FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Nine Months Ended: September 30, 1995 Commission File No. 2-96573 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 Identification No.) incorporation or organization) 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 Sept. 30, 1995 (Common Stock, No par) 608,831
FIRST NATIONAL LINCOLN CORPORATION INDEX PART 1 Financial Information Page No. Item 1: Financial Statements Consolidated Balance Sheets - 1 & 2 September 30, 1995, September 30, 1994, and December 31, 1994. Consolidated Statements of Income - 3 & 4 Nine months ended September 30, 1995 and September 30, 1994. Consolidated Statements of Income - 5 & 6 Quarter ended September 30, 1995 and September 30, 1994. Consolidated Statements of Cash Flows - 7 & 8 Nine months ended September 30, 1995 and September 30, 1994. Management's discussion and analysis of 9 - 12 financial condition and results of operations. PART II Other Information Item 6: Exhibits and reports on Form 8-K. 13 Signatures 14
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (000 OMITTED) 9/30/95 9/30/94 12/31/94 (Unaudited) (Unaudited) (Unaudited) Assets Cash and due from banks $5,303 $5,679 $5,230 Investments: Available for sale (market values $13,022 at 9/30/95, $18,138 at 9/30/94 and $16,533 at 12/31/94) 13,022 18,138 16,533 Held to maturity (market values $49,761 at 9/30/95, $46,878 at 9/30/94 and $46,759 at 12/31/94) 49,839 48,250 49,121 Loans 133,080 125,349 120,294 Allowance for loan losses (2,163) (2,505) (2,428) Net loans 130,917 122,844 117,866 Accrued interest receivable 1,677 1,612 1,678 Bank premises and equipment 4,178 4,159 4,485 Other real estate owned 721 662 553 Other assets 1,316 1,848 1,065 Total Assets $206,973 $203,192 $196,531 Liabilities & Stockholders' Equity Demand deposits $13,037 $13,047 $12,140 NOW deposits 26,821 29,278 27,764 Savings deposits 33,796 42,663 39,906 Money market deposits 7,155 9,294 8,886 Certificates of deposit 56,255 44,119 45,462 Certificates $100M and over 13,832 10,703 8,287 Total deposits $150,896 $149,104 $142,445
BALANCE SHEETS CONT. 9/30/95 9/30/94 12/31/94 (Unaudited) (Unaudited) Unaudited) Other liabilities 1,630 1,329 584 Borrowed funds 35,650 36,338 36,610 Total Liabilities 188,176 186,771 179,639 Stockholders' Equity: Common stock 1,524 1,518 1,519 Additional paid-in capital 2,717 2,666 2,678 Retained earnings 14,544 12,308 12,829 Net unrealized gains (losses) on available-for-sale securities 35 (71) (134) Treasury stock (23) 0 0 Total Stockholders' Equity 18,797 16,421 16,892 Total Liabilities & Stockholders' Equity $206,973 $203,192 $196,531
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED) For the nine months ended Sept. 30, 1995 1994 (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $8,904 $7,017 Interest and dividends on investments 3,312 3,179 Total interest income 12,216 10,196 Interest expense: Interest on deposits 3,833 3,250 Interest on borrowed funds 1,903 868 Total interest expense 5,736 4,118 Net interest income 6,480 6,078 Provision for loan losses 0 0 Net interest income after provision for loan losses 6,480 6,078 Other operating income: Trust department income 173 158 Service charges on deposit accounts 369 338 Net securities gains (losses) 19 9 Other operating income 143 192 Total other operating income 704 697 Other operating expenses: Salaries and employee benefits 2,240 2,335 Occupancy expense 231 231 Premises and equipment expense 446 422 Other 1,365 1,564 Total other operating expenses 4,282 4,552
STATEMENTS OF INCOME CONT. 1995 1994 (Unaudited) (Unaudited) Income before income taxes 2,902 2,223 Applicable income taxes 919 656 NET INCOME $1,983 $1,567 Earnings per common share: Net income $3.26 $2.58 Dividends declared $0.44 $0.41
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED) For the quarter ended Sept. 30, 1995 1994 (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $3,132 $2,566 Interest and dividends on investments 1,092 1,064 Total interest income 4,224 3,630 Interest expense: Interest on deposits 1,438 1,057 Interest on borrowed funds 598 431 Total interest expense 2,036 1,488 Net interest income 2,188 2,142 Provision for loan losses 0 0 Net interest income after provision for loan losses 2,188 2,142 Other operating income: Trust department income 68 53 Service charges on deposit accounts 135 106 Net securities gains (losses) 58 2 Other operating income 40 61 Total other operating income 301 222 Other operating expenses: Salaries and employee benefits 751 803 Occupancy expense 75 78 Premises and equipment expense 146 143 Other 460 524 Total other operating expenses 1,432 1,548
STATEMENTS OF INCOME CONT. 1995 1994 (Unaudited) (Unaudited) Income before income taxes 1,057 816 Applicable income taxes 336 210 NET INCOME $721 $606 Earnings per common share: Net income $1.18 $1.00 Dividends declared $0.15 $0.14
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended Sept. 30, 1995 1994 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $1,983 $1,567 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 383 328 Provision for loan losses 0 0 Net (gain) loss on sale of investments 39 (9) Write down of Other Real Estate Owned 15 98 Losses related to Other Real Estate Owned 7 (23) Net change in other assets (132) (334) Net change in other liabilities 680 515 Net amortization of premium on investments 18 (36) Net cash provided by operating activities 2,993 2,106 Cash flows from investing activities: Proceeds from sales of investments 2,968 5,500 Proceeds from maturities of investments 6,952 9,650 Proceeds from sales of Other Real Estate Owned 118 339 Additional investment in Other Real Estate Owned (7) 0 Purchase of investments (6,764) (15,677) Net decrease (increase) in loans (13,354) (21,004) Capital expenditures (77) (74) Net cash used in investing activities (10,164) (21,266) Cash flows from financing activities: Net increase (decrease) in demand deposits, savings, money market and club accounts (7,887) 2,018 Net increase (decrease) in certif. of deposit 16,338 (9,624) Net increase (decrease) in other borrowings (960) 27,940 Payment to repurchase common stock (net) (23) 0 Net proceeds from stock issuance 44 43 Dividends paid (268) (248) Net cash provided by financing activities 7,244 20,129
STATEMENTS OF CASH FLOWS CONT. 1995 1994 (Unaudited) (Unaudited) Net increase (decrease) in cash and cash equivalents 73 969 Cash and cash equivalents at beginning of period 5,230 4,710 Cash and cash equivalents at end of period $5,303 $5,679 Interest paid $5,620 $4,153 Income taxes paid $594 $369 Non-cash transactions: Loans transferred to Other Real Estate $303 $0 Owned (Net)
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY Net income for the nine months ended September 30, 1995 was $1,983,000, an increase of 26.5% over 1994's net income of $1,567,000. Net income for the quarter ended September 30, 1995 was $721,000, compared to $606,000 in 1994, an increase of 19.0%. NET INTEREST INCOME Net interest income for the nine months ended September 30, 1995 was $6,480,000, a 6.6% increase over 1994's net interest income of $6,078,000. Total interest income of $12,216,000 is a 19.8% increase over 1994's total interest income of $10,196,000. Total interest expense of $5,736,000 is a 39.3% increase over 1994's total interest expense of $4,118,000. Net interest income for the quarter ended September 30, 1995 was $2,188,000, a 2.1% increase over 1994's net interest income of $2,142,000. Total interest income of $4,224,000 is a 16.4% increase over 1994's total interest income of $3,630,000. Total interest expense of $2,036,000 is a 36.8% increase over 1994's total interest expense of $1,488,000. PROVISION FOR LOAN LOSSES No provision to the allowance for loan losses was made during the first nine months of 1995. The allowance for loan losses is deemed adequate as calculated in accordance with Banking Circular #201 and with respect to FAS 114/118. NON-INTEREST INCOME Non-interest income of $704,000 for the nine months ended September 30, 1995 was an increase of 1.0% from 1994's non-interest income of $697,000. Non-interest income for the quarter ended September 30, 1995 was $301,000, a 35.6% increase from the same period a year ago. NON-INTEREST EXPENSE Non-interest expense of $4,282,000 for the nine months ended September 30, 1995 is a decrease of 5.9% from 1994's non-interest expense of $4,552,000. Non-interest expense for the quarter ended September 30, 1995 was $1,432,000, a 7.5% decrease from 1994's non-interest expense of $1,548,000. INCOME TAXES Income taxes on operating earnings increased to $919,000 for the first nine months in 1995 from $656,000 for the same period a year ago. The level of income taxes has increased as a result of the Company's increased earnings.
MANAGEMENT'S DISCUSSION CONT. Income taxes were $336,000 for the quarter ended September 30, 1995 compared to $210,000 in 1994. DEPOSITS AND BORROWED FUNDS Deposits as of September 30, 1995 increased by 1.2% or $1,792,000 from September 30, 1994. Demand deposits decreased by .01% or $10,000, NOW deposits decreased by 8.4% or $2,457,000, savings deposits decreased by 20.8% or $8,867,000, money market deposits decreased by 23.0% or $2,139,000 and certificates of deposit increased by 27.8% or $15,265,000. Deposits were supplemented by borrowings from the Federal Home Loan Bank and repurchase agreements. Total borrowed funds decreased by 1.9% or $688,000 from the same period a year ago. STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES Stockholders' investment as of September 30, 1995 was $18,797,000 compared to $16,421,000 for the same period in 1994. The reason for this increase was the strong earnings performance in the year 1994 and the first nine months of 1995. During 1994, the Company declared cash dividends of 13 cents per share for the first quarter and 14 cents per share for the last three quarters. Dividends remained at 14 cents per share for the first quarter in 1995 and then were increased by one cent in the second and third quarters to the current level of 15 cents per share. Leverage capital ratios were 9.08% and 8.08%, respectively, at September 30, 1995 and September 30, 1994. The Bank had a tier one risk-based capital ratio of 13.33% and tier two risk-based capital ratio of 14.58% at September 30, 1995, compared to 11.78% and 13.03%, respectively, at September 30, 1994. These were comfortably above the standards to be rated "well-capitalized" by the regulatory authorities. Primary capital at September 30, 1995 was 10.02% versus 9.20% at September 30, 1994, both well above the 6.00% level mandated by the regulatory authorities. LIQUIDITY MANAGEMENT As of September 30, 1995 the Bank had primary sources of liquidity of $24,184,000, or 11.8% 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 the property and do no further appraisals as long as the payment history remains satisfactory. If a loan becomes
MANAGEMENT'S DISCUSSION CONT. 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 70% of the appraised value, and once the loan is closed, the loan policy requires the following: Loan paying satisfactorily, a re-appraisal is required every five years. Loans running 90 or more days past due steadily or graded OAEM are appraised every 18 months. Loans graded substandard or lower (including O.R.E.O. properties) are appraised as necessitated, and at a minimum, annually. Note: A certified or licensed appraiser is used for all appraisals. At September 30, 1995 and 1994, loans on a non-accrual status totaled $1,231,000 and $2,056,000, respectively. In addition to loans on a non- accrual status at September 30, 1995 and 1994, loans past due greater than 90 days totaled $117,000 and $267,000 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 FAS 115, "Accounting for Certain Investments in Debt and Equity Securities". FAS 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, 1995 stockholders' equity was increased by $35,000 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.
MANAGEMENT'S DISCUSSION CONT. 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 loans. C. Delinquent loans are reviewed monthly by the Problem Asset Committee. 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 Bank's 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 The quarterly financial statements in the opinion of Management fairly represent all adjustments made to reflect the current financial condition of the Bank for this interim period just ended. All such adjustments were of a normal recurring nature.
PART II 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, 1995 the registrant was not required to and did not file any reports on Form 8-K.
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 8, 1995 Daniel R. Daigneault Date Daniel R. Daigneault President and CEO November 8, 1995 F. Stephen Ward Date F. Stephen Ward Treasurer