<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
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 November 9, 1998: 1,360,527 shares
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as of
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30,
1998 and 1997 4
Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1998 and 1997 6
Consolidated Statements of Comprehensive Income
(Unaudited) for the three and nine months ended
September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements (Unaudited),
September 30, 1998 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II - OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 25
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 3,386 $ 3,615
Interest earning deposits 19,896 3,939
-------- --------
Cash and cash equivalents 23,282 7,554
Investment securities:
Available for sale (at market value) 42,435 15,887
Held to maturity (at cost) (fair value
of $6,973 at December 31, 1997) - 7,000
-------- --------
42,435 22,887
Federal Home Loan Bank stock (at cost) 1,315 1,315
Loans held for sale (at market value) 2,049 3,565
Loans 104,288 104,304
Less: Deferred loan fees, net (110) (139)
Allowance for loan losses (2,752) (2,665)
-------- --------
101,426 101,500
Premises and equipment 2,590 3,554
Accrued income receivable 950 970
Real estate owned and repossessions 121 65
Deferred tax asset 3,346 4,095
Other assets 675 895
-------- --------
TOTAL ASSETS $178,189 $146,400
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $145,460 $114,991
Advances from Federal Home Loan Bank 12,736 13,294
Savings Bank Notes 2,800 3,000
Repurchase agreements 710 -
Accrued expenses and other liabilities 224 307
-------- --------
TOTAL LIABILITIES 161,930 131,592
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 September 30, 1998 and December 31, 1997 -
1,360,527 and 1,359,194 shares, respectively 1,361 1,359
Paid-in Capital 31,751 31,746
Retained earnings (deficit) (17,171) (18,369)
Unrealized gain on available for sale
securities, net 318 72
-------- --------
TOTAL STOCKHOLDERS' EQUITY 16,259 14,808
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,189 $146,400
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Three Months Ended September 30,
(in thousands, except --------------------------------
share and per share amounts) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,450 $ 2,453
Interest and dividends on investment
securities 595 423
Other interest income 328 126
---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 3,373 3,002
INTEREST EXPENSE
Deposits 1,478 1,122
Borrowings
Advances from Federal Home Loan Bank 190 224
Savings Bank Notes 81 175
Repurchase agreements 2 -
---------- ----------
Total Interest Expense 1,751 1,521
---------- ----------
Net Interest Income Before Provision
for Loan Losses 1,622 1,481
Provision for Loan Losses - -
---------- ----------
Net Interest Income After Provision
for Loan Losses 1,622 1,481
NONINTEREST INCOME
Service charges on deposit accounts 139 124
Gain on investment securities transactions 68 98
Gain on sales of mortgage loans 51 11
Other 572 50
---------- ----------
830 283
---------- ----------
OPERATING EXPENSES
Salaries and employee benefits 797 608
Occupancy 95 67
Net cost of operation of real estate
owned and repossessions 7 27
Other 594 550
---------- ----------
1,493 1,252
---------- ----------
INCOME BEFORE INCOME TAXES 959 512
Income Taxes 338 178
---------- ----------
NET INCOME $ 621 $ 334
========== ==========
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,360,527 1,359,194
Net income per share $.46 $.25
========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,378,264 1,377,562
Net income per share $.45 $.24
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands, except -------------------------------
share and per share amounts) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 7,441 $ 7,116
Interest and dividends on investment
securities 1,403 1,393
Other interest income 656 348
---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 9,500 8,857
INTEREST EXPENSE
Deposits 3,817 3,352
Borrowings
Advances from Federal Home Loan Bank 593 723
Savings Bank Notes 251 392
Repurchase agreements 12 -
---------- ----------
Total Interest Expense 4,673 4,467
---------- ----------
Net Interest Income Before Provision
for Loan Losses 4,827 4,390
Provision for Loan Losses - -
---------- ----------
Net Interest Income After Provision
for Loan Losses 4,827 4,390
NONINTEREST INCOME
Service charges on deposit accounts 379 333
Gain on investment securities transactions 104 244
Gain on sales of mortgage loans 67 105
Other 632 119
---------- ----------
1,182 801
---------- ----------
OPERATING EXPENSES
Salaries and employee benefits 2,074 1,691
Occupancy 354 298
Net cost of operation of real estate
owned and repossessions 9 93
Other 1,717 1,645
---------- ----------
4,154 3,727
---------- ----------
INCOME BEFORE INCOME TAXES 1,855 1,464
Income Taxes 657 512
---------- ----------
NET INCOME $ 1,198 $ 952
========== ==========
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,359,790 1,358,574
Net income per share $.88 $.70
========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,380,013 1,372,721
Net income per share $.87 $.69
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,198 $ 952
Adjustments to reconcile net income to net cash
provided by operating activities:
Writedowns of REO - 36
Gain on sales of REO (5) -
Depreciation and amortization 299 234
Amortization of investment security premium 83 40
Realized investment securities gains (104) (244)
Realized gains on assets held for sale (67) (105)
Loans originated and acquired for resale (9,599) (5,761)
Sales of loans originated and acquired for sale 11,182 5,341
Decrease in interest receivable 20 178
Increase in interest payable 7 10
Net change in other assets 918 892
Net change in other liabilities (90) 8
-------- --------
Net cash provided by operating activities 3,842 1,581
-------- --------
INVESTING ACTIVITIES
Sales and maturities of securities available for sale 4,542 14,320
Maturities of securities held to maturity 10,000 2,001
Purchases of investment securities available for sale (30,630) (10,167)
Purchases of investment securities held to maturity (3,193) -
Net change in loans 74 (5,797)
Net sales (purchases) of premises and equipment 665 (249)
-------- --------
Net cash provided (used) by investing activities (18,542) 108
-------- --------
FINANCING ACTIVITIES
Net change in deposits 30,469 1,247
Proceeds from borrowings 4,000 2,000
Payments on borrowings (4,758) (3,525)
Net change in Repurchase agreements 710 -
Proceeds from issuance of common stock options 7 7
-------- --------
Net cash provided (used) by financing activities 30,428 (271)
-------- --------
Increase in cash and cash equivalents 15,728 1,418
Cash and cash equivalents at beginning of period 7,554 11,453
-------- --------
Cash and cash equivalents (interest and noninterest
bearing) at end of period $ 23,282 $ 12,871
======== ========
NONCASH INVESTING ACTIVITIES
Change in unrealized holding gains and losses on
investment securities available for sale $ (246) $ 138
Transfer of loans to real estate owned and repossessions 121 -
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
(dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 621 $ 334
Other comprehensive income:
Unrealized holding gains arising during
the period (net of income taxes:
1998 - $160; 1997 - $0) 311 151
Reclassification adjustment for realized
gains included in net income (net of
income taxes: 1998 - $(23); 1997 - $(33)) (45) (65)
------ ------
266 86
------ ------
Comprehensive income $ 887 $ 420
====== ======
<CAPTION>
Nine Months Ended September 30,
--------------------------------
(dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income $1,198 $ 952
Other comprehensive income:
Unrealized holding gains arising during
the period (net of income taxes:
1998 - $162; 1997 - $0) 315 299
Reclassification adjustment for realized
gains included in net income (net of income
taxes: 1998 - $(35); 1997 - $(83)) (69) (161)
------ ------
246 138
------ ------
Comprehensive income $1,444 $1,090
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE A BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of First
Coastal Corporation (the "Company") and its subsidiary, Coastal Bank (the
"Bank"), 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 of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results and other data for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The requirements of the
pronouncement do not have a material effect on the Company's financial condition
and results of operations.
Effective January 1, 1998, the Company adopted FASB SFAS No. 131, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. The requirements of this pronouncement do
not have a material effect on the Company's financial condition and results of
operations.
In February 1998, FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132 will revise employers'
disclosures about pension and other postretirement benefit plans. The
requirements of this pronouncement will be adopted for the Company's financial
statements for the year ending December 31, 1998. The requirements of this
pronouncement are not expected to have a material effect on the Company's
financial condition and results of operations.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivatives embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
requirements of this pronouncement will be adopted effective January 1, 2000 and
are not expected to have a material effect on the Company's financial conditions
and results of operations.
COMPUTATION OF EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, Earnings Per Share. SFAS No. 128
provides reporting standards for basic and diluted earnings per share and is
effective for financial statement periods ending after December 15, 1997. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings
8
<PAGE>
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. All prior period earnings per share data has been
restated to conform to the provisions of this statement. The table below sets
forth the approximate number of shares used to calculate basic and diluted
earnings per share ("EPS") for the three and nine months ended September 30,
1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding for basic EPS 1,360,527 1,359,194 1,359,790 1,358,574
Effect of dilutive stock options 17,737 18,368 20,223 14,147
--------- --------- --------- ---------
Weighted averages shares outstanding for diluted EPS 1,378,264 1,377,562 1,380,013 1,372,721
========= ========= ========= =========
</TABLE>
INCOME TAXES
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. Due to the uncertainty that the benefit of deferred tax assets would be
realized, a full valuation allowance was recorded at December 31, 1995.
Effective December 31, 1996 management concluded that the completion of the
July 1996 recapitalization, the payoff of the $9.0 million promissory note
obligation (the "FDIC Note") to the Federal Deposit Insurance Corporation
("FDIC") incurred as a result of the January 1995 settlement of the cross
guaranty claim, and the improved financial condition of the Company reduced the
uncertainties relating to the prospective utilization of the net operating loss
carryforwards. As a result, in accordance with SFAS No. 109, in the fourth
quarter of 1996 the valuation allowance against the deferred tax asset was
reduced and the $4.8 million income tax benefit was recognized. Accordingly, for
financial reporting purposes subsequent to January 1, 1997, earnings are
reported on a tax effected basis as though income tax expense had been incurred.
In order to help maintain the benefit of the deferred tax asset, the Company
amended its Restated Certificate of Incorporation in June 1996 to provide that
absent approval by the Company's Board of Directors no person shall become or
make an offer to become a beneficial owner of five percent or more of the
Company's voting stock for a three year period, which provision expires June 11,
1999. This amendment is intended to help reduce the likelihood that there will
be an "ownership change" as defined in Section 382 of the Internal Revenue Code,
which could result in a reduction in the amount of net operating loss
carryforwards for tax purposes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
BUSINESS
First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank (the "Bank"), a
Maine chartered savings bank headquartered in Westbrook, Maine. 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 Company has no separate operations and its business consists of the business
of the Bank. The Bank is engaged in customary banking activities, including
attracting deposits and various lending activities, and conducts its business
from
9
<PAGE>
eight offices in the counties of Cumberland, Sagadahoc and York. The Bank's
deposits are insured by the FDIC up to the limits provided by law.
This Quarterly Report on Form 10-Q, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Any statements with regard to
the Company's expectations as to its financial results and other aspects of its
business, as well as general economic conditions, may constitute forward-looking
statements. Although the Company makes such statements based on assumptions
which it believes to be reasonable, there can be no assurance that actual
results will not differ materially from the Company's expectations.
Accordingly, the Company hereby identifies the following important factors,
among others, which could cause results to differ from any results which might
be projected, forecasted or estimated based on such forward-looking statements:
(i) general economic and competitive conditions in the markets in which the
Company operates, and the risks inherent in its operations, (ii) the Company's
ability to continue to control its provision for loan losses, noninterest
expense, increase earning assets and noninterest income, and maintain its
margin, and (iii) the level of demand for new and existing products. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in the forward-looking statements. The Company does not intend to
update forward-looking statements.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $621,000 and $1,198,000 for the three and
nine months ended September 30, 1998, compared to net income of $334,000 and
$952,000 for the same respective periods in 1997. The increase in net income
for the three and nine months ended September 30, 1998 as compared to the same
respective periods in 1997 is primarily attributable to a $539,000 pre-tax gain
on the sale of the Bank's office building located in Westbrook, Maine, offset in
part by a $150,000 pension expense accrual in connection with the termination of
the Bank's defined benefit plan and the anticipated loss on the settlement of
the Bank's obligations under the plan in the fourth quarter of 1998 and a
decrease in securities and loan sale gains of $178,000 for the nine months ended
September 30, 1998.
NET INTEREST INCOME
Net interest income increased $141,000 and $437,000 for the three and nine
months ended September 30, 1998 as compared to the same respective periods in
1997. The increase in net interest income for the three months ended
September 30, 1998 as compared to the same period in 1997 was a result of a
$371,000 increase in interest income primarily resulting from higher securities
balances and cash, partially offset by a $230,000 increase in interest expense
related to the Bank's new High Rise Savings program, as more fully described
below under the caption Interest Expense. The increase in net interest income
for the nine months ended September 30, 1998 as compared to the same period in
1997 is primarily attributable to a $325,000 increase in interest income and
fees received on loans resulting from an increase in average loan balances and
yields and a $318,000 increase in interest received on cash and investments as a
result of higher balances.
Changes in net interest income are caused by changes in the amount and
composition of interest earning assets and interest bearing liabilities,
interest rate movements and the repricing of assets and liabilities as a result
of these movements, changes in the level of noninterest earning assets and
noninterest bearing liabilities and income recognition and income reversals
related to interest earning assets which become noninterest earning assets.
10
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) interest rate spread, and (v) net interest margin.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
Average Average
(in thousands) Balance Interest Yield /(1)/ Balance Interest Yield /(1)/
- --------------------------------------------- -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash $ 15,836 $ 656 5.46% $ 8,323 $ 348 5.59%
Investments 28,971 1,403 6.47 28,429 1,393 6.55
Loans /(2) (3)/
Residential real estate mortgages 35,582 2,290 8.58 36,266 2,318 8.54
Commercial real estate mortgages 51,152 3,715 9.71 47,987 3,413 9.51
Commercial and industrial loans 5,274 387 9.82 3,733 277 9.91
Consumer loans 14,417 1,049 9.73 15,115 1,108 9.80
-------- ------ -------- ------
Total loans 106,425 7,441 9.35 103,101 7,116 9.23
Total interest earning assets 151,232 9,500 8.40 139,853 8,857 8.47
Noninterest earning assets 10,203 11,071
-------- --------
Total assets $161,435 $150,924
======== ========
LIABILITIES:
Deposits
Savings $ 48,734 $1,320 3.62% $ 34,956 $ 711 2.72%
Now and money market accounts 18,045 313 2.32 18,375 340 2.48
Certificates of deposits 54,347 2,184 5.37 57,122 2,301 5.39
-------- ------ -------- ------
Total interest bearing deposits 121,126 3,817 4.21 110,453 3,352 4.06
FHLB Borrowings 16,420 844 6.87 19,852 1,115 7.05
Repurchase agreements 377 12 4.16 - - -
-------- ------ -------- ------
Total interest bearing liabilities 137,923 4,673 4.53% 130,305 4,467 4.58%
Noninterest bearing deposits 7,706 6,138
Noninterest bearing liabilities 105 186
Stockholders' equity 15,701 14,295
-------- --------
Total liabilities and stockholders' equity $161,435 $150,924
======== ========
Net interest income $4,827 $4,390
====== ======
Net interest rate spread /(4)/ 3.87% 3.89%
Net interest margin /(5)/ 4.27% 4.20%
</TABLE>
/(1)/ Annualized.
/(2)/ For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
/(3)/ Fees from loans are included in interest income from loans.
/(4)/ Return on interest earning assets less cost of interest bearing
liabilities.
/(5)/ Net interest income divided by average earning assets.
Interest income increased $371,000 for the three months ended September 30, 1998
as compared to the three months ended September 30, 1997, primarily attributable
to an increase in interest earned on cash and securities resulting from a $25.8
million increase in average balances, partially offset by a 23 basis point
decline in the yield on these assets.
11
<PAGE>
Interest income increased $643,000 for the nine months ended September 30, 1998
as compared to the nine months ended September 30, 1997. This increase was the
result of a $325,000 increase in interest on loans, attributable to a
$3.3 million increase in average loan balances (of which $1.5 million is related
to loans held for sale), a 12 basis point increase in loan yields, from 9.23% to
9.35%, and a $318,000 increase in interest income received on cash and
securities, primarily as a result of higher average balances of $8.1 million.
Competition with regard to loan originations, particularly commercial real
estate and commercial and industrial loans, has continued to be intense. As a
result, the yields on new loan originations, particularly in these two
categories, are expected to decline relative to interest rates in general.
Competitive factors have also resulted in, and are expected to continue to
result in, an increase in loan prepayments as compared to that which might
ordinarily have been expected, as well as some reductions in contract interest
rates for existing customers. In addition, market interest rates have declined
since the end of the prior quarter. As a result, there is some likelihood that
loan yields will decline in the foreseeable future.
Interest expense increased $230,000 for the three months ended September 30,
1998 as compared to the same respective period in 1997 as a result of a $406,000
increase in interest expense paid on savings accounts (a $27.3 million increase
in average deposit balances and a 139 basis point increase in yield). This
increase was partially offset by (i) a $55,000 decline in interest expense paid
on certificate of deposits and interest bearing checking accounts
(a $3.7 million decline in average deposit balances and a 3 basis point decline
in yields), (ii) a $34,000 decline in interest expense on advances from the
Federal Home Loan Bank ("FHLB") of Boston, resulting from a reduction in the
amount of advances owed the FHLB, and (iii) a $94,000 decline in interest
expense on the promissory notes issued to a group of four Maine savings banks
(the "Savings Banks") in the aggregate amount of $4.0 million (the "Savings Bank
Notes") in connection with the Company's June 1996 recapitalization. The decline
in interest expense on the Savings Bank Notes resulted from a $1.0 million
unscheduled principal payment made in September 1997 (which included $65,000 in
additional interest expense) and a $200,000 scheduled principal payment made in
June 1998.
On March 23, 1998, the Company introduced a new savings deposit product called
High Rise Savings. The introductory interest rate paid on this product through
December 31, 1998 for accounts opened during the initial introductory period
which ended July 3, 1998 is tiered and ranges from 4.64% to 5.59% (following the
initial introductory period, the product's interest rates were reduced). Also,
a portion of the Bank's deposit customers converted their pre-existing accounts
to High Rise Savings accounts at higher yields. As a result of this program,
savings deposit balances increased significantly, thereby increasing the overall
cost of deposits to the Bank.
In October 1998, the Company borrowed an additional $10.0 million from the FHLB,
with maturities of 5, 7 and 10 years and a weighted average interest rate of
5.07%. The funds will be utilized to fund fixed rate commercial loans and
improve the Bank's interest rate risk position by taking advantage of favorable
long term borrowing rates.
Interest expense increased $206,000 for the nine months ended September 30, 1998
as compared to the nine months ended September 30, 1997. The increase is
attributable to a $465,000 increase in deposit expense resulting from the
increase in High Rise Savings account balances as explained above, offset in
part by a $259,000 decline in borrowing expense. Interest expense is expected
to further increase through the year ending December 31, 1998, primarily as a
result of the $10.0 million in new FHLB advances and the Bank's High Rise
Savings product. Balances in the High Rise Savings equaled $33.6 million at
September 30, 1998. The Bank launched its new cash management program for
businesses in May 1998. The program includes repurchase agreements, which are
deposits that are not FDIC insured, but instead are collateralized by mortgage-
backed securities owned by the Bank. At September 30, 1998 these repurchase
agreements equaled $710,000. The interest rates paid on these repurchase
agreements ranges between 4.0% and 4.5%.
12
<PAGE>
PROVISION FOR LOAN LOSSES
There was no provision for loan losses expense for the three and nine months
ended September 30, 1998 and 1997. The absence of provision for loan losses is
attributable to (i) the essentially unchanged level of the allowance for loan
losses (the "Allowance"), both in dollars ($2.7 million at September 30, 1998
and 1997) and as a percentage of total loans (2.64% at September 30, 1998 versus
2.54% at September 30, 1997), and (ii) management's review of the portfolio and
its determination of the adequacy of the Allowance as of September 30, 1998.
Management believes that in accordance with the Bank's Allowance for Loan Loss
Policy, the Allowance is adequate at September 30, 1998. 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 collateral, growth in the size or changes in the
mix or concentration risk of the loan portfolio, 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 Bank's Allowance. Such authorities may require the Bank to recognize
additional provision for loan losses based upon information available to them
and their judgments at the time of their examination.
NONINTEREST INCOME
Noninterest income increased $547,000 for the three months ended September 30,
1998 as compared to the same period in 1997. Noninterest income for the three
months ended September 30, 1998 includes a $539,000 gain received on the sale of
the Bank's office building located in Westbrook, Maine, which currently serves
as the Bank's operations center, headquarters, and as a branch.
Noninterest income for the nine months ended September 30, 1998 increased
$381,000 as compared to the nine months ended September 30, 1997. This increase
is primarily attributable to the $539,000 gain received on the sale of the
Bank's office building located in Westbrook, Maine, offset by a $178,000 decline
in loan and security gains for the nine months ended September 30, 1998 as
compared to the same period in 1997.
OPERATING EXPENSES
Operating expense increased $241,000 for the three months ended September 30,
1998 as compared to the same period in 1997. This increase is primarily
attributable to a $189,000 increase in salaries and benefits expense, resulting
from a $49,000 increase in salaries due to changes in staffing levels (including
the opening of the Portland office in March 1998), annual salary increases, and
a $127,000 increase in pension expense, attributable to a $150,000 pension
expense accrual in connection with the termination of the Bank's defined benefit
plan and the anticipated loss on the settlement of the Bank's obligations under
the plan in the fourth quarter of 1998. This loss is primarily the result of
the decline in interest rates which has occurred during the period since the
Bank elected to terminate the plan, resulting in increased costs of providing
annuity contracts or providing equivalent cash for settlement of the Bank's
obligations to eligible employees. The pension expense accrual is estimated
based on current market conditions and information available to management and
the actual amount could change based on market conditions or other factors at
the time of final settlement in December 1998.
Operating expenses increased $427,000 for the nine months ended September 30,
1998 as compared to the same period in 1997 primarily as a result of additional
costs associated with several business initiatives the Bank implemented during
the first and second quarters of 1998. These initiatives include the opening of
the Portland branch, Internet banking for businesses, the development and
introduction of a new line of cash management services for businesses and
additional staffing resulting from increased commercial lending activity. The
increase in salaries and benefits expense represented $383,000 of the total
increase and was
13
<PAGE>
primarily attributable to changes in staffing levels, annual salary increases
and a $176,000 increase in pension expense, of which $150,000 is attributable to
the termination of the Bank's defined benefit plan described above, and the
balance in the form of 401(k) matching contributions under the Bank's 401(k)
defined contribution plan.
FINANCIAL CONDITION
- -------------------
TOTAL ASSETS
At September 30, 1998, total assets were $178.2 million, representing an
increase of $31.8 million (or 21.7%) from total assets of $146.4 million at
December 31, 1997. This increase was attributable to a $30.5 million increase
in deposit balances, primarily attributable to the introduction of High Rise
Savings in March 1998. The High Rise Savings introductory program was advertised
and included introductory rates that were in excess of market rates and ran from
March 23 until July 3, 1998. However, as a result of the discontinuation of the
marketing campaign, and a reduction in the interest rate available to new High
Rise Savings customers following the close of the introductory period, increases
in deposit balances attributable to High Rise Savings are not expected to
continue at the same level. The bulk of this deposit growth was primarily
invested in securities and overnight cash investments at September 30, 1998.
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 September 30, 1998 were $42.4 million compared to
$22.9 million at December 31, 1997. This increase is attributable to the
purchase of $20.6 million in mortgage-backed securities, $3.2 million in
U.S. government agency callable notes and $10.0 million in U.S. government
obligations (all of which are Treasury Inflation Indexed Securities), partially
offset by $10.0 million in U.S. government agency callable notes which were
called and $4.5 million in prepayments and amortization on mortgage-backed
securities. 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 September 30, 1998. The securities
classified as held to maturity at December 31, 1997 were FHLB Callable Notes,
all of which were called during 1998 resulting in no securities classified as
held to maturity.
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gain Loss Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $10,183 $150 $ - $10,333
Mortgage backed securities 31,685 337 (5) 32,017
Other 85 - - 85
------- ---- ------ -------
$41,953 $487 $(5) $42,435
======= ==== ====== =======
</TABLE>
The tax effected net unrealized gain on investment securities classified as
available for sale was $318,000 and $72,000, at September 30, 1998 and
December 31, 1997, respectively.
14
<PAGE>
The following table represents the contractual maturities for investments in
debt securities for each major security type at September 30, 1998.
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------------
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 $191 $2,046 $ 8,096 $10,333
Mortgage backed securities - - 32,017 32,017
---- ------ ------- -------
$191 $2,046 $40,113 $42,350
==== ====== ======= =======
</TABLE>
LOANS HELD FOR SALE
Loans held for sale (all of which were residential mortgages carried at market
value) equaled $2.0 million at September 30, 1998 as compared to $3.6 million at
December 31, 1997, a decrease of $1.6 million. The outstanding dollar amount of
loans held for sale can vary greatly from period to period, affected by such
factors as mortgage origination levels, the timing and delivery of loan sales,
changes in market interest rates and asset/liability management strategies. At
September 30, 1998 the Bank had no binding commitments for the sale of mortgage
loans held for sale.
LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(in thousands) 1998 1997
- --------------------------------- ------------- ------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 30,061 $ 33,251
Commercial 53,440 48,705
Real estate construction loans 1,360 1,955
Commercial and industrial loans 5,753 5,166
Consumer and other loans 13,674 15,227
-------- --------
$104,288 $104,304
======== ========
</TABLE>
Loans declined $16,000 (or 0.02%) at September 30, 1998 as compared to
December 31, 1997. The decline was attributable to pay offs in all categories of
loans with the exception of commercial loans. The level of pay offs increased
during the nine months ended September 30, 1998 as a result of interest rates
being favorable to the borrowers.
ALLOWANCE FOR LOAN LOSSES ("ALLOWANCE")
The Company's Allowance was $2.7 million at September 30, 1998 and December 31,
1997. The Allowance represented 2.64% and 2.56% of total loans, and 750% and
354% of nonperforming loans, at September 30, 1998 and December 31, 1997,
respectively.
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio in accordance with the
Bank's Allowance for Loan Loss Policy. Management's
15
<PAGE>
determination of the adequacy of the Allowance is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic conditions,
trends in loan outstandings and diversification of the loan portfolio, the
results of the most recent regulatory examinations, the results of loan
portfolio reviews completed by outside consultants, the nature and level of
nonperforming assets, impaired loans and loans that have been identified as
potential problems, financial condition of its borrowers, the adequacy of loan
collateral and other relevant factors. The Allowance is increased by provisions
for loan losses charged against income and recoveries on loans previously
charged off. In evaluating reserve adequacy, management places a high reliance
upon the review of individual commercial loan assets to determine whether or not
loss exposure exists. 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,
deterioration in the local economy or real estate market, upward movements in
interest rates, the Company's large concentration in commercial real estate
loans or other factors 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.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(in thousands) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 256 $ 387
Accruing loans past due 90 days or more 111 101
Restructured loans - 265
Real estate owned and repossessions 121 65
----- -----
Total $ 488 $ 818
===== =====
</TABLE>
The level of nonperforming assets declined $330,000 from December 31, 1997 to
September 30, 1998. $265,000 of the $330,000 decline is attributable to the
reclassification of a restructured loan to performing status under the terms of
the restructure.
Since 1992 the Company has experienced a significant downward trend in the level
of nonperforming assets. Though management has not seen any indication that
asset quality is or might be deteriorating, the current level of nonperforming
assets is at such a low level that it is not considered sustainable for the long
term, and as a result the level of nonperforming assets is considered much more
likely to increase than decrease in the future.
In addition, other factors could result in a decline in the quality of the loan
portfolio and an increase in the level of nonperforming assets. Deterioration
in the national or local economy, a rise in interest rates, or deterioration in
the real estate market could all adversely affect asset quality and cause an
increase in the level of nonperforming assets. Furthermore, the Company
continues to hold a large concentration of commercial real estate loans which
may be vulnerable to default in the event there is deterioration in the real
estate market.
16
<PAGE>
IMPAIRED LOANS
Management reviews loans on a case by case basis to determine which loans should
be classified as impaired. If management believes that it is probable that there
will be a loss of scheduled principal or interest, then such loans are
determined to be impaired. At September 30, 1998, the recorded investment in
loans for which impairment has been recognized in accordance with SFAS No. 114
totaled $256,000, as compared to $717,000 at December 31, 1997. The
corresponding portion of the Allowance allocated as reserves ("Allocated
Reserves") against the total recorded investment in loans was $87,000 as of
September 30, 1998 and $91,000 as of December 31, 1997. All of the impaired
loans were classified as nonaccrual at September 30, 1998. The income recorded
on a cash basis relating to impaired loans equaled $8,900 and $73,000 for the
nine months ended September 30, 1998 and 1997, respectively. The average
balance of outstanding impaired loans was $405,000 and $2.8 million at
September 30, 1998 and September 30, 1997, respectively, with an effective
annualized yield of 2.9% and 3.5%, respectively. All of the impaired loans were
collateralized by real estate at September 30, 1998 and accounted for by the
lower of the fair value of the collateral (net of the $87,000 Allocated
Reserves) or amortized loan value.
REAL ESTATE OWNED ("REO")
REO consists of properties acquired through mortgage loan foreclosure
proceedings, repossessions or in full or partial satisfaction of outstanding
loan obligations. At September 30, 1998, REO totaled approximately $121,000,
consisting of $107,000 in 1-4 family residential real estate, and $14,000 in
other repossessed assets.
LIQUIDITY - BANK
Deposits totaled $145.5 million at September 30, 1998, an increase of
$30.5 million (or 26.5%) from the level of $115.0 million at December 31, 1997.
Deposit balances were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(in thousands) 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 10,575 $ 7,599
Interest bearing demand deposits 17,986 17,117
Savings and escrow deposits 63,537 34,465
Time deposits 53,362 55,810
-------- --------
Total $145,460 $114,991
======== ========
</TABLE>
The increase in deposit levels is primarily attributable to a new savings
deposit program, High Rise Savings, implemented in the first quarter of 1998,
which increased savings deposits by $29.1 million. As a result of the
discontinuation of the advertising program and introductory rate, this increase
in savings account balances is not expected to continue at the same level as
experienced during the second and third quarters of 1998.
LIQUIDITY - COMPANY
On a parent company only basis ("parent"), the Company conducts no separate
operations. Its business consists of the operations of its banking subsidiary.
In addition to debt service relating to the Savings Bank Notes in the aggregate
principal amount of $2.8 million, 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
17
<PAGE>
between the Bank and the Company based upon the relative benefits derived. At
September 30, 1998, the parent's assets consisted of $585,000 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 principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. 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 Loan Agreement, dated July 24, 1996, between the Company and the Savings
Banks contains certain terms, restrictions and covenants, including covenants
restricting the amount of borrowings that may be incurred by the Company and the
Bank, restrictions regarding the conditions under which cash dividends may be
paid by the Company (including a prohibition of the payment of cash dividends to
its stockholders as long as the Company's debt-to-equity ratio on a parent-only
basis exceeds 30%), and a requirement that the Company and the Bank maintain
certain minimum capital ratios.
On September 23, 1998, March 25, 1998, September 25, 1997 and March 26, 1997,
the Bank paid the Company cash dividends of $500,000, $500,000, $1.0 million and
$500,000, 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.
18
<PAGE>
CAPITAL - BANK
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ratio
- ----------------------------------------------------
Qualifying capital $ 14,916 $ 13,877
Actual % 8.67% 9.63%
Minimum requirement for capital adequacy % 4.00% 4.00%
Average quarterly assets $172,124 $144,138
Tier 1 capital to risk-weighted assets
- --------------------------------------
Qualifying capital $ 14,916 $ 13,877
Actual % 15.92% 15.03%
Minimum requirement for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- -------------------------------------
Qualifying capital $ 16,107 $ 15,050
Actual % 17.19% 16.30%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 93,699 $ 92,335
</TABLE>
/(1)/ Calculated on an average quarterly basis.
CAPITAL - COMPANY
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
(dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ratio
- ----------------------------------------------------
Qualifying capital $ 13,079 $ 11,106
Actual % 7.60% 7.71%
Minimum requirement for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 172,315 $144,004
Tier 1 capital to risk-weighted assets
- --------------------------------------
Qualifying capital $ 13,079 $ 11,106
Actual % 13.90% 12.02%
Minimum requirement for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- -------------------------------------
Qualifying capital $ 14,274 $ 12,279
Actual % 15.17% 13.29%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 94,084 $ 92,378
</TABLE>
/(1)/ Calculated on an average quarterly basis.
19
<PAGE>
YEAR 2000 ISSUE
The Company is aware of potential problems that may be experienced with
computerized and other electronic systems at the turn of the millennium. These
problems exist because many systems rely on two digit fields instead of four
digit fields to store the year of date sensitive information. An example of the
type of problem that may arise is that some systems will interpret the 00 in its
year field to mean 1900 instead of 2000. This problem will not only affect
software programs but hardware as well, and could result in a system failure or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions or engage in normal business
activities.
THE COMPANY'S STATE OF READINESS
The Federal Financial Institutions Examination Council (FFIEC) has issued
several statements providing guidance on the Year 2000 issue. The statements
address key phases of the Year 2000 project management process, outline specific
responsibilities of senior management and the Board of Directors to address
these risks, assist financial institutions in developing prudent risk controls
to manage risks related to the Year 2000 and outline the due diligence process
that financial institutions should adopt to manage these risks. In response,
the Company has formed a Year 2000 Action Committee which is comprised of
various members of the Bank's senior and middle management. The Committee has
developed a detailed plan for mitigating Year 2000 risk as it relates to the
Bank's Information Technology ("IT") systems and Non-Information Technology
systems. In accordance with FFIEC guidelines, the Year 2000 project management
process has five phases, which include Awareness, Assessment, Renovation,
Validation and Implementation of all systems.
Awareness Phase. During the Awareness phase, the Company is required to (i)
- ---------------
define the Year 2000 problem as it relates to specific circumstances and gain
executive support for the resources necessary to perform compliance work, (ii)
establish a Year 2000 Committee, and (iii) develop an overall strategy that
encompasses in-house systems, service bureaus for systems that are outsourced,
vendors, auditors, customers and suppliers (including correspondents).
The Company has completed activities related to the Awareness Phase. As stated
previously, the Company has formed a Year 2000 Committee which has developed and
implemented a strategy to minimize the impact of Year 2000 technology problems.
The Committee provides regular updates to the Company's Board of Directors and
Executive management.
Assessment Phase. As part of the Assessment phase, the Company is required to
- ----------------
(i) assess the size and complexity of issues related to the Year 2000, (ii)
detail the magnitude of effort and resources necessary to address Year 2000
issues, (iii) identify all hardware, software, networks, automated teller
machines, other various processing platforms, and customer and vendor
dependencies affected by the Year 2000 date change, and (iv) develop a
contingency plan for the items addressed in the action plan. The assessment
phase must go beyond information systems and include facilities and
environmental systems that are dependent on embedded microchips, such as
security systems, elevators, and vaults.
The Company has already completed the Assessment phase, which included assessing
all Information Technology (i.e. computer software, hardware, third party
vendors and other electronic devices) and non-Information Technology systems
(i.e. vaults, security and environmental systems) for compliance with the year
2000. The Committee prioritized each item to determine if non-compliance with
the Year 2000 date change would adversely impact customers, shareholders or
employees. During this assessment, 19% of the Bank's IT system applications and
services met this criteria and were classified as Mission Critical, requiring
testing and validation.
20
<PAGE>
Renovation Phase. As part of the Renovation Phase, the Company is required to
- ----------------
prioritize work based on information gathered during the Assessment phase, and
includes code enhancements, hardware and software upgrades, system replacements,
vendor certification and other associated changes. For institutions relying on
outside services or third-party software providers, ongoing discussions and
monitoring of vendor progress is necessary.
The Company has already completed a significant portion of activities related to
the renovation phase of mission critical applications (approximately 97%), with
the remainder targeted for completion by the end of 1998. A majority of the
Company's systems are supplied by third-party vendors and are being rectified by
the vendor. The Company has been provided with a Year 2000 ready release by its
primary data processing vendor. This release has already been installed and is
currently being validated by the Year 2000 Action Committee for future date
processing accuracy.
Validation Phase. The Validation Phase includes actual testing of incremental
- ----------------
changes to hardware and software components. In addition to testing upgraded
components, connections with other systems must be verified, and all changes
should be accepted by internal and external users. The Company should also
establish controls to assure the effective and timely completion of all hardware
and software testing prior to final implementation.
The Company's Year 2000 Action Committee is responsible for testing the primary
data processing systems and all mission critical server-based applications for
Year 2000 readiness. Validation and testing of updates supplied by the
Company's third-party vendors is underway and test scripts have been developed
for the Company's primary data processing system. Primary functional
transaction types such as deposits, withdrawals, payments, maturities, interest
postings, inquiries on deposit and loan accounts, and other typical business
processes, are being tested for key date validity and accuracy. Key dates
include dates before, during and after the century change and the century leap
year. The Company is approximately 71% complete with its validation testing of
mission critical applications.
Implementation Phase. During the Implementation Phase, systems should be
- --------------------
certified as Year 2000 compliant and be accepted by the business users. For any
system failing certification, the business effect must be assessed clearly and
the Company's contingency plans should be implemented. In addition, this phase
must ensure that any new systems or subsequent changes to verified systems are
compliant with Year 2000 requirements.
A significant number of the Company's mission critical applications are supplied
by third party vendors. The vendor is responsible for making revisions to its
software, performing testing and providing the updates to the Company. Software
updates have been provided and installed by a majority of the Company's third-
party vendors and the Company is currently in the process of validating the
software for Year 2000 readiness on its systems. At this time, the
implementation phase has not yet been completed, however the Company expects to
have the implementation phase for all mission critical applications complete by
the end of 1998.
COSTS RELATED TO THE YEAR 2000 ISSUE
Management does not expect the costs associated with the Year 2000 issues to
have a material effect on the Company's financial statements. To date, the
Company has incurred approximately $15,000 in costs for its Year 2000 program.
The Company currently estimates that it will incur additional expenses between
now and December 31, 1999 to complete its Year 2000 compliance work, however,
these costs are not anticipated to exceed approximately $50,000 for both mission
critical and non-critical systems (of which approximately $10,000 will be
incurred in the fourth quarter of 1998). These costs, which may vary from the
estimates, have been, and will continue to be, expensed as incurred.
21
<PAGE>
RISKS RELATED TO THE YEAR 2000 ISSUE
Though the Company is diligently working to ensure that there is no disruption
in its operations due to Year 2000 systems problems, and believes it will be
successful in this regard, there can be no guarantee that all of the systems
critical to the operational performance of the Bank will be Year 2000 compliant
and fully functional at the turn of the millennium. While management is working
diligently to protect the Company against such an occurrence, it is possible
that a vendor upon whom the Bank is reliant could, despite possible assurances
to the contrary, ultimately fail to provide Year 2000 compliant services to the
Company, or said services could prove incompatible with the Company's systems.
A significant systems failure could have a material adverse impact on the
financial condition of the Company.
CONTINGENCY PLAN
A Year 2000 contingency plan is being drafted and incorporated into the
Company's overall contingency plan to address potential worst case scenarios
relating to the Year 2000 issue. The Company is developing alternative
solutions for business resumption and approaches to minimize the impact of
different scenarios. Possible alternatives to address these scenarios include
increasing cash reserves, designating existing branch locations as emergency
regional offices, (with alternative power sources and alternative communication
methods), increasing customer and community awareness, and having staff
available on site during the turn of the millennium.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As of September 30, 1998, 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 Company's
consolidated financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not applicable.
Item 5. Other Information
- -------------------------
Not applicable.
22
<PAGE>
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, 1997,
File No. 0-14087 ("1997 Form 10-K"), and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1997
Form 10-K, and incorporated herein by reference).
10.1 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).
10.2 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as
Exhibit 10.12 to Annual Report on Form 10-K for the year ended December 31,
1995, File No. 0-14087, and incorporated herein by reference).
10.3 First Coastal Corporation 1996 Stock Option and Equity Incentive Plan
(filed as Exhibit 10.13 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).
10.4 Loan Agreement, dated as of July 24, 1996, among First Coastal
Corporation and Androscoggin Savings Bank, Bangor Savings Bank, Machias
Savings Bank and Norway Savings Bank (collectively, the "Lenders") and
Machias Savings Bank, as agent (filed as Exhibit 10.9 to Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1996 ("June 1996 Form 10-Q"),
and incorporated herein by reference).
10.5 Stock Pledge Agreement, dated as of July 24, 1996, between First
Coastal Corporation and Machias Savings Bank, for itself and as agent for
the Lenders (filed as Exhibit 10.10 to June 1996 Form 10-Q, and
incorporated herein by reference).
10.6 Promissory Note, dated July 24, 1996, by First Coastal Corporation
for the benefit of Androscoggin Savings Bank (filed as Exhibit 10.11 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.7 Promissory Note, dated July 24, 1996, by First Coastal Corporation
for the benefit of Bangor Savings Bank (filed as Exhibit 10.12 to June 1996
Form 10-Q, and incorporated herein by reference).
10.8 Promissory Note, dated July 24, 1996, by First Coastal Corporation
for the benefit of Machias Savings Bank (filed as Exhibit 10.13 to June
1996 Form 10-Q, and incorporated herein by reference).
10.9 Promissory Note, dated July 24, 1996, by First Coastal Corporation
for the benefit of Norway Savings Bank (filed as Exhibit 10.14 to June 1996
Form 10-Q, and incorporated herein by reference).
23
<PAGE>
10.10 Rights Agreement, dated as of February 25, 1998, between First
Coastal Corporation and ChaseMellon Shareholder Services, L.L.C. (filed as
Exhibit No. 1 to Current Report on Form 8-K, filed March 3, 1998, and
incorporated herein by reference).
10.11 Agreement of Purchase and Sale, dated August 18, 1998, between
Coastal Bank and SYSCO Food Services of Northern New England, Inc. (filed
as Exhibit No. 99(a) to Current Report on Form 8-K, filed August 31, 1998,
and incorporated herein by reference).
10.12 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Dennis D. Byrd (filed herewith).
10.13 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Gregory T. Caswell (filed herewith).
10.14 Amendment No. 1 to Rights Agreement, dated as of October 15, 1998,
between First Coastal Corporation and ChaseMellon Shareholder Services,
L.L.C. (filed as Exhibit No. 99(a) to Current Report on Form 8-K, filed
October 22, 1998, and incorporated herein by reference).
27 Financial Data Schedule (filed herewith).
(b) The Company filed a Current Report on Form 8-K on August 31, 1998 with
respect to the sale of the Bank's real estate located at 36 Thomas Drive,
Westbrook, Maine.
24
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
Pursuant to the requirements 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: November 16, 1998 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.
Date: November 16, 1998 By: /s/ Gregory T. Caswell
----------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 By: /s/ Dennis D. Byrd
----------------------------------------
Dennis D. Byrd
Treasurer
(Principal Financial and Accounting
Officer)
25
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
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, 1997,
File No. 0-14087 ("1997 Form 10-K"), and incorporated herein by
reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1997
Form 10-K, and incorporated herein by reference).
10.1 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).
10.2 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as
Exhibit 10.12 to Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14087, and incorporated herein by
reference).
10.3 First Coastal Corporation 1996 Stock Option and Equity Incentive Plan
(filed as Exhibit 10.13 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).
10.4 Loan Agreement, dated as of July 24, 1996, among First Coastal
Corporation and Androscoggin Savings Bank, Bangor Savings Bank,
Machias Savings Bank and Norway Savings Bank (collectively, the
"Lenders") and Machias Savings Bank, as agent (filed as Exhibit 10.9
to Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1996
("June 1996 Form 10-Q"), and incorporated herein by reference).
10.5 Stock Pledge Agreement, dated as of July 24, 1996, between First
Coastal Corporation and Machias Savings Bank, for itself and as agent
for the Lenders (filed as Exhibit 10.10 to June 1996 Form 10-Q, and
incorporated herein by reference).
10.6 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Androscoggin Savings Bank (filed as Exhibit 10.11 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.7 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Bangor Savings Bank (filed as Exhibit 10.12 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.8 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Machias Savings Bank (filed as Exhibit 10.13 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.9 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Norway Savings Bank (filed as Exhibit 10.14 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.10 Rights Agreement, dated as of February 25, 1998, between First Coastal
Corporation and ChaseMellon Shareholder Services, L.L.C. (filed as
Exhibit No. 1 to Current Report on Form 8-K, filed March 3, 1998, and
incorporated herein by reference).
<PAGE>
10.11 Agreement of Purchase and Sale, dated August 18, 1998, between Coastal
Bank and SYSCO Food Services of Northern New England, Inc. (filed as
Exhibit No. 99(a) to Current Report on Form 8-K, filed August 31,
1998, and incorporated herein by reference).
10.12 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Dennis D. Byrd (filed herewith).
10.13 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Gregory T. Caswell (filed
herewith).
10.14 Amendment No. 1 to Rights Agreement, dated as of October 15, 1998,
between First Coastal Corporation and ChaseMellon Shareholder
Services, L.L.C. (filed as Exhibit No. 99(a) to Current Report on Form
8-K, filed October 22, 1998, and incorporated herein by reference).
27 Financial Data Schedule (filed herewith).
<PAGE>
EXHIBIT 10.12
-------------
DENNIS D. BYRD
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 4, 1998, among COASTAL SAVINGS BANK
(the "Bank"), FIRST COASTAL CORPORATION (the "Company") and DENNIS D. BYRD (the
"Employee").
WHEREAS, the respective Boards of Directors of the Company and the
Bank have approved and authorized the entry into this Agreement with the
Employee;
WHEREAS, the Employee is currently serving as Treasurer of both the
Company and the Bank;
WHEREAS, the parties have entered into an Employment Agreement dated
as of July 31, 1996 (the "Prior Agreement");
WHEREAS, the parties desire to enter into this Agreement to set forth
the terms and conditions for the employment relationships of the Employee with
the Company and the Bank and to replace and supersede the Prior Agreement.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Prior Agreement is hereby replaced and superseded
----------
and the Prior Agreement shall be of no further force or effect after the date of
this Agreement. The Employee is employed as Treasurer of both the Company and
the Bank from the date hereof through the term of this Agreement. As an
executive of the Company and of the Bank, the Employee shall render executive,
policy, and other management services to the Company and the Bank of the type
customarily performed by persons serving in similar executive officer
capacities. The Employee shall also perform such duties as the Chief Executive
Officer and the Boards of Directors of the Company and of the Bank may from time
to time reasonably direct. During the term of this Agreement, there shall be no
material increase or decrease in the duties and responsibilities of the Employee
otherwise than as provided herein, unless the parties otherwise agree in
writing.
2. SALARY. The Bank agrees to pay the Employee during the term of
------
this Agreement a base salary as follows: from the date hereof through December
31, 1998, a salary at an annual rate equal to $96,533, which may be increased in
January of each year during the term of this Agreement as determined by the
Boards of Directors of the Company and the Bank. In determining salary
increases, the Board of Directors may compensate the Employee for increases in
the cost of living and may also provide for performance or merit increases. The
salary of the Employee shall not be decreased at any time during the term of
this Agreement from the amount then in effect, unless the Employee otherwise
agrees in writing. The salary under this Section 2 shall be payable by the Bank
to the Employee not less frequently than monthly. The Company shall
<PAGE>
reimburse the Bank for a portion of the salary paid to the Employee hereunder,
which portion shall represent an appropriate allocation for the services
rendered to the Company hereunder. The Employee shall not be entitled to receive
fees for serving as a director of the Company or of the Bank or for serving as a
member of any committee of the Board of Directors of the Company or of the Bank.
3. DISCRETIONARY BONUSES. In addition to his salary under Section 2
---------------------
hereof, the Employee shall be eligible to receive such discretionary bonuses as
may be authorized, declared, and paid by the Board of Directors of the Company
or of the Bank. No other compensation provided for in this Agreement shall be
deemed a substitute for such bonuses when and as declared by the Board of
Directors of the Company or the Bank.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
--------------------------------------------------------------
BENEFITS. The Employee shall be eligible to participate in any plan of the
- --------
Company or of 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 Bank or the Company has adopted or may adopt for the benefit
of its executive employees and shall also be eligible to participate in any
other fringe benefits which are now or may be or become applicable to the
Company's or the Bank's executive employees. In addition, the Employee shall be
reimbursed for reasonable business expenses, subject to substantiation and other
requirements as provided in the Bank's written policies concerning reimbursement
of business expenses. Participation in these plans and fringe benefits shall
not reduce the salary payable to the Employee under Section 2 hereof.
5. TERM. The initial term of employment under this Agreement shall
----
be for a period commencing on the date hereof and ending on December 31, 1999.
This Agreement shall be automatically renewed for an additional consecutive 12-
month period as of December 31, 1998 and every anniversary of December 31
thereafter, unless contrary written notice to each of the other parties has been
given either by the Employee or by the Company and the Bank not later than the
October 31 immediately preceding any such renewal date. Such initial term and
all such renewed terms are collectively referred to herein as the term of this
Agreement.
6. STANDARDS. The Employee shall perform the Employee's duties and
---------
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Boards of Directors of
the Company and the Bank. The reasonableness of such standards shall be
measured against standards for executive performance generally prevailing in the
savings institutions industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Employee shall be entitled,
-----------------------------
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the Boards
of Directors of the Company and the Bank otherwise approves. The Employee shall
be entitled to an annual paid vacation of four weeks per year or such longer
period as the Boards of Directors of the Company and the Bank may approve. The
timing of paid vacations shall be scheduled in a reasonable manner by the
Employee. The Employee shall not be entitled (i) to receive
-2-
<PAGE>
any additional compensation from the Bank on account of failure to take a paid
vacation or (ii) to accumulate more than two weeks of unused paid vacation time
from one fiscal year to the next.
8. TERMINATION OF EMPLOYMENT.
-------------------------
(a) (i) The Boards of Directors of the Company and the Bank may
terminate the Employee's employment at any time, but any termination by such
Boards of Directors other than termination for cause shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for cause. The term "termination for cause" shall mean
termination because of the Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institutions industry; provided,
that it shall be the Company's and the Bank's burden to prove the alleged acts
and omissions and the prevailing nature of the standards the Company and the
Bank shall have alleged are violated by such acts and/or omissions.
(ii) The parties acknowledge and agree that damages which
will result to Employee for termination by the Company and the Bank without
cause, or termination by the Employee with "Good Reason" (as defined below),
shall be extremely difficult or impossible to establish or prove, and agree
that, unless the termination is for cause or voluntarily without Good Reason,
the Bank shall be obligated, concurrently with such termination, to make a lump
sum cash payment to the Employee as liquidated damages of an amount equal to (A)
if such termination occurs in anticipation of, in connection with or within two
years after a "Change in Control" (as defined below), three times the sum of (I)
the Employee's annual base salary (at the greater of the rate in effect at the
time of termination or the highest rate in effect at any time within 12 months
before such Change in Control) plus (II) the bonus earned by the Employee during
the fiscal year preceding the fiscal year in which (a) such termination occurs
or (b) the Change in Control occurs, whichever is greater (including the amount
of any such bonus that accrues in such year, but is payable in a subsequent
year) or (B) otherwise, the amount that would be payable over a period equal to
the remaining term of this Agreement under Section 5 hereof (but not in excess
of 24 months), if the Employee's compensation for such period were at an annual
rate equal to the Employee's base salary under Section 2 hereof, determined as
of the time of termination, and bonuses paid during the fiscal year preceding
the fiscal year in which such termination occurs. To establish that a voluntary
termination was with Good Reason, the Employee shall state in his notice of
resignation the reasons why he believes that Good Reason exists for his
resignation. For purposes of this Agreement, "Good Reason" shall include a
material reduction in the position, authority, duties or responsibilities of the
Employee or a failure by the Company and the Bank to renew the term of this
Agreement (including a notice of nonrenewal pursuant to Section 5 hereof).
Unless the Company and the Bank, within 30 days of the date of such notice of
resignation, shall reject the Employee's statement that Good Reason exists, the
-3-
<PAGE>
Employee shall be conclusively deemed to have voluntarily resigned with Good
Reason. If the Company and the Bank reject the Employee's statement that Good
Reason exists, the dispute shall be resolved by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
the Bank shall have the burden of proving that such rejection of the Employee's
statement was proper. The Employee agrees that, except for such other payments
and benefits to which the Employee may be entitled as expressly provided by the
terms of this Agreement, such liquidated damages shall be in lieu of all other
claims which Employee may make by reason of such termination. Payment to the
Employee hereunder shall be made on or before the Employee's last day of
employment with the Company and the Bank. The liquidated damages amount shall
not be reduced by any compensation which the Employee may receive for other
employment with another employer after termination of his employment with the
Company and the Bank.
(iii) In addition to the liquidated damages above described
that are payable to the Employee for termination without cause or termination
with Good Reason, the following shall apply in the event of any termination by
the Company and the Bank without cause or termination by the Employee with Good
Reason: (1) the Employee shall continue to participate in, and accrue benefits
under, all retirement, pension, profit-sharing, employee stock ownership, and
other deferred compensation plans of the Company and the Bank (A) if such
termination occurs in anticipation of, in connection with or within two years
after a "Change in Control" (as defined below), for 36 months after such
termination or (B) otherwise, for the remaining term of this Agreement (but not
in excess of 24 months), in either case as if the termination of employment of
the Employee had not occurred (with the Employee being deemed to receive
annually for the purposes of such plans the Employee's annual base salary at the
same rate used for purposes of Subsection 8(a)(ii) hereof), except to the extent
that such continued participation and accrual is expressly prohibited by law, or
to the extent such plan constitutes a "qualified plan" under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"); (2) the Employee shall
be entitled to continue to receive all other employee benefits referred to in
Section 4 hereof (A) if such termination occurs in anticipation of, in
connection with or within two years after a "Change in Control" (as defined
below), for 36 months after such termination or (B) otherwise, for the remaining
term of this Agreement (but not in excess of 24 months), in either case as if
the termination of employment had not occurred; and (3) all insurance or other
provisions for indemnification, defense or hold-harmless of officers or
directors of the Company or the Bank which are in effect on the date the notice
of termination is sent to the Employee shall continue for the benefit of the
Employee with respect to all of his acts and omissions while an officer or
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
action which may be applicable to such acts or omissions.
(iv) For purposes of this Agreement, a "Change in Control"
shall mean a "change in control" of the Company or the Bank. A "change in
control" of the Company, for purposes of this Agreement, shall be deemed to have
taken place if: (A) any person becomes the beneficial owner of 25 percent or
more of the total number of voting shares of the Company; (B) any person has
received all applicable regulatory approvals to acquire control of the Company;
(C) any person (other than the persons named as
-4-
<PAGE>
proxies solicited on behalf of the Board of Directors of the Company) holds
revocable or irrevocable proxies, as to the election or removal of two or more
directors of the Company, for 25 percent or more of the total number of voting
shares of the Company; (D) any person has commenced a tender or exchange offer,
or entered into an agreement or received an option, to acquire beneficial
ownership of 25 percent or more of the total number of voting shares of the
Company, whether or not the requisite regulatory approval for such acquisition
has been received, provided that a change in control will not be deemed to have
occurred under this clause (D) unless the Board of Directors of the Company has
made a determination that such action constitutes or will constitute a change in
control; or (E) as the result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions, the
persons who were directors of the Company before such transaction shall cease to
constitute at least two-thirds of the Board of Directors of the Company or any
successor institution. For purposes of this Section 8(a), a "person" includes an
individual, corporation, partnership, trust, association, joint venture, pool,
syndicate, unincorporated organization, joint-stock company or similar
organization or group acting in concert. A person for these purposes shall be
deemed to be a beneficial owner as that term is used in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
A "change in control" of the Bank, for purposes of this Agreement,
shall be deemed to have taken place if the Company's beneficial ownership of the
total number of voting shares of the Bank is reduced to less than 50 percent.
(b) The Employee shall have no right to terminate employment under
this Agreement prior to the end of the term of this Agreement, unless such
termination is approved by the Boards of Directors of the Company and the Bank
or is for Good Reason. In the event that the Employee violates this provision,
the Company and the Bank shall be entitled, in addition to its other legal
remedies, to enjoin the employment of the Employee with any significant
competitor of the Bank for a period of six months or the remaining term of this
Agreement, whichever is less. The term "significant competitor" shall mean any
commercial bank, savings bank, savings and loan association, or mortgage banking
company, or a holding company affiliate of any of the foregoing, which at the
date of its employment of the Employee has an office out of which the Employee
would be primarily based within 35 miles of the Bank's home office.
(c) In the event the employment of the Employee is terminated by the
Company and the Bank without cause or by the Employee with Good Reason and the
Bank fails to make timely payment of the amounts then owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred by the Employee in taking
action to collect such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by The Wall Street Journal), compounded monthly,
for the period from the date the payment is due to be paid to the Employee until
payment is made. Such reimbursement and interest shall be in addition to all
rights which the Employee is otherwise entitled to under this Agreement.
-5-
<PAGE>
(d) The Employee agrees to maintain the confidentiality of, and not to
use for the benefit of anyone other than the Company and the Bank, any
information that the Employee possesses concerning the Company or the Bank, or
any customer or borrower of the Bank, including any business plans and
strategies, financial information, marketing plans and information, customer
information, business or personnel data and practices and information respecting
existing and proposed acquisitions and investments, except such information that
is generally publicly available (other than because of the wrongful disclosure
of such information by the Employee) or that is in the Employee's possession
free of any restrictions on its use or disclosure and from a source other than
the Company or the Bank. The Employee agrees, for a period of one year after
the date of termination of his employment with the Company and the Bank, that he
will not (i) offer employment (or a consulting, agency, independent contractor
or other similar paid position) to any employee of the Company, the Bank or any
of their respective subsidiaries, or (ii) induce, encourage or solicit any such
employee to accept employment (or any such other position) with any company or
entity with which the Employee may then be employed or otherwise affiliated.
(e) Notwithstanding any other provision of this Agreement, the Company
and the Bank may terminate or suspend this Agreement and the employment of the
Employee hereunder as if such termination were for cause under Section 8(a)(i)
hereof to the extent required by the laws of the State of Maine related to
banking, by applicable federal law relating to deposit insurance or bank holding
companies or by regulations or orders issued by the Banking Commissioner of the
State of Maine (the "Commissioner") or the Federal Deposit Insurance Corporation
(the "FDIC") and no payment shall be required to be made to the Employee under
this Agreement to the extent such payment is prohibited by applicable law,
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the burden of the Company and the Bank
to prove that any such action was so required. Without limiting the generality
of the foregoing, no payment shall be required to be made hereunder to the
Employee that would constitute a "golden parachute payment" within the meaning
of 12 CFR (S) 359.1(f)(1) for which no applicable exception exists at the time
of such payment pursuant to 12 CFR (S) 359.1(f)(2) or, in each case, the
corresponding provisions of any subsequent regulations. To the extent that the
Company or the Bank (or both of them) shall need the consent or approval of the
Commissioner, the FDIC or other applicable regulator to make payments to or for
the benefit of the Employee under this Agreement the Company and the Bank shall
use their reasonable best efforts to apply for and obtain any such consent or
approval and, upon receiving such consent or approval, to take such other
actions as are reasonably necessary and appropriate to enable them to make such
payments.
(f) Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
by the Employee with the Company or the Bank, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 8(f) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Company or the Bank for the direct or indirect provision of compensation
to the Employee (including groups or classes of participants or beneficiaries of
which the Employee is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for the
-6-
<PAGE>
Employee (a "Benefit Plan"), the Employee shall not have any right to receive
any payment or other benefit under this Agreement, any Other Agreement, or any
Benefit Plan if such payment or benefit, taking into account all other payments
or benefits to or for the Employee under this Agreement, all Other Agreements,
and all Benefit Plans, would cause any payment to the Employee under this
Agreement to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code") (a
"Parachute Payment"). In the event that the receipt of any such payment or
benefit under this Agreement, any Other Agreement, or any Benefit Plan would
cause the Employee to be considered to have received a Parachute Payment under
this Agreement, then the Employee shall have the right, in the Employee's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements, and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Employee under this
Agreement be deemed to be a Parachute Payment.
9. DISABILITY. If the Employee shall become disabled or
----------
incapacitated to the extent that the Employee is unable to perform the
Employee's duties and responsibilities hereunder, the Employee shall be entitled
to receive disability benefits of the type provided for other executive
employees of the Company and the Bank and the obligations of the Company and the
Bank hereunder shall be limited to providing such benefits for the period of
such disability.
10. NO ASSIGNMENTS. This Agreement is personal to each of the parties
--------------
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. However,
in the event of the death of the Employee all rights to receive payments
hereunder shall become rights of the Employee's estate.
11. OTHER CONTRACTS. The Employee shall not, during the term of this
---------------
Agreement, have any other paid employment other than with a subsidiary of the
Company, except with the prior approval of the Boards of Directors of the
Company and the Bank.
12. AMENDMENTS OR ADDITIONS. No amendments or additions to this
-----------------------
Agreement shall be binding unless in writing and signed by all parties hereto.
13. SECTION HEADINGS. The section headings used in this Agreement are
----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. GOVERNING LAW. This Agreement shall be governed by the laws of
-------------
the United States to the extent applicable and otherwise by the laws of the
State of Maine, excluding the choice of law rules thereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the day and year first above written.
Attest: FIRST COASTAL CORPORATION
/s/ Patricia J. Briand By /s/ Gregory T. Caswell
- ---------------------- -----------------------
(Secretary) President and Chief Executive Officer
Attest: COASTAL SAVINGS BANK
/s/ Patricia J. Briand By /s/ Gregory T. Caswell
- ---------------------- -----------------------
(Secretary) President and Chief Executive Officer
EMPLOYEE
/s/ Dennis D. Byrd
------------------
Dennis D. Byrd
-8-
<PAGE>
EXHIBIT 10.13
-------------
GREGORY T. CASWELL
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 4, 1998, among COASTAL SAVINGS BANK
(the "Bank"), FIRST COASTAL CORPORATION (the "Company") and GREGORY T. CASWELL
(the "Employee").
WHEREAS, the respective Boards of Directors of the Company and the Bank
have approved and authorized the entry into this Agreement with the Employee;
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of both the Company and the Bank;
WHEREAS, the parties have entered into an Employment Agreement dated as
of July 31, 1996 (the "Prior Agreement");
WHEREAS, the parties desire to enter into this Agreement to set forth
the terms and conditions for the employment relationships of the Employee with
the Company and the Bank and to replace and supersede the Prior Agreement.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Prior Agreement is hereby replaced and superseded
----------
and the Prior Agreement shall be of no further force or effect after the date of
this Agreement. The Employee is employed as President and Chief Executive
Officer of both the Company and the Bank from the date hereof through the term
of this Agreement. As an executive of the Company and of the Bank, the Employee
shall render executive, policy, and other management services to the Company and
the Bank of the type customarily performed by persons serving in similar
executive officer capacities. The Employee shall also perform such duties as
the Boards of Directors of the Company and of the Bank may from time to time
reasonably direct. During the term of this Agreement, there shall be no
material increase or decrease in the duties and responsibilities of the Employee
otherwise than as provided herein, unless the parties otherwise agree in
writing.
2. SALARY. The Bank agrees to pay the Employee during the term of
------
this Agreement a base salary as follows: from the date hereof through December
31, 1998, a salary at an annual rate equal to $136,282, which may be increased
in January of each year during the term of this Agreement as determined by the
Boards of Directors of the Company and the Bank. In determining salary
increases, the Board of Directors may compensate the Employee for increases in
the cost of living and may also provide for performance or merit increases. The
salary of the Employee shall not be decreased at any time during the term of
this Agreement from the amount then in effect, unless the Employee otherwise
agrees in writing. The salary under this Section 2 shall be payable by the Bank
to the Employee not less frequently than monthly. The Company shall reimburse
the Bank for a portion of the salary paid to the Employee hereunder, which
<PAGE>
portion shall represent an appropriate allocation for the services rendered to
the Company hereunder. The Employee shall not be entitled to receive fees for
serving as a director of the Company or of the Bank or for serving as a member
of any committee of the Board of Directors of the Company or of the Bank.
3. DISCRETIONARY BONUSES. In addition to his salary under Section 2
---------------------
hereof, the Employee shall be eligible to receive such discretionary bonuses as
may be authorized, declared, and paid by the Board of Directors of the Company
or of the Bank. No other compensation provided for in this Agreement shall be
deemed a substitute for such bonuses when and as declared by the Board of
Directors of the Company or the Bank.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE
--------------------------------------------------------------
BENEFITS. The Employee shall be eligible to participate in any plan of the
- --------
Company or of 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 Bank or the Company has adopted or may adopt for the benefit
of its executive employees and shall also be eligible to participate in any
other fringe benefits which are now or may be or become applicable to the
Company's or the Bank's executive employees. In addition, the Employee shall be
reimbursed for reasonable business expenses, subject to substantiation and other
requirements as provided in the Bank's written policies concerning reimbursement
of business expenses. Participation in these plans and fringe benefits shall
not reduce the salary payable to the Employee under Section 2 hereof.
5. TERM. The initial term of employment under this Agreement shall be
----
for a period commencing on the date hereof and ending on December 31, 1999. This
Agreement shall be automatically renewed for an additional consecutive 12-month
period as of December 31, 1998 and every anniversary of December 31 thereafter,
unless contrary written notice to each of the other parties has been given
either by the Employee or by the Company and the Bank not later than the October
31 immediately preceding any such renewal date. Such initial term and all such
renewed terms are collectively referred to herein as the term of this Agreement.
6. STANDARDS. The Employee shall perform the Employee's duties and
---------
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Boards of Directors of
the Company and the Bank. The reasonableness of such standards shall be
measured against standards for executive performance generally prevailing in the
savings institutions industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Employee shall be entitled,
-----------------------------
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the Boards
of Directors of the Company and the Bank otherwise approves. The Employee shall
be entitled to an annual paid vacation of four weeks per year or such longer
period as the Boards of Directors of the Company and the Bank may approve. The
timing of paid vacations shall be scheduled in a reasonable manner by the
Employee. The Employee shall not be entitled (i) to receive any additional
compensation from the Bank on account of failure to take a paid vacation
-2-
<PAGE>
or (ii) to accumulate more than two weeks of unused paid vacation time from one
fiscal year to the next.
8. TERMINATION OF EMPLOYMENT.
-------------------------
(a) (i) The Boards of Directors of the Company and the Bank may
terminate the Employee's employment at any time, but any termination by such
Boards of Directors other than termination for cause shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for cause. The term "termination for cause" shall mean
termination because of the Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institutions industry; provided,
that it shall be the Company's and the Bank's burden to prove the alleged acts
and omissions and the prevailing nature of the standards the Company and the
Bank shall have alleged are violated by such acts and/or omissions.
(ii) The parties acknowledge and agree that damages which
will result to Employee for termination by the Company and the Bank without
cause, or termination by the Employee with "Good Reason" (as defined below),
shall be extremely difficult or impossible to establish or prove, and agree
that, unless the termination is for cause or voluntarily without Good Reason,
the Bank shall be obligated, concurrently with such termination, to make a lump
sum cash payment to the Employee as liquidated damages of an amount equal to (A)
if such termination occurs in anticipation of, in connection with or within two
years after a "Change in Control" (as defined below), three times the sum of (I)
the Employee's annual base salary (at the greater of the rate in effect at the
time of termination or the highest rate in effect at any time within 12 months
before such Change in Control) plus (II) the bonus earned by the Employee during
the fiscal year preceding the fiscal year in which (a) such termination occurs
or (b) the Change in Control occurs, whichever is greater (including the amount
of any such bonus that accrues in such year, but is payable in a subsequent
year) or (B) otherwise, the amount that would be payable over a period equal to
the remaining term of this Agreement under Section 5 hereof (but not in excess
of 24 months), if the Employee's compensation for such period were at an annual
rate equal to the Employee's base salary under Section 2 hereof, determined as
of the time of termination, and bonuses paid during the fiscal year preceding
the fiscal year in which such termination occurs. To establish that a voluntary
termination was with Good Reason, the Employee shall state in his notice of
resignation the reasons why he believes that Good Reason exists for his
resignation. For purposes of this Agreement, "Good Reason" shall include a
material reduction in the position, authority, duties or responsibilities of the
Employee or a failure by the Company and the Bank to renew the term of this
Agreement (including a notice of nonrenewal pursuant to Section 5 hereof).
Unless the Company and the Bank, within 30 days of the date of such notice of
resignation, shall reject the Employee's statement that Good Reason exists, the
Employee shall be conclusively deemed to have voluntarily resigned with Good
Reason. If
-3-
<PAGE>
the Company and the Bank reject the Employee's statement that Good Reason
exists, the dispute shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and the
Bank shall have the burden of proving that such rejection of the Employee's
statement was proper. The Employee agrees that, except for such other payments
and benefits to which the Employee may be entitled as expressly provided by the
terms of this Agreement, such liquidated damages shall be in lieu of all other
claims which Employee may make by reason of such termination. Payment to the
Employee hereunder shall be made on or before the Employee's last day of
employment with the Company and the Bank. The liquidated damages amount shall
not be reduced by any compensation which the Employee may receive for other
employment with another employer after termination of his employment with the
Company and the Bank.
(iii) In addition to the liquidated damages above described
that are payable to the Employee for termination without cause or termination
with Good Reason, the following shall apply in the event of any termination by
the Company and the Bank without cause or termination by the Employee with Good
Reason: (1) the Employee shall continue to participate in, and accrue benefits
under, all retirement, pension, profit-sharing, employee stock ownership, and
other deferred compensation plans of the Company and the Bank (A) if such
termination occurs in anticipation of, in connection with or within two years
after a "Change in Control" (as defined below), for 36 months after such
termination or (B) otherwise, for the remaining term of this Agreement (but not
in excess of 24 months), in either case as if the termination of employment of
the Employee had not occurred (with the Employee being deemed to receive
annually for the purposes of such plans the Employee's annual base salary at the
same rate used for purposes of Subsection 8(a)(ii) hereof), except to the extent
that such continued participation and accrual is expressly prohibited by law, or
to the extent such plan constitutes a "qualified plan" under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"); (2) the Employee shall
be entitled to continue to receive all other employee benefits referred to in
Section 3 hereof (A) if such termination occurs in anticipation of, in
connection with or within two years after a "Change in Control" (as defined
below), for 36 months after such termination or (B) otherwise, for the remaining
term of this Agreement (but not in excess of 24 months), in either case as if
the termination of employment had not occurred; and (3) all insurance or other
provisions for indemnification, defense or hold-harmless of officers or
directors of the Company or the Bank which are in effect on the date the notice
of termination is sent to the Employee shall continue for the benefit of the
Employee with respect to all of his acts and omissions while an officer or
director as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation against
action which may be applicable to such acts or omissions.
(iv) For purposes of this Agreement, a "Change in Control"
shall mean a "change in control" of the Company or the Bank. A "change in
control" of the Company, for purposes of this Agreement, shall be deemed to have
taken place if: (A) any person becomes the beneficial owner of 25 percent or
more of the total number of voting shares of the Company; (B) any person has
received all applicable regulatory approvals to acquire control of the Company;
(C) any person (other than the persons named as proxies solicited on behalf of
the Board of Directors of the Company) holds revocable or
-4-
<PAGE>
irrevocable proxies, as to the election or removal of two or more directors of
the Company, for 25 percent or more of the total number of voting shares of the
Company; (D) any person has commenced a tender or exchange offer, or entered
into an agreement or received an option, to acquire beneficial ownership of 25
percent or more of the total number of voting shares of the Company, whether or
not the requisite regulatory approval for such acquisition has been received,
provided that a change in control will not be deemed to have occurred under this
clause (D) unless the Board of Directors of the Company has made a determination
that such action constitutes or will constitute a change in control; or (E) as
the result of, or in connection with, any cash tender or exchange offer, merger,
or other business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were directors of the
Company before such transaction shall cease to constitute at least two-thirds of
the Board of Directors of the Company or any successor institution. For purposes
of this Section 8(a), a "person" includes an individual, corporation,
partnership, trust, association, joint venture, pool, syndicate, unincorporated
organization, joint-stock company or similar organization or group acting in
concert. A person for these purposes shall be deemed to be a beneficial owner as
that term is used in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
A "change in control" of the Bank, for purposes of this Agreement,
shall be deemed to have taken place if the Company's beneficial ownership of the
total number of voting shares of the Bank is reduced to less than 50 percent.
(b) The Employee shall have no right to terminate employment under
this Agreement prior to the end of the term of this Agreement, unless such
termination is approved by the Boards of Directors of the Company and the Bank
or is for Good Reason. In the event that the Employee violates this provision,
the Company and the Bank shall be entitled, in addition to its other legal
remedies, to enjoin the employment of the Employee with any significant
competitor of the Bank for a period of six months or the remaining term of this
Agreement, whichever is less. The term "significant competitor" shall mean any
commercial bank, savings bank, savings and loan association, or mortgage banking
company, or a holding company affiliate of any of the foregoing, which at the
date of its employment of the Employee has an office out of which the Employee
would be primarily based within 35 miles of the Bank's home office.
(c) In the event the employment of the Employee is terminated by the
Company and the Bank without cause or by the Employee with Good Reason and the
Bank fails to make timely payment of the amounts then owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorneys' fees, incurred by the Employee in taking
action to collect such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by The Wall Street Journal), compounded monthly,
for the period from the date the payment is due to be paid to the Employee until
payment is made. Such reimbursement and interest shall be in addition to all
rights which the Employee is otherwise entitled to under this Agreement.
-5-
<PAGE>
(d) The Employee agrees to maintain the confidentiality of, and not to
use for the benefit of anyone other than the Company and the Bank, any
information that the Employee possesses concerning the Company or the Bank, or
any customer or borrower of the Bank, including any business plans and
strategies, financial information, marketing plans and information, customer
information, business or personnel data and practices and information respecting
existing and proposed acquisitions and investments, except such information that
is generally publicly available (other than because of the wrongful disclosure
of such information by the Employee) or that is in the Employee's possession
free of any restrictions on its use or disclosure and from a source other than
the Company or the Bank. The Employee agrees, for a period of one year after
the date of termination of his employment with the Company and the Bank, that he
will not (i) offer employment (or a consulting, agency, independent contractor
or other similar paid position) to any employee of the Company, the Bank or any
of their respective subsidiaries, or (ii) induce, encourage or solicit any such
employee to accept employment (or any such other position) with any company or
entity with which the Employee may then be employed or otherwise affiliated.
(e) Notwithstanding any other provision of this Agreement, the Company
and the Bank may terminate or suspend this Agreement and the employment of the
Employee hereunder as if such termination were for cause under Section 8(a)(i)
hereof to the extent required by the laws of the State of Maine related to
banking, by applicable federal law relating to deposit insurance or bank holding
companies or by regulations or orders issued by the Banking Commissioner of the
State of Maine (the "Commissioner") or the Federal Deposit Insurance Corporation
(the "FDIC") and no payment shall be required to be made to the Employee under
this Agreement to the extent such payment is prohibited by applicable law,
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the burden of the Company and the Bank
to prove that any such action was so required. Without limiting the generality
of the foregoing, no payment shall be required to be made hereunder to the
Employee that would constitute a "golden parachute payment" within the meaning
of 12 CFR (S) 359.1(f)(1) for which no applicable exception exists at the time
of such payment pursuant to 12 CFR (S) 359.1(f)(2) or, in each case, the
corresponding provisions of any subsequent regulations. To the extent that the
Company or the Bank (or both of them) shall need the consent or approval of the
Commissioner, the FDIC or other applicable regulator to make payments to or for
the benefit of the Employee under this Agreement the Company and the Bank shall
use their reasonable best efforts to apply for and obtain any such consent or
approval and, upon receiving such consent or approval, to take such other
actions as are reasonably necessary and appropriate to enable them to make such
payments.
(f) Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
by the Employee with the Company or the Bank, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 8(f) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Company or the Bank for the direct or indirect provision of compensation
to the Employee (including groups or classes of participants or beneficiaries of
which the Employee is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for the
-6-
<PAGE>
Employee (a "Benefit Plan"), the Employee shall not have any right to receive
any payment or other benefit under this Agreement, any Other Agreement, or any
Benefit Plan if such payment or benefit, taking into account all other payments
or benefits to or for the Employee under this Agreement, all Other Agreements,
and all Benefit Plans, would cause any payment to the Employee under this
Agreement to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code") (a
"Parachute Payment"). In the event that the receipt of any such payment or
benefit under this Agreement, any Other Agreement, or any Benefit Plan would
cause the Employee to be considered to have received a Parachute Payment under
this Agreement, then the Employee shall have the right, in the Employee's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements, and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Employee under this
Agreement be deemed to be a Parachute Payment.
9. DISABILITY. If the Employee shall become disabled or
----------
incapacitated to the extent that the Employee is unable to perform the
Employee's duties and responsibilities hereunder, the Employee shall be entitled
to receive disability benefits of the type provided for other executive
employees of the Company and the Bank and the obligations of the Company and the
Bank hereunder shall be limited to providing such benefits for the period of
such disability.
10. NO ASSIGNMENTS. This Agreement is personal to each of the parties
--------------
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. However,
in the event of the death of the Employee all rights to receive payments
hereunder shall become rights of the Employee's estate.
11. OTHER CONTRACTS. The Employee shall not, during the term of this
---------------
Agreement, have any other paid employment other than with a subsidiary of the
Company, except with the prior approval of the Boards of Directors of the
Company and the Bank.
12. AMENDMENTS OR ADDITIONS. No amendments or additions to this
-----------------------
Agreement shall be binding unless in writing and signed by all parties hereto.
13. SECTION HEADINGS. The section headings used in this Agreement are
----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. GOVERNING LAW. This Agreement shall be governed by the laws of
-------------
the United States to the extent applicable and otherwise by the laws of the
State of Maine, excluding the choice of law rules thereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the day and year first above written.
Attest: FIRST COASTAL CORPORATION
/s/ Patricia J. Briand By /s/ Normand E. Simard
- ---------------------- ----------------------
(Secretary) Chairman
Attest: COASTAL SAVINGS BANK
/s/ Patricia J. Briand By /s/ Normand E. Simard
- ---------------------- ---------------------
(Secretary) Chairman
EMPLOYEE
/s/ Gregory T. Caswell
----------------------
Gregory T. Caswell
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,386
<INT-BEARING-DEPOSITS> 19,896
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,750
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 104,178
<ALLOWANCE> 2,752
<TOTAL-ASSETS> 178,189
<DEPOSITS> 145,460
<SHORT-TERM> 710
<LIABILITIES-OTHER> 224
<LONG-TERM> 15,536
0
0
<COMMON> 1,361
<OTHER-SE> 14,898
<TOTAL-LIABILITIES-AND-EQUITY> 178,189
<INTEREST-LOAN> 7,441
<INTEREST-INVEST> 1,403
<INTEREST-OTHER> 656
<INTEREST-TOTAL> 9,500
<INTEREST-DEPOSIT> 3,817
<INTEREST-EXPENSE> 4,673
<INTEREST-INCOME-NET> 4,827
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 104
<EXPENSE-OTHER> 4,154
<INCOME-PRETAX> 1,855
<INCOME-PRE-EXTRAORDINARY> 1,855
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,198
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 9.35
<LOANS-NON> 256
<LOANS-PAST> 111
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 592
<ALLOWANCE-OPEN> 2,665
<CHARGE-OFFS> 40
<RECOVERIES> 127
<ALLOWANCE-CLOSE> 2,752
<ALLOWANCE-DOMESTIC> 2,752
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
