FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Six Months Ended: June 30, 1996 Commission File No. 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes XX No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1996
Common Stock, Par One Cent 610,963
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FIRST NATIONAL LINCOLN CORPORATION
INDEX
PART 1 Financial Information
Page No.
Item 1: Financial Statements
Consolidated Balance Sheets - 1 - 2
June 30, 1996, June 30, 1995, and December 31, 1995.
Consolidated Statements of Income - 3 - 4
Six months ended June 30, 1996 and June 30, 1995.
Consolidated Statements of Income - 5 - 6
Three months ended June 30, 1996 and June 30, 1995.
Consolidated Statements of Cash Flows - 7 - 8
Six months ended June 30, 1996 and June 30, 1995.
Item 2: Management's discussion and analysis of 9 - 12
financial condition and results of operations.
PART II Other Information
Item 1: Legal Proceedings 13
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 16 - 22
Item 5: Other Information 23
Item 6: Exhibits and reports on Form 8-K. 24
Signatures 29
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
6/30/96 6/30/95 12/31/95
(Unaudited) (Unaudited) (Unaudited)
Assets
Cash and due from banks $5,884 $6,010 $5,404
Interest bearing deposits in other banks 3 0 2,700
Investments:
Available for sale 28,431 16,580 34,236
Held to maturity (market values
$37,076 at 6/30/96, $48,845 at
6/30/95 and $27,473 at 12/31/95) 37,786 49,035 27,334
Loans held for sale
(market value $4,127 at 12/31/95) 0 0 4,066
Loans 148,745 131,009 133,245
Less allowance for loan losses 1,973 2,273 2,059
Net loans 146,772 128,736 131,186
Accrued interest receivable 1,862 1,800 1,708
Bank premises and equipment 3,958 4,282 4,146
Other real estate owned 756 650 648
Other assets 1,182 1,371 854
Total Assets $226,634 $208,464 $212,282
Page 1
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BALANCE SHEETS CONT.
6/30/96 6/30/95 12/31/95
(Unaudited) (Unaudited) (Unaudited)
Liabilities & Stockholders' Equity
Demand deposits $13,076 $11,089 $12,989
NOW deposits 25,675 25,898 27,064
Money market deposits 4,974 6,673 7,179
Savings deposits 33,172 33,844 32,943
Certificates of deposit 58,606 50,699 57,535
Certificates $100M and over 13,331 13,867 12,758
Total deposits $148,834 $142,070 $150,468
Borrowed funds 55,498 46,659 41,225
Other liabilities 1,525 1,592 1,024
Total Liabilities 205,857 190,321 192,717
Shareholders' Equity:
Common stock 6 1,522 1,524
Additional paid-in capital 4,281 2,706 2,719
Retained earnings 16,500 13,915 15,123
Net unrealized gains (losses) on
available- for-sale securities (10) 53 202
Treasury stock 0 (53) (3)
Total Stockholders' Equity 20,777 18,143 19,565
Total Liabilities &
Stockholders' Equity $226,634 $208,464 $212,282
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the quarter ended June 30,
1996 1995
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $3,258 $2,953
Interest on deposits with other banks 2 0
Interest and dividends on investments 1,063 1,114
Total interest income 4,323 4,067
Interest expense:
Interest on deposits 1,352 1,274
Interest on borrowed funds 669 689
Total interest expense 2,021 1,963
Net interest income 2,302 2,104
Provision for loan losses 0 0
Net interest income after provision
for loan losses 2,302 2,104
Other operating income:
Trust department income 77 52
Service charges on deposit accounts 130 120
Net securities gains (losses) (4) 19
Other operating income 113 53
Total other operating income 316 244
Other operating expenses:
Salaries and employee benefits 723 721
Occupancy expense 81 75
Furniture and equipment expense 144 150
Other 423 470
Total other operating expenses 1,371 1,416
Page 3
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STATEMENTS OF INCOME CONT.
1996 1995
(Unaudited) (Unaudited)
Income before income taxes 1,247 932
Applicable income taxes 402 293
NET INCOME $845 $639
Earnings per common share:
Net income $1.38 $1.05
Dividends declared $0.18 $0.15
Page 4
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
For the six months ended June 30,
1996 1995
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $6,388 $5,772
Interest on deposits with other banks 6 0
Interest and dividends on investments 2,154 2,220
Total interest income 8,548 7,992
Interest expense:
Interest on deposits 2,792 2,395
Interest on borrowed funds 1,256 1,305
Total interest expense 4,048 3,700
Net interest income 4,500 4,292
Provision for loan losses 0 0
Net interest income after provision
for loan losses 4,500 4,292
Other operating income:
Trust department income 157 105
Service charges on deposit accounts 249 234
Net securities gains (losses) 2 (39)
Other operating income 208 103
Total other operating income 616 403
Other operating expenses:
Salaries and employee benefits 1,481 1,489
Occupancy expense 167 156
Furniture and equipment expense 289 300
Other 834 905
Total other operating expenses 2,771 2,850
Page 5
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STATEMENTS OF INCOME CONT.
1996 1995
(Unaudited) (Unaudited)
Income before income taxes 2,345 1,845
Applicable income taxes 755 583
NET INCOME $1,590 $1,262
Earnings per common share:
Net income $2.60 $2.08
Dividends declared $0.35 $0.29
Page 6
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FIRST NATIONAL LINCOLN CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $1,590 $1,262
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 263 253
Provision for loan losses 0 0
Net (gain) loss on sale of investments (2) 39
Provision for losses on other
real estate owned 15 0
Losses related to other
real estate owned 6 (2)
Net change in other assets (600) (428)
Net change in other liabilities 501 1,008
Net amortization of premium
on investments 68 11
Net cash provided by operating activities 1,841 2,143
Cash flows from investing activities:
Proceeds from sales of investments 4,479 3,000
Proceeds from maturities of investments 6,492 2,021
Proceeds from maturities of
deposits in other banks 2,697 0
Proceeds from sales of other real estate owned 264 10
Additional investment in other real estate owned (4) 0
Purchase of investments (15,776) (4,855)
Net decrease (increase) in loans (11,910) (11,084)
Capital expenditures (75) (51)
Net cash used in investing activities (13,833) (10,959)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
savings, money market and club accounts (3,278) (11,071)
Net increase (decrease) in
certificates of deposit 1,644 10,816
Net increase (decrease) in other borrowings 14,273 10,049
Proceeds from sale of Treasury stock 29 0
Payment to repurchase common stock (26) (53)
Net proceeds from stock issuance 44 31
Dividends paid (214) (176)
Net cash provided by financing activities 12,472 9,596
Page 7
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STATEMENTS OF CASH FLOWS CONT.
1996 1995
(Unaudited) (Unaudited)
Net increase (decrease) in cash and
cash equivalents 480 780
Cash and cash equivalents at beginning
of period 5,404 5,230
Cash and cash equivalents at end of
period $5,884 $6,010
Interest paid $4,064 $3,639
Income taxes paid 584 319
Non-cash transactions:
Loans transferred to other real estate
owned (net) 390 109
Loans held for sale transferred to loan portfolio 4,066 -
Net change in unrealized gain (loss) on
available for sale securities (212) (63)
Page 8
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Item 2 - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the six months ended June 30, 1996 was $1,590,000, an
increase of 26.0% over 1995's net income of $1,262,000. Net income for the
quarter ended June 30, 1996 was $845,000. This is a 32.2% increase over the
same period a year ago.
NET INTEREST INCOME
Net interest income for the six months ended June 30, 1996 was $4,500,000,
a 4.8% increase over 1995's net interest income of $4,292,000. Total interest
income of $8,548,000 is a 7.0% increase over 1995's total interest income of
$7,992,000. Total interest expense of $4,048,000 is a 9.4% increase over
1995's total interest expense of $4,292,000.
Net interest income for the quarter ended June 30, 1996 was $2,302,000.
This is a 9.4% increase over 1995's net interest income of $2,104,000. Total
interest income was $4,323,000, a 6.3% increase over 1995's total interest
income of $4,067,000. Total interest expense of $2,021,000 is a 3.0% increase
over 1995's total interest expense of $1,963,000.
PROVISION FOR LOAN LOSSES
No provision to the allowance for loan losses was made during the first
six months of 1996. The allowance for loan losses is deemed adequate as
calculated in accordance with Banking Circular #201 and with respect to SFAS
114/118. Loans considered to be impaired according to SFAS 114/118 totalled
$328,000 at June 30, 1996. The portion of the allowance for loan losses
allocated to impaired loans at June 30, 1996 was $63,000.
NON-INTEREST INCOME
Non-interest income of $616,000 for the six months ended June 30, 1996 was
an increase of 52.9% from 1995's non-interest income of $403,000. This
increase can be attributed to an increase in fiduciary income and fees charged
for processing merchant credit card deposits.
Non-interest income for the quarter ended June 30, 1996 was $316,000, a
29.5% increase over 1995's non-interest income of $244,000.
NON-INTEREST EXPENSE
Non-interest expense of $2,771,000 for the six months ended June 30, 1996
is a decrease of 2.8% from 1995's non-interest expense of $2,850,000. Non-
interest expense for the quarter ended June 30, 1996 was $1,371,000, a 3.2%
decrease over the same period a year ago. A significant reduction in FDIC
insurance premiums was the principal cause for these decreases.
INCOME TAXES
Income taxes on operating earnings increased to $755,000 for the first six
months of 1996 from $583,000 for the same period a year ago. Income taxes on
operating earnings were $845,000 for the quarter ended June 30, 1996, compared
to $639,000 in 1995. The level of income taxes has increased as a result of
the Company's increased earnings.
Page 9
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DEPOSITS AND BORROWED FUNDS
Deposits as of June 30, 1996 increased by 4.8% or $6,764,000 from June 30,
1995. Demand deposits increased by 17.9% or $1,987,000, NOW deposits decreased
by 0.9% or $223,000, savings deposits decreased by 2.0% or $672,000, money
market deposits decreased by 25.5% or $1,699,000 and certificates of deposit
increased by 11.4% or $7,371,000.
Deposits were supplemented by borrowings from the Federal Home Loan Bank
and repurchase agreements. Total borrowed funds increased by 18.9% or
$8,839,000 from the same period a year ago.
STOCKHOLDERS' INVESTMENT AND CAPITAL RESOURCES
Stockholders' investment as of June 30, 1996 was $20,777,000 compared to
$18,143,000 for the same period in 1995. The reason for this increase was the
strong earnings performance in the year 1995 and the first six months of 1996.
During 1995, the Company declared cash dividends of 14 cents per share for
the first quarter and 15 cents per share for the second and third quarters.
Dividends were increased by one cent in the fourth quarter to 16 cents per
share. In addition, the Company declared a one-time special cash dividend of
10 cents per share in the fourth quarter of 1995. Dividends were increased one
cent in the first quarter and again in the second quarter of 1996 to the
current level of 18 cents per share.
Leverage capital ratios for the Company were 9.17% and 8.70%,
respectively, at June 30, 1996 and June 30, 1995. The Bank had a tier one
risk-based capital ratio of 14.06% and tier two risk-based capital ratio of
15.31% at June 30, 1996, compared to 13.00% and 14.25%, respectively, at June
30, 1995. These were comfortably above the standards to be rated "well-
capitalized" by the regulatory authorities.
LIQUIDITY MANAGEMENT
As of June 30, 1996 the Bank had primary sources of liquidity of
$42,734,000, or 18.9% of its assets. It is Management's opinion that this is
adequate. In its Asset/Liability policy, the Bank has adopted guidelines for
liquidity.
We are not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Corporation's liquidity, capital resources or results of operations.
LOAN POLICIES
Real estate values:
A. Residential properties We loan up to 80% of the appraised value of
properties without mortgage insurance and up to 95% of the appraised value of
properties with mortgage insurance. No further appraisals are done as long as
the payment history remains satisfactory. If a loan becomes delinquent, a
review might be done of the loan.
When a loan becomes 90 or more days past due, an in-depth review is made of
the loan and a determination made as to whether or not a reappraisal is
required.
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B. Land only properties We do not have many of these but we do loan up to 65%
of the appraised value of the property. They are handled the same way as above
from booking date on.
C. Commercial properties We loan up to 75% of the appraised value and, once
the loan is closed, the decision to re-appraise a property is subjective and
depends on a variety of factors, such as: the payment status of the loan, the
risk rating of the loan, the amount of time that has passed since the last
appraisal, changes in the real estate market, availability of financing,
inventory of competing properties, and changes in condition of the property
i.e. zoning changes, environmental contamination, etc.
Note: A certified or licensed appraiser is used for all appraisals.
At June 30, 1996 and 1995, loans on a non-accrual status totaled $798,000
and $1,511,000, respectively. In addition to loans on a non-accrual status at
June 30, 1996 and 1995, loans past due greater than 90 days totaled $45,000 and
$100,000 respectively. The Company continues to accrue interest on these loans
because it believes collection of the interest is reasonably assured.
INVESTMENTS
In the first quarter of 1994, the Company adopted SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 115 requires that
all debt securities be classified into one of three categories: trading
securities, securities available for sale and securities held to maturity. As
of June 30, 1996 stockholders' equity was reduced by $10,000 due to a net
unrealized loss in the available-for-sale portfolio.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
No material off-balance sheet risk exists that requires a separate
liability presentation.
SALE OF LOANS
In the first quarter of 1996, the Company adopted SFAS 122, "Accounting
for Mortgage Servicing Rights". This statement requires mortgage servicing
rights, whether purchased or originated, to be capitalized and subsequently
considerd for impairment. As of June 30, 1996, the Bank had not acquired any
servicing rights through loan origination or purchase transactions.
No recourse obligations have been incurred in connection with the sale of
loans.
RISK ELEMENTS
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III of
Industry Guide 3 do not represent or result from trends or uncertainties which
Management reasonably expects will materially impact future operating results,
liquidity or capital resources.
There are no known potential problem loans which are not now disclosed
pursuant to Item III. C. 1. of Industry Guide 3. Item III. C. 2. is not
applicable.
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REGULATORY MATTERS
Procedures for monitoring Bank Loan Administration:
A. Loan reviews are done on a regular basis.
B. An action plan is prepared quarterly on all criticized commercial loans
greater than $100,000.
C. Delinquent loans are reviewed weekly by the Bank's Collections Officer and
Senior Loan Officer.
D. A tickler system is utilized to insure timely receipt of current information
(such as financial statements, appraisals and/or credit memos to the credit
file).
Note: Most of the above applies only to commercial loans, but retail loans are
reviewed periodically, usually around a delinquency.
Procedures for monitoring Bank Other Real Estate Owned:
The O.R.E.O. portfolio is handled by the Collections Officer, with backup
by the Senior Loan Officer. Most properties are listed with real estate
brokers for sale. All properties are appraised periodically for market value,
and provision is made to the allowance for O.R.E.O. losses if the estimated
market value after selling costs is lower than the carrying value of the
property.
OTHER
TERMINATION OF PENSION PLAN
As of May 31, 1996, the Company ceased benefit accruals for its pension
plan, which covers substantially all employees. All required documents
requesting approval for termination of the defined benefit plan were filed with
the Internal Revenue Service and the Pension Guarantee Corporation on June 18,
1996. The Company expects to receive final approvals for termination of the
plan in the fourth quarter of 1996, at which time the assets of the plan will
be distributed to fulfill the Company's liabilities under the plan. The
estimated value of the plan assets exceeds the estimated value of plan
liabilities as of the proposed distribution date.
The Company is modifying its defined contribution (401k) plan as a
replacement for the pension plan, and has added an annual compensation-based
contribution to the plan, in addition to the current employer-matching
contribution. Neither the termination of the defined benefit plan nor modifying
of the defined contribution plan is expected to have a material impact on the
Company's financial statements.
The quarterly financial statements in the opinion of Management fairly
represent all adjustments made to reflect the current financial condition of
the Company for this interim period just ended. All such adjustments were of a
normal recurring nature.
Page 12
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company was not involved in any legal proceedings requiring disclosure
under Item 103 of Regulation S-K during the reporting period.
Page 13
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ITEM 2. CHANGES IN SECURITIES
See Item 4, Proposal 3.
Page 14
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ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
Page 15
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Five proposals were submitted to a vote of security holders at the
Company's Annual Meeting of Shareholders, held on Tuesday, April 30, 1996, at
11:00 a.m. Eastern Daylight Time. Only shareholders of record at the close of
business on March 12, 1996 (the "Voting Record Date") were entitled to vote at
the Annual Meeting. On the Voting Record Date, there were 610,634 shares of
Common Stock of the Company, no par value, issued and outstanding, and the
Company had no other class of equity securities outstanding. Each share of
Common Stock was entitled to one vote at the Annual Meeting on all matters
properly presented thereat.
PROPOSAL 1: To ratify the Board of Directors vote to fix the number of
Directors at nine.
The Articles of Incorporation of the Company provide that the Board of
Directors shall consist of not fewer than five nor more than twenty-five
persons as determined by the Board prior to each Annual Meeting, with Directors
serving for "staggered terms" of three years. A resolution of the Board of
Directors adopted pursuant to the Company's Articles of Incorporation has
established the number of Directors at nine.
The results of the shareholder voting had 571,298 shares in favor, 4,950
shares against, and 34,496 shares not voting.
PROPOSAL 2: Election of Directors
The following was a nominee for a one-year term as Director:
Robert B. Gregory 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 were nominees for three-year terms as Director:
Katherine M. Boyd 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. 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. 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.
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The following Directors' terms will expire in 1997:
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.
Parker L. Spofford 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 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 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 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.
There are no family relationships among any of the Directors of the
Company, and there are no arrangements or understandings between any Director
and any other person pursuant to which that Director has been or is to be
elected. No Director of the Bank or the Company serves as a Director on the
board of any other corporation with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act or subject to the reporting
requirements of Section 15(d) of the Securities Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940,
as amended.
The results of the shareholder voting had 572,457 shares in favor, 4,750
shares withheld voting, and 33,537 shares not voting.
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PROPOSAL 3: Increase Authorized Common Stock; Change Par Value
The Company's board of directors, prior to the annual meeting, approved an
amendment to Article V of the Company's Articles of Incorporation to (a)
increase the number of shares of common stock of the Company authorized for
issuance from 1,200,000 to 6,000,000, and (b) change the par value of the
common stock of the Company from no par value to $.01 par value per share. A
copy of the amendment is presented in Exhibit 3.1.
The purpose of the change in par value is to reduce from $14,135 to $70
the filing fee that would be payable by the Company to the Secretary of State
in connection with the proposed increase in authorized shares. The effect of
this change will be to cause the sum of $1,519,482.66 (based on the number of
shares issued and outstanding as of March 12, 1996) to be moved from the Common
Stock entry on the Company's balance sheet and into the Additional Paid-In
Capital entry, and to preclude the Company from selling any of its stock for
less than $.01 per share. Management believes that neither of these outcomes
will have a material impact on the Company.
The purpose of the increase in the number of authorized shares of common
stock is to provide the Company with the flexibility to issue additional shares
of stock, including in private or public offerings to raise additional capital
or through stock dividends or stock splits which may be effected in order to
restore the trading price of the Company's stock within a range that may be
more conducive to the maintenance of a market in the shares. The authorized
but unissued shares of Common Stock could be used to make more difficult a
change in control of the Company. In certain circumstances, such shares could
be used to dilute the stock ownership of a person or entity seeking to obtain
control of the Company. Such shares could also be privately placed with
purchasers who might side with the Board in opposing a hostile takeover bid.
No such issuances, however, are presently planned for the near term.
The affirmative vote of the holders of a majority of the outstanding
common stock of the company was required in order to effectuate the proposed
amendment. The board of directors recommended that the shareholders vote for
the proposed amendment.
The results of the shareholder voting had 545,159 shares in favor of
Proposal 3, 14,523 shares against, and 51,062 shares not voting.
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PROPOSAL 4: Amendments to Bylaws and Articles of Incorporation
The Company's board of directors, prior to the annual meeting, approved an
amendment to the Company's Bylaws deleting Article VI of the Bylaws as well as
an amendment to the Company's Articles of Incorporation that would add Article
VIII, as set forth in Exhibit 3.1. These actions were considered together at
the annual meeting. The affirmative vote of the holders of 80% of the
outstanding shares of Common Stock was necessary in order to effectuate these
amendments. The Board of Directors recommended that the shareholders vote for
these amendments.
Article VI of the Company's Bylaws, to be deleted from the Bylaws,
contains provisions designed to deter certain change of control transactions
involving the Company or the Bank. As does the proposed new provision of the
Articles of Incorporation, Article VI requires 80% shareholder approval for
certain major transactions such as mergers, asset sales, liquidation of the
Company and certain stock issuances or recapitalizations involving a large
shareholder of the Company. However, this Bylaw does not permit the Board of
Directors, without first obtaining this extremely high level of shareholder
approval, to enter into many less significant transactions (e.g., the
acquisition of branches or other assets having a value of as low as 5% of the
Company's consolidated assets) even where such transactions are favored by the
board and are not being proposed or forced upon the Company by a large
stockholder or prospective acquiror.
The Board believes that this Bylaw is unnecessarily restrictive, and could
preclude the Company and its shareholders from benefiting from a wide array of
transactions due to the extreme difficulty and expense associated with
obtaining the requisite 80% shareholder vote. Nevertheless, the Board favors
the continuation of those aspects of the Bylaw that provide added protection
against change in control and other transactions which are coercively initiated
by a prospective acquiror, and believes that the amendment described below
achieves this goal while providing the flexibility that the Bylaw lacks.
Description of Proposed Amendment to Articles of Incorporation
It was proposed that the Articles of Incorporation be amended to include
provisions which govern any proposed "Business Combination" (defined generally
to include certain sales, exchanges, leases, mortgages, pledges, transfers or
other dispositions of assets, mergers or consolidations, adoptions or plans or
proposals for liquidation or dissolution or certain issuances and
reclassifications of securities of the Company) between the Company or certain
of its subsidiaries, on the one hand, and an Interested Stockholder, affiliate
or associate thereof, on the other hand, as well as additional provisions
governing selected "Control Transactions" involving changes in control of the
Company or its subsidiary, irrespective of whether an Interested Stockholder is
involved. An "Interested Stockholder" is defined generally to include any
individual, entity or group, other than the Company and its subsidiaries or
their employee benefit plans, which is the beneficial owner of ten percent
(10%) or more of the Common Stock outstanding.
Business Combinations with Interested Stockholders
As amended, the Articles of Incorporation will require the prior
affirmative vote of the holders of at least eighty percent (80%) of all
outstanding shares of stock entitled to vote in order for the Company or any of
its subsidiaries to engage, directly or indirectly, in any Business Combination
with an Interested Stockholder. This requirement does not apply, however, to
any Business Combination which is approved by a majority of the Continuing
Page 19
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Directors (defined generally as those directors who are not affiliates,
associates or representatives of the Interested Stockholder and who were
elected prior to the time that an Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director who is not an
affiliate, associate or representative of the Interested Stockholder and is
recommended or elected to succeed the Continuing Director by a majority of
Continuing Directors). In the event that this latter condition is met, the
Business Combination would require only the shareholder vote required by law,
the Articles of Incorporation, the Bylaws, or otherwise. (The provisions
described below under "Control Transactions", however, nonetheless require the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
shares of the Company for certain mergers, substantial asset sales or stock
issuances, and for the liquidation of the Company or a Subsidiary, irrespective
of whether an Interested Stockholder is involved or the board of directors
approves such transaction.)
In addition, in the event that a Business Combination with an Interested
Stockholder does occur without the approval of a majority of the Continuing
Directors, each stockholder must be offered by the Interested Stockholder the
opportunity to exchange such stockholder's shares of Common Stock for
consideration not less in value than the highest price paid by the Interested
Stockholder in acquiring any of its holdings in the Company, and no stockholder
will receive consideration different in form or proportion from that received
by any other stockholder in connection with the Business Combination.
Control Transactions
As amended, the Articles of Incorporation will require the prior approval
of a majority of the Company's directors and of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of all outstanding shares of stock
entitled to vote, in order for the Company or any of its subsidiaries to
engage, directly or indirectly, in any Control Transaction (defined generally
to include sales of all or substantially all of the assets of the Company or a
subsidiary, liquidation, dissolution or mergers as a result of which the
stockholders of the Company or such subsidiary own less than sixty percent
(60%) of the stock of the surviving entity, or stock issuances resulting in a
person or group acting together owning twenty-five percent (25%) or more of the
stock of the Company or a subsidiary). Unlike the Business Combination
provision described above, the approval of a Control Transaction by the
Company's directors does not eliminate the need to obtain the stated higher
level of shareholder approval. Because the definitions of Control Transaction
and Business Combination overlap in several areas, in a Control Transaction
that happens to involve an Interested Stockholder, the approval of a majority
of the Continuing Directors would result only in the waiver of the 80%
shareholder vote otherwise required for Business Combinations; however, such a
transaction would also require the approval of a majority of all the directors
and of the holders of sixty-six and two-thirds percent (66 2/3%) of the
Company's outstanding stock, insofar as such requirements are not waivable
under the Control Transaction provisions.
Purpose and Effect of Proposed Amendment
The purpose of the Business Combination provision described above is to
restrict certain "self-dealing" transactions by a stockholder who could
otherwise be able, unilaterally, to cause a Business Combination to be
effectuated, and to give greater assurance to the stockholders that they will
receive fair and equitable treatment in the event of certain Business
Combinations involving the Company or a subsidiary and an Interested
Stockholder. The purpose of the Control Transaction provision described above
Page 20
<PAGE>
is to alter the approval standards otherwise applicable to such transactions,
which ordinarily require only board approval (in the case of stock issuances)
or board approval together with the approval of the holders of a bare majority
(50.1%) of the Common Stock of the Company, in order to require that certain
transactions that could undermine the Bank's identity and function as a
community bank serving the mid-coastal region of Maine be taken only with the
approval of a more substantial majority of its owners. For example, a merger
with another bank resulting in the Company's stockholders collectively owning a
minority interest in the combined entity would necessitate a 66 2/3%
shareholder vote, due to the overall change in control associated with the
transaction, whereas a merger in which the Company were to acquire a smaller
bank and the Company's shareholders were to own collectively 75% of the stock
of the combined entity would require only the approval of the holders of a
majority of the Company's stock, on the basis that overall control would not
shift in the transaction.
However, these provisions may make more difficult or discourage a merger
or acquisition of control of the Company, including a transaction offering
financial terms deemed attractive by a majority in interest of the Company's
stockholders, since a Business Combination with an Interested Stockholder which
is not approved by a majority of the Continuing Directors will require the
approval of the holders of eighty percent (80%) of all outstanding shares of
stock entitled to vote, and a Control Transaction must receive the approval of
a majority of the Company's directors and of the holders of sixty-six and
two-thirds percent (66 2/3%) of all outstanding shares of stock entitled to
vote. In addition, to the extent that these provisions discourage or impede
takeovers that would result in the change of the Company's management, such
changes may be less likely to occur.
Amendments
Under Maine law, unless otherwise provided in the articles of
incorporation and upon the adoption of a resolution by the board of directors,
stockholders may amend the articles of incorporation by the affirmative vote of
the holders of a majority of all outstanding shares of stock entitled to vote.
It is proposed to amend the Articles of Incorporation of the Company, however,
to alter this quantum of vote, and require the affirmative vote of the holders
of not less than eighty percent (80%) of all outstanding shares of stock
entitled to vote, for any amendment or provision affecting the provisions
described above relating to certain "Business Combinations" with an Interested
Stockholder. However, the special provisions described in this paragraph will
not apply to, and special votes shall not be required for, any amendment to the
Business Combination provisions which has been recommended by the Board of
Directors, if a majority of the directors then in office are Continuing
Directors. The Control Transaction provisions may be amended only by a vote of
the holders of at least 66 2/3% of all outstanding shares entitled to vote,
irrespective of whether the Board of Directors recommends such an amendment.
The special votes required for amendments to these provisions of the Articles
of Incorporation are designed to prevent any stockholder from circumventing
such provisions by amending the Articles of Incorporation.
The affirmative vote of 80% of the holders of the outstanding common stock
of the company was required in order to effectuate the proposed amendments.
The board of directors recommended that the shareholders vote for the proposed
amendment. The results of the shareholder voting had 535,626 shares in favor of
Proposal 4, 18,478 shares against, and 56,640 shares not voting. The proposal
passed with an affirmative vote of more than 80% of the outstanding common
stock of the company.
Page 21
<PAGE>
PROPOSAL 5: Appointment of Auditors
The Board of Directors appointed Berry, Dunn, McNeil & Parker as
independent auditors of the Company and its subsidiary for the year ended
December 31, 1995. In the opinion of the Board of Directors, the reputation,
qualifications and experience of the firm make its reappointment appropriate
for 1996. It was the desire of the Board of Directors that the selection of
Berry, Dunn, McNeil & Parker as independent auditors be ratified by
shareholders at the Annual Meeting.
The results of the shareholder voting had 571,106 shares in favor, 400
shares against, and 39,238 shares not voting.
Page 22
<PAGE>
ITEM 5: Other Information
None.
Page 23
<PAGE>
ITEM 6: Exhibits, Financial Statement Schedules, and reports on Form 8-K
A. EXHIBITS
EXHIBIT 3 - Articles of Incorporation and Bylaws, filed as Exhibit 3 to the
Company's Registration Statement No. 2-96573
EXHIBIT 3.1 - Amendments to Articles of Incorporation filed as part of Exhibit
3 to the Company's Registration Statement No. 2-96573
Article FIFTH of the Articles of Incorporation of this corporation is hereby
amended to provide that this corporation shall have only one class of shares,
which shall be denominated common stock, of which there are 6,000,000 shares
authorized, each having a par value of $.01.
Article EIGHTH to the Articles of Incorporation of
First National Lincoln Corporation
(a) In addition to any affirmative vote required by law, these Articles
of Incorporation, the Bylaws of the corporation or otherwise, except as
otherwise expressly provided in Paragraph (b) of this Article EIGHTH, the
corporation shall not engage, directly or indirectly, in any Business
Combination (as hereinafter defined) with an Interested Stockholder (as
hereinafter defined) without the affirmative vote of not less than eighty
percent (80%) of the votes entitled to be cast by the holders of all
outstanding shares of stock entitled to vote. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage vote may be specified by law or otherwise. Except as
otherwise provided in Paragraph (b) of this Article EIGHTH: (i) the notice of
any stockholders' meeting at which a Business Combination with an Interested
Stockholder is to be considered shall be accompanied by proxy materials
complying with the requirements of the Securities Exchange Act of 1934 (or
successor statute) fully disclosing the nature of the proposed Business
Combination; and (ii) neither the corporation nor any subsidiary shall engage
in any Business Combination with an Interested Stockholder unless, in
connection with such Business Combination (A) each stockholder of the
corporation is offered, by the Interested Stockholder, cash or other
consideration for each share of the corporation's Common Stock owned by such
stockholder the fair market value of which is not less than the highest price
per share paid by such Interested Stockholder in acquiring any of its holdings
of the Common Stock of this corporation, and (B) no stockholder of this
corporation will receive consideration in any form or proportion different from
that received by any other stockholder of this corporation in connection with
such Business Combination.
(b) The provisions of Paragraph (a) of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
law, the Articles of Incorporation, the Bylaws of the corporation, or
otherwise, if such Business Combination shall have been approved by a majority
(whether such approval is made prior to or subsequent to the acquisition of
beneficial ownership of Common Stock that caused the Interested Stockholder to
become an Interested Stockholder) of the Continuing Directors (as hereinafter
defined).
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<PAGE>
(c) For the purpose of this Article EIGHTH:
(i) The term "Business Combination" shall mean:
(A) any merger or consolidation of this corporation or any Subsidiary (as
hereinafter defined) with (i) any Interested Stockholder or (ii) any other
corporation (whether or not itself an Interested Stockholder) which is or after
such merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) between the
corporation or any Subsidiary and any Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder involving any assets or securities
of the corporation, any Subsidiary or any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder the value of which would
constitute, immediately prior to such transaction, a Substantial Part (as
hereinafter defined) of the assets of the corporation; or
(C) the adoption of any plan or proposal for the liquidation or
dissolution of, or similar transaction involving, the corporation or any
Subsidiary proposed by or on behalf of an Interested Stockholder or any
Affiliate or Associate of an Interested Stockholder; or
(D) any issuance or reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Common Stock, or any securities
convertible into Common Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
(E) any agreement, contract or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (A) to (D).
(ii) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Common Stock.
(iii) The term "Interested Stockholder" shall mean any person (other than
the corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who (A) is the beneficial owner of Common Stock
representing ten percent (10%) or more of the votes entitled to be cast by the
holders of all then outstanding shares of Common Stock; or (B) is an Affiliate
or Associate of the corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of Common
Stock representing ten percent (10%) or more of the votes entitled to be cast
by the holders of all then outstanding shares of Common Stock.
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<PAGE>
(iv) A person shall be a "beneficial owner" of any Common Stock (A) which
such person or any of its Affiliates or Associates beneficially owns, directly
or indirectly; (B) which such person or any of its Affiliates or Associates
has, directly or indirectly, (1) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding (other than pursuant to proxies
solicited by or on behalf of the Board of Directors) or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (2)
the right to vote pursuant to any agreement, arrangement or understanding; or
(C) which is beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Common Stock. For the purposes of
determining whether a person is an Interested Stockholder pursuant to
Subparagraph (iii) of this Paragraph (c), the number of shares of Common Stock
deemed to be outstanding shall include shares deemed beneficially owned by such
person through application of Subparagraph (iv) of this Paragraph (c), but
shall not include any other shares of Common Stock that may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(v) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended (the "Act"), as in effect on January 1, 1996 (the term
"registrant" in Rule 12b-2 meaning in this case the corporation).
(vi) The term "Subsidiary" means any corporation of which a majority of
any class of equity security is beneficially owned by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Subparagraph (iii) of this Paragraph (c), the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is beneficially owned by the corporation.
(vii) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is not
an Affiliate or Associate or representative of the Interested Stockholder and
was a member of the Board prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor of a Continuing Director,
while such successor is a member of the Board of Directors, who is not an
Affiliate or Associate or representative of the Interested Stockholder and is
recommended or elected to succeed the Continuing Director by a majority of
Continuing Directors.
(viii) The term "Substantial Part" means assets having an aggregate Fair
Market Value (as hereinafter defined) in excess of five percent (5%) of the
book value of the total consolidated assets of the corporation and its
Subsidiaries as of the end of the corporation's most recent fiscal year ending
prior to the time the stockholders of the corporation would be required to
approve or authorize the Business Combination involving assets constituting any
such Substantial Part.
(ix) The term "Fair Market Value" means (A) in the case of cash, the
amount of such cash; (B) in the case of stock, the highest closing sale price,
during the 30-day period immediately preceding the date in question, of a share
Page 26
<PAGE>
of such stock on the principal United States securities exchange registered
under the Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation with respect to a share of
such stock, during the 30-day period preceding the date in question, on the
National Association of Securities Dealers, Inc. Automated Quotation System or
any similar system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and (C) in
the case of property other than cash or stock, the fair market value of such
property on the date in question as determined in good faith by a majority of
the Continuing Directors.
(x) The term "Control Transaction" shall mean:
(A) any merger or consolidation of this corporation or any Subsidiary as
a result of which (i) this corporation no longer is the beneficial owner of a
majority of the outstanding shares of common stock of such Subsidiary, or (ii)
the stockholders of this corporation immediately preceding such merger or
consolidation are not, collectively, the beneficial owners (in proportion to
their respective beneficial ownership of Common Stock immediately preceding
such merger or consolidation (excluding only the effect of the exercise of
statutory dissenters' rights or the payment of cash in lieu of fractional
shares)) of at least sixty percent (60%) of the outstanding shares of common
stock of the surviving corporation immediately following the consummation of
such merger or consolidation; or
(B) any sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of this corporation or
any Subsidiary; or
(C) the adoption of any plan or proposal for the liquidation or
dissolution of, or similar transaction involving, the corporation or any
Subsidiary; or
(D) the issuance to any person, in one transaction or a series of
transactions, of common stock, or securities convertible into common stock, of
the corporation or any Subsidiary as a result of which such person would be (or
would, if then converted, become) the beneficial owner of twenty-five percent
(25%) or more of the outstanding common stock of the corporation or any
Subsidiary; or
(E) any agreement, contract or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (A) to (D).
(d) The Board of Directors shall have the power and duty to determine for
the purposes of this Article EIGHTH, on the basis of information known to them
after reasonable inquiry, (A) whether a person is an Interested Stockholder,
(B) the number of shares of Common Stock or other securities beneficially owned
by any person, (C) whether a person is an Affiliate or Associate of another and
(D) whether the assets that are the subject of any Business Combination have,
or the consideration to be received for the issuance or transfer of securities
by this corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value in excess of the amount set forth in Subparagraph
(ix)(B) of Paragraph (c) of this Article EIGHTH, or whether the assets that are
the subject of any possible Control Transaction constitute all or substantially
all of the assets of the corporation or any Subsidiary. Any such determination
made in good faith shall be binding and conclusive on all parties.
Page 27
<PAGE>
(e) Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
(f) In addition to any affirmative vote required by law, these Articles
of Incorporation, the bylaws of the corporation or otherwise, except as
otherwise expressly provided in this Paragraph (f), the corporation shall not
engage, directly or indirectly, in any Control Transaction (as defined in
Paragraph (c) of this Article EIGHTH) without the approval of at least a
majority of the directors of the corporation and the affirmative vote of not
less than sixty-six and two-thirds percent (66 2/3%) of the votes entitled to
be cast by the holders of all outstanding shares of stock entitled to vote.
Such approval and affirmative vote shall be required notwithstanding the fact
that no vote or approval may be required, or that a lesser percentage vote or
approval may be specified by law or otherwise.
(g) Notwithstanding any other provisions of the Articles of Incorporation or
the Bylaws of the corporation (and notwithstanding the fact that a lesser
percentage or separate class vote may be specified by law, the Articles of
Incorporation or the Bylaws of the corporation), the affirmative vote of the
holders of not less than (i) eighty percent (80%) of the votes entitled to be
cast by the holders of all outstanding shares of Common Stock shall be required
to amend or repeal, or adopt any provisions inconsistent with Paragraphs (a)
through (e) of this Article EIGHTH, and (ii) sixty-six and two-thirds percent
(66 2/3%) of the votes entitled to be cast by the holders of all outstanding
shares of Common Stock shall be required to amend or repeal, or adopt any
provisions inconsistent with Paragraph (f) of this Article EIGHTH; provided,
however, that, with respect to Paragraphs (a) through (e) of this Article
EIGHTH such special voting requirements shall not apply to, and such special
votes shall not be required for, any amendment, repeal or adoption recommended
by the Board if a majority of the Directors then in office are persons who
would be eligible to serve as Continuing Directors.
EXHIBIT 27. Financial Data Schedule.
B. REPORTS ON FORM 8-K
During the registrant's first six months ended June 30, 1996 the
registrant was not required to and did not file any reports on Form 8-K.
Page 28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST NATIONAL LINCOLN CORPORATION
August 12, 1996 Daniel R. Daigneault
Date Daniel R. Daigneault
President and CEO
August 12, 1996 F. Stephen Ward
Date F. Stephen Ward
Treasurer
Page 29
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