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 September 30, 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 September 30, 2001 Common Stock, Par One Cent 2,388,054 <page> FIRST NATIONAL LINCOLN CORPORATION INDEX PART 1 Financial Information Page No. Item 1: Accountants' Review Report ................................. 1 Financial Statements Consolidated Balance Sheets - September 30, 2001, September 30, 2000, and December 31, 2000 ................................. 2 - 3 Consolidated Statements of Income and Non-Owners' Changes in Equity - for the three and nine months ended September 30, 2001 and September 30, 2000 ... 4 - 7 Consolidated Statements of Cash Flows - for the nine months ended September 30, 2001 and September 30, 2000 ..... 8 - 9 Footnotes to Financial Statements - nine months ended September 30, 2001 and September 30, 2000 ................................... 10 Item 2: Management's discussion and analysis of financial condition and results of operations ..........11 - 16 Item 3: Quantitative and qualitative disclosures about market risk....................................... 16 PART II Other Information Item 1: Legal Proceedings ...................................... 17 Item 2: Changes in Securities .................................. 18 Item 3: Defaults Upon Senior Securities ........................ 19 Item 4: Submission of Matters to a Vote of Security Holders .... 20 Item 5: Other Information ...................................... 21 Item 6: Exhibits and reports on Form 8-K ....................... 22 Signatures .......................................................... 23 <page> ACCOUNTANTS' REVIEW 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 September 30, 2001 and 2000, and for the three-month and nine-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 U.S. 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 U.S. generally accepted accounting principles. Berry, Dunn, McNeil & Parker Portland, Maine November 13, 2001 Page 1 <page> FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS 9/30/01 9/30/00 12/31/00 (000s OMITTED except per share data and number of shares) (Unaudited) (Unaudited) (Unaudited) Assets Cash and cash equivalents $ 13,447 $ 8,620 $ 10,324 Investments: Available for sale 58,812 53,844 62,917 Held to maturity (market values $47,574 at 9/30/01, $40,663 at 9/30/00 and $41,617 at 12/31/00) 46,979 42,737 42,303 Loans held for sale (fair value approximates cost) 458 0 0 Loans 287,799 258,522 264,929 Less allowance for loan losses 2,742 2,229 2,301 Net loans 285,057 256,293 262,628 Accrued interest receivable 2,785 2,779 3,105 Bank premises and equipment 6,189 5,457 5,352 Other real estate owned 429 356 356 Other assets 7,548 6,144 6,231 Total Assets $421,704 $376,230 $393,216 Page 2 <page> BALANCE SHEETS CONT. 9/30/01 9/30/00 12/31/00 (Unaudited) (Unaudited) (Unaudited) Liabilities Demand deposits $ 23,590 $ 23,228 $ 22,488 NOW deposits 43,274 41,846 38,603 Money market deposits 13,199 11,137 9,941 Savings deposits 44,856 42,843 40,108 Certificates of deposit 84,277 68,115 74,489 Certificates $100M and over 68,537 60,021 68,937 Total deposits 277,733 247,190 254,566 Borrowed funds 102,696 95,309 102,919 Other liabilities 4,297 2,232 2,571 Total Liabilities 384,726 344,731 360,056 Shareholders' Equity: Common stock (one cent par value) 25 25 25 Additional paid-in capital 4,687 4,687 4,687 Retained earnings 33,146 29,691 30,495 Accumulated Other Comprehensive income: Net unrealized gains(losses) on available-for-sale securities 1,329 (719) 203 Treasury stock (2,209) (2,185) (2,250) Total Shareholders' Equity 36,978 31,499 33,160 Total Liabilities & Shareholders' Equity $421,704 $376,230 $393,216 Number of shares authorized 6,000,000 6,000,000 6,000,000 Number of shares outstanding 2,388,054 2,382,939 2,378,613 Book value per share $15.48 $13.22 $13.94 See Accountants' Review Report. The accompanying notes are an integral part of these consolidated financial statements. Page 3 <page> FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the nine months ended September 30, 2001 2000 (000s OMITTED except per share data and number of shares) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $17,261 $15,844 Interest on deposits with other banks 70 22 Interest and dividends on investments 5,380 4,591 Total interest income 22,711 20,457 Interest expense: Interest on deposits 7,893 6,065 Interest on borrowed funds 3,918 4,890 Total interest expense 11,811 10,955 Net interest income 10,900 9,502 Provision for loan losses 690 510 Net interest income after provision for loan losses 10,210 8,992 Other operating income: Fiduciary income 521 502 Service charges on deposit accounts 671 638 Other operating income 1,643 1,097 Total other operating income 2,835 2,237 Other operating expenses: Salaries and employee benefits 3,611 3,264 Occupancy expense 426 377 Furniture and equipment expense 742 540 Other 2,505 2,287 Total other operating expenses 7,284 6,468 Income before income taxes 5,761 4,761 Applicable income taxes 1,678 1,387 NET INCOME $ 4,083 $ 3,374 Page 4 <page> STATEMENTS OF INCOME CONT. For the nine months ended September 30, 2001 2000 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains on available for sale securities arising during period 1,126 600 Total other comprehensive income, net of taxes of $580 in 2001 and $309 in 2000 1,126 600 INCOME AND NON-OWNER CHANGES IN EQUITY $5,209 $3,974 Earnings per common share: Basic earnings per share $1.71 $1.41 Diluted earnings per share $1.66 $1.37 Cash dividends declared per share $0.60 $0.48 Weighted average number of shares outstanding 2,384,402 2,385,734 Incremental Shares 71,161 80,072 See Accountants' Review Report. The accompanying notes are an integral part of these consolidated financial statements. Page 5 <page> FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the quarters ended September 30, 2001 2000 (000s OMITTED except per share data and number of shares) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $ 5,764 $ 5,550 Interest on deposits with other banks 20 7 Interest and dividends on investments 1,757 1,571 Total interest income 7,541 7,128 Interest expense: Interest on deposits 2,577 2,251 Interest on borrowed funds 1,086 1,668 Total interest expense 3,663 3,919 Net interest income 3,878 3,209 Provision for loan losses 215 210 Net interest income after provision for loan losses 3,663 2,999 Other operating income: Fiduciary income 176 166 Service charges on deposit accounts 225 205 Other operating income 752 538 Total other operating income 1,153 909 Other operating expenses: Salaries and employee benefits 1,318 1,128 Occupancy expense 155 121 Furniture and equipment expense 267 193 Other 1,036 930 Total other operating expenses 2,776 2,372 Income before income taxes 2,040 1,536 Applicable income taxes 594 445 NET INCOME $ 1,446 $ 1,091 Page 6 <page> STATEMENTS OF INCOME CONT. For the quarters ended September 30, 2001 2000 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains on available for sale securities arising during period 794 520 Total other comprehensive income, net of taxes of $409 in 2001 and $ 268 in 2000 794 520 INCOME AND NON-OWNER CHANGES IN EQUITY $2,240 $1,611 Earnings per common share: Basic earnings per share $0.61 $0.46 Diluted earnings per share $0.59 $0.44 Cash dividends declared per share $0.21 $0.17 Weighted average number of shares outstanding 2,387,889 2,384,692 Incremental Shares 71,161 80,072 See Accountants' Review Report. The accompanying notes are an integral part of these consolidated financial statements. Page 7 <page> FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (000 omitted) 2001 2000 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 4,083 $ 3,374 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 561 413 Provision for loan losses 690 510 Loans originated for resale (16,017) (2,055) Proceeds from sales and transfers of loans 15,559 2,182 Losses related to other real estate owned 0 5 Net gain on call of securities available for sale (73) 0 Net change in other assets and accrued interest (997) (328) Net change in other liabilities 1,146 (270) Net accretion of discounts on investments (148) (103) Net cash provided by operating activities 4,804 3,728 Cash flows from investing activities: Proceeds from maturities, payments and calls of securities available for sale 10,528 804 Proceeds from maturities, payments and calls of securities to be held to maturity 14,904 4,099 Proceeds from sales of other real estate owned 365 35 Purchases of securities available for sale (4,585) (11,605) Purchases of securities to be held to maturity (19,491) (868) Net increase in loans (23,557) (26,372) Purchases of premises and equipment (1,398) (352) Net cash used in investing activities (23,234) (34,259) Cash flows from financing activities: Net increase in deposits 23,167 41,732 Advances on long-term borrowings 51,500 0 Repayments on long-term borrowings (7,114) (108) Net decrease in short-term borrowings (44,609) (9,631) Payment to repurchase common stock (146) (238) Proceeds from sale of Treasury stock 187 247 Dividends paid (1,432) (1,072) Net cash provided by financing activities 21,553 30,930 Page 8 <page> STATEMENTS OF CASH FLOWS CONT. 2001 2000 (Unaudited) (Unaudited) Net increase in cash and cash equivalents 3,123 399 Cash and cash equivalents at beginning of period 10,324 8,221 Cash and cash equivalents at end of period $13,447 $8,620 Interest paid $11,811 $10,955 Income taxes paid 1,177 1,492 Non-cash transactions: Loans transferred to other real estate owned (net) 438 60 Net change in unrealized gain on available for sale securities 1,706 909 See Accountants' Review Report. The accompanying notes are an integral part of these consolidated financial statements. Page 9 <page> FOOTNOTES TO FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements of First National Lincoln Corporation and its subsidiary as of and for the three-month and nine- month periods ended September 30, 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. 2. On June 30, 2001 the Bank entered into a transaction by which it acquired the assets and assumed the liabilities of White Pine Asset Management, a Portland, Maine-based investment management firm. The transaction resulted in the recording of goodwill in the amount of $125,000. See accountants' review report Page 10 <page> ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY Net income for the nine months ended September 30, 2001 was $4,083,000, an increase of 21.0% over 2000's net income of $3,374,000. Revenue growth was the primary factor in the Company's increased earnings for the first nine months of 2001 compared to the same period in 2000. This was a direct result of asset growth, which produced higher levels of net interest income, as well as increased margins due to declining interest rates. During the period, the loan and investment portfolios increased by a combined $23.4 million and increased $38.5 million since September 30,2000. Fully diluted earnings per share for the first nine months of 2001 were $1.66, a 21.2% increase over the $1.37 reported in 2000. Net income for the three months ended September 30, 2001 was $1,446,000, an increase of 32.5% over 2000's net income of $1,091,000. As with the Company's year-to-date performance, revenue growth and lower interest rates were the primary factors in the increased earnings posted for the third quarter of 2001 compared to the same period in 2000. Fully diluted earnings per share for the third quarter of 2001 were $0.59, a 34.1% increase over the $0.44 reported in 2000. NET INTEREST INCOME Total interest income of $22,711,000 for the nine months ended September 30, 2001 is an 11.0% increase over 2000's total interest income of $20,457,000. Total interest expense of $11,811,000 is a 7.8% increase over 2000's total interest expense of $10,955,000. Net interest income was $10,900,000, a 14.7% increase over 2000's net interest income of $9,502,000. 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 nine months of 2001, there was an increase in the Bank's margins due to recent easing of interest rates by the Federal Reserve Board. Total interest income of $7,541,000 for the three months ended September 30, 2001 is a 5.8% increase over 2000's total interest income of $7,128,000. Total interest expense of $3,663,000 is a 6.5% decrease from 2000's total interest expense of $3,919,000. Net interest income was $3,878,000, a 20.8% increase over 2000's net interest income of $3,209,000. The increase in interest income and the decrease in interest expense were both due to a combination of significantly higher balances and movements in interest rates. PROVISION FOR LOAN LOSSES A $690,000 provision to the allowance for loan losses was made during the first nine months of 2001. This is a $180,000 increase from the $510,000 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 $1,024,076 at September 30, 2001. The portion of the allowance for loan losses allocated to impaired loans at September 30, 2001 was $373,101. Page 11 <page> MANAGEMENT'S DISCUSSION CONT. NON-INTEREST INCOME Non-interest income was $2,835,000 for the nine months ended September 30, 2001, an increase of 26.7% from 2000's non-interest income of $2,237,000. Included in 2001's other operating income is a gain of $73,000 recorded on a security purchased at a deep discount which was called before maturity. The remainder of 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 nine months of 2001. The Bank sold $15.6 million of loans during the period compared to $20.2 million in the first nine months of 2000. This resulted in increased gains on sales of loans. Non-interest income was $1,153,000 for the three months ended September 30, 2001, an increase of 26.8% from 2000's non-interest income of $909,000. The increase was due to increases in merchant credit card income and mortgage origination and servicing income. NON-INTEREST EXPENSE Non-interest expense of $7,284,000 for the nine months ended September 30, 2001, is an increase of 12.6% from 2000's non-interest expense of $6,468,000. This increase has been primarily due to increases in staffing and software costs connected with the Company's goal to provide more comprehensive and competitive services to its customers. In addition, there were increases in merchant credit card costs which were offset by an increase in merchant credit card income. Non-interest expense of $2,776,000 for the three months ended September 30, 2001, is an increase of 17.0% from 2000's non-interest expense of $2,372,000 for the reasons stated above. INCOME TAXES Income taxes on operating earnings increased to $1,678,000 for the first nine months of 2001 from $1,387,000 for the same period a year ago. The increase is in line with the increase in pre-tax income. Page 12 <page> MANAGEMENT'S DISCUSSION CONT. INVESTMENTS The Company's investment portfolio increased by $9.2 million or 9.5% between September 30, 2000 and September 30, 2001. During the twelve-month period there was an investment climate which enabled the Company to add to its portfolio at very attractive levels. With recent drops in interest rates, much of those added investments have been redeemed by the issuers. During the first nine months of 2001, the investment portfolio increased by $0.6 million or 0.5%. At September 30, 2001, the Company's available-for-sale portfolio had an unrealized gain, net of taxes, of $1.3 million, which is in line with recent changes in interest rates. LOANS Loans grew by $29.3 million or 11.3% between September 30, 2000 and September 30, 2001. Most of this growth came in commercial loans, which increased $16.2 million, and mortgage loans, which increased $11.6 million. During the first nine months of 2001, total loans increased by $22.9 million or 8.6%. DEPOSITS As of September 30, 2001, deposits grew year-over year by 12.4% or $30.5 million. Of the increase $24.7 million came in certificates of deposit and $5.8 million was in the Banks core deposit base. The growth in core deposits is seasonal and is expected to run off over the next three to six months. Core deposits in the first nine months of 2001 have increased by $13.8 million, which is a somewhat higher than the normal seasonal increase, and certificates of deposit increased $9.4 million. The increases in certificate of deposit balances during both periods are the result of pricing strategies undertaken by the Company. BORROWED FUNDS The Company's funding also includes borrowings from the Federal Home Loan Bank and repurchase agreements. Between September 30, 2000 and September 30, 2001, borrowed funds increased by $7.4 million or 7.8%. 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 nine months of 2001, borrowed funds decreased by $0.2 million or 0.2%. SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES Shareholders' Equity as of September 30, 2001 was $36,978,000 compared to $31,499,000 for September 30, 2000. The Company's strong earnings performance in the preceeding 12 months was supplemented by an increase in the 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 and a cash dividend of 20 cents per share was declared in the second quarter compared to 16 cents in the second quarter of 2000 and a cash dividend of 21 cents per share was declared in the third quarter compared to 17 cents in the third quarter 2000. Page 13 <page> MANAGEMENT'S DISCUSSION CONT. Regulatory leverage capital ratios for the Company were 8.46% and 8.77%, respectively, at September 30, 2001 and September 30, 2000. The decrease was due to asset growth. The Company had a tier one risk-based capital ratio of 12.90% and tier two risk-based capital ratio of 13.90% at September 30, 2001, compared to 13.43% and 14.36%, respectively, at September 30, 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 September 30, 2001 the Bank had primary sources of liquidity of $61.0 million, or 14.5% of its assets. It is Management's opinion that this is adequate. In its Asset/Liability policy, the Bank has adopted guidelines for liquidity. The Company is 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. The Bank loans 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 loan's payment history remains satisfactory. If a loan becomes delinquent, a review of the loan might be done. When a loan becomes 90 or more days past due, an in-depth review of the loan is made and a determination made as to whether or not a reappraisal is required. B. Land-only properties. The Bank has few loans secured by land only, but does loan up to 65% of the appraised value of the property. Loans on these properties are handled the same way as above from booking date on. C. Commercial properties. The Bank loans up to 75% of the appraised value of commercial properties. Once the loan is closed, the decision to reappraise 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, changes in local zoning ordinances and changes in the condition of the property, including environmental contamination. A certified or licensed appraiser is used for all appraisals. At September 30, 2001 and 2000, loans on a non-accrual status totaled $1,800,000 and $2,360,000, respectively. In addition to loans on a non-accrual status at September 30, 2001 and 2000, loans past due greater than 90 days and still accruing totaled $510,000 and $336,000 respectively. The Company continues to accrue interest on these loans because it believes collection of the interest is reasonably assured. Page 14 <page> MANAGEMENT'S DISCUSSION CONT. 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 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. Page 15 <page> MANAGEMENT'S DISCUSSION CONT. ACCOUNTING PRONOUNCEMENTS During 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets", SFAS No. 143 "Accounting for Asset Retirement Obligations" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 141 requires that the purchase method be used to account for business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement on January 1, 2002. SFAS Nos. 143 and 144 provide guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and obligations associated with the retirement of tangible long-lived assets. Management does not expect these statements to have any material affect on the Company's consolidated financial condition and results of operations. 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. Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the market risks reported in the Company's Annual Report at December 31, 2000. Page 16 <page> 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 17 <page> ITEM 2. CHANGES IN SECURITIES None Page 18 <page> ITEM 3. DEFAULT UPON SENIOR SECURITIES None. Page 19 <page> ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Page 20 <page> ITEM 5: Other Information None. Page 21 <page> ITEM 6: Exhibits, Financial Statement Schedules, and reports on Form 8-K A. EXHIBITS None. B. REPORTS ON FORM 8-K None. Page 22 <page> 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 14, 2001 Daniel R. Daigneault Date Daniel R. Daigneault President and CEO November 14, 2001 F. Stephen Ward Date F. Stephen Ward Treasurer Page 23 <page>