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 Three Months Ended: March 31, 1996 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 March 31, 1996 (Common Stock, No par) 610,744
FIRST NATIONAL LINCOLN CORPORATION INDEX PART 1 Financial Information Page No. Item 1: Financial Statements Consolidated Balance Sheets - 1 & 2 March 31, 1996, March 31, 1995, and December 31, 1995. Consolidated Statements of Income - 3 & 4 Three months ended March 31, 1996 and March 31, 1995. Consolidated Statements of Cash Flows - 5 & 6 Three months ended March 31, 1996 and March 31, 1995. Management's discussion and analysis of 7 - 10 financial condition and results of operations. PART II Other Information Item 6: Exhibits and reports on Form 8-K. 11 Signatures 12
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (000 OMITTED) 3/31/96 3/31/95 12/31/95 (Unaudited) (Unaudited) (Unaudited) Assets Cash and due from banks $4,044 $4,427 $5,404 Interest bearing deposits in other banks 0 0 2,700 Investments: Available for sale 29,672 16,425 34,236 Held to maturity (market values $35,729 at 3/31/96, $49,103 at 3/31/95 and $27,473 at 12/31/95) 36,351 50,386 27,334 Loans held for sale (market value $4,127 0 0 4,066 at 12/31/95) Loans 140,705 124,920 133,245 Less allowance for loan losses 1,961 2,340 2,059 Net loans 138,744 122,580 131,186 Accrued interest receivable 1,788 1,674 1,708 Bank premises and equipment 4,057 4,378 4,146 Other real estate owned 889 581 648 Other assets 914 1,457 854 Total Assets $216,459 $201,908 $212,282 Liabilities & Stockholders' Equity Demand deposits $12,820 $10,004 $12,989 NOW deposits 25,830 26,257 27,064 Money market deposits 5,771 7,694 7,179 Savings deposits 33,733 34,519 32,943 Certificates of deposit 58,883 49,152 57,535 Certificates $100M and over 13,015 12,492 12,758 Total deposits $150,052 $140,118 $150,468 Borrowed funds 44,692 42,676 41,225 Other liabilities 1,617 1,554 1,024 Total Liabilities 196,361 184,348 192,717
(BALANCE SHEETS CONTINUED) 3/31/96 3/31/95 12/31/95 (Unaudited) (Unaudited) (Unaudited) Shareholders' Equity: Common stock 1,527 1,520 1,524 Additional paid-in capital 2,753 2,685 2,719 Retained earnings 15,765 13,367 15,123 Net unrealized gains (losses) on available- for-sale securities 53 (12) 202 Treasury stock 0 0 (3) Total Stockholders' Equity 20,098 17,560 19,565 Total Liabilities & Stockholders' $216,459 $201,908 $212,282
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (000 OMITTED) For the three months ended March 31, 1996 1995 (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $3,130 $2,819 Interest on deposits with other banks 4 0 Interest and dividends on investments 1,091 1,106 Total interest income 4,225 3,925 Interest expense: Interest on deposits 1,440 1,121 Interest on borrowed funds 587 616 Total interest expense 2,027 1,737 Net interest income 2,198 2,188 Provision for loan losses 0 0 Net interest income after provision for loan losses 2,198 2,188 Other operating income: Trust department income 80 53 Service charges on deposit accounts 119 114 Net securities gains (losses) 6 (58) Other operating income 95 50 Total other operating income 300 159 Other operating expenses: Salaries and employee benefits 758 768 Occupancy expense 86 81 Furniture and equipment expense 145 150 Other 411 435 Total other operating expenses 1,400 1,434 Income before income taxes 1,098 913 Applicable income taxes 353 290 NET INCOME $745 $623
STATEMENTS OF INCOME CONT. For the three months ended March 31, 1996 1995 (Unaudited) (Unaudited) Earnings per common share: Net income $1.22 $1.02 Dividends declared $0.17 $0.14
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 1996 1995 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $745 $623 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 132 120 Provision for loan losses 0 0 Net (gain) loss on sale of investments (6) 58 Write down of other real estate owned 0 0 Losses related to other real estate owned 11 0 Net change in other assets 64 (388) Net change in other liabilities 141 970 Net amortization of premium on investments 17 8 Net cash provided by operating activities 1,104 1,391 Cash flows from investing activities: Proceeds from sales of investments 3,500 2,000 Proceeds from maturities of investments 4,370 1,500 Proceeds from maturities of deposits in other banks 2,700 0 Proceeds from sales of other real estate owned 170 0 Additional investment in other real estate owned 0 0 Purchase of investments (12,319) (4,658) Net decrease (increase) in loans (3,831) (4,686) Capital expenditures (42) (13) Net cash used in investing activities (5,452) (5,857) Cash flows from financing activities: Net increase (decrease) in demand deposits, savings, money market and club accounts (2,021) (10,222) Net increase (decrease) in certificates of deposit 1,605 7,895 Net increase (decrease) in other borrowings 3,467 6,066 Proceeds from sale of Treasury stock 3 0 Proceeds from stock issuance 38 9 Dividends paid (104) (85) Net cash provided by financing activities 2,988 3,663)
(STATEMENTS OF CASH FLOWS CONTINTUED) For the three months ended March 31, 1996 1995 (Unaudited) (Unaudited) Net increase (decrease) in cash and cash equivalents (1,360) (803) Cash and cash equivalents at beginning of period 5,404 5,230 Cash and cash equivalents at end of period $4,044 $4,427 Interest paid $1,947 $1,705 Income taxes paid 8 40 Non-cash transactions: Loans transferred to other real estate owned (net) 423 28 Loans held for sale transferred to loan po 4,066 0 Net change in unrealized gain (loss) on available for sale securities (226) 184
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY Net income for the three months ended March 31, 1996 was $745,000, an increase of 19.6% over 1995's net income of $623,000. NET INTEREST INCOME Net interest income for the three months ended March 31, 1996 was $2,198,000, a 0.5% increase over 1995's net interest income of $2,188,000. Total interest income of $4,225,000 is a 7.6% increase over 1995's total interest income of $3,925,000. Total interest expense of $2,027,000 is a 16.7% increase over 1995's total interest expense of $1,737,000. PROVISION FOR LOAN LOSSES No provision to the allowance for loan losses was made during the first three 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 $327,000 at March 31, 1996. The portion of the allowance for loan losses allocated to impaired loans at March 31, 1996 was $66,000. NON-INTEREST INCOME Non-interest income of $300,000 for the three months ended March 31, 1996 was an increase of 88.7% from 1995's non-interest income of $159,000. This increase can be attributed to a net securities loss of $58,000 during the first quarter of 1995 combined with an overall increase in non-interest income in the first quarter of 1996, especially in fiduciary income. NON-INTEREST EXPENSE Non-interest expense of $1,400,000 for the three months ended March 31, 1996 is a decrease of 2.4% from 1995's non-interest expense of $1,434,000. A significant reduction in FDIC insurance premiums was the principal cause for the decrease. INCOME TAXES Income taxes on operating earnings increased to $353,000 for the first three months in 1995 from $290,000 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, 1996 increased by 7.1% or $9,934,000 from March 31, 1995. Demand deposits increased by 28.1% or $2,816,000, NOW deposits decreased by 1.6% or $427,000, savings deposits decreased by 2.3% or $786,000, money market deposits decreased by 25.0% or $1,923,000 and certificates of deposit increased by 16.6% or $10,254,000. Deposits were supplemented by borrowings from the Federal Home Loan Bank and repurchase agreements. Total borrowed funds increased by 4.7% or $2,016,000 from the same period a year ago. STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES Stockholders' investment as of March 31, 1996 was $20,098,000 compared to $17,560,000 for the same period in 1995. The reason for this increase was the strong earnings performance in the year 1995 and the first three 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 again in the fourth quarter 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 in the first quarter of 1996 to the current level of 17 cents per share. Leverage capital ratios were 9.28% and 8.70%, respectively, at March 31, 1996 and March 31, 1995. The Bank had a tier one risk-based capital ratio of 13.94% and tier two risk-based capital ratio of 15.19% at March 31, 1996, compared to 13.02% and 14.27%, respectively, at March 31, 1995. These were comfortably above the standards to be rated "well-capitalized" by the regulatory authorities. LIQUIDITY MANAGEMENT As of March 31, 1996 the Bank had primary sources of liquidity of $38,893,000, or 18.05% 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 re-appraisal 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 March 31, 1996 and 1995, loans on a non-accrual status totaled $526,000 and $1,463,000, respectively. In addition to loans on a non-accrual status at March 31, 1996 and 1995, loans past due greater than 90 days totaled $111,000 and $93,000 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 March 31, 1996 stockholders' equity was increased by $53,000 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 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 March 31, 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 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 loansare 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 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 three months ended March 31, 1996 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 May 13, 1996 Daniel R. Daigneault Date Daniel R. Daigneault President and CEO May 13, 1996 F. Stephen Ward Date F. Stephen Ward Treasurer 8