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 June 30, 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 June 30, 1998 Common Stock, Par One Cent 2,475,873
FIRST NATIONAL LINCOLN CORPORATION INDEX PART 1 Financial Information Page No. Item 1: Financial Statements Consolidated Balance Sheets - 1 - 2 June 30, 1998, June 30, 1997, and December 31, 1997. Consolidated Statements of Income - 3 - 4 Six months ended June 30, 1998 and June 30, 1997. Consolidated Statements of Income - 5 - 6 Quarter ended June 30, 1998 and June 30, 1997. Consolidated Statements of Cash Flows - 7 - 8 Six months ended June 30, 1998 and June 30, 1997. Footnotes to Financial Statements - 9 Six months ended June 30, 1998 and June 30, 1997. Item 2: Management's discussion and analysis of 10 - 15 financial condition and results of operations. PART II Other Information Item 1: Legal Proceedings 16 Item 2: Changes in Securities 17 Item 3: Defaults Upon Senior Securities 18 Item 4: Submission of Matters to a Vote of Security Holders 19 - 21 Item 5: Other Information 22 Item 6: Exhibits and reports on Form 8-K. 23 Signatures 24
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS 6/30/98 6/30/97 12/31/97 (000 OMITTED) (Unaudited) (Unaudited) (Unaudited) Assets Cash and due from banks $6,494 $6,833 $5,683 Interest bearing deposits in other banks 0 0 0 Investments: Available for sale 14,686 15,161 16,463 Held to maturity (market values $50,024 at 6/30/98, $53,827 at 6/30/97 and $52,610 at 12/31/97) 49,980 54,086 52,282 Loans held for sale (market value $100 at 12/31/97) 0 0 100 Loans 203,245 169,190 181,510 Less allowance for loan losses 1,712 1,823 1,800 Net loans 201,533 167,367 179,710 Accrued interest receivable 2,180 2,111 1,961 Bank premises and equipment 4,644 4,188 4,871 Other real estate owned 329 416 184 Other assets 5,937 1,495 5,025 Total Assets $285,783 $251,657 $266,279 Page1
BALANCE SHEETS CONT. 6/30/98 6/30/97 12/31/97 (Unaudited) (Unaudited) (Unaudited) Liabilities & Stockholders' Equity Demand deposits $14,766 12,973 $14,109 NOW deposits 29,261 26,852 29,213 Money market deposits 9,974 4,156 6,238 Savings deposits 35,382 33,328 34,104 Certificates of deposit 72,425 64,149 68,970 Certificates $100M and over 19,752 15,216 17,246 Total deposits $181,560 156,674 $169,880 Borrowed funds 75,052 69,115 69,037 Other liabilities 1,676 1,747 1,477 Total Liabilities 258,288 227,536 240,394 Shareholders' Equity: Common stock 25 25 25 Additional paid-in capital 4,686 4,467 4,595 Retained earnings 22,793 19,612 21,172 Net unrealized gains (losses) on available- for-sale securities 110 21 93 Treasury stock (119) (4) 0 Total Stockholders' Equity 27,495 24,121 25,885 Total Liabilities & Stockholders' Equity $285,783 251,657 $266,279 Page 2
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the six months ended June 30, 1998 1997 (000 OMITTED) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $8,372 7,227 Interest on deposits with other banks 10 24 Interest and dividends on investments 2,145 2,291 Total interest income 10,527 9,542 Interest expense: Interest on deposits 3,191 2,818 Interest on borrowed funds 2,000 1,711 Total interest expense 5,191 4,529 Net interest income 5,336 5,013 Provision for loan losses 105 0 Net interest income after provision for loan losses 5,231 5,013 Other operating income: Trust department income 188 170 Service charges on deposit accounts 301 275 Net securities gains (losses) (25) 0 Other operating income 416 246 Total other operating income 880 691 Other operating expenses: Salaries and employee benefits 1,799 1,601 Occupancy expense 214 169 Furniture and equipment expense 311 292 Other 939 860 Total other operating expenses 3,263 2,922 Income before income taxes 2,848 2,782 Applicable income taxes 856 876 NET INCOME $1,992 $1,906 Page 3
STATEMENTS OF INCOME CONT. 1998 1997 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains (losses) arising during period 17 7 Less: reclassification adjustment for accumulated gains (losses) included in net-income (17) 0 Total non-owner changes in equity, net of tax 0 7 INCOME AND NON-OWNER CHANGES IN EQUITY $1,992 $1,913 Earnings per common share: Basic earnings per share $0.80 $0.77 Diluted earnings per share $0.78 $0.76 Cash dividends declared per share $0.15 $0.11 Weighted average number of shares outstanding 2,478,999 2,462,740 Page 4
CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the quarter ended June 30, 1998 1997 (000 OMITTED) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $4,273 3,714 Interest on deposits with other banks 5 11 Interest and dividends on investments 1,045 1,204 Total interest income 5,323 4,929 Interest expense: Interest on deposits 1,616 1,440 Interest on borrowed funds 1,037 931 Total interest expense 2,653 2,371 Net interest income 2,670 2,558 Provision for loan losses 60 0 Net interest income after provision for loan losses 2,610 2,558 Other operating income: Trust department income 97 89 Service charges on deposit accounts 154 145 Net securities gains (losses) 0 0 Other operating income 214 141 Total other operating income 465 375 Other operating expenses: Salaries and employee benefits 906 792 Occupancy expense 110 82 Furniture and equipment expense 156 151 Other 475 457 Total other operating expenses 1,647 1,482 Income before income taxes 1,428 1,451 Applicable income taxes 428 458 NET INCOME $1,000 $993 Page 5
STATEMENTS OF INCOME CONT. 1998 1997 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains (losses) arising during period (12) 11 Less: reclassification adjustment for accumulated gains (losses) included in net-income 0 0 Total non-owner changes in equity, net of tax (12) 11 INCOME AND NON-OWNER CHANGES IN EQUITY $988 $1,004 Earnings per common share Basic earnings per share $0.40 $0.40 Diluted earnings per share $0.39 $0.40 Cash dividends declared per share $0.08 $0.06 Weighted average number of shares outstanding 2,479,362 2,464,452 Page 6
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 1998 1997 (000 OMITTED) (Unaudited) (Unaudited) Cash flows from operating activities: Net income $1,992 1,906 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 293 272 Provision for loan losses 105 0 Loans originated for resale (8,714) (782) Proceeds from sales and transfers of loans 8,814 1,084 Net (gain) loss on sale of investments 25 0 Provision for losses on other real estate owned 0 0 Losses related to other real estate owned 0 20 Net change in other assets (1,131) (1,052) Net change in other liabilities 189 389 Net amortization of premium on investments 75 15 Net cash provided by operating activities 1,648 2,052 Cash flows from investing activities: Proceeds from sales of investments 5,474 0 Proceeds from maturities of investments 15,845 8,958 Maturities of interest-bearing deposits 0 975 Proceeds from sales of other real estate 0 429 Additional investment in other real estate owned 0 (1) Purchase of investments (17,313) (17,645) Net decrease (increase) in loans (22,073) (12,222) Capital expenditures (66) (123) Net cash used in investing activities (18,133) (19,829) Cash flows from financing activities: Net increase (decrease) in demand deposits, savings, money market and club accounts 5,719 (4,828) Net increase (decrease) in certificates of deposit 5,961 5,828 Net increase (decrease) in other borrowings 6,015 17,967 Payment to repurchase common stock (139) (49) Proceeds from sale of Treasury stock 20 45 Net proceeds from stock issuance 91 0 Dividends paid (371) (376) Net cash provided by financing activities 17,296 18,587 Page 7
STATEMENTS OF CASH FLOWS CONT. 1998 1997 (Unaudited) (Unaudited) Net increase (decrease) in cash and cash equivalents 811 810 Cash and cash equivalents at beginning of period 5,683 6,023 Cash and cash equivalents at end of period $6,494 $6,833 Interest paid $5,191 $4,427 Income taxes paid 877 819 Non-cash transactions: Loans transferred to other real estate owned (net) 145 50 Net change in unrealized gain (loss) on available for sale securities 17 11 Page 8
FOOTNOTES TO FINANCIAL STATEMENTS 1. 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 9
Item 2 - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF OPERATIONS EARNINGS SUMMARY Net income for the six months ended June 30, 1998 was $1,992,000, an increase of 4.5% over 1997's net income of $1,906,000. Net income for the quarter ended June 30, 1998 was $1,000,000. This is a 0.7% increase over 1997's net income of $845,000. Earnings growth for the first six months of 1998 has been at a lower rate than in the past three years due to several factors. The Bank's operating expenses have increased as a result of opening two new branches in Rockport, Maine and Camden, Maine. At the same time, the Bank's operating margins have been compressed as a result of increased competition and the current interest rate environment with an extremely flat yield curve. It is Management's opinion that neither of these factors will have a significant negative impact on the long-term operating results of the Company. NET INTEREST INCOME Net interest income for the six months ended June 30, 1998 was $5,336,000, an 6.4% increase over 1997's net interest income of $5,013,000. Total interest income of $10,527,000 is a 10.3% increase over 1997's total interest income of $9,542,000. Total interest expense of $5,191,000 is a 14.6% increase over 1997's total interest expense of $4,529,000. Net interest income for the quarter ended June 30, 1998 was $2,670,000. This is an 4.4% increase over 1997's net interest income of $2,558,000. Total interest income was $5,323,000, a 8.0% increase over 1997's total interest income of $4,929,000. Total interest expense of $2,653,000 is a 11.9% increase over 1997's total interest expense of $2,371,000. PROVISION FOR LOAN LOSSES A $105,000 provision to the allowance for loan losses was made during the first six months of 1998. 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 $221,000 at June 30, 1998. The portion of the allowance for loan losses allocated to impaired loans at June 30, 1998 was $109,000. NON-INTEREST INCOME Non-interest income of $880,000 for the six months ended June 30, 1998. This is an increase of 27.4% from 1997's non-interest income of $691,000. Non- interest income for the quarter ended June 30, 1998 was $465,000, a 24.0% increase over the same period a year ago. NON-INTEREST EXPENSE Non-interest expense of $3,263,000 for the six months ended June 30, 1998 is an increase of 11.7% from 1997's non-interest expense of $2,922,000. Non- interest expense for the quarter ended June 30, 1998 was $1,647,000, an 11.1% increase over the same period a year ago. Page 10
MANAGEMENT'S DISCUSSION CONT. INCOME TAXES Income taxes on operating earnings decreased to $856,000 for the first six months of 1998 from $876,000 for the same period a year ago. The level of income taxes declined slightly as a result of the Company's increased holdings of tax-exempt securities. DEPOSITS AND BORROWED FUNDS Deposits as of June 30, 1998 increased by 15.9% or $24,886,000 from June 30, 1997. Demand deposits decreased by 13.8% or $1,793,000, NOW deposits increased by 9.0% or $2,409,000, savings deposits increased by 6.2% or $2,054,000, money market deposits increased by 140.0% or $5,818,000 and certificates of deposit increased by 16.1% or $12,812,000. This is the most substantial deposit growth that the Bank has seen in several years and is a direct result of the opening of two new branches. Deposits were supplemented by borrowings from the Federal Home Loan Bank and repurchase agreements. Total borrowed funds increased by 8.6% or $5,937,000 from the same period a year ago. STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES Stockholders' investment as of June 30, 1998 was $27,495,000 compared to $24,121,000 for the same period in 1997. The reason for this increase was the strong earnings performance in the year 1997 and the first six 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 9.58% and 9.58%, respectively, at June 30, 1998 and June 30, 1997. The Bank had a tier one risk-based capital ratio of 14.23% and tier two risk-based capital ratio of 15.16% at June 30, 1998, compared to 15.29% and 16.49%, respectively, at June 30, 1997. These were comfortably above the standards to be rated "well- capitalized" by the regulatory authorities. LIQUIDITY MANAGEMENT As of June 30, 1998 the Bank had primary sources of liquidity of $39,346,000, or 13.8% 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. Page 11
MANAGEMENT'S DISCUSSION CONT. 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. 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 June 30, 1998 and 1997, loans on a non-accrual status totaled $636,000 and $646,000, respectively. In addition to loans on a non-accrual status at June 30, 1998 and 1997, loans past due greater than 90 days totaled $204,000 and $141,000 respectively. The Company continues to accrue interest on these loans because it believes collection of the interest is reasonably assured. INVESTMENTS As of June 30, 1998 stockholders' equity was increased by $110,000 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 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 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 13
MANAGEMENT'S DISCUSSION CONT. YEAR 2000 READINESS With the year 2000 approaching, all businesses and governments are facing the challenge of assessing and preparing their computer systems to handle dates beyond 1999. First National Lincoln Corporation and its subsidiary, The First National Bank of Damariscotta, are taking steps to address the many issues related to the transition to the next century. The Bank's actions with regard to Year 2000 compliance are reviewed by the Board of Directors, its internal audit department, and its Federal Regulators. These include the following: * The Bank has formulated a Year 2000 Plan to direct and coordinate activities related to Year 2000 preparedness. All systems and business relationships have been assessed to determine the scope of the project and target dates have been set for any necessary systems changes. A test plan is also in place to test all critical systems. * A Year 2000 Task Force, overseen by the Board of Directors, has been created and includes top management and staff from each division. It has been working since the Summer of 1997 towards full Year 2000 compliance. * A new core banking system has been purchased and is planned to be operational by the fourth quarter of 1998. The system has been certified by the vendor as Year 2000 compliant and offers many features which will enhance customer service. * The Bank is seeking to verify that all vendors, suppliers and other business partners will be ready for Year 2000, and has created a team to work with bank customers to assess their Year 2000 awareness and readiness. The estimated cost to address Year 2000 issues is approximately $1 million. This includes $400,000 for the purchase of hardware and software for the new core banking system, $250,000 for new PCs and networking hardware, $50,000 for new telephone equipment, and a human-resources allocation of $300,000. Most of these expenditures have already been incurred and will be amortized over a three-to-five year period. The purchase of new hardware and PCs, although required for operation of the new core banking system, is part of the Bank's planned upgrade of computers. The phone system is a more modern system that is being installed irrespective of Year 2000 issues. Of the $300,000 human resource allocation, it is estimated that only $25,000 will be an incremental expense to cover summer college students, overtime for existing personnel, and outside support. The remaining $275,000 is an allocation of existing human resources to effectively implement and bring to a successful conclusion the Year 2000 Plan It is Management's opinion that the Company's major Year 2000 risks are primarily related to problems experienced by key counterparties which are beyond the Company's control. The two most significant counterparties are U.S. Government Agencies: the Federal Reserve Bank and the Federal Home Loan Bank. The Company will closely monitor the Year 2000 preparation and readiness of both agencies. An additional Year 2000 risk involves the Bank's new core banking system, if the installation is delayed or unsuccessful. In Management's opinion, this is not a significant risk at this time. The Company has developed contingency plans with for all mission critical systems. These plans include identification of alternative resources and/or vendors as well as specific trigger dates for action and implementation. Page 14
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 15
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 16
ITEM 2. CHANGES IN SECURITIES None Page 17
ITEM 3. DEFAULT UPON SENIOR SECURITIES None. Page 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Three proposals were submitted to a vote of security holders at the Company's Annual Meeting of Shareholders, held on Tuesday, April 28, 1998, at 11:00 a.m. Eastern Daylight Time. Only shareholders of record as of the close of business on March 12, 1998 (the "Voting Record Date") were entitled to vote at the Annual Meeting. On the Voting Record Date, there were 2,479,917 shares of Common Stock of the Company, one cent par value, issued and outstanding, and the Company had no other class of equity securities outstanding. Each share of Common Stock was entitled to one vote at the Annual Meeting on all matters properly presented thereat. PROPOSAL 1: To ratify the Board of Directors' vote to fix the number of Directors at ten. The Articles of Incorporation of the Company provide that the Board of Directors shall consist of not fewer than five nor more than twenty-five persons as determined by the Board prior to each Annual Meeting, with Directors serving for "staggered terms" of three years. A resolution of the Board of Directors adopted pursuant to the Company's Articles of Incorporation has established the number of Directors at ten. The results of the shareholder voting had 2,075,103 shares in favor, 2,324 shares against, 1,076 shares withheld voting, and 401,414 shares not voting. PROPOSAL 2: Election of Directors The following were nominees for three-year terms as Director: M. Robert Barter has been a Director of the Company since its organization in 1985 and has served as a Director of the Bank since 1982, and Chairman of both the Company and the Bank since April, 1989. Mr. Barter has owned and operated Bob's Photo-TV Store in Boothbay Harbor, Maine since 1953. Mr. Barter is also serving as Town Clerk for the Town of Boothbay Harbor and is County Commissioner for Lincoln County, Maine. Representing Maine, Mr. Barter is a Director of The National Association of Counties in Washington, DC. Bruce A. Bartlett has been a member of the Board of Directors since the Company's organization in 1985. Mr. Bartlett served as President and Chief Executive Officer of the Company until his retirement on April 26, 1994 and as President and Chief Executive Officer of the Bank until his retirement on March 7, 1994. He has served as a Director of the Bank since 1981. Malcolm E. Blanchard has been a Director of the Company since its organization in 1985, has served as a Director of the Bank since 1976, and is Chairman of the Executive Committee of the Bank. Mr. Blanchard has been actively involved, either as sole proprietor or as a partner, in real estate development since 1970. Stuart G. Smith was selected as a Director of the Company and the Bank in July 1997. A resident of Camden, he owns with his wife, Maine Sport Outfitters in Rockport, and Lord Camden Inn and Bayview Landing in Camden, Maine. Mr. Smith is Chairman of the Five Town CSD School Board and Chairman of the Facilities Planning Committee for the new high school. Page 19
VOTE OF SECURITY HOLDERS, Cont. The following Directors' terms will expire in 1999: Katherine M. Boyd was elected a Director of the Company and Bank in 1993. A resident of Boothbay Harbor, she owns Boothbay Region Greenhouses with her husband. Ms. Boyd is a director of the Boothbay Region YMCA, Chairperson of the YMCA Annual Fund Drive, and past chairperson of the YMCA Camp Committee. Carl S. Poole has been a Director of the Company since its organization in 1985 and has served as a Director of the Bank since 1984. Mr. Poole is President, Secretary and Treasurer of Poole Brothers Lumber, a lumber and building supply company with locations in Damariscotta, Pemaquid and Boothbay Harbor, Maine. David B. Soule, Jr. was elected a Director of the Company and the Bank in June, 1989. Mr. Soule has been practicing law in Wiscasset since 1971. He spent two terms in the Maine House of Representatives and is a past President of the Lincoln County Bar Association and is a former Public Administrator, Lincoln County. He has served on the Board of Directors of Bath area YMCA and of the Coastal Economic Development Corporation and as a Trustee of the Wiscasset Library. He was Selectman, Town of Westport from 1975 to 1976 and served as Chairman of the Board of Selectman from 1993 to 1995. The following Directors' terms will expire in 2000: Daniel R. Daigneault has served as President and Chief Executive Officer of the Company since April 26, 1994, and has served as President and Chief Executive Officer of the Bank since March 7, 1994 and as a member of the Board of Directors of both the Company and the Bank since March 1994. Prior to being employed by the Bank, Mr. Daigneault was Vice President, Senior Commercial Loan Officer at Camden National Bank, Camden, Maine. Mr. Daigneault is Vice President of the Boothbay Region YMCA Board of Trustees and a director of Maine Bankers Association. Robert B. Gregory was elected a Director of the Company and the Bank in October, 1987. Mr. Gregory has been a practicing attorney since 1980, first in Lewiston, Maine and since 1984 in Damariscotta, Maine. Mr. Gregory is a member of several legal societies and associations. Parker L. Spofford has been a Director of the Company since its organization in 1985 and has served as a Director of the Bank since 1979. Mr. Spofford is a Realtor in Waldoboro, Maine. He has been active in that capacity since 1955 and is a Past President of the Maine Association of Realtors as well as a former director of the National Association of Realtors. He began his banking affiliation with the Provident Institution for Savings in Boston and has served in an advisory capacity for the former Depositors Trust Company and the former Heritage Savings Bank. Page 20
VOTE OF SECURITY HOLDERS, Cont. There are no family relationships among any of the Directors of the Company, and there are no arrangements or understandings between any Director and any other person pursuant to which that Director has been or is to be elected. No Director of the Bank or the Company serves as a Director on the board of any other corporation with a class of securities registered pursuant to Section 12 of the Securities Exchange Act or subject to the reporting requirements of Section 15(d) of the Securities Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended. The results of the shareholder voting had 2,076,267 shares in favor, 2,236 withheld voting, and 401,414 shares not voting. PROPOSAL 3: Appointment of Auditors The Board of Directors appointed Berry, Dunn, McNeil & Parker as independent auditors of the Company and its subsidiary for the year ended December 31, 1997. In the opinion of the Board of Directors, the reputation, qualifications and experience of the firm make its reappointment appropriate for 1998. It was the desire of the Board of Directors that the selection of Berry, Dunn, McNeil & Parker as independent auditors be ratified by shareholders at the annual meeting. The results of the shareholder voting had 2,076,287 shares in favor, 2,000 shares against, 216 withheld voting, and 401,414 not voting. Page 21
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 filed and received approval from its principal regulator, the Office of the Comptroller of the Currency, to establish a branch office in this location. No loans or deposits were acquired from the previous tenant. After modest renovation, the facility was opened in May of 1998. Page 22
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 six months ended June 30, 1998 the registrant was not required to and did not file any reports on Form 8-K. Page 23
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 August 13, 1998 Daniel R. Daigneault Date Daniel R. Daigneault President and CEO August 13, 1998 F. Stephen Ward Date F. Stephen Ward Treasurer Page 24