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. 0-26589
March 31, 2001
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, 2001
Common Stock, Par One Cent 2,376,175
FIRST NATIONAL LINCOLN CORPORATION
INDEX
PART 1 Financial Information
Page No.
Item 1:
Independent Accountants' Report ............................ 1
Financial Statements
Consolidated Balance Sheets -
March 31, 2001, March 31, 2000, and December 31, 2000 .... 2 - 3
Consolidated Statements of Income and
Non-Owners' Changes in Equity - for the three months
ended March 31, 2001 and March 31, 2000 .................. 4 - 5
Consolidated Statements of Cash Flows - for the three months
ended March 31, 2001 and March 31, 2000 .................. 6 - 7
Footnotes to Financial Statements -
Three months ended March 31, 2001 and March 31, 2000...... 8
Item 2: Management's discussion and analysis of
financial condition and results of operations .......... 9 - 14
PART II Other Information
Item 1: Legal Proceedings ...................................... 15
Item 2: Changes in Securities .................................. 16
Item 3: Defaults Upon Senior Securities ........................ 17
Item 4: Submission of Matters to a Vote of Security Holders .... 18
Item 5: Other Information ...................................... 19
Item 6: Exhibits and reports on Form 8-K ....................... 20
Signatures .......................................................... 21
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Shareholders
First National Lincoln Corporation
We have reviewed the accompanying interim consolidated financial information of
First National Lincoln Corporation and Subsidiary as of March 31, 2001 and
2000, and for the three-month periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is to express an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
May 4, 2001
Page 1
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
3/31/01 3/31/00 12/31/00
(000 OMITTED) (Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $ 6,897 $ 9,348 $ 10,324
Investments:
Available for sale 66,634 44,885 62,917
Held to maturity (market values $47,818
at 3/31/01, $43,375 at 3/31/00 and
$41,617 at 12/31/00) 47,857 46,215 42,303
Loans held for sale (which approximates
market value at 3/31/01) 164 0 0
Loans 272,969 241,801 264,929
Less allowance for loan losses 2,357 2,041 2,301
Net loans 270,612 239,760 262,628
Accrued interest receivable 3,271 2,473 3,105
Bank premises and equipment 5,741 5,384 5,352
Other real estate owned 509 296 356
Other assets 5,990 5,984 6,231
Total Assets $407,675 $354,345 $393,216
Page 2
BALANCE SHEETS CONT.
3/31/01 3/31/00 12/31/00
(Unaudited) (Unaudited) (Unaudited)
Liabilities & Shareholders' Equity
Demand deposits $ 19,200 $ 16,362 $ 22,488
NOW deposits 36,084 36,037 38,603
Money market deposits 11,860 14,696 9,941
Savings deposits 39,592 39,302 40,108
Certificates of deposit 82,804 69,101 74,489
Certificates $100M and over 51,433 35,359 68,937
Total deposits 240,973 210,857 254,566
Borrowed funds 128,867 111,274 102,919
Other liabilities 3,288 2,639 2,571
Total Liabilities 373,128 324,770 360,056
Shareholders' Equity:
Common stock 25 25 25
Additional paid-in capital 4,687 4,853 4,687
Retained earnings 31,248 28,215 30,495
Accumulated Other Comprehensive income:
Net unrealized gains (losses) on
available-for-sale securities 874 (1,244) 203
Treasury stock (2,287) (2,274) (2,250)
Total Shareholders' Equity 34,547 29,575 33,160
Total Liabilities &
Shareholders' Equity $407,675 $354,345 $393,216
Number of shares authorized 6,000,000 6,000,000 6,000,000
Number of shares issued and outstanding 2,376,175 2,387,847 2,378,613
Book value per share $14.54 $12.39 $13.94
See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.
Page 3
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
AND NON-OWNER CHANGES IN EQUITY
For the three months ended March 31,
2001 2000
(000 OMITTED) (Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $ 5,738 $ 5,015
Interest on deposits with other banks 24 1
Interest and dividends on investments 1,773 1,479
Total interest income 7,535 6,495
Interest expense:
Interest on deposits 2,762 1,821
Interest on borrowed funds 1,411 1,568
Total interest expense 4,173 3,389
Net interest income 3,362 3,106
Provision for loan losses 195 150
Net interest income after provision
for loan losses 3,167 2,956
Other operating income:
Fiduciary income 182 167
Service charges on deposit accounts 210 198
Other operating income 348 263
Total other operating income 740 628
Other operating expenses:
Salaries and employee benefits 1,137 1,067
Occupancy expense 143 132
Furniture and equipment expense 235 176
Other 697 642
Total other operating expenses 2,212 2,017
Income before income taxes 1,695 1,567
Applicable income taxes 489 456
NET INCOME $ 1,206 $ 1,111
Page 4
STATEMENTS OF INCOME CONT.
2001 2000
(Unaudited) (Unaudited)
Non-owner changes in equity, net of tax:
Unrealized gains on available for
sale securities arising during period 671 75
Total other comprehensive income, net of
taxes of $ 346 in 2001 and $ 39 in 2000 671 75
COMPREHENSIVE INCOME $ 1,877 $ 1,186
Earnings per common share:
Basic earnings per share $0.51 $0.47
Diluted earnings per share $0.50 $0.45
Cash dividends declared per share $0.19 $0.15
Weighted average number of shares
outstanding 2,377,167 2,382,284
Dilutive effect of stock options
in number of shares 58,966 80,572
See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.
Page 5
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(000 omitted) 2001 2000
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $1,206 1,111
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 176 139
Provision for loan losses 195 150
Loans originated for resale (3,150) (236)
Proceeds from sales and transfers of loans 2,986 363
Losses related to other real estate owned 0 5
Net change in other assets and accrued interest 75 138
Net change in other liabilities 371 483
Net accretion of discounts on investments (9) (4)
Net cash provided by operating activities 1,850 2,149
Cash flows from investing activities:
Proceeds from maturities, payments and calls of
securities available for sale 582 172
Proceeds from maturities, payments and calls of
securities to be held to maturity 2,573 603
Proceeds from sales of other real estate owned 85 35
Purchases of securities available for sale (3,263) (2,842)
Purchases of securities to be held to maturity (8,137) (918)
Net increase in loans (8,417) (9,419)
Capital expenditures (565) (5)
Net cash used in investing activities (17,142) (12,374)
Cash flows from financing activities:
Net decrease in demand deposits,
savings, money market and club accounts (4,404) (6,019)
Net increase (decrease)in
certificates of deposit (9,189) 11,418
Advances on long-term borrowings 12,500 0
Repayments on long-term borrowings (3,114) (108)
Net increase in short-term borrowings 16,562 6,334
Payment to repurchase common stock (87) (80)
Proceeds from sale of Treasury stock 50 166
Dividends paid (453) (359)
Net cash provided by financing activities 11,865 11,352
Page 6
STATEMENTS OF CASH FLOWS CONT.
2001 2000
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents (3,427) 1,127
Cash and cash equivalents at beginning
of period 10,324 8,221
Cash and cash equivalents at end of
period 6,897 $9,348
Interest paid 4,173 $3,389
Income taxes paid 62 0
Non-cash transactions:
Loans transferred to other real estate
owned (net) 238 0
Net change in unrealized gain on
available for sale securities 1,017 114
See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.
Page 7
FOOTNOTES TO FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of First National
Lincoln Corporation and its subsidiary for the three-month periods ended March
31, 2001 and 2000 are unaudited. In the opinion of Management, all adjustments
consisting of normal, recurring accruals necessary for a fair representation
have been reflected therein.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has been
omitted. The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
2000.
Page 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS SUMMARY
Net income for the three months ended March 31, 2001 was $1,206,000, an
increase of 8.6% over 2000's net income of $1,111,000. Revenue growth was the
primary factor in the Company's increased earnings, and was a direct result of
asset growth, which produced higher levels of net interest income. From March
31, 2000 to March 31, 2001, the loan and investment portfolios increased by a
combined $54.6 million, which Management views as excellent.
Fully diluted earnings per share for the first quarter of 2001 were $0.50,
an 11.1% increase over the $0.45 reported in 2000.
NET INTEREST INCOME
Total interest income for the three months ended March 31, 2001 was
$7,535,000, a 16.0% increase over 2000's total interest income of $6,495,000.
Total interest expense of $4,173,000 is a 23.1% increase over 2000's total
interest expense of $3,389,000. Net interest income was $3,362,000, an 8.2%
increase over 2000's net interest income of $3,106,000. The increases in both
interest income and interest expense were due to a combination of significantly
higher balances and movements in interest rates. In first quarter of 2001,
there was an increase in the Bank's margins due to recent easing of interest
rates by the Federal Reserve Board.
PROVISION FOR LOAN LOSSES
A $195,000 provision to the allowance for loan losses was made during the
first three months of 2001, a $45,000 increase over the $150,000 provision made
for the same period of 2000. The increase was due to growth in the commercial
loan portfolio and the higher risk these loans carry. The allowance for loan
losses is deemed adequate as calculated in accordance with Banking Circular
#201 and with respect to Statement of Financial Accounting Standards (SFAS)
114/118. Loans considered to be impaired according to SFAS 114/118 totalled
$1,103,281 at March 31, 2001. The portion of the allowance for loan losses
allocated to impaired loans at March 31, 2001 was $1,090,168.
NON-INTEREST INCOME
Non-interest income was $740,000 for the three months ended March 31,
2001, an increase of 17.8% from 2000's non-interest income of $628,000. The
increase was due primarily to increases in merchant credit card income and
mortgage origination and servicing income. There were also increases in
fiduciary income, as well as service charge income on deposit accounts. Demand
for residential mortgages was strong in the first quarter and the Bank sold
$3.0 million of loans in the first three months of 2001 compared to $0.4
million in the first three months of 2000. This resulted in increased gains on
sales of loans.
Page 9
MANAGEMENT'S DISCUSSION CONT.
NON-INTEREST EXPENSE
Non-interest expense of $2,212,000 for the three months ended March 31,
2001 is an increase of 9.7% from non-interest expense of $2,017,000 for the
first three months of 2000. This increase was primarily due to higher staffing
and software costs to achieve the Company's goal to provide more comprehensive
and competitive services to its customers.
INCOME TAXES
Income taxes on operating earnings increased to $489,000 for the first
three months of 2001 from $456,000 for the same period a year ago. Due to the
Company's increased holdings of tax-exempt securities, the percentage increase
in income taxes was smaller than the percentage increase in pre-tax income.
INVESTMENTS
The Company's investment portfolio increased by $23.4 million or 25.7%
between March 31, 2000 and March 31, 2001, a direct result of an investment
climate which enabled the Company to add to its portfolio at very attractive
levels. During the first three months of 2001, the investment portfolio
increased by $9.3 million or 8.8%. At March 31, 2001, the Company's available-
for-sale portfolio had an unrealized gain, net of taxes, of $0.9 million, which
is in line with the interest rates decreases seen in the end of the fourth
quarter of 2000 and the first quarter of 2001.
LOANS
Loans grew by $31.2 million or 12.9% between March 31, 2000 and March 31,
2001. Most of this growth came in commercial loans, which increased $14.9
million, and mortgage loans, which increased $14.4 million. During the first
three months of 2001, total loans increased by $8.0 million or 3.0%.
DEPOSITS
As of March 31, 2001, deposits grew year-over year by 14.3%, or $30.1
million. Virtually all of the increase came in certificates of deposit. The
Bank's core deposit base was level after growth of nearly $12 million, or
21.6%, from March 31, 1999 to March 31, 2000.
Core deposits in the first quarter of 2001 have decreased by $4.4 million,
which is the normal seasonal fluctuation, and certificates of deposit declined
$9.2 million. The volatility in certificate of deposit balances is the result
of pricing stratgegies undertaken by the Company.
Page 10
MANAGEMENT'S DISCUSSION CONT.
BORROWED FUNDS
The Company's funding includes borrowings from the Federal Home Loan Bank
and repurchase agreements. Between March 31, 2000 and March 31, 2001, borrowed
funds increased by $17.6 million or 15.8%. The Company utilizes borrowings as
an additional source of funding for both loans and investments which allows it
to grow its balance sheet and revenues. During the first three months of 2001,
borrowed funds increased by $25.9 million or 25.2% to offset the first-quarter
decrease in national market certificates of deposit and core deposits.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' equity as of March 31, 2001 was $34,547,000 compared to
$29,575,000 for the same period in 2000. The Company's strong earnings
performance in the preceeding 12 months was supplemented by the recognition of
a net unrealized gain on available-for-sale securities, as required under SFAS
115.
During 2000, the Company increased its dividend each quarter to end the
year at a quarterly dividend rate of 18 cents per share. In 2001, a cash
dividend of 19 cents per share was declared in the first quarter compared to 15
cents in the first quarter of 2000.
Regulatory leverage capital ratios for the Company were 8.45% and 8.94%,
respectively, at March 31, 2001 and March 31, 2000. The decrease was a result
of planned balance sheet growth. The Company had a tier one risk-based capital
ratio of 12.77% and tier two risk-based capital ratio of 13.67% at March 31,
2001, compared to 13.95% and 14.88%, respectively, at March 31, 2000. These are
comfortably above the standards to be rated "well-capitalized" by regulatory
authorities -- qualifying the Company for lower deposit-insurance premiums.
LIQUIDITY MANAGEMENT
As of March 31, 2001 the Bank had primary sources of liquidity of $18.8
million and an additional $41.9 million of secondary sources. It is
Management's opinion that this is adequate. In its Asset/Liability policy, the
Bank has adopted guidelines for liquidity. The Company is not aware of any
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 11
MANAGEMENT'S DISCUSSION 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. A certified or licensed
appraiser is used for all appraisals.
At March 31, 2001 and 2000, loans on a non-accrual status totaled $1,880,000
and $1,618,000, respectively. In Management's opinion, this level is not
reflective of the overall quality of the Company's loan portfolio but is,
instead, the result of an unexpected and isolated decline in three credits. In
addition to loans on a non-accrual status at March 31, 2001 and 2000, loans
past due greater than 90 days totaled $413,000 and $277,000 respectively. The
Company continues to accrue interest on these loans because it believes
collection of the interest is reasonably assured.
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
MANAGEMENT'S DISCUSSION 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 classified commercial loans
greater than $100,000, and semi-annually on all criticized loans greater than
$100,000.
C. Delinquent loans are reviewed weekly by the Bank's Collections Officer and
Senior Credit Officer.
D. A tickler system is utilized to insure timely receipt of current information
(such as financial statements, appraisals 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 Credit 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
During 2000, the Financial Accounting Standards Board (FASB) issued the
following Statements of Financial Accounting Standards (SFAS): SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS No. 133"; SFAS No. 139, "Recission of FASB Statement No.
53 and amendments to FASB Statements No. 63, 89 and 121"; SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities - a replacement of FASB Statement No. 125".
The Company adopted SFAS Nos. 139 and 140 There has been no material
effect on the financial condition and results of operations of the Company.
While the Company does not hold any derivative instruments at the present time,
Management plans to implement SFAS No. 133 should the Company enter into
derivative transactions.
Page 13
MANAGEMENT'S DISCUSSION CONT.
FORWARD-LOOKING STATEMENTS
Certain disclosures in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain certain forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995). In
preparing these disclosures, Management must make assumptions, including, but
not limited to, the level of future interest rates, prepayments on loans and
investment securities, required levels of capital, needs for liquidity, and the
adequacy of the allowance for loan losses. These forward-looking statements may
be subject to significant known and unknown risks uncertainties, and other
factors, including, but not limited to, those matters referred to in the
preceding sentence.
Although First National Lincoln Corporation believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ materially from the results discussed in these forward-looking
statements. Readers are cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company which attempt to
advise interested parties of the facts which affect the Company's business.
Page 14
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 15
ITEM 2. CHANGES IN SECURITIES
None
Page 16
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
Page 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 18
ITEM 5: Other Information
None.
Page 19
ITEM 6: Exhibits, Financial Statement Schedules, and reports on Form 8-K
A. EXHIBITS
None.
B. REPORTS ON FORM 8-K
None.
Page 20
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 15, 2001 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
May 15, 2001 F. Stephen Ward
Date F. Stephen Ward
Treasurer
Page 21