<PAGE>
- --------------------------------------------------------------------------------
As filed with the Securities and Exchange Commission on April 18, 1996
- --------------------------------------------------------------------------------
Registration No. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1177661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
-----------------------
36 Thomas Drive
Westbrook, Maine 04092
(207) 774-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------------
Gregory T. Caswell
President and Chief Executive Officer
First Coastal Corporation
36 Thomas Drive
Westbrook, Maine 04092
(207) 774-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
Howard I. Flack, Esq. Dean F. Hanley, Esq.
James G. McMillan, Esq. Foley, Hoag & Eliot
Hogan & Hartson L.L.P. One Post Office Square
555 Thirteenth Street, N.W. Boston, Massachusetts 02109
Washington, D.C. 20004 (617) 832-1000
(202) 637-5600
----------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement is declared effective.
--------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
--------------------
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. |X|
--------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. |_|
-------------------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. |_|
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------- ------------ ----------------------- ------------------------ --------------------
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per unit aggregate offering price registration fee (1)
registered
- ---------------------- ------------ ----------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
Common Stock 750,000 $4.75 $3,562,500 $1,229
- ---------------------- ------------ ----------------------- ------------------------ --------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(e) under the Securities Act of 1933.
----------------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which officially states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
FIRST COASTAL CORPORATION
---------------------
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
<CAPTION>
Form S-2 Item Caption or Location in Prospectus
------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Summary; Risk Factors
4. Use of Proceeds...................................... Summary; Use of Proceeds
5. Determination of Offering Price...................... Summary; Determination of Subscription Price
6. Dilution............................................. *
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Cover Page; Summary; The Offering; Standby
Purchase Agreements; Plan of Distribution
9. Description of Securities to be Registered........... Summary; Market for Common Stock and Dividends;
Description of Capital Stock
10. Interests of Named Experts and Counsel............... *
11. Information with Respect to the Registrant........... Summary; Market for Common Stock and Dividends;
First Coastal Corporation Annual Report on Form
10-K for the Year Ended December 31, 1995
12. Incorporation of Certain Information by Reference....
Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Statement as to Indemnification
<FN>
- -------------
* Item is omitted because answer is negative or item is not applicable.
</FN>
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 18, 1996
FIRST COASTAL CORPORATION
(the holding company for Coastal Savings Bank)
750,000 Shares of Common Stock
------------------------------
First Coastal Corporation (the "Company") is offering (the "Rights
Offering") for sale up to ___________ shares of its Common Stock, par value
$1.00 per share (the "Common Stock"), to holders of record of Common Stock at
the close of business on ________, 1996 (the "Record Date"), pursuant to
nontransferable rights (the "Rights") to purchase shares of Common Stock at a
price of $____ per share (the "Subscription Price"). The Rights Offering is made
as part of an offering (the "Offering") of 750,000 shares (the "Shares"), which
also will include purchases by Standby Purchasers and a Community Offering of
any Shares not otherwise subscribed for in the Rights Offering or purchased by
Standby Purchasers as described below.
Each stockholder of the Company at the close of business on the Record
Date (the "Record Date Holder") is receiving one Right for each ________ shares
of Common Stock held on such date. Each Right will entitle the Record Date
Holder to subscribe for one share of Common Stock (the "Stockholder Subscription
Privilege"). In lieu of fractional Rights, the aggregate number of Rights issued
by the Company to a stockholder will be rounded up to the next whole number. The
Company
. . . continues on next page
----------------------
The Common Stock offered hereby involves a high degree of risk. See
"Risk Factors" beginning on page 18.
----------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Price Estimated Fees
to Public and Expenses (1) Proceeds to the Company (2)
- ----------------- ----------------- ---------------- ---------------------------
Per Share (3).... $_______ $_______ $_______
- ----------------- ----------------- ---------------- ---------------------------
Total............ $_______ $_______ $_______
================================================================================
(1) Consists of estimated fees and expenses of the Company to be paid to First
Albany Corporation ("First Albany" or the "Placement Agent") as
compensation in connection with its efforts to advise and assist the
Company with respect to the Offering. Such fees are equal to 5.0% of the
aggregate gross proceeds raised in the Offering, less a portion of certain
fees previously paid to First Albany for its financial advisory services.
To the extent that Shares are sold in the Community Offering by
broker-dealers engaged by the Company pursuant to certain broker assistance
agreements to be entered into with the Company, such broker-dealers will
receive commissions equal to 3.0% of the aggregate dollar amount of such
sales, and First Albany's compensation will be reduced so that the total
compensation paid for such Shares will equal 6.5% of the gross proceeds
from the sale of such Shares. The Company has agreed to reimburse the
Placement Agent for certain legal and other expenses not to exceed $40,000
and to indemnify the Placement Agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
(2) Before deducting other expenses payable by the Company estimated at an
aggregate of $_______.
(3) In recent years prior to the Offering, there has been no established market
for the Common Stock. The Subscription Price of $______ per share was
determined by the Board of Directors of the Company with the assistance of
First Albany. See "Determination of Subscription Price."
First Albany Corporation
________, 1996
<PAGE>
is concurrently offering Shares not subscribed for in the Rights Offering to
members of the general public to whom a copy of this Prospectus is delivered
(the "Community Offering"), subject to the prior rights of Record Date Holders
in the Rights Offering and the prior rights of Standby Purchasers with respect
to the Minimum Standby Purchase Commitment as described below. See "The Offering
- -- Rights Offering," "The Offering -- Community Offering" and "Standby Purchase
Agreements."
The Company intends to enter into standby purchase agreements (the
"Standby Purchase Agreements"), pursuant to which, subject to certain
conditions, standby purchasers (the "Standby Purchasers") will severally agree
to acquire from the Company, at the Subscription Price, up to ________ Shares,
if available, after the Rights Offering and the Community Offering. Pursuant to
such agreements, the Company will agree to sell, and the Standby Purchasers will
agree to purchase, a minimum of _______ Shares (the "Minimum Standby Purchase
Commitment") at the Subscription Price. See "Standby Purchase Agreements."
Any subscription pursuant to the Rights Offering or the Community
Offering will be irrevocable. Subscriptions received for Shares will be
deposited in an escrow account maintained with Chemical Mellon Shareholder
Services, Ridgefield Park, New Jersey, as subscription agent (the "Subscription
Agent"), and will not earn interest. The Company reserves the right to reject
subscriptions received in whole or in part at the sole discretion of the
Company. In this connection, the Company does not anticipate accepting any
purchases of five percent or more of the Common Stock in the Offering, but
reserves the right to do so. Purchases of shares of the Company, including
purchases pursuant to this Offering, are subject to certain limitations. See
"The Offering -- Limitations on Purchase of Stock" and "Description of Capital
Stock."
The Rights Offering and the Community Offering are made on a "best
efforts" basis and are conditioned upon all of the Shares being sold and to the
consummation of the other transactions pursuant to the Recapitalization of the
Company as described in this Prospectus. The Offering will expire at 5:00 p.m.,
Eastern time, on __________________, 1996, subject to the extension by the
Company, in its sole discretion, from time to time through ________________,
1996 (the "Expiration Date"). After the Expiration Date, the Rights will no
longer be exercisable. If the Offering has not been consummated within 30 days
following the Expiration Date, the Offering will be terminated and all amounts
submitted by Record Date Holders and participants in the Community Offering (the
"Community Offering Participants") will be returned without interest.
In recent years prior to this Offering, there has been no established
market for the Common Stock, and there can be no assurance an established market
for such stock will develop. Application has been made for the listing of the
Common Stock on The Nasdaq SmallCap Market under the symbol "____", and First
Albany has indicated that it intends to make a market in the Common Stock
following the Offering.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. All information in this Prospectus has been
adjusted to reflect the one for ten reverse stock split with respect to the
Company's outstanding Common Stock effective May 31, 1995. Each prospective
investor is urged to read this Prospectus in its entirety, including "Risk
Factors" beginning on page 18 and the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 beginning on page A-1.
The Company
First Coastal Corporation, a Delaware corporation (the "Company"), is a
bank holding company whose sole operating subsidiary is Coastal Savings Bank, a
Maine chartered stock savings bank (the "Bank"). The Company has no separate
operations, and its business consists of the business of the Bank. The Bank was
formed in 1981 through the consolidation of Brunswick Savings Institution and
York County Savings Bank, which were organized in 1858 and 1860, respectively.
The Bank offers a broad range of financial services to consumer and
commercial customers in its market area. Its business consists of attracting
deposits from the general public and the application of those funds to the
origination of a variety of residential and commercial mortgage loans, home
equity and installment loans, and business loans. The Bank operates seven
full-service branch offices, located principally in coastal communities in
southern Maine, ranging from Brunswick in the north to Kennebunk in the south.
Of the Bank's $125.7 million in deposits at December 31, 1995, $75.3 million or
approximately 60% were attributable to the Bank's four northern branches,
located in downtown Brunswick, Cook's Corner (Brunswick), Topsham Fair Mall
(Topsham) and downtown Freeport. In addition, the Bank has two York County
branches located south of Portland in Saco and Kennebunk, and a branch based at
its corporate headquarters in Westbrook, a suburb of Portland. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
the limits provided by law.
After sustaining losses from 1987 to 1992, in recent years the Company
has concentrated its efforts on improving asset quality, increasing the Bank's
leverage capital ratio and reducing other operating expenses, with the overall
goal of improving core operating income. The Company returned to core operating
profitability in 1993 and has been profitable on a core operating basis since
such time. The following table sets forth the Company's net income (loss) for
each of the five years in the period ended December 31, 1995, adjusted to
reflect the exclusion of expenses related to the settlement of the cross
guaranty claim with the FDIC and the issuance of the FDIC Note as described
under "The Recapitalization."
(in thousands) 1991 1992 1993 1994 1995
- ---------------------------------------------------------------------------
Net income (loss)..... $ (10,595) $ (529) $ 748(a) $ (8,902) $ 1,660(a)
Expenses related to
FDIC settlement..... -- -- -- 812 310
FDIC Note and
related interest.... -- -- -- 9,000 419
---------- ------- ------- -------- --------
Adjusted net income
(loss).............. $ (10,595) $ (529) $ 748(a) $ 910 $ 2,389(a)
=========== ======== ======= ======== ========
(a) Net of provision reversal of $425,000 and $675,000 in 1993 and 1995,
respectively.
During the three year period ended December 31, 1995, the Company has
experienced a substantial improvement in its asset quality. The Company's
nonperforming assets declined from a level of $27.3 million at December 31, 1991
to $7.5 million at December 31, 1995. The Company anticipates a further
reduction in nonperforming assets, to approximately $3.6 million, at March 31,
1996. The Bank's Tier 1 capital to total assets ratio has increased from 4.42%
at December 31, 1991 to 9.19% at December 31, 1995. At December 31, 1995, the
Company had net operating loss
3
<PAGE>
carryforwards for federal tax purposes of approximately $6.8 million and
approximately $16.2 million on a pro forma basis assuming the consummation of
the Recapitalization as described below.
Business Strategy
The Company believes that there is a strong demand for a progressive,
competitive, service oriented community bank within the markets served by the
Bank, particularly as an alternative to the larger statewide and superregional
banks currently serving key portions of these markets. In this regard, the
Company's management has taken various steps to implement initiatives that it
believes will position the Bank as a strong, competitive community bank. These
initiatives include a significant expansion of the Bank's residential lending
capabilities through the addition of new programs and improved staffing, the
enhancement of the Bank's ability to be a competitive source of financing for
small businesses, the development and implementation of a comprehensive new
deposit program, and the retention and development of a highly motivated
management team and staff, including a strong customer service oriented team of
branch managers.
Although several of these initiatives are in their preliminary stage,
the Bank has experienced positive results from its efforts to date. For the
three month periods ended June 30, 1995, September 30, 1995 and December 31,
1995, residential loan originations were $1.4 million, $2.1 million and $2.6
million, respectively. As the Bank's level of nonperforming assets has continued
to decline, the Bank's loan staff has increasingly been able to direct its
resources to the generation of new loans. Plans currently call for the April
1996 implementation of the Bank's new deposit program, entailing increased
expenditures in marketing and a new mix of deposit products, which the Bank
believes will facilitate its efforts to increase its market share and its
non-interest income and to decrease its cost of funds. In addition, as part of
its efforts to provide enhanced customer service and improve branch
profitability, the Bank invested over $400,000 during 1995 in new signage, a
bank identity program and substantial capital improvements. Further initiatives
include the conversion of the Bank's existing computer system to a new system in
1996, which is expected to improve the Bank's product and service capabilities,
while providing cost savings estimated at $150,000 annually.
The Bank's senior management team is led by Gregory T. Caswell,
President and Chief Executive Officer, and Dennis D. Byrd, Executive Vice
President, Chief Financial Officer and Treasurer, each of whom has been actively
involved with the Bank's turnaround since the early 1990's. Mr. Caswell, who has
18 years of banking experience in northern New England, joined the Bank in 1991
as senior lending officer and has managed the Bank's efforts to improve asset
quality, including the significant reduction in nonperforming assets. Since Mr.
Caswell's appointment as President and Chief Executive Officer in March 1995,
the Company has made a number of staffing changes that have further enhanced the
Bank's overall capabilities in several key areas. In this connection, the
Company expanded its management team in early 1995 by hiring two experienced
senior bank managers, Roger H. Hunter and Robert S. Blackwood, Jr. Mr. Hunter,
formerly of Casco Northern Bank, N.A. ("Casco"), is employed as Senior Vice
President and Retail Services Manager. Mr. Blackwood, formerly of Casco and
First NH Bank, is employed as Senior Vice President and Senior Commercial Loan
Officer. Several other key management personnel have been hired, including new
branch managers at five of the Bank's seven branches.
The Recapitalization
On January 31, 1995, the Company and the Bank consummated a settlement
with the FDIC, pursuant to which the FDIC waived and released its cross guaranty
claim against the Bank in accordance with the terms and conditions of the
Amended and Restated Settlement Agreement, dated as of November 23, 1994 (the
"Amended and Restated Settlement Agreement"). The cross guaranty claim was the
result of the September 1991 failure of Suffield Bank, Suffield, Connecticut,
which prior to its receivership was a subsidiary of the Company. Under federal
law, commonly-controlled depository institutions, such as the Bank and Suffield
Bank, are liable for any actual or reasonably anticipated loss in connection
with the default of one or more of the commonly-controlled
4
<PAGE>
institutions. As part of the settlement, the Company issued to the FDIC a
non-recourse promissory note in the principal amount of $9.0 million (the "Note"
or the "FDIC Note"), secured by the Company's pledge of the outstanding stock of
the Bank. Principal and interest under the FDIC Note are deferred until its
maturity date, which is January 31, 1997, subject to extension under certain
circumstances. See Note A of "Item 8. Financial Statements and Supplementary
Data" of the Company's Annual Report on Form 10-K for the year ended December
31, 1995 attached to this Prospectus as Appendix A.
In order to satisfy in full the obligations of the Company under the
FDIC Note, the Company intends to consummate the following transactions
(collectively, the "Recapitalization"), each of which is conditioned upon the
consummation of the others and all of which are expected to close
simultaneously:
(i) the Company will sell the 750,000 shares of Common Stock offered
hereby at the Subscription Price equal to $____ per share, with estimated net
proceeds of approximately $________;
(ii) the Bank will pay a dividend in the amount of $3.4 million to the
Company (the "Bank Dividend");
(iii) the Company will borrow $4.0 million (the "Recapitalization
Loan") pursuant to a Loan Agreement (the "Recapitalization Loan Agreement") to
be entered into by the Company with _______ (the "Lenders"), and the Company
will pledge 100% of the outstanding common stock of the Bank in order to secure
such loan; and
(iv) the Company will pay the FDIC $9.0 million in principal and
approximately $700,000 in accrued interest, satisfying in full the Company's
obligations to the FDIC under the Note.
On April __, 1996, the Bank and Maine Bank & Trust Company ("MB&TC")
consummated a purchase and assumption agreement, dated as of February 22, 1996,
pursuant to which the Bank sold substantially all of the assets of its Kezar
Falls, Maine branch office to MB&TC, and MB&TC assumed certain liabilities of
the Bank with respect to the branch (the "Kezar Falls Branch Sale"). In
connection with the consummation of the Kezar Falls Branch Sale, the Bank
transferred cash of $______ and loans and fixed assets valued at their book
value of $______ to MB&TC, and MB&TC assumed deposit liabilities of $________.
The resulting $______ premium was booked as income to the Bank.
The address of the Company's principal executive offices is 36 Thomas
Drive, Westbrook, Maine 04092, and its telephone number is (207) 774-5000.
5
<PAGE>
COASTAL SAVINGS BANK LOCATIONS
Description of Graphic Material
A map of the State of Maine is included as part of the Prospectus. A
portion of the southern coast of Maine is represented in the inset; each
community location of Coastal Savings Bank is represented on the inset by a
star.
6
<PAGE>
Selected Consolidated Financial and Other Data
The following table sets forth certain selected consolidated financial
and other data of the Company as of and for each of the five years in the period
ended December 31, 1995. Such selected consolidated financial and other data is
derived from the Company's historical consolidated financial statements and
should be read in conjunction with, and is qualified in its entirety by, the
more detailed information, including the consolidated financial statements and
notes, included elsewhere herein. See the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 attached to this Prospectus as Appendix A.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
(dollars in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income.................................. $ 11,707 $ 11,780 $ 12,748 $ 16,319 $ 21,032
Interest expense (a)............................. 5,850 5,726 7,254 9,986 14,639
----------- ----------- ----------- ----------- -----------
Net interest income.............................. 5,857 6,054 5,494 6,333 6,393
Provision for loan losses (b).................... (425) 107 (30) 1,136 5,967
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses................................... 6,282 5,947 5,524 5,197 426
Investment securities gains (losses)............. (4) 38 99 (19) 360
Other income..................................... 576 391 1,323 1,126 980
Other expenses (c)............................... 5,194 6,278 6,158 7,049 12,853
Income tax benefit............................... -- -- (4) (198) (114)
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest
and extraordinary item........................ 1,660 98 792 (547) (10,973)
Minority interest in net income (loss)........... -- -- 44 (18) (378)
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item.......... 1,660 98 748 (529) (10,595)
Extraordinary item (d)........................... -- 9,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ 1,660 $ (8,902) $ 748 $ (529) $ (10,595)
=========== =========== =========== =========== ===========
Per Share Data (e):
Weighted average shares outstanding.............. 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary item.......... $ 2.77 $ .16 $ 1.25 $ (.88) $ (17.65)
Net income (loss)................................ 2.77 (14.83) 1.25 (.88) (17.65)
Period end book value per share.................. 6.66 3.35 16.45 15.21 16.09
Period end tangible book value per share......... 6.66 3.35 16.45 15.21 16.09
</TABLE>
(a) The 1995 interest expense includes $419,000 in interest expense associated
with the $9.0 million Note to the FDIC.
(b) Net of provision reversal of $675,000 and $425,000 in 1995 and 1993,
respectively.
(c) In 1995 and 1994, the Company incurred approximately $302,000 and $812,000,
respectively, in legal and other professional fees in connection with the
settlement of the cross guaranty claim with the FDIC. In 1991, the Company
incurred a $3.2 million charge to earnings as a result of the
deconsolidation of Suffield Bank.
(d) In 1994, the Company incurred a $9.0 million extraordinary charge to
earnings as a result of the issuance by the Company of the FDIC Note in
consideration of the waiver and release of the cross guaranty claim against
the Bank.
(e) As adjusted to reflect the one for ten reverse stock split with respect to
the Company's outstanding Common Stock effective May 31, 1995.
7
<PAGE>
<TABLE>
<CAPTION>
At or For the Period Ended December 31,
----------------------------------------------------------------
(dollars in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
End of Period Balance Sheet Data:
Total assets.................................. $ 145,453 $ 154,212 $ 170,819 $ 188,838 $ 214,422
Investment securities......................... 19,712 16,746 1,036 4,061 1,487
Assets held for sale.......................... 281 185 3,421 6,882 3,661
Loans, net of fees............................ 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses..................... 2,659 4,042 3,642 4,280 6,098
Nonperforming assets.......................... 7,517 9,006 11,627 24,382 27,303
Deposits...................................... 125,665 130,037 140,587 156,318 170,383
FHLB advances................................. 6,000 12,612 18,108 21,249 31,595
FDIC Note..................................... 9,000 9,000 -- -- --
Stockholders' equity.......................... 3,997 2,014 9,878 9,130 9,659
Average Balance Sheet Data:
Total assets.................................. $ 146,146 $ 162,587 $ 181,705 $ 199,393 $ 229,157
Loans, net of fees............................ 105,742 115,940 131,795 165,053 193,292
Deposits...................................... 121,503 129,841 141,243 153,993 171,228
Stockholders' equity.......................... 2,852 10,625 9,807 9,733 12,890
Financial Ratios:
Return on average assets before
extraordinary item........................... 1.14% .06% .41% (.27)% (4.62)%
Return on average assets...................... 1.14 (5.48) .41 (.27) (4.62)
Return on average equity before
extraordinary item........................... 58.20 .92 7.63 (5.44) (82.20)
Return on average equity...................... 58.20 (83.78) 7.63 (5.44) (82.20)
Net interest margin (f)....................... 4.19 3.97 3.31 3.40 2.93
Net interest rate spread (g).................. 4.13 3.79 3.26 3.26 2.47
Non-interest income to average assets......... .39 .26 .78 .56 .58
Efficiency ratio (h).......................... 80.79 96.84 89.04 94.74 166.21
Nonperforming assets to total assets.......... 5.17 5.84 6.81 12.91 12.73
Allowance for loan losses to
nonperforming assets......................... 35.37 44.88 31.32 17.55 22.33
Net charge-offs to average loans.............. .91 (.25) .46 1.76 2.39
Average loans to average deposits............. 87.03 89.29 93.31 107.18 112.89
Equity to assets.............................. 2.75 1.31 5.78 4.83 4.50
Tier 1 capital to total assets................ 2.74(i) 1.41 5.63 4.81 4.50
Tier 1 capital to risk-weighted assets........ 4.27(i) 2.14 8.42 6.74 6.18
Qualifying total capital to
risk-weighted assets......................... 5.54(i) 3.46 9.69 8.02 7.72
</TABLE>
- ------------------------
(f) Net interest income divided by average earning assets.
(g) Return on interest earning assets less cost of interest bearing
liabilities.
(h) Operating expenses divided by net interest income plus non-interest income.
(i) Applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets and qualifying total
capital to risk-weighted assets were 9.19%, 14.32% and 15.59%,
respectively, at December 31, 1995. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital"
of the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
8
<PAGE>
Selected Consolidated Quarterly Financial and Other Data
The following table sets forth certain selected consolidated financial
and other data of the Company as of and for each of the periods indicated. The
data has not been audited but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring accruals) which are necessary
to present fairly the data at the dates and for the periods indicated. The
selected consolidated quarterly financial and other data set forth below should
be read in conjunction with, and is qualified in its entirety by, the more
detailed information, including the consolidated financial statements and notes,
included elsewhere herein. See the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 attached to this Prospectus as Appendix A.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
(dollars in thousands, December 31, September 30, June 30, March 31, December 31, September 30,
except per share data) 1995 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Interest income...................... $ 2,913 $ 2,942 $ 2,935 $ 2,917 $ 3,005 $ 2,911
Interest expense..................... 1,501 1,492 1,458 1,399 1,352 1,433
--------- --------- --------- --------- --------- --------
Net interest income.................. 1,412 1,450 1,477 1,518 1,653 1,478
Provision for loan losses............ (675) 75 75 100 -- 40
---------- --------- --------- --------- --------- --------
Net interest income after
provision for loan losses.......... 2,087 1,375 1,402 1,418 1,653 1,438
Investment securities gains (losses). 7 1 (12) -- 6 --
Other income......................... 130 127 151 168 14 133
Other expenses....................... 1,296 1,210 1,327 1,361 1,434 1,594
Income tax benefit................... -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Income (loss) before extraordinary
item............................... 928 293 214 225 239 (23)
Extraordinary item................... -- -- -- -- 9,000 --
--------- --------- --------- --------- --------- --------
Net income (loss).................... $ 928 $ 293 $ 214 $ 225 $ (8,761) $ (23)
========= ========= ========= ========= ========== ========
Per Share Data:
Weighted average shares outstanding.. 600,361 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary
item............................... $ 1.55 $ .49 $ .36 $ .37 $ .40 $ (.04)
Net income (loss).................... 1.55 .49 .36 .37 (14.59) (.04)
Period end book value per share...... 6.66 5.07 4.59 4.02 3.35 18.13
Period end tangible book value
per share.......................... 6.66 5.07 4.59 4.02 3.35 18.13
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
At or For the Period Ended
---------------------------------------------------------------------------
(dollars in thousands, December 31, September 30, June 30, March 31, December 31, September 30,
except per share data) 1995 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
End of Period Balance
Sheet Data:
Total assets......................... $ 145,453 $ 145,102 $ 144,095 $ 146,605 $ 154,212 $156,537
Investment securities................ 19,712 16,904 11,894 16,898 16,746 14,894
Assets held for sale................. 281 373 409 238 185 389
Loans, net of fees................... 100,528 100,080 106,353 107,609 109,625 112,343
Allowance for loan losses............ 2,659 3,721 3,715 3,620 4,042 3,594
Nonperforming assets................. 7,517 7,978 8,453 8,116 9,006 8,941
Deposits............................. 125,665 126,330 125,619 127,027 130,037 131,992
FHLB advances........................ 6,000 6,000 6,150 7,667 12,612 13,018
FDIC Note............................ 9,000 9,000 9,000 9,000 9,000 --
Stockholders' equity................. 3,997 3,044 2,753 2,411 2,014 10,883
Average Balance Sheet Data:
Total assets......................... $ 144,686 $ 144,838 $ 145,774 $ 149,354 $ 155,179 $161,252
Loans, net of fees................... 101,632 102,969 107,325 109,320 110,671 113,821
Deposits............................. 125,576 126,123 127,006 127,337 130,927 135,270
Stockholders' equity................. 3,353 3,024 2,682 2,339 10,936 11,245
Financial Ratios (a):
Return on average assets before
extraordinary item................. 2.57% .81% .59% .60% .62% (.06)%
Return on average assets............. 2.57 .81 .59 .60 (22.58) (.06)
Return on average equity before
extraordinary item................. 110.71 38.76 31.92 38.48 8.74 (.83)
Return on average equity............. 110.71 38.76 31.92 38.48 (320.45) (.83)
Net interest margin (b).............. 3.90 4.00 4.05 4.07 4.26 3.67
Net interest rate spread (c)......... 4.01 4.16 4.25 4.20 4.29 3.71
Non-interest income to
average assets..................... .38 .35 .38 .45 .05 .33
Efficiency ratio (d)................. 83.67 76.68 82.12 80.72 85.71 98.94
Nonperforming assets to total assets. 5.17 5.50 5.87 5.54 5.84 5.71
Allowance for loan losses to
nonperforming assets............... 35.37 46.64 43.95 44.60 44.88 40.20
Net charge-offs to average loans..... 1.52 .27 (.07) 1.91 (1.62) (.01)
Average loans to average deposits.... 80.93 81.64 84.50 85.85 84.53 84.14
Equity to assets..................... 2.75 2.10 1.91 1.65 1.31 6.95
Tier 1 capital to total assets....... 2.74(e) 2.09 1.88 1.66 1.41 6.75
Tier 1 capital to risk-weighted assets 4.27(e) 3.29 2.87 2.52 2.14 10.52
Qualifying total capital to
risk-weighted assets............... 5.54(e) 4.58 4.16 3.80 3.46 11.80
</TABLE>
(a) Ratios derived from operating data have been presented on an annualized
basis.
(b) Net interest income divided by average earning assets.
(c) Return on interest earning assets less cost of interest bearing
liabilities.
(d) Operating expenses divided by net interest income plus non-interest income.
(e) Applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets and qualifying total
capital to risk-weighted assets were 9.19%, 14.32% and 15.59%,
respectively, at December 31, 1995. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital"
of the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
10
<PAGE>
Pro Forma Financial Data
The following unaudited pro forma consolidated balance sheet and
accompanying notes reflect the effects on the consolidated balance sheet of the
Company of the consummation of the Kezar Falls Branch Sale and the
Recapitalization of the Company. The pro forma consolidated balance sheet
assumes that the Kezar Falls Branch Sale and the Recapitalization were
consummated on December 31, 1995.
The pro forma consolidated balance sheet is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Kezar Falls Branch Sale or
the Recapitalization had been consummated nor is it necessarily indicative of
future operating results or financial position. The pro forma consolidated
balance sheet should be read in conjunction with the consolidated financial
statements and related notes of the Company included elsewhere herein. See the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
attached to this Prospectus as Appendix A.
<TABLE>
<CAPTION>
Recapitalization
and Kezar Falls
Kezar Falls Branch Sale Branch Sale
----------------------- Recapitalization ----------
Historical Pro Forma ----------- Pro Forma
December 31, Pro Forma December 31, Pro Forma December 31,
(in thousands) 1995 Adjustments 1995 Adjustments 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pro Forma Consolidated Balance Sheet
Assets:
Cash and cash equivalents............... $ 18,841 $ (9,392)(a) $ 9,449 $ 3,023 (b) $ 6,948
3,895 (c)
(9,419)(d)
Investment securities................... 21,027 -- 21,027 -- 21,027
Assets held for sale.................... 281 -- 281 -- 281
Loans net of allowance for loan losses.. 97,869 (2)(a) 97,867 -- 97,867
Fixed assets............................ 3,073 (107)(a) 2,966 -- 2,966
Real estate owned and repossessions..... 1,973 -- 1,973 -- 1,973
Other assets............................ 2,389 -- 2,389 105 (c) 2,494
--------- -------- --------- -------- ---------
Total Assets............................ $ 145,453 $ (9,501) $ 135,952 $ (2,396) $ 133,556
========= ======== ========= ======== =========
Liabilities:
Deposits................................ $ 125,665 $ (9,901)(a) $ 115,764 -- $ 115,764
FHLB advances........................... 6,000 -- 6,000 -- 6,000
FDIC Note............................... 9,000 -- 9,000 $ (9,000)(d) 0
Recapitalization Loan................... 4,000 (c) 4,000
Other liabilities....................... 791 -- 791 (419)(d) 372
--------- -------- --------- -------- ---------
Total Liabilities....................... 141,456 (9,901) 131,555 (5,419) 126,136
Stockholders' Equity:
Common stock ($1.00 par value).......... 600 -- 600 750 (b) 1,350
Paid-in capital......................... 29,375 -- 29,375 2,273 (b) 31,648
Retained earnings prior year............ (27,676) -- (27,676) -- (27,676)
Current year earnings................... 1,660 400 (a) 2,060 -- 2,060
Unrealized gain on available for sale
securities........................... 38 -- 38 -- 38
--------- -------- --------- -------- --------
Total Stockholders' Equity.............. 3,997 400 4,397 3,023 7,420
--------- -------- --------- -------- --------
Total Liabilities and
Stockholders' Equity................. $ 145,453 $ (9,501) $ 135,952 $ (2,396) $ 133,556
========= ======== ========= ======== =========
</TABLE>
(a) On February 22, 1996, the Bank entered into a purchase and assumption
agreement to sell its Kezar Falls branch to MB&TC. Included in the sale are
all the branch deposits (totaling approximately $9.9 million at December
31, 1995), the real estate and certain of the furniture, fixtures and
equipment of the branch. The purchase and assumption agreement provides
that the Bank will be paid a premium on the deposits equaling 4.02% of the
average deposits for the
11
<PAGE>
Footnotes (continued)
29 days between February 15, 1996 and March 15, 1996, which premium is
expected to equal approximately $400,000. The purchase and assumption
agreement is expected to be consummated during the second quarter of 1996,
subject to the receipt of appropriate regulatory approvals.
(b) The pro forma information relating to the issuance of 750,000 shares of
Common Stock is based on estimates by management and is presented for
illustrative purposes only and is not necessarily indicative of the actual
gross proceeds or price per share of the Offering. The pro forma price per
share is assumed to be $4.75. Costs associated with the Offering are
estimated at $540,000.
(c) Pursuant to the Recapitalization Loan Agreement, the Company will borrow
$4.0 million and will pledge 100% of the outstanding common stock of the
Bank to secure its obligations under the Recapitalization Loan. The
Recapitalization Loan is expected to bear interest at the rate of 10.85%
per annum, payable quarterly, in arrears, commencing on the last day of
each calendar quarter following the consummation of the Recapitalization.
The Recapitalization Loan matures December 31, 2001. Costs associated with
the Recapitalization Loan are anticipated to be $105,000 and will be
amortized over the life of the loan.
(d) Reflects the repayment of the FDIC Note, including accrued interest through
December 31, 1995.
12
<PAGE>
The Offering
The Rights Offering..Each stockholder of the Company is receiving one
nontransferable right (the "Right") for each ____ shares of
Common Stock held of record at the close of business on
______________, 1996 (the "Record Date Holder"). Each Right
will entitle the holder thereof to purchase from the
Company one share of Common Stock (the "Stockholder
Subscription Privilege") for a price of $____ per share
(the "Subscription Price"). The number of Rights issued by
the Company to each Record Date Holder will be rounded up
to the nearest whole number. Record Date Holders may
subscribe for fewer Shares in the Rights Offering than they
have Rights to purchase. Record Date Holders may also
subscribe for additional shares in the Community Offering
as described below, subject to certain limitations.
The Rights Offering is made as part of an offering (the
"Offering") of 750,000 shares (the "Shares"), which also
will include purchases by Standby Purchasers and a
Community Offering of any Shares not otherwise subscribed
for in the Rights Offering or purchased by Standby
Purchasers as described below. See "The Offering -- Rights
Offering."
Subscription Price...$____ per Share, payable in cash. See "The Offering --
Subscription Price" and "Determination of Subscription
Price."
Record Date..........____________, 1996 (the "Record Date").
Expiration Date......The Offering will expire at 5:00 p.m., Eastern time, on
____________, 1996, subject to the extension by the
Company, in its sole discretion, from time to time through
___________, 1996 (the "Expiration Date"). After the
Expiration Date, the Rights will no longer be exercisable.
If the Offering has not been consummated within 30 days
following the Expiration Date, the Offering will be
terminated and all amounts submitted by Record Date Holders
and participants in the Community Offering (the "Community
Offering Participants") will be returned without interest.
See "The Offering -- Expiration Date."
Subscription
Procedure for
Exercising Rights....The Stockholder Subscription Privilege may be exercised by
properly completing the subscription order form (the
"Subscription Order Form") and forwarding it (or following
the Guaranteed Delivery Procedures described under "The
Offering -- Subscription Procedure"), with payment of the
Subscription Price for each Share subscribed for pursuant
to the Stockholder Subscription Privilege, to the
subscription agent (the "Subscription Agent"), which must
receive such Subscription Order Form and payment at or
prior to the Expiration Date. Once a Record Date Holder has
exercised the Stockholder Subscription Privilege, such
exercise may not be revoked. Subscription Order Forms
should be sent with the payment to the Subscription Agent.
Do not send Subscription Order Forms to the Company. The
13
<PAGE>
Company reserves the right to reject subscriptions received
in whole or in part at the sole discretion of the Company.
See "The Offering -- Subscription Procedure" and "The
Offering -- No Revocation."
Payments will be held in a segregated account maintained by
the Subscription Agent pending the issuance of certificates
representing the Shares purchased or the return of the
payment which will be made without interest.
The sale of Shares upon the exercise of Rights is
conditioned upon all of the Shares being sold and to the
consummation of the other transactions pursuant to the
Recapitalization. See "The Recapitalization."
Persons Holding
Common Stock
or Wishing to
Exercise Rights
through Others.......Persons holding shares of Common Stock beneficially, and
receiving the Rights with respect thereto, through a
broker, dealer, commercial bank, trust company or other
nominee, should contact the appropriate institution or
nominee and request it to effect such transactions for
them. See "The Offering -- Subscription Procedure."
Community Offering...The Company is concurrently offering Shares not subscribed
for in the Rights Offering to members of the general public
to whom a copy of this Prospectus is delivered (the
"Community Offering"), subject to the prior rights of
Record Date Holders in the Rights Offering and the prior
rights of Standby Purchasers with respect to the Minimum
Standby Purchase Commitment and the other purchase
limitations described herein. It is anticipated that Shares
offered in the Community Offering may be offered through
broker-dealers engaged by the Company pursuant to certain
broker assistance agreements to be entered into with the
Company. If there is an insufficient number of Shares
available to satisfy all subscriptions received in the
Community Offering, the Company reserves the right to allot
such Shares among the Community Offering Participants.
There can be no assurance that any Shares will be available
to satisfy in whole or in part a Community Offering
Participant's subscription. See "The Offering -- Community
Offering" and "Plan of Distribution."
Procedure for
Purchasing
Shares in the
Community Offering...Persons who desire to participate in the Community Offering
must properly complete the order form (the "Community Order
Form") which accompanies this Prospectus and forward it (or
follow the Guaranteed Delivery Procedures described under
"The Offering -- Subscription Procedure"), with payment of
the aggregate Subscription Price to the Subscription Agent,
which must receive such Community Order Form and payment at
or prior to the Expiration Date. Subscriptions for Shares
which are received by the Subscription Agent from Community
Offering Participants may not be revoked. Community Order
Forms should be sent with the
14
<PAGE>
payment to the Subscription Agent. Do not send Community
Order Forms to the Company. The Company reserves the right
to reject subscriptions received in whole or in part at the
sole discretion of the Company. See "The Offering --
Subscription Procedure" and "The Offering -- No
Revocation."
Payments will be held in a segregated account maintained by
the Subscription Agent pending the issuance of certificates
representing the Shares purchased or the return of the
payment which will be made without interest.
The sale of Shares in the Community Offering is conditioned
upon all of the Shares being sold and to the consummation
of the other transactions pursuant to the Recapitalization.
See "The Recapitalization."
Standby Purchase
Agreements...........The Company intends to enter into standby purchase
agreements (the "Standby Purchase Agreements"), pursuant to
which, subject to certain conditions, standby purchasers
(the "Standby Purchasers") will severally agree to acquire
from the Company, at the Subscription Price, up to _______
Shares, if available after the Rights Offering and the
Community Offering. Pursuant to such agreements, the
Company will agree to sell, and the Standby Purchasers will
agree to purchase, a minimum of __________ Shares (the
"Minimum Standby Purchase Commitment") at the Subscription
Price. See "Standby Purchase Agreements."
Stock Purchase
Limitations..........The Company has substantial net operating loss
carryforwards for federal tax purposes. In order to reduce
the likelihood that there will be a reduction in the amount
of such carryforwards by reason of an "ownership change" as
defined in Section 382 of the Internal Revenue Code of
1986, as amended, the Company's Board of Directors has
adopted, subject to stockholder approval, an amendment to
the Company's Restated Certificate of Incorporation which
provides that unless otherwise approved by the Company's
Board of Directors, no person shall become or make an offer
to become the beneficial owner of five percent or more of
the Company's voting stock for three years from the
effective date of the amendment. Such amendment further
provides that holders of five percent or more of the
Company's outstanding voting stock on the date the
amendment is effective will not be deemed in violation of
the provision; provided, however, that if after the
effective date, any such five percent or more holder shall
become or make an offer to become the beneficial owner of
any additional shares of voting stock, such person will be
deemed to be in violation of the amendment. In connection
with the approval of the amendment, the Board of Directors
of the Company has approved the acquisition of Shares in
the Offering by stockholders of the Company holding five
percent or more of the Company's voting stock on the
effective date up to such number of Shares as would cause
such
15
<PAGE>
stockholder to maintain his or her pre-Offering percentage
ownership interest in the Company following the Offering.
If the amendment is approved by the requisite vote of the
Company's stockholders at its annual meeting of
stockholders currently scheduled for June 4, 1996, it will
be effective prior to the consummation of the Offering and
will apply to purchases of Shares in the Offering. In this
connection, the Company does not anticipate accepting any
purchases of five percent or more of the Common Stock in
the Offering, but reserves the right to do so. The
Company's Restated Certificate of Incorporation includes
certain other restrictions and limitations with respect to
the acquisition of the Company's securities. See "The
Offering -- Limitations on Purchase of Stock" and
"Description of Capital Stock."
Issuance of Common
Stock Certificates...Separate certificates representing Shares purchased will be
delivered as soon as practicable after the Expiration Date.
See "The Offering -- Subscription Procedure."
Subscription Agent...Chemical Mellon Shareholder Services
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 777-3674
Shares Outstanding
after the Offering...As of the date of this Prospectus, there were 600,361
shares of Common Stock outstanding. Following the issuance
of 750,000 Shares of Common Stock pursuant to the Offering,
1,350,361 shares of Common Stock are expected to be issued
and outstanding. See "The Offering" and "Standby Purchase
Agreements."
Plan of
Distribution.........The Company and First Albany Corporation ("First Albany" or
the "Placement Agent") have entered into an agreement
pursuant to which First Albany has been engaged to act as
the Company's financial advisor and as the Company's
Placement Agent in connection with the Offering. It is
anticipated that Shares offered in the Community Offering
may be offered through broker-dealers engaged by the
Company pursuant to certain broker assistance agreements to
be entered into with the Company. The Company has agreed,
in connection with the Offering, to pay certain fees to the
Placement Agent, to reimburse the Placement Agent for
certain legal and other expenses and to indemnify the
Placement Agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Neither First Albany nor any of the
broker-dealers will have any obligation to purchase or
accept any Shares of Common Stock in the Offering. See
"Plan of Distribution."
Indications of
Interest.............Directors and officers of the Company have advised the
Company that they intend to purchase an aggregate of
_______ Shares, pursuant to the Rights Offering and the
Community Offering. These individuals are under no binding
obligation with regard to such indications of interest.
16
<PAGE>
Risk Factors.........A purchase of the Shares involves a high degree of risk.
See "Risk Factors."
Nasdaq SmallCap
Market Symbol
for Common Stock....."_______" (proposed)
Dividends............It is not anticipated that the Company will distribute any
dividends to stockholders in the foreseeable future. The
Company is subject to certain restrictions on its ability
to pay dividends, including those arising from the
Recapitalization Loan. The Company's principal source of
cash is from dividends from the Bank, and certain
restrictions also exist regarding the ability of the Bank
to transfer funds to the Company. See "Market for Common
Stock and Dividends" and "Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters" of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 attached to this Prospectus as Appendix
A.
Information
Regarding
the Offering.........Questions regarding the Offering should be directed to
Dennis D. Byrd, Treasurer, First Coastal Corporation, at
(207) 774-5000 or John H. Howland, Vice President, First
Albany Corporation, at (617) 228-3076
17
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a significant degree of
risk. In determining whether to make an investment in the Common Stock,
prospective investors should consider carefully all of the information set forth
in this Prospectus, including the following factors.
Ability to Service Debt and Pay Operating Expenses
Under the terms of the proposed Recapitalization Loan, the Company will
be required to make quarterly interest payments, initially equal to $108,500.
Beginning June 30, 1998, the Company will be required to make semi-annual
principal payments of $200,000. In addition, the Company estimates that its
other operating expenses at the holding company level will be approximately
$125,000 on an annual basis for the foreseeable future, although unforeseen
events could cause such expenses to be higher. At December 31, 1995, the Company
had approximately $100,000 in cash at the holding company level. After giving
effect to the Offering and the other transactions pursuant to the
Recapitalization, the Company estimates that it will have approximately $500,000
in cash at the holding company level to pay its operating expenses and to
service debt. Since the Company has no sources of income other than dividends
from the Bank, the Company will be dependent upon the payment of dividends by
the Bank to make debt service payments and to pay future operating expenses.
The payment of dividends by the Bank to the Company is subject to the
approval of the FDIC and the Bureau of Banking of the State of Maine (the "Maine
Bureau of Banking"), as set forth in the Memorandum of Understanding among such
parties effective November 22, 1994, as well as to various restrictions set
forth in the Recapitalization Loan Agreement and arising under Maine corporate
law. Maine corporate law generally provides that dividends may only be paid out
of unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. Maine banking law also imposes certain restrictions, including
the requirement that the Bank establish and maintain adequate levels of capital
as set forth in rules adopted by the Maine Bureau of Banking. While the Company
currently anticipates that earnings from the Bank will be sufficient to enable
the Bank to pay dividends to the Company in an amount that will enable the
Company to satisfy the debt service requirements on the Recapitalization Loan
and its operating expenses, there can be no assurance that the Bank's earnings
will be sufficient to satisfy such requirements or that the Bank will receive
the necessary regulatory approvals to pay such dividends to the Company. Since
the Recapitalization Loan is secured by 100% of the outstanding common stock of
the Bank, the failure by the Company to make principal and interest payments as
required under the Recapitalization Loan will result in an event of default (as
defined) under the Recapitalization Loan Agreement and could result in the sale
of the Bank, which is held as collateral for the Recapitalization Loan, by the
Lenders. In that event, the Company would have no operating business and no
source of revenues other than any remaining proceeds from the disposition of the
Bank.
Asset Quality
The economic downturn and the sharp decline in real estate values which
accompanied the downturn during the late 1980s and early 1990s had a material
adverse effect on the quality of the Bank's loan portfolio and contributed to a
deterioration of the Bank's asset quality. As a result, the Bank's nonperforming
assets totaled $27.3 million, representing 12.7% of total assets, at December
31, 1991. Since 1991, a primary focus has been the improvement of the credit
quality of the Bank's loan portfolio through the identification of additional
potential problem assets and the administration and workout of the Bank's
nonperforming and potential problem assets. Nonperforming assets have declined
to $7.5 million (or 5.2% of total assets) at December 31, 1995, representing a
decrease of 72.5% from the December 31, 1991 level.
For several years, the high levels of nonperforming assets required
increased provisions for loan losses, writedowns on real estate owned and loan
charge-offs, and had a significant adverse
18
<PAGE>
effect on the Bank's interest income and operating expenses. While management
expects the level of nonperforming assets to continue to decline during 1996,
such expectation is based on the continued stabilization of the real estate
market in the Bank's market areas and the continuation in the trend of lower
default rates on commercial real estate loans, although there can be no
assurance that such will be the case.
Loan Portfolio Concentration
At December 31, 1995, the Bank had approximately $50.8 million of
commercial real estate mortgage loans, representing 50.5% of total loans at such
date, comprised primarily of loans secured by apartment buildings, mixed use
commercial buildings, office buildings and other income-producing properties.
The Bank's concentration of commercial real estate assets (representing
commercial real estate loans and real estate owned) was 36.3% of total assets at
December 31, 1995. At December 31, 1995, the Bank also had approximately $2.5
million of commercial business loans.
Banks with loans concentrated in commercial real estate are likely to
be adversely affected by problems in the real estate market or the economy in
general. Commercial real estate lending involves significant additional risks as
compared to one-to-four family residential mortgage lending, and typically
accounts for a disproportionate share of charge-offs, delinquent loans and real
estate owned through foreclosure or by deed in lieu of foreclosure. Such lending
generally involves larger loan balances (to a single borrower or groups of
related borrowers) than is involved with residential and other types of lending,
and repayment of the loan is likely to be more dependent on the underlying
business and financial condition of the borrower and the borrower's tenants, and
is more susceptible to adverse future developments. If the cash flow from income
producing property securing real estate loans is reduced (for example, because
leases are not obtained or renewed, or lease rates decline), the borrower's
ability to repay these loans may be materially impaired. These risks can be
significantly affected by considerations of supply and demand in the market for
multi-family, office, manufacturing and retail space and by general economic
conditions. Management does not expect either a significant increase or decrease
in the foreseeable future in the level of commercial real estate assets as a
percentage of total assets. The Bank's primary focus with respect to loan
portfolio growth is expected to come from various residential lending programs.
Decline in Loan Balances
The Company's loan balances declined by $80.7 million between January
1, 1992 and December 31, 1995. This decline is largely the result of two
factors: (i) the Bank's financial difficulties during the period and (ii) the
FDIC's cross guaranty claim against the Bank. In addition, pursuant to the Order
issued by the FDIC and concurred with by the Maine Bureau of Banking described
below under "Certain Supervisory Matters," the Bank was required to improve its
ratio of Tier 1 capital to total assets to 6.0% by December 31, 1993, from the
December 31, 1991 level of 4.42%, with incremental improvement required at six
month intervals. To comply with the requirements of the Order, management
effected a strategy of selective balance sheet shrinkage. Management also
expended significant resources addressing the cross guaranty claim and the
settlement thereof and the Bank's asset quality problems, which had an adverse
impact on loan origination activities.
Beginning in mid-1995, the Bank undertook to expand its residential and
consumer lending capabilities, and has subsequently experienced a significant
increase in new loan originations. If the Bank's efforts to increase loan
originations are not successful, and if the Bank experiences further declines in
its loan balances, or if as a result of competitive pressures or other factors,
the yield on new loan originations is lower than anticipated, such declines in
loan balances or the yield on new loan originations could have an adverse impact
on the Bank's ability to generate income and on the ability of the Company to
make debt service payments under the Recapitalization Loan. See "-- Ability to
Service Debt and Pay Operating Expenses."
19
<PAGE>
Certain Supervisory Matters
In order to address concerns arising from the FDIC's examination of the
Bank in 1991, the Bank consented effective January 23, 1992 to an Order to Cease
and Desist (the "Order") issued by the FDIC and concurred with by the Maine
Bureau of Banking, which Order was terminated effective December 8, 1994 and
replaced with a Memorandum of Understanding effective November 22, 1994 (the
"Memorandum of Understanding"). The Memorandum of Understanding provides, among
other things, that (i) the Bank continue to maintain its allowance for loan and
lease losses in accordance with applicable regulatory requirements, (ii) the
Board of Directors of the Bank continue to review the adequacy of the Bank's
loan and lease loss reserves and provide for adequate reserves, (iii) the Bank
continue to have Tier 1 capital at or in excess of 6% of the Bank's total
assets, (iv) the Bank continue to comply with the FDIC's Statement of Policy on
Risk-Based Capital, (v) the Bank provide monthly progress reports regarding
substandard or doubtful assets, (vi) the Bank agree not to extend or renew
credit to, or for the benefit of, any borrower who or which has a loan or other
extension of credit with the Bank that has been charged-off or classified in
whole or in part, loss, doubtful or substandard and is uncollected unless
certain conditions are met, (vii) the Bank not declare or pay any dividends
without the prior written consent of the FDIC and the Maine Bureau of Banking
and (vii) the Bank continue to furnish written progress reports detailing the
form and manner of any action taken to seek to secure compliance with the
Memorandum of Understanding.
The Board of Governors of the Federal Reserve System (the "Federal
Reserve") has adopted a leverage-based capital requirement for bank holding
companies with a composite rating of 1 under the bank holding company rating
system of a minimum level of tier 1 capital to total assets of 3.0%. All other
bank holding companies or bank subsidiaries of bank holding companies are
required to maintain a minimum ratio of tier 1 capital to total assets of 4.0%
to 5.0%. Under the Federal Reserve's risk-based capital guidelines, bank holding
companies or banks also are required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8.0%. The guidelines apply on a
consolidated basis to bank holding companies with consolidated assets of $150.0
million or more. For bank holding companies which have less than $150.0 million
in consolidated assets, as did the Company for each of the quarters ended March
31, 1995, June 30, 1995, September 30, 1995 and December 31, 1995, the
guidelines are applied on a bank-only basis (as opposed to a consolidated basis)
unless (i) the parent bank holding company is engaged in nonbank activity
involving significant leverage or (ii) the parent company has a significant
amount of debt that is held by the general public. The Federal Reserve capital
adequacy guidelines provide that "debt held by the general public" is debt held
by parties other than financial institutions, officers, directors, and
controlling stockholders of the banking organization or their related interests.
Neither the FDIC Note nor the Recapitalization Loan is considered to be "debt
held by the general public" for purposes of such capital guidelines. As a
result, applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets, qualifying total capital
to risk-weighted assets of 9.19%, 14.32%, and 15.59%, respectively, at December
31, 1995 were in compliance with such guidelines. If the Company were required
as of December 31, 1995 to calculate its ratios of tier 1 capital to total
assets, tier 1 capital to risk-weighted assets, and qualifying total capital to
risk-weighted assets on a consolidated basis, such ratios would be 2.74%, 4.27%,
and 5.54%, respectively.
In light of the Company's financial performance, including the high
level of nonperforming assets and the impact of the FDIC cross guaranty claim
during the past several years, the Company and the Bank will likely continue to
be subject to heightened scrutiny by supervisory authorities and may continue to
be monitored and reviewed more frequently than institutions which may be
considered by regulatory authorities to be in better condition. See "Item 1.
Business -- Regulation" and Note A of "Item 8. Financial Statements and
Supplementary Data" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 attached to this Prospectus as Appendix A.
20
<PAGE>
Competition
The Bank is a full service savings bank with seven banking offices in
the southern Maine communities of Brunswick, Freeport, Kennebunk, Saco, Topsham
and Westbrook. Competition among financial institutions in the Bank's market
area is intense and the Bank competes in obtaining funds and in making loans
with other state and national banks, savings and loan associations, consumer
financial companies, credit unions, and other financial institutions which have
far greater financial resources than those available to the Bank. The Bank also
faces competition for deposits from money market funds and other securities
funds offered by brokerage firms and other similar financial institutions. A
total of 45.5% of deposits in Maine are held by three large financial
institutions, two of which are wholly owned subsidiaries of superregional bank
holding companies with assets in excess of $50 billion and one of which is a
Maine-based savings bank with in-state assets in excess of $2 billion.
Competition among financial institutions is based upon interest rates and other
credit and service charges, the quality of services rendered, the convenience of
banking facilities and in the case of loans to larger commercial borrowers,
relative lending limits. For several years, the Company has experienced a
decline in deposit and loan balances. While the Bank's deposit balances have
stabilized in recent quarters, the Bank's loan balances have continued to
decline. If the Bank is unable to compete in obtaining deposits and making loans
effectively in its market area, such inability would likely have an adverse
effect on the Bank's growth and profitability.
Interest Rate Risk
The Company's results of operations are derived almost entirely from
the operations of the Bank and are heavily dependent on its net interest income.
Net interest income is the difference between the interest income received on
interest-earning assets, including loans and securities, and the interest
expense incurred in connection with interest-bearing liabilities, including
deposits and borrowings. Net interest income can be significantly affected by
changes in market interest rates. The Company closely monitors its assets and
liabilities in an effort to reduce the effects of changes in interest rates
primarily by altering the mix and maturity of the Company's loans, investments
and funding sources. Although the Bank is positioned to benefit generally from
rising interest rate environments, a significant rate decrease could have an
adverse effect on the Company's net interest income by decreasing the spread
between the rates earned on assets and paid on liabilities.
Changes in interest rates also affect the volume of loans originated by
the Bank, as well as the value of its loans and other interest-earning assets,
including investment securities. In addition, changes in interest rates may
result in an increase in higher cost deposit products within the Bank's existing
portfolio, as well as a flow of funds away from bank accounts into direct
investments (such as U.S. Government and corporate securities, and other
investment instruments such as mutual funds) to the extent that the Bank does
not pay competitive rates of interest. The mix of the Bank's deposits has varied
from year to year, with higher cost time deposits increasing in 1995 as a
percentage of the Bank's total deposits. This trend is largely reflective of an
industry-wide trend, reflecting the continuing impact of deregulation on the
banking industry, as well as increased competition for funds from nonbank
competitors, including money market and stock mutual funds.
Dependence on Key Personnel
The Bank's success is dependent to a large extent upon the continued
efforts and success of its Chief Executive Officer, its Chief Financial Officer,
and the other members of the Bank's senior management team who have primary
responsibility, among other things, for the successful implementation of the
Company's strategic plan, the continued improvement of its financial performance
and the further improvement of the Bank's asset quality. The loss of the
services of any one of these officers could adversely affect the operations of
the Bank and the Company.
21
<PAGE>
Possible Limitation of Tax Benefits
At December 31, 1995, the Company had net operating loss carryforwards
for federal tax purposes of approximately $6.8 million, and approximately $16.2
million on a pro forma basis assuming the consummation of the Recapitalization.
Section 382 of the Internal Revenue Code of 1986, as amended, contains complex
rules that place an annual limitation on the amount of net operating losses that
a corporation may utilize after an "ownership change" (as defined). If an
"ownership change" occurs in connection with the Offering or in the future as a
result of other transactions, the Company may be limited in its ability to
utilize its net operating losses. While the Company is seeking approval of an
amendment to its Restated Certificate of Incorporation which would limit the
acquisition of stock of the Company for a three year period in order to make it
more difficult for the Company to experience an ownership change, there can be
no assurance that such amendment will be approved by the Company's stockholders
or that it will successfully protect the Company from an ownership change. See
"Description of Capital Stock" and Note M of "Item 8. Financial Statements and
Supplementary Data" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 attached to this Prospectus as Appendix A.
Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
Excess real estate inventory, coupled with a general economic decline, adversely
affected the real estate markets in the Bank's market area in the late 1980s and
early 1990s and contributed to the deterioration in the Bank's asset quality
during such years. Poor economic conditions and depressed real estate markets
could adversely affect the financial condition and results of operations of the
Bank in the future. The economy of the Bank's market area is significantly
affected by certain large employers, and any significant reduction in the
operations of, or employment by, such employers could have an adverse impact on
the local economy and the Bank's financial condition.
Effect of Certain Charter, Bylaw and Statutory Provisions
The Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws, as well as Delaware law, contain certain provisions that could
have the effect of making it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of the Company.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of the Company's Common Stock. Certain of such
provisions allow the Company to issue, without stockholder approval, preferred
stock having rights senior to those of the Common Stock. Other provisions impose
various procedural and other requirements that could make it more difficult for
stockholders to acquire the Company's Common Stock or to effect certain other
corporate actions. In addition, the Company's Board of Directors is divided into
three classes, each of which serves for a staggered three-year term, which may
make it more difficult for a third party to gain control of the Company's Board
of Directors. The Board of Directors of the Company also recently adopted an
amendment, subject to stockholder approval, to the Company's Restated
Certificate of Incorporation that would prohibit, among other things, any person
becoming or making an offer to become the beneficial owner of five percent or
more of the Company's voting stock for three years from the effective date of
the amendment, unless otherwise approved by the Board of Directors. See
"Description of Capital Stock."
The Company and the Bank also are subject to regulation by several
government agencies, including the Federal Reserve, the FDIC and the Maine
Bureau of Banking, which implement and enforce statutory and regulatory
limitations on the acquisition of certain ownership interests in the Company and
the Bank. Such laws and the need to receive appropriate regulatory approvals in
connection with certain acquisitions could have the effect of discouraging
takeover attempts of the
22
<PAGE>
Company. See "-- Government Regulation" below and "Item 1. Business --
Regulation" of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 attached to this Prospectus as Appendix A.
Dividend Limitations
It is not anticipated that the Company will distribute any dividends to
stockholders in the foreseeable future. The Company is subject to certain
restrictions on its ability to pay dividends, including those arising from the
Recapitalization Loan. The Company's principal source of cash is from dividends
from the Bank, and certain regulatory restrictions also exist regarding the
ability of the Bank to transfer funds to the Company. See "Market for Common
Stock and Dividends" and Note J of "Item 8. Financial Statements and
Supplementary Data" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 attached to this Prospectus as Appendix A.
Determination of Subscription Price
The Subscription Price was determined by the Company's Board of
Directors, with the assistance of First Albany. In setting the price, various
factors deemed relevant were considered, including, without limitation, the
terms of the Offering and the Recapitalization, the Company's consolidated book
value and earnings in recent years, the stock prices of comparable bank holding
companies and commercial banks relative to their respective book values and
earnings, the Company's position in its industry and its future prospects, and
general market conditions for the sale of the Company's securities. In the event
a market should develop for the Common Stock after completion of the Offering,
there can be no assurance that the market price will equal or exceed the
Subscription Price.
No Established Market
Presently there is no established market for the Common Stock. There
can be no assurance that an established public market will develop for such
securities upon completion of the Offering or whether substantial trading
activity will occur in the future. While application has been made for the
listing of the Common Stock on The Nasdaq SmallCap Market and First Albany has
indicated that it intends to make a market in the Common Stock following the
Offering, there can be no assurance that the Common Stock will be listed on The
Nasdaq SmallCap Market or any securities exchange or that any organized public
market for the securities will develop or that there will be any private demand
for the Common Stock. The liquidity of the Common Stock depends upon the
presence in the marketplace of willing buyers and sellers, a fact over which
neither the Company nor any market maker has control, and may be limited by
other factors, including the beneficial ownership limitations imposed on the
Common Stock. In addition, the Common Stock may not be accepted as collateral
for loans, or if accepted, its value may be substantially discounted. As a
result, investors should purchase the Common Stock as a long-term investment and
should be prepared to bear the economic risk of their investment for an
indefinite period. Investors who may need or wish to dispose of all or a part of
their investment in the Common Stock may not be able to do so except by private,
direct negotiations with third parties.
Government Regulation
The Company and the Bank operate in a highly regulated environment and
are subject to supervision by several governmental regulatory agencies,
including the Federal Reserve, the FDIC and the Maine Bureau of Banking. Changes
in governmental economic and monetary policy not only can affect the ability of
the Bank to attract deposits and make loans, but can also affect the demand for
business and personal lending and for real estate mortgages. Government
regulations affect virtually all areas of the operations of the Company and the
Bank, including their range of permissible activities, products and services,
the geographic locations in which such services can be offered, the amount of
capital required to be maintained to support operations, the right to pay
dividends and the amount which the Bank can pay to obtain deposits. See "Item 1.
Business -- Regulation" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 attached to this Prospectus as Appendix A.
23
<PAGE>
Dilution to Current Stockholders
Current stockholders of the Company will experience a dilution of their
proportionate voting rights upon the issuance of the Shares pursuant to the
Offering, even if such stockholder exercises his or her Stockholder Subscription
Privilege in full. Additionally, all current stockholders will experience a
dilution in the per share tangible book value of the shares of Common Stock
currently held by them as a result of the likely sale of Shares of Common Stock
at less than tangible book value per share in the Offering. The Subscription
Price of $_____ will be less than book value at the time of purchase. At
December 31, 1995, the Company's book value was $6.66 per share. On a pro forma
basis, after giving effect to the Offering at such date, the Company's book
value was $5.50 per share.
USE OF PROCEEDS
The net proceeds of the Offering to the Company are estimated to be
approximately $_____ after deducting estimated commissions and other fees and
expenses payable by the Company. The Company intends to use the proceeds from
the Offering, together with the funds derived from the Bank Dividend and the
Recapitalization Loan, to satisfy in full the obligations of the Company under
the FDIC Note. At June 30, 1996, the outstanding principal and accrued interest
under the FDIC Note will be approximately $9.7 million. See "The
Recapitalization" and Note A of "Item 8. Financial Statements and Supplementary
Data" of the Company's Annual Report on Form 10-K for the year ended December
31, 1995 attached to this Prospectus as Appendix A.
The following table sets forth the sources of funds in connection with
the repayment of the FDIC Note and the amount due to the FDIC under the Note.
Sources of Funds (a):
Net Proceeds from the Offering................... $ 3,023,000
Bank Dividend.................................... 3,400,000
Net Proceeds from the Recapitalization Loan...... 3,895,000
--------------
$ 10,318,000
==============
Uses of Funds:
Principal Amount of FDIC Note (b)................ $ 9,000,000
Accrued Interest under FDIC Note................. 714,000
Addition to Company Working Capital.............. 604,000
--------------
$ 10,318,000
==============
- --------------------------
(a) The table assumes that the Offering and the other transactions pursuant to
the Recapitalization will be consummated on June 30, 1996. The additional
funds necessary to pay interest accrued under the FDIC Note between June
30, 1996 through and including the date on which the Recapitalization is
actually consummated are expected to be derived from the Company's excess
working capital. See "Pro Forma Financial Data" and "The Offering."
(b) The FDIC Note bears interest (i) at a rate per annum equal to 5% from
January 31, 1995 through February 1, 1996 and (ii) at a rate per annum
equal to 6.5% thereafter (compounded quarterly) to and including the
earlier of (x) the date on which the FDIC receives payment of the unpaid
principal amount and accrued interest in full or (y) the day prior to the
"maturity date." The "maturity date" is January 31, 1997, subject to
extension up until July 31, 1997 under certain limited circumstances.
24
<PAGE>
THE RECAPITALIZATION
On January 31, 1995, the Company, the Bank and the FDIC consummated the
Amended and Restated Settlement Agreement, pursuant to which the Company issued
to the FDIC the Note in the principal amount of $9.0 million in consideration of
the waiver and release of the cross guaranty claim. See Note A of "Item 8.
Financial Statements and Supplementary Data" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 attached to this Prospectus as
Appendix A.
In order to satisfy in full the obligations of the Company under the
FDIC Note (which at June 30, 1996 will be approximately $9.7 million, including
accrued interest), the Company intends to consummate the following transactions,
each of which is conditioned upon the consummation of the others and all of
which are expected to close simultaneously. See "Use of Proceeds."
The Offering
As part of the Recapitalization, the Company intends to sell the
750,000 shares of Common Stock offered hereby at the Subscription Price equal to
$_____ per share. The Offering consists of (i) a Rights Offering of up to
_________ Shares to Record Date Holders in proportion to their respective
ownership interest in the Common Stock, (ii) a Community Offering to members of
the general public to whom a copy of this Prospectus is delivered, subject to
the prior rights of Record Date Holders in the Rights Offering and the prior
rights of Standby Purchasers with respect to the Minimum Standby Purchase
Commitment, and (iii) the sale of Shares to Standby Purchasers who will
severally agree to acquire from the Company, at the Subscription Price, (a) up
to _______ Shares, if available after the exercise of the Stockholder
Subscription Privilege and the Community Offering and (b) a minimum of ________
Shares pursuant to the Minimum Standby Purchase Commitment, which the Company
will agree to sell and the Standby Purchasers will agree to purchase. The
Offering is conditioned upon all of the Shares being sold and to the
consummation of the other transactions pursuant to the Recapitalization.
The net proceeds to the Company from the Offering are estimated to be
approximately $____ million after deducting estimated commissions and other fees
and expenses payable by the Company.
Bank Dividend
In connection with the Recapitalization, the Bank will pay a dividend
in the amount of $3.4 million to the Company. Under the terms of the Memorandum
of Understanding effective November 22, 1994, the payment of the Bank Dividend
is subject to the approval of the FDIC and the Maine Bureau of Banking. The
Company has received written confirmation from the Maine Bureau of Banking that
it has approved, and from the FDIC that it will not object to, the payment of
the Bank Dividend, subject to the following conditions: (i) the Bank must have a
Tier 1 capital to total assets ratio of not less than 7.25% as of the last day
of the month preceding consummation of the Recapitalization and assuming the
Recapitalization had been consummated as of that date, and (ii) there have been
no significant adverse changes, as determined by the Maine Bureau of Banking and
the FDIC in their sole discretion, in the financial condition, management or
future prospects of the Company or the Bank since December 31, 1995. In
addition, the Company will be required to enter into an agreement with the Maine
Bureau of Banking providing that the Company will not, without the prior
approval of the Maine Bureau of Banking, pay cash dividends to its stockholders
as long as the Company's debt-to-equity ratio is above 25%. As of the date of
this Prospectus, the Company has no reason to believe that the foregoing
conditions will not be satisfied in connection with the consummation of the
Recapitalization.
The Amended and Restated Settlement Agreement prohibits the payment of
dividends by the Bank, except as necessary to pay the operating expenses of the
Company as approved from time to
25
<PAGE>
time by the FDIC and the Maine Bureau of Banking. The Amended and Restated
Settlement Agreement further provides that operating expenses of the Company
shall not include any amounts for accrued interest on the FDIC Note. The FDIC
has further advised the Company that it will waive the dividend restriction set
forth in the Amended and Restated Settlement Agreement, provided that all
regulatory approvals have been received and the full payment of the Company's
obligations under the FDIC Note are made contemporaneously with the payment of
the Bank Dividend.
Recapitalization Loan
The Company intends to enter into the Recapitalization Loan Agreement
pursuant to which the Company will borrow $4.0 million from the Lenders, and
will pledge 100% of the outstanding common stock of the Bank in order to secure
such loan. The Recapitalization Loan is expected to bear interest at the rate of
10.85% per annum payable quarterly, in arrears, commencing on the last day of
each calendar quarter following the consummation of the Recapitalization.
Beginning June 30, 1998, and semi-annually thereafter, principal payments in the
amount of $200,000 each are due, with the entire remaining principal balance and
accrued and unpaid interest thereon due at the maturity date of December 31,
2001. The Recapitalization Loan Agreement is not expected to provide for any
forbearance with respect to the payment of principal or interest, and the
Recapitalization Loan will be senior to all existing and future indebtedness of
the Company. Under the terms of the Recapitalization Loan Agreement, the Company
will incur a prepayment penalty during the first three years as follows: a five
percent prepayment penalty during the first year of the Recapitalization Loan; a
four percent prepayment penalty during the second year of the Recapitalization
Loan; and a three percent prepayment penalty during the third year of the
Recapitalization Loan.
The Recapitalization Loan Agreement is expected to contain certain
covenants restricting the amount of borrowings that may be incurred by the
Company and the Bank, restricting the conditions under which cash dividends may
be paid by the Company, requiring the maintenance of certain minimum capital
ratios by the Company and the Bank and providing for the repayment of the
Recapitalization Loan in connection with certain mergers, sales of assets or
other similar extraordinary corporate transactions. The Recapitalization Loan
Agreement also is expected to contain certain customary events of default,
including non-payment when due, breach of covenants, breach of other material
agreements or instruments, material undischarged judgments and bankruptcy or
insolvency.
Repayment of FDIC Note and Release of Collateral
The Company will pay the FDIC all outstanding principal and accrued
interest under the FDIC Note, satisfying in full the Company's obligations
thereunder and under the Amended and Restated Settlement Agreement, which by its
terms will terminate effective upon such payment. Concurrently with such
payment, the FDIC Note will be surrendered to the Company together with the
certificates representing 100% of the outstanding common stock of the Bank which
had secured the Company's obligations under the FDIC Note. The Company will
pledge such shares of Bank common stock to the Lenders in order to secure the
Company's obligations under the Recapitalization Loan.
26
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
As of March 31, 1996, the Company had approximately 1,700 holders of
record and 600,361 outstanding shares of Common Stock. The Common Stock is
traded in the over-the-counter market in the "pink sheets," although there is no
established public trading market for the Common Stock and the Company has no
confirmed information as to the time, price and volume at which any trades may
have been made.
While application has been made for the listing of the Common Stock on
The Nasdaq SmallCap Market under the symbol "___", there can be no assurance
that the Common Stock will be listed on The Nasdaq SmallCap Market or any
securities exchange or that any organized public market for the securities will
develop or that there will be any private demand for the Common Stock. First
Albany has advised the Company that it intends to make a market in the Common
Stock following the Offering.
It is not anticipated that the Company will distribute any dividends to
stockholders in the foreseeable future. Earnings of the Bank, if any, are
expected to be retained by the Bank to enhance its capital or to be distributed
to the Company for the payment of its operating expenses. The Company is subject
to certain restrictions on its ability to pay dividends, including those arising
from the Recapitalization Loan. See "The Recapitalization -- Recapitalization
Loan." The Company's principal source of cash is from dividends from the Bank,
and certain restrictions also exist regarding the ability of the Bank to
transfer funds to the Company. The Memorandum of Understanding, effective
November 22, 1994, provides that the Bank may not declare any dividends without
the prior written consent of the FDIC and the Maine Bureau of Banking. There are
certain additional restrictions on the ability of the Company to pay dividends
and on the ability of the Bank to transfer funds to the Company. On November 30,
1994 and November 13, 1995, following the receipt of appropriate regulatory
approvals, the Bank paid the Company cash dividends of $175,000 and $200,000,
respectively, for certain current and anticipated operating expenses of the
Company. See Note J of "Item 8. Financial Statements and Supplementary Data" of
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
attached to this Prospectus as Appendix A.
27
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated
capitalization of the Company as of December 31, 1995 and as adjusted to give
effect to the Recapitalization. This table should be read in conjunction with
"Selected Consolidated Financial Information and Other Data," "Selected
Quarterly Financial and Other Data," "Pro Forma Financial Data," "The
Recapitalization," "Use of Proceeds" and the Company's consolidated financial
statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------
As Adjusted for
Actual the Recapitalization (a)
------ ------------------------
(dollars in thousands)
<S> <C> <C>
Long-term Borrowings:
FDIC Note................................................................... $ 9,000 $ --
Advances from Federal Home Loan Bank........................................ 6,000 6,000
Recapitalization Note....................................................... -- 4,000
-------- ---------
Total long-term borrowings................................................ 15,000 10,000
-------- ---------
Stockholders' Equity:
Preferred Stock, $1.00 par value, 1,000,000 shares authorized;
none issued...............................................................
Common Stock, $1.00 par value, 6,700,000 shares authorized and 600,361
shares issued and outstanding prior to the Recapitalization and 1,350,361
shares issued and outstanding after the Recapitalization (b).............. 600 1,350
Additional paid-in capital (a).............................................. 29,375 31,648
Retained earnings (deficit)................................................. (26,016) (25,616)
Unrealized gain on available for sale securities............................ 38 38
-------- ---------
Total stockholders' equity........................................... 3,997 7,420
-------- ---------
Total capitalization................................................. $ 18,997 $ 17,420
======== =========
</TABLE>
(a) Adjusted to reflect the deduction of $___ consisting of the estimated
commissions and other fees and expenses payable by the Company.
(b) Does not include 467 shares of Common Stock reserved for issuance upon
exercise of certain outstanding stock options pursuant to the various stock
option plans of the Company. In connection with the Recapitalization, the
Board of Directors of the Company intends to terminate such stock option
plans. In addition, the Board of Directors intends to adopt the First
Coastal Corporation 1996 Stock Option and Equity Incentive Plan (the "Stock
Option and Equity Incentive Plan"), subject to stockholder approval. A
total of 65,000 shares of Common Stock will be reserved for issuance
pursuant to the exercise of stock options to be granted or in connection
with stock bonus awards to be made, under the Stock Option and Equity
Incentive Plan.
28
<PAGE>
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company's Board of
Directors, with the assistance of First Albany. In approving the Subscription
Price, the Board of Directors considered various factors deemed relevant,
including, without limitation, the terms of the Offering and the
Recapitalization, the Company's consolidated book value and earnings in recent
years, the stock prices of comparable bank holding companies and commercial
banks relative to their respective book values and earnings, the Company's
position in its industry and its future prospects, and general market conditions
for the sale of the Company's securities. The Subscription Price was determined
in the absence of a liquid trading market for the Common Stock. In the event a
market should develop for the Common Stock after completion of the Offering,
there can be no assurance that the market price will equal or exceed the
Subscription Price.
THE OFFERING
The Company is offering 750,000 shares of its Common Stock. Pursuant to
the Rights Offering, the Company is offering up to _______ shares of its Common
Stock to holders of record of Common Stock at the close of business on
______________, 1996, pursuant to nontransferable rights to purchase shares of
Common Stock at a Subscription Price of $____ per share. Each Record Date Holder
will receive one Right for each ________ shares of Common Stock held of record
on the Record Date, and each Right will entitle the holder thereof to subscribe
for one share of Common Stock. The Company is concurrently offering Shares not
subscribed for in the Rights Offering or sold to Standby Purchasers as described
below to members of the general public to whom a copy of this Prospectus is
delivered.
The Company intends to enter into Standby Purchase Agreements pursuant
to which, subject to certain conditions, Standby Purchasers will severally agree
to acquire from the Company, at the Subscription Price, up to __________ Shares,
if available after the Rights Offering and the Community Offering. Pursuant to
such agreements, the Company will agree to sell, and the Standby Purchasers will
agree to purchase, a minimum of _______ Shares at the Subscription Price
pursuant to the Minimum Standby Purchase Commitment. All subscriptions are
irrevocable. Subscriptions received for Shares will be deposited in an escrow
account maintained by the Subscription Agent and will not earn interest. The
Company reserves the right to reject subscriptions received in the Offering in
whole or in part at the sole discretion of the Board of Directors of the Company
or at the request or direction of regulatory authorities.
The Rights Offering and the Community Offering are made on a "best
efforts" basis and are conditioned upon all of the Shares being sold and to the
consummation of the other transactions pursuant to the Recapitalization. See
"The Recapitalization." The Offering will expire at 5:00 p.m., Eastern time, on
________, 1996, subject to extension by the Company, in its sole discretion,
from time to time through ________, 1996. After the Expiration Date, the Rights
will no longer be exercisable. If the Offering has not been consummated within
30 days following the Expiration Date, the Offering will be terminated and all
amounts submitted by Record Date Holders and Community Offering Participants
will be returned without interest.
Rights Offering
The Company is issuing Rights to each Record Date Holder as of the
close of business on the Record Date at no charge to such Record Date Holders.
The Company will issue one Right for each _______ shares of Common Stock held of
record on the Record Date. No fractional Rights will be issued. Instead, the
aggregate number of Rights issued by the Company to a stockholder will be
rounded up to the next whole number. Each Right will entitle the holder thereof
to subscribe for one
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share of Common Stock. Each Record Date Holder is entitled to subscribe for all,
or any portion of, the Shares which may be acquired through the exercise of his
or her Rights.
Community Offering
Concurrent with the Rights Offering, the Company is offering shares of
Common Stock to members of the general public to whom a copy of this Prospectus
is delivered, subject to the prior rights of Record Date Holders in the Rights
Offering and the prior rights of Standby Purchasers with respect to the Minimum
Standby Purchase Commitment. If the Shares not subscribed for in the Rights
Offering and purchased by Standby Purchasers are not sufficient to satisfy all
orders received from Community Offering Participants, the Company reserves the
right to allocate such Shares among the Community Offering Participants. Orders
will be deemed received only upon receipt of both a properly completed Community
Order Form and full payment for the Shares subscribed for as described under
"Subscription Procedure" below. Any excess funds paid by persons as the
Subscription Price for Shares not issued will be returned without interest or
deduction as soon as practicable following the Expiration Date. There can be no
assurance that any Shares will be available to persons desiring to participate
in the Community Offering. To subscribe for Shares in the Community Offering,
the Community Order Form must be completed, and payment in full of the
Subscription Price for all Shares subscribed for must accompany the Community
Order Form.
Expiration Date
The Offering will expire at 5:00 p.m., Eastern time, on ________, 1996,
subject to extension from time to time at the sole discretion of the Company.
After the Expiration Date, the Rights will no longer be exercisable. The Company
will not be obligated to honor any purported exercise of Rights or Community
Order Forms received by the Subscription Agent after the Expiration Date,
regardless of when the documents relating to that exercise were sent. The
Company may extend the Expiration Date by giving oral or written notice to the
Subscription Agent on or before the Expiration Date, followed by a press release
no later than 9:00 a.m., Eastern time on the next business day after the
previously scheduled Expiration Date. The Offering will not be extended to a
time later than 5:00 p.m., Eastern time, on ________, 1996.
Subscription Price
The Subscription Price is $_____ per share.
Subscription Procedure
Record Date Holders may exercise their Rights by delivering to the
Subscription Agent at the addresses specified below, at or prior to the
Expiration Date, properly completed and executed Subscription Order Forms
evidencing those Rights, with any signatures guaranteed as required, together
with payment in full of the Subscription Price for each Share subscribed for
pursuant to the Stockholder Subscription Privilege. Community Offering
Participants may subscribe for Shares by delivering to the Subscription Agent,
at the addresses specified below, at or prior to the Expiration Date, properly
completed and executed Community Order Forms, together with payment in full of
the Subscription Price for each Share subscribed for in the Community Offering.
Payment may be made to the Subscription Agent only by (i) check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of accepting subscriptions at
____________, ABA number ________, account number ______________, Attn.:
_______________. The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the Subscription Agent's account designated
above. Funds paid by uncertified
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personal check may take at least five business days to clear. Accordingly,
Record Date Holders and Community Offering Participants who wish to pay the
Subscription Price by means of uncertified personal check are urged to make
payment sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such time and are urged to consider, in the
alternative, payment by means of certified or cashier's check, money order or
wire transfer of funds. All funds received in payment of the Subscription Price
shall be held by the Subscription Agent and invested at the direction of the
Company in short-term certificates of deposit, short-term obligations of the
United States or any state or agency thereof or money market mutual funds
investing in the foregoing instruments. The account in which such funds will be
held may not be insured by the FDIC. Any interest earned on such funds will be
retained by the Company and will not be returned to the Record Date Holder or
the Community Offering Participant, or otherwise applied to their purchase of
Shares.
The Subscription Order Forms and Community Order Forms, together with
the payment of the Subscription Price, must be delivered to the Subscription
Agent as follows:
If by regular mail: c/o Chemical Mellon Shareholder Services
Post Office Box 845
Midtown Station
New York, New York 10018
If by overnight
courier: c/o Chemical Mellon Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services
120 Broadway, 13th Floor
New York, New York
The Subscription Agent's toll free telephone number is (800) 777-3674.
The Company will pay the fees and expenses of the Subscription Agent
and has also agreed to indemnify the Subscription Agent from certain liabilities
which it may incur in connection with the Offering.
If a Record Date Holder wishes to exercise Rights or a Community
Offering Participant wishes to subscribe for Shares, but time will not permit
such Record Date Holder or Community Offering Participant to cause the
Subscription Order Form or Community Order Form to reach the Subscription Agent
prior to the Expiration Date, such Rights may nevertheless be exercised and such
Shares may nevertheless be subscribed for if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) the Record Date Holder or Community Offering Participant has caused
payment in full in good funds of the Subscription Price for each Share being
subscribed for to be received (in the manner set forth above) by the
Subscription Agent at or prior to the Expiration Date;
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Subscription Order Form or
Community Order Form (the "Instructions") distributed with the Subscription
Order Form or Community Order Form, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or from a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Record
Date Holder or the name of the subscribing Community Offering Participant, the
number of Shares being subscribed for by the Record Date Holder or
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Community Offering Participant, and guaranteeing the delivery to the
Subscription Agent of the Subscription Order Form or Community Order Form within
five (5) business days of the Subscription Agent's receipt of such Notice of
Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed
Subscription Order Form or Community Order Form with any signatures guaranteed
as required, within five (5) business days of the Subscription Agent's receipt
of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner as
Subscription Order Forms or Community Order Forms at the addresses set forth
above, or may be transmitted to the Subscription Agent by telegram or facsimile
transmission (telecopier no. (___) ___________). Additional copies of the form
of Notice of Guaranteed Delivery are available upon request from Dennis D. Byrd,
Treasurer of the Company, or from John H. Howland, Vice President of First
Albany.
If an exercising Record Date Holder does not indicate the number of
Rights being exercised, or does not forward full payment of the aggregate
Subscription Price for the number of Rights that the Record Date Holder
indicates are being exercised, then the Record Date Holder will be deemed to
have exercised the Stockholder Subscription Privilege with respect to the
maximum number of Rights exercisable by the Record Date Holder that may be
exercised for the aggregate payment delivered by the Record Date Holder (subject
to reduction to comply with certain limitations on the purchase of the Company's
Common Stock or the conditions of the Offering). Any amount remaining after
application of the foregoing procedures shall be returned to the Record Date
Holder promptly by mail without interest or deduction.
If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community Offering
Participant does not specify the number of Shares subscribed for, then the
Community Offering Participant will be deemed to have subscribed for the number
of Shares which may be purchased by the full amount of the payment tendered
(subject to reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering). If the aggregate
Subscription Price paid by a Community Offering Participant exceeds the amount
necessary to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant will be
deemed to have subscribed for the number of Shares which may be purchased by the
full amount of the payment tendered (subject to reduction to comply with certain
limitations on the purchase of the Company's Common Stock or the conditions of
the Offering).
Unless a Subscription Order Form (i) provides that the Shares to be
issued pursuant to the exercise of the Rights represented thereby are to be
issued to the holder of such Rights or (ii) is submitted for the account of an
Eligible Institution (as defined below), signatures on each Subscription Order
Form must be guaranteed by a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association participating in a medallion guarantor program. An "Eligible
Institution" for this purpose is a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust corporation having an office or
correspondent in the United States.
Record Date Holders who hold shares of Common Stock for the account of
others, such as brokers, trustees or depositories for securities, should contact
the respective beneficial owners of such shares as soon as possible to ascertain
those beneficial owners' intentions and to obtain instructions with respect to
their Rights. If a beneficial owner so instructs, the Record Date Holder of that
beneficial owner's Rights should complete appropriate Subscription Order Forms
and submit them to the Subscription Agent with the proper payment. In addition,
the beneficial owners of Rights through such a nominee holder should contact the
nominee holder and request the nominee holder to effect transactions in
accordance with the beneficial owners' instructions. If a beneficial owner
wishes to obtain a separate Subscription Order Form, he or she should contact
the nominee as
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soon as possible and request that a separate Subscription Order Form be issued.
A nominee may request any Subscription Order Form held by it to be split into
such smaller denominations as it wishes, provided that the Subscription Right
Certificate is received by the Subscription Agent, properly endorsed, no later
than 5:00 p.m., Eastern time, on _________, 1996.
The instructions accompanying the Subscription Order Forms and
Community Order Forms should be read carefully and followed in detail.
SUBSCRIPTION ORDER FORMS AND COMMUNITY ORDER FORMS SHOULD BE SENT WITH PAYMENT
TO THE SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION ORDER FORMS OR COMMUNITY
ORDER FORMS TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION ORDER FORMS AND COMMUNITY ORDER
FORMS AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT
THE ELECTION AND RISK OF RECORD DATE HOLDERS AND COMMUNITY OFFERING
PARTICIPANTS. IF SUBSCRIPTION ORDER FORMS AND COMMUNITY ORDER FORMS AND PAYMENTS
ARE SENT BY MAIL, RECORD DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS ARE
URGED TO SEND SUCH MATERIALS BY CERTIFIED MAIL AND ARE URGED TO ALLOW A
SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND
CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, RECORD DATE HOLDERS AND COMMUNITY
OFFERING PARTICIPANTS ARE URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights and submission of Community Order Forms will be
determined by the Company, whose determinations will be final and binding. The
Company, in its sole discretion, may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine,
or reject the purported exercise of any Right and submission of any Community
Order Form. Subscription Order Forms and Community Order Forms will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines, in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Order Forms or Community Order Forms or incur any
liability for failure to give such notification. The Company reserves the right
to reject subscriptions received in the Offering in whole or in part at the sole
discretion of the Board of Directors of the Company or at the request or
direction of regulatory authorities. See "-- Limitations on Purchase of Stock."
Certificates or order confirmations representing Shares purchased will
be delivered to Record Date Holders, Community Offering Participants and Standby
Purchasers as soon as practicable after the Expiration Date and after all
prorations and reductions contemplated by the terms of the Offering have been
effected. If the Offering has not been consummated within 30 days following the
Expiration Date, the Offering will be terminated and all amounts submitted by
Record Date Holders and Community Offering Participants will be returned without
interest.
Any questions or requests for assistance concerning the method of
exercising Rights, submission of Subscription Order Forms or Community Order
Forms or requests for additional copies of this Prospectus should be directed to
Dennis D. Byrd, Treasurer of the Company, at (207) 774-5000 or to John H.
Howland, Vice President of First Albany, at (617) 228-3076.
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No Revocation
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION AGENT
FROM RECORD DATE HOLDERS AND COMMUNITY OFFERING PARTICIPANTS MAY NOT BE REVOKED.
Limitations on Purchase of Stock
The Company has substantial net operating loss carryforwards for
federal tax purposes. In order to reduce the likelihood that there will be a
reduction in the amount of such carryforwards by reason of an "ownership change"
as defined in Section 382 of the Internal Revenue Code of 1986, as amended, the
Company's Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation which provides
that unless otherwise approved by the Company's Board of Directors, no person
shall become or make an offer to become the beneficial owner of five percent or
more of the Company's voting stock for three years from the effective date of
the amendment. Such amendment further provides that holders of five percent or
more of the Company's outstanding voting stock on the date the amendment is
effective will not be deemed in violation of the provision; provided, however,
that if after the effective date, any such five percent or more holder shall
become or make an offer to become the beneficial owner of any additional shares
of voting stock, such person will be deemed to be in violation of the amendment.
In connection with the approval of the amendment, the Board of Directors of the
Company has approved the acquisition of Shares in the Offering by stockholders
of the Company holding five percent or more of the Company's voting stock on the
effective date up to such number of Shares as would cause such stockholder to
maintain his or her pre-Offering percentage ownership interest in the Company
following the Offering. If the amendment is approved by the requisite vote of
the Company's stockholders at its annual meeting of stockholders currently
scheduled for June 4, 1996, it will be effective prior to the consummation of
the Offering and will apply to purchases of Shares in the Offering. In this
connection, the Company does not anticipate accepting any purchases of five
percent or more of the Common Stock in the Offering, but reserves the right to
do so. The Company's Restated Certificate of Incorporation includes certain
other restrictions and limitations with respect to the acquisition of the
Company's securities.
See "Description of Capital Stock."
No Board or Placement Agent Recommendation
Neither the Company's Board of Directors nor the Placement Agent is
making any recommendation to Record Date Holders or to prospective Community
Offering Participants or Standby Purchasers regarding whether such persons
should purchase the Shares. An investment in the Common Stock must be made
pursuant to each investor's evaluation of his or her best interests.
Federal Income Tax Considerations
For federal income tax purposes, the receipt and exercise of the
Stockholder Subscription Privilege should be treated as a non-taxable
distribution to Record Date Holders with respect to the Common Stock. A Record
Date Holder will have a zero basis in the Stockholder Subscription Privilege,
unless (i) either the Record Date Holder elects under Section 307 of the
Internal Revenue Code of 1986, as amended, to allocate a portion of his basis in
his existing Common Stock to the Stockholder Subscription Privilege (based on
the relative fair market value) or the fair market value of the Stockholder
Subscription Privilege at the time of distribution equals or exceeds 15% of the
fair market value of the Common Stock at that time, in which case the allocation
of basis (based upon relative fair market values) is required, and (ii) the
Record Date Holder exercises such Stockholder Subscription Privilege.
Upon exercise of the Stockholder Subscription Privilege, a Record Date
Holder will not recognize gain or loss. The basis of each share of Common Stock
acquired upon exercising a Stockholder Subscription Privilege will equal the sum
of the Subscription Price and the basis, if any,
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in the Stockholder Subscription Privilege exercised. The holding period for such
Common Stock will begin the date the Stockholder Subscription Privilege is
exercised. No loss will be recognized by a Record Date Holder who elects not to
exercise a Stockholder Subscription Privilege and allows it to lapse.
Record Date Holders who do not exercise their Stockholder Subscription
Privilege by the Expiration Date will not recognize any gain or loss, and no
adjustment will be made to the basis of their Common Stock.
Community Offering Participants who purchase Common Stock in the
Community Offering or Standby Purchasers will have a per share basis in such
Shares equal to the Subscription Price.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, RECORD DATE
HOLDERS, COMMUNITY OFFERING PARTICIPANTS AND STANDBY PURCHASERS ARE ADVISED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THESE AND OTHER FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES OF THE DISTRIBUTION AND EXERCISE OF THE STOCKHOLDER
SUBSCRIPTION PRIVILEGE AND THE PURCHASE OF COMMON STOCK.
STANDBY PURCHASE AGREEMENTS
Prior to the commencement of the Rights Offering, the Company intends
to enter into Standby Purchase Agreements pursuant to which, subject to certain
conditions, certain institutional investors and other individuals will severally
agree to acquire from the Company, at the Subscription Price, up to a maximum of
_______ Shares, if available after the Rights Offering and the Community
Offering. Pursuant to such agreements, the Company will agree to sell, and the
Standby Purchasers will agree to purchase, a minimum of _____ Shares at the
Subscription Price pursuant to the Minimum Standby Purchase Commitment.
Each Standby Purchase Agreement will be subject to a maximum and a
minimum standby purchase commitment with respect to each Standby Purchaser. In
the event that the number of Shares remaining after the exercise of the
Stockholder Subscription Privilege and the Community Offering is less than the
Standby Purchasers' aggregate maximum standby purchase commitments, such Shares
will first be allocated among the Standby Purchasers in satisfaction of the
Minimum Standby Purchase Commitment and any remaining Shares will be allocated
pro rata among the Standby Purchasers according to their respective maximum
standby purchase commitments. The rights and obligations of the Company and the
Standby Purchasers pursuant to the Standby Purchase Agreements will be subject
to certain customary conditions.
The Company and First Albany have entered into an agreement pursuant to
which First Albany has been engaged to act as the Company's financial advisor
and as the Company's Placement Agent in connection with the Offering. Pursuant
to such agreement, First Albany will act as financial advisor to the Company in
connection with negotiating and finalizing the Standby Purchase Agreements. The
Company has agreed to pay First Albany a fee equal to 5.0% of the aggregate
gross proceeds raised in the Offering, including the gross proceeds from the
sale of Shares pursuant to the Standby Purchase Agreements, less 50% of certain
retainer fees previously paid to First Albany pursuant to the agreement. See
"Plan of Distribution."
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The following table sets forth certain information relating to the
Standby Purchasers.
STANDBY PURCHASERS
Minimum Standby
Maximum Commitment Purchase Commitment
------------------ -------------------
Standby Purchaser No. of Shares Amount No. of Shares Amount
- ----------------- ------------- ------ ------------- ------
$ $
------------ ------- ---------- ------
Total. . . . . . $ $
============ ======= ========== ======
PLAN OF DISTRIBUTION
The Company has engaged First Albany to act as the Company's financial
advisor and as its Placement Agent in connection with the Offering pursuant to
an agreement executed between the Company and First Albany. In its capacity as
the Placement Agent, First Albany also will act as financial advisor to the
Company in connection with identifying Standby Purchasers and negotiating and
finalizing the Standby Purchase Agreements. First Albany was engaged because of
its general experience in the financial services industry and because of its
experience in rights offerings by financial institutions. It is anticipated that
Shares offered in the Community Offering may be offered through broker-dealers
engaged by the Company pursuant to certain broker assistance agreements to be
entered into with the Company. The Rights Offering and the Community Offering
are made on a "best efforts" basis and neither First Albany nor any
broker-dealers engaged by the Company will be obligated to purchase any Shares.
The Company has agreed to pay First Albany a fee equal to 5.0% of the
aggregate gross proceeds raised in the Offering, including the gross proceeds
from the sale of Shares pursuant to the Standby Purchase Agreements, less 50% of
certain retainer fees previously paid to First Albany as described below. To the
extent that Shares are sold in the Community Offering by broker-dealers engaged
by the Company, such broker-dealers will receive commissions equal to 3.0% of
the aggregate dollar amount of such sales, and First Albany's compensation will
be reduced so that the total compensation paid for such Shares will equal 6.5%
of the gross proceeds from the sale of such Shares. The Company also has agreed
to reimburse the Placement Agent for certain legal and other expenses not to
exceed $40,000 and to indemnify the Placement Agent against certain liabilities,
including liabilities under the Securities Act.
Other than the Placement Agent and any broker-dealers engaged by the
Company who assist in the sale of Shares in the Community Offering, the Company
has not employed any brokers, dealers or underwriters to solicit the exercise of
Rights in the Rights Offering or the sale of Shares to Standby Purchasers or in
the Community Offering and, except as described herein, no other commissions,
fees or discounts will be paid in connection with the Offering. Certain
employees of the Company may solicit responses from Record Date Holders, but
such employees will not receive any commissions or compensation for such
services other than their normal employment compensation.
First Albany is acting as financial advisor to the Company pursuant to
an engagement letter dated October 12, 1995, as amended March 6, 1996 and April
___, 1996. The agreement provides that the Company will pay First Albany an
initial retainer fee of $25,000 payable within 30 days of the execution of the
letter agreement and additional retainer fees of $25,000 payable on December 15,
1995, March 15, 1996 and June 14, 1996 (collectively, the "Retainer Fees"). The
fees to be paid to
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First Albany in connection with the sale of Shares and the consummation of the
Offering as described above are reduced by an amount equal to 50% of the
aggregate of the Retainer Fees previously paid by the Company to First Albany.
In addition, in connection with the consummation of the Recapitalization and in
addition to the fees to be paid in connection with the Offering, the Company
will pay First Albany a placement fee equal to 1.0% of the gross proceeds of the
Recapitalization Loan and a financial advisory fee of $20,000 in connection with
the consummation of the Kezar Falls Branch Sale at the time the Recapitalization
is consummated. First Albany has also been engaged by the Company to render an
opinion as to the fairness of the Recapitalization, from a financial point of
view, to the Company's stockholders, for which the Company has agreed to pay
First Albany a fee of $25,000.
Funds received for the purpose of participating in the Offering will be
deposited upon receipt by the Subscription Agent and held in a segregated
account with the Subscription Agent pending final determination of the issuance
of the Shares. The Company will pay the fees and expenses of the Subscription
Agent, and also has agreed to indemnify the Subscription Agent from certain
liabilities in connection with the Offering.
This Offering is not effective within, or available to the residents of
any jurisdiction in which the offer or solicitation of an offer to buy the
Shares would violate the securities laws of such jurisdiction.
Subscriptions from residents of any such jurisdiction will not be accepted.
The directors and officers of the Company have advised the Company that
they intend to purchase an aggregate of ________ Shares for an aggregate
purchase price of $______, pursuant to the Rights Offering and the Community
Offering.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company
does not purport to be complete and is subject to the provisions of the
Company's Restated Certificate of Incorporation and Amended and Restated Bylaws
and by the provisions of applicable law.
Authorized and Outstanding Capital Stock
The Company's authorized capital stock consists of 6,700,000 shares of
Common Stock, par value $1.00 per share, and 1,000,000 shares of Serial
Preferred Stock, par value $1.00 per share. As of March 31, 1996, 600,361 shares
of Common Stock were issued and outstanding, held by 1,700 stockholders of
record, and as of March 31, 1996, there were outstanding options to purchase 467
additional shares of Common Stock pursuant to the various stock option plans of
the Company. No shares of Serial Preferred Stock have been issued by the
Company. In connection with the Recapitalization, the Board of Directors of the
Company intends to terminate such stock option plans. In addition, the Board of
Directors intends to adopt the Stock Option and Equity Incentive Plan, subject
to stockholder approval. A total of 65,000 shares of Common Stock will be
reserved for issuance pursuant to the exercise of stock options to be granted,
or in connection with stock bonus awards to be made, under the Stock Option and
Equity Incentive Plan.
Common Stock
Each holder of Common Stock is entitled to one vote per share with
respect to all matters that are to be voted on by stockholders generally,
including the election of directors. One-third of the shares entitled to vote,
present in person or by proxy, constitutes a quorum at a meeting of
stockholders, and if a quorum exists, action on a matter is taken if the votes
cast favoring the action exceed the votes cast opposing the action, except with
respect to (i) certain actions that, under Delaware law, must be approved by the
affirmative vote of a majority or more of outstanding shares entitled to vote
(including, but not limited to, amendment of the Company's Restated Certificate
of Incorporation, merger and disposition of substantially all property and
assets) and (ii) certain
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amendments to the Company's Restated Certificate of Incorporation and Amended
and Restated Bylaws as set forth therein and described below under "-- Certain
Charter and Statutory Provisions." Holders of Common Stock are entitled to
receive such cash dividends on an equal per share basis as may be declared from
time to time by the Board of Directors of the Company out of funds legally
available therefor. The Company has not paid dividends since 1990, and the
Company is subject to certain restrictions on its ability to pay dividends in
the future, including those arising from the Recapitalization Loan. See "The
Recapitalization" and "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" and Note J of "Item 8. Financial Statements and
Supplementary Data" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 attached to this Prospectus as Appendix A. In the event
of liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and all liquidation preferences, if any, granted to holders of
Serial Preferred Stock. No holder of Common Stock has any preemptive right to
subscribe for any of the Company's securities, nor does any holder of Common
Stock have conversion rights. The rights, privileges, preferences and priorities
of holders of the Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Serial Preferred Stock that
the Company may designate and issue in the future.
Serial Preferred Stock
The Company's Restated Certificate of Incorporation authorizes the
Board of Directors, from time to time and without further stockholder action, to
provide for the issuance of up to 1,000,000 shares of Serial Preferred Stock, in
one or more series, and to fix the relative rights and preferences of the
shares, including, without limitation, voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. As of the
date of this Prospectus, the Board of Directors has not provided for the
issuance of any series of Serial Preferred Stock, and there are no agreements or
understandings for the issuance of any Serial Preferred Stock. Because of its
broad discretion with respect to the creation and issuance of Serial Preferred
Stock without stockholder approval, the Board of Directors could adversely
affect the voting power of the holders of Common Stock and, by issuing shares of
Serial Preferred Stock with certain voting, conversion and/or redemption rights,
could discourage any attempt to obtain control of the Company.
Certain Charter and Statutory Provisions
Classified Board; Amendment of Charter and Bylaws. The Company's
Restated Certificate of Incorporation provides for the division of the Board of
Directors into three classes of directors, serving staggered three-year terms.
The Company's Amended and Restated Bylaws permit stockholders to make
nominations for directors but only if such nominations are made pursuant to
timely notice in writing to the Company. To be timely, notice of stockholder
nominations for directors must be delivered in writing to the Secretary of the
Company not less than 30 days nor more than 90 days prior to the meeting of
stockholders at which such directors are to be elected, together with certain
additional information as specified in the Amended and Restated Bylaws. The
Restated Certificate of Incorporation further provides that the approval of at
least two-thirds of the entire Board of Directors at a duly constituted meeting
called for such purpose and the approval of the holders of at least two-thirds
of the shares entitled to vote thereon at a duly called annual or special
meeting of stockholders are necessary for the amendment of certain sections of
the Restated Certificate of Incorporation relating to election and
classification of the Board of Directors; limitation of certain liabilities of
directors; adoption, alteration, amendment or repeal of the Amended and Restated
Bylaws; limitation on calling of special meetings of stockholders; approval of
acquisitions of control and offers to acquire control; criteria for evaluation
of certain offers by the Board of Directors; anti-greenmail; and stockholders'
action by unanimous written consent. In addition, the approval of the holders of
at least 80% of the shares entitled to vote thereon at a duly called annual or
special meeting of stockholders is necessary for the amendment of certain
sections of the Restated Certificate of Incorporation relating to the vote
requirements for approval of certain business combinations and to the vote
requirements for amendment of the Restated Certificate of Incorporation. The
Amended and Restated Bylaws provide that the approval of at least two-thirds of
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the entire Board of Directors at a duly constituted meeting called for such
purpose and the approval of the holders of at least two-thirds of the shares
entitled to vote thereon at a duly constituted meeting of stockholders called
for such purpose are necessary for the amendment of the Amended and Restated
Bylaws. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of the Company.
Business Combination Provisions. The Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless prior to the date the stockholder became an interested
stockholder the board approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder
or unless one of two exceptions to the prohibitions are satisfied: (i) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
corporation's voting stock outstanding at the time the transaction commenced
(excluding, for purposes of determining the number of shares outstanding, shares
owned by certain directors or certain employee stock plans) or (ii) on or after
the date the stockholder became an interested stockholder, the business
combination is approved by the board of directors and authorized by the
affirmative vote (and not by written consent) of at least two-thirds of the
outstanding voting stock excluding that stock owned by the interested
stockholder. A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who (other than the corporation and any
direct or indirect majority owned subsidiary of the corporation), together with
affiliates and associates, owns (or, as an affiliate or associate, within three
years prior, did own) 15% or more of the corporation's outstanding voting stock.
In addition, the Restated Certificate of Incorporation provides that a
"business combination" with an "interested shareholder" must be approved by the
affirmative vote of at least 80% of the outstanding voting stock unless either
(a) the business combination is approved by a majority of the "continuing
directors" or (b) certain price and procedure requirements are satisfied. Except
for business combinations requiring such higher stockholder vote, any merger or
consolidation involving the Company must, as a condition to its effectiveness,
be approved by the affirmative vote of at least two-thirds of the issued and
outstanding shares of each class of capital stock of the Company. A "business
combination" includes a merger, asset sale or acquisition, reclassification of
securities, recapitalization or other transaction resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who (other than the Company or any subsidiary of the Company), (i) together with
affiliates and associates, directly or indirectly beneficially owns 10% or more
of the Company's outstanding voting stock, or (ii) is an affiliate of the
Company and, together with affiliates and associates, within two years prior
directly or indirectly beneficially owned 10% or more of the Company's
outstanding voting stock. A "continuing director" is a member of the Board of
Directors of the Company who is unaffiliated with the interested shareholder and
was a member of the Board of Directors prior to the time that the interested
shareholder (including any affiliate or associate thereof) became an interested
shareholder, and any successor of a continuing director who is unaffiliated with
the interested shareholder and is recommended to succeed a continuing director
by a majority of continuing directors then on the Board of Directors.
The Restated Certificate of Incorporation requires the Board of
Directors, when evaluating a tender offer, merger or acquisition proposal, in
connection with the exercise of its judgment in determining the best interests
of the Company and its stockholders, to take into account all relevant factors,
including, without limitation, the economic effects of acceptance of such offer
on (i) depositors, borrowers and employees of the insured bank or institution
subsidiary or subsidiaries of the Company, and on the communities in which such
subsidiary or subsidiaries operate or are located, and (ii) the ability of such
subsidiary or subsidiaries to fulfill the objectives of an insured institution
under applicable federal and state statutes and regulations.
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Approval for Certain Stock Acquisitions and Offers to Acquire Stock and
Acquisitions of Control and Offers to Acquire Control Provisions. The Company
has substantial net operating loss carryforwards for federal tax purposes. In
order to reduce the likelihood that there will be a reduction in the amount of
such carryforwards by reason of an "ownership change" as defined in Section 382
of the Internal Revenue Code of 1986, as amended, the Company's Board of
Directors has adopted, subject to stockholder approval, an amendment to the
Company's Restated Certificate of Incorporation. The amendment provides that
unless otherwise approved by the Company's Board of Directors, no person shall
become or make an offer to become the beneficial owner of five percent or more
of the Company's voting stock (a "prohibited 5% owner") for three years from the
effective date of the amendment. A person who is the beneficial owner of five
percent or more of the Company's outstanding voting stock on the effective date
of the amendment (an "existing 5% owner") will not be deemed in violation of the
provision; provided, however, that if after the effective date, any existing 5%
owner shall become or make an offer to become the beneficial owner of any
additional shares of the Company's voting stock, then such person will be deemed
to be a prohibited 5% owner if, following the acquisition of such additional
shares, such existing 5% owner is or will be the beneficial owner of five
percent or more of the Company's voting stock. Such amendment further provides
that no person will become a prohibited 5% owner as a result of an acquisition
of shares of voting stock by the Company which, by reducing the number of shares
of the Company's voting stock outstanding, increases the proportionate number of
shares of voting stock beneficially owned by such person to five percent or more
of the shares of the Company's voting stock then outstanding; provided, however,
that if a person becomes a beneficial owner of five percent or more of the
Company's voting stock then outstanding by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
beneficial owner of any additional shares of the Company's voting stock, then
such person will be deemed to be a prohibited 5% owner if such person is then
the beneficial owner of five percent or more of the voting stock then
outstanding.
In the event that any person becomes a prohibited 5% owner in violation
of the amendment, such number of the shares of voting stock of which such person
is the beneficial owner, in excess of the number of shares of voting stock of
which such person might be the beneficial owner without becoming a prohibited 5%
owner, will be considered from and after the date such person becomes a
prohibited 5% owner to be "excess shares" for purposes of the amendment. Such
excess shares will thereafter no longer (i) be entitled to vote on any matter,
(ii) be entitled to take other stockholder action, (iii) be entitled to be
counted in determining the total number of outstanding shares for purposes of
any matter involving stockholder action, or (iv) be transferable, except with
the approval of the Company's Board of Directors or by an independent trustee
appointed by the Company's Board of Directors for the purpose of having such
excess shares sold on the open market or otherwise. The proceeds from the sale
by the trustee of such excess shares shall be paid (i) first, to the trustee in
an amount equal to the trustee's reasonable fees and expenses, (ii) second, to
the beneficial owner of such excess shares in an amount up to such owner's
federal income tax basis in such excess shares, and (iii) third, to the Company
as to any remaining balance.
Finally, the amendment provides that if the Company's Board of
Directors determines in good faith that a person who would otherwise be a
prohibited 5% owner has inadvertently become a prohibited 5% owner and such
person ceases to be the beneficial owner and disposes of a sufficient number of
shares of the Company's voting stock within the time fixed by the Company's
Board of Directors incident to the foregoing determination, so that such person
would no longer be a prohibited 5% owner, pending and upon such disposition of
shares of voting stock, such person will not be deemed a prohibited 5% owner for
purposes of the amendment unless and until such person subsequently becomes a
prohibited 5% owner.
If the amendment is approved by the requisite vote of the Company's
stockholders at its annual meeting of stockholders currently scheduled for June
4, 1996, it will be effective prior to the consummation of the Offering and will
apply to purchases of Shares in the Offering. In connection with the approval of
the amendment, the Board of Directors of the Company has approved the
acquisition of Shares in the Offering by stockholders of the Company holding
five percent or more of the Company's voting stock on the effective date up to
such number of Shares as would cause such
40
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stockholder to maintain his or her pre-Offering percentage ownership interest in
the Company following the Offering. The Company does not anticipate accepting
any purchases of five percent or more of the Common Stock in the Offering, but
reserves the right to do so.
The Restated Certificate of Incorporation of the Company provides that
if the Common Stock is then traded on a national securities exchange or quoted
on the NASD Automated Quotation System, no person shall make any offer to
acquire "control" of the Company unless such person has received the prior
approval to make such offer either (a) by obtaining approval of the Board of
Directors of the Company or (b) by obtaining all required federal and state
regulatory approvals and furnishing the Board of Directors of the Company a
complete copy of all notices and other documents filed by such person pursuant
to applicable federal and state law and regulations. "Control" means the sole or
shared power to vote or to direct the voting of, or to dispose or to direct the
disposition of, 10% or more of the voting stock of the Company.
The Restated Certificate of Incorporation also provides that no person
shall acquire control of the Company at any time unless such acquisition of
control has been approved (a) either (i) by the affirmative vote of at least
two-thirds of the outstanding voting stock at a duly constituted meeting of
stockholders called for such purpose or (ii) by at least two-thirds of the
entire Board of Directors at a duly constituted meeting called for such purpose
and (b) by all regulatory authorities required under applicable federal and
state statutes and in the manner provided by all applicable regulations adopted
thereunder.
Anti-Greenmail Provisions. The Restated Certificate of Incorporation
prohibits the Company from purchasing any shares of the Company's voting stock
from any person that beneficially owns, directly or indirectly, five percent or
more of the Company's voting stock at a price exceeding the average closing
price or the mean of the bid and ask prices of a share of voting stock for the
20 trading days immediately preceding the date of execution of a definitive
agreement to purchase the voting stock, unless a majority of the Company's
disinterested stockholders approve the transaction. This restriction on
purchases by the Company does not apply to any offer to purchase shares of a
class of the Company's voting stock which is made on the same terms and
conditions to all holders of that class of voting stock or to any purchase of
stock owned by such a five-percent stockholder occurring more than two years
after such stockholder's last acquisition of the Company's stock.
Listing
The Company has applied to have the Common Stock approved for quotation
on The Nasdaq SmallCap Market under the trading symbol "______".
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Chemical
Mellon Shareholder Services, Ridgefield Park, New Jersey.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, is required to file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of the
reports, proxy statements and other information can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, at prescribed
rates.
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The Company has filed with the Commission a Registration Statement
under the Securities Act with respect to the Common Stock offered by this
Prospectus. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information about the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and to the
financial statements, exhibits and schedules filed therewith. The statements
contained in this Prospectus about the contents of any contract or other
document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of each such document may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1995, attached as Appendix A to this Prospectus, is incorporated by
reference in this Prospectus.
All documents subsequently filed by the Company pursuant to Sections
13(a) or 15(d) of the Exchange Act and prior to the termination of the Offering
of the Shares of Common Stock offered hereby, shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in the documents incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference that are not
presented herein or delivered herewith. The Company will provide, without
charge, to each person to whom a copy of this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the foregoing
documents incorporated herein by reference in this Prospectus (and other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the documents that this Prospectus incorporates). Requests for
copies should be directed to the attention of Dennis D. Byrd, First Coastal
Corporation, 36 Thomas Drive, Westbrook, Maine 04092; telephone (207) 774-5000.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered
hereby are being passed upon for the Company by Morris, James, Hitchens &
Williams, special Delaware counsel for the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995
and 1994, and the consolidated statements of operations, cash flows and changes
in stockholders' equity for each of the three years in the period ended December
31, 1995 and financial statement schedule included herein and elsewhere in the
Registration Statement have been audited by Coopers & Lybrand, L.L.P.,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
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STATEMENT AS TO INDEMNIFICATION
Delaware law and the Company's Amended and Restated Bylaws authorize
the Company to indemnify directors, officers and certain individuals associated
with the Company. In general, Article IX of the Company's Amended and Restated
Bylaws authorizes the Company to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director,
officer, trustee, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, trustee, employee or agent of
another corporation, association, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding, and any appeal therein, if
such person acted in good faith or in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding, and any appeal
therein, by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his conduct was unlawful.
In general, Article IX of the Company's Amended and Restated Bylaws
also authorizes the Company to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, trustee, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company; provided, however,
that no indemnification shall be made against expenses in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Company or against amounts paid in settlement unless and only to the extent
that there is a determination that despite the adjudication of liability or the
settlement, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses or amounts paid in
settlement.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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Appendix A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to __________
Commission file number 0-14087
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1177661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 Thomas Drive, Westbrook, Maine 04092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 774-5000
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common stock, $1.00
par value per share
(Title of class)
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 12 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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On and effective as of September 11, 1991, First Coastal Corporation
was advised by the National Association of Securities Dealers that its Common
Stock had been removed from the NASDAQ National Market System due to an
insufficient number of active market makers in the stock. The Common Stock is
traded in the over-the-counter market in the "pink sheets," although such trades
are limited and sporadic and there is no established public trading market for
the Common Stock. The aggregate market value of the Common Stock held by
non-affiliates based on the book value per share of Common Stock of $6.66 at
December 31, 1995 was $3,989,779.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
As of the close of business on March 29, 1996, 600,361 shares of the
registrant's Common Stock, par value $1.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS.
GENERAL
First Coastal Corporation
First Coastal Corporation, a Delaware corporation ("First Coastal" or the
"Company") is a bank holding company whose sole operating subsidiary is Coastal
Savings Bank ("Coastal" or the "Bank"). The Company was organized in January
1987 for the purpose of becoming the parent holding company of Suffield Bank
following Suffield Bank's conversion from mutual to stock form. The Company
acquired Coastal Bancorp, a Maine corporation ("Bancorp"), which was the bank
holding company of Coastal, a Maine-chartered, stock savings bank, on April 1,
1987. On September 6, 1991, Suffield Bank was placed in receivership by the
Connecticut Department of Banking, leaving the Bank as the Company's sole
operating subsidiary. On July 26, 1994, Bancorp was dissolved with the effect
that the Bank became a direct wholly-owned subsidiary of the Company. See
"Certain Regulatory Matters -- Receivership of Suffield Bank" and "-- Settlement
of Cross Guaranty Claim."
Coastal Savings Bank
The Bank was formed in 1981 as a Maine-chartered savings bank through the
consolidation of Brunswick Savings Institution and York County Savings Bank,
which were organized in 1858 and 1860, respectively. On July 11, 1984, the Bank
completed its conversion from mutual form to a Maine stock savings bank.
The Bank had total assets of approximately $145 million at December 31, 1995.
The region served by the Bank includes the communities of Brunswick, Freeport,
Kennebunk, Kezar Falls, Saco, Topsham and Westbrook. The Bank operated eight
banking offices as of December 31, 1995.
The principal business of the Bank consists of attracting deposits from the
general public and originating residential real estate, construction, consumer,
commercial and commercial real estate loans and investment securities. Deposits
at the Bank are federally insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC").
The principal executive offices of the Company and the Bank are located at 36
Thomas Drive, Westbrook, Maine 04092; telephone (207)774-5000.
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CERTAIN REGULATORY MATTERS
Receivership of Suffield Bank
On September 6, 1991, the Company announced that Suffield Bank was placed into
receivership by the Connecticut Banking Department and the FDIC was appointed as
the receiver. Financial data reported for 1991 gives effect to the closure of
Suffield Bank as if it had occurred at the beginning of 1991. Since the
receivership of Suffield Bank, management's efforts have been primarily focused
on resolving the cross guaranty claim as described below and improving
operations of the Company's subsidiary, Coastal.
Settlement of Cross Guaranty Claim
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "Note" or the "FDIC Note"), secured by the Company's pledge of
the outstanding stock of the Bank. In 1994 the Company incurred an extraordinary
charge to earnings resulting from the issuance of the Note. Principal and
interest under the FDIC Note are deferred until its maturity date, which is
January 31, 1997, subject to extension under certain circumstances.
The Company announced on January 31, 1996 that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through an offering of its common stock,
including a rights offering to the Company's existing stockholders. The offering
will be made only by means of a prospectus. In addition to the proceeds from the
common stock offering, the Company also expects to use funds derived from
dividends from the Bank and the proceeds from a loan to satisfy its obligation
under the FDIC Note. The recapitalization and related transactions are subject
to a number of conditions, including the receipt of appropriate regulatory
approvals, and there can be no assurance that such recapitalization and related
transactions will be consummated or that the Company will be successful in
repaying the FDIC Note. The Company anticipates that the recapitalization would
be completed in the third quarter of 1996.
Memorandum of Understanding
Effective as of January 23, 1992, Coastal consented to an Order to Cease and
Desist (the "Order to Cease and Desist" or the "Order") issued by the FDIC and
concurred with by the Maine Bureau of Banking (the "Maine Bureau of Banking").
The Order required Coastal to cease and desist from engaging in certain
activities and practices detrimental to the Bank and also required, among other
things, the maintenance by the Bank of specified capital ratios. Effective
December 8, 1994, the Order was terminated.
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The Order was replaced with a Memorandum of Understanding ("Memorandum") among
the Bank, the FDIC and the Maine Bureau of Banking effective as of November 22,
1994. The Memorandum provides, among other things, that (i) the Bank continue to
maintain its allowance for loan and lease losses in accordance with applicable
regulatory requirements, (ii) the Board of Directors of the Bank continue to
review the adequacy of the Bank's loan and lease loss reserves and provide for
adequate reserves, (iii) the Bank continue to have a Tier 1 capital to total
assets ratio at or in excess of 6.0%, (iv) the Bank continue to comply with the
FDIC's Statement of Policy on Risk-Based Capital, (v) the Bank provide monthly
progress reports regarding substandard or doubtful assets, (vi) the Bank agree
not to extend or renew credit to, or for the benefit of, any borrower who or
which has a loan or other extension of credit with the Bank that has been
charged-off or classified in whole or in part, loss, doubtful or substandard and
is uncollected unless certain conditions are met, (vii) the Bank not declare or
pay any dividends without the prior written consent of the FDIC and the Maine
Bureau of Banking, and (viii) the Bank continue to furnish written progress
reports detailing the form and manner of any action taken to seek to secure
compliance with the Memorandum. In addition, the Board of Directors is required
to develop a written plan of action to reduce the Bank's risk position with
respect to each borrower who had outstanding principal debt owing to the Bank in
excess of $500,000 and for the formulation of a strategic plan and policies
covering investments, funds management and various lending policies. At December
31, 1995, the Bank had a Tier 1 capital to total assets ratio of 9.19%.
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies covering capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with the policies of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") regarding the payment of cash
dividends by bank holding companies. Management addressed these matters by
developing plans and policies which were submitted to the Federal Reserve in
1988, and updated such plans and policies in 1992 and 1995. Effective March 13,
1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
Regulatory Capital Requirements
Under applicable federal regulations, the Company and Coastal are each required
to maintain minimum levels of regulatory capital. The Federal Reserve has
adopted a leverage-based capital requirement for bank holding companies with a
composite rating of 1 under the bank holding company rating system of a minimum
level of tier 1 capital to total assets of 3.0%. All other bank holding
companies or bank subsidiaries of bank holding companies are required to
maintain a minimum ratio of tier 1 capital to total assets of 4.0% to 5.0%.
Under the Federal Reserve's risk- based capital guidelines, bank holding
companies or banks also are required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8.0%. The guidelines apply on a
consolidated basis to bank holding companies with consolidated assets of $150
million or more. For bank holding companies which have less than $150 million in
consolidated assets, as did the Company for each of the quarters ended March 31,
1995, June 30, 1995, September 30, 1995 and December 31, 1995, the guidelines
are applied on a bank-only basis (as opposed to a consolidated basis) unless (i)
the parent bank holding company is engaged in nonbank activity involving
significant leverage or
A-4
<PAGE>
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines. As a
result, applied on a bank-only basis, the Company's ratios of tier 1 capital to
total assets, tier 1 capital to risk-weighted assets, qualifying total capital
to risk-weighted assets of 9.19%, 14.32%, and 15.59%, respectively, at December
31, 1995 were in compliance with such guidelines.
The FDIC has also adopted minimum capital requirements as regulations for state
non-member banks such as the Bank. Under the minimum leverage capital
requirement, insured state non-member banks must maintain a Tier 1 capital to
total assets ratio of at least 3% to 5% depending on the CAMEL rating of the
bank. The Memorandum requires that the Bank continue to maintain a Tier 1
capital to total assets ratio at or in excess of 6.0%. At December 31, 1995, the
Bank had a Tier 1 capital to total assets ratio of 9.19%.
In addition, under such regulations insured non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%,
including a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At
December 31, 1995, the Bank had a ratio of Tier 1 capital to risk-weighted
assets of 14.32% and a ratio of qualifying total capital to risk-weighted assets
of 15.59%.
A-5
<PAGE>
LENDING ACTIVITIES
Loan Portfolio Composition
The following table sets forth the composition of the Company's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate mortgage:
Residential $30,966 $ 33,158 $ 39,771 $ 51,898 $ 71,216
Commercial 50,797 57,997 61,953 65,567 75,073
Real estate construction - - 429 669 1,542
Commercial and industrial 2,524 2,510 3,013 3,703 6,650
Consumer and other loans 16,263 15,991 18,305 22,208 26,787
-------- -------- -------- -------- --------
Total loans $100,550 $109,656 $123,471 $144,045 $181,268
======== ======== ======== ======== ========
Ratios of loans to:
Deposits 80% 84% 88% 92% 106%
Assets 69% 71% 72% 76% 85%
</TABLE>
The Bank's loan growth has been limited as a result of several factors.
Beginning in the late 1980's adverse real estate market conditions and a rising
interest rate environment in New England limited demand for new loans in the
Bank's market area. The Bank began to experience significant asset quality
problems and significant operating losses, resulting in a curtailment in loan
volume as these problems began to be addressed. The Bank's ability to grow was
further limited due to capital restraints imposed by the FDIC and the Maine
Bureau of Banking under the Order to Cease and Desist. One requirement of the
Order was that the Bank improve its Tier 1 capital to total assets ratio from
the December 31, 1991 level of 4.42% to 6.0% by December 31, 1993. This
requirement caused management to effect a strategy of selective balance sheet
shrinkage, including a reduction in loan originations. Payoffs of loans also
reduced loan balances as interest rates began to decline. Though the 6.0% Tier 1
capital to total assets level was achieved (6.24% at December 31, 1993),
management's continued focus on improving overall asset quality, in conjunction
with the pre- settlement uncertainties arising from the FDIC cross guaranty
claim, and the post-settlement efforts to develop a plan for repaying the FDIC
Note, resulted in new loan volume receiving less emphasis until mid-1995.
While the Bank's asset growth has been hampered in recent years as discussed
above, the Company's pending recapitalization is expected to allow the Bank to
focus on increasing its loan origination activities and pursuing a strategy of
managed growth, with a particular focus on residential mortgage, commercial and
industrial, and consumer loans.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Loans," which is incorporated herein by reference.
A-6
<PAGE>
The following table sets forth the maturities of the loan portfolio by loan type
as of December 31, 1995:
<TABLE>
<CAPTION>
After One
Within But Within After
(in thousands) One Year Five Years Five Years Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgage:
Residential $207 $1,071 $29,690 $30,968
Commercial 10,460 21,619 19,383 51,462
Real estate construction - - - -
Commercial and industrial 440 1,223 548 2,211
Consumer and other 64 1,500 14,345 15,909
----------- --------- -------- ----------
Total loans $11,171 $25,413 $63,966 $100,550
======= ======= ======= ========
Loans maturing after one year with:
Fixed interest rate $5,462 $15,975 $21,437
Variable/adjustable interest rate 19,951 47,991 67,942
-------- -------- --------
$25,413 $63,966 $89,379
======= ======= =======
</TABLE>
Loan Originations
Mortgage loans originated by the Bank are primarily secured by property located
within its existing market area in Maine. The bank is an active residential
mortgage lender. A significant percentage of loans originated are 1-4 family
residential real estate loans, a large portion of which are sold in the
secondary market on a servicing-retained basis. Most of the Bank's residential
loans are originated using the Federal National Mortgage Association ("FNMA")
underwriting guidelines.
In April 1995, the Bank hired a new senior officer responsible for branch
administration and retail lending and commenced a focused effort to originate
residential and consumer loans through its branch offices, several of which have
since been re-staffed to support such efforts. While the Bank's newly focused
origination strategy is still in its early stages, the Bank's residential and
consumer loan originations have increased since mid-1995, as set forth below.
While the Bank intends to continue its focus on residential and consumer lending
in 1996, the level of such lending will depend upon a number of factors,
including the level of interest rates and general economic conditions.
<TABLE>
<CAPTION>
For the Quarter Ended
------------------------------------------------------------------
(in thousands) December 31, September 30, June 30, March 31,
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 originations (1) :
Residential real estate $1,658 $1,563 $776 $171
Consumer 930 583 625 250
-------- -------- -------- ------
Total $2,588 $2,146 $1,401 $ 421
====== ====== ====== =====
1994 originations (1):
Residential real estate $ 561 $ 439 $1,412 $2,309
Consumer 356 404 837 219
------- ------- -------- ------
Total $ 917 $ 843 $2,249 $2,528
====== ====== ====== ======
<FN>
(1) Includes refinancing of existing portfolio and off balance sheet serviced
loans.
</FN>
</TABLE>
A-7
<PAGE>
The continued improvement in overall asset quality has also allowed the Bank to
begin focusing more resources towards the generation of new commercial loans.
The Bank expects to complete certain staffing changes early in 1996 that are
intended to facilitate the Bank's goal of growth in commercial loan generation
in 1996 and thereafter.
The commercial real estate mortgage portfolio of approximately $50.8 million at
December 31, 1995, as compared to $58.0 million at December 31, 1994, includes
loans secured by apartment buildings, mixed use commercial buildings, office
buildings and other income-producing properties. Substantially all of these
loans are secured by mortgages on properties located in Maine. The maturities
are set forth in the above table.
At December 31, 1995 and 1994, commercial and industrial loans totaled $2.5
million. The Bank makes commercial and industrial loans secured by equipment and
other corporate or personal assets, including accounts receivable, inventory,
marketable securities and real estate. The terms and maturities of commercial
loans are negotiated with the borrower, but generally the loans mature in seven
years or less and bear interest at a fixed or adjustable rate.
Consumer loans originated by the Bank primarily include automobile, mobile home
and boat loans, home improvement loans, loans secured by deposits, lines of
credit secured by residential real estate and credit card agreements, subject to
applicable provisions of Maine law and regulations, and student loans under the
Maine Guaranteed Student Loan Program. The interest on student loans is
partially subsidized, and a minimum of 98% of each loan is guaranteed by the
federal government. As of December 31, 1995, the Bank had approximately $16.3
million in consumer loans, compared to $16.0 million as of December 31, 1994.
All consumer loans originated are reviewed for creditworthiness, adequacy of
collateral and the borrowers' ability to repay.
For information on Allowance for Loan Losses and Nonperforming Assets, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is incorporated herein by reference.
Secondary Market Activity
The Bank is active in secondary market transactions primarily through the sale
of long-term, fixed-rate residential mortgage loans that it originates. The sale
of these loans is intended to improve the interest rate sensitivity of the
Bank's assets (consistent with the Bank's asset/liability policy), generate
future fee income and provide additional funds for lending and liquidity. The
Bank seeks to originate longer term fixed-rate mortgages only when commitments
to sell these mortgages can readily be obtained. Due to interest rate
fluctuations, it may periodically be necessary for the Bank to fill such
commitments by selling mortgages having a higher or lower interest rate than the
rate specified in the commitment. Such sales will be made at a premium or
discount depending on the interest rate variation and will result in realized
gains or losses to the Bank on the transaction.
The Bank is an approved seller and servicer by and for FNMA and the Maine State
Housing Authority ("MSHA"). At December 31, 1995 and December 31, 1994, the Bank
was servicing loans for others of $53.7 million and $57.0 million, respectively.
A-8
<PAGE>
INVESTMENT ACTIVITIES
The Bank's investment portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and reviewed on an annual
basis. Under this policy, and in accordance with applicable provisions of the
Bank Holding Company Act of 1956, as amended ("BHCA"), without the prior
approval of the Federal Reserve Bank of Boston and the Board of Directors, the
Company is prohibited from purchasing shares of any company if such purchase
would cause the Company's existing ownership to equal or exceed 5% of such
company's outstanding shares. The Company's investment policy provides that all
investment purchases of equity securities initiated by the Bank must receive the
advance approval of the Board's Investment Committee. The Company's investment
portfolio is comprised primarily of U.S. government and agency obligations and
miscellaneous other securities. For a summary of investments, see Item 8,
"Financial Statements and Supplementary Data -- Notes B and D," which are
incorporated herein by reference.
Effective January 1, 1994, with the implementation of Financial Accounting
Standards Board ("FASB") Statement No. 115, investment securities classified as
available for sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. Investment securities held to maturity are stated at cost adjusted for
amortization of bond premiums and accretion of bond discounts. There was no
effect to the Company's Financial Statements on January 1, 1994 as a result of
implementing FASB Statement No. 115. During 1995, net unrealized gains (losses)
on available for sale securities increased by $323,000 as compared to December
31, 1994. The net unrealized gains (losses) on these securities was $38,000 at
December 31, 1995.
Since the adoption of FASB Statement No. 115, the Company's Investment Policy
states that all securities purchased with an original maturity of over one year,
other than mortgage backed securities originated by the Bank with current loan
production, will be classified as available for sale. Securities purchased with
an original maturity of one year or less, or callable U.S. government agency
notes, will be considered held-to-maturity. Mortgage backed securities
originated by the Bank with current loan production will be classified as
trading securities.
A-9
<PAGE>
SOURCES OF FUNDS
General
Deposits and advances from the Federal Home Loan Bank ("FHLB") of Boston are the
principal sources of Coastal's funds for use in lending and for other general
business purposes. Coastal's deposits are primarily derived from the areas where
its banking offices are located. Coastal does not actively solicit deposits
outside the State of Maine or use brokers to obtain deposits.
In addition to deposit accounts and advances, Coastal derives funds from loan
repayments, sales of loans and returns on investments. Unscheduled loan
repayments and scheduled amortization have been a substantial source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates, money market and general economic conditions. Subject to the
limitations described under "Borrowings", FHLB advances may be used on a
short-term basis to compensate for reductions in normal sources of funds such as
deposit inflows at less than projected levels. The Bank has also been authorized
for access to the discount window of the Federal Reserve Bank in its District;
however, to date this borrowing source has not been used. See "Regulation --
Federal Reserve System" concerning limitations on a Federal Reserve Bank's
ability to lend to undercapitalized institutions.
Deposits
The Bank has a wide variety of deposit programs designed to attract both
short-term and long-term deposits from the general public, primarily from
consumers and businesses. These programs include interest bearing and
non-interest bearing checking accounts, savings accounts, certificates of
deposit, jumbo certificates of deposit and individual retirement accounts.
Deposits at the Bank are federally insured by the BIF, which is administered by
the FDIC.
The Bank's deposit growth has been limited in large part by the same factors
discussed under "Lending Activities" above, including the Bank's prior strategy
of selectively shrinking the balance sheet. The following table sets forth the
Company's deposit balances at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $5,128 $5,425 $5,871 $7,217 $7,900
Interest bearing
demand deposits 15,741 17,300 18,470 18,813 16,472
Savings and escrow deposits 42,020 48,205 53,655 55,581 52,994
Time deposits 62,776 59,107 62,591 74,707 93,017
---------- ---------- ---------- ---------- ----------
Total $125,665 $130,037 $140,587 $156,318 $170,383
======== ======== ======== ======== ========
</TABLE>
A-10
<PAGE>
Beginning in early 1995, while the Company evaluated various alternatives for
repaying the FDIC Note, management implemented a strategy designed to stabilize
deposit levels. As a result, total deposits were relatively unchanged at
December 31, 1995 equaling $125.7 million, as compared to the January 31, 1995
level of $126.7 million.
On February 22, 1996, the Bank entered into an agreement to sell its Kezar Falls
branch to Maine Bank & Trust Company. Included in the sale are all of the
branch's deposits (totaling approximately $9.9 million at December 31, 1995),
the real estate and certain of the furniture, fixtures and equipment of the
branch. The agreement between the Bank and Maine Bank & Trust Company is
expected to be consummated during the second quarter of 1996, subject to the
receipt of appropriate regulatory approvals.
The mix of the Bank's deposits has varied from year to year, with higher cost
time deposits increasing in 1995 as a percentage of the Bank's total deposits.
This trend is largely reflective of an industry-wide trend, reflecting the
continuing impact of deregulation on the banking industry, as well as increased
competition for funds from nonbank competitors, including money market and stock
mutual funds.
At December 31, 1995, 1994 and 1993, Coastal's deposits consisted of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 4,973 - $ 5,798 - $6,132 -
Interest bearing
demand deposits 15,958 2.24% 17,749 2.27% 12,375 2.16%
Savings deposits 44,201 2.91 51,162 2.74 60,580 2.92
Time deposits 61,344 5.43 60,930 4.60 68,288 4.96
--------- --------- ---------
Total $126,476 $135,639 $147,375
======== ======== ========
</TABLE>
At December 31, 1995, jumbo certificates of deposit maturities and weighted
average interest rates were as follows:
Balance Weighted Average
Maturities (in months) (In thousands) Interest Rate
- -----------------------------------------------------------------------------
3 months or less $438 5.50%
over 3 - 6 101 5.25
over 6 - 12 432 5.89
over 12 738 6.40
--------
Total $1,709 5.66%
======
As of December 31, 1995, Coastal had no brokered deposits as these deposits all
matured in 1993.
A-11
<PAGE>
Borrowings
The Bank has used FHLB advances in the past to expand its lending and investment
activities and to enhance the Bank's mix of rate-sensitive assets and
liabilities, e.g., to extend maturities or to improve liquidity. The following
table sets forth the amount of the Company's borrowed funds at the dates
indicated:
December 31,
-----------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------
FHLB advances $6,000 $12,612 $18,108
FDIC Note (1) 9,000 9,000 -
--------- --------- ------------
$15,000 $21,612 $18,108
======= ======= =======
(1) The FDIC Note bears interest at a rate of 5% from January 31, 1995 to
January 31, 1996 and 6.5% from February 1, 1996 to January 31, 1997,
subject to certain exceptions. See Item 8, "Financial Statements and
Supplementary Data -- Note A."
At December 31, 1995, the Bank had outstanding $6.0 million in borrowings with a
weighted average interest rate of 5.77% from the FHLB of Boston, maturing as
follows:
Amount Maturing
Due Date (in thousands) Interest Rate
----------------------------------------------------------------------
July 1997 $2,000 6.06%
January 1998 2,000 5.92
March 1998 2,000 5.32
-------
$6,000
The following table sets forth information regarding the weighted average
interest expense at December 31 and the highest month end balances of the Bank's
total borrowings:
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Weighted average interest expenses of
total borrowings 5.37% 7.28% 8.08%
Highest month end balance of
total borrowings $10,412 $18,108 $24,684
Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the collateral maintenance level. The collateral maintenance level for a member
bank is the aggregate amount of collateral that, based on certain percentages of
book value, market value or unpaid principal, has a value equal to the
A-12
<PAGE>
aggregate amount of the member bank's outstanding advances. Depending on the
ratio of tangible capital to assets as defined by the FHLB and certain other
factors, each member bank is assigned by the FHLB to one of three collateral
status groups:
(i) Blanket Lien Status - tangible capital of 4.5% or more of
assets;
(ii) Listing/Segregation Status - tangible capital below 4.5% of
assets; and
(iii) Delivery (Possession) Status - tangible capital below 3.5% of
assets.
Although its tangible capital is above 3.5% of assets, Coastal is in delivery
status. Because of the potential contingent liability of affiliated institutions
within a holding company structure, the FHLB closely reviews the financial
condition of a member bank's parent company. If a member bank's parent holding
company has a low tangible capital ratio or is experiencing substantial
financial problems, the member bank may be assigned to listing or delivery
status. In connection with the waiver and release of the FDIC cross guaranty
claim, the Bank requested the removal of the foregoing restrictions imposed by
the FHLB. On May 1, 1995, the Bank received a letter from the FHLB stating that
it would lengthen the maturity restriction on new fixed term and fixed rate
advances from six months to one year.
The Bank also has been approved by the Federal Reserve Bank of Boston to obtain
liquidity from its discount window. No funds have been, or are anticipated to
be, obtained from this source.
The Bank estimates that it has approximately $20 million ($7.2 million with the
FHLB and $12.8 million with the Federal Reserve Bank of Boston) in additional
short-term borrowing capacity as of December 31, 1995. This amount fluctuates
based on qualified collateral.
For additional information on Borrowings, see Item 8, "Financial Statements and
Supplementary Data -- Note I," incorporated herein by reference.
EMPLOYEES
As of December 31, 1995, the Company and its subsidiary had 65 full-time
equivalent employees.
COMPETITION
The Bank is a full service savings bank with eight banking offices which are
located in the communities of Brunswick, Freeport, Kennebunk, Kezar Falls, Saco,
Topsham and Westbrook. Competition among financial institutions in the Bank's
market area is intense and the Bank competes in obtaining funds and in making
loans with other state and national banks, savings and loan associations,
consumer financial companies, credit unions, money market mutual funds, and
other financial institutions which have far greater financial resources than
those available to the Bank. At June 30, 1995 a total of approximately 46% of
deposits in Maine was held by three large financial institutions, two of which
are wholly owned subsidiaries of superregional bank holding companies with
assets in excess of $50.0 billion and one of which is a Maine-based savings bank
with assets in excess of $2.0 billion. Competition among financial institutions
is based upon interest rates and other
A-13
<PAGE>
credit and service charges, the quality of services rendered, the convenience of
banking facilities and in the case of loans to larger commercial borrowers,
relative lending limits.
REGULATION
Federal Bank Holding Company Regulation
The Company is subject to regulation under the BHCA and is required to file with
the Federal Reserve annual reports and such additional information as the
Federal Reserve may require pursuant to the BHCA. The Federal Reserve may
conduct examinations of the Company and its subsidiary.
Under the BHCA, Federal Reserve approval is required for any action which causes
a bank or other company to become a bank holding company and for any action
which causes a bank to become a subsidiary of a bank holding company. A bank
holding company must obtain Federal Reserve approval before it acquires direct
or indirect ownership or control of any voting shares of any bank if, after such
acquisition, it will own or control directly or indirectly more than 5% of the
voting stock of such bank unless it already owns a majority of the voting stock
of such bank. Federal Reserve approval also must be obtained before a bank
holding company acquires all or substantially all of the assets of a bank or
merges or consolidates with another bank holding company. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorized
the acquisition of banks in any state by bank holding companies, subject to
compliance with federal and state antitrust laws, the Community Reinvestment Act
(the "CRA") and specific deposit concentration limits. The IBBEA removes most
state law barriers to interstate acquisitions of banks and ultimately will
permit multi-state banking operations to merge into a single bank.
A bank holding company is prohibited, except in certain statutorily-prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, and from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or furnishing services to its
subsidiaries. A bank holding company may, however, subject to the approval of
the Federal Reserve, engage in, or acquire shares of companies engaged in,
activities which are deemed by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Under the Change in Bank Control Act, persons who intend to acquire control of a
bank holding company, acting directly or indirectly, or through or in concert
with one or more persons, generally must give 60 days prior written notice to
the Federal Reserve. "Control" exists when the acquiring party directly or
indirectly has voting control of at least 25% of the bank holding company's
voting securities or the power to direct the management or policies of such
company. Under Federal Reserve regulations, a rebuttable presumption of control
arises with respect to an acquisition where, after the transaction, the
acquiring party has ownership, control or the power to vote at least 10% (but
less than 25%) of any class of the company's voting securities if (i) the
company has securities registered under Section 12 of the Securities Exchange
Act of 1934 or (ii) immediately after the
A-14
<PAGE>
transaction no other person will own a greater proportion of that class of
voting securities. The Federal Reserve may disapprove the proposed acquisition
on certain specified grounds.
As a bank holding company, the Company is subject to capital adequacy guidelines
of the Federal Reserve. The guidelines apply on a consolidated basis to bank
holding companies with consolidated assets of $150 million or more. For bank
holding companies which have less than $150 million in consolidated assets, as
did the Company for each of the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995 and December 31, 1995, the guidelines are applied on a
bank-only basis (as opposed to a consolidated basis) unless (i) the parent bank
holding company is engaged in nonbank activity involving significant leverage or
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines.
A bank holding company's ability to pay dividends and expand business through
the acquisition of new banking subsidiaries can be restricted if its capital
falls below levels established by these guidelines. In addition, any bank
holding company whose capital falls below specified levels can be required to
implement a plan to increase capital.
The Federal Reserve's capital adequacy guidelines provide for three types of
capital: tier 1 capital (or core capital), tier 2 capital (or supplementary
capital) and total capital. Tier 1 capital generally includes common
stockholders' equity, qualifying noncumulative perpetual preferred stock and
related surplus, qualifying cumulative perpetual preferred stock and related
surplus (limited to a maximum of 25% of tier 1 elements) and minority interest
in the equity accounts of consolidated subsidiaries. Goodwill and most types of
intangible assets are required to be deducted from tier 1 capital. The only
types of intangible assets that may be included in a bank holding company's
capital are readily marketable purchased mortgage servicing rights and purchased
credit-card relationships, provided that the total amount of these assets
included in capital may not exceed 50% of tier 1 capital elements. Purchased
credit-card relationships are subject to a separate sublimit of 25% of tier 1
capital elements. The amount of purchased mortgage servicing rights and
purchased credit-card relationships that a bank holding company may include in
capital, subject to the aggregate limitations described above, is limited to the
lesser of (i) 90% of their fair market value or (ii) 100% of their book value.
Tier 2 capital generally includes allowances for loan and lease losses (limited
to 1.25% of risk-weighted assets), most perpetual preferred stock and any
related surplus, certain hybrid capital instruments, perpetual debt and
mandatory convertible securities and certain intermediate-term preferred stock
and subordinated debt instruments (subject to a maximum of 50% of tier 1 capital
excluding goodwill, but phased-out as the instrument matures). Total capital
generally includes tier 1 capital, plus qualifying tier 2 capital, minus
investments in unconsolidated subsidiaries, reciprocal holdings of bank holding
company capital securities and other deductions as may be determined by the
Federal Reserve.
Under current Federal Reserve capital adequacy guidelines, bank holding
companies generally must maintain a ratio of tier 1 capital to qualifying total
consolidated assets of 4.0% to 5.0%. The
A-15
<PAGE>
minimum ratio is 3.0% for the most highly rated bank holding companies or banks.
The Federal Reserve's capital adequacy guidelines also require bank holding
companies to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%, including a minimum ratio of tier 1 capital to
risk-weighted assets of 4.0%. The maximum amount of tier 2 or supplementary
capital elements that qualify as total capital is limited to 100% of tier 1
capital, net of goodwill. A bank holding company's risk-weighted assets are
determined by multiplying the balance sheet amount by a specified risk-weight
determined by the Federal Reserve in accordance with the relative risk level of
the asset. Off-balance sheet items, such as standby letters of credit, are
converted to an on-balance sheet credit equivalent amount by multiplying the
face amount of the off-balance sheet item by a credit conversion factor
determined by the Federal Reserve.
On a bank-only basis, the Company's ratios of tier 1 capital to total assets,
tier 1 capital to total risk- weighted assets, and total capital to
risk-weighted assets of 9.19%, 14.32%, and 15.59%, respectively, at December 31,
1995 were in compliance with such guidelines.
The Federal Reserve has proposed to modify its risk-based capital adequacy
guidelines to take into account interest-rate risk. The interest-rate risk
proposal would attempt to estimate the effect that changes in market interest
rates might have on the net economic value of an institution. An institution
with interest-rate risk exposure in excess of an as yet to be determined
threshold level would be required to allocate additional capital equal to the
dollar amount of the estimated change in its net economic value that is in
excess of that level. The FDIC has proposed similar changes to its risk- based
capital guidelines that will apply to the Bank. The foregoing proposals may have
the effect of requiring the Company and the Bank to maintain increased capital.
The Federal Reserve also is empowered to initiate cease and desist proceedings
and other supervisory actions for any violation of the BHCA and the regulations,
orders and notices issued by the Federal Reserve thereunder. Under Federal
Reserve regulations, banks and bank holding companies which do not meet minimum
capital requirements are considered undercapitalized. Undercapitalized bank
holding companies are required to submit an acceptable plan for achieving
capital adequacy and are subject to appropriate enforcement actions by the
Federal Reserve.
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies concerning capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with Federal Reserve policies regarding the payment
of cash dividends by bank holding companies. Management addressed these matters
by developing plans and policies which were submitted to the Federal Reserve in
1988, and updated such plans and policies in 1992 and 1995. Effective March 13,
1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
Maine Bank Holding Company Regulation
Maine state law regulates bank holding companies. The state law is designed to
conform with the registration, application and reporting requirements of the
BHCA to the maximum extent feasible. As a holding company, the Company must
register with the Maine Superintendent of Banking, and
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<PAGE>
must notify the Maine Superintendent of Banking whenever any person or company
directly or indirectly acquires control of 5% or more of the Company's stock or
whenever there is a "material" change in the ownership of the Company. If 5% or
more of the stock in the Company is acquired by a financial institution or by a
financial institution holding company, the Superintendent must approve that
acquisition. Similarly, other transactions require advance approval by the
Superintendent including, among other things, the acquisition of control of the
Company or the Bank, the acquisition by the Company or the Bank of 5% or more of
the stock of another financial institution and the engagement of the Company,
Bank or a subsidiary in an activity closely related to banking.
In February 1996, the Maine legislature amended Maine's Banking Code to permit
interstate branching in accordance with the IBBEA. Among other things, the
amendments prohibit the operation of deposit production offices, establish a
limit on the amount of deposits that may be acquired through merger or
acquisition and impose reporting requirements necessary to monitor compliance.
The amendments also permit the establishment of de novo branches in Maine on a
reciprocal basis.
At the state level, the Maine Bureau of Banking regulates the Bank's internal
organization and its permissible activities. Under Maine law, in addition to
taking deposits and making loans, savings banks, like the Bank, are permitted to
engage in real estate investments and investments in securities. The Bank must
maintain capital in accordance with rules adopted by the Superintendent of
Banking. By law, these capital rules may be no less stringent than the capital
requirements imposed by federal banking regulators on federally chartered
institutions. The stock held by the Company in the Bank is assessable. If the
Bank's capital becomes impaired, the Superintendent may order the Board of
Directors to restore the deficiency.
Bank Regulation
As a BIF-insured savings bank, the Bank is subject to regulation, supervision
and examination by the FDIC. The Bank also is subject to regulation, supervision
and examination by the Maine Bureau of Banking.
The Maine Bureau of Banking administers the Maine statutes which regulate the
Bank's internal organization as well as its deposit, lending and investment
activities. The approval of the Maine Bureau of Banking is required for changes
in the Bank's articles of incorporation, bylaws, branch offices and major
transactions. The Maine Bureau of Banking conducts periodic examinations of the
Bank as part of its supervision. Many of the areas regulated by the Maine Bureau
of Banking, including location of branch offices, acquisitions of other
financial institutions and mergers, are subject to similar regulation by the
FDIC.
As a BIF-insured savings bank, the Bank is subject to certain FDIC requirements
designed to maintain the safety and soundness of individual banks and the
banking system. The FDIC has prescribed safety and soundness guidelines relating
to (i) internal controls, information systems and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v)
asset growth; and (vi) compensation and benefit standards for officers,
directors, employees and principal stockholders. Such guidelines impose
standards based upon an institution's asset quality and
A-17
<PAGE>
earnings. The guidelines are intended to set out standards that the agencies
will use to identify and address problems at institutions before capital becomes
impaired. Institutions are required to establish and maintain a system to
identify problem assets and prevent deterioration of those assets in a manner
commensurate with its size and the nature and scope of its operations.
Furthermore, institutions must establish and maintain a system to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with their size and the nature and
scope of their operation.
Under the guidelines, an institution not meeting one or more of the safety and
soundness guidelines is required to file a compliance plan with the FDIC. In the
event that an institution, such as the Bank, were to fail to submit an
acceptable compliance plan or fail in any material respect to implement an
accepted compliance plan within the time allowed by the FDIC, the institution
would be required to correct the deficiency and the appropriate federal agency
would also be authorized to: (i) restrict asset growth; (ii) require the
institution to increase its ratio of tangible equity to assets; (iii) restrict
the rates of interest that the institution may pay; or (iv) take any other
action that would better carry out the purpose of the corrective action. The
Bank believes it was in compliance with all such guidelines as of December 31,
1995.
The FDIC periodically conducts examinations of insured institutions and, based
upon evaluations, may revalue assets of an insured institution and require
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets.
The FDIC also has adopted minimum capital adequacy regulations. Although there
are some differences between the capital adequacy guidelines adopted by the
Federal Reserve and the FDIC, the primary elements of each are generally
identical. Under the minimum leverage-based capital requirement adopted by the
FDIC, insured state nonmember banks must maintain a ratio of Tier 1 capital to
total assets of at least 3% to 5% depending on the CAMEL rating of the Bank.
Under such regulations, state nonmember banks must maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.0%, including a minimum
ratio of Tier 1 capital to risk-weighted assets of 4.0%. At December 31, 1995,
the Bank had a ratio of qualifying total capital to risk- weighted assets of
15.59% and a ratio of Tier 1 capital to risk-weighted assets of 14.32%. The FDIC
has proposed to amend its risk-based capital standards to ensure that those
standards provide adequately for interest-rate risk in a manner similar to that
proposed by the Federal Reserve. See "Business -- Regulation -- Federal Bank
Holding Company Regulation."
Capital requirements higher than the generally applicable minimum requirements
may be established for a particular bank if the FDIC determines that the bank's
capital is, or may become, inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate where the bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk or poses other safety and soundness concerns.
The FDIC adopted prompt corrective action regulations ("PCA regulations"). Under
the PCA regulations, insured institutions will be considered (i) "well
capitalized" if the institution has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
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<PAGE>
leverage ratio of 5% or greater (provided that the institution is not subject to
an order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specified capital level for any capital
measure), (ii) "adequately capitalized" if the institution has a total risk-
based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater and a leverage ratio of 4% or greater (3% or greater if the institution
is rated composite 1 in its most recent report of examination and is not
experiencing or anticipating significant growth), (iii) "undercapitalized" if
the institution has a total risk-based capital ratio that is less than 8%, or a
Tier 1 risk-based ratio of less than 4% or greater and has a leverage ratio that
is less than 4% (3% if the institution is rated composite CAMEL 1 in its most
recent report of examination and is not experiencing or anticipating significant
growth), (iv) "significantly undercapitalized" if the institution has a total
risk-based capital ratio that is less than 6%, a Tier 1 capital risk-based
capital to total adjusted assets that is less than 3% or a leverage ratio to
adjusted total assets that is less than 3% and (v) "critically undercapitalized"
if the institution has a ratio of tangible equity to total assets that is less
than or equal to 2%. At December 31, 1995, the Bank was classified as an
"adequately capitalized" institution.
Any insured depository institution that falls below the minimum capital
standards must submit a capital restoration plan. Under the PCA regulations,
undercapitalized institutions are precluded from increasing their assets,
acquiring other institutions, establishing additional branches or engaging in
new lines of business without an approved capital plan and an agency
determination that such actions are consistent with the plan. Any insured
institution is prohibited from making a capital distribution if, after making
the distribution, the institution would be undercapitalized, except in limited
circumstances approved by the FDIC. Insured depository institutions that are
significantly undercapitalized may be required to take one or more of the
following actions: (i) raise additional capital so that the institution will be
adequately capitalized, (ii) be acquired by, or combined with, another
institution if grounds exist for appointing a receiver, (iii) refrain from
affiliate transactions, (iv) limit the amount of interest paid on deposits to
the prevailing rates of interest in the region where the institution is located,
(v) further restrict asset growth, (vi) hold a new election for directors,
dismiss any director or senior executive officer who held office for more than
180 days immediately before the institution became undercapitalized or employ
qualified senior executive officers, (vii) stop accepting deposits from
correspondent depository institutions and (viii) divest or liquidate any
subsidiary which the appropriate federal banking agency determines poses a
significant risk to the institution. Any company which controls a significantly
undercapitalized depository institution may be required to: (i) divest or
liquidate any affiliate other than an insured depository institution, (ii)
divest the institution if the appropriate federal banking agency determines that
divestiture would improve the institution's financial condition and future
prospects and (iii) if such company is a bank holding company, refrain from
making any capital distributions without the prior approval of the Federal
Reserve.
Critically undercapitalized institutions are subject to additional restrictions.
No later than 90 days after an insured depository institution becomes critically
undercapitalized, the appropriate federal banking agency is required to appoint
a receiver (or, with the concurrence of the FDIC, a conservator) for the
institution, unless the appropriate federal banking agency determines, with the
concurrence of the FDIC, that other action would better achieve the purposes of
FDIA. The appropriate federal banking agency must make periodic redeterminations
that the alternative action continues to be justified no less frequently than
every 90 days. The appropriate federal banking
A-19
<PAGE>
agency is required to appoint a receiver if the institution remains critically
undercapitalized nine months later, unless the institution is in compliance with
an approved capital plan and the applicable federal banking agency and the FDIC
certify that the institution is viable.
The FDIA also requires any company that has control of an undercapitalized
depository institution, in connection with the submission of a capital
restoration plan by the institution, to guarantee that the institution will
comply with the plan and provide appropriate assurances of performance. The
aggregate liability of any such controlling company under such guaranty is
limited to the lesser of (i) 5% of the institution's assets at the time it
became undercapitalized or (ii) the amount necessary to bring the institution
into capital compliance at the time it fails to comply with the terms of its
capital plan. If the Bank is classified as undercapitalized, the Company may be
required to guarantee performance of any capital plan required to be submitted
under the FDIA.
An insured state bank, such as the Bank, may not engage as principal in any
activity that is not permissible for a national bank, unless the FDIC has
determined that the activity would pose no significant risk to the BIF and the
state bank is in compliance with applicable capital standards. Activities of
subsidiaries of insured state banks are similarly restricted to those activities
permissible for subsidiaries of national banks, unless the FDIC has determined
that the activity would pose no significant risk to the BIF and the state bank
is in compliance with applicable capital standards. The FDIA also provides that,
except for subsidiaries of which the insured state bank is a majority owner and
except for certain investments in qualified housing projects, an insured state
bank may not, directly or indirectly, acquire or retain any equity investment of
a type that is not permissible for a national bank. Insured state banks are
required to divest any equity investment the retention of which is not
permissible as quickly as can be prudently done, but in no event later than
December 9, 1996. Notwithstanding the foregoing, an insured state bank may, to
the extent permitted by the FDIC, acquire and retain ownership of common or
preferred stock listed on a national securities exchange, provided that the
insured state bank made or maintained an investment in such securities during
the period beginning on September 30, 1990 and ending on November 26, 1991 and
provided further that the aggregate amount of the investment does not exceed
100% of the bank's capital. This exception would cease to apply with respect to
any insured state bank upon any change in control of such bank or any conversion
of the charter of such bank. Determinations under these provisions by the FDIC
must be made by regulation or order. The Bank believes that its activities as
presently conducted conform to those permissible for national banks, except for
approximately $125,000 of certain other investments of the Bank at December 31,
1995 which the Bank intends to sell pursuant to a divestiture plan.
Transactions between the Bank and its affiliates, are subject to Sections 23A
and 23B of the Federal Reserve Act. For purposes of these sections, the term
"affiliate" with respect to the Bank refers to the Company. A transaction is
deemed to be one with an affiliate if the proceeds of the transaction are
transferred to, or used for the benefit of, an affiliate. Under sections 23A and
23B, transactions between banks and their affiliates are generally limited in
the following ways: First, the aggregate amount of all "covered transactions"
(which include, among other things, loans or other extensions of credit to or on
behalf of an affiliate, purchases of assets from an affiliate or investments in
the securities of an affiliate) between a bank (and its subsidiaries) and any
one affiliate may not exceed 10% of the capital stock and surplus of the bank,
and the aggregate amount of covered transactions
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<PAGE>
between a bank (and its subsidiaries) and all affiliates may not exceed 20% of
the capital stock and surplus of the bank. Second, any loan or extension of
credit to, or guarantee, acceptance or letter of credit issued on behalf of an
affiliate by a bank or any of its subsidiaries must at all times be secured by
collateral having a market value equal to from 100% to 130% of the outstanding
balance of the extension of credit, depending upon the nature of the collateral.
Third, neither low quality assets or securities issued by an affiliate may be
accepted by a bank as collateral for an extension of credit issued to or on
behalf of any affiliate. Fourth, a bank and its subsidiaries are prohibited from
purchasing a low-quality asset from an affiliate unless the bank or any such
subsidiary, pursuant to an independent credit evaluation, committed itself to
purchase the asset prior to the time the asset was acquired by the affiliate.
Transactions between a bank and its subsidiaries or affiliates generally must be
on terms and conditions, including credit standards, that are substantially the
same or at least as favorable to the bank or its subsidiary as those prevailing
at the time for comparable transactions with or involving unaffiliated parties
or, in the absence of comparable transactions, on terms or under circumstances,
including credit standards, that in good faith would be offered or would apply
to unaffiliated parties. Section 23B imposes additional restrictions on the
ability of a bank and its subsidiaries (i) when acting in a fiduciary capacity,
to purchase securities or assets from an affiliate, and (ii) whether acting as
principal or fiduciary, to purchase or acquire, during the existence of any
underwriting or selling syndicate, any security if a principal underwriter of
the security is an affiliate of the bank. Finally, neither a bank nor any of its
subsidiaries or affiliates may publish an advertisement or enter into any
agreement stating or suggesting that the bank is in any way responsible for the
obligations of its affiliates.
Insurance of Deposits
The Bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation. The Bank is required to pay quarterly
insurance premiums on semiannual assessments for FDIC insurance.
The FDIC implemented a risk-based deposit insurance assessment system. Deposit
insurance assessment rates are currently within a range of $0.00 to $0.27 per
$100 of insured deposits, depending on the assessment risk classification
assigned to each institution. The FDIC places each institution into one of nine
assessment risk classifications based on the institution's capital and
supervisory classification. Adequately capitalized banks, such as the Bank, are
subject to BIF assessment rates within a range of $0.03 to $0.24 per $100 of
insured deposits, depending on the supervisory subgroup to which the bank is
assigned by the FDIC. The FDIC sets assessment rates at a level sufficient to
maintain the BIF's reserve ratio to 1.25% of insured deposits. The FDIC is
authorized to establish a higher reserve ratio and to impose special assessments
to pay for the costs of authorized borrowings. The FDIC considers BIF revenue
and expense levels, the BIF reserve ratio and BIF borrowings in establishing
assessment rate ranges.
In August 1995, the FDIC determined that the BIF had achieved its designated
reserve ratio and lowered BIF deposit insurance premium rates for all but the
riskiest institutions. Effective January 1, 1996, BIF deposit insurance premiums
for adequately capitalized banks were set at $0.00 to $0.27
A-21
<PAGE>
per $100 of insured deposits per year, depending upon an institution's
supervisory rating. The deposit insurance premiums imposed by the FDIC are
subject to change.
FDIC insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations as an insured bank, or has violated any applicable law,
regulation, rule or order of, or condition imposed on the FDIC. Additionally, if
insurance termination proceedings are initiated against a bank, the FDIC may
temporarily suspend insurance on new deposits received by the institution under
certain circumstances.
BIF insured banks, such as the Bank, and savings institutions insured through
the Savings Association Insurance Fund ("SAIF") may merge, consolidate or engage
in asset transfer and liability assumption transactions. The resulting
institution may continue to be subject to BIF and SAIF assessments in relation
to that portion of its combined deposit base which is attributable to the
deposit base of its respective predecessor BIF and SAIF institutions or may
apply to the FDIC to convert all of its deposits to either insurance fund upon
payment of the then applicable entrance and exit fees for each fund.
Under the Community Reinvestment Act (the "CRA") and the implementing FDIC
regulations, which were amended in 1995 to provide for a performance-based
evaluation system, a savings institution has a continuing and affirmative
obligation to help meet the credit needs of its local communities, including low
and moderate income neighborhoods, consistent with the safe and sound operation
of the institution. The CRA requires the board of directors of savings
institutions, such as the Bank, to adopt a CRA statement for each assessment
area that, among other things, describes its efforts to help meet the community
credit needs and the specific types of credit that the institution is willing to
extend. In connection with its examination of a savings institution, the FDIC is
required to take into account the institution's record of meeting the credit
needs of its community in determining whether to grant approval for certain
types of applications including mergers and acquisitions. The Bank's CRA rating
is satisfactory as of the last examination.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Boston, one of the 12 regional banks of the
FHLB System. The FHLB System provides a central credit facility for member
institutions. The Bank, as a member of the FHLB of Boston, is required to own
shares of capital stock in the FHLB of Boston in an amount at least equal to the
greater of 1% of the aggregate principal amount of unpaid residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances (borrowings) from the FHLB of Boston, whichever is
greater. The Bank was in compliance with this requirement with an investment at
December 31, 1995 of $1.3 million.
Under applicable regulations, member banks are required to maintain at all times
an amount of qualified collateral that is at least sufficient to satisfy the
collateral maintenance level established by the FHLB. See "Business -- Sources
of Funds -- Borrowings."
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<PAGE>
Federal Reserve System
The Federal Reserve has adopted regulations that require insured depository
institutions to maintain nonearning reserves against their transaction accounts
(primarily NOW and regular checking accounts) and nonpersonal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than 18 months. At December 31, 1995, the Bank
was in compliance with these requirements.
The Bank also has the ability to borrow from the Federal Reserve Bank of Boston
"discount window." The FDIA places limitations upon the ability of the Federal
Reserve Bank of Boston to extend advances to undercapitalized and critically
undercapitalized depository institutions. The FDIA provides that a Federal
Reserve Bank generally may not have advances outstanding to an undercapitalized
institution for more than 60 days in any 120-day period. Under FDIA, the Federal
Reserve Bank of Boston will be liable for a portion of any excess losses
incurred by the FDIC with respect to an institution that receives Federal
Reserve Bank of Boston advances after becoming critically undercapitalized.
TAXATION
Federal
The Company files a consolidated federal income tax return with the Bank using
the accrual method of accounting.
Internal Revenue Service ("IRS") guidance dealing with the tax consequences of
federal financial assistance (e.g., cash) provided by the FDIC requires all
federal financial assistance provided to an acquiring bank to be taxable to the
bank that has been seized. Accordingly, all federal financial assistance
provided to the acquiror of Suffield Bank's assets and liabilities may be
taxable income included in the consolidated federal income tax return of the
Company. This income may generally be offset by tax losses resulting from the
sale of assets sold by the FDIC. Although management has been informed by the
FDIC that there will be no net taxable income resulting from seizure of Suffield
Bank, management has not been able to obtain written confirmation from the FDIC
at this time. Accordingly, income taxes disclosed in the Consolidated Financial
Statements do not take into account adjustments, if any, which may result from
the seizure of Suffield Bank.
In 1990, Coastal Bancorp and its subsidiaries carried back their share of the
consolidated net operating losses of the Suffield Financial Corporation and
subsidiaries group to the years 1984, 1985 and 1986. Tentative tax refunds in
the amount of $926,000 were paid to the Bank as a result of this carryback. In
1989 and 1990, Suffield Financial Corporation and Suffield Bank also carried
back their share of the net operating losses of the group. A portion of the 1990
losses was carried back to the 1986 taxable year of the Suffield group as it
existed before the acquisition of Coastal Bancorp and the Bank (the "Old
Suffield Group") and resulted in a tentative refund of $1,973,000 and a portion
of the 1989 losses was carried back to the years 1979 through 1985 of the Old
Suffield Group and resulted in tentative refunds of $1,279,000.
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<PAGE>
All refunds in excess of $1.0 million must be approved by the Joint Committee on
Taxation of the U.S. Congress. The IRS has reviewed and approved the refund
claims and has forwarded the case to the Joint Committee on Taxation in
Washington, D.C. with a recommendation that the refunds be approved as made. The
final approval of the Joint Committee on Taxation is expected as early as the
third quarter of 1996. If the Joint Committee on Taxation were to conclude that
the losses were not eligible for the ten-year carryback, the Bank would be
liable for the repayment of $926,000 of refunds plus interest and would increase
its net operating loss carryforwards by $2.4 million. The Bank also believes
that the requirements have been satisfied with respect to the carryback of 1989
and 1990 losses by Suffield Financial Corporation and Suffield Bank under the
ten-year rule. In any event, none of the Company, Coastal Bancorp or the Bank
were members of the Old Suffield Group in the above carryback years.
Consequently, the Bank believes that in accordance with the consolidated return
regulations, the Company, Coastal Bancorp or the Bank would not be liable for
the repayment of any refunds generated by carryback to the Old Suffield Group.
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1988 and such years are
not subject to further IRS audit except with respect to carrybacks to those
years.
State
The State of Maine imposes income and franchise taxes on financial institutions
such as the Bank equal to 1% of Maine net income and $0.08 per $1,000 of the
Bank's year-end assets, respectively. Maine net income equals the Bank's net
income or loss as reported on its federal income tax return. The Maine franchise
tax may be reduced by a credit in the event of a book net operating loss for a
particular taxable year. The credit equals the book net operating loss
multiplied by the franchise tax rate and may be carried forward for up to five
years. The Maine income and franchise taxes are deductible in determining
federal taxable income.
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<PAGE>
ITEM 2. PROPERTIES.
The Company primarily utilizes the premises, equipment and furniture of the Bank
without direct payment of any rental or other fees to the Bank. The Bank's
executive offices and operations center is located at 36 Thomas Drive,
Westbrook, Maine. The Bank currently maintains eight branches as listed below.
<TABLE>
<CAPTION>
Location Address Leased/Owned Lease Expiration
- -------- ------- ------------ ----------------
<S> <C> <C> <C>
Brunswick 83 Main Street Owned n/a
Brunswick, ME
Brunswick 14 Gurnet Road Owned n/a
Brunswick, ME
Topsham Topsham Fair Mall Building Owned n/a
Route 196 Land Leased June 2000
Topsham, ME
Freeport 165 Main Street Owned n/a
Freeport, ME
Westbrook 36 Thomas Drive Owned n/a
Westbrook, ME
Saco 32 Saco Valley Shopping Ctr. Leased January 2001
Saco, ME
Kennebunk Shoppers Village Leased December 2000
Kennebunk, ME
Kezar Falls(1) Federal Road Owned n/a
Kezar Falls, ME
<FN>
(1) The Bank entered into an agreement with Maine Bank & Trust Company dated
February 22, 1996 pursuant to which the Bank will sell substantially all of
the assets of its Kezar Falls, Maine branch office to Maine Bank & Trust
Company, and Maine Bank & Trust Company will assume certain liabilities of
the Bank with respect to the branch. Pending the receipt of appropriate
regulatory approvals, the transaction is expected to be consummated in the
second quarter of 1996.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1995, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with
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<PAGE>
legal counsel, resolution of these matters is not expected to have a material
effect on the consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of December 31, 1995, the Company had approximately 1,700 holders of record
and 600,361 shares of Common Stock outstanding. The Common Stock is traded in
the over-the-counter market in the "pink sheets," although there is no
established public trading market for the Common Stock and the Company has no
confirmed information as to the time, price and volume at which any trades may
have been made.
No dividends were declared by the Company in 1991 through 1995. The Company's
only source of cash is from dividends from the Bank. The Amended and Restated
Settlement Agreement prohibits the payment of dividends by the Company to its
stockholders until the unpaid principal amount and interest under the FDIC Note
are paid in full in accordance with the terms thereof. There are certain
additional restrictions on the ability of the Company to pay dividends and on
the ability of the Bank to transfer funds to the Company in the form of cash
dividends. See Item 8, "Financial Statements and Supplementary Data -- Note A
and Note J," which are incorporated herein by reference.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected Consolidated Financial Data of First Coastal Corporation
The following table sets forth, in summary form, certain selected financial data
as of and for each of the five years in the period ended December 31, 1995.
The 1994 financial results reflect a $9.0 million extraordinary charge to
earnings as a result of the issuance by the Company of the non-recourse
promissory note to the Federal Deposit Insurance Corporation ("FDIC") in
consideration of the waiver and release of the FDIC's cross guaranty claim
against Coastal Savings Bank ("Coastal" or the "Bank") in connection with the
consummation of the Amended and Restated Settlement Agreement on January 31,
1995. See Item 8, "Financial Statements and Supplementary Data -- Note A," which
is incorporated herein by reference.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
(dollars in thousands except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income $11,707 $11,780 $12,748 $16,319 $ 21,032
Interest expense (1) 5,850 5,726 7,254 9,986 14,639
------ ------ ------ ------ ------
Net interest income 5,857 6,054 5,494 6,333 6,393
Provision for loan losses (425) 107 (30) 1,136 5,967
------- ------ -------- ----- ------
Net interest income
after provision for loan losses 6,282 5,947 5,524 5,197 426
Investment securities gains (losses) (4) 38 99 (19) 360
Other income 576 391 1,323 1,126 980
Other expenses (2) 5,194 6,278 6,158 7,049 12,853
Income tax benefit - - (4) (198) (114)
-------- ---------- --------- -------- ---------
Income (loss) before minority
interest and extraordinary item 1,660 98 792 (547) (10,973)
Minority interest in
net income (loss) - - 44 (18) (378)
-------- ---------- -------- --------- ----------
Income (loss) before
Extraordinary Item 1,660 98 748 (529) (10,595)
Extraordinary Item -
Charge to earnings as a result of the
settlement of the cross guaranty claim - 9,000 - - --
-------- -------- ------- ------- ---------
Net income (loss) $1,660 $(8,902) $ 748 $ (529) $(10,595)
====== ======= ======= ====== ========
Per Share Data:
Weighted Average Shares Outstanding 600,361 600,361 600,361 600,361 600,361
Income (loss) before
extraordinary item $ 2.77 $ .16 $ 1.25 $ (.88) $ (17.65)
======= ======= ======== ======= ========
Net income (loss) $ 2.77 $(14.83) $ 1.25 $ (.88) $ (17.65)
======= ======= ======== ======= ========
There were no cash dividends declared for the five years ended December 31,
1995.
<FN>
(1) The 1995 interest expense includes $419,000 in interest expense associated
with the $9.0 million note to the FDIC.
(2) In 1995 and 1994, the Company incurred approximately $0.3 million and $0.8
million, respectively, consisting of legal and other professional fees in
connection with the settlement of the cross guaranty claim with the FDIC.
The 1991 other expense included a $3.2 million writedown for the
deconsolidation of Suffield Bank.
</FN>
</TABLE>
A-27
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet
Data:
Total assets $145,453 $154,212 $170,819 $188,838 $214,422
Investment securities 19,712 16,746 1,036 4,061 l,487
Assets held for sale 281 185 3,421 6,882 3,661
Loans, net 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses 2,659 4,042 3,642 4,280 6,098
Nonperforming assets 7,517 9,006 11,627 24,382 27,303
Deposits 125,665 130,037 140,587 156,318 170,383
Borrowings 6,000 12,612 18,108 21,249 31,595
FDIC Note 9,000 9,000 - - -
Stockholders' equity 3,997 2,014 9,878 9,130 9,659
Financial Ratios:
Net interest rate spread 4.13% 3.79% 3.26% 3.26% 2.47%
Return on average assets before
extraordinary item 1.14 .06 .41 (.27) (4.62)
Return on average assets 1.14 (5.48) .41 (.27) (4.62)
Return on average equity before
extraordinary item 58.20 .92 7.63 (5.44) (82.20)
Return on average equity 58.20 (83.78) 7.63 (5.44) (82.20)
Equity to assets 2.75 1.31 5.78 4.83 4.50
Dividend payout ratio -- -- -- -- --
Tier 1 leverage capital 2.74 1.41 5.63 4.81 4.50
Total risk-based capital 5.54 3.46 9.69 8.02 7.72
A-28
<PAGE>
Selected Financial Data for Coastal Savings Bank
The following table sets forth, in summary form, certain selected financial data
as of and for each of the five years in the period ended December 31, 1995:
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
Unaudited
---------
(in thousands) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income $11,707 $11,774 $12,731 $16,275 $20,980
Interest expense 5,435 5,727 7,255 9,989 14,639
------- ------- ------- ------- -------
Net interest income 6,272 6,047 5,476 6,286 6,341
Provision for loan losses (425) 107 (30) 1,136 5,967
------- ------- -------- ------- -------
Net interest income after provision
for loan losses 6,697 5,940 5,506 5,150 374
Investment securities gains (losses) (4) 38 99 (19) 360
Other income 576 392 1,321 1,145 1,089
Other expenses 4,811 6,063 5,940 7,104 9,539
Income tax expense (benefit) -- -- 6 (198) (114)
------- ------- ------- -------- --------
Net income (loss)(1) $ 2,458 $ 307 $ 980 $ (630) $(7,602)
======= ======= ======= ======== ========
<FN>
(1) In 1994, the Bank incurred approximately $0.6 million consisting of legal
and other professional fees in connection with the settlement of the cross
guaranty claim with the FDIC.
</FN>
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
Unaudited
(in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $145,446 $153,948 $170,177 $188,144 $212,611
Investment
securities 19,712 16,746 1,036 4,061 l,487
Assets held for sale 281 185 3,421 6,882 3,661
Loans, net 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses 2,659 4,042 3,642 4,280 6,098
Nonperforming assets 7,517 9,006 11,627 24,382 27,303
Deposits 125,764 130,076 140,599 156,378 170,528
Borrowings 6,000 12,612 18,108 21,249 31,595
Stockholders' equity 13,335 10,754 10,906 9,926 9,406
Financial Ratios:
Return on average assets 1.68% .19% .54% (.32)% (3.33)%
Return on average equity 20.67 2.82 9.20 (6.37) (49.01)
Equity to assets 9.17 6.99 6.41 5.28 4.42
Tier 1 leverage capital 9.19 7.05 6.24 5.25 4.42
Total risk-based capital 15.59 12.12 10.57 8.60 7.57
</TABLE>
A-29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following management's discussion and analysis of First Coastal Corporation
("First Coastal" or the "Company") financial condition and results of operations
for the last three fiscal years should be read in conjunction with the
consolidated selected financial data and the consolidated financial statements
and notes appearing elsewhere herein.
Settlement of Cross Guaranty Claim
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "Note" or the "FDIC Note"), secured by the Company's pledge of
the outstanding stock of the Bank. In 1994, the Company incurred an
extraordinary charge to earnings resulting from the issuance of the Note.
Principal and interest under the FDIC Note are deferred until its maturity date,
which is January 31, 1997, subject to extension under certain circumstances.
The Company announced on January 31, 1996 that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through an offering of its common stock,
including a rights offering to the Company's existing stockholders. The offering
will be made only by means of a prospectus. In addition to the proceeds from the
common stock offering, the Company also expects to use funds derived from
dividends from the Bank and the proceeds from a loan to satisfy its obligation
under the FDIC Note. The recapitalization and related transactions are subject
to a number of conditions, including the receipt of appropriate regulatory
approvals, and there can be no assurance that such recapitalization and related
transactions will be consummated or that the Company will be successful in
repaying the FDIC Note. The Company anticipates that the recapitalization would
be completed in the third quarter of 1996.
Removal of Going Concern Modification
The report of the independent accountants ("Report") issued in connection with
the Company's 1993 consolidated financial statements stated that, among other
things, the Company's financial statements have been prepared assuming that the
Company will continue as a going concern due to the significance of the
uncertainty regarding the FDIC cross guaranty claim at the time. As a result of
the consummation of the Amended and Restated Settlement Agreement and certain
other factors as described in Note A to the Company's Consolidated Financial
Statements, the 1994 and 1995 Report of Independent Accountants expresses an
unqualified opinion on the financial statements of the Company for the years
ended December 31, 1994 and 1995.
A-30
<PAGE>
FINANCIAL CONDITION
Interest Rate Sensitivity
The following table sets forth certain information at December 31, 1995
regarding the rate sensitivity of the Company's earning assets and sources of
funds. For purposes of this table, rate sensitive earning assets ("RSA") and
rate sensitive liabilities ("RSL") include all such assets and liabilities
maturing or subject to repricing within the time frames outlined in the
following table. Other investment securities and interest-bearing demand
deposits are considered non-rate sensitive.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
After Three
Within Months After One After Two After Three
Three within But within But within But within After Non-rate
(in thousands) Months One Year Two Years Three Years Five Years Five Years Sensitive Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning deposits $4,375 $4,375
Fed Funds 10,000 10,000
Securities:
Available for sale (1) 1,999 $2,021 $994 $787 $3,440 9,241
Held-to-maturity (1) 4,993 5,794 999 11,786
Assets held for sale 281 281
Loans (2) 25,713 42,850 9,769 $4,556 $2,969 12,793 1,878 100,528
Other nonearning assets 9,242 9,242
---------------------------------------------------------------------------- --------- -----------
TOTAL ASSETS $47,361 $50,665 $11,762 $4,556 $2,969 $13,580 $14,560 $145,453
======= ======= ======= ====== ====== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Savings and MMDA's $46,056 $46,056
CD's 13,823 $26,903 $11,385 $7,533 $3,031 $101 62,776
FHLB Advances 2,000 4,000 6,000
FDIC Note 9,000 9,000
Noninterest bearing liabilities $17,624 17,624
Stockholders' equity 3,997 3,997
--------------------------------------------------------------- --------- -------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $59,879 $26,903 $22,385 $11,533 $3,031 $101 $21,621 $145,453
======= ======= ======= ======= ====== ==== ======= ========
Gap $(12,518) $23,762 $(10,623) $(6,977) $(62) $13,479 $(7,061)
Cumulative Gap (12,518) 11,244 621 (6,356) (6,418) 7,061
RSA/Total assets 32.56% 34.83% 8.09% 3.13% 2.04% 9.34% 10.01%
RSL/Total assets 41.17 18.50 15.39 7.93 2.08 0.07 14.86
Cumulative RSA/RSL 79.09 112.96 100.57 94.73 94.81 105.70
Cumulative Gap/Total assets (8.61) 7.73 .43 (4.37) (4.41) 4.85
<FN>
(1) Non-rate sensitive securities include certain equity investments such as
FHLB stock and limited partnership interests. Callable securities are
placed according to earliest call date.
(2) Nonaccrual loans are considered non-rate sensitive and the allowance for
loan losses is included in the non-rate sensitive category.
</FN>
</TABLE>
A-31
<PAGE>
At December 31, 1995, Coastal is asset-sensitive (positive Gap) within a one
year time frame in the amount of $11.2 million or 113.0%. This compares to a
positive Gap of $16.0 million or 101.9% at December 31, 1994. When a bank's
ability to reprice interest-earning assets exceeds its ability to reprice
interest-bearing liabilities within shorter time periods, as in the case with
the Company, decreases in interest rates generally would adversely affect net
interest income, while increases in interest rates generally would have the
opposite effect. However, because earning assets and sources of funds do not
reprice in exactly the same manner as interest levels change, the preceding
table should not be viewed as a sole indicator of how the Company will be
affected by changes in interest rates. It is the Company's policy to seek to
reduce its exposure to the adverse effects of volatile interest rates.
Evaulating and managing this potential exposure is a continual challenge in a
changing environment and a primary objective of the Company's asset/liability
management policy. The Company has an asset/liability committee which meets
weekly to discuss the management of interest rate risk, liquidity and funds
management.
Investment Securities
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations and also contains miscellaneous equity securities. Total
investment securities at December 31, 1995 were $19.7 million compared to $16.7
million at December 31, 1994. This increase is attributable to the purchase of
$11.8 million in U.S. government agency callable notes and $1.0 million in U.S.
treasury securities, partially offset by sales totaling $2.0 million of the
Bank's holdings in an adjustable rate mutual fund for financial institutions,
$1.0 million in mortgage backed securities and maturities of $7.0 million in
U.S. treasury securities.
A-32
<PAGE>
The following tables set forth the book value and maturities of investment
securities and weighted average yields at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------ ------------------------
(dollars in thousands) Book Value Yield Book Value Yield
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations maturing
in 1-5 years $ 5,014 5.6% $4,852 5.8%
Mortgage backed securities maturing
in over 10 years 787 7.5 858 7.5
Equity/mutual fund 2,000 6.2 3,894 5.6
Other 125 - 320 2.9
-------- --------
$7,926 5.9% $9,924 5.9%
====== ======
Held to maturity:
U.S. government obligations maturing
in one year or less $ 993 6.5% $6,822 5.2%
U.S. government agency callable notes
maturing after 1-5 years (final maturity) 8,991 6.6 -
5-10 years (final maturity) 1,802 7.3 - -
-------- ---------
10,793 6.7 - -
------- ---------
$11,786 6.7% $6,822 5.2%
======= =========
December 31, 1993
---------------------
(dollars in thousands) Book Value Yield
- ----------------------------------------------------------------------------------------------------------
U.S. government and
agency obligations:
maturing 1 year or less $ 628 3.5%
maturing after 1-5 years - -
------
628 3.5
Other bonds and notes:
maturing after 1-5 years - -
maturing after 10 years - -
Other securities 408 2.3
-------
Total investments $1,036 3.0%
=======
</TABLE>
A-33
<PAGE>
Loans
Loans, net of unearned income, decreased $9.1 million (or 8.3%) from $109.6
million at December 31, 1994 to $100.5 million at December 31, 1995. The reasons
for the decrease are (i) $14.4 million in early loan payoffs, (ii)
reclassification during 1995 of approximately $1.0 million of loans to real
estate owned, (iii) amortization of $3.6 million, and (iv) charge-off of loans
totaling approximately $1.3 million, partially offset by new loan volume of
$11.2 million.
The decline in loan balances in 1995 represents the continuation of a five year
trend that is largely the result of a combination of two factors: Coastal's
financial difficulties during this period and the FDIC's cross guaranty claim
against Coastal, which resulted from the 1991 failure of Suffield Bank.
Coastal's financial difficulties had two primary adverse effects on the Bank's
ability to generate new loan volume and retain existing loan customers. First,
as a result of the Order to Cease and Desist among the Bank, the FDIC and the
Maine Bureau of Banking effective January 30, 1992, Coastal was required to
improve its ratio of Tier 1 capital to total assets to 6.0% by December 31,
1993, from the December 31, 1991 level of 4.42%, with incremental improvement
required at six month intervals. As a result of this requirement, management
effected a strategy of selective balance sheet shrinkage. The reduction in asset
size, from $212.6 million at December 31, 1991 to $170.2 million at December 31,
1993, along with the Bank's return to profitability in 1993 resulted in the
Bank's Tier 1 capital to total assets ratio improving to 6.24% at December 31,
1993. At December 31, 1995, this ratio had further improved to 9.19%.
Secondly, the Bank's financial difficulties resulted in the need for management
to expend significant resources addressing the asset quality problems which were
the primary source of the Company's operating losses. The focus on asset quality
improvement resulted in a reduction in nonperforming assets from a peak level of
$29.2 million at July 31, 1992 to $7.5 million at December 31, 1995. In
combination with the need to reduce the size of Coastal's deposit and loan
balances, this focus on asset quality improvement resulted in significantly
reduced efforts at loan originations, except for residential mortgage loans
which were primarily originated with an intent to sell these loans in the
secondary mortgage market.
The uncertainties surrounding the resolution of the FDIC's cross guaranty claim
contributed further to the decline in the Bank's loan balances. Management was
required to devote significant resources towards negotiating a satisfactory
settlement of the cross guaranty claim and subsequently, towards determining the
best alternative for repaying the FDIC Note. Also, for an extended period of
time the cross guaranty claim created uncertainties with respect to the future
of the Bank. These uncertainties adversely affected Coastal's ability to develop
new commercial and retail loan business. Further, until the Company chose among
the alternatives for repaying the FDIC Note, certain management initiatives were
deferred, including those relating to the development of new loan and deposit
business. Until late 1995, the Bank's commercial real estate lending has been
primarily limited to the restructuring of existing commercial real estate loans
and the financing of real estate owned.
A-34
<PAGE>
The Bank began expanding in mid-1995 its residential and consumer lending
capabilities, and subsequently has experienced a significant increase in new
loan originations. In early 1996, the combination of the continued improvement
in overall asset quality and the announcement relating to the Company's plans to
recapitalize, has recently allowed the Bank to begin focusing more resources on
the generation of new commercial loans.
Coastal is an approved seller and servicer by and for the Federal National
Mortgage Association. At December 31, 1995, Coastal was servicing $53.7 million
of loans which were owned by others, as compared to $57.0 million at December
31, 1994. Servicing fee income related to these loans is reported as other
income in the consolidated statements of operations and for the years ended
December 31, 1995 and 1994, was $179,000 and $58,000, respectively. Servicing
fee income for 1994 reflects a $132,000 charge, resulting from higher than
anticipated prepayments of serviced loans.
Coastal continues to be active in secondary market transactions primarily
through the sale of residential mortgage loans and mortgage-backed securities
that it originates, although lower interest rates led to an increase in
prepayments of off balance sheet serviced loans in 1995. The sale of long-term
fixed rate mortgage loans is intended to improve the interest rate sensitivity
of the Bank's assets (consistent with the Bank's asset/liability policy),
generate future fee income and provide additional funds for lending and
liquidity.
A-35
<PAGE>
Allowance For Loan Losses
The following table represents the allocation of the allowance for loan losses
("Allowance") at December 31, 1995, 1994 and 1993. The percentages represent the
percent of loans in each category to total loans.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
------------------- ---------------------- --------------------
Percent Percent Percent
of Loans of Loans of Loans
to Total to Total to Total
(dollars in thousands) Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 82 30.8% $ 66 30.2% $ 80 32.2%
Commercial 2,216 50.5 3,322 54.6 3,000 50.2
Real estate construction loans -- -- -- -- 4 .3
Commercial and industrial loans 13 2.5 46 .6 38 2.4
Consumer and other loans 120 16.2 141 14.6 177 14.9
Unallocated 228 -- 467 -- 343 --
-------- --------- -------- --------- -------- ---------
Total $2,659 100.0% $4,042 100.0% $3,642 100.0%
====== ===== ====== ===== ====== =====
Allowance as a percentage of loans 2.65% 3.67% 2.95%
Allowance as a percentage of
nonperforming loans 47.96% 66.47% 64.11%
Allowance as a percentage of
nonperforming loans
(excluding restructured loans) 125.60% 87.90% 247.92%
</TABLE>
The Allowance at December 31, 1995 equaled $2,659,000 as compared to $4,042,000
at December 31, 1994. The reduction in the Allowance is the result of
substantial loan charge-offs in the amount of $1,333,000 and negative provision
expense totaling $425,000, partially offset by loan loss recoveries of $375,000.
The loan charge-offs were largely associated with previously identified loan
loss exposure taken into consideration as part of management's review of the
adequacy of the Allowance at December 31, 1994. The negative provision for loan
loss expense for the year of $425,000 was largely the result of management's
determination as part of its December 31, 1995 review of the Allowance that a
surplus existed in the Allowance, leading to the decision to effect a reversal
of provision for loan loss expense in the amount of $675,000 in the fourth
quarter of 1995.
The following table sets forth the changes in the Allowance, including
charge-offs and recoveries, by loan category for the past five years:
A-36
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 4,042 $ 3,642 $ 4,280 $ 6,098 $ 9,185
Deconsolidation of Suffield Bank (4,400)
Charge-offs:
Real estate mortgage loans (1,113) (178) (1,197) (2,726) (3,665)
Real estate construction loans -- -- (28) (121) (201)
Commercial and industrial loans (142) -- (55) (178) (712)
Consumer and other loans (78) (112) (89) (143) (218)
----- ----- ----- ----- -----
Total charge-offs (1,333) (290) (1,369) (3,168) (4,796)
Recoveries:
Real estate mortgage loans 172 127 179 165 34
Commercial and industrial
loans 170 410 543 21 2
Consumer and other loans 33 46 39 28 106
------- -------- ------- ------- -------
Total recoveries 375 583 761 214 142
------ ------- ------ ------ -------
Net (charge-offs) recoveries (958) 293 (608) (2,954) (4,654)
------ ------- ------ ----- -----
Provision for loan losses (425) 107 (30) 1,136 5,967
------ ------- ------- ------ -------
Balance at end of period $2,659 $4,042 $3,642 $4,280 $6,098
====== ====== ====== ====== ======
Net charge-offs as a percentage
of average loans .91% (.25)% .46% 1.76% 2.39%
</TABLE>
The provision for loan losses for the years ended December 31, 1995, 1994 and
1993 have declined significantly in comparison to prior years. This is due to a
combination of factors, including (i) a reduction in the amount of new, emerging
loss exposure being identified during this period as compared to prior years,
(ii) a reduction or elimination of loss exposure previously allocated against
certain loans generally coming about as a result of improvement in the overall
credit quality of these loans or loan payoffs, and (iii) significant loan loss
recoveries.
The balance of the Allowance declined $1,383,000 during the year ended December
31, 1995. For some time prior to the beginning of the year ended December 31,
1995, management believed that a significant reduction in the level of the
Allowance as compared to the December 31, 1992, 1993 and 1994 balances of
$4,280,000, $3,642,000 and $4,042,000, respectively, was likely at some future
point, possibly as early as December 31, 1995. This expectation was based both
upon management's analysis of the loan portfolio and the fact that banks
recovering from a period of loan quality problems typically experience a decline
in the level of the allowance for loan loss reserves. This is because banks
experiencing loan quality problems typically increase their allowance for loan
loss through increases in provision expense in order to reserve against
anticipated higher future levels of loan losses. Typically over time, individual
loan losses within such loan portfolios are quantified and charged-off against
the allowance for loss. As loan quality improves, and the amount of new exposure
requiring additional loan loss declines, the amount of charge-offs against the
Allowance often signficantly exceeds the amount of offsetting new provision
expense and loan loss recoveries. For example, Coastal's large decline in the
balance of the Allowance for the year ended December 31, 1992, to $4,280,000
from the December 31, 1991 level of $6,098,000, was attributable to this factor.
During 1995, as a result of loan restructures, loan payoffs and paydowns,
management was able to quantify the loss exposure associated with a number of
large loans against which significant
A-37
<PAGE>
loan loss reserves were allocated. In total, the resulting charge-offs were
significantly less than the level of reserves allocated against the individual
loans. The reduced level of charge-offs in combination with significant loan
loss recoveries in the amount of $375,000 in 1995, resulted in the determination
at year end, in accordance with the Bank's allowance for loan loss policy, that
the balance of the Allowance would be significantly in excess of that required
to cover the loan loss exposure estimated to exist in the loan portfolio unless
the bank effected a provision expense reversal. As a result, a provision expense
reversal in the amount of $675,000 was recorded in the fourth quarter of 1995,
reducing the Allowance to $2,659,000. This resulted in total negative provision
expense for the year ended December 31, 1995 of $425,000.
Though the amount of charge-offs for the year ended December 31, 1995 of
$1,333,000 was high as compared to the prior year level of $290,000, this is
largely the result of the timing of the quantification of the losses and related
charge-offs associated with several of the large loans mentioned above. As
mentioned above, to a significant degree by December 31, 1994, the prospective
loss exposure associated with these loans had already been recognized and was
reflected in the balance of the Allowance.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans that
remain vulnerable to loan default. Deterioration in the local economy or real
estate market, or upward movements in interest rates, could have an adverse
effect on the performance of the loan portfolio that could result in the need
for an increase in the Allowance. Conversely, further improvement in overall
asset quality, favorable economic conditions or a favorable local real estate
market could positively affect the Allowance.
Nonperforming Assets
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,948 $4,340 $1,220 $4,103 $10,638
Accruing loans past due
90 days or more 169 258 249 194 565
Restructured loans 3,427 1,483 4,212 7,455 7,678
Real estate owned 1,973 2,222 5,299 3,833 1,828
Financed real estate owned -- -- 450 1,535 --
In-substance repossessions n/a 703 197 7,262 6,594
---------- ------- ------- ------- -------
$ 7,517 $ 9,006 $11,627 $24,382 $27,303
======= ======= ======= ======= =======
</TABLE>
A-38
<PAGE>
Nonperforming loans (consisting of nonaccrual loans, accruing loans past due 90
days or more and restructured loans) are comprised of the following:
December 31,
-------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 386 $ 115 $ 126
Commercial 5,007 5,667 5,420
Real estate construction loans -- -- --
Commercial and industrial loans -- 156 12
Consumer and other loans 151 143 123
-------- -------- --------
Total loans $ 5,544 $ 6,081 $ 5,681
======= ======= =======
The following table sets forth certain information regarding nonperforming
commercial loans:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
----------------------- ---------------------- --------------------
(dollars in thousands) Number of Outstanding Number of Outstanding Number of Outstanding
Type of Property Security Loans Balance Loans Balance Loans Balance
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1-4 Family Residential 1 $ 158 3 $ 308 2 $ 238
5 or more Family Residential 5 977 5 1,073 5 970
Non-Residential Real Estate 5 3,872 3 4,286 5 4,212
Commercial and Industrial -- -- 2 156 2 12
--- ---------- --- -------- --- ---------
11 $5,007 13 $5,823 14 $5,432
== ====== == ====== == ======
</TABLE>
Although the level of nonperforming assets declined in 1995, the level of
nonperforming assets had a significant adverse effect on interest income.
Interest income that would have been recorded in the year ended December 31,
1995 on nonaccrual and restructured loans under their original terms was
$487,000. Interest income actually recorded on these loans in 1995 was $406,000.
Management believes that the level of nonperforming assets will continue to
decline in 1996. However, this expectation is predicated on continued
stabilization of the real estate market and local economy, along with a
continuation of the trend in lower default rates for commercial real estate
loans. This favorable trend could be adversely affected by an increase in
interest rates.
Nonperforming loans were $5.5 million, or 5.5%, of total loans at December 31,
1995, as compared to $6.1 million, or 5.5%, of total loans at December 31, 1994.
Included in nonperforming loans at December 31, 1995 and 1994 are $3.4 million
and $1.5 million, respectively, of restructured loans which are performing in
accordance with the material terms of the restructuring.
Impaired Loans
Management reviews loans on a case by case basis to determine which loans should
be classified as impaired. If management believes there is a high probability of
a loss of principal or interest, then such loans are determined to be impaired.
At December 31, 1995, the recorded investment in loans
A-39
<PAGE>
for which impairment has been recognized in accordance with FASB Statement No.
114 totaled $3.7 million, of which $230,000 related to loans with no allocated
reserve because the loans have been partially written down through charge-offs
and $3.5 million related to loans with corresponding allocated reserves of
$398,000 for the year ended December 31, 1995. Included in the impaired loans
amount is $301,000 in nonaccrual loans and $3.4 million in restructured loans.
All impaired loans were secured by real estate at December 31, 1995 and
accounted for by the lower of the fair value of the collateral or amortized loan
value.
Potential Problem Loans
Though the real estate market has improved to some degree as compared to the
depressed conditions of several years ago, management recognizes that the
overall soft Maine real estate market creates an increased risk that currently
performing loans could become nonperforming. In particular, management believes
that the greatest exposure is in the area of currently performing potential
problem commercial real estate loans.
These loans, not otherwise identified as nonperforming, nonaccrual or as a
troubled debt restructuring, are largely secured by income-producing properties
located in Maine. In many cases, the borrowers on these loans have experienced
inadequate rental revenues, increased vacancies and cash flow problems. Most of
these potential problem loans were originated in the late 1980's.
At December 31, 1995, the Bank had identified approximately $6.9 million of
currently performing but potential problem loans. Such loans represented 4.7% of
total assets, ranging in size from $4,000 to $1.8 million. This compares to $9.0
million of potential problem real estate loans at December 31, 1994, a 23.5%
decrease. Of the 1995 total, three loan relationships (property type other)
involving seven loans represent $5.5 million, or 79.2%. During the first quarter
of 1996, a $500,000 payment was applied against one of the three larger loan
relationships.
The following table sets forth certain information regarding potential problem
loans at December 31, 1995:
Number of Balance
Type of Security Property Outstanding Loans (in thousands)
- --------------------------------------------------------------------------
Apartments 6 $ 2,647
Industrial 1 1,362
Single family 4 119
Other 13 2,757
-- ------
24 $6,885
== ======
Management is unable to predict the extent, if any, to which these loans may
become nonperforming in the future. An increase in the level of nonperforming
loans could result in the need for increased provisions for loan losses. As of
December 31, 1995, the Company believes the Bank's aggregate allocated loan loss
reserves against these potential problem loans, determined in accordance with
the
A-40
<PAGE>
Bank's allowance for loan loss policy, is adequate to cover the loss exposure
estimated to be contained within these potential problem loans.
Real Estate Owned
Real estate owned ("REO") consists of properties acquired through mortgage loan
foreclosure proceedings or in full or partial satisfaction of outstanding loan
obligations, and sales of REO properties financed by Coastal which do not meet
the requirements of Financial Accounting Standards Board ("FASB") Statement No.
66. At December 31, 1995, REO totaled approximately $2.0 million and consisted
of $1.4 million of office buildings and mixed use commercial buildings, $0.5
million of apartment buildings and $0.1 million of land.
Liquidity - Coastal
Deposits totaled $125.7 million at December 31, 1995, a decrease of $4.3 million
(or 3.4%) from the level of $130.0 million at December 31, 1994.
On February 22, 1996, the Bank entered into an agreement to sell its Kezar Falls
branch to Maine Bank & Trust Company. Included in the sale are all of the
branch's deposits (totaling approximately $9.9 million at December 31, 1995),
the real estate and certain of the furniture, fixtures and equipment of the
branch. The agreement between the Bank and Maine Bank & Trust Company is
expected to be consummated during the second quarter of 1996, subject to the
receipt of appropriate regulatory approvals.
Coastal has the capability of borrowing additional funds from the Federal Home
Loan Bank ("FHLB") of Boston with three-day advance notice when adequately
secured by qualified collateral. In addition, effective as of June 8, 1993, the
FHLB of Boston restricted new advances to maturities of six months or less as a
result of the cross guaranty claim. On May 1, 1995, the Bank received a letter
from the FHLB of Boston stating that it would lengthen the maturity restriction
on new fixed term and fixed rate advances from six months to one year. See Note
I to the Consolidated Financial Statements for information relating to advances
from the FHLB of Boston. Coastal is also approved by the Federal Reserve Bank of
Boston to obtain liquidity from its "Discount Window" provided that assets are
pledged to the Federal Reserve Bank's satisfaction.
Unfunded loan commitments for December 31, 1995 and 1994 were approximately $8.0
million and $7.8 million, respectively, consisting primarily of home equity
lines of credit secured by real estate. There were no standby letters of credit
for the years ended December 31, 1995 and 1994.
A-41
<PAGE>
The breakdown of such commitments is as follows:
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
Real estate mortgage:
Residential $ 174 $ 85
Commercial -- --
Construction -- --
Commercial lines of credit 191 615
Consumer lines of credit 7,649 7,137
------- -------
Total $8,014 $7,837
====== ======
Coastal expects to fund these commitments through its traditional sources
previously described and believes that liquidity is adequate.
Liquidity - Parent
On a parent company only basis, the Company conducts no separate operations. Its
business consists of the business of its banking subsidiary. In addition to the
FDIC Note in the principal amount of $9.0 million issued by the Company to the
FDIC on January 31, 1995 in connection with the settlement of the cross guaranty
claim, the Company's expenses primarily include Delaware franchise taxes
associated with the Company's authorized capital stock, certain legal and
various other expenses. Expenses, including certain audit and professional fees,
insurance and other expenses, are allocated between Coastal and the Company
based upon the relative benefits derived. At December 31, 1995, the Company's
assets (other than its investment in its subsidiary) consisted of $99,000 in
cash and fixed assets of $8,000.
The principal source of cash for the Company is dividend payments from Coastal;
however, as described in Note J to the Consolidated Financial Statements, there
exist certain restrictions regarding the ability of Coastal to transfer funds.
Following the receipt of appropriate regulatory approvals, on November 30, 1994
and November 13, 1995 Coastal paid the Company cash dividends of $175,000 and
$200,000, respectively, for certain current and anticipated operating expenses
of the Company.
A-42
<PAGE>
Capital - Coastal
The table below sets forth the regulatory capital requirements and capital
ratios for Coastal at December 31, 1995:
(dollars in thousands)
Tier 1 capital (Leverage) to total assets (1)ratio
Qualifying capital $13,296
Actual % 9.19%
Minimum requirement % 6.00%
Average assets for fourth quarter $144,658
Tier 1 capital to risk-weighted assets
Qualifying capital $13,296
Actual % 14.32%
Minimum requirement % 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $14,475
Actual % 15.59%
Minimum requirement % 8.00%
Gross risk-weighted assets $92,821
Note: As described in Note A to the Consolidated Financial Statements, the
Memorandum of Understanding among Coastal, the FDIC and the Maine Bureau of
Banking requires Coastal to maintain a Tier 1 capital to total assets ratio of
6.0% or greater. Coastal's Tier 1 capital to total assets ratio at December 31,
1995 was 9.19%.
(1) Calculated on an average quarterly basis
Capital - Company
The Federal Reserve capital adequacy guidelines apply on a consolidated basis to
bank holding companies with consolidated assets of $150 million or more. For
bank holding companies which have less than $150 million in consolidated assets,
as did the Company for each of the quarters ended March 31, 1995, June 30, 1995,
September 30, 1995 and December 31, 1995, the guidelines are applied on a
bank-only basis (as opposed to a consolidated basis) unless (i) the parent bank
holding company is engaged in nonbank activity involving significant leverage or
(ii) the parent company has a significant amount of debt that is held by the
general public. The Federal Reserve capital adequacy guidelines provide that
"debt held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the banking
organization or their related interests. The FDIC Note is not considered to be
"debt held by the general public" for purposes of such capital guidelines. As a
result, applied on a bank-only basis, the Company's ratios
A-43
<PAGE>
of tier 1 capital to total assets, tier 1 capital to risk-weighted assets, and
qualifying total capital to risk-weighted assets of 9.19%, 14.32%, and 15.59%,
respectively, at December 31, 1995 were in complaince with such guidelines. If
the Company were required to calculate its ratios of tier 1 capital to total
assets, tier 1 capital to risk-weighted assets, and qualifying total capital to
risk-weighted assets on a consolidated basis, such ratios would be 2.74%, 4.27%
and 5.54%, respectively.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time. See Item 8, "Financial Statements and Supplementary Data --
Note J," for dividend restrictions.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994.
Net Income
For the year ended December 31, 1995, the Company had net income of $1.7 million
compared to a net loss of $8.9 million at December 31, 1994. The improvement in
earnings for 1995 is primarily attributable to three items: (i) the 1994 net
loss included a $9.0 million extraordinary charge to earnings upon the issuance
of a Note to the FDIC for the waiver and release of the cross guaranty claim
against the Bank, (ii) a negative provision for loan losses in 1995 of $425,000,
and (iii) a reduction in other expenses of $1.1 million. Each of these principal
components of the Company's operating results is discussed below.
Net Interest Income
Net interest income for the year ended December 31, 1995 was $5.9 million,
compared to $6.0 million for the year ended December 31, 1994. Included in the
1995 net interest income total is interest expense of $0.4 million for the
Company's $9.0 million Note to the FDIC.
Changes in net interest income are caused by changes in interest rates, changes
in the mix of earning assets and sources of funds, changes in the level of
earning assets and sources of funds and changes in the amount of non-earning
assets and non-interest sources of funds. Overall, the Company's interest income
for 1995 decreased $73,000 as a result of a $973,000 reduction in interest
income due to the decline in total interest earning assets, which was offset in
part by an increase in interest income of $900,000 from higher rates received on
interest earning assets. Interest expense increased by $124,000. This was the
result of increased interest expense of $921,000 due to an increase in the rates
paid on interest bearing liabilities partially offset by reduced interest
expense of $797,000 associated with lower balances of interest bearing
liabilities. For further detail, see the rate/volume analysis that follows.
Provision for Loan Losses
The provision for loan losses for the year ended December 31, 1995 was
$(425,000) as compared to $107,000 for the year ended December 31, 1994. In the
fourth quarter of 1995, the Company
A-44
<PAGE>
posted a $675,000 provision expense reversal resulting from the determination by
management that the level of the Allowance was at a level estimated to be in
excess of that required to adequately cover the loss exposure estimated by
management to be inherent within the loan portfolio. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Allowance for Loan Losses."
The Company's policy is to fund the Allowance by charging operations in the form
of provision for loan loss expense which represents estimated loss exposure
based on periodic evaluations of the loan portfolio and current economic trends.
The Company continues to hold a large concentration of commercial real estate
loans. The ultimate collectibility of the Company's commercial real estate loan
portfolio is particularly susceptible to changes in local real estate market
conditions. Deterioration in the local economy or real estate market, or upward
movement in interest rates, could have an adverse impact on the loan portfolio
that could result in the need for increased provision for loan losses.
Management believes that the Allowance is adequate at December 31, 1995 and that
foreclosed real estate is recorded at the lower of cost or estimated fair value
(minus estimated costs to sell). While management uses available information to
recognize losses on loans and real estate owned, future additions to the
Allowance and write-downs may be necessary based on changes in the financial
condition of various borrowers, new information that becomes available relative
to various borrowers, loan real estate collateral or real estate owned, as well
as changes in local, regional or national economic conditions. In addition,
various regulatory authorities, as an integral part of their examination
process, periodically review the Company's Allowance and the carrying value of
real estate owned. Such authorities may require the Company to recognize
additions to the Allowance and/or write down the carrying value of real estate
owned, based on their judgments on information available to them at the time of
their examination.
Other Income
Other income in 1995, including investment securities gains and losses, was
$572,000 as compared to $429,000 in 1994. This increase is primarily the result
of a $132,000 charge to earnings in 1994 establishing a valuation reserve
against the deferred mortgage servicing assets as a result of higher than
anticipated prepayments of serviced loans.
Other Expenses
The following table summarizes 1995 and 1994 other expenses:
Increase
(dollars in thousands) 1995 1994 (Decrease)
- -------------------------------------------------------------------------------
Salaries and employee benefits $2,092 $2,020 $ 72
Occupancy 440 568 (128)
Net cost of operation of REO and ISR 56 527 (471)
Other operating expenses 2,606 3,163 (557)
------- ------- --------
$5,194 $6,278 $(1,084)
====== ====== =======
A-45
<PAGE>
The decrease in total expenses from 1994 to 1995 is mainly attributable to four
items: (i) in 1994 the Company incurred $812,000 in expenses associated with the
settlement of the cross guaranty claim versus approximately $300,000 in 1995,
(ii) the net cost of REO declined by $471,000 ($258,000 from reduced expenses
(net of revenues) resulting from fewer REO properties and decreased vacancies,
and $213,000 resulting from a reduction in write downs from REO properties),
(iii) the cost of FDIC insurance expense on deposits declined $216,000 resulting
from a decrease in the Bank's assessment rate, and (iv) a reduction in occupancy
expenses resulting from the closure of two banking offices in the second and
third quarters of 1994.
Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993.
Net Income
For the year ended December 31, 1994, the Company had a net loss of $8.9
million, compared to net income of $0.7 million for the year ended December 31,
1993. This decrease was primarily attributable to two items. First, as a result
of the consummation of the Amended and Restated Settlement Agreement on January
31, 1995, First Coastal issued to the FDIC a Note in the amount of $9.0 million
in consideration of the waiver and release of the cross guaranty claim against
the Bank. First Coastal recorded the Note and recognized an extraordinary charge
to earnings in the amount of $9.0 million at December 31, 1994. Second, expenses
related to the settlement of the cross guaranty claim totaled $812,000 for the
year ended December 31, 1994.
Net Interest Income
Net interest income for the year ended December 31, 1994 was $6.1 million, an
increase of $0.6 million as compared to $5.5 million for the year ended December
31, 1993. This increase is mainly attributable to a rising interest rate
environment for the year ended December 31, 1994 and which resulted in an
increase in rates on existing adjustable rate loans and investments.
Notwithstanding the increased rate environment that was experienced throughout
1994, the Company's rates paid on deposit transaction accounts remained
relatively unchanged, thereby increasing the spread on Earning Assets versus
Sources of Funds, positively impacting net interest income. However, earning
assets and sources of funds do not reprice in exactly the same manner as
interest levels change. Another factor contributing to the increase in net
interest income was the investment of interest earning deposits in higher
earning securities of approximately $15.7 million throughout 1994.
Provision for Loan Losses
The provision for loan losses for the year ended December 31, 1994 was $107,000
as compared to negative provision expense of $30,000 for the year ended December
31, 1993. In 1992 and 1991, significant provisions were made to recognize the
perceived deteriorating real estate market. In 1993, there was present a more
stable environment. Also, many of the previously recognized loan problems
A-46
<PAGE>
were worked out or reclassified to a foreclosed status. In addition, loan
balance levels declined in 1993 and 1994 compared to prior years.
Other Income
Other income in 1994, including investment securities gains and losses, was
$429,000 as compared to $1,422,000 in 1993. This decrease was primarily the
result of a decrease in gain on sales of mortgage loans as a result of a steady
reduction in loan origination volume caused by rising interest rates experienced
during 1994; consequently, fewer mortgage backed securities were sold.
Additionally, the Company posted an unrealized loss on loans held for sale of
$134,000 in the second quarter of 1994. The 1994 servicing fee income for loans
serviced for others reflects a $132,000 charge to earnings in establishing a
valuation reserve against the deferred mortgage servicing asset as a result of
higher than anticipated prepayments of serviced loans.
Other Expenses
The following table summarizes 1994 and 1993 other expenses:
Increase
(dollars in thousands) 1994 1993 (Decrease)
- --------------------------------------------------------------------------------
Salaries and employee benefits $2,020 $2,218 $(198)
Occupancy 568 595 (27)
Net cost of operation of REO and ISR 527 593 (66)
Other operating expenses 3,163 2,752 411
------- ------- -----
$6,278 $6,158 $120
====== ====== ====
The most significant increases in other operating expenses for the year ended
December 31, 1994 were the expenses related to the settlement of the cross
guaranty claim which amounted to $812,000 of which $677,000 was for legal
expenses and $135,000 was for accounting and professional services. All other
operating expense categories, exclusive of expenses related to the settlement of
the cross guaranty claim, decreased by a net of $692,000, primarily resulting
from staff reductions, two branch closures and normal cost cutting measures
throughout most operating expense categories.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and expense of the Company for the periods indicated. For each category
of interest earning assets and interest bearing liabilities, information is
provided on changes attributable to: (i) changes in rates (change in rate
multiplied by old volume); (ii) changes in volume (change in volume multiplied
by old rate); and (iii) changes in rate/volume (change in rate multiplied by the
changes in volume which is proportionately distributed to the volume and rate
changes).
A-47
<PAGE>
The table illustrates the relative effect of changes in interest rates and the
Company's net earning assets on its net interest income.
Year Ended December 31, 1995
Compared to
Year Ended December 31, 1994
------------------------------------------
Increase (Decrease)
Due to
-------------------------
(in thousands) Rate Volume Total
- ------------------------------------------------------------------------------
Interest income:
Loans(1) $450 $(887) $(437)
Investments held to maturity 123 160 283
Investment available for sale 37 65 102
Interest earning deposits 294 (242) 52
Assets held for sale (4) (69) (73)
------- ------- ------
Total interest income 900 (973) (73)
----- ------ ------
Interest expense:
Savings 67 (229) (162)
Other time deposits 510 19 529
FHLB advances (75) (587) (662)
FDIC Note 419 - 419
----- -------- -----
Total interest expense 921 (797) 124
----- ----- -----
Net change in net interest income
before provision for loan losses $ (21) $ (176) $ (197)
===== ====== ======
(1) For purposes of these computations, nonaccrual loans are included in the
average balance volumes.
Year Ended December 31, 1994
Compared to
Year Ended December 31, 1993
------------------------------------------
Increase (Decrease)
Due to
-------------------------
(in thousands) Rate Volume Total
- --------------------------------------------------------------------------------
Interest income:
Loans(1) $( 32) $(1,384) $(1,416)
Investments 23 498 521
Interest earning deposits 252 (145) 107
Assets held for sale (19) (161) (180)
----- ------- -----
Total interest income 224 (1,192) (968)
---- ------ -----
Interest expense:
Savings (116) (113) (229)
Other time deposits (218) (365) (583)
FHLB advances (120) (596) (716)
---- ------ ------
Total interest expense (454) (1,074) (1,528)
---- ------ ------
Net change in net interest
income before provision
for loan losses $678 $( 118) $ 560
==== ======= ======
(1) For purposes of these computations, nonaccrual loans are included in the
average balance volumes.
A-48
<PAGE>
Average Balance Sheets
The table below shows the major items that affected net interest income for each
of the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans (1)(2) $105,742 $9,642 9.12% $115,940 $10,079 8.69% $131,795 $11,494 8.72%
Investments
Investments 1993 3,692 194 5.25
Available for sale 9,782 606 6.20 8,658 504 5.82 -- -- --
Held to maturity 7,917 494 6.24 4,504 210 4.68 -- -- --
Interest earning deposits 15,889 945 5.95 21,808 894 4.10 26,747 787 2.94
Assets held for sale 372 20 5.38 1,471 93 6.32 3,591 273 7.60
-------- ------- -------- ------- -------- --------
Total interest earning assets 139,702 11,707 8.38 152,381 11,780 7.73 165,825 12,748 7.69
Noninterest earning assets 6,444 10,206 15,880
-------- -------- --------
Total assets $146,146 $162,587 $181,705
======== ======== ========
Liabilities:
Savings $ 60,159 $ 1,644 2.73% $ 68,911 $ 1,806 2.62% $ 72,955 $2,035 2.79%
Other time deposits 61,344 3,333 5.43 60,930 2,804 4.60 68,288 3,387 4.96
FHLB advances 7,253 454 6.26 15,296 1,116 7.30 22,679 1,832 8.08
FDIC Note(3) 9,000 419 4.66 25 -- -- -- -- --
-------- ------- -------- -------- ------- ------
Total interest bearing liabilities 137,756 5,850 4.25 145,162 5,726 3.94 163,922 7,254 4.43
Noninterest bearing deposits 4,973 5,798 6,132
Noninterest bearing liabilities 565 1,002 1,844
Stockholders' equity 2,852 10,625 9,807
-------- -------- --------
Total liabilities and stockholders'equity $146,146 $162,587 $181,705
======== ======== ========
Net interest income $ 5,857 $ 6,054 $5,494
======== ======== ======
Net interest rate spread (4) 4.13% 3.79% 3.26%
Net interest margin (5) 4.19% 3.97% 3.31%
<FN>
(1) For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding.
(2) Included in interest income on loans are loan fees of $95,000, $277,000 and
$251,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(3) The FDIC Note bears interest commencing upon issuance on January 31, 1995
at a rate of 5.0% for the first year and 6.5% for the second year.
(4) Return on interest earning assets less cost of interest bearing
liabilities.
(5) Net interest income divided by average earning assets.
</FN>
</TABLE>
A-49
<PAGE>
Impact of Inflation and Changing Prices
The Company's financial statements have been prepared in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Notwithstanding this, inflation
can directly affect the value of loan collateral, in particular real estate.
Sharp decreases in real estate prices, as discussed previously, have resulted in
significant loan losses and losses on real estate acquired. Inflation, or
disinflation, could continue to significantly affect the Company's earnings in
future periods.
A-50
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
First Coastal Corporation:
We have audited the accompanying consolidated balance sheets of First Coastal
Corporation (the "Company") and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Coastal Corporation and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their 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 Note B to the consolidated financial statements, on January 1,
1995, the Company changed its method of accounting for impaired loans to adopt
the provisions of Financial Accounting Standards Board Statement No. 114 and as
of January 1, 1994, changed its method of accounting for investments to adopt
the provisions of Financial Accounting Standards Board Statement No. 115.
Coopers & Lybrand, L.L.P.
Portland, Maine
February 5, 1996
A-51
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
First Coastal Corporation and Subsidiary
December 31,
---------------------------------
(in thousands, except share and per share amounts) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash - Note C $4,466 $4,701
Interest earning deposits 4,375 6,636
------- -------
Cash and Cash Equivalents 8,841 11,337
Federal funds sold 10,000 10,000
Trading securities - 915
Investment securities - Note D:
Held-to-maturity 11,786 6,822
Available-for-sale (at market value) 7,926 9,924
------- -------
19,712 16,746
Federal Home Loan Bank stock-at cost 1,315 1,315
Assets held for sale - Note B 281 185
Loans - Note E 100,550 109,656
Less:Deferred loan fees, net (22) (31)
Allowance for loan losses - Note F (2,659) (4,042)
-------- ----------
97,869 105,583
Premises and equipment - Note G 3,073 2,941
Accrued income receivable 1,004 783
Real estate owned and repossessions 1,973 2,925
Other assets 1,385 1,482
----------- -----------
TOTAL ASSETS $145,453 $154,212
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits - Note H $125,665 $130,037
Advances from Federal Home Loan Bank - Note I 6,000 12,612
FDIC Note - Note A 9,000 9,000
Accrued expenses and other liabilities 791 549
----------- -----------
TOTAL LIABILITIES 141,456 152,198
STOCKHOLDERS' EQUITY - Notes J and K
Preferred stock, $1 par value; Authorized
1,000,000 shares; none outstanding
Common Stock, $1 par value: Authorized
6,700,000 shares; issued and outstanding
1995 and 1994 - 600,361 shares - Note K 600 600
Paid-in capital 29,375 29,375
Retained earnings (deficit) (26,016) (27,676)
Unrealized gain (loss) on available for sale securities 38 (285)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,997 2,014
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $145,453 $154,212
======== ========
</TABLE>
See notes to consolidated financial statements.
A-52
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
First Coastal Corporation and Subsidiary
Year Ended December 31,
-----------------------------------------------
(in thousands, except per share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and Dividend Income
Interest and fees on loans $9,662 $10,172 $11,767
Interest and dividends on investment securities:
Taxable interest income 832 425 69
Dividends 268 290 125
Other interest income 945 893 787
-------- -------- --------
Total Interest and Dividend Income 11,707 11,780 12,748
Interest Expense
Deposits - Note H 4,977 4,610 5,422
Borrowings:
Advances from Federal Home Loan Bank 454 1,116 1,832
FDIC Note 419 - -
-------- ------------ -------------
Total Interest Expense 5,850 5,726 7,254
------- -------- ---------
Net Interest Income 5,857 6,054 5,494
Provision for loan losses - Note F (425) 107 (30)
-------- --------- ----------
Net Interest Income After Provision for Loan Losses 6,282 5,947 5,524
Other Income
Service charges on deposit accounts 257 284 300
Other service charges and fees 78 81 67
Gain (loss) on investment securities transactions (4) 38 99
Gain (loss) on sales of mortgage loans 17 (8) 606
Other 224 34 350
------- -------- --------
572 429 1,422
------- ------- -------
Other Expenses
Salaries and employee benefits - Note L 2,092 2,020 2,218
Occupancy - Note G 440 568 595
Net cost of operation of real estate owned 56 527 593
Other - Note P 2,606 3,163 2,752
------- ------ -------
5,194 6,278 6,158
------- ------ -------
Income Before Income Taxes,
Minority Interest and Extraordinary Item 1,660 98 788
Income tax benefit - Note M - - (4)
Minority interest - - 44
-------- -------- ------
Income Before Extraordinary Item 1,660 98 748
Extraordinary Item -
Charge to earnings as a result of the settlement
of the cross guaranty claim - Note A - 9,000 -
----------- ---------- -----------
NET INCOME (LOSS) $ 1,660 $(8,902) $ 748
======= ========= =======
PER SHARE AMOUNTS
Weighted Average Shares Outstanding - Note K 600,361 600,361 600,361
Income Per Share before Extraordinary item $ 2.77 $ .16 $ 1.25
======== ============ ========
Net Income (Loss) per share $ 2.77 $ (14.83) $ 1.25
======== ========== ========
</TABLE>
See notes to consolidated financial statements
A-53
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Coastal Corporation and Subsidiary
Net
Unrealized
Gain (Loss)
Retained on Available
Common Paid-In Earnings for Sale
(in thousands) Stock Capital (Deficit) Securities Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 $6,007 $22,645 $(19,522) - $9,130
Reverse stock split;
One-for-ten - Note K (5,407) 5,407 - - -
---------- --------- ----------- ------------ -----------
Balances at December 31, 1992,
as restated 600 28,052 (19,522) - 9,130
1993 net income 748 - 748
--------- ------------ --------- ------------ --------
Balances at December 31, 1993 600 28,052 (18,774) 9,878
1994 net loss (8,902) (8,902)
Increase in net unrealized loss on
available for sale securities - - - $ (285) (285)
Repurchase of minority interest - 1,323 - - 1,323
--------- --------- ------------- ------------ -------
Balances at December 31, 1994 600 29,375 (27,676) (285) 2,014
1995 net income 1,660 1,660
Increase in net unrealized gain on
available for sale securities - - - 323 323
--------- ------------- ------------- -------- ---------
Balances at December 31, 1995 $ 600 $29,375 $(26,016) $ 38 $ 3,997
====== ======= ======== ======== =======
</TABLE>
See notes to consolidated financial statements.
A-54
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Coastal Corporation and Subsidiary Year Ended December 31,
-----------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income (loss) $1,660 $(8,902) $748
Adjustments to reconcile net income to net cash provided by operating activities:
Charge to earnings as a result of the settlement of the cross guaranty claim - 9,000 -
Provision for loan losses (425) 107 (30)
Writedowns of REO and ISR 13 226 467
Depreciation and amortization 292 300 323
Amortization of investment security (discounts) (248) (183) (2)
Realized investment securities (gains) losses 4 (38) (99)
(Gains) losses from assets held in trading accounts (33) 93 -
Realized (gains) on assets held for sale (17) (8) (606)
(Increase) decrease in trading account securities 948 (1,008) -
Net change in assets held for sale (79) 3,244 4,067
Decrease (increase) in interest receivable (221) (78) 252
Increase (decrease) in interest payable 392 (45) (77)
Net change in other assets 1,988 4,016 5,991
Net change in other liabilities (150) (129) 182
--------- ------- -------
Net cash provided by operating activities 4,124 6,595 11,216
Investing Activities
(Increase) in federal funds sold - (10,000) -
Maturities of securities - - 1,233
Maturities of securities held to maturity 8,000 634 -
Sales of securities - - 7,069
Sales of securities available for sale 2,324 233 -
Purchases of investment securities - - (5,176)
Purchases of investment securities available for sale (2) (8,990) -
Purchases of investment securities held to maturity (12,721) (6,648) -
Net change in loans 7,187 12,306 19,924
Net (purchases) of premises and equipment (424) (86) (2)
Decrease in Federal Home Loan Bank Stock - - 344
---------- ----------- ---------
Net cash provided (used) by investing activities 4,364 (12,551) 23,392
Financing Activities
Net change in deposits (4,372) (10,550) (15,731)
Proceeds from borrowings - - 5,000
Payments on borrowings (6,612) (5,496) (8,141)
Purchase of Coastal Bancorp's minority interest - (200) -
------------ ---------- ---------
Net cash used by financing activities (10,984) (16,246) (18,872)
------- -------- --------
Increase (decrease) in cash and cash equivalents (2,496) (22,202) 15,736
Cash and cash equivalents at beginning of period 11,337 33,539 17,803
------- ------- -------
Cash and cash equivalents (interest and non- interest bearing) at end of period $ 8,841 $11,337 $33,539
======= ======= =======
Noncash Investing and Financing Activities
FDIC Note - $9,000 -
Change in unrealized holding losses on investment securities available for sale $323 285 -
Securities available for sale collateralized by portfolio mortgage loans - 1,003 -
Transfer of loans to real estate owned and in-substance repossessions 952 827 $2,847
</TABLE>
See notes to consolidated financial statements.
A-55
<PAGE>
Notes to Consolidated Financial Statements
First Coastal Corporation and Subsidiary
December 31, 1995
Note A. REGULATORY MATTERS
Settlement of FDIC Cross Guaranty Claim
On September 6, 1991, First Coastal Corporation (the "Company") announced that
its Connecticut subsidiary, Suffield Bank, was placed into receivership by the
Connecticut Banking Department and the Federal Deposit Insurance Corporation
("FDIC") was appointed as the receiver. Under the Federal Deposit Insurance Act
("FDIA"), as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), commonly-controlled depository institutions
such as Suffield Bank and Coastal Savings Bank ("Coastal" or the "Bank") are
liable for any loss incurred by the FDIC, or any loss which the FDIC reasonably
anticipates incurring, in connection with the default of one or more of the
commonly-controlled institutions. The FDIC had up to two years from September 6,
1991 to assert a cross guaranty claim against the Bank.
On September 3, 1991, the Company announced that Coastal had filed an
application with the FDIC for a waiver of any cross guaranty liability arising
from Suffield Bank. On September 9, 1992, the FDIC notified Coastal that it had
denied this request. The FDIC also indicated that it had authorized the issuance
of an assessment of liability under the cross guaranty provision and claimed an
anticipated loss to the Bank Insurance Fund resulting from the failure of
Suffield Bank in an amount which, if successfully asserted, would likely result
in the appointment of a receiver for Coastal. The FDIC delegated to the Director
of Supervision the authority to negotiate a settlement of the cross guaranty
liability prior to issuing a notice of assessment. On September 1, 1993, the
FDIC notified Coastal that it had until February 14, 1994 or such later date as
may be extended by the FDIC, to reach a settlement with the FDIC over the FDIC's
cross guaranty claim against Coastal resulting from the September 1991 failure
of Suffield Bank. In establishing a February 14, 1994 deadline for payment of
the cross guaranty liability, the FDIC indicated that its intention was to
negotiate a reasonable settlement of the cross guaranty claim, which would
enable the FDIC to maximize its recovery of losses incurred as a result of the
failure of the affiliated Suffield Bank.
On April 26, 1994, the Company, Coastal Bancorp ("Bancorp") and the Bank entered
into a definitive Settlement Agreement with the FDIC (the "Original Settlement
Agreement"). The Original Settlement Agreement provided that in consideration
for the waiver of the FDIC's cross guaranty claim against the Bank, the FDIC
would receive shares of a new class of convertible preferred stock of Coastal,
representing on conversion a 95% ownership position in the Bank. The waiver of
the cross guaranty claim was conditional and would become final and
unconditional upon the earlier of the date on which no shares of the convertible
preferred stock were outstanding or three years after the closing date of the
settlement, provided there had been no judicial determinations (or pending
actions asserting) that the stock was not validly issued, fully paid or
non-assessable.
Pursuant to the Original Settlement Agreement, the preferred stock would
automatically convert to common stock upon its sale by the FDIC to any third
party. The outstanding common stock of
A-56
<PAGE>
Coastal, representing a 5% ownership interest in the Bank on a post conversion
basis, would continue to be held by the Company. While the preferred stock was
to be voting stock, the FDIC agreed to grant a revocable proxy to Coastal so
that such shares would be voted in proportion to the votes cast by the other
holders of the Bank's common stock, subject to certain exceptions and
limitations.
In connection with the execution of the Original Settlement Agreement, Bancorp
paid the FDIC $200,000 and the FDIC delivered to Bancorp the shares of preferred
and common stock it held in Bancorp as receiver of Suffield Bank and a waiver
and release with respect to any rights related to the stock. As a result of
Bancorp's purchase of the stock, First Coastal became the owner of 100% of the
outstanding capital stock of Bancorp.
On July 20, 1994, prior to the Company submitting the Original Settlement
Agreement to its stockholders for approval, the United States Court of Federal
Claims issued an opinion in a case captioned Branch v. United States, No.
93-133C ("Branch"), which raised significant taking issues under the U.S.
Constitution adverse to the FDIC in connection with its assertion of cross
guaranty claims. After considering the Branch decision, the Boards of Directors
of the Company and the Bank concluded that it was in the best interests of the
Company, the Bank and the Company's stockholders to seek to modify the terms of
the Original Settlement Agreement.
Following extensive negotiations by the parties, the FDIC, the Company and the
Bank entered into the Amended and Restated Settlement Agreement dated as of
November 23, 1994 (the "Amended and Restated Settlement Agreement"), providing
for the settlement of the FDIC's cross guaranty claim against the Bank.
On January 31, 1995, following the receipt of stockholder approval, the Company,
Coastal and the FDIC consummated the Amended and Restated Settlement Agreement,
pursuant to which the Company issued to the FDIC a non-recourse promissory note
(the "Note" or the "FDIC Note") in the principal amount of $9.0 million in
consideration of the unconditional and irrevocable waiver and release of the
cross guaranty claim. As a result of the consummation of the Amended and
Restated Settlement Agreement, the Company recognized an extraordinary charge to
earnings of $9.0 million in the financial statements for the year ended December
31, 1994. The Company's obligations under the Note are secured by a pledge by
the Company of 100,000 shares of common stock, par value $1.00 per share, of the
Bank ("CSB Common Stock"), representing 100% of the outstanding CSB Common
Stock, pursuant to a Stock Pledge Agreement between the Company and the FDIC
dated January 31, 1995 (the "Stock Pledge Agreement"). The Stock Pledge
Agreement provides that the Company retains the right to receive all cash
dividends declared and paid on the pledged shares of CSB Common Stock and to
exercise all voting rights with respect to such shares for so long as no event
of default exists thereunder. Payment of principal and interest under the Note
is deferred until the "Maturity Date," which is January 31, 1997. If prior to
such Maturity Date the Company and the Bank have entered into a definitive
agreement regarding either an acquisition or recapitalization of the Company and
the Bank that, in either case, provides the Company with proceeds sufficient to
pay the FDIC the unpaid principal amount and interest under the Note, the
Maturity Date will be extended until the earlier of (i) July 31, 1997, (ii) the
first business day following January 31, 1997 on which such definitive agreement
is terminated or (iii) the date of closing of the acquisition or
recapitalization of the Company and the Bank.
A-57
<PAGE>
The Note bears interest (i) at a rate per annum equal to 5% from January 31,
1995 through February 1, 1996 and at a rate per annum equal to 6.5% thereafter
(compounded quarterly) to and including the earlier of (x) the date on which the
FDIC receives payment of the unpaid principal amount and accrued interest in
full or (y) the day prior to the Maturity Date; or alternatively, in the event
that there is an acquisition of the Bank by a third party, (ii) in an aggregate
amount equal to one half of any proceeds over $11.5 million received by the
Company from the sale of the Bank. The Amended and Restated Settlement Agreement
provides that if the Bank is sold prior to the Maturity Date, the aggregate
consideration paid by the acquiror in connection with such transaction will be
distributed in satisfaction of the Company's obligations under the Note as
follows: the first $9.0 million will be paid to the FDIC, the next $2.5 million
of such consideration will be paid to the Company, and any consideration over
$11.5 million will be divided equally between the FDIC and the Company.
On January 31, 1996, the Company announced that it intends to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the Company's $9.0 million FDIC Note. As part of the recapitalization, the
Company expects to raise approximately $3.0 to $4.0 million through an offering
of its common stock, including a rights offering to the Company's existing
stockholders. The offering will be made only by means of a prospectus. In
addition to the proceeds from the common stock offering, the Company also
expects to use funds derived from dividends from the Bank and the proceeds from
a loan to satisfy its obligation under the FDIC Note. The recapitalization and
related transactions are subject to a number of conditions, including the
receipt of appropriate regulatory approvals, and there can be no assurance that
such recapitalization and related transactions will be consummated or that the
Company will be successful in repaying the FDIC Note. The Company anticipates
that the recapitalization would be completed in the third quarter of 1996.
FDIC Order to Cease and Desist and Memorandum of Understanding
Effective as of January 23, 1992, Coastal consented to an Order to Cease and
Desist (the "Order") issued by the FDIC and concurred with by the Maine Bureau
of Banking (the "Maine Bureau of Banking"). The Order required Coastal to cease
and desist from operating with an excessive volume of adversely classified
assets, engaging in any lending or management practices which are detrimental to
the Bank, engaging in violations of applicable laws and regulations, operating
with inadequate loan documentation, engaging in practices which produce
inadequate operating income and excessive loan losses, operating with inadequate
allowance for loan losses for the kind and quality of loans held, failing to
submit Reports of Condition and Income to the FDIC in accordance with
instructions, operating with inadequate liquidity and operating with excessive
interest rate risk exposure. The Order also required that certain affirmative
actions be taken relating to the preparation of certain plans and analyses and
the maintenance of specified capital ratios.
Effective December 8, 1994, the FDIC terminated the Order. The Order was
replaced with a Memorandum of Understanding ("Memorandum") among the Bank, the
FDIC and the Maine Bureau of Banking effective as of November 22, 1994. The
Memorandum provides, among other things, that (i) the Bank continue to maintain
its allowance for loan and lease losses in accordance with applicable regulatory
requirements, (ii) the Board of Directors of the Bank continue to review the
adequacy of the Bank's loan and lease loss reserves and provide for adequate
reserves, (iii) the Bank continue to have a Tier 1 capital to total assets ratio
at or in excess of 6.0%, (iv) the Bank continue to comply
A-58
<PAGE>
with the FDIC's Statement of Policy on Risk-Based Capital, (v) the Bank provide
monthly progress reports regarding substandard or doubtful assets, (vi) the Bank
agree not to extend or renew credit to, or for the benefit of, any borrower who
or which has a loan or other extension of credit with the Bank that has been
charged-off or classified in whole or in part, loss, doubtful or substandard and
is uncollected unless certain conditions are met, (vii) the Bank not declare or
pay any dividends without the prior written consent of the FDIC and the Maine
Bureau of Banking, and (viii) the Bank continue to furnish written progress
reports detailing the form and manner of any action taken to seek to secure
compliance with the Memorandum. In addition, the Board of Directors is required
to develop a written plan of action to reduce the Bank's risk position with
respect to each borrower who had outstanding principal debt owing to the Bank in
excess of $500,000 and for the formulation of a strategic plan and policies
covering investments, funds management and various lending policies.
Federal Reserve Memorandum of Understanding
In March 1988, the Company entered into a Memorandum of Understanding with the
Federal Reserve Bank of Boston which provided, among other things, for the
formulation of plans and policies covering capital adequacy, funds management,
the Company's management information system and the adoption of a written
dividend policy consistent with the policies of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") regarding the payment of cash
dividends by bank holding companies. Management originally addressed these
matters by developing plans and policies which were submitted to the Federal
Reserve in 1988, and updated such plans and policies in 1992 and 1995. Effective
March 13, 1995, the Federal Reserve Bank of Boston terminated the Memorandum of
Understanding.
Note B. ACCOUNTING POLICIES
Business
First Coastal Corporation (formerly Suffield Financial Corporation), a Delaware
Corporation, was organized in January 1987 for the purpose of becoming the
parent holding company of Suffield Bank following Suffield Bank's conversion
from mutual to stock form. The Company acquired Coastal Bancorp, a Maine
corporation, which was the bank holding company of Coastal Savings Bank, a Maine
chartered, stock savings bank, on April 1, 1987. On September 6, 1991, Suffield
Bank was placed in receivership by the Connecticut Department of Banking,
leaving the Bank as the Company's principal operating subsidiary. On July 26,
1994, Coastal Bancorp was dissolved with the effect that the Bank became a
direct wholly-owned subsidiary of the Company. The principal business of the
Bank consists of retail and commercial banking, including attracting deposits
from the general public and originating residential mortgage, consumer,
commercial and small business loans. Deposits are federally insured by the Bank
Insurance Fund ("BIF"), which is administered by the FDIC.
Coastal Savings Bank was formed in 1981 as a Maine-chartered savings bank
through the consolidation of Brunswick Savings Institution and York County
Savings Bank, which were organized in 1858 and 1860, respectively. On July 11,
1984, the Bank completed its conversion to a Maine stock savings bank.
A-59
<PAGE>
Basis of Presentation
The consolidated financial statements of the Company and subsidiary have been
prepared in conformity with generally accepted accounting principles and
reporting practices applied in the banking industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Prior period amounts are reclassified when necessary to
conform with the current year's presentation. Set forth below is a summary of
the significant accounting policies.
Most of the Company's commercial real estate loans as of December 31, 1995 are
collateralized by real estate in Maine which has experienced a significant
decline in value since the market peak in the late 1980's. In addition, all of
the real estate owned ("REO") are located in this same market. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
and the recovery of a substantial portion of the carrying amount of REO have
been impacted by this real estate market decline and are particularly
susceptible to changes in market conditions in Maine.
While management uses available information to recognize losses on loans and
REO, future additions to the allowance for loan losses ("Allowance") or
writedowns may be necessary based on changes in economic conditions. In
addition, various regulatory authorities, as an integral part of their
examination process, periodically review the Company's Allowance and the
carrying value of REO. Such authorities may require the Company to recognize
additions to the Allowance and/or write down the carrying value of REO based on
their judgments of information available to them at the time of their
examination.
New Accounting Standards
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard (SFAS) No. 122, Mortgage Servicing Rights,
which amends FASB Statement No. 65, Accounting for Certain Mortgage Banking
Activities. This standard eliminates the distinction between purchased and
originated mortgage servicing rights and establishes the use of a valuation
allowance to recognize any impairment in the fair value of mortgage servicing
rights. The Company believes that there will be no material impact to its
financial position and results of operations upon adopting FASB Statement No.
122 when required in 1996.
In addition, during October 1995, FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation, which establishes fair-value based accounting to
recognize compensation expense related to stock-based transactions. For
employers, the fair-value based recognition provisions are not mandatory;
however certain disclosure requirements are provided. The Company intends to
comply with the disclosure requirements when required in 1996 and expects no
material impact to its financial statements or results of operations upon
adoption.
A-60
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Investment Securities
Effective January 1, 1994, with the implementation of FASB Statement No. 115,
investment securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Investment securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. There was no effect to the Company's financial
statements or results of operations on January 1, 1994 as a result of
implementing FASB Statement No. 115. For the year ended December 31, 1995,
investment securities classified as available for sale increased in fair value
by $323,000 as a result of declining interest rates.
As of December 31, 1995, the Company's investment accounting policy states that
all securities purchased with an original maturity of over one year, other than
mortgage backed securities originated by the Bank with current loan production,
will be classified as available for sale. Securities purchased with an original
maturity of one year or less, or callable U.S. government agency notes, will be
considered held-to-maturity. Mortgage backed securities originated by the Bank
with current loan productions, will be classified as trading securities.
Assets Held for Sale Stated at Market Value
Assets held for sale, consisting primarily of residential mortgages originated
for the purpose of potential sale, are valued at the lower of cost or market.
Loans
Interest on loans is accrued and credited to operations based on the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes delinquent and, in management's opinion, borrowers may be unable to meet
contractual obligations. Such accrual is discontinued where interest or
principal is 90 days or more past due, unless the loans are deemed to be
adequately secured and in the process of collection. In these instances,
interest is recognized only when received. When interest accruals are
discontinued, unpaid interest credited to income in the current year is reversed
and interest accrued in prior years is charged to the Allowance.
Loan origination fees and certain direct loan origination costs are deferred and
the new amount amortized as an adjustment to the related loan yield over the
estimated contractual life of the loan.
Allowance for Loan Losses
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance
A-61
<PAGE>
is based on an evaluation of the portfolio, past and expected loan loss
experience, current economic conditions, growth and diversification of the loan
portfolio, the results of the most recent regulatory examinations, the nature
and level of nonperforming assets, impaired loans and loans that have been
identified as potential problems, the adequacy of collateral and other relevant
factors. The Allowance is increased by provisions for loan losses charged
against income and recoveries on loans previously charged off.
The Company adopted FASB Statement No. 114, Accounting by Creditors for
Impairment of a Loan, on January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if it is probable
that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement.
Management identifies impaired loans on a loan-by-loan basis. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, with the exception
of all collateral-dependent loans, which are measured for impairment based on
the fair value of the collateral. The adoption of FASB Statement No. 114
resulted in no additional provision for loan losses as determined at January 1,
1995 and December 31, 1995.
Real Estate Owned ("REO")
REO, other than bank premises, consists of properties acquired through mortgage
loan foreclosure proceedings or in satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date of foreclosure and any difference is charged to the Allowance at the
time of reclassification. Subsequently, the values of such properties are
reviewed by management and writedowns, if any, are charged to expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated provisions for
depreciation and amortization, computed using the straight-line method over
estimated useful lives.
Income Taxes
The Company adopted FASB Statement No. 109, Accounting for Income Taxes, in 1993
which requires a change from the deferred method of accounting for income taxes
of APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At December 31,
1995, the Company estimated that net operating loss ("NOL") carryforwards for
federal income tax return purposes of $6.8 million were available to offset
future taxable income. Due to the uncertainty that the benefit of net deferred
tax assets will be realized, a full valuation allowance has been recorded at
December 31, 1995 and December 31, 1994.
A-62
<PAGE>
Retirement Benefits
Coastal has a non-contributory defined benefit pension plan covering
substantially all of their officers and employees. The benefit formula is based
on a covered employee's final average compensation and credited service. The
funding policy for this plan is to contribute amounts to the plan sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Bank may
periodically determine to be appropriate.
Note C. NONINTEREST EARNING DEPOSITS AND CASH
Noninterest bearing deposits and cash balances at December 31, 1995 are subject
to withdrawal and usage restrictions of $100,000 to be maintained at the Federal
Reserve Bank of Boston to meet Coastal's reserve requirements.
Note D. INVESTMENT SECURITIES
The following table sets forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(in thousands) Cost Value Gains Losses
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. government obligations $ 4,998 $5,014 $ 23 $ (7)
Mortgage backed securities 765 787 22 -
Equity/mutual fund 2,000 2,000 - -
Other 125 125 - -
------- ------ ------- -------
$7,888 $7,926 $ 45 $ (7)
====== ====== ==== =====
Held to Maturity:
U.S. government obligations $ 993 $ 995 $ 2 -
U.S. government agency
callable notes 10,793 10,914 121 -
------- ------- ---- -------
$11,786 $11,909 $123 -
======= ======= ==== =======
</TABLE>
A-63
<PAGE>
The following table sets forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1994:
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(in thousands) Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available for sale:
U.S. government obligations $ 4,993 $4,852 - $ (141)
Mortgage backed securities 896 858 - (38)
Equity/mutual fund 4,000 3,894 - (106)
Other 320 320 - -
--------- ------- --------- ---------
$10,209 $9,924 - $ (285)
======= ====== ========= ======
Held to maturity:
U.S. government obligations $6,822 $6,792 - $ (30)
------ ------ --------- -----
$6,822 $6,792 - $ (30)
====== ====== ========= =====
Trading securities:
Mortgage backed securities $1,008 $ 915 - $ (93)
------ ----- --------- -----
$1,008 $ 915 - $ (93)
====== ===== ========= =====
</TABLE>
The following is a summary of gross realized gains and losses on investment
securities sold for 1995, 1994 and 1993. The 1995 and 1994 security gains and
losses were all related to securities classified as available for sale. For
computation of gross realized gains and losses, cost was determined by the
specific identification method.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1995 1994 1993
Gross Realized Gross Realized Gross Realized
--------------------- ---------------------- --------------------
(in thousands) Gains Losses Gains Losses Gains Losses
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales of:
U.S. government obligations - - - - $ 62 -
U.S. government agency $ 1 - - - 59 -
Mortgage-backed securities - - - - - -
Equity securities 7 $ (12) $ 38 - - $ (22)
------ ----- ----- ------- -------- -----
$ 8 $ (12) $ 38 - $121 $ (22)
===== ===== ===== ======= ==== =====
</TABLE>
A-64
<PAGE>
The following table represents the contractual maturities for investments in
debt securities for each major security type at December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------
Maturing
-------------------------------------------------------------
After One After Five
Within But Within But Within After
(in thousands) One Year Five Years Ten Years Ten Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $4,020 $ 994 -
Mortgage backed securities - - - $ 787
---------- --------- --------- ------
$4,020 $ 994 - $ 787
====== ====== ========= ======
Held to maturity:
U.S. government obligations $ 993 - - -
U.S. government agency callable
notes (final maturity) - $8,991 $1,802 -
--------- ------ ------ ---------
$ 993 $8,991 $1,802 -
====== ====== ====== =========
</TABLE>
Investment securities gains and losses as reported in the consolidated statement
of operations include for the years ended 1995, 1994 and 1993, a loss of $4,000,
a gain of $38,000 and a loss of $99,000, respectively.
At December 31, 1995, the Company had $200,000 of securities pledged as
collateral to secure public and private deposits.
Note E. LOANS
Loans consisted of the following:
December 31,
-------------------------
(in thousands) 1995 1994
- ----------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 30,966 $ 33,158
Commercial 50,797 57,997
Commercial and industrial loans 2,524 2,510
Consumer and other loans 16,263 15,991
--------- ----------
$100,550 $109,656
======== ========
Included in interest and fees on loans as reported in the consolidated
statements of operations are origination, commitment, late charges and
application fees for the years ended December 31, 1995, 1994 and 1993 of
$95,000, $277,000, and $251,000, respectively.
A-65
<PAGE>
As of December 31, 1995 and 1994, the Company was servicing loans for others of
$53.7 million and $57.0 million, respectively. As of December 31, 1995 and 1994,
Coastal had approximately $1,504,000 and $1,468,000 in excess residential
mortgage servicing fees reflected in other assets. This amount is being
amortized over the expected average life of the loans. Accumulated amortization
was approximately $663,000 and $464,000 at December 31, 1995 and 1994,
respectively. As of December 31, 1995 and 1994, the Bank reflects a valuation
reserve of $132,000 against the deferred mortgage servicing asset as a result of
higher than anticipated prepayments on serviced loans.
At December 31, 1995, Coastal had no binding commitments for the sale of
mortgage loans held for sale.
At December 31, 1995, Coastal had $12,136,281 of loans pledged to the Federal
Home Loan Bank ("FHLB") of Boston as collateral for outstanding advances of
$6,000,000.
Information with respect to nonperforming loans was as follows:
December 31,
---------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Nonaccrual loans $1,948 $4,340 $1,220
Accruing loans past due
90 days or more 169 258 249
Restructured loans 3,427 1,483 4,212
------ ------ ------
$5,544 $6,081 $5,681
====== ====== ======
Interest income recognized on nonaccrual and restructured loans totaled
$406,000, $154,000 and $280,000 in 1995, 1994 and 1993, respectively. Had
interest income on these year-end loans been paid at the contracted rates and
due dates, the Company would have recorded additional interest income in 1995,
1994 and 1993 of $81,000, $130,000 and $28,000, respectively.
Management reviews impaired loans on a case by case basis. If management
believes there is a high probability of a loss of principal or interest, then
such loans are determined to be impaired. At December 31, 1995, the recorded
investment in loans for which impairment has been recognized in accordance with
FASB Statement No. 114 totaled $3.7 million, of which $230,000 related to loans
with no allocated reserve because the loans have been partially written down
through charge-offs and $3.5 million related to loans with corresponding
allocated reserves of $398,000 (representing 15% of the Allowance of $2.7
million) for the year ended December 31, 1995. Included in the impaired loans
total is $301,000 in nonaccrual loans and $3.4 million in restructured loans.
A-66
<PAGE>
Impaired loans consisted of the following:
(in thousands) December 31, 1995
- ---------------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 301
Commercial 3,427
Real estate construction loans -
Commercial and industrial loans -
Consumer and other loans -
----------
$3,728
==========
All impaired loans were secured by real estate at December 31, 1995 and
accounted for by the lower of the fair value of the collateral or amortized book
value.
Unfunded loan commitments for December 31, 1995 and 1994 were approximately $8.0
million and $7.8 million, respectively, consisting primarily of home equity
lines of credit secured by real estate. There were no standby letters of credit
for the years ended December 31, 1995 and 1994.
Loan commitments include unfunded portions of real estate, construction and
other loans and unused lines of credit. Loan commitments are subject to the same
credit policies as loans and generally have expiration dates and termination
clauses. Coastal obtains collateral to secure loans based upon management's
credit assessment of the borrower. Collateral held varies but may include
receivables, inventory, equipment and real estate.
Note F. ALLOWANCE FOR LOAN LOSSES
Changes in the Allowance were as follows:
Year Ended December 31,
----------------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning
of year $4,042 $3,642 $4,280
Charge-offs (1,333) (290) (1,369)
Recoveries 375 583 761
-------- -------- --------
Net charge-offs (958) 293 (608)
Provision for loan losses (425) 107 (30)
-------- -------- --------
Balance at end of year $2,659 $4,042 $3,642
====== ====== ======
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic
A-67
<PAGE>
conditions, growth and diversification of the loan portfolio, the results of the
most recent regulatory examinations, the nature and level of nonperforming
assets, impaired loans and loans that have been identified as potential
problems, the adequacy of collateral and other relevant factors. The Allowance
is increased by provisions for loan losses charged against income and recoveries
on loans previously charged-off.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans that
remain vulnerable to loan default. Deterioration in the local economy or real
estate market, or upward movements in interest rates, could have an adverse
effect on the performance of the loan portfolio that could result in the need
for an increase in the Allowance. Conversely, further improvement in the overall
asset quality, favorable economic conditions or a favorable local real estate
market could positively affect the Allowance.
The Allowance at December 31, 1995 equaled $2,659,000 as compared to $4,042,000
at December 31, 1994. The reduction in the Allowance is the result of
substantial loan charge-offs in the amount of $1,333,000 and negative provision
expense totaling $425,000, partially offset by loan loss recoveries of $375,000.
The loan charge-offs were largely associated with previously identified loan
loss exposure taken into consideration as a part of management's review of the
Allowance at December 31, 1994. The negative provision for loan loss expense for
the year of $425,000 was largely the result of management's determination as
part of its December 31, 1995 review of the Allowance that a surplus existed in
the Allowance, leading to the decision to effect a reversal of provision for
loan loss expense in the amount of $675,000 in the fourth quarter of 1995.
Note G. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
---------------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------
Land $ 423 $ 423
Buildings and building improvements 2,774 2,670
Leasehold improvements 371 374
Equipment 2,715 3,001
------ ------
6,283 6,468
Less: Accumulated depreciation
and amortization 3,210 3,527
------ ------
$3,073 $2,941
====== ======
Total rental expense for all leases was $75,000, $163,000 and $196,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
A-68
<PAGE>
Future minimum payments, by year and in the aggregate, for all noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1995:
(in thousands) December 31,
- -----------------------------------------------------------------------------
1996 $ 67
1997 68
1998 71
1999 75
2000 78
-----
$359
=====
All leases are for premises and include options to renew for periods ranging
from 1 to 5 years.
Note H. DEPOSITS
Deposits consisted of the following:
December 31,
----------------------------
(in thousands) 1995 1994
- ----------------------------------------------------------------------------
Noninterest bearing demand deposits $ 5,128 $ 5,425
Interest bearing demand deposits 15,741 17,300
Savings and escrow deposits 42,020 48,205
Time deposits 62,776 59,107
---------- ----------
$125,665 $130,037
======== ========
Included in 1995 time deposits is $1,709,000 of deposits of $100,000 or more.
Detail of interest expense on deposits:
December 31,
--------------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Interest bearing demand deposits $ 357 $ 403 $ 443
Savings deposits 1,286 1,402 1,593
Other time deposits 3,237 2,693 3,319
Time deposits of $100,000 or more 97 112 67
--------- -------- ---------
$4,977 $4,610 $5,422
====== ====== ======
Total interest paid on deposits was $4,961,000, $4,420,000 and $5,470,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
A-69
<PAGE>
Note I. BORROWINGS
Advances From Federal Home Loan Bank of Boston
Maturities of advances from the FHLB of Boston outstanding at December 31, 1995
are as follows:
Weighted Average
(in thousands) Rates Interest Rate
- -------------------------------------------------------------------------------
1997 $2,000 6.06% 6.06%
1998 4,000 5.32%-5.92% 5.62%
-------
$6,000 5.77%
======
Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the established collateral maintenance level. Depending on the ratio of tangible
capital to assets as defined by the FHLB and certain other factors, each member
bank is assigned by the FHLB to one of three collateral status groups:
1. Blanket Lien Status - tangible capital of 4.5% or more of
assets;
2. Listing/Segregation Status - tangible capital below 4.5% of
assets; and
3. Delivery (Possession) Status - tangible capital below 3.5% of
assets.
Although its tangible capital is above 3.5% of assets, Coastal is in delivery
status. Because of the potential contingent liability of affiliated institutions
within a holding company structure, the FHLB closely reviews the financial
condition of a member bank's parent company. If a member Bank's parent holding
company has a low tangible capital ratio or is experiencing substantial
financial problems, the member Bank may be assigned to listing or delivery
status. In connection with the waiver and release of the FDIC cross guaranty
claim, the Bank requested the removal of the foregoing restrictions imposed by
the FHLB. On May 1, 1995, the Bank received a letter from the FHLB stating that
it will lengthen the maturity restriction on new fixed term and fixed rate
advances from six months to one year.
Total interest paid on FHLB advances amounted to $498,000, $1,159,000 and
$1,872,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
FDIC Note
No interest was paid on the FDIC Note for the year ended December 31, 1995.
Under the terms of the Note, interest and principal are deferred until the
Note's maturity date, which is January 31, 1997, subject to extension under
certain limited circumstances. Interest accrued on the Note amounted to
approximately $419,000 through December 31, 1995. (See Note A).
A-70
<PAGE>
Federal Reserve Bank of Boston
Coastal also has been approved by the Federal Reserve Bank of Boston to obtain
liquidity from its discount window. No funds have been, or are anticipated to
be, obtained from this source.
Note J. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware corporate
law that dividends may be paid by the Company out of its surplus or, in the
event there is no surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
The Amended and Restated Settlement Agreement, which was consummated on January
31, 1995, prohibits the payment of dividends by the Company to its stockholders
on any class of stock (except for a dividend paid in shares of the Company's
common stock, or in any other stock of the Company) until the unpaid principal
amount and interest under the Note are paid in full in accordance with the terms
thereof.
The principal source of cash for the parent company would normally be a dividend
from Coastal; however, certain restrictions also exist regarding the ability of
Coastal to transfer funds to the Company in the form of cash dividends, loans or
advances. The most significant of these are described below.
Maine corporate law generally provides that dividends may only be paid out of
unreserved and unrestricted earned surplus or unreserved and unrestricted net
earnings of the current fiscal year and the next preceding fiscal year taken as
a single period. Maine banking law also imposes certain restrictions, including
the requirement that the Bank establish and maintain adequate levels of capital
as set forth in rules adopted by the Maine Bureau of Banking.
The Amended and Restated Settlement Agreement provides that the Bank may not
declare any dividends, except as necessary to pay the operating expenses of the
Company as approved from time to time by both the FDIC and the Maine Bureau of
Banking. The Amended and Restated Settlement Agreement further provides that
such operating expenses may not include any amounts for accrued interest on the
Note.
The Memorandum (effective November 22, 1994) provides that the Bank may not pay
or declare any dividends without the prior written consent of the FDIC and the
Maine Bureau of Banking.
On November 13, 1995 and November 30, 1994, following the receipt of appropriate
regulatory approvals, Coastal paid the Company cash dividends of $200,000 and
$175,000, respectively, for certain current and anticipated operating expenses
of the Company.
A-71
<PAGE>
Note K. REVERSE STOCK SPLIT
On May 31, 1995, the Company effected a one-for-ten reverse stock split with
respect to the issued and outstanding shares of the Company's common stock,
which was approved by the Company's stockholders on January 31, 1995. As a
result of the reverse stock split, the number of outstanding shares of common
stock of the Company was reduced from 6,006,745 shares (determined at the close
of business on May 31, 1995) to 600,361 shares. As a result, approximately
$5,407,000 was transferred from the Company's common stock account to paid-in
capital. All applicable share and per share data appearing in the consolidated
financial statements and notes thereto have been retroactively adjusted for the
reverse stock split.
Note L. BENEFIT PLANS
Pension Plan
The pension plan (the "Pension Plan") is a noncontributory defined benefit plan,
which provides retirement benefits to substantially all Bank employees.
Requirements for participation in the Pension Plan are that an employee work
more than 1,000 hours per year, have completed at least one year of service and
have attained twenty-one years of age. Employees become 100% vested after five
years of eligible service subsequent to their eighteenth birthday.
The Bank contributes such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid under the terms of the Pension Plan. The Bank
has made contributions in amounts sufficient to fund the Pension Plan's current
service cost and the initial past service cost plus interest over a period of 30
years. The Pension Plan has met the ERISA minimum funding requirements.
The Bank has the right to discontinue its contributions at any time and to
terminate the Pension Plan subject to the provisions of ERISA.
Pension expense for the Pension Plan was $14,000 for each of the years ended
December 31, 1995 and December 31, 1994, as compared to a credit of $23,000 for
the year ended December 31, 1993.
A-72
<PAGE>
The following table sets forth the Pension Plan's funded status and amounts
recognized in the consolidated financial statements:
Year Ended December 31,
----------------------
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
Actuarial Present Value of Benefit Obligations:
Accumulated benefit obligation
(including vested benefits
obligation of $1,327 in 1995 and
$1,241 in 1994) $1,414 $1,300
Effects of future salary increases 185 138
------ ------
Projected benefit obligation 1,599 1,438
Fair value of plan assets (primarily
listed stocks, U.S. bonds and
insurance contracts) 1,921 1,623
----- -----
Plan assets in excess of projected
benefit obligation 322 185
Unrecognized prior service cost (5) (6)
Unrecognized transition amount (120) (146)
Unrecognized loss 107 217
------ ------
Prepaid pension expense $ 304 $ 250
===== ======
The components of net pension expense (credit) are as follows:
Year Ended December 31,
-------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
Service cost - benefits $62 $ 67 $ 36
Interest cost of projected
benefits 110 102 90
Actual return on plan assets (300) 18 (216)
Net amortization and deferral 142 (173) 67
----- ---- ------
Net pension expense (credit) $ 14 $ 14 $ (23)
====== ===== =======
The weighted average discount rate used was 7.5%, 8.25% and 7.0% in 1995, 1994
and 1993, respectively, and the increase in future compensation levels used was
5.5%, 6.0% and 5.5% in 1995, 1994 and 1993, respectively, in determining the
actuarial present value of the projected benefit obligation. The expected
long-term rate of return on assets was 8.0% for 1995, 1994 and 1993.
The Bank provides no post retirement benefits other than pensions.
A-73
<PAGE>
Stock Option Plan
The Company has a Stock Option Plan ("Stock Option Plan") to purchase shares of
common stock of the Company. Unless terminated by the Board of Directors, the
Stock Option Plan will automatically terminate on September 18, 1996. The total
number of shares of common stock for which options may be issued under the Stock
Option Plan, adjusted as a result of the reverse stock split, is 55,189. A
summary of transactions under the Stock Option Plan follows:
Shares Option
Under Price Range
Option Per Share
- -------------------------------------------------------------------------------
Outstanding at January 1, 1993 4,726 $35.90 - $157.40
Cancelled (934) 117.90 - 141.00
------ -------------------
Outstanding at December 31, 1993 3,792 35.90 - 157.40
Cancelled (658) 35.90
------ ----------------------
Outstanding at December 31, 1994 3,134 92.50 - 157.40
Cancelled (2,667) 92.50 - 141.00
------ ----------------------
Outstanding at December 31, 1995 467 $141.00 - $157.40
====== ====================
Note M. INCOME TAXES
Due to the uncertainty that the benefit of the net deferred tax assets will be
realized, a full valuation allowance has been recorded at December 31, 1995 and
1994.
A summary of income tax benefits is as follows:
Year Ended December 31,
-------------------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Current - - $(4)
- -
Deferred -------- -------- ------
- - $ (4)
======== ======== =======
A reconciliation of the difference between income tax benefit and the amount
computed by applying the statutory federal income tax rate to income before
income taxes, minority interest and extraordinary item is as follows:
A-74
<PAGE>
Year Ended December 31,
----------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Federal income tax at statutory rate $564 $33 $268
Increase (decrease)
resulting from:
Expiration of capital loss carryforwards 2,060 - -
Increase in net operating loss
carryforwards (253) - -
Net operating loss utilized - - (268)
Change in valuation
allowance (2,454) (35) -
Other items, net 83 2 (4)
------- -------- -------
Income tax benefit $ 0 $ 0 $ (4)
======= ======== =======
- ------ ------- ------
Significant components of deferred income tax assets and liabilities at December
31, 1995 and 1994 are presented below:
December 31,
---------------------
(in thousands) 1995 1994
- --------------------------------------------------------------------------
Deferred tax assets:
Loans, principally due to
allowance for losses $904 $1,374
REO, principally due to writedowns 304 453
Mark to market adjustments 13 129
Deferred loan fees 8 10
Reserve for mortgage servicing rights 45 45
Investment writedowns 18 14
Federal NOL credit and tax credit carryforward 2,392 2,139
Capital loss carryforward 11 2,071
State NOL credit carryforward 143 81
FDIC Note 3,060 3,060
Other 90 69
------- -------
Total gross deferred tax assets before
valuation reserve 6,988 9,445
Valuation reserve (6,850) (9,304)
------ ------
Total gross deferred tax asset 138 141
------- -------
Deferred tax liabilities:
Difference between tax and
book basis of fixed assets 138 141
------- ------
Net deferred taxes $ 0 $ 0
======== ========
A-75
<PAGE>
The net deferred tax asset at December 31, 1995 and December 31, 1994 is fully
offset by a valuation allowance. The change in the balance of the valuation
allowance in 1995 that is not allocated to continuing operations consists
principally of the tax impact of the mark to market adjustment on available for
sale securities. The amount of the valuation allowance will be reviewed annually
or on an as needed basis.
At December 31, 1995, the Company had a NOL carryforward for federal income tax
return purposes of approximately $6.8 million available to offset future taxable
income. The NOL for federal income tax return purposes will expire in the years
1996 to 2010. If there is a subsequent "change of ownership" of the Company as
defined by Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Companys's NOLs are subject to limitation as provided by the Code.
See Note A regarding the determination of the Company to pursue a
recapitalization as the means to facilitate the satisfaction of the FDIC Note.
In addition, as of December 31, 1995, the Company had a capital loss
carryforward, which will expire in the years 1996 to 2000, of approximately
$31,600 available to offset future capital gains, if any, from the sale of the
Company's capital assets.
As of December 31, 1995, the Company had an Investment Tax Credit carryforward
which will expire in the years 1997 to 2000, of approximately $77,000 available
to offset future federal income taxes.
In 1990, Coastal Bancorp and its subsidiaries carried back their share of the
consolidated net operating losses of the Suffield Financial Corporation and
subsidiaries group to the years 1984, 1985 and 1986. Tentative tax refunds in
the amount of $926,000 were paid to the Bank as a result of this carryback. In
1989 and 1990, Suffield Financial Corporation and Suffield Bank also carried
back their share of the net operating losses of the group. A portion of the 1990
losses was carried back to the 1986 taxable year of the Suffield group as it
existed before the acquisition of Coastal Bancorp and the Bank (the "Old
Suffield Group") and resulted in a tentative refund of $1,973,000 and a portion
of the 1989 losses was carried back to the years 1979 through 1985 of the Old
Suffield Group and resulted in tentative refunds of $1,279,000.
All refunds in excess of $1.0 million must be approved by the Joint Committee on
Taxation of the U.S. Congress. The Internal Revenue Service has reviewed and
approved the refund claims and has forwarded the case to the Joint Committee on
Taxation in Washington, D.C. with a recommendation that the refunds be approved
as made. The final approval of the Joint Committee on Taxation is expected as
early as the third quarter of 1996. If the Joint Committee on Taxation were to
conclude that the losses were not eligible for the ten-year carryback, the Bank
would be liable for the repayment of $926,000 of refunds plus interest and would
increase its net operating loss carryforwards by $2.4 million. The Bank also
believes that the requirements have been satisfied with respect to the carryback
of 1989 and 1990 losses by Suffield Financial Corporation and Suffield Bank
under the ten-year rule. In any event, none of the Company, Coastal Bancorp or
the Bank were members of the Old Suffield Group in the above carryback years.
Consequently, the Bank believes that in accordance with the consolidated return
regulations, the Company, Coastal Bancorp or the Bank would not be liable for
the repayment of any refunds generated by carryback to the Old Suffield Group.
A-76
<PAGE>
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1988 and such years are
not subject to further IRS audit except with respect to carrybacks to those
years.
NOTE N. LITIGATION
As of December 31, 1995, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with legal counsel, resolution of these matters
is not expected to have a material effect on the consolidated financial position
or results of operations.
A-77
<PAGE>
Note O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as determined
under FASB Statement No. 107 are as follows:
December 31, 1995
----------------------
Book Fair
(in thousands) Value Value
- -------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents (1) $ 8,841 $ 8,841
Federal Funds sold 10,000 10,000
Trading Securities - -
Investment securities (2)
Held-to-Maturity 11,786 11,909
Available for sale 7,926 7,926
Federal Home Loan Bank stock 1,315 1,315
Assets held for sale 281 281
Loans, net of allowance (3) 97,869 99,837
Financial Liabilities:
Deposits (4) $125,665 $128,273
Borrowings (5) 15,000 14,759
- --------------------
(1) The carrying amount of cash and cash equivalents approximates fair value
due to their short maturity.
(2) The fair value of investment securities is based on quoted market prices,
if available. If prices are not available, quotes for similar instruments
and/or information supplied to management is used.
(3) The fair market value for fixed and adjustable rate loans was estimated
using the discounted cash flow analysis. Variable rate loans are considered
to be at fair value, since such loans change directly with the market
rates. The estimated fair value of nonperforming loans are calculated by
using book value less the specific amount of allocated reserve from the
allowance for loan losses.
(4) For deposit liabilities with no defined maturities, the fair value is the
amount payable on demand. Term deposits were estimated using the discounted
cash flow analysis.
(5) The fair value for FHLB borrowings and FDIC Note was estimated using the
discounted cash flow analysis.
Note P. OTHER EXPENSES
Included in other expenses are:
Year Ended December 31,
-----------------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
Data processing $530 $534 $527
Equipment 340 338 384
FDIC insurance 190 406 451
Insurance-general 168 268 330
Office 273 258 294
Legal 282 676 182
Advertising 112 30 32
Other 711 653 552
------- -------- --------
$2,606 $3,163 $2,752
======= ======== ========
A-78
<PAGE>
<TABLE>
<CAPTION>
Note Q. FIRST COASTAL CORPORATION
(PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
(in thousands) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 99 $ 290
Investment in subsidiaries 13,334 10,754
Fixed assets 8 13
------- -------
Total assets $13,441 $11,057
======= =======
Liabilities
Other liabilities $ 444 $ 43
FDIC Note 9,000 9,000
Stockholders' equity 3,997 2,014
------- -------
Total liabilities and
stockholders' equity $13,441 $11,057
======= =======
<CAPTION>
STATEMENTS OF OPERATIONS
Year Ended December 31,
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends $ 200 $175 -
Interest Income 4 6 $ 1
------- ------- --------
204 181 1
Interest Expense:
Interest on FDIC Note 419 - -
------- ------- --------
419 - -
------- ------- --------
Net Interest Income (loss) (215) - -
Operating Expenses:
Stockholder relations 76 59
Professional fees 293 156
Other 14 - 100
------- ------- --------
383 215 100
Loss before income
tax, equity in undistributed
net income of subsidiaries and
extraordinary item (598) (34) (99)
Income tax benefit - - (10)
Equity in undistributed net
income of subsidiaries 2,258 132 837
------- ------- --------
Income before
Extraordinary Item 1,660 98 748
Extraordinary Item -
Charge to earnings as a result of
the settlement of the cross guaranty claim - 9,000 -
------- ------- --------
Net Income (loss) $ 1,660 $(8,902) $ 748
======= ======== ========
A-79
<PAGE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income (loss) $1,660 $ (8,902) $748
Charge to earnings as a result of
the settlement of the
cross guaranty claim - 9,000 -
Increase (decrease) in investment
in subsidiary, due from subsidiary,
other assets and other liabilities (1,851) 199 (794)
-------- ------- -------
Net cash used
by operating activities (191) (101) (46)
Cash flows from Investing
Activities, other Net - 379 -
-------- ------ -------
Increase in cash and cash
equivalents (191) 278 -
Cash, beginning of year 290 12 58
------- ------- -------
Cash, end of year $ 99 $ 290 $ 12
======= ======= ========
Non-Cash Financing Activities
FDIC Note $ 9,000
</TABLE>
See Note J for restrictions on the payment of dividends by Subsidiary to the
Company.
A-80
<PAGE>
<TABLE>
<CAPTION>
Note R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarter Ended,
--------------------------------------------------------------------
(in thousands, except per share information) 3/31 6/30 9/30 12/31
- ------------------------------------------------------------------------------------------------------------------------------
1995
- ----
<S> <C> <C> <C> <C>
Interest income $2,917 $2,935 $2,942 $2,913
Interest expense 1,399 1,458 1,492 1,501
----- ----- ----- -----
Net interest income 1,518 1,477 1,450 1,412
Provision for loan losses 100 75 75 (675)
Other income 168 137 125 129
Securities and loan sales gains - 2 3 8
Other expense 1,361 1,327 1,210 1,296
----- ----- ----- -----
Income before income taxes 225 214 293 928
Income tax - - - -
----- ----- ----- -----
Net income $ 225 $ 214 $ 293 $ 928
===== ===== ===== =====
Shares outstanding 600,361 600,361 600,361 600,361
Earnings per share $ .37 $ .36 $ .49 $ 1.55
===== ===== ===== ======
1994
- ----
Interest income $2,828 $3,036 $2,911 $3,005
Interest expense 1,489 1,452 1,433 1,352
------ ------ ------ ------
Net interest income 1,339 1,584 1,478 1,653
Provision for loan losses 67 - 40 -
Other income 159 157 69 14
Securities gains (losses) 72 (112) 64 6
Other expense 1,757 1,493 1,594 1,434
------ ----- ------ ------
Income (loss) before income
taxes, minority interest and
extraordinary item (254) 136 (23) 239
Income tax - - - -
Minority interest (11) 11 - -
------- ------ ------ ------
Income (loss) before
extraordinary item (243) 125 (23) 239
------- ------ ------- ------
Extraordinary Item -
Charge to earnings as a result of
the settlement of the cross
guaranty claim - - - 9,000
----- ----- ----- -----
Net income (loss) $ (243) $ 125 $ (23) $(8,761)
======== ======= ======== ========
Average shares outstanding 600,361 600,361 600,361 600,361
Earnings (loss) per share
Income (loss) per share before
Extraordinary item $ (.41) $ .21 $ (.04) $ .40
======== ======= ======= =========
Net income (loss) per share $ (.41) $ .21 $ (.04) $(14.59)
======== ======= ======= =======
</TABLE>
A-81
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
Pursuant to the Company's Restated Certificate of Incorporation, the directors
are divided into three classes, as nearly equal in number as possible, with the
number of directors as specified in the Company's Amended and Restated Bylaws.
The term of office of only one class of directors expires in each year, and
their successors are elected for terms of three years and until their successors
are elected and qualified. Under the Amended and Restated Bylaws, the directors
are divided into three classes, two of which are composed of one director and
one of which is composed of two directors.
The following table sets forth the names of the directors of the Company. Each
director of the Company also serves as a director of the Bank. Also set forth is
certain other information with respect to each such person's principal
occupation or employment during the past five years, the person's age at
December 31, 1995 and the periods during which such person has served as a
director of the Company.
Age at Member of Term
Directors: December 31, 1995 Board Since Expires
- ---------- ----------------- ----------- -------
Roger E. Klein 53 1990 1996
Normand E. Simard (1) 54 1987 1997
Edward K. Simensky 54 1994 1997
Charles A. Stewart III 61 1995 1998
- -------------------
(1) Mr. Simard serves as Chairman of the Board of Directors of the Company and
the Bank.
Directors:
Roger E. Klein is President and owner of the Interest Rate Futures Research
Corporation of Princeton, New Jersey, a firm established in 1980 to manage money
in the financial futures markets. In 1982, Mr. Klein established two affiliated
companies, Futures Strategies Corporation and Timing Strategies, through which
Mr. Klein manages funds and provides investment advice to institutions,
individuals and corporations. In September 1989, Mr. Klein became the Chief
Investment Officer, Executive Vice President and part owner of Quantum American,
Inc., a minority owned investment management company located in New Orleans.
A-82
<PAGE>
Normand E. Simard has been President of York County Biscuit Company, a food
distributor in Biddeford, Maine, since July 1993, and prior thereto, served as
Vice President since 1967. Mr. Simard was originally nominated as a director of
the Company in 1987 in accordance with the provisions of the Merger Agreement by
and among the Company, Suffield Bank, Coastal Bancorp and the Bank.
Edward K. Simensky has been President of Simensky & Thomson, certified public
accountants, in Saco, Maine, since 1978 and a director of Mutual Fire Insurance
Company, Saco, Maine, since 1987. Mr. Simensky was a director of Suffield Bank,
a subsidiary of the Company, from 1989 until September 1991 when the Banking
Commissioner for the State of Connecticut deemed Suffield Bank insolvent and
appointed the FDIC as receiver.
Charles A. Stewart III was the President of A.L. Stewart & Sons, a food
processing company located in Cherryfield, Maine, from 1958 until 1982 when the
company was sold. Mr. Stewart also was the owner of Tennis of Maine, Inc., an
indoor tennis club located in Falmouth, Maine, from 1982 until 1985 when the
company was sold. Mr. Stewart is currently the Treasurer of M.C.S. Enterprises,
Inc., a real estate investment company based in Freeport, Maine. Mr. Stewart has
been a director of the Bank since 1986. Mr. Stewart has been a director of the
Boys & Girls Club of Greater Portland since 1987 and became chairman of the
organization's planned giving committee in 1994. In addition, in 1994, Mr.
Stewart became a director of the Maine Tennis Foundation.
Executive Officers
The following table sets forth the names of the executive officers of the
Company and the Bank, each of whom is elected to serve for a one-year period.
Also set forth is certain other information with respect to each such person's
principal occupation or employment during the past five years, the person's age
at December 31, 1995 and the positions currently held with the Company and the
Bank. Each executive officer serves pursuant to an employment protection
agreement with the Bank.
<TABLE>
<CAPTION>
Age at
Name December 31, 1995 Positions Held
---- ----------------- --------------
<S> <C> <C>
Gregory T. Caswell 40 President and Chief Executive Officer of the Company
and the Bank and a director of the Bank
Dennis D. Byrd 33 Treasurer of the Company and Executive Vice
President, Chief Financial Officer and Treasurer and a
director of the Bank
</TABLE>
Gregory T. Caswell joined the Bank in December 1991 as Senior Vice President and
Senior Loan Officer responsible for managing the lending, loan workout and
credit administration functions of the Bank. From 1982 to 1991, he was with
First NH Banks most recently as Vice President in the bank's special assets
group. In 1994, Mr. Caswell was promoted to Executive Vice President -- Lending
Division of the Bank. Effective March 31, 1995 upon the resignation of James H.
Whittaker, Mr.
A-83
<PAGE>
Caswell was elected President and Chief Executive Officer of the Company and the
Bank and a director of the Bank.
Dennis D. Byrd joined the Bank in October 1985 as Deposit Operations Technician.
From 1987 to 1992, Mr. Byrd was responsible for financial operations of the
Bank, promoted to Assistant Treasurer/Controller in 1989 and Assistant Vice
President in 1990. In 1993, Mr. Byrd was promoted to Vice President/Controller
and Treasurer of the Bank, and Treasurer of the Company and Coastal Bancorp. In
1994, Mr. Byrd was promoted to Executive Vice President, Chief Financial Officer
and Treasurer of the Bank and on March 31, 1995, Mr. Byrd was elected to the
Board of Directors of the Bank.
In December 1994, the Bank entered into employment protection agreements with
each of Messrs. Caswell and Byrd, which superseded the employment protection
agreements entered into with each of such executive officers in December 1993.
See Item 11, "Executive Compensation -- Employment Agreements," which
information is incorporated herein by reference.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of its
Common Stock, to file with the SEC initial reports of ownership of the Company's
equity securities and to file subsequent reports when there are changes in such
ownership. Based on a review of reports submitted to the Company, the Company
believes that, during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to the Company's officers, directors and more
than 10% owners were complied with on a timely basis, except that initial
reports on behalf of Edward K. Simensky and Charles A. Stewart III in connection
with their election as a directors of the Company were not filed until after the
required filing date.
ITEM 11. EXECUTIVE COMPENSATION.
Cash Compensation
Upon the resignation of James H. Whittaker and effective March 31, 1995, Gregory
T. Caswell was elected President and Chief Executive Officer of the Company and
the Bank. The following table sets forth the compensation paid by the Company
and its subsidiary during 1995, 1994 and 1993 to each of Messrs. Caswell and
Whittaker and to Dennis D. Byrd, who was the only other executive officer whose
compensation exceeded $100,000 for services rendered in all capacities to the
Company and its subsidiary during the year ended December 31, 1995 (the "named
executive officers").
A-84
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
---------------------------------------------------
Other Annual
Principal Positions Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Gregory T. Caswell 1995 $111,827 $34,000 -
President and Chief 1994 76,416 3,000 -
Executive Officer 1993 70,000 5,000 -
James H. Whittaker 1995 56,250 10,000 $2,454(1)
President and 1994 180,000 52,500 7,133
Chief Executive 1993 143,520 30,000 2,129
Officer (2)
Dennis D. Byrd 1995 81,154 21,500 -
Treasurer 1994 53,510 3,000 -
1993 41,554 5,000 -
- -----------------------
<FN>
(1) Reimbursement for federal and state taxes on compensation for living
expenses paid by the Company in 1995.
(2) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
</FN>
</TABLE>
Option Grants
No options were granted during the fiscal year ended December 31, 1995.
Option Holdings
The following table sets forth information with respect to the number of
securities underlying unexercised options held by each of the named executive
officers at December 31, 1995.
Fiscal Year-End Options
Number of Securities
Underlying Unexercised
Options at FY-End (1)(2)
Name Exercisable/Unexercisable
---- -------------------------
Gregory T. Caswell 0/0
James H. Whittaker (3) 0/0
Dennis D. Byrd 10/0
(1) The fair market value of the underlying shares of Common Stock at December
31, 1995 was less than the exercise price of all such options previously
granted.
(2) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(3) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
A-85
<PAGE>
Pension Plan
The Bank maintains a qualified noncontributory pension plan (the "Pension Plan")
for its officers and other employees through RSI Retirement Trust, created to
provide retirement benefits for the employees of savings banks and their allied
organizations. The Pension Plan is jointly administered by the plan
administrator and a pension committee appointed by the Bank and RSI Retirement
Trust. All employees are eligible to participate in the Pension Plan if they
have reached age 21 and have completed one year's service of 1,000 or more
hours. Vesting occurs after a participant completes five years of service of
1,000 or more hours per plan year. The Pension Plan is subject to the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
The Pension Plan provides for monthly benefits to or on behalf of each covered
employee at age 65 and has provisions for death benefits, early retirement after
attainment of age 55 and 10 years of service, and disability benefits. The
annual retirement benefit is 2% of the average annual earnings during the
highest paid consecutive three years of the five years immediately preceding
retirement multiplied by years of service (maximum 30 years), reduced by 1-2/3%
of the primary social security benefits multiplied by years of service (maximum
30 years). In addition, a participant will receive an annuity based upon the
actuarial value of any accumulated voluntary contributions. Annual earnings for
purposes of determining benefits under the Pension Plan consist of the annual
base compensation excluding overtime, bonus payments or any other special
payments.
The following table illustrates annual pension benefits for retirement as of
December 31, 1995 at age 65 for various levels of compensation and years of
service under the Pension Plan.
<TABLE>
<CAPTION>
Pension Plan Table
Years of Service (1)
--------------------
Annual
Compensation 15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 75,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 45,000
100,000 30,000 40,000 50,000 60,000 60,000
125,000 37,500 50,000 62,500 75,000 75,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000 45,000 60,000 75,000 90,000 90,000
200,000 45,000 60,000 75,000 90,000 90,000
225,000 45,000 60,000 75,000 90,000 90,000
250,000 45,000 60,000 75,000 90,000 90,000
- ----------------------
<FN>
(1) Benefits represent annual amounts under a five year and life benefit
payment option. A portion of the participant's primary social security
benefit will reduce the amount shown in this table. Pension benefits are
currently subject to a statutory maximum of $120,000, subject to
cost-of-living adjustments. The maximum annual compensation on which
retirement benefits may be calculated is limited to $150,000.
</FN>
</TABLE>
A-86
<PAGE>
Mr. Whittaker had 3.5 years of credited service under the Pension Plan as of
March 31, 1995. Mr. Whittaker's termination of employment on March 31, 1995 was
prior to his completion of five years of service required for the vesting of
benefits. Messrs. Caswell and Byrd have 4.25 and 10.25 years, respectively, of
credited service under the Pension Plan as of December 31, 1995. Messrs.
Caswell's and Byrd's annual accrued benefit payable at age 65 under the Pension
Plan is $5,937 and $8,492, respectively, determined as of December 31, 1995. The
compensation of Messrs. Caswell and Byrd covered by the Pension Plan for 1995
consists of their respective base salary as set forth in the Summary
Compensation Table. See "Executive Compensation -- Cash Compensation."
Compensation of Directors
During 1995, there were no fees or other forms of compensation earned by or paid
to directors of the Company for any service provided as a director of the
Company. The Company has not made and does not anticipate making any payments to
directors for 1996. During 1995, each non-employee director of the Bank received
a quarterly retainer of $1,250 and a monthly aggregate meeting fee of $250
provided that at least one meeting of the Board of Directors of the Bank was
held during the month. No amounts were paid to non-employee directors of the
Bank for meetings of committees on which such directors served. Employee
directors of the Bank receive no additional compensation for serving as
directors or committee members of the Bank.
A deferred compensation plan (the "Deferred Compensation Plan") was established
in 1987 for members of the Board of Directors of the Company and non-employee
directors of the boards of subsidiaries of the Company. Under the Deferred
Compensation Plan, each participant has the right to elect to defer a portion of
his or her annual directors' fees, with amounts deferred credited monthly with
interest at an annual rate which is determined prior to the beginning of each
calendar year. For 1995, the interest rate was 5.60% and for 1996, is 7.23%.
Payment of amounts credited is available to participants by a lump sum or a
designated number of monthly installments, which number may not be less than 12
nor more than 120. For 1995, no director of the Bank elected to defer any
portion of his director fees.
Employment Agreements
In December 1994, the Bank entered into employment protection agreements (the
"Employment Protection Agreements") with each of Messrs. Caswell and Byrd, which
superseded the employment protection agreements entered into with each of such
executive officers in December 1993. The Employment Protection Agreements were
amended in April 1995 to reflect the new titles of Messrs. Caswell and Byrd. The
initial term of the Employment Protection Agreements expires December 31, 1996
and may be renewed by the written agreement of the Bank and the executive
officer. In the event of a termination of the executive officer's employment
during the term of the Employment Protection Agreement by the Bank without
"cause" or by the executive officer for "good reason" (in each case as defined
therein), the executive officer is entitled to receive a lump sum cash payment
equal to one year's "current compensation," plus $12,000 reduced by the
aggregate amount of any "performance bonuses" that have been paid to the
executive officer as of the date of such termination. "Current compensation" is
equal to (i) the executive officer's salary at the annual rate in effect at the
time of his termination, but not less than the amount paid to the officer during
the 12-month period
A-87
<PAGE>
preceding his termination, (ii) any bonuses (other than performance bonuses)
paid to the officer during the 12-month period prior to his termination and
(iii) any deferred compensation credited to his account as of December 31 of the
year preceding his termination. "Performance bonuses" means $3,000 payable on
December 31, 1994, $3,000 payable on April 30, 1995, $3,000 payable on August
31, 1995 and $3,000 payable on December 31, 1995, provided that the executive
officer continues to be employed by the Bank on the applicable date. The
Employment Protection Agreements provide that the executive officer is required
to give the Bank at least 90 days written notice before he voluntarily
terminates his employment with the Bank (other than for "good reason").
In December 1994, the Bank entered into an employment agreement (the "Whittaker
Employment Agreement") with Mr. Whittaker, which superseded the employment
agreement entered into with Mr. Whittaker in December 1993. The Whittaker
Employment Agreement terminated effective upon the resignation of Mr. Whittaker
on March 31, 1995.
Under the terms of the Whittaker Employment Agreement, Mr. Whittaker was
employed as Chairman, President and Chief Executive Officer of the Bank. The
initial term of employment was for a two-year period expiring December 31, 1996.
Pursuant to the Whittaker Employment Agreement and during the term thereof, Mr.
Whittaker's annual salary was $225,000, and he was entitled to receive certain
"performance bonuses" totaling up to $60,000. Such performance bonuses were paid
or were payable as follows: (i) $12,500 upon the execution of the Whittaker
Employment Agreement, (ii) $10,000 on January 31, 1995, (iii) $12,500 on April
30, 1995, (iv) $12,500 on August 31, 1995 and (v) $12,500 on December 31, 1995,
provided that Mr. Whittaker continued to be employed by the Bank on the
applicable date. In addition, the Whittaker Employment Agreement provided, among
other things, for Mr. Whittaker to participate in any discretionary bonus,
retirement, stock option, employee stock ownership, stock purchase and other
employee benefit plans applicable to employees generally. The Bank agreed to pay
or reimburse Mr. Whittaker for rental of a furnished apartment within 50 miles
of the Bank's operations center in Westbrook and for travel expenses from his
residence in Connecticut to Maine, as well as reimbursement of certain taxes.
Under the Whittaker Employment Agreement, Mr. Whittaker's employment could be
terminated at any time, but any termination other than for "cause" (as defined
therein), required not less than 90 days written notice and the Bank would be
obligated to make a lump sum cash payment equal to Mr. Whittaker's annual
salary, including unpaid performance bonuses. Mr. Whittaker would also be
entitled to retirement, employee benefits and other existing fringe benefits for
twelve months following such termination and outplacement expenses. If the Bank
terminated Mr. Whittaker's employment or Mr. Whittaker terminated his employment
in connection with or within one year after a "change in control," such
termination would be treated as a termination of Mr. Whittaker without "cause"
entitling Mr. Whittaker to the foregoing payments as liquidated damages. A
"change of control" would be deemed to occur if (i) the Bank was acquired by
means of a cash tender or exchange offer, merger, sale of assets or other
business combination transaction (collectively, "Acquisition Transaction"), (ii)
any person, other than the FDIC, became the beneficial owner of more than 25% of
the total number of outstanding voting shares of the Bank or (iii) as a result
of an Acquisition Transaction, the individuals who were directors of the Bank
immediately before such transaction ceased to constitute at least a majority of
the Board of the Bank or any successor Company.
A-88
<PAGE>
In the event of Mr. Whittaker's death, the Whittaker Employment Agreement
provided that the Company would pay to the beneficiary of Mr. Whittaker, or in
the absence of a designated beneficiary, to the estate of Mr. Whittaker, the sum
of (i) $60,000 less the aggregate amount of performance bonuses paid through the
date of his death, plus (ii) any unpaid salary or bonus (other than a
performance bonus) payable before the time of his death.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Stock Owned by Management
The following table sets forth information as of December 31, 1995 with respect
to the amount of Common Stock beneficially owned by each director of the
Company, by each of the named executives officers, and by all directors and
executive officers of the Company as a group. This information is based on
information furnished to the Company by such persons.
<TABLE>
<CAPTION>
Amount and Nature of Percent of Common
Name Beneficial Ownership (1)(2) Stock Outstanding
- ---- --------------------------- -----------------
<S> <C> <C>
Dennis D. Byrd
Treasurer 10(3) *
Gregory T. Caswell
President and Chief Executive Officer - -
James H. Whittaker
President and Chief Executive Officer (4) 3,376(5) *
Roger E. Klein
Director 102 *
Normand E. Simard
Chairman of the Board 822 *
Edward K. Simensky
Director 205 *
Charles A. Stewart III
Director 308(3) *
All directors and executive officers
as a group (6 persons) 1,447(6) *
- -------------------
<FN>
*Less than 1% of shares outstanding.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is considered to "beneficially own" shares (i) over which he has or
shares voting or investment power or (ii) of which he has the right to
acquire beneficial ownership at any time within 60 days of December 31,
1995. As used herein, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(2) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(3) Consists of options which are presently exercisable.
(4) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
(5) Includes 2,900 shares held jointly by Mr. Whittaker and his wife and a
total of 49 shares held by Mr. Whittaker on behalf of certain of his
children. Does not include a total of 49 shares held by Mr. Whittaker's
father on behalf of certain of his grandchildren.
(6) Includes a total of 318 options which are presently exercisable.
</FN>
</TABLE>
A-89
<PAGE>
Principal Holders of Common Stock
The following table sets forth information as of December 31, 1995 with respect
to the ownership of Common Stock by each person believed by management to be the
beneficial owner of more than 5% of the outstanding Common Stock. The historical
information set forth below is based on the most recent Schedule 13D filed on
behalf of each such person with the SEC.
<TABLE>
<CAPTION>
Amount and Percent of
Name and Address of Nature of Beneficial Common Stock
Beneficial Owner Ownership (1) Outstanding
---------------- ------------- -----------
<S> <C> <C>
Angelina J. McGillivray.......................... 56,416 (2) 9.4%
195 Ethan Drive
Windsor, Connecticut 06095
Jonathan Googel ........................... 31,050 (3) 5.2
Ben Sisti
65 Kane Street
West Hartford, Connecticut 06119
- ------------------------
<FN>
(1) Adjusted to reflect the one for ten reverse stock split effective May 31,
1995.
(2) A Schedule 13D dated May 15, 1992 states that Ms. McGillivray has sole
voting and dispositive power over such shares.
(3) An Amendment No.5 to Schedule 13D filed on February 5, 1988 ("Amendment No.
5") states that Messrs. Googel and Sisti have shared voting power and
shared dispositive power over 31,050 shares. Amendment No. 5 further states
that Mr. Googel has sole voting and sole dispositive power over an
additional 3,000 shares. Amendment No. 5 also states that Mr. Sisti has
sole voting and sole dispositive power over an additional 1,300 shares.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the 1995 fiscal year, the Bank paid Futures Strategies Corporation
("FSC"), which is owned by Mr. Klein and of which he is President, $1,500 per
month for general investment services. There is no written contract between the
Bank and FSC with respect to the payment of such fees to, and the provision of
such services by, FSC.
A-90
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of First Coastal
Corporation and Subsidiary, included at Item 8:
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1995
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1995
Notes to Consolidated Financial Statements--December 31, 1995
Report of Independent Accountants
(a)(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(a)(3) Exhibits. The following exhibits are either filed as part of this Report
or are incorporated herein by reference:
Exhibit No. 3 Articles of Incorporation and Bylaws
3.1(i) Restated Articles of Incorporation (filed herewith).
3.1(ii) Amended and Restated Bylaws (filed herewith).
Exhibit No. 10 Material Contracts
10.1 Suffield Financial Corporation Stock Option Plan and Suffield Bank
Stock Option Plan (filed as Exhibits 4.5 and 4.6, respectively, to the Company's
Registration Statement on Form S-8, File No. 33-11400, and incorporated herein
by reference).
10.2 Coastal Savings Bank Stock Option Plan (filed as Exhibit 4.7 to
Post-Effective Amendment No. 1 on Form S-8 to Form S-4, File No. 33-10189, and
incorporated herein by reference).
A-91
<PAGE>
10.3 First Coastal Corporation Director's Deferred Compensation Plan (filed
as Exhibit 10.13 to the Annual Report on Form 10-K for the year ended December
31, 1993, File No. 0-14087, and incorporated herein by reference.)
10.4 Amended and Restated Settlement Agreement, dated as of November 23,
1994, among First Coastal Corporation, Coastal Savings Bank and the Federal
Deposit Insurance Corporation (filed as Exhibit 99a to Current Report on Form
8-K, filed December 5, 1994, and incorporated herein by reference).
10.5 Promissory Note, dated January 31, 1995, by First Coastal Corporation
for the benefit of the Federal Deposit Insurance Corporation (filed as Exhibit
99b to Current Report on Form 8-K, filed February 13, 1995 ("1995 Form 8-K"),
and incorporated herein by reference).
10.6 Stock Pledge Agreement, dated as of January 31, 1995, between First
Coastal Corporation and the Federal Deposit Insurance Corporation (filed as
Exhibit 99c to 1995 Form 8-K, and incorporated herein by reference).
10.7 Memorandum of Understanding, among Coastal Savings Bank, the Federal
Deposit Insurance Corporation and the Maine Bureau of Banking, effective as of
November 22, 1994 (filed as Exhibit 10.16 to Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14087 ("1994 Form 10-K"), and
incorporated herein by reference).
10.8 Employment Agreement, dated December 21, 1994, between Coastal Savings
Bank and James H. Whittaker (filed as Exhibit 10.17 to 1994 Form 10-K, and
incorporated herein by reference).
10.9 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Dennis D. Byrd (filed as Exhibit 10.18 to 1994 Form
10-K, and incorporated herein by reference).
10.10 Employment Protection Agreement, dated December 21, 1994, between
Coastal Savings Bank and Gregory T. Caswell (filed as Exhibit 10.19 to 1994 Form
10-K, and incorporated herein by reference).
10.11 Purchase and Assumption Agreement, dated February 22, 1996, between
Coastal Savings Bank and Maine Bank & Trust Company (filed herewith).
10.12 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed herewith).
Exhibit No. 21 Subsidiary of the Registrant
Subsidiary of the Company (filed herewith).
Exhibit No. 27 Financial Data Schedule
Financial Data Schedule
14(b) Not applicable.
14(c) Exhibits to this Form 10-K are attached or incorporated herein by
reference as stated above.
14(d) Not applicable.
A-92
<PAGE>
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 COASTAL CORPORATION
March 29, 1996 By: /s/ Gregory T. Caswell
----------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities 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.
March 29, 1996 By: /s/ Gregory T. Caswell
----------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
March 29, 1996 By: /s/ Dennis D. Byrd
------------------
Dennis D. Byrd
Treasurer
(Principal Financial and Accounting Officer)
And by a majority of the Board of Directors of the Registrant.
March 29, 1996 By: /s/ Normand E. Simard
---------------------
Normand E. Simard
Chairman of the Board and Director
March 29, 1996 By: /s/ Roger E. Klein
------------------
Roger E. Klein
Director
March 29, 1996 By: /s/ Edward K. Simensky
----------------------
Edward K. Simensky
Director
March 29, 1996 By: /s/ Charles A. Stewart III
--------------------------
Charles A. Stewart III
Director
A-93
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Placement Agent. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
TABLE OF CONTENTS
Page
----
Summary......................................... 3
Risk Factors.................................... 18
Use of Proceeds................................. 24
The Recapitalization............................ 25
Market for Common Stock and Dividends........... 27
Capitalization.................................. 28
Determination of Subscription Price............. 29
The Offering.................................... 29
Standby Purchase Agreements..................... 35
Plan of Distribution............................ 36
Description of Capital Stock.................... 37
Available Information........................... 41
Information of Certain Documents by Reference... 42
Legal Matters................................... 42
Experts......................................... 42
Statement as to Indemnification................. 42
First Coastal Company Annual Report
on Form 10-K for the Year Ended
December 31, 1995............................. A-1
================================================================================
================================================================================
750,000 Shares
FIRST
COASTAL
CORPORATION
Common Stock
---------------------
PROSPECTUS
---------------------
First Albany Corporation
___________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with
the issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts except the SEC
Registration Fee and the NASD Filing Fee are estimated.
SEC Registration Fee............................................... $ 1,229
NASD Filing Fee ................................................. 857
Nasdaq SmallCap Stock Market Listing Fee........................... 6,351
Blue Sky Fees and Expenses......................................... *
Accounting Fees and Expenses....................................... *
Legal Fees and Expenses............................................ *
Printing and Engraving Expenses.................................... *
Registrar and Subscription Agent Fees.............................. *
Miscellaneous...................................................... *
--------
Total......................................................... $ *
========
*To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law (the
"Delaware Law"), a corporation may indemnify its directors, officers, employees
and agents and its former directors, officers, employees and agents and those
who serve, at the corporation' s request, in such capacities with another
enterprise, against expenses (including attorneys' fees), as well as judgments,
fines and settlements in nonderivative lawsuits, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. The
Delaware Law provides, however, that such person must have acted in good faith
and in a manner such person reasonably believed to be in (or not opposed to) the
best interests of the corporation and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware Law does not permit indemnification in an
action or suit by or in the right of the corporation, where such person has been
adjudged liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Company's Amended and Restated Bylaws provide for mandatory
indemnification of directors and officers on generally the same terms as
permitted by the Delaware Law. Under the Amended and Restated Bylaws, the
Company is required to advance expenses incurred by an officer or director in
defending any such action if the director or officer undertakes to repay such
amount if it is determined that the director or officer is not entitled to
indemnification. The Company has obtained directors and officers liability
insurance.
II-1
<PAGE>
Item 16. Exhibits
Exhibit
Number Exhibit Description
*5 Opinion of Morris, James, Hitchens & Williams
10(a) First Coastal Corporation Stock Option Plan and Suffield Bank
Stock Option Plan. (Filed as Exhibits 4.5 and 4.6, respectively,
to Registration Statement on Form S-8, File No. 33-11400, and
incorporated herein by reference.)
10(b) Coastal Savings Bank Stock Option Plan. (Filed as Exhibit 4.7 to
Post-Effective Amendment No. 1 on Form S-8 to Form S-4, File No.
33-10189, and incorporated herein by reference.)
10(c) First Coastal Corporation Director's Deferred Compensation Plan.
(Filed as Exhibit 10.13 to Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 0-14087, and incorporated
herein by reference.)
10(d) Amended and Restated Settlement Agreement, dated as of November
23, 1994, by and among the Company, Coastal Savings Bank and the
Federal Deposit Insurance Corporation. (Filed as Exhibit 99a to
Current Report on Form 8-K, filed December 5, 1994, and
incorporated herein by reference.)
10(e) Promissory Note, dated January 31, 1995, by the Company for the
benefit of the Federal Deposit Insurance Corporation. (Filed as
Exhibit 99b to Current Report on Form 8-K, filed February 13,
1995 ("1995 Form 8-K"), and incorporated herein by reference.)
10(f) Stock Pledge Agreement, dated as of January 31, 1995, by and
between the Company and the Federal Deposit Insurance
Corporation. (Filed as Exhibit 99c to 1995 Form 8-K, and
incorporated herein by reference.)
10(g) Memorandum of Understanding, dated November 22, 1994, by and
among the Board of Directors of Coastal Savings Bank, the
Superintendent of the Maine Bureau of Banking and the Regional
Director of the Boston Region of the Federal Deposit Insurance
Corporation. (Filed as Exhibit 10.16 to Annual Report on Form
10-K for the year ended December 31, 1994, File No. 0-14087
("1994 Form 10-K"), and incorporated herein by reference.)
10(h) Employment Agreement, dated as of December 21, 1994, by and
between Coastal Savings Bank and James H. Whittaker. (Filed as
Exhibit 10.17 to 1994 Form 10-K, and incorporated herein by
reference.)
10(i) Employment Protection Agreement, dated as of December 21, 1994,
by and between Coastal Savings Bank and Dennis D. Byrd. (Filed
as Exhibit 10.18 to 1994 Form 10-K, and incorporated herein by
reference.)
10(j) Employment Protection Agreement, dated as of December 21, 1994,
by and between Coastal Savings Bank and Gregory T. Caswell.
(Filed as Exhibit 10.19 to 1994 Form 10-K, and incorporated
herein by reference.)
10(k) Purchase and Assumption Agreement, dated as of February 22,
1996, between Coastal Savings Bank and Maine Bank & Trust
Company. (Filed as Exhibit 10.11 to Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 0-14087 ("1995
Form 10-K"), and incorporated herein by reference.)
II-2
<PAGE>
10(l) Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (Filed as
Exhibit 10.12 to 1995 Form 10-K, and incorporated herein by
reference.)
*10(m) Loan Agreement, dated as of __________, 1996, between the
Company and ___________.
*10(n) First Coastal Corporation 1996 Stock Option and Equity Incentive
Plan.
11 Statement regarding Computation of Per Share Earnings.
23(a) Consent of Coopers & Lybrand, L.L.P.
*23(b) Consent of Morris, James, Hitchens & Williams (included in the
legal opinion filed as Exhibit 5 hereto).
24 Powers of Attorney for the following individuals: Gregory T.
Caswell, Dennis D. Byrd, Normand E. Simard, Roger E. Klein,
Edward K. Simensky and Charles A. Stewart III (included at
Signature Page).
99(a) Form of Standby Stock Purchase Agreement.
99(b) Form of First Coastal Corporation Subscription Order Form (and
accompanying instructions).
99(c) Form of First Coastal Corporation Community Order Form (and
accompanying instructions).
*99(d) Form of Broker Assistance Agreement.
__________________________________
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the Placement Agent or
selected broker-deals during the subscription period, and the terms of any
subsequent reoffering thereof. If any public offering by the Placement Agent or
selected broker-dealers is to be made on terms differing from those set forth on
the cover page of the prospectus, a post-effective amendment will be filed to
set forth the terms of such offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westbrook, State of Maine, on this 18th day of April,
1996.
FIRST COASTAL CORPORATION
By: /s/ Gregory T. Caswell
-------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Gregory T. Caswell and Dennis
D. Byrd, jointly and severally, each in his own capacity, his true and lawful
attorneys-in-fact, with full power of substitution, for him and his name, place
and stead, in any and all capacities, to sign any amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gregory T. Caswell
- -------------------------------------- President and Chief Executive Officer April 18, 1996
Gregory T. Caswell (Principal executive officer)
/s/ Dennis D. Byrd
- -------------------------------------- Treasurer (Principal financial officer April 18, 1996
Dennis D. Byrd and principal accounting officer)
/s/ Normand E. Simard Chairman of the Board April 18, 1996
- --------------------------------------
Normand E. Simard
/s/ Roger E. Klein Director April 18, 1996
- --------------------------------------
Roger E. Klein
/s/ Edward K. Simensky Director April 18, 1996
- --------------------------------------
Edward K. Simensky
/s/ Charles A. Stewart III Director April 18, 1996
- --------------------------------------
Charles A. Stewart III
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------ ------------------- ----
<S> <C>
*5 Opinion of Morris, James, Hitchens & Williams
10(a) First Coastal Corporation Stock Option Plan and Suffield Bank
Stock Option Plan. (Filed as Exhibits 4.5 and 4.6, respectively,
to Registration Statement on Form S-8, File No. 33-11400, and
incorporated herein by reference.)
10(b) Coastal Savings Bank Stock Option Plan. (Filed as Exhibit 4.7 to
Post-Effective Amendment No. 1 on Form S-8 to Form S-4, File No.
33-10189, and incorporated herein by reference.)
10(c) First Coastal Corporation Director's Deferred Compensation Plan.
(Filed as Exhibit 10.13 to Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 0-14087, and incorporated
herein by reference.)
10(d) Amended and Restated Settlement Agreement, dated as of November
23, 1994, by and among the Company, Coastal Savings Bank and the
Federal Deposit Insurance Corporation. (Filed as Exhibit 99a to
Current Report on Form 8-K, filed December 5, 1994, and
incorporated herein by reference.)
10(e) Promissory Note, dated January 31, 1995, by the Company for the
benefit of the Federal Deposit Insurance Corporation. (Filed as
Exhibit 99b to Current Report on Form 8-K, filed February 13,
1995 ("1995 Form 8-K"), and incorporated herein by reference.)
10(f) Stock Pledge Agreement, dated as of January 31, 1995, by and
between the Company and the Federal Deposit Insurance
Corporation. (Filed as Exhibit 99c to 1995 Form 8-K, and
incorporated herein by reference.)
10(g) Memorandum of Understanding, dated November 22, 1994, by and
among the Board of Directors of Coastal Savings Bank, the
Superintendent of the Maine Bureau of Banking and the Regional
Director of the Boston Region of the Federal Deposit Insurance
Corporation. (Filed as Exhibit 10.16 to Annual Report on Form
10-K for the year ended December 31, 1994, File No. 0-14087
("1994 Form 10-K"), and incorporated herein by reference.)
10(h) Employment Agreement, dated as of December 21, 1994, by and
between Coastal Savings Bank and James H. Whittaker. (Filed as
Exhibit 10.17 to 1994 Form 10-K, and incorporated herein by
reference.)
10(i) Employment Protection Agreement, dated as of December 21, 1994,
by and between Coastal Savings Bank and Dennis D. Byrd. (Filed
as Exhibit 10.18 to 1994 Form 10-K, and incorporated herein by
reference.)
<PAGE>
10(j) Employment Protection Agreement, dated as of December 21, 1994,
by and between Coastal Savings Bank and Gregory T. Caswell.
(Filed as Exhibit 10.19 to 1994 Form 10-K, and incorporated
herein by reference.)
10(k) Purchase and Assumption Agreement, dated as of February 22,
1996, between Coastal Savings Bank and Maine Bank & Trust
Company. (Filed as Exhibit 10.11 to Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 0-14087 ("1995
Form 10-K"), and incorporated herein by reference.)
10(l) Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (Filed as
Exhibit 10.12 to 1995 Form 10-K, and incorporated herein by
reference.)
*10(m) Loan Agreement, dated as of __________, 1996, between the
Company and -----------.
*10(n) First Coastal Corporation 1996 Stock Option and Equity Incentive
Plan.
11 Statement regarding Computation of Per Share Earnings.
23(a) Consent of Coopers & Lybrand, L.L.P.
*23(b) Consent of Morris, James, Hitchens & Williams (included in the
legal opinion filed as Exhibit 5 hereto).
24 Powers of Attorney for the following individuals: Gregory T.
Caswell, Dennis D. Byrd, Normand E. Simard, Roger E. Klein,
Edward K. Simensky and Charles A. Stewart III (included at
Signature Page).
99(a) Form of Standby Stock Purchase Agreement.
99(b) Form of First Coastal Corporation Subscription Order Form (and
accompanying instructions).
99(c) Form of First Coastal Corporation Community Order Form (and
accompanying instructions).
*99(d) Form of Broker Assistance Agreement.
__________________________________
* To be filed by amendment.
2
<PAGE>
Exhibit 11
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
First Coastal Corporation
Earnings Per Share Calculation
Proforma
Year Ended Year Ended Year Ended Year Ended
December 31, 1993 December 31, 1994 December 31, 1995 December 31, 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $747,851 ($8,901,655) $1,660,437 $1,660,437
Weighted average shares outstanding 600,361 600,361 600,361 660,361
Shares issued in stock offering -- -- -- 750,000
---------------------------------------------------------------------------------
600,361 600,361 600,361 1,350,361
---------------------------------------------------------------------------------
Earnings per share $1.25 ($14.83) $2.77 $1.23
=================================================================================
</TABLE>
<PAGE>
Exhibit 23.(a)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 of our
report dated February 5, 1996, on our audits of the consolidated financial
statements of First Coastal Corporation and subsidiary as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995.
We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
Portland, Maine
April 18, 1996
<PAGE>
Exhibit 99(a)
<PAGE>
Exhibit 99(a)
FORM OF STANDBY STOCK PURCHASE AGREEMENT
_________________________________________
THIS STANDBY STOCK PURCHASE AGREEMENT (the "Agreement"), made and
entered into as of this ________ day of ____, 1996, by and between First Coastal
Corporation, a Delaware corporation (the "Company"), and __________________, a
________________ corporation [if a partnership, insert ______ a (limited)
partnership organized under the laws of] [if a trust insert________ as trustee
(the "Trustee") of the _______ Trust] [and if in an advisory capacity, insert
___________ as agent for ______________ and certain other of its advisory
clients (the "Purchaser")].
WITNESSETH
WHEREAS, the Company is offering for sale (the "Offering") 750,000
shares (the "Shares") of its Common Stock, $1.00 par value per share (the
"Common Stock");
WHEREAS, a total of [____] of the Shares are being offered pursuant to
a rights offering to the Company's existing stockholders (the "Rights
Offering");
WHEREAS, the Shares being offered in the Rights Offering are being
offered on a nontransferable, priority basis to holders of record ("Record Date
Holders") of the Common Stock as of the close of business on ___ ___, 1996 (the
"Record Date") in proportion to their respective ownership of Common Stock then
outstanding;
WHEREAS, concurrently with the Rights Offering, the Company is offering
for sale to the general public all shares not otherwise subscribed for in the
Rights Offering or purchased by Standby Purchasers (the "Community Offering"),
as described below.
WHEREAS, the Purchaser desires to, and by these presents hereby does,
agree to serve as a standby purchaser for a specified number of the Shares, if
available upon the expiration of the Rights Offering and the Community Offering,
and agrees to purchase a minimum number of the Shares, as set forth herein;
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration the receipt and sufficiency of all of which is
hereby acknowledged, the parties hereto agree as follows:
1. OFFERING; REGISTRATION OF THE COMMON STOCK
__________________________________________
A registration statement and amendments thereto on Form S-2 (the
"Registration Statement") with respect to the Offering have been filed with the
Securities and Exchange
<PAGE>
Commission (the "Commission"). The offer and sale of the Shares proposed to be
issued and sold to the Purchaser are being registered pursuant to the
Registration Statement. A copy of the ____ ______, 1996 Preliminary Prospectus,
and the Prospectus included in the Registration Statement at the time the
Registration Statement became effective, have been furnished to the Purchaser.
2. PURCHASE AND DELIVERY OF SHARES
_______________________________
A. Subject to the terms, conditions and limitations herein set forth
and to the availability of Shares after the expiration of the Rights Offering
and the Community Offering, the Purchaser hereby agrees to purchase from the
Company, at the Subscription Price per share, ______ Shares (the "Maximum
Standby Purchase Commitment").
B. Subject to the terms and conditions herein set forth, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, at the Subscription Price, ______ Shares
irrespective of whether any Shares remain unsold after the expiration of the
Rights Offering and the Community Offering (the "Minimum Standby Obligation").
C. The Purchaser and the Company hereby acknowledge and agree that the
Company has entered into, or contemplates entering into, one or more other
standby stock purchase agreements ("Standby Stock Purchase Agreements") with
certain other parties (collectively with the Purchaser, the "Standby
Purchasers") on terms substantially similar to this Agreement except that they
may provide for the purchase of a different Maximum Standby Purchase Commitment
and a different Minimum Standby Obligation.
D. In the event that the number of Shares remaining after the
expiration of the Rights Offering and the Community Offering is less than the
aggregate Maximum Standby Purchase Commitments of Standby Purchasers, such
remaining Shares will first be allocated among Standby Purchasers in
satisfaction of any Minimum Standby Obligations and any further remaining Shares
will be allocated pro rata among Standby Purchasers according to their
respective Maximum Standby Purchase Commitment. Subject to the terms and
conditions herein set forth, the Purchaser agrees to purchase such number of
Shares as are allocated to the Purchaser pursuant to this Agreement.
E. The rights and obligations of the Purchaser and the Company
hereunder are not contingent on the consummation of the transactions
contemplated in any other Standby Stock Purchase Agreement, provided however
that neither the Purchaser nor the Company shall be obligated to consummate the
transactions contemplated by this Agreement unless all of the Shares are sold in
the Offering.
<PAGE>
3. THE CLOSING
___________
As soon as practicable following its determination of the number of
Shares subscribed for pursuant to the Rights Offering and the Community
Offering, the Company shall notify the Purchaser of the number of Shares to be
purchased by the Purchaser pursuant to Section 2. The delivery of the Shares
against payment therefor in the manner contemplated by Section 4, shall take
place at the offices of the Company, at 10:00 a.m., Eastern time, simultaneously
with the closing of the sale of Shares pursuant to the Rights Offering and the
Community Offering, such time and date to be not more than five business days
after the foregoing notification and to be specified therein (the "Closing
Time", the date of the Closing Time being referred to as the "Closing Date" and
the consummation of the transactions being referred to as the "Closing").
4. DELIVERY OF SHARES
__________________
At the Closing, the Shares to be purchased by the Purchaser hereunder,
registered in the name of the Purchaser or its nominee, as the Purchaser may
specify to the Company in writing at least four (4) business days prior to the
Closing Date, shall be delivered by or on behalf of the Company to the
Purchaser, for the Purchaser's account, against delivery by the Purchaser of the
Subscription Price therefor, in immediately available funds in the form of one
or more federal funds checks or a wire transfer to an account designated by the
Company to the Purchaser in writing prior to the Closing Date.
5. AGREEMENTS AND CONSENTS OF PURCHASERS
_____________________________________
The Purchaser hereby agrees with the Company as follows:
A. The Purchaser acknowledges and agrees that, notwithstanding anything
to the contrary herein contained or implied, the Company shall not be obligated
to issue to the Purchaser any Shares in an amount which, when aggregated with
other shares of Common Stock beneficially owned by the Purchaser, would exceed
4.9% of the total issued and outstanding shares of Common Stock upon completion
of the Offering.
B. The Purchaser acknowledges and agrees that the Company may in its
sole discretion decline to issue any of the Shares to the Purchaser hereunder
if, in the opinion of the Company, the Purchaser is required to obtain prior
clearance or approval of such transaction from any state or federal bank
regulatory authority and if such approval or clearance has not been obtained or
if satisfactory evidence thereof has not been presented to the Company by the
Closing Date.
<PAGE>
C. The Purchaser acknowledges that the Company will rely upon and
disclose the terms of this Agreement and Purchaser consents to the disclosure of
this Agreement in whole or in summary in the Prospectus and the Registration
Statement, or in any amendment or supplement thereto, and in any related filing
or disclosures of the Company.
6. REPRESENTATION AND WARRANTIES
_____________________________
A. The Company hereby represents and warrants to the Purchaser as
follows:
(i) The Company has filed the Registration Statement with
the Commission with respect to the Shares.
(ii) The Company has been duly incorporated and is an
existing corporation in good standing under the laws
of the state of Delaware, with the corporate power
and authority to perform its obligations under this
Agreement.
(iii) The execution, delivery and performance of this
Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate
action of the Company, and this Agreement, when duly
executed and delivered by the Purchaser, will
constitute a valid and legally binding agreement of
the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting
creditors' rights and to general equity principles.
(iv) The Shares, when issued and delivered by the Company
against payment therefor as contemplated hereby, will
be validly issued, fully paid and nonassessable.
(v) The aggregate number of shares of the Company's
Common Stock that will be outstanding upon the
consummation of the Offering shall not exceed
1,350,361 shares, subject to the exercise of any
Company stock options.
<PAGE>
(vi) The execution and delivery of this Agreement, the
consummation by the Company of the transactions
contemplated hereby and the compliance by the Company
with the terms hereof do not violate the Certificate
of Incorporation or Bylaws of the Company, or result
in a breach or violation of any of the terms or
provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company is
a party or by which the Company is bound, with such
exceptions as would not have a material adverse
effect on the financial condition of the Company, or
any applicable statute or any order, judgment,
decree, rule or regulation of any court or
governmental agency or body having jurisdiction over
the Company or any of its properties or assets; and
no consent, approval, authorization, order,
registration or qualification of or with any such
court or governmental agency or body is required for
the valid authorization, execution, delivery and
performance by the Company of this Agreement, the
issuance of the Shares, or the consummation by the
Company of the other transactions contemplated by
this Agreement, except such as may be required and
have been obtained from the Federal Deposit Insurance
Corporation, the Maine Bureau of Banking, the
National Association of Securities Dealers, Inc.
("NASD") and under the Securities Act of 1933, as
amended, and such consents, approvals,
authorizations, registrations or qualifications as
have been obtained under federal and state banking,
securities or "blue sky" laws.
B. The Purchaser hereby represents and warrants to the Company as
follows:
(i) As of the date of this Agreement, the Purchaser [and
its advisory clients] beneficially own(s) ____ shares
of Common Stock and do(es) not have any short
positions in the Common Stock.
(ii) [If the Purchaser is a Corporation, insert - The
Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of
_________, with the power and authority to perform
its obligations under this Agreement.]
(iii) The execution, delivery and performance of this
Agreement by the Purchaser [or the Trustee] and the
consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all
necessary [corporate] action of the Purchaser; and
this Agreement,
<PAGE>
when duly executed and delivered by the Company, will
constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of
general applicability now or hereinafter in effect
relating to or affecting creditors' rights and to
general equity principles.
(iv) The Purchaser is not insolvent and has sufficient
cash funds on hand to purchase the Shares on the
terms and conditions contained in this Agreement and
will have such funds on the Closing Date. The
Purchaser has simultaneously with the execution and
delivery of this Agreement or prior thereto provided
the Company with evidence or substantiated that such
Purchaser has the financial means to satisfy its
financial obligations under this Agreement and the
foregoing evidence and substantiation is a true and
accurate representation of such means.
[(v) The Purchaser is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act of
1933.]
(vi) No state, federal or foreign regulatory approvals,
permits, licenses or consents or other contractual or
legal obligations are required in order for the
Purchaser [and its advisory clients] to enter into
this Agreement or otherwise purchase the shares of
Common Stock which are the subject of this Agreement.
(vii) The execution and delivery of this Agreement, the
consummation by the Purchaser [or any of its advisory
clients] of the transactions herein contemplated
hereby and the compliance by the Purchaser [and its
advisory clients] with the terms hereof do not
violate , the constituent documents of the Purchaser
[or any of its advisory clients] or result in a
breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Purchaser [or
any of its advisory clients] is a party or by which
the Purchaser [or any of its advisory clients]are
bound, or any applicable law or any order, judgment
decree, rule or regulation of any court or
governmental agency or body , having jurisdiction
over the Purchaser [or any of its advisory clients]
or any of its [or their] properties or assets; and no
consent, approval, authorization, order, registration
or qualification of or with any court or governmental
agency or body, is required for the
<PAGE>
valid authorization, execution, delivery by the
Purchaser of this Agreement or the consummation by
the Purchaser [or any of its advisory clients] of the
transactions contemplated by this Agreement .
(viii) The Purchaser [and its advisory clients] has not
entered into any contracts, arrangements,
understandings or relationships (legal or otherwise)
with any other person or persons with respect to the
securities of the Company including but not limited
to transfer or voting any of the securities, finder's
fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of
proxies; and the Purchaser does not own any
securities of the Company which are pledged or
otherwise subject to a contingency, the occurrence of
which would give another person voting power or
investment power over such securities.
(ix) Any shares to be purchased pursuant to the terms
hereof will be purchased as a passive investment in
the ordinary course of the Purchaser's business, and
the Purchaser does not have the intent to exercise a
controlling influence over the management or policies
of the Company.
7. CLOSING CONDITIONS
__________________
The respective obligations of the Purchaser [, its advisory clients]
and the Company to consummate the purchase and sale of the Shares shall be
subject, in the discretion of the Company or the Purchaser, as the case may be,
to the condition that all representations and warranties and other statements of
the other party are, at and as of the Closing Time, true and correct in all
material respects, the condition that the party shall have performed all of its
obligations hereunder theretofore to be performed in all material respects, to
the condition that all of the shares be sold in the Offering at the Closing and
to the additional condition that no stop order suspending the effectiveness of
the Registration Statement or any amendment or supplement thereto shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission.
8. TERMINATION
___________
A. This Agreement shall terminate upon mutual consent of the parties
hereto. In addition, the Company may terminate this Agreement if it is not in
material breach of its obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Purchaser.
<PAGE>
Either of the parties hereto may terminate this Agreement (i) if the
transactions contemplated hereby are not consummated by _____________, 1996,
unless such nonconsummation is a result of a breach of this Agreement by the
party seeking to terminate; or (ii) in the event the Company is unable to obtain
required federal (including, without limitation, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or the Department of Justice) or state
approvals for the transactions contemplated hereby on conditions reasonably
satisfactory to it despite its reasonable efforts to obtain such approvals.
B. The Company and the Purchaser hereby agree that any termination of
this Agreement pursuant to Section 8A (other than, in either case, termination
in the event of a breach of this Agreement by the Purchaser or misrepresentation
of any of the statements made herein by the Purchaser) shall be without
liability to the Company or the Purchaser.
9. FUTURE ACQUISITION AND DISPOSITION OF SHARES
____________________________________________
The Purchaser agrees with the Company that during the period
beginning on the date hereof and continuing until the Closing Date, it will not
offer, sell, contract to sell or otherwise dispose of, or bid for, purchase,
contract to purchase or otherwise acquire, any shares of Common Stock without
the prior written consent of the Company. In addition, for the three (3) year
period commencing on Closing Date, the Purchaser agrees with the Company that it
will not become or make any offer to become the beneficial owner of more than
4.9% of the issued and outstanding shares of Common Stock of the Company without
prior approval of the Company's Board of Directors.
10. NOTICES
_______
All communications hereunder will be in writing and, if to the Company,
will be mailed, delivered or telecopied and confirmed to it, at the offices of
the Company at 36 Thomas Drive, Westbrook, Maine 04092, Attention: Gregory T.
Caswell, Facsimile: 207-828-4680; and if to the Purchaser, will be mailed,
delivered or telecopied and confirmed to it at the offices of_____________,
Attention:________________, Facsimile:_________________.
11. BINDING EFFECT
______________
This Agreement shall be binding upon, and shall inure solely to the
benefit of, each of the parties hereto, and each of their respective heirs,
executors, administrators, successors and permitted assign, and no other person
shall acquire or have any right under or by virtue of
<PAGE>
this Agreement. No party may assign any of its rights or obligations hereunder
to any other person or entity without the prior written consent of the other
party.
12. GOVERNING LAW
_____________
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware (excluding principles of conflicts of laws) in
effect at the time of the execution hereof.
13. EXECUTION IN COUNTERPARTS
_________________________
This Agreement may be executed in any number of counterparts, each of
which counterparts when so executed shall be deemed to be an original, but all
such respective counterparts shall together constitute but one and the same
instrument.
14. ENTIRE AGREEMENT
________________
This Agreement represents the entire understanding of the parties with
respect to the matters addressed herein and supersedes all prior written and
oral understanding concerning the subject matter herein.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound thereby, each of
the Purchaser, [as agent for ____________________ and certain other of its
advisory clients], and the Company has signed or caused to be signed its name,
all as of the day and year first above written.
FIRST COASTAL CORPORATION
By:__________________________
Name: Gregory T. Caswell
Title: President and Chief Executive
Officer
PURCHASER
By: ________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
Exhibit 99(b)
<PAGE>
Exhibit 99(b)
FIRST COASTAL CORPORATION
SUBSCRIPTION ORDER FORM
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING (THE "RIGHTS OFFERING")
ARE SET FORTH IN THE PROSPECTUS RELATING TO THE OFFERING (THE "OFFERING") OF
750,000 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "SHARES"), OF
FIRST COASTAL CORPORATION (THE "COMPANY") DATED ______________, 1996 (THE
"PROSPECTUS"), AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY OR FIRST ALBANY
CORPORATION (AS DISCUSSED BELOW). CAPITALIZED TERMS USED HEREIN, AND NOT
OTHERWISE DEFINED, SHALL HAVE THEIR RESPECTIVE DEFINED MEANINGS AS SET FORTH IN
THE PROSPECTUS. ALL RECORD DATE HOLDERS ARE URGED TO READ THE PROSPECTUS
CAREFULLY.
THIS SUBSCRIPTION ORDER FORM MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED BELOW,
WITH PAYMENT IN FULL BY 5:00 P.M., EASTERN TIME, ON _________________, 1996,
UNLESS EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME TO A
DATE NOT LATER THAN 5:00 P.M., EASTERN TIME, ON _________________, 1996 (THE
"EXPIRATION DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY PURPORTED
EXERCISE OF RIGHTS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE,
REGARDLESS OF WHEN THE DOCUMENTS RELATING TO THAT SUBSCRIPTION WERE SENT. AFTER
THE EXPIRATION DATE, THE RIGHTS WILL NO LONGER BE EXERCISABLE.
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION AGENT
FROM RECORD DATE HOLDERS MAY NOT BE REVOKED.
The registered Record Date Holder whose name is inscribed hereon is
entitled to subscribe for the number of Shares for each right evidenced above
upon the terms and subject to the conditions set forth in the Prospectus and the
instructions relating hereto.
THE METHOD OF DELIVERY OF SUBSCRIPTION ORDER FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
RECORD DATE HOLDERS. IF SUBSCRIPTION ORDER FORMS AND PAYMENTS ARE SENT BY MAIL,
RECORD DATE HOLDERS ARE URGED TO SEND SUCH MATERIALS BY CERTIFIED MAIL AND ARE
URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE
SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE.
The Company reserves the right to reject subscriptions received in the
Offering in whole or in part at the sole discretion of the Board of Directors of
the Company or at the request or direction of regulatory authorities.
Certificates or order confirmations representing Shares purchased will
be delivered to Record Date Holders as soon as practicable after the Expiration
Date and after all prorations and reductions contemplated by the terms of the
Offering have been effected. If the Offering has not been consummated within 30
days following the Expiration Date, the Offering will be terminated and all
amounts submitted by Record Date Holders will be returned without interest.
Purchases of shares of Common Stock of the Company, including purchases
pursuant to the Rights Offering, are subject to certain limitations. See the
Prospectus under "The Offering -- Limitations on Purchase of Stock" and
"Description of Capital Stock."
Subscriptions to purchase Shares in the Rights Offering may be made by
properly completing and executing this Subscription Order Form and by delivering
it to the Subscription Agent with payment in full on or before the Expiration
Date. Any questions or requests for assistance concerning the method of
exercising rights, submissions of Subscription Order Forms or requests for
additional copies of the Prospectus should, be directed to Dennis D. Byrd,
Treasurer of the Company, at (207) 774-5000, or John H. Howland, Vice President
of First Albany Corporation, at (617) 228-3076.
<PAGE>
IMPORTANT: Complete the appropriate sections of this Subscription Order Form
and, if applicable, delivery instructions, and SIGN AND DATE.
SUBSCRIPTION PRICE: $______ PER SHARE
The instructions accompanying this Subscription Order Form should be
read carefully and followed in detail. SUBSCRIPTION ORDER FORMS SHOULD BE SENT
WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION ORDER FORMS TO
THE COMPANY.
PART 1 -- EXERCISES AND SUBSCRIPTION FOR SHARES IN THE RIGHTS OFFERING.
The undersigned hereby irrevocably exercises one or more whole rights
to subscribe for Shares as indicated below, on the terms and subject to the
conditions specified in the Prospectus, receipt of which hereby is acknowledged.
No fractional rights have been issued and no fractional rights may be exercised.
(a) Number of Shares subscribed for pursuant to
Stockholder Subscription Privilege: ______________
(b) Aggregate Subscription Price (number of Shares on
line (a) multiplied by the Subscription Price of
$______):(1)
$______________
__________________
1 If an exercising Record Date Holder does not indicate the number of
rights being exercised, or does not forward full payment of the
aggregate Subscription Price for the number of rights that the Record
Date Holder indicates are being exercised, then the Record Date Holder
will be deemed to have exercised the Stockholder Subscription Privilege
with respect to the maximum number of rights exercisable by the Record
Date Holder that may be exercised for the aggregate payment delivered
by the Record Date Holder (subject to reduction to comply with certain
limitations on the purchase of the Company's Common Stock or the
conditions of the Offering). Any amount remaining after application of
the foregoing procedures will be returned to the Record Date Holder
promptly by mail without interest or deduction.
PART 2 -- METHOD OF PAYMENT.
Payment may be made to the Subscription Agent only (i) by check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of accepting subscriptions at
___________, ABA number ________, account number _________, Attn:
_______________. The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the Subscription Agent's account designated
above. FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS
DAYS TO CLEAR. ACCORDINGLY, RECORD DATE HOLDERS WHO WISH TO PAY THE SUBSCRIPTION
PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS
RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE,
PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
All funds received in payment of the Subscription Price will be held by
the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or agency thereof or money market mutual funds investing in the
foregoing instruments. The account in which such funds will be held may not be
insured by the FDIC. Any interest earned on such funds will be retained by the
Company and will not be returned to the Record Date Holders or otherwise applied
to their purchase of Shares.
<PAGE>
THIS SUBSCRIPTION ORDER FORM, TOGETHER WITH THE PAYMENT OF THE
SUBSCRIPTION PRICE, MUST BE DELIVERED TO THE SUBSCRIPTION AGENT AS FOLLOWS:
If by regular mail: c/o Chemical Mellon Shareholder Services
Post Office Box 845
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services
120 Broadway, 13th Floor
New York, New York
The Subscription Agent's toll free telephone number is (800) 777-3674.
If a Record Date Holder wishes to exercise rights, but time will not
permit such Record Date Holder to cause the Subscription Order Form to reach the
Subscription Agent prior to the Expiration Date, such rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) the Record Date Holder has caused payment in full in good funds of
the Subscription Price for each Share being subscribed for to be received (in
the manner set forth above) by the Subscription Agent at or prior to the
Expiration Date;
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Subscription Order Form
(the "Instructions") distributed with this Subscription Order Form, from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or from a commercial bank or
trust company having an office or correspondent in the United States, stating
the name of the exercising Record Date Holder, the number of Shares being
subscribed for by the Record Date Holder, and guaranteeing the delivery to the
Subscription Agent of a Subscription Order Form within five (5) business days of
the Subscription Agent's receipt of such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed
Subscription Order Form with any signatures guaranteed as required, within five
(5) business days of the Subscription Agent's receipt of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription Order
Forms at the addresses set forth above, or may be transmitted to the
Subscription Agent by telegram or facsimile transmission (telecopier no. (___)
___________). Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from Dennis D. Byrd, Treasurer of the Company, or from
John H. Howland, Vice President of First Albany Corporation.
<PAGE>
PART 3 - STOCK REGISTRATION.
________________________________________________________________________________
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number_____________________________
________________________________________________________________________________
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number
________________________________________________________________________________
Address
________________________________________________________________________________
City State Zip Code
Indicate below the manner in which you wish to take ownership by
checking the appropriate box. If necessary, check "other" and write in such
ownership, such as, for example, corporate, trust or estate. If stock is
purchased for a trust, the date of the trust agreement and trust title must be
included.
_____ Individual _____ Uniform Gifts to Minors
_____ Tenants in Common _____ Joint Tenants
_____ Other ____________________________________________________
PART 4 -- SPECIAL DELIVERY INSTRUCTIONS.
To be completed ONLY if certificate representing the common stock is to
be sent to an address other than that of the registered holder.
Mail and deliver to:
Name: _________________________________________________________
(Please Print)
Address: _________________________________________________________
_________________________________________________________
_________________________________________________________
(Include Zip Code)
_________________________________________________________
(Social Security Number or Tax Identification Number)
PART 5 -- SIGNATURE AND ACKNOWLEDGMENT.
Unless this Subscription Order Form (i) provides that the Shares to be
issued pursuant to the exercise of the Rights represented hereby are to be
issued to the holder of such rights or (ii) is submitted for the account of an
Eligible Institution (as defined below), signatures on this Subscription Order
Form must be guaranteed by a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association participating in a medallion guarantor program. An "Eligible
Institution" for this purpose is a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust corporation having an office or
correspondent in the United States.
<PAGE>
IMPORTANT: SIGN HERE
The undersigned hereby irrevocably subscribes for Shares in the Rights
Offering as indicated herein, on the terms and subject to the conditions
specified in the Prospectus, receipt of which hereby is acknowledged.
________________________________________ __________________________________
(Print Name) (Print Name)
________________________________________ __________________________________
(Signature(s) of Subscriber(s)) (Subscriber(s))
Dated: _________________________, 1996
(If signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary or representative capacity, please provide the following
information.)
Name(s)________________________________________________________________________
(Please Print)
Capacity (Full Title)__________________________________________________________
Address________________________________________________________________________
(Including Zip Code)
Social Security Number or Tax Identification Number____________________________
<PAGE>
INSTRUCTIONS AS TO USE OF
SUBSCRIPTION ORDER FORMS
__________________________
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
OR IF YOU REQUIRE ASSISTANCE OR ADDITIONAL COPIES
OF THE PROSPECTUS, PLEASE CONTACT DENNIS D. BYRD,
TREASURER OF THE COMPANY, AT (207) 774-5000, OR
JOHN H. HOWLAND, VICE PRESIDENT OF
FIRST ALBANY CORPORATION, AT (617)228-3076.
The following instructions relate to the Rights Offering (the "Rights
Offering") by First Coastal Corporation, a Delaware corporation (the "Company"),
to the holders of its Common Stock, par value $1.00 per share, as described in
the Company's Prospectus dated __________ __, 1996 (the "Prospectus"). The
shares being offered in the Rights Offering (the "Shares") are being offered to
holders of record ("Record Date Holders") of Common Stock of the Company at the
close of business on __________ __, 1996 (the "Record Date") in proportion to
their respective ownership of Common Stock of the Company then outstanding. Each
Record Date Holder has received one nontransferable right (the "Right" or
"Rights") for each ____ shares of Common Stock of the Company held of record on
the Record Date (the "Stockholder Subscription Privilege"), and each Right
entitles the holder thereof to subscribe for one Share of Common Stock of the
Company at a price of $______ per share (the "Subscription Price"). The
Stockholder Subscription Privilege is not transferable. The Subscription Price
is payable as described below. See "The Offering" in the Prospectus.
SUBSCRIPTION ORDER FORMS MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED BELOW,
WITH PAYMENT IN FULL BY 5:00 P.M., EASTERN TIME, ON _________________, 1996,
UNLESS EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME TO A
DATE NOT LATER THAN 5:00 P.M., EASTERN TIME, ON _________________, 1996 (THE
"EXPIRATION DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY PURPORTED
EXERCISE OF RIGHTS RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE,
REGARDLESS OF WHEN THE DOCUMENTS RELATING TO THAT EXERCISE WERE SENT. AFTER THE
EXPIRATION DATE, THE RIGHTS WILL NO LONGER BE EXERCISABLE.
The number of Rights to which you are entitled is printed on your
Subscription Order Form. You may exercise your Rights by properly completing and
signing the Subscription Order Form and by delivering it to the Subscription
Agent with payment in full on or before the Expiration Date.
The Company reserves the right to reject subscriptions received in the
Offering in whole or in part at the sole discretion of the Board of Directors of
the Company or at the request or direction of regulatory authorities.
1. Subscription Privileges.
To Exercise Rights. To exercise your Rights, properly complete and sign
your Subscription Order Form, with any signatures guaranteed as required, and
send it to the Subscription Agent with payment in full of the Subscription Price
for each Share subscribed for pursuant to the Stockholder Subscription
Privilege.
Payment. Payment may be made to the Subscription Agent only (i) by
check or cashier's check drawn upon a U.S. bank, or postal, telegraphic or
express money order, in each case, payable to Chemical Mellon Shareholder
Services, as Subscription Agent, or (ii) by wire transfer of funds to the
account maintained by the Subscription Agent for the purpose of accepting
subscriptions at ___________, ABA number ________, account number _________,
Attn: _______________. The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) clearance of any uncertified
check, (ii) receipt by the Subscription Agent of any certified check or
cashier's check drawn upon a U.S. bank or of any postal, telegraphic or express
money order or (iii) receipt of collected funds in the Subscription Agent's
account designated above. FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE
<PAGE>
AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, RECORD DATE HOLDERS WHO WISH
TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED
TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT
SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN
THE ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER
OR WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be held by
the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or agency thereof or money market mutual funds investing in the
foregoing instruments. The account in which such funds will be held may not be
insured by the Federal Deposit Insurance Corporation. Any interest earned on
such funds will be retained by the Company and will not be returned to the
Record Date Holders, or otherwise applied to their purchase of Shares.
If an exercising Record Date Holder does not indicate the number of
Rights being exercised, or does not forward full payment of the aggregate
Subscription Price for the number of Rights that the Record Date Holder
indicates are being exercised, then the Record Date Holder will be deemed to
have exercised the Stockholder Subscription Privilege with respect to the
maximum number of Rights exercisable by the Record Date Holder that may be
exercised for the aggregate payment delivered by the Record Date Holder (subject
to reduction to comply with certain limitations on the purchase of the Company's
Common Stock or the conditions of the Offering). Any amount remaining after
application of the foregoing procedures will be returned to the Record Date
Holder promptly by mail without interest or deduction.
If a Record Date Holder wishes to exercise Rights, but time will not
permit such Record Date Holder to cause the Subscription Order Form to reach the
Subscription Agent prior to the Expiration Date, such Rights may nevertheless be
exercised if all of the following conditions (the "Guaranteed Delivery
Procedures") are met:
(i) the Record Date Holder has caused payment in full in good funds of
the Subscription Price for each Share being subscribed for to be received (in
the manner set forth above) by the Subscription Agent at or prior to the
Expiration Date;
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with these Instructions as to Use of Subscription Order Forms
(the "Instructions") distributed with the Subscription Order Form, from a member
firm of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or from a commercial bank or trust
company having an office or correspondent in the United States, stating the name
of the exercising Record Date Holder, the number of Shares being subscribed for
by the Record Date Holder, and guaranteeing the delivery to the Subscription
Agent of the Subscription Order Form within five (5) business days of the
Subscription Agent's receipt of such Notice of Guaranteed Delivery; and
(iii) the Subscription Agent receives the properly completed
Subscription Order Form with any signatures guaranteed as required, within five
(5) business days of the Subscription Agent's receipt of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription Order
Forms at the addresses set forth below, or may be transmitted to the
Subscription Agent by telegram or facsimile transmission (telecopier no. (___)
___________). Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from Dennis D. Byrd, Treasurer of the Company, or from
John H. Howland, Vice President of First Albany Corporation.
Limitation on Stockholder Subscription Privilege. Purchases of shares
of Common Stock of the Company, including purchases pursuant to the Rights
Offering, are subject to certain limitations. See the Prospectus under "The
Offering -- Limitations on Purchase of Stock" and "Description of Capital
Stock."
-2-
<PAGE>
2. The Subscription Agent.
The addresses and telephone number of the Subscription Agent are as
follows:
If by regular mail: c/o Chemical Mellon Shareholder Services
Post Office Box 845
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services
120 Broadway, 13th Floor
New York, New York
The Subscription Agent's toll free telephone number is (800) 777-3674.
3. Issuance and Delivery of Stock Certificate(s), Etc.
Certificates or order confirmations representing Shares purchased will
be delivered to Record Date Holders as soon as practicable after the Expiration
Date and after all prorations and reductions contemplated by the terms of the
Offering have been effected. If the Offering has not been consummated within 30
days following the Expiration Date, the Offering will be terminated and all
amounts submitted by Record Date Holders will be returned without interest.
4. Signatures.
Execution by Record Date Holder. The signature on the Subscription
Order Form must correspond with the name of the Record Date Holder exactly as it
appears on the face of the Subscription Order Form without any alteration or
change whatsoever.
Execution by Person Other than Record Date Holder. Persons who sign the
Subscription Order Form in a representative or other fiduciary capacity must
indicate their capacity when signing and, unless waived by the Company in its
sole and absolute discretion, must present to the Subscription Agent
satisfactory evidence of their authority to so act. Any other persons who sign
the Subscription Order Form must present to the Subscription Agent satisfactory
evidence of their authority to execute the Subscription Order Form unless, for
good cause, the Company dispenses with proof of authority.
Guaranteed Signatures. Unless a Subscription Order Form (i) provides
that the Shares to be issued pursuant to the exercise of the Rights represented
thereby are to be issued to the holder of such Rights or (ii) is submitted for
the account of an Eligible Institution (as defined below), signatures on each
Subscription Order Form must be guaranteed by a bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association participating in a medallion guarantor program. An
"Eligible Institution" for this purpose is a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust corporation having an
office or correspondent in the United States.
5. Method of Delivery.
The method of delivery of Subscription Order Forms and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
Record Date Holders. If Subscription Order Forms and payments are sent by mail,
Record Date Holders are urged to send such materials by certified mail
-3-
<PAGE>
and are urged to allow a sufficient number of days to ensure delivery to the
Subscription Agent and clearance of payment prior to the Expiration Date.
6. Irregularities.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscription Order Forms will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as the Company determines, in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Order Forms or
incur any liability for failure to give such notification. The Company reserves
the right to reject subscriptions received in the Offering in whole or in part
at the sole discretion of the Board of Directors of the Company or at the
request or discretion of regulatory authorities. See the Prospectus under "The
Offering -- Limitations on Purchase of Stock."
-4-
<PAGE>
Exhibit 99(c)
<PAGE>
Exhibit 99(c)
FIRST COASTAL CORPORATION
COMMUNITY ORDER FORM
THE TERMS AND CONDITIONS OF THE COMMUNITY OFFERING (THE "COMMUNITY
OFFERING") ARE SET FORTH IN THE PROSPECTUS RELATING TO THE OFFERING (THE
"OFFERING") OF 750,000 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE
"SHARES"), OF FIRST COASTAL CORPORATION (THE "COMPANY") DATED _______, 1996 (THE
"PROSPECTUS"), AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY OR FIRST ALBANY
CORPORATION (AS DISCUSSED BELOW). CAPITALIZED TERMS USED HEREIN, AND NOT
OTHERWISE DEFINED, SHALL HAVE THEIR RESPECTIVE DEFINED MEANINGS AS SET FORTH IN
THE PROSPECTUS. ALL COMMUNITY OFFERING PARTICIPANTS ARE URGED TO READ THE
PROSPECTUS CAREFULLY.
THE COMMUNITY ORDER FORM MUST BE RECEIVED BY CHEMICAL MELLON
SHAREHOLDER SERVICES (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED BELOW,
WITH PAYMENT IN FULL BY 5:00 P.M., EASTERN TIME, ON __________, 1996, UNLESS
EXTENDED BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME TO A DATE NOT
LATER THAN 5:00 P.M., EASTERN TIME, ON ___________, 1996 (THE "EXPIRATION
DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY COMMUNITY ORDER FORMS
RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE, REGARDLESS OF WHEN
THE DOCUMENTS RELATING TO THAT SUBSCRIPTION WERE SENT.
SUBSCRIPTIONS FOR SHARES WHICH ARE RECEIVED BY THE SUBSCRIPTION AGENT
FROM COMMUNITY OFFERING PARTICIPANTS MAY NOT BE REVOKED.
Community Offering Participants should be aware that the Community
Offering is subject to the prior rights of Record Date Holders in the Rights
Offering and the prior rights of Standby Purchasers with respect to the Minimum
Standby Purchase Commitment. If the Shares not subscribed for in the Rights
Offering and purchased by Standby Purchasers are not sufficient to satisfy all
orders received from Community Offering Participants, the Company reserves the
right to allocate such Shares among the Community Offering Participants. Orders
will be deemed received only upon receipt of both a properly completed Community
Order Form and full payment for the Shares for which a Community Offering
Participant has subscribed. Any excess funds paid by persons as the Subscription
Price for Shares not issued will be returned without interest or deduction as
soon as practicable following the Expiration Date. There can be no assurance
that any Shares will be available to persons desiring to participate in the
Community Offering. To subscribe for Shares in the Community Offering, the
Community Order Form must be completed and payment in full of the Subscription
Price for all Shares subscribed for must accompany the Community Order Form.
THE METHOD OF DELIVERY OF COMMUNITY ORDER FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
COMMUNITY OFFERING PARTICIPANTS. IF COMMUNITY ORDER FORMS AND PAYMENTS ARE SENT
BY MAIL, COMMUNITY OFFERING PARTICIPANTS ARE URGED TO SEND SUCH MATERIALS BY
CERTIFIED MAIL AND ARE URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE
DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE
EXPIRATION DATE.
The Company reserves the right to reject subscriptions received in the
Offering in whole or in part at the sole discretion of the Board of Directors of
the Company or at the request or direction of regulatory authorities.
Certificates or order confirmations representing Shares purchased will
be delivered to Community Offering Participants as soon as practicable after the
Expiration Date and after all prorations and reductions contemplated by the
terms of the Offering have been effected. If the Offering has not been
consummated within 30 days following the Expiration Date, the Offering will be
terminated and all amounts submitted by Community Offering Participants will be
returned without interest.
Purchases of shares of Common Stock of the Company, including purchases
pursuant to the Community Offering, are subject to certain limitations. See the
Prospectus under "The Offering -- Limitations on Purchase of Stock" and
"Description of Capital Stock."
Any questions or requests for assistance concerning submissions of
Community Order Forms or requests for additional copies of the Prospectus should
be directed to Dennis D. Byrd,
<PAGE>
Treasurer of the Company, at (207) 774-5000, or John H. Howland, Vice President
of First Albany Corporation, at (617) 228-3076.
IMPORTANT: Complete the appropriate sections of the Community Order Form and, if
applicable, delivery instructions, and SIGN AND DATE.
SUBSCRIPTION PRICE: $______ PER SHARE
The instructions accompanying this Community Order Form should be read
carefully and followed in detail. COMMUNITY ORDER FORMS SHOULD BE SENT WITH
PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND COMMUNITY ORDER FORMS TO THE
COMPANY.
PART 1 - SUBSCRIPTION FOR SHARES IN THE COMMUNITY OFFERING.
(a) Number of Shares subscribed for in the
Community Offering: __________________________
(b) Aggregate Subscription Price (number
of Shares on line (a) multiplied by the
Subscription Price of $_____): 1 __________________________
- --------------
1 If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community
Offering Participant does not specify the number of Shares subscribed
for, then the Community Offering Participant will be deemed to have
subscribed for the number of Shares which may be purchased by the full
amount of the payment tendered (subject to reduction to comply with
certain limitations on the purchase of the Company's Common Stock or
the conditions of the Offering). If the aggregate Subscription Price
paid by a Community Offering Participant exceeds the amount necessary
to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant
will be deemed to have subscribed for the number of Shares which may be
purchased by the full amount of the payment tendered (subject to
reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering).
PART 2 - METHOD OF PAYMENT.
Payment may be made to the Subscription Agent only (i) by check or
cashier's check drawn upon a U.S. bank, or postal, telegraphic or express money
order, in each case, payable to Chemical Mellon Shareholder Services, as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of accepting subscriptions at
___________, ABA number ________, account number _________, Attn:
_______________. The Subscription Price will be deemed to have been received by
the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or cashier's check
drawn upon a U.S. bank or of any postal, telegraphic or express money order or
(iii) receipt of collected funds in the Subscription Agent's account designated
above. FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS
DAYS TO CLEAR. ACCORDINGLY, COMMUNITY OFFERING PARTICIPANTS WHO WISH TO PAY THE
SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE
PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH TIME AND ARE URGED TO CONSIDER, IN THE
ALTERNATIVE, PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be held by
the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or agency thereof or money market mutual funds investing in the
foregoing instruments. The account in which such funds will be held may not be
insured by the FDIC. Any interest earned on such funds will be retained by the
Company and will not be returned to the Community Offering Participants, or
otherwise applied to their purchase of Shares.
THIS COMMUNITY ORDER FORM, TOGETHER WITH THE PAYMENT OF THE
SUBSCRIPTION PRICE, MUST BE DELIVERED TO THE SUBSCRIPTION AGENT AS FOLLOWS:
-2-
<PAGE>
If by regular mail: c/o Chemical Mellon Shareholder Services
Post Office Box 845
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services
120 Broadway, 13th Floor
New York, New York
The Subscription Agent's toll free telephone number is (800) 777-3674.
If a Community Offering Participant wishes to subscribe for Shares, but
time will not permit such Community Offering Participant to cause the Community
Order Form to reach the Subscription Agent prior to the Expiration Date, such
Shares may nevertheless be subscribed for if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) the Community Offering Participant has caused payment in full in
good funds of the Subscription Price for each Share being subscribed for to be
received (in the manner set forth above) by the Subscription Agent at or prior
to the Expiration Date;
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Community Order Forms (the
"Instructions") distributed with this Community Order Form, from a member firm
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or from a commercial bank or trust
company having an office or correspondent in the United States, stating the name
of the subscribing Community Offering Participant, the number of Shares being
subscribed for by the Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Community Order Form within five (5)
business days of the Subscription Agent's receipt of such Notice of Guaranteed
Delivery; and
(iii) the Subscription Agent receives the properly completed Community
Order Form with any signatures guaranteed as required, within five (5) business
days of the Subscription Agent's receipt of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Community Order Forms at the addresses
set forth above, or may be transmitted to the Subscription Agent by telegram or
facsimile transmission (telecopier no. (___) ___________). Additional copies of
the form of Notice of Guaranteed Delivery are available upon request from Dennis
D. Byrd, Treasurer of the Company, or from John H. Howland, Vice President of
First Albany Corporation.
PART 3 - STOCK REGISTRATION.
________________________________________________________________________________
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number_____________________________
________________________________________________________________________________
Name(s) in which your stock is to be registered Number of Shares
Social Security Number or Tax Identification Number_____________________________
________________________________________________________________________________
Address
________________________________________________________________________________
City State Zip Code
Indicate below the manner in which you wish to take ownership by
checking the appropriate box. If necessary, check "other" and write in such
ownership, such as, for example, corporate, trust or estate. If stock is
purchased for a trust, the date of the trust agreement and trust title must be
included.
-3-
<PAGE>
_____ Individual _____ Uniform Gifts to Minors
_____ Tenants in Common _____ Joint Tenants
_____ Other ____________________________________________________
PART 4 - SPECIAL DELIVERY INSTRUCTIONS.
To be completed ONLY if certificate representing the Common Stock is to
be sent to someone other than the registered holder or to an address other than
that shown above.
Mail and deliver to:
Name: __________________________________________________________
(Please Print)
Address: __________________________________________________________
__________________________________________________________
__________________________________________________________
(Include Zip Code)
__________________________________________________________
(Social Security Number or Tax Identification Number)
PART 5 - SPECIAL ISSUANCE INSTRUCTIONS.
To be completed ONLY if the name in which any certificate representing
the Common Stock is to be issued is that of someone other than the registered
holder as indicated herein.
Name(s) in which stock is to be registered.
Name: __________________________________________________________
(Please Print)
Address: __________________________________________________________
__________________________________________________________
__________________________________________________________
(Include Zip Code)
__________________________________________________________
(Social Security Number or Tax Identification Number)
PART 6 - SIGNATURE AND ACKNOWLEDGMENT.
IMPORTANT: SIGN HERE
The undersigned hereby irrevocably subscribes for Shares in the
Community Offering as indicated herein, on the terms and subject to the
conditions specified in the Prospectus, receipt of which hereby is acknowledged.
_______________________________________ ____________________________________
(Print Name) (Print Name)
_______________________________________ ____________________________________
(Signature(s) of Subscriber(s)) (Signature(s) of Subscriber(s))
Dated:______________________________, 1996
(If signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary or representative capacity, please provide the following
information.)
-4-
<PAGE>
Name(s)_________________________________________________________________________
(Please Print)
Capacity (Full Title)___________________________________________________________
Address_________________________________________________________________________
(Including Zip Code)
Social Security Number or Tax Identification Number_____________________________
-5-
<PAGE>
INSTRUCTIONS AS TO USE OF
COMMUNITY ORDER FORMS
_____________________________
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
OR IF YOU REQUIRE ASSISTANCE OR ADDITIONAL COPIES
OF THE PROSPECTUS, PLEASE CONTACT DENNIS D. BYRD,
TREASURER OF THE COMPANY, AT (207) 774-5000, OR
JOHN H. HOWLAND, VICE PRESENT OF
FIRST ALBANY CORPORATION, AT (617) 228-3076.
The following instructions relate to the Community Offering (the
"Community Offering") by First Coastal Corporation, a Delaware corporation (the
"Company"). The terms and conditions of the Community Offering are described in
the Company's Prospectus dated __________ __, 1996 (the "Prospectus") and are
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have their respective defined meanings as set forth in
the Prospectus. Community Offering participants ("Community Offering
Participants") should be aware that the Community Offering is subject to the
prior rights of Record Date Holders in the Rights Offering and the prior rights
of Standby Purchasers with respect to the Minimum Standby Purchase Commitment.
If the Shares not subscribed for in the Rights Offering and purchased by Standby
Purchasers are not sufficient to satisfy all orders received from Community
Offering Participants, the Company reserves the right to allocate such Shares
among the Community Offering Participants. Orders will be deemed received only
upon receipt of both a properly completed Community Order Form and full payment
for the Shares for which a Community Offering Participant has subscribed. Any
excess funds paid by persons as the Subscription Price for Shares not issued
will be returned without interest or deduction as soon as practicable following
the Expiration Date. There can be no assurance that any Shares will be available
to persons desiring to participate in the Community Offering. The Subscription
Price is payable as described below. See "The Offering" in the Prospectus.
COMMUNITY ORDER FORMS MUST BE RECEIVED BY CHEMICAL MELLON SHAREHOLDER
SERVICES (THE "SUBSCRIPTION AGENT"), AT AN ADDRESS SPECIFIED BELOW, WITH PAYMENT
IN FULL BY 5:00 P.M., EASTERN TIME, ON _________________, 1996, UNLESS EXTENDED
BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO TIME TO A DATE NOT LATER
THAN 5:00 P.M., EASTERN TIME, ON _________________, 1996 (THE "EXPIRATION
DATE"). THE COMPANY WILL NOT BE OBLIGATED TO HONOR ANY COMMUNITY ORDER FORMS
RECEIVED BY THE SUBSCRIPTION AGENT AFTER THE EXPIRATION DATE, REGARDLESS OF WHEN
THE DOCUMENTS RELATING TO THAT SUBSCRIPTION WERE SENT.
The Company reserves the right to reject subscriptions received in the
Offering in whole or in part at the sole discretion of the Board of Directors of
the Company or at the request or direction of regulatory authorities.
1. Subscription.
To Subscribe for Shares. To subscribe for Shares, properly complete and
sign your Community Order Form and send it to the Subscription Agent with
payment in full of the Subscription Price for each Share for which you have
subscribed.
Payment. Payment may be made to the Subscription Agent only (i) by
check or cashier's check drawn upon a U.S. bank, or postal, telegraphic or
express money order, in each case, payable to Chemical Mellon Shareholder
Services, as Subscription Agent, or (ii) by wire transfer of funds to the
account maintained by the Subscription Agent for the purpose of accepting
subscriptions at ___________, ABA number ________, account number _________,
Attn: _______________. The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) clearance of any uncertified
check, (ii) receipt by the Subscription Agent of any certified check or
cashier's check drawn upon a U.S. bank or of any postal, telegraphic or express
money order or (iii) receipt of collected funds in the Subscription Agent's
account designated above. FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY,
<PAGE>
COMMUNITY OFFERING PARTICIPANTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS
OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE
OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY
SUCH TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE, PAYMENT BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All funds received in payment of the Subscription Price will be held by
the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or agency thereof or money market mutual funds investing in the
foregoing instruments. The account in which such funds will be held may not be
insured by the Federal Deposit Insurance Corporation. Any interest earned on
such funds will be retained by the Company and will not be returned to the
Community Offering Participants, or otherwise applied to their purchase of
Shares.
If the aggregate Subscription Price paid by a Community Offering
Participant is insufficient to purchase the number of Shares that the
participant indicates are being subscribed for, or if such Community Offering
Participant does not specify the number of Shares subscribed for, then the
Community Offering Participant will be deemed to have subscribed for the number
of Shares which may be purchased by the full amount of the payment tendered
(subject to reduction to comply with certain limitations on the purchase of the
Company's Common Stock or the conditions of the Offering). If the aggregate
Subscription Price paid by a Community Offering Participant exceeds the amount
necessary to purchase the number of Shares for which the Community Offering
Participant has subscribed, then the Community Offering Participant will be
deemed to have subscribed for the number of Shares which may be purchased by the
full amount of the payment tendered (subject to reduction to comply with certain
limitations on the purchase of the Company's Common stock or the conditions of
the Offering).
If a Community Offering Participant wishes to subscribe for Shares, but
time will not permit such Community Offering Participant to cause the Community
Order Form to reach the Subscription Agent prior to the Expiration Date, such
Shares may nevertheless be subscribed for if all of the following conditions
(the "Guaranteed Delivery Procedures") are met:
(i) the Community Offering Participant has caused payment in full in
good funds of the Subscription Price for each Share being subscribed for to be
received (in the manner set forth above) by the Subscription Agent at or prior
to the Expiration Date;
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Community Order Forms (the
"Instructions") distributed with this Community Order Form, from a member firm
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or from a commercial bank or trust
company having an office or correspondent in the United States, stating the name
of the subscribing Community Offering Participant, the number of Shares being
subscribed for by the Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Community Order Form within five (5)
business days of the Subscription Agent's receipt of such Notice of Guaranteed
Delivery; and
(iii) the Subscription Agent receives the properly completed Community
Order Form with any signatures guaranteed as required, within five (5) business
days of the Subscription Agent's receipt of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Community Order Forms at the addresses
set forth below, or may be transmitted to the Subscription Agent by telegram or
facsimile transmission (telecopier no. (___) ___________). Additional copies of
the form of Notice of Guaranteed Delivery are available upon request from Dennis
D. Byrd, Treasurer of the Company, or from John H. Howland, Vice President of
First Albany Corporation.
Limitations on Subscription. Purchases of shares of Common Stock of the
Company, including purchases pursuant to the Community Offering, are subject to
certain limitations. See the Prospectus under "The Offering -- Limitations on
Purchase of Stock" and "Description of Capital Stock."
-2-
<PAGE>
2. The Subscription Agent.
The addresses and telephone number of the Subscription Agent are as
follows:
If by regular mail: c/o Chemical Mellon Shareholder Services
Post Office Box 845
Midtown Station
New York, New York 10018
If by overnight courier: c/o Chemical Mellon Shareholder Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o Chemical Mellon Shareholder Services
120 Broadway, 13th Floor
New York, New York
The Subscription Agent's toll free telephone number is (800) 777-3674.
3. Issuance and Delivery of Stock Certificate(s), Etc.
Certificates or order confirmations representing Shares purchased will
be delivered to Community Offering Participants as soon as practicable after the
Expiration Date and after all prorations and reductions contemplated by the
terms of the Offering have been effected. If the Offering has not been
consummated within 30 days following the Expiration Date, the Offering will be
terminated and all amounts submitted by Community Offering Participants will be
returned without interest.
4. Signatures.
Execution by Community Offering Participant. The signature on the
Community Order Form must correspond with the name of the Community Offering
Participant exactly as it is printed above the signature.
Execution by Person Other than Community Offering Participant. Persons
who sign the Community Order Form in a representative or other fiduciary
capacity must indicate their capacity when signing and, unless waived by the
Company in its sole and absolute discretion, must present to the Subscription
Agent satisfactory evidence of their authority to so act.
5. Method of Delivery.
The method of delivery of Community Order Forms and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
Community Offering Participants. If Community Order Forms and payments are sent
by mail, Community Offering Participants are urged to send such materials by
certified mail and are urged to allow a sufficient number of days to ensure
delivery to the Subscription Agent and clearance of payment prior to the
Expiration Date.
6. Irregularities.
All questions concerning the timeliness, validity, form and eligibility
of any submission of Community Order Forms will be determined by the Company,
whose determinations will be final and binding. The Company, in its sole
discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
submission of any Community Order Form. Community Order Forms will not be deemed
to have been received or accepted
-3-
<PAGE>
until all irregularities have been waived or cured within such time as the
Company determines, in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Community Order Forms or incur
any liability for failure to give such notification. The Company reserves the
right to reject subscriptions received in the Offering in whole or in part at
the sole discretion of the Board of Directors of the Company or at the request
or discretion of regulatory authorities. See the Prospectus under "The Offering
- -- Limitations on Purchase of Stock."
-4-
<PAGE>
