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, 1998
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, 1998
Common Stock, Par One Cent 2,478,917
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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, 1998, March 31, 1997, and December 31, 1997.
Consolidated Statements of Income and Non-owner Changes
in Equity - 3 - 4
Three months ended March 31, 1998 and March 31, 1997.
Consolidated Statements of Cash Flows - 5 - 6
Three months ended March 31, 1998 and March 31, 1997.
Footnotes to Financial Statements - 7
Three months ended March 31, 1998 and March 31, 1997.
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)
3/31/98 3/31/97 12/31/97
(Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $4,652 $5,981 $5,683
Interest bearing deposits in other banks 0 1 0
Investments:
Available for sale 13,583 16,168 16,463
Held to maturity (market values $50,932
at 3/31/98, $54,589 at 3/31/97 and
$52,610 at 12/31/97) 50,832 55,059 52,282
Loans held for sale (market value $100
at 12/31/97) 0 0 100
Loans 192,186 161,432 181,510
Less allowance for loan losses 1,772 1,852 1,800
Net loans 190,414 159,580 179,710
Accrued interest receivable 2,048 1,830 1,961
Bank premises and equipment 4,797 4,164 4,871
Other real estate owned 241 674 184
Other assets 5,042 1,174 5,025
Total Assets $271,609 $244,631 $266,279
Liabilities & Stockholders' Equity
Demand deposits $13,030 $12,625 $14,109
NOW deposits 29,326 24,858 29,213
Money market deposits 6,970 5,073 6,238
Savings deposits 34,111 34,004 34,104
Certificates of deposit 67,899 63,796 68,970
Certificates $100M and over 18,045 13,520 17,246
Total deposits $169,381 $153,876 $169,880
Page 1
<PAGE>
BALANCE SHEETS CONT.
3/31/98 3/31/97 12/31/97
(Unaudited) (Unaudited) (Unaudited)
Borrowed funds 73,539 65,694 69,037
Other liabilities 1,917 1,807 1,477
Total Liabilities 244,837 221,377 240,394
Shareholders' Equity:
Common stock 25 24 25
Additional paid-in capital 4,655 4,468 4,595
Retained earnings 21,990 18,754 21,172
Net unrealized gains (losses) on
available-for-sale securities 122 10 93
Treasury stock (20) (2) 0
Total Stockholders' Equity 26,772 23,254 25,885
Total Liabilities & Stockholders'
Equity $271,609 $244,631 $266,279
Page 2
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER
CHANGES IN EQUITY
(000 OMITTED)
For the three months ended March 31,
1998 1997
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $4,099 $3,513
Interest on deposits with other banks 5 13
Interest and dividends on investments 1,100 1,087
Total interest income 5,204 4,613
Interest expense:
Interest on deposits 1,575 1,378
Interest on borrowed funds 963 780
Total interest expense 2,538 2,158
Net interest income 2,666 2,455
Provision for loan losses 45 0
Net interest income after provision
for loan losses 2,621 2,455
Other operating income:
Trust department income 91 81
Service charges on deposit accounts 147 130
Net securities gains (losses) (25) 0
Other operating income 202 105
Total other operating income 415 316
Other operating expenses:
Salaries and employee benefits 893 809
Occupancy expense 104 87
Furniture and equipment expense 155 141
Other 464 403
Total other operating expenses 1,616 1,440
Page 3
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STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY CONT.
1998 1997
(Unaudited) (Unaudited)
Income before income taxes 1,420 1,331
Applicable income taxes 428 418
NET INCOME $992 $913
Non-owner changes in equity, net of tax:
Unrealized gains (losses) arising during period 29 (4)
Less: reclassification adjustment for accumulated
gains (losses) included in net-income (16) 0
Total non-owner changes in equity, net of tax 13 (4)
INCOME AND NON-OWNER CHANGES IN
EQUITY 1,005 909
Basic earnings per share $0.40 $0.37
Diluted earnings per share $0.39 $0.36
Cash dividends declared per share $0.07 $0.05
Weighted average number of shares outstanding 2,479,828 2,488,535
Page 4
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
For the three months ended March 31,
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $992 $913
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 147 131
Provision for loan losses 45 0
Loans originated for resale (3,361) (402)
Proceeds from sales and transfers of loans 3,124 704
Net (gain) loss on sale of investments 25 0
Provision for losses on other real estate 0 0
Losses related to other real estate owned 0 14
Net change in other assets (437) (150)
Net change in other liabilities 563 455
Net amortization of premium on investments 26 47
Net cash provided by operating activities 1,124 1,712
Cash flows from investing activities:
Proceeds from sales of investments 0 0
Proceeds from maturities of investments 15,323 5,819
Maturities of interest-bearing deposits 0 974
Proceeds from sales of other real estate 0 126
Additional investment in other real estate 0 0
Purchase of investments (10,728) (16,535)
Net decrease (increase) in loans (10,424) (4,516)
Capital expenditures (72) (122)
Net cash used in investing activities (5,901) (14,254)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market and club accounts (227) (5,577)
Net increase (decrease) in certificates of deposit (272) 3,779
Net increase (decrease) in other borrowings 4,502 14,546
Proceeds from sale of Treasury stock 0 45
Payment to repurchase common stock (20) (47)
Net proceeds from stock issuance 60 0
Dividends paid (297) (246)
Net cash provided by financing activities 3,746 12,500
Page 5
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STATEMENTS OF CASH FLOWS CONT.
1998 1997
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents (1,031) (42)
Cash and cash equivalents at beginning
of period 5,683 6,023
Cash and cash equivalents at end of
period $4,652 $5,981
Interest paid $2,477 $2,056
Income taxes paid 462 25
Non-cash transactions:
Loans transferred to other real estate
owned (net) 56 0
Loans held for sale transferred to loan portfolio 100 0
Net change in unrealized gain (loss) on
available for sale securities 29 (4)
Page 6
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FOOTNOTES TO FINANCIAL STATEMENTS
1. Prior period financial information has been restated to reflect the 300%
stock dividend issued on December 1, 1997.
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, 1998 was $992,000, an
increase of 8.7% over 1997's net income of $913,000.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1998 was
$2,666,000, an 8.6% increase over 1997's net interest income of $2,455,000.
Total interest income of $5,204,000 is a 12.8% increase over 1997's total
interest income of $4,613,000. Total interest expense of $2,538,000 is a
17.6% increase over 1997's total interest expense of $2,158,000.
PROVISION FOR LOAN LOSSES
During the first three months of 1998, $45,000 was added to the allowance
for loan losses. The allowance 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 totaled
$400,000 at March 31, 1998. The portion of the allowance for loan losses
allocated to impaired loans at March 31, 1998 was $161,000.
NON-INTEREST INCOME
Non-interest income of $415,000 for the three months ended March 31, 1998
was an increase of 31.3% from 1997's non-interest income of $316,000. Mortgage
origination fees and income on other assets acquired in the fourth quarter of
1997 contributed to this increase.
NON-INTEREST EXPENSE
Non-interest expense was $1,616,000 for the first three months of 1998.
This is an increase of 12.2% from 1997's non-interest expense of $1,440,000.
This increase can be attributed to higher salaries and employee benefits in
addition to occupancy expenses, a direct result of bringing the new Rockport
office on-line in late 1997.
INCOME TAXES
Income taxes on operating earnings increased to $428,000 for the first
three months of 1998, up from $418,000 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, 1998 increased by 10.1% or $15,505,000 from
March 31, 1997. Demand deposits increased 3.2% or $405,000, NOW deposits
increased 18.0% or $4,468,000, savings deposits increased 0.3% or $107,000,
money market deposits increased by 37.4% or $1,897,000 and certificates of
deposit increased by 11.2% or $8,628,000.
Page 8
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
CONT.
Deposits were supplemented by borrowings from the Federal Home Loan Bank
and repurchase agreements. Total borrowed funds increased by 11.9% or
$7,845,000 from the same period a year ago.
STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES
Stockholders' investment as of March 31, 1998 was $26,772,000 compared to
$23,254,000 for the same period in 1997. The reason for this increase was the
strong earnings performance in the year 1997 and the first three months of
1998.
During 1997, the Company increased its dividend one cent each quarter to
end the year at a dividend rate of 6 cents per share. In addition, a special
cash dividend of 6 cents per share was declared in the fourth quarter of 1997.
In the first quarter of 1998, dividends were increased one cent again to
7 cents per share. (Dividend information for prior periods has been restated
to reflect the 300% stock dividend issued on December 1, 1997.)
Leverage capital ratios for the Company were 9.86% and 9.51%,
respectively, at March 31, 1998 and March 31, 1997. The Bank had a tier one
risk-based capital ratio of 14.50% and tier two risk-based capital ratio of
15.51% at March 31, 1998, compared to 15.21% and 16.46%, respectively, at
March 31, 1997. These were comfortably above the standards to be rated
"well-capitalized" by the regulatory authorities.
LIQUIDITY MANAGEMENT
As of March 31, 1998 the Bank had primary sources of liquidity of
$34,080,000, or 12.6% 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.
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.
Page 9
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
CONT.
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 March 31, 1998 and 1997, loans on a non-accrual status totaled
$448,000 and $439,000, respectively. In addition to loans on a non-accrual
status, loans past due greater than 90 days totaled $271,000 and $221,000 for
the same periods, 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, 1998 stockholders' equity was increased by $122,000 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 10
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
CONT.
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. 130, "Reporting Comprehensive Income", was adopted on January 1,
1998. This standard requires that financial statements report comprehensive
income in addition to net income. Comprehensive income is all changes in
equity except investments by owners and distributions by owners. For the
Company, this includes unrealized appreciation or depreciation on securities
available for sale.
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
In the first quarter of 1998, the Bank entered into an agreement to lease
a former bank branch in Camden, Maine, that had been vacated by its previous
tenant. The Bank has filed and received approval from its principal regulator,
the Office of the Comptroller of the Currency, to establish a branch office in
this location. After modest renovation, Management expects the facility to
open in the second quarter of 1998. No loans or deposits were acquired from
the previous tenant.
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 three months ended March 31, 1998 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 14, 1998 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
May 14, 1998 F. Stephen Ward
Date F. Stephen Ward
Treasurer
Page 18
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<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4652
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13583
<INVESTMENTS-CARRYING> 50832
<INVESTMENTS-MARKET> 50932
<LOANS> 192186
<ALLOWANCE> 1772
<TOTAL-ASSETS> 271609
<DEPOSITS> 169381
<SHORT-TERM> 59272
<LIABILITIES-OTHER> 1917
<LONG-TERM> 14267
<COMMON> 25
0
0
<OTHER-SE> 26747
<TOTAL-LIABILITIES-AND-EQUITY> 271609
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<INTEREST-INCOME-NET> 2666
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<INCOME-PRETAX> 1420
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