FIRST NATIONAL LINCOLN CORP /ME/ - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1995

Commission File Number 2-96573

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

Securities registered pursuant to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1933
None

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 [X] No[ ]

State the aggregate market value of voting stock held by
non-affiliates of the Registrant as of March 1, 1996:
Common Stock, no par: $20,765,296

Indicate the number of shares outstanding of each of the issuer's class
of common stock as of March 1, 1996:
Common stock: 610,744 shares

ITEM 1. DISCUSSION OF BUSINESS

First National Lincoln Corporation (the "Company") was incorporated under
the general business laws of the State of Maine on January 15, 1985, for the
purpose of becoming the parent holding company of The First National Bank of
Damariscotta (the "Bank"). The common stock of the Bank is the principal asset
of the Company, which has no other subsidiaries. As of December 31, 1995, the
Company's securities consisted of one class of common stock, no par value, of
which there were 609,534 shares outstanding and held of record by approximately
353 shareholders.
The Bank was chartered as a national bank under the laws of the United
States on May 30, 1864. The Bank's capital stock consists of one class of
common stock of which 120,000 shares, par value $2.50 per share, are authorized
and outstanding. All of the Bank's common stock is owned by the Company.
The Bank has four offices in Mid-Coast Maine, including its principal
office located on Main Street, Damariscotta, Lincoln County, Maine and three
branch offices located at U.S. Route 1, Waldoboro, Maine; Townsend Avenue,
Boothbay Harbor, Maine; and Route 27, Wiscasset, Maine. The Bank also maintains
an Operations Center at the corner of Bristol Road and Cross Street in
Damariscotta. The Bank has not consummated any mergers, consolidations or other
acquisitions of assets with any other person during the past five years.
The Bank emphasizes personal service to the community, concentrating on
retail banking. Customers are primarily small businesses and individuals for
whom the Bank offers a wide variety of services, including checking, savings
and investment accounts, consumer, commercial and mortgage loans, credit cards,
as well as a full trust department. The Bank has not made any material changes
in its mode of conducting business during the past five years.
The banking business in the Bank's market area historically has been
seasonal with lower deposits in the winter and spring and higher deposits in
the summer and fall. This swing is fairly predictable and has not had a
materially adverse effect on the Bank. The Bank operates in a highly
competitive geographical area with respect to both loans and deposits,
primarily from savings banks, savings and loan associations, credit unions, and
other commercial banks, some of which are larger institutions with higher
lending limits than the Bank. The Bank also has competition from non-banking
providers of financial products and services such as insurance companies,
mortgage companies, automotive finance companies, and mutual funds both from
within and without the Bank's primary geographic service area.
Competition has intensified in recent years with a revision in banking law
which allows out-of-state bank holding companies to acquire or establish banks
in Maine. As a result, several out-of-state holding companies have entered the
Maine banking market, principally through the acquisition of existing Maine
banks. The Bank expects to be subject to an increased level of competition from
these out-of-state banking institutions. The Bank anticipates that the further
relaxation of restrictions on interstate banking potentially resulting from the
recently enacted Riegle-Neal bill and the Maine Legislature's recent adoption
of legislation permitting out-of-state banks, under certain circumstances, to
establish or acquire branches in Maine, will heighten competition faced by the
Bank, although the extent to which such legislation will have an effect in
Maine is as yet unclear.
As of December 31, 1995, the Bank employed 101 persons, with 91 full-time
equivalent employees.

Supervision and Regulation

The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and is required to file
with the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") an annual report and other information required pursuant to the Act.
The Company is subject to examination by the Federal Reserve Board.
The Act requires the prior approval of the Federal Reserve Board for a
bank holding company to acquire or hold more than a 5% voting interest in any
bank, and restricts interstate banking activities. The Act restricts First
National Lincoln Corporation's non-banking activities to those which are
determined by the Federal Reserve Board to be closely related to banking. The
Act does not place territorial restrictions on the activities of non-bank
subsidiaries of bank holding companies.
The majority of the Company's cash revenues are generally derived from
dividends paid to the Company by the Bank. These dividends are subject to
various legal and regulatory restrictions which are summarized in Note 15 to
the accompanying financial statements.
The Bank is subject to the provisions of the National Bank Act, and as
such, must meet certain liquidity and capital requirements, which are discussed
in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. The Office of the Comptroller of the Currency -- the
Bank's principal regulatory agency -- conducts periodic examinations of the
Bank. Certain state banking regulations also apply to the Bank, as administered
by the Maine Bureau of Banking.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
recapitalized the deposit insurance funds and gave regulators the authority to
restrict the operations, management and capital distributions of a bank,
depending upon its risk. On December 31, 1995, the Bank was classified in the
lowest risk category. FDICIA also directs regulators to establish underwriting
and operations standards, encompassing such areas as real estate lending,
consumer disclosure rules, internal controls and new reporting requirements.
This sweeping legislation has significantly increased deposit insurance
premiums and the costs of regulatory compliance for the entire banking
industry, including the Bank.
The monetary policies of regulatory authorities, including the Federal
Reserve Board, have a significant effect on the operating results of banks and
bank holding companies. Through open market securities transactions and changes
in its discount rate and reserve requirements, the Board of Governors exerts
considerable influence over the cost and availability of funds for lending and
investment. The nature of future monetary policies and the effect of such
policies on the future business and earnings of the Company and the Bank cannot
be predicted. See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, regarding the Bank's net interest margin
and the effect of interest-rate volatility on future earnings.

ITEM 2. Properties

The principal office of the Bank is located in Damariscotta, Maine, and
serves the people of Newcastle, Edgecomb, Jefferson, Bremen, Wiscasset,
Nobleboro, South Bristol and Bristol. A branch office opened in Waldoboro in
1975, which is located approximately ten miles from Damariscotta on U.S. Rt. 1,
serves the population of Waldoboro and the surrounding towns of Friendship,
Warren, Washington, and Monhegan Island.
In 1979, a branch office was opened in Boothbay Harbor, which is situated
approximately 16 miles from Damariscotta. This office serves the towns of
Boothbay, West Boothbay, Boothbay Harbor, Southport and neighboring areas. In
1988, a branch office was opened in Wiscasset, which is approximately eight
miles from Damariscotta. This office serves the towns of Wiscasset, Edgecomb,
Alna, Woolwich, and Dresden. An operations center was completed in the adjacent
block fronting on Bristol Road in Damariscotta. It was put in service in July,
1989. The Bank owns all of its facilities.
Expansion of the Bank's Boothbay Harbor office began in the Fall of 1995
to better serve customer needs. It will include utilization of an adjacent
property that was purchased in 1994. The project is expected to be completed in
the Spring of 1996. The Bank also owns real estate on Water Street in
Damariscotta, Maine, which was put into use for additional office space during
1995.
Management believes that the Bank's current facilities are suitable and
adequate in light of its current needs and its anticipated needs over the near
term.

ITEM 3. Legal Proceedings

There are no material pending legal proceedings to which the Company or
the Bank is the party or to which any of its property is subject, other than
routine litigation incidental to the business of the Bank. None of these
proceedings is expected to have a material effect on the financial condition of
the Company or of the Bank.

ITEM 4. Submission of matters to a Vote of Security Holders

There were no items submitted to a vote of security holders of the Company
during the fourth quarter of 1995.

ITEM 5. Market for Registrant's Common Equity

The Company's stock is not traded on any securities exchange and is not
regularly quoted by the National Association of Securities Dealers Automated
Quotation System (NASDAQ). There is no established public trading market for
the Company's stock, and it is traded only sporadically through individual
purchases and sales. The last stock split was four-for-one on November 1, 1989.
On November 18, 1993 the Company declared a 10% stock dividend, payable January
15, 1994 to shareholders of record on December 31, 1993. Any fractional shares
to be issued as a result of the stock dividend were paid out in cash. The
following table reflects the high and low price of actual sales in each quarter
of 1995 and 1994. Such quotations do not reflect retail mark-ups, mark-downs,
or brokers' commissions.

1995 1994
----------------- ----------------
High Low High Low
1st Quarter 26 25 21 1/2 20 1/2
2nd Quarter 27 1/2 26 22 1/2 21 1/2
3rd Quarter 30 1/2 27 1/2 23 1/2 22 1/2
4th Quarter 33 30 1/2 25 23 1/2

The last known transaction involving the Company's stock during 1995 was
on December 18 at $33.00 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. As of March 1, 1996,
there were approximately 353 holders of record of the Company's common stock,
as listed on the Company's shareholder records. The table below sets forth the
cash dividends paid by the Company during its last two fiscal years, including
a one-time special cash dividend of $.10 declared on December 21, 1995:

Date Declared Dividend Per Share Date Payable
----------------- ------------------ ----------------
March 17, 1994 .13 April 15, 1994
June 16, 1994 .14 July 15, 1994
September 22, 1994 .14 October 15, 1994
December 15, 1994 .14 January 13, 1995

March 16, 1995 .14 April 15, 1995
June 15, 1995 .15 July 15, 1995
September 21, 1995 .15 October 30, 1995
December 21, 1995 .16 January 31, 1996
December 21, 1995 .10 January 31, 1996

The ability of the Company to pay cash dividends depends on receipt of
dividends from the Bank. Dividends may be declared by the Bank out of so much
of its net profits as the directors deem appropriate, subject to the limitation
that the total of all dividends declared by the Bank in any calendar year may
not exceed the total of its net profits of that year combined with the retained
net profits of the preceding two years. The Bank is also required to maintain
minimum amounts of capital-to-total-risk-weighted-assets, as defined by banking
regulators. At December 31, 1995, the Bank was required to have minimum Tier 1
and Tier 2 risk-based capital ratios of 4.00% and 8.00%, respectively. The
Bank's actual ratios were 13.66% and 14.91%, respectively, as of December 31,
1995.

ITEM 6. Selected Financial Data

Dollars in thousands, except for per share amounts
Years ended December 31, 1995 1994 1993 1992 1991
------- ------ ------ ------ ------
Summary of Operations
Operating Income $17,404 14,871 13,883 14,550 15,896
Operating Expense 13,414 11,766 11,514 13,167 14,993
Net Interest Income 8,538 8,209 7,593 6,761 5,631
Provision for Loan Losses 0 0 455 1,200 600
Net Income (1) 2,720 2,174 1,695 1,149 758

Per Common Share Data (2)
Net Income (1) 4.47 3.58 2.81 1.91 1.26
Cash Dividends Declared 0.70 0.55 0.46 0.44 0.44
Book Value 32.10 27.79 25.00 22.17 20.72
Market Value (2) 33.00 25.00 20.50 15.00 14.50

Financial Ratios
Return on Average Equity (1) 15.03% 13.59% 11.80% 8.98% 6.26%
Return on Average Assets1 1.34 1.11 0.98 0.68 0.47
Average Equity to Average Assets 8.90 8.20 8.32 7.53 7.48
Net Interest Margin 4.49 4.54 4.75 4.50 4.07
Dividend Payout Ratio (1) 15.66 15.36 16.52 22.89 34.43
Allowance for Loan Losses/Total Loans 1.55 2.02 2.49 2.26 1.70
Non-Performing Loans to Total Loans 0.78 1.43 2.46 1.04 1.73
Non-Performing Assets to Total Assets 0.79 1.16 1.94 1.67 2.01
Efficiency Ratio 0.57 0.65 0.66 0.65 0.74

At Year End
Total Assets $212,282 196,531 181,051 169,588 166,205
Total Loans 133,245 120,294 105,288 103,500 100,962
Total Investment Securities 61,570 65,654 65,434 53,928 52,075
Total Deposits 150,468 142,445 156,710 155,485 152,549
Total Shareholders' Equity 19,565 16,892 15,129 13,348 12,441

1) 1993 statistics are based upon net income before the one-time change in
accounting for income taxes. See Note 7 to the financial statements.
2) Per common share data has been adjusted to reflect the 10% stock dividend
issued in 1993.

High Low
----- -----
Market price per common share of stock during 1995 33.00 25.00

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

General

First National Lincoln Corporation and its subsidiary, The First National
Bank of Damariscotta, posted record earnings in 1995. This was a direct result
of the Company's 8.0% growth in assets and ongoing control of expenses. It
continues the positive growth in income seen during the past five years, as
well as the positive growth in assets seen since 1993.
Asset growth came in loans, which increased 14.1% to end the year at
$137.3 million (including $4.1 million of residential mortgages held for sale).
The majority of this growth was in residential mortgages resulting from
increased demand and a limited volume of sales into the secondary market. At
the same time, non-interest expense decreased 6.8% to $5.7 million from $6.1
million in 1994. The Company's efficiency ratio -- a benchmark measure of the
amount spent to generate a dollar of income -- was 0.57 compared to 0.65 in
1994.
The results posted in 1995 are a continued change from the late 1980s and
early 1990s. A substantial drop in earnings in 1990 was followed by improved,
but relatively weak earnings in 1991 and 1992. Significant improvement was seen
in 1993 and 1994 -- driven by a reduction in the Bank's provision for loan
losses and marked improvement in net interest margin through reductions in
liability costs.
While the Bank's net interest margin remained steady in 1995, the growth
in assets previously mentioned produced substantially higher net interest
income.

Results of Operations and Three-Year Comparison

Net income for the year ended December 31, 1995 was $2,720,000 -- the
highest net income recorded by the Company in one year. This represents a 25.1%
or $546,000 increase from net operating income of $2,174,000 that was posted
in 1994. The increase was primarily due to growth in earning assets and control
of expenses.
Return on average assets in 1995 was 1.34%, up from 1.11% in 1994 and
0.98% in 1993. Return on average equity was 15.0% in 1995, compared to 13.6% in
1994 and 11.8% in 1993. Average shareholders' equity to average assets was
8.90% in 1995, compared to 8.20% in 1994 and 8.32% in 1993. Net income per
share for the year ended December 31, 1995 was $4.47, compared to $3.58 per
share in 1994 and $2.81 in 1993 ($3.33 after a change in accounting for income
taxes). Book value per share was $32.10 on December 31, 1995, up from $27.79 on
December 31, 1994 and $25.00 on December 31, 1993.
Ratios and per share income for 1993 have been computed with net operating
income rather than net income. The difference between the two is the one-time
change in accounting noted previously which had no bearing on operating results
for the year.
On December 31, 1995, assets stood at $212.3 million, compared to $196.5
million on December 31, 1994, an 8.0% increase. As of December 31, 1995, total
loans were $133.2 million, while loans held for sale totaled $4.1 million. This
represents an increase of 14.1% from total loans and loans held for sale of
$120.3 million on December 31, 1994. Investments totaled $61.6 million on
December 31, 1995, a 6.2% decrease from $65.7 million on December 31, 1994.
Deposits increased by 5.6% in 1995, standing at $150.5 million on December 31,
1995, compared to $142.4 million on December 31, 1994.
The Bank's loan delinquency ratio dropped in 1995, and was 1.5% on
December 31, 1995, versus 2.3% on December 31, 1994. The allowance for loan
losses decreased to 1.55% of gross loans in 1995, down from 2.02% in 1994. The
shifts came from improved credit quality and the larger volume of loans
recorded on the balance sheet on December 31, 1995.

Average Rates and Net Interest Yield

The following table shows for the years ended December 31, 1995, 1994 and
1993, the interest earned or paid for each major asset and liability category,
the average yield for each major asset and liability category, and the net
yield between assets and liabilities. Tax-exempt income has been calculated on
a tax-equivalent basis using 34% for 1995, 1994 and 1993. Interest not
recognized on non-accrual loans is not included.

Years ended 1995 1994 1993
---------------- ----------------- -----------------
December 31 Amount Average Amount Average Amount Average
Dollars of Yield/ of Yield/ of Yield/
in thousands interest Rate interest Rate interest Rate
Interest-earning assets:
Investments $ 4,365 6.78% 4,341 6.47% 3,900 7.30%
Loans held for sale 71 7.81% -0- -0- -0- -0-
Loans 11,977 9.33% 9,722 8.24% 8,956 8.38%
Federal funds sold -0- -0- -0- -0- 75 2.96%
Interest-bearing
deposits 28 6.09% -0- -0- -0- -0-
------- ---- ------ ---- ------ -----
Total interest-
earning assets $16,441 8.47% 14,063 7.60% 12,931 7.94%
------- ---- ------ ---- ------ -----
Interest-bearing liabilities:
Deposits $ 5,306 3.97% 4,330 3.10% 5,100 3.50%
Other borrowings 2,424 6.07% 1,336 4.70% 95 3.59%
------- ---- ------ ---- ------ -----
Total interest-
bearing
liabilities $ 7,730 4.45% 5,666 3.38% 5,195 3.50%
------- ---- ------ ---- ------ -----
Net interest income $ 8,711 8,397 7,736
======= ====== ======
Interest rate spread 4.02% 4.22% 4.44%
Net interest margin 4.49% 4.54% 4.75%

Average Daily Balance Sheets

The following table shows the Company's average daily balance sheets for years
ended December 31, 1995, 1994 and 1993.

Dollars in thousands
Years ended December 31, 1995 1994 1993
-------- -------- --------
Cash and due from banks $ 4,750 5,335 4,603
Federal funds sold -0- -0- 2,537
Interest-bearing deposits 460 -0- -0-
Investments
U.S. Treasury securities
& government agencies 42,245 42,478 27,332
Obligations of states
& political subdivisions 2,977 3,638 4,815
Other securities 19,112 20,979 21,311
-------- -------- --------
Total investments 64,334 67,095 53,458
Loans held for sale 909 -0- -0-
-------- -------- --------
Loans
Commercial 42,292 39,636 38,093
Consumer 25,418 23,245 24,181
State and municipal 3,869 6,645 3,246
Real estate 56,767 48,474 41,415
-------- -------- --------
Total loans 128,346 118,000 106,935
Allowance for loan losses 2,274 2,553 2,558
Net loans 126,072 115,447 104,377
Fixed assets 4,298 4,155 3,477
Other assets 2,558 3,048 4,145
-------- -------- --------
Total assets $203,381 195,080 172,597
======== ======== ========
Deposits
Demand $ 11,379 11,105 9,716
NOW 27,092 29,014 28,419
Money market 7,662 9,529 10,946
Savings 34,604 41,459 44,696
Certificates of deposit 51,809 46,306 47,702
Certificates of deposit over $100,000 12,595 13,168 14,060
-------- -------- --------
Total deposits 145,141 150,581 155,539
Borrowed funds 39,906 28,425 2,647
Other liabilities 234 80 43
-------- -------- --------
Total liabilities 185,281 179,086 158,229
-------- -------- --------
Common stock 1,522 1,516 1,372
Additional paid in capital 2,699 2,652 1,617
Retained earnings 13,879 11,826 11,379
-------- -------- --------
Total capital 18,100 15,994 14,368
-------- -------- --------
Total liabilities and capital $203,381 195,080 172,597
======== ======== ========

Rate Volume Analysis

The following tables present the changes in interest income and the
changes in interest expense attributable to the change in interest rates, the
change in volume, and the change in rate/volume1 of interest-earning assets and
interest-bearing liabilities for the periods indicated. Tax-exempt income has
been calculated on a tax-equivalent basis, 34% being the tax rate used in 1995
and 1994.

Year ended December 31, 1995 compared to 1994
Rate/
Dollars in thousands Volume Rate volume(1) Total
------- ------- ------ -------
Interest on earning assets
Loans $ 927 $ 1,274 $ 54 $ 2,255
Loans held for sale 71 -0- -0- 71
Investment securities (179) 195 8 24
Federal funds sold -0- -0- -0- -0-
Interest-bearing deposits 28 -0- -0- 28
------- ------- ------ -------
Total interest income $ 776 $ 1,469 $ 133 $ 2,378
------- ------- ------ -------
Interest expense
Deposits $ (177) $ 1,202 $ (49) $ 976
Other borrowings (2) 540 390 158 1,088
------- ------- ------ -------
Total interest expense $ 363 $ 1,592 $ 109 $ 2,064
------- ------- ------ -------
Change in net interest income $ 413 $ (123) $ 24 $ 314
======= ======= ====== =======

Year ended December 31, 1994 compared to 1993
Rate/
Dollars in thousands Volume Rate volume(1) Total
------- ------- ------ -------
Interest on earning assets
Loans $ 927 $ (146) $ (15) $ 766
Investment securities 1,000 (445) (114) 441
Federal funds sold (75) -0- -0- (75)
------- ------- ------ -------
Total interest income $ 1,852 $ (591) $ (129) $ 1,132
------- ------- ------ -------
Interest expense
Deposits $ (222) $ (572) $ 25 $ (769)
Other borrowings (2) 926 29 286 1,241
------- ------- ------ -------
Total interest expense $ 704 $ (543) $ 311 $ 472
------- ------- ------ -------
Change in net interest income $ 1,148 $ (48) $ (440) $ 660
======= ======= ====== =======

1) Represents the change not solely attributable to change in rate or change in
volume, but a combination of these two factors.
2) Includes federal funds purchased.

Funds Management

Management places significant attention on funds management to minimize
the effect that changing interest rates have on current-year as well as future-
year earnings. In recognition of the importance of interest rate sensitivity to
the overall operating results, the Company has funds management policies in
place which are frequently reviewed by Management and the Board of Directors.
The following table illustrates the interest rate sensitivity of the Company's
earning assets and liabilities as of December 31, 1995. Savings and demand
deposits have been placed in the 5+ year repricing category because they are
less sensitive to changes in market interest rates.

Dollars in thousands 0-90 91-365 1-5 5+
days days years years
------- ------- ------ ------
Interest rate risk repricing
Interest-bearing deposits $ 2,700 -0- -0- -0-
Investment securities
at amortized cost 4,461 24,534 23,760 8,815
Loans held for sale -0- -0- -0- 4,066
Loans 63,936 34,812 25,993 8,504
Non-rate-sensitive assets -0- -0- -0- 11,153
------- ------- ------ ------
Total assets 71,097 59,346 49,753 32,538
------- ------- ------ ------
Deposits 21,885 44,078 19,451 52,065
Borrowed funds 38,810 2,415 -0- -0-
Non-rate-sensitive
liabilities and equity -0- -0- -0- 34,030
------- ------- ------ ------
Total liabilities and equity $ 60,695 46,493 19,451 86,095
------- ------- ------ ------
Period gap $ 10,402 12,853 30,302 (53,557)
Percent of total assets 4.89% 6.04% 14.24% -25.18%
Cumulative gap (current) $ 10,402 23,255 53,557 -0-
Percent of total assets 4.89% 10.93% 25.18% 0.00%

At December 31, 1995, the Bank was slightly asset sensitive with a
cumulative repricing gap from 0-90 days of 4.89% of assets and a cumulative
repricing gap from 91-365 days of 10.93%. Repricing of investment securities is
presented using call dates rather than maturity dates.
The following table provides a listing of loans by category between
variable and fixed rates as of December 31, 1995.

Dollars in thousands Amount % of total
-------- -------
Variable-rate loans
Residential adjustable-rate mortgages $39,412 29.58%
Equity loans 7,935 5.96%
Other consumer loans 4,088 3.07%
Commercial loans 35,049 26.30%
-------- -------
Total 86,484 64.91%
Fixed-rate loans 46,761 35.09%
-------- -------
Total loans $133,245 100.00%
======== =======

Approximately 48.0% of the loan portfolio would be repriced within 90
days, and 74.1% within one year. The Bank has $12.7 million or 20.6% of
investments maturing in 1996. On the liability side, $56.8 million or 80.9% of
certificates of deposit will mature by December 31, 1996. At December 31, 1995.
The Bank's interest rate risk simulation model showed little change in net
interest income should interest rates move up or down.

Capital Resources

Capital on December 31, 1995 was sufficient to meet the requirements of
regulatory authorities. Average equity to average assets was 8.90% at year end
in 1995, versus 8.20% in 1994. Leverage capital, or total shareholders' equity
divided by total assets, stood at 9.22% on December 31, 1995, versus 8.60% in
1994.
At December 31, 1995, the Bank had tier-one risk-based capital of 13.66%
and tier-two risk-based capital of 14.91% versus 12.88% and 14.13% in 1994,
respectively. To be rated "well-capitalized", requirements call for minimum
tier-one and tier-two risk-based capital ratios of 6% and 10%, respectively.
These were comfortably above the standards to be rated "well-capitalized" by
regulatory authorities.
The Company declared a 10% stock dividend in 1993, payable January 15,
1994 to shareholders of record as of December 31, 1993. This stock dividend
increased the outstanding number of shares to 605,172, compared to 550,181 at
year end, 1993, and required a cash payout of $555 for fractional shares. All
per share information in this Report has been prepared showing the effect of
the stock dividend, and information for prior years has been adjusted to
reflect the effect of the stock dividend.
During 1995, the Company declared cash dividends of $0.14 per share for
the first quarter, $0.15 per share for the second and third quarters, and
$0.16 per share for the fourth quarter. In addition, the Company declared a
special cash dividend of $0.10 per share in the fourth quarter. The Company's
dividend payout ratio was 15.66% in 1995, 15.36% in 1994, and 16.52% in 1993.
In determining future dividend payout levels, the Board of Directors
carefully analyzes capital requirements and earnings retention, as set forth in
the Bank's Dividend Policy. The ability of the Company to pay cash dividends to
its shareholders depends on receipt of dividends from its subsidiary, the Bank.
The subsidiary may pay dividends to its parent out of so much of its net
profits as the Bank's directors deem appropriate, subject to the limitation
that the total of all dividends declared by the Bank in any calendar year may
not exceed the total of its net profits of that year combined with its retained
net profits of the preceding two years. The amount available for dividends in
1996 will be that year's net income plus $4,130,000.
In 1995, 1,867 shares of common stock were issued via stock programs for
$46,000. The Company also purchased 1,935 shares of Treasury stock, of which
1,825 shares were issued via stock programs before year-end.
Management knows of no present trends, events or uncertainties that will
have or are reasonably likely to have a material effect on capital resources,
liquidity, or results of operations.

Capital Purchases

In 1995, the Bank commenced work on expanding its offices in Boothbay
Harbor to better serve customer needs. This expansion includes adding on to the
existing structure and creating additional parking on an abutting property that
was purchased in 1994. The expansion is expected to be completed in the spring
or early summer of 1996 at a total cost of approximately $250,000.

Liquidity

As of December 31, 1995, the Bank had primary sources of liquidity of
$34.5 million, or 16.3% of its assets. It is Management's opinion that this is
adequate. The Bank has established guidelines for liquidity management, with
policies and procedures prescribed in its funds management policy.
The Bank's principal sources of funds are deposits, cash and due from
banks, federal funds sold, loan and dividend payments, loan and investment
maturities, and borrowed funds from the Federal Home Loan Bank. To compensate
for the seasonal flow in its deposit structure, the Bank maintains adequate
funding for its loan portfolio by monitoring maturities within its investment
portfolio, and utilizing advances from the Federal Home Loan Bank or entering
into securities repurchase agreements.
Through the Federal Home Loan Bank, the Bank has a credit line of $8.0
million for overnight borrowings, and total short-term and long-term advance
capacity of $79.3 million. The Bank's liquidity position is further
supplemented with securities repurchase agreements with Bear Stearns and Tucker
Anthony.
Deposit volume was higher at December 31, 1995 than one year earlier due
to growth in the Bank's CD portfolio. This was a planned strategy to partially
fund the Bank's asset growth during the year. Management has not seen any
significant deposit runoff trends which would have a material effect on the
Bank's liquidity position.
At December 31, 1995, the Bank had a net unrealized gain of $202,000 (net
of $104,000 in deferred income taxes) in available for sale securities. While
the Bank maintains an available for sale portfolio to enhance its overall
liquidity position, its present policy is not to liquidate securities to meet
short-term liquidity needs. Instead, the Bank uses Federal Home Loan Bank
advances or its securities repurchase agreements for this purpose.

Investment Activities

During 1995 the Company's investment portfolio declined 6.2% to end the
year at $61,570,000, compared to $65,654,000 on December 31, 1994. This drop
was due to matured and called securities that were replaced with loans instead
of investment securities.
The Company's investment securities are classified in two categories:
securities available for sale and securities to be held to maturity. Securities
available for sale consists primarily of debt securities which Management
intends to hold for indefinite periods of time. They may be used as part of the
Company's funds management strategy, and may be sold in response to changes in
interest rates, changes in prepayment risk, changes in liquidity needs, to
increase capital, or on the basis of other similar factors or needs. Securities
to be held to maturity consists primarily of debt securities which Management
has acquired solely for long-term investment purposes, rather than for trading
or future sale. For securities to be held to maturity, Management has the
intent and the Company has the ability to hold such investments until their
respective maturity dates. The Company does not hold trading account
securities.
All investment securities are managed in accordance with a written
investment policy adopted by the Board of Directors. It is the Company's
general policy that investments for either portfolio be limited to government
debt obligations, time deposits, bankers acceptances, corporate bonds and
commercial paper with one of the three highest ratings given by a nationally
recognized rating agency.
In December, 1995, the Company made a one-time transfer of securities from
the securities to be held to maturity category to the securities available for
sale category in accordance with the Financial Accounting Standards Board
implementation guidance issued during November, 1995. The market value of these
securities was $23,555,000 and resulted in an unrealized gain of $239,000. A
security was also transferred from the securities available for sale category
to the securities to be held to maturity category. Amortized cost was $987,000,
which approximated the market value of the security. These transfers were the
result of asset/liability planning strategies.
The following table sets forth the Company's investment securities at book
carrying amount as of December 31, 1995, 1994 and 1993.

Dollars in thousands 1995 1994 1993
--------- ------ ------
Securities available for sale:
U.S. Treasury and agency $ 21,216 5,514 7,559
Mortgage-backed securities 2,466 1,608 1,031
State and political subdivisions -0- -0- 108
Other securities 10,554 9,411 6,934
--------- ------ ------
34,236 16,533 15,632
--------- ------ ------
Securities to be held to maturity:
U.S. Treasury and agency 10,991 28,517 29,164
Mortgage-backed securities 8,652 5,773 5,258
State and political subdivisions 2,050 3,565 4,195
Other securities 5,641 11,266 12,882
--------- ------ ------
27,334 49,121 51,499
--------- ------ ------
$ 61,570 65,654 67,131
========= ====== ======

The following table sets forth certain information regarding the yields
and expected maturities of the Company's investment securities as of December
31, 1995. Yields on tax-exempt securities have been computed on a tax-
equivalent basis using a tax-rate of 34%.

Available for sale Held to maturity
------------------ ---------------------
Book Yield to Amortized Yield to
Dollars in thousands value maturity cost maturity
------- ----- ------ -----
U.S. Treasury and Agency:
Due in 1 year or less $ 8,593 7.70% -0- 0.00%
Due in 1 to 5 years 11,515 5.13% 8,991 6.04%
Due in 5 to 10 years 997 7.30% 1,000 7.52%
Due after 10 years -0- 0.00% 1,000 7.50%
------- ----- ------ -----
21,105 6.28% 10,991 6.31%
------- ----- ------ -----
Mortgage-backed securities:
Due in 1 year or less -0- 0.00% -0- 0.00%
Due in 1 to 5 years -0- 0.00% 3,708 5.52%
Due in 5 to 10 years -0- 0.00% 2,571 6.10%
Due after 10 years 2,348 7.35% 2,373 8.56%
------- ----- ------ -----
2,348 7.35% 8,652 6.52%
------- ----- ------ -----
State and political subdivisions:
Due in 1 year or less -0- 0.00% 531 10.31%
Due in 1 to 5 years -0- 0.00% 1,317 7.16%
Due in 5 to 10 years -0- 0.00% 202 6.44%
Due after 10 years -0- 0.00% -0- 0.00%
------- ----- ------ -----
-0- 0.00% 2,050 7.91%
------- ----- ------ -----
Other securities:
Due in 1 year or less 1,996 9.77% -0- 0.00%
Due in 1 to 5 years 3,584 6.96% 5,595 7.30%
Due in 5 to 10 years -0- 0.00% -0- 0.00%
Due after 10 years -0- 0.00% 46 6.99%
Equity securities 4,898 8.32% -0- 0.00%
------- ----- ------ -----
10,478 8.13% 5,641 7.30%
------- ----- ------ -----
$33,931 6.93% 27,334 6.70%
======= ===== ====== =====

Lending Activities

The loan portfolio experienced growth in all areas during 1995, with the
most significant increase in residential real estate loans. Total loans were
$133,245,000 at December 31, 1995, a 10.8% increase from total loans of
$120,294,000 on December 31, 1994. This continues the loan growth trend
experienced by the Company over the past four years.
The following table summarizes the Bank's loan portfolio as of December
31, 1995, 1994, 1993, 1992 and 1991. Some loans were reclassified in 1994
between commercial real estate and commercial and industrial loans. This
internal reclassification was not significant.

Dollars in thousands
As of December 31, 1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
Commercial loans
Real estate $ 17,578 21,308 29,085 23,210 24,739
Other 24,918 18,491 9,576 14,857 14,110
Residential real estate loans
Construction 2,167 1,919 1,364 1,860 1,657
Term 65,935 60,211 48,243 49,002 45,905
Consumer loans 18,439 16,196 15,771 12,489 13,845
State and municipal 4,208 2,169 1,249 2,082 706
-------- ------- ------- ------- -------
Total $133,245 120,294 105,288 103,500 100,962
======== ======= ======= ======= =======

On December 31, 1995, 51.11% of the Bank's loan portfolio was in
residential real estate loans, 13.19% was in commercial real estate loans,
18.70% was in other commercial loans, 13.84% was in consumer loans, and 3.16%
was in state and municipal loans. This compares to 1993 and 1994 figures for
residential real estate loans of 47.12% and 51.65%, respectively, commercial
real estate loans of 27.62% and 17.71%, respectively, other commercial loans of
9.10% and 15.37%, respectively, consumer loans of 14.98% and 13.46%,
respectively, and 1.18% and 1.81%, respectively, in state and municipal loans.
The Bank offers variable-rate residential mortgages, and these accounted
for a significant amount of the increase in residential real estate mortgage
loans seen in 1994 and 1995 due to an attractive discounted first-year rate.
The Bank issues its own VISA and MasterCard. These loans totaled
$1,571,000 as of December 31, 1995, $920,000 as of December 31, 1994, $954,000
as of December 31, 1993, $892,000 as of December 31, 1992, and $864,000 as of
December 31, 1991. The number of credit cards outstanding increased 38.5% in
1995 to end the year at 2,443.
The following table sets forth certain information regarding the
maturities of the Bank's loan portfolio as of December 31, 1995.

Dollars in thousands <1 Year 1-5 Years 5-10 Years > 10 Years Total
------- ------- ------- ------- -------
Commercial real estate $ 1,537 2,437 3,180 10,424 17,578
Commercial other 2,803 9,742 4,301 8,072 24,918
Residential real estate 17 4,455 4,565 56,898 65,935
Residential construction 2,128 39 -0- -0- 2,167
Consumer 4,245 8,823 2,796 2,575 18,439
State and municipal 1,163 2,697 348 -0- 4,208
------- ------- ------- ------- -------
Totals $ 11,893 28,193 15,190 77,969 133,245
======= ======= ======= ======= =======

Loan Concentrations

As of December 31, 1995, the Bank did not have any concentration of loans
in one particular industry that exceeded 10% of its total loan portfolio.

Loans Held for Sale

In 1994 and 1995, the Bank placed a relatively small volume of residential
mortgages into the secondary market compared to prior years. During the latter
part of 1995, the Bank held a portion of these loans with the intent to sell
them at a later date. These have been classified as loans held for sale and are
carried at the lower of cost or market value, which was $4,066,000 at December
31, 1995.

Non-Performing Assets

The aggregate dollar amount of loans more than 90 days past-due or on non-
accrual status decreased during 1995. The following table sets forth a summary
of the value of delinquent loans (more than ninety days in arrears) by
category, total loans carried on a non-accrual basis, and income not recognized
from non-accrual loans as of December 31, 1995, 1994, 1993, 1992 and 1991.

Dollars in thousands
As of December 31, 1995 1994 1993 1992 1991
------ ----- ----- ----- -----
Commercial real estate
& business $ 580 1,359 2,127 953 1,582
Residential real estate 558 408 457 573 876
Consumer 61 67 47 66 130
------ ----- ----- ----- -----
Total 1,199 1,834 2,631 1,592 2,588
====== ===== ===== ===== =====
Non-accrual loans
included in above total 1,034 1,722 2,585 1,073 1,747
Income not recognized
from non-accrual loans $ 114 106 185 107 188

It is the policy of the Bank to place a loan on non-accrual status only
after a careful review of the loan circumstances and a determination that
payment in full of principal and/or interest is not expected. Income not
recognized from non-accrual loans represents the interest income, as of the end
of each period, that would have been recorded on loans placed on non-accrual
status if they were current in accordance with their original terms. None of
these amounts were included in interest income for the same periods.
Other real estate owned increased slightly during 1995. At December 31 it
included 13 properties valued at $704,000, compared to 12 properties valued at
$553,000 at December 31, 1994.
Other real estate owned and repossessed assets owned is comprised of (i)
properties or other assets acquired through a foreclosure proceeding, or
acceptance of a deed or title in lieu of foreclosure, (ii) properties which
secure loans where the Bank obtains possession of the underlying collateral
from the borrower, and (iii) other assets repossessed in connection with non-
real estate loans. Other real estate and repossessed assets owned are carried
at the lower of cost or fair value less the estimated selling expenses of the
collateral. An allowance is established for the amount by which cost exceeds
fair value less estimated selling expenses on a property by property basis.
Losses arising from the acquisition of such properties are charged against the
allowance for loan losses. Operating expenses and any subsequent provisions to
reduce the carrying value are charged to operations. Gains and losses upon
disposition are reflected in earnings as realized.

Allowance for Loan Losses and Loan Loss Experience

The Bank maintains an allowance for loan losses, which is a valuation
reserve for estimated future losses on loans. Management's judgment as to the
adequacy of the allowance is based upon a continuing review of loans which
considers a variety of factors including the risk characteristics of the loan
portfolio, current economic conditions and past experience.
Management believes that the allowance for loan losses at December 31,
1995 is adequate. While Management uses available information to recognize
losses on loans, changing economic conditions and the economic prospects of
borrowers might necessitate future additions to the allowance. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
During 1995 and 1994, no provision was made to the allowance, versus
$455,000 in 1993. At December 31, 1995, the allowance for loan losses stood at
$2,059,000, or 1.55% of total loans outstanding. This compares to $2,428,000,
or 2.02% of total loans outstanding at December 31, 1994, and $2,619,000, or
2.49% of total loans outstanding at December 31, 1993.
On January 1, 1995, the Bank adopted SFAS 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 requires creditors to measure impaired
loans 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. This is done by allocating a portion of the allowance
for loan losses to impaired loans. The adoption of this statement had no effect
on the allowance for loan losses since the Bank was adequately reserved for
these loans.
The following table reflects allocation of the Bank's allowance for loan
losses by category of loan as of December 31, 1995, 1994, 1993, 1992 and 1991.

Dollars in thousands
As of December 31, 1995 1994 1993 1992 1991
------- ---- ----- ---- ----- ---- ----- ---- ----- ----
Real estate loans $ 412 51% 267 51% 403 47% 337 49% 361 47%
Commercial loans (2) 1,153 35% 1,578 35% 1,860 38% 1,701 39% 911 39%
Consumer loans 494 14% 583 14% 356 15% 305 12% 447 14%
------- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total $ 2,059 100% 2,428 100% 2,619 100% 2,343 100% 1,719 100%
======= ==== ===== ==== ===== ==== ===== ==== ===== ====

1) Percentage is amount in each category for the stated year
2) Includes commercial real estate loans

Net loans charged off in 1995 were $369,000, or 0.29% of average loans
outstanding for the year. This compares to net loan chargeoffs of $191,000 in
1994 and $179,000 in 1993.
The following table summarizes the activity with respect to loan losses
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991.

Dollars in thousands
As of December 31, 1995 1994 1993 1992 1991
------ ----- ----- ----- -----
Balance at beginning of period $2,428 2,619 2,343 1,719 1,523
------ ----- ----- ----- -----
Loans charged off:
Commercial (1) 197 213 128 304 268
Real estate mortgage 131 -0- 46 177 -0-
Consumer 156 93 79 174 220
------ ----- ----- ----- -----
Total 484 306 253 655 488
------ ----- ----- ----- -----
Recoveries on loans previously charged off:
Commercial (1) 30 34 14 14 24
Real estate mortgage -0- -0- -0- 1 -0-
Consumer 85 81 60 64 60
------ ----- ----- ----- -----
Total 115 115 74 79 84
------ ----- ----- ----- -----
Net loans charged off 369 191 179 576 404
Provision for loan losses -0- -0- 455 1,200 600
------ ----- ----- ----- -----
Balance at end of period $2,059 2,428 2,619 2,343 1,719
====== ===== ===== ===== =====
Ratio of net loans charged off
to average loans outstanding 0.29% 0.16% 0.17% 0.56% 0.38%

1) Includes commercial real estate loans

Deposits

The Bank, with $150,468,000 in deposits as of December 31, 1995 realized
an increase of 5.6% in 1995 after experiencing a 9.1 % decrease in deposits in
1994 and a 0.8% increase in deposits in 1993. This year-end-to-year-end growth
in deposits was seen in the Bank's CD portfolio. Average deposits for 1995 were
slightly lower than average deposits for 1994, however.
The Bank's deposit balances generally increase during the summer and
autumn months of each year due to increased business activity from seasonal
tourist trade. In 1995, deposits peaked during the month of December at
$152,755,000. Because of uncertainty about future interest rates, in the past
few years investors have shown a strong preference for shorter-term deposits
which could reprice quickly should rates begin to rise.
The average cost of funds on interest-bearing deposits was 3.97% for the
year ended December 31, 1995, compared to 3.10% for the year ended December 31,
1994 and 3.50% for the year ended December 31, 1993. The following table sets
forth the average daily balance for the Bank's principal deposit categories for
the period indicated.

% growth
Dollars in thousands 1995
Years ended December 31, 1995 1994 1993 vs. 1994
-------- ------- ------- ------
Demand deposits $ 11,379 11,105 9,716 2.5%
NOW accounts 27,092 29,014 28,419 -6.6%
Money market accounts 7,662 9,529 10,946 -19.6%
Savings 34,604 41,459 44,696 -16.5%
Certificates of deposit 64,404 59,474 61,762 8.3%
-------- ------- ------- ------
Total deposits $145,141 150,581 155,539 -3.6%
======== ======= ======= ======

The following table sets forth the average cost of each category of
interest-bearing deposits for the periods indicated.

Years ended December 31, 1995 1994 1993
----- ----- -----
NOW accounts 1.74% 1.74% 2.41%
Money market accounts 2.50% 2.28% 3.08%
Savings accounts 3.20% 2.79% 3.36%
Certificates of deposit 5.49% 4.13% 4.17%
----- ----- -----
Total interest-bearing deposits 3.97% 3.10% 3.50%
===== ===== =====

As of December 31, 1995, the Bank held a total of $12,758,000 in
certificate of deposit accounts with balances in excess of $100,000. The
following table summarizes the time remaining to maturity for these
certificates of deposit:

Dollars in thousands
Within 3 months $ 4,814
3 months through 6 months 3,375
6 months through 12 months 3,033
Over 12 months 1,536
--------
Total $ 12,758
========

Short-Term Borrowings

Borrowed funds consists mainly of advances from the Federal Home Loan Bank
of Boston (FHLB) which are secured by stock in the FHLB, funds on deposit with
FHLB, mortgage-backed securities and qualifying first mortgage loans. Advances
at December 31, 1995 totaled $30,000,000, with a weighted average interest rate
of 5.87% and maturities ranging from one week to nine months. The maximum
amount outstanding at any month-end during the year was $43,200,000 at the end
of April. The average amount outstanding during the year was $32,013,000, with
a weighted average interest rate of 6.21%. This compares to an average
outstanding amount of $27,052,000 in 1994, with a weighted average interest
rate of 4.72%. The average daily balance outstanding on the Bank's short-term
borrowings for the year ended December 31, 1993 was less than 30% of
shareholders' equity.
The Bank began offering securities repurchase agreements to municipal and
larger corporate customers during 1994 as an alternative to deposits. The
outstanding balance of all securities repurchase agreements as of December 31,
1995 was $5,739,000, compared to $4,010,000 on December 31, 1994. The Bank also
sells securities under agreement to repurchase to brokerage firms. At December
31, 1995, securities involved in these transactions totaled $5,486,000.

Trust Department

As of December 31, 1995, the Bank's Trust Department had assets with a
market value of $56,570,000 under management. This amount consisted of 208
trust accounts, estate accounts, agency accounts, and self-directed individual
retirement accounts.

Effect of Future Interest Rates on Pension and Postretirement Benefit
Liabilities

In evaluating the Company's pension and postretirement benefit
liabilities, Management believes that changes in assumptions, especially with
regard to discount rates, will not have a significant impact on future
operating results and financial condition.

Accounting Pronouncements

SFAS No. 114, as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan," was adopted in 1995. These pronouncements require
creditors to measure impaired loans, including restructured loans, at the
present value of expected future cash flows, discounted at the loan's effective
interest rate, at the loan's observable market price, or, if the loan is
collateral-dependent, based on the fair value of the collateral. As a result of
adoption, a portion of the allowance for loan losses is allocated to impaired
loans. Net income was not affected by the adoption of these statements.
During 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires entities to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.
The Financial Accounting Standards Board issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights" during 1995. SFAS No. 122 is effective
prospectively for fiscal years beginning after December 15, 1995. SFAS No. 122
requires the recognition of rights to service mortgage loans for others as
separate assets, regardless of whether the rights were originated or purchased,
and subsequent, periodic evaluations of the capitalized rights for impairment.
Prior to SFAS No. 122, only purchased servicing rights were capitalized.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation". SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995. SFAS No. 123 provides entities
with the choice between two methods of accounting for compensation costs of
employee stock option plans; the intrinsic value based method of APB 25 or the
fair value based method of SFAS No. 123. If continuing to use the intrinsic
value based method, SFAS No. 123 requires disclosure of pro forma net income
and earnings per share as if the fair value based method had been applied.
Management expects to elect the intrinsic value method, therefore the financial
statements may not be affected when the standard is implemented, although
additional disclosures will be required.
The adoption of these standards is not expected to have a material effect
on the financial statements.

ITEM 8. Financial Statements and Supplementary Data

Report of Management

The management of First National Lincoln Corporation is responsible for the
preparation, content, and integrity of the financial statements and other
statistical data and analyses compiled for this report. The financial
statements and related notes have been prepared in conformity with generally
accepted accounting principles and, in the judgment of management, present
fairly and consistently First National Lincoln Corporation's financial position
and results of operations. Management also believes that financial information
elsewhere in this report is consistent with that in the financial statements,
and that the amounts contained in the financial statements are based on
management's best estimates and judgment.

First National Lincoln Corporation maintains internal control systems which are
designed to provide reasonable assurance that transactions are properly
executed and reported in accordance with appropriate Corporate authorization
and recorded properly to permit the preparation of financial statements in
accordance with generally accepted accounting principles. Management recognizes
that, although controls established for these systems are applied in a prudent
manner, errors and irregularities may occur. However, management believes that
its internal accounting and reporting systems provide reasonable assurance that
material errors or irregularities are prevented or would be detected and
corrected on a timely basis.

The Company's internal auditor continually reviews, evaluates, and monitors
internal control systems and recommends programs to management to further
safeguard assets. The Bank's loan-review staff designs and monitors uniform
loan delinquency reporting and periodically inspects and analyzes credit files
and loan documents. An assessment of loan concentration and quality appears on
page 4 of this report.

The Board of Directors discharges its responsibility for First National Lincoln
Corporation's financial statements through its Audit Committee. The Audit
Committee regularly meets with the independent auditors, internal auditor, and
representatives of management to assure that each is meeting its
responsibility. The Committee also reviews the independent auditors' reports
and findings as they are submitted throughout the year. Both the independent
auditors and internal auditor have direct access to the Audit Committee to
discuss the scope and results of their work, the adequacy of internal controls,
and the quality of financial reporting.

Daniel R. Daigneault
President & Chief Executive Officer

F. Stephen Ward
Treasurer

Berry, Dunn, McNeil & Parker
Certified Public Accountants

Independent Auditors' Report

The Board of Directors and Stockholders
First National Lincoln Corporation

We have audited the consolidated balance sheets of First National Lincoln
Corporation and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly in
all material respects, the consolidated financial position of First National
Lincoln Corporation and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.

As discussed in notes 3, 7 and 9 to the consolidated financial statements, the
Company changed its methods of accounting for investment securities in 1994 and
income taxes and postretirement benefits in 1993.

Berry, Dunn, McNeil & Parker

Portland, Maine
January 26, 1996

Consolidated Balance Sheets
First National Lincoln Corporation

As of December 31, 1995 1994
----------- -----------
Assets
Cash and due from banks $ 5,404,000 $ 5,230,000
Interest-bearing deposits in other banks 2,700,000 -0-
Securities available for sale 34,236,000 16,533,000
Securities to be held to maturity, market value
of $27,473,000 in 1995 and $46,759,000 in 1994 27,334,000 49,121,000
Loans held for sale at cost,
market value $4,127,000 in 1995 4,066,000 -0-

Loans 133,245,000 120,294,000
Less allowance for loan losses 2,059,000 2,428,000
----------- -----------
Net loans 131,186,000 117,866,000
----------- -----------
Accrued interest receivable 1,708,000 1,678,000
Bank premises and equipment 4,146,000 4,485,000
Other real estate owned 648,000 553,000
Other assets 854,000 1,065,000
----------- -----------
Total assets $212,282,000 $196,531,000
=========== ===========

Liabilities and Shareholders' Equity
Demand deposits (non-interest bearing) $ 12,989,000 $ 12,140,000
NOW deposits 27,064,000 27,764,000
Money market deposits 7,179,000 8,886,000
Savings deposits 32,943,000 39,906,000
Certificates of deposit (including certificates
of $100,000 or more of $12,758,000 in 1995
and $8,287,000 in 1994) 70,293,000 53,749,000
----------- -----------
Total deposits 150,468,000 142,445,000
Borrowed funds 41,225,000 36,610,000
Other liabilities 1,024,000 584,000
----------- -----------
Total liabilities 192,717,000 179,639,000
----------- -----------
Shareholders' equity:
Common stock, no par value,
at assigned value of $2.50 per share 1,524,000 1,519,000
Additional paid-in capital 2,719,000 2,678,000
Retained earnings 15,123,000 12,829,000
Net unrealized gain (loss) on securities
available for sale, net of tax of
$104,000 in 1995 and $68,000 in 1994 202,000 (134,000)
Treasury stock at cost (110 shares in 1995) (3,000) -0-
----------- -----------
Total shareholders' equity 19,565,000 16,892,000
----------- -----------
Commitments and contingent liabilities (note 11)
Total liabilities and shareholders' equity $212,282,000 $196,531,000
=========== ===========

Common stock
Number of shares authorized 1,200,000 1,200,000
Number of shares issued and outstanding 609,534 607,777
The accompanying footnotes are an integral part of these
consolidated financial statements

Consolidated Statements of Income
First National Lincoln Corporation

Years ended December 31, 1995 1994 1993
---------- ---------- ----------
Interest income:
Interest and fees on loans $11,930,000 $ 9,601,000 $ 8,908,000
Interest on deposits with other banks 28,000 -0- -0-
Interest on federal funds sold -0- -0- 75,000
Interest and dividends on investments
(includes tax-exempt income of
$106,000 in 1995, $147,000 in 1994
and $270,000 in 1993) 4,310,000 4,274,000 3,805,000
---------- ---------- ----------
Total interest income 16,268,000 13,875,000 12,788,000
---------- ---------- ----------
Interest expense:
Interest on deposits 5,306,000 4,330,000 5,100,000
Interest on borrowed funds 2,424,000 1,336,000 95,000
---------- ---------- ----------
Total interest expense 7,730,000 5,666,000 5,195,000
---------- ---------- ----------
Net interest income 8,538,000 8,209,000 7,593,000
Provision for loan losses -0- -0- 455,000
---------- ---------- ----------
Net interest income after provision
for loan losses 8,538,000 8,209,000 7,138,000
---------- ---------- ----------
Other operating income:
Trust department income 237,000 195,000 178,000
Service charges on deposit accounts 471,000 454,000 447,000
Net realized loss on
securities available for sale (76,000) (46,000) -0-
Net realized gain on
securities to be held to maturity 30,000 -0- -0-
Net realized gain on
investment securities -0- -0- 105,000
Other 474,000 393,000 365,000
---------- ---------- ----------
Total other operating income 1,136,000 996,000 1,095,000
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 2,979,000 3,054,000 2,958,000
Occupancy expense 308,000 306,000 280,000
Premises and equipment expense 586,000 577,000 453,000
Other 1,811,000 2,163,000 2,173,000
---------- ---------- ----------
Total other operating expenses 5,684,000 6,100,000 5,864,000
---------- ---------- ----------
Income before income taxes
and cumulative effect
of accounting change 3,990,000 3,105,000 2,369,000
Income tax expense 1,270,000 931,000 674,000
---------- ---------- ----------
Net income before cumulative
effect of accounting change 2,720,000 2,174,000 1,695,000
Cumulative effect of change
in accounting for income taxes -0- -0- 318,000
---------- ---------- ----------
Net income $ 2,720,000 $2,174,000 $ 2,013,000
========== ========== ==========
Earnings per share before cumulative
effect of accounting change1 $ 4.47 $3.58 $ 2.81
Cumulative effect of change in accounting
for income taxes per share (1) -0- -0- 0.52
Earnings per share (1) 4.47 3.58 3.33
Cash dividends declared per share (1) 0.70 0.55 0.46
Weighted average number of
shares outstanding1 608,201 606,444 603,623
1) Per share information has been restated to reflect the effect of the
10% stock dividend declared in 1993

The accompanying footnotes are an integral part of these
consolidated financial statements

Consolidated Statement of Changes in Shareholders' Equity
First National Lincoln Corporation

Years ended December 31, 1995, 1994 and 1993

Common Net
stock unrealized
at gain
Number assigned Addi- (loss) on Total
of value of tional securities Share
common $2.50 per paid-in Retained available Treasury holders'
shares share capital earnings for sale stock equity
------- --------- --------- ---------- ------- ------ ----------

Balance at
December 31,
1992 547,316 $1,368,000 $1,596,000 $10,384,000 $-0- $-0- $13,348,000
Net income -0- -0- -0- 2,013,000 -0- -0- 2,013,000
Cash dividends
declared -0- -0- -0- (280,000) -0- -0- (280,000)
Stock issued 2,865 7,000 42,000 -0- -0- -0- 49,000
Stock issued
for 10%
stock dividend 54,991 138,000 989,000 (1,127,000) -0- -0- -0-
Cash paid in lieu
of fractional
shares -0- -0- -0- (1,000) -0- -0- (1,000)
------- --------- --------- ---------- ------- ------ ----------
Balance at
December 31,
1993 605,172 1,513,000 2,627,000 10,989,000 -0- -0- 15,129,000
------- --------- --------- ---------- ------- ------ ----------

Cumulative effect
of change in
method of
accounting for
investments
as of
January 1, 1994 -0- -0- -0- -0- 160,000 -0- 160,000
Net income -0- -0- -0- 2,174,000 -0- -0- 2,174,000
Cash dividends
declared -0- -0- -0- (334,000) -0- -0- (334,000)
Stock issued 2,605 6,000 51,000 -0- -0- -0- 57,000
Net unrealized
loss on
securities
available
for sale,
net of taxes
of $154,000 -0- -0- -0- -0- (294,000) -0- (294,000)
------- --------- --------- ---------- ------- ------ ----------
Balance at
December 31,
1994 607,777 1,519,000 2,678,000 12,829,000 (134,000) -0- 16,892,000
------- --------- --------- ---------- ------- ------ ----------

Net income -0- -0- -0- 2,720,000 -0- -0- 2,720,000
Cash dividends
declared -0- -0- -0- (426,000) -0- -0- (426,000)
Stock issued 1,867 5,000 39,000 -0- -0- -0- 44,000
Treasury stock
purchases (1,935) -0- -0- -0- -0- (54,000) (54,000)
Treasury stock
sold 1,825 -0- 2,000 -0- -0- 51,000 53,000
Net unrealized
gain on
securities
available
for sale,
net of taxes
of $173,000 -0- -0- -0- -0- 336,000 -0- 336,000
------- --------- --------- ---------- ------- ------ ----------
Balance at
December 31,
1995 609,534 $1,524,000 $2,719,000 $15,123,000 $202,000 $(3,000) $19,565,000
======= ========= ========= ========== ======= ====== ===========

The accompanying footnotes are an integral part of these consolidated financial statements

Consolidated Statements of Cash Flows
First National Lincoln Corporation

Years ended December 31, 1995 1994 1993
--------- --------- ---------
Cash flows from operating activities:
Net income $ 2,720,000 $ 2,174,000 $ 2,013,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 528,000 463,000 347,000
Provision for loan losses -0- -0- 455,000
Provision for losses on other
real estate owned 15,000 17,000 92,000
Loans originated for resale (5,780,000) (3,228,000) (10,445,000)
Proceeds from sales of loans 1,714,000 3,069,000 10,499,000
Net loss on sale of securities
available for sale 76,000 46,000 -0-
Net gain on sale of investment
securities to be held to maturity (30,000) -0- -0-
Net gain on sale of investment securities -0- -0- (105,000)
Losses related to other real estate owned 10,000 148,000 19,000
Net change in other assets and
accrued interest receivable 164,000 526,000 (44,000)
Net change in other liabilities 268,000 (303,000) 29,000
Net amortization of premium on
investments and assets held for sale 9,000 49,000 (83,000)
--------- --------- ---------
Net cash provided by operating activities (306,000) 2,961,000 2,777,000
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales and maturities of
securities available for sale 7,076,000 8,038,000 4,756,000
Proceeds from maturities of
securities to be held to maturity 7,713,000 7,649,000 -0-
Proceeds from maturities and sales of
investment securities -0- -0- 15,738,000
Proceeds from sales of
other real estate owned 189,000 558,000 841,000
Additional investment in
other real estate owned (7,000) (20,000) (154,000)
Purchases of securities
available for sale (2,001,000) (8,626,000) -0-
Purchases of securities
to be held to maturity (8,234,000) (7,580,000) -0-
Purchases of investment securities -0- -0- (31,812,000)
Purchases of interest-bearing deposits (2,700,000) -0- -0-
Net increase in loans (13,622,000) (15,365,000) (1,990,000)
Capital expenditures (189,000) (765,000) (1,025,000)
--------- --------- ---------
Net cash used in investing activities (11,775,000) (16,111,000) (13,646,000)
--------- --------- ---------
Cash flows from financing activities:
Net decrease in demand deposits,
savings, and money market accounts (8,521,000) (3,568,000) (6,294,000)
Net increase (decrease) in
certificates of deposits 16,544,000 (10,697,000) 7,519,000
Net increase in other borrowings 4,615,000 28,212,000 8,385,000
Purchase of Treasury stock (54,000 -0- -0-
Proceeds from sale of Treasury stock 53,000 -0- -0-
Proceeds from stock issuance 44,000 57,000 49,000
Dividends paid (426,000) (334,000) (281,000)
--------- --------- ---------
Net cash provided by
financing activities 12,255,000 13,670,000 9,378,000
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 174,000 520,000 (1,491,000)
Cash and cash equivalents
at beginning of year 5,230,000 4,710,000 6,201,000
--------- --------- ---------
Cash and cash equivalents
at end of year $ 5,404,000 $ 5,230,000 $ 4,710,000
========= ========= =========

Interest paid $ 7,730,000 $ 5,541,000 $ 5,182,000
Income taxes paid 871,000 715,000 935,000
Non-cash transactions:
Transfers from securities
available for sale to securities
to be held to maturity 987,000 -0- -0-
Transfers from securities
to be held to maturity to
securities available for sale 23,555,000 -0- -0-
Loans transferred to
other real estate owned (net) 303,000 327,000 31,000
Transfer from retained earnings
for 10% stock dividend -0- -0- 1,127,000
Net change in unrealized gain (loss)
on available for sale securities 508,000 (204,000) -0-

The accompanying footnotes are an integral part of these
consolidated financial statements

First National Lincoln Corporation
Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

The accounting and reporting policies of First National Lincoln Corporation
conform to generally accepted accounting principles and to general practice
within the banking industry. The following is a description of the more
significant policies.

Principles of Consolidation

The consolidated financial statements include the accounts of First
National Lincoln Corporation (the Company) and its wholly-owned subsidiary, The
First National Bank of Damariscotta (the Bank). All inter-company accounts and
transactions have been eliminated.

Business

The Bank provides a full range of banking services to individual and
corporate customers in Mid-Coast Maine. The Bank is subject to competition from
other financial institutions. The Bank is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those regulatory
authorities.

Basis of Financial Statement Presentation

In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for loan losses and the carrying value of real estate owned, management obtains
independent appraisals for significant properties.

Statements of Cash Flows

For purposes of the statements of cash flows, cash and cash equivalents
includes cash on hand and amounts due from banks.

Investment Securities

The Bank adopted SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities", on January 1, 1994, and has classified its investment
securities into securities to be held to maturity and securities available for
sale. A third category provided in SFAS 115, trading account investments, is
not used.
Securities available for sale consists primarily of debt securities which
management intends to hold for indefinite periods of time. They may be used as
part of the Bank's funds management strategy, and may be sold in response to
changes in interest rates, changes in prepayment risk, changes in liquidity
needs, to increase capital, or for other similar reasons. These assets are
accounted for at fair value, with unrealized gains or losses adjusted through
shareholders' equity. Gains and losses on sales of these securities are
determined using the amortized cost of the specific security sold.
Securities to be held to maturity consist primarily of debt securities
which management has acquired solely for long-term investment purposes, rather
than to acquire such securities for purposes of trading or future sale. For
securities to be held to maturity, management has the intent and the Company
has the ability to hold such securities until their respective maturity dates,
and as such the securities are carried at cost adjusted for amortization of
premiums and accretion of discount.
Transactions involving investment securities are accounted for on a
settlement date basis. The reported amounts would not be materially different
than those accounted for on a trade date basis. Gains and losses on the sales
of investment securities are determined using the amortized cost of the
specific security sold.

Loans Held for Sale

Loans held for sale consist of residential real estate mortgage loans and
are carried at the lower of aggregate cost or market value, as determined by
current investor yield requirements.

Other Real Estate Owned

Other real estate owned and repossessed assets owned is comprised of (i)
properties or other assets acquired through a foreclosure proceeding, or
acceptance of a deed or title in lieu of foreclosure, (ii) properties which
secure loans where the Bank obtains possession of the underlying collateral
from the borrower, (iii) other assets repossessed in connection with non-real
estate loans. Other real estate and repossessed assets owned are carried at the
lower of cost or fair value less the estimated selling expenses of the
collateral. An allowance is established for the amount by which cost exceeds
fair value less estimated selling expenses on a property by property basis.
Losses arising from the acquisition of such properties are charged against the
allowance for loan losses. Operating expenses and any subsequent provisions to
reduce the carrying value are charged to operations. Gains and losses upon
disposition are reflected in earnings as realized.

Bank Premises and Equipment

Premises, furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation expense is computed by the straight-line and
accelerated methods over the estimated useful life of each type of asset.

Loan Fees and Costs

Loan origination fees and certain direct loan origination costs are
deferred and recognized in interest income as an adjustment to the loan yield
over the life of the related loans. The unamortized net deferred fees and costs
are included on the balance sheets with the related loan balances. The amount
charged to income is included with the related interest income.

Allowance for Loan Losses

Loans considered to be uncollectible are charged against the allowance for
loan losses. The allowance for loan losses is maintained at a level determined
by management to be adequate to absorb possible losses. This allowance is
increased by provisions charged to operating expenses and recoveries on loans
previously charged off. Arriving at an appropriate level of allowance for loan
losses necessarily involves a high degree of judgment.
In determining the appropriate level of allowance for loan losses,
management takes into consideration the following factors: non-performing
loans, performing watch report loans, size of loan portfolio by category, and
economic conditions. Although management utilizes its best judgment in
providing for possible losses, there can be no assurance that the Company will
not have to increase its provision for possible losses in the future due to
increases in non-performing assets or otherwise, which would adversely affect
the Company's results of operations.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan." SFAS 114 requires creditors to measure impaired loans,
including restructured loans, at the present value of expected future cash
flows discounted at the loan's effective interest rate, at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. This statement was updated in 1994 by SFAS 118, and the
two statements were adopted by the Company on January 1, 1995. As a result, a
portion of the Allowance for Loan Losses is allocated to impaired loans. Net
income was not affected by the adoption of these statements. Management takes
into consideration impaired loans in addition to the above mentioned factors in
determining the appropriate level of allowance for loan losses.

Income Taxes

Income taxes are provided on a consolidated basis in accordance with the
comprehensive income tax allocation method, which recognizes the tax effects of
all income and expense transactions in each year's consolidated statements of
income regardless of the year the transactions are reported for tax purposes.

Accrual of Interest Income and Expense

Interest on loans and investment securities is taken into income using
methods which relate the income earned to the balances of loans and investment
securities outstanding. Interest expense on liabilities is derived by applying
applicable interest rates to principal amounts outstanding. Recording of
interest income on problem loans, which includes impaired loans, ceases when
collectibility of principal and interest within a reasonable period of time
becomes doubtful. Cash payments received on non-accrual loans, which includes
impaired loans, are applied to reduce the loan's principal balance until the
remaining principal balance is deemed collectible, after which interest is
recognized when collected. As a general rule, a loan may be restored to accrual
status when payments are current and repayment of the remaining contractual
amounts is expected or when it otherwise becomes well secured and in the
process of collection.

Reclassifications

Certain 1994 and 1993 amounts in the consolidated statements have been
reclassified to conform to the presentation used in 1995.

Earnings Per Share

Earnings per share data are based on the weighted average number of common
shares outstanding during each year after giving effect to the exercise of
outstanding stock options if the effect is dilutive under the treasury stock
method.

Postretirement Benefits

During 1993, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." This
statement requires accrual of the cost of providing postretirement benefits
during the active service period of the employee.

Effect of New Financial Accounting Standards

During 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires entities to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.
The Financial Accounting Standards Board issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights" during 1995. SFAS No. 122 is effective
prospectively for fiscal years beginning after December 15, 1995. SFAS No. 122
requires the recognition of rights to service mortgage loans for others as
separate assets, regardless of whether the rights were originated or purchased,
and subsequent, periodic evaluations of the capitalized rights for impairment.
Prior to SFAS No. 122, only purchased servicing rights were capitalized.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation". SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995. SFAS No. 123 provides entities
with the choice between two methods of accounting for compensation costs of
employee stock option plans; the intrinsic value based method of APB 25 or the
fair value based method of SFAS No. 123. If continuing to use the intrinsic
value based method, SFAS No. 123 requires disclosure of pro forma net income
and earnings per share as if the fair value based method had been applied.
Management expects to elect the intrinsic value method, therefore the financial
statements may not be affected when the standard is implemented, although
additional disclosures will be required.
The adoption of these standards is not expected to have a material effect
on the financial statements.

Note 2. Cash and Due from Banks

At December 31, 1995 the Company was required by the Federal Reserve Board
to maintain a reserve of $500,000 at the Federal Reserve Bank.

Note 3. Investment Securities

The following tables summarize the amortized cost and estimated market
value of investment securities at December 31, 1995 and 1994:

Amortized Unrealized Unrealized Market Value
December 31, 1995 Cost Gains Losses (Estimated)
---------- ------- --------- ----------
Securities available for sale:
U.S. Treasury and agency $ 21,105,000 197,000 (86,000) 21,216,000
Mortgage-backed securities 2,348,000 126,000 (8,000) 2,466,000
Other securities 10,478,000 89,000 (13,000) 10,554,000
---------- ------- --------- ----------
33,931,000 412,000 (107,000) 34,236,000
========== ======= ========= ==========
Securities to be held to maturity:
U.S. Treasury and agency 10,991,000 109,000 (76,000) 11,024,000
Mortgage-backed securities 8,652,000 10,000 (118,000) 8,544,000
State & political subdivisions 2,050,000 48,000 (3,000) 2,095,000
Other securities 5,641,000 174,000 (5,000) 5,810,000
---------- ------- --------- ----------
27,334,000 341,000 (202,000) 27,473,000
========== ======= ========= ==========

Amortized Unrealized Unrealized Market Value
December 31, 1994 Cost Gains Losses (Estimated)
---------- ------- --------- ----------
Securities available for sale:
U.S. Treasury and agency $5,590,000 -0- (76,000) 5,514,000
Mortgage-backed securities 1,761,000 -0- (153,000) 1,608,000
State & political subdivisions -0- -0- -0- -0-
Other securities 9,384,000 28,000 (1,000) 9,411,000
---------- ------- --------- ----------
16,735,000 28,000 (230,000) 16,533,000
========== ======= ========= ==========
Securities to be held to maturity:
U.S. Treasury and agency 28,517,000 28,000 (1,606,000) 26,939,000
Mortgage-backed securities 5,773,000 -0- (585,000) 5,188,000
State & political subdivisions 3,565,000 47,000 (67,000) 3,545,000
Other securities 11,266,000 75,000 (254,000) 11,087,000
---------- ------- --------- ----------
49,121,000 150,000 (2,512,000) 46,759,000
========== ======= ========= ==========

The contractual maturities of investment securities at December 31, 1995,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

Securities Securities to be
available for sale: held to maturity:
--------------------------- -------------------------
Amortized Market Value Amortized Market Value
Cost (Estimated) Cost
(Estimated)
------------ ---------- ---------- ----------
Due in 1 year or less $ 10,589,000 10,797,000 531,000 545,000
Due in 1 to 5 years 15,099,000 15,071,000 19,611,000 19,719,000
Due in 5 to 10 years 997,000 1,003,000 3,774,000 3,768,000
Due after 10 years 2,348,000 2,467,000 3,418,000 3,441,000
Equity securities 4,898,000 4,898,000 -0- -0-
------------ ---------- ---------- ----------
$ 33,931,000 34,236,000 27,334,000 27,473,000
============ ========== ========== ==========

In December, 1995, the Company made a one-time transfer of securities from
the securities to be held to maturity category to the securities available for
sale category in accordance with the Financial Accounting Standards Board
implementation guidance issued during November, 1995. The market value of these
securities was $23,555,000 and resulted in an unrealized gain of $239,000. A
security was also transferred from the securities available for sale category
to the securities to be held to maturity category. Amortized cost was $987,000,
which approximated the market value of the security. These transfers were the
result of asset/liability planning strategies.
Realized gains on securities to be held to maturity totaled $30,000 in
1995. This total includes an $18,000 gain on a security which had an amortized
cost of $1,000,000, which was sold due to the deteriorating credit quality of
the issuer. The remaining $12,000 is the gain on a security which had an
amortized cost of $988,000 when it was called at par value by the issuer.
At December 31, 1995 securities carried at $20,080,000, with a market
value of $20,121,000, were pledged to secure borrowings from the Federal
Reserve Bank, public deposits, and for other purposes as required by law.
Gains and losses on the sale of securities available for sale are computed
by subtracting the amortized cost at the time of sale from the security's
selling price, net of accrued interest to be received. Information regarding
the sales of securities available for sale in 1995 and 1994 and investment
securities in 1993 is summarized below:

1995 1994 1993
----------- ---------- ----------
Proceeds from sales $ 5,433,000 3,895,000 4,576,000
Gross gains -0- 13,000 110,000
Gross losses (76,000) (59,000) (5,000)
----------- ---------- ----------
Net gain (loss) (76,000) (46,000) 105,000
=========== ========== ==========
Related income taxes $ (26,000) (16,000) 36,000

Note 4. Loans

The following table shows the composition of the Company's loan portfolio
as of December 31, 1995 and 1994:

1995 1994
------------ -----------
Real estate loans
Residential $ 65,935,000 60,211,000
Commercial 17,578,000 21,308,000
Commercial and industrial loans 24,918,000 18,491,000
State and municipal loans 4,208,000 2,169,000
Consumer loans 18,439,000 16,196,000
Residential construction loans 2,167,000 1,919,000
------------ -----------
Total loans $133,245,000 120,294,000
============ ===========

At December 31, 1995 and 1994, loans on non-accrual status totaled
$1,034,000 and $1,722,000, respectively. Interest income which would have been
recognized on these loans, if interest had been accrued, was $114,000 for 1995,
$106,000 for 1994 and $185,000 for 1993. Loans past due greater than 90 days
which are accruing interest totaled $165,000 at December 31, 1995 and $112,000
at December 31, 1994. The Company continues to accrue interest on these loans
because it believes collection of principal and interest is reasonably assured.
Transactions in the allowance for loan losses for the years ended December
31, 1995, 1994 and 1993 were as follows:

1995 1994 1993
---------- --------- ---------
Balance at beginning of year $2,428,000 2,619,000 2,343,000
---------- --------- ---------
Provision charged to operating expenses -0- -0- 455,000
2,428,000 2,619,000 2,798,000
Loans charged off (484,000) (306,000) (253,000)
Recoveries on loans 115,000 115,000 74,000
---------- --------- ---------
Net loans charged off (369,000) (191,000) (179,000)
---------- --------- ---------
Balance at end of year $2,059,000 2,428,000 2,619,000
========== ========= =========

Information regarding impaired loans for the period ended December 31,
1995 is as follows:

1995
--------
Average investment in impaired loans $574,000
Interest income recognized on impaired loans,
including cash basis 0

Impaired loans 1995
--------
Balance of impaired loans $558,000
Less portion for which no allowance for
loan losses is allocated (228,000)
Portion of impaired loan balance for which
an allowance for loan losses is allocated 330,000
Portion of allowance for loan losses
allocated to the impaired loan balance $102,000

Loans to directors, officers and employees totaled $4,402,000 at December
31, 1995 and $2,808,000 at December 31, 1994. A summary of loans to directors
and executive officers, which in the aggregate exceed $60,000, is as follows:

Balance at beginning of year $2,210,000
----------
New loans 227,000
Repayments (157,000)
----------
Balance at end of year $2,280,000
==========

Note 5. Bank Premises and Equipment

Bank premises and equipment are carried at cost and consist of the
following:

1995 1994
---------- ---------
Land $ 569,000 569,000
Land improvements 285,000 285,000
Bank buildings 3,290,000 3,211,000
Equipment 3,733,000 3,635,000
---------- ---------
7,877,000 7,700,000
Less accumulated depreciation 3,731,000 3,215,000
---------- ---------
$4,146,000 4,485,000
========== =========

Note 6. Other Real Estate Owned

The following summarizes the composition of other real estate owned:

1995 1994
-------- -------
Real estate acquired in settlement of loans $704,000 606,000
Less: allowance for losses (56,000) (53,000)
-------- -------
Other real estate owned, net $648,000 553,000
======== =======

Changes in the allowance for each of the three years ended December 31
were as follows:

1995 1994 1993
------- ------- -------
Beginning balance $53,000 36,000 57,000
------- ------- -------
Losses charged to allowance (12,000) (148,000) (113,000)
Provisions charged to income 15,000 165,000 92,000
------- ------- -------
Ending balance $56,000 53,000 36,000
======= ======= =======

Note 7. Income Taxes

The current and deferred components of income tax expense were as follows:

1995 1994 1993
---------- ------- -------
Federal income tax (benefit):
Current $ 977,000 756,000 682,000
Deferred 236,000 136,000 (43,000)
---------- ------- -------
1,213,000 892,000 639,000
State income tax 57,000 39,000 35,000
---------- ------- -------
$1,270,000 931,000 674,000
========== ======= =======

The actual tax expense differs from the expected tax expense (computed by
applying the applicable U.S. Federal corporate income tax rate to income before
income taxes) as follows:

1995 1994 1993
---------- ------- -------
Expected tax expense $ 1,357,000 1,056,000 805,000
Non-taxable interest income (99,000) (131,000) (120,000)
State income taxes 38,000 26,000 23,000
Qualified housing investment tax credit (38,500) (38,500) (38,500)
Other 12,500 18,500 4,500
---------- ------- -------
$ 1,270,000 931,000 674,000
========== ======= =======

In 1993, the Company adopted SFAS 109, "Accounting for Income Taxes". The
cumulative effect of adopting the new accounting principle was $318,000. The
items that give rise to the deferred income tax assets and liabilities and the
tax effect of each at December 31 are as follows:

1995 1994 1993
---------- ------- -------
Allowance for loan losses and OREO $ 489,000 699,000 794,000
Deferred loan fees 59,000 86,000 87,000
Nonaccrual loan interest 47,000 62,000 70,000
Accrued pension expense 103,000 64,000 77,000
Depreciation (141,000) (109,000) (55,000)
Unrealized loss on
securities available for sale (104,000) 69,000 -0-
Other assets 68,000 51,000 9,000
Other liabilities (47,000) (40,000) (33,000)
---------- ------- -------
Net deferred income tax asset $ 474,000 882,000 949,000
========== ======= =======

These amounts are included in other assets on the balance sheets. The
deferred income tax asset and liability at December 31, 1995 and 1994 is as
follows:

1995 1994
--------- ---------
Asset $ 766,000 1,031,000
Liability $ 292,000 149,000

Note 8. Borrowed Funds

Borrowed funds consists of advances from the Federal Home Loan Bank of
Boston (FHLB) and securities sold under agreements to repurchase with local
municipal customers, commercial customers and brokers. Advances from FHLB
include overnight borrowings on an $8,000,000 line of credit. Pursuant to
collateral agreements, FHLB advances are secured by all stock in the FHLB,
funds on deposit with FHLB and qualifying first mortgage loans. Securities sold
under agreements to repurchase include U.S. Treasury and Agency securities with
an aggregate amortized cost of $11,172,000 and $4,170,000 at December 31, 1995
and 1994, respectively, and an aggregate market value of $11,189,000 and
$4,016,000 at December 31, 1995 and 1994, respectively. Borrowed funds at
December 31, 1995 and 1994 have the following range of interest rates and
maturity dates:

December 31, 1995
Federal Home Loan Bank advances
Overnight borrowings -0- $ -0-
Maturities within one year* 5.74% - 6.67% 30,000,000
------------- ------------
30,000,000
------------
Repurchase agreements
Municipal and commercial customers 4.50%-6.35% 5,739,000
Brokers 6.13% 5,486,000
------------- ------------
11,225,000
------------
$ 41,225,000
============

December 31, 1994
Federal Home Loan Bank advances
Overnight borrowings 6.65% $ 4,600,000
Maturities within one year* 5.52% -6.39% 24,000,000
Maturities between one and two years* 6.50%-6.67% 4,000,000
------------- ------------
32,600,000
------------
Repurchase agreements
Municipal and commercial customers 4.00%-5.00% 4,010,000
------------- ------------
$ 36,610,000
============

*Certain advances have periodic rate adjustments prior to stated maturity.

Note 9. Pension and Postretirement Benefit Plans

Pension Plans

The Company has two defined benefit pension plans covering substantially
all of its employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The Company's
funding policy is to contribute annually the maximum amount that can be
deducted for federal income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date but also for those expected
to be earned in the future. The following tables set forth the funded status of
the plans and amounts recognized in the Company's financial statements as of
December 31:

1995 1994
--------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $1,650,000 in 1995,
and $1,405,000 in 1994. $(1,669,000) (1,448,000)
========= =========
Projected benefit obligation for
service rendered to date $(2,123,000) (1,926,000)
Plan assets at fair value 1,884,000 1,790,000
--------- ---------
Plan assets less than
projected benefit obligation (239,000) (136,000)
Unrecognized prior service cost 131,000 133,000
Unrecognized net loss (gain) from past
experience different from that assumed
and effects of changes in assumptions 80,000 (84,000)
Unrecognized net asset being recognized
over 16.8 years (125,000) (143,000)
--------- ---------
Accrued pension cost included in other liabilities $ (153,000) (230,000)
========= =========

Net pension cost consists of the following components:

1995 1994 1993
--------- ------- -------
Service cost benefits earned during the period $ 120,000 118,000 143,000
Interest cost on projected benefit obligation 127,000 119,000 129,000
Actual return on plan assets (123,000) (121,000) (175,000)
Net amortization and deferral (18,000) (16,000) 57,000
--------- ------- -------
Net periodic pension cost $ 106,000 100,000 154,000
========= ======= =======

Plan assets are invested in mutual funds and U.S. Government securities.
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present values of the projected
benefit obligations were 7.25% and 4.75% in 1995 and 1994, respectively. The
expected long-term rate of return on assets was 7.25% in 1995 and 1994.
The Company also has a defined contribution plan available to
substantially all employees who have completed one year of service. The
Company's expense relating to this plan was $22,000, $18,000 and $18,000 in
1995, 1994 and 1993, respectively. The amount of the annual contribution is at
the discretion of the Company.

Postretirement Benefit Plans

The Company sponsors two defined benefit postretirement plans. One plan
provides fixed postretirement health insurance benefit payments to certain
employees hired prior to June 30, 1988. The other plan provides life insurance
coverage to full-time employees who work until retirement. These plans are not
pre-funded. The Company also provides health insurance for retired directors.
In 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other than Pensions". This statement requires accrual of the cost of providing
postretirement benefits during the active service period of the employee.
The Company has elected to recognize the accumulated postretirement
benefit obligation as of January 1, 1993 of $578,000 as a component of net
periodic postretirement benefit cost over a 20-year period. The effect of
adopting SFAS No. 106 for the year ended December 31, 1993 was to increase net
periodic postretirement benefit cost by $54,000, and decrease earnings before
cumulative effect of accounting change and net income by $35,000 ($0.06 per
share).
The Company amended the postretirement health insurance plan during 1995
to make benefits available only to employees hired prior to June 30, 1988 who
retire on or before June 30, 1996. The amendment also defines the maximum
monthly benefit that a retired director can receive.
The following table sets forth the plans' accumulated postretirement
benefit obligation reconciled with the amount shown in the statements of
financial position at December 31:

1995 1994
--------- -------
Accumulated postretirement benefit obligation:
Retirees $ 357,000 316,000
Other active plan participants 210,000 340,000
--------- -------
567,000 656,000
Unrecognized net gain 28,000 21,000
Unrecognized transition obligation 390,000 523,000
--------- -------
Accrued postretirement benefit cost $ 149,000 112,000
========= =======

Net periodic postretirement benefit cost includes the following
components:

1995 1994 1993
-------- ------ ------
Service cost-benefits attributed to service
during the period $ 9,000 16,000 24,000
Interest cost on accumulated benefit obligation 38,000 43,000 39,000
Amortization of transition obligation over 20 years 24,000 29,000 29,000
Amortization of net gain 3,000 2,000 -0-
Net periodic postretirement benefit cost $ 74,000 90,000 92,000
======== ====== ======

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7%.

Note 10. Shareholders' Equity

The Board of Directors declared a 10% stock dividend payable January 15,
1994 to shareholders of record on December 31, 1993. The transaction was valued
based on the closing market price of the Company's stock on December 31, 1993,
which was $20.50. Retained earnings of $1,127,000 were transferred to common
stock and paid-in capital as a result of the issuance of 54,991 shares of the
Company's stock, and cash was paid in lieu of fractional shares. Earnings per
share have been adjusted to reflect the stock dividend declared.
The Company has reserved 60,000 shares of its common stock to be made
available to directors and employees who elect to participate in the director's
deferral, stock purchase, or savings and investment plans. As of December 31,
1995, 19,857 shares had been issued pursuant to these plans, leaving 40,143
shares available for future use. The issuance price is based on the market
price of the stock at issuance date.
Sales of stock to directors and employees amounted to 3,692 shares and
2,605 shares in 1995 and 1994, respectively. For the stock sold to directors
and employees in 1995, 1,825 shares were issued from Treasury stock.
In 1995, the Company's shareholders adopted a Stock Option Plan and
authorized 50,000 shares to be reserved for options to be granted to certain
key officers of the Company and the Bank. The option exercise price will be
equal to the fair market value of the shares on the date of the grant, and
options are generally not exercisable before two years from the date they are
granted. All options expire 10 years from the date they are granted.
As of December 31, 1995, the Company had granted options to purchase a
total of 24,000 shares of common stock of the Company at an exercise price per
share between $25.50 and $26.00.

Note 11. Off-Balance Sheet Financial Instruments and Concentrations of Credit
Risk

Commitments for unused lines are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to originate or purchase loans
and standby letters of credit. The instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
statement of condition. The contract amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
At December 31, the Company had the following off-balance sheet financial
instruments, whose contract amounts represent credit risk:

1995 1994
----------- ---------
Unused lines, secured by residential real estate $ 6,265,000 6,067,000
Unused credit card lines 5,404,000 2,576,000
Other unused commitments 8,677,000 10,843,000
Standby letters of credit 127,000 120,000
Commitments to extend credit 2,313,000 1,851,000

The Company grants residential, commercial and consumer loans to customers
principally located in the mid-coast area of Maine. Collateral on these loans
typically consists of residential or commercial real estate, or personal
property. Although the loan portfolio is diversified, a substantial portion of
its debtors' ability to honor their contracts is dependent on the economic
conditions in the area, especially in the real estate sector.

Note 12: Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (Statement 107), requires that the Company
disclose estimated fair values for its financial instruments. Fair value
estimates, methods, and assumptions are set forth below for the Company's
financial instruments.

Cash and Due from Banks and Federal Funds Sold

The carrying value of cash and due from banks approximates their relative
fair values.

Investment Securities

The fair values of investment securities are estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not
readily available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued. Statement 107 specifies that fair values should be calculated
based on the value of one unit without regard to any premium or discount that
may result from concentrations of ownership of a financial instrument, possible
tax ramifications, or estimated transaction costs. If these considerations had
been incorporated into the fair value estimates, the aggregate fair value could
have been changed. The carrying values of restricted equity securities
approximate fair values.

Loans

Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair values of performing loans are calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest risk inherent in the
loan. The estimates of maturity are based on the Bank's historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions, and the
effects of estimated prepayments.
Fair values for significant non-performing loans are based on estimated
cash flows and are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding credit risk,
cash flows, and discount rates are judgmentally determined using available
market information and specific borrower information.
Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether the
fair value presented above would be indicative of the value negotiated in the
actual sale.
The fair value estimate for credit card loans is based on the carrying
value of existing loans. This estimate does not include the value that relates
to estimated cash flows from new loans generated from existing cardholders over
the remaining life of the portfolio.

Loans Held for Sale

The fair value of loans held for sale is determined by the current
investor yield requirements.

Accrued Interest Receivable

The fair value estimate of this financial instrument approximates the
carrying value as this financial instrument has a short maturity. It is the
Bank's policy to stop accruing interest on loans which it is probable that the
interest is not collectible. Therefore, this financial instrument has been
adjusted for estimated credit loss.

Deposits

Under Statement 107, the fair value of deposits with no stated maturity,
such as non-interest-bearing demand deposits, savings and NOW accounts, and
money market accounts, is equal to the amount payable on demand. The fair value
of certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities. The fair value estimates do not
include the benefit that results from the low-cost funding provided by the
deposits compared to the cost of borrowing funds in the market. If that value
were considered, the fair value of the Bank's net assets could increase.

Borrowed Funds

The fair value of borrowed funds is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently available for borrowings of similar remaining maturities.

Off-Balance-Sheet Instruments

The Bank's off-balance-sheet instruments include loan commitments. Fair
values for loan commitments have not been presented as the future revenue
derived from such financial instruments is not significant.

Limitations

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These values do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial instruments include the deferred tax asset, bank premises
and equipment, and other real estate owned. In addition, tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any
of the estimates.
The estimated fair values for the Bank's financial instruments as of
December 31, 1995 and 1994 were as follows:

December 31, 1995 December 31, 1994
------------------------- ----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------ ---------- --------- ----------
Financial assets
Cash and due from banks $ 5,404,000 5,404,000 5,230,000 5,230,000
Interest-bearing
deposits in other banks 2,700,000 2,700,000 -0- -0-
Securities available for sale 34,236,000 34,236,000 16,533,000 16,533,000
Securities to be held
to maturity 27,334,000 27,473,000 49,121,000 46,759,000
Loans held for sale 4,066,000 4,127,000 -0- -0-
Loans (net of allowance
for loan losses) 131,186,000 130,992,000 117,866,000 113,211,000
Accrued interest receivable 1,708,000 1,708,000 1,678,000 1,678,000
Financial liabilities
Deposits 150,468,000 150,940,000 142,445,000 142,335,000
Borrowed funds 41,225,000 41,283,000 36,610,000 36,542,000

Note 13. Interest on Certificates of Deposit

Interest on time certificates of deposit of $100,000 or more was $726,000,
$575,000 and $619,000 in 1995, 1994 and 1993, respectively.

Note 14. Other Operating Expense

Other operating expense includes the following items greater than 1% of
revenues.

1995 1994 1993
------- ------- --------
Computer expense $ -0- -0- 132,000
FDIC insurance -0- 394,000 393,000
Professional fees -0- 148,000 -0-
Writedowns and other expenses for
other real estate owned -0- 204,000 168,000

Note 15. Regulatory Capital Requirements

The ability of the Company to pay cash dividends to its shareholders
depends on receipt of dividends from its subsidiary, the Bank. The subsidiary
may pay dividends to its parent out of so much of its net profits as the Bank's
directors deem appropriate, subject to the limitation that the total of all
dividends declared by the Bank in any calendar year may not exceed the total of
its net profits of that year combined with its retained net profits of the
preceding two years and subject to minimum regulatory capital requirements. The
amount available for dividends in 1996 will be 1996 earnings plus retained
earnings of $4,130,000 from 1994 and 1995.
The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. These capital requirements represent
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting principles. The
Bank's capital classification is also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. At December
31, 1995, the Bank meets all capital requirements to which it is subject.

Note 16. Condensed Financial Information of Parent

Condensed financial information for First National Lincoln Corporation
exclusive of its subsidiary is as follows (amounts in thousands):

Balance Sheets
December 31, 1995 1994
-------- -------
Assets
Cash $ 265 203
Dividends receivable 158 85
Investments 102 98
Investment in subsidiary 18,798 16,166
Other assets 400 425
-------- ------
$ 19,723 16,977
======== ======
Liabilities and shareholders' equity
Dividends payable $ 158 85
Shareholders' equity 19,565 16,892
-------- ------
$ 19,723 16,977
======== ======

Statements of Income
Years ended December 31, 1995 1994 1993
------- ------ ------
Investment income $ 7 9 9
Loss on sale of investments -0- (12) -0-
Other income 56 53 37
------- ------ ------
Total income 63 50 46
------- ------ ------
Other expense 65 43 -0-
Total expense 65 43 -0-
------- ------ ------
Equity in earnings of Bank:
Remitted 353 320 275
Unremitted 2,369 1,847 1,692
------- ------ ------
Net income $ 2,720 2,174 2,013
======= ====== ======

Statements of Cash Flows
Years ended December 31, 1995 1994 1993
------ ------ ------
Cash flows from operating activities:
Net income $ 2,720 2,174 2,013
Adjustments to reconcile net income to
net cash provided by operating activities:
Net realized loss on sale of securities
available for sale -0- 12 -0-
Increase of dividends receivable (73) (14) (5)
Decrease (increase) in other assets 25 (64) (37)
Increase in dividends payable 73 14 5
Unremitted earnings of Bank (2,369) (1,847) (1,692)
------ ------ ------
Net cash provided by operating activities 376 275 284
------ ------ ------
Cash flows from investment activities:
Proceeds from sales of securities
available for sale 486 217 -0-
Purchases of investments (490) (98) (8)
------ ------ ------
Net cash provided by investing activities (4) 119 (8)
------ ------ ------
Cash flows from financing activities:
Proceeds from sale of stock 44 57 49
Purchase of Treasury stock (54) -0- -0-
Sale of Treasury stock 53 -0- -0-
Dividends paid (353) (320) (276)
------ ------ ------
Net cash used in financing activities (310) (263) (227)
------ ------ ------
Net increase in cash 62 131 49
Cash, beginning of year 203 72 23
------ ------ ------
Cash, end of year $ 265 203 72
====== ====== ======

ITEM 9. Changes in and/or Disagreements with Accountants

None.

ITEM 10. Directors and Executive Officers of the Registrant

The Articles of Incorporation of the Company provide that the Board of
Directors shall consist of not fewer than five nor more than 25 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 nine. Each person listed below has consented to be named
as a nominee, and the Board of Directors knows of no reason why any of the
nominees listed below may not be able to serve as a Director if elected.

The following Director's term expires in 1996, and he will be nominated for re-
election for a one-year term:
Robert B. Gregory, 42, was elected a Director of the Company and the Bank
in October, 1987. Mr. Gregory has been a practicing attorney since 1980, first
in Lewiston, Maine and since 1984 in Damariscotta, Maine. Mr. Gregory is a
member of several legal societies and associations.

The following Directors' terms expire in 1996, and each will be nominated for
re-election for a three-year term:
Katherine M. Boyd, 45, was elected a Director of the Company and the Bank
in 1993. A resident of Boothbay Harbor, she owns Boothbay Region Greenhouses
with her husband. Ms. Boyd is a director of the Boothbay Region YMCA, and a
member of the St. Andrews Hospital Community Advisory Committee.
Carl S. Poole, Jr., 50, has been a Director of the Company since its
organization in 1985 and has served as a Director of the Bank since 1984. Mr.
Poole is President, Secretary and Treasurer of Poole Brothers Lumber, a lumber
and building supply company with locations in Damariscotta, Pemaquid and
Boothbay Harbor, Maine.
David B. Soule, Jr., 49, was elected a Director of the Company and the
Bank in June, 1989. Mr. Soule has been practicing law in Wiscasset since 1971.
He spent two terms in the Maine House of Representatives and is a past
President of the Lincoln County Bar Association and is a former Public
Administrator, Lincoln County. He has served on the Boards of Directors of Bath
area YMCA and of the Coastal Economic Development Corporation and as a Trustee
of the Wiscasset Library. He was Selectman, Town of Westport from 1975 to
1976 and served as Chairman of the Board of Selectmen from 1993 to 1995.

The following Directors' terms will expire in 1997:
Daniel R. Daigneault, 43, has served as President and Chief Executive
Officer of the Company since April 26, 1994, and has served as President and
Chief Executive Officer of the Bank since March 7, 1994 and as a member of the
Board of Directors of both the Company and the Bank since March 1994. Prior to
being employed by the the Bank, Mr. Daigneault was Vice President, Senior
Commercial Loan Officer at Camden National Bank, Camden, Maine.
Parker L. Spofford, 67, has been a Director of the Company since its
organization in 1985 and has served as a Director of the Bank since 1979. Mr.
Spofford is a Realtor in Waldoboro, Maine. He has been active in that capacity
since 1955 and is a Past President of the Maine Association of Realtors as well
as a former director of the National Association of Realtors. He began his
banking affiliation with the Provident Institution for Savings in Boston and
has served in an advisory capacity for the former Depositors Trust Company and
the former Heritage Savings Bank.

The following Directors' terms will expire in 1998:
M. Robert Barter, 66, has been a Director of the Company since its
organization in 1985 and has served as a Director of the Bank since 1982, and
Chairman of both the Company and the Bank since April, 1989. Mr. Barter has
owned and operated Bob's Photo-TV store in Boothbay Harbor, Maine since 1953.
Mr. Barter is also serving as Town Clerk for the Town of Boothbay Harbor and is
County Commissioner for Lincoln County, Maine.
Bruce A. Bartlett, 62, has been a member of the Board of Directors since
the Company's organization in 1985. Mr. Bartlett served as President and Chief
Executive Officer of the Company until his retirement on April 26, 1994 and as
President and Chief Executive Officer of the Bank until his retirement on March
7, 1994. He has served as a Director of the Bank since 1981.
Malcolm E. Blanchard, 61, has been a Director of the Company since its
organization in 1985, has served as a Director of the Bank since 1976, and is
Chairman of the Executive Committee of the Bank. Mr. Blanchard has been
actively involved, either as sole proprietor or as a partner, in real estate
development since 1970.

The Bank has seven standing committees of the Board of Directors:
Executive, Audit, Asset/Liability, Trust, Personnel/Retirement, Directors'
Loan, and Compliance. The Compensation Committee is a subcommittee of the
Executive Committee. In addition to the committee memberships stated in the
above biographies, all members of the Board serve on the Asset/Liability
Committee. Certain members of management also serve on some committees. The
aggregate attendance of committee meetings by members of the Board of Directors
in 1995 was in excess of 90%. The Company has no standing committees of the
Board of Directors.
There are no family relationships among any of the Directors of the
Company, and there are no arrangements or understandings between any Director
and any other person pursuant to which that Director has been or is to be
elected. No Director of the Bank or the Company serves as a Director on the
board of any other corporation with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act or subject to the reporting
requirements of Section 15(d) of the Securities Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940,
as amended.

Executive Officers

Each Executive Officer of the Company and the Bank is identified in the
following table which also sets forth their respective ages, offices, and
periods served as an Executive Officer of the Bank:

Name and Age (1) Office & Position Period Served
- -------------------- ----------------------------------- -------------
Daniel R. Daigneault President & Chief Executive Officer 1994 to date
43 of the Company and of the Bank

F. Stephen Ward Treasurer of the Company; 1993 to date
42 Vice President and Chief
Financial Officer of the Bank

Donald C. Means Clerk of the Company; 1973 to date
58 Senior Vice President and
Senior Loan Officer of the Bank

Walter F. Vietze Senior Vice President and 1984 to date
54 Senior Operations Officer of the Bank

John T. Blamey Vice President and Banking Services 1994 to date
49 Officer of the Bank

Edythe A. Jordan Vice President and Trust Officer 1992 to date
51 of the Bank

Michael T. Martin Vice President and Credit 1993 to date
40 Administration Officer of the Bank

Alden B. McFarland Vice President and Commercial Loan 1988 to date
48 Officer of the Bank

Janet E. Spear Vice President and Mortgage Loan 1990 to date
53 Officer of the Bank

Deborah C. Yates Vice President and Loan Operations 1992 to date
47 Officer and Trust Operations
Officer of the Bank
1) As of December 31, 1995

Daniel R. Daigneault has served as President and Chief Executive Officer
of the Company since April 26, 1994, and has served as President and Chief
Executive Officer of the Bank since March 7, 1994 and as a member of the Board
of Directors of both the Company and the Bank since March 1994. Prior to being
employed by the the Bank, Mr. Daigneault was Vice President, Senior Commercial
Loan Officer at Camden National Bank, Camden, Maine.
F. Stephen Ward has been employed by the Bank since 1990. Mr. Ward served
as Assistant Vice President and Marketing Officer from 1990 to 1993. From 1978
to 1990 Mr. Ward was employed by Downeast Enterprises, Inc. He is presently
completing a Masters of Business Administration degree in Finance.
Donald C. Means has been employed by the Bank since 1973. From 1962 to
1973 Mr. Means was employed by First National Bank of Boston, a major New
England financial institution. While there, Mr. Means' primary responsibilities
involved commercial lending.
Walter F. Vietze has been employed by the Bank since 1984. From 1979 to
1984, Mr. Vietze was employed by Casco Bank. His primary responsibilities
involved providing online banking services to correspondent banks. Prior to
1979, Mr. Vietze was affiliated with BayBanks in Massachusetts.
John T. Blamey has been employed by the Bank since 1989. Mr. Blamey has
held various positions and most recently served as Strategic Planning Director
prior to assuming his responsibilities as Vice President of Banking Services.
Prior to joining the Bank, Mr. Blamey retired from the United States Air Force
as Lieutenant Colonel.
Edythe A. Jordan joined the Bank in 1992 as Vice President and Trust
Officer. She has 27 years' experience in trust banking with Key Trust Company
and Casco Northern Bank. She most recently served as manager of Key Trust
Company's Presque Isle, Maine, office.
Michael T. Martin has been employed by the Bank since 1993. He was
employed by Fleet Bank from 1980 to 1992, and by Canal National Bank from 1977
to 1980. His primary responsibilities were in Loan Review and Credit
Administration.
Alden B. McFarland has been employed by the Bank since 1975. From 1984 to
1988, Mr. McFarland served as Assistant Vice President and Commercial Loan
Officer of the Bank.
Janet E. Spear has been employed by the Bank since 1977. Mrs. Spear served
as Assistant Vice President and Mortgage Loan Officer of the Bank from 1987-
1990, and as Mortgage Loan Officer from 1985-87. From 1982 to 1985 she was the
Manager of the Bank's Waldoboro office.
Deborah C. Yates has been employed by the Bank since 1971. Ms. Yates
served as Assistant Vice President and Loan Operations Officer from 1986 to
1992.
There are no family relationships among any of the Executive Officers,
nor are there any arrangements or understandings between any Executive Officer
and any other person pursuant to which that Executive Officer has been or is to
be elected.

ITEM 11. Executive Compensation

The table below sets forth cash compensations paid to the President and
Chief Executive Officer during 1995, to the two individuals that served as
President and Chief Executive Officer during 1994 and to the President and
Chief Executive Officer for 1993. No other Executive Officers of the Bank
received compensation in excess of $100,000 for the years ended December 31,
1995, 1994 and 1993.

Annual Long Term
Compensation Compensation
------------------------------------- ------------
Name and Securities
Principal Underlying
Position Year Salary Bonus Other Options

Daniel R. Daigneault (1)1995 $130,000 $ 15,839 $ -0- 16,000
President and CEO 1994 85,000 21,000 -0- -0-
1993 -0- -0- -0- -0-

Bruce A. Bartlett (1) 1995 -0- -0- -0- -0-
President and CEO 1994 54,000 -0- 61,000 -0-
1993 125,000 5,000 3,000 -0-

1) Mr. Daigneault joined the Bank on March 6, 1994 and succeeded Mr. Bartlett
as President and CEO of the Company when Mr. Bartlett retired on April 26,
1994. 1994 salaries reflect only a partial year for both individuals.

Director Compensation

Each of the outside directors of the Bank, with the exception of the
Chairman of the Board, is paid a director's fee in the amount of $350 for each
meeting attended and $100 for each meeting attended of a committee of which the
director is a member. The Chairman of the Board is paid an annual fee of
$13,500. Directors may elect to defer their fees to be invested in shares of
Company stock. As of December 31, 1995, M. Robert Barter elected to have
$8,000 of his compensation invested through the Directors' Compensation
Deferral Agreement and Parker L. Spofford had 100% of his fees invested under
the Directors' Compensation Deferral Agreement. Certain Board members are also
paid fees for appraisals and consulting services, and such fees are on terms no
more favorable to the recipient than are generally available to the Bank for
such services from other providers in the area. Fees paid to Directors as a
group in 1995 totalled $57,000. No directors' fees are paid to Directors of
the Company as such.
President Daigneault, who is the only director who is also an officer of
the Company, receives no additional compensation for serving on the Board of
Directors of the Company or the Bank.

Executive Compensation Committee Report

The compensation Committee consists of the members of the Executive
Committee of the Board of Directors, which is comprised of four outside
Directors including the Chairman of the Board. This Committee has the
responsibility for conducting the annual evaluation of the President and
renders recommendations to the full Board of Directors regarding compensation
for the President. The compensation of the President consists of a base salary
plus a bonus, under an approved plan adopted for all employees of the Bank, and
other cash bonuses which the Committee may deem appropriate based on the
overall performance of the President and the achievement of prescribed goals.
These goals are a combination of financial targets and corporate objectives
such as implementation of the strategic plan, satisfactorily addressing issues
identified as priorities by the banking regulators and overall performance of
the management team. The financial goals pertain to profitability, growth and
loan portfolio quality.
The compensation philosophy of the Company for all executive officers is
to pay a competitive base salary commensurate with salaries paid by other
similar sized financial institutions within the State of Maine, plus a short-
term incentive which is tied to the achievement of certain performance levels.
In 1994 the Company instituted a formal performance-based compensation program
called "Performance Compensation for Stakeholders". The overall objective of
the program is to shift a greater portion of employee compensation from base
salary to performance based payments. The program, which was developed by Mike
Higgins & Associates, Inc., is currently being utilized by over 200 banks
across the country and has been very well received by banks which have
participated in it over the past few years. In 1995, total payout under this
Stakeholder Performance Compensation program was 8.61% of the participating
employees' base salaries. The final payout may be deferred to the following
calendar year.
This performance compensation program's overall objective is to maximize
the long-term viability of the Company. It addresses this by tying the bonus
compensation to multiple goals which include profit, growth, productivity and
quality. The guiding principle is to reach a balance of profitability, growth,
productivity and quality which should have a positive impact on maximizing
long-term shareholder value. It rewards current performance which contributes
toward the achievement of long-term goals. Each year specific key performance
indicators are chosen along with financial performance levels. In 1995 some of
the indicators were: loan volume, deposit volume, non-performing loan levels,
net interest income, salaries and wages as a percentage of income and operating
expenses as a percentage of net income.
The amount of compensation potentially payable to the President was
determined by reviewing an independent salary survey of compensation of
officers and employees for comparable sized financial institutions within the
State of Maine. The survey was conducted by an independent accounting firm.
The committee took into consideration the salary ranges and actual salaries
paid to Presidents and CEOs of similar banks in establishing the base salary
for President Daigneault.
The President is given annual goals relating to both financial performance
and corporate objectives, which are mutually established by the Committee and
the President. On an annual basis the Committee conducts a formal evaluation
of the President, compares his performance to the established goals, assesses
the overall performance of the Bank and makes recommendations as appropriate.
During 1994, the performance of the Company was considered very good, with
all 1994 goals, set for President Daigneault, met or exceeded. The committee
took into consideration, in adjusting his base salary as of January 1, 1995,
the operational and financial achievements reached under President Daigneault's
leadership. Also considered, were the actual salaries of CEOs of other
financial institutions of similar size and complexity, located within the State
of Maine.
In addition to the cash compensation, in April 1995 the stockholders
approved a Stock Option Plan. The purpose of the Stock Option Plan is to
encourage the retention of key employees by facilitating their purchase of a
stock interest in the company. The 1995 Stock Option Plan provides for grants
of options to purchase Company common stock and is administered by an Options
Committee which consists of three outside directors. During 1995, stock
options were granted under the 1995 Stock Option Plan and set forth in the
accompanying table.
Committee Members:
M. Robert Barter
Malcolm E. Blanchard
David B. Soule, Jr.
Parker L. Spofford.

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

During 1995, Directors Barter, Blanchard, Soule and Spofford served as
members of the Compensation Committee. No member of the Committee was, or ever
has been, an officer or employee of the Company or the Bank. All Committee
members are customers of and have banking transactions with the Bank in the
ordinary course of business. As described in the section entitled "Certain
Relationships and Related Transactions", all loans were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and, in the opinion of
management, did not involve more than the normal risk of collectibility or
present other unfavorable features.

Long-Term Compensation

Long-term compensation may be distinguished from annual compensation by
the time frame for which performance results are measured to determine awards.
While annual compensation covers a calendar year, long-term compensation is
provided through the Company's stock option plan which covers a period of two
to ten years.
The following table sets forth information with respect to the named
executive and all other employees concerning grants of stock options during
1995:

Option Grants During the Year Ended December 31, 1995
Number % of Potential realizable
of total value at assumed
securities options Exercise rates of stock
underlying granted price Expir- appreciation
options in fiscal per ation for option term(1)
granted year share(2) date (3) 5% 10%

Daniel R. Daigneault 1,000 4.2% $25.50 01/26/05 $ 12,991 $ 26,472
Daniel R. Daigneault 15,000 62.5% 26.00 01/26/05 198,687 404,870
All other employees 8,000 33.3% 26.00 01/26/05 105,966 215,931
All optionees 24,000 100.0% $25.98 01/26/05 $317,644 $647,273

1) The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates compounded over a 10-year period as set by the Securities
and Exchange Commission and are not intended to forecast future price
appreciation of the Company's common stock. The gains reflect a future value
based upon growth at these prescribed rates. These values have also not been
discounted to present value. It is important to note that options have value to
the listed executive and to all option recipients only if the stock price
advances beyond the exercise price shown on the table during the effective
option period.
2) Under the Stock Option Plan, the exercise price may not be less than the
fair market value of the common stock on the date the option is granted.
3) The Stock Option Plan requires a vesting period of two years after the date
granted before 50% of the options may be exercised, and five years after the
date granted before 100% of the options may be exercised. All options expire 10
years after the date granted.

The following table sets forth information with respect to the named
executive and all other optionees concerning the exercise of options during
1995 and unexercised options held as of December 31, 1995:

Aggregated Option Exercises in 1995 and December 31, 1995 Option Values

Number of securities Value of
underlying unexercised
unexercised in-the-money
options options
at year end at year end
-------------------- -------------------
Shares acquired Value Exer- Unexer- Exer- Unexer-
on exercise realized cisable cisable cisable cisable
Daniel R.
Daigneault -0- -0- -0- 16,000 -0- $112,500
All other
employees -0- -0- -0- 8,000 -0- 56,000

All optionees -0- -0- -0- 24,000 -0- $168,500

Description of the Company's Benefit Plans

The Bank sponsors a retirement plan (the "Retirement Plan") for its
employees. The Retirement Plan originally was established in 1953 and was
amended in 1976. Each employee who is hired prior to age 60 is eligible to
participate after he or she has attained the age of 21 and completed one year
of service (1,000 hours during a twelve-month period). The Retirement Plan
assets are managed by the Dewey Square Investors Corporation. The Bank has a
Personnel/Retirement Committee composed of Messrs. Bartlett, Barter, Boyd,
Daigneault, Gregory, Ms. Jordan, and Joyce P. Dexter, Personnel Officer of the
Bank. The Retirement Committee administers the Retirement Plan with the advice
of consultant Maine Benefit Administrators.
Annual benefits at normal retirement age of 65 are determined as follows:
2% of final average salary (FAS) for each of the first 25 years of service,
plus 1% of FAS for each of the next 5 years of service, less 1 2/3% of Social
Security benefits for each year of service (maximum 30 years). The Bank
contributed $134,624 to the Retirement Plan in 1994, and $154,301 in 1993.
The normal retirement benefit is accrued over the participant's service to
normal retirement date. If a participant defers retirement beyond normal
retirement date, benefits accrued at normal retirement date are paid at actual
retirement date. In addition to normal retirement benefits, the Retirement Plan
also provides for early retirement after a participant has attained age 55 and
completed five years of service. At retirement, benefits are payable to the
participant as a life annuity, joint and survivor annuity or life annuity with
a five- or ten-year guarantee.
Certain technical revisions to the Retirement Plan were adopted in 1979.
The Retirement Plan was again revised in 1981 to redefine the annual salary
upon which benefits are computed. Further revisions were adopted in 1984 to
comply with TEFRA, the Tax Reduction Act and the Retirement Equity Act. The
Retirement Plan was further amended in February, 1988, revising the benefit
calculation from the long-standing career pay method to a final-average-
earnings basis.
The Company has reserved 60,000 shares of its common stock (15,000 shares
prior to the four-for-one stock split on November 1, 1989) to be made available
to directors and employees who elect to participate in the director's deferral,
employee stock purchase, or 401(k) savings and investment plans. As of December
31, 1995, 19,857 shares had been issued pursuant to these plans, leaving 40,143
shares available for future use. The issuance price is based on the market
price of the stock at issuance date.
The Bank's 401(k) Plan (The First National Bank of Damariscotta Savings
and Investment Plan) is available to any employee who has attained the age of
21 and completed one year of service (1,000 hours during a 12 month period). In
order to participate, an eligible employee must contribute a percentage of
compensation, up to a maximum of 17% annually. The Bank may, by annual vote of
its Directors, make matching contributions. Plan assets are maintained by the
Bank's Trust Department. The 401(k) Plan is administered by a special committee
appointed by the Board of Directors with the assistance of Maine Benefit
Administrators. Employee contributions are 100% vested at all times, while
employer-matching contributions are vested over a five-year period. Upon
termination of employment for any reason, a plan member may receive his or her
contribution account and earnings allocated to it, as well as the vested
portion of his or her employer-matching account and earnings allocated to it.
Non-vested amounts are forfeited and re-allocated among the accounts of plan
participants. The Bank paid $22,000 in matching contributions to this plan in
1995. Plan participants may direct the trustees of the 401(k) Plan to purchase
specific assets for their accounts, including the Company's stock. As of
December 31, 1995, 4,833 shares of the Company's stock had been purchased by
the 401(k) Plan at the direction of plan participants.
The Bank instituted an employee stock purchase plan effective February 1,
1987. Originally, 5,000 shares of the Company's common stock were allocated to
this plan. The number of allocated shares was increased to 20,000 in 1989 as
the result of a four-for-one stock split. Employees who have been employed by
the Bank for three consecutive calendar months are eligible to purchase shares
on a quarterly basis through payroll deduction. The price per share for shares
sold pursuant to the plan is based on fair market value as determined by the
Plan Committee appointed by the Board of Directors. As of December 31, 1995,
5,883 shares of the Company's stock had been purchased pursuant to the plan.
On January 15, 1987, the Bank adopted a Compensation Deferral Agreement
pursuant to which Directors (other than the Chief Executive Officer) are
permitted to defer payment of directors' fees until their retirement from the
Board. The Savings and Investment Plan Committee has sole discretion to invest
the deferred fees as it sees fit. Two Directors had signed Compensation
Deferral Agreements for 1995.
The Bank provides all full-time employees with group life, health, and
long-term-disability insurance through Independent Bankers' Employee Benefits
Trust of Maine. A Flexible Benefits Plan is available to all full-time
employees after satisfying eligibility requirements and part-time employees
scheduled to work 20 or more hours a week.
On December 15, 1994, the Company's board of directors adopted a Stock
Option Plan (the Option Plan) for the benefit of officers and other full-time
employees of the Company and the Bank. This plan was approved by the Company's
shareholders at the 1995 Annual Meeting. Under the Option Plan, 50,000 shares
(subject to adjustment to reflect stock splits and similar events) are reserved
from the authorized but unissued common stock of the Company for future
issuance by the Company upon exercise of stock options granted to certain key
employees of the Company and the Bank from time to time.
The purpose of the Option Plan is to encourage the retention of such key
employees by facilitating their purchase of a stock interest in the Company.
The Option Plan is intended to provide for the granting of incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
Code) to employees of the Company or the Bank.
The Option Plan is administered by the Options Committee of the Company's
board of directors, which is comprised solely of directors who are ineligible
to receive grants of stock options under the Option Plan and who have not
received grants of options within the 12 months preceding their appointment to
the Options Committee. The Options Committee selects the employees of the Bank
and the Company to whom options are to be granted and the number of shares to
be granted. The Option Plan may be amended only by the vote of the holders of
a majority of the Company's outstanding common stock if such amendment would
increase the number of shares available for issuance under the Option Plan,
change the eligibility criteria for grants of options under the Option Plan,
change the minimum option exercise price or increase the maximum term of
options. Other amendments may be effected by the Options Committee.
Employees selected by the Options Committee receive, at no cost to them,
options under the Option Plan. The option exercise prices are equal to the
fair market value of the shares on the date of the grant, and no options are
exercisable after the expiration of 10 years from the date it is granted. The
fair market value of the shares is determined by the Options Committee as
specified in the Options Plan. The optionee cannot transfer or assign any
option other than by will or in accordance with the laws of descent and
distribution, and the option may be exercised only by the employee during the
employee's lifetime. After an employee's death, options may be exercised by
the employee's estate or heirs up to one year following the date of death.
Code Section 422 limits option grants by providing that during the term of the
Option Plan, no grant may be made to any employee owning more than 10% of the
shares unless the exercise price is at least 110% of the shares' fair market
value and such option is not exercisable more than five years following the
option grant. The aggregate fair market value of the stock for which any
employee may be granted options in any calendar year may generally not exceed
$100,000.
While generally no options may be exercisable before the second
anniversary of the grant date, in the event of a change in control involving
the Company all options (other than those held by officers or directors of the
Company or the Bank for less than six months) shall become immediately
exercisable. Also, an employee whose employment is terminated in connection
with or within two years after such a change in control event shall be entitled
to exercise all options for up to three months following the date of
termination; provided that options held by officers or directors shall not be
exercisable until six months after the grant date. Employees whose services
are terminated, other than following a change in control as described above,
shall thereupon forfeit any options held, provided, however, that following
termination due to disability an employee shall be entitled to exercise options
for up to one year (provided, further, that officers and directors may exercise
only with respect to options held for at least six months).
The Company receives no monetary consideration for the granting of
incentive stock options. Upon the exercise of options, the Company receives
payment in cash from optionees in exchange for shares issued. No federal income
tax consequences are incurred by the Company at the time incentive stock
options are granted or exercised, unless the optionee incurs liability for
ordinary income tax treatment upon exercise of the option, as discussed below,
in which event the Company would be entitled to a deduction equal to the
optionee's ordinary income attributable to the options. Provided the employee
holds the shares received on exercise of a stock option for the longer of two
years after the option was granted or one year after it was exercised, the
optionee will realize capital gains income (or loss) in the year of sale in an
amount equal to the difference between the sale price and the option exercise
price paid for shares. If the employee sells the shares prior to the
expiration of the period, the employee realizes ordinary income in the year of
disposition equal to the difference between the fair market value of the shares
on the date of exercise and the exercise price and capital gains income (or
loss) equal to the difference (if any) between the sale price of the shares and
the fair market value of the shares on the date of exercise.
In addition to the tax consequences discussed above, the excess of the
option price over the fair market value of the optioned stock at the time of
option exercise is required to be treated by an incentive optionee as an item
of tax preference for purposes of the alternative minimum tax.

Performance Graph

Set forth below is a line graph comparing the five-year cumulative total
return of the Company's common stock ("FNLC"), assuming reinvestment of all
cash dividends and retention of the 10% stock dividend paid January 15, 1994 to
shareholders of record on December 31, 1993, with that of the Standard & Poor's
500 Index ("S&P 500") and the NASDAQ Combined Bank Index ("NASD Bank"). The
NASD Bank index is a capitalization-weighted index designed to measure the
performance of all NASDAQ stocks in the banking sector.

Performance graph mailed to Document Control, per Edgar instructions.

Performance graph data:
1990 1991 1992 1993 1994 1995
FNLC 100.00 85.61 90.85 115.69 155.75 209.96
S&P 500 100.00 130.00 139.67 153.55 155.50 213.24
NASD Bank 100.00 137.52 209.07 270.46 273.46 396.00

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the number of shares of common stock
beneficially owned (1) as of December 31, 1995 by each Director and Executive
Officer named in the Summary Compensation Table, and by all Directors and
Executive Officers as a group:

Name Number of Percent
of Director Shares Ownership(1)
------------------- --------- ------------
M. Robert Barter 9,632 1.58%
Bruce A. Bartlett 1,268 .21%
Malcolm E. Blanchard 5,878 .96%
Katherine M. Boyd 1,480 .24%
Daniel R. Daigneault 2,075 .34%
Robert B. Gregory 2,810 .46%
Carl S. Poole, Jr. 20,192 3.31%
David B. Soule, Jr. 1,762 .29%
Parker L. Spofford 6,150 1.01%

Total ownership of all
Directors and Executive
Officers as a group 50,076 9.20%

1)For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended. In general, a person is deemed to be the
beneficial owner of a security if he has or shares the power to vote or to
direct the voting of the security or the power to dispose or direct the
disposition of the security, or if he has the right to acquire beneficial
ownership of the security within 60 days. The figure set forth includes
director's qualifying shares owned by each person listed.

To the knowledge of the management of the Company, the following
shareholders beneficially owned more than 5% of First National Lincoln
Corporation stock as of December 31, 1995.

Name & Address of Beneficial Owner Amount Percentage
------------------------------------- ------------- ----------
Daniel P. Thompson, Edith I. Thompson 35,201 shares 5.78%
HC 61 Box 039, New Harbor, ME 04545

ITEM 13. Certain Relationships and Related Transactions

The Federal Reserve Act permits the Bank to contract for or purchase
property from any of its Directors only when such purchase is made in the
regular course of business upon terms not less favorable to the Bank than those
offered by others unless the purchase has been authorized by a majority of the
Board of Directors not interested in the transaction. Similarly, the Federal
Reserve Act prohibits loans to Executive Officers of the Bank unless such loans
are on terms not more favorable than those afforded other borrowers and certain
other prescribed conditions have been met.
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of its business with Directors, Officers and principal
shareholders of the Company and their associates. All such transactions have
been made upon substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with others.
In the opinion of management, such loans have not involved more than the
normal risk of collectibility nor have they presented other unfavorable
features. The total amount of loans outstanding at December 31, 1995 to the
Company's Directors, Executive Officers and their associates was $2,382,000,
which constituted 1.79% of the Bank's total loans outstanding at that date.

ITEM 14. Exhibits

Exhibit 3 Articles of Incorporation and Bylaws, filed as Exhibit 3 to
Company's Registration Statement No. 2-96573.

Exhibit 3.1 Articles of Amendment, filed as part of Exhibit 3 to the
Company's Registration Statement No. 2-96573.

Exhibit 4.1 Articles of Incorporation and Bylaws, filed as Exhibit 3 to
the Company's Registration Statement No. 2-96573.

Exhibit 10.3 EastPoint Technology Purchase and Licensing Agreement, filed
as Exhibit 10.3 to the Company's 1993 Annual Report on Form 10-K.

Exhibit 27 Financial Data Schedule.

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) 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 COPORATION

By Daniel R. Daigneault
Daniel R. Daigneault, President

March 26, 1996

Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.

Signature Title

Daniel R. Daigneault President and
Director
Daniel R. Daigneault (Principal Executive
Officer)

F. Stephen Ward Treasurer
F. Stephen Ward (Principal Financial
Officer, Principal
Accounting Officer)

M. Robert Barter Director and
M. Robert Barter Chairman
of the Board

Bruce A. Bartlett Director
Bruce A. Bartlett

Malcolm E. Blanchard Director
Malcolm E. Blanchard

Katherine M. Boyd Director
Katherine M. Boyd

Robert B. Gregory Director
Robert B. Gregory

Carl S. Poole, Jr. Director
Carl S. Poole, Jr.

David B. Soule, Jr. Director
David B. Soule, Jr.

Parker L. Spofford Director
Parker L. Spofford
2