FIRST NATIONAL LINCOLN CORP /ME/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: Commission File No.
June 30, 2002 0-26589

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 August 13, 2002
Common Stock, Par One Cent 2,419,930

FIRST NATIONAL LINCOLN CORPORATION

INDEX

PART 1 Financial Information (Unaudited)
Page No.

Item 1:

Selected Financial Data .................................... 1

Independent Accountants' Review Report ..................... 2

Financial Statements

Consolidated Balance Sheets -
June 30, 2002, June 30, 2001, and December 31, 2001 ...... 3 - 4

Consolidated Statements of Income - for the three and
six months ended June 30, 2002 and June 30, 2001 ....... 5 - 6

Consolidated Statements of Changes in Shareholders' Equity -
for the six months ended June 30, 2002 and June 30, 2001 7 - 8

Consolidated Statements of Cash Flows - for the six months
ended June 30, 2002 and June 30, 2001 .................... 9 - 10

Notes to Financial Statements -
Six months ended June 30, 2002 and June 30, 2001........ 11 - 12

Item 2: Management's discussion and analysis of
financial condition and results of operations .......... 13 - 20

Item 3: Quantitative and qualitative disclosures
about market risk....................................... 21 - 23

PART II Other Information

Item 1: Legal Proceedings ...................................... 24

Item 2: Changes in Securities .................................. 25

Item 3: Defaults Upon Senior Securities ........................ 26

Item 4: Submission of Matters to a Vote of Security Holders .... 27 - 28

Item 5: Other Information ...................................... 29

Item 6: Exhibits and reports on Form 8-K ....................... 30

Signatures .......................................................... 31

FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY
SELECTED FINANCIAL DATA

- -----------------------------------------------------------------------------
For the six months For the quarters
ended June 30, ended June 30,
Dollars in thousands, 2002 2001 2002 2001
except for per share amounts (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------

Summary of Operations

Operating Income $16,492 $16,851 $8,420 $8,576
Operating Expense 12,086 13,130 6,066 6,550
Net Interest Income 8,489 7,022 4,326 3,660
Provision for Loan Losses 690 475 280 280
Net Income 3,119 2,637 1,646 1,431
- -----------------------------------------------------------------------------

Per Common Share Data

Net Income
Basic $1.30 $1.11 $0.69 $0.60
Diluted 1.26 1.08 0.66 0.58
Cash Dividends Declared 0.47 0.39 0.24 0.20
Book Value 16.64 14.75 16.64 14.75
Market Value 28.25 18.50 28.25 18.50
- -----------------------------------------------------------------------------

Financial Ratios

Return on Average Equity (a) 16.46% 15.54% 17.14% 16.40%
Return on Average Assets (a) 1.40% 1.31% 1.44% 1.38%
Average Equity to Average Assets 8.53% 8.43% 8.40% 8.44%
Net Interest Margin Tax-Equivalent (a) 4.20% 3.87% 4.16% 3.95%
Dividend Payout Ratio 36.06% 35.24% 34.89% 33.38%
Allowance for Loan
Losses/Total Loans 1.07% 0.92% 1.07% 0.92%
Non-Performing Loans
to Total Loans 0.51% 0.59% 0.51% 0.59%
Non-Performing Assets
to Total Assets 0.42% 0.57% 0.42% 0.57%
Efficiency Ratio 49.30% 49.61% 48.92% 47.82%
- -----------------------------------------------------------------------------

At Period End

Total Assets 478,622 418,925 478,622 418,925
Total Loans 324,511 282,429 324,511 282,429
Total Investment Securities 128,350 111,102 128,350 111,102
Total Deposits 308,294 281,370 308,294 281,370
Total Shareholders' Equity 39,903 35,222 39,903 35,222
- -----------------------------------------------------------------------------

(a) Annualized using a 365-day basis

Page 1

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Shareholders
First National Lincoln Corporation

We have reviewed the accompanying interim consolidated financial information of
First National Lincoln Corporation and Subsidiary as of June 30, 2002 and 2001,
and for the three- and six-month periods then ended. These financial statements
are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with U.S. generally accepted auditing standards, the objective of
which is to express an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with U.S. generally accepted accounting principles.

Berry, Dunn, McNeil & Parker

Portland, Maine
August 12, 2002

Page 2
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

- --------------------------------------------------------------------------
6/30/02 6/30/01 12/31/01
(000 OMITTED except number of shares) (Unaudited) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------
Assets

Cash and due from banks $ 9,573 $ 11,121 $ 10,894

Investments:

Available for sale 53,452 60,834 50,914

Held to maturity (market values $75,583
at 6/30/02, $49,838 at 6/30/01 and
$56,921 at 12/31/01) 74,898 50,268 57,272

Loans held for sale (fair value
approximates cost) 2,272 50 466

Loans 324,511 282,429 301,304
Less allowance for loan losses 3,468 2,603 3,000
-------- -------- --------
Net loans 321,043 279,826 298,304
-------- -------- --------
Accrued interest receivable 3,129 3,416 2,635
Bank premises and equipment 7,783 6,050 7,563
Other real estate owned 195 697 202
Other assets 6,277 6,663 6,216
-------- -------- --------
Total Assets $478,622 $418,925 $434,466
======== ======== ========
- --------------------------------------------------------------------------

Page 3
BALANCE SHEETS CONT.

- --------------------------------------------------------------------------
6/30/02 6/30/01 12/31/01
(Unaudited) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------
Liabilities

Demand deposits $ 24,103 $ 19,921 $ 22,496
NOW deposits 43,762 40,477 43,644
Money market deposits 61,986 10,554 15,878
Savings deposits 51,063 39,416 46,855
Certificates of deposit 75,151 88,281 79,907
Certificates $100,000 and over 52,229 82,721 53,909
-------- -------- --------
Total deposits 308,294 281,370 262,689
-------- -------- --------

Borrowed funds 126,734 99,353 131,357
Other liabilities 3,691 2,980 3,086
-------- -------- --------
Total Liabilities 438,719 383,703 397,132
-------- -------- --------
Shareholders' Equity

Common stock 25 25 25
Additional paid-in capital 4,687 4,687 4,687
Retained earnings 36,019 32,201 34,030
Accumulated Other Comprehensive Income:
Net unrealized gains on available-for-
sale securities (net of tax) 1,363 535 784
Treasury stock (2,191) (2,226) (2,192)
-------- -------- --------
Total Shareholders' Equity 39,903 35,222 37,334
-------- -------- --------
Total Liabilities &
Shareholders' Equity $478,622 $418,925 $434,466
======== ======== ========
- --------------------------------------------------------------------------

Number of shares authorized 6,000,000 6,000,000 6,000,000
Number of shares issued 2,481,270 2,481,270 2,481,270
Number of shares outstanding 2,397,611 2,387,181 2,391,375
Book value per share $16.64 $14.75 $15.61
- --------------------------------------------------------------------------

See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.

Page 4
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

- ------------------------------------------------------------------------
For the six months ended June 30,
(000s OMITTED except per share data 2002 2001
and number of shares) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------
Interest and dividend income:
Interest and fees on loans $11,028 $11,497
Interest on deposits with other banks 5 50
Interest and dividends on investments 3,524 3,623
------- -------
Total interest and dividend income 14,557 15,170
------- -------
Interest expense:
Interest on deposits 3,775 5,316
Interest on borrowed funds 2,293 2,832
------- -------
Total interest expense 6,068 8,148
------- -------
Net interest income 8,489 7,022
Provision for loan losses 690 475
------- -------
Net interest income after provision
for loan losses 7,799 6,547
------- -------
Other operating income:
Fiduciary income 383 345
Service charges on deposit accounts 469 446
Other operating income 1,083 890
------- -------
Total other operating income 1,935 1,681
------- -------
Other operating expenses:
Salaries and employee benefits 2,661 2,294
Occupancy expense 358 270
Furniture and equipment expense 624 475
Other 1,685 1,468
------- -------
Total other operating expenses 5,328 4,507
------- -------
Income before income taxes 4,406 3,721
Applicable income taxes 1,287 1,084
------- -------
NET INCOME $ 3,119 $ 2,637
======= =======
- ------------------------------------------------------------------------
Earnings per common share:
Basic earnings per share $1.30 $1.11
Diluted earnings per share $1.26 $1.08
Cash dividends declared per share $0.47 $0.39
Weighted average number of shares
outstanding 2,393,296 2,382,630
Incremental Shares 82,085 65,673
- ------------------------------------------------------------------------
See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.

Page 5
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

- ------------------------------------------------------------------------
For the quarters ended June 30,
(000s OMITTED except per share data 2002 2001
and number of shares) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------
Interest and dividend income:
Interest and fees on loans $ 5,555 $ 5,759
Interest on deposits with other banks 0 26
Interest and dividends on investments 1,848 1,850
------- -------
Total interest and dividend income 7,403 7,635
------- -------
Interest expense:
Interest on deposits 1,875 2,554
Interest on borrowed funds 1,202 1,421
------- -------
Total interest expense 3,077 3,975
------- -------
Net interest income 4,326 3,660
Provision for loan losses 280 280
------- -------
Net interest income after provision
for loan losses 4,046 3,380
------- -------
Other operating income:
Fiduciary income 198 163
Service charges on deposit accounts 250 236
Other operating income 569 542
------- -------
Total other operating income 1,017 941
------- -------
Other operating expenses:
Salaries and employee benefits 1,304 1,156
Occupancy expense 172 127
Furniture and equipment expense 314 241
Other 919 771
------- -------
Total other operating expenses 2,709 2,295
------- -------
Income before income taxes 2,354 2,026
Applicable income taxes 708 595
------- -------
NET INCOME $ 1,646 $ 1,431
======= =======
- ------------------------------------------------------------------------
Earnings per common share:
Basic earnings per share $0.69 $0.60
Diluted earnings per share $0.66 $0.58
Cash dividends declared per share $0.24 $0.20
Weighted average number of shares
outstanding 2,393,213 2,388,033
Incremental Shares 85,888 65,673
- ------------------------------------------------------------------------
See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.

Page 6
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Page 8
FIRST NATIONAL LINCOLN CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
For the six months ended June 30,
(000 omitted) 2002 2001
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 3,119 $ 2,637

Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 464 358
Provision for loan losses 690 475
Loans originated for resale (15,028) (8,301)
Proceeds from sales and transfers of loans 13,222 8,251
Net gain on call of securities available for sale 0 (73)
Net change in other assets and accrued interest (555) (743)
Net change in other liabilities 253 189
Net accretion of discounts on investments (379) (73)
------- -------
Net cash provided by operating activities 1,786 2,720
------- -------
Cash flows from investing activities:
Proceeds from maturities, payments and calls of
securities available for sale 1,571 6,755
Proceeds from maturities, payments and calls of
securities to be held to maturity 10,756 4,199
Proceeds from sales of other real estate owned 7 97
Purchases of securities available for sale (3,189) (4,058)
Purchases of securities to be held to maturity (28,046) (12,129)
Net increase in loans (23,429) (18,111)
Purchases of premises and equipment (684) (1,056)
------- -------
Net cash used in investing activities (43,014) (24,303)
------- -------
Cash flows from financing activities:
Net increase(decrease) in demand deposits,
savings, money market and NOW accounts 52,041 (772)
Net increase (decrease) in
certificates of deposit (6,436) 27,576
Advances on long-term borrowings 17,000 30,500
Repayments on long-term borrowings 0 (7,114)
Net decrease in short-term borrowings (21,623) (26,952)
Payment to repurchase common stock (225) (131)
Proceeds from sale of Treasury stock 226 155
Dividends paid (1,076) (882)
------- -------
Net cash provided by financing activities 39,907 22,380
------- -------
- ------------------------------------------------------------------------------

Page 9
STATEMENTS OF CASH FLOWS CONT.

- ------------------------------------------------------------------------------
For the six months ended June 30,
2002 2001
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------

Net increase(decrease) in cash and cash equivalents (1,321) 797
Cash and cash equivalents at beginning
of period 10,894 10,324
------- -------
Cash and cash equivalents at end of
period $ 9,573 $11,121
======= =======
- ------------------------------------------------------------------------------
Interest paid $6,063 $8,148
Income taxes paid 1,170 1,153

Non-cash transactions:
Loans transferred to other real estate
owned (net) 0 438
Net change in unrealized gain on available for
sale securities (net of tax) 579 332
- ------------------------------------------------------------------------------

See Accountants' Review Report. The accompanying notes are an integral part of
these consolidated financial statements.

Page 10
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

First National Lincoln Corporation (the Company) is a financial holding company
that owns all of the common stock of The First National Bank of Damariscotta
(the Bank). The accompanying unaudited consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. All significant intercompany
transactions and balances are eliminated in consolidation. The income reported
for the 2002 period is not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.

NOTE 2 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
per share for the three and six months ended June 30, 2002 and 2001:

- -----------------------------------------------------------------------------
Three Months Six Months
In thousands, except for number of Ended June 30 Ended June 30
shares and per share data 2002 2001 2002 2001
- -----------------------------------------------------------------------------
Income as reported 1,646 1,431 3,119 2,637
Income available to
common shareholders 1,646 1,431 3,119 2,637
Weighted average shares outstanding 2,393,213 2,388,033 2,393,296 2,382,630
Basic earnings per share 0.69 0.60 1.30 1.11

Income as reported 1,646 1,431 3,119 2,637
Income available to
common shareholders 1,646 1,431 3,119 2,637
Weighted average shares outstanding 2,393,213 2,388,033 2,393,296 2,382,630
Effect of dilutive securities:
Incentive stock options 85,888 65,673 82,085 65,673
Adjusted weighted-average
shares outstanding 2,479,101 2,453,706 2,475,381 2,448,303
Diluted earnings per share 0.66 0.58 1.26 1.08
- -----------------------------------------------------------------------------

The basic earnings per share computation is based upon the weighted-
average number of shares of stock outstanding during the period. Potential
common stock is considered in the calculation of weighted-average shares
outstanding for diluted earnings per share.

Page 11
NOTES CONT.

NOTE 3 - COMPREHENSIVE INCOME

Comprehensive income presented in the Statements of Changes in Shareholders'
Equity is for the six-month periods ended June 30, 2002 and 2001. Comprehensive
Income for the quarters ended June 30, 2002 and 2001 is presented in the
following table:

- ------------------------------------------------------------------------------
For the quarters ended June 30,
2002 2001
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------

NET INCOME $ 1,646 $ 1,431
======= =======
Other Comprehensive Income:
Unrealized gains (losses) arising during period,
net of taxes of $364 in 2002 and $(175) in 2001 705 (339)
------- -------
INCOME AND NON-OWNER CHANGES IN EQUITY $2,351 $1,092
======= =======
- ------------------------------------------------------------------------------

NOTE 4 - STOCK OPTIONS

A summary of the status of the Company's Stock Option Plan as of June 30, 2002,
and changes during the six months then ended, is presented below.

- -------------------------------------------------------------------------------
Number of Shares Weighted Average Exercise Price
- -------------------------------------------------------------------------------
Balance at December 31, 2001 138,000 9.84
Granted during the period 11,000 28.00
Exercised during the period 8,100 8.01
Balance at June 30, 2002 140,900 12.29
- -------------------------------------------------------------------------------

NOTE 5 - RECENT ACCOUNTING DEVELOPMENTS

Statement of Position (SOP) 01-6, "Accounting by Certain Entities (Including
Entities with Trade Receivables) That Lend to or Finance the Activities of
Others" was issued in December 2001. The SOP is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The SOP
reconciles and conforms the accounting and financial reporting provisions
established by various Audit and Accounting Industry Guides. The adoption of
the SOP did not have an effect on the Company's consolidated financial
condition and results of operations.

Page 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of the Company's financial condition are
based on the consolidated financial statements which are prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of such financial statements requires Management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, Management evaluates its estimates,
including those related to the allowance for loan losses. Management bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis in making judgments about the carrying values of assets that are not
readily apparent from other sources. Actual results could differ from the
amount derived from Management's estimates and assumptions under different
assumptions or conditions.
Management believes the allowance for loan losses is a critical accounting
policy that requires the most significant estimates and assumptions used in the
preparation of the consolidated financial statements. The allowance for loan
losses is based on Management's evaluation of the level of the allowance
required in relation to the estimated loss exposure in the loan portfolio.
Management believes the allowance for loan losses is a significant estimate and
therefore regularly evaluates it for adequacy by taking into consideration
factors such as prior loan loss experience, the character and size of the loan
portfolio, business and economic conditions and Management's estimation of
potential losses. The use of different estimates or assumptions could produce
different provisions for loan losses.

EARNINGS SUMMARY

Net income for the six months ended June 30, 2002 was $3,119,000, an increase
of 18.3% over 2001's net income of $2,637,000. Revenue growth was the primary
factor in the Company's increased earnings for the first six months of 2002
compared to the same period in 2001. This was a direct result of asset growth
and increased interest margins, which produced higher levels of net interest
income. Between June 30, 2001 and June 30, 2002, the loan and investment
portfolios increased by a combined $59.3 million, which Management views as
excellent for the first half of the year.
Fully diluted earnings per share for the first half of 2002 were $1.26, a
16.7% increase over the $1.08 reported in 2001.
Net income for the three months ended June 30, 2002 was $1,646,000, an
increase of 15.0% over 2001's net income of $1,431,000. Revenue growth was the
primary factor in the Company's increased earnings and was a direct result of
asset growth noted above, which produced higher levels of net interest income,
as well as increased margins due to lower interest rates.
Fully diluted earnings per share for the first quarter of 2002 were $0.66,
a 13.8% increase over the $0.58 reported in 2001.

Page 13
MANAGEMENT'S DISCUSSION CONT.

NET INTEREST INCOME

Total interest income of $14,557,000 for the six months ended June 30, 2002 is
a 4.0% decrease from 2001's total interest income of $15,170,000. Total
interest expense of $6,068,000 is a 25.5% decrease from 2001's total interest
expense of $8,148,000. The decreases in both interest income and interest
expense were due to significantly lower interest rates resulting from current
economic conditions, despite significantly higher balances for both assets and
liabilities. Net interest income was $8,489,000, an 20.9% increase over 2001's
net interest income of $7,022,000. Net interest margin on a tax-equivalent
basis increased from 3.87% in the first half of 2001 to 4.20% in the first half
of 2002. This was due to the continued low interest rate climate created by the
policies of the Federal Reserve Board over the past 18 months.
Total interest income for the three months ended June 30, 2002 was
$7,403,000, a 3.0% decrease from 2001's total interest income of $7,635,000.
Total interest expense of $3,077,000 is a 22.6% decrease from 2001's total
interest expense of $3,975,000. The decreases in both interest income and
interest expense were a result of lower interest rates. Net interest income was
$4,326,000, an 18.2% increase over 2001's net interest income of $3,660,000,
which resulted from higher levels of earning assets as well as wider interest
margins resulting from a 475 bp decrease in interest rates by the Federal
Reserve Board. Net interest margin on a tax equivalent basis increased from
3.95% in the second quarter of 2001 to 4.16% for the same period in 2002.

PROVISION FOR LOAN LOSSES

A $690,000 provision to the allowance for loan losses was made during the first
six months of 2002, a $215,000 increase over the $475,000 provision made for
the same period of 2001. In Management's opinion, the increase is not
indicative of a decline in overall credit quality within the portfolio.
Instead, it is the result of (1)significant growth in the commercial loan
portfolio, (2)the deterioration of one large credit as a result of Government
Regulations plus economic weakness in the commercial fishing industry and
(3)economic effects of the September 11, 2001, terrorist attack on the region.

NON-INTEREST INCOME

Non-interest income was $1,935,000 for the six months ended June 30, 2002, an
increase of 15.1% from 2001's non-interest income of $1,681,000. Included in
2001's other operating income is a gain of $73,000 recorded on a security
purchased at a deep discount which was called before maturity - without which
the increase would have been $327,000 or 20.3%. The increase was due primarily
to higher merchant credit card income and mortgage origination and servicing
income. There were also increases in fiduciary income, as well as service
charge income on deposit accounts. Demand for residential mortgages was strong
in the first half of 2002. The Bank sold $13.2 million of loans in the first
six months of 2002 compared to $8.3 million in the first six months of 2001.
This resulted in increased gains on sales of loans.
Non-interest income was $1,017,000 for the three months ended June 30,
2002, an increase of 8.1% from 2001's non-interest income of $941,000. Included
in 2001's other operating income is the gain of $73,000 noted above - without
which the increase would have been $149,000 or 17.2%. The increase was due
primarily to increases in merchant credit card income, mortgage origination and
servicing income, and service charge income on deposit accounts.

Page 14
MANAGEMENT'S DISCUSSION CONT.

NON-INTEREST EXPENSE

Non-interest expense of $5,328,000 for the six months ended June 30, 2002, is
an increase of 18.2% from 2001's non-interest expense of $4,507,000. This
increase has been primarily due to increases in personnel costs connected with
the Company's goal to provide more comprehensive and competitive services to
its customers. In addition, there were increases in merchant credit card costs
which were offset by an increase in merchant credit card income and staffing
and operating costs for the Bank's new Rockland office which was placed in
service in late 2001. Included in 2002's other operating expense is also a
$75,000 one-time expense representing the write-down of a repossessed asset.
Non-interest expense of $2,709,000 for the three months ended June 30,
2002 is an increase of 18.0% from non-interest expense of $2,295,000 for the
second quarter of 2001. This increase was primarily due to higher personnel
costs, investments in information technology, as well as staffing and operating
costs for the Bank's new Rockland office which was placed in service in late
2001. The increase also includes the one-time expense noted above.

INCOME TAXES

Income taxes on operating earnings increased to $1,287,000 for the first six
months of 2002 from $1,084,000 for the same period a year ago. The increase is
in line with the increase in pre-tax income.

Page 15
MANAGEMENT'S DISCUSSION CONT.

AVERAGE DAILY BALANCE SHEET
The following table shows the Company's average daily balance sheets for the
six-month periods ended June 30, 2002 and 2001
- --------------------------------------------------------------------------
Six-Month Periods ended June 30,
Dollars in thousands 2002 2001
- --------------------------------------------------------------------------
Cash and due from banks $ 8,504 7,257
Interest-bearing deposits 604 2,014
Investments
U.S. Treasury securities & government agencies 58,209 55,584
Obligations of states & political subdivisions 20,683 17,361
Other securities 35,811 37,069
--------- ---------
Total investments 114,703 110,014
--------- ---------
Loans held for sale 1,902 142
--------- ---------
Loans
Commercial 106,884 90,985
Consumer 29,797 32,020
State and municipal 7,668 8,702
Real estate 163,984 141,638
--------- ---------
Total loans 308,333 273,345
Allowance for loan losses (3,186) (2,399)
--------- ---------
Net loans 305,147 270,946
--------- ---------
Fixed assets 7,717 5,801
Other assets 9,448 9,663
--------- ---------
Total assets $ 448,025 405,837
========= =========
Deposits
Demand $ 20,844 18,722
NOW 43,369 37,375
Money market 26,206 11,058
Savings 48,941 39,358
Certificates of deposit 79,791 81,913
Certificates of deposit over $100,000 55,367 68,681
--------- ---------
Total deposits 274,518 257,107
--------- ---------
Borrowed funds 132,109 111,677
Other liabilities 3,180 2,834
--------- ---------
Total liabilities 409,807 371,618
--------- ---------
Common stock 25 25
Additional paid in capital 4,687 4,687
Retained earnings 35,679 31,753
Treasury stock (2,173) (2,246)
-------- ---------
Total capital 38,218 34,219
-------- ---------
Total liabilities and capital $ 448,025 405,837
========= =========
Page 16
MANAGEMENT'S DISCUSSION CONT.

INVESTMENTS

The Company's investment portfolio increased by $17.2 million or 15.5% between
June 30, 2001, and June 30, 2002, and by $20.2 million or 18.6% between
December 31, 2001, and June 30, 2002. A portion of the portfolio consists of
callable securities, some of which were called by issuers in the latter half of
2001 and then replaced in the first quarter of 2002 at comparable levels. In
addition, the Company has added substantially to the portfolio during 2002. At
June 30, 2002, the Company's available-for-sale portfolio had an unrealized
gain, net of taxes, of $1.4 million, which is in line with the interest rate
decreases seen in late 2001 and the first half of 2002.

LOANS

Loans grew by $42.1 million or 14.9% between June 30, 2001 and June 30, 2002.
The growth in commercial loans was $15.3 million, mortgage loan growth was
$13.7 million and home equity lines of credit grew $15.1 million. During the
first six months of 2002, total loans increased by $23.2 million or 7.7%.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents the amount available for credit losses
inherent in the Company's loan portfolio. Loans are charged off when they are
deemed uncollectible, after giving consideration to factors such as the
customer's financial condition, underlying collateral and guarantees, as well
as general and industry economic conditions.
In general, the Company determines the appropriate overall reserve for
loan losses based upon periodic, systematic reviews of its portfolio to
identify inherent losses and Management's judgment about various qualitative
factors. These reviews result in the identification and quantification of loss
factors, which are used in determining the amount of the allowance for loan
losses. The Company periodically evaluates prevailing economic and business
conditions, industry concentrations, changes in the size and characteristics of
the portfolio and other pertinent factors. Portions of the allowance for loan
losses are quantified to cover the estimated losses inherent in each loan
category based on the results of this detailed review process.
Commercial loans are individually reviewed and assigned a credit risk
rating from "1" (low risk of loss) to "8" (high risk of loss). For non-impaired
loans with a credit risk rating of "1" to "7", estimated loss factors based on
historical loss experience (ranging from two to five years) are used to
calculate a loan loss reserve for each credit risk rating classification.
Qualitative adjustments are also made based upon Management's assessment of
prevailing economic conditions, trends in volumes and terms of loans, levels
and trends in delinquencies and non-accruals, and the effect of changes in
lending policies. A specific allocation is made for impaired loans (loans on
non-accrual status), which are measured at the net present value of future cash
flows, discounted at the loan's effective interest rate, or at fair market
value of collateral if the loan is collateral dependent. The combination of
these analyses is the basis for the determination of the commercial loan
portion of the allowance for loan losses.
Consumer loans, which include credit cards, residential mortgages, home
equity loans/lines, and direct/indirect loans, are generally evaluated as a
group based on product type. The determination of the consumer loan portion of
the allowance for loan losses is based on a five-year average of annual
historical losses, adjusted for the qualitative factors noted above. The
results of all analyses are reviewed and discussed by the Directors' Loan

Page 17
MANAGEMENT'S DISCUSSION CONT.

Committee. An integral component of the Company's risk management process is to
ensure the proper quantification of the reserve for loan losses based upon an
analysis of risk characteristics, demonstrated losses, loan segmentations, and
other factors. Reserve methodology is reviewed on a periodic basis and modified
as appropriate. The unallocated component of the allowance for loan losses
represents Management's view that, given the complexities of the loan
portfolio, there are estimable losses that have been incurred within the
portfolio but not yet specifically identified.
Based on this analysis, including the aforementioned assumptions, the
Company believes that the allowance for loan losses is adequate as of June 30,
2002. As of that date, the balance of $3,468,000 was 1.07% of total loans,
compared to 1.00% at December 31, 2001 and 0.92% at June 30, 2001. Loans
considered to be impaired according to SFAS 114/118 totalled $1,641,840 at June
30, 2002, compared to $893,883 at June 30, 2001. This increase is attributable
to the deterioration of a single large credit as noted previously. The portion
of the allowance for loan losses allocated to impaired loans at June 30, 2002,
was $641,099 compared to $223,335 at June 30, 2001.

DEPOSITS

As of June 30, 2002, deposits grew year-over-year by 9.6%, or $26.9 million.
Demand deposits grew $4.2 million, NOW accounts $3.3 million, savings $11.6
million, and money market accounts $51.4 million. Certificates of deposit
decreased $43.6 million. Included in the increase in money market accounts is
the transfer of $20.9 million of deposits for the Bank's investment management
division which were previously placed with a mutual fund company. Management
believes the remaining increase in core deposits (demand, NOW, savings, and
money markets) is partially attributable to an inflow from equity and mutual
fund investments. In addition, approximately $6 million of the increase is
attributable to funds deposited in the Bank's new Rockland, Maine office, which
was opened in September, 2001.
Core deposits in the first half of 2002 grew by $52.0 million, including
the $20.9 million noted above. The increase is attributable to a combination of
normal seasonal fluctuation, and factors noted above. Certificates of deposit
decreased $6.4 million. A large portion of the decrease in certificate of
deposit balances in both periods is the result of pricing strategies undertaken
by the Company which resulted in certificates maturing and not renewing at the
lower rates available.

BORROWED FUNDS

The Company's funding includes borrowings from the Federal Home Loan Bank and
repurchase agreements. Between June 30, 2001 and June 30, 2002, borrowed funds
increased by $27.4 million or 27.6%. The Company utilizes borrowings as an
additional source of funding for both loans and investments, which enables it
to grow its balance sheet and, in turn, grow its revenues. Borrowings are
increased as other sources of funding decrease, including core deposits and
certificates of deposit. During the twelve-month period ended June 30, 2002,
while core deposits grew substantially, additional borrowings were needed to
fund liquidity needs created by the growth in the loan and investment
portfolios and the outflow of certificates of deposit. Borrowings were also
used to carry out interest rate risk management stategies. During the first six
months of 2002, borrowed funds decreased by $4.6 million or 3.5%, and were
replaced by core deposits.

Page 18
MANAGEMENT'S DISCUSSION CONT.

SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES

Shareholders' equity as of June 30, 2002 was $39,903,000 compared to 35,222,000
for the same date in 2001. The Company's strong earnings performance in the
preceeding twelve months was accompanied by an increase in the net
unrealized gain on available-for-sale securities, as required under SFAS 115.
During 2001, the Company increased its dividend each quarter to end the year at
a quarterly dividend rate of 22 cents per share. In 2002, a cash dividend of
23 cents per share was declared in the first quarter compared to 19 cents in
the first quarter of 2001, and a cash dividend of 24 cents per share was
declared in the second quarter compared to 20 cents per share in the second
quarter of 2001.
Regulatory leverage capital ratios for the Company were 8.39% and 8.30%,
respectively, at June 30, 2002 and June 30, 2001. The Company had a tier one
risk-based capital ratio of 12.34% and tier two risk-based capital ratio of
13.45% at June 30, 2002, compared to 12.65% and 13.61%, respectively, at June
30, 2001. 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, 2002 the Bank had primary sources of liquidity of $54.6 million
and an additional $56.6 million of secondary sources. 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
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.

NON-PERFORMING ASSETS

At June 30, 2002 and 2001, loans on a non-accrual status totaled $1,642,000 and
$1,671,000, respectively. In Management's opinion, the level at June 30, 2002
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 one credit. In
addition to loans on a non-accrual status at June 30, 2002 and 2001, loans past
due 90 days or more and accruing (calculated on a constant 30-day month basis)
totaled $278,000 and $510,000 respectively. The Company continues to accrue
interest on these loans because it believes collection of the interest is
reasonably assured.

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.

Page 19
MANAGEMENT'S DISCUSSION CONT.

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 generally 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 or Senior Loan 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 for sale are listed with real
estate brokers. Properties may be 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.

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 20
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK MANAGEMENT

Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates. First National
Lincoln Corporation's market risk is composed primarily of interest rate risk.
The Bank's Asset/Liability Committee (ALCO) is responsible for reviewing the
interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to interest rate risk. All guidelines and policies
established by ALCO have been approved by the Board of Directors.

ASSET/LIABILITY MANAGEMENT

The primary goal of asset/liability management is to maximize net interest
income within the interest rate risk limits set by ALCO. Interest rate risk is
monitored through the use of two complementary measures: static gap analysis
and earnings simulation modeling. While each measurement has limitations, taken
together they represent a reasonably comprehensive view of the magnitude of
interest rate risk in the Company, the level of risk through time, and the
amount of exposure to changes in certain interest rate relationships.
Static gap analysis measures the amount of repricing risk embedded in the
balance sheet at a point in time. It does so by comparing the differences in
the repricing characteristics of assets and liabilities. A gap is defined as
the difference between the principal amount of assets and liabilities which
reprice within a specified time period. The Bank's cumulative one-year gap, at
June 30, 2002, was 0.90% of total assets. ALCO's policy limit for the one-year
gap is plus or minus 20% of total assets. Core deposits with non-contractual
maturities are presented based upon historical patterns of balance attrition
and pricing behavior which are reviewed at least annually.
The gap repricing distributions include principal cash flows from
residential mortgage loans and mortgage-backed securities in the time frames in
which they are expected to be received. Mortgage prepayments are estimated by
applying industry median projections of prepayment speeds to portfolio segments
based on coupon range and loan age.

Page 21
MARKET RISK CONT.

A summary of the Bank's static gap, as of June 30, 2002, is presented in the
following table:

- -------------------------------------------------------------------------------
0-90 91-365 1-5 5+
Dollars in thousands days days years years
- -------------------------------------------------------------------------------
Investment securities at
amortized cost $ 17,710 13,132 55,895 38,746
Loans held for sale 20 85 721 1,446
Loans 104,995 59,595 128,624 27,829
Other interest-earning assets 650 4,387 - -
Non-rate-sensitive assets - - - 23,499
-------- -------- -------- --------
Total assets $ 123,375 77,199 185,240 91,520
-------- -------- -------- --------
Interest-bearing deposits 83,708 57,366 46,775 96,342
Borrowed funds 27,574 27,660 44,000 27,500
Non-rate-sensitive
liabilities and equity - - - 66,409
-------- -------- -------- --------
Total liabilities and equity $ 111,282 85,026 90,775 190,251
-------- -------- -------- --------
Period gap $ 12,093 (7,827) 94,465 (98,731)
========= ======== ======== ========
Percent of total assets 2.5% (1.6%) 19.8% (20.7%)
Cumulative gap (current) $ 12,093 4,266 98,731 -
Percent of total assets 2.5% 0.9% 20.7% 0.0%
- -------------------------------------------------------------------------------

The earnings simulation model forecasts one- and two-year net interest
income under a variety of scenarios that incorporate changes in the absolute
level of interest rates as well as basis risk, as represented by changes in the
shape of the yield curve and changes in interest rate relationships. Management
evaluates the effects on income of alternative interest rate scenarios against
earnings in a stable interest rate environment. This analysis is also most
useful in determining the short-run earnings exposures to changes in customer
behavior involving loan payments and deposit additions and withdrawals.
The Bank's most recent simulation model projects net interest income would
increase by approximately 1.34% of stable-rate net interest income if rates
fall gradually by one percentage point over the next year, and decrease by
approximately 0.02% if rates rise gradually by two percentage points. Both
scenarios are well within ALCO's policy limit of a decrease in net interest
income of no more than 10.0% given a 2.0% move in interest rates, up or down.
Management believes this reflects a reasonable interest rate risk position.
Within a two-year horizon and assuming no additional movement in rates, the
model forecasts that net interest income would be higher than that earned in a
stable rate environment by 10.40% in a falling rate scenario and increase by
1.25% in a rising rate scenario when compared to the year one base scenario.

Page 22

MARKET RISK CONT.

This dynamic simulation model includes assumptions about how the balance
sheet is likely to evolve through time and in different interest rate
environments. Loans and deposits are projected to maintain stable balances. All
maturities, calls and prepayments in the securities portfolio are assumed to be
reinvested in similar assets. Mortgage loan prepayment assumptions are
developed from industry median estimates of prepayment speeds for portfolios
with similar coupon ranges and seasoning. Non-contractual deposit volatility
and pricing are assumed to follow historical patterns. The sensitivities of key
assumptions are analyzed annually and reviewed by ALCO.
A summary of the Bank's interest rate risk simulation modeling, as of June
30, 2002 is presented in the following table:

- -------------------------------------------------------------
Changes in Net Interest Income 2002
- -------------------------------------------------------------
Year 1
Projected change if rates decrease by 1.0% +1.34%
Projected change if rates increase by 2.0% -0.02%
- -------------------------------------------------------------
Year 2
Projected change if rates decrease by 1.0% +10.40%
Projected change if rates increase by 2.0% + 1.25%
- -------------------------------------------------------------

The information for static gap and changes in net interest income
presented in this section pertains to the Bank only and does not include a
small volume of assets and liabilities owned by the Company and included in its
consolidated financial statements as of June 30, 2002. In Management's
opinion, the Bank-only information would not be materially different than that
for the Company's consolidated balances.

INTEREST RATE RISK MANAGEMENT

A variety of financial instruments can be used to manage interest rate
sensitivity. These may include the securities in the investment portfolio,
interest rate swaps, and interest rate caps and floors. Frequently called
interest rate derivatives, interest rate swaps, caps and floors have
characteristics similar to securities but possess the advantages of
customization of the risk-reward profile of the instrument, minimization of
balance sheet leverage and improvement of liquidity. As of June 30, 2002, the
Company was not using any derivative instruments for interest rate risk
management.
The Company engages an independent consultant to periodically review its
interest rate risk position, as well as the effectiveness of simulation
modeling and reasonableness of assumptions used. As of June 30, 2002, there
were no significant differences between the views of the independent consultant
and Management regarding the Company's interest rate risk exposure. Management
expects interest rates will remain constant for much of 2002 and believes that
the current level of interest rate risk is acceptable.

Page 23
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 24
ITEM 2. CHANGES IN SECURITIES

None

Page 25
ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

Page 26
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 30, 2002, at
11:00 a.m. Eastern Daylight Time. Only shareholders of record as of the close
of business on March 11, 2002 (the "Voting Record Date") were entitled to vote
at the Annual Meeting. On the Voting Record Date, there were 2,394,679 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 2,061,619 shares in favor, 170
shares against, 1,044 shares withheld voting, and 331,846 shares not voting.

PROPOSAL 2: Election of Directors
The following are nominees for three-year terms as Director Expiring in 2005:

Katherine M. Boyd has served as a Director of The First National Bank of
Damariscotta (the "Bank"), the Company's wholly owned subsidiary since 1993. A
resident of Boothbay Harbor, she owns the Boothbay Region Greenhouses with her
husband. Ms. Boyd serves as trustee of the YMCA, and was previously chairperson
of the YMCA Annual Fund Drive.
Carl S. Poole, Jr. 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 1989. Mr. Soule has been practicing law in Wiscasset since 1971. He
served two terms in the Maine House of Representatives, 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
1999. Mr. Tindal formed and is owner of Tindal & Callahan Real Estate in
Boothbay Harbor, which has been in operation since 1985. Mr. Tindal is a
Trustee of 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.

The results of the shareholder voting had 2,062,627 shares in favor, 0
shares against, 206 withheld voting, and 331,846 shares not voting.

Page 27
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, 2002. In the opinion of the Board of Directors, the reputation,
qualifications and experience of the firm make its reappointment appropriate
for 2002. 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 2,062,023 shares in favor, 70
shares against, 800 withheld voting, and 331,786 not voting.

Page 28
ITEM 5: Other Information

None.

Page 29
ITEM 6: Exhibits, Financial Statement Schedules, and reports on Form 8-K

A. EXHIBITS

None.

B. REPORTS ON FORM 8-K

None.

Page 30
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 14, 2002 /s/ Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO

August 14, 2002 /s/ F. Stephen Ward
Date F. Stephen Ward
Treasurer

Page 31

August 14, 2002

Securities and Exchange Commission
Washington, DC 20549

Gentlemen:

Pursuant to the requirements of the Securities and Exchange Act
of 1934, we are transmitting herewith the attached Form 10-Q.

Sincerely,

FIRST NATIONAL LINCOLN CORPORATION

/s/ F. Stephen Ward

F. Stephen Ward, Treasurer