<PAGE>
As filed with the Securities and Exchange Commission on June 13, 1996
Registration No. 333-02609
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
AMENDMENT NO. 2
TO
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 No.)
_______________________
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 LLP
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. / /
___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
___________________
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.
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<PAGE>
FIRST COASTAL CORPORATION
----------------------------------
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(b) OF REGULATION S-K)
<TABLE>
<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 Amendment No. 3 to Annual Report on
Form 10-K/A for the Year Ended December 31, 1995; First
Coastal Corporation Amendment No. 1 to Quarterly Report
on Form 10-Q/A for the Quarter Ended March 31, 1996
12. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . . . . . . . . *
</TABLE>
- ---------------
* Item is omitted because answer is negative or item is not applicable.
<PAGE>
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 468,750 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 June 13, 1996 (the "Record Date"), pursuant to
nontransferable rights (the "Rights") to purchase shares of Common Stock at a
price of $5.00 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 1.28 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Price Estimated Fees
to Public and Expenses (1) Proceeds to the Company (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (3)....... $5.00 $0.275 $4.725
- --------------------------------------------------------------------------------------------------
Total............... $3,750,000 $206,250 $3,543,750
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(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
estimated fees and expenses assume 250,000 shares of Common Stock
are sold in the Community Offering pursuant to such broker assistance
agreements and 500,000 shares are sold in the Rights Offering and/or
to the Standby Purchasers. 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. See "Plan of Distribution."
(2) Before deducting other expenses payable by the Company estimated at an
aggregate of $358,750.
(3) In recent years prior to the Offering, there has been no established
public market for the Common Stock. The Subscription Price of $5.00
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
June 13, 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 has entered into standby purchase agreements (the "Standby
Purchase Agreements"), pursuant to which, subject to certain conditions, standby
purchasers (the "Standby Purchasers") have severally agreed to acquire from the
Company, at the Subscription Price, up to 562,500 Shares, if available, after
the Rights Offering and the Community Offering. Pursuant to such agreements,
the Company has agreed to sell, and the Standby Purchasers have agreed to
purchase, a minimum of 281,250 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 for Shares should be sent to ChaseMellon
Shareholder Services, L.L.C., as subscription agent (the "Subscription Agent"),
and payments received in connection therewith will be deposited by the
Subscription Agent in a noninterest bearing escrow account maintained with
Mellon Bank, N.A., as escrow agent (the "Escrow Agent"). THE COMPANY RESERVES
THE RIGHT TO REJECT SUBSCRIPTIONS RECEIVED IN WHOLE OR IN PART AT THE SOLE
DISCRETION OF THE COMPANY OR AT THE REQUEST OR DIRECTION OF REGULATORY
AUTHORITIES. IN THIS CONNECTION AND EXCEPT UNDER CERTAIN CIRCUMSTANCES WITH
RESPECT TO EXISTING STOCKHOLDERS BENEFICIALLY OWNING FIVE PERCENT OR MORE OF
THE COMPANY'S ISSUED AND OUTSTANDING COMMON STOCK, THE COMPANY DOES NOT
ANTICIPATE ACCEPTING ANY PURCHASES OF COMMON STOCK IN THE OFFERING THAT, WHEN
AGGREGATED WITH ANY OTHER SHARES BENEFICIALLY OWNED BY SUCH PURCHASER, WOULD
EQUAL OR EXCEED FIVE PERCENT OF THE COMPANY'S ISSUED AND OUTSTANDING COMMON
STOCK UPON COMPLETION OF 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 Company intends to use the
proceeds from the Offering, together with funds derived from the payment of a
dividend by the Bank to the Company and from a loan from certain financial
institutions to the Company, to satisfy in full the obligations of the Company
to the FDIC in connection with the promissory note in the principal amount of
$9.0 million issued by the Company to the FDIC on January 31, 1995 in settlement
of the FDIC's cross guaranty claim against the Bank. See "Use of Proceeds" and
"The Recapitalization."
THE OFFERING WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JULY 15, 1996,
SUBJECT TO THE EXTENSION BY THE COMPANY, IN ITS SOLE DISCRETION, FROM TIME TO
TIME THROUGH AUGUST 14, 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 BY THE COMPANY 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
public market for the Common Stock, and there can be no assurance an established
public 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
"FCME", and First Albany and Livada Securities, Inc. have indicated that they
intend to make a market in the Common Stock following the Offering. Upon
completion of the Offering, the Company is expected to have approximately
1,357,861 shares of Common Stock outstanding (based on 600,361 shares of Common
Stock outstanding as of May 31, 1996 and 7,500 shares of restricted stock to be
issued to certain executive officers of the Company in connection with the
Offering). For information regarding certain related party transactions, see
"Certain Relationships and Related Transactions" on page A-92.
-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, AMENDMENT NO. 3 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1995 (THE "1995 FORM 10-K")
BEGINNING ON PAGE A-1 AND AMENDMENT NO. 1 TO THE COMPANY'S QUARTERLY REPORT ON
FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 1996 (THE "MARCH 1996 FORM 10-Q")
BEGINNING ON PAGE B-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 $126.7 million in deposits at March 31, 1996, $75.4 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 (net income excluding FDIC settlement expenses as described below)
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 and for the three months ended
March 31, 1995 and 1996, 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."
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------------------------------- -------------------
(IN THOUSANDS) 1991 1992 1993 1994 1995 1995 1996
- ----------------------------- ---------- ------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss). . . . . . . $(10,595) $(529) $748(a) $ (8,902) $ 1,660(a) $225 $337
Expenses related to
FDIC settlement . . . . . . -- -- -- 812 310 -- --
FDIC Note and
related interest. . . . . . -- -- -- 9,000 419 73 141
--------- ------ ---- ------- ------- --- ----
Adjusted net income
(loss). . . . . . . . . . . $(10,595) $(529) $748(a) $ 910 $ 2,389(a) $298 $478
--------- ------ ---- ------- ------- ---- ----
--------- ------ ---- ------- ------- ---- ----
</TABLE>
(a) Net of provision reversal of $425,000 and $675,000 in 1993 and 1995,
respectively.
Since December 31, 1991, 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
-3-
<PAGE>
December 31, 1991 to $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 9.45% at
March 31, 1996. At December 31, 1995, the Company had net operating loss
carryforwards for federal tax purposes of approximately $6.8 million and
approximately $15.8 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, December 31, 1995 and
March 31, 1996, residential loan originations were $1.4 million, $2.1 million,
$2.6 million and $4.0 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.
In April 1996, the Bank implemented a 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 capital improvements, a bank
identity program and new signage. Further initiatives include the conversion of
the Bank's existing computer system to a new system during the third quarter of
1996 at an estimated cost of $538,000. The Company expects that the conversion
of its existing computer system will improve the Bank's product and service
capabilities, while providing savings to the Bank 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 1990s. 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,
-4-
<PAGE>
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 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 1995
Form 10-K attached to this Prospectus as Appendix A and the Company's March 1996
Form 10-Q attached to this Prospectus as Appendix B.
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 $5.00 per share, with estimated net
proceeds of approximately $3.2 million;
(ii) the Bank will pay a dividend in the amount of $3.2 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 Androscoggin Savings Bank, Lewiston, Maine,
Bangor Savings Bank, Bangor, Maine, Machias Savings Bank, Machias, Maine, and
Norway Savings Bank, Norway, Maine (collectively, the "Lenders") in connection
with the consummation of the Recapitalization, 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 26, 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 $9,369,000 and loans and fixed assets valued at their book
value of $97,000 to MB&TC, and MB&TC assumed deposit liabilities of $9,869,000.
The Bank was paid a premium on the deposits in the amount of $403,000, offset by
$37,000 in expenses associated with the transaction. Such deposit premium will
be booked as income to the Bank during the second quarter of 1996.
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 and for the three months ended March 31, 1996 and 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 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
<TABLE>
<CAPTION>
Three Months Ended
(DOLLARS IN THOUSANDS, March 31, Year Ended December 31,
------------------- -----------------------------------------------------------
EXCEPT PER SHARE DATA) 1996 1995 1995 1994 1993 1992 1991
- ------------------------------------------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . . $ 3,003 $ 2,917 $ 11,707 $ 11,780 $ 12,748 $ 16,319 $ 21,032
Interest expense (a) . . . . . . . . . . . . 1,492 1,399 5,850 5,726 7,254 9,986 14,639
------- ------- -------- -------- -------- -------- --------
Net interest income. . . . . . . . . . . . . 1,511 1,518 5,857 6,054 5,494 6,333 6,393
Provision for loan losses (b). . . . . . . . -- 100 (425) 107 (30) 1,136 5,967
------- ------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses. . . . . . . . . . . . . . . . 1,511 1,418 6,282 5,947 5,524 5,197 426
Investment securities gains (losses) . . . . 7 -- (4) 38 99 (19) 360
Other income . . . . . . . . . . . . . . . . 124 168 576 391 1,323 1,126 980
Other expenses (c) . . . . . . . . . . . . . 1,305 1,361 5,194 6,278 6,158 7,049 12,853
Income tax benefit . . . . . . . . . . . . . -- -- -- - (4) (198) (114)
------- ------- -------- -------- -------- -------- --------
Income (loss) before minority interest
and extraordinary item . . . . . . . . . . 337 225 1,660 98 792 (547) (10,973)
Minority interest in net income (loss) . . . -- -- -- -- 44 (18) (378)
------- ------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary item. . . 337 225 1,660 98 748 (529) (10,595)
Extraordinary item (d) . . . . . . . . . . . -- -- -- 9,000 -- -- --
------- ------- -------- -------- -------- -------- ---------
Net income (loss). . . . . . . . . . . . . . $ 337 $ 225 $ 1,660 $ (8,902) $ 748 $ (529) $ (10,595)
------- ------- -------- -------- -------- -------- ---------
------- ------- -------- -------- -------- -------- ---------
PER SHARE DATA (e):
Weighted average shares outstanding. . . . . 600,361 600,361 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary item. . . $ .56 $ .37 $ 2.77 $ .16 $ 1.25 $ (.88) $ (17.65)
Net income (loss). . . . . . . . . . . . . . .56 .37 2.77 (14.83) 1.25 (.88) (17.65)
Period end book value per share. . . . . . . 7.11 4.02 6.66 3.35 16.45 15.21 16.09
Period end tangible book value per share . . 7.11 4.02 6.66 3.35 16.45 15.21 16.09
</TABLE>
- ------------------------
(a) For the year ended December 31, 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 for the years ended
December 31, 1995 and December 31, 1993, respectively.
(c) For the years ended December 31, 1995 and December 31, 1994, the Company
incurred approximately $310,000 and $812,000, respectively, in legal and
other professional fees in connection with the settlement of the cross
guaranty claim with the FDIC. For the year ended December 31, 1991, the
Company incurred a $3.2 million charge to earnings as a result of the
deconsolidation of Suffield Bank.
(d) For the year ended December 31, 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
Three Months
Ended
(DOLLARS IN THOUSANDS, March 31, At or For the Year Ended December 31,
------------- -----------------------------------------------------------
EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992 1991
- --------------------------------------------- ------------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
END OF PERIOD BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . $147,009 $145,453 $154,212 $170,819 $188,838 $214,422
Investment securities . . . . . . . . . . 24,565 19,712 16,746 1,036 4,061 1,487
Assets held for sale. . . . . . . . . . . 1,781 281 185 3,421 6,882 3,661
Loans, net of fees. . . . . . . . . . . . 96,009 100,528 109,625 123,468 144,000 181,209
Allowance for loan losses . . . . . . . . 2,646 2,659 4,042 3,642 4,280 6,098
Nonperforming assets. . . . . . . . . . . 3,614 7,517 9,006 11,627 24,382 27,303
Deposits. . . . . . . . . . . . . . . . . 126,746 125,665 130,037 140,587 156,318 170,383
FHLB advances . . . . . . . . . . . . . . 6,000 6,000 12,612 18,108 21,249 31,595
FDIC Note . . . . . . . . . . . . . . . . 9,000 9,000 9,000 -- -- --
Stockholders' equity. . . . . . . . . . . 4,271 3,997 2,014 9,878 9,130 9,659
AVERAGE BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . $145,407 $146,146 $162,587 $181,705 $199,393 $229,157
Loans, net of fees. . . . . . . . . . . . 97,871 105,742 115,940 131,795 165,053 193,292
Deposits. . . . . . . . . . . . . . . . . 125,650 121,503 129,841 141,243 153,993 171,228
Stockholders' equity. . . . . . . . . . . 3,893 2,852 10,625 9,807 9,733 12,890
FINANCIAL RATIOS:
Return on average assets before
extraordinary item . . . . . . . . . . . .93% 1.14% .06% .41% (.27)% (4.62)%
Return on average assets. . . . . . . . . .93 1.14 (5.48) .41 (.27) (4.62)
Return on average equity before
extraordinary item. . . . . . . . . . . . 34.63 .92 58.20 7.63 (5.44) (82.20)
Return on average equity. . . . . . . . . 34.63 58.20 (83.78) 7.63 (5.44) (82.20)
Net interest margin (f) . . . . . . . . . 4.37 4.19 3.97 3.31 3.40 2.93
Net interest rate spread (g). . . . . . . 4.29 4.13 3.79 3.26 3.26 2.47
Non-interest income to average
assets . . . . . . . . . . . . . . . . . .36 .39 .26 .78 .56 .58
Efficiency ratio (h). . . . . . . . . . . 79.48 80.79 96.84 89.04 94.74 166.21
Nonperforming assets to total
assets . . . . . . . . . . . . . . . . . 2.46 5.17 5.84 6.81 12.91 12.73
Allowance for loan losses to
nonperforming assets. . . . . . . . . . . 73.22 35.37 44.88 31.32 17.55 22.33
Net charge-offs to average loans. . . . . .05 .91 (.25) .46 1.76 2.39
Average loans to average deposits . . . . 77.89 87.03 89.29 93.31 107.18 112.89
Equity to assets. . . . . . . . . . . . . 2.91 2.75 1.31 5.78 4.83 4.50
Tier 1 capital to total assets (i). . . . 2.90 2.74 1.41 5.63 4.81 4.50
Tier 1 capital to risk-weighted
assets (i) . . . . . . . . . . . . . . . 4.68 4.27 2.18 8.42 6.74 6.18
Qualifying total capital to
risk-weighted assets (i) . . . . . . . . 5.95 5.54 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 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital -- Coastal" and
"-- Company" of the Company's March 1996 Form 10-Q attached to this
Prospectus as Appendix B.
-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 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
EXCEPT PER SHARE DATA) 1996 1995 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Interest income. . . . . . . . . . $3,003 $2,913 $2,942 $2,935 $2,917 $3,005 $2,911
Interest expense . . . . . . . . . 1,492 1,501 1,492 1,458 1,399 1,352 1,433
------- ------- ------- ------- -------- --------- --------
Net interest income. . . . . . . . 1,511 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. . . . 1,511 2,087 1,375 1,402 1,418 1,653 1,438
Investment securities gains
(losses). . . . . . . . . . . . . 7 7 1 (12) -- 6 --
Other income . . . . . . . . . . . 124 130 127 151 168 14 133
Other expenses . . . . . . . . . . 1,305 1,296 1,210 1,327 1,361 1,434 1,594
Income tax . . . . . . . . . . . . -- -- -- -- -- -- --
------- ------- ------- ------- -------- --------- -------
Income (loss) before extraordinary
item . . . . . . . . . . . . . . 337 928 293 214 225 239 (23)
Extraordinary item . . . . . . . . -- -- -- -- -- 9,000 --
------- ------- ------- ------- -------- --------- --------
Net income (loss). . . . . . . . . $ 337 $ 928 $ 293 $ 214 $ 225 $ (8,761) $ (23)
------- ------- ------- ------- -------- --------- --------
------- ------- ------- ------- -------- --------- --------
PER SHARE DATA:
Weighted average shares outstanding 600,361 600,361 600,361 600,361 600,361 600,361 600,361
Income (loss) before extraordinary
item . . . . . . . . . . . . . . $ 0.56 $ 1.55 $ .49 $ .36 $ .37 $ .40 $ (.04)
Net income (loss). . . . . . . . . 0.56 1.55 .49 .36 .37 (14.59) (.04)
Period end book value per share. . 7.11 6.66 5.07 4.59 4.02 3.35 18.13
Period end tangible book value
per share. . . . . . . . . . . . 7.11 6.66 5.07 4.59 4.02 3.35 18.13
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED
--------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
EXCEPT PER SHARE DATA) 1996 1995 1995 1995 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD BALANCE
SHEET DATA:
Total assets . . . . . . . . . . . $ 147,009 $ 145,453 $ 145,102 $ 144,095 $ 146,605 $ 154,212 $ 156,537
Investment securities. . . . . . . 24,565 19,712 16,904 11,894 16,898 16,746 14,894
Assets held for sale . . . . . . . 1,781 281 373 409 238 185 389
Loans, net of fees . . . . . . . . 96,009 100,528 100,080 106,353 107,609 109,625 112,343
Allowance for loan losses. . . . . 2,646 2,659 3,721 3,715 3,620 4,042 3,594
Nonperforming assets . . . . . . . 3,614 7,517 7,978 8,453 8,116 9,006 8,941
Deposits . . . . . . . . . . . . . 126,746 125,665 126,330 125,619 127,027 130,037 131,992
FHLB advances. . . . . . . . . . . 6,000 6,000 6,000 6,150 7,667 12,612 13,018
FDIC Note. . . . . . . . . . . . . 9,000 9,000 9,000 9,000 9,000 9,000 --
Stockholders' equity . . . . . . . 4,271 3,997 3,044 2,753 2,411 2,014 10,883
AVERAGE BALANCE SHEET DATA:
Total assets . . . . . . . . . . . $ 145,407 $ 144,686 $ 144,838 $ 145,774 $ 149,354 $ 155,179 $ 161,252
Loans, net of fees . . . . . . . . 97,871 101,632 102,969 107,325 109,320 110,671 113,821
Deposits . . . . . . . . . . . . . 125,650 125,576 126,123 127,006 127,337 130,927 135,270
Stockholders' equity . . . . . . . 3,893 3,353 3,024 2,682 2,339 10,936 11,125
FINANCIAL RATIOS (a):
Return on average assets before
extraordinary item . . . . . . . .93% 2.57% .81% .59% .60% .62% (.06)%
Return on average assets . . . . . .93 2.57 .81 .59 .60 (22.58) (.06)
Return on average equity before
extraordinary item . . . . . . . 34.63 110.71 38.76 31.92 38.48 8.74 (.83)
Return on average equity . . . . . 34.63 110.71 38.76 31.92 38.48 (320.45) (.83)
Net interest margin (b). . . . . . 4.37 4.09 4.21 4.27 4.25 4.51 3.91
Net interest rate spread (c) . . . 4.29 4.01 4.16 4.25 4.20 4.29 3.71
Non-interest income to
average assets . . . . . . . . . .36 .38 .35 .38 .45 .05 .33
Efficiency ratio (d) . . . . . . . 79.48 83.67 76.68 82.12 80.72 85.71 98.94
Nonperforming assets to total
assets . . . . . . . . . . . . . 2.46 5.17 5.50 5.87 5.54 5.84 5.71
Allowance for loan losses to
nonperforming assets . . . . . . 73.22 35.37 46.64 43.95 44.60 44.88 40.20
Net charge-offs to average loans . .05 1.52 .27 (.07) 1.91 (1.62) (.01)
Average loans to average deposits. 77.89 80.93 81.64 84.50 85.85 84.53 84.14
Equity to assets . . . . . . . . . 2.91 2.75 2.10 1.91 1.65 1.31 6.95
Tier 1 capital to total
assets (e) . . . . . . . . . . . 2.90 2.74 2.09 1.88 1.66 1.41 6.75
Tier 1 capital to risk-weighted
assets (e) . . . . . . . . . . . 4.68 4.27 3.29 2.87 2.52 2.18 10.52
Qualifying total capital to
risk-weighted assets (e) . . . . 5.95 5.54 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 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital -- Coastal" and
"-- Company" of the Company's March 1996 Form 10-Q attached to this
Prospectus as Appendix B.
-10-
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial information and
accompanying notes reflect the effects to the financial statements of the
Company of the consummation of the Kezar Falls Branch Sale and the
Recapitalization. The pro forma consolidated financial information includes the
pro forma consolidated balance sheet at March 31, 1996 and certain additional
pro forma consolidated financial information for the year ended December 31,
1995 and the three month period ended March 31, 1996. The pro forma
consolidated balance sheet assumes the Kezar Falls Branch Sale and the
Recapitalization were consummated on March 31, 1996. The additional pro forma
consolidated financial information assumes the Kezar Falls Branch Sale and the
Recapitalization were consummated on January 1, 1995.
The pro forma consolidated financial information 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 and/or the Recapitalization had been consummated nor is it necessarily
indicative of future operating results or financial position. The pro forma
consolidated financial information should be read in conjunction with the
consolidated financial statements and related notes of the Company included
elsewhere herein. See the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Recapitalization
and Kezar Falls
Kezar Falls Branch Sale Branch Sale
--------------------------- -----------------
Historical Pro Forma Recapitalization Pro Forma
----------- --------- ---------------- -----------------
March 31, Pro Forma March 31, Pro Forma March 31,
(IN THOUSANDS) 1996 Adjustments 1996 Adjustments 1996
----------- ----------- ---------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . $ 18,403 $ (9,406) (a) $ 8,997 $ 3,185 (b) $ 6,518
3,895 (c)
(9,559) (d)
Investment securities. . . . . . . 25,880 -- 25,880 -- 25,880
Assets held for sale . . . . . . . 1,781 -- 1,781 -- 1,781
Loans net of allowance for loan
losses . . . . . . . . . . . . . 93,363 (3) (a) 93,360 -- 93,360
Fixed assets . . . . . . . . . . . 3,159 (95) (a) 3,064 -- 3,064
Real estate owned and
repossessions . . . . . . . . . . 2,164 -- 2,164 -- 2,164
Other assets . . . . . . . . . . . 2,259 1 (a) 2,260 105 (c) 2,365
---------- ---------- --------- ---------- ---------
TOTAL ASSETS . . . . . . . . . . . $ 147,009 $ (9,503) $ 137,506 $ (2,374) $ 135,132
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
LIABILITIES:
Deposits . . . . . . . . . . . . . $ 126,746 $ (9,869) (a) $ 116,877 -- $ 116,877
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. . . . . . . . . 992 -- 992 (559) (d) 433
---------- ---------- --------- ---------- ---------
TOTAL LIABILITIES. . . . . . . . . 142,738 (9,869) 132,869 (5,559) 127,310
STOCKHOLDERS' EQUITY:
Common stock ($1.00 par value) . . 600 -- 600 758 (b) 1,358
Paid-in capital. . . . . . . . . . 29,375 -- 29,375 2,465 (b) 31,840
Retained earnings prior year . . . (26,016) -- (26,016) (38) (b) (26,054)
Current year earnings. . . . . . . 337 366 (a) 703 -- 703
Unrealized loss on available for
sale securities. . . . . . . . . (25) -- (25) -- (25)
---------- ---------- --------- ---------- ---------
TOTAL STOCKHOLDERS' EQUITY . . . . 4,271 366 4,637 3,185 7,822
---------- ---------- --------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $147,009 $ (9,503) $ 137,506 $ (2,374) $ 135,132
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
</TABLE>
- ---------------
-11-
<PAGE>
(a) On April 26, 1996, the Bank and 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. Included in the sale were all the branch deposits (totaling
approximately $9.9 million at April 26, 1996), the real estate and certain
of the furniture, fixtures and equipment of the branch. The Bank was paid
a premium on the deposits equaling 4.02% of the average deposits for the 29
days between February 15, 1996 and March 15, 1996, which premium equaled
approximately $403,000 and was offset by $37,000 in expenses associated
with the transaction.
(b) The pro forma information relating to the issuance of 750,000 shares of
Common Stock in the Offering is based on estimates by management and is
presented for illustrative purposes only and is not necessarily indicative
of the actual gross proceeds of the Offering. The pro forma price per
share is assumed to be $5.00. Costs associated with the Offering are
estimated at $565,000. The charge to earnings of $38,000 is attributable
to the issuance of 7,500 restricted shares of Common Stock to certain
executive officers of the Company pursuant to the First Coastal Corporation
1996 Stock Option and Equity Incentive Plan (the "Stock Option and Equity
Incentive Plan") in connection with the consummation of the Offering.
(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 will 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 expected 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
March 31, 1996.
OTHER PRO FORMA FINANCIAL INFORMATION
The Company's consolidated net income for the year ended December 31, 1995
and the three months ended March 31, 1996 was $1,660,000 and $337,000,
respectively. On a pro forma basis assuming the Kezar Falls Branch Sale and the
Recapitalization had occurred on January 1, 1995, the Company's consolidated net
income for the year ended December 31, 1995 and the three months ended March 31,
1996 would have been approximately $1,993,000 and $366,000, respectively. The
$333,000 increase to the Company's pro forma net income for the year ended
December 31, 1995 is attributable to: (i) a net gain of $366,000 as a result of
the Kezar Falls Branch Sale, (ii) a reduction of income of $16,000 as a result
of the Kezar Falls Branch Sale, (iii) a reduction of interest expense of $21,000
as a result of the payment in full of the FDIC Note and the concurrent borrowing
of funds pursuant to the Recapitalization Loan and (iv) a charge to earnings of
$38,000 as a result of the issuance of 7,500 shares of restricted stock pursuant
to the Company's Stock Option and Equity Incentive Plan in connection with the
consummation of the Offering, which shares of restricted stock will vest over a
three-year period (from May 2, 1996). The $29,000 increase to the Company's pro
forma net income for the three months ended March 31, 1996 is attributable to:
(a) a reduction of income of $4,000 as a result of the Kezar Falls Branch Sale
and (b) a reduction of interest expense of $33,000 as a result of the payment in
full of the FDIC Note and the concurrent borrowing of funds pursuant to the
Recapitalization Loan.
-12-
<PAGE>
THE OFFERING
THE RIGHTS OFFERING. . . . . . Each stockholder of the Company is receiving
one nontransferable right (the "Right") for
each 1.28 shares of Common Stock held of record
at the close of business on June 13, 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 $5.00
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 (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 . . . . . . $5.00 per Share, payable in cash. See "The
Offering -- Subscription Price" and
"Determination of Subscription Price."
RECORD DATE. . . . . . . . . . June 13, 1996 (the "Record Date").
EXPIRATION DATE. . . . . . . . The Offering will expire at 5:00 p.m., Eastern
time, on July 15, 1996, subject to the
extension by the Company, in its sole
discretion, from time to time through
August 14, 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 BY THE COMPANY 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 Rights
Offering order form (the "Rights Offering 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 Rights Offering 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. RIGHTS OFFERING
ORDER FORMS SHOULD BE SENT WITH THE PAYMENT TO
THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS
OFFERING ORDER FORMS TO THE COMPANY. THE
COMPANY RESERVES THE RIGHT TO REJECT
SUBSCRIPTIONS
-13-
<PAGE>
RECEIVED IN WHOLE OR IN PART AT THE SOLE
DISCRETION OF THE COMPANY OR AT THE REQUEST OR
DIRECTION OF REGULATORY AUTHORITIES. See "The
Offering -- Subscription Procedure" and "The
Offering -- No Revocation."
Payments will be held in a segregated
noninterest bearing account maintained with
Mellon Bank, N.A., as escrow agent (the "Escrow
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 will
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
Community Offering order form (the "Community
Offering 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 Offering 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.
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COMMUNITY OFFERING ORDER FORMS SHOULD BE SENT
WITH THE PAYMENT TO THE SUBSCRIPTION AGENT. DO
NOT SEND COMMUNITY OFFERING 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 OR
AT THE REQUEST OR DIRECTION OF REGULATORY
AUTHORITIES. See "The Offering -- Subscription
Procedure" and "The Offering -- No Revocation."
Payments will be held in a segregated
noninterest bearing account maintained with the
Escrow 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 has entered into standby purchase
agreements (the "Standby Purchase Agreements"),
pursuant to which, subject to certain
conditions, standby purchasers (the "Standby
Purchasers") have severally agreed to acquire
from the Company, at the Subscription Price, up
to 562,500 Shares, if available after the
Rights Offering and the Community Offering.
Pursuant to such agreements, the Company has
agreed to sell, and the Standby Purchasers have
agreed to purchase, a minimum of 281,250
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 AMENDED ITS RESTATED CERTIFICATE OF
INCORPORATION ON JUNE 11, 1996 (THE "EFFECTIVE
DATE") TO PROVIDE 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. Such amendment
further provides that holders of five percent
or more of the Company's outstanding voting
stock on the Effective Date 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 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
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maintain his or her pre-Offering percentage
ownership interest in the Company following the
Offering. Except under certain circumstances
with respect to existing stockholders
beneficially owning five percent or more of
the Company's issued and outstanding Common
Stock, the Company does not anticipate
accepting any purchases of Common Stock in
the Offering that, when aggregated with any
other shares beneficially owned by such
purchaser, would equal or exceed five percent
of the Company's issued and outstanding
Common Stock upon completion of 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 . . . . . . ChaseMellon Shareholder Services, L.L.C.
SHARES OUTSTANDING
AFTER THE OFFERING . . . . . . Upon completion of the Offering, the Company is
expected to have approximately 1,357,861 shares
of Common Stock outstanding (based on 600,361
shares of Common Stock outstanding as of
May 31, 1996 and 7,500 shares of restricted
stock to be issued to certain executive
officers of the Company in connection with the
Offering). 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 will 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"). The Rights Offering and the
Community Offering are made on a "best efforts"
basis and neither First Albany nor any of the
broker-dealers engaged by the Company 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 approximately 50,000
Shares, pursuant to the Rights Offering and the
Community Offering. These individuals are
under no binding obligation with regard to such
indications of interest.
RISK FACTORS . . . . . . . . . A PURCHASE OF THE SHARES INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS."
NASDAQ SMALLCAP MARKET
SYMBOL FOR COMMON STOCK. . . . "FCME" (proposed)
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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 Agreement. 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 1995
Form 10-K 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.
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<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.
POSSIBLE INABILITY TO SERVICE DEBT AND PAY OPERATING EXPENSES
Under the terms of the Recapitalization Loan Agreement, 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 March 31, 1996, the Company
had approximately $47,000 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 $600,000
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. At March 31, 1996, the Bank had a retained earnings deficit of
$6.2 million, and therefore any dividends to be paid by the Bank to the Company
for the foreseeable future will be paid from unreserved and unrestricted net
earnings of the Bank for 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
AGREEMENT 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.
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<PAGE>
Nonperforming assets have declined to $3.6 million (or 2.46% of total assets)
at March 31, 1996, representing a decrease of 86.76% 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 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.
CONCENTRATION OF COMMERCIAL REAL ESTATE LOANS
At March 31, 1996, the Bank had approximately $49.3 million of commercial
real estate mortgage loans, representing 51.3% 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 35.5% of total assets at
March 31, 1996. At March 31, 1996, the Bank also had approximately $2.3 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 $85.2 million between January 1,
1992 and March 31, 1996. 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 to
Cease and Desist issued by the FDIC and concurred with by the Maine Bureau of
Banking described below under "Federal and State 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 to Cease and Desist, 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
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<PAGE>
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 Agreement. See "-- Possible
Inability to Service Debt and Pay Operating Expenses."
FEDERAL AND STATE 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 (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 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, December 31,
1995 and March 31, 1996, 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's 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 and
qualifying total capital to risk-weighted assets of 9.45%, 15.21% and 16.48%,
respectively, at March 31, 1996, were in compliance with such guidelines. If
the Company were required as of March 31, 1996 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 2.90%, 4.68% and 5.95%, 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. The Company's most recent
examination by the Federal Reserve was completed October 1995 and the Bank's
most
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recent examinations by the FDIC and the Maine Bureau of Banking were completed
August 1995 and July 1995, respectively. See "Item 1. Business -- Regulation"
and Note A of "Item 8. Financial Statements and Supplementary Data" of the
Company's 1995 Form 10-K attached to this Prospectus as Appendix A and the
Company's March 1996 Form 10-Q attached to the Prospectus as Appendix B.
COMPETITIVE ENVIRONMENT
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. As of June 30, 1995, a
total of approximately 45% 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, attributable to 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
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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.
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
$15.8 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 (the "section 382
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 section 382 limitation would be imposed on the amount of
taxable income against which net operating losses may be deducted by the
Company. The section 382 limitation is computed by multiplying the estimated
value of the Company immediately before the ownership change by the
then-applicable long-term tax exempt rate published by the Internal Revenue
Service ("IRS") for this purpose (the long-term tax exempt rate was 5.78% for
the month of June 1996, as set forth in the IRS tables). Thus, if the Company
and the Bank were to undergo an ownership change, the Company's section 382
limitation would be approximately $174,000, assuming the Common Stock has a fair
market value of $5.00 per share and using the IRS long-term tax exempt rate for
June 1996. In addition, assuming that the Company would have been able to use
its existing net operating loss carryforwards and the net operating loss
carryforward resulting from the payment of the $9.0 million FDIC Note, the
effect of the imposition of the section 382 limitation on the utilization of net
operating loss carryforwards after 1996 would be that approximately $9.9 million
of the Company's net operating loss carryforwards would expire unused,
decreasing future income after taxes by approximately $3.4 million. While the
Company has recently amended its Restated Certificate of Incorporation to 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 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 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
PREVAILING 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.
ANTI-TAKEOVER 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
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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 Company has also recently amended its Restated Certificate of Incorporation
to 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, 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 Company. See " Government Regulation" below and "Item
1. Business -- Regulation" of the Company's 1995 Form 10-K 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 Agreement and from Delaware law which provides that
dividends may be paid by a corporation 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. At March 31, 1996, the Company
had a retained earnings deficit of $25.8 million. 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 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company's Board of Directors,
with the assistance of First Albany, as the Company's financial advisor. In
setting the price, various factors deemed relevant were analyzed and considered
by the Company and First Albany, 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. To the extent there is a
market 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
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. 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 and Livada
Securities, Inc. have indicated that they intend to make a market in the Common
Stock following the Offering, there can be no
-23-
<PAGE>
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. In
addition, even if the Company successfully lists the Common Stock on The Nasdaq
SmallCap Market, there can be no assurance that the Company will continue to
meet the requirements for continued inclusion, such as the requirement relating
to the minimum number of market makers and the requirement relating to the
minimum bid price of 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 1995 Form 10-K attached to this
Prospectus as Appendix A.
ENVIRONMENTAL LIABILITIES
In the course of its business, the Bank has acquired, and may in the future
acquire through foreclosure, properties securing loans it has originated or
purchased which are in default. With respect to the Bank's real estate owned,
there is a risk that hazardous substances or wastes, contaminants or pollutants
could be discovered on such properties after acquisition by the Bank. In such
event, the Bank might be required to remove such substances from the affected
properties at its sole cost and expense. There can be no assurance that the
cost of such removal would not substantially exceed the value of the affected
properties or the loans secured by the properties, that the Bank would have
adequate remedies against the prior owner or other responsible parties or that
the Bank would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
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 sale of Shares of Common Stock at less
than tangible book value per share in the Offering. The Subscription Price of
$5.00 will be less than book value at the time of purchase. At March 31, 1996,
the Company's book value was $7.11 per share. On a pro forma basis, after
giving effect to the Offering at such date, the Company's book value was $5.76
per share.
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<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering to the Company are estimated to be
approximately $3.2 million 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," Note A of "Item 8. Financial Statements and Supplementary
Data" of the Company's 1995 Form 10-K attached to this Prospectus as Appendix A
and the Company's March 1996 Form 10-Q attached to this Prospectus as
Appendix B.
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. . . . . . . . $ 3,185,000
Bank Dividend . . . . . . . . . . . . . . . . 3,200,000
Net Proceeds from the Recapitalization Loan . 3,895,000
-----------
$10,280,000
-----------
-----------
USES OF FUNDS (a):
Principal Amount of FDIC Note (b) . . . . . . $ 9,000,000
Accrued Interest under FDIC Note. . . . . . . 714,000
Addition to Company Working Capital . . . . . 566,000
-----------
$10,280,000
------------
------------
- ------------------
(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.
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<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 1995 Form 10-K
attached to this Prospectus as Appendix A and the Company's March 1996 Form 10-Q
attached to this Prospectus as Appendix B.
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 $5.00
per share. The Offering consists of (i) a Rights Offering of up to 468,750
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 have severally agreed to
acquire from the Company, at the Subscription Price, (a) up to 562,500 Shares,
if available after the exercise of the Stockholder Subscription Privilege and
the Community Offering and (b) a minimum of 281,250 Shares pursuant to the
Minimum Standby Purchase Commitment, which the Company has agreed to sell and
the Standby Purchasers have agreed 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 $3.2 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 $3.2 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 on a parent-only basis 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 time by the FDIC and the Maine Bureau of
Banking. The Amended and Restated Settlement
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<PAGE>
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 will enter into the Recapitalization Loan Agreement in
connection with the consummation of the Recapitalization 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 will 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 does not 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 contains 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, including prohibiting the payment of cash dividends if the Company's
debt-to-equity ratio on a parent-only basis is greater than 30%, 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 contains 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.
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<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
As of March 31, 1996, the Company had approximately 1,575 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 such trades are
limited and sporadic and there is no established public trading market for the
Common Stock.
For the periods reported below, the following table sets forth the range
of high and low closing bid prices for the Common Stock on the OTC Bulletin
Board as reported by NASDAQ Trading and Market Services. Such quotations
represent prices between dealers without adjustment for retail markups,
markdowns or commissions. Information prior to May 31, 1995 has been
adjusted to reflect the one for ten reverse stock split with respect to the
Company's outstanding Common Stock effective as of such date.
1994 HIGH LOW
First Quarter . . . . . . . . . . . . . . . . $ 1.50 $ 1.50
Second Quarter. . . . . . . . . . . . . . . . 0.10 0.10
Third Quarter . . . . . . . . . . . . . . . . -- --
Fourth Quarter. . . . . . . . . . . . . . . . 5.00 1.20
1995
First Quarter . . . . . . . . . . . . . . . . $ 5.00 $ 1.25
Second Quarter . . . . . . . . . . . . . . . 2.00 1.50
Third Quarter . . . . . . . . . . . . . . . . 2.50 1.50
Fourth Quarter. . . . . . . . . . . . . . . . 3.50 1.50
1996
First Quarter . . . . . . . . . . . . . . . . $ 5.00 $ 2.00
Second Quarter (through June 11, 1996) . . . 5.00 2.00
While application has been made for the listing of the Common Stock on The
Nasdaq SmallCap Market under the symbol "FCME", there can be no assurance that
the Common Stock will be listed on The Nasdaq SmallCap Market or any securities
exchange or that any established public market for the securities will develop
or that there will be any private demand for the Common Stock. First Albany and
Livada Securities, Inc. have advised the Company that they intend 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 Agreement. 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, November 13, 1995 and May
3, 1996, following the receipt of appropriate regulatory approvals, the Bank
paid the Company cash dividends of $175,000, $200,000 and $200,000,
respectively, for certain current and anticipated operating
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<PAGE>
expenses of the Company. See Note J of "Item 8. Financial Statements and
Supplementary Data" of the Company's 1995 Form 10-K attached to this Prospectus
as Appendix A and the Company's March 1996 Form 10-Q attached to this Prospectus
as Appendix B.
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of March 31, 1996 and as adjusted to give effect to the Kezar
Falls Branch Sale and 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>
MARCH 31, 1996
---------------------------------
AS ADJUSTED FOR
THE KEZAR FALLS
BRANCH SALE AND
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 Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 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 1,357,861 shares issued and outstanding
after the Recapitalization (b). . . . . . . . . . . . . . . . . . . . . . 600 1,358
Additional paid-in capital (a). . . . . . . . . . . . . . . . . . . . . . . 29,375 31,840
Retained earnings (deficit) (c) . . . . . . . . . . . . . . . . . . . . . . (25,679) (25,351)
Unrealized (loss) on available for sale securities. . . . . . . . . . . . . (25) (25)
------- ------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 4,271 7,822
------- ------
Total capitalization. . . . . . . . . . . . . . . . . . . . . . . $19,271 17,822
------- ------
</TABLE>
(a) Adjusted to reflect the deduction of $565,000 consisting of the estimated
commissions and other fees and expenses payable by the Company.
(b) Includes 7,500 shares of restricted stock to be issued to certain executive
officers of the Company pursuant to the Company's Stock Option and Equity
Incentive Plan in connection with the consummation of the Offering.
Excludes (i) 308 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1996, which the Company and the holder
of such options terminated as of May 30, 1996, and (ii) 46,500 shares of
Common Stock issuable upon exercise of stock options to be granted pursuant
to the Stock Option and Equity Incentive Plan in connection with the
consummation of the Offering. See "Description of Capital Stock." A total
of 130,000 shares of Common Stock have been 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.
(c) Retained earnings (deficit) is reduced by $366,000 resulting from the net
gain of the Kezar Falls Branch Sale on April 26, 1996 and is increased by
$38,000 resulting from the issuance of the 7,500 shares of restricted stock
pursuant to the Stock Option and Equity Incentive Plan in connection with
the consummation of the Offering.
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<PAGE>
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company's Board of Directors,
with the assistance of First Albany, as the Company's financial advisor. In
setting the Subscription Price, various factors deemed relevant were analyzed
and considered by the Company and First Albany, 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 an established public
trading market for the Common Stock. To the extent there is a market 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 468,750 shares of its Common
Stock to holders of record of Common Stock at the close of business on June 13,
1996, pursuant to nontransferable rights to purchase shares of Common Stock at a
Subscription Price of $5.00 per share. Each Record Date Holder will receive one
Right for each 1.28 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 has entered into Standby Purchase Agreements pursuant to which,
subject to certain conditions, Standby Purchasers have severally agreed to
acquire from the Company, at the Subscription Price, up to 562,500 Shares, if
available after the Rights Offering and the Community Offering. Pursuant to
such agreements, the Company has agreed to sell, and the Standby Purchasers have
agreed to purchase, a minimum of 281,250 Shares at the Subscription Price
pursuant to the Minimum Standby Purchase Commitment. ALL SUBSCRIPTIONS ARE
IRREVOCABLE. Payments received for Shares will be deposited by the Subscription
Agent in a noninterest bearing escrow account maintained with the Escrow Agent.
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
JULY 15, 1996, SUBJECT TO EXTENSION BY THE COMPANY, IN ITS SOLE DISCRETION, FROM
TIME TO TIME THROUGH AUGUST 14, 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 BY THE
COMPANY 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 1.28 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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<PAGE>
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 not 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 Offering 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 Offering Order Form must be completed, and
payment in full of the Subscription Price for all Shares subscribed for must
accompany the Community Offering Order Form.
EXPIRATION DATE
The Offering will expire at 5:00 p.m., Eastern time, on July 15, 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 Offering 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 August 14, 1996.
SUBSCRIPTION PRICE
The Subscription Price is $5.00 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 Rights Offering Order Forms
evidencing those Rights, 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 Offering
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 (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 ChaseMellon Shareholder Services, L.L.C., as
Subscription Agent, or (ii) by wire transfer of funds to the account maintained
by the Subscription Agent for the purpose of receiving subscriptions at Mellon
Bank, N.A., Pittsburgh, Pennsylvania, ABA Number 043000261, Account Number 100-
2331 (Reorganization Account), Attn.: Evelyn O'Connor, Re: First Coastal
Offering. 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
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<PAGE>
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 account designated above.
FUNDS PAID BY UNCERTIFIED 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 will be deposited by the Subscription Agent in a noninterest
bearing account maintained with the Escrow Agent as directed by the Company.
The account in which such funds will be held may not be insured by the FDIC. No
interest will be earned on such funds and no interest will be paid to Record
Date Holders or Community Offering Participants, or otherwise applied to their
purchase of Shares.
The Rights Offering Order Forms and Community Offering 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 ChaseMellon Shareholder Services, L.L.C.
Post Office Box 817
Midtown Station
New York, New York 10018
If by overnight
courier: c/o ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
If by hand: c/o ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
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
the Escrow Agent and has also agreed to indemnify the Subscription Agent and the
Escrow Agent from certain liabilities which they 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 Rights Offering Order
Form or Community Offering 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; and
(ii) the Subscription Agent receives, at or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), in the form
distributed with the Rights Offering Order Form or Community Offering 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
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Community Offering Participant, the number of Shares being subscribed for by the
Record Date Holder or Community Offering Participant, and guaranteeing the
delivery to the Subscription Agent of the Rights Offering Order Form or
Community Offering 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 Rights
Offering Order Form or Community Offering Order Form 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 Rights Offering Order Forms or
Community Offering Order Forms at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopier no.
(201) 296-4293). 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).
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 Rights Offering 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 Rights Offering Order Form, he or she should contact
the nominee as soon as possible and request that a separate Rights Offering
Order Form be issued. A nominee may request any Rights Offering Order Form held
by it to be split into such smaller denominations as it wishes, provided that
the Rights Offering Order Form is received by the Subscription Agent, properly
endorsed, no later than 5:00 p.m., Eastern time, on July 8, 1996.
The instructions accompanying the Rights Offering Order Forms and Community
Offering Order Forms should be read carefully and followed in detail. RIGHTS
OFFERING ORDER FORMS AND COMMUNITY OFFERING ORDER FORMS SHOULD BE SENT WITH
PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS OFFERING
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ORDER FORMS OR COMMUNITY OFFERING ORDER FORMS TO THE COMPANY OR THE ESCROW
AGENT.
THE METHOD OF DELIVERY OF RIGHTS OFFERING ORDER FORMS AND COMMUNITY
OFFERING 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 RIGHTS OFFERING ORDER FORMS AND COMMUNITY OFFERING
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 Offering 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
Offering Order Form. Rights Offering Order Forms and Community Offering 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 Rights Offering Order Forms or Community
Offering 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 BY THE COMPANY 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 Rights Offering Order Forms or Community
Offering 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.
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
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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 AMENDED ITS
RESTATED CERTIFICATE OF INCORPORATION ON JUNE 11, 1996 TO PROVIDE 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. Such amendment
further provides that holders of five percent or more of the Company's
outstanding voting stock on the Effective Date 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 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. Except
under certain circumstances with respect to existing stockholders
beneficially owning five percent or more of the Company's issued and
outstanding Common Stock, the Company does not anticipate accepting any
purchases of Common Stock in the Offering that, when aggregated with any
other shares beneficially owned by such purchaser, would equal or exceed five
percent of the Company's issued and outstanding Common Stock upon completion
of 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
While the Company's Board of Directors has determined that the
Recapitalization is in the best interests of the Company and its stockholders as
the means to facilitate the repayment in full of the FDIC Note, neither the
Board of Directors nor the Placement Agent is making any recommendation to
Record Date Holders, 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 or her
basis in his or her 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, 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.
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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 has
entered into Standby Purchase Agreements pursuant to which, subject to
certain conditions, certain institutional investors and other individuals
have severally agreed to acquire from the Company, at the Subscription Price,
up to a maximum of 562,500 Shares, if available after the Rights Offering and
the Community Offering. Pursuant to such agreements, the Company has agreed
to sell, and the Standby Purchasers have agreed to purchase, a minimum of
281,250 Shares at the Subscription Price pursuant to the Minimum Standby
Purchase Commitment.
Each Standby Purchase Agreement is 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 are 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 has acted 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."
The following table sets forth certain information relating to the Standby
Purchasers.
<TABLE>
<CAPTION>
STANDBY PURCHASERS
MINIMUM STANDBY
MAXIMUM COMMITMENT PURCHASE COMMITMENT
--------------------------- ---------------------------
STANDBY PURCHASER NO. OF SHARES AMOUNT NO. OF SHARES AMOUNT
- ----------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
AAA Northern New England, Inc. 30,000 $ 150,000 15,000 $ 75,000
Josiah T. Austin 45,000 225,000 22,500 112,500
Bangor Savings Bank 40,000 200,000 20,000 100,000
The Berkley Family Limited Partnership 60,000 300,000 30,000 150,000
John Sheldon Clark 45,000 225,000 22,500 112,500
Endicott Partners, L.P. 60,000 300,000 30,000 150,000
G & O Partners L.P. 60,000 300,000 30,000 150,000
Machias Savings Bank 40,000 200,000 20,000 100,000
Potomac Development Corp.
401(k) Plan and Trust* 17,000 85,000 8,500 42,500
Patricia R. Schwartz* 15,500 77,500 7,750 38,750
Andrew J. Potts 30,000 150,000 15,000 75,000
Kenneth S. Ray 30,000 150,000 15,000 75,000
James R. Waterston 30,000 150,000 15,000 75,000
WMG Company 60,000 300,000 30,000 150,000
------------ ------------ -------------- -----------
TOTAL 562,500 $2,812,500 281,250 $1,406,250
------------ ------------ -------------- -----------
</TABLE>
- -------------
* Ms. Schwartz is the spouse of David H. Schwartz, President of Potomac
Development Corp.
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<PAGE>
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 has acted 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 will 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 of the 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 the 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 in connection with the
Offering, 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 11,
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 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 by the Subscription Agent for the purpose of participating
in the Offering will be deposited by the Subscription Agent in a segregated
noninterest bearing account with the Escrow Agent pending final determination of
the issuance of the Shares. The Company will pay the fees and expenses of the
Subscription Agent and the Escrow Agent, and also has agreed to indemnify the
Subscription Agent and the Escrow Agent from certain liabilities in connection
with the Offering.
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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 approximately 50,000 Shares for an
aggregate purchase price of $250,000, 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 approximately 1,575
stockholders of record, and as of March 31, 1996, there were outstanding options
to purchase 308 shares of Common Stock, which the Company and the holder thereof
terminated as of May 30, 1996. On May 2, 1996, the Company's Board of Directors
adopted the Stock Option and Equity Incentive Plan, which was approved by
stockholders on June 11, 1996, pursuant to which 130,000 shares of Common Stock
have been reserved for issuance pursuant to the exercise of stock options to be
granted, or in connection with stock bonus awards to be made in accordance with
the terms of such plan. As of the date of this Prospectus, the Company has
awarded 7,500 shares of restricted stock and granted options exercisable for
46,500 shares of Common Stock under the Stock Option and Equity Incentive Plan,
subject to the consummation of the Offering.
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 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 under the Recapitalization Loan
Agreement. 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 1995 Form 10-K 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
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<PAGE>
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 the entire Board of Directors at a
duly constituted meeting called for such purpose or 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
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<PAGE>
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.
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 amended its
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. A person who is the beneficial owner of five percent or more of
the Company's outstanding voting stock on the Effective Date (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
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<PAGE>
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.
In connection with the approval of the amendment, the Board of Directors of
the Company 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.
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
-41-
<PAGE>
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 "FCME".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., 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.
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. Copies of any contract or document
referred to in the Prospectus and filed as part of the Registration Statement
with the Commission 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 1995 Form 10-K attached as Appendix A to this Prospectus and
the Company's March 1996 Form 10-Q attached to this Prospectus as Appendix B,
are incorporated by reference in this Prospectus.
All other documents subsequently filed by the Company pursuant to Sections
13(a) or 15(d) of the Exchange Act since the year ended December 31, 1995 and
prior to the termination of the
-42-
<PAGE>
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 BY REFERENCE IN THIS PROSPECTUS (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 to 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.
-43-
<PAGE>
Appendix A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO FORM 10-K ON FORM 10-K/A
(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.
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
A-1
<PAGE>
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.
A-2
<PAGE>
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.
A-3
<PAGE>
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 $ 205 $ 1,071 $29,690 $ 30,966
Commercial 9,795 21,619 19,383 50,797
Real estate construction - - - -
Commercial and industrial 753 1,223 548 2,524
Consumer and other 418 1,500 14,345 16,263
------- ------- ------- --------
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
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(1) Includes refinancing of existing portfolio and off balance sheet serviced
loans.
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% 18,249 2.42%
Savings deposits 44,201 2.91 51,162 2.74 54,706 2.91
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:
<TABLE>
<CAPTION>
Balance Weighted Average
Maturities (IN MONTHS) (In thousands) Interest Rate
- --------------------------------------------------------------------------
<S> <C> <C>
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%
------
------
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
FHLB advances $ 6,000 $12,612 $18,108
FDIC Note (1) 9,000 9,000 -
------- ------- -------
$15,000 $21,612 $18,108
------- ------- -------
------- ------- -------
</TABLE>
(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:
<TABLE>
<CAPTION>
Amount Maturing
Due Date (IN THOUSANDS) Interest Rate
--------------------------------------------------------------
<S> <C> <C>
July 1997 $2,000 6.06%
January 1998 2,000 5.92
March 1998 2,000 5.32
------
$6,000
------
------
</TABLE>
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:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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
A-13
<PAGE>
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.
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
A-16
<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
A-20
<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."
A-22
<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.
A-23
<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.
A-24
<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.
Location Address Leased/Owned Lease Expiration
- -------- ------- ------------ ----------------
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
(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.
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
A-25
<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 1,573 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 such
trades are limited and sporadic and there is no established public trading
market for the Common Stock.
For the periods reported below, the following table sets forth the range of
high and low closing bid prices for the Common Stock on the OTC Bulletin
Board as reported by NASDAQ Trading and Market Services. Such quotations
represent prices between dealers without adjustment for retail markups,
markdowns or commissions. Information prior to May 31, 1995 has been
adjusted to reflect the one for ten reverse stock split with respect to the
Company's outstanding Common Stock effective as of such date.
<TABLE>
<CAPTION>
High Low
- ------------------------------------------------------------
<S> <C> <C>
1994
First Quarter $1.50 $1.50
Second Quarter 0.10 0.10
Third Quarter -- --
Fourth Quarter 5.00 1.20
1995
First Quarter $5.00 $1.25
Second Quarter 2.00 1.50
Third Quarter 2.50 1.50
Fourth Quarter 3.50 1.50
</TABLE>
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.
A-26
<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)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
There were no cash dividends declared for the five years ended December 31,
1995.
(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.
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
</TABLE>
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>
<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)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
</TABLE>
(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.
<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 (6.31) (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 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
Other 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
</TABLE>
(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.
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 7.73% of total assets. This
compares to a positive Gap of $1.9 million or 1.2% of total assets 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. Managing the rate sensitivity within the
balance sheet can be accomplished in several ways. By managing the origination
of new assets and liabilities, or the rollover of the existing balance sheet
assets, incremental change towards the desired sensitivity position can be
achieved. However, as interest levels decrease the volume of new adjustable
rate loans decrease and conversely the demand for fixed rate loans increase.
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.
At December 31, 1995 securities classified as held to maturity consisted of $0.9
million in U.S. government treasury bills and $10.8 million in callable notes
issued by Fannie Mae, FHLB, Sallie Mae and Freddie Mac.
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%
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
--------------------
(DOLLARS IN THOUSANDS) Book Value Yield
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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:
<TABLE>
<CAPTION>
December 31,
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1-4 Family Residential 2 $ 128 3 $ 308 2 $ 238
5 or more Family Residential 5 977 5 1,073 5 970
Non-Residential Real Estate 6 3,902 3 4,286 5 4,212
Commercial and Industrial -- -- 2 156 2 12
-- ------ -- ------ -- ------
13 $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:
<TABLE>
<CAPTION>
Number of Balance
Type of Security Property Outstanding Loans (IN THOUSANDS)
- ------------------------------------------------------------------------------
<S> <C> <C>
Apartments 6 $ 2,647
Industrial 1 1,362
Single family 4 119
Other 13 2,757
-- ------
24 $6,885
-- ------
-- ------
</TABLE>
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:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
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:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Increase
(DOLLARS IN THOUSANDS) 1995 1994 (Decrease)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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)
------ ------ -------
------ ------ -------
</TABLE>
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 were worked out or reclassified to a foreclosed status. In addition,
loan balance levels declined in 1993 and 1994 compared to prior years.
A-46
<PAGE>
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:
<TABLE>
<CAPTION>
Increase
(DOLLARS IN THOUSANDS) 1994 1993 (Decrease)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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
------ ------ ----
------ ------ ----
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
Compared to
Year Ended December 31, 1994
---------------------------------------
Increase (Decrease)
Due to
-----------------------
(IN THOUSANDS) Rate Volume Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
----- ------ ------
----- ------ ------
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
average balance volumes.
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Compared to
Year Ended December 31, 1993
---------------------------------------
Increase (Decrease)
Due to
-----------------------
(IN THOUSANDS) Rate Volume Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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
----- ------ ------
----- ------ ------
</TABLE>
(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(3) 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(4) 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 (5) 4.13% 3.79% 3.26%
Net interest margin (6) 4.19% 3.97% 3.31%
</TABLE>
(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) Yields on available for sale securities are calculated based upon
historical cost.
(4) 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.
(5) Return on interest earning assets less cost of interest bearing
liabilities.
(6) Net interest income divided by average earning assets.
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>
CONSOLIDATED BALANCE SHEETS
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
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>
CONSOLIDATED STATEMENTS OF OPERATIONS
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
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 Before Provision for Loan Losses 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>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
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> <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>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
First Coastal Corporation and Subsidiary -------------------------------------
(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) -
Loans originated and acquired for resale (3,376) (3,497) (14,542)
- ----------------------------------------------------------------------------------------------------------------------------------
Sales of loans originated and acquired for resale 3,297 6,741 18,609
- ----------------------------------------------------------------------------------------------------------------------------------
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 THERE IS A HIGH
PROBABILITY 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
D<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> <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>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
------- -------- ------
------- -------- ------
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
------- -------
------- -------
</TABLE>
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>
NOTE Q. FIRST COASTAL CORPORATION
(PARENT COMPANY ONLY)
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
------------------------
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
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
------- -------
------- -------
STATEMENTS OF OPERATIONS
Year Ended December 31,
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
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>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities
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
SEE NOTE J FOR RESTRICTIONS ON THE PAYMENT OF DIVIDENDS BY SUBSIDIARY TO THE
COMPANY.
A-80
<PAGE>
NOTE R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended,
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) 3/31 6/30 9/30 12/31
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
- ----
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>
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<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. In connection with the consummation
of the Offering (as described under Item 11, "Executive Compensation --
Compensation of Directors"), the Company may seek to increase the size of its
Board of Directors pursuant to an amendment to the Company's Amended and
Restated Bylaws increasing the authorized number of directors. Under the
Company's Amended and Restated Bylaws, newly created directorships resulting
from any increase in the authorized number of directors may be filled, for the
unexpired term, by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created and until such director's successor shall have been
elected and qualified. As of June 11, 1996, the Company has made no
determination as to whether it will seek to increase the size of its Board of
Directors in connection with the Offering or who the directors designated to
fill any newly created directorships would be. In addition, there can be no
assurance that the Offering will be consummated.
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
- ---------- ----------------- ----------- -------
Normand E. Simard (1) 54 1987 1997
Edward K. Simensky 54 1994 1997
Charles A. Stewart III 61 1995 1998
Roger E. Klein 53 1990 1999
___________________
(1) Mr. Simard serves as Chairman of the Board of Directors of the Company and
the Bank.
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<PAGE>
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 Corp. and Timing Strategies Corp., 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.
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 member of the advisory board of
EastGuard Insurance Company, Saco, Maine ("EastGuard"), since 1995. Mr.
Simensky was a director of Mutual Fire Insurance Company, Saco, Maine ("Mutual
Fire"), from 1987 until the acquisition of Mutual Fire by EastGuard in 1995.
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 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.
A-83
<PAGE>
AGE AT
NAME DECEMBER 31, 1995 POSITIONS HELD
------ ------------------- ----------------
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
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 initially as Vice President -- Commercial Lending, then as Vice
President in the bank's special assets group. In December 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. 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.
Each executive officer has entered into an employment protection agreement with
the Bank. In addition, the Boards of Directors of the Company and the Bank have
proposed new employment agreements with each of Messrs. Caswell and Byrd, which
agreements are currently under discussion and which agreements would
supersede the existing employment protection agreements with such executive
officers. 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.
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<PAGE>
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 (former) (2)
Dennis D. Byrd 1995 81,154 21,500 -
Treasurer 1994 53,510 3,000 -
1993 41,554 5,000 -
</TABLE>
_______________________
(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.
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.
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<PAGE>
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(4)/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.
(4) Such options expire March 18, 1996.
- ----------------------------------------
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.
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<PAGE>
PENSION PLAN TABLE
YEARS OF SERVICE (1)
--------------------
<TABLE>
<CAPTION>
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
</TABLE>
______________________
(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.
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
A-87
<PAGE>
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.
On May 2, 1996, the Board of Directors of the Company adopted the First Coastal
Corporation 1996 Stock Option and Equity Incentive Plan (the "Plan") for the
benefit of directors and employees of the Company and employees of any
subsidiary of the Company. On June 11, 1996, the Plan was approved by the
Company's stockholders. Under the terms of the Plan, each of the four current
non-employee directors of the Company will be granted a non-qualifying option
with a 10-year term for 1,500 shares of Common Stock (representing an
aggregate of options exercisable for 6,000 shares of Common Stock) on the
date of the first public offering of shares of Common Stock that occurs after
the date of adoption of the Plan, but such grants will not be made if no such
offering occurs before December 31, 1996. The exercise price of such options
will be equal to the offering price of the Company's Common Stock in
connection with such public offering. The Company has filed a registration
statement on Form S-2 with the SEC with respect to a proposed public offering
of 750,000 shares of Common Stock (the "Offering") and expects to consummate
the Offering in the third quarter of 1996. The Offering will be made only by
means of a prospectus. The Plan further provides that, subject to the
availability of shares, as of each annual meeting of stockholders of the
Company after December 31, 1996, each non-employee director of the Company
who is elected by the stockholders at, or whose term of office continues
after, such meeting will be granted a non-qualifying option with a 10-year
term for 500 shares upon the date of such election at a per share exercise
price equal to the market value of a share of Common Stock on the date of
grant.
EMPLOYMENT AGREEMENTS
In December 1994, the Bank entered into employment protection agreements (each
an "Employment Protection Agreement" and together, 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." "Current compensation" is equal to (i) the
executive officer's salary at the annual rate in effect at the time of 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" of $3,000 each were payable to
Messrs. Caswell and Byrd on December 31, 1994, and April 30, August 31, and
December 31, 1995, respectively. 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").
A-88
<PAGE>
The Boards of Directors of the Company and the Bank have proposed new
employment agreements (each a "Proposed Employment Agreement" and together,
the "Proposed Employment Agreements") with each of Messrs. Caswell and Byrd,
which agreements are currently under discussion. The Proposed Employment
Agreements would supersede the Employment Protection Agreements.
Under their respective Proposed Employment Agreement, each executive officer
would be eligible to receive annual salary increases based on increases in
the cost of living and based upon performance or merit, as determined by the
Boards of Directors of the Company and the Bank. Each executive officer
would also be eligible to receive discretionary bonuses as may be authorized
by the Boards of Directors of the Company or the Bank and would be eligible
to participate in any plan of the Company or the Bank relating to stock
options, stock purchases, pension, thrift, profit sharing, employee stock
ownership, group life insurance, medical coverage, disability insurance,
education or other retirement or employee benefits that the Company or the
Bank has adopted or may adopt for the benefit of its executive employees. In
addition, each executive officer would be authorized to incur reasonable
business expenses in the performance of his duties. The Proposed Employment
Agreements provide for initial terms ending December 31, 1997 with renewals
for one additional consecutive 12-month period as of December 31, 1996 and
each subsequent anniversary of December 31, unless the Company and the Bank,
or the executive officer, gives written notice to the contrary at least two
months prior to any such renewal date. Under the Proposed Employment
Agreements, the base salaries through December 31, 1996 for Messrs. Caswell
and Byrd would be $124,800 and $88,400, respectively, which salaries may not
be reduced without the consent of the executive officer.
The Boards of Directors of the Company and the Bank may terminate the
executive officer's employment at any time. Each proposed agreement provides
that if the executive officer's employment is terminated other than for cause
(as defined), disability or incapacitation or the executive officer
terminates employment with good reason (as defined), the officer would be
entitled (subject to certain limitations) (a) to continue to participate in
and accrue benefits under certain benefit plans for the remaining term of the
agreement, but not in excess of 24 months, (b) to receive certain insurance
and indemnification benefits with respect to all of such officer's acts or
omissions while an officer or director until the final expiration or running
of all periods of limitation against action which may be applicable to such
acts or omissions, and (c) to be paid a lump sum cash payment as liquidated
damages in an amount equal to the amount that would be payable over a period
equal to the remaining term of the agreement, but not in excess of 24 months.
The Proposed Employment Agreements provide that no payment is required to be
made that would constitute a "golden parachute payment" (as defined) pursuant
to certain rules and regulations of the FDIC.
In December 1994, the Bank entered into an employment agreement with Mr.
Whittaker (the "Whittaker Employment Agreement"), 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. 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. The Bank agreed to pay or
reimburse Mr. Whittaker
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<PAGE>
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of June 11, 1996 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>
Gregory T. Caswell
President and Chief Executive Officer 5,000 (3) *
Dennis D. Byrd
Treasurer 2,500 (3) *
Roger E. Klein
Director 102 *
Normand E. Simard
Chairman of the Board 1,438 (4) *
Edward K. Simensky
Director 205 *
Charles A. Stewart III
Director -- --
James H. Whittaker
President and Chief Executive Officer (former) (5) 3,376 (6) *
All directors and executive officers
as a group (6 persons) 9,245 (7) 1.5%
</TABLE>
___________________
* 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 June 11, 1996.
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 restricted stock award made under the Plan (which vests over a
three-year period (from May 2, 1996)), subject to completion of the
Offering.
(4) Includes 616 shares held in a trust of which Mr. Simard is the sole
trustee.
(5) Mr. Whittaker resigned as President and Chief Executive Officer of the
Company and the Bank effective March 31, 1995.
(6) 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.
(7) Includes 7,500 shares of restricted stock awarded under the Plan (which
vest over a three-year period (from May 2, 1996)), subject to completion
of the Offering.
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<PAGE>
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of June 11, 1996 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)(2) OUTSTANDING
-------------------- ---------------------- --------------
<S> <C> <C>
Everest Partners, L.P. . . . . . . . . . . . 53,000 (3) 8.8%
100 Hudson Street, Suite 3D
New York, New York 10013
Jonathan Googel. . . . . . . . . . . . . . . 31,050 (4) 5.2
Ben Sisti
65 Kane Street
West Hartford, Connecticut 06119
</TABLE>
________________________
(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 or she
has or shares voting or investment power or (ii) of which he or she has
the right to acquire beneficial ownership at any time within 60 days of
June 11, 1996. 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) A Schedule 13D dated May 28, 1996 ("Schedule 13D") states that Everest
Partners, L.P. has sole voting power and sole dispositive power over
such shares. The Schedule 13D also states that Everest Advisors, Inc.
("Advisors"), the sole general partner of Everest Partners, L.P., and
David M.W. Harvey, the sole stockholder, sole director, president and
secretary of Advisors, have sole voting power and sole dispositive power
over such shares, although Advisors and Mr. Harvey disclaim direct and
indirect beneficial ownership of the shares reported pursuant to the
Schedule 13D.
(4) 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.
The Company has been advised that Messrs. Googel and Sisti are the subject
of bankruptcy proceedings pending in the United States Bankruptcy Court
for the District of Connecticut and that their individual bankruptcy
proceedings have been substantively consolidated with the bankruptcy
proceedings of Colonial Realty Company, a Connecticut general partnership.
Hal M. Hirsch of Purchase, New York, serves as bankruptcy trustee of the
consolidated Chapter 7 estates.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time the Bank makes residential mortgage loans to directors,
officers, principal stockholders and employees of the Company. Management
believes that these residential mortgage loans are made in the ordinary course
of business, are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and neither involve more than normal risk of collectibility nor
present other unfavorable features. Other than residential mortgage loans, the
Bank does not make loans to directors, officers, principal stockholders or
employees of the Company, except for a personal credit card issued to an
employee of the Bank prior to its adoption of this loan policy.
All future residential mortgage loans made by the Bank to directors, officers,
principal stockholders and employees of the Company will be made on terms no
less favorable than those available from unaffiliated third parties, will be
made in accordance with the requirements of Regulation O under the Federal
Reserve Act and will be approved by a majority of the Board of Directors of the
Bank, including a majority of disinterested directors.
During the 1995 fiscal year, the Bank paid Futures Strategies Corp. ("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.
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<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)(a) Restated Certificate of Incorporation (filed as Exhibit
3.1(i) 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).
3.1(i)(b) Certificate of Amendment of Restated Certificate of
Incorporation.
3.1(ii) Amended and Restated Bylaws (filed as Exhibit No. 3.1(ii)
to 1995 Form 10-K and incorporated herein by reference).
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).
A-93
<PAGE>
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).
10.3 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).
10.4 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 as Exhibit
10.11 to 1995 Form 10-K, and incorporated herein by reference).
10.12 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).
10.13 First Coastal Corporation 1996 Stock Option and Equity
Incentive Plan.
A-94
<PAGE>
EXHIBIT NO. 21 SUBSIDIARY OF THE REGISTRANT
Subsidiary of the Company (filed as Exhibit 21 to 1995 Form 10-K, and
incorporated herein by reference).
EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE
14(b) Not applicable.
14(c) Exhibits to this Amendment No. 3 to Form 10-K on Form 10-K/A are attached
or incorporated herein by reference as stated above.
14(d) Not applicable.
A-95
<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
June 13, 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.
June 13, 1996 By:/s/ Gregory T. Caswell
---------------------------
Gregory T. Caswell
President and Chief Executive
Officer
(Principal Executive Officer)
June 13, 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.
June 13, 1996 By:/s/ Normand E. Simard
---------------------------
Normand E. Simard
Chairman of the Board and Director
June 13, 1996 By:/s/ Roger E. Klein
---------------------------
Roger E. Klein
Director
June 13, 1996 By:/s/ Edward K. Simensky
---------------------------
Edward K. Simensky
Director
June 13, 1996 By:/s/ Charles A. Stewart III
---------------------------
Charles A. Stewart III
Director
A-96
<PAGE>
Appendix B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-Q ON FORM 10-Q/A
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (IRS 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
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 [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, is:
Class: COMMON STOCK, PAR VALUE $1.00 PER SHARE
Outstanding at April 30, 1996 (approximate): 600,361 shares
B-1
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements
(Unaudited), March 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
B-2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(IN THOUSANDS) March 31, 1996 December 31,1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 4,316 $ 4,466
Interest earning deposits 14,087 4,375
-------- --------
Cash and cash equivalents 18,403 8,841
Federal funds sold - 10,000
Investment securities:
Held-to-maturity 11,798 11,786
Available-for-sale (at market value) 12,767 7,926
-------- --------
24,565 19,712
Federal Home Loan Bank stock-at cost 1,315 1,315
Loans held for sale 1,781 281
Loans 96,024 100,550
Less:Deferred loan fees, net (15) (22)
Allowance for loan losses (2,646) (2,659)
-------- --------
93,363 97,869
Premises and equipment 3,159 3,073
Real estate owned and repossessions 2,164 1,973
Other assets 2,259 2,389
-------- --------
TOTAL ASSETS $147,009 $145,453
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $126,746 $125,665
Advances from Federal Home Loan Bank 6,000 6,000
FDIC Note 9,000 9,000
Accrued interest on FDIC Note 559 419
Accrued expenses and other liabilities 433 372
-------- --------
TOTAL LIABILITIES 142,738 141,456
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; Authorized
1,000,000 shares; none outstanding
Common Stock, $1.00 par value; Authorized
6,700,000 shares; issued and outstanding as
of March 31, 1996 and December 31, 1995 - 600,361
(See Note B for information regarding the
reverse stock split) 600 600
Paid-in Capital 29,375 29,375
Retained earnings deficit (25,679) (26,016)
Unrealized gain (loss) on available for sale
securities (25) 38
-------- --------
TOTAL STOCKHOLDERS' EQUITY 4,271 3,997
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $147,009 $145,453
-------- --------
-------- --------
</TABLE>
See Notes to condensed consolidated financial statements.
B-3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
- --------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended March 31,
- --------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $2,426 $2,430
Interest and dividends on investment securities 325 269
Other interest income 252 218
--------- ---------
TOTAL INTEREST AND DIVIDEND INCOME 3,003 2,917
--------- ---------
INTEREST EXPENSE
Deposits 1,263 1,154
Borrowings
Advances from Federal Home Loan Bank 88 172
FDIC Note 141 73
--------- ---------
Total Interest Expense 1,492 1,399
--------- ---------
Net Interest Income Before Provision for Loan Losses 1,511 1,518
Provision for Loan Losses - 100
--------- ---------
Net Interest Income After Provision for Loan Losses 1,511 1,418
OTHER INCOME
Service charges on deposit accounts 70 58
Gain on investment securities transactions 7 -
Loss on sales of mortgage loans (8) -
Other 62 110
--------- ---------
131 168
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 513 542
Occupancy 130 112
Net cost of operation or real estate owned and
repossessions 56 (7)
Other 606 714
--------- ---------
1,305 1,361
--------- ---------
Income Before Income Taxes 337 225
Income Tax - -
--------- ---------
NET INCOME $ 337 $ 225
--------- ---------
--------- ---------
PER SHARE AMOUNTS
Weighted Average Shares Outstanding 600,361 600,361
Income Per Share (See Note B for information regarding
the reverse stock split) $ .56 $ .37
--------- ---------
--------- ---------
</TABLE>
See Notes to condensed consolidated financial statements.
B-4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 337 $ 225
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses - 100
Writedowns of REO 27 14
Provision for depreciation and amortization 80 73
Amortization of investment security (discounts) (10) (93)
Realized investment securities (gains) (7) -
(Gains) from assets held in trading accounts - (33)
Realized losses on assets held for sale 8 -
Decrease in trading account securities - 948
Loans originated and acquired for resale (2,517) (122)
Sales of loans originated and acquired for sale 1,009 69
Decrease in interest receivable 116 58
Increase in interest payable 156 72
Net change in other assets (510) 648
Net change in other liabilities 45 (121)
------- -------
Net cash provided by operating activities (1,266) 1,838
------- -------
INVESTING ACTIVITIES
Decrease in federal funds sold 10,000 -
Proceeds from sales and maturities of investment securities available for sale 1,080 1,049
Maturities of securities held to maturity 5,000 -
Purchases of investment securities available for sale (5,976) -
Purchases of investment securities held to maturity (5,003) (936)
Net change in loans 4,812 911
Net purchases of premises and equipment (166) (11)
------- -------
Net cash provided (used) by investing activities 9,747 1,013
------- -------
FINANCING ACTIVITIES
Net change in deposits 1,081 (3,010)
Payments on borrowings - (4,945)
------- -------
Net cash used by financing activities 1,081 (7,955)
------- -------
Increase (decrease) in cash and cash equivalents 9,562 (5,014)
Cash and cash equivalents at beginning of period 8,841 11,337
------- -------
Cash and cash equivalents (interest and noninterest bearing) at end of period $18,403 $ 6,233
------- -------
------- -------
NONCASH INVESTING ACTIVITIES
Change in unrealized holding losses on investment securities available for sale $ 63 $ 172
Securities available for sale collateralized by portfolio mortgage loans -
Transfer of loans to real estate owned and repossessions 306 583
</TABLE>
See Notes to consolidated financial statements.
B-5
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - CERTAIN REGULATORY MATTERS
RECEIVERSHIP OF SUFFIELD BANK
On September 6, 1991, First Coastal Corporation (the "Company") announced that
Suffield Bank was placed into receivership by the Connecticut Banking Department
and the Federal Deposit Insurance Corporation ("FDIC") was appointed as the
receiver. Following the receivership of Suffield Bank, management's efforts
were focused for an extended period of time on resolving the cross guaranty
claim, as described below, and improving operations of the Company's subsidiary,
Coastal Savings Bank ("Coastal" or the "Bank").
SETTLEMENT OF FDIC 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. On April 18, 1996, the Company filed with the Securities and
Exchange Commission a registration statement on Form S-2 with respect to a
proposed registered public offering of 750,000 shares of the Company's common
stock. As part of the recapitalization, the Company expects to raise
approximately $3.0 to $4.0 million through such 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.
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
B-6
<PAGE>
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 which was classified
substandard, in whole or in part, and other real estate owned with a book value
in excess of $500,000, as well as the formulation of a strategic plan and
policies covering investments, funds management and various lending policies.
At March 31, 1996, the Bank had a Tier 1 capital to total assets ratio of 9.45%.
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, December 31, 1995 and March 31, 1996,
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 of tier 1 capital to total assets, tier 1 capital to risk-
weighted assets, qualifying total capital to risk-weighted assets of 9.45%,
15.21%, and 16.48%, respectively, at March 31, 1996 were in compliance with such
guidelines.
B-7
<PAGE>
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 March 31, 1996, the
Bank had a Tier 1 capital to total assets ratio of 9.45%.
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
March 31, 1996, the Bank had a ratio of Tier 1 capital to risk-weighted assets
of 15.21% and a ratio of qualifying total capital to risk-weighted assets of
16.48%.
NOTE B - ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Most of the Company's commercial real estate loans as of March 31, 1996 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. There was no effect to the Company's financial statements or results of
operations on January 1 and March 31, 1996 as a result of implementing FASB
Statement No. 122.
B-8
<PAGE>
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.
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 three months ended March 31, 1996,
investment securities classified as available for sale reflected an unrealized
loss of $25,000.
As of March 31, 1996, 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 is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic conditions,
growth and
B-9
<PAGE>
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 March 31, 1996.
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.
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, $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.
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
March 31, 1996 and December 31, 1995.
B-10
<PAGE>
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 IRS reviewed and approved the refund claims
and forwarded the case to the Joint Committee on Taxation in Washington, D.C.
with a recommendation that the refunds be approved as made. On April 3, 1996
the Company was notified by the Joint Committee on Taxation in Washington, D.C.
that all claims had been approved.
The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1991.
B-11
<PAGE>
PART I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
TOTAL ASSETS
At March 31, 1996, total assets were $147.0 million, representing an increase of
$1.5 million (or 1.1%) from total assets of $145.5 million at December 31, 1995.
This increase was primarily attributable to the $1.0 million increase in
deposits. However, as of April 26, 1996, the Company consummated the sale of
its Kezar Falls branch to Maine Bank & Trust Company which resulted in a
decrease in deposits and overall total assets of approximately $9.9 million in
the second quarter of 1996. See "Financial Condition - Liquidity - Coastal" for
more information concerning the branch sale.
INVESTMENTS
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 March 31, 1996 were $24.6 million compared to $19.7
million at December 31, 1995. This increase is attributable to the purchase of
$5.0 million in U.S. government agency callable notes, $4.0 million in GNMA
mortgage-backed securities and $2.0 million in U.S. treasury securities,
partially offset by maturities of U.S. treasury securities totaling $2.0 million
and $4.0 million of U.S. government agency callable notes which were called
during the first quarter of 1996. 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.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------
Fair Gross Gross
Amortized Market Unrealized Unrealized
(IN THOUSANDS) Cost Value Gain Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $5,958 $5,968 $18 $ (8)
Mortgage backed securities 4,724 4,695 10 (39)
Equity/mutual fund 2,000 1,994 - (6)
Other 110 110 - -
------- ------- ------- -------
$12,792 $12,767 $ 28 $ (53)
------- ------- ------- -------
------- ------- ------- -------
Held to maturity:
U.S. government callable notes 11,798 11,688 5 (115)
------- ------- ------- -------
$11,798 $11,688 $ 5 $(115)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The net unrealized loss on investment securities classified as available for
sale was $25,000 at March 31, 1996, versus a net unrealized gain of $38,000 at
December 31, 1995. The net unrealized loss on securities available for sale is
attributable to an increase in interest rates during the first three months of
1996. The Company will continue to give consideration to further investments in
U.S. government agency, U.S. government obligations
B-12
<PAGE>
and mortgage backed securities, after giving consideration to the potential
impact on the fair value of these securities that may result from interest rate
fluctuations in comparison to alternative investment securities.
The following table represents the contractual maturities for investments in
debt securities for each major security type at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------
Maturing
----------------------------------------------------------
After One
Within But Within After
(IN THOUSANDS) One Year Five Years Five Years Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $ 4,007 $ 1,961 - $ 5,968
Mortgage backed securities - - 4,695 4,695
-------- -------- -------- --------
$ 4,007 $ 1,961 $ 4,695 $ 10,663
-------- -------- -------- --------
-------- -------- -------- --------
Held to maturity:
U.S. government agency callable
notes (final maturity) - 7,998 3,800 11,798
-------- -------- -------- --------
$ - $ 7,998 $ 3,800 $ 11,798
-------- -------- -------- --------
-------- -------- -------- --------
LOANS
Loans consisted of the following:
March 31, December 31,
(IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------
Real estate mortgage loans:
Residential $ 28,724 $30,966
Commercial 49,258 50,797
Commercial and industrial loans 2,264 2,524
Consumer and other loans 15,778 16,263
-------- --------
$ 96,024 $100,550
-------- --------
-------- --------
</TABLE>
Loans decreased $4.5 million (or 4.5%) at March 31, 1996 as compared to
December 31, 1995. The most significant reason for the decrease was the
prepayment of loans in advance of their scheduled maturity dates, as borrowers
refinanced at lower interest rates.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses ("Allowance") was $2.6 million at March
31, 1996 compared to $2.7 million at December 31, 1995. The Allowance
represented 2.76% and 2.65% of total loans, and 182.48% and 47.96% of
nonperforming loans, at March 31, 1996 and December 31, 1995, respectively.
Although the balance of the Allowance remained relatively unchanged at March 31,
1996 as compared to December 31, 1995, the level is still expected to trend
moderately downwards for the remainder of 1996. This is anticipated to occur as
previously identified loan loss exposure is quantified and recognized (charged-
off),
B-13
<PAGE>
either through negotiations and work out efforts, or through the commencement of
collateral liquidations. Management believes there will not be a dramatic
decline in the Allowance such as was experienced at the end of 1995.
In determining reserve adequacy, management places a high reliance upon the
review of individual commercial loan assets to determine whether or not loss
exposure exists. All such loans classified substandard or worse are assigned
individual allocated loan loss reserves, where appropriate. Consistent with
current guidelines, a five percent reserve is also established against loans
graded special mention and various reserve percentages are established against
the non-classified balance of the commercial portfolio, as well as residential
loans, construction loans and consumer loans. This methodology relies upon a
combination of current and anticipated trends, along with historical trends, in
establishing the appropriate reserve percentages for the different portfolios.
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 increased allowance for loan losses. Conversely, further improvement in
overall asset quality, favorable local economic conditions or a favorable local
real estate market, could positively effect the Allowance.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
March 31, December 31,
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 736 $1,948
Accruing loans past due 90 days or more 89 169
Restructured loans 625 3,427
Real estate owned 2,164 1,973
-------- -------
Total $3,614 $7,517
-------- -------
-------- -------
</TABLE>
The level of nonperforming assets declined 51.9% from December 31, 1995 to March
31, 1996, from $7.5 million to $3.6 million, respectively. The current level of
nonperforming assets represents an 86.8% decline from the level established at
December 31, 1991 of $27.3 million. While the downward trend in nonperforming
assets that has developed since 1991 is significant, the Company continues to
hold a large concentration of commercial real estate loans that remain
vulnerable to default. Many of these loans were made at or near the peak in the
commercial real estate market in the late 1980's and the collateral coverage for
many loans may not be adequate to protect the Bank from potential losses in the
event such loans become nonperforming. Deterioration in the local economy or
real estate market, or upward movements in interest rates, could have an adverse
impact on currently performing commercial real estate loan relationships. These
factors could result in an increased incidence of loan defaults and, as a
result, an increased level of nonperforming loans.
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 March 31, 1996, the recorded investment in loans for which
impairment has been recognized
B-14
<PAGE>
in accordance with FASB Statement No. 114 totaled $1,251,000 compared to
$3,728,000 at December 31, 1995. The corresponding allocated reserves for these
loans was $304,000 for the period ended March 31, 1996. All loans classified as
impaired totaling $1,251,000 are also classified as nonperforming assets at
March 31, 1996, of which $626,000 are nonaccrual and $625,000 are troubled debt
restructures. All impaired loans were secured by real estate at March 31, 1996
and accounted for by the lower of the fair value of the collateral or amortized
loan value.
Impaired loans consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) March 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 70 $ 301
Commercial 1,181 3,427
Real estate construction loans - -
Commercial and industrial loans - -
Consumer and other loans - -
-------- --------
$ 1,251 $ 3,728
-------- --------
-------- -------
</TABLE>
REAL ESTATE OWNED ("REO")
At March 31, 1996, REO consisted of 8 commercial and residential real estate
properties equaling $2,081,000 and 5 repossessed assets equaling $83,000.
REO is initially recorded at the lower of cost or fair value (minus estimated
costs to sell) at the date the Bank acquires title to the property and any
difference is charged to the Allowance at the time the property is classified as
REO. Subsequently, the values of such properties are reviewed by management and
writedowns, if any, are charged to expense. Costs relating to the development
and improvement of properties are capitalized; holding costs are charged to
expense.
LIQUIDITY - COASTAL
Deposits totaled $126.7 million at March 31, 1996, an increase of $1.0 million
(or 0.9%) from the level of $125.7 million at December 31, 1995.
On April 26, 1996, the Bank consummated its sale of the Kezar Falls branch to
Maine Bank & Trust Company. Included in the sale were all of the branch
deposits totaling $9.9 million and certain of the furniture, fixtures and
equipment of the branch. The Bank recognized a premium paid on the deposits of
$403,000, which was offset by expenses relating to the sale of $37,000.
On April 20, 1996, the Bank implemented a new deposit program featuring seven
new checking account products. The new program will entail increased
expenditures in marketing and a new mix of deposit products, which the Bank
believes will help to facilitate its efforts to increase its market share and
its non-interest income and to decrease its cost of funds.
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. 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
B-15
<PAGE>
maturity restriction on new fixed term and fixed rate advances from six months
to one year. 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.
LIQUIDITY - PARENT
On a parent company only ("parent") basis, the Company conducts no separate
operations. Its business consists of the business of its banking subsidiary.
In addition to debt service relating 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 consist
primarily of Delaware franchise taxes associated with the Company's authorized
capital stock, and 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 March 31, 1996 the parent's assets (other than its investment in
its subsidiary) consisted of $47,000 in cash.
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 (the "Amended and Restated Settlement Agreement"), 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 May 3, 1996, November 13, 1995 and November 30, 1994, following the receipt
of appropriate regulatory approvals, Coastal paid the Company cash dividends of
$200,000, $200,000 and $175,000, respectively, for certain current and
anticipated operating expenses of the Company and certain expenses related to
the Company's recapitalization, some of which are reimbursable expenses related
to the proposed equity offering by the Company.
B-16
<PAGE>
CAPITAL - COASTAL
The table below sets forth the regulatory capital requirements and capital
ratios for Coastal at March 31, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
Tier 1 capital (Leverage) to total assets ratio (1)
- ----------------------------------------------------
Qualifying capital $13,740
Actual % 9.45%
Minimum requirement % 6.00%
Average assets for first quarter $145,368
Tier 1 capital to risk-weighted assets
- --------------------------------------
Qualifying capital $13,740
Actual % 15.21%
Minimum requirement % 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- --------------------------------------
Qualifying capital $14,888
Actual % 16.48%
Minimum requirement % 8.00%
Gross risk-weighted assets $90,345
</TABLE>
________________________
(1) Calculated on an average quarterly basis
Note: As described in Note A to the Consolidated Financial Statements, the
Memorandum (effective November 22, 1994) 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
March 31, 1996 was 9.45%.
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, December 31, 1995 and March 31, 1996, 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 of
tier 1 capital to total assets, tier 1 capital to risk-weighted
assets, and qualifying total capital to risk-weighted assets of 9.45%, 15.21%,
and 16.48%, respectively, at March 31, 1996 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
B-17
<PAGE>
assets, and qualifying total capital to risk-weighted assets on a
consolidated basis, such ratios would be 2.90%, 4.68% and 5.95%,
respectively, at March 31, 1996.
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. Pursuant to the Amended and Restated Settlement Agreement, no
dividends may be paid to the Company's stockholders until the unpaid principal
and interest under the Note payable to the FDIC are paid in full.
RESULTS OF OPERATIONS
NET INCOME(LOSS)
The net income for the three months ended March 31, 1996 was $337,000, compared
with net income of $225,000 for the same period last year. The improvement in
earnings for 1996 is primarily attributable to no provision for loan loss
expense for the quarter ended March 31, 1996, as compared to $100,000 of
provision expense for the same period last year. Effective April 26, 1996, the
Company consummated the sale of its Kezar Falls branch to Maine Bank & Trust
Company and will recognize in the second quarter of 1996 a net gain of $366,000,
calculated by deducting $37,000 in expenses associated with the closing from the
gross deposit premium received of $403,000.
NET INTEREST INCOME
Net interest income remained relatively unchanged for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995, at $1.5
million. Included in the March 31, 1996 and March 31, 1995 net interest income
total is interest expense of $141,000 and $73,000, respectively, for the
Company's $9.0 million Note payable to the FDIC. Although net interest income
remained relatively unchanged, the Company's average earning assets and average
interest bearing liabilities declined $4.7 million and $6.0 million,
respectively, for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. This drop in average earning assets and
average interest bearing liabilities was largely offset in part by an increase
in the interest margin between earning assets and interest bearing liabilities.
The yield on average earning assets increased from 7.81% at March 31, 1995 to
8.26% at March 31, 1996, a gain of .45%, as compared to an increase in the cost
of average interest bearing liabilities from 3.75% for the quarter ended March
31, 1995 to 4.10% for the quarter ended March 31, 1996, or .35%.
PROVISION FOR LOAN LOSSES
There was no provision for loan loss expense for the three months ended March
31, 1996, versus $100,000 provision expense for the three months ended March 31,
1995. This is attributable to several factors, including the essentially
unchanged level of the Allowance, both in dollars ($2.6 million at March 31,
1996 versus $2.7 million at December 31, 1995) and as a percentage of total
loans (2.76% at March 31, 1996 versus 2.65% at December 31, 1995), the decline
in nonperforming loans, and management's review of the portfolio and its
determination of the adequacy of the Allowance as of March 31, 1996.
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
B-18
<PAGE>
movement in interest rates, could have an adverse impact on the loan portfolio
that could result in the need for increased provision for loan loss expense.
Management believes that the Allowance is adequate at March 31, 1996. However,
future additions to the Allowance may be necessary based on changes in the
financial condition of various borrowers, new information that becomes available
relative to various borrowers and loan real estate collateral, 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. Such authorities may
require the Company to recognize additions to the Allowance based upon
information available to them and their judgments at the time of their
examination.
OTHER OPERATING INCOME
Other operating income for the three months ended March 31, 1996 was $131,000,
as compared to $168,000 for the same respective period in 1995. Other income
for the three months ended March 31, 1995 includes a realized gain on trading
accounts of $33,000.
OTHER OPERATING EXPENSES
Other operating expenses for the three months ended March 31, 1996 was $1.3
million, as compared to $1.4 million for the same respective period in 1995.
The $56,000 decline is primarily attributable to three items: (i) a reduction
in legal expenses of $89,000, (ii) a $36,000 reduction in FDIC insurance expense
on deposits resulting from a decrease in the Bank's assessment rate, (iii)
partially offset by an increase in the net cost of REO of $63,000 as a result of
increased expenditures on various properties. Additionally, as a result of the
implementation of the Bank's new deposit program, management believes that its
other operating expense category will increase in the future, mainly in the
marketing area, in order for the Bank to facilitate its efforts to increase the
Bank's market share of deposits As of March 31, 1996, the Bank had
approximately $50,000 in prepaid expenses associated with the new program which
are anticipated to be expensed during the second quarter of 1996.
B-19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information required by this Item is set forth under Note A - Certain
Regulatory Matters, under the caption "Settlement of the Cross Guaranty
Claim." As of March 31, 1996, 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.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during
the first quarter of 1996.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits that are filed with this Form 10-Q, or that are incorporated
herein by reference, are set forth below:
3.1(i) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) 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).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1995
Form 10-K, and incorporated herein by reference).
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).
10.3 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).
B-20
<PAGE>
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 as
Exhibit 10.11 to 1995 Form 10-K, and incorporated herein by reference).
10.12 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).
27 Financial Data Schedule
(b) No Form 8-K was filed by the Company during the first quarter of 1996.
B-21
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: June 4, 1996 By: /s/ Gregory T. Caswell
-----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
In accordance with 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.
Date: June 4, 1996 By: /s/ Gregory T. Caswell
-----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 4, 1996 By: /s/ Dennis D. Byrd
-----------------------------------------
Dennis D. Byrd
Treasurer
(Principal Financial and Accounting Officer)
B-22
<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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Market for Common Stock and Dividends. . . . . . . . . . . . . . . . . . . 28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Determination of Subscription Price. . . . . . . . . . . . . . . . . . . . 30
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Standby Purchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . 36
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 38
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . 42
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
First Coastal Corporation Amendment No. 3 to Annual Report
on Form 10-K/A for the Year Ended December 31, 1995. . . . . . . . . . . A-1
First Coastal Corporation Amendment No. 1 to Quarterly Report
on Form 10-Q/A for the Quarter Ended March 31, 1996. . . . . . . . . . . B-1
</TABLE>
750,000 SHARES
FIRST
COASTAL
CORPORATION
COMMON STOCK
----------
PROSPECTUS
----------
FIRST ALBANY CORPORATION
June 13, 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 . . . . . . . . . . . . . . . . . . . 30,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 55,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 205,000
Printing and Engraving Expenses. . . . . . . . . . . . . . . . . 14,000
Registrar and Subscription Agent Fees. . . . . . . . . . . . . . 6,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 40,313
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $358,750
--------
--------
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
- ------ -------------------
3.1(i)(a) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) 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).
3.1(i)(b) Certificate of Amendment of Restated Certificate of Incorporation
(filed as Exhibit 3.1(i)(b) to Amendment No. 3 to Annual Report on
Form 10-K on Form 10-K/A for the year ended December 31, 1995, File
No. 0-14087, and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1995
Form 10-K, and incorporated herein by reference).
*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.)
II-2
<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 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) Form of Loan Agreement among the Company, as borrower, Androscoggin
Savings Bank, Bangor Savings Bank, Machias Savings Bank and Norway
Savings Bank, as lenders, and Machias Savings Bank, as agent.
10(n) Form of Promissory Note by the Company for the benefit of the
Lenders.
10(o) Form of Stock Pledge Agreement between the Company and Machias
Savings Bank, for itself and as agent for the Lenders.
*10(p) 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.
*99(a) Form of Standby Stock Purchase Agreement.
*99(b) Form of First Coastal Corporation Rights Offering Order Form (and
accompanying instructions).
*99(c) Form of First Coastal Corporation Community Offering Order Form (and
accompanying instructions).
*99(d) Form of Notice of Guaranteed Delivery.
*99(e) Form of Broker Assistance Agreement.
*99(f) Form of Escrow Agreement between First Coastal Corporation and
Mellon Bank, N.A.
*99(g) Form of Subscription Agent Agreement between First Coastal
Corporation and ChaseMellon Shareholder Services, L.L.C.
- --------------------------
* Previously filed.
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 Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Westbrook, State of Maine, on this 13th day of
June, 1996.
FIRST COASTAL CORPORATION
By: /s/ Gregory T. Caswell
----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on this 13th day of June, 1996.
Signature Title
- --------- -----
/s/ Gregory T. Caswell President and Chief Executive Officer
- -------------------------- (Principal executive officer)
Gregory T. Caswell
/s/ Dennis D. Byrd Treasurer (Principal financial officer
- -------------------------- and principal accounting officer)
Dennis D. Byrd
* Chairman of the Board
- --------------------------
Normand E. Simard
* Director
- --------------------------
Roger E. Klein
* Director
- --------------------------
Edward K. Simensky
* Director
- --------------------------
Charles A. Stewart III
*By:/s/ Gregory T. Caswell
- --------------------------
Gregory T. Caswell
Attorney-in-Fact
II-5
<PAGE>
As filed with the Securities and Exchange Commission on June 13, 1996
Registration No. 333-02609
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
AMENDMENT NO 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
EXHIBITS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
3.1(i)(a) Restated Certificate of Incorporation (filed as Exhibit
3.1(i) 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).
3.1(i)(b) Certificate of Amendment of Restated Certificate of Incorporation
(filed as Exhibit 3.1(i)(b) to Amendment No. 3 to Annual Report on
Form 10-K on Form 10-K/A for the year ended December 31, 1995, File
No. 0-14087, and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to
1995 Form 10-K, and incorporated herein by reference).
*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.)
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
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 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) Form of Loan Agreement among the Company, as borrower,
Androscoggin Savings Bank, Bangor Savings Bank, Machias Savings
Bank and Norway Savings Bank, as lenders, and Machias Savings Bank,
as agent.
10(n) Form of Promissory Note by the Company for the benefit of the Lenders.
10(o) Form of Stock Pledge Agreement between the Company and Machias
Savings Bank, for itself and as agent for the Lenders.
*10(p) 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.
*99(a) Form of Standby Stock Purchase Agreement.
*99(b) Form of First Coastal Corporation Rights Offering
Order Form (and accompanying instructions).
*99(c) Form of First Coastal Corporation Community Offering
Order Form (and accompanying instructions).
*99(d) Form of Notice of Guaranteed Delivery.
*99(e) Form of Broker Assistance Agreement.
-2-
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
*99(f) Form of Escrow Agreement between First Coastal Corporation and
Mellon Bank, N.A.
*99(g) Form of Subscription Agent Agreement between First Coastal
Corporation and ChaseMellon Shareholder Services, L.L.C.
- ------------------------------
* Previously filed.
-3-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 10(m)
FORM OF
LOAN AGREEMENT
Among
FIRST COASTAL CORPORATION,
Borrower,
and
ANDROSCOGGIN SAVINGS BANK
BANGOR SAVINGS BANK
MACHIAS SAVINGS BANK
NORWAY SAVINGS BANK,
Lenders
and
MACHIAS SAVINGS BANK,
Agent
June ___, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I. ISSUANCE, PURCHASE, INTEREST RATE AND REPAYMENT OF
NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Issuance. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Purpose of Note Purchase. . . . . . . . . . . . . . . . . 3
Section 1.3. Term of Loan; Repayment of Principal. . . . . . . . . . . 3
Section 1.4. Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5. Interest. . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.6. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.7. Method of Payment . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1. Borrower Security Interests . . . . . . . . . . . . . . . 6
Section 2.2. Perfection and Administration . . . . . . . . . . . . . . 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . 7
Section 3.1. Organization. . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Authorization . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.3. Validity. . . . . . . . . . . . . . . . . . . . . . . . .10
Section 3.4. Governmental Approvals. . . . . . . . . . . . . . . . . .10
Section 3.5. Litigation. . . . . . . . . . . . . . . . . . . . . . . .11
Section 3.6. Records and Business Location . . . . . . . . . . . . . .11
Section 3.7. Security Interests. . . . . . . . . . . . . . . . . . . .11
Section 3.8. Encumbrances. . . . . . . . . . . . . . . . . . . . . . .12
Section 3.9. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 3.10. Regulations U and G . . . . . . . . . . . . . . . . . . .12
Section 3.11. Financial Statements. . . . . . . . . . . . . . . . . . .12
Section 3.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 3.13. Compliance with Applicable Laws, Agreements, etc. . . . .14
Section 3.14. Absence of Adverse Changes. . . . . . . . . . . . . . . .15
Section 3.15. Accuracy of Statements. . . . . . . . . . . . . . . . . .16
Section 3.16. Environmental Matters . . . . . . . . . . . . . . . . . .16
Section 3.17. Allowances for Losses and Real Estate Owned . . . . . . .19
ARTICLE IV. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . .20
Section 4.1. Conditions Precedent to Closing the Purchase. . . . . . .20
i
<PAGE>
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . .23
Section 5.1. Existence and Good Standing . . . . . . . . . . . . . . .23
Section 5.2. Taxes and Charges . . . . . . . . . . . . . . . . . . . .24
Section 5.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . .24
Section 5.4. Financial Statements. . . . . . . . . . . . . . . . . . .25
Section 5.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . .27
Section 5.6. Capital Maintenance Requirements. . . . . . . . . . . . .27
ARTICLE VI. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . .28
Section 6.1. Mergers and Related Transactions. . . . . . . . . . . . .28
Section 6.2. Stock and Dividends . . . . . . . . . . . . . . . . . . .29
Section 6.3. Encumbrances and Indebtedness . . . . . . . . . . . . . .29
Section 6.4. Sales and Dispositions. . . . . . . . . . . . . . . . . .30
Section 6.5. Ownership of Subsidiaries . . . . . . . . . . . . . . . .30
Section 6.6. Capital Expenditures. . . . . . . . . . . . . . . . . . .30
Section 6.7. Financial Requirements. . . . . . . . . . . . . . . . . .30
ARTICLE VII. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 7.1. Events of Default . . . . . . . . . . . . . . . . . . . .30
Section 7.2. Acceleration. . . . . . . . . . . . . . . . . . . . . . .33
Section 7.3. Right of Setoff . . . . . . . . . . . . . . . . . . . . .34
Section 7.4. Rights to Pledged Stock . . . . . . . . . . . . . . . . .35
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 8.1. Rights and Waivers. . . . . . . . . . . . . . . . . . . .35
Section 8.2. Binding Effect; Assignment. . . . . . . . . . . . . . . .36
Section 8.3. Severability. . . . . . . . . . . . . . . . . . . . . . .36
Section 8.4. Interpretation. . . . . . . . . . . . . . . . . . . . . .36
Section 8.5. Governing Law . . . . . . . . . . . . . . . . . . . . . .37
Section 8.6. Payment of Expenses and Taxes . . . . . . . . . . . . . .37
Section 8.7. Survival of Representations and Warranties. . . . . . . .38
Section 8.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . .38
Section 8.9. Execution . . . . . . . . . . . . . . . . . . . . . . . .39
Section 8.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . .39
Section 8.11 No Fiduciary Relationship . . . . . . . . . . . . . . . .39
Section 8.12 Definitions . . . . . . . . . . . . . . . . . . . . . . .40
ARTICLE IX. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 9.1. Appointment, Powers and Immunities. . . . . . . . . . . .41
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Section 9.2. Reliance by Agent . . . . . . . . . . . . . . . . . . . .42
Section 9.3. Events of Default . . . . . . . . . . . . . . . . . . . .42
Section 9.4. Rights as a Secured Party . . . . . . . . . . . . . . . .42
Section 9.5. Indemnification . . . . . . . . . . . . . . . . . . . . .43
Section 9.6. Non-Reliance on Agent and other Savings Banks . . . . . .44
Section 9.7. Failure to Act. . . . . . . . . . . . . . . . . . . . . .45
Section 9.8. Resignation or Removal of Agent . . . . . . . . . . . . .45
Section 9.9. Pro Rata Application of Payments. . . . . . . . . . . . .45
Exhibit 1 -- Promissory Note
Exhibit 2 -- Stock Pledge Agreement
Exhibit 3 -- Form of Opinion of Hogan & Hartson L.L.P.
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LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is entered into as of this __th day
of ________, 1996, by and among (i) FIRST COASTAL CORPORATION, a Delaware
corporation ("Borrower"), (ii) ANDROSCOGGIN SAVINGS BANK, a Maine savings bank
in mutual form, BANGOR SAVINGS BANK, a Maine savings bank in mutual form,
MACHIAS SAVINGS BANK, a Maine savings bank in mutual form, and NORWAY SAVINGS
BANK, a Maine savings bank in mutual form (collectively, these four Maine
savings banks are sometimes referred to as the "Lenders" or the "Savings Banks"
and individually may be referred to as "Lender" or "Savings Bank"), and (iii)
MACHIAS SAVINGS BANK, in its capacity as agent for the Lenders (the "Agent").
WHEREAS, Borrower is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and owns all of the issued and
outstanding stock of Coastal Savings Bank ("Coastal Savings"), a Maine savings
bank in stock form; and
WHEREAS, Borrower intends to recapitalize through a combination of a
loan from the Lenders hereunder in the aggregate principal amount of $4.0
million (the "Loan"), a dividend from Coastal Savings, and a sale of additional
equity securities (such Loan, dividend and sale of equity securities being
hereinafter referred to collectively as the "Recapitalization") as the means to
repay a promissory note of the Borrower to the Federal Deposit Insurance
Corporation (the "FDIC") in the aggregate principal amount of $9.0 million plus
accrued interest (such obligation to the FDIC is hereinafter sometimes referred
to as the "FDIC Note") in complete satisfaction of all claims of the FDIC
against the Borrower and Coastal Savings under that certain Amended and Restated
Settlement Agreement dated as of November 23, 1994 (the
<PAGE>
"FDIC Settlement Agreement"), and the FDIC Note and related stock pledge
agreement, each of which is to be cancelled; and
WHEREAS, each of the Savings Banks has agreed to lend $1,000,000 to
the Borrower as part of the Recapitalization to facilitate the repayment of the
FDIC Note, subject to the terms and conditions of this Agreement, the Notes, and
the Stock Pledge Agreement referred to and defined herein and attached hereto as
Exhibits;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby mutually agree, intending to be legally bound, as
follows:
ARTICLE I. ISSUANCE, PURCHASE, INTEREST RATE AND REPAYMENT OF NOTES
Section 1.1. ISSUANCE. (a) Borrower has authorized the issuance of
four promissory notes, each in the form of Exhibit 1 attached to this Agreement,
each in the principal amount of $1,000,000, and each on such terms and
conditions as are contained in the Note (as hereinafter defined) and this
Agreement.
(b) THE CLOSING. Subject to the terms and conditions and on the
basis of the representations and warranties in this Agreement and the Stock
Pledge Agreement, on the Closing Date, Borrower will issue to each of the
Savings Banks, and each of the Savings Banks will purchase from Borrower, a
promissory note in the principal amount of $1,000,000 (individually, a "Note")
(collectively, the four Notes are sometimes referred to as the "Notes").
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The obligations to purchase the Notes shall be several, but the obligations of
each Savings Bank shall be contingent upon the purchase of $4 million of Notes
in the aggregate on the terms set forth in this Agreement.
(c) INVESTMENT. Each Savings Bank is making its purchase for its
own account for investment and with no intention of distributing or reselling
the Note purchased by it. A Note may not be transferred, sold or assigned,
other than by operation of law, by any Savings Bank without the prior written
consent of the Borrower.
Section 1.2. PURPOSE OF NOTE PURCHASE. Subject to the terms and
conditions hereof, each Savings Bank shall pay its $1,000,000 purchase price, in
the aggregate amount of $4,000,000 from all Savings Banks, to Borrower on the
Closing Date in immediately available funds. All of such proceeds shall be used
by Borrower solely for the purpose of the repayment of the FDIC Note.
Section 1.3. TERM OF LOAN; REPAYMENT OF PRINCIPAL. Commencing
on June 30, 1998, and continuing semi-annually on each December 31 and June
30 thereafter until the Maturity Date (as defined below), Borrower shall pay
to each Savings Bank a principal payment of $50,000; the entire remaining
principal balance of each Note shall be paid to each Savings Bank on December
31, 2001 (the "Maturity Date"). The final payment of the remaining principal
balance of the Notes shall be accompanied by the payment of all accrued but
unpaid interest with respect to the principal balance outstanding prior
thereto.
Section 1.4. PREPAYMENT. Borrower may prepay the Notes in whole
or in part at any time at its option upon not less than three Business Days (as
hereinafter defined) prior written notice to the Savings Banks, specifying the
date and the amount of prepayment, and upon the payment of all accrued but
unpaid interest on the amount prepaid to the date of such
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prepayment, provided that each such optional principal prepayment shall be in a
minimum aggregate amount of $100,000, and shall be applied to the Notes on a pro
rata basis, in accordance with the principal amount outstanding under each Note;
provided further, that any optional prepayment during the first three years
following the Closing Date shall be accompanied by a prepayment premium as
follows: 5% of the outstanding principal amount of the Notes prepaid as to any
prepayments during the first year following the Closing Date; 4% of the
outstanding principal amount of the Notes prepaid as to any prepayments during
the second year following the Closing Date; and 3% of the outstanding principal
amount of the Notes prepaid as to any prepayments during the third year
following the Closing Date.
Section 1.5. INTEREST. (a) Each of the Notes shall bear interest
on the outstanding principal balance thereunder from the date of issuance until
payment in full of the unpaid principal amount, at a rate per annum equal to
10.85%, computed on the basis of a year of 365 days ("the Interest Rate").
Interest shall be payable quarterly, in arrears, on the last day of each
calendar quarter commencing on September 30, 1996 and continuing on each
December 31, March 31, June 30 and September 30 thereafter and on the Maturity
Date.
(b) If the Borrower fails to pay any installment of principal and\or
interest on the date such installment payment is due (other than payment in full
of the principal balance of the Notes whether by acceleration or at the Maturity
Date), and such failure continues for more than five (5) Business Days, the
Borrower shall pay a late charge equal to five percent (5%) of the total amount
of such delinquent installment payment.
(c) If at any time the Interest Rate provided for herein shall be
deemed by any competent court of law, governmental agency or tribunal to exceed
the maximum rate of interest permitted by any applicable laws (including in such
computation any other fee or charges or
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other requirements imposed on Borrower hereunder, and deemed interest by said
court, agency or tribunal), then, for such time as the rate would be deemed
excessive, its application shall be suspended and there shall be charged instead
the maximum rate of interest permissible (including in such computation all
fees, charges or other requirements imposed on Borrower hereunder and deemed
interest by said court, agency or tribunal).
Section 1.6. FEES. In addition to payments of interest and the
payment of expenses as set forth in this Agreement, Borrower agrees to pay to
each of the Savings Banks a fee in the amount of $5,000, payable on the Closing
Date.
Section 1.7. METHOD OF PAYMENT. Whenever any payment of
principal, interest or fees to be made hereunder or under the Notes becomes due
on a day other than a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the amount of interest then to be paid. All
payments and prepayments hereunder shall be made by wire transfer to each
Lender, at its respective account specified on the signature page hereof, or to
such other account as such Lender shall specify in writing to the Borrower,
without offset or counterclaim, in such money of the United States as at the
time of payment shall be legal tender for the payment of public and private
debts and in immediately available funds. Each payment shall be received by
each Lender no later than 2:00 p.m., Eastern Time (standard or daylight, as in
effect) and any payment received after such time shall be treated as received on
the next Business Day.
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ARTICLE II. SECURITY
Section 2.1. BORROWER SECURITY INTERESTS. In order to secure all
obligations of Borrower under this Agreement and under the Notes, whether now
existing or hereafter incurred, Borrower grants to the Agent, pursuant to the
Stock Pledge Agreement, a security interest in all of the Borrower's right,
title and interest in and to all of the Pledged Stock (as defined in the
hereinafter described Stock Pledge Agreement), all in accordance with and
subject to the terms of the Stock Pledge Agreement in the form attached hereto
as Exhibit 2 (the "Stock Pledge Agreement").
Section 2.2. PERFECTION AND ADMINISTRATION. In order to perfect
the rights of the Agent, on behalf of the Savings Banks, in the security
interest granted under the Stock Pledge Agreement, and to assure to the Agent,
on behalf of the Savings Banks, the further protection and effective
administration of the interests hereunder, Borrower shall:
(a) deliver to the Agent, as agent for each of the Savings Banks, the
certificates representing the Pledged Stock to hold on behalf of the Savings
Banks, and execute and deliver to the Agent any assignment, endorsement,
instrument or other writing that the Agent may reasonably determine to be
necessary or convenient in order to perfect or protect the security interests in
or liens on, or facilitate the collection of, the Pledged Stock, or otherwise to
carry out the terms of this Agreement or the Stock Pledge Agreement; and
(b) upon the occurrence and during the continuance of any Event of
Default (as hereinafter defined), permit the Agent, the Savings Banks or their
agents reasonable access during business hours to the books, records, receipts
and all other data of Borrower, Coastal Savings, and any other Borrower
Subsidiary (as hereinafter defined), to review all such books,
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<PAGE>
records, receipts and other data, and to make extracts therefrom; provided that
the Agent and the Savings Banks shall not make confidential information
available to third Persons except as may be required by law.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
In order to induce the Savings Banks to enter into this Agreement, and
except as set forth in the Borrower Disclosure Schedules previously furnished to
the Lenders, the Borrower hereby warrants and represents the following to the
Savings Banks, as of the date of this Agreement:
Section 3.1. ORGANIZATION. (a) The Borrower is duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
The Borrower has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the business, financial condition or results of operations of the Borrower
and the Borrower Subsidiaries taken as a whole. The Borrower is duly registered
as a bank holding company under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Other than (i) as set forth in Borrower Disclosure Schedule
3.1(a) and (ii) shares of capital stock in Coastal Savings and the Borrower
Subsidiaries, as defined in 3.1(b) below, and (iii) shares of common stock in
the Federal Home Loan Bank of Boston, the Borrower
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<PAGE>
does not own or control or have the right to acquire, directly or indirectly, an
equity interest in any Person.
(b) The only subsidiary of the Borrower is Coastal Savings and the only
subsidiary of Coastal Savings is CSC (the subsidiaries of the Borrower and
Coastal Savings are collectively referred to as the "Borrower Subsidiaries").
Each of the Borrower Subsidiaries are corporations (except Coastal Savings,
which is a savings bank) duly incorporated, validly existing and in good
standing under the laws of the State of Maine, has the corporate power and
authority to own or lease all of its properties and assets and to conduct its
business as it is now being conducted, and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a material adverse effect on the business, financial condition or
results of operations of the Borrower and the Borrower Subsidiaries taken as a
whole. Coastal Savings is a member in good standing of the Federal Home Loan
Bank of Boston and all eligible accounts of depositors in Coastal Savings are
insured by the Bank Insurance Fund ("BIF") administered by the FDIC to the
fullest extent permitted by law.
(c) The Borrower has heretofore delivered to the Savings Banks true and
complete copies of the certificate of incorporation, organization certificate or
other chartering instrument and bylaws of the Borrower and the Borrower
Subsidiaries in effect on the date hereof. The minute books of the Borrower and
Coastal Savings contain minutes of all meetings and consents in lieu of meetings
of the board of directors (and any committee thereof) and of the stockholder(s)
of the Borrower and Coastal Savings recorded therein, which are accurate in all
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material respects. These minute books accurately reflect all transactions
referred to in such minutes and consents in lieu of meetings in all material
respects and disclose all material corporate actions of the stockholder(s) and
boards of directors of the Borrower and Coastal Savings and all committees
thereof. Except as reflected in such minute books, there are no minutes of
meetings or consents in lieu of meetings of the boards of directors (or any
committee thereof) or of the stockholder(s) of the Borrower and Coastal Savings.
Section 3.2. AUTHORIZATION. (a) The execution, delivery and
performance of this Agreement, the Notes, the Stock Pledge Agreement and such
other documents as are executed and delivered by the Borrower on the date hereof
pursuant to this Agreement:
(i) are within the corporate powers of Borrower;
(ii) have been duly authorized by all necessary corporate action
of the Borrower;
(iii) do not violate any provision of the Articles of
Incorporation or Bylaws of Borrower or of any law, rule, or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any court
or administrative agency presently in effect and having applicability to
Borrower or Coastal Savings or its assets (including, without limitation, the
Pledged Stock);
(iv) do not violate or result in a breach of or constitute a
default under any indenture, loan or credit agreement, or any other material
agreement, lease or instrument to which Borrower or Coastal Savings is a party
or by which they or their properties may be bound or, to Borrower's knowledge,
affected; and
(v) do not result in, or require the creation or imposition of,
any mortgage, deed of trust, pledge, lien, security interest or other charge or
security interest of any
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<PAGE>
nature upon or with respect to any of the assets owned by Borrower, except for
the security interest granted to the Agent on behalf of the Savings Banks.
(b)(i) To the knowledge of the Borrower, Borrower is in compliance
in all material respects with all applicable laws, rules and regulations
material to its business and all writs, judgments, injunctions, decrees,
determinations or awards applicable to it, except in each case where failure to
so comply would not have a material adverse effect on the business, financial
condition or results of operations of the Borrower and the Borrower Subsidiaries
taken as a whole, and
(ii) Borrower is not in default under any indenture, loan or
credit agreement or any other agreement, lease or instrument, the effect of
which would have a material adverse effect on the business, financial condition
or results of operations of Borrower and the Borrower Subsidiaries taken as a
whole.
Section 3.3. VALIDITY. This Agreement, the Stock Pledge Agreement,
and the Notes have been duly executed and delivered by Borrower and constitute
the legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or other similar laws affecting creditors'
rights generally, and except that the availability of equitable remedies
(including, without limitation, specific performance) is within the discretion
of the appropriate court.
Section 3.4. GOVERNMENTAL APPROVALS. Except for any consents and
approvals of, or filings or registrations with, or notices to, the FDIC, the
Board of Governors of the Federal Reserve System (the "FRB"), the
Superintendent of the Bureau of Banking of the State of Maine (the
"Superintendent"), the National Association of Securities Dealers, Inc. and the
Securities and
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Exchange Commission (the "SEC"), no consents or approvals of, or filings or
registrations with, or notices to any third party or any public body or
authority are necessary on behalf of the Borrower or Coastal Savings in
connection with (a) the valid execution, delivery and performance by Borrower of
this Agreement, the Stock Pledge Agreement, and the Notes, or (b) the valid
consummation of the transactions provided for in the Recapitalization.
Section 3.5. LITIGATION. There is no action, suit, inquiry,
investigation or proceeding pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Borrower Subsidiary or any of their
respective properties or assets in any court or before any arbitrator of any
kind or before any Person wherein an unfavorable decision, ruling or finding is
reasonably likely to (i) impair the right or ability of the Borrower or any
Borrower Subsidiary to carry on its business substantially as now conducted,
(ii) result in any material adverse change in the business, results of
operations or financial condition of the Borrower and the Borrower Subsidiaries
taken as a whole, or (iii) adversely affect the validity or enforceability of
this Agreement, the Notes or the Stock Pledge Agreement, the Recapitalization or
the transactions contemplated thereby or hereby.
Section 3.6. RECORDS AND BUSINESS LOCATION. The principal place
of business of Borrower and the office where Borrower keeps its corporate and
accounting records are located at the address stated in Section 8.8 hereof.
Section 3.7. SECURITY INTERESTS. The Stock Pledge Agreement,
together with delivery of the stock certificates, creates a valid and perfected
first-priority security interest and lien in, on and to all of the Pledged
Stock, enforceable against the Pledged Stock in accordance with the terms hereof
and thereof.
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Section 3.8. ENCUMBRANCES. Except pursuant to the FDIC Settlement
Agreement, none of the Pledged Stock is subject to any assignment, lien,
security interest, charge or encumbrance (other than in favor of the Savings
Banks pursuant to the Stock Pledge Agreement), and no effective financing
statement or other instrument similar in effect covering any of the Pledged
Stock is on file in any filing or recording office.
Section 3.9. ERISA. With respect to any employee benefit plan for
the benefit of employees of Borrower or any Borrower Subsidiary ("Plan") that is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and regulations issued pursuant to ERISA, each of Borrower and the
Borrower Subsidiaries is in compliance in all material respects with the
applicable provisions of ERISA; no Plan or related trust has incurred any
"accumulated funding deficiency" as defined in Section 302 of ERISA or Section
412 of the Internal Revenue Code; no Reportable Event as defined in Section
4043(b) of ERISA has occurred with respect to any Plan maintained in whole or in
part for employees of Borrower or the Borrower Subsidiaries; and no provision of
this Agreement will result in a Reportable Event or violation of ERISA.
Section 3.10. REGULATIONS U AND G. None of the stock of Coastal
Savings constitutes "margin stock" within the meaning of Regulation U or G of
the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221 and
Part 207, and the transactions under this Agreement are exempted from or in
compliance with the provisions of Regulations U and G.
Section 3.11. FINANCIAL STATEMENTS. (a) The Borrower has
previously delivered or made available to the Savings Banks accurate and
complete copies of the consolidated statements of financial condition of the
Borrower as of December 31, 1993, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
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years then ended, in each case accompanied by the audit report of Coopers &
Lybrand, L.L.P., independent public accountants with respect to the Borrower,
and the unaudited consolidated statement of financial condition of the Borrower
as of March 31, 1996 and the related unaudited consolidated statements of
operations and cash flows for the three months ended March 31, 1996 and 1995,
and the unaudited consolidated statement of changes in stockholders' equity for
the three months ended March 31, 1996. The consolidated statements of financial
condition of the Borrower referred to in this Agreement (including the related
notes, where applicable) present fairly the consolidated financial condition of
the Borrower as of the respective dates set forth therein, and the related
consolidated statements of operations, stockholders' equity and cash flows
(including the related notes, where applicable) present fairly the consolidated
results of operations, stockholders' equity and cash flows of the Borrower for
the respective periods or as of the respective dates set forth therein.
(b) Each of the financial statements referred to in Section 3.11(a) has
been prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The consolidated audits of
the Borrower have been conducted in accordance with generally accepted auditing
standards. The books and records of the Borrower and the Borrower Subsidiaries
are being maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect in all material
respects all dealings and transactions in respect of the business, assets,
liabilities and affairs of the Borrower and the Borrower Subsidiaries.
(c) As of March 31, 1996, except and to the extent (i) reflected,
disclosed or provided for in the financial statements referred to above and (ii)
of liabilities incurred since March 31, 1996 in the ordinary course of business,
neither the Borrower nor any Borrower Subsidiary has
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any liabilities, whether absolute, accrued, contingent or otherwise, material to
the business, financial condition or results of operations of the Borrower and
the Borrower Subsidiaries taken as a whole.
(d) To the knowledge of the Borrower, since January 1, 1993, the Borrower
and each Borrower Subsidiary has duly filed with the Superintendent, the FDIC,
and the FRB in correct form the monthly, quarterly and annual regulatory reports
required to be filed under applicable laws and regulations and such reports were
in all material respects complete and accurate and in compliance, in all
material respects, with the requirements of applicable laws and regulations,
provided that information as of a later date shall be deemed to modify
information as of an earlier date, and the Borrower and each Borrower Subsidiary
has made available to the Savings Banks accurate and complete copies of all such
reports as the Savings Banks have requested.
Section 3.12. TAXES. Borrower and each Borrower Subsidiary has
filed all United States income tax returns and all state and municipal tax
returns which are required to be filed by it, and has paid, or made provision
for the payment of, all taxes which have become due pursuant to said returns or
pursuant to any assessment received by Borrower or any Borrower Subsidiary,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided.
Section 3.13. COMPLIANCE WITH APPLICABLE LAWS, AGREEMENTS, ETC.
(a) The Borrower and each of the Borrower Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which is reasonably likely to have a material adverse effect on the business,
financial condition or results
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of operations of the Borrower and the Borrower Subsidiaries taken as a whole;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect, and, to the knowledge of the Borrower, no suspension
or cancellation of any of the same is threatened.
(b) Neither the Borrower nor any Borrower Subsidiary is in violation of
its articles of incorporation, charter or other chartering instrument or bylaws,
or, to the knowledge of the Borrower, any applicable federal, state or local law
or ordinance or any applicable order, rule or regulation of any federal, state,
local or other governmental agency or body (including, without limitation, all
applicable banking, securities, municipal securities, safety, health,
environmental, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court applicable to it, or in default
under any order, license, regulation or demand of any governmental agency, any
of which violations or defaults is reasonably likely to have a material adverse
effect on the business, financial condition or results of operations of the
Borrower and the Borrower Subsidiaries taken as a whole; and neither the
Borrower nor any Borrower Subsidiary has received notice or any communication
asserting that the Borrower or any Borrower Subsidiary is in violation of, and
the Borrower does not have knowledge of any violation of, any of the above.
Except as set forth in Borrower Disclosure Schedule 3.13(b), neither the
Borrower nor any Borrower Subsidiary is subject to any regulatory or supervisory
cease and desist order, agreement, written directive, memorandum of
understanding or written commitment and none of them has received any written
communication requesting that they enter into any of the foregoing.
Section 3.14. ABSENCE OF ADVERSE CHANGES. Since December 31,
1995, no event or events involving the Borrower or a Borrower Subsidiary have
occurred which, in the aggregate, (i) have a material adverse effect on the
business, financial condition or results of
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operations of the Borrower and the Borrower Subsidiaries taken as a whole, or
(ii) materially impair the ability of the Borrower to perform its obligations
under this Agreement, the Stock Pledge Agreement, and the Notes, or the
consummation of any of the transactions contemplated hereby or thereby or the
Recapitalization, and, to the knowledge of the Borrower, no fact or condition
now exists that is reasonably likely to cause such a material adverse change to
occur in the future.
Section 3.15. ACCURACY OF STATEMENTS. All statements,
representations and warranties made by the Borrower in this Agreement, the Stock
Pledge Agreement and the Notes and in any other agreement, document, certificate
or instrument delivered or to be delivered by or on behalf of the Borrower under
this Agreement, the Stock Pledge Agreement and the Notes are and shall be true,
correct and complete in all material respects on the date made and on and as of
the Closing Date and no information has been or will be omitted therefrom which
would make any of them misleading or incomplete in any material respect as at
each such date. It is understood by the Borrower that all such statements,
representations and warranties shall be deemed to have been relied on by the
Savings Banks as a material inducement to the making of the Loan.
Section 3.16. ENVIRONMENTAL MATTERS. For purposes of this Section
3.16, the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any
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other natural resource), and/or (2) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Materials of Environmental Concern. The term
Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601, ET SEQ; the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 6901, ET SEQ; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, ET SEQ; the Federal Water Pollution Control Act, as amended, 33
U.S.C. Section 1251, ET SEQ; the Toxic Substances Control Act, as amended, 15
U.S.C. Section 9601, ET SEQ; the Emergency Planning and Community Right to
Know Act, 42 U.S.C. Section 11001, ET SEQ; the Safe Drinking Water Act, 42
U.S.C. Section 300f, ET SEQ; and all comparable state and local laws, and (2)
any common law (including without limitation common law that may impose
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to
any Materials of Environmental Concern.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment, of any Materials of Environmental
Concern.
"Materials of Environmental Concern" means pollutants, contaminants,
hazardous wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, leased or operated by the Borrower or any Borrower Subsidiary,
including those properties serving as collateral for any loans made and retained
by the Borrower or any Borrower Subsidiary
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or for which the Borrower or any Borrower Subsidiary serves in a trust
relationship for the loans retained in portfolio.
(a) To the knowledge of the Borrower, and except as set forth in Borrower
Disclosure Schedule 3.16(a), the Borrower and each Borrower Subsidiary is in
compliance with all Environmental Laws, except for any violations of any
Environmental Law which would not, singly or in the aggregate, have a material
adverse effect on the business, financial condition or results of operations of
the Borrower and the Borrower Subsidiaries taken as a whole. Neither the
Borrower nor any Borrower Subsidiary has received any communication alleging
that the Borrower or any Borrower Subsidiary is not in such compliance and, to
the knowledge of the Borrower, there are no present circumstances that would
prevent or materially interfere with the continuation of such compliance.
(b) To the knowledge of the Borrower, neither the Borrower nor any
Borrower Subsidiary has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which would not,
singly or in the aggregate, have a material adverse effect on the business,
results of operations, or financial condition of the Borrower and the Borrower
Subsidiaries taken as a whole.
(c) To the knowledge of the Borrower, none of the Loan Portfolio
Properties and Other Properties Owned has been or is in violation of or liable
under any Environmental Law, except any such violations or liabilities which
singly or in the aggregate would not have a material adverse effect on the
business, financial condition or results of operations of the Borrower and the
Borrower Subsidiaries taken as a whole.
(d) To the knowledge of the Borrower, there are no actions, suits,
demands, notices, claims, investigations or proceedings pending or threatened
relating to the liability of the Loan
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Portfolio Properties and Other Properties Owned under any Environmental Law,
including without limitation any notices, demand letters or requests for
information from any federal or state environmental agency relating to any such
liabilities under or violations of Environmental Law, except such which would
not have or result in a material adverse effect on the business, financial
condition or results of operations of the Borrower and the Borrower Subsidiaries
taken as a whole.
(e) To the knowledge of the Borrower, there are no past or present
actions, activities, conditions, events or incidents that could reasonably form
the basis of any Environmental Claim against the Borrower or any Borrower
Subsidiary or against any Person whose liability for any Environmental Claim the
Borrower or any Borrower Subsidiary has retained or assumed either contractually
or by operation of law, except such which would not have a material adverse
effect on the business, financial condition or results of operations of the
Borrower and the Borrower Subsidiaries taken as a whole.
(f) The Borrower has set forth on Borrower Disclosure Schedule 3.16(f) any
environmental studies conducted by it or any of its subsidiaries during the past
five years with respect to any properties owned by it as of the date hereof.
Section 3.17. ALLOWANCES FOR LOSSES AND REAL ESTATE OWNED. The
allowance for loan losses reflected on the consolidated balance sheets included
in the Borrower's financial statements referred to in Section 3.11(a) is
adequate in all material respects as of their respective dates under the
requirements of generally accepted accounting principles to provide for
reasonably anticipated losses on outstanding loans net of recoveries and
foreclosed real estate, respectively. The Real Estate Owned, in the aggregate,
reflected on the consolidated balance sheet included
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in the Borrower's financial statements referred to in Section 3.11(a) is carried
at the lower of cost or fair value, less estimated costs to sell, as required by
generally accepted accounting principles.
ARTICLE IV. CONDITIONS PRECEDENT
Section 4.1. CONDITIONS PRECEDENT TO CLOSING THE PURCHASE. The
obligations of each of the Savings Banks to perform under this Agreement are
subject to satisfaction by the Borrower, on or prior to the Closing Date, in
form and substance satisfactory to the Savings Banks and to their special
counsel, Luse Lehman Gorman Pomerenk & Schick, of each of the following:
(a) the Savings Banks shall have received the following documents:
(i) five original copies of this Agreement, executed by Borrower
and the Savings Banks;
(ii) five original copies of the Stock Pledge Agreement, executed
by Borrower;
(iii) the Notes, executed by Borrower;
(iv) (A) a certificate of legal existence, issued by the
appropriate state officer with respect to the good standing of Borrower and each
Borrower Subsidiary and its charter documents on file and (B) a certificate of
the appropriate state authorities as to the Borrower and each Borrower
Subsidiary with respect to the payment of all taxes necessary to maintain its
good standing;
(v) copies, certified by its Secretary, of the articles of
incorporation and bylaws of Borrower and Coastal Savings, with any amendments
thereto;
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(vi) resolutions or other appropriate authorizations of Borrower
certified by its Secretary, authorizing the execution, delivery and performance,
as applicable, of this Agreement, the Notes, the Stock Pledge Agreement, and any
other documents necessary for performance of the obligations of Borrower under
this Agreement;
(vii) certificates, executed by its Secretary, as to the
incumbency and authenticity of signatures of the officers of Borrower executing
this Agreement, the Notes, and the Stock Pledge Agreement any other documents
required as conditions precedent under this Section;
(viii) such certificates of its officers or others and such
other documents as to the accuracy of the representations set forth herein and
to evidence fulfillment of the conditions set forth in this Article IV as the
Savings Banks and their counsel may reasonably request;
(ix) a certificate or certificates in the name of Borrower
representing all outstanding stock of Coastal Savings, accompanied by a stock
power, executed by Borrower in blank, with respect to each such certificate;
(x) An opinion of counsel for Borrower in the form attached
hereto as Exhibit 3;
(xi) A copy of all consents and approvals issued by, and all
filings and registrations with, and all notices to, governmental agencies in
connection with the consummation of the Recapitalization, and the transactions
provided for in this Agreement, including, without limitation, an executed
acknowledgment from the FDIC as to the payment in full of and the satisfaction
of all claims and rights under the FDIC Note, the Pledge Agreement with the FDIC
and related documents; and
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(xii) a Regulation U-1 Form with respect to each of the
Notes, completed and executed as to Part 1 by Borrower.
(b) The Recapitalization shall be effected as of the Closing Date,
and a minimum of $2.7 million of additional net equity shall have been obtained
by the Borrower through the sale of additional shares of its common stock.
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion of
the Recapitalization, this Agreement and the transactions contemplated hereby
and thereby; no suit, action or other proceeding shall be pending or threatened
by any governmental body in which it is sought to restrain or prohibit the
Recapitalization, this Agreement and the transactions contemplated hereby and
thereby; and no suit, action or other proceeding shall be pending before any
court or governmental agency in which it is sought to restrain or prohibit the
Recapitalization, this Agreement and the transactions contemplated hereby and
thereby, or to obtain substantial monetary or other relief against one or more
parties hereto in connection with the Recapitalization or this Agreement and
which any of the Savings Banks determines in good faith, after consulting with
counsel, that it is inadvisable to proceed with the Loan because any such suit,
action or proceeding is reasonably likely to have, in the opinion of the Savings
Banks, a material adverse effect on the Borrower or any party hereto.
(d) All regulatory approvals as shall be necessary in the opinion of
counsel to the Savings Banks shall have been obtained by the Borrower (provided
that no approval or consent referred to in this Section 4.1 shall be deemed to
have been obtained if it shall include any term, condition or requirement that,
individually or in the aggregate, would result in a material adverse effect on
the business, financial condition or results of operations of the
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Borrower on a consolidated basis, in so significant a manner that a Savings
Bank, in its reasonable judgment, would not have entered into this Agreement),
(e) There shall exist no Event of Default or Incipient Default under
this Agreement.
(f) There shall have been delivered to the Savings Banks, in addition
to the fees set forth in Section 1.6 of this Agreement, payment (i) for the
expenses incurred by them in connection with their due diligence in connection
with entering into this Agreement, and (ii) for legal fees and expenses incurred
by them in connection with the preparation, negotiation, execution and delivery
of this Agreement, the Stock Pledge Agreement, the Notes, and related matters
and documents; provided, however, that the aggregate amount that Borrower shall
be obligated to pay under this subparagraph (f) shall not exceed, without the
prior written approval of Borrower, $50,000, of which $5,000 has already been
paid.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until all of its obligations
hereunder, under the Notes and under the Stock Pledge Agreement, have been
satisfied in full, and in the absence of prior written consent of at least three
of the Savings Banks, which written consent may be given through the Agent:
Section 5.1. EXISTENCE AND GOOD STANDING. Borrower shall do or,
with respect to each of the Borrower Subsidiaries, cause to be done, all things
necessary (a) to preserve and keep in full force and effect its corporate
existence, material rights, and material licenses and comply with all applicable
laws and all rules, regulations and orders of federal, state
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and local regulatory bodies having jurisdiction applicable to it, noncompliance
with which would have a material adverse effect upon the business, financial
condition, or results of operations of the Borrower and the Borrower
Subsidiaries taken as a whole; (b) to maintain and protect its properties used
in the conduct of its operations in a commercially reasonable manner; (c) to
conduct its operations and continue the conduct of its business without any
substantial change in the general nature of such operations or business from
that in effect on the Closing Date; and (d) to maintain its principal place of
business as set forth at Section 3.6 hereof; provided that upon ten (10) days
written notice to the Savings Banks, Borrower may change its principal place of
business.
Section 5.2. TAXES AND CHARGES. Borrower shall, and shall cause
each of the Borrower Subsidiaries to, timely file returns and pay and discharge
all taxes, assessments and governmental fees, charges or levies imposed upon it
or its income or profits or upon its properties or any part thereof, before the
same shall be in default, as well as all lawful claims which, if unpaid, might
become a lien or charge upon such properties or any part thereof; provided,
however, that Borrower and the Borrower Subsidiaries shall not be required to
pay and discharge or cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and Borrower or the Borrower
Subsidiaries, as applicable, shall have set aside on its books adequate reserves
therefor.
Section 5.3. INSURANCE. Borrower shall, and shall cause each of
its Subsidiaries to, maintain insurance with responsible companies in such
amounts and against such risks as it presently insures against, including,
without limitation, casualty, liability, and deposit insurance and, in any
event, as would be reasonably prudent for companies in the same or
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similar businesses. Copies of all said policies or certificates thereof,
including all endorsements, shall be delivered to the Savings Banks upon written
request by the Agent.
Section 5.4. FINANCIAL STATEMENTS. (a) Borrower shall deliver or
cause to be delivered to the Agent on behalf of the Savings Banks:
(i) Within 45 days after the end of each calendar quarter
(except as provided in (ii) below) on a consolidated basis for Borrower (A) a
balance sheet as at the end of such period and statements of operations and cash
flow, and such other quarterly statements as are customarily prepared by it on a
quarterly basis, (B) a report setting forth in reasonable detail loan
delinquencies, non-accrual loans and loan charge-offs; and (C) upon the written
request of the Agent and with reasonable notice, such other quarterly financial
statements and information as the Savings Banks may reasonably deem necessary to
provide current financial information;
(ii) As soon as reasonably available, but in no event more
than 90 days after the end of each fiscal year ending on or after December 31,
1995 and until the Maturity Date, audited consolidated financial statements of
the Borrower for the fiscal year then ended.
(iii) As promptly as practicable after filing, copies of all
call reports filed with the FDIC, the FRB, or the Bureau of Banking of the State
of Maine, and the reports and statements filed by the Borrower with the SEC as a
result of having a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended, between the date of this Agreement
and the Maturity Date.
(iv) Concurrently with the delivery of the financial statements
required under subsections (a)(i) and (a)(ii) of this Section, a certificate of
its chief financial officer or
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such other person as may be approved by the Agent in writing stating that, to
the knowledge of such officer or other person, (x) such financial statements
have been prepared in accordance with GAAP, except that as to interim financial
information, such certificate may state that the financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X and accordingly, do not include all of the information and
footnotes required by GAAP for complete financial statements; and (y) whether
there exists an Event of Default or an event which with notice or lapse of time
or both would become an Event of Default ("Incipient Default").
(b) If an Event of Default has occurred and is continuing, the
Borrower shall deliver or cause to be delivered to the Agent, within 30 days
after the end of each month, (i) a consolidated balance sheet as at the end of
such period and a consolidated statements of operations, and such other monthly
statements as are customarily prepared by it and by Coastal Savings on a monthly
basis, (ii) a report setting forth in reasonable detail loan delinquencies,
non-accrual loans and loan charge-offs; and (iii) upon the written request of
the Agent and with reasonable notice, such other monthly financial statements
and information as the Agent may reasonably deem necessary to provide current
financial information, all warranted as to accuracy by its chief financial
officer or such other person as may be approved by the Agent in writing;
(c) In the event that, during the continuance of an Event of Default
the Agent does not receive the information required under subsections (a)(i),
(ii) and (iii), and (b) of this Section within ten (10) Business Days of the
date such information is required to be delivered, and if the Agent reasonably
concludes, as evidenced by the written notice to Borrower, it necessary to cause
persons other than Borrower and its agents to prepare such statements, Borrower
shall pay all actual and reasonable out-of-pocket costs and expenses of the
Agent in
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connection with the Agent's obtaining such statements, including the costs of
any audit undertaken at the request of the Agent to obtain such information.
Section 5.5. REPORTS. Borrower shall deliver to the Agent, on
behalf of the Savings Banks, in reasonable detail, as soon as possible, and, in
any event, within five (5) Business Days after Borrower receives notice or
knowledge thereof, a statement executed by an officer of Borrower with respect
to (i) the occurrence of any Event of Default or Incipient Default or failure to
observe any covenant set forth herein and any action taken or contemplated with
respect thereto, and (ii) (A) the existence or change in status of any pending
or threatened litigation or administrative proceedings or investigations against
the Borrower or any Borrower Subsidiary which, if determined adversely to
Borrower, would have a material adverse effect upon the financial condition or
results of operations of Borrower and the Borrower Subsidiaries taken as a
whole, and (B) any reserves set aside or to be set aside in connection with such
proceedings, in accordance with GAAP.
Section 5.6. CAPITAL MAINTENANCE REQUIREMENTS. (a) Borrower
shall maintain a leverage ratio, as defined in 12 C.F.R. 325.2, of at least
4.0%, and shall satisfy all other capital requirements imposed on it by the FRB,
the Superintendent, the FDIC or any other bank regulatory authority having
jurisdiction over the Borrower, provided that in no event shall the Borrower's
capital ratios be less than that required for the Borrower to qualify as
"adequately capitalized," as defined in 12 C.F.R. Section 325.103(b); provided,
however, that in the event that the capital ratio requirements for qualifying as
"adequately capitalized" shall be increased and such increase shall apply to
Borrower, Borrower shall have a period equal to the greater of (i) one year, or
(ii) the time allowed in the regulation adopting such increase, to comply with
the revised definition of "adequately capitalized."
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(b) Coastal Savings shall maintain a leverage ratio, as defined in 12
C.F.R. 325.2, of at least (i) 7.25% on the Closing Date, and (ii) 6.0% from and
after the Closing Date, and shall satisfy all other capital requirements imposed
on it by the FRB, the Superintendent, the FDIC or any other bank regulatory
authority having jurisdiction over the Borrower or Coastal Savings, provided
that in no event shall Coastal Savings' capital ratios be less than that
required for it to qualify as "adequately capitalized," as defined in 12 C.F.R.
Section 325.103(b); provided, however, that in the event that the capital ratio
requirements for qualifying as "adequately capitalized" shall be increased and
such increase shall apply to Coastal Savings, Coastal Savings shall have a
period equal to the greater of (i) one year, or (ii) the time allowed in the
regulation adopting such increase, to comply with the revised definition of
"adequately capitalized."
ARTICLE VI. NEGATIVE COVENANTS
Borrower covenants and agrees that, until such time as Borrower's
obligations hereunder, under the Notes, and under the Stock Pledge Agreement
have been satisfied in full and in the absence of prior written consent of at
least three of the Savings Banks, which written consent may be given through the
Agent:
Section 6.1. MERGERS AND RELATED TRANSACTIONS. Borrower shall not,
nor shall any Borrower Subsidiary, merge into or consolidate (including any sale
of all or more than 50% of the assets of the Borrower or Coastal Savings) with
or into any other Person, unless prior to such merger or consolidation the Notes
are paid in full with respect to principal and any interest due thereunder. The
foregoing shall not apply to any merger or consolidation involving only
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(i) the Borrower and one or more Borrower Subsidiary, or (ii) two or more
Borrower Subsidiaries.
Section 6.2. STOCK AND DIVIDENDS. Borrower shall not (i) apply
any property or assets to the purchase, retirement or redemption of any shares
of its capital stock; or (ii) declare or pay cash dividends on any shares of its
capital stock or make any other distributions in respect of its capital stock
(other than dividends or distributions payable solely in shares of its capital
stock), if at the time of such action and after giving effect thereto:
(1) an Event of Default or an Incipient Default shall have occurred
and be continuing; or
(2) the Borrower's debt to equity ratio on a parent only basis is
greater than 30%.
Section 6.3. ENCUMBRANCES AND INDEBTEDNESS. Neither Borrower nor
Coastal Savings shall:
(a) create or incur any indebtedness for borrowed money (including,
without limitation, obligations under capital leases) or any mortgage, deed of
trust, security interest or other encumbrance upon any of its real or personal
properties, whether now owned or hereafter acquired, except for
(i) indebtedness to and encumbrances granted to the Savings
Banks under this Agreement,
(ii) liens for taxes not yet due or contested in good faith by
appropriate proceedings,
(iii) indebtedness in an aggregate amount not to exceed
$1,000,000,
(iv) indebtedness of Borrower to any Borrower Subsidiary, and
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(v) as to Coastal Savings, advances from the Federal Home Loan
Bank of Boston, deposits, advances from the Federal Reserve Bank of Boston for
liquidity purposes (through the advance window), repurchase agreements with
other financial service companies, and other borrowings incurred in the ordinary
course of business.
Section 6.4. SALES AND DISPOSITIONS. Neither Borrower nor any
Borrower Subsidiary shall sell, transfer, lease, assign or otherwise dispose of
any material portion of its assets, except in the ordinary course of business or
as permitted under Section 6.1 hereof.
Section 6.5. OWNERSHIP OF SUBSIDIARIES. Borrower shall, at no
time, own less than 100% of the issued and outstanding stock of Coastal Savings.
Section 6.6. CAPITAL EXPENDITURES. Borrower shall not incur
capital expenditures in excess of $500,000 in the aggregate in any fiscal year.
Section 6.7. FINANCIAL REQUIREMENTS. Borrower, on a consolidated
basis, shall not cause or suffer its net worth to be less than $6,500,000.
ARTICLE VII. DEFAULT
Section 7.1. EVENTS OF DEFAULT. Each of the following events shall
constitute an Event of Default hereunder if such event shall not be remedied
within the time period set forth below, unless Borrower receives the prior
written consent of at least three of the Savings Banks, which written consent
may be given through the Agent:
(a) Borrower shall fail to pay any amount of principal, interest,
fees, or other payments due hereunder or under the Notes when such amount is due
and payable and such failure continues for more than five (5) Business Days;
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(b) Borrower or any Borrower Subsidiary (i) shall fail to pay any
indebtedness aggregating $350,0000 or more, when due, which is not waived
(whether such payment is due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise); or (ii) shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument evidencing or securing or relating to any such indebtedness or any
guaranty when required to be performed, if the effect of such failure is to
accelerate, or to permit the holder or holders of such indebtedness or the
trustees under any such agreement or instrument to accelerate, the maturity of
such indebtedness or such obligation guaranteed by Borrower or any Borrower
Subsidiary;
(c) any representation or warranty made by Borrower as to the
Borrower or Coastal Savings in this Agreement, the Stock Pledge Agreement, or
any certificate, agreement, instrument, report or statement contemplated by or
made or delivered pursuant to or in connection with this Agreement or any other
agreement with the Savings Banks to which Borrower is a party, shall be, at the
time of the making of such representation or warranty, incorrect in any material
respect; PROVIDED, HOWEVER, that notwithstanding anything to the contrary
contained in this Section 7.1(c), no Event of Default shall be deemed to have
occurred under this Section 7.1(c) even if such representations or warranties
(other than the representations or warranties contained in Sections 3.2(a)(i)
and (ii), 3.3, 3.5, 3.7 and 3.8) are not true and correct unless the failure of
any of the representations or warranties to be so true and correct would have,
individually or in the aggregate, a material adverse effect on the business,
financial condition or results of operations of the Borrower and the Borrower
Subsidiaries taken as a whole.
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(d) Borrower shall fail to observe or perform any covenant or
agreement contained in (i) the corporate existence clause of Section 5.1(a),
Section 5.6 and Sections 6.1 through 6.7 hereof, or the Stock Pledge Agreement,
or (ii) Sections 5.4(a) and 5.5, and such failure shall continue for more than
ten (10) Business Days, or (iii) other provisions of Article V of this Agreement
(other than the Sections or paragraphs specified above), and such failure
continues for more than thirty (30) days. It is understood and agreed, however,
that notwithstanding the provisions of this Section 7.1(d), the Borrower shall
not be deemed to have failed to observe or perform the covenant contained in
Section 6.7 hereof unless such failure continues for more than 90 days PROVIDED
THAT during such 90-day period, (i) the Borrower shall have provided to the
Agent, on behalf of the Lenders, no later than 30 days following Borrower's
obtaining knowledge of its failure to satisfy Section 6.7, a written plan for
satisfying the provisions of Section 6.7, (ii) the Borrower shall have provided
to the Agent, on behalf of the Lenders, no later than 60 days following
Borrower's obtaining knowledge of its failure to satisfy Section 6.7, the terms
of a specific proposal to satisfy Section 6.7 which proposal shall be deemed
reasonably viable and likely to occur within such 90-day period, in the
reasonable judgement of the Agent on behalf of the Lenders; and (iii) no other
Event of Default shall have occurred and is continuing;
(e) Borrower or any Borrower Subsidiary shall generally not pay its
debts as they become due or admit in writing its inability generally so to pay
its debts, make an assignment for the benefit of creditors, seek an order for
relief in bankruptcy become insolvent or bankrupt within the meaning of the
Federal Bankruptcy Code, petition or apply to any tribunal for the appointment
of any receiver, custodian, liquidator, trustee, or similar official
(hereinafter "Official") for it or any substantial part of its property,
commence any proceeding
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relating to it under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction (including,
without limitation, the Federal Bankruptcy Code, the Federal Deposit Insurance
Act, and the Maine Banking Code) or there shall be commenced against it any such
proceeding which remains unstayed or undismissed for a period of more than sixty
(60) days, or it shall consent to, approve of or acquiesce in any such
proceeding or the appointment of any such Official, or it shall suffer any such
proceeding to continue undischarged for a period of more than sixty (60) days;
(f) Borrower or any Borrower Subsidiary shall suffer the entry of
judgments against it for the payment of money in excess of $500,000 in the
aggregate at any one time by any court of record or shall suffer the issuance of
any writs of attachment on any of its assets having values in the aggregate at
any one time of greater than $500,000, and Borrower or such Borrower Subsidiary
shall not discharge the same or provide for their discharge in accordance with
their terms, or procure a stay of execution thereon within thirty (30) days from
the date of entry thereof, unless execution thereon is effectively stayed
pending further proceedings; or
(g) any security interest or lien granted herein or to be granted
hereunder in the Pledged Stock shall for any reason cease to be a valid and
perfected security interest or lien having first priority.
Section 7.2. ACCELERATION. Upon the occurrence of any Event of
Default the Agent shall, at the direction of at least Three Fourths of the
Savings Banks, by written notice to Borrower, declare the entire indebtedness
of Borrower then outstanding under the Notes immediately due and payable
without presentment, demand, protest, notice of protest or any other notice
of any kind, all of which are hereby expressly waived. Notwithstanding the
foregoing provisions of this Section, the entire indebtedness of Borrower
then outstanding under
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the Notes shall become immediately due and payable without notice or election
of any kind and without need for any action by the Agent or Savings Banks if
there shall occur an Event of Default under Section 7.1(e) of this Agreement.
Section 7.3. RIGHT OF SETOFF. Upon the occurrence and during the
continuance of any Event of Default, each of the Savings Banks is hereby
authorized at any time and from time to time, without prior notice to Borrower
(any such prior notice being expressly waived by Borrower), to set off and apply
any and all money or other property at any time held, and other indebtedness at
any time owing, by any Savings Bank to or for the credit or the account of
Borrower or any Borrower Subsidiary against any and all of the obligations of
Borrower, first under this Agreement and second under any other Agreement with
Borrower, irrespective of whether or not the Savings Banks shall have made any
demand under this Agreement or the Notes, and although such obligations may be
unmatured. The Savings Banks agree promptly to notify Borrower after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. If a Savings Bank shall
effect payment of any principal of or interest on a Note held by it under this
Agreement through the exercise of any right of set-off, banker's lien,
counterclaim or similar right, it shall promptly pay to the other Savings Bank
holders of the Notes such amounts, and make such other adjustments from time to
time as shall be equitable to the end that the Savings Banks shall share the
benefit of such payment pro rata in accordance with the unpaid principal and
interest on the Note held by each of them. To such end the Savings Banks shall
make appropriate adjustments among each Savings Bank if such payment is
rescinded or must otherwise be restored. Nothing contained herein shall
require any Savings Bank to exercise any such right or shall affect the right of
any Savings Bank to exercise and retain the benefits of exercising, any such
right with
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respect to any other indebtedness or obligation of the Borrower. The rights of
the Savings Banks under this Section are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which the
Savings Banks may have.
Section 7.4. RIGHTS TO PLEDGED STOCK. Upon the occurrence of
any Event of Default, the Agent (on behalf of the Lenders) shall have all rights
with respect to the Pledged Stock set forth in the Stock Pledge Agreement.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. RIGHTS AND WAIVERS. All rights, remedies and powers
granted to the Agent and the Savings Banks, in this Agreement, the Notes, or the
Stock Pledge Agreement, or any other instrument or document delivered hereunder,
whether express or implied, shall be cumulative and may be exercised singly or
concurrently with such other rights as the Agent or the Savings Banks may have,
and shall include, without limitation, the right to apply to a court of equity
for any injunction to restrain a breach or threatened breach of this Agreement
and all rights as stated in Article VII hereof. No failure or delay on the part
of the Agent or the Savings Banks in exercising any right, power or privilege
hereunder, under the Notes, the Stock Pledge Agreement, or any other instrument
or document issued in connection herewith, or under applicable law, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
waiver or modification of any right, power or privilege of the Agent or the
Savings Banks, or of any obligation of Borrower hereunder, under the Notes or
the Stock Pledge Agreement shall be effective unless such waiver
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or modification is in writing, signed by the Savings Banks or the Agent and then
only to the extent set forth therein. A waiver by the Agent or the Savings
Banks of any right, power or privilege hereunder on any one occasion shall not
be construed as a bar to, or a waiver of, any such right, power or privilege
which the Agent or the Savings Banks otherwise would have on any subsequent
occasion.
Section 8.2. BINDING EFFECT; ASSIGNMENT. This Agreement shall
bind and inure to the benefit of the parties, their legal representatives,
successors and assigns, provided, however, that that Borrower may not assign or
transfer its rights hereunder or any interests herein without the prior written
consent of the Savings Banks, and the Savings Banks may not transfer a Note or
any interest therein without the prior written consent of the Borrower.
Section 8.3. SEVERABILITY. Any provision of this Agreement
prohibited by the laws of any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, or modified to conform with such
laws, without invalidating the remaining provisions of this Agreement, and any
such prohibition in any jurisdiction shall not invalidate such provisions in any
other jurisdiction.
Section 8.4. INTERPRETATION. Article and Section headings used
herein are for convenience only and shall not affect the construction or
interpretation of this Agreement. Use of the singular shall include the plural,
and vice versa, where necessary in the construction or interpretation of this
Agreement. Specification of any section or subsection herein shall be deemed to
include specification of any exhibit or appendix referred to therein. Although
the obligations of the Savings Banks under this Agreement are several, each
Savings Bank may individually enforce its rights to receive the prompt payment
of principal and interest in accordance with the terms of this Agreement and the
Note.
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Section 8.5. GOVERNING LAW. This Agreement, the Notes, and the Stock
Pledge Agreement shall be construed in accordance with and governed by the laws
of the State of Maine. Borrower consents to the jurisdiction of the courts of
the State of Maine (including the federal district court) over all matters
arising in connection with this Agreement, the Notes, or the Stock Pledge
Agreement and all suits in that regard shall be brought in such courts unless at
least Three Fourths of the Savings Banks otherwise consent in writing. The
parties waive the right to trial by jury.
Section 8.6. PAYMENT OF EXPENSES AND TAXES. Borrower agrees to
pay all out of pocket costs and expenses of the Agent and the Savings Banks
in connection with the negotiation, preparation, execution and delivery of
this Agreement, the Notes, the Stock Pledge Agreement, and any other related
documents, including the reasonable fees and disbursements of special counsel
to the Agent and the Savings Banks, subject to the provisions of Section
4.1(f) of this Agreement, and to pay all actual and reasonable out of pocket
costs and expenses of the Agent and the Savings Banks in connection with the
administration and enforcement of this Agreement, the Notes, and the Stock
Pledge Agreement, including reasonable attorneys' fees and disbursements
arising in connection therewith (whether or not suit is instituted).
Borrower agrees to indemnify the Agent and the Savings Banks from and against
any and all liabilities, losses, damages, penalties, actions, judgments,
costs, expenses (including, without limitation, reasonable attorneys' fees
and disbursements) or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent or the Savings
Banks in any litigation, proceeding or investigation instituted or conducted
by any Person (other than Borrower) with respect to any aspect of, or any
transaction contemplated by, or referred to in, this Agreement, or any matter
related to the business of Borrower or any securities or other
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litigation arising as a result of any action or failure to act by Borrower.
Borrower also agrees to pay, and to save Agent and the Savings Banks harmless
from any delay in paying, all stamp and other taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the Notes, the Stock Pledge Agreement, or any
modification hereof or thereof, and all filing and recording fees in connection
therewith.
Section 8.7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement and in any certificates or
other documents delivered pursuant hereto shall survive the execution and
delivery of this Agreement and the making of the loans hereunder, and the
provisions of Section 8.6 hereof shall survive payment of the Notes.
Section 8.8. NOTICES. All notices, requests and demands to or upon
any party hereto shall be deemed to have been given or made when delivered or
three (3) Business Days after the date when mailed, first class postage prepaid,
addressed to such party as follows or to such other address as may be hereafter
designated in writing by such party to the other parties hereto:
(a) if to the Savings Banks, to the Agent, to:
Machias Savings Bank
4 Center Street
Machias, Maine 04654-1110
Attention: Mr. Edward L. Hennessey, Jr., President
(i) with a copy (which shall not constitute notice) to:
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esq.
(b) if to Borrower to:
First Coastal Corporation
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36 Thomas Drive
Westbrook, Maine 04092
Attention: Mr. Gregory T. Caswell, President
(i) with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Howard I. Flack, Esq.
Section 8.9. EXECUTION. This Agreement may be executed by the
parties hereto individually or in any combination of the parties hereto in
several separate counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same Agreement.
Section 8.10. AMENDMENTS. This Agreement and its Exhibits, together
with the provisions of the Notes and the Stock Pledge Agreement and other
documents identified herein, constitute the entire agreement between the parties
hereto, and no amendment or waiver of any provision of this Agreement, the Stock
Pledge Agreement or the Notes nor consent to any departure by Borrower therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Savings Banks and Borrower, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 8.11. NO FIDUCIARY RELATIONSHIP. Borrower acknowledges
that nothing contained in this Agreement, the Stock Pledge Agreement, or the
Notes is intended to or shall result in the existence of any fiduciary
obligation of the Agent or the Savings Banks to Borrower, Borrower being
experienced and sophisticated in financial and credit relationships and being
represented by experienced counsel of its own choosing.
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Section 8.12. DEFINITIONS. For purposes of this Agreement, terms
bearing initial capitals and defined in various previous Sections of this
Agreement shall have the meanings stated in such Sections; financial or
accounting terms not specifically defined shall have the meanings ordinarily
applied under generally accepted accounting principles applied on a consistent
basis ("GAAP"); and the following terms shall have the meanings stated below,
except as the context otherwise requires:
(a) "Affiliates" means , with respect to a corporation, any other
corporation or corporations (a) of which it owns 50% or more of the stock, (b)
which owns 50% or more of its stock, or (c) 50% or more of the stock of which is
owned by a corporation that owns 50% or more of its stock.
(b) "Brokered Deposits" means deposits in Coastal Savings that were
placed with Coastal Savings by or through any Person engaged in the business of
placing deposits for others or of placing funds in accounts to be sold to
others.
(c) "Business Day" means a day of the year on which banks generally
under the laws of the State of Maine are not required or authorized to close,
and in any event shall not include a Saturday or Sunday.
(d) "Closing Date" or "Closing" means the date on which all of the
conditions precedent stated in Section 4.1 have been satisfied and the date on
which the closing of the Recapitalization occurs;
(e) "Knowledge of Borrower" means the actual knowledge of the
president, the chief executive officer, the chief financial officer and/or the
board of directors of the Borrower.
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(f) "Three Fourths of the Savings Banks" means, as of any date,
Savings Banks (including the Agent, if applicable) on such date holding at least
75% of the total principal amount then outstanding under the Notes, including,
if applicable, any Notes held by the Agent.
(g) "Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or a government or any agency or
political subdivision thereof.
ARTICLE IX. THE AGENT
Section 9.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Savings
Bank hereby appoints and authorizes the Agent to act as its agent hereunder,
under the Stock Pledge Agreement, and under the Notes with such powers as are
specifically delegated to the Agent by the terms of this Agreement, the Stock
Pledge Agreement, and the Notes, together with such other powers as are
reasonably incidental thereto. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement, the Stock
Pledge Agreement, and the Notes and shall not be a trustee for any Savings Bank.
The Agent shall not be responsible to the Savings Banks or to Borrower or any
Borrower Subsidiary for any recitals, statements, representations, or warranties
made by the Borrower in this Agreement, or the Notes in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, or the Notes, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other
document referred to or provided for herein or therein or for the collectibility
of the Notes or of any failure by the Borrower to perform any of its obligations
hereunder or under the Notes. The Agent may
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employ agents and attorneys-in-fact and shall not be answerable to Savings Banks
or to Borrower or any Borrower Subsidiary except as to money or securities
received by it or its authorized agents, for the gross negligence or willful
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither the Agent (in its capacity as Agent) nor any of its
directors, officer, employees, or agents shall be liable or responsible to the
Savings Banks or to the Borrower or any Borrower Subsidiary for any action taken
or omitted to be taken by it or them hereunder, under the Stock Pledge Agreement
or under the Notes or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct.
Section 9.2. RELIANCE BY AGENT. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telex, telecopy, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper person or persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement, the Stock Pledge
Agreement, or the Notes, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder, or under the Notes in
accordance with instructions signed by Three Fourths of the Savings Banks, and
such instructions of Three Fourths of the Savings Banks and any action taken or
failure to act pursuant thereto shall be binding on all of the Savings Banks.
Section 9.3. EVENTS OF DEFAULT. The Agent shall not be deemed to
have knowledge of the occurrence of an Event of Default (other than the
non-payment of principal of or interest under the Notes) unless the Agent has
received written notice from a Savings Bank or Borrower specifying such Event
of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of an Event of
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Default, the Agent shall give notice thereof to all of the Savings Banks.
The Agent shall (subject to Section 9.7. hereof) take such action with
respect to the Pledged Stock upon an Event of Default as shall be directed
by Three Fourths of the Savings Banks, subject to the terms of the Stock
Pledge Agreement.
Section 9.4. RIGHTS AS A SECURED PARTY. With respect to the Stock
Pledge Agreement, the Agent in its capacity as a Secured Party hereunder shall
have the same rights and powers hereunder as any other Secured Party and may
exercise the same as though it were not acting as the Agent, and the terms
"Secured Party" or "Secured Parties" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. The Agent and its
Affiliates may (without having to account therefore to any Savings Bank) lend
money to and generally engage in any kind of business with the Borrower, as if
it were not acting as the Agent, and the Agent may accept fees and other
consideration from Borrower, for services in connection with this Agreement, or
the Notes or otherwise without having to account for the same to the Savings
Banks.
Section 9.5. INDEMNIFICATION. The Savings Banks shall indemnify
the Agent (to the extent not reimbursed by Borrower under this Agreement),
ratably in accordance with the aggregate principal amount of the Notes purchased
by the Savings Banks (or, if no balances under the Notes are at the time
outstanding, ratably in accordance with their respective purchase commitments),
for any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement, the Stock Pledge
Agreement, or the Notes or any other documents contemplated by or referred
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to herein or therein or the transactions contemplated by or referred to herein
or therein or the transactions contemplated hereby and thereby (including,
without limitation, the costs and expenses which the Borrower is obligated to
pay under Sections 4.1(f) and 8.6 hereof, but excluding, unless an Event of
Default has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or of any such other documents, provided that no
Savings Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified;
and provided further, that in determining the pro rata share of the Savings
Banks' for indemnification of the Agent, the pro rata share of the Agent, if the
Agent is a Savings Bank, shall be included and taken into account.
Section 9.6. NON-RELIANCE ON AGENT AND OTHER SAVINGS BANKS. Each
Savings Bank agrees that it has, independently and without reliance on the Agent
or any other Savings Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of Borrower and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Savings Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking actions under this Agreement, the
Notes or the Stock Pledge Agreement. The Agent shall not be required to keep
itself informed as to the performance or observance by Borrower of this
Agreement, or the Notes or any other document referred to or provided for herein
or therein or to inspect the properties or books of Borrower on behalf of any
other Savings Banks. Except for notices, reports and other documents and
information expressly required to be furnished to the Savings Banks by the Agent
hereunder or under the Notes, the Agent shall not have any duty or
responsibility to provide any Savings Bank
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with any credit or other information concerning the affairs, financial condition
or business of Borrower which may come into the possession of the Agent or any
of its affiliates.
Section 9.7. FAILURE TO ACT. Except for action expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder or thereunder on behalf of other Savings
Banks unless it shall be indemnified to its satisfaction by the Savings Banks on
a PRO RATA basis against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
Section 9.8. RESIGNATION OR REMOVAL OF AGENT. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent
may resign at any time by giving not less than 30 days prior written notice
thereof to the Savings Banks and Borrower, and the Agent may be removed at
any time upon the written request of all other Savings Banks. Upon any such
resignation or removal, the other Savings Banks shall have the right to
appoint a successor Agent. The appointment of a successor Agent shall be
subject to the written consent of the Borrower, which consent shall not be
unreasonably withheld, if the proposed successor Agent is not one of the
Savings Banks. Upon the acceptance of any appointment as agent hereunder or
under the Notes by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations hereunder and under the Stock Pledge Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article 9 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Agent.
Section 9.9. PRO RATA APPLICATION OF PAYMENTS. Section 1.7 of this
Agreement provides for payments hereunder to be made to each Savings Bank. In
the event that any
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payment to which the Savings Banks are entitled hereunder is received by the
Agent, however, (a) upon its receipt of any payment of principal, interest or
fees hereunder in immediately available funds, the Agent shall, no later than
the following Business Day, remit such payment to the Savings Banks on a PRO
RATA basis in accordance with the principal amount outstanding under each of the
Notes, (b) in the case of receipt of payments of funds other than in immediately
available funds, the Agent shall remit to Savings Banks immediately after
receiving reasonable assurance that such funds are collected funds, and, in the
event that payments remitted are subsequently not collected by the Agent, the
Savings Banks shall return to the Agent any such funds remitted by the Agent.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered on its behalf as of the date stated on the first
page hereof.
FIRST COASTAL CORPORATION
By:
---------------------------
ANDROSCOGGIN SAVINGS BANK
By:
---------------------------
BANGOR SAVINGS BANK
By:
---------------------------
MACHIAS SAVINGS BANK
By:
---------------------------
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NORWAY SAVINGS BANK
By:
---------------------------
MACHIAS SAVINGS BANK, AS AGENT
By:
---------------------------
48
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Exhibit 10(n)
FORM OF
PROMISSORY NOTE
$1,000,000 Dated: _________, 1996
FOR VALUE RECEIVED, the undersigned, First Coastal Corporation, a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to ________________
("Lender"), subject to the terms and conditions of the Loan Agreement, of even
date herewith, among the Borrower, Machias Savings Bank, as Agent (the "Agent"),
and the Lender and the other savings banks named therein (the "Loan Agreement"),
the principal amount of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00),
payable on or before the Maturity Date (as defined below), together with
interest on the unpaid principal amount of this Note from the date hereof, at a
rate per annum equal to 10.85% (computed on the basis of a 365-day year), to and
including the Maturity Date. Interest shall be payable quarterly, in arrears, on
the last day of each calendar quarter commencing on September 30, 1996 and
continuing on each December 31, March 31, June 30 and September 30 thereafter
and on the Maturity Date.
Commencing on June 30, 1998, and continuing semi-annually on each December
31 and June 30 thereafter until the Maturity Date (as defined below), Borrower
shall pay to Lender a principal payment of $50,000; the entire remaining
principal balance of this Note shall be paid on December 31, 2001 (the "Maturity
Date"). The final payment of the remaining principal balance of this Note shall
be accompanied by the payment of all accrued but unpaid interest with respect to
the principal balance outstanding prior thereto.
Borrower may prepay this Note in whole or in part at any time at its option
upon not less than three Business Days prior written notice, specifying the date
and the amount of prepayment, and upon the payment of all accrued but unpaid
interest on the amount prepaid to the date of such prepayment, provided that
each such optional principal prepayment shall be in a minimum amount of $25,000,
and provided further, that any optional prepayment during the first three years
following the Closing Date shall be accompanied by a prepayment premium as set
forth in Section 1.4 of the Loan Agreement.
The obligation of the Borrower to the Lender hereunder is secured pursuant
to the terms of a Stock Pledge Agreement, dated as of the date hereof, made by
the Borrower in favor of the Agent (the "Stock Pledge Agreement"). Upon the
occurrence of an Event of Default (as defined in the Loan Agreement), the Lender
shall have all of the rights set forth in the Loan Agreement and the Stock
Pledge Agreement.
Whenever any payment of principal, interest or fees to be made hereunder
becomes due on a day other than a Business Day (as defined in the Loan
Agreement), such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of the
amount of interest then to be paid. All payments and prepayments hereunder
shall be made by wire transfer to the Lender's account (as specified in the Loan
Agreement) without offset or counterclaim, in such money of the United States as
at
<PAGE>
the time of payment shall be legal tender for the payment of public and private
debts and in immediately available funds. Each payment shall be received by
each Lender no later than 2:00 p.m., Eastern Time (standard or daylight, as in
effect) and any payment received after such time shall be treated as received on
the next Business Day.
Presentment and demand for payment, notice of dishonor, protest and notice
of protest are hereby waived by the Borrower. The Borrower agrees to pay all
out-of-pocket expenses (including, but not limited to, reasonable attorneys'
fees) incurred by the holder hereof in connection with the enforcement of this
Note.
This Note and the rights and obligations of the Lender and the Borrower
hereunder shall be governed by and interpreted and construed in accordance with
the laws of the State of Maine (but not including the choice of law rules
thereof).
Unless an Event of Default shall have occurred, this Note may not be
transferred or assigned by the Lender without the prior written consent of the
Borrower.
FIRST COASTAL CORPORATION
By:
------------------------------------------
Name: Gregory T. Caswell
Title: President and Chief Executive Officer
2
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EXHIBIT 10(o)
FORM OF
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is entered into as of
, 1996, by and between FIRST COASTAL CORPORATION, a Delaware
corporation (the "Pledgor"), and MACHIAS SAVINGS BANK for itself and as agent
(the "Agent") for the Lenders (hereinafter defined) who are parties to the Loan
Agreement described below.
BACKGROUND. The Pledgor, Androscoggin Savings Bank, Bangor Savings
Bank, Machias Savings Bank, and Norway Savings Bank (the "Lenders") have
executed and delivered a certain Loan Agreement dated this date (the "Loan
Agreement").
The Pledgor has executed and delivered the Notes (as hereinafter
defined) of even date herewith and in connection therewith is required to
execute and deliver this Pledge Agreement and to pledge hereunder the Pledged
Stock (as hereinafter defined) as security for the Notes.
It is a condition to the Lenders' obligation to purchase the
promissory notes issued by Pledgor as provided for in the Loan Agreement (the
"Notes"), that the Pledgor execute this Pledge Agreement and, pursuant hereto,
pledge the Pledged Stock, as defined in this Pledge Agreement, as security for
the prompt satisfaction of all obligations of the Pledgor arising under the Loan
Agreement and the Notes (the "Obligations").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby mutually agree, intending to be legally bound, as
follows:
<PAGE>
1. The term "Pledged Stock" shall mean the 100,000 shares of Coastal
Savings Bank common stock, par value $1.00 per share, described in Schedule I
hereto, together with all proceeds thereof and all cash, additional securities
and other property at any time and from time to time receivable or otherwise
distributed in respect of or in exchange for any or all of such Pledged Stock,
but excluding any cash dividends which Pledgor is authorized to receive and
retain pursuant to Section 2(d) of this Pledge Agreement.
2. (a) As security for the prompt satisfaction of the Obligations,
the Pledgor hereby pledges to the Agent the Pledged Stock and grants the Agent a
lien thereon and security interest therein. All certificates and other
instruments or documents evidencing rights or ownership in the Pledged Stock are
being delivered to the Agent at the time of execution and delivery of this
Pledge Agreement, accompanied by stock powers executed in blank, and by such
other documents or instruments as the Agent may reasonably request, in
accordance with Section 4.1(a)(ix) of the Loan Agreement. The Agent shall take
and maintain possession in its capacity as Agent for itself as Lender and for
the other Lenders.
(b) Until the termination of this Pledge Agreement, if the
Pledgor shall become entitled to receive or shall receive, in connection with
any of the Pledged Stock, any:
(i) Stock certificates, including, but without limitation,
any certificates representing a stock dividend or issued in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off, or split-off;
(ii) Options, warrants, or rights, whether as an addition
to, or
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in substitution or in exchange for, any of the Pledged Stock, or otherwise;
(iii) Dividends or distributions payable in property,
including securities issued by other than the issuer on any of the Pledged
Stock; or
(iv) Dividends or distributions of any sort, other than cash
dividends which the Pledgor is entitled to receive and retain pursuant to
Section 2(d) of this Pledge Agreement;
then the Pledgor shall accept the same as the Agent's agent, in trust for the
Agent, and shall deliver them forthwith to the Agent in the exact form received
with, as applicable, the Pledgor's endorsement when necessary, or appropriate
stock powers duly executed in blank, to be held by the Agent, subject to the
terms hereof, as part of the Pledged Stock.
(c) If an Event of Default (as defined in the Loan
Agreement) shall have occurred and be continuing, the Agent, at its option, may
have any part or all of the Pledged Stock registered in its name or that of its
nominee, and the Pledgor hereby covenants that, upon the Agent's request, the
Pledgor will cause the issuer, transfer agent or registrar of the Pledged Stock
to effect such registration.
(d) For so long as no Event of Default exists under the
Loan Agreement, Pledgor shall have the right to receive cash dividends declared
and paid by Coastal Savings Bank with respect to the Pledged Stock. Any and all
stock or liquidating dividends, other distributions in property, returns of
capital or other distributions made on or in respect of the Pledged Stock,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of Coastal Savings Bank, received in exchange for the
Pledged Stock or any part thereof or received as a result of any merger,
consolidation, acquisition or other
3
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exchange of assets to which Coastal Savings Bank is a party or otherwise, shall
be and become part of the Pledged Stock pledged hereunder and, if received by
Pledgor, shall forthwith be delivered to the Agent, to be held subject to the
terms of this Pledge Agreement.
(e) For so long as no Event of Default exists under the
Loan Agreement, Pledgor shall have the right to exercise any and all voting
and/or consensual rights and powers relating or pertaining to the Pledged Stock
or any part thereof. Effective upon the occurrence of any Event of Default,
Pledgor hereby revokes any and all previous proxies relating to the Pledged
Stock and appoints the Agent or its nominee as its proxyholder to attend and
vote at any and all meetings of the stockholders of Coastal Savings Bank
(including any adjournments thereof) and to act on requests for written consent
of stockholders as if a duly appointed representative of Pledgor had attended
such meeting or otherwise voted on behalf of Pledgor or given Pledgor's written
consent. This appointment of the Agent as Pledgor's proxy is coupled with an
interest and shall be irrevocable until the payment in full of the Obligations
under this Pledge Agreement.
(f) The Agent shall execute and deliver (or cause to be
executed and delivered) to Pledgor all proxies, powers of attorney, dividend
orders and other instruments as Pledgor may request for the purpose of enabling
Pledgor to receive any cash dividends which Pledgor is authorized to receive and
retain pursuant to Section 2(d) hereof and to exercise the voting and/or
consensual rights and powers which Pledgor is entitled to exercise pursuant to
Section 2(e) hereof; and Pledgor shall execute and deliver to the Agent such
instruments as may be required or may be requested by the Agent to enable the
Agent to receive and retain the distributions or other property it is
authorized to receive and retain on behalf of the Agent
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pursuant to Section 2(d) hereof. Consistent with applicable law, Borrower shall
bear all risks of diminution or depreciation of the Pledged Stock, and the Agent
shall have the right, in its sole discretion, to refrain from selling or
otherwise disposing of the Pledged Stock.
(g) Upon the occurrence and during the continuance of an Event
of Default, the Agent may, without demand of performance or other demand,
advertisement, or notice of any kind (except the notice specified below of the
time and place of public or private sale) to or upon the Pledgor or any other
person (all of which are, to the extent permitted by law, hereby expressly
waived), forthwith realize upon the Pledged Stock or any part thereof, and may
forthwith sell or otherwise dispose of and deliver the Pledged Stock or any part
thereof or interest therein, or agree to do so, in one or more units at public
or private sale or sales, at any stock exchange, broker's board or at any of the
Agent's offices or elsewhere, at such prices and on such terms (including, but
without limitation, a requirement that any purchaser of all or any part of the
Pledged Stock purchase the shares constituting the Pledged Stock for investment
and without any intention to make distribution thereof) as the Agent may deem
commercially reasonable, for cash or on credit, or for future delivery without
assumption of any credit risk, with the right to the Agent or any purchaser to
purchase upon any such sale the whole or any part of the Pledged Stock free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby expressly waived and released.
(h) The proceeds of any such disposition or other action by
the Agent shall be applied as follows:
(i) First, to the costs and expenses incurred in connection
therewith or incidental thereto or to the care or safekeeping of any of the
Pledged Stock or in any way
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relating to the rights of the Agent hereunder, including reasonable attorneys'
fees and legal expenses;
(ii) Second, to the satisfaction of the Obligations;
(iii) Third, to the payment of any other amounts required
by applicable law (including, without limitation, Section 9-504(1)(c) of the
Uniform Commercial Code); and
(iv) Fourth, to the Pledgor to the extent of any surplus
proceeds. Provided that if the proceeds are insufficient to pay all such
expenses, Obligations and other amounts, the Pledgor shall remain liable for
any deficiency.
(i) Except as may otherwise be expressly required by applicable law,
the Agent need not give more than seven (7) days' notice of the time and place
of any public sale or of the time after which a private sale may take place,
which notice the Pledgor hereby deems reasonable.
3. The Pledgor represents and warrants that:
(a) It has all requisite corporate power and corporate authority
to enter into this Pledge Agreement, to pledge the Pledged Stock for the
purposes described in Section 2(a), and to carry out the transactions
contemplated by this Pledge Agreement;
(b) It is the legal and beneficial owner of all of the Pledged
Stock;
(c) The shares of the Pledged Stock constitute all of the issued
and outstanding shares of capital stock of the issuer thereof;
(d) All of the shares of the Pledged Stock have been duly and
validly issued, are fully paid and nonassessable, subject to the provisions of
9-B, Maine Revised Statutes Section 315, as amended, and are owned by the
Pledgor free of any pledge, mortgage,
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hypothecation, lien, charge, encumbrance, or security interest in such shares or
the proceeds thereof except such as are granted hereunder.
(e) The execution, delivery and performance of this Pledge
Agreement will not result in any violation of any provision of the Pledgor's
charter or by-laws, or violate or constitute a default under the terms of any
agreement, indenture or other instrument, license, judgment, decree, order, law,
statute, ordinance, or other governmental rule or regulation applicable to the
Pledgor or any of its property; and
(f) Upon delivery of all stock certificates representing the
Pledged Stock to the Agent or its agent, duly endorsed in blank or accompanied
by one or more stock powers duly endorsed in blank, such delivery and this
Pledge Agreement shall create a valid first lien upon, and perfected security
interest in, the Pledged Stock, subject to no prior security interest, lien,
charge, encumbrance, or agreement purporting to grant to any third party a
security interest in the Pledged Stock.
4. (a) The Pledgor hereby covenants that, until all of the
Obligations have been satisfied in full, it will not:
(i) Sell, convey, or otherwise dispose of any of the Pledged
Stock or any interest therein or create, incur, or permit to exist any pledge,
mortgage, lien, charge, encumbrance, or any security interest whatsoever in, or
with respect to, any of the Pledged Stock, other than that created hereby; or
(ii) Consent to, or approve of, the issuance of any additional
shares of any class of capital stock by the issuer of the Pledged Stock, or any
securities convertible voluntarily by the holder thereof or automatically upon
the occurrence or nonoccurrence of any
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event or condition into, or exchangeable for, any such shares, or any warrants,
options, rights, or other commitments entitling any person to purchase or
otherwise acquire any such shares.
(b) The Pledgor warrants and will, at its own expense, defend the
Agent's security interest in and to the Pledged Stock against the claims of any
person, firm, corporation, or other entity, other than those arising by, through
or under Agent or any other Lender.
5. (a) If the Agent shall elect to exercise its right to sell or
otherwise dispose of all or any part of the Pledged Stock, and if, in the
opinion of counsel for the Agent, it is necessary to have the Pledged Stock or
that portion thereof to be sold registered under the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Pledgor will use
its best efforts to cause
(i) the issuer of the Pledged Stock, its directors, and
officers, to take all action necessary to register the Pledged
Stock or that portion thereof to be disposed of under the
provisions of the Securities Act, at the Pledgor's expense;
PROVIDED THAT only one registration per any six month period
shall be required;
(ii) the registration statement relating thereto to become
effective and to remain so for not less than one year from the
date of the first public offering of the Pledged Stock or that
portion thereof so to be disposed of, and to make all amendments
thereto and to the related prospectus which, in the opinion of
the Agent or its counsel, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the
rules and Regulations of the Securities and Exchange Commission
applicable
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thereto;
(iii) the issuer of the Pledged Stock to comply with the
provisions of the "Blue Sky" laws of any jurisdiction which the
Agent shall reasonably designate; and
(iv) the issuer of the Pledged Stock to make available to its
security holders, as soon as practicable (but in no event later
than sixteen (16) months after the effective date of such
registration statement), an earnings statement (which need not be
audited) covering a period of at least twelve (12) months
beginning with the first month after the effective date of any
such registration statement, which earnings statement will
satisfy the provisions of Section 11(a) of the Securities Act.
(v) if registration under the Securities Act is not required,
but, in the opinion of counsel to the Agent, information
substantially similar to that which would be provided in
connection with a registration under the Securities Act is
appropriate or required in connection with a sale or disposition
of the Collateral, the Pledgor shall provide such information and
shall cooperate with the Secured parties in providing such
information as requested by Agent, at the expense of the Pledgor,
and shall otherwise comply with the provisions of this Section
5(a) as if registration under the Securities Act was required.
(b) The Pledgor acknowledges that a breach of any of the covenants
contained in paragraph 5(a) above may cause irreparable injury to the Agent;
that the Agent will have no
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adequate remedy at law with respect to such breach; and, as a consequence, that
the Pledgor's covenants in paragraph 5(a) shall be specifically enforceable
against the Pledgor; and the Pledgor hereby waives, to the extent such waiver is
enforceable under law, and shall not assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred.
(c) Notwithstanding the foregoing, the Pledgor recognizes that the
Agent may be unable to effect a public sale of all or a part of the Pledged
Stock and may be compelled or deem it best to resort to one or more private
sales to a restricted group of purchasers who will be obligated to agree, among
other things, to acquire the Pledged Stock for their own account, for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges that any such private sales may be at prices and on terms less
favorable to the Agent than those of public sales, and agrees that such private
sales shall, not by reason thereof, be deemed to have been made in a
commercially reasonable manner, and that the Agent has no obligation to delay
sale of any Pledged Stock to permit the issuer thereof to register it for public
sale under the Securities Act.
(d) Pledgor shall use its best efforts to cause any issuer,
transfer agent, or registrar of the Pledged Stock to take all such actions
and execute all such documents as may be necessary or appropriate, upon the
request of Agent, to (i) remove any restrictive legends placed on the Pledged
Stock that are not legally required for such Pledged Stock held by Agent;
(ii) after an Event of Default, effect any sale or sales of Pledged Stock in
accordance with Rule 144 under the Securities Act, if applicable; and (iii)
after an Event of Default, effect any sale or other disposition of the
Pledged Stock in any lawful public or private sale or other disposition.
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6. The Pledgor will promptly deliver to the Agent all written
notices and will promptly give the Agent written notice of any other notices
received by it with respect to Pledged Stock, and the Agent will promptly give
like notice to the Pledgor of any such notices received by it or its nominee.
7. The Pledgor shall at any time, and from time to time, upon the
written request of the Agent and at the expense of the Pledgor, execute and
deliver such further documents and do such further acts and things as the Agent
may reasonably request to effect the purposes of this Pledge Agreement,
including, without limitation, delivering to the Agent upon the occurrence of an
Event of Default irrevocable proxies with respect to the Pledged Stock in form
satisfactory to the Agent.
8. Upon the satisfaction in full of all Obligations and the
satisfaction of all additional costs and expenses of the Agent as provided
herein, this Pledge Agreement shall terminate, and the Agent shall deliver to
the Pledgor without recourse or representation, at the Pledgor's expense, such
of the Pledged Stock as shall not have been sold or otherwise disposed of
pursuant to this Pledge Agreement.
9. (a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Stock while held hereunder (which duty shall not include
any steps to preserve rights against prior parties or to send notices, perform
services, or take any action in connection with the management of the Pledged
Stock), the Agent shall have no duty or liability to preserve rights pertaining
thereto and shall be relieved of all responsibility for the Pledged Stock upon
surrendering it or tendering surrender of it to the Pledgor.
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(b) No course of dealing between the Pledgor and the Agent, nor
any failure to exercise, nor any delay in exercising, any right, power or
privilege of the Agent hereunder or under the Pledge Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(c) The rights and remedies provided herein and in the Loan
Agreement and in all other agreements, instruments, and documents delivered
pursuant to or in connection with the Loan Agreement are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law,
including, but without limitation, the rights and remedies of a secured party
under the Uniform Commercial Code.
(d) The provisions of this Pledge Agreement are severable, and
if any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision or part thereof in such jurisdiction and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Pledge Agreement in any jurisdiction.
10. Any notice required or permitted by this Pledge Agreement shall
be effective if given in accordance with the provisions of the Loan Agreement.
11. This Pledge Agreement shall inure to the benefit of, and shall be
binding upon, the successors and assigns of the parties hereto.
12. Section headings used herein are for convenience only and shall
not affect the construction or interpretation of this Pledge Agreement. Use
of the singular shall include the plural, and vice versa, where necessary in
the construction or interpretation of this Pledge
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Agreement. Specification of any section or subsection herein shall be deemed
to include specification of any schedule referred to therein.
13. This Pledge Agreement may be executed by the parties hereto
individually or in any combination of the parties hereto in several separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same Pledge Agreement.
14. This Pledge Agreement shall bind and inure to the benefit of the
parties, their legal representatives, successors and assigns, provided, however,
that the Agent may not transfer or assign any interest herein (other than in
connection with a successor Agent) without the prior written consent of the
Pledgor.
15. This Pledge Agreement shall be construed in accordance with the
substantive laws of the State of Maine, without regard to principles of
conflicts of law.
16. No amendment or waiver of any provision of this Stock Pledge
Agreement nor consent to any departure by Pledgor therefrom shall in any event
be effective unless the same shall be in writing and signed by the Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
Agreement to be executed on its behalf as of the date and year first above
written.
Attest: [CORPORATE SEAL] FIRST COASTAL CORPORATION
By: By:
---------------------- ----------------------------
Secretary President
Attest: [CORPORATE SEAL] MACHIAS SAVINGS BANK,
as Agent
By: By:
---------------------- ----------------------------
Secretary President
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SCHEDULE I
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Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 (File No.
333-02609) 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
June 13, 1996
