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
March 31, 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 March 31, 1997
Common Stock, Par One Cent 616,125
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FIRST NATIONAL LINCOLN CORPORATION
INDEX
PART 1 Financial Information
Page No.
Item 1: Financial Statements
Consolidated Balance Sheets - 1 - 2
March 31, 1997, March 31, 1996, and December 31, 1996.
Consolidated Statements of Income - 3 - 4
Three months ended March 31, 1997 and March 31, 1996.
Consolidated Statements of Cash Flows - 5 - 6
Three months ended March 31, 1997 and March 31, 1996.
Footnotes to Financial Statements - 7
Three months ended March 31, 1997 and March 31, 1996.
Item 2: Management's discussion and analysis of 8 - 11
financial condition and results of operations.
PART II Other Information
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 13
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 16
Item 6: Exhibits and reports on Form 8-K. 17
Signatures 18
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
3/31/97 3/31/96 12/31/96
(Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $5,981 $4,044 $6,023
Interest bearing deposits in other banks 1 0 975
Investments:
Available for sale 16,168 29,672 18,492
Held to maturity (market values $54,589
at 3/31/97, $35,729 at 3/31/96 and
$41,873 at 12/31/96) 55,059 36,351 42,072
Loans held for sale (market value $302
at 12/31/96) 0 0 302
Loans 161,432 140,705 156,970
Less allowance for loan losses 1,852 1,961 1,906
Net loans 159,580 138,744 155,064
Accrued interest receivable 1,830 1,788 1,702
Bank premises and equipment 4,164 4,057 4,172
Other real estate owned 674 889 814
Other assets 1,174 914 1,152
Total Assets $244,631 $216,459 $230,768
Liabilities & Stockholders' Equity
Demand deposits $12,625 $12,820 $14,786
NOW deposits 24,858 25,830 26,349
Money market deposits 5,073 5,771 6,314
Savings deposits 34,004 33,733 34,688
Certificates of deposit 63,796 58,883 61,476
Certificates $100M and over 13,520 13,015 12,061
Total deposits $153,876 $150,052 $155,674
Page1
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BALANCE SHEETS CONT.
3/31/97 3/31/96 12/31/96
(Unaudited) (Unaudited) (Unaudited)
Borrowed funds 65,694 44,692 51,148
Other liabilities 1,807 1,617 1,469
Total Liabilities 221,377 196,361 208,291
Shareholders' Equity:
Common stock 6 1,527 6
Additional paid-in capital 4,486 2,753 4,486
Retained earnings 18,754 15,765 17,971
Net unrealized gains (losses) on available-
for-sale securities 10 53 14
Treasury stock (2) 0 0
Total Stockholders' Equity 23,254 20,098 22,477
Total Liabilities & Stockholders' $244,631 $216,459 $230,768
Page 2
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the three months ended March 31,
1997 1996
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $3,513 $3,130
Interest on deposits with other banks 13 4
Interest and dividends on investments 1,087 1,091
Total interest income 4,613 4,225
Interest expense:
Interest on deposits 1,378 1,440
Interest on borrowed funds 780 587
Total interest expense 2,158 2,027
Net interest income 2,455 2,198
Provision for loan losses 0 0
Net interest income after provision
for loan losses 2,455 2,198
Other operating income:
Trust department income 81 80
Service charges on deposit accounts 130 119
Net securities gains (losses) 0 6
Other operating income 105 95
Total other operating income 316 300
Other operating expenses:
Salaries and employee benefits 809 758
Occupancy expense 87 86
Furniture and equipment expense 141 145
Other 403 411
Total other operating expenses 1,440 1,400
Page 3
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STATEMENTS OF INCOME CONT.
1997 1996
(Unaudited) (Unaudited)
Income before income taxes 1,331 1,098
Applicable income taxes 418 353
NET INCOME $913 $745
Earnings per common share:
Net income $1.48 $1.22
Dividends declared $0.21 $0.17
Page 4
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
1997 1996
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $913 $745
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 131 132
Provision for loan losses 0 0
Loans originated for resale (402) 0
Proceeds from sales and transfers of loans 704 0
Net (gain) loss on sale of investments 0 (6)
Provision for losses on other real estate owned 0 0
Losses related to other real estate owned 14 11
Net change in other assets (150) 64
Net change in other liabilities 455 141
Net amortization of premium on investments 47 17
Net cash provided by operating activ 1,712 1,104
Cash flows from investing activities:
Proceeds from sales of investments 0 3,500
Proceeds from maturities of investments 5,819 4,370
Maturities of interest-bearing deposits 974 2,700
Proceeds from sales of other real estate 126 170
Additional investment in other real estat 0 0
Purchase of investments (16,535) (12,319)
Net decrease (increase) in loans (4,516) (3,831)
Capital expenditures (122) (42)
Net cash used in investing activities (14,254) (5,452)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market and club accounts (5,577) (2,021)
Net increase (decrease) in certificates of deposit 3,779 1,605
Net increase (decrease) in other borrowings 14,546 3,467
Proceeds from sale of Treasury stock 45 3
Payment to repurchase common stock (47) 0
Net proceeds from stock issuance 0 38
Dividends paid (246) (104)
Net cash provided by financing activities 12,500 2,988
Page 5
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STATEMENTS OF CASH FLOWS CONT.
1997 1996
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents (42) (1,360)
Cash and cash equivalents at beginning
of period 6,023 5,404
Cash and cash equivalents at end of
period $5,981 $4,044
Interest paid $2,056 $1,947
Income taxes paid 25 8
Non-cash transactions:
Loans transferred to other real estate
owned (net) 0 423
Loans held for sale transferred to loan portfolio 0 4,066
Net change in unrealized gain (loss) on
available for sale securities (6) (226)
Page 6
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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 6,000,000, 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 7
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Item 2 - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the three months ended March 31, 1997 was $913,000, an
increase of 22.6% over 1996's net income of $745,000.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1997 was
$2,455,000, a 11.7% increase over 1996's net interest income of $2,198,000.
Total interest income of $4,613,000 is a 9.2% increase over 1996's total
interest income of $4,225,000. Total interest expense of $2,158,000 is a 6.5%
increase over 1996's total interest expense of $2,027,000.
PROVISION FOR LOAN LOSSES
No provision to the allowance for loan losses was made during the first
three 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
$174,000 at March 31, 1997. The portion of the allowance for loan losses
allocated to impaired loans at March 31, 1997 was $34,000.
NON-INTEREST INCOME
Non-interest income of $316,000 for the three months ended March 31, 1997
was an increase of 5.3% from 1996's non-interest income of $300,000.
NON-INTEREST EXPENSE
Non-interest expense of $1,440,000 for the three months ended March 31,
1997 is an increase of 2.9% from 1996's non-interest expense of $1,400,000.
INCOME TAXES
Income taxes on operating earnings increased to $418,000 for the first
three months of 1997 from $353,000 for the same period a year ago. The level
of income taxes has increased as a result of the Company's increased earnings.
DEPOSITS AND BORROWED FUNDS
Deposits as of March 31, 1997 increased by 2.5% or $3,824,000 from March
31, 1996. Demand deposits decreased by 1.5% or $195,000, NOW deposits
decreased by 3.8% or $972,000, savings deposits increased by 0.8% or $271,000,
money market deposits decreased by 12.1% or $698,000 and certificates of
deposit increased by 7.5% or $5,418,000.
Deposits were supplemented by borrowings from the Federal Home Loan Bank
and repurchase agreements. Total borrowed funds increased by 47.0% or
$21,002,000 from the same period a year ago.
Page 8
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STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES
Stockholders' investment as of March 31, 1997 was $23,254,000 compared to
$20,098,000 for the same period in 1996. The reason for this increase was the
strong earnings performance in the year 1996 and the first three months of
1997.
During 1996, the Company increased its dividend once 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.
In the first quarter of 1997, dividends were increased one cent again to 21
cents per share.
Leverage capital ratios for the Company were 9.51% and 9.28%,
respectively, at March 31, 1997 and March 31, 1996. The Bank had a tier one
risk-based capital ratio of 15.21% and tier two risk-based capital ratio of
16.46% at March 31, 1997, compared to 13.94% and 15.19%, respectively, at March
31, 1996. These were comfortably above the standards to be rated "well-
capitalized" by the regulatory authorities.
LIQUIDITY MANAGEMENT
As of March 31, 1997 the Bank had primary sources of liquidity of
$40,278,000, or 16.5% 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.
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.
Page 9
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Note: A certified or licensed appraiser is used for all appraisals.
At March 31, 1997 and 1996, loans on a non-accrual status totaled $439,000
and $526,000, respectively. In addition to loans on a non-accrual status at
March 31, 1997 and 1996, loans past due greater than 90 days totaled $221,000
and $111,000 respectively. The Company continues to accrue interest on these
loans because it believes collection of the interest is reasonably assured.
INVESTMENTS
As of March 31, 1997 stockholders' equity was increased by $10,000 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.
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.
Page 10
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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 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 11
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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 12
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ITEM 2. CHANGES IN SECURITIES
None
Page 13
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ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
Page 14
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Page 15
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ITEM 5: Other Information
None.
Page 16
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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 March 31, 1997 the
registrant was not required to and did not file any reports on Form 8-K.
Page 17
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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
May 13, 1997 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
May 13, 1997 F. Stephen Ward
Date F. Stephen Ward
Treasurer
Page 18
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5981
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16168
<INVESTMENTS-CARRYING> 55059
<INVESTMENTS-MARKET> 54589
<LOANS> 161432
<ALLOWANCE> 1852
<TOTAL-ASSETS> 244631
<DEPOSITS> 153876
<SHORT-TERM> 64050
<LIABILITIES-OTHER> 1807
<LONG-TERM> 1644
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0
0
<OTHER-SE> 23248
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