respectively, at September 30, 1997 and September 30, 1996. The Bank had a
tier one risk-based capital ratio of 15.62% and tier two risk-based capital
ratio of 16.80% at September 30, 1997, compared to 14.46% and 15.71%,
respectively, at September 30, 1996. These were comfortably above the
standards to be rated "well-capitalized" by the regulatory authorities.
LIQUIDITY MANAGEMENT
As of September 30, 1997 the Bank had primary sources of liquidity of
$40,903,000, or 15.9% 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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MANAGEMENT'S DISCUSSION CONTINUED
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, 1997 and 1996, loans on a non-accrual status totaled
$537,000 and $430,000, respectively. In addition to loans on a non-accrual
status at September 30, 1997 and 1996, loans past due greater than 90 days
totaled $674,000 and $161,000 respectively. The Company continues to accrue
interest on these loans because it believes collection of the interest is
reasonably assured.
INVESTMENTS
As of September 30, 1997 stockholders' equity was increased by $58,000 due to a
net unrealized gain 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
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
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.
Page 12
<PAGE>
MANAGEMENT'S DISCUSSION CONTINUED
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.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was adopted in 1996.
SFAS requires the recognition of rights to service mortgage loans for others as
separate assets, regardless of whether the rights were originated or purchased,
and subsequent, periodic evaluations of the capitalized rights for impairment.
The adoption of this statement did not have a material effect on the financial
statements.
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation,"
and has elected the intrinsic value method. The financial statements are not
affected.
SFAS No. 125, as amended by SFAS No. 127, relates to the accounting for
transfers and servicing of financial assets and extinguishments of certain
liabilities and is effective for years beginning January 1, 1997. The adoption
of this statement did not have an effect on the financial statements.
SFAS No. 128, "Earnings per Share", and SFAS No. 129, "Disclosure of
Information about Capital Structure", were issued in February 1997 and are
effective for interim and annual periods ending after December 15, 1997. The
effect of adopting these statements has not been determined.
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
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None
Page 15
<PAGE>
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
Page 16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 17
<PAGE>
ITEM 5: Other Information
On May 5, 1997, the Bank acquired, through purchase, a two story
commercial building on Commercial Street in Rockport, Maine. The Bank received
regulatory approval to open a branch in this location. The branch is scheduled
to open for business during the month of October, 1997.
Page 18
<PAGE>
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 nine months ended September 30, 1997 the
registrant was not required to and did not file any reports on Form 8-K.
Page 19
<PAGE>
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, 1997 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
November 13, 1997 F. Stephen Ward
Date F. Stephen Ward
Treasurer
Page 20
<PAGE>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5476
<INT-BEARING-DEPOSITS> 1300
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16078
<INVESTMENTS-CARRYING> 54692
<INVESTMENTS-MARKET> 54835
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<TOTAL-ASSETS> 257053
<DEPOSITS> 161715
<SHORT-TERM> 67031
<LIABILITIES-OTHER> 1747
<LONG-TERM> 1458
<COMMON> 6
0
0
<OTHER-SE> 25127
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