A N N U A L R E P O R T 2 0 0 7
Strength In Numbers
Damariscotta Lake is a spawning ground for the alewife, and each
year these fi sh make an intrepid journey back from the ocean.
Clearly there is strength in numbers, as seen in the photographs
on the cover and below, as the alewives travel homeward in large
schools. Perhaps they do this to baffl e the osprey, eagles and other
predators looming above as they pass through Great Salt Bay, for
an alewife’s journey between sea and stream is likely to be a repeat
performance, since unlike salmon, they do not die after spawning.
In 2007, First National Lincoln Corporation enjoyed an alewife-
like journey of its own, with a return to record earnings despite a
challenging economic current. Our success was due in large part
to a collective strength in numbers – underscored by employee,
customer, and community service initiatives, many of which are
highlighted in this report.
Message from the President
Dear First National Lincoln Corporation Shareholder:
I am pleased to report that 2007 was a great year for First National Lincoln Corporation and its subsidiary,
The First, N.A., with a return to record earnings. This represents the fourteenth year of record earnings
out of the last fi fteen years, with 2006 the only down year over this period. Throughout this year’s
annual report we will share with you what was behind our 2007 success, our views on the state of the
banking industry, as well as the challenges and opportunities that we see on the horizon for 2008.
In 2007 we took inventory of our strengths and weaknesses, reviewed our business model and examined
our positioning in the markets we serve. After reviewing all of this data, it became very clear to us that First
National Lincoln Corporation is well positioned for success by continuing to do what we do best: to focus
on serving our three primary constituents – our shareholders, our customers, and our employees. How we
serve each of these constituents is the distinguishing factor between The First and all of our competitors.
Our strategy is to generate quality loan growth with a reasonable spread above our funding costs in order to
provide the Company with a strong, consistent net interest margin. We believe that focusing on the spread
business of banking and operating with the best effi ciency ratio possible will enable us to continue to generate
above average returns for our shareholders. We must also maintain our discipline in credit underwriting and
pricing – venturing outside of these boundaries is one of the reasons why a lot of fi nancial institutions have
had so many problems in 2007. While this may sound like a simple formula for success, executing this strategy
is what sets First National Lincoln Corporation apart from others.
Record Earnings
Net income of $13,101,000 was an increase of $806,000 or 6.6% over the $12,295,000 earned in 2006.
The driving force behind our improved earnings was net interest income, which at $31,836,000 was
2
up $1.2 million or 4.0% compared to 2006. The Company’s net interest income, non-interest income,
operating expenses, and the provision for loan losses are the primary operating components that aff ect
profi tability. Our objective is to increase net interest income each year, keep operating cost increases to
a minimum, have stable non-interest income and maintain strong loan quality in order to minimize the
amount we have to provision to cover loan losses. Each component requires a strong focus and discipline
to optimize the benefi t to the bottom line.
Interest rates were relatively stable in the fi rst half of 2007: the Federal Reserve stopped increasing rates
in mid-2006 and took a “wait and see” attitude until September 2007. Although the yield curve was still
inverted for most of the year, with short-term rates higher than long-term rates, it did not present as
much of a challenge as it did in 2006 when rates were still on an upward swing. As the year progressed,
,
concerns of the continued weakening of the housing market – driven primarily by the subprime loan
arket – driven primarily by the subprime loan
problems – lead to select opportunities to reduce our cost of
of
funds and to purchase high-quality investments at attractive
ive
yields. As a result, the Company’s net interest margin
gin
improved as the year progressed, and although the margin
gin
of 3.13% for the year in 2007 was below the 3.24% posted
ted
in 2006, in the fourth quarter of 2007 the margin was 3.17%
7%
compared to 3.11% for the fourth quarter of 2006.
p g
y
p
g
In addition to the reduction in our funding costs, the other
her
major reason for the increase in net interest income was
was
the excellent asset growth that was posted in the loan and
and
investment portfolios. Total loans increased $82.0 million or
or
9.8% in 2007 while the level of investments increased $41.3
1.3
million or 22.9%. For a more detailed discussion on the
the
investment portfolio and funding, see page 16.
Loan Growth
For most banks, 2007 was a very challenging year to grow a loan portfolio. The weakening economy
impacted loan demand for business as well as consumer loans. This was accompanied by continuing
issues in the housing market which experienced declines in home purchases and demand for residential
construction loans. The subprime loan crisis, which was in the news for a good part of the year, did not
have any direct impact on us since the Bank has avoided doing those types of loans.
By far the strongest area of loan growth for The First in 2007 was business loans. The total increase of $39.8
million or 12.0% was not only much better than the prior year, but also one of our strongest years historically.
The residential loan portfolio experienced modest growth of $23.4 million, which was respectable given the
decline in home sales and lack of refi nancing activity that we and most banks saw in 2007. This speaks to the
relative stability of the housing market along the coast of Maine, and although demand for second homes and
retirees moving to Maine was not exceptional in 2007, it was still good and healthy. Another loan category
that provided good growth for the Bank in 2007 was municipal loans to local towns and school districts for
a variety of needs: from funding operations until taxes are collected to construction loans for new schools.
This market was quite vibrant in the communities we serve, providing excellent business opportunities and
resulting in $11.0 million in new dollars advanced in 2007.
3
Credit Quality
In addition to growing the loan portfolio, it is essential to maintain good credit quality for the loans that are
made. While there is a strong temptation to relax credit standards to generate more loan activity, we have
been unrelenting in our quest to not fall into this trap and have not relaxed our underwriting standards to
generate volume. We take pride in our approach to working with customers to minimize loan problems
and loan losses. The success we have had with this approach is refl ected in the Bank’s asset quality fi gures,
one of which is the ratio of non-performing loans to total loans which was 0.31% as of December 31,
2007 compared to 0.42% as of the end of 2006. This fi gure is the lowest it has been since the end of 2001.
Another measure of credit quality is the level of net loan losses, which was $996,000 or 0.11% of total loans
for 2007. This is a relatively modest level of loan losses given the dollar amount of our loans outstanding
and is a refl ection of our strong credit quality culture.
and is a refl ection of our strong credit qualit
The other ratio refl ecting the quality of both the loan and the
investment portfolios is the level of non-performing assets to total
assets which was 0.23% at the end of 2007 compared to 0.32% at
the end of 2006. This validates that we have minimal credit risk in
the investment portfolio, which has been our objective. We have
avoided collateralized debt obligations (CDOs) and the like – the
type of investments that many fi nancial and other companies
invested in and have led to investment quality problems. Higher
yields are almost always the result of a higher level of risk, and
we stayed true to our strategy and were not tempted to purchase
riskier investments such as these, which was the critical factor in
our success in managing this portfolio in 2007.
FNLC Stock Performance
As you have read, all of the fi nancial metrics of the Company were
very favorable for 2007. This was not only in relationship to 2006 but also when compared to the last several
very favorable for 2007. This was not only in
years. By most measures, 2007 was one of the better years in the Company’s history. The only disappointment
was the market price of First National Lincoln Corporation’s stock, which ended the year at $14.64 per share, a
decline of $2.08 or 12.4% from $16.72 as of December 31, 2006. This decline in market value was seen despite
continued increases in the cash dividend, which was $0.69 per share in 2007, a 13.1% increase over the $0.61
declared in 2006. Earnings per share for the year ended December 31, 2007 were $1.34, up $0.09 or 7.2% from
the $1.25 reported for the year ended December 31, 2006. Earnings per share, along with net income, were the
highest in the history of the Company. So with record earnings, strong increases in the cash dividend, a strong
dividend yield, as well as good credit quality and asset growth, the question is, why did the market price of the
stock decline? This reduction in value defi es fi nancial logic.
We do not have the answer to this question; however, 2007 was a very negative year for bank stocks – nearly
all declined in value, regardless of the individual company’s performance. An analysis of individual bank stock
performance revealed that 90% of publicly traded banks experienced declines in stock prices during 2007. The
SNL Bank Index posted a 25.0% decline in 2007 and showed banks with assets between $1 billion and $5 billion
(like FNLC) off by almost 29.0% for the year. So our 12.4% decline was relatively modest in comparison. We
will continue to be patient and focus on maintaining our high-performance results, and eventually the market
value of the stock will refl ect our eff orts.
4
Observations for 2008 for the Industry and FNLC
In late summer 2007, the Federal Open Market Committee (FOMC) began to reduce interest rates in
response to the rising crisis in the subprime mortgage market. As delinquencies on those loans increased,
the global impact of the problem became apparent. Not only were the lenders that originated the loans
having problems, the holders of the investment securities engineered from these subprime loans began
to realize the value of their investments were in question. This led to a liquidity crisis, which carried
over into the entire credit market.
Over the last few months, concerns have continued to increase over the magnitude of the weakened
housing and construction markets and the impact these will have on the economy. Is the United States
in or heading into a recession? The FOMC aggressively reduced interest rates to help the economy, and
the United States Congress has passed a fi scal stimulus package as well. In my opinion, 2008 will be a
package as well. In my opinion, 2008 will be a
year of uncertainty until a clearer picture of the impact that
hat
housing, consumer spending, and energy costs will have on
on
the economy. Despite high gasoline prices in 2007, tourism
sm
was good in many areas, especially along the coast of Maine,
ne,
and we are optimistic that a stabilization of gas prices will
will
occur and help the 2008 tourist season. The real estate
ate
market should also rebound at some point; the question
ion
is, when? We have experienced several cyclical housing
ing
markets in Maine and feel confi dent that improvement in
in
housing activity along the coast of Maine is not too far
far
away. Although a few small businesses are seeing some
me
weaknesses in their particular industries, others in our
our
markets are doing quite well and are hopeful that 2008 will
will
be a good year for them.
For First National Lincoln Corporation, we plan to continue to focus on generating good quality loans,
inue to focus on generating good quality loans,
keep expenses in check, and take advantage of declining rates to continue to reduce funding costs. We
weathered 2007 with great success, and we look forward to continued prosperous results in 2008. On
behalf of the First National Lincoln Corporation leadership team and Board of Directors, I would like
to thank you, our shareholders, as well as our employees and our customers, for your support and
contributions to the success of the Company.
Sincerely,
Daniel R. Daigneault
lt
D i l R D i
President & Chief Executive Offi cer
5
Rise and Shine with The First
In the summer of 2007, The First launched an eye-opening
customer convenience and brand building initiative: be the bank
that is First to Open for business in all of our market areas. Since the
fi rst day of summer and every weekday since, our tellers raise their
drive-up banking window curtains at 7 a.m.
To promote First to Open, the Bank created a multimedia advertising
campaign entitled “Rise and Shine: The Rewards of Banking at The
First” and outfi tted each branch with drive-up banners, front lawn
signs, and lobby posters. As an incentive during the fi rst month,
customers received a small thank you gift for visiting the Bank
between 7 a.m. and 8 a.m. Within the fi rst two weeks of operation,
First to Open transactions reached a steady pace that has held
throughout the summer and into fall and winter.
Long-time Bar Harbor customer, Vicki Tibbetts, observes, “Now
that The First opens at 7 a.m., I do all of my personal and business
banking on the way to work. In the summer months, this means
I don’t have to fi ght the downtown traffi c at lunchtime, and in
the winter months, this means I don’t have to walk very far in the
snow because I arrive early enough to get a prime parking spot
at the offi ce. I really love your early morning hours!” Many new
customers have cited our early opening hour as a primary reason
for choosing The First as their bank.
First to Open has created convenience and advantages for employees
too. Tellers who staff the early morning shifts appreciate the
opportunity to end their work day a little earlier so they can be
home when their children get out of school, enjoy an afternoon
in the garden, or take a trip to the beach. What started out as a
customer convenience initiative has turned into one of the brightest
ideas in banking! First to Open is here to stay.
The early bird crew in Rockport greets the day with smiles and
cups of coff ee. Shown left to right are Kristin Ross, Josie Hanks,
Ronda Monroe (at the drive-up), and Mindy Marshall.
6
Brenda Bolan and her beagle pup Jenny experience one of the many rewards of 7a.m.
banking with teller David Nadeau at the Damariscotta drive-up window.
7
The members of Tremont’s Girl Scout Troop 330 meet in our brand new Southwest Harbor community
conference room to plan their next badge project. Terri Lanpher (third from left) leads Lorelei Wehrfritz,
Kylie Tozier, Audrey Beal, Ajha Stanley, and Natalie Butler.
8
Southwest Harbor:
A Community Investment
Our Southwest Harbor offi ce opened in 1951 and has been a Main
Street fi xture for more than half a century. In 2007, the time
had come for this branch to receive a complete makeover. After a
careful study that included input from our customers, plans were
put into action to expand and enhance our banking presence while
adding charm to the downtown setting.
In August, the new Southwest Harbor offi ce was revealed. The
building’s exterior is trimmed with an environmentally friendly
fi ber-cement siding, and the look is now consistent with all of our
non-brick buildings. Inside, customers are welcomed into a warm
and comfortable lobby that features a handcrafted cherry and marble
teller line. Handicapped accessibility has been greatly improved with
access ramps, an electronic push button entrance, and a sit-down teller
station. The former upstairs apartment was masterfully converted to
more offi ces, an employee break room, and storage space. Wherever
possible, historic fi xtures and built-ins were retained for character.
A community access conference room is one of the most unique
features of our new Southwest Harbor offi ce. Equipped with its
own external entrance, the conference room is available by pre-
arrangement to local organizations wishing to conduct their
meetings in a comfortable and professional setting, no matter the
day or hour.
From the inside out, our Southwest Harbor offi ce project has been
a true community reinvestment act. Felice Janes, Southwest Harbor
Branch Manager, says, “Main Street has never looked better, and my
staff and I are so pleased to be working in such lovely surroundings.
We truly feel rededicated to this entire community.”
Employees Wanda Jewett, Heather Parsons, and Felice Janes
stand proudly in the lobby of their spacious new offi ce on Main
Street in Southwest Harbor.
9
The Art and Science
of Financial Services
In our coastal Maine marketplace, we are privileged to partner
with many dynamic and growing businesses. At The First, we
recognize that many of our business customers require the high-
tech banking tools that give them a competitive edge; at the
same time, they seek the personalized service and customer care
that is our hallmark. One fi ne example of a business customer
that appreciates The First’s state-of-the-art banking and savvy
investment management with a human touch is The Jackson
Laboratory, a world-class scientifi c research and education facility
headquartered in Bar Harbor.
The Jackson Laboratory is a fully engaged business banking partner,
utilizing many of our Business First products and services. In fact,
The Laboratory was our fi rst customer to utilize First Remote Deposit,
a desktop check depositing service that was introduced in 2007. In
addition to the business banking relationship, The Laboratory entrusts
our First Advisors team with the stewardship of endowment funds
that allow students of science to realize their goals: from investigating
diseases to defi ning the very cutting edge of research.
Linda Jensen, Chief Financial Offi cer for The Laboratory, affi rms,
“The people at The First and First Advisors are very responsive to
our business needs, off ering the latest services and personal know-
how that allow us to devote our time and resources to accomplishing
our mission. It’s very gratifying to work with a local business that
shares our passion for excellence.” So while scientists at The Jackson
Laboratory lead the search for preventing, treating and curing human
disease, the team at The First will continue to advance a long-standing
business relationship based on service and trust. From our perspective,
a more rewarding partnership would be diffi cult to discover.
Members of the First Advisors’ Jackson Laboratory
service team include Amanda Horton, Eileen Dorieka,
Scott Hammond and Tony McKim.
10
Scott Hammond (right), Senior Investment Offi cer for First Advisors, looks on as
Dr. Jon Geiger, Director of Educational Programs at The Jackson Laboratory, assists
Master of Science in Teaching intern Hannah Webber in the student laboratory.
11
First employees Dennis Dorr, Heather Lewis, and Mike Martin (shown left to right)
walk and talk their way around the indoor track at the Central Lincoln County YMCA.
12
Wellness First
The key element to The First’s ongoing success is exceptional customer
service, which is provided by our exceptional employees. Keeping
our team healthy was a major focus in 2007, and a corporate wellness
program kicked into high gear and introduced our employees to the
fun of fi tness with meaningful and enjoyable programs for employees
to rally around as individuals and as small teams.
By far, the most successful program was the 14-week Wellness
Walking Tour. Participants engaged in various types of physical
activity outside of work in order to earn miles on a virtual walk
from Calais to Boothbay Harbor, passing through each of our branch
offi ce towns in between. Employees who exercised their way to each
weekly milepost received fun rewards purchased from our local
merchants along the course. Over half of our employees participated
– 110 to be exact – logging more than 45,000 miles of exercise!
Caryn Weaver from Damariscotta cites a personal perk that she
discovered along the way: “By walking with small groups of people
on my lunch break, I have gotten to know several of my coworkers
on a more personal level. This would not have happened without
the incentive of our walking tour!”
As health insurance and medical costs continue to escalate, our
investment in employee wellness becomes a valuable business asset.
Susan Norton, our Senior Vice President of Human Resources notes,
“Healthier employees have less absences and are more productive
because they feel better. Morale is raised when employees sense
that the company is interested in them as total persons. By assisting
our employees in meeting their desired health goals and avoiding
disabling problems, we also send a message of self-responsibility – a
valuable personal trait and an important employee quality.”
April Lawrence and Dennis Dorr enjoy the great outdoors
while representing The First at the Camden Snow Bowl’s
National Toboggan Championships for the past two years.
13
First Hoop!
At The First, we share wholeheartedly in our communities’ passion
for youth sports. From little league baseball to high school basketball,
we are proud to support programs that promote active lifestyles,
teamwork, and good sportsmanship in our young athletes.
Since 2005, The First has enjoyed great success on the basketball
court with a brand-boosting, community commitment we call First
Hoop. Through First Hoop, each participating high school’s general
athletic fund is awarded a cash donation at every home court
basketball game played during the regular season. Fifty dollars is
the base donation, automatically awarded at the start of each game.
The rest of the donation rides on the outcome of two events: The
First Hoop and The First Fan Free-Throw. Fifty dollars is added to
the fund if the fi rst hoop of the game is scored by the home team.
Finally, fi fty dollars is added to the fund if a randomly selected
spectator, also known as “The First Fan,” successfully makes a
free-throw hoop at halftime.
Speaking of The First Fan, spectator enthusiasm has grown each
year as more fans are stepping up to the challenge and realizing
some of the donation power rests in their hands. With fi fty dollars
on the line, fans are usually given several attempts at their free-
throw. For their eff ort, we award each First Fan with a thank-you
gift, regardless of whether they make the shot.
Without having to jump through hoops, each participating high
school receives a meaningful donation at the end of the basketball
season. To date, the First Hoop program has donated over $20,000
to high school athletic programming in our market area. Now
that’s what we call a slam dunk!
The Calais Blue Devils accept their First Hoop check from
our Calais staff . Shown left to right are: Kim Currier, Janis
Marchese, Shirley Ray Coburn, Marlene Parks, Sam Bell,
Nicole Osborne, Kayla Beaton, and Randy Morrison.
14
Mike Delahanty First Fan and Medomak Valley High School student sets his sights on the rim as First Hoop
Mike Delahanty, First Fan and Medomak Valley High School student, sets his sights on the rim as First Hoop
volunteers from left, Jennifer Oldham, Cheryl Jones, and Sue Ferrier cheer him on.
15
Message from the Chief Financial Officer
An often overlooked profi t center for many bank holding companies is the Treasury function. For
FNLC, this produced signifi cant earnings in 2007 by using the excess equity over and above that needed
to support loans and other assets and putting it to work in the investment portfolio. Since we are largely
wholesale-funded, the Treasury function generates its own funding from several non-local sources. The
result is a signifi cant contribution to net interest income, which fl ows almost directly to the bottom line
since this is done with little additional non-interest expense.
Growth in Earning Assets
The Company posted excellent growth in earning assets in 2007, and a large portion of this came in the
investment portfolio, which increased $41.3 million or 22.9% over December 31, 2006. After more than
a year of a fl at-to-inverted yield curve, the Federal Open Market Committee began lowering short-term
interest rates in the third quarter of 2007. This resulted in a steepening of the yield curve and provided
interest rates in the third quarter of 2007. This
an excellent opportunity for the Company to add to the
an
investment portfolio as short-term rates dropped while
inv
long-term rates remained relatively stable.
lon
Unlike many bank holding companies, the investment
Un
portfolio is an important component of earning assets for
po
FNLC, not just a liquidity management tool. This can be
FN
seen in its average yield, which at 5.98% on a tax-equivalent
see
basis for 2007 – up from 5.73% in 2006 – places us in the
bas
top ten percent of all bank holding companies in our peer
top
group and is nearly 1.0% above our peers. We do this with a
gro
conservative investment approach that takes very little credit
con
risk and seeks to enhance yield through careful selection of
risk
investment-grade securities with a modest level of interest
inv
rate risk. It is important to note that as in the Company’s
rat
loan portfolio, our investment portfolio does not hold any securities with sub-prime mortgages as their
loan portfolio, our investment portfolio does no
underlying collateral.
Funding the Balance Sheet
In addition to our investment portfolio, another area where FNLC diff ers from peers is how we fund
our balance sheet. Recognizing that growing earning assets is the primary way we increase earnings
per share, fi nding ways to fund asset growth has been critical to our success for the past ten-plus years.
Unlike many other parts of the United States, Maine is a state with a very low rate of deposit growth,
which means that if we only had local deposits to fund asset growth, we would have either had to pay
much higher rates to attract those deposits or forego growth opportunities.
Beginning in 1993, FNLC began using non-local or wholesale sources of funding to supplement that which
was available within our market. These include borrowings from the Federal Home Loan Bank as well as
non-local certifi cates of deposits obtained through brokers, matching services, and internet direct placement.
Although we pay rates comparable to local certifi cates of deposit – our most expensive source of local funding
– wholesale sources have virtually no origination costs. The result is that wholesale funding has an all-in cost
16
(interest paid plus origination costs) that is comparable to checking and savings accounts, which have a high cost
of origination and maintenance.
Another important role wholesale funding plays is in helping the Company manage the regular seasonal
fl ows we experience in local deposits. Typically, these deposits peak in the late third or early fourth
quarter, and are at their lowest point in the fi rst or second quarters. While this seasonal fl ow is quite
predictable, the size of it has increased substantially after our acquisition of FNB Bankshares in 2005,
totaling nearly $40.0 million in 2007.
Change in Funding Structure
All of the growth in earning assets in 2007 was funded through wholesale sources, with local deposits
actually declining by $13.4 million or 2.4%. Although we saw growth in checking accounts and local
certifi cates of deposit, there were net outfl ows in savings and money market accounts, which we attribute
primarily to customers needing to utilize some of their cash reserves in a period of a weakening economy.
h reserves in a period of a weakening economy.
At the same time, we shifted a portion of funding between
n
wholesale certifi cates of deposit and borrowed funds to
o
take advantage of signifi cantly better rates at the Federal
al
Home Loan Bank – another factor in our improved
d
earnings in 2007.
As a result, we saw borrowed funds increase to 24.6% of
f
total funding from 14.2% at the end of 2006, and wholesale
e
certifi cates of deposit decline to 21.3% of total funding
g
compared to 24.6% at the end of 2006. Looking at the entire
e
funding picture, the Company saw its funding from local
al
sources decline to 54.2% as of December 31, 2007, compared
d
to 61.2% at December 31, 2006. This continues the trend we
e
have seen over the past decade to use more wholesale funding.
g.
Ten years ago, at the end of 1997, 73.4% of our balance sheet
et
was funded with local deposits and 26.6% from wholesale sources, and fi ve years ago, at the end of 2002, this
our
ources, and fi ve years ago, at the end of 2002, this
had changed to 68.9% from wholesale sources and 30.1% from wholesale sources.
There continues to be a lively discussion in the banking industry about the use of wholesale funding. For
FNLC, however, there has not been suffi cient deposit growth in our local market area to fund the balance
sheet growth we have generated over the past ten years at a reasonable cost. It is extremely diffi cult to bring in
new low-cost accounts if we are relying on growth at the expense of our competitors – moving a checking
account from one bank to another is not an easy task and one with a large amount of customer inertia. And
with higher-cost source of funding, there soon reaches a point where the only way to obtain these funds is to
pay an above-market rate of interest.
Our goal in managing our funding sources has been to pay a fair and competitive rate of interest to our local
customers, and turn to wholesale sources for the additional funding we need. As noted above, when acquisition
costs are factored in, the cost of wholesale funding is roughly the same as local funding, and the net result is the
funding of our balance sheet at the lowest total cost.
17
Capital Management
In addition to managing the Company’s investment portfolio and providing wholesale funding, the
Treasury function has the primary responsibility for capital management. In order to remain viable, a
bank holding company must maintain a level of equity capital to meet requirements set forth by banking
regulators. The Treasury function’s goal is to maximize the shareholders’ investment in the Company
over the long term by balancing three competing uses of capital: paying dividends, repurchasing the
Company’s stock, or providing for future growth. During 2007, the Company repurchased 109,861
shares at an average price of $15.35 per share and at a total cost of $1.7 million and declared cash
dividends of $6.8 million, leaving $5.3 million added to capital for future growth.
dividends of $6.8 million, leaving $5.3 million
g p
p
2007 Results and Key Performance Ratios
2007
For t
For the year ended December 31, 2007, FNLC posted record
earnings per share on a fully diluted basis of $1.34, up $0.09
earn
or 7.2% from the $1.25 reported for the year ended December
or 7.
31, 2006. Net income for 2007 was $13,101,000, an increase
31, 2
of $806,000 or 6.6% from the $12,295,000 posted in 2006.
of $8
The Treasury function made a signifi cant contribution to
The
the Company’s profi tability in 2007. With $14.8 million in
the C
interest income on a tax-equivalent basis and $10.5 million
inter
in interest expense, the Treasury function contributed $2.4
in in
million to net income after deduction for a small allocation
milli
of operating expenses and taxes. This represents 18.0% of the
of op
Company’s net income and equates to $0.24 of our earnings
Com
per share of $1.34.
per s
For 2007, our return on average tangible equity was 15.89%, up from the 15.75% posted in 2006, and
For 2007 our return on average tangible equit
well above the 15.00% threshold defi ning high-performance banks. FNLC’s effi ciency ratio – a key
operating statistic which measures how much a company spends to generate revenue – was 50.16% for
2007, a signifi cant improvement from the 52.12% posted for 2006. We are even more pleased with the
improvement we have seen in our effi ciency ratio during the past three years after it rose signifi cantly
due to our acquisition of FNB Bankshares in 2005. It is now almost back to the pre-acquisition level of
2004, and we feel that the continued improvement of our effi ciency ratio will be a vital factor in FNLC’s
ongoing fi nancial performance.
In all, 2007 was a very good year for First National Lincoln Corporation, and although this section has
focused on the contribution of the Treasury function, it is the individual eff orts that all of our 200+
employees make that enable the Company to produce fi nancial results which are consistently above that
of our peers. Once again, thank you for the opportunity to serve as your Chief Financial Offi cer and to be
part of a team focused on maximizing long-term value for our shareholders.
F. Stephen Ward
Executive Vice President & Chief Financial Offi cer
18
Selected Five-Year Financial Data
Dollars in thousands, except for per share amounts
Years ended December 31,
2007
2006
2005
2004
2003
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
Effi ciency Ratio (Tax-equivalent)
At Year End
Total Assets
Total Loans
Total Investment Securities
Total Deposits
Total Borrowings
Total Shareholders’ Equity
$
71,721
$
64,204
$ 50,431
$ 30,528
$
27,540
39,885
31,836
1,432
10,145
22,183
13,101
33,589
30,615
1,325
10,306
22,439
12,295
18,848
31,583
200
9,034
22,518
12,843
$
1.34
1.34
0.69
11.58
14.64
$
1.25
1.25
0.61
10.98
16.72
$
1.32
1.30
0.53
10.52
17.58
11.89%
15.89
11.63%
15.75
1.13
9.53
7.13
3.13
51.49
0.74
0.31
0.23
50.16
1.14
9.81
7.24
3.24
48.80
0.76
0.42
0.32
52.12
12.98%
17.81
1.36
10.44
7.61
3.84
40.15
0.79
0.40
0.30
52.89
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
3.94
38.62
0.99
0.34
0.25
48.78
9,796
17,744
907
5,148
11,600
7,427
$
1.02
1.00
0.38
6.57
16.63
16.39%
16.39
1.41
8.58
8.58
3.73
37.13
1.05
0.39
0.29
48.32
$ 1,223,250
$ 1,104,869
$ 1,042,209
920,164
221,815
781,280
316,719
112,668
838,145
180,549
805,235
179,862
107,327
772,338
183,981
713,964
215,189
103,452
$ 634,238
478,332
126,827
369,844
207,206
52,815
High
$ 568,812
398,895
136,689
359,077
157,822
47,718
Low
Market price per common share of stock during 2007
$ 17.50
$
13.60
19
Consolidated Balance Sheets
First National Lincoln Corporation and Subsidiary
As of December 31,
Assets
Cash and cash equivalents
Securities available for sale
Securities to be held to maturity, fair value of $181,132,000
at December 31, 2007, and $134,649,000 at December 31, 2006
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
Certifi cates of deposit under $100,000
Certifi cates of deposit $100,000 or more
Total deposits
Borrowed funds
Other liabilities
Total liabilities
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 benefi t costs,
net of tax benefi t of $190,000
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
20
2007
2006
$
17,254,000
40,461,000
$
24,188,000
44,815,000
181,354,000
1,817,000
920,164,000
6,800,000
913,364,000
6,585,000
16,481,000
827,000
27,684,000
17,423,000
$ 1,223,250,000
$
60,637,000
101,680,000
124,033,000
86,611,000
301,364,000
106,955,000
781,280,000
316,719,000
12,583,000
1,110,582,000
97,000
44,762,000
67,647,000
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
$ 1,104,869,000
$
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
436,000
696,000
(274,000)
112,668,000
$ 1,223,250,000
(352,000)
107,327,000
$ 1,104,869,000
18,000,000
9,732,493
9,732,493
11.58
$
18,000,000
9,770,792
9,770,792
10.98
$
Consolidated Statements of Income
First National Lincoln Corporation and Subsidiary
Years ended December 31,
Interest and dividend income
Interest and fees on loans (includes tax-exempt income
of $1,179,000 in 2007, $975,000 in 2006, and $879,000 in 2005)
$
Interest on deposits with other banks
Interest and dividends on investments
(includes tax-exempt income of $2,685,000 in 2007,
$2,703,000 in 2006, and $2,482,000 in 2005)
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 benefi ts
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
Net income
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
2007
2006
2005
60,585,000
-
$
54,585,000
64,000
$
42,623,000
13,000
11,136,000
71,721,000
29,745,000
10,140,000
39,885,000
31,836,000
1,432,000
30,404,000
1,737,000
2,740,000
2,000
589,000
5,077,000
10,145,000
11,037,000
1,438,000
1,944,000
283,000
7,481,000
22,183,000
18,366,000
5,265,000
13,101,000
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
12,295,000
$
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
12,843,000
$
$
$
1.34
1.34
0.69
9,787,287
25,731
$
1.25
1.25
0.61
9,816,307
49,476
$
1.32
1.30
0.53
9,745,456
114,751
21
Directors and Management
ADMINISTRATION
Jody L. Brown
Vice President, Credit Administration
John P. Quesnel
Vice President, Special Assets Manager
Thomas C. Bland
Assistant Vice President, Controller
Eva-Marie Fleury
Assistant Vice President, Collections Manager
Terri L. Geroux
Assistant Vice President, Human Resources Offi cer
Denise C. Griffi n
Assistant Vice President, Human Resources Offi cer
Cathryn A. Peterman
Assistant Vice President, Security, Branch Operations Offi cer
Amy M. Rollins
Assistant Vice President, Marketing Director
Jeanette M. Hayes
Mortgage Loan Underwriter
Deborah J. Wallace
Financial Analyst
Glory Ann West
Marketing Manager
OPERATIONS
Tammy L. Plummer
Vice President, Chief Technology Offi cer
Thomas M. Wilhelm
Vice President, Operations Offi cer
Janett N. Muise
Assistant Vice President, Electronic Banking Offi cer
Ann E. Greenleaf
Deposit Services
Patti J. Gwara
Data Processing Manager
Lucinda B. Leeman
Loan Processing Manager
Connie J. Miller
Loan Services Manager
Miles L. Smith
Information Systems Manager
BOARD OF DIRECTORS
Stuart G. Smith
Chairman of the Board
Daniel R. Daigneault
President & Chief Executive Offi cer
Tony C. McKim
Executive Vice President & Chief Operating Offi cer
Directors:
Katherine M. Boyd
Robert B. Gregory
Randy A. Nelson
Carl S. Poole, Jr.
Mark N. Rosborough
David B. Soule, Jr.
Bruce B. Tindal
Directors of First National Lincoln Corporation
also serve as Directors of The First, N.A.
FNLC EXECUTIVE OFFICERS
Daniel R. Daigneault
President & Chief Executive Offi cer
Tony C. McKim
Executive Vice President & Chief Operating Offi cer
F. Stephen Ward
Executive Vice President & Chief Financial Offi cer
Charles A. Wootton
Executive Vice President & Clerk
EXECUTIVE LEADERSHIP TEAM
Daniel R. Daigneault
President & Chief Executive Offi cer
Tony C. McKim
Executive Vice President & Chief Operating Offi cer
F. Stephen Ward
Executive Vice President & Chief Financial Offi cer
Charles A. Wootton
Executive Vice President & Senior Loan Offi cer
Richard M. Elder
Senior Vice President, Retail Services
Michael T. Martin
Senior Vice President, Credit Offi cer
Susan A. Norton
Senior Vice President, Human Resources & Compliance
Ronald J. Wrobel
Senior Vice President, Operations Offi cer
22
Directors and Management
BAR HARBOR OFFICE
Robert S. Wilson
Vice President, Senior Business Relationship Offi cer
Karri A. Bailey
Vice President, Business Relationship Offi cer
Marilyn E. Silocka
Vice President, Regional Manager, Branch Manager
Stephen H. Sprague
Vice President, Senior Mortgage Loan Offi cer
Robert Cambridge
Branch Supervisor
BLUE HILL OFFICE
Duane R. Crawford
Business Relationship Offi cer
Bonnie A. Marckoon
Branch Manager
BOOTHBAY HARBOR OFFICE
Brenda L. Blackman
Vice President, Business Relationship Offi cer
Tana J. Gamage
Branch Manager
CALAIS OFFICE
Louis J. Esposito
Vice President, Regional Manager
Senior Business Relationship Offi cer
Marlene R. Parks
Branch Manager
CAMDEN OFFICE
Eric G. Belléy
Vice President, Senior Business Relationship Offi cer
Angela M. Sabins
Assistant Branch Manager
DAMARISCOTTA OFFICE
Bonnie L. Lash
Vice President, Senior Mortgage Loan Offi cer
Sarah S. Matel
Vice President, Senior Business Relationship Offi cer
Todd L. Savage
Vice President, Senior Business Relationship Offi cer
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 Offi cer
ELLSWORTH OFFICE
Lornie E. Smith
Vice President, Senior Business Relationship Offi cer
E. Ray Huntley
Vice President, Senior Business Relationship Offi cer
Gail C. Sargent
Branch Manager
Kathleen R. Kief
Branch Supervisor
NORTHEAST HARBOR OFFICE
Hannah E. Wilkinson
Branch Supervisor
ROCKLAND OFFICE
Steven H. Poulin
Vice President, Regional Manager,
Senior Business Relationship Offi cer
Gail F. Pinto
Branch Manager
ROCKPORT OFFICE
Petrea Allen
Vice President, Senior Mortgage Loan Offi cer
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 Offi cer
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
Information for Shareholders
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 refl ects the high and
low prices of actual sales in each quarter of 2007 and 2006.
Such quotations do not refl ect retail mark-ups, mark-downs
or brokers’ commissions.
2007
High
$ 16.84
17.00
17.50
15.95
Low
$ 15.64
15.50
13.60
14.20
2006
High
$17.89
17.72
17.99
17.40
Low
$17.10
16.45
16.62
16.39
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
The last known transaction of the Company’s stock during
2007 was on December 31 at $14.64 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 fi scal years:
Date
Declared
March 16, 2006
June 15, 2006
September 21, 2006
December 21, 2006
March 22, 2007
June 21, 2007
September 19, 2007
December 20, 2007
Amount Date
Per Share Payable
$ 0.145
$ 0.150
$ 0.155
$ 0.160
$ 0.165
$ 0.170
$ 0.175
$ 0.180
April 28, 2006
July 31, 2006
October 31, 2006
January 31, 2007
April 30, 2007
July 31, 2007
October 31, 2007
January 31, 2008
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 eff ect on the fi nancial condition
of the Company or of the Bank.
Annual Meeting
The Annual Meeting of the Shareholders of First National
Lincoln Corporation will be held Wednesday, April 30,
2008 at 11:00 a.m. at The Samoset Resort, 220 Warrenton
Street, Rockport, Maine 04856.
24
Number of Shareholders
The number of shareholders of record as of February 21,
2008 was approximately 2,200.
Annual Report on Form 10-K
The Company’s Annual Report on Form 10-K to be fi led
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
fi lings and other reports or information issued by the
Company are available at: www.FNLC.com. In addition,
all SEC fi lings are accessible at the Commission’s website:
www.sec.gov.
Corporate Headquarters
Contact:
F. Stephen Ward, Chief Financial Offi cer
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 Certifi ed 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
Annual Report Photography Credits
All photographs contained in this Report are copyright of the
individual photographers named below.
Page 1: Greg Latimer; page 2, 8, 9, 10, 11, 12, and 15: Benjamin
Magro; page 6 and 13: Jim Dugan; page 7: Ronn Orenstein;
page 14: Ferguson Calder. Our cover photo, Alewife School,
by Dan Friedland, earned First Place Color and Best of Show
honors at the 2007 Maine Photography Show.