<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 June 30, 1999
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 August 12, 1999: 1,360,027 shares
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
---------------------
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as of June
30, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
for the three and six months ended June 30, 1999
and 1998 4
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998 6
Consolidated Statements of Comprehensive Income
(Unaudited) for the three and six months ended
June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements
(Unaudited), June 30, 1999 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 21
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 24
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (Unaudited)
First Coastal Corporation and Subsidiary June 30, December 31,
--------------- ---------------
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 5,159 $ 4,509
Interest earning deposits 2,971 28,118
--------------- ---------------
Cash and cash equivalents 8,130 32,627
Investment securities:
Available for sale (at market value, amortized cost: 1999 $54,890;
1998 $47,037) 54,060 47,048
Federal Home Loan Bank stock (at cost) 1,315 1,315
Loans held for sale 364 83
Loans 113,500 105,873
Less: Deferred loan fees, net (86) (97)
Allowance for loan losses (2,811) (2,735)
--------------- ---------------
110,603 103,041
Premises and equipment 2,432 2,554
Accrued income receivable 1,225 1,132
Real estate owned and repossessions 10 15
Deferred tax asset 2,820 3,354
Other assets 293 244
--------------- ---------------
TOTAL ASSETS $ 181,252 $ 191,413
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $138,071 $148,545
Advances from Federal Home Loan Bank 21,152 22,545
Savings Bank Notes 2,400 2,600
Secured borrowings 2,134 967
Accrued expenses and other liabilities 210 442
--------------- ---------------
TOTAL LIABILITIES 163,967 175,099
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 June 30, 1999 and December 31, 1998 - 1,360,527 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (15,279) (16,805)
Accumulated other comprehensive income (548) 7
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 17,285 16,314
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,252 $ 191,413
=============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
First Coastal Corporation and Subsidiary Three Months Ended June 30,
-----------------------------
(in thousands, except share and per share amounts) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 2,455 $ 2,514
Interest and dividends on investment securities 891 414
Other interest income 156 221
------------- --------------
Total Interest and Dividend Income 3,502 3,149
Interest Expense
Deposits 1,307 1,260
Borrowings
Advances from Federal Home Loan Bank 291 190
Savings Bank Notes 75 87
Secured borrowings 18 10
------------- --------------
Total Interest Expense 1,691 1,547
------------- --------------
Net Interest Income Before Provision for Loan Losses 1,811 1,602
Provision for loan losses - -
------------- --------------
Net Interest Income After Provision for Loan Losses 1,811 1,602
Noninterest Income
Services charges on deposit accounts 121 124
Gain on investment securities transactions 41 36
Gain on sales of mortgage loans 50 10
Gain on sale of branch 1,110 -
Other 25 38
------------- --------------
1,347 208
Operating Expenses
Salaries and employee benefits 703 640
Occupancy 145 128
Net cost of operations of real estate owned and repossessions 3 5
Other 648 586
------------- --------------
1,499 1,359
------------- --------------
Income Before Income Taxes 1,659 451
Income Taxes 588 159
------------- --------------
NET INCOME $ 1,071 $ 292
============= ==============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,360,527 1,359,633
Net income per share $ 0.79 $ 0.21
============= ==============
Diluted earnings per share:
Weighted average shares outstanding 1,374,426 1,380,177
Net income per share $ 0.78 $ 0.21
============= ==============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
---------------------------------------
(in thousands, except share and per share amounts) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 4,795 $ 4,991
Interest and dividends on investment securities 1,664 808
Other interest income 381 328
------------- -------------
Total Interest and Dividend Income 6,840 6,127
Interest Expense
Deposits 2,701 2,339
Borrowings
Advances from Federal Home Loan Bank 590 403
Savings Bank Notes 149 170
Secured borrowings 32 10
------------- -------------
Total Interest Expense 3,472 2,922
------------- -------------
Net Interest Income Before Provision for Loan Losses 3,368 3,205
Provision for loan losses - -
------------- -------------
Net Interest Income After Provision for Loan Losses 3,368 3,205
Noninterest Income
Services charges on deposit accounts 235 240
Gain on investment securities transactions 22 36
Gain on sales of mortgage loans 517 16
Gain on sale of branch 1,110 -
Other 45 60
------------- -------------
1,929 352
Operating Expenses
Salaries and employee benefits 1,383 1,277
Occupancy 309 259
Net cost of operations of real estate owned and repossessions 4 2
Other 1,255 1,123
------------- -------------
2,951 2,661
------------- -------------
Income Before Income Taxes 2,346 896
Income Taxes 820 319
------------- -------------
NET INCOME $ 1,526 $ 577
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,360,527 1,359,415
Net income per share $ 1.12 $ 0.42
============= =============
Diluted earnings per share:
Weighted average shares outstanding 1,374,641 1,380,689
Net income per share $ 1.11 $ 0.42
============= ================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
------------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 1,526 $ 577
Adjustments to reconcile net income to net cash provided by operating activities
Writedowns of REO 5 -
Gain on sales of REO - (5)
Depreciation and amortization 219 194
Amortization of investment securities premiums 90 54
Realized investment securities gains (22) (36)
Realized gains on assets held for sale (517) (16)
Loans originated and acquired for sale (2,963) (6,040)
Sales of loans originated and acquired for sale 2,682 6,966
Decrease (increase) in interest receivable (93) 36
Increase (decrease) in interest payable 12 (17)
Net change in other assets 1,276 294
Net change in other liabilities (232) (124)
-------------- --------------
Net cash provided by operating activities 1,983 1,883
-------------- --------------
Investing Activities
Sales and maturities of securities available for sale 9,490 2,835
Maturities of securities held to maturity - 6,000
Purchases of investment securities available for sale (17,411) (15,008)
Purchases of investment securities held to maturity - (3,193)
Net change in loans (7,562) 131
Net purchases of premises and equipment (97) (389)
------------- --------------
Net cash used by investing activities (15,580) (9,624)
------------- --------------
Financing Activities
Net change in deposits (10,474) 24,011
Proceeds from borrowings - 4,000
Payments on borrowings (1,593) (4,569)
Net change in secured borrowings 1,167 1,454
Proceeds from issuance of common stock options 0 7
------------- --------------
Net cash (used) provided by financing activities (10,900) 24,903
------------- --------------
Increase (decrease) in cash and cash equivalents (24,497) 17,162
Cash and cash equivalents at beginning of period 32,627 7,554
------------- --------------
Cash and cash equivalents (interest and noninterest bearing) at end of period $ 8,130 $ 24,716
============= ==============
Noncash Investing Activities
Change in unrealized holding gains and losses on investment securities available
for sale $ (841) $ (20)
Transfer of loans to real estate owned and repossessions - 121
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
First Coastal Corporation and Subsidiary Three Months Ended June 30,
-----------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 1,071 $ 292
Other comprehensive income:
Unrealized holding gains (losses) arising during the period (net of income
taxes: 1999 - $(214); 1998 - $(9) ) (416) (16)
Reclassification adjustment for realized (gains) losses included in net income
(net of income taxes: 1999 - $(13); 1998 - $(12)) (28) (24)
------------- -------------
(444) (40)
------------- -------------
Comprehensive income $ 627 $ 252
============= =============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
----------------------------------------
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 1,526 $ 577
Other comprehensive income:
Unrealized holding gains (losses) arising during the period (net of income
taxes: 1999 - $(278); 1998 - $(10)) (540) (20)
Reclassification adjustment for realized (gains) losses included in net income
(net of income taxes: 1999 - $(7); 1998 - $(12) ) (15) (24)
------------- ------------
(555) (44)
------------- ------------
Comprehensive income $ 971 $ 533
============= ============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1999
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 six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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, 1998 and
other documents filed by the Company with the Securities and Exchange
Commission.
Certain Events
On May 14, 1999, the Bank sold its branch located in Kennebunk, Maine and
recognized a pretax gain of $1.1 million. Under the terms of the purchase and
assumption agreement, the purchaser acquired all of the branch's deposits and
certain branch assets, as well as assuming responsibility for the Bank's lease
obligations.
On August 4, 1999, the Company entered into the First Amendment to Loan
Agreement (the "First Amendment to Loan Agreement") amending the terms of the
Loan Agreement, dated as of July 24, 1996 (the "Loan Agreement"), between the
Company and a group of four Maine savings banks (the "Four Savings Banks").
Pursuant to the Loan Agreement, the Company borrowed a total of $4.0 million
evidenced by promissory notes (the "Savings Bank Notes") in the amount of $1.0
million to each of the Four Savings Banks. Prior to the effective date of such
modification to the Loan Agreement, the Savings Bank Notes bore interest,
payable quarterly, at an annual rate of 10.85%, with semi-annual principal
payments of $200,000 beginning in June 1998. The original maturity date was
December 31, 2001. Pursuant to the First Amendment to Loan Agreement and the
amended Savings Bank Notes (the "Amended Savings Bank Notes"), the term loan
(current balance $2.4 million) bears interest at an annual rate of 8.0% until
August 4, 2002, at which time the interest rate will convert to the Prime Rate
as published in The Wall Street Journal (the "WSJ"), adjustable daily, until the
new maturity date of August 4, 2004. In addition, the Company is entitled to
draw against a working capital line of credit up to a combined aggregate limit,
including the balance outstanding at any time of the term loan, of $4.0 million.
The interest rate on the line of credit is equal to the Prime Rate as published
in the WSJ, adjusted daily and the maturity date is August 4, 2004.
In addition to reducing the interest rate, extending the maturity date, and
providing the Company with a line of credit, the First Amendment to Loan
Agreement modified or eliminated certain covenants and conditions contained in
the Loan Agreement, including among other things: (i) limitations on borrowing
by the Company and the Bank; (ii) prohibitions on transfers of assets of the
Company or any subsidiary; (iii) prohibition of capital expenditures over
$500,000 in any fiscal year; and (iv) certain provisions providing that it was a
default by the Company not to make certain reports or payments within specified
time frames, which provisions have been generally liberalized as to time or
amount. In addition, the First Amendment to Loan Agreement modified the
prohibition on the payment of cash dividends by the Company contained in the
Loan Agreement when the Company's debt-to-equity ration on a parent only-basis
exceeds 30% to increase the permissible ratio threshold to 50%.
8
<PAGE>
In connection with the Amended Savings Bank Notes, one of the Four Savings Banks
notes was purchased by one of the remaining three lenders. There is no
prepayment penalty associated with the Amended Savings Bank Notes. Other terms
and conditions, including the pledge of all of the Company's stock in the Bank
as collateral, were affirmed and remain in effect.
Stock Repurchase Program
On May 18, 1999, the Company announced that its Board of Directors authorized a
stock repurchase program whereby the Company intends to repurchase up to 68,026
shares of its common stock, representing approximately 5% of the 1,360,527
shares then outstanding. The common stock may be purchased by the Company from
time to time in the open market or privately negotiated transactions. The shares
repurchased will be held as treasury stock to be used for general corporate
purposes. The stock repurchase program will be in effect for a total of
approximately twelve months or until June 2000. Under the program, no shares
knowingly will be purchased from officers or directors of the Company or from
persons who hold in excess of 5% of its outstanding common stock.
Computation of Earnings per Share
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 128, Earnings Per Share, provides reporting standards for
basic and diluted earnings per share. 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 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. The
table below sets forth the approximate number of shares used to calculate basic
and diluted earnings per share ("EPS") for the three and six months ended June
30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding for basic EPS 1,360,527 1,359,633 1,360,527 1,359,415
Effect of dilutive stock options 13,899 20,544 14,114 21,274
----------- ------------- ------------ ------------
Weighted average shares outstanding for diluted
EPS 1,374,426 1,380,177 1,374,641 1,380,689
=========== ============= ============ ============
</TABLE>
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 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 seven
offices in the counties of Cumberland, Sagadahoc and York. The Bank's deposits
are insured by the Federal Deposit Insurance Corporation up to the limits
provided by law.
9
<PAGE>
This Quarterly Report on Form 10-Q, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology, such as "believes," "expects," "may," "will,"
"should," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking
statements. Although the Company has made such statements based on assumptions
which it believes to be reasonable, there can be no assurance that the actual
transactions, results, performance or achievements will not differ materially
from the Company's expectations. For example, there are a number of important
factors with respect to such forward-looking statements that could materially
and adversely affect such forward-looking statements, such as (i) the impact of
changes in market rates of interest, economic conditions, or competitive factors
on the Company's deposit products and loan demand; (ii) the possibility that
certain transactions, such as the identification, development and successful
transition to a suitable new headquarters/operations center, the opening of new
branches, the introduction of new banking products or other planned or
contemplated events, may not occur; (iii) the possibility that operating
expenses may be higher than anticipated; (iv) the effect of changes in the
general economic and competitive conditions in markets in which the Company
operates; (v) the Company's ability to continue to control its provision for
loan losses, noninterest expense, and to maintain its margin; and (vi) the level
of demand for new and existing products. Should one or more of these risks or
other 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. Investors are also directed to other information related to
the Company in documents filed by the Company with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Overview
The Company reported net income of $1.1 million and $1.5 million for the three
and six months ended June 30, 1999, compared to net income of $292,000 and
$577,000 for the same periods in 1998. The increase in net income for the three
months ended June 30, 1999 as compared to the same period in 1998 is primarily
attributable to an after tax gain of $733,000 received on the sale of the Bank's
branch located in Kennebunk, Maine. The increase in net income for the six
months ended June 30, 1999 as compared to the same period in 1998 is
attributable to the branch sale and the after tax gain of $300,000 on the sale
of the Bank's mortgage servicing asset in the first quarter of 1999.
Net Interest Income
Net interest income increased by $209,000 and $163,000 for the three and six
months ended June 30, 1999 as compared to the same periods in 1998. Increases in
net interest income for the three and six months ended June 30, 1999 are
primarily attributable to increased securities and cash balances and higher
yields received on the Bank's portfolio of Treasury Inflationary Indexed
securities ("TIPs"). These increases were offset in part by declines in loan
interest income as a result of lower loan yields, and increases in borrowing and
deposit expenses resulting from higher balances, primarily as a result of the
Bank's High Rise Savings program implemented in late March 1998. For more
information see below under the caption "Interest Income" and "Interest
Expense."
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
10
<PAGE>
income recognition and income reversals related to interest earning assets which
become noninterest earning assets.
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 Six Months Ended June 30,
-----------------------------------------------------------------------------------
1999 1998
--------------------------------------- -----------------------------------------
Average Average
Balance Interest Yield /(1)/ Balance Interest Yield /(1)/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 15,731 $ 381 4.81% $ 11,891 $ 328 5.48%
Investments 53,100 1,664 6.32% 24,933 808 6.54
Loans /(2)/ /(3)/
Residential real estate mortgages 32,830 1,309 7.98 36,685 1,579 8.61
Commercial real estate mortgages 57,258 2,589 9.12 50,214 2,440 9.80
Commercial and industrial loans 6,531 293 9.04 5,605 273 9.82
Consumer loans 13,330 604 9.14 14,726 699 9.58
------------- --------- ---------- ---------
Total loans 109,949 4,795 8.80 107,230 4,991 9.39
Total interest earnings assets 178,780 6,840 7.72 144,054 6,127 8.58
Noninterest earning assets 9,509 10,297
------------- ----------
Total assets $188,289 $154,351
Liabilities: ============= ==========
Deposits
Savings $ 64,513 $1,193 3.73% $ 41,750 $ 674 3.25%
NOW and money market accounts 19,251 221 2.31 17,626 201 2.30
Certificates of deposit 50,991 1,287 5.09 54,875 1,464 5.38
------------- -------- ---------- ---------
Total interest bearing deposits 134,755 2,701 4.04 114,215 2,339 4.13
Borrowings 25,733 771 6.08 17,273 583 6.81
------------- -------- ---------- ---------
Total interest bearing liabilities 160,488 3,472 4.36% 131,524 2,922 4.48%
Noninterest bearing deposits 9,311 7,154
Noninterest bearing liabilities 381 110
Stockholders' equity 18,109 15,563
------------- -----------
Total liabilities and stockholders'
equity $188,289 $154,351
============= ===========
Net interest income $ 3,368 $3,205
Net interest rate spread /(4)/ ======== 3.36% ========= 4.10%
Net interest rate margin /(5)/ 3.80% 4.49%
</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 interest earning assets.
11
<PAGE>
The Company's net interest rate spread for the six months ended June 30, 1999
decreased to 3.35% as compared to 4.10% for the same period in 1998, and the net
interest rate margin for the six months ended June 30, 1999 decreased to 3.80%
as compared to 4.49% for the same period in 1998. However, for the three months
ended June 30, 1999, the Company's net interest rate spread and net interest
rate margin increased to 3.67% and 4.11%, as compared to 3.06% and 3.50% for the
three months ended March 31, 1999.
The following table sets forth, for the periods indicated, information regarding
the Company's ratios of net interest rate spread and net interest rate margin:
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/30/99 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
--------- --------- ---------- --------- --------- ----------
Net Interest Rate
Spread 3.67% 3.06% 3.40% 3.48% 3.91% 4.29%
Net Interest Rate
Margin 4.11% 3.50% 3.86% 3.89% 4.29% 4.70%
</TABLE>
Interest income increased $353,000 and $713,000 for the three and six months
ended June 30, 1999 as compared to the same periods in 1998. The increase for
the six months ended June 30, 1999 is primarily attributable to an increase in
average earning assets of $34.7 million, including increases in the average
balance on investment securities ($28.2 million), interest earning deposits
($3.8 million) and loan balances ($2.7 million). The increase in interest
earning assets was primarily the result of an increase in total deposit
balances, largely attributable to the introduction of the Bank's High Rise
Savings product in March 1998 and increases in Federal Home Loan Bank ("FHLB")
borrowings. Savings deposit average balances increased $22.8 million for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
This deposit growth was primarily invested in interest bearing deposits and
investment securities, increasing the Bank's concentration of these lower
yielding assets (as compared to loans), thereby lowering the overall yield on
earning assets. In addition, the average yield on total loans declined from
9.39% for the six months ended June 30, 1998 to 8.80% for the six months ended
June 30, 1999. Entering 1999 it was management's intent to reduce the percentage
of interest earning deposits comprising earning assets and to increase loans as
a percentage of earning assets. Some progress was made in this regard during the
six months ended June 30, 1999. Although average loan balances equaled $109.9
million for the six months ended June 30, 1999, ending loan balances equaled
$113.5 million at June 30, 1999, an increase of $7.6 million (7.2%) over ending
loan balances at December 31, 1998. The progress in increasing loan balances is
primarily attributable to approximately $17 million in new commercial loan
volume generated in the first half of 1999, primarily consisting of commercial
real estate loans.
Additionally, the Bank's yield on TIPs securities increased from 4.70% for the
three months ended March 31, 1999 to 8.45% for the three months ended June 30,
1999. This increase in yield is the result of increases in the consumer price
index ("CPI"), the inflation index used in calculating the actual yield over the
real rate of interest. The monthly yield on TIPs will vary with the monthly CPI
report published by the Department of Labor. TIPs balances were approximately
$15.9 million and $18 million at March 31, 1999 and June 30, 1999, respectively.
Competition for loan originations has been strong. As a result, the yield on new
loan originations has declined during the six months ended June 30, 1999 as
compared to the same period ended June 30, 1998. Competition or other factors
may cause this trend to continue.
Interest expense increased $144,000 and $550,000 for the three and six months
ended June 30, 1999 as compared to the same periods in 1998. The increase for
the six months ended June 30, 1999 is primarily the result of increased interest
expense on savings deposits of $519,000 (attributable to a $22.8 million
increase
12
<PAGE>
in average balances and a 0.48% increase in yield). This increase was partially
offset by a $177,000 decline in interest expense paid on certificates of deposit
(attributable to a $3.9 million decline in average balances and a 0.29% decline
in yield). Borrowing expense increased $188,000, primarily the result of an
increase in average balances of $8.5 million, offset by a 0.73% reduction in
yield. The Company's cost of funds for the six months ended June 30, 1999 was
4.36% as compared to 4.48% for the same period in 1998. The Company's cost of
funds is expected to be positively impacted as a result of the First Amendment
to Loan Agreement which, among other things, reduced the interest rate under the
Loan Agreement from 10.85% to 8.00%, fixed for three years (then variable for
the next two years). For further information, see above, under the caption
"Certain Events."
On March 23, 1998, the Company introduced a new savings deposit product called
High Rise Savings. The introductory interest rate paid on this product was
tiered and offered a promotional rate guaranteed through December 31, 1998 for
accounts opened during the initial introductory period, which ended July 3, 1998
(following the initial introductory period, the product's interest rates were
reduced). The Company generated significant new deposit balances as a result of
this promotion. In addition, a portion of the Bank's existing deposit customers
converted their pre-existing accounts to High Rise Savings accounts, generally
at higher rates. High Rise balances at June 30, 1999 equaled $38.1 million.
Largely as a result of the introduction of the High Rise program, average
savings deposit balances increased from $34.9 million at March 31, 1998 to $62.5
million at June 30, 1999, and the average interest rate paid on savings deposits
increased from 2.73% to 3.73%. The interest rate paid on the introductory High
Rise Savings accounts was reduced in January, March and May of 1999, by 0.50%,
0.25% and 0.25%, respectively.
As competitive pressures continue, the cost of funds to financial institutions
may rise relative to market interest rates, thereby narrowing the spread on
interest earning assets as compared to interest bearing liabilities.
Provision for Loan Losses
There was no provision for loan losses expense for the six months ended June 30,
1999 and 1998. The absence of a provision for loan losses in 1999 and 1998 is
primarily attributable to the continuing reduction of nonperforming loans and
potential problem loans (as compared to historical levels), and from the results
of management's review of the portfolio and determination of the adequacy of the
allowance for loan losses (the "Allowance") at June 30, 1999. Despite the
absence of provision expense, the level of the Allowance modestly increased, as
charged-off loans of $6,000 and $31,000 for the six months ended June 30, 1999
and 1998, respectively, were offset by recoveries totaling $82,000 and $92,000,
for the same periods.
Noninterest Income
Noninterest income increased $1.1 and $1.6 million for the three and six months
ended June 30, 1999 as compared to the same periods in 1998. This increase is
attributable to a $1.1 million pre-tax gain on the sale of the Bank's branch
located in Kennebunk, Maine in the second quarter of 1999 and a $460,000 pre-tax
gain received on the sale of the Bank's residential mortgage servicing portfolio
in the first quarter of 1999. In conjunction with the sale of the Bank's
mortgage servicing portfolio, the Bank intends to sell saleable residential
mortgage loans on a servicing released basis and recognize the potential
servicing fee income at the time of sale rather than retain servicing and record
the income on servicing fees over the life of the loan.
Operating Expenses
Operating expense increased $140,000 and $290,000 for the three and six months
ended June 30, 1999 as compared to the same periods in 1998. The increase in
operating expenses was primarily the result of additional costs associated with
several business initiatives implemented by the Bank during the first and second
quarters of 1998. These initiatives include the opening of the Portland branch,
the development and
13
<PAGE>
implementation of an Internet banking program 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 was primarily attributable to changes in
staffing levels (including additional staff at the new Portland office) and
annual salary increases. Management anticipates operating expenses for 1999 and
2000 to further increase as a result of several additional business initiatives
that are currently either underway or contemplated, including (i) the Bank's
lease or purchase of a new headquarters branch/operations center, and related
furniture, fixtures, equipment and relocation expenses, (ii) the opening of
additional branches over the next several years in the Greater Portland market,
(iii) the introduction of a number of new retail banking products to expand the
Bank's retail product array, and (iv) the Bank's continued expansion of its
commercial lending activities.
FINANCIAL CONDITION
- -------------------
Total Assets
At June 30, 1999, total assets equaled $181.3 million, representing a decrease
of $10.1 million (or 5.3%) from total assets of $191.4 million at December 31,
1998. This decline was the results of a $24.4 million decline in cash and cash
equivalents, partially offset by increases in loan balances ($7.6 million) and
investment securities ($7.0 million). Deposits declined ($10.5) million, largely
as a result of the sale of the Bank's Kennebunk, Maine branch, which consisted
of $12.5 million in deposits at the time of the sale on May 14, 1999.
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 June 30, 1999 were $54.1 million compared to $47.0
million at December 31, 1998. This increase is attributable to the purchase of
$8.1 million in U.S. government obligations (of which $4.0 million are TIPs),
$2.0 million in U.S. government agency notes, $6.1 million in mortgage-backed
securities and $1.9 million in commercial notes, partially offset by the sale of
$3.9 million in U.S. government obligations, $1.0 million in government agency
notes, $2.0 million in commercial notes and $4.1 million in prepayments and
amortization on mortgage-backed securities and amortization of premiums or
discounts on investment 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.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at June 30, 1999.
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------------------
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 $19,726 - $354 $19,372
U.S. government agency 1,000 - 42 958
Mortgage backed securities 33,692 27 461 33,258
Equity securities 472 - - 472
------------ ----------- -------- ---------
$54,890 $27 $857 $54,060
============ =========== ======== =========
</TABLE>
14
<PAGE>
The tax effected net unrealized gain (loss) on investment securities classified
as available for sale was $(548,000) and $7,000, at June 30, 1999 and December
31, 1998, respectively.
The following table represents the contractual maturities for investments in
debt securities for each major security type at June 30, 1999.
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------------------
Maturing
-----------------------------------------------
After One
Within But within After
(in thousands) One Year Five Five Years Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $474 $2,053 $16,845 $19,372
U.S. government agency - - 958 958
Mortgage backed securities - - 33,258 33,258
----------- --------- ----------- ---------
$474 $2,053 $51,061 $53,588
=========== ========= =========== =========
</TABLE>
Loans Held for Sale
Loans held for sale equaled $364,000 at June 30, 1999 as compared to $83,000 at
December 31, 1998, an increase of $281,000. 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.
Loans
Loans consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------
(in thousands) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 30,534 $ 32,555
Commercial 61,621 52,747
Real estate construction 942 1,384
Commercial and industrial 7,406 5,872
Consumer and other 12,997 13,315
----------- -----------
Total $113,500 $105,873
=========== ===========
</TABLE>
Loans increased $7.6 million (or 7.2%) at June 30, 1999 as compared to December
31, 1998. The increase is attributable to a $8.9 million increase in commercial
real estate loans and $1.5 million in commercial and industrial loans, partially
offset by decreases in residential and consumer loans. The increase in
commercial loans is the result of the Company's strategic focus on developing a
strong commercial banking team and growth in commercial loan volume and loan
balances.
Allowance for Loan Losses ("Allowance")
The Company's Allowance was $2.8 million at June 30, 1999 and $2.7 million at
December 31, 1998. The Allowance represented 2.5% and 2.6% of total loans at
June 30, 1999 and December 31, 1998, respectively. Management believes that in
accordance with the Bank's Allowance for Loan Loss Policy, the Allowance is
15
<PAGE>
adequate at June 30, 1999. 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, problems that borrowers may experience with regard to Year
2000 computer related issues, 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.
Nonperforming Assets
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
June 30, December 31,
------------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 135 $ 430
Accruing loans past due 90 days or more 56 121
Restructured loans - -
Real estate owned and repossessions 10 15
------------------------
Total $ 201 $ 566
========================
</TABLE>
Nonperforming assets declined $365,000 at June 30, 1999 as compared to December
31, 1998. While the current level of nonperforming assets is low compared to
historical levels, the Bank continues to hold a large concentration of
commercial real estate loans. The collateral coverage for these loans, should
they become nonperforming, may not be adequate to protect the Bank from
potential losses. Deterioration in the local economy or real estate market, or
upward movements in interest rates could adversely impact the performance and/or
value of the underlying collateral for these loans and could have an adverse
impact on the Bank's loan portfolio, and in particular, currently performing
commercial real estate loans. In addition, deterioration in the local economy or
adverse changes in the financial condition of various borrowers could have an
impact on the Bank's entire loan portfolio (including commercial real estate).
These factors could result in an increased incidence of loan defaults and, as a
result, an increased level of nonperforming loans and assets. In addition, while
the downward trend in nonperforming assets is encouraging, the current level of
nonperforming assets is considered by management to be at such a low level that
it is not likely to be sustained.
Impaired Loans
Management identifies impaired loans on a loan by loan basis. Though the
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
all of the Company's impaired loans are collateral-dependent, which are measured
for impairment based on the fair value of the collateral. At June 30, 1999 and
December 31, 1998, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $135,000 and $439,000,
respectively. The corresponding portion of the Allowance allocated against the
total recorded investment in loans was $24,000 and $55,000 as of June 30, 1999
and December 31, 1998, respectively. All of the impaired loans were classified
as nonaccrual at June 30, 1999. At December 31, 1998, an amount equal to
$430,000 of the $439,000 total impaired loans was classified as nonaccrual or
troubled debt restructures and the remaining $9,000 was classified as potential
problem loans. The income recorded on a cash basis relating to impaired loans
equaled $3,000 and $22,000 at June 30, 1999 and December 31, 1998, respectively.
The average balance of outstanding impaired loans was $286,000 and $414,000 at
June 30, 1999 and December 31, 1998, respectively.
16
<PAGE>
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 June 30, 1999, REO totaled $10,000, consisting of a single
mobile home.
Liquidity - Bank
Deposits totaled $138.0 million at June 30, 1999, a decrease of $10.5 million
(or 7.1%) from the level of $148.6 million at December 31, 1998.
Deposit balances were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
------------------------
(in thousands) 1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 10,166 $ 10,447
Interest bearing demand deposits 18,303 21,680
Savings and escrow deposits 62,458 63,393
Time deposits 47,144 53,025
------------------------
Total $138,071 $148,545
========================
</TABLE>
The decline in deposit levels is attributable to the sale of the Bank's branch
located in Kennebunk Maine, with deposits totaling $12.5 million at the time of
the sale on May 14, 1999. This decrease was offset by an increase in savings
deposit balances.
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 Amended Savings Bank Notes in the
aggregate principal amount of $2.4 million, the Company's expenses consist
primarily of Delaware franchise taxes associated with the Company's authorized
capital stock, and various other expenses. Expenses, including legal, certain
audit and other professional fees, insurance and other expenses, are allocated
between the Bank and the Company based upon the relative benefits derived.
On May 18, 1999, the Company's Board of Directors authorized a stock repurchase
program whereby the Company intends to repurchase up to 68,026 shares of its
common stock, representing approximately 5% of the 1,360,527 shares then
outstanding. The stock repurchase program will be in effect for a total of
approximately twelve months or until June 2000.
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 only 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
17
<PAGE>
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, as amended pursuant to the First Amendment to Loan
Agreement, contains certain terms, restrictions and covenants, such as
restrictions regarding the conditions under which cash dividends may be paid by
the Company (including a prohibition on the payment of cash dividends to its
stockholders as long as the Company's debt-to-equity ratio on a parent-only
basis exceeds 50%), and a requirement that the Company and the Bank maintain
certain minimum capital ratios. At June 30, 1999, the Company's debt-to-equity
ratio and regulatory capital requirements would not have prohibited payment of a
dividend.
On December 22, 1998, September 23, 1998 and March 25, 1998, the Bank paid the
Company cash dividends of $680,000, $500,000 and $500,000, respectively. At June
30, 1999, the parent's cash and cash equivalents totaled $625,000.
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.
Capital - Bank
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands) June 30, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 16,393 $ 14,709
Actual % 8.95% 7.90%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $183,137 $ 186,077
Tier 1 capital to risk-weighted assets
Qualifying capital $ 16,393 $ 14,709
Actual % 16.67% 14.33%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 17,642 $ 16,010
Actual % 17.94% 15.60%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 98,331 $ 102,612
</TABLE>
/(1)/ Calculated on an average quarterly basis
18
<PAGE>
Capital - Company
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands) June 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 15,598 $ 13,453
Actual % 8.49% 7.20%
Minimum requirements for capital adequac % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 183,721 $ 186,757
Tier 1 capital to risk-weighted assets
Qualifying capital $ 15,598 $ 13,453
Actual % 15.83% 13.05%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 16,849 $ 14,759
Actual % 17.10% 14.32%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 98,539 $ 103,071
</TABLE>
/(1)/ Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
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,
beginning January 1, 2000. 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 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 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
19
<PAGE>
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 issue,
(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.
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 completed all activities related to the renovation phase of
mission critical applications. All non-mission critical applications are
anticipated to be completed by September 1999. A majority of the Company's
systems are supplied by third-party vendors and are being renovated by the
vendors. The Company has been provided with a Year 2000 ready release by its
primary data processing vendor. This release has already been installed and has
been 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 almost complete. Primary functional transaction types
such as deposits, withdrawals, payments, maturities, interest postings,
inquiries on deposit and loan accounts, and other typical business processes,
continue to be 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 has completed validation testing on all mission critical applications
and anticipates that all non-mission critical applications will be completed by
September 1999.
20
<PAGE>
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. Each 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. The implementation phase is
100% complete for all mission-critical applications and the Company expects to
have completed the implementation phase for all non-mission critical
applications by September of 1999.
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 $21,000 in external 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 $20,000 for both mission
critical and non-mission critical systems. These costs, which may vary from the
estimates, have been, and will continue to be, expensed as incurred.
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 has been completed 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
- -------------------------------------------------------------------
There were no material changes to the Company's market risk analysis during
the current quarter.
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As of June 30, 1999, 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
- -----------------------------------------------------------
(a) The 1999 Annual Meeting of Stockholders of the Company was held on May 18,
1999.
(b) Nominees Dennis D. Byrd and Roger E. Klein were elected for three-year terms
to expire in 2002. The continuing directors are Gregory T. Caswell,
MaryEllen FitzGerald, David B. Hawkes, Sr., Normand E. Simard, Edward K.
Simensky and Charles A. Stewart III.
(c) The results of the voting at the 1999 Annual Meeting of Stockholders
(pursuant to a record date of April 15, 1999) were as follows:
(i) Election of Directors: 1,059,509 shares were voted to elect nominees
Dennis D. Byrd and Roger E. Klein as directors of the Company for
three year terms and 162,144 shares were voted to withhold authority.
(ii) Amendment No. 1 to First Coastal Corporation 1996 Stock Option and
Equity Incentive Plan. For: 460,375; Against: 243,541; Abstain: 8,886.
(iii) Ratification of PricewaterhouseCoopers LLP as Independent Public
Accountants for the year ending December 31, 1999. For: 1,210,825;
Against: 6,552; Abstain: 4,275.
(d) 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 Amendment to Loan Agreement, dated as of August 4,
1999, among First Coastal Corporation and Androscoggin Savings Bank, Machias
Savings Bank and Norway Savings Bank (collectively, the "Lenders") and Machias
Savings Bank, as agent (filed herewith).
10.2 Acknowledgment and Agreement, dated as of August 4, 1999,
among First Coastal Corporation and the Lenders (filed herewith).
10.3 Note Modification Agreement (Machias Note #1), dated as of
August 4, 1999 for the benefit of Machias Savings Bank (filed herewith).
10.4 Note Modification Agreement (Machias Note #2), dated as of
August 4, 1999 for the benefit of Machias Savings Bank (filed herewith).
10.5 Note Modification Agreement (Androscoggin Note), dated as of
August 4, 1999 for the benefit of Androscoggin Savings Bank (filed herewith).
10.6 Note Modification Agreement (Norway Note), dated as of
August 4, 1999 for the benefit of Norway Savings Bank (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) The Company filed a Current Report on Form 8-K on June 1, 1999 announcing
that its Board of Directors authorized a stock repurchase program.
23
<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: August 13, 1999 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: August 13, 1999 By: /s/ Gregory T. Caswell
-------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ Dennis D. Byrd
-------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 First Amendment to Loan Agreement, dated as of August 4, 1999,
among First Coastal Corporation and Androscoggin Savings Bank,
Machias Savings Bank and Norway Savings Bank (collectively, the
"Lenders") and Machias Savings Bank, as agent (filed herewith).
10.2 Acknowledgment and Agreement, dated as of August 4, 1999, among
First Coastal Corporation and the Lenders (filed herewith).
10.3 Note Modification Agreement (Machias Note #1), dated as of August
4, 1999 for the benefit of Machias Savings Bank (filed herewith).
10.4 Note Modification Agreement (Machias Note #2), dated as of August
4, 1999 for the benefit of Machias Savings Bank (filed herewith).
10.5 Note Modification Agreement (Androscoggin Note), dated as of August
4, 1999 for the benefit of Androscoggin Savings Bank (filed
herewith).
10.6 Note Modification Agreement (Norway Note), dated as of August 4,
1999 for the benefit of Norway Savings Bank (filed herewith).
27 Financial Data Schedule (filed herewith).
<PAGE>
EXHIBIT 10.1
------------
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement ("Agreement") is entered into as of
this 4th day of August, 1999, by and among (i) First Coastal Corporation, a
Delaware corporation ("Borrower"), (ii) Androscoggin Savings Bank, a Maine
savings bank in stock form, Machias Savings Bank, a Maine savings bank in mutual
form, and Norway Savings Bank, a Maine savings bank in mutual form (collectively
these three banks are sometimes referred to as "Lenders") and (iii) Machias
Savings Bank, in its capacity as Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, except as set forth hereinafter, all of the terms and conditions
of the Loan Agreement shall remain in full force and effect and shall not be
modified hereby.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
do hereby mutually agree, intending to be legally bound, as follows:
1. Section 1.2 of the Loan Agreement is hereby amended to provide in its
entirety as follows:
Section 1.2. Purpose of Note Purchase. As of August 4, 1999, the date of
------------------------
this Amendment to the Loan Agreement, the Lenders and Borrower acknowledge
that the outstanding principal of the Notes is $2,400,000 (hereinafter the
"Term Portion" of the Notes). Commencing on the date hereof, Lenders shall
advance to Borrower, up to an aggregate amount at any given time equal to
the difference between $4,000,000 and the Term Portion of the Notes. The
amount advanced (hereinafter the "Credit Line Portion" of the Notes) shall
be used as a credit line for Borrower's working capital needs.
<PAGE>
2. Section 1.3 of the Loan Agreement is hereby amended to provide in its
entirety as follows:
Section 1.3 Term of Loan; Repayment of Principal.
------------------------------------
a. As of the date hereof, the parties acknowledge that the current
aggregate outstanding balance of the Notes is $2,400,000, which shall be
referred to herein as the "Term Portion" of the Notes, such that the Term
Portion of each Note is $600,000 as of the date hereof. The Term Portion of
each Note shall be payable in monthly installments over a term of five
years, commencing on the date hereof and ending on August 4, 2004.
b. The difference between $4,000,000 ($1,000,000 as to each Note) and the
then outstanding principal balance of the Term Portion of the Notes shall
be referred to as the "Credit Line Portion" of the Notes. The initial
Credit Line Portion of each Note shall be $400,000. All outstanding
advances under the Credit Line Portion of each Note shall be due and
payable in full on or before August 4, 2002.
c. August 4, 2004 as to the Term Portion of each Note and August 4, 2002 as
to the Credit Line Portion of each Note shall hereinafter collectively be
referred to as the "Maturity Date").
d. The Term Portion and Credit Line Portion of each Note shall be payable
in accordance with the terms and conditions of the Modification Agreements
attached hereto as EXHIBIT 1.3.
e. The final payment of the remaining principal balance of the Term Portion
of the Notes and of any outstanding balance of the Credit Line Portion of
the Notes on the respective Maturity Dates shall be accompanied by payment
of all accrued but unpaid interest with respect to the outstanding balances
as of such Maturity Dates.
3. Section 1.4 of the Loan Agreement is hereby amended to provide in its
entirety as follows:
Section 1.4. Prepayment. Borrower may prepay the Notes in whole or in
----------
part at any time at its option and without penalty upon not less than three
Business Days (as hereinafter defined) prior written notice to the Savings
Banks, specifying the date and the amount of prepayment, and upon the
payment of all accrued but unpaid interest on the amount prepaid to the
date of such prepayment, provided that each such optional principal
prepayment shall be in a minimum aggregate amount of $100,000, and shall be
applied to the Notes on a pro rata basis, in accordance with the principal
amount outstanding under each Note.
2
<PAGE>
4. Sections 1.5(a) and (b) of the Loan Agreement are hereby amended to
provide as follows:
Section 1.5. Interest. (a) The Term Portion of each of the Notes shall
--------
bear interest on the outstanding principal balance thereunder from the date
hereof until payment in full of the unpaid principal amount of the Term
Portion, at a fixed rate per annum equal to 8%, computed on the basis of a
year of 360 days, until August 4, 2002, at which time interest shall
convert to a variable rate equal to the Prime Rate as reported in the Money
Rates section of the Wall Street Journal, being the base rate on corporate
loans posted by at least 75% of the nation's 30 largest banks, adjusted
daily. Interest on the Credit Line Portion of the Notes shall accrue at a
variable rate equal to said Wall Street Journal Prime Rate, adjusted daily.
All Interest shall be payable monthly, in arrears, on the last day of each
calendar month commencing on August 4, 1999 and continuing on the last day
of each month thereafter and on the applicable Maturity Date.
(b) If the Borrower fails to pay any installment of principal and/or
interest on the date such installment payment is due (other than payment in
full of the principal balance of the Notes whether by acceleration or at
the applicable Maturity Date), and such failure continues for more than
five (5) Business Days, the Borrower shall pay a late charge equal to five
percent (5%) of the total amount of such delinquent installment payment.
Notwithstanding the foregoing, Borrower shall not be in payment default,
nor shall any late payment charge be imposed, by virtue of an underpayment
of principal and/or interest arising from a good faith error by Borrower in
the computation of principal and/or interest due under the Notes, which
underpayment is cured within five (5) Business Days after written notice
thereof by Agent to Borrower.
[section 1.5(c) of the Loan Agreement remains unchanged]
5. Section 5.4(a) of the Loan Agreement is hereby amended to provide as
follows:
Section 5.4. Financial Statements. (a) Borrower shall deliver or cause
--------------------
to be delivered to the Agent on behalf of the Savings Banks:
(i) Within 60 days after the end of each calendar quarter (except as
provided in (ii) below) on a consolidated basis for Borrower (A) a balance
sheet as at the end of such period and statements of operations and cash
flow, and such other quarterly statements as are customarily prepared by it
on a quarterly basis, (B) a report setting forth in reasonable detail loan
delinquencies, non-accrual loans and loan charge-offs; and (C) upon the
written request of the Agent and with reasonable notice, such other
quarterly financial statements and information as the Savings Banks may
reasonably deem necessary to provide current financial information;
(ii) As soon as reasonably available, but in no event more than 105 days
after the end of each fiscal year ending on or after December 31, 1995 and
until the Maturity Date, audited consolidated financial statements of the
Borrower for the fiscal year then ended.
3
<PAGE>
[sections 5.4(a)(iii) and (iv) remain unchanged]
6. Section 6.2 of the Loan Agreement is hereby amended to provide in its
entirety as follows:
Section 6.2. Stock and Dividends. Borrower shall not (i) apply any
-------------------
property or assets to the purchase, retirement or redemption of any shares
of its capital stock; or (ii) declare or pay cash dividends on any shares
of its capital stock or make any other distributions in respect of its
capital stock (other than dividends or distributions payable solely in
shares of its capital stock or distributions under its Shareholders Rights
Plan), if at the time of such action and after giving effect thereto:
(1) an Event of Default or an Incipient Default shall have occurred
and be continuing; or
(2) the Borrower's debt to equity ratio on a parent only basis is
greater than 50%.
7. Section 6.3 of the Loan Agreement entitled "Encumbrances and
Indebtedness" is hereby deleted.
8. Section 6.4 of the Loan Agreement entitled "Sales and Dispositions" is
hereby deleted.
9. Section 6.6 of the Loan Agreement entitled "Capital Expenditures" is
hereby deleted.
10. Section 7.1 of the Loan Agreement is hereby amended to provide as
follows:
Section 7.1. Events of Default. Each of the following events shall
-----------------
constitute an Event of Default hereunder if such event shall not be
remedied within the time period set forth below, unless Borrower receives
the prior written consent of Lenders holding at least three of the Notes,
which written consent may be given through the Agent:
(a) Borrower shall fail to pay any amount of principal, interest,
fees, or other payments due hereunder or under the Notes when such amount
is due and payable and such failure continues for more than fifteen (15)
Business Days;
(b) Borrower or any Borrower Subsidiary (i) shall fail to pay any
indebtedness aggregating $750,000 or more, when due, which is not waived
(whether such payment is due by scheduled maturity, by required prepayment,
by acceleration, by demand or otherwise); or (ii) shall fail to perform any
term, covenant or agreement on its part to be performed under any agreement
or instrument evidencing or securing or relating to any such indebtedness
or any guaranty when required to be performed, if the effect of such
failure is to accelerate, or to permit the holder or holders of such
indebtedness or the
4
<PAGE>
trustees under any such agreement or instrument to accelerate, the maturity
of such indebtedness or such obligation guaranteed by Borrower or any
Borrower Subsidiary;
[subsections (c), (d) and (e) remain unchanged]
(f) Borrower or any Borrower Subsidiary shall suffer the entry of
judgments against it for the payment of money in excess of $750,000 in the
aggregate at any one time by any court of record or shall suffer the
issuance of any writs of attachment on any of its assets having values in
the aggregate at any one time of greater than 750,000, and Borrower or such
Borrower Subsidiary shall not discharge the same or provide for their
discharge in accordance with their terms, or procure a stay of execution
thereon within thirty (30) days from the date of entry thereof, unless
execution thereon is effectively stayed pending further proceedings; or
[subsection (g) remains unchanged]
11. Section 7.2 of the Loan Agreement is hereby amended to provide as
follows:
Section 7.2 Acceleration. Upon the occurrence of any Event of Default the
------------
Agent shall, at the direction of Lenders holding at least three of the
Notes, by written notice to Borrower, declare the entire indebtedness of
Borrower then outstanding under the Notes immediately due and payable
without presentment, demand, protest, notice of protest or any other notice
of any kind, all of which are hereby expressly waived. Notwithstanding the
foregoing provisions of this Section, the entire indebtedness of Borrower
then outstanding under the Notes shall become immediately due and payable
without notice or election of any kind and without need for any action by
the Agent or Savings Banks if there shall occur an Event of Default under
Section 7.1(e) of this Agreement.
12. Each reference in the Loan Agreement to "Three Fourths of the Savings
Banks" is hereby amended to refer to "Lenders holding at least three of the
Notes."
13. The foregoing constitute all of the amendments to the Loan Agreement.
Except as set forth above, the terms, conditions and obligations of the Loan
Agreement: (a) remain unchanged; (b) are hereby ratified and affirmed in their
entirety; (c) continue in full force and effect; and (d) are legally valid,
binding, and enforceable in accordance with their terms.
14. The Borrower hereby acknowledges and affirms that it knows of no
defenses, set offs, or other claims against Lenders or Agent arising under or
out of the Loan Agreement, as amended.
15. This Agreement shall be binding upon the parties hereto as well as
their successors and assigns.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on the date first above written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E. Saufley By: /s/ Gregory T. Caswell
its President and CEO
MACHIAS SAVINGS BANK
/s/ Heather L. Vose By: /s/ Edward L. Hennessey, Jr.
its President
ANDROSCOGGIN SAVINGS BANK
/s/ Diane M. Flagg By: /s/ Steven A. Closson
its President
NORWAY SAVINGS BANK
/s/ Sandy Smith By: /s/ David L. Wyman
its EVP and Treasurer
6
<PAGE>
EXHIBIT 10.2
------------
ACKNOWLEDGMENT AND AGREEMENT
This Agreement ("Agreement") is entered into as of this 4th day of August, 1999,
by and among (i) First Coastal Corporation, a Delaware corporation ("Borrower"),
(ii) Androscoggin Savings Bank, a Maine savings bank in stock form, Machias
Savings Bank, a Maine savings bank in mutual form, and Norway Savings Bank, a
Maine savings bank in mutual form (collectively these three banks are sometimes
referred to as "Lenders") and (iii) Machias Savings Bank, in its capacity as
Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the Notes are secured by terms of a Stock Pledge Agreement
pursuant to which Borrower has granted to the Agent a security interest in all
of Borrower's right, title and interest in and to all of the issued and
outstanding shares of the common stock of Coastal Bank (formerly Coastal Savings
Bank); and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, Lenders have issued a Commitment Letter dated May 20, 1999 which
has been accepted by Borrower. Borrower has accordingly executed, of even date
herewith, a First Amendment to Loan Agreement, Note Modification Agreements and
other related documents in accordance with the terms of the Commitment Letter;
and
WHEREAS, the aforesaid Stock Pledge Agreement grants to Agent, as agent to
the Lenders, a first priority security interest in all of the issued and
outstanding shares of the common stock of Coastal Bank (formerly Coastal Savings
Bank) to secure all obligations of Borrower to Lenders including that evidenced
by the Notes. Lenders have requested that Borrower execute this Acknowledgment
Agreement to induce Lenders to issue the aforesaid Commitment Letter and to
enter into the modifications and to extend the credit facilities to Borrower as
evidenced by the First Amendment to Loan Agreement and the Note Modification
Agreements.
<PAGE>
NOW THEREFORE, for valid consideration, the receipt whereof is hereby
acknowledged, and to induce Lenders to extend the foregoing credit facilities to
Borrower, the parties hereto agree as follows:
1. Borrower hereby acknowledges, ratifies and confirms that it has
executed and delivered to Agent the Stock Pledge Agreement securing all
indebtedness of Borrower to Lenders. Borrower covenants, warrants and represents
that the Stock Pledge Agreement remains the duly authorized, valid, and binding
agreement of Borrower, and that it remains enforceable in accordance with its
terms. Without in any way limiting the foregoing, Borrower specifically
covenants and agrees that among the indebtedness secured thereby, is that
evidenced by the Notes as modified by the Note Modification Agreements of even
date in the sum of up to Four Million Dollars and No Cents ($4,000,000.00).
2. The terms, conditions, and obligations of the Stock Pledge Agreement:
(a) remain unchanged;
(b) are hereby ratified and affirmed in their entirety;
(c) continue in full force and effect and constitute a first
priority security interest and lien upon the Pledged Shares
as described in the Stock Pledge Agreement; and
(d) are legally valid, binding, and enforceable in accordance
with its terms.
3. Borrower hereby acknowledges and affirms that Borrower has, and knows
of, no defenses, set offs, or other claims against Lenders arising under or out
of the Loan Agreement dated July 24, 1996, as amended by the First Amendment to
Loan Agreement and the Note Modification Agreements or under the terms of the
Stock Pledge Agreement.
4. Borrower hereby warrants and represents to Lenders that the
representations and warranties made by Borrower in Article III of the Loan
Agreement are true and accurate as of the date hereof, except as otherwise
disclosed in writing to Agent.
5. This Agreement shall be binding upon the parties hereto as well as
their successors and assigns.
6. It is understood by and is the intention of the parties hereto that
any legal or equitable priorities of the Lenders over any party which were in
existence before the date of the execution of this Agreement shall remain in
effect after the date of the execution of this Agreement.
7. Borrower hereby agrees to execute and deliver any and all instruments,
documents and agreements reasonably required at any time by Lenders or Agent to
assure that Agent's security interest in the Pledged Shares remains a perfected
first priority security interest.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed in their respective corporate names by their respective corporate
officers hereunto duly authorized as and of the day and year first above
written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E. Saufley By: /s/ Gregory T. Caswell
its President and CEO
MACHIAS SAVINGS BANK
/s/ Heather L. Vose By: /s/ Edward L. Hennessey, Jr.
its President
ANDROSCOGGIN SAVINGS BANK
/s/ Diane M. Flagg By: /s/ Steven A. Closson
its President
NORWAY SAVINGS BANK
/s/ Sandy Smith By: /s/ David L. Wyman
its EVP and Treasurer
<PAGE>
EXHIBIT 10.3
------------
NOTE MODIFICATION AGREEMENT
(Machias Note #1)
This Note Modification Agreement ("Agreement") is entered into as of this 4th
day of August, 1999, by and between First Coastal Corporation, a Delaware
corporation ("Borrower") and Machias Savings Bank, a Maine savings bank in
mutual form ("Lender"), in accordance with a First Amendment to Loan Agreement
entered into as of the date hereof by and among (i) Lender, Androscoggin Savings
Bank, a Maine savings bank in stock form, and Norway Savings Bank, a Maine
savings bank in mutual form (Lender and the two savings banks are hereinafter
collectively referred to as "Lenders"), and (ii) Machias Savings Bank, in its
capacity as Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, Lender and Borrower have agreed to modify the terms and conditions
of the $1,000,000 Note held by Lender, a copy of which is attached hereto as
EXHIBIT A;
TERMS OF MODIFICATION
1. FOR MUTUAL CONSIDERATION, the receipt and adequacy of which is
acknowledged, the Borrower and the Lender hereby agree that the Note given by
Borrower to Lender on July 24, 1996, a copy of which is attached hereto as
EXHIBIT A, is hereby amended to provide in its entirety as follows:
MODIFIED PROMISSORY NOTE
(TERM AND LINE OF CREDIT)
$1,000,000.00 Dated: August 4, 1999
<PAGE>
FOR VALUE RECEIVED, the undersigned, First Coastal Corporation, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to Machias
Savings Bank, a Maine savings bank in mutual form ("Lender"), subject to
the terms and conditions of the Loan Agreement dated July 24, 1996, as
modified by the First Amendment to Loan Agreement of even date herewith,
among the Borrower, Machias Savings Bank as Agent (the "Agent"), and the
Lender and the other savings banks named therein (the "Loan Agreement"),
the principal amount of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00) or
so much thereof as may be advanced in accordance with the terms hereof,
payable on or before the Term Portion Maturity Date or the Credit Line
Portion Maturity Date as applicable (as defined below) together with
interest on the unpaid principal amount of this Note from the date hereof
at the rates set forth below, to and including the Term Portion Maturity
Date and the Credit Line Portion Maturity Date as applicable. Capitalized
terms used herein shall have the same meaning as set forth in the Loan
Agreement unless otherwise indicated.
The Term Portion of this Promissory Note is in the principal sum of
Six Hundred Thousand Dollars and No Cents ($600,000.00) (the "Term
Portion") and shall be repaid by Borrower in sixty (60) consecutive monthly
installments of principal and interest, the first thirty-six (36) of which
shall bear interest at the fixed rate of Eight Percent (8.00%) per annum,
with the first such payment in the sum of Twelve Thousand One Hundred
Sixty-Five Dollars and Eighty-four Cents ($12,165.84) to be made on
September 4, 1999, and with payments of like amount to be made on the 4th
day of each and every month thereafter, through and including August 4,
2002 (payments shall be applied first to costs incurred hereunder,
thereafter to interest accrued, and lastly to the repayment of principal)
to be followed by payment of the final twenty-four (24) consecutive monthly
installments of principal and interest (which shall include interest in
full to date of payment and payment on account of principal to the extent
each installment will permit after deduction of interest), each such
payment to be due and payable on the 26th day of each month commencing
September 4, 2002 and ending on the Term Portion Maturity Date, and each to
be in an amount to be set from time to time by the holder hereof in order
to amortize the then remaining principal balance of the Term Portion over
the final twenty-four (24) months of the term of repayment of the Term
Portion, with interest on the unpaid principal amount during said twenty-
four (24) month period computed at a rate equal to the rate of interest
published from time to time by the Wall Street Journal as the prime rate
for large commercial banking centers, which rate of interest shall vary as
said published rate varies effective immediately without notice to the
Borrower. The Borrower and all parties liable herefor agree to make monthly
payments in such amounts as the holder hereof may determine to be due and
owing from time to time during said twenty-four (24) month period. The
entire principal sum of the Term Portion, unless earlier demanded in
accordance with the terms hereof, shall be due and payable and shall be
fully paid on August 4, 2004 (the "Term Portion Maturity Date").
The Credit Line Portion of this Promissory Note shall be in an amount
equal to the difference between the outstanding principal balance of the
Term Portion of this Promissory Note at any time and One Million Dollars and
No Cents ($1,000,000.00) (the "Credit Line Portion," which as of the date
hereof is Four Hundred Thousand Dollars ($400,000.00)), and to the extent
that advances under the Credit Line Portion are made by Lender to or for the
benefit of Borrower, then Borrower shall repay the same together with
interest as set forth hereinafter on or before August 4, 2002, when all
principal and
2
<PAGE>
interest due and payable under the Credit Line Portion shall be paid in full
and when no further advances hereunder shall be made for such purpose.
Interest only shall be due and payable monthly in arrears on the unpaid
principal balance of the Credit Line Portion from time to time outstanding
at an interest rate per annum equal to the rate of interest published from
time to time by the Wall Street Journal as the prime rate for large
commercial banking centers and which rate of interest shall vary as said
published rate varies effective immediately without notice to the Borrower,
with the first such interest payment to be made on September 4, 1999, and
with payments of all interest accrued on the Credit Line Portion hereof on
like date of each and every month thereafter through and including August 4,
2002 (the "Credit Line Maturity Date") when all principal and interest under
the terms of the Credit Line Portion shall be fully paid.
Borrower may prepay this Note in whole or in part at any time at its
option upon not less than three (3) Business Days prior written notice,
specifying the date and the amount of prepayment, and upon the payment of
all accrued but unpaid interest on the amount prepaid to the date of such
prepayment, provided that each such optional principal prepayment shall be
in a minimum amount of Twenty Five Thousand Dollars and No Cents
($25,000.00).
If the entire amount of any required principal or interest payment is
not paid in full within five (5) days after the same is due, Borrower shall
pay to Lender on demand a late fee equal to Five Percent (5%) of the
required payment.
The obligation of the Borrower to the Lender hereunder is secured
pursuant to the terms of the Stock Pledge Agreement dated July 24, 1996,
made by the Borrower in favor of the Agent (the "Stock Pledge Agreement").
Upon the occurrence of an Event of Default (as defined in the Loan
Agreement), the Lender shall have all of the rights set forth in the Loan
Agreement, as amended, and the Stock Pledge Agreement; provided that
regardless of the existence of any applicable notice or cure period, upon
the occurrence of an Event of Default, Lender shall have no further
obligation to make advances to Borrower under the Credit Line Portion until
such time, if ever, that Lender shall determine to do so in its sole
discretion.
Whenever any payment of principal, interest or fees to be made
hereunder becomes due on a day other than a Business Day (as defined in the
Loan Agreement), such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the amount of interest then to be paid. All payments and
prepayments hereunder shall be made by wire transfer to the Lender's
account (as specified in the Loan Agreement) without offset or
counterclaim, in such money of the United States as at the time of payment
shall be legal tender for the payment of public and private debts and in
immediately available funds. Each payment shall be received by each Lender
no later than 2:00 p.m., Eastern Time (standard or daylight, as in effect)
and any payment received after such time shall be treated as received on
the next Business Day.
Presentment and demand for payment, notice of dishonor, protest and
notice of protest are hereby waived by the Borrower. The Borrower agrees to
pay all out-of-pocket expenses (including, but not limited to, reasonable
attorneys' fees) incurred by the holder hereof in connection with the
enforcement of this Note.
3
<PAGE>
This Note and the rights and obligations of the Lender and the
Borrower hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of Maine (but not including the
choice of law rules thereof).
Unless an Event of Default shall have occurred, this Note may not be
transferred or assigned by the Lender without the prior written consent of
the Borrower.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN.
2. The Borrower and the Lender do not intend for this Agreement to affect the
priority of the Stock Pledge Agreement given as security for the Note on July
24, 1996.
IN WITNESS WHEREOF, the parties have signed this Modification Agreement as a
sealed instrument, by their respective undersigned officers, duly authorized, as
of the date first above written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E. Saufley By: /s/ Gregory T. Caswell
Its President and CEO
Hereunto Duly Authorized
/s/ Heather L. Vose MACHIAS SAVINGS BANK
By: /s/Edward L. Hennessey, Jr.
Its President
Hereunto Duly Authorized
4
<PAGE>
EXHIBIT 10.4
------------
NOTE MODIFICATION AGREEMENT
(Machias Note #2)
This Note Modification Agreement ("Agreement") is entered into as of this 4th
day of August, 1999, by and between First Coastal Corporation, a Delaware
corporation ("Borrower") and Machias Savings Bank, a Maine savings bank in
mutual form ("Lender"), in accordance with a First Amendment to Loan Agreement
entered into as of the date hereof by and among (i) Lender, Androscoggin Savings
Bank, a Maine savings bank in stock form, and Norway Savings Bank, a Maine
savings bank in mutual form (Lender and the two savings banks are hereinafter
collectively referred to as "Lenders"), and (ii) Machias Savings Bank, in its
capacity as Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, Lender and Borrower have agreed to modify the terms and conditions
of the $1,000,000 Note held by Lender, a copy of which is attached hereto as
EXHIBIT A;
TERMS OF MODIFICATION
1. FOR MUTUAL CONSIDERATION, the receipt and adequacy of which is acknowledged,
the Borrower and the Lender hereby agree that the Note given by Borrower to
Lender on July 24, 1996, a copy of which is attached hereto as EXHIBIT A, is
hereby amended to provide in its entirety as follows:
MODIFIED PROMISSORY NOTE
(TERM AND LINE OF CREDIT)
$1,000,000.00 Dated: August 4, 1999
<PAGE>
FOR VALUE RECEIVED, the undersigned, First Coastal Corporation, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to Machias
Savings Bank, a Maine savings bank in mutual form ("Lender"), subject to
the terms and conditions of the Loan Agreement dated July 24, 1996, as
modified by the First Amendment to Loan Agreement of even date herewith,
among the Borrower, Machias Savings Bank as Agent (the "Agent"), and the
Lender and the other savings banks named therein (the "Loan Agreement"),
the principal amount of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00) or
so much thereof as may be advanced in accordance with the terms hereof,
payable on or before the Term Portion Maturity Date or the Credit Line
Portion Maturity Date as applicable (as defined below) together with
interest on the unpaid principal amount of this Note from the date hereof
at the rates set forth below, to and including the Term Portion Maturity
Date and the Credit Line Portion Maturity Date as applicable. Capitalized
terms used herein shall have the same meaning as set forth in the Loan
Agreement unless otherwise indicated.
The Term Portion of this Promissory Note is in the principal sum of
Six Hundred Thousand Dollars and No Cents ($600,000.00) (the "Term
Portion") and shall be repaid by Borrower in sixty (60) consecutive monthly
installments of principal and interest, the first thirty-six (36) of which
shall bear interest at the fixed rate of Eight Percent (8.00%) per annum,
with the first such payment in the sum of Twelve Thousand One Hundred
Sixty-Five Dollars and Eighty-four Cents ($12,165.84) to be made on
September 4, 1999, and with payments of like amount to be made on the 4th
day of each and every month thereafter, through and including August 4,
2002 (payments shall be applied first to costs incurred hereunder,
thereafter to interest accrued, and lastly to the repayment of principal)
to be followed by payment of the final twenty-four (24) consecutive monthly
installments of principal and interest (which shall include interest in
full to date of payment and payment on account of principal to the extent
each installment will permit after deduction of interest), each such
payment to be due and payable on the 26th day of each month commencing
September 4, 2002 and ending on the Term Portion Maturity Date, and each to
be in an amount to be set from time to time by the holder hereof in order
to amortize the then remaining principal balance of the Term Portion over
the final twenty-four (24) months of the term of repayment of the Term
Portion, with interest on the unpaid principal amount during said twenty-
four (24) month period computed at a rate equal to the rate of interest
published from time to time by the Wall Street Journal as the prime rate
for large commercial banking centers, which rate of interest shall vary as
said published rate varies effective immediately without notice to the
Borrower. The Borrower and all parties liable herefor agree to make monthly
payments in such amounts as the holder hereof may determine to be due and
owing from time to time during said twenty-four (24) month period. The
entire principal sum of the Term Portion, unless earlier demanded in
accordance with the terms hereof, shall be due and payable and shall be
fully paid on August 4, 2004 (the "Term Portion Maturity Date").
The Credit Line Portion of this Promissory Note shall be in an amount
equal to the difference between the outstanding principal balance of the
Term Portion of this Promissory Note at any time and One Million Dollars and
No Cents ($1,000,000.00) (the "Credit Line Portion," which as of the date
hereof is Four Hundred Thousand Dollars ($400,000.00)), and to the extent
that advances under the Credit Line Portion are made by Lender to or for the
benefit of Borrower, then Borrower shall repay the same together with
interest as set forth hereinafter on or before August 4, 2002, when all
principal and
2
<PAGE>
interest due and payable under the Credit Line Portion shall be paid in full
and when no further advances hereunder shall be made for such purpose.
Interest only shall be due and payable monthly in arrears on the unpaid
principal balance of the Credit Line Portion from time to time outstanding
at an interest rate per annum equal to the rate of interest published from
time to time by the Wall Street Journal as the prime rate for large
commercial banking centers and which rate of interest shall vary as said
published rate varies effective immediately without notice to the Borrower,
with the first such interest payment to be made on September 4, 1999, and
with payments of all interest accrued on the Credit Line Portion hereof on
like date of each and every month thereafter through and including August 4,
2002 (the "Credit Line Maturity Date") when all principal and interest under
the terms of the Credit Line Portion shall be fully paid.
Borrower may prepay this Note in whole or in part at any time at its
option upon not less than three (3) Business Days prior written notice,
specifying the date and the amount of prepayment, and upon the payment of
all accrued but unpaid interest on the amount prepaid to the date of such
prepayment, provided that each such optional principal prepayment shall be
in a minimum amount of Twenty Five Thousand Dollars and No Cents
($25,000.00).
If the entire amount of any required principal or interest payment is
not paid in full within five (5) days after the same is due, Borrower shall
pay to Lender on demand a late fee equal to Five Percent (5%) of the
required payment.
The obligation of the Borrower to the Lender hereunder is secured
pursuant to the terms of the Stock Pledge Agreement dated July 24, 1996,
made by the Borrower in favor of the Agent (the "Stock Pledge Agreement").
Upon the occurrence of an Event of Default (as defined in the Loan
Agreement), the Lender shall have all of the rights set forth in the Loan
Agreement, as amended, and the Stock Pledge Agreement; provided that
regardless of the existence of any applicable notice or cure period, upon
the occurrence of an Event of Default, Lender shall have no further
obligation to make advances to Borrower under the Credit Line Portion until
such time, if ever, that Lender shall determine to do so in its sole
discretion.
Whenever any payment of principal, interest or fees to be made
hereunder becomes due on a day other than a Business Day (as defined in the
Loan Agreement), such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the amount of interest then to be paid. All payments and
prepayments hereunder shall be made by wire transfer to the Lender's
account (as specified in the Loan Agreement) without offset or
counterclaim, in such money of the United States as at the time of payment
shall be legal tender for the payment of public and private debts and in
immediately available funds. Each payment shall be received by each Lender
no later than 2:00 p.m., Eastern Time (standard or daylight, as in effect)
and any payment received after such time shall be treated as received on
the next Business Day.
Presentment and demand for payment, notice of dishonor, protest and
notice of protest are hereby waived by the Borrower. The Borrower agrees to
pay all out-of-pocket expenses (including, but not limited to, reasonable
attorneys' fees) incurred by the holder hereof in connection with the
enforcement of this Note.
3
<PAGE>
This Note and the rights and obligations of the Lender and the
Borrower hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of Maine (but not including the
choice of law rules thereof).
Unless an Event of Default shall have occurred, this Note may not be
transferred or assigned by the Lender without the prior written consent of
the Borrower.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN.
2. The Borrower and the Lender do not intend for this Agreement to affect the
priority of the Stock Pledge Agreement given as security for the Note on July
24, 1996.
IN WITNESS WHEREOF, the parties have signed this Modification Agreement as a
sealed instrument, by their respective undersigned officers, duly authorized, as
of the date first above written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E. Saufley By: /s/ Gregory T. Caswell
Its President and CEO
Hereunto Duly Authorized
/s/ Heather L. Vose MACHIAS SAVINGS BANK
By: /s/ Edward L. Hennessey, Jr.
Its President
Hereunto Duly Authorized
4
<PAGE>
EXHIBIT 10.5
------------
NOTE MODIFICATION AGREEMENT
(Androscoggin Note)
This Note Modification Agreement ("Agreement") is entered into as of this 4th
day of August, 1999, by and between First Coastal Corporation, a Delaware
corporation ("Borrower") and Androscoggin Savings Bank, a Maine savings bank in
stock form ("Lender"), in accordance with a First Amendment to Loan Agreement
entered into as of the date hereof by and among (i) Lender, Machias Savings
Bank, a Maine savings bank in mutual form, and Norway Savings Bank, a Maine
savings bank in mutual form (Lender and the two savings banks are hereinafter
collectively referred to as "Lenders"), and (ii) Machias Savings Bank, in its
capacity as Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, Lender and Borrower have agreed to modify the terms and conditions
of the $1,000,000 Note held by Lender, a copy of which is attached hereto as
EXHIBIT A;
TERMS OF MODIFICATION
1. FOR MUTUAL CONSIDERATION, the receipt and adequacy of which is acknowledged,
the Borrower and the Lender hereby agree that the Note given by Borrower to
Lender on July 24, 1996, a copy of which is attached hereto as EXHIBIT A, is
hereby amended to provide in its entirety as follows:
MODIFIED PROMISSORY NOTE
(TERM AND LINE OF CREDIT)
$1,000,000.00 Dated: August 4, 1999
<PAGE>
FOR VALUE RECEIVED, the undersigned, First Coastal Corporation, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to
Androscoggin Savings Bank, a Maine savings bank in mutual form ("Lender"),
subject to the terms and conditions of the Loan Agreement dated July 24,
1996, as modified by the First Amendment to Loan Agreement of even date
herewith, among the Borrower, Machias Savings Bank as Agent (the "Agent"),
and the Lender and the other savings banks named therein (the "Loan
Agreement"), the principal amount of ONE MILLION DOLLARS AND NO CENTS
($1,000,000.00) or so much thereof as may be advanced in accordance with
the terms hereof, payable on or before the Term Portion Maturity Date or
the Credit Line Portion Maturity Date as applicable (as defined below)
together with interest on the unpaid principal amount of this Note from the
date hereof at the rates set forth below, to and including the Term Portion
Maturity Date and the Credit Line Portion Maturity Date as applicable.
Capitalized terms used herein shall have the same meaning as set forth in
the Loan Agreement unless otherwise indicated.
The Term Portion of this Promissory Note is in the principal sum of
Six Hundred Thousand Dollars and No Cents ($600,000.00) (the "Term
Portion") and shall be repaid by Borrower in sixty (60) consecutive monthly
installments of principal and interest, the first thirty-six (36) of which
shall bear interest at the fixed rate of Eight Percent (8.00%) per annum,
with the first such payment in the sum of Twelve Thousand One Hundred
Sixty-Five Dollars and Eighty-four Cents ($12,165.84) to be made on
September 4, 1999, and with payments of like amount to be made on the 4th
day of each and every month thereafter, through and including August 4,
2002 (payments shall be applied first to costs incurred hereunder,
thereafter to interest accrued, and lastly to the repayment of principal)
to be followed by payment of the final twenty-four (24) consecutive monthly
installments of principal and interest (which shall include interest in
full to date of payment and payment on account of principal to the extent
each installment will permit after deduction of interest), each such
payment to be due and payable on the 4th day of each month commencing
September 4, 2002 and ending on the Term Portion Maturity Date, and each to
be in an amount to be set from time to time by the holder hereof in order
to amortize the then remaining principal balance of the Term Portion over
the final twenty-four (24) months of the term of repayment of the Term
Portion, with interest on the unpaid principal amount during said twenty-
four (24) month period computed at a rate equal to the rate of interest
published from time to time by the Wall Street Journal as the prime rate
for large commercial banking centers, which rate of interest shall vary as
said published rate varies effective immediately without notice to the
Borrower. The Borrower and all parties liable herefor agree to make monthly
payments in such amounts as the holder hereof may determine to be due and
owing from time to time during said twenty-four (24) month period. The
entire principal sum of the Term Portion, unless earlier demanded in
accordance with the terms hereof, shall be due and payable and shall be
fully paid on August 4, 2004 (the "Term Portion Maturity Date").
The Credit Line Portion of this Promissory Note shall be in an amount
equal to the difference between the outstanding principal balance of the
Term Portion of this Promissory Note at any time and One Million Dollars and
No Cents ($1,000,000.00) (the "Credit Line Portion," which as of the date
hereof is Four Hundred Thousand Dollars ($400,000.00)), and to the extent
that advances under the Credit Line Portion are made by Lender to or for the
benefit of Borrower, then Borrower shall repay the same together with
interest as set forth hereinafter on or before August 4, 2002, when all
principal and
2
<PAGE>
interest due and payable under the Credit Line Portion shall be paid in full
and when no further advances hereunder shall be made for such purpose.
Interest only shall be due and payable monthly in arrears on the unpaid
principal balance of the Credit Line Portion from time to time outstanding
at an interest rate per annum equal to the rate of interest published from
time to time by the Wall Street Journal as the prime rate for large
commercial banking centers and which rate of interest shall vary as said
published rate varies effective immediately without notice to the Borrower,
with the first such interest payment to be made on September 4, 1999, and
with payments of all interest accrued on the Credit Line Portion hereof on
like date of each and every month thereafter through and including August 4,
2002 (the "Credit Line Maturity Date") when all principal and interest under
the terms of the Credit Line Portion shall be fully paid.
Borrower may prepay this Note in whole or in part at any time at its
option upon not less than three (3) Business Days prior written notice,
specifying the date and the amount of prepayment, and upon the payment of
all accrued but unpaid interest on the amount prepaid to the date of such
prepayment, provided that each such optional principal prepayment shall be
in a minimum amount of Twenty Five Thousand Dollars and No Cents
($25,000.00).
If the entire amount of any required principal or interest payment is
not paid in full within five (5) days after the same is due, Borrower shall
pay to Lender on demand a late fee equal to Five Percent (5%) of the
required payment.
The obligation of the Borrower to the Lender hereunder is secured
pursuant to the terms of the Stock Pledge Agreement dated July 24, 1996,
made by the Borrower in favor of the Agent (the "Stock Pledge Agreement").
Upon the occurrence of an Event of Default (as defined in the Loan
Agreement), the Lender shall have all of the rights set forth in the Loan
Agreement, as amended, and the Stock Pledge Agreement; provided that
regardless of the existence of any applicable notice or cure period, upon
the occurrence of an Event of Default, Lender shall have no further
obligation to make advances to Borrower under the Credit Line Portion until
such time, if ever, that Lender shall determine to do so in its sole
discretion.
Whenever any payment of principal, interest or fees to be made
hereunder becomes due on a day other than a Business Day (as defined in the
Loan Agreement), such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the amount of interest then to be paid. All payments and
prepayments hereunder shall be made by wire transfer to the Lender's account
(as specified in the Loan Agreement) without offset or counterclaim, in such
money of the United States as at the time of payment shall be legal tender
for the payment of public and private debts and in immediately available
funds. Each payment shall be received by each Lender no later than 2:00
p.m., Eastern Time (standard or daylight, as in effect) and any payment
received after such time shall be treated as received on the next Business
Day.
Presentment and demand for payment, notice of dishonor, protest and
notice of protest are hereby waived by the Borrower. The Borrower agrees to
pay all out-of-pocket expenses (including, but not limited to, reasonable
attorneys' fees) incurred by the holder hereof in connection with the
enforcement of this Note.
3
<PAGE>
This Note and the rights and obligations of the Lender and the
Borrower hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of Maine (but not including the choice
of law rules thereof).
Unless an Event of Default shall have occurred, this Note may not be
transferred or assigned by the Lender without the prior written consent of
the Borrower.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN.
2. The Borrower and the Lender do not intend for this Agreement to affect the
priority of the Stock Pledge Agreement given as security for the Note on July
24, 1996.
IN WITNESS WHEREOF, the parties have signed this Modification Agreement as a
sealed instrument, by their respective undersigned officers, duly authorized, as
of the date first above written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E.Saufley By: /s/ Gregory T. Caswell
Its President and CEO
Hereunto Duly Authorized
ANDROSCOGGIN SAVINGS BANK
/s/ Diane M. Flagg By: /s/ Steven A. Closson
Its President
Hereunto Duly Authorized
4
<PAGE>
EXHIBIT 10.6
------------
NOTE MODIFICATION AGREEMENT
(Norway Note)
This Note Modification Agreement ("Agreement") is entered into as of this 4th
day of August, 1999, by and between First Coastal Corporation, a Delaware
corporation ("Borrower") and Norway Savings Bank, a Maine savings bank in mutual
form ("Lender"), in accordance with a First Amendment to Loan Agreement entered
into as of the date hereof by and among (i) Lender, Machias Savings Bank, a
Maine savings bank in mutual form, and Androscoggin Savings Bank, a Maine
savings bank in stock form (Lender and the two savings banks are hereinafter
collectively referred to as "Lenders"), and (ii) Machias Savings Bank, in its
capacity as Agent for the Lenders (the "Agent").
WHEREAS, Borrower borrowed $1,000,000.00 from each of the Lenders and from
Bangor Savings Bank for an aggregate of $4,000,000.00 on July 24, 1996 pursuant
to the terms of a Loan Agreement among Borrower, the Lenders and Bangor Savings
Bank; and
WHEREAS, Borrower's $4,000,000.00 obligation is evidenced in part by four
promissory notes dated July 24, 1996, each in the original principal amount of
$1,000,000.00 (hereinafter collectively referred to as the "Notes" and
individually as a "Note"); and
WHEREAS, each of the Lenders have held and continue to hold one of the
Notes, and Bangor Savings Bank has as of the date hereof assigned its Note to
Machias Savings Bank, resulting in Machias Savings Bank holding two of the
Notes; and
WHEREAS, the parties have agreed to amend certain terms and conditions of
the Loan Agreement dated July 24, 1996 and to amend the Notes; and
WHEREAS, Lender and Borrower have agreed to modify the terms and conditions
of the $1,000,000 Note held by Lender, a copy of which is attached hereto as
EXHIBIT A;
TERMS OF MODIFICATION
1. FOR MUTUAL CONSIDERATION, the receipt and adequacy of which is acknowledged,
the Borrower and the Lender hereby agree that the Note given by Borrower to
Lender on July 24, 1996, a copy of which is attached hereto as EXHIBIT A, is
hereby amended to provide in its entirety as follows:
MODIFIED PROMISSORY NOTE
(TERM AND LINE OF CREDIT)
$1,000,000.00 Dated: August 4, 1999
<PAGE>
FOR VALUE RECEIVED, the undersigned, First Coastal Corporation, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to Norway
Savings Bank, a Maine savings bank in mutual form ("Lender"), subject to
the terms and conditions of the Loan Agreement dated July 24, 1996, as
modified by the First Amendment to Loan Agreement of even date herewith,
among the Borrower, Machias Savings Bank as Agent (the "Agent"), and the
Lender and the other savings banks named therein (the "Loan Agreement"),
the principal amount of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00) or
so much thereof as may be advanced in accordance with the terms hereof,
payable on or before the Term Portion Maturity Date or the Credit Line
Portion Maturity Date as applicable (as defined below) together with
interest on the unpaid principal amount of this Note from the date hereof
at the rates set forth below, to and including the Term Portion Maturity
Date and the Credit Line Portion Maturity Date as applicable. Capitalized
terms used herein shall have the same meaning as set forth in the Loan
Agreement unless otherwise indicated.
The Term Portion of this Promissory Note is in the principal sum of
Six Hundred Thousand Dollars and No Cents ($600,000.00) (the "Term
Portion") and shall be repaid by Borrower in sixty (60) consecutive monthly
installments of principal and interest, the first thirty-six (36) of which
shall bear interest at the fixed rate of Eight Percent (8.00%) per annum,
with the first such payment in the sum of Twelve Thousand One Hundred
Sixty-Five Dollars and Eighty-four Cents ($12,165.84) to be made on
September 4, 1999, and with payments of like amount to be made on the 4th
day of each and every month thereafter, through and including August 4,
2002 (payments shall be applied first to costs incurred hereunder,
thereafter to interest accrued, and lastly to the repayment of principal)
to be followed by payment of the final twenty-four (24) consecutive monthly
installments of principal and interest (which shall include interest in
full to date of payment and payment on account of principal to the extent
each installment will permit after deduction of interest), each such
payment to be due and payable on the 26th day of each month commencing
September 4, 2002 and ending on the Term Portion Maturity Date, and each to
be in an amount to be set from time to time by the holder hereof in order
to amortize the then remaining principal balance of the Term Portion over
the final twenty-four (24) months of the term of repayment of the Term
Portion, with interest on the unpaid principal amount during said twenty-
four (24) month period computed at a rate equal to the rate of interest
published from time to time by the Wall Street Journal as the prime rate
for large commercial banking centers, which rate of interest shall vary as
said published rate varies effective immediately without notice to the
Borrower. The Borrower and all parties liable herefor agree to make monthly
payments in such amounts as the holder hereof may determine to be due and
owing from time to time during said twenty-four (24) month period. The
entire principal sum of the Term Portion, unless earlier demanded in
accordance with the terms hereof, shall be due and payable and shall be
fully paid on August 4, 2004 (the "Term Portion Maturity Date").
The Credit Line Portion of this Promissory Note shall be in an amount
equal to the difference between the outstanding principal balance of the
Term Portion of this Promissory Note at any time and One Million Dollars and
No Cents ($1,000,000.00) (the "Credit Line Portion," which as of the date
hereof is Four Hundred Thousand Dollars ($400,000.00)), and to the extent
that advances under the Credit Line Portion are made by Lender to or for the
benefit of Borrower, then Borrower shall repay the same together with
interest as set forth hereinafter on or before August 4, 2002, when all
principal and
2
<PAGE>
interest due and payable under the Credit Line Portion shall be paid in full
and when no further advances hereunder shall be made for such purpose.
Interest only shall be due and payable monthly in arrears on the unpaid
principal balance of the Credit Line Portion from time to time outstanding
at an interest rate per annum equal to the rate of interest published from
time to time by the Wall Street Journal as the prime rate for large
commercial banking centers and which rate of interest shall vary as said
published rate varies effective immediately without notice to the Borrower,
with the first such interest payment to be made on September 4, 1999, and
with payments of all interest accrued on the Credit Line Portion hereof on
like date of each and every month thereafter through and including August 4,
2002 (the "Credit Line Maturity Date") when all principal and interest under
the terms of the Credit Line Portion shall be fully paid.
Borrower may prepay this Note in whole or in part at any time at its
option upon not less than three (3) Business Days prior written notice,
specifying the date and the amount of prepayment, and upon the payment of
all accrued but unpaid interest on the amount prepaid to the date of such
prepayment, provided that each such optional principal prepayment shall be
in a minimum amount of Twenty Five Thousand Dollars and No Cents
($25,000.00).
If the entire amount of any required principal or interest payment is
not paid in full within five (5) days after the same is due, Borrower shall
pay to Lender on demand a late fee equal to Five Percent (5%) of the
required payment.
The obligation of the Borrower to the Lender hereunder is secured
pursuant to the terms of the Stock Pledge Agreement dated July 24, 1996,
made by the Borrower in favor of the Agent (the "Stock Pledge Agreement").
Upon the occurrence of an Event of Default (as defined in the Loan
Agreement), the Lender shall have all of the rights set forth in the Loan
Agreement, as amended, and the Stock Pledge Agreement; provided that
regardless of the existence of any applicable notice or cure period, upon
the occurrence of an Event of Default, Lender shall have no further
obligation to make advances to Borrower under the Credit Line Portion until
such time, if ever, that Lender shall determine to do so in its sole
discretion.
Whenever any payment of principal, interest or fees to be made
hereunder becomes due on a day other than a Business Day (as defined in the
Loan Agreement), such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the amount of interest then to be paid. All payments and
prepayments hereunder shall be made by wire transfer to the Lender's account
(as specified in the Loan Agreement) without offset or counterclaim, in such
money of the United States as at the time of payment shall be legal tender
for the payment of public and private debts and in immediately available
funds. Each payment shall be received by each Lender no later than 2:00
p.m., Eastern Time (standard or daylight, as in effect) and any payment
received after such time shall be treated as received on the next Business
Day.
Presentment and demand for payment, notice of dishonor, protest and
notice of protest are hereby waived by the Borrower. The Borrower agrees to
pay all out-of-pocket expenses (including, but not limited to, reasonable
attorneys' fees) incurred by the holder hereof in connection with the
enforcement of this Note.
3
<PAGE>
This Note and the rights and obligations of the Lender and the
Borrower hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of Maine (but not including the choice
of law rules thereof).
Unless an Event of Default shall have occurred, this Note may not be
transferred or assigned by the Lender without the prior written consent of
the Borrower.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN.
2. The Borrower and the Lender do not intend for this Agreement to affect the
priority of the Stock Pledge Agreement given as security for the Note on July
24, 1996.
IN WITNESS WHEREOF, the parties have signed this Modification Agreement as a
sealed instrument, by their respective undersigned officers, duly authorized, as
of the date first above written.
WITNESS: FIRST COASTAL CORPORATION
/s/ William E. Saufley By: /s/ Gregory T. Caswell
Its President and CEO
Hereunto Duly Authorized
NORWAY SAVINGS BANK
/s/ Sandy Smith By: /s/ David L. Wyman
Its EVP and Treasurer
Hereunto Duly Authorized
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,159
<INT-BEARING-DEPOSITS> 2,971
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,375
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 113,414
<ALLOWANCE> 2,811
<TOTAL-ASSETS> 181,252
<DEPOSITS> 138,071
<SHORT-TERM> 2,134
<LIABILITIES-OTHER> 210
<LONG-TERM> 23,552
0
0
<COMMON> 1,361
<OTHER-SE> 15,924
<TOTAL-LIABILITIES-AND-EQUITY> 181,252
<INTEREST-LOAN> 4,795
<INTEREST-INVEST> 1,664
<INTEREST-OTHER> 381
<INTEREST-TOTAL> 6,840
<INTEREST-DEPOSIT> 2,701
<INTEREST-EXPENSE> 771
<INTEREST-INCOME-NET> 3,368
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 2,951
<INCOME-PRETAX> 2,346
<INCOME-PRE-EXTRAORDINARY> 820
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,526
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 7.72
<LOANS-NON> 132
<LOANS-PAST> 56
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 378
<ALLOWANCE-OPEN> 2,735
<CHARGE-OFFS> 6
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 2,811
<ALLOWANCE-DOMESTIC> 2,811
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
