10-Q 1 0001.txt 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 June 30, 2000 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, 2000 Common Stock, Par One Cent 2,387,451 FIRST NATIONAL LINCOLN CORPORATION INDEX PART 1 Financial Information Page No. Item 1: Independent Accountants' Report ............................ 1 Financial Statements Consolidated Balance Sheets - June 30, 2000, June 30, 1999, and December 31, 1999 .... 2 - 3 Consolidated Statements of Income and Non-Owners' Changes in Equity - for the three and six months ended June 30, 2000 and June 30, 1999 .................. 4 - 7 Consolidated Statements of Cash Flows - for the six months ended June 30, 2000 and June 30, 1999 .................. 8 - 9 Footnotes to Financial Statements - six months ended June 30, 2000 and June 30, 1999......... 10 Item 2: Management's discussion and analysis of financial condition and results of operations ........... 11 - 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 - 22 Item 5: Other Information ...................................... 23 Item 6: Exhibits and reports on Form 8-K ....................... 24 Signatures .......................................................... 25 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 June 30, 2000, and for the three-month and six-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review 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 review, 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 August 11, 2000 Page 1 FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS 6/30/00 6/30/99 12/31/99 (000 OMITTED) (Unaudited) (Unaudited) (Unaudited) Assets Cash and due from banks $ 10,342 $ 6,548 $ 8,221 Investments: Available for sale 46,216 35,864 42,091 Held to maturity (market values $39,819 at 6/30/00, $46,773 at 6/30/99 and $43,581 at 12/31/99) 42,563 48,061 45,908 Loans held for sale (fair value approximates cost) 60 0 127 Loans 252,391 225,699 232,526 Less allowance for loan losses 2,106 2,043 2,035 Net loans 250,285 223,656 230,491 Accrued interest receivable 2,970 2,557 2,335 Bank premises and equipment 5,323 5,650 5,518 Other real estate owned 355 231 336 Other assets 6,105 5,586 6,260 Total Assets $364,219 $328,153 $341,287 Page 2 BALANCE SHEETS CONT. 6/30/00 6/30/99 12/31/99 (Unaudited) (Unaudited) (Unaudited) Liabilities & Shareholders' Equity Demand deposits $ 24,275 $ 16,353 $ 17,746 NOW deposits 38,926 32,921 36,714 Money market deposits 11,082 7,996 16,607 Savings deposits 38,205 39,570 41,349 Certificates of deposit 68,537 77,182 70,859 Certificates $100M and over 40,532 27,764 22,183 Total deposits 221,557 201,786 205,458 Borrowed funds 109,957 96,520 105,048 Other liabilities 2,342 1,535 2,119 Total Liabilities 333,856 299,841 312,625 Shareholders' Equity: Common stock 25 25 25 Additional paid-in capital 4,687 4,686 4,687 Retained earnings 29,006 25,791 27,463 Net unrealized losses on available-for-sale securities (1,239) (667) (1,319) Treasury stock (2,116) (1,523) (2,194) Total Shareholders' Equity 30,363 28,312 28,662 Total Liabilities & Shareholders' Equity $364,219 $328,153 $341,287 Number of shares authorized 6,000,000 6,000,000 6,000,000 Number of shares issued and outstanding 2,387,451 2,406,786 2,370,047 Book value per share $12.72 $11.76 $12.09 Page 3 FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the six months ended June 30, 2000 1999 (000 OMITTED) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $10,294 8,909 Interest on deposits with other banks 15 11 Interest and dividends on investments 3,020 2,282 Total interest income 13,329 11,202 Interest expense: Interest on deposits 3,815 3,570 Interest on borrowed funds 3,222 1,930 Total interest expense 7,037 5,500 Net interest income 6,292 5,702 Provision for loan losses 300 375 Net interest income after provision for loan losses 5,992 5,327 Other operating income: Fiduciary income 336 270 Service charges on deposit accounts 433 327 Net securities gains (losses) 0 0 Other operating income 560 722 Total other operating income 1,329 1,319 Other operating expenses: Salaries and employee benefits 2,136 1,912 Occupancy expense 256 231 Furniture and equipment expense 347 348 Other 1,356 1,117 Total other operating expenses 4,095 3,608 Income before income taxes 3,226 3,038 Applicable income taxes 941 904 NET INCOME $2,285 $2,134 Page 4 STATEMENTS OF INCOME CONT. For the six months ended June 30, 2000 1999 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains (losses) arising during period 80 (730) Total other comprehensive income (loss), net of taxes of $41 in 2000 and $(376) in 1999 80 (730) INCOME AND NON-OWNER CHANGES IN EQUITY $2,365 $1,404 Earnings per common share: Basic earnings per share $0.96 $0.87 Diluted earnings per share $0.93 $0.83 Cash dividends declared per share $0.31 $0.23 Weighted average number of shares outstanding 2,386,261 2,462,502 Incremental Shares 80,508 98,459 Page 5 FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND NON-OWNER CHANGES IN EQUITY For the quarters ended June 30, 2000 1999 (000 OMITTED) (Unaudited) (Unaudited) Interest Income: Interest and fees on loans $ 5,279 4,530 Interest on deposits with other banks 14 6 Interest and dividends on investments 1,542 1,256 Total interest income 6,835 5,792 Interest expense: Interest on deposits 1,994 1,795 Interest on borrowed funds 1,654 1,081 Total interest expense 3,648 2,876 Net interest income 3,187 2,916 Provision for loan losses 150 285 Net interest income after provision for loan losses 3,037 2,631 Other operating income: Fiduciary income 169 132 Service charges on deposit accounts 234 179 Other operating income 297 469 Total other operating income 700 780 Other operating expenses: Salaries and employee benefits 1,068 953 Occupancy expense 124 112 Furniture and equipment expense 172 182 Other 714 593 Total other operating expenses 2,078 1,840 Income before income taxes 1,659 1,571 Applicable income taxes 486 465 NET INCOME $1,173 $1,106 Page 6 STATEMENTS OF INCOME CONT. For the quarters ended June 30, 2000 1999 (Unaudited) (Unaudited) Non-owner changes in equity, net of tax: Unrealized gains (losses) arising during period 5 (576) Total other comprehensive income (loss), net Of taxes of $2 in 2000 and $(297) in 1999 5 (576) INCOME AND NON-OWNER CHANGES IN EQUITY $1,178 $530 Earnings per common share: Basic earnings per share $0.49 $0.45 Diluted earnings per share $0.47 $0.44 Cash dividends declared per share $0.16 $0.12 Weighted average number of shares outstanding 2,390,237 2,434,821 Incremental Shares 80,508 98,459 Page 7 FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2000 1999 (000 OMITTED) (Unaudited) (Unaudited) Cash flows from operating activities: Net income $2,285 2,134 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 271 262 Provision for loan losses 300 375 Loans originated for resale (1,171) (7,267) Proceeds from sales and transfers of loans 1,238 7,476 Losses related to other real estate owned 5 6 Net change in other assets and accrued interest (480) (797) Net change in other liabilities 130 226 Net amortization of premium (accretion of discounts) on investments (63) 11 Net cash provided by operating activities 2,515 2,426 Cash flows from investing activities: Proceeds from sales, maturities and calls of securities available for sale 1,433 2,307 Proceeds from sales, maturities and calls of securities to be held to maturity 2,508 10,400 Proceeds from sales of other real estate owned 36 212 Purchases of securities available for sale (4,412) (20,408) Purchases of securities to be held to maturity (125) (18,000) Net increase in loans (20,154) (16,775) Capital expenditures (76) (46) Net cash used in investing activities (20,790) (42,310) Cash flows from financing activities: Net increase (decrease) in demand deposits, savings, money market and club accounts 72 (3,538) Net increase in certificates of deposit 16,027 3,521 Net increase in other borrowings 4,909 42,060 Payment to repurchase common stock (156) (1,396) Proceeds from sale of Treasury stock 234 89 Dividends paid (690) (642) Net cash provided by financing activities 20,396 40,094 Page 8 STATEMENTS OF CASH FLOWS CONT. 2000 1999 (Unaudited) (Unaudited) Net increase in cash and cash equivalents 2,121 210 Cash and cash equivalents at beginning of period 8,221 6,338 Cash and cash equivalents at end of period $10,342 $6,548 Interest paid $7,036 $5,499 Income taxes paid 947 871 Non-cash transactions: Loans transferred to other real estate owned (net) 60 146 Net change in unrealized gain (loss) on available for sale securities 80 (730) Page 9 FOOTNOTES TO FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements of First National Lincoln Corporation and its subsidiary for the six-month periods ended June 30, 2000 and 1999 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, 1999. Page 10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS SUMMARY Net income for the six months ended June 30, 2000 was $2,285,000, an increase of 7.1% over 1999's net income of $2,134,000. Revenue growth was the primary factor in the Company's increased earnings for the first six months of 2000 compared to the same period in 1999. This was a direct result of asset growth, which produced higher levels of net interest income. During the period, the loan and investment portfolios increased by a combined $20.5 million, which Management views as excellent for the first half of the year. Earnings per share for the first quarter of 2000 were $0.96, a 10.3% increase over the $0.87 reported in 1999. Net income for the three months ended June 30, 2000 was $1,173,000, an increase of 6.1% over 1999's net income of $1,106,000. As with the Company's year-to-date performance, revenue growth was the primary factor in the increased earnings posted for the second quarter of 2000 compared to the same period in 1999. Earnings per share for the second quarter of 2000 were $0.49, a 8.9% increase over the $0.45 reported in 1999. NET INTEREST INCOME Net interest income for the six months ended June 30, 2000 was $6,292,000, a 10.3% increase over 1999's net interest income of $5,702,000. Total interest income of $13,329,000 is a 19.0% increase over 1999's total interest income of $11,202,000. Total interest expense of $7,037,000 is a 27.9% increase over 1999's total interest expense of $5,500,000. The increases in both interest income and interest expense were due to a combination of significantly higher balances and higher interest rates. Net interest income for the three months ended June 30, 2000 was $3,187,000, a 9.3% increase over 1999's net interest income of $2,916,000. Total interest income of $6,835,000 is an 18.0% increase over 1999's total interest income of $5,792,000. Total interest expense of $3,648,000 is a 26.8% increase over 1999's total interest expense of $2,876,000. The increases in both interest income and interest expense were due to a combination of significantly higher balances and higher interest rates PROVISION FOR LOAN LOSSES A $300,000 provision to the allowance for loan losses was made during the first six months of 2000. This is a $75,000 decrease from the $375,000 provision made for the same period of 1999. 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 $490,637 at June 30, 2000. The portion of the allowance for loan losses allocated to impaired loans at June 30, 2000 was $150,527. Page 11 MANAGEMENT'S DISCUSSION CONT. NON-INTEREST INCOME Non-interest income was $1,329,000 for the six months ended June 30, 2000, an increase of $10,000 from 1999's non-interest income of $1,319,000. However, 1999's non-interest income included a one-time gain of $189,000 due to adoption of SFAS 125 which governs the account treatment for mortgage servicing rights. Without the 1999 item, the increase would have been $199,000 or 17.6% for the six-month period. The increase in fee income was due to increased service charge income on deposit accounts connected with the increase in the Bank's core deposits, as well as increases in merchant credit card income and fiduciary income. These increases were offset by decreased mortgage origination and servicing income. While demand for residential mortgages has been strong, the Bank chose to retain most of the production in portfolio, resulting in decreased gains on sales of loans -- only $1,238,000 were sold in the first six months of 2000 compared to $7,476,000 for the same period in 1999. In addition, the Company's adoption of SFAS 125, which produced the one-time gain in the second quarter of 1999 relating to mortgage servicing rights, results in a reduction of the subsequent recognition of servicing income on those loans. Non-interest income was $700,000 for the three months ended June 30, 2000, an increase of 18.4% from 1999's non-interest income after adjusting for the one-time second quarter gain mentioned above. The increase was due to increased service charge income on deposit accounts connected with the increase in the Bank's core deposits, as well as increases in merchant credit card income and fiduciary income. These increases were offset by decreased mortgage origination and servicing income. NON-INTEREST EXPENSE Non-interest expense of $4,095,000 for the six months ended June 30, 2000, is an increase of 13.5% from 1999's non-interest expense of $3,608,000. 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, increases in merchant credit card costs which were offset by an increase in merchant credit card income. Non-interest expense of $2,078,000 for the three months ended June 30, 2000, is an increase of 12.9% from 1999's non-interest expense of $1,840,000 for the reasons stated above INCOME TAXES Income taxes on operating earnings increased to $941,000 for the first six months of 1999 from $904,000 for the same period a year ago. Due to the Company's increased holdings of tax-exempt securities, the increase in income taxes was very small. Page 12 MANAGEMENT'S DISCUSSION CONT. INVESTMENTS The Company's investment portfolio increased by $4.9 million or 5.8% between June 30, 1999 and June 30, 2000, a direct result of an attractive investment climate which resulted from a steepening of the yield curve. During the first six months of 2000, the investment portfolio increased by $0.8 million or 0.9%. At June 30, 2000, the Company's available-for-sale portfolio had an unrealized loss, net of taxes, of $1.2 million, which is in line with the interest rates increases seen in the second half of 1999 and the first half of 2000. LOANS Loans grew by $26.6 million or 11.9% between June 30, 1999 and June 30, 2000. The majority of this growth came in commercial loans, the Company's highest earning assets, along with very strong growth in mortgage loans. During the first six months of 2000, loans increased by $19.8 million or 8.6%. DEPOSITS As of June 30, 2000, deposits grew year-over year by 9.8% or $19.8 million. The majority of this increase came in core deposits (checking, savings and money market accounts) which are the Company's lower cost sources of funding. For the same period, certificates of deposit increased by $4.1 million. During the first six months of 2000, deposits increased by $16.1 million or 7.8%. The growth was in certificates of deposit. BORROWED FUNDS The Company's funding also includes borrowings from the Federal Home Loan Bank and repurchase agreements. Between June 30, 1999 and June 30, 2000, borrowed funds increased by $13.4 million or 13.9%. 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 six months of 2000, borrowed funds increased by $4.9 million or 4.7%. SHAREHOLDERS' INVESTMENT AND CAPITAL RESOURCES Shareholders' investment as of June 30, 2000 was $30,363,000 compared to $28,312,000 for the same period in 1999. While the Company's strong earnings performance in the preceeding 12 months has added significantly to retained earnings, this was offset by an increase in the net unrealized after-tax loss on available-for-sale securities, as required under SFAS 115, and by the net buyback of $593,000 of treasury stock. During 1999, the Company increased its dividend each quarter to end the year at a quarterly dividend rate of 14 cents per share. In 2000, a cash dividend of 15 cents per share was declared in the first quarter compared to 11 cents in the first quarter of 1999 and a cash dividend of 16 cents per share was declared in the second quarter compared to 12 cents in the second quarter of 1999. Page 13 MANAGEMENT'S DISCUSSION CONT. Regulatory leverage capital ratios for the Company were 8.84% and 9.14%, respectively, at June 30, 2000 and June 30, 1999. The decrease was due to asset growth and repurchase of the Company's shares. The Company had a tier one risk- based capital ratio of 13.77% and tier two risk-based capital ratio of 14.68% at June 30, 2000, compared to 14.15% and 15.15%, respectively, at June 30, 1999. 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 June 30, 2000 the Bank had primary sources of liquidity of $29.1 million, or 8.0% 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. 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, 2000 and 1999, loans on a non-accrual status totaled $1,859,000 and $1,247,000, respectively. In Management's opinion, this increase 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 June 30, 2000 and 1999, loans past due greater than 90 days and still accruing totaled $184,000 and $255,000 respectively. The Company continues to accrue interest on these loans because it believes collection of the interest is reasonably assured. Page 14 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 MANAGEMENT'S DISCUSSION CONT. ACCOUNTING PRONOUNCEMENTS During 1999, the Financial Accounting Standards Board (FASB) issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133." SFAS 133, which established accounting reporting standards for derivative instruments and for hedging activity, was amended by SFAS 137. SFAS 137 defers the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. While the Bank does not hold any derivative instruments at the present time, SFAS 137 will be followed when effective should the Bank enter into derivative transactions. 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 16 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 ITEM 2. CHANGES IN SECURITIES None Page 18 ITEM 3. DEFAULT UPON SENIOR SECURITIES None. Page 19 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 25, 2000, at 11:00 a.m. Eastern Daylight Time. Only shareholders of record as of the close of business on March 6, 2000 (the "Voting Record Date") were entitled to vote at the Annual Meeting. On the Voting Record Date, there were 2,387,600 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 2,079,306 shares in favor, 5,800 shares against, 560 shares withheld voting, and 301,934 shares not voting. PROPOSAL 2: Election of Directors The following were nominees for three-year terms as Director: Daniel R. Daigneault has served as President and Chief Executive Officer and as a member of the Board of Directors of both the Company and it wholly owned subsidiary, The First National Bank of Damariscotta (the "Bank") since 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 President of the Boothbay Region YMCA Board of Trustees and Second Vice President of the Maine Bankers Association. Dana L. Dow has served as a Director of the Company and the Bank since January 1999. Mr. Dow is President of Dow Furniture, Inc., located in Waldoboro, Maine which he purchased from his father in 1977. Prior to purchasing Dow Furniture, Mr. Dow taught chemistry and physics at Medomak Valley High School. Robert B. Gregory has served as Director of the Company and the Bank since October 1987 and has served as Chairman of both the Company and the Bank since September 1998. Mr. Gregory has been a practicing attorney since 1980, first in Lewiston, Maine and since 1983 in Damariscotta, Maine. The following Directors' terms will expire in 2001: Bruce A. Bartlett has served as a Director of the Company since its organization in 1985 and has served as a Director of the Bank since 1981. Mr. Bartlett served as President and Chief Executive Officer of the Company and the Bank until his retirement in 1994. Page 20 VOTE OF SECURITY HOLDERS, Cont. Malcolm E. Blanchard has served as a Director of the Company since its organization in 1985, and has served as a Director of the Bank since 1976. Mr. Blanchard has been actively involved either as sole proprietor or as a partner, in real estate development since 1970 and is now retired. Stuart G. Smith has served as a Director of the Company and the Bank since July 1997. A resident of Camden, he and his wife own and operate 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. The following Directors' terms will expire in 2002: Katherine M. Boyd has served as a Director of the Company and the Bank since 1993. A resident of Boothbay Harbor, she owns the Boothbay Region Greenhouses with her husband. Ms. Boyd serves on the Boothbay Region YMCA Camp Committee and is Secretary for the local chapter of American Field Service. Ms. Boyd previously served as trustee of the YMCA, and past chairperson of the YMCA Annual Fund Drive. Carl S. Poole has served as 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. has served as a Director of the Company and the Bank since 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. Bruce B. Tindal has served as a Director of the Company and the Bank since January 1999. Mr. Tindal formed and is co-owner of Tindal & Callahan Real Estate in Boothbay Harbor, which has been in operation since 1985. Mr. Tindal is a Trustee at St. Andrews Hospital and serves on the Board of Directors of the Boothbay Region Land Trust and the Boothbay Region Economic Development Corp. Mr. Tindal is also a member of the National Association of REALTORS and the Boothbay Harbor Rotary Club. 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 2,067,430 shares in favor, 2,000 shares against, 16,236 withheld voting, and 301,934 shares not voting. Page 21 VOTE OF SECURITY HOLDERS, Cont. 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, 1999. In the opinion of the Board of Directors, the reputation, qualifications and experience of the firm make its reappointment appropriate for 2000. 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 2,080,246 shares in favor, 3,900 shares against, 1,520 withheld voting, and 301,934 not voting. Page 22 ITEM 5: Other Information None. Page 23 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 None. Page 24 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 11, 2000 Daniel R. Daigneault Date Daniel R. Daigneault President and CEO August 11, 2000 F. Stephen Ward Date F. Stephen Ward Treasurer Page 25