A N N U A L R E P O R T 2 0 0 6
2
First National Lincoln Corporation is a $1.1 billion bank
holding company headquartered in Damariscotta, Maine. Our
banking and wealth management offices are charted along the
rugged Maine coastline in fourteen communities from Wiscasset to
Calais. FNLC’s high-performance culture is built on a strong work
ethic and is maintained by our unwavering focus on developing
long-term relationships with our customers and our communities.
3
M E S S A G E F R O M T H E P R E S I D E N T
Dear First National Lincoln Corporation Shareholder:
For First National Lincoln Corporation, 2006 was a year of mixed financial results. We
had a number of very positive outcomes but also were disappointed with some areas of
our financial performance. In my letter this year, I would like to put our performance
in perspective and share with you my thoughts on the direction the banking industry
is going and how First National Lincoln Corporation is positioned to flourish in this
changing climate.
Net Income
Net income of $12.3 million was a decrease of $0.5 million compared to the
$12.8 million earned in 2005. This is the first year since 1990 – 15 years ago –
that the Company’s earnings did not exceed the prior year. Our primary
financial goal has been and continues to be to increase net income year over
year. In 2006, however, we were unable to accomplish this for a number of
reasons, some within our control and some outside of our power.
One of the leading contributions to the earnings reduction was a $1.0
million decline in net interest income. This was due to the cost of our
funding – interest expense – increasing faster than our ability to offset these
higher costs in interest income. One of the major reasons was the interest
rate environment as the Federal Open Market Committee of the Federal
Reserve continued to increase short-term interest rates for the first half
of 2006. With the last rate increase in June 2006, the yield curve – the
difference between short-term rates and long-term rates – became inverted
with short-term rates exceeding long-term rates. For First National Lincoln
Corporation, this was more acute than for other banks as over 50% of our loan
portfolio is in residential real estate loans which are priced based on longer-
term rates. With no meaningful increase in these longer-term rates, we were
unable to offset the higher rates we had to pay for our certificates of deposit
and borrowed funds which are primarily based on short-term rates.
On a positive note, we experienced good loan growth that helped to
minimize the impact of the inverted yield curve. We also posted an impressive
$1.3 million, or 14.1% increase in non-interest income, driven by enhanced
revenues from our First Advisors wealth management division, as well as fees
earned on deposit accounts.
One of the performance numbers I am especially proud of is the
2
$79,000 reduction we realized in operating expenses and the corresponding improvement in our
efficiency ratio to 52.1%. I cannot overestimate the importance of keeping operating costs down,
especially in a very challenging banking environment.
Loan Growth and Relationships
Total portfolio loan growth in 2006 was $65.8 million or 8.5%. At first glance this seems low compared
to the average 15.2% loan increase First National Lincoln Corporation has posted in the past five years.
Looking back over the year, however, and comparing ourselves to other Maine banks, we had a very
good year, with one of the largest increases in both dollars and percentages of any of the publicly traded
Maine-based banks. We cannot lose sight of the fact that our success is tied to the success of the Maine
economy and the markets we serve. The Maine economy struggled somewhat in 2006, especially
the housing sector, which is a major driver of growth for our loan portfolio. Even though residential
mortgage rates remained low, reduced activity in the number of houses sold in our three largest markets
resulted in lower volumes of mortgage loans. That, when
combined with minimal mortgage refinancing activity,
had a strong impact for us. Outside of the housing market,
the economy along the Maine Coast was okay, but not as
robust as in prior years. Given the impact of higher local
and national energy costs, the increase in interest rates
for business borrowers, and an overall concern about the
direction of the economy, business expansion in 2006
was minimal throughout our markets.
Our focus as a Company was to work hard to expand
and cement the relationships we have with our existing
customer base and to win over others by demonstrating
we will be their partner in both boom years and more
challenging times. This philosophy is especially critical
to the small businesses in Maine who need a bank that
will try harder and find a way to help them meet their
financial objectives. Although we are sharing a number
of business success stories with you in this report, there are hundreds more that are not spoken about.
Our primary focus in lending is to serve small businesses along the coast that are part of the industries
crucial to the Maine economy and the vibrancy of our communities. These include the hospitality and
retail businesses, the fishing industry, the boat building industry, health care providers such as the local
hospitals and emergency medical services, the small manufacturing companies that are scattered all over
Maine and the non-profits that are critical to all of our communities.
First National Lincoln Corporation and The First, N.A. are proud of the ties we have to these industries
and to the communities we serve. In addition to providing financial services for these businesses in
2006, we donated to more than 400 non-profit organizations in the form of event sponsorships, cash
donations and volunteerism.
3
FNLC Dividend History
Despite the decline in net income in 2006, the cash dividends declared continued to increase in each
quarter of the year. This resulted in a 15% dividend increase compared to 2005 and 45 consecutive
quarters of increases in the dividend over the past 11 years. The Company’s Board of Directors and
Management believe strongly in sharing a significant portion of earnings with our shareholders, which
is reflected in the Company’s divided payout ratio which has increased from 15.36% in 1994 to 48.8%
in 2006. This dividend provides an excellent current return on your investment and is a good buffer
against volatility in the market price of First National Lincoln Corporation stock.
FNLC Stock Performance
The performance of First National Lincoln Corporation stock has been disappointing for the last couple
of years. In 2006, we saw a decline of $0.86 or 4.9%, with the closing price of $16.72 at December
31, 2006, compared to $17.58 at the end of 2005. Based on
earnings per share of $1.25 and a closing price of $16.72, the
price/earnings ratio as of year end 2006 was 13.4. This is low
in comparison to other publicly traded banks, with trailing
12-month P/Es in the 15.0 to 18.0 range.
We remain optimistic that as First National Lincoln
Corporation continues to show strong financial performance,
our P/E will be more in line with the industry and the
market price of the stock will adjust accordingly. Over the
past five years, First National Lincoln Corporation shares have
significantly outperformed the broad market S&P 500 as well
as our industry specific NASD Bank Index with a compound
annual return for FNLC of 21.44% versus 6.19% and 12.02%
for the S&P 500 and the NASD Bank Index, respectively.
Banking Industry Trends for 2007 and Beyond
First National Lincoln Corporation and the banking industry
as a whole experienced a number of changes in 2006 – most notably reduced net interest margins,
increased competitive pressures, slower loan growth and a flat to inverted yield curve – and I feel these
will continue in the future. The banking industry, as well as a lot of other industries in the United States,
are at a point in their cycles that will test their traditional business models. The successful companies
in the future will be those that prepare themselves for these changes and have the track record of
making the strategic changes necessary to remain successful. At First National Lincoln Corporation
we have been anticipating these changes occurring within the banking industry and are prepared to
take the necessary steps to continue our long history of success as a true community bank serving the
coast of Maine. We are refining our strategic focus and undertaking a comprehensive review of our
business model and each of our profit centers and lines of business. We cannot just take for granted that
a profitable line of business over the last decade will continue to be so over the next five to ten years.
4
We also are committed to maintaining our focus on expense control. As net interest margins shrink,
successful banks will need to be even more efficient than they are today. At First National Lincoln
Corporation we have a long history of operating efficiently, with an efficiency ratio as low as 48.3% in
2003. This ratio became higher over the last two years after our acquisition of FNB Bankshares, but at
52.1%, it is still one of the best in the country for banks our size. Over the next decade, I firmly believe
that the ratio will have to be in the 45.0% to 48.0% range to offset continued declining margins. This
will be very difficult for a lot of banks, but First National Lincoln Corporation is well ahead of most
and has a very strong cost control culture that most of our peers and competitors view with envy.
As for the interest rate environment and the economy, we see a great deal of uncertainty in 2007. The
Federal Reserve is carefully reviewing economic data to determine if inflation is still a threat or if the
economy is weakening. The concern over inflation will likely result in the Fed not taking any action
in the near future to reduce short-term interest rates. This would mean that the flat-to-inverted yield
curve will remain for a majority of 2007, if not all year. On the other hand, a weakening economy
with a weak job market and minimal threat of inflation will likely result in the Fed starting to slowly
reduce interest rates.
The housing market also continues to be a concern, both nationally and in the State of Maine.
Weaknesses are still being experienced in both sales of houses as well as in selling prices. Optimism
exists by some, however, that we have hit the bottom and the housing market will improve in 2007.
Hopefully in our markets we will see this positive change as the housing cycle improves. We are
confident the cycle will repeat, as it always has, but as to when and how fast is still a big unknown at
this point in time.
First National Lincoln Corporation is still very well situated and in a position of strength to take
advantage of both an improving economy and a more favorable interest rate environment. With our
fourteen branches serving the counties along the Maine coast, we see this footprint as being ideal for a
Maine-based bank. The coastal communities are the most vibrant areas in the Pine Tree State and will
continue to serve us well in the future. The Board and staff are committed to maintaining our history
as a high-performing bank with a focus on serving all of our wonderful communities.
Very Truly Yours,
Daniel R. Daigneault
President & Chief Executive Officer
5
P O R T R A I T S I N B A N K I N G
Rapid Response Required
Imagine for a moment that your community is suddenly without emergency medical
services: you call 9-1-1, but no one comes to help you in your time of need. This
was the situation that residents of Washington County, Maine faced when their
private ambulance service provider abruptly ceased operations in 2001. Eastport
City Manager George “Bud” Finch, who had worked with The First on a
number of municipal financing projects, made a quick call to his lender
Lou Esposito, and in a very short time the newly formed emergency
medical authority had the financial backing to restore service to the
people of Washington County.
Washington County Emergency Medical Service Authority
(WCEMSA) has become a significant contributor to the local
economy, with an annual payroll and operations budget of $1.2
million. In addition, the Authority has purchased nearly $1 million
in ambulances and equipment to date, including two state-of-the art
ambulance units in 2006 that were financed by The First.
Finch, who also serves as chairman of the board for WCEMSA, describes
his banking relationship with The First as “a true community partnership
that provides a focused, single look at the health and welfare of our
citizens.” Finch adds, “In particular, our local banker Lou Esposito has
gone the extra mile every time to make sure that our projects are first well
founded and then well funded. I can openly and honestly say that this is the
finest relationship I know between a bank and a small rural community.”
Lou Esposito, the banker who came to the rescue, has enjoyed a thirty-year
career in Washington County, the place he calls home. And, he knows that
his community ties are made stronger through his work at The First. “When
I see those ambulance lights flashing, I am reminded of the quick response
we provided to get them up and running. It’s a very rewarding feeling.”
Lou Esposito
Vice President, Regional Manager, Senior Business Relationship Officer
8
Washington County Emergency
Medical Service Authority
Operating under the name Downeast EMS,
WCEMSA’s staff of 46 EMTs, paramedics and
drivers respond to nearly 2,000 emergency
and transfer calls each year. Standing in front of
one of their new ambulances (left to right) are
EMTs Mark Cook, Tammy Pearson, Rose
Smith, and Authority Chairman Bud Finch.
9
P O R T R A I T S I N B A N K I N G
Sweet Dreams Do Come True
Pastry chef extraordinaire Steven Watts has welcomed customers to his Rockport
in-home bakery Sweet Sensations for ten successful years. As his business grew
year over year, several building additions were made; finally in 2006 the time had
come to seek a bigger and better solution. As luck would have it, the land right
next door became available, and soon Steve was designing the bakeshop
and café of his dreams.
With business plan in hand, Watts and his business partner Keith Stone
began to explore financing for their new venture, 3 Dogs Café. “From
the outset, Steve Poulin at The First was willing to listen to our needs,
and he was in constant communication with us while we explored
our options. Most importantly, he shared the same enthusiasm and
vision that we had for our project and saw the potential of what
we were trying to create.” The Café will employ fifteen year-round
staff and seat up to 40 customers in a warm and relaxed setting that
features a see-through stone hearth fireplace and wrap-around porch.
For 25 years, Steve Poulin’s banking career has been punctuated by the
excitement that customers feel as they embark on new business missions.
“Nothing makes me happier than helping my customers reach their
goals. This is what being a banker is all about.”
Lucky is how Steve Watts describes himself these days. He loves his
work, he’s looking forward to reclaiming his home, and he is happy
with his decision to partner with The First. “Bringing our banking
relationship to The First was just good business. They made me feel
comfortable and proud about taking my business to the next level
of success.” Yes, life is sweet.
Steve Poulin
Vice President, Senior Business Relationship Officer
10
3 Dogs Café
Steve Watts (left) and Keith Stone, owners, are flanked by the
Café’s namesake Labrador Retrievers. Watts’ legendary line of
French pastries, cookies and all-occasion cakes will be offered
inside, along with an expanded menu of soups, sandwiches, ice
cream, espresso and wine.
11
P O R T R A I T S I N B A N K I N G
Harboring the Heart of a Community
Every community needs a place for young and old to gather, a place for all to be
welcomed, engaged and inspired. For the residents of Southwest Harbor, Maine that place
is Harbor House.
Founded in 1965 as a non-profit youth recreation program, Harbor House Community
Center first opened its doors in a building constructed by volunteers from salvaged
materials on donated land. As programs diversified and thrived over forty years, the
humble beginnings were razed to make way for a new, state-of-the-art facility.
Originally, the trustees for Harbor House had envisioned a three-phase
construction plan for the new community center. Mary Anne Griffin,
President of the Board of Trustees, praises The First for encouraging a
financing solution that allowed them to complete two phases of their project
at once. “Tony McKim provided direction and a great deal of support in our
quest to secure long-term financing through the United States Department of
Agriculture’s Rural Development program. His hands-on experience with non-
profit organizations has been invaluable to us,” states Griffin.
Tony McKim acknowledges that working with Harbor House is a win-win
situation. “To partner with an organization that shares the same vested interest in
the people of Mount Desert Island is a perfect match for The First. I was thrilled to
guide the Harbor House trustees toward their very best financing solution.”
In the fall of 2006, Harbor House welcomed residents into their beautiful new
Children's Center and Community Room. Mary Ellen Martel, Children’s Center
Director, beams with pride as she speaks about the new space. “The window
walls and radiant heating make our rooms so warm and inviting. We truly feel at
home here.” This is a sentiment echoed throughout Southwest Harbor.
Tony McKim
Executive Vice President, Chief Operating Officer
12
Harbor House Community Center
Mary Ellen Martel (center left) and Mary
Anne Griffin share some playtime with the
youngest participants of Harbor House. The
Children’s Center was the first occupant
of the new 6,660 square foot building that
opened in the fall of 2006.
13
P O R T R A I T S I N B A N K I N G
Custom Built Partnership
Lyman Morse is a custom boat building yard with a long and distinguished history. In
2006, the owners approached The First with plans for an important expansion project to
set them on course for a prosperous future.
“The banking team at The First was the most responsive to our needs, and they
demonstrated flexibility with our financing terms,” says Cabot Lyman, President.
“Todd Savage made sure that the banking details were completed quickly, which
allowed us to focus on the business of getting our new boatshop up and running
before the end of the year.”
Standing 55 feet tall, 140 feet wide and 160 feet long, the steel and shingle
structure is currently the single largest custom boatbuilding shop in the State
of Maine; an impressive sight along the banks of the St. George River in
Thomaston. Inside, work hums along interactively on three floors, including
a mezzanine level that allows for walk-on deck access to their boats in
progress. “This building is all about volume and efficiency,” explains
JB Turner, Managing Partner. “We anticipate adding significantly to
our workforce in early 2007 as a result of the contracts we can now
schedule simultaneously.” Equally impressive is the company’s dedication
to a healthy workspace, with state-of-the-art ventilation, circulation and
air make-up systems providing a cleaner environment for all who work
under this new roof.
Todd Savage shares some thoughts on the deeper meaning of this business
partnership. “The roots of our bank date back to the heyday of coastal shipbuilding,
so I am very proud to have the Lyman Morse name associated with The First. This
is a company that has its sights set on the future, and I am looking forward to
helping them get there.”
Todd Savage
Vice President, Senior Business Relationship Officer
14
Lyman Morse Boatbuilding
Cabot Lyman (left) and his business partner, JB
Turner, share a passion for the water and for custom-
built boats. Together with their crew of marine
craftsmen, they are building a new generation of
grand-scale power boats, sailboats and catamarans
under the roof of their new workshop.
15
P O R T R A I T S I N B A N K I N G
A Major Player in the Marketplace
Perhaps the most visible financing success story of 2006 is that of the Breakwater
Marketplace in Rockland, Maine. After years of sitting idly at the northern gateway
to the city, the former factory has found new life as a campus host to a vital mix of
businesses and professional services.
Carole Gartley, Owner and Building Manager for Breakwater Marketplace LLC,
credits her teaching background and her banking team for helping her navigate
through the hectic first year on the job. “My platform suddenly changed from
classroom to construction site, and I had eight months to guide this epic
transformation from factory to modern day office and retail space. Throughout
my crash course in real estate management, I received great support from my
banking team at The First. Charlie Wootton and his lending staff provided the
calming encouragement that allowed me to maintain focus on getting the
refitting stage done.”
As the construction dust settled, a new buzz could be heard as business
occupants took up residence. The building is anchored by Breakwater
Bookland, the Hardcover Café, the Maine Department of Health
and Human Services, the Maine Department of Labor, and an array
of small businesses. The Knox County bureau of Village Soup and the
University College of Rockland will move into the fourth floor in 2007.
Gartley is proud to say that the building is home to nearly 300 working
professionals.
Charlie Wootton says, “As the third largest bank in Maine, The First is adept at
handling large financing projects such as Breakwater Marketplace. It is extremely
rewarding to follow the progress of this real estate venture and know that we have
helped pave the way for dynamic economic growth in our community.”
Charlie Wootton
Executive Vice President, Senior Loan Officer
14
Breakwater Marketplace
Carole Gartley (far right) has assembled a diverse
group of professionals to fill the 90,000 square
foot Breakwater Marketplace in Rockland.
17
A N A L Y S I S O F F I N A N C I A L P E R F O R M A N C E A N D R E S U L T S
As President Daigneault noted, 2006 was a challenging year for First National Lincoln Corporation,
and the Company’s financial results tell two stories. On the one hand, an extremely difficult interest
rate environment was the primary reason for earnings falling slightly short of 2005. On the other hand,
earnings of $12.3 million for the year remain very respectable, especially when judged by return on
tangible equity, which at 15.75% is well above the Bank’s peer group average of 13.66%.
The interest rate policies and actions of the Federal Open Market Committee of the Federal Reserve
(FOMC) had a significant impact on the Company’s 2006 operating results. Between June of 2004
and June of 2006, the FOMC raised short-term rates by 4.25% in 17 consecutive moves, affecting the
entire banking industry, not just FNLC. By the time the rate increases stopped in 2006, the yield curve
was inverted, with short-term rates higher than long-term rates. This was significantly different than
the positive, steeply sloped yield curve at the end of 2003, with a difference of nearly 4.00% between
short-term and long-term rates. How the yield curve has changed from 2003 to 2006 can be seen in
the chart on the opposite page.
The Balance Sheet
Total assets increased 6.0% or $62.7 million in 2006 from $1.04 billion at December 31, 2005, to $1.11
billion at December 31, 2006. Asset growth slowed in the third and fourth quarters of 2006, however,
with loan demand at lower levels than the Company has experienced during prior years. This, in turn,
has led to a higher level of competition for loans, sometimes with what is viewed to be irrational pric-
ing from other lenders. The Company is committed, however, to remain disciplined in its approach, and
will not chase loan volume if the pricing or associated level of interest rate risk and credit risk is not in
the long-term best interest of the Bank and the Company.
The mix in our loan portfolio is substantially different than that of our peer group, with residential
mortgage loans comprising 51.0% of total loans compared to the 20.8% average for our peers. This
is representative of the lending opportunities available in the Bank’s market area and Management’s
decision to retain a portion of residential mortgage origination in our portfolio instead of selling these
loans to the secondary market. While this has resulted in a lower-yielding loan portfolio compared to
peer, it also reflects a portfolio with a lower level of credit risk.
The Company’s investment portfolio decreased 1.9% in 2006 to end the year at $180.5 million, com-
pared to $184.0 million on December 31, 2005, although average investments of $192.2 million were
$30.9 million or 19.2% higher in 2006 than in 2005. Because of the inverted yield curve, for much of
the year the Company chose not to replace called securities since options available at the time did not
fit with the Company’s long-term objectives for the portfolio or presented an unfavorable amount of
interest rate risk. The tax-equivalent yield of our investment portfolio compares extremely favorably
16
to our peers, however, and at 5.77% is in the 92nd percentile compared to our peer group, which has
a 4.71% average tax-equivalent yield.
Although the Company posted good growth in certificates of deposit from both local and wholesale
sources, low-cost deposits (including checking and savings accounts) declined by $20.9 million or 7.5%.
This was the result of a shift to higher-rate options available at the time. Total deposits increased $91.3
million or 12.8% from year end 2005 to year end 2006. At the same time, borrowed funds decreased
$35.3 million or 16.4% in 2006 from $215.2 million to $179.9 million due to increases in wholesale
deposits and a change in the Bank’s liquidity strategy.
Asset Quality
Delinquent loans were 1.50% of total loans at Decem-
ber 31, 2006, versus 1.17% at December 31, 2005. The
increase was related to isolated circumstances involving
a small number of borrowers, and the levels are within
the normal range of delinquency rates for the Bank. In
Management’s opinion, there has been no pattern or
trend of concern in non-performing assets. Chargeoffs
as a percentage of loans outstanding were higher in 2006
than in 2005, although it remains historically low at
0.13% of total loans when compared to the 0.15% aver-
aged over the past ten years. For the year ended Decem-
ber 31, 2006, the Bank’s net chargeoffs were equal to the
average for its peer group.
Operating Results
With an inverted yield curve and a shift in funding mix, the Company experienced margin
compression in 2006, with its net interest margin declining from 3.84% in 2005 to 3.24% in 2006.
When combined with lower levels of loan growth, the result was net interest income declining
$1.0 million or 3.1% from the $31.6 million posted in 2005 to $30.6 million in 2006.
A positive factor in our 2006 results was non-interest income, which increased $1.3 million or 14.1%
from $9.0 million in 2005 to $10.3 million in 2006. Wealth management and fiduciary income was up
15.7%, with assets under management increasing $20.9 million to $351.2 million at the end of 2006.
At the same time, service charges on deposit accounts were up 12.9% and other operating income
increased by 18.8%. While non-interest income posted strong gains in 2006, we aggressively sought to
control operating expenses in 2006, with non-interest expense declining $79,000 or 0.4% from 2005.
The decrease was primarily in salaries and employee benefits, with a lower payout in 2006 under
the Company’s Stakeholder bonus program due to the lower level of earnings in 2006 than in 2005.
Savings were also realized on health insurance premiums in 2006 due to favorable claims experience.
17
The Company’s provision to the allowance for loan losses increased $1.1 million in 2006, the result
of a much lower level of provision necessary in 2005 than in 2006 to maintain the allowance at an
adequate level. When compared to peers, the provision at 0.13% of average assets was lower than the
peer’s average of 0.16% of average assets. This is consistent
with our lower level of allowance as a percentage of loans
when compared to peer, since our adequacy calculation
takes into account the higher level of residential mortgages,
which typically carry a low level of credit risk.
Lower net interest income and a higher provision to the
allowance for loan losses were the primary factors for the
reduction in net income in 2006 compared to 2005, de-
spite a strong increase in non-interest income and a slight
decrease in non-interest expense. Net income for 2006 was
$12.3 million – a 4.3% or $0.5 million decrease from net
income of $12.8 million in 2005. Earnings per share on a
fully diluted basis were $1.25, down $0.05 or 3.8% from
the $1.30 reported for 2005.
Our cash dividend increased each quarter in 2006, and we
paid out nearly half of our 2006 earnings in dividends to
our shareholders. We continue to produce a return on tangible equity that is well above peer, and our
improving efficiency ratio demonstrates our ability to control expenses during a difficult year. Although
our performance has not been at the level we have achieved for a number of years, in Management’s
opinion it is very good considering current economic conditions and remains strong in comparison
to our peers.
F. Stephen Ward
Executive Vice President & Chief Financial Officer
18
S E L E C T E D F I V E - Y E A R F I N A N C I A L D A T A
Dollars in thousands, except for per share amounts
Years ended December 31
2006
2005
2004
2003
2002
Summary of Operations
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Non-Interest Income
Non-Interest Expense
Net Income
Per Common Share Data
Net Income
Basic
Diluted
Cash Dividends (Declared)
Book Value
Market Value
Financial Ratios
Return on Average Equity
Return on Average Tangible Equity
Return on Average Assets
Average Equity to Average Assets
Average Tangible Equity to Average Assets
Net Interest Margin (Tax-Equivalent)
Dividend Payout Ratio (Declared)
Allowance for Loan Losses/Total Loans
Non-Performing Loans to Total Loans
Non-Performing Assets to Total Assets
Efficiency Ratio (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
$ 64,204
33,589
30,615
1,325
10,306
22,439
12,295
$ 1.25
1.25
0.61
10.98
16.72
11.63%
15.75
1.14
9.81
7.24
3.24
48.80
0.76
0.42
0.32
52.12
$ 50,431
18,848
31,583
200
9,034
22,518
12,843
$ 1.32
1.30
0.53
10.52
17.58
12.98%
17.81
1.36
10.44
7.61
3.84
40.15
0.79
0.40
0.30
52.89
$ 30,528
9,024
21,504
880
4,667
13,371
8,509
$ 1.16
1.14
0.45
7.18
17.45
17.10%
17.36
1.41
8.22
8.27
3.93
38.62
0.99
0.34
0.25
48.78
$1,104,869
838,145
180,549
805,235
179,862
107,327
$1,042,209
772,338
183,981
713,964
215,189
103,452
$634,238
478,332
126,827
369,844
207,206
52,815
Market price per common share of stock during 2006
$ 27,540
9,796
17,744
907
5,148
11,600
7,427
$ 22,154
12,204
17,103
1,323
4,951
11,545
6,507
$ 1.02
1.00
0.38
6.57
16.63
$ 0.90
0.88
0.33
5.89
10.49
16.39%
16.39
1.41
8.58
8.58
3.73
37.13
1.05
0.39
0.29
48.32
16.34%
16.34
1.39
8.49
8.49
4.00
36.16
1.11
0.32
0.27
50.49
$568,812
398,895
136,689
359,077
157,822
47,718
$494,068
332,074
122,073
334,224
113,365
42,695
High
$17.99
Low
$16.39
21
19
C O N S O L I D A T E D B A L A N C E S H E E T S
As of December 31
Assets
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity, fair value of $134,649,000 at
December 31, 2006, and $128,563,000 at December 31, 2005
Loans held for sale
Loans
Less allowance for loan losses
Net loans
Accrued interest receivable
Premises and equipment, net
Other real estate owned
Goodwill
Other assets
Total assets
Liabilities
Demand deposits
NOW deposits
Money market deposits
Savings deposits
Certificates of deposit under $100,000
Certificates of deposit $100,000 or more
Total deposits
Borrowed funds
Other liabilities
Total liabilities
Commitments and contingent liabilities (notes 13, 14 and 18)
Shareholders’ equity
Common stock, one cent par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Net unrealized gain on securities available for sale,
net of tax of $370,000 in 2006 and $373,000 in 2005
Net unrealized loss on postretirement benefit costs,
net of tax benefit of $189,000
Total shareholders’ equity
Total liabilities and shareholders’ equity
Common stock
Number of shares authorized
Number of shares issued
Number of shares outstanding
Book value per share
The accompanying notes are an integral part of these consolidated financial statements
20
2006
2005
$ 24,188,000
44,815,000
$ 25,982,000
54,743,000
135,734,000
460,000
838,145,000
6,364,000
831,781,000
6,140,000
15,845,000
1,144,000
27,684,000
17,078,000
129,238,000
-
772,338,000
6,086,000
766,252,000
5,005,000
16,712,000
-
27,684,000
16,593,000
$1,104,869,000
$ 1,042,209,000
$ 62,157,000
99,612,000
137,163,000
98,131,000
164,770,000
243,402,000
805,235,000
179,862,000
12,445,000
997,542,000
98,000
45,587,000
61,298,000
696,000
(352,000)
107,327,000
$1,104,869,000
18,000,000
9,770,792
9,770,792
$ 10.98
$ 62,109,000
109,124,000
127,630,000
109,615,000
125,741,000
179,745,000
713,964,000
215,189,000
9,604,000
938,757,000
99,000
47,718,000
54,901,000
734,000
-
103,452,000
$ 1,042,209,000
18,000,000
9,832,777
9,832,777
$ 10.52
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Years ended December 31
Interest and dividend income
Interest and fees on loans
Interest on deposits with other banks
Interest and dividends on investments
(includes tax-exempt income of $3,677,000 in 2006
$3,361,000 in 2005, and $1,802,000 in 2004)
Total interest and dividend income
Interest expense
Interest on deposits
Interest on borrowed funds
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Fiduciary and investment management income
Service charges on deposit accounts
Net securities gains
Mortgage origination and servicing income
Other operating income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy expense
Furniture and equipment expense
Amortization of core deposit intangible
Other operating expenses
Total non-interest expense
Income before income taxes
Income tax expense
2006
2005
2004
$54,585,000
64,000
$42,623,000
13,000
$23,982,000
4,000
9,555,000
64,204,000
25,804,000
7,785,000
33,589,000
30,615,000
1,325,000
29,290,000
1,951,000
2,752,000
18,000
503,000
5,082,000
10,306,000
10,826,000
1,421,000
2,124,000
283,000
7,785,000
22,439,000
17,157,000
4,862,000
7,795,000
50,431,000
13,489,000
5,359,000
18,848,000
31,583,000
200,000
31,383,000
1,686,000
2,438,000
-
616,000
4,294,000
9,034,000
11,099,000
1,395,000
2,136,000
271,000
7,617,000
22,518,000
17,899,000
5,056,000
6,542,000
30,528,000
5,175,000
3,849,000
9,024,000
21,504,000
880,000
20,624,000
874,000
1,177,000
-
419,000
2,197,000
4,667,000
7,071,000
850,000
1,431,000
-
4,019,000
13,371,000
11,920,000
3,411,000
Net income
$12,295,000
$ 12,843,000
$ 8,509,000
Earnings per common share
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Weighted average number of shares outstanding
Incremental shares
$ 1.25
1.25
0.61
9,816,307
49,476
$ 1.32
1.30
0.53
9,745,456
114,751
$ 1.16
1.14
0.45
7,330,434
149,721
The accompanying notes are an integral part of these consolidated financial statements
21
D I R E C T O R S A N D M A N A G E M E N T
BOARD OF DIRECTORS
Robert B. Gregory
Chairman of the Board
Daniel R. Daigneault
President & Chief Executive Officer
ADMINISTRATION
Jody L. Brown
Vice President, Credit Administration
John P. Quesnel
Vice President, Special Assets Manager
Tony C. McKim
Executive Vice President, Chief Operating Officer
Cathryn A. Peterman
Assistant Vice President, Security & Branch Operations Officer
Katherine M. Boyd
Randy A. Nelson
Carl S. Poole, Jr.
Mark N. Rosborough
Stuart G. Smith
David B. Soule, Jr.
Bruce B. Tindal
Directors of First National Lincoln Corporation
also serve as Directors of The First, N.A.
EXECUTIVE OFFICERS
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President, Chief Operating Officer
F. Stephen Ward
Executive Vice President, Chief Financial Officer
Charles A. Wootton
Executive Vice President & Clerk
EXECUTIVE LEADERSHIP TEAM
Daniel R. Daigneault
President & Chief Executive Officer
Tony C. McKim
Executive Vice President, Chief Operating Officer
F. Stephen Ward
Executive Vice President, Chief Financial Officer
Charles A. Wootton
Executive Vice President, Senior Loan Officer
Richard M. Elder
Senior Vice President, Retail Services
Michael T. Martin
Senior Vice President, Credit Officer
Susan A. Norton
Senior Vice President, Human Resources & Compliance
Ronald J. Wrobel
Senior Vice President, Operations Officer
Amy M. Rollins
Assistant Vice President, Marketing Director
Thomas C. Bland
Accounting Manager
Eva-Marie Fleury
Collections Manager
Denise C. Griffin
Human Resources Officer
Jeanette M. Hayes
Mortgage Loan Underwriter
Deborah J. Wallace
Financial Analyst
Glory Ann West
Marketing Manager
OPERATIONS
Tammy L. Plummer
Vice President, Chief Technology Officer
Thomas M. Wilhelm
Vice President, Operations Officer
Terri L. Geroux
Assistant Vice President, Deposit Services Officer
Janett N. Muise
Assistant Vice President, Deposit Services Officer
John W. Bentley
Senior Network Administrator
Ann E. Greenleaf
Phone Center Manager
Patti J. Gwara
Data Processing Manager
Lucinda B. Leeman
Loan Processing Manager
Connie J. Miller
Loan Services Manager
22
D I R E C T O R S A N D M A N A G E M E N T
BAR HARBOR OFFICE
Jeffrey C. Dalrymple
Senior Vice President, Senior Business Relationship Officer
Robert S. Wilson
Vice President, Senior Business Relationship Officer
Karri A. Bailey
Vice President, Business Relationship Officer
Marilyn E. Silocka
Vice President, Regional Manager, Branch Manager
Stephen H. Sprague
Vice President, Senior Mortgage Loan Officer
Kathleen R. Kief
Branch Supervisor
BLUE HILL OFFICE
Duane R. Crawford
Business Relationship Officer
Bonnie A. Marckoon
Branch Manager
BOOTHBAY HARBOR OFFICE
Brenda L. Blackman
Vice President, Business Relationship Officer
Tana J. Gamage
Branch Manager
CALAIS OFFICE
Louis J. Esposito
Vice President, Regional Manager,
Senior Business Relationship Officer
Marlene R. Parks
Branch Manager
CAMDEN OFFICE
Eric G. Belléy
Vice President, Business Relationship Officer
Bonnie L. Lash
Vice President, Senior Mortgage Loan Officer
Angela M. Sabins
Branch Supervisor
DAMARISCOTTA OFFICE
Kurt A. Maynard
Vice President, Senior Business Relationship Officer
Todd L. Savage
Vice President, Senior Business Relationship Officer
Barbara A. Wright
Vice President, Senior Mortgage Loan Officer
Sherry D. Smith
Assistant Vice President, Branch Manager
Dana J. Orenstein
Assistant Branch Manager
EASTPORT OFFICE
Tari L. Camick
Branch Manager
Gloria J. Harris
Business Relationship Officer
ELLSWORTH OFFICE
Lornie E. Smith
Vice President, Senior Business Relationship Officer
E. Ray Huntley
Vice President, Senior Business Relationship Officer
Gail C. Sargent
Branch Manager
NORTHEAST HARBOR OFFICE
Hannah E. Wilkinson
Branch Supervisor
ROCKLAND OFFICE
Petrea Allen
Vice President, Regional Manager, Mortgage Loan Officer
ROCKPORT OFFICE
Steven H. Poulin
Vice President, Senior Business Relationship Officer
Jennifer B. Stewart
Branch Manager
SOUTHWEST HARBOR OFFICE
Felice D. Janes
Branch Manager
WALDOBORO OFFICE
Tina P. O’Donnell
Vice President, Regional Manager,
Business Relationship Officer
Susan E. Blackler
Branch Manager
Angela M. Powell
Branch Supervisor
WISCASSET OFFICE
Lorna J. Weber
Assistant Vice President, Branch Manager
Monique C. McRae
Assistant Branch Manager
FIRST ADVISORS
Principals
Scott S. Hammond
Edythe A. Jordan
Steven K. Parady
Martin S. Snider
Kent A. Whitaker
23
I N F O R M A T I O N F O R S H A R E H O L D E R S
Common Stock Prices and Dividends
The common stock of First National Lincoln Corporation (ticker
symbol FNLC) trades on the Nasdaq National Market System.
The following table reflects the high and low prices of actual
sales in each quarter of 2006 and 2005. Such quotations do not
reflect retail mark-ups, mark-downs or brokers’ commissions.
2006
2005
High
Low
High
Low
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$17.89
17.72
17.99
17.40
$17.10
16.45
16.62
16.39
$19.00
17.50
19.95
20.40
$16.65
16.00
16.49
17.24
The last known transaction of the Company’s stock during
2006 was on December 31 at $16.72 per share. There are no
warrants outstanding with respect to the Company’s common
stock, and the Company has no securities outstanding which
are convertible into common equity. The table below sets
forth the cash dividends declared in the last two fiscal years:
Date
Declared
March 17, 2005
June 16, 2005
September 15, 2005
December 15, 2005
March 16, 2006
June 15, 2006
September 21, 2006
December 21, 2006
Amount Date
Per Share
Payable
July 29, 2005
$0.125 April 29, 2005
$0.130
$0.135 October 28, 2005
$0.140
$0.145 April 28, 2006
$0.150
$0.155 October 31, 2006
$0.160
January 31, 2006
January 31, 2007
July 31, 2006
Pending Legal Proceedings
There are no material pending legal proceedings to which
the Company or the Bank is the party or to which any of
its property is subject, other than routine litigation incidental
to the business of the Bank. None of these proceedings is
expected to have a material effect on the financial condition
of the Company or of the Bank.
Annual Meeting
The Annual Meeting of the Shareholders of First National
Lincoln Corporation will be held Tuesday, April 24, 2007
at 11:00 a.m. at The Samoset Resort, 220 Warrenton Street,
Rockport, Maine 04856.
Number of Shareholders
The number of shareholders of record as of February 14, 2007
was approximately 2,200.
Annual Report on Form 10-K
The Company’s Annual Report on Form 10-K to be filed with
the Securities and Exchange Commission is available online
at the Commission’s website: www.sec.gov. Shareholders may
obtain a written copy, without charge, upon written request
to the address listed below.
Accessing Reports Online
First National Lincoln Corporation’s press releases, SEC filings
and other reports or information issued by the Company are
available at: www.fnlc.com. In addition, all SEC filings are
accessible at the Commission’s website: www.sec.gov.
Corporate Headquarters
Contact:
F. Stephen Ward, Chief Financial Officer
First National Lincoln Corporation
223 Main Street, P.O. Box 940
Damariscotta, Maine 04543
207-563-3195; 1-800-564-3195
Transfer Agent
Shareholder inquiries regarding change
of address or title should be directed to:
Shareholder Relations
First National Lincoln Corporation
223 Main Street, P.O. Box 940
Damariscotta, Maine 04543
207-563-3195; 1-800-564-3195
Independent Certified
Public Accountants
Berry, Dunn, McNeil & Parker
100 Middle Street, P.O. Box 1100
Portland, Maine 04104-1100
Corporate Counsel
Pierce Atwood, Attorneys
One Monument Square
Portland, Maine 04101
Photography Credits
All photographs contained in this Report are copyright of the
individual photographers named below.
Front cover (Iris at Pemaquid) and inside front cover/page 1
spread (View from Crow Island, Muscongus Bay): J. Kevin White;
all other photographs: Benjamin Magro.
24
8 0 0 . 5 6 4 . 3 1 9 5 • w w w. f n l c . c o m